Hagerty, Inc. Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. Hagerty, Inc. operates as a market leader in collector car insurance, membership services, and a marketplace for buying, selling, and financing enthusiast vehicles. The quarter marks a significant structural shift with the implementation of the Markel Fronting Arrangement, effective January 1, 2026. Under this arrangement, Hagerty Reinsurance Limited ("Hagerty Re") assumed 100% of the risk and premium for policies issued through Essentia Insurance Company, increasing its U.S. quota share from 80% to 100%. Consequently, the Company no longer recognizes commission revenue for Essentia-originated policies, reclassifying related costs and revenues to reflect direct risk assumption.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $311.8 million | $328.3 million |
| Net Income (Loss) | $(12.7) million | $27.3 million |
| Net Income Attributable to Class A | $(6.5) million | $6.5 million |
| Adjusted EBITDA | $85.2 million | $48.2 million |
| Cash and Cash Equivalents | $212.4 million | $127.7 million |
| Total Debt (Net) | $228.6 million | $177.9 million |
| Operating Cash Flow | $16.3 million | $43.8 million |
Material Changes vs. Prior Period
- Revenue Composition: Total revenue decreased 5.0% year-over-year. This was driven by an 83.6% decline in Commission and fee revenue ($16.4M vs. $100.3M) due to the cessation of commission recognition for Essentia policies under the new fronting arrangement. This was partially offset by a 41.5% increase in Earned premium, net ($239.6M vs. $169.4M) as Hagerty Re now retains 100% of the premium.
- Profitability: The Company reported a net loss of $12.7 million compared to net income of $27.3 million in the prior year. The Insurance segment reported a pre-tax loss of $20.4 million, primarily due to the recognition of non-cash costs to amortize remaining deferred ceding commissions from 2025 policies and the loss of commission revenue. The Marketplace segment reported a pre-tax income of $0.8 million, down from $1.5 million, due to lower inventory sales (excluding a one-time sale in 2025) despite an 81% increase in auction sales volume.
- Expense Reclassification: Significant operating costs previously classified as Selling, General, and Administrative (SG&A) expenses were reclassified into Underwriting and other insurance expenses ($59.6M vs. $1.4M) and Policy acquisition costs ($101.9M vs. $77.3M) to align with the new risk-taking model.
- Loss Experience: Losses and loss adjustment expenses increased 37.7% to $97.9 million, reflecting the 100% quota share assumption. However, the Hagerty Re loss ratio improved to 38.4% from 42.0% due to favorable development in prior accident years.
Guidance, Outlook, and Risks
- Outlook: Management expects the Markel Fronting Arrangement to result in increased long-term profitability and operational efficiencies. The amortization of deferred ceding commissions related to 2025 policies is expected to decline from $89.0 million in Q1 2026 to approximately $10.0 million in Q4 2026 as those policies run off.
- Liquidity: The Company maintains strong liquidity with $366.7 million in total cash and restricted cash. Financing activities provided $91.0 million in cash, largely driven by a $50.5 million inflow from a Loss Portfolio Transfer (LPT) agreement with Markel.
- Risks: Key risks include the ability to manage underwriting volatility and catastrophe losses under the new 100% risk assumption, compliance with regulatory capital requirements (Bermuda Solvency Capital Requirement), and the impact of macroeconomic conditions on the collector car market and investment portfolio. The Company also faces contingent liabilities under a Tax Receivable Agreement (TRA) with legacy unit holders.
Investor Verification Checklist
- Run-off of Transitional Costs: Verify the quarterly decline in the amortization of deferred ceding commissions ($89M in Q1) to assess the timeline for normalized GAAP profitability.
- Loss Ratio Sustainability: Monitor the Hagerty Re loss ratio (38.4%) to ensure favorable development continues as the 100% risk assumption matures.
- Marketplace Volume vs. Profitability: Confirm that the 81% increase in auction sales volume translates to sustainable income before taxes, given the reduction in one-time inventory sales.
- Debt Covenants: Review compliance with financial covenants under the JPM Credit Facility and BAC Credit Facility, particularly given the increase in total debt to $228.6 million.
- TRA Liability: Track the Tax Receivable Agreement liability ($38.3M) and future payment obligations based on taxable income generation.