Hagerty, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K ("Annual Report") and our Condensed Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Please refer to the section in this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements".

Overview

We are a market leader in providing insurance for collector cars and enthusiast vehicles. Through our insurance model, we act as a Managing General Agent ("MGA") by underwriting, selling, and servicing collector car and enthusiast vehicle insurance policies. Due to our consistent track record of delivering strong underwriting results, we currently reinsure approximately 80% of the risks written by our MGA subsidiaries through our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re").

We also offer Hagerty Drivers Club ("HDC") memberships, which are primarily bundled with our insurance policies and give subscribers access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts. In addition, we offer a marketplace to complement our insurance and membership offerings where automotive enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles.

Through these offerings, our vision is to be the world's most trusted and preferred brand for automotive enthusiasts to protect, buy, sell, and enjoy their special cars.

Recent Developments

Markel Proposed Fronting Arrangement

On July 24, 2025, we announced our entry into a non-binding letter of intent with respect to a proposed fronting arrangement (the "Proposed Fronting Arrangement") with Markel Group Inc. (together with its subsidiaries, "Markel"). The Proposed Fronting Arrangement is expected to be signed in the fourth quarter of 2025 and become effective on January 1, 2026. Markel is the ultimate parent company of Essentia Insurance Company ("Essentia"), which serves as the dedicated carrier for the specialty collector vehicle insurance policies sold by our U.S. MGA subsidiaries.

Under the Proposed Fronting Arrangement: (i) we would continue to issue policies through Essentia, but our underwriting authority (including pricing decisions, rate filing, insurance rating, and risk selections) and claims authority would be expanded to the maximum levels permitted by applicable law; (ii) we would increase our administrative responsibilities for the policies issued through Essentia; (iii) Hagerty Re would control 100% of the premium and assume 100% of the risk for policies written through Essentia; and (iv) Hagerty Re would initially pay a 2% fronting fee to Markel for administrative support, which would incrementally decrease based on the volume of policies issued by Essentia in each calendar year. We expect these changes to result in increased profitability and additional control allowing for enhanced operational efficiencies.

The Proposed Fronting Arrangement remains subject to the negotiation and execution of definitive documentation and the receipt of all required regulatory approvals, and there can be no assurance that the Proposed Fronting Arrangement will be completed on the terms described herein or at all.

Enthusiast+ Product

Through our wholly owned insurance carrier subsidiary, Drivers Edge Insurance Company ("Drivers Edge"), we recently launched Enthusiast+, a new insurance product tailored for modern enthusiast vehicles that are typically driven more frequently and stored more flexibly than traditional collector cars. This product is designed to broaden our addressable market by offering coverage to a wider range of vehicles and customer profiles.

Enthusiast+ policies are expected to command higher premiums and, given the distinct risk characteristics of the targeted vehicles and customer segments, are anticipated to have higher loss ratios relative to our traditional insurance offerings. The product features differentiated pricing and advanced coverage options, representing a strategic evolution in our risk profile and business model. We expect that Enthusiast+ policies will generate attractive returns for us, widen our funnel of insurable vehicles and aid in our growth.

The initial launch of Enthusiast+ took place in Colorado in the third quarter of 2025. We plan to implement a phased, nationwide rollout over the next four years. We believe that Enthusiast+ will enable us to better meet the needs of modern vehicle enthusiasts and contribute to the long-term growth and diversification of our insurance portfolio.

Business Review

We are reviewing certain components of our operations, which in 2023 and 2024 resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social, DriveShare, and Motorsport Reg ("MSR"). This initiative supports our strategy to prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential. As a result of this review, in 2023, we recognized approximately $4.0 million of losses and impairments related to actions taken with respect to Hagerty Garage + Social and DriveShare. We may incur additional losses and/or impairment charges in future periods as a result of actions which we may take related to this review.

Financial Highlights

For the three months ended September 30, 2025, we reported Net income of $46.2 million, representing a $27.2 million, or 142.9%, increase compared to the prior year, and Adjusted EBITDA of $49.7 million, representing a $25.5 million, or 105.7%, increase compared to the prior year. These improvements are primarily attributable to 16.1% growth in Written Premium, which drove an 18.0% increase in Commission and fee revenue and a 12.9% increase in Earned premium, net. The comparison to the prior year is also favorably impacted by a lower level of losses and loss adjustment expenses as prior year results included $24.7 million of estimated pre-tax losses related to Hurricane Helene. In addition, current year results reflect significantly higher levels of Broad Arrow inventory sales and private sale commissions.

For the nine months ended September 30, 2025, we reported Net income of $120.7 million, representing a $50.8 million, or 72.7%, increase compared to the prior year, and Adjusted EBITDA of $153.1 million, representing a $48.5 million, or 46.3%, increase compared to the prior year. These improvements are primarily attributable to 13.0% growth in Written Premium, which drove a 14.0% increase in Commission and fee revenue and a 12.5% increase in Earned premium, net. The comparison to the prior year is also favorably impacted by a lower level of losses and loss adjustment expenses as prior year results included $24.7 million of estimated pre-tax losses related to Hurricane Helene. In addition, current year results reflect significantly higher levels of Broad Arrow inventory sales and private sale commissions, as well as the results from Broad Arrow's inaugural auction at Concorso d’Eleganza Villa d’Este.

Adjusted EBITDA is a non-GAAP financial measure. Please see the section titled "Non-GAAP Financial Measures" below for a description of non-GAAP financial measures and a reconciliation to the most comparable GAAP measure.

Key Performance Indicators

The tables below present a summary of our Key Performance Indicators, which include important operational metrics, as well as certain financial measures prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and non-GAAP financial measures. We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections, and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating our performance when read together with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

N/M = Not meaningful

N/M = Not meaningful

N/M = Not meaningful

(1) Total Written Premium is the total amount of insurance premium written by our MGA subsidiaries on behalf of our insurance carrier partners during the period. Total Written Premium reflects the direct economic benefit of our policy acquisition efforts and is closely correlated with the growth of insurance commission revenue generated by our MGA subsidiaries and earned premium generated by Hagerty Re.

(2) Hagerty Re Loss Ratio is the ratio of (i) Hagerty Re's losses and loss adjustment expenses to (ii) its earned premium. Hagerty Re Loss Ratio allows us to evaluate our historical loss patterns and make necessary and appropriate adjustments. Refer to "Losses and Loss Adjustment Expenses" below within "Components of Our Results of Operations" for additional information regarding our quarterly estimate of losses and loss adjustment expenses.

(3) Hagerty Re Combined Ratio is the ratio of (i) Hagerty Re's losses, loss adjustment expenses, and underwriting expenses to (ii) its earned premium. Hagerty Re's underwriting expenses primarily include ceding commissions and, to a lesser extent, certain administrative expenses. Hagerty Re Combined Ratio provides a benchmark to evaluate underwriting profitability. A combined ratio under 100% indicates underwriting income while a combined ratio exceeding 100% indicates an underwriting loss.

