Business Overview and History
Hagerty, Inc. (HGTY) is a leading specialty vehicle insurance provider and automotive enthusiast brand that has been captivating the hearts of car lovers for over four decades. Founded in 1984, the company has grown to become a dominant player in the classic car insurance market, offering a comprehensive suite of products and services that cater to the unique needs of automotive enthusiasts.
Hagerty's journey began in 1984 when the company was founded as a specialty insurance provider for collector cars and enthusiast vehicles. Recognizing the growing demand for specialized coverage in this niche market, Hagerty set out to provide exceptional protection and tailor-made solutions for these prized possessions. Over the years, the company has continuously expanded its offerings, evolving from a niche insurance provider to a multi-faceted automotive lifestyle brand.
In the early 2000s, Hagerty introduced the Hagerty Drivers Club (HDC) membership program, which bundled insurance policies with a suite of benefits and services catered towards automotive enthusiasts. This strategic move helped drive high customer retention and loyalty, setting the foundation for Hagerty's future growth.
The past decade has seen Hagerty diversify its business model further, launching a marketplace platform where members can buy, sell, and finance collector cars and enthusiast vehicles. This expansion into marketplace services has allowed Hagerty to become a more comprehensive automotive enthusiast brand. A key milestone in this journey was the acquisition of Broad Arrow Group in 2022, which significantly enhanced the company's marketplace capabilities.
Hagerty has also formed strategic partnerships with major insurance carriers like Markel and State Farm to expand its distribution network. These collaborations have helped the company reach a broader audience and solidify its position as a market leader in the collector car and enthusiast vehicle segment.
In 2020, Hagerty, Inc. was formed as a public company, trading on the New York Stock Exchange under the ticker symbol HGTY. This strategic move allowed the company to accelerate its growth, leveraging the capital markets to invest in key areas such as technology, product development, and customer experience enhancements.
Today, Hagerty operates as a Managing General Agent (MGA), underwriting and servicing collector car and enthusiast vehicle insurance policies. The company's wholly owned subsidiary, Hagerty Reinsurance Limited (Hagerty Re), reinsures approximately 80% of the risks written by the MGA subsidiaries, allowing Hagerty to maintain a strong balance sheet and manage its underwriting exposure effectively.
Throughout its history, Hagerty has faced various challenges, including adapting to evolving customer preferences, regulatory changes in the insurance industry, and the need to continually invest in technology to support the company's growth. In 2021, Hagerty experienced a data security incident that required coordination with industry regulators, though the financial impact was not material. Despite these challenges, the company has demonstrated resilience and an ability to innovate, maintaining its leadership position in the collector car and enthusiast vehicle market.
Financial Performance and Metrics
Hagerty's financial performance has been consistently strong, showcasing the company's ability to capitalize on the growing interest in classic and enthusiast vehicles. In the fiscal year 2024, the company reported total revenue of $1.20 billion, a 20% increase compared to the previous year. This impressive top-line growth was driven by a 15% increase in written premiums, which reached $1.04 billion, as well as a 30% surge in membership, marketplace, and other revenue.
The company's profitability has also seen remarkable improvements, with operating income soaring 538% to $66.4 million in 2024. This was achieved through a combination of operational efficiency, cost discipline, and the scaling of Hagerty's business model. The company's net income for the year reached $78.3 million, a staggering 178% increase from the prior year.
For the most recent quarter (Q4 2024), Hagerty reported revenue of $292 million, representing a 19% year-over-year growth. This growth was driven by a 13% increase in written premiums and a 68% increase in membership, marketplace, and other revenue. Net income for the quarter stood at $8 million.
The company's cash flow performance has been equally impressive, with operating cash flow reaching $177 million in 2024, and free cash flow totaling $156 million for the same period. This strong cash generation provides Hagerty with ample resources to fund its growth initiatives and strategic investments.
Hagerty's business model has demonstrated predictable and recurring revenue growth, with a 10-year compound annual growth rate (CAGR) of 15% for written premiums. This growth is fueled by high single-digit annual additions from net new business count and industry-leading retention rates around 89%.
