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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number: 001-40244

HAGERTY, INC.
(Exact name of registrant as specified in its charter)
Delaware
86-1213144
 (State of incorporation)
(I.R.S. Employer Identification No.)
 121 Drivers Edge, Traverse City, Michigan
49684
(Address of principal executive offices)(Zip code)
(800) 922-4050
Registrant's telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolsName of each exchange on which registered
Class A common stock, par value $0.0001 per shareHGTYThe New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No  ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒   No  ☐ 
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer  
☐
Smaller reporting company
☐
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐   No  ☒
The registrant had 90,032,391 shares of Class A Common Stock outstanding and 251,033,906 shares of Class V Common Stock outstanding as of October 25, 2024.
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Table of Contents
TitlePage
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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Quarterly Report"), as well as other oral or written information we provide, contain statements that constitute "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact, are forward-looking statements, including those regarding our future operating results and financial position, our business strategy and plans, products, services, and technology offerings, market conditions, growth and trends, expansion plans and opportunities, and our objectives for future operations. The words "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and similar expressions, and the negative of these expressions, are intended to identify forward-looking statements.

The future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements. Factors that could cause actual results to differ include the risks and uncertainties described in Part II, Item 1A. of this Quarterly Report and Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report"), which highlight, among other risks, our ability to:

•compete effectively within our industry and attract and retain our insurance policyholders and paid HDC subscribers (collectively, "Members");
•maintain key strategic relationships with our insurance distribution and underwriting carrier partners;
•prevent, monitor, and detect fraudulent activity;
•manage risks associated with disruptions, interruptions, outages or other issues with our technology platforms or our use of third-party services;
•accelerate the adoption of our membership products as well as any new insurance programs and products we offer;
•manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation;
•address unexpected increases in the frequency or severity of claims;
•comply with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet, and accounting matters;
•manage risks associated with being a controlled company; and
•successfully defend any litigation, government inquiries, and investigations.

You should not rely on forward-looking statements as predictions of future events. We operate in a very competitive and rapidly changing environment and new risks emerge from time to time. The forward-looking statements in this Quarterly Report represent our views as of the date hereof. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website at investor.hagerty.com after we file them with, or furnish them to, the Securities and Exchange Commission ("SEC"). We use our investor relations website, investor.hagerty.com, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media channels. Information contained on or accessible through, including any reports available on, our website or social media channels is not a part of, and is not incorporated by reference into, this Quarterly Report or any other report or document we file with the SEC. Any reference to our website in this Quarterly Report is intended to be an inactive textual reference only.

Unless the context indicates otherwise, the terms "we," "our," "us," "Hagerty," and the "Company" refer to Hagerty, Inc. and its consolidated subsidiaries, including The Hagerty Group, LLC ("THG").

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hagerty, Inc.
Condensed Consolidated Statements of Operations (Unaudited)

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
REVENUE:in thousands (except per share amounts)
Commission and fee revenue$116,161 $103,173 $333,817 $287,972 
Earned premium165,686 139,785 474,917 384,498 
Membership, marketplace and other revenue41,527 32,616 99,573 82,700 
Total revenue323,374 275,574 908,307 755,170 
OPERATING EXPENSES:
Salaries and benefits47,192 51,318 161,001 160,122 
Ceding commissions, net77,501 65,413 221,877 181,188 
Losses and loss adjustment expenses99,430 57,485 226,515 159,461 
Sales expense59,141 47,737 146,791 124,791 
General and administrative20,837 22,166 62,072 64,865 
Depreciation and amortization9,184 10,753 29,758 34,893 
Restructuring, impairment and related charges, net— 473 — 8,857 
Gains, losses, and impairments related to divestitures— 4,112 (87)4,112 
Total operating expenses313,285 259,457 847,927 738,289 
OPERATING INCOME10,089 16,117 60,380 16,881 
Gain (loss) related to warrant liabilities, net(463)850 (8,544)(1,419)
Interest and other income (expense), net8,359 6,260 27,945 15,677 
INCOME BEFORE INCOME TAX EXPENSE17,985 23,227 79,781 31,139 
Income tax benefit (expense)1,022 (4,604)(9,918)(12,002)
NET INCOME19,007 18,623 69,863 19,137 
Net income attributable to non-controlling interest(14,122)(13,269)(55,951)(13,477)
Accretion of Series A Convertible Preferred Stock(1,875)(1,838)(5,552)(1,838)
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCKHOLDERS$3,010 $3,516 $8,360 $3,822 
Earnings per share of Class A Common Stock:
Basic$0.03 $0.04 $0.09 $0.04 
Diluted$0.03 $0.04 $0.09 $0.04 
Weighted average shares of Class A Common Stock outstanding:
Basic89,691 84,479 86,689 84,042 
Diluted89,691 84,479 87,601 84,042 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Net income$19,007 $18,623 $69,863 $19,137 
Other comprehensive income (loss), net of tax:
Change in net unrealized gain on available-for-sale investments7,970 — 8,718 — 
Foreign currency translation adjustments402 (955)(425)392 
Change in unrealized gain (loss) on interest rate swap— (97)(2,234)(245)
Other comprehensive income (loss)8,372 (1,052)6,059 147 
Comprehensive income27,379 17,571 75,922 19,284 
Comprehensive income attributable to non-controlling interest(20,380)(12,476)(60,475)(13,588)
Accretion of Series A Convertible Preferred Stock(1,875)(1,838)(5,552)(1,838)
Comprehensive income attributable to Class A Common Stockholders$5,124 $3,257 $9,895 $3,858 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
September 30,December 31,
20242023
ASSETSin thousands (except share amounts)
Current Assets:
Cash and cash equivalents$147,120 $108,326 
Restricted cash and cash equivalents176,309 615,950 
Investments61,827 10,946 
Accounts receivable93,488 71,530 
Premiums receivable201,992 137,525 
Commissions receivable18,987 79,115 
Notes receivable62,517 35,896 
Deferred acquisition costs, net168,635 141,637 
Other current assets77,995 49,293 
Total current assets1,008,870 1,250,218 
Investments471,965 5,526 
Notes receivable11,667 17,018 
Property and equipment, net18,674 20,764 
Lease right-of-use assets45,916 50,515 
Intangible assets, net92,035 91,924 
Goodwill114,175 114,214 
Other long-term assets54,710 38,033 
TOTAL ASSETS$1,818,012 $1,588,212 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities$74,547 $87,175 
Losses payable and provision for unpaid losses and loss adjustment expenses258,836 198,508 
Commissions payable94,005 108,739 
Due to insurers118,480 79,815 
Advanced premiums30,639 20,471 
Unearned premiums385,619 317,275 
Contract liabilities38,890 30,316 
Total current liabilities1,001,016 842,299 
Long-term lease liabilities44,866 50,459 
Long-term debt, net122,867 130,680 
Warrant liabilities— 34,018 
Deferred tax liability21,008 15,937 
Contract liabilities15,834 17,335 
Other long-term liabilities4,199 4,139 
TOTAL LIABILITIES1,209,790 1,094,867 
Commitments and Contingencies (Note 22)
— — 
TEMPORARY EQUITY
Preferred stock, $0.0001 par value (20,000,000 shares authorized, 8,483,561 Series A Convertible Preferred Stock issued and outstanding as of September 30, 2024 and December 31, 2023)
82,788 82,836 
STOCKHOLDERS' EQUITY
Class A Common Stock, $0.0001 par value (500,000,000 shares authorized, 89,980,363 and 84,588,536 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively)
9 8 
Class V Common Stock, $0.0001 par value (300,000,000 authorized, 251,033,906 shares issued and outstanding as of September 30, 2024 and December 31, 2023)
25 25 
Additional paid-in capital601,867 561,754 
Accumulated earnings (deficit)(455,083)(468,995)
Accumulated other comprehensive income (loss)1,447 (88)
Total stockholders' equity148,265 92,704 
Non-controlling interest377,169 317,805 
Total equity (Note 16)
525,434 410,509 
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY$1,818,012 $1,588,212 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

Three months ended September 30, 2024
Temporary EquityStockholders' Equity
Series A Convertible Preferred Stock
Class A Common Stock
Class V Common Stock
Additional Paid in CapitalAccumulated Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
in thousandsSharesAmountSharesAmountSharesAmount
Balance at June 30, 2024
8,484 $80,913 85,703 $8 251,034 $25 $555,040 $(459,968)$(667)$94,438 $359,955 $454,393 
Net income— — — — — — — 4,885 — 4,885 14,122 19,007 
Accretion of Series A Convertible Preferred Stock— 1,875 — — — — (1,875)— — (1,875)— (1,875)
Other comprehensive income— — — — — — — — 2,114 2,114 6,258 8,372 
Issuance of shares under employee plans, net of shares withheld for employee taxes— — 212 — — — (1,125)— — (1,125)— (1,125)
Warrant Exchange (see Note 17)— — 3,876 1 — — 42,569 — — 42,570 — 42,570 
Share-based compensation— — — — — — 4,092 — — 4,092 — 4,092 
Exchange of THG units for Class A Common Stock— — 189 — — — 2,055 — — 2,055 (2,055)— 
Reallocation between controlling and non-controlling interest— — — — — — 1,111 — — 1,111 (1,111)— 
Balance at September 30, 2024
8,484 $82,788 89,980 $9 251,034 $25 $601,867 $(455,083)$1,447 $148,265 $377,169 $525,434 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
















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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

Nine months ended September 30, 2024
Temporary EquityStockholders' Equity
Series A Convertible Preferred Stock
Class A Common Stock
Class V Common Stock
Additional Paid in CapitalAccumulated Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
in thousandsSharesAmountSharesAmountSharesAmount
Balance at December 31, 2023
8,484 $82,836 84,589 $8 251,034 $25 $561,754 $(468,995)$(88)$92,704 $317,805 $410,509 
Net income— — — — — — — 13,912 — 13,912 55,951 69,863 
Accretion of Series A Convertible Preferred Stock— 5,552 — — — — (5,552)— — (5,552)— (5,552)
Dividends related to Series A Convertible Preferred Stock— (5,600)— — — — — — — — — — 
Other comprehensive income— — — — — — — — 1,535 1,535 4,524 6,059 
Issuance of shares under employee plans, net of shares withheld for employee taxes— — 1,195 — — — (5,713)— — (5,713)— (5,713)
Warrant Exchange (see Note 17)— — 3,876 1 — — 42,569 — — 42,570 — 42,570 
Share-based compensation— — — — — — 13,018 — — 13,018 — 13,018 
Exchange of THG units for Class A Common Stock— — 320 — — — 3,227 — — 3,227 (3,227)— 
Distributions paid to non-controlling interest holders— — — — — — — — — — (5,320)(5,320)
Reallocation between controlling and non-controlling interest— — — — — — (7,436)— — (7,436)7,436 — 
Balance at September 30, 2024
8,484 $82,788 89,980 $9 251,034 $25 $601,867 $(455,083)$1,447 $148,265 $377,169 $525,434 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

Three months ended September 30, 2023
Temporary EquityStockholders' Equity
Series A Convertible Preferred Stock
Class A Common Stock
Class V Common Stock
Additional Paid in CapitalAccumulated Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
in thousandsSharesAmountSharesAmountSharesAmount
Balance at June 30, 2023
8,484 $79,159 84,406 $8 251,034 $25 $556,595 $(489,296)$83 $67,415 $311,395 $378,810 
Net income— — — — — — — 5,354 — 5,354 13,269 18,623 
Accretion of Series A Convertible Preferred Stock— 1,838 — — — — (1,838)— — (1,838)— (1,838)
Other comprehensive income (loss)— — — — — — — — (259)(259)(793)(1,052)
Issuance of shares under employee plans, net of shares withheld for employee taxes— — 73 — — — — — — — — — 
Share-based compensation— — — — — — 4,935 — — 4,935 — 4,935 
Non-controlling interest issued capital— — — — — — — — — — 179 179 
Termination of MHH Joint Venture (see Note 9)— — — — — — (917)376 — (541)(1,526)(2,067)
Reallocation between controlling and non-controlling interest— — — — — — (814)— — (814)814 — 
Balance at September 30, 2023
8,484 $80,997 84,479 $8 251,034 $25 $557,961 $(483,566)$(176)$74,252 $323,338 $397,590 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.