(4) New Business Count represents the number of new insurance policies issued by our MGA subsidiaries during the period. New Business Count is an important metric to assess our financial performance because policy growth is critical to our success. While we benefit from strong policy retention through renewals, new policies more than offset those cancelled or non-renewed at expiration. New policies also often mean new relationships and an opportunity to sell additional products and services.

(5) Refer to "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP measure.

(6) Policies in Force ("PIF") represents the number of current and active insurance policies as of the end of the period. PIF is an important metric to assess our financial performance because policy growth drives revenue growth, increases brand awareness and market penetration, generates additional insight to improve the performance of our platform, and provides key data to assist us in strategic decision making.

(7) PIF Retention represents the percentage of expiring insurance policies that are renewed on the renewal effective date, calculated on a rolling twelve months basis. PIF Retention is an important measurement of the number of policies retained each year, which contributes to our recurring revenue streams including commissions earned by our MGA subsidiaries, HDC membership fees, and earned premium generated by Hagerty Re.

(8) Vehicles in Force represents the number of current insured vehicles as of the end of the period. Vehicles in Force is an important metric to assess our financial performance because insured vehicle growth drives revenue growth and increases market penetration.

(9) HDC Paid Member Count represents the number of current Members who pay an annual membership subscription as of the end of the period. HDC Paid Member Count is an important metric because it helps us measure membership revenue growth and provides an opportunity to customize our value proposition and benefits to specific types of enthusiasts, both by demographic and vehicle interest.

(10) Net Promoter Score ("NPS") is an important measure of the overall strength of our relationship with insurance policyholders and paid HDC subscribers (collectively referred to as "Members"). NPS is measured twice annually through a web-based survey sent by email invitation to a random sample of existing Members, which currently excludes customers in our marketplace business, and is reported annually using an average of the two surveys. Often referred to as a barometer of brand loyalty and engagement, NPS is well-known in our industry as a strong indicator of growth and retention.

Components of Our Results of Operations

Revenue

Commission and fee revenue

We generate commission and fee revenue through our MGA subsidiaries, primarily from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies. Commission and fee revenue is earned when the policy becomes effective, net of allowances for policy changes and cancellations.

Under the terms of our contracts with certain insurance carrier partners, we have the opportunity to earn a contingent underwriting commission based on the results of the book of business, including the level of written or earned premium and loss ratio. Contingent underwriting commissions ("CUC") are recognized in the period that the policy is issued based on our estimate of the amount that we will become entitled to receive during the calendar year such that a significant reversal of revenue is not probable.

Earned premium, net

Earned premium, net represents the earned portion of written premiums that Hagerty Re has assumed under quota share reinsurance agreements with our insurance carrier partners, net of premiums ceded to various reinsurers and the cost of catastrophe reinsurance coverage. Premiums assumed and ceded are recognized on a pro-rata basis over the term of the reinsured policies, which is generally 12 months. The cost of catastrophe reinsurance coverage is recognized over the contract period in proportion to the related earned premium.

Membership, marketplace and other revenue

We earn subscription revenue through HDC memberships, which are primarily bundled with our insurance policies and give subscribers access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts.

Revenue from the sale of HDC memberships is recognized ratably over the period of the membership. The membership is treated as a single performance obligation to provide access to stated Member benefits over the life of the membership, which is currently one year.

Our marketplace business earns fee-based revenue primarily from the sale of collector cars and enthusiast vehicles through live auctions, time-based digital auctions, and brokered private sales. Through our marketplace business, we also earn revenue from the sale of collector cars and enthusiast vehicles that we have opportunistically acquired for resale. In addition, we earn finance revenue from loans made to qualified collectors and businesses secured by their collector cars.

Fee-based marketplace revenue is recognized when the underlying sale is completed, which is generally upon the matching of a seller and buyer in a legally binding auction or private sale transaction. Revenue from the sale of acquired collector cars and enthusiast vehicles is recognized at the point in time when title and control of the vehicle is transferred to the buyer, which is generally upon collection of the full purchase price. Finance revenue is recognized over time as earned based on the amount of the outstanding loan, the applicable interest rate on the loan, and the length of time the loan was outstanding during the period.

Operating Expenses

Salaries and benefits

Salaries and benefits consist primarily of costs related to employee compensation, payroll taxes, employee benefits, and employee development costs. Employee compensation includes wages, as well as various forms of incentive compensation, including share-based compensation. Employee benefits primarily include the cost of our retirement, medical, dental, wellness, and severance plans. Costs related to employee education, training, and recruiting are considered employee development costs. Salaries and benefits are expensed as incurred except for costs that are required to be capitalized, which are amortized over the useful life of the asset created, such as internally developed software and software-as-a-service ("SaaS") implementation costs. Salaries and benefits are expected to increase in dollar amount over time as the business continues to grow but will likely decrease as a percent of revenue.

Ceding commissions, net

Ceding commissions, net represents the commissions paid by Hagerty Re to insurance carrier partners for the risk assumed under the quota share agreements with those carriers. These commissions represent Hagerty Re's pro-rata share of the carrier's costs including (i) policy acquisition costs, which consists of the commissions earned by our MGA subsidiaries, (ii) general and administrative costs, and (iii) other costs. Ceding commissions are recorded net of commissions received by Hagerty Re related to ceded reinsurance premiums. Ceding commissions, net is recognized ratably over the term of the related reinsurance policies, which is generally 12 months.

Losses and loss adjustment expenses

Losses and loss adjustment expenses represent our best estimate of the losses and associated settlement costs related to the risks assumed by Hagerty Re. Losses consist of claims paid, case reserves, and incurred but not reported costs, which are recorded net of estimated recoveries from reinsurance, salvage and subrogation. Loss adjustment expenses consist of the cost associated with processing and settling claims.

We record an estimate of quarterly losses and loss adjustment expenses in the Condensed Consolidated Statements of Operations using an annual loss ratio, which is based on statistical analysis performed by our internal and external actuarial teams and considers several factors, including projected levels of catastrophe events. Management believes this approach provides a more consistent view of loss experience over the year given the seasonality of Hagerty Re's business. The annual loss ratio is reviewed throughout the year and adjusted, as necessary.