Liquidity
Hagerty's balance sheet remains strong, with a debt-to-equity ratio of 0.29 as of December 31, 2024. The company's cash and cash equivalents position stood at $105 million, providing ample liquidity to fund its growth initiatives and strategic investments. Additionally, Hagerty has a $305 million revolving credit facility, of which $50 million was drawn as of December 31, 2024, further enhancing its financial flexibility.
The company's current ratio and quick ratio both stood at 0.94 as of December 31, 2024, indicating a solid short-term liquidity position.
Operational Highlights and Growth Drivers
Hagerty's success is underpinned by its ability to capitalize on the growing enthusiasm for classic and enthusiast vehicles. The company's proprietary data and analytics capabilities allow it to identify emerging trends and tailor its product offerings accordingly. For example, the company's 2025 Bull Market List, which highlights vehicles poised for appreciation, revealed a shift toward more modern classics, such as 1980s and 1990s Japanese cars and early 2000s Mini Coopers.
The company's membership program, Hagerty Drivers Club (HDC), has been a key driver of customer engagement and loyalty. With over 875,000 paid members as of the end of 2024, the HDC program provides access to a suite of exclusive benefits, including emergency roadside assistance, automotive enthusiast events, and a proprietary vehicle valuation tool. The high retention rate of HDC members, approaching 90%, underscores the stickiness of Hagerty's customer relationships.
Hagerty's marketplace business, which includes the Broad Arrow auction platform and a digital marketplace for buying and selling collector cars, has also been an area of impressive growth. In 2024, the company observed over 300,000 buy-sell transactions representing approximately $15.7 billion in total value, a 10% increase from the previous year. The company's strategy of leveraging its trusted brand and deep industry expertise to provide a seamless and secure transaction experience for automotive enthusiasts has been a key differentiator.
Investments in Technology and Innovation
Recognizing the importance of technology in driving future growth and operational efficiency, Hagerty has made significant investments in its technology infrastructure. In 2023, the company initiated a multi-year technology transformation program, dubbed "Apex," which aims to transition the company's legacy IT systems to a modern, cloud-based architecture.
The Apex program, which includes the implementation of the Duck Creek insurance software platform, is expected to enhance the member experience, improve workflow automation, and drive operational efficiencies. These investments, while resulting in near-term cost headwinds, are expected to position Hagerty for accelerated top-line growth and margin expansion in the coming years.
Risks and Challenges
Despite Hagerty's impressive growth trajectory, the company faces several risks and challenges that investors should be aware of. The classic and enthusiast vehicle market is inherently cyclical, and any significant economic downturn or changes in consumer preferences could impact the company's performance.
Additionally, Hagerty operates in a highly regulated industry, with insurance products and pricing subject to approval by various state regulatory bodies. Failure to comply with these regulations or secure necessary approvals could restrict the company's ability to offer its products and services in certain jurisdictions.
The company also faces competition from traditional auto insurers and other specialty providers, as well as potential disruptors in the online marketplace space. Maintaining Hagerty's competitive edge and brand reputation will be crucial to its continued success.
Outlook and Conclusion
Hagerty's strong performance in 2024, marked by double-digit revenue growth, margin expansion, and robust cash flow generation, underscores the company's ability to capitalize on the growing enthusiasm for classic and enthusiast vehicles. The company's multi-faceted business model, focus on technology innovation, and deep understanding of its target market position it well for continued success.
Looking ahead, Hagerty has provided guidance for 2025, projecting revenue growth of 12-13% and net income growth of 30-40%. The company expects written premiums to grow by 13-14%, reaching $102-$110 million in net income and $150-$160 million in adjusted EBITDA. These projections include an estimated $11 million of pre-tax losses from the Southern California wildfires, resulting in an expected combined ratio of 90% in Hagerty's risk-taking entity.
Hagerty plans to expand its State Farm Classic Plus program to 25 states in 2025, including a tranche of 3 more states in the coming weeks. The company is also making $20 million in elevated investments in 2025, primarily related to technology transformation and launching new products. While these investments may result in a near-term slowdown in margin expansion, they are expected to enable greater efficiency and growth in the following years.
As the classic car enthusiast ecosystem continues to evolve, Hagerty's unique position as a trusted brand, innovative service provider, and community builder positions the company as a compelling investment opportunity for those seeking exposure to the dynamic and passion-driven world of automotive enthusiasts.