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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

Nine months ended September 30, 2023
Temporary EquityStockholders' Equity
Series A Convertible Preferred Stock
Class A Common Stock
Class V Common Stock
Additional Paid in CapitalAccumulated Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
in thousandsSharesAmountSharesAmountSharesAmount
Balance at December 31, 2022
— $— 83,203 $8 251,034 $25 $549,034 $(489,602)$(213)$59,252 $308,117 $367,369 
Net income— — — — — — — 5,660 — 5,660 13,477 19,137 
Accretion of Series A Convertible Preferred Stock— 1,838 — — — — (1,838)— — (1,838)— (1,838)
Other comprehensive income— — — — — — — — 37 37 110 147 
Issuance of shares under employee plans, net of shares withheld for employee taxes— — 1,016 — — — 906 — — 906 — 906 
Share-based compensation— — — — — — 13,157 — — 13,157 — 13,157 
Exchange of THG units for Class A Common Stock— — 260 — — — 2,311 — — 2,311 (2,311)— 
Issuance of Series A Convertible Preferred Stock, net of issuance costs8,484 79,159 — — — — — — — — — — 
Non-controlling interest issued capital— — — — — — — — — — 779 779 
Termination of MHH Joint Venture (see Note 9)— — — — — — (917)376 — (541)(1,526)(2,067)
Reallocation between controlling and non-controlling interest— — — — — — (4,692)— — (4,692)4,692 — 
Balance at September 30, 2023
8,484 $80,997 84,479 $8 251,034 $25 $557,961 $(483,566)$(176)$74,252 $323,338 $397,590 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.


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Hagerty, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended
September 30,
20242023
OPERATING ACTIVITIES:in thousands
Net income$69,863 $19,137 
Adjustments to reconcile net income to net cash from operating activities:
Loss related to warrant liabilities, net8,544 1,419 
Depreciation and amortization29,758 34,893 
Provision for deferred taxes2,772 4,973 
Impairment of operating lease right-of-use assets— 1,147 
Loss on disposals of equipment, software and other assets
401 2,019 
Gains, losses, and impairments related to divestitures
(87)2,827 
Share-based compensation expense13,018 13,157 
Non-cash lease expense5,920 9,472 
Other(354)708 
Changes in operating assets and liabilities:
Accounts, premiums and commissions receivable(28,062)(107,001)
Deferred acquisition costs, net(26,998)(47,936)
Losses payable and provision for unpaid losses and loss adjustment expenses60,328 23,527 
Commissions payable(14,734)34,582 
Due to insurers38,586 45,322 
Advanced premiums10,166 11,800 
Unearned premiums68,344 100,439 
Operating lease liabilities(6,781)(9,018)
Other assets and liabilities, net(41,042)(9,246)
Net Cash Provided by Operating Activities189,642 132,221 
INVESTING ACTIVITIES:
Capital expenditures(17,278)(21,556)
Acquisitions, net of cash acquired, and other investments
(23,865)(8,690)
Issuance of notes receivable(55,030)(11,405)
Collection of notes receivable32,099 10,252 
Purchases of fixed maturity securities(565,838)(7,277)
Proceeds from sales of fixed maturity securities53,253 — 
Proceeds from maturities of fixed maturity securities23,766 4,128 
Purchases of equity securities(10,602)— 
Other investing activities1,005 86 
Net Cash Used in Investing Activities(562,490)(34,462)
FINANCING ACTIVITIES:
Payments on long-term debt(63,202)(132,850)
Proceeds from long-term debt, net of issuance costs52,718 100,345 
Proceeds from issuance of Series A Convertible Preferred Stock, net of issuance costs— 79,159 
Contribution from non-controlling interest— 779 
Distributions paid to non-controlling interest unit holders(5,320)— 
Payment of Series A Convertible Preferred Stock dividends(5,600)— 
Funding of employee tax obligations upon vesting of share-based payments(5,713)— 
Proceeds from issuance of Class A Common Stock under employee stock purchase plan— 906 
Net Cash Provided by (Used in) Financing Activities(27,117)48,339 
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents
(882)286 
Change in cash and cash equivalents and restricted cash and cash equivalents
(400,847)146,384 
Beginning cash and cash equivalents and restricted cash and cash equivalents
724,276 539,191 
Ending cash and cash equivalents and restricted cash and cash equivalents
$323,429 $685,575 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Notes To Condensed Consolidated Financial Statements (Unaudited)

1 — Basis of Presentation and Accounting Policies

In these Notes to the Condensed Consolidated Financial Statements, the terms "Hagerty," and the "Company" refer to Hagerty, Inc. and its consolidated subsidiaries, including The Hagerty Group, LLC ("THG"), unless the context requires otherwise. In addition, the Company's insurance policyholders and paid Hagerty Drivers Club ("HDC") subscribers are collectively referred to as "Members".

Description of Business — Hagerty is a market leader in providing insurance for classic cars and enthusiast vehicles. Through Hagerty's insurance model, the Company acts as a Managing General Agent ("MGA") by underwriting, selling, and servicing classic car and enthusiast vehicle insurance policies. The Company then reinsures a large portion of the risks written by its MGA subsidiaries through its wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"). In addition, Hagerty offers HDC memberships, which can be bundled with its insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, Hagerty's proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. Lastly, to complement its insurance membership offerings, the Company offers Hagerty Marketplace ("Marketplace"), where car enthusiasts can buy, sell, and finance collector cars.

These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Basis of Presentation — The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the regulations of the Securities and Exchange Commission and include the accounts of Hagerty, Inc., which is comprised of THG and its consolidated subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as permitted by such rules and regulations.

The Condensed Consolidated Financial Statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of the Company's financial position and results of operations for the interim periods presented.

Principles of Consolidation — The Condensed Consolidated Financial Statements contain the accounts of Hagerty, Inc. and its majority-owned or controlled subsidiaries.

As of September 30, 2024 and December 31, 2023, Hagerty, Inc. had economic ownership of 26.1% and 24.9%, respectively, of THG and is its sole managing member. Hagerty, Inc. reports a non-controlling interest representing the economic interest in THG held by other parties.

The financial statements of THG are consolidated by the Company under the voting interest method in accordance with Accounting Standards Codification ("ASC") Topic 810, Consolidations ("ASC 810"). Non-controlling interest is presented separately on the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity.

All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities — Broad Arrow Capital LLC ("BAC") and certain of its subsidiaries transfer notes receivable to wholly owned, bankruptcy-remote, special purpose entities (each, an "SPE") to secure borrowings under the BAC Credit Agreement (as defined in Note 14 — Long-Term Debt).

These SPEs are considered to be variable interest entities (each, a "VIE") under GAAP and their financial statements are consolidated by BAC, which is the primary beneficiary of the SPEs and also a consolidated subsidiary of the Company. BAC is considered to be the primary beneficiary of the SPEs because it has (i) power over the significant activities of the SPEs through its role as servicer of the notes receivable used to secure borrowings under the BAC Credit Agreement and (ii) the obligation to absorb losses or the right to receive returns that could be significant through its interest in the residual cash flows of the SPEs.

Refer to Note 5 — Notes Receivable and Note 14 — Long-Term Debt for additional information.

13
The following table presents the assets and liabilities of the Company's consolidated variable interest entities as of September 30, 2024 and December 31, 2023:

September 30,December 31,
20242023
ASSETSin thousands
Cash and cash equivalents$412 $83 
Restricted cash and cash equivalents1,900 961 
Accounts receivable— 190 
Notes receivable62,773 30,125 
Other assets2,218 2,900 
TOTAL ASSETS$67,303 $34,259 
LIABILITIES
Accounts payable, accrued expenses and other current liabilities$2,086 $1,881 
Long-term debt, net46,118 25,782 
TOTAL LIABILITIES$48,204 $27,663 

Emerging Growth Company — The Company currently qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 and can delay the adoption of new or revised accounting standards until those standards would apply to private companies.

The Company intends to avail itself of this extended transition period and, therefore, the Company may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or have opted out of using such extended transition period. As of September 30, 2024, the Company has not delayed the adoption of any new or revised accounting standards despite qualifying as an emerging growth company.

Reclassifications — Certain prior period operating lease balances on the Condensed Consolidated Statements of Cash Flows originally reported within changes in "Other assets and liabilities, net" are now reported within "Non-cash lease expense" to conform to the current year presentation.

Further, in conjunction with Hagerty Re's investment diversification in the second quarter of 2024, prior period fixed maturity investment balances have been reclassified from "Other current assets" and "Other long-term assets" to "Investments" on the Condensed Consolidated Balance Sheets to conform to the current year presentation. Refer to Note 3 — Investments for additional information related to the Company's investment portfolio.

These reclassifications had no effect on the Company's previously reported operating income, net income, earnings per share, cash flows, or retained earnings.

Use of Estimates — The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenue and expenses during the reporting period. Although the estimates are considered reasonable, actual results could materially differ from those estimates.

Significant estimates made by management include, but are not limited to: (i) the provision for unpaid losses and loss adjustment expenses, including incurred but not reported claims (see Note 11); (ii) the valuation of the Company's deferred income tax assets (see Note 20); (iii) the amount of the liability associated with the Tax Receivable Agreement ("TRA") (see Note 20); (iv) the fair values of the reporting units used in assessing the recoverability of goodwill; (v) the valuation and useful lives of intangible assets (see Note 10); and (vi) the fair value of the Company's previous warrant liabilities (see Note 4 and Note 17). Although some variability is inherent in these estimates, management believes that the current estimates are reasonable in all material respects. These estimates are reviewed regularly and adjusted, as necessary. Adjustments related to changes in estimates are reflected in the Company's results of operations in the period during which those estimates changed.

Segment Information — The Company has one operating segment and one reportable segment. The Company's Chief Operating Decision Maker ("CODM") is the Chief Executive Officer ("CEO"), who makes resource allocation decisions and assesses performance based on consolidated financial information. The Company's segment presentation reflects a management approach that utilizes a decision making framework with its Members and customers at the center of all decisions, which requires the CODM to have a consolidated view of the Company's results.

14
Investments — Fixed maturity securities are classified as available-for-sale and recorded on the Condensed Consolidated Balance Sheets at their fair value, with those having maturity dates within one year of the balance sheet date classified within current assets. On a quarterly basis, fixed maturity securities with unrealized losses are reviewed to determine whether the decline in fair value is attributable to a material credit loss. If a material credit loss is noted, an allowance is established and the credit loss is recorded in the Condensed Consolidated Statements of Operations.

Unrealized gains and losses on fixed maturity securities are recorded within "Change in net unrealized gain on available-for-sale investments", a component of "Accumulated other comprehensive income (loss)" on the Condensed Consolidated Balance Sheets. Realized investment gains or losses from sales of available-for-sale investments are recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.

Interest on fixed maturity securities is recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations. Premiums and discounts are amortized or accreted, respectively, over the lives of the related fixed maturity securities as an adjustment to the yield using the effective interest method.