Sales expense

Sales expense includes costs related to the sale and servicing of insurance policies, as well as costs related to our membership and marketplace offerings, such as broker expense, cost of sales, promotion expense, and travel and entertainment expenses. Broker expense is the compensation paid to our agent partners and national broker partners when an insurance policy is written by our MGA subsidiaries through a broker relationship. Broker expense generally trends with written premium growth. Cost of sales includes payment processing fees, emergency roadside service costs, postage and other variable costs associated with the sale and servicing of a policy. Cost of sales also includes the cost of acquired vehicles sold through our marketplace business, and sales commissions related to our marketplace business, as well as interest expense and borrowing costs associated with the Broad Arrow Capital LLC ("BAC") credit facility ("BAC Credit Facility"). Promotion expense includes various costs related to branding, events, advertising, marketing, and customer acquisition. Sales expenses, in general, are expensed as incurred and will trend with revenue growth.

General and administrative expenses

General and administrative expenses primarily consists of expenses related to non-capitalized hardware and software, professional services, and occupancy costs. These costs are expensed as incurred. We expect this expense category to modestly increase in dollar amount over time as the business continues to grow but will likely decrease as a percentage of revenue over the next few years after we reach scale to handle incoming business from new partnerships.

Depreciation and amortization

Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives. Depreciation expense relates to computer hardware, furniture and equipment, and leasehold improvements. Amortization relates to internally developed software, SaaS implementation costs, and finite-lived intangible assets associated with acquisitions. Depreciation and amortization are expected to increase in dollar amount over time but will likely decrease as a percent of revenue as investments in platform technology reach scale.

Other Items

Loss related to warrant liabilities, net

In July 2024, we completed an exchange offer under which holders of our warrants were issued 3,876,201 shares of Class A Common Stock in exchange for 19,483,539 warrants, with a nominal cash settlement paid in lieu of fractional shares (the "Warrant Exchange"). No warrants remained outstanding following the completion of the Warrant Exchange.

Prior to the Warrant Exchange, our warrants were accounted for as liabilities and were measured at fair value each reporting period, with changes in fair value recognized as non-operating income (expense) in our Condensed Consolidated Statements of Operations. In general, under the fair value accounting model, in periods when our stock price increased, the warrant liability increased, and we recognized additional expense. In periods when our stock price decreased, the warrant liability decreased, and we recognized additional income.

Interest and other income (expense), net

Interest and other income (expense), net primarily includes interest income related to cash balances and fixed maturity securities, realized gains or losses from the sale of fixed maturity securities, and realized and unrealized gains and losses related to equity securities. Additionally, Interest and other income (expense), net includes interest expense related to outstanding borrowings, primarily related to our current and prior revolving credit facilities with JPMorgan Chase Bank, N.A. ("JPM"), as well as the State Farm Term Loan (as defined in Note 15 — Debt in Item 1 of Part I of this Quarterly Report). Lastly, Interest and other income (expense), net also includes expense related to changes in the value of the liability related to our Tax Receivable Agreement ("TRA") (the "TRA Liability") with Hagerty Holding Corp. ("HHC") and Markel (together the "Legacy Unit Holders"). Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information related to the TRA.

Income tax (expense) benefit

The Hagerty Group, LLC ("THG") is taxed as a pass-through ownership structure under provisions of the Internal Revenue Code ("IRC") and a similar section of state income tax law. As such, any taxable income or loss generated by THG is passed through to and included in the taxable income or loss of THG unit holders, including Hagerty, Inc.

Hagerty, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes with respect to income allocated from THG. Hagerty, Inc., Hagerty Insurance Holdings, Inc., Broad Arrow Group, Inc. ("Broad Arrow"), Hagerty Radwood, Inc., and various foreign subsidiaries are treated as taxable entities and income taxes are provided where applicable. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.

Results of Operations

Three Months Ended September 30, 2025 compared to the Three Months Ended September 30, 2024

The following table summarizes our results of operations for the three months ended September 30, 2025 and 2024, and the dollar and percentage changes between the two periods:

N/M = Not meaningful

Revenue

Commission and fee revenue

Commission and fee revenue was $137.1 million for the three months ended September 30, 2025, an increase of $20.9 million, or 18.0%, compared to 2024. This increase was driven by both policy renewals and new policies, which contributed $15.3 million and $5.6 million, respectively, to the year-over-year improvement.

The increase in revenue from policy renewals was primarily driven by a 14.6% increase in underlying policy premiums, as well as continued strong policy retention. The increase in renewal policy premiums is the result of rate increases in several states due to inflation and higher vehicle repair costs, both of which drive higher premiums and, in turn, higher commission revenue. The increase in revenue from new policies was driven by a 47.9% increase in new policies written when compared to the prior year period, principally resulting from business generated by our master alliance agreement with State Farm Mutual Automobile Insurance Company ("State Farm"). Refer to Note 21 — Related-Party Transactions in Item 1 of Part I of this Quarterly Report for additional information with respect to our master alliance agreement with State Farm.

Commission and fee revenue from agent sources increased $12.3 million, or 19.3%, and Commission and fee revenue from direct sources increased $8.6 million, or 16.5%, during the three months ended September 30, 2025. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).

Earned premium, net

Earned premium, net was $187.0 million for the three months ended September 30, 2025, an increase of $21.4 million, or 12.9%, compared to 2024. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, which increased $33.3 million, or 12.9%, compared to the three months ended September 30, 2024.

The following tables present the amount of premiums assumed and earned, as well as the related quota share percentages for the three months ended September 30, 2025 and 2024:

(1) Effective January 1, 2024, we are no longer reinsuring classic auto risks produced by our United Kingdom ("U.K.") MGA affiliate, and the book is in run-off.

(2) Represents the portion of total written premium written by our MGA subsidiaries that is subject to reinsurance agreements with our insurance carrier partners.

(1) Effective January 1, 2024, we are no longer reinsuring classic auto risks produced by our U.K. MGA affiliate, and the book is in run-off.

(2) Represents the portion of total written premium written by our MGA subsidiaries that is subject to reinsurance agreements with our insurance carrier partners.

Membership, marketplace and other revenue

Membership, marketplace and other revenue was $55.9 million for the three months ended September 30, 2025, an increase of $14.3 million, or 34.5%, compared to 2024.

Membership fee revenue was $16.0 million for the three months ended September 30, 2025, an increase of $1.2 million, or 7.9%, compared to 2024, which was primarily attributable to a $1.0 million, or 7.6%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership. For the three months ended September 30, 2025 and 2024, membership fees were 28.6% and 35.6%, respectively, of the Membership, marketplace and other revenue total.

Marketplace revenue was $34.2 million for the three months ended September 30, 2025, an increase of $12.6 million, or 58.5%, compared to 2024. This improvement was principally due to significantly higher levels of inventory sales and private sale commissions. For the three months ended September 30, 2025 and 2024, Marketplace revenue was 61.2% and 51.9%, respectively, of the Membership, marketplace and other revenue total.