Segment Analysis
Insurance Segment
Insurance is the core of Hagerty's business, accounting for a significant portion of the company's revenue. Through its insurance model, Hagerty acts as a Managing General Agent (MGA), underwriting, selling, and servicing collector car and enthusiast vehicle insurance policies. Hagerty then reinsures approximately 80% of the risks written by its MGA subsidiaries through its wholly-owned subsidiary, Hagerty Reinsurance Limited (Hagerty Re).
Hagerty's insurance offerings are centered around its Guaranteed Value insurance policy, which differentiates its coverage from the standard auto insurance market by insuring covered vehicles at their agreed-upon value, rather than their depreciated value. This policy is designed to provide full replacement cost coverage in the event of a total loss, rather than the actual cash value. Hagerty works closely with its members to determine the right amount of coverage for their vehicle, utilizing its proprietary Hagerty Valuation Tools, which have been built over decades of collecting vehicle sales information and historic pricing data on more than 48,000 collector car and enthusiast vehicle models.
Hagerty's insurance business generates two main revenue streams: (1) commissions and fees earned by its MGA subsidiaries from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies, and (2) insurance premiums earned for the risk assumed by Hagerty Re. For the year ended December 31, 2024, commission and fee revenue was $423 million, an increase of 16% compared to 2023, driven by growth in both renewal policies and new policies. Earned premium at Hagerty Re was $643 million, up 21% year-over-year, due to continued growth in subject premiums written through the company's MGA subsidiaries.
Hagerty leverages its data science capabilities to benefit both its MGA and risk-taking activities across key areas such as underwriting and risk assessment, market analysis, and claims processing. The company is currently investing substantial resources in the implementation of a new software-as-a-service (SaaS) platform for its insurance products to enhance distribution management, policy administration, billing, claims, and data reporting and insights.
Membership Segment
In addition to its insurance offerings, Hagerty generates revenue from its Hagerty Drivers Club (HDC) memberships, which are primarily bundled with its insurance policies. HDC memberships provide subscribers access to an array of products and services, including emergency roadside assistance, a magazine, automotive enthusiast events, the company's proprietary vehicle valuation tool, and special vehicle-related discounts.
For the year ended December 31, 2024, membership revenue represented 4.8% of Hagerty's total revenue, reaching $58 million, an increase of 10% compared to 2023. The company believes its focus on HDC memberships is intended to build a community of car lovers and enhance brand loyalty through multiple points of engagement, ranging from physical events to digital platforms providing media content, social media engagement, market news, and valuation data.
Marketplace Segment
Hagerty's marketplace business complements its insurance and membership offerings, providing a platform where automotive enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles. The company's marketplace business generates fee-based revenue primarily from the sale of collector cars and enthusiast vehicles through live auctions, time-based digital auctions, and brokered private sales. Additionally, the company earns finance revenue from loans made to qualified collectors and businesses, secured by their collector cars.
For the year ended December 31, 2024, marketplace revenue represented 4.5% of Hagerty's total revenue, reaching $54 million, an increase of 90% compared to 2023. This improvement was primarily due to a $19 million increase in inventory sales, a $4 million increase in revenues associated with stronger Broad Arrow auction results, and a $3 million increase in finance revenue from the growth of the Broad Arrow Capital loan portfolio.
Hagerty believes it can differentiate its marketplace offerings by incorporating a higher level of trust into the process, leveraging its existing size, scale, improved processes, and trusted brand status. The company's wholly-owned subsidiary, Broad Arrow Group, Inc., helps collectors and enthusiasts buy and sell at live auctions and through brokered private sales, while the Hagerty Marketplace platform facilitates digital auctions for lower-priced collector cars and enthusiast vehicles.
Overall, Hagerty's diversified business model, comprising its core insurance operations, membership offerings, and marketplace platform, has enabled the company to generate strong financial performance, with total revenue of $1.20 billion in 2024, representing a 20% increase compared to the prior year. The company's focus on serving the automotive enthusiast community, as well as its data-driven approach and continuous investment in technology, position it well to capitalize on the growing collector car and enthusiast vehicle market.