Equity securities are recorded on the Condensed Consolidated Balance Sheets at their fair value and are classified within current assets. Dividend income, as well as realized and unrealized gains and losses on equity securities are recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.

Refer to Note 3 — Investments and Note 4 — Fair Value Measurements for additional information regarding the Company's investment portfolio.

Supplemental Cash Flow Information — The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of September 30, 2024 and 2023:

September 30,
20242023
in thousands
Cash and cash equivalents$147,120 $90,710 
Restricted cash and cash equivalents176,309 594,865 
Total cash and cash equivalents and restricted cash and cash equivalents
$323,429 $685,575 

15
The table below presents information regarding the Company's non-cash investing and financing activities, as well as the cash paid for interest and taxes for the nine months ended September 30, 2024 and 2023:

Nine months ended
September 30,
20242023
NON-CASH INVESTING ACTIVITIES:in thousands
Issuance of notes receivable (1)
$5,290 $6,067 
Collection of notes receivable (1)
$7,264 $4,547 
Capital expenditures$248 $237 
Acquisitions$— $1,742 
Termination of MHH Joint Venture (Refer to Note 9)
$— $2,929 
NON-CASH FINANCING ACTIVITIES:
Warrant Exchange (Refer to Note 17)
$2,006 $— 
Exchange of THG units for Class A Common Stock (Refer to Note 16)
$3,227 $2,311 
CASH PAID FOR:
Interest$5,559 $4,236 
Income taxes$17,500 $7,000 
(1)    In certain situations, BAC makes loans to refinance accounts receivable balances generated by Broad Arrow Group, Inc. ("Broad Arrow") auction or private sale purchases. These loans are accounted for on the Condensed Consolidated Balance Sheets as non-cash reclassifications between "Accounts receivable" and "Notes receivable" and are not presented within Investing Activities in the Company's Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such loans is classified within Operating Activities in the Company's Condensed Consolidated Statements of Cash Flows.

The issuance of Class A Common Stock resulting from the vesting of restricted stock units is a non-cash financing activity. Refer to Note 18 — Share-Based Compensation for information related to share-based compensation.

Supplemental Balance Sheet Information

Restricted Assets — As discussed in more detail below, certain of the Company's subsidiaries hold assets in trust and/or that are restricted as to their use.

The Company's MGA subsidiaries collect premiums from insureds on behalf of insurance carriers. Prior to remittance to the insurance carrier, these funds are required to be held in trust for the benefit of the insurance carriers and segregated from the Company's operating cash.

Hagerty Re maintains trust accounts for the benefit of various ceding insurers as security for their obligations for losses, loss expenses, unearned premium and profit-sharing commissions.

On September 1, 2024, the Company acquired Consolidated National Insurance Company, which was subsequently renamed Drivers Edge Insurance Company ("Drivers Edge"). Drivers Edge maintains assets on deposit with a number of regulatory authorities to support its insurance operations. Refer to Note 8 — Acquisition for additional information related to the Company's acquisition of Drivers Edge.

BAC and its consolidated subsidiaries maintain bank accounts that are required for the operation of the BAC Credit Facility (as defined in Note 14 — Long-Term Debt). The funds in these bank accounts represent security under the BAC Credit Facility and their use is restricted to the servicing of the debt outstanding under that facility.

16
The following table presents the components of the Company's restricted assets as of September 30, 2024 and December 31, 2023:

Balance Sheet ClassificationSeptember 30,December 31,
20242023
in thousands
Cash and cash equivalents Restricted cash and cash equivalents$176,309 $615,950 
Fixed maturity securitiesInvestments522,212 16,472 
Equity securitiesInvestments11,580 — 
Total restricted assets$710,101 $632,422 

Accounting Standards Not Yet Adopted

Income Taxes — In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09 - Income Taxes (ASC 740), Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures through changes to the rate reconciliation and income taxes paid information. ASU No. 2023-09 modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign), and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU No. 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is still assessing the impact of ASU No. 2023-09 and upon adoption may be required to include certain additional disclosures in the footnotes to the Condensed Consolidated Financial Statements.

Segment Reporting — In November 2023, the FASB issued ASU No. 2023-07 - Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures, which enables investors to better understand an entity's overall performance and assess potential future cash flows through improved reportable segment disclosure requirements. The amendments enhance disclosures about significant segment expenses, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. The Company is still assessing the impact of ASU No. 2023-07 and upon adoption may be required to include certain additional disclosures in the footnotes to the Condensed Consolidated Financial Statements.

2 — Revenue

Disaggregation of Revenue — The tables below present Hagerty's revenue by distribution channel, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2024 and 2023. Commission and fee revenue and contingent underwriting commission ("CUC") revenue earned from the agent distribution channel includes revenue generated through Hagerty's relationships with independent agents and brokers. Commission and fee revenue and CUC revenue earned from the direct distribution channel includes revenue generated by Hagerty's employee agents.

Prior to 2024, the Company's MGA subsidiaries have earned a base commission of approximately 32% of written premium, as well as an additional contingent commission of up to 10% annually. In December 2023, the Company's alliance agreement and associated agency agreement with Markel Group, Inc. ("Markel") was amended to increase the base commission rate on the personal lines United States ("U.S.") auto business to 37% and to adjust the contingent commission to range from -5% to a maximum of +5% of annual written premium. This amendment resulted in a smaller proportion of total revenue being attributable to contingent commissions during the three and nine months ended September 30, 2024, when compared to the three and nine months ended September 30, 2023.

17
Three months ended September 30, 2024
AgentDirectTotal
in thousands
Commission and fee revenue$57,857 $47,606 $105,463 
Contingent commission revenue5,997 4,701 10,698 
Membership revenue— 14,800 14,800 
Marketplace and other revenue— 26,727 26,727 
Total revenue from customer contracts63,854 93,834 157,688 
Earned premium165,686 
Total revenue$323,374 

Three months ended September 30, 2023
AgentDirectTotal
in thousands
Commission and fee revenue$44,387 $37,388 $81,775 
Contingent commission revenue11,825 9,573 21,398 
Membership revenue— 13,835 13,835 
Marketplace and other revenue— 18,781 18,781 
Total revenue from customer contracts56,212 79,577 135,789 
Earned premium139,785 
Total revenue$275,574 

Nine months ended September 30, 2024
AgentDirectTotal
in thousands
Commission and fee revenue$164,737 $136,597 $301,334 
Contingent commission revenue17,869 14,614 32,483 
Membership revenue— 42,385 42,385 
Marketplace and other revenue— 57,188 57,188 
Total revenue from customer contracts182,606 250,784 433,390 
Earned premium474,917 
Total revenue$908,307 

Nine months ended September 30, 2023
AgentDirectTotal
in thousands
Commission and fee revenue$123,046 $104,229 $227,275 
Contingent commission revenue33,506 27,191 60,697 
Membership revenue— 39,528 39,528 
Marketplace and other revenue— 43,172 43,172 
Total revenue from customer contracts156,552 214,120 370,672 
Earned premium384,498 
Total revenue$755,170 

18
The following tables present Hagerty's revenue disaggregated by geographic area, as well as a reconciliation to total revenue for the three months ended September 30, 2024 and 2023:

Three months ended September 30, 2024
U.S.CanadaEuropeTotal
in thousands
Commission and fee revenue$96,688 $6,952 $1,823 $105,463 
Contingent commission revenue10,544 — 154 10,698 
Membership revenue13,844 955 1 14,800 
Marketplace and other revenue25,229 205 1,293 26,727 
Total revenue from customer contracts146,305 8,112 3,271 157,688 
Earned premium165,686 
Total revenue$323,374 

Three months ended September 30, 2023
U.S.CanadaEuropeTotal
in thousands
Commission and fee revenue$73,891 $6,422 $1,462 $81,775 
Contingent commission revenue21,360 — 38 21,398 
Membership revenue12,942 893 — 13,835 
Marketplace and other revenue17,779 229 773 18,781 
Total revenue from customer contracts125,972 7,544 2,273 135,789 
Earned premium139,785 
Total revenue$275,574 

The following tables present Hagerty's revenue disaggregated by geographic area, as well as a reconciliation to total revenue for the nine months ended September 30, 2024 and 2023:

Nine months ended September 30, 2024
U.S.CanadaEuropeTotal
in thousands
Commission and fee revenue$277,613 $18,878 $4,843 $301,334 
Contingent commission revenue32,235 — 248 32,483 
Membership revenue39,592 2,792 1 42,385 
Marketplace and other revenue52,911 1,230 3,047 57,188 
Total revenue from customer contracts402,351 22,900 8,139 433,390 
Earned premium474,917 
Total revenue$908,307 

Nine months ended September 30, 2023
U.S.CanadaEuropeTotal
in thousands
Commission and fee revenue$206,099 $17,379 $3,797 $227,275 
Contingent commission revenue60,590 — 107 60,697 
Membership revenue36,865 2,663 — 39,528 
Marketplace and other revenue40,366 741 2,065 43,172 
Total revenue from customer contracts343,920 20,783 5,969 370,672 
Earned premium384,498 
Total revenue$755,170 

19
Refer to Note 12 — Reinsurance for information regarding "Earned premium" recognized under ASC Topic 944, Financial Services - Insurance ("ASC 944").

Contract Assets and Liabilities — The following table is a summary of the Company's contract assets and liabilities as of September 30, 2024 and December 31, 2023:

September 30,December 31,
20242023
in thousands
Contract assets$13,581 $75,891 
Contract liabilities$54,724 $47,651 

Contract assets, which are reported within "Commissions receivable" on the Condensed Consolidated Balance Sheets, consist of CUC receivables, which are earned throughout the year and have historically been settled by a cash payment from the insurance carrier in the first quarter of the following year. As a result of its amended alliance agreement and associated agency agreement with Markel, beginning in 2024, 80% of the CUC receivables from Markel are now being settled monthly rather than on an annual basis. This amendment resulted in a significant decrease in the contract assets balance compared to the prior year.

Contract liabilities consist of cash collected in advance of revenue recognition and primarily includes the unrecognized portion of HDC membership fees, the unrecognized portion of the advanced commission payment received from State Farm Mutual Automobile Insurance Company ("State Farm"), and, to a much lesser extent, cash collected in advance of the completion of Marketplace private sales. Refer to Note 21 — Related-Party Transactions for additional information regarding the Company's master alliance agreement with State Farm.

3 — Investments

During the second quarter of 2024, the Company diversified its investment portfolio, purchasing fixed maturity securities and, to a much lesser extent, equity securities, with the fixed maturity securities classified as available-for-sale.

During the third quarter of 2024, in conjunction with the acquisition of Drivers Edge, the Company acquired additional fixed maturity securities, classified as available-for-sale. Refer to Note 8 — Acquisition for additional information related to the acquisition of Drivers Edge.

The Company also holds fixed maturity securities consisting of Canadian Sovereign, Provincial, and Municipal bonds. Prior to the second quarter of 2024, these investments were classified as held-to-maturity because the Company had the intent and ability to hold the investments to maturity. However, in the second quarter of 2024, these investments were reclassified as available-for-sale because management now intends to opportunistically sell bonds from this portfolio in connection with the diversification of the Company's investment portfolio. As a result of this reclassification, the Company recognized an unrealized loss of $0.2 million in the Condensed Consolidated Statements of Comprehensive Income in the second quarter of 2024.

As of September 30, 2024, all fixed maturity securities had an investment grade rating from at least one nationally recognized rating organization.