Other revenue, which includes sponsorship, admission, advertising, valuation, and sublease revenue, totaled $5.7 million for the three months ended September 30, 2025, an increase of $0.6 million, or 10.7%, compared to 2024. This increase was primarily attributable to higher admission and sponsorship revenue related to our Motorlux event at Monterey Car Week, as well as higher advertising revenue. For the three months ended September 30, 2025 and 2024, other revenue was 10.2% and 12.4%, respectively, of the Membership, marketplace and other revenue total.

Costs and Expenses

Salaries and benefits

Salaries and benefits were $68.1 million for the three months ended September 30, 2025, an increase of $20.9 million, or 44.3%, compared to 2024. This increase was primarily driven by higher accrued incentive compensation, reflecting stronger performance compared to the prior year, when losses related to Hurricane Helene significantly reduced accrued incentive compensation. To a lesser extent, Salaries and benefits increased as a result of increased headcount and merit increases year-over-year.

Ceding commissions, net

Ceding commissions, net was $87.4 million for the three months ended September 30, 2025, an increase of $9.9 million, or 12.8%, compared to 2024. This increase is primarily attributable to the 12.9% increase in Earned premium, net discussed above.

The following table summarizes the components of Ceding commissions, net for the three months ended September 30, 2025 and 2024:

Losses and loss adjustment expenses

Losses and loss adjustment expenses were $78.6 million for the three months ended September 30, 2025, a decrease of $20.8 million, or 20.9%, compared to 2024. This decrease was primarily driven by $24.7 million of estimated pre-tax losses incurred in 2024 related to Hurricane Helene, for which there were no comparable losses in the current year period. This factor was partially offset by increased losses due to the 12.9% increase in Earned premium, net discussed above.

For the three months ended September 30, 2025, our loss ratio was 42.0%, including the impact of catastrophe losses. For the three months ended September 30, 2024, our loss ratio was 60.0%, including the impact of catastrophe losses, primarily Hurricane Helene, which resulted in $24.7 million of estimated pre-tax losses.

Sales expense

Sales expense was $77.7 million for the three months ended September 30, 2025, an increase of $18.5 million, or 31.3%, compared to 2024. This increase was due, in part, to a $14.7 million increase in cost of sales, predominantly as a result of a higher level of marketplace inventory sales, as well as a $1.8 million increase in sales commissions, consistent with revenue growth within the marketplace business. In addition, broker expense increased $2.3 million, consistent with the written premium growth within the agent insurance distribution channel.

General and administrative expenses

General and administrative expenses were $24.4 million for the three months ended September 30, 2025, an increase of $3.6 million, or 17.3%, compared to 2024. This increase was primarily attributable to a $2.8 million increase in professional fees, driven by transaction costs associated with an exchange of THG units for Class A Common Stock (the "THG Unit Exchange") and related secondary offering consummated in the third quarter of 2025, as well as professional fees related to the Proposed Fronting Arrangement and Broad Arrow's global expansion. Lastly, costs related to software-related costs increased $1.4 million, primarily driven by costs related to our new insurance policy management system. Refer to Note 17 — Stockholders' Equity in Item 1 of Part I of this Quarterly Report for additional information related to the THG Unit Exchange and related secondary offering.

Depreciation and amortization

Depreciation and amortization expense was $9.4 million for the three months ended September 30, 2025, an increase of $0.2 million, or 2.5%, compared to 2024. This increase was primarily attributable to amortization of SaaS implementation costs related to our new insurance policy management system. This increase was offset by a smaller base of in-service fixed assets and finite-lived intangible assets as of September 30, 2025.

Other Items

Loss related to warrant liabilities, net

During the three months ended September 30, 2024, Loss related to warrant liabilities, net was $0.5 million. The $0.5 million loss in the prior year period consists of a $2.0 million loss related to the Warrant Exchange, partially offset by a $1.5 million gain resulting from the change in fair value of our then outstanding warrant liabilities. There were no warrants outstanding during the three months ended September 30, 2025 due to the Warrant Exchange transaction that was completed in July 2024. Refer to Note 6 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

Interest and other income (expense), net

The following table presents the components of Interest and other income (expense), net for the three months ended September 30, 2025 and 2024:

N/M = Not meaningful

Interest and other income (expense), net decreased $29.3 million during the three months ended September 30, 2025, compared to 2024, primarily due to expense related to the TRA Liability. In the third quarter of 2025, we determined it was appropriate to release a portion of the valuation allowance previously recorded against our federal and state deferred tax assets. In connection with this release, we remeasured our TRA Liability, resulting in an expense of $29.2 million, recorded within Interest and other income (expense), net, representing 85% of the expected tax benefit to be paid to the Legacy Unit Holders. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information.

Income tax (expense) benefit

We are the sole managing member of THG, and as a result, consolidate its financial results. THG is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, THG is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by THG is passed through and included in the taxable income or loss of its members, including Hagerty, Inc., on a pro rata basis. Hagerty, Inc. is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of THG, as well as any of its stand-alone income or loss. In addition, Hagerty Insurance Holdings, Inc., Broad Arrow, Hagerty Radwood, Inc. and various foreign subsidiaries are treated as taxable entities. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.

We have historically maintained a full valuation allowance on our deferred tax assets related to the difference between the outside tax basis and book basis of our investment in the assets of THG. The realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize these deferred tax assets. As of each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of our deferred tax assets. As of December 31, 2024, we concluded that it was more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of THG, would not be realized because we were in a three-year cumulative loss position and the generation of sufficient future taxable income to utilize these deferred tax assets was uncertain.

As of September 30, 2025, our continued assessment of the realizability of our deferred tax assets concluded that sufficient sources of future taxable income will be generated to realize a portion of the deferred tax assets related to the outside basis in our investment in THG and other tax attributes of the Hagerty, Inc. filing entity. In assessing the realizability of these deferred tax assets, we considered all sources of positive and negative evidence, including (i) that we had achieved cumulative three-year profitability during the quarter; (ii) that our forecasts indicated continued profitability; and (iii) other positive business factors. Based on this evaluation, we determined it was appropriate to release a portion of the valuation allowance previously recorded against our federal and state deferred tax assets. As a result, $38.1 million of the valuation allowance was released during the third quarter of 2025 and a corresponding income tax benefit was recognized within "Income tax (expense) benefit" on the Condensed Consolidated Statements of Operations.

For the three months ended September 30, 2025, we recorded an income tax benefit of $32.8 million, representing an increase of $31.8 million compared to 2024. This increase was primarily a result of the release of the valuation allowance discussed above.

Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information with respect to items affecting our effective tax rate.

Nine Months Ended September 30, 2025 compared to the Nine Months Ended September 30, 2024

The following table summarizes our results of operations for the nine months ended September 30, 2025 and 2024, and the dollar and percentage change between the two periods:

N/M = Not meaningful

Revenue

Commission and fee revenue

Commission and fee revenue was $380.7 million for the nine months ended September 30, 2025, an increase of $46.9 million, or 14.0%, compared to 2024. This increase was driven by policy renewals, which contributed $41.7 million to the year-over-year improvement, and to a lesser extent, new policies, which resulted in a $5.1 million increase in revenue.

The increase in revenue from policy renewals was primarily driven by a 15.0% increase in underlying policy premiums, as well as continued strong policy retention. The increase in renewal policy premiums is the result of rate increases in several states due to inflation and higher vehicle repair costs, both of which contribute to higher premiums and, in turn, higher commission revenue. The increase in revenue from new policies was primarily driven by a 14.1% increase in new policies written when compared to the prior year period, principally resulting from business generated by our master alliance agreement with State Farm. Refer to Note 21 — Related-Party Transactions in Item 1 of Part I of this Quarterly Report for additional information with respect to our master alliance agreement with State Farm.

Commission and fee revenue from agent sources increased $26.2 million, or 14.3%, and Commission and fee revenue from direct sources increased $20.7 million, or 13.7%, during the nine months ended September 30, 2025. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).

Earned premium, net

Earned premium, net was $534.2 million for the nine months ended September 30, 2025, an increase of $59.3 million, or 12.5%, compared to 2024. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, which increased $88.3 million, or 12.0%, compared to the nine months ended September 30, 2024.

The following tables present premiums assumed and earned by the Company, as well as the related quota share percentages for the nine months ended September 30, 2025 and 2024:

(1) Effective January 1, 2024, we are no longer reinsuring classic auto risks produced by our U.K. MGA affiliate, and the book is in run-off.

(2) Represents the portion of total written premium written by our MGA subsidiaries that is subject to reinsurance agreements with our insurance carrier partners.

(1) Effective January 1, 2024, we are no longer reinsuring classic auto risks produced by our U.K. MGA affiliate, and the book is in run-off.

(2) Represents the portion of total written premium written by our MGA subsidiaries that is subject to reinsurance agreements with our insurance carrier partners.

Membership, marketplace and other revenue

Membership, marketplace and other revenue was $153.4 million for the nine months ended September 30, 2025, an increase of $53.9 million, or 54.1%, compared to 2024.

Membership fee revenue was $47.0 million for the nine months ended September 30, 2025, an increase of $4.6 million, or 10.8%, compared to 2024, which was primarily due to a $4.2 million, or 10.7%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership. For the nine months ended September 30, 2025 and 2024, membership fees were 30.6% and 42.6%, respectively, of total Membership, marketplace and other revenue.

Marketplace revenue was $89.9 million for the nine months ended September 30, 2025, an increase of $51.6 million compared to 2024. This improvement was principally due to significantly higher levels of inventory sales, including cars acquired from The Academy of Art University Collection and sold at auction in February 2025, as well as increased private sale commissions. To a lesser extent, the increase in Marketplace revenue was attributable to revenues earned from Broad Arrow's inaugural auction at Concorso d’Eleganza Villa d’Este, which was held in May 2025. For the nine months ended September 30, 2025 and 2024, Marketplace revenue was 58.6% and 38.5%, respectively, of total Membership, marketplace and other revenue.

Other revenue, which primarily includes sponsorship, admission, advertising, valuation, and sublease revenue, was $16.5 million for the nine months ended September 30, 2025, a decrease of $2.3 million, or 12.3%, compared to 2024. This decrease was primarily attributable to the loss of registration fee revenue attributable to MSR, which was sold in June 2024. For the nine months ended September 30, 2025 and 2024, other revenue was 10.8% and 18.9%, respectively, of total Membership, marketplace and other revenue. Refer to Note 11 — Divestiture in Item 1 of Part I of this Quarterly Report for additional information related to the sale of MSR.

Costs and Expenses

Salaries and benefits

Salaries and benefits were $191.3 million for the nine months ended September 30, 2025, an increase of $30.3 million, or 18.8%, compared to 2024. This increase was primarily driven by higher accrued incentive compensation, reflecting stronger performance compared to the prior year, when losses related to Hurricane Helene significantly reduced accrued incentive compensation. To a lesser extent, Salaries and benefits increased as a result of increased headcount and merit increases year-over-year.

Ceding commissions, net

Ceding commissions, net was $247.7 million for the nine months ended September 30, 2025, an increase of $25.8 million, or 11.6%, compared to 2024. This increase is primarily attributable to the 12.5% increase in Earned premium, net discussed above.

The following table summarizes the components of Ceding commissions, net for the nine months ended September 30, 2025 and 2024:

Losses and loss adjustment expenses

Losses and loss adjustment expenses were $225.0 million for the nine months ended September 30, 2025, a decrease of $1.5 million, or 0.7%, compared to 2024. This decrease was primarily driven by $24.7 million of estimated pre-tax losses incurred in 2024 related to Hurricane Helene, for which there were no comparable losses in the current year period. This factor was almost entirely offset by increased losses due to the 12.5% increase in Earned premium, net discussed above.

For the nine months ended September 30, 2025, our loss ratio was 42.1%, including the impact of $10.3 million of pre-tax catastrophe losses resulting from the Southern California wildfires in January 2025. For the nine months ended September 30, 2024, our loss ratio was 47.7%, including the impact of catastrophe losses, primarily Hurricane Helene, which resulted in $24.7 million of estimated pre-tax losses.

Sales expense

Sales expense was $199.7 million for the nine months ended September 30, 2025, an increase of $52.9 million, or 36.0%, compared to 2024. This increase was due, in part, to a $42.2 million increase in cost of sales, predominantly as a result of a higher level of marketplace inventory sales, as well as a $6.1 million increase in sales commissions, consistent with revenue growth within the marketplace business. In addition, broker expense increased $6.1 million, consistent with the written premium growth within the agent insurance distribution channel.

General and administrative expenses

General and administrative expenses were $69.2 million for the nine months ended September 30, 2025, an increase of $7.1 million, or 11.5%, compared to 2024. This increase was primarily due to a $3.5 million increase in software-related costs, largely driven by costs related to our new insurance policy management system, and to a lesser extent, a $1.8 million increase in professional fees. The increase in professional fees is primarily driven by transaction costs associated with the THG Unit Exchange and related secondary offering that was consummated in the third quarter of 2025, as well as professional fees related to the Proposed Fronting Arrangement and Broad Arrow's global expansion. Refer to Note 17 — Stockholders' Equity in Item 1 of Part I of this Quarterly Report for additional information related to the THG Unit Exchange and related secondary offering.

Depreciation and amortization

Depreciation and amortization expense was $27.7 million for the nine months ended September 30, 2025, a decrease of $2.0 million, or 6.8%, compared to 2024. This decrease was primarily driven by a smaller base of in-service fixed assets and finite-lived intangible assets as of September 30, 2025, when compared to the same period in 2024.