Available-for-sale investments

The following table summarizes the Company's available-for-sale investments as of September 30, 2024:

Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturity securities:in thousands
Corporate $209,096 $4,895 $(27)$213,964 
U.S. Treasury108,530 1,054 (23)109,561 
States and municipalities38,211 1,718 — 39,929 
Foreign 18,632 56 (54)18,634 
Asset-backed securities25,126 650 (9)25,767 
Mortgage-backed securities111,585 2,804 (32)114,357 
Total fixed maturity securities$511,180 $11,177 $(145)$522,212 
20

On a quarterly basis, fixed maturity securities with unrealized losses are reviewed to determine whether the decline in fair value is attributable to a material credit loss. As of September 30, 2024, no credit loss allowance was recorded and all unrealized losses on available-for-sale fixed maturity securities were in such position for less than one year. It is management's intent to hold these investments to recovery, or maturity, if necessary, to recover the decline in valuation as prices accrete to par.

The following table summarizes the contractual maturities of the Company's available-for-sale investments as of September 30, 2024:

Amortized CostEstimated Fair Value
in thousands
Due in one year or less$50,130 $50,247 
Due after one year through five years239,695 244,116 
Due after five years through ten years76,631 79,357 
Due after ten years8,013 8,368 
Mortgage-backed and asset-backed securities136,711 140,124 
Total fixed maturity securities$511,180 $522,212 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Held-to-maturity investments

The following table summarizes the fair value and related carrying amount of the Company's held-to-maturity investments as of December 31, 2023:

Carrying AmountEstimated Fair Value
in thousands
Short-term$10,946 $10,864 
Long-term5,526 5,398 
Total$16,472 $16,262 

Net investment income

The following table presents the components of net investment income for the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
Interest income:in thousands
Cash and cash equivalents and restricted cash and cash equivalents$4,514 $7,084 $21,154 $17,990 
Fixed maturity securities5,127 121 8,921 344 
Total interest income9,641 7,205 30,075 18,334 
Dividends on equity securities 34 — 58 — 
Gross investment income9,675 7,205 30,133 18,334 
Investment expenses(91)— (213)— 
Net investment income$9,584 $7,205 $29,920 $18,334 

21
Net realized and unrealized gains (losses) on investments

The table below presents the components of pre-tax net investment gains (losses) included in Net Income in the Condensed Consolidated Statements of Operations and the pre-tax change in net unrealized gains (losses) included in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024. The gross amounts of realized investment gains and losses on fixed maturity securities were not material to the Condensed Consolidated Financial Statements and are presented on a net basis in the table below.

Three months endedNine months ended
September 30, 2024
Fixed maturity securities:in thousands
Net realized investment gains (losses)$700 $731 
Equity securities:
Total change in fair value of equity securities574 1,052 
Net investment gains (losses)$1,274 $1,783 
Change in net unrealized gains (losses) on available-for-sale investments included in Other comprehensive income (loss):
Fixed maturity securities$10,081 $11,032 

4 — Fair Value Measurements

Fair value measurements are classified within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input requires judgment.

The three levels of the fair value hierarchy are as follows:

•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date for substantially the full term of the asset or liability.
•Level 3 — Pricing inputs are unobservable, but management believes that such inputs are predicated on the assumptions market participants would use to measure the asset or liability at fair value.

The Company's policy is to recognize significant transfers between levels, if any, at the end of the reporting period. There were no transfers between levels during the current and prior reporting periods.

Investments

Fixed maturity securities are classified as Level 2 within the fair value hierarchy and equity securities are classified as Level 1. The fair value of these investments is determined after considering various sources of information, including information provided by a third-party pricing service, which provides prices for substantially all of the Company's fixed maturity securities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows, and prepayment speeds.

Refer to Note 3 — Investments for additional information related to the Company's investment portfolio.

22
Interest rate swap

In December 2020, the Company entered into an interest rate swap with an original notional amount of $35.0 million, a fixed swap rate of 0.81%, and a maturity date in December 2025. The interest rate swap was designated as a cash flow hedge and the Company formally documented the relationship between the interest rate swap and its variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. The Company also assessed whether the interest rate swap was highly effective in offsetting variability in the cash flows of its variable rate borrowings. The hedge was deemed effective at inception and on an ongoing basis; therefore, any changes in fair value were recorded within "Change in unrealized gain (loss) on interest rate swap" in the Condensed Consolidated Statements of Comprehensive Income. The differential paid or received on the interest rate swap agreement was recognized as an adjustment to interest expense within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.

As of December 31, 2023, the interest rate swap was in an asset position and had a fair value of $2.2 million, which was recorded within "Other long-term assets" on the Condensed Consolidated Balance Sheets. The interest rate swap was classified as Level 2 within the fair value hierarchy. The significant inputs used to determine the fair value of the interest rate swap, such as the Secured Overnight Financing Rate ("SOFR") forward curve, are considered observable market inputs.

In the second quarter of 2024, the Company reduced its borrowings under the JPM Credit Facility (as defined in Note 14 — Long-Term Debt) below the $35.0 million notional amount of the interest rate swap and, as a result, the interest rate swap was settled prior to its maturity date. In connection with the settlement of the interest rate swap, the Company received $2.3 million in cash proceeds and recognized a $2.3 million gain in the second quarter of 2024 within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations, with a corresponding amount reclassified from Accumulated other comprehensive income (loss).

Warrant liabilities

As of December 31, 2023, the Company's Public Warrants were classified as Level 1 within the fair value hierarchy as they were measured utilizing quoted market prices. The Company's Private Warrants, Underwriter Warrants, OTM Warrants (together with the Private Warrants and Underwriter Warrants, the "Private Placement Warrants"), and PIPE Warrants were classified as Level 3 within the fair value hierarchy. The Company utilized a Monte Carlo simulation model to measure the fair value of the Level 3 warrants. The Company's Monte Carlo simulation model included assumptions related to the expected stock price volatility, expected term, dividend yield, and risk-free interest rate.

In the third quarter of 2024, the Company completed the Warrant Exchange, which resulted in the settlement of all outstanding warrants. Refer to Note 17 — Warrant Exchange for additional information related to the Warrant Exchange.

23
Summary of assets and liabilities measured at fair value

The fair values of the Company's financial assets and liabilities as of September 30, 2024 and December 31, 2023 are shown in the following tables:

Estimated Fair Value as of September 30, 2024
TotalLevel 1Level 2Level 3
in thousands
Financial Assets
Investments:
Corporate $213,964 $— $213,964 $— 
U.S. Treasury109,561 — 109,561 — 
States and municipalities39,929 — 39,929 — 
Foreign 18,634 — 18,634 — 
Asset-backed securities25,767 — 25,767 — 
Mortgage-backed securities114,357 — 114,357 — 
Common stocks11,580 11,580 — — 
Total$533,792 $11,580 $522,212 $— 
Estimated Fair Value as of December 31, 2023
TotalLevel 1Level 2Level 3
in thousands
Financial Assets
Fixed maturity securities, held to maturity:
Foreign$16,472 $— $16,472 $— 
Interest rate swap2,234 — 2,234 — 
Total$18,706 $— $18,706 $— 
Financial Liabilities
Public Warrants$9,488 $9,488 $— $— 
Private Warrants476 — — 476 
Underwriter Warrants53 — — 53 
OTM Warrants3,981 — — 3,981 
PIPE Warrants20,020 — — 20,020 
Total$34,018 $9,488 $— $24,530 

The following table presents a reconciliation of the Company's warrant liabilities that are classified as Level 3 within the fair value hierarchy for the nine months ended September 30, 2024 and 2023:

Private WarrantsUnderwriter WarrantsOTM WarrantsPIPE WarrantsTotal
in thousands
Balance at December 31, 2023
$476 $53 $3,981 $20,020 $24,530 
Change in fair value of warrant liabilities55 5 546 4,056 4,662 
Warrant Exchange (see Note 17)(531)(58)(4,527)(24,076)(29,192)
Balance at September 30, 2024
$— $— $— $— $— 
Balance at December 31, 2022
$673 $75 $4,706 $27,227 $32,681 
Change in fair value of warrant liabilities33 4 541 554 1,132 
Balance at September 30, 2023
$706 $79 $5,247 $27,781 $33,813 

24
5 — Notes Receivable

BAC provides financing solutions to qualified collectors and businesses by structuring loans secured by collector cars. The loans underwritten by BAC include term loans and short-term bridge financings. The loans underwritten by BAC are recorded on the Condensed Consolidated Balance Sheets within "Notes receivable".

Loans carry either a fixed or variable rate of interest and typically have an initial maturity of up to two years, often with an option for the borrower to renew for one year increments, provided the borrower remains in good standing, including maintaining a specified targeted loan-to-value ("LTV") ratio for the loan. The carrying value of the BAC loan portfolio approximates its fair value due to the relatively short-term maturities and the variable interest rates associated with most loans.

Beginning in December 2023, a portion of the lending activities of BAC are funded with borrowings drawn from the BAC Credit Facility, with the remainder funded by the Company's available liquidity. Prior to December 2023, the lending activities of BAC were funded primarily by the Company's available liquidity. Refer to Note 14 — Long-Term Debt for additional information regarding the BAC Credit Facility.

BAC aims to mitigate the risk associated with a potential devaluation in collateral by targeting an LTV ratio of 65% or less (i.e., the principal loan amount divided by the estimated value of the collateral at the time of underwriting). The LTV ratio is reassessed on a quarterly basis or if the loan is renewed. The LTV ratio is reassessed more frequently if there is a material change in the circumstances related to the loan, including if there is a material change in the value of the collateral, a material change in the borrower's disposal plans for the collateral, or if an event of default occurs. If, as a result of this reassessment, the LTV ratio increases above the target level, the borrower may be asked to make principal payments and/or post sufficient additional collateral to reduce the LTV ratio as a condition of future financing, renewal, or to avoid a default. In the event of a default by a borrower, BAC is entitled to sell the collateral to recover the outstanding principal, accrued interest balance, and any expenses incurred with respect to the recovery process.

Management considers the valuation of the underlying collateral and the LTV ratio as the two most critical credit quality indicators for the loans made by BAC. In estimating the value of the underlying collateral for BAC's loans, management utilizes its expertise in the collector car market and considers an array of factors impacting the current and expected sale value of each car including the year, make, model, mileage, history, and in the case of classic cars, the provenance, quality of restoration (if applicable), the originality of the body, chassis, and mechanical components, and comparable market transaction values.

The repayment of BAC's loans can be adversely impacted by a decline in the collector car market in general or in the value of the collateral, which may be concentrated within certain marques, vintages, or types of cars. In addition, in situations when BAC's claim on the collateral is subject to a legal process, the ability to realize proceeds from the collateral may be limited or delayed.

As of September 30, 2024, BAC's net notes receivable balance was $74.2 million, of which $62.5 million was classified within current assets and $11.7 million was classified within long-term assets on the Condensed Consolidated Balance Sheets. As of December 31, 2023, BAC's net notes receivable balance was $52.9 million, of which $35.9 million was classified within current assets and $17.0 million was classified within long-term assets on the Condensed Consolidated Balance Sheets. The classification of a loan as current or long-term takes into account the contractual maturity date of the loan, as well as known renewals after the balance sheet date.

The table below provides the aggregate LTV ratio for BAC's loan portfolio as of September 30, 2024 and December 31, 2023:

September 30,December 31,
20242023
in thousands
Secured loans$74,184 $52,914 
Estimate of collateral value$139,108 $108,496 
Aggregate LTV ratio53.3 %48.8 %

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As of September 30, 2024, four borrowers each had loan balances that exceeded 10% of the total loan portfolio. These loans total $42.1 million, representing 57% of the total loan portfolio. The collateral related to these loans was $79.1 million, resulting in an aggregate LTV ratio of 53%.