Loss related to warrant liabilities, net

During the nine months ended September 30, 2024, Loss related to warrant liabilities, net was $8.5 million. The $8.5 million loss in the prior year period consists of a $2.0 million loss related to the Warrant Exchange and a $6.5 million loss related to the change in fair value of our then outstanding warrant liabilities. There were no warrants outstanding during the nine months ended September 30, 2025 due to the Warrant Exchange transaction that was completed in July 2024. Refer to Note 6 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

Interest and other income (expense), net

The following table summarizes the components of Interest and other income (expense), net for the nine months ended September 30, 2025 and 2024:

N/M = Not meaningful

Interest and other income (expense), net decreased $36.2 million during the nine months ended September 30, 2025, compared to 2024, primarily due to expense related to the TRA Liability, as discussed below. To a lesser extent, the decrease was also due to a $2.3 million non-recurring gain on the sale of an interest rate swap in the second quarter of 2024, lower yields on fixed income securities, and an increase in Interest expense, primarily due to higher net borrowings under the 2025 JPM Credit Facility.

In the third quarter of 2025, we determined it was appropriate to release a portion of the valuation allowance previously recorded against our federal and state deferred tax assets. In connection with this release, we remeasured our TRA Liability, resulting in an expense of $29.2 million, recorded within "Interest and other income (expense), net" on the Condensed Consolidated Statements of Operations, representing 85% of the expected tax benefit to be paid to the Legacy Unit Holders. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information.

Income tax (expense) benefit

We are the sole managing member of THG, and as a result, consolidate its financial results. THG is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, THG is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by THG is passed through and included in the taxable income or loss of its members, including Hagerty, Inc., on a pro rata basis. Hagerty, Inc. is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of THG, as well as any of its stand-alone income or loss. In addition, Hagerty Insurance Holdings, Inc., Broad Arrow, Hagerty Radwood, Inc. and various foreign subsidiaries are treated as taxable entities. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.

We have historically maintained a full valuation allowance on our deferred tax assets related to the difference between the outside tax basis and book basis of our investment in the assets of THG. The realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize these deferred tax assets. As of each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of our deferred tax assets. As of December 31, 2024, we concluded that it was more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of THG, would not be realized because we were in a three-year cumulative loss position and the generation of sufficient future taxable income to utilize these deferred tax assets was uncertain.

As of September 30, 2025, our continued assessment of the realizability of our deferred tax assets concluded that sufficient sources of future taxable income will be generated to realize a portion of the deferred tax assets related to the outside basis in our investment in THG and other tax attributes of the Hagerty, Inc. filing entity. In assessing the realizability of these deferred tax assets, we considered all sources of positive and negative evidence, including (i) that we achieved cumulative three-year profitability during the quarter; (ii) that our forecasts indicated continued profitability; and (iii) other positive business factors. Based on this evaluation, we determined it was appropriate to release a portion of the valuation allowance previously recorded against our federal and state deferred tax assets. As a result, $38.1 million of the valuation allowance was released during the third quarter of 2025 and a corresponding income tax benefit was recognized within "Income tax (expense) benefit" on the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2025, income tax benefit was $21.2 million, representing an increase of $31.1 million compared to 2024. This increase was primarily a result of the release of the valuation allowance discussed above.

Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information with respect to items affecting our effective tax rate.

Liquidity and Capital Resources

Maintaining a strong balance sheet and capital position is a top priority for us. As a holding company without direct operations, we manage liquidity globally and across all operating subsidiaries.

Sources and Uses of Liquidity

Our sources of liquidity include our: (i) balances of cash and cash equivalents; (ii) net working capital; (iii) cash flows from operations; (iv) borrowings from the 2025 JPM Credit Facility (as defined below) to fund the general corporate needs of THG and its subsidiaries; and (v) borrowings from the BAC Credit Facility (as defined below) to fund a portion of the lending activities of BAC.

Our primary liquidity needs and capital requirements include cash required for: (i) funding the business operations of THG and its subsidiaries; (ii) funding strategic investments and acquisitions; (iii) servicing and repayment of borrowings under the 2025 JPM Credit Facility, the BAC Credit Facility, and the unsecured term loan credit facility with State Farm (the "State Farm Term Loan"); (iv) funding potential cash dividend payments on the Series A Convertible Preferred Stock; (v) payment of income taxes; (vi) funding required distributions to the non-controlling interest unit holders of THG; and (vii) funding required payments to Legacy Unit Holders under the TRA.

As of September 30, 2025, we believe that our sources of liquidity will be sufficient to provide an adequate level of capital to support our anticipated short and long-term commitments, operating needs, and capital requirements.

Financing Arrangements

2025 JPM Credit Facility

In March 2025, THG entered into a credit agreement with JPM, as administrative agent, issuing bank and swingline lender, the foreign subsidiary borrowers thereto, and the other financial institutions party thereto as lenders (the "2025 JPM Credit Agreement").

The 2025 JPM Credit Agreement provides for a senior unsecured revolving credit facility (the "2025 JPM Credit Facility") with an aggregate borrowing capacity of $375.0 million. The 2025 JPM Credit Agreement matures in March 2030, but may be extended if agreed to by THG and the lenders party thereto. Any unpaid balance on the 2025 JPM Credit Facility is due at maturity. As of September 30, 2025, total outstanding borrowings under the 2025 JPM Credit Facility were $77.5 million.

The 2025 JPM Credit Agreement requires us to, among other things, meet certain financial covenants, including a minimum fixed charge coverage ratio test and a maximum leverage ratio test. As of September 30, 2025, we were in compliance with these financial covenants.

BAC Credit Facility

BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, have a revolving credit agreement (the "BAC Credit Agreement") that provides for a revolving credit facility (the "BAC Credit Facility") with an aggregate commitment of $75.0 million. The BAC Credit Facility's borrowing base is determined by the carrying value of certain BAC notes receivable, which is then limited by the amount of the aggregate commitment. As of September 30, 2025, the applicable borrowing base for the BAC Credit Agreement was $79.2 million, and the outstanding borrowings were $75.0 million.

The revolving borrowing period of the BAC Credit Facility expires in December 2025, followed by an amortization period until it ultimately matures in December 2026. The borrowing period and the maturity date of the BAC Credit Facility may be extended by one year if requested by BAC and agreed by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.

BAC and certain of its subsidiaries may transfer notes receivable to wholly owned, bankruptcy remote special purpose entities (each, an "SPE") to secure borrowings, isolating these assets from our other obligations. Recourse is limited to (i) an obligation of the applicable seller to repurchase a note receivable if it is determined that there was a breach of any representation or warranty relating to such note receivable as of the relevant date specified in the related transfer agreement and (ii) a limited guarantee for certain liabilities that may result under certain foreign exchange hedging activity of one of the SPEs.