Management considers a loan to be past due when an interest payment is not paid within 10 business days of the monthly due date, or if the principal amount is not repaid by the contractual maturity date. Typically, a loan becomes past due only for a short period of time during which the loan is renewed or collateral is sold to satisfy the borrower's obligations. As of September 30, 2024 and December 31, 2023, the amount of past due principal and interest payments was not material.

A non-accrual loan is a loan for which future finance revenue is not recorded due to management's determination that it is probable that future interest on the loan will not be collectible. When a loan is placed on non-accrual status, any accrued interest receivable deemed not collectible is reversed against finance revenue. Any cash receipts subsequently received on non-accrual loans are first applied to reduce the recorded principal balance of the loan, with any proceeds in excess of the principal balance then applied to interest and expenses owed by the borrower. As of September 30, 2024 and December 31, 2023, there were no non-accrual loans.

As of September 30, 2024 and December 31, 2023, the allowance for expected credit losses related to the BAC loan portfolio was not material based on management's quarterly risk assessment, which takes into consideration a number of factors including the level of historical losses for similar loans, the quality of the collateral, the low LTV ratio of the loans, management's overall assessment of the current circumstances and risks related to each loan, and, to a lesser extent, the circumstances related to each borrower.

6 — Other Assets

As of September 30, 2024 and December 31, 2023, other assets, current and long-term, consisted of:

September 30,December 31,
20242023
in thousands
Prepaid Software as a Service implementation costs$36,169 $21,941 
Prepaid sales, general and administrative expenses16,744 21,300 
Deferred reinsurance premiums ceded (1)
21,867 10,474 
Other investments10,332 4,363 
Contract costs9,338 8,851 
Reinsurance recoverable7,803 2,783 
Inventory (2)
8,947 5,038 
Deferred financing costs3,953 5,053 
Accrued investment income3,760 104 
Other13,792 7,419 
Other assets$132,705 $87,326 
(1)    Deferred reinsurance premiums ceded consists of the unearned portion of premiums ceded by Hagerty Re to various reinsurers. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs.
(2)    Inventory primarily includes vehicles owned by Broad Arrow that have been purchased for resale purposes.


As of September 30, 2024, Other primarily included a $6.7 million tax receivable, $2.5 million of collector vehicle investments, and $2.3 million related to digital media content. As of December 31, 2023, Other primarily included $2.7 million of collector vehicle investments, $2.2 million related to digital media content, and the $2.2 million fair value of an interest rate swap.

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7 — Leases

The following table summarizes the components of the Company's operating lease expense for the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Operating lease expense (1)
$1,882 $3,172 $5,920 $9,472 
Short-term lease expense (1)
30 131 100 347 
Variable lease expense (1) (2)
1,475 2,031 3,375 3,680 
Sublease revenue (3)
(344)(202)(1,000)(399)
Lease cost, net$3,043 $5,132 $8,395 $13,100 
(1)    Classified within "General and administrative" on the Condensed Consolidated Statements of Operations.
(2)    Amounts include payments for maintenance, taxes, insurance, and payments affected by the Consumer Price Index.
(3)    Classified within "Membership, marketplace and other revenue" on the Condensed Consolidated Statements of Operations.

The following tables summarize supplemental balance sheet information related to operating leases as of September 30, 2024 and December 31, 2023:

September 30,December 31,
20242023
in thousands
Operating lease ROU assets $45,916 $50,515 
Current lease liabilities (1)
6,620 6,500 
Long-term lease liabilities44,866 50,459 
Total operating lease liabilities$51,486 $56,959 
September 30,December 31,
20242023
in thousands
ROU assets obtained in exchange for new operating lease liabilities$1,055 $632 
Weighted average lease term8.399.01
Weighted average discount rate4.9 %4.8 %
(1)    Current lease liabilities are recorded within "Accounts payable, accrued expenses and other current liabilities" on the Condensed Consolidated Balance Sheets.

The following table summarizes information about the amount and timing of the Company's future operating lease commitments as of September 30, 2024:

in thousands
2024$2,262 
20258,964 
20268,292 
20277,907 
20287,903 
Thereafter28,296 
Total lease payments63,624 
Less: imputed interest(12,138)
Total lease liabilities$51,486 
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8 — Acquisition

On September 1, 2024, the Company's subsidiary, Hagerty Insurance Holdings, Inc., acquired all of the issued and outstanding capital stock of Consolidated National Insurance Company, which was subsequently renamed to Drivers Edge, for a purchase price of $19.3 million, including $0.9 million in direct and incremental transaction costs. The acquisition of Drivers Edge is being accounted for as an asset acquisition with the $19.3 million purchase price allocated to approved state licenses ($11.3 million), cash and cash equivalents ($3.9 million), restricted fixed maturity securities ($3.7 million), and restricted cash and cash equivalents ($0.4 million).

9 — Divestitures

In 2023, management began a review of certain components of the Company's operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social, DriveShare, and Motorsport Reg ("MSR"), as discussed below. This initiative supports the Company's strategy to prioritize investments and resources in the areas of its business that offer the strongest growth and profit potential.

Hagerty Garage + Social

In the third quarter of 2023, Hagerty Ventures LLC ("HV"), a wholly owned subsidiary of THG, entered into an agreement with HGS Hub Holdings LLC ("H3") to terminate the joint venture agreement governing Member Hubs Holding, LLC ("MHH"), which operates as Hagerty Garage + Social. In connection with this agreement, H3's approximately 20% equity interest in MHH was redeemed and MHH's equity interests in the Palm Beach, Florida and Redmond, Washington locations of Hagerty Garage + Social were distributed to H3. Following the termination of the joint venture agreement, HV owns 100% of MHH and its remaining Hagerty Garage + Social locations in Delray Beach, Florida; Miami, Florida; Van Nuys, California; and Burlington, Ontario.

As a result of the joint venture termination, the Company recognized a loss of $2.9 million in the third quarter of 2023, representing the difference between the fair value of the approximately 20% equity interest in MHH received by HV and the carrying value of the equity interests distributed to H3. The fair value of the approximately 20% equity interest received by MHH is a Level 3 fair value measurement and was determined using a combination of the discounted cash flow model and the adjusted book value method. This loss is recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.

Immediately prior to the joint venture termination, MHH entered into an agreement to terminate the real estate lease held by the Culver City, California location of Hagerty Garage + Social. In connection with this lease termination agreement, MHH paid a termination fee funded by the Company and H3 in exchange for the extinguishment of its remaining obligations under the lease. As a result of this lease termination, the Company recognized a loss of $0.6 million in the third quarter of 2023, consisting of the lease termination fee paid to the landlord, partially offset by the net effect of the derecognition of the assets and liabilities related to the lease. This loss is reported within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations. Following this lease termination, MHH no longer operates a Hagerty Garage + Social location in Culver City, California.

Hagerty DriveShare

In the third quarter of 2023, THG entered into an agreement to sell Hagerty DriveShare, LLC ("DriveShare"), a peer-to-peer rental platform for collector vehicles, to a third party. The sale was completed on October 9, 2023. The Company recognized a $0.4 million loss related to this sale in the third quarter of 2023, which was recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.

Motorsport Reg

In the second quarter of 2024, THG entered into an agreement to sell substantially all of the assets and liabilities of MSR, a motorsport membership, licensing and event online management system, to a third party. The material elements of the sale consideration include a fixed purchase price and a contingent payment opportunity, based on future performance. The Company recognized a $0.1 million gain related to the sale of MSR in the second quarter of 2024, which was recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.

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10 — Intangible Assets

The cost and accumulated amortization of intangible assets as of September 30, 2024 and December 31, 2023 are as follows:

Weighted Average Useful LifeSeptember 30,December 31,
20242023
in thousands
Internally developed software3.3$134,299 $126,972 
Renewal rights9.919,702 20,226 
Trade names and trademarks14.112,061 12,541 
State licenses (1)
Indefinite11,288 — 
Relationships and customer lists15.47,998 8,876 
Other4.21,095 1,445 
Intangible assets186,443 170,060 
Less: accumulated amortization(94,408)(78,136)
Intangible assets, net$92,035 $91,924 
(1)    Represents approved state licenses related to the acquisition of Drivers Edge. Refer to Note 8 — Acquisition for additional details.

Intangible asset amortization expense was $6.2 million and $7.1 million for the three months ended September 30, 2024 and 2023, respectively, and $20.5 million and $20.9 million for the nine months ended September 30, 2024 and 2023, respectively.

Estimated future aggregate amortization expense related to intangible assets as of September 30, 2024 is as follows:

in thousands
2024$6,284 
202523,032 
202616,687 
202713,110 
20288,031 
Thereafter13,603 
Total$80,747 

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11 — Provision for Unpaid Losses and Loss Adjustment Expenses

The following table presents a reconciliation of the beginning and ending provision for unpaid losses and loss adjustment expenses related to Hagerty Re, net of amounts recoverable from various reinsurers:

Nine months ended September 30,
2024
2023
in thousands
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year$136,507 $111,741 
Less: Reinsurance recoverable on unpaid losses and loss adjustment expenses2,235 843 
Net reserves for unpaid losses and loss adjustment expenses, beginning of year
134,272 110,898 
Incurred losses and loss adjustment expenses:
Current accident year226,515 159,461 
Prior accident year— — 
Total incurred losses and loss adjustment expenses226,515 159,461 
Payments:
Current accident year50,683 35,993 
Prior accident year59,090 44,499 
Total payments109,773 80,492 
Effect of foreign currency rate changes84 (42)
Net reserves for unpaid losses and loss adjustment expenses, end of period
251,098 189,825 
Reinsurance recoverable on unpaid losses and loss adjustment expenses7,738 959 
Gross reserves for unpaid losses and loss adjustment expenses, end of period
$258,836 $190,784 

Hagerty Re's loss reserve estimates are updated based on an evaluation of inputs from many sources, including actual claims data, the performance of prior reserve estimates, observed industry trends, and internal review processes, including the views of the Company's actuary. These inputs are used to improve evaluation techniques and to analyze and assess the change in estimated ultimate losses for each accident year by line of business. These analyses produce a range of indications from various methods, from which an actuarial point estimate is recorded.

Losses and loss adjustment expenses for the nine months ended September 30, 2024 includes $24.7 million of estimated pre-tax losses related to Hurricane Helene. Claims from Hurricane Helene, which made landfall on September 26, 2024, are still being processed. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions, and therefore, the estimate may change as additional information emerges. Any losses above $28.0 million for this event will be recoverable under the Company's catastrophe reinsurance program. Refer to Note 12 — Reinsurance for additional information.

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12 — Reinsurance

The following table presents Hagerty Re's total premiums assumed and ceded on a written and earned basis for the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Premiums:
Assumed$199,721 $178,319 $574,742 $498,962 
Ceded(9,906)(5,838)(42,875)(28,107)
Net$189,815 $172,481 $531,867 $470,855 
Premiums earned:
Assumed$176,611 $146,004 $506,398 $398,524 
Ceded(10,925)(6,219)(31,481)(14,026)
Net$165,686 $139,785 $474,917 $384,498 

The following table presents gross, ceded, and net losses and loss adjustment expenses incurred for the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Gross losses and loss adjustment expenses$101,254 $58,014 $235,390 $159,791 
Ceded losses and loss adjustment expenses(1,824)(529)(8,875)(330)
Net losses and loss adjustment expenses$99,430 $57,485 $226,515 $159,461 

Ceded Reinsurance

Hagerty Re purchases catastrophe reinsurance to protect its capital from large catastrophic events and to provide earnings protection and stability. Hagerty Re renegotiated its catastrophe reinsurance coverage effective January 1, 2024, with terms and limits similar to 2023. The 2024 catastrophe reinsurance program for accounts with total insured values ("TIV") of up to $5.0 million affords coverage in excess of a per event retention of $28.0 million in two layers; $22.0 million excess of $28.0 million, and $55.0 million excess of $50.0 million for a total of $105.0 million.

In 2023, Hagerty Re had quota share agreements with various reinsurers to cede 70% of its physical damage exposure on U.S. accounts written or renewed with TIV equal to or greater than $5.0 million ("High-Net-Worth Accounts"). These High-Net-Worth Accounts are assumed 100% from a wholly owned subsidiary of Markel. Effective January 1, 2024, Hagerty Re is ceding 100% of its High-Net-Worth Accounts physical damage exposure via quota share agreements with various reinsurers. Some of the reinsurers involved in these quota share agreements are related parties. Refer to Note 21 — Related-Party Transactions for additional information.

Hagerty Re receives ceding commissions related to premiums ceded under reinsurance contracts related to High-Net-Worth Accounts. Ceding commissions are recognized ratably over the terms of the related policies, which are generally 12 months, and are recorded within "Ceding commissions, net" in the Company's Condensed Consolidated Statements of Operations. Deferred portions of ceding commissions received are included in "Deferred acquisition costs, net" on the Company's Condensed Consolidated Balance Sheets.

Reinsurance contracts do not relieve Hagerty Re from its primary liability to the ceding carriers according to the terms of its reinsurance treaties. Failure of reinsurers to honor their obligations could result in additional losses to Hagerty Re. Hagerty Re evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure to individual reinsurers. All of Hagerty Re's reinsurers have an A.M. Best rating of A- (Excellent) or better, or fully collateralize their maximum obligation under the treaty.

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13 — Restructuring, Impairment and Related Charges

In the first quarter of 2023, the Company's board of directors (the "Board") approved a reduction in force (the "2023 RIF") following a strategic review of business processes as the Company focuses on driving efficiencies in order to achieve growth and profitability goals. As a result of these actions, the Company recognized $5.5 million within "Restructuring, impairment and related charges, net" in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023. These charges consisted of $5.1 million of severance-related costs associated with the 2023 RIF and a $0.4 million impairment charge to write-down the value of certain digital media content assets.

In the second quarter of 2023, the Company recognized $2.8 million of "Restructuring, impairment and related charges, net". These charges consisted of $2.6 million of impairment and related charges associated with operating lease ROU assets and leasehold improvements for office space that was vacated and listed for sublease in the period as a result of the Company's continuing transition to a "remote first" work model. The amount recognized in the second quarter of 2023 also included $0.2 million of additional severance related costs associated with the 2023 RIF.

In the third quarter of 2023, the Company recognized $0.5 million of costs associated with its vacated office space within "Restructuring, impairment and related charges, net".

As of December 31, 2023, all liabilities associated with the 2023 RIF were settled.

14 — Long-Term Debt
As of September 30, 2024 and December 31, 2023, "Long-term debt, net" consisted of the following:

September 30,December 31,
Maturity20242023
in thousands
JPM Credit FacilityOctober 2026$51,791 $77,258 
BAC Credit FacilityDecember 202646,118 25,782 
State Farm Term LoanSeptember 203325,000 25,000 
Notes payable
2024-2025
2,113 6,875 
Total debt125,022 134,915 
Less: Notes payable, current portion(1,620)(3,654)
Less: Unamortized debt issuance costs(535)(581)
Total long-term debt, net$122,867 $130,680 

JPM Credit Facility

THG has a credit agreement with JPMorgan Chase Bank, N.A. ("JPM"), as administrative agent, and the other financial institutions party thereto from time to time as lenders, as amended (the "JPM Credit Agreement").

The JPM Credit Agreement provides for a revolving credit facility (the "JPM Credit Facility") with an aggregate borrowing capacity of $305.0 million, including the new $75.0 million commitment provided by Wells Fargo Bank, National Association in May 2024. Additionally, the JPM Credit Agreement provides for the issuance of letters of credit of up to $25.0 million and borrowings in the British Pound and Euro of up to $40.0 million in the aggregate. The JPM Credit Agreement matures in October 2026, but may be extended if agreed to by the Company and the lenders party thereto. Any unpaid balance on the JPM Credit Facility is due at maturity.

The JPM Credit Facility accrues interest at the applicable reference rate, primarily Term SOFR, depending on the currency of the borrowing plus an applicable margin determined by the Company's net leverage ratio for the preceding period (as defined in the JPM Credit Agreement). The effective interest rate related to the JPM Credit Facility was 6.88% and 7.41% for the nine months ended September 30, 2024 and 2023, respectively.

JPM Credit Facility borrowings are collateralized by the assets and equity interests in THG and its consolidated subsidiaries, except for (i) the assets held by the SPEs related to the BAC Credit Facility and (ii) all or a portion of foreign and certain excluded or immaterial subsidiaries.

Under the JPM Credit Agreement, THG is required, among other things, to meet certain financial covenants (as defined in the JPM Credit Agreement), including a fixed charge coverage ratio and a leverage ratio. As of September 30, 2024, the Company was in compliance with the financial covenants under the JPM Credit Agreement.

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BAC Credit Facility

In December 2023, BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into a revolving credit facility with a certain lender (the "BAC Credit Agreement"). The BAC Credit Agreement provides for a revolving credit facility (the "BAC Credit Facility"), which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined based on the carrying value of certain BAC notes receivable. As of September 30, 2024, the applicable borrowing base for the BAC Credit Agreement was $46.1 million.

The revolving borrowing period provided by the BAC Credit Agreement expires on December 21, 2025 and the BAC Credit Agreement matures on December 21, 2026. The revolving borrowing period and the maturity date of the BAC Credit Agreement 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.

In connection with the BAC Credit Agreement, BAC and certain of its subsidiaries may transfer originated notes receivable to wholly owned, bankruptcy remote SPEs to secure the borrowings. The assets transferred to SPEs are legally isolated from us and our other (non-SPE) subsidiaries. Accordingly, those assets are not available to satisfy our debts or other obligations and our recourse under the BAC Credit Agreement is limited.

Recourse to the Company and its subsidiaries that originated and transferred notes receivable that represent collateral under the BAC Credit Facility 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 covering 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 under the BAC Credit Agreement, 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, 2024, the Company was in compliance with the financial covenants under the BAC Credit Agreement.

State Farm Term Loan

In September 2023, Hagerty Re entered into an unsecured term loan credit facility with State Farm in the aggregate principal amount of $25.0 million (the "State Farm Term Loan"). The State Farm Term Loan bears interest at a rate of 8.0% per annum and will mature in September 2033. State Farm is a related party to the Company. Refer to Note 21 — Related-Party Transactions for additional information.

Notes Payable

As of September 30, 2024 and December 31, 2023, the Company had outstanding notes payable, which are used to fund certain loans made by BAC in the United Kingdom ("U.K."), totaling $2.1 million and $6.9 million, respectively. The effective interest rates for these notes payable range from 8.5% to 9.8% with repayment due between December 2024 and October 2025. Refer to Note 5 — Notes Receivable for additional information on the lending activities of BAC.

Letters of Credit

As of September 30, 2024, the Company has authorized three letters of credit for a total of $11.1 million for operational purposes related to Hagerty Re's Section 953(d) tax structuring election and lease down payment support.

15 — Convertible Preferred Stock

In June 2023, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain accredited investors (the "Investors"), pursuant to which it closed, issued and sold (the "Closing") to the Investors an aggregate of 8,483,561 shares of the Company's newly-designated Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $80.0 million, at a per-share purchase price of $9.43 (the "Series A Purchase Price" and the transaction, the "Private Placement").

The Investors include State Farm, Markel, and persons related to Hagerty Holding Corp. ("HHC"). State Farm and Markel are both significant stockholders of the Company, each holding in excess of 5% of the outstanding common stock. McKeel Hagerty is the Company's CEO and the Chairman of its Board. Mr. Hagerty and Tammy Hagerty may be deemed to control HHC, which is the controlling stockholder of the Company. Prior to and continuing after the Private Placement, each of State Farm and Markel have the right to nominate one director to the Company's Board and HHC has the right to nominate two directors to the Company's Board. Refer to Note 16 — Stockholders' Equity and Note 21 — Related-Party Transactions for additional information.

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The net proceeds from the Private Placement after deducting issuance costs of approximately $0.8 million were $79.2 million, which was recorded within Temporary Equity on the Company's Condensed Consolidated Balance Sheets. The Company used the net proceeds from the Private Placement for general corporate purposes.

As of September 30, 2024, the estimated redemption value of the Series A Convertible Preferred Stock was $115.4 million, which represents the maximum cash payment, including cumulative dividends, that would be required to be paid if the Optional Term Redemption provision in the Certificate of Designations, as summarized below, is exercised as of the earliest possible redemption date of June 23, 2028. The decision to redeem the Series A Convertible Preferred Stock for cash is made at the discretion of the Company; however, the Company is controlled by HHC through its voting control of the Company. Accordingly, the redemption of the Series A Convertible Preferred Stock is considered outside the control of the Company and, as a result, the Series A Convertible Preferred Stock is recorded within Temporary Equity on the Company's Condensed Consolidated Balance Sheets.

The Company has elected to apply the accretion method to adjust the carrying value of the Series A Convertible Preferred Stock to its estimated redemption value. Amounts recognized to accrete the Series A Convertible Preferred Stock to its estimated redemption value are treated as a deemed dividend and are recorded as a reduction to "Additional paid-in capital". The estimated redemption value may vary in subsequent periods and the Company has elected to recognize such changes prospectively.

The captioned sections below provide a summary of the material terms of the Series A Convertible Preferred Stock, as set forth in the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the "Certificate of Designations").

Ranking — The Series A Convertible Preferred Stock ranks senior to the Class A Common Stock, the Class V Common Stock, and each other class or series of shares of the Company that the Company may issue in the future the terms of which do not expressly provide that such class or series ranks equally with, or senior to, the Series A Convertible Preferred Stock, with respect to dividend rights and/or rights upon liquidation, winding up or dissolution.

Dividends — Dividends on the Series A Convertible Preferred Stock are cumulative and accrue from the date of issuance at the rate per annum of 7% of the Series A Purchase Price of each share, plus the amount of previously accrued dividends, compounded annually (the "Accruing Dividends"). The Company may elect to pay the Accruing Dividends either in cash or in additional shares of Series A Convertible Preferred Stock. Prior to the third anniversary of the Closing, the Series A Convertible Preferred Stock will participate on an as-converted basis in dividends declared and paid on the Class A Common Stock. In June 2024, the Company paid $5.6 million of cash dividends on the Series A Convertible Preferred Stock to the Investors.

Conversion — Any shares of Series A Convertible Preferred Stock may, at the option of the holder, be converted at any time into shares of Class A Common Stock. The conversion price for the Series A Convertible Preferred Stock is initially $11.79 and is subject to adjustment upon certain events, including a stock split, a reverse stock split, or a dividend of the Class A Common Stock or Class V Common Stock to the Company’s common stockholders (as adjusted, the "Conversion Price"). The Company may require such conversion (i) if the closing price per share of Class A Common Stock, for at least twenty (20) of any thirty (30) consecutive trading days, exceeds: (a) on or after the third and prior to the seventh anniversary of the Closing, 150% of the Conversion Price; or (b) on or after the seventh and prior to the tenth anniversary of the Closing, 100% of the Conversion Price; and (ii) on or after the tenth anniversary of the Closing. The conversion rate in effect at any applicable time (the "Conversion Rate") is the quotient obtained by dividing the Series A Purchase Price by the Conversion Price.