BAC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants including that BAC, as the servicer, maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio. As of September 30, 2025, we were in compliance with the financial covenants under the BAC Credit Agreement.

Refer to Note 15 — Debt in Item 1 of Part I of this Quarterly Report for additional information related to the 2025 JPM Credit Agreement and BAC Credit Agreement.

Capital and Dividend Restrictions

We are a holding company with no material assets other than our ownership interest in THG and its operating subsidiaries. Accordingly, our ability to meet our cash requirements depends on THG's financial performance and the distributions we receive from THG. Our subsidiaries' ability to make distributions, pay dividends and make other payments may be regulated by the states and territories where they are domiciled.

For a discussion of the risks associated with our holding company structure, refer to Item 1A. Risk Factors — Risks Related to Tax — "We are a holding company, and our only material asset is our interest in THG, and we will therefore be dependent upon distributions made by THG to pay taxes, make payments under the TRA and pay other expenses." in our Annual Report.

Capital Restrictions

Our reinsurance company, Hagerty Re, is subject to the Bermuda Solvency Capital Requirement ("BSCR"), which establishes a target capital level and enhanced capital requirements for each insurer. As of September 30, 2025, Hagerty Re maintained sufficient statutory capital and surplus to comply with the BSCR.

Similarly, our U.S. insurance company subsidiary, Drivers Edge, which holds certificates of authority in 41 states, is subject to state-specific minimum capital and surplus requirements, as well as risk-based capital ("RBC") requirements. RBC levels are reported on an annual basis. As of September 30, 2025, Drivers Edge maintained sufficient capital and surplus levels to comply with state insurance regulations.

Dividend Restrictions

Under Bermuda law, Hagerty Re is prohibited from declaring or issuing a dividend if it fails to meet its minimum solvency margin or minimum liquidity ratio. Prior approval from the BMA is also required if Hagerty Re's proposed dividend payments would exceed 25% of its prior year-end total statutory capital and surplus. Based on these restrictions, during 2025, Hagerty Re can pay $67.9 million in dividends without prior BMA approval; however, the amount that Hagerty Re can pay in dividends is further limited by the amount of unrestricted cash and liquid investments held outside of restricted accounts, which totaled $49.4 million as of September 30, 2025. As of September 30, 2025, there were no plans to issue dividends from Hagerty Re.

Similarly, state statutes restrict the amount of dividends that Drivers Edge may pay without prior approval of state insurance regulators. As of September 30, 2025, there were no plans to issue dividends from Drivers Edge and a change in such plans may require regulatory approval.

Comparative Cash Flows

The following table summarizes our cash flow data for the nine months ended September 30, 2025 and 2024:

N/M = Not meaningful

Operating Activities

Cash provided by operating activities primarily consists of Net income, adjusted for non-cash items, and changes in working capital balances. Net cash provided by operating activities for the nine months ended September 30, 2025 and 2024 is presented below:

Net cash provided by operating activities for the nine months ended September 30, 2025 was $189.9 million, an increase of $0.2 million, or 0.1%, compared to 2024. This increase was due to a $35.1 million increase in Net income, net of non-cash adjustments, partially offset by a $34.9 million decrease in cash from operating assets and liabilities.

The $34.9 million decrease in net cash from operating assets and liabilities was primarily driven by the timing of the settlement of CUC receivables and payables, which resulted in a $29.8 million net decrease in operating cash flows, as well as claim payments made by Hagerty Re related to recent catastrophe events, including Hurricane Helene, Hurricane Milton, and the Southern California wildfires. To a lesser extent, the decrease was driven by extended payment term receivables associated with Broad Arrow auction and private sales transactions in the period.

Investing Activities

Cash used in investing activities for the nine months ended September 30, 2025 decreased by $439.7 million when compared to 2024, almost entirely due to the diversification of our investment portfolio during the nine months ended September 30, 2024, which resulted in the purchase of investment-grade fixed maturity securities and, to a much lesser extent, equity securities. This factor was partially offset by a $11.3 million increase in net fundings of BAC notes receivable.

Financing Activities

Cash from financing activities for the nine months ended September 30, 2025 increased $57.5 million when compared to 2024 primarily due to net proceeds received from credit facility borrowings, which was largely used to fund issuances of notes receivable by BAC. These proceeds were partially offset by a $25.2 million increase in required tax distributions to THG non-controlling interest unit holders.

Tax Receivable Agreement

We expect to have adequate capital resources to meet the requirements and obligations under the TRA entered into with the Legacy Unit Holders. The TRA requires us to pay Legacy Unit Holders 85% of the amount of cash savings, if any, under U.S. federal, state and local income tax or franchise tax realized as a result of (i) any increase in tax basis of Hagerty, Inc.'s assets resulting from (a) the purchase of THG units from any of the Legacy Unit Holders using the net proceeds from any future offering, (b) redemptions or exchanges by the Legacy Unit Holders of Class V Common Stock and THG units for shares of Class A Common Stock, or (c) payments under the TRA, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA.

Legacy Unit Holders may, subject to certain conditions and transfer restrictions as described in the Legacy Unit Holders Exchange Agreement executed in connection with the business combination that formed Hagerty, Inc. in 2021, redeem or exchange their Class V Common Stock and THG units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one basis. THG made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of THG units. The redemptions and exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of THG. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future. This payment obligation as a part of the TRA is an obligation of Hagerty, Inc. and not of THG. For purposes of the TRA, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Hagerty, Inc. (calculated with certain assumptions) to the amount of such taxes that Hagerty, Inc. would have been required to pay had there been no increase to the tax basis of the assets of THG as a result of the redemptions or exchanges and had Hagerty, Inc. not entered into the TRA. Estimating the amount of payments that may be made under the TRA is by nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors.

As of September 30, 2025, the estimated value of the TRA Liability was $39.9 million, of which $2.0 million was classified as a current liability within "Accounts payable, accrued expenses and other current liabilities" and $37.9 million was classified as a long-term liability within "Tax receivable agreement liability" on the Condensed Consolidated Balance Sheets.

During the nine months ended September 30, 2025, we made TRA payments of $0.2 million. No such payments were made during the nine months ended September 30, 2024.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements as of September 30, 2025.

Critical Accounting Policies and Estimates

The preparation of the unaudited Condensed Consolidated Financial Statements in accordance with GAAP requires management to make significant judgments, assumptions, and estimates that materially affect the amounts reported in the Company's Condensed Consolidated Financial Statements. Management's judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Condensed Consolidated Financial Statements. Actual results may ultimately differ from management's original estimates, as future events and circumstances sometimes do not develop as expected.

Our accounting policies are set forth in Note 1 — Summary of Significant Accounting Policies and New Accounting Standards to Consolidated Financial Statements contained in our Annual Report.