As of September 30, 2024, no shares of Series A Convertible Preferred Stock had been converted and the outstanding shares of Series A Convertible Preferred Stock were convertible into 6,785,410 shares of Class A Common Stock.

Voting — The Series A Convertible Preferred Stock votes together with the Class A Common Stock on an as-converted basis, and not as a separate class. The Investors have veto rights over (i) changes to the terms of the Certificate of Designations or the Company's certificate of incorporation or bylaws that adversely impact the Series A Convertible Preferred Stock and (ii) the issuance of equity securities senior to the Series A Convertible Preferred Stock or other securities convertible thereto.

Liquidation Preference — In the event of any liquidation, dissolution or winding up of the Company, each share of Series A Convertible Preferred Stock will be paid the greater of (i) the Series A Purchase Price plus any Accruing Dividends accrued but unpaid thereon, and (ii) the amount that such share of Series A Convertible Preferred Stock would have received had it converted into the Class A Common Stock immediately prior to such liquidation, dissolution or winding up of the Company (the "Liquidation Preference"). After payment of the Liquidation Preference, the Series A Convertible Preferred Stock will no longer be convertible and will not participate in any distribution made to the holders of the Class A Common Stock or Class V Common Stock.

34
Change of Control — Upon a merger, consolidation, sale or other change of control transaction as described in the Certificate of Designations (a "Change of Control"), either (i) the Company may elect to redeem the Series A Convertible Preferred Stock or (ii) each holder of Series A Convertible Preferred Stock, individually, may require the Company to redeem all or any portion of the Series A Convertible Preferred Stock. The redemption price per share to be paid by the Company would be the greater of: (a) the Series A Purchase Price plus any accrued but unpaid Accruing Dividends multiplied by (i) if prior to or on the third anniversary of the Closing, 120%; (ii) if after the third but prior to or on the fifth anniversary of the Closing, 110%; (iii) if after the fifth anniversary of the Closing, 100%; and (b) the amount such share of Series A Convertible Preferred Stock would have received had it converted into the Class A Common Stock prior to the Change of Control. Any shares of Series A Convertible Preferred Stock that are not so redeemed will automatically convert into shares of Class A Common Stock and be paid in connection with the Change of Control.

Fundamental Transaction — In the event of any acquisition by the Company with a transaction value of at least $500.0 million or any equity or debt financing by the Company that raises at least $500.0 million, either (i) the Company may elect to redeem the Series A Convertible Preferred Stock, or (ii) each holder of Series A Convertible Preferred Stock, individually, may require the Company to redeem all or any portion of its Series A Convertible Preferred Stock. The redemption price per share to be paid by the Company would be the Series A Convertible Preferred Stock plus any accrued but unpaid Accruing Dividends multiplied by: (a) if prior to or on the third anniversary of the Closing, 120%; (b) if after the third but prior to or on the fifth anniversary of the Closing, 110%; (c) if after the fifth but prior to or on the sixth anniversary of the Closing, 108%; (d) if after the sixth but prior to or on the seventh anniversary of the Closing, 106%; (e) if after the seventh but prior to or on the eighth anniversary of the Closing, 104%; (f) if after the eighth but prior to or on the ninth anniversary of the Closing, 102%; or (g) if after the ninth anniversary of the Closing, 100%.

Optional Term Redemption — Any time after the fifth anniversary of the Closing, the Company may redeem all or any portion of the then-outstanding shares of the Series A Convertible Preferred Stock for cash (a "Term Redemption"). The redemption price per share to be paid by the Company would be equal to the greater of: (i) the Series A Purchase Price plus any accrued but unpaid Accruing Dividends multiplied by: (a) if after the fifth but prior to the sixth anniversary of the Closing, 110%; (b) if on or after the sixth but prior to the seventh anniversary of the Closing, 108%; (c) if on or after the seventh but prior to the eighth anniversary of the Closing, 106%; (d) if on or after the eighth but prior to the ninth anniversary of the Closing, 104%; (e) if on or after the ninth but prior to tenth anniversary of the Closing, 102%; or (f) if on or after the tenth anniversary of the Closing, 100%; and (ii) the amount such share of Series A Convertible Preferred Stock would have received had it converted into Class A Common Stock prior to the Term Redemption.

Registration Rights Agreement — In connection with the Private Placement, the Company entered into a registration rights agreement with the Investors (the "Registration Rights Agreement") pursuant to which, the Investors will be entitled to certain demand, shelf and piggyback registration rights with respect to the Series A Convertible Preferred Stock and shares of the Class A Common Stock issuable upon conversion thereof.

16 — Stockholders' Equity

Class A Common Stock

Hagerty, Inc. is authorized to issue 500,000,000 shares of Class A Common Stock with a par value of $0.0001 per share. Holders of Class A Common Stock are entitled to one vote for each share. As of September 30, 2024 and December 31, 2023, there were 89,980,363 and 84,588,536 shares of Class A Common Stock issued and outstanding, respectively.

Class V Common Stock

Hagerty, Inc. is authorized to issue 300,000,000 shares of Class V Common Stock with a par value of $0.0001 per share. Class V Common Stock represents voting, non-economic interests in Hagerty, Inc. Holders of Class V Common Stock are entitled to 10 votes for each share. In connection with the business combination that formed Hagerty, Inc. in 2021, shares of Class V Common Stock were issued to HHC and Markel (together, the "Legacy Unit Holders") along with an equivalent number of THG units, as discussed below. Each share of Class V Common Stock, together with the corresponding unit of THG, is exchangeable for one share of Class A Common Stock. As of September 30, 2024 and December 31, 2023, there were 251,033,906 shares of Class V Common Stock issued and outstanding.

Preferred Stock

Hagerty, Inc. is authorized to issue 20,000,000 shares of Preferred Stock with a par value of $0.0001 per share. Hagerty, Inc.'s Board has the authority to issue shares of Preferred Stock with such designations, voting and other rights and preferences as may be determined from time to time.

In June 2023, Hagerty, Inc. issued 8,483,561 shares of newly-designated Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $80.0 million, at a per-share purchase price of $9.43. As of September 30, 2024 and December 31, 2023, there were 8,483,561 shares of Preferred Stock issued and outstanding. Refer to Note 15 — Convertible Preferred Stock for additional information.
35

Non-controlling Interests

Hagerty, Inc. is the sole managing member of THG and, as a result, consolidates the financial statements of THG into its Condensed Consolidated Financial Statements. The Company reports a non-controlling interest representing the economic interest in THG held by other unit holders of THG. Hagerty, Inc. owns one THG unit for each share of Class A Common Stock outstanding.

The following table summarizes the changes in ownership of THG units for the periods presented:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
THG units held by Hagerty, Inc.
Beginning of period85,703,286 84,405,625 84,588,536 83,202,969 
Issuance of shares under employee plans211,582 73,440 1,194,808 1,016,794 
Exchange of THG units for Class A Common Stock189,294 — 320,818 259,302 
Warrant Exchange (see Note 17)3,876,201 — 3,876,201 — 
End of period89,980,363 84,479,065 89,980,363 84,479,065 
Ownership percentage
Beginning of period25.1 %24.8 %24.9 %24.5 %
End of period26.1 %24.8 %26.1 %24.8 %
THG units held by other unit holders
Beginning of period255,367,640 255,499,164 255,499,164 255,758,466 
Exchange of THG units for Class A Common Stock(189,294)— (320,818)(259,302)
End of period255,178,346 255,499,164 255,178,346 255,499,164 
Ownership percentage
Beginning of period74.9 %75.2 %75.1 %75.5 %
End of period73.9 %75.2 %73.9 %75.2 %
Total THG units outstanding345,158,709 339,978,229 345,158,709 339,978,229 

At the end of each reporting period, THG equity attributable to Hagerty, Inc. and the non-controlling unit holders, respectively, is reallocated to reflect their current ownership in THG.

36
Share-Based Compensation

Employees of THG subsidiaries are awarded share-based compensation in the form of restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") under the Company's 2021 Stock Incentive Plan. Upon the vesting of these awards, the employees receive shares of Class A Common Stock and the Company is issued an equivalent number of THG units. Employees of THG subsidiaries may also participate in the Company's 2021 Employee Stock Purchase Plan under which these employees may purchase shares of Class A Common Stock at a discounted price and the Company is issued an equivalent number of THG units.

During the nine months ended September 30, 2024 and 2023, the Company received 1,194,808 and 1,016,794, respectively, of THG units in connection with shares of Class A Common Stock that were issued as a result of share-based compensation awards vesting under the Company's 2021 Stock Incentive Plan, as well as shares purchased in connection with the ESPP (as defined in 18 — Share-Based Compensation). In addition, during the nine months ended September 30, 2023, the Company received 118,009 of THG units in connection with shares of Class A Common Stock that were issued related to the Company's 2021 Employee Stock Purchase Plan.

Exchange of THG Units

Each THG unit and, if applicable, the associated share of Class V Common Stock, is exchangeable for one share of Class A Common Stock. In connection with any such exchange, Hagerty, Inc. receives a corresponding number of THG units, thereby increasing its ownership interest in THG. Changes in Hagerty, Inc.'s ownership interest in THG while retaining its controlling interest are accounted for as equity transactions. Accordingly, exchanges of THG units by unit holders other than Hagerty, Inc. increase Hagerty, Inc.'s ownership in THG, thereby reducing the amount recorded as "Non-controlling interest" and increasing "Additional paid-in capital".

During the nine months ended September 30, 2024 and 2023, 320,818 and 259,302, respectively, of THG units were exchanged for an equal number of shares of Class A Common Stock. These exchanges resulted in reductions to "Non-controlling interest" and corresponding increases to "Additional paid-in capital" of $3.2 million and $2.3 million, respectively, representing the fair value of Class A Common Stock on the date of each exchange.

THG Preferred Units

In connection with the Private Placement, the Fourth Amended and Restated Limited Liability Company Agreement of THG was amended and restated in the form of a Fifth Amended and Restated Limited Liability Company Agreement (as subsequently amended and restated, the "THG LLC Agreement"), to, among other things, create a new series of preferred units within THG (the "THG Preferred Units"). The terms of the THG Preferred Units parallel the terms of the Series A Convertible Preferred Stock and are held entirely by Hagerty, Inc.

The THG Preferred Units are recorded on the financial statements of THG based on their estimated redemption value, which represents the maximum cash payment, including cumulative dividends, that would be required to be paid to Hagerty, Inc. if the Optional Term Redemption of the Series A Convertible Preferred Stock is exercised. Amounts recognized to accrete the THG Preferred Units to their estimated redemption value are treated as a deemed dividend due to Hagerty, Inc. The amount of this deemed dividend is attributed entirely to Hagerty, Inc. prior to allocating the remainder of THG's net income between controlling and non-controlling interests. In June 2024, THG paid $5.6 million of cash dividends to Hagerty, Inc. on the THG Preferred Units. Refer to Note 15 — Convertible Preferred Stock for additional information on the Private Placement and the Series A Convertible Preferred Stock.

Distributions to Unit Holders of THG

Under the terms of the THG LLC Agreement, THG is obligated to make tax distributions to its unit holders. During the nine months ended September 30, 2024, THG made tax distributions of $5.3 million to non-controlling interest unit holders and $1.1 million of tax distributions to Hagerty, Inc. There were no such tax distributions during the nine months ended September 30, 2023.