New Accounting Standards

New accounting standards are described in Note 2 — Summary of Significant Accounting Policies in Item 1 of Part I of this Quarterly Report, which are incorporated herein by reference.

Non-GAAP Financial Measures

Adjusted EBITDA

We define Adjusted EBITDA as consolidated Net income, excluding net interest and other income (expense), income tax expense, and depreciation and amortization, further adjusted to exclude (i) net gains and losses related to our warrant liabilities prior to the Warrant Exchange; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges; (iv) gains, losses and impairments related to divestitures; and (v) certain other unusual items. Refer to Note 6 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information regarding the Warrant Exchange.

We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management uses Adjusted EBITDA as a measure of the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.

By providing this non-GAAP financial measure, together with a reconciliation to Net income, which is the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for Net income or other financial statement data presented in our Condensed Consolidated Financial Statements as indicators of financial performance. Our definition of Adjusted EBITDA may be different than similarly titled measures used by other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is Net income:

in thousands

(1) Excludes interest expense related to the BAC Credit Facility, which is recorded within "Sales expense" in the Condensed Consolidated Statements of Operations.

(2) Principally includes interest income, net investment income related to our investment portfolio, and interest expense, as well as changes in the value of the TRA liability, which totaled $29.2 million and $32.3 million during the three and nine months ended September 30, 2025, respectively, and $1.3 million during the three and nine months ended September 30, 2024. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information.

(3) Income tax expense (benefit) for the three and nine months ended September 30, 2025 includes a $38.1 million benefit related to the release of a portion of the valuation allowance against our deferred tax assets. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information.

(4) For the three and nine months ended September 30, 2025, other unusual items includes certain legal settlement expenses, professional fees associated with the THG Unit Exchange and related Secondary Offering, and certain material severance expenses. For the three and nine months ended September 30, 2024, other unusual items includes professional fees associated with the Warrant Exchange. Refer to Note 17 — Stockholders' Equity in Item 1 of Part I of this Quarterly Report for additional information with respect to the THG Unit Exchange and Note 6 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

Adjusted EPS

We define Adjusted Earnings Per Share ("Adjusted EPS") as consolidated Net income, excluding net gains and losses related to our warrant liabilities prior to the Warrant Exchange, divided by our outstanding and total potentially dilutive securities, which includes (i) the weighted average issued and outstanding shares of Class A Common Stock; (ii) all issued and outstanding non-controlling interest units of THG; (iii) all issued and outstanding shares of our Series A Convertible Preferred Stock on an as-converted basis; and (iv) all unissued share-based compensation awards. Refer to Note 6 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information regarding the Warrant Exchange.

The most directly comparable GAAP measure to Adjusted EPS is basic earnings per share ("Basic EPS"), which is calculated as Net income available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock shares outstanding during the period.

We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by securities analysts, investors and other interested parties in evaluating the consolidated performance of other companies in our industry. We also believe that Adjusted EPS, which compares our consolidated Net income with our weighted average number of Class A Common Stock shares outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a consolidated and diluted basis.

Management uses Adjusted EPS (i) as a measure of the operating performance of our business on a consolidated and diluted basis; (ii) to evaluate the performance and effectiveness of our operational strategies; and (iii) as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.

We caution investors that Adjusted EPS is not a recognized measure under GAAP and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, including Basic EPS, and that Adjusted EPS, as we define it, may be defined or calculated differently by other companies. In addition, Adjusted EPS has limitations as an analytical tool and should not be considered as a measure of profit or loss per share.

The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS:

(1) Numerator and Denominator, respectively, of the GAAP measure Basic EPS

(2) Numerator and Denominator, respectively, of the non-GAAP measure Adjusted EPS

There have been no material changes to our market risk during the nine months ended September 30, 2025. For a discussion of our exposure to market risk, refer to the market risk disclosures set forth in Item 7A of Part II, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2025.

Changes in Internal Controls Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the three months ended September 30, 2025, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the risk factor below, as of the date of this Quarterly Report, there have been no material changes to our risk factors as previously disclosed in our Annual Report. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks that we currently do not know about or currently view as immaterial may also materially adversely affect our business, financial condition, or operating results.

We may be unable to successfully enter into the Proposed Fronting Arrangement with Markel and, even if completed, we may be unable to realize the anticipated benefits from the Proposed Fronting Arrangement.

On July 24, 2025, we announced that we had entered into a non-binding letter of intent regarding the Potential Fronting Arrangement with Markel. Because the letter of intent is non-binding, either party may terminate discussions at any time prior to the execution of definitive agreements. The consummation of the Proposed Fronting Arrangement is subject to the negotiation and execution of definitive binding documentation and the receipt of all required regulatory approvals. There can be no assurance that the Proposed Fronting Arrangement will be completed on the terms currently contemplated, within the anticipated timeframe, or at all. Factors that could prevent the completion of the Proposed Fronting Arrangement include, among others, the inability of the parties to agree on commercially acceptable terms, a decision by either party to pursue alternative counterparties or arrangements, or the failure to obtain necessary regulatory approvals.

Furthermore, even if we are able to enter into definitive agreements and complete the Proposed Fronting Arrangement, we may not realize the anticipated benefits of the arrangement. The success of the Proposed Fronting Arrangement will depend on a variety of factors, including the effective implementation by both parties, changes in market or industry conditions, regulatory developments, and other factors, many of which are outside of our control. As a result, there can be no assurance that the Proposed Fronting Arrangement will achieve its intended objectives or that it will not have an adverse effect on our business, financial condition, or results of operations.

Rising interest rates and the imposition of tariffs on imported goods could increase costs, reduce consumer spending on collector cars and related services, and negatively impact our business, results of operations and financial condition.

Our business depends on consumer demand for collectible cars and related services, which may decline in response to unfavorable economic conditions, such as high inflation or interest rates, or changes in trade and regulatory policies. Consumer spending on discretionary items, such as collector cars and related services, may be influenced by various factors beyond our control, such as unemployment, income levels, consumer confidence, and financial market volatility. When economic conditions deteriorate, consumers may reduce or postpone their spending on collector cars and related services, which could lower the demand for our products and services. Moreover, changes in tariffs, trade policy, or laws and policies affecting foreign trade, manufacturing, development and investment could increase our costs. For example, the recent imposition of tariffs on certain imported goods could affect the availability and cost of parts to repair our insureds' vehicles, which could impact our cost of claims, insurance premiums and customer satisfaction. While we have not yet identified direct effects from the recent changes in tariffs and other trade measures in our business, the long-term consequences of these actions remain uncertain and could negatively affect both the overall economy and our business. Any prolonged downturns in the economy or decreases in consumer demand for collector cars and related services could materially adversely affect our business, results of operations, and financial condition.