17 — Warrant Exchange

On June 3, 2024, the Company commenced an exchange offer (the "Offer") and consent solicitation (the "Consent Solicitation") relating to its (i) Public Warrants, (ii) Private Warrants, (iii) the Underwriter Warrants, (iv) the OTM Warrants (together with the Private Warrants and the Underwriter Warrants, the "Private Placement Warrants") and (v) PIPE Warrants (together with the Public Warrants and Private Placement Warrants, the "Warrants"), which provided all holders of the Warrants the opportunity to receive 0.20 shares of Class A Common Stock in exchange for each outstanding Warrant tendered by the holder and exchanged pursuant to the Offer.

37
Concurrently with the Offer, the Company solicited consents from holders of the Warrants to amend (a) the warrant agreement governing the Public Warrants and Private Placement Warrants (the "IPO Warrant Amendment") and (b) the warrant agreement governing the PIPE Warrants (the "Business Combination Warrant Amendment" and together with the IPO Warrant Amendment, the "Warrant Amendments") to permit the Company to require that each Warrant that is outstanding upon the closing of the Offer be exchanged for 0.18 shares of Class A Common Stock, which is a ratio 10% less than the exchange ratio applicable to the Offer (the "Post-Offer Exchange"). Pursuant to the terms of the applicable warrant agreements, the IPO Warrant Amendment requires the vote or written consent of holders of both of (i) 50% of the Public Warrants outstanding and (ii) 50% of the Private Placement Warrants outstanding, and the Business Combination Warrant Amendment requires the vote or written consent of holders of 50% of the PIPE Warrants outstanding.

The Offer and Consent Solicitation expired on July 3, 2024 with (i) 5,019,278 Public Warrants, or approximately 87.3% of the outstanding Public Warrants, (ii) 1,561,381 Private Placement Warrants, or approximately 98.4% of the outstanding Private Placement Warrants, and (iii) 11,850,300 PIPE Warrants, or approximately 97.6% of the outstanding PIPE Warrants, being validly tendered prior to the expiration of the Offer. The Company completed the settlement and exchange of such warrants, each for 0.20 shares of Class A Common Stock, on July 5, 2024, which resulted in the issuance of 3,686,056 shares of Class A Common Stock. Following the expiration of the Offer, the Company processed Warrant exercises and settled the Post-Offer Exchange for the Warrants that remained outstanding, which resulted in the issuance of 189,438 shares of Class A Common Stock.

In the aggregate, the Company 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 Post-Offer Exchange. Accordingly, the Warrants that had been listed on the New York Stock Exchange were suspended from trading as of the close of business on July 19, 2024, and subsequently delisted.

In the third quarter of 2024, the Company recorded increases to "Class A Common Stock" and "Additional paid-in capital", representing the $42.6 million fair value of the Class A Common Stock that was issued in connection with the Warrant Exchange. The difference between the fair value of the Warrants immediately prior to the Warrant Exchange and the fair value of Class A Common Stock issued resulted in a $2.0 million loss, which is reflected within "Gain (loss) related to warrant liabilities, net" in the Condensed Consolidated Statements of Operations.

18 — Share-Based Compensation

The Company's 2021 Stock Incentive Plan provides for the issuance of up to approximately 38.3 million shares of Class A Common Stock to employees and non-employee directors. The 2021 Stock Incentive Plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock awards, stock appreciation rights, RSUs, and PRSUs. As of September 30, 2024, there were approximately 27.5 million shares available for future grants under the 2021 Stock Incentive Plan.

Share-based compensation expense related to employees is recognized in the Condensed Consolidated Statements of Operations within "Salaries and benefits" and, to a much lesser extent, when applicable, "Restructuring, impairment and related charges, net". Share-based compensation expense related to non-employee directors is recognized within "General and administrative". The Company recognizes forfeitures of share-based compensation awards in the period in which they occur.

The following table summarizes share-based compensation expense recognized during the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Restricted stock units$2,962 $4,220 $10,004 $10,846 
Performance restricted stock units1,130 715 3,014 2,146 
Employee stock purchase plan— — — 165 
Total share-based compensation expense$4,092 $4,935 $13,018 $13,157 

Restricted Stock Units

RSUs typically vest over a two to five-year period based on the requisite service period. The grant date fair value is determined based on the closing market price of the Class A Common Stock on the business day prior to the grant date and the related share-based compensation expense is recognized over the vesting period on a straight-line basis.

38
The following table provides a summary of RSU activity during the nine months ended September 30, 2024:

Restricted Stock UnitsWeighted Average Grant Date Fair Value
Unvested balance as of December 31, 2023
4,678,032$9.88 
Granted941,4929.20 
Vested (1)
(1,805,137)10.15 
Forfeited(124,670)9.58 
Unvested balance as of September 30, 2024
3,689,717$9.58 
(1)    For the nine months ended September 30, 2024, 1,194,808 shares of Class A Common Stock were issued related to the vesting of RSUs in the period, net of shares withheld for the funding of employee tax obligations.

The following table provides additional data related to RSU award activity during the nine months ended September 30, 2024 and 2023:

Nine months ended
September 30,
20242023
in thousands (except years)
Total fair value of shares vested (1)
$18,324 $9,710 
Unrecognized compensation expense$28,962 $36,413 
Weighted-average period awards are expected to be recognized (in years)2.933.41
(1)    The tax impact related to vested RSUs for the nine months ended September 30, 2024 and 2023 was not material to the Company's Condensed Consolidated Financial Statements due to the full valuation allowance on the deferred tax asset for the investment in the assets of THG.

Performance Restricted Stock Units

Market Condition PRSUs

In April 2022, the Company's Chief Executive Officer was granted 3,707,136 market condition PRSUs, which provide him the opportunity to receive up to 3,707,136 shares of Class A Common Stock. The award had a grant date fair value of approximately $19.2 million, which was estimated using a Monte Carlo simulation model. These PRSUs have both market-based and service-based vesting conditions. Shares of Class A Common Stock issuable under this award can be earned based on the achievement of the following stock price targets: (i) 25% of the shares can be earned when the stock price of the Class A Common Stock exceeds $20.00 per share for 60 consecutive days, (ii) 25% of the shares can be earned when the stock price of the Class A Common Stock exceeds $25.00 per share for 60 consecutive days, and (iii) 50% of the shares can be earned when the stock price of the Class A Common Stock exceeds $30.00 per share for 60 consecutive days. These market-based conditions must be met in order for the PRSUs to vest; therefore, it is possible that no shares will ultimately vest. If any of the market-based conditions are met, the PRSUs will vest contingent upon continued service through the earlier of three years after achievement of the stock price target or the end of the seven-year performance period. As of September 30, 2024, no market condition PRSUs had vested.

The Company will recognize the entire $19.2 million of compensation expense for this award over the requisite service period, regardless of whether such market-based conditions are met. As of September 30, 2024, unrecognized compensation expense related to this award was $12.1 million, which the Company expects to recognize over a period of 4.50 years.

39
The following table summarizes the assumptions and related information used to determine the grant-date fair value of the market condition PRSUs awarded in April 2022:

InputsPerformance Restricted Stock Units
Weighted average grant-date fair value per share$5.19
Expected stock volatility35%
Expected term (in years)7.0
Risk-free interest rate2.5%
Dividend yield—%

Performance Condition PRSUs

On March 29, 2024, the Talent, Culture, and Compensation Committee (the "Compensation Committee") of the Board adopted a new form of PRSU award agreement (the "2024 PRSU Agreement") to be used for awards of PRSUs to certain employees under the Company's 2021 Stock Incentive Plan.

PRSUs granted under the 2024 PRSU Agreement will be eligible to vest subject to the satisfaction of both performance-based and service-based conditions. The performance-based vesting condition will be satisfied contingent upon the Company's level of performance over the designated performance period (the "Performance Period") as measured against a financial performance target (the "Performance Target"), each as determined by the Compensation Committee. Following the end of the Performance Period, the Compensation Committee will determine the applicable attained performance level with payout percentages ranging from 35% to 200% (each, a "Payout Percentage") of the target number of PRSUs awarded. In the event of a Change in Control (as defined in the 2024 PRSU Agreement) before the end of a scheduled Performance Period, the Compensation Committee retains discretion to end the Performance Period early and measure performance levels as of a revised measurement date.

If both the service-based and performance-based vesting conditions are satisfied, the PRSU holder will be entitled to receive the number of shares of Class A Common Stock, if any, determined by multiplying the aggregate number of PRSUs subject to the applicable PRSU Agreement by the applicable Payout Percentage that corresponds to the level of achievement of the Performance Target pursuant to the payout formula approved by the Compensation Committee.

The amount of compensation expense ultimately recognized for PRSUs issued under the 2024 PRSU Agreement will be based on the Company's ultimate performance relative to the Performance Target. The amount of compensation expense recognized prior to the end of the Performance Period is dependent upon management's assessment of the likelihood of achieving the applicable payout levels. If, as a result of management's assessment, it is projected that a greater number of PRSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period when such determination is made. Conversely, if, as a result of management's assessment, it is projected that a lower number of PRSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period when such determination is made.

40
The following table provides a summary of the activity related to PRSUs granted under the 2024 PRSU Agreement during the nine months ended September 30, 2024:

Performance Restricted Stock UnitsWeighted Average Grant Date Fair Value
Unvested balance as of December 31, 2023
—$— 
Granted339,5649.31 
Unvested balance as of September 30, 2024
339,564$9.31 

As of September 30, 2024, the maximum number of shares of Class A Common Stock that may be issued with respect to PRSUs granted under the 2024 PRSU Agreement is 679,128, assuming full achievement of the Performance Target.

The following table provides additional data related to performance condition PRSU award activity during the nine months ended September 30, 2024:

Nine months ended
September 30,
2024
in thousands (except years)
Total fair value of shares vested$— 
Unrecognized compensation expense$5,324 
Weighted-average period awards are expected to be recognized (in years)2.50

Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (the "ESPP") allows substantially all of the Company's employees to purchase shares of Class A Common Stock at a discount. As of September 30, 2024, 197,819 shares had been purchased under the ESPP and there were approximately 11.3 million shares available for future purchases.

19 — Earnings Per Share

Basic earnings per share is calculated under the Two-Class Method using Net income available to Class A Common Stockholders, divided by the weighted average number of shares of Class A Common Stock outstanding during the period.

Diluted earnings per share is calculated using diluted Net income available to Class A Common Stockholders divided by the weighted average number of shares of Class A Common Stock outstanding during the period, adjusted to give effect to potentially dilutive securities.

The Company's potentially dilutive securities consist of (i) unvested share-based compensation awards, shares issuable under the employee stock purchase plan, and unexercised warrants (prior to completion of the Warrant Exchange) with the dilutive effect calculated using the Treasury Stock Method, and (ii) non-controlling interest THG units and Series A Convertible Preferred Stock, with the dilutive effect calculated using the more dilutive of the If-Converted Method and the Two-Class Method.

41
The following table summarizes the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2024 and 2023:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands (except per share amounts)
Earnings Per Share of Class A Common Stock, Basic
Net income available to Class A Common Stockholders$2,798 $3,255 $7,753 $3,712 
Weighted average shares of Class A Common Stock outstanding89,691 84,479 86,689 84,042 
Net income per share of Class A Common Stock, basic$0.03 $0.04 $0.09 $0.04 
Earnings Per Share of Class A Common Stock, Diluted
Net income available to Class A Common Stockholders$2,798 $3,255 $7,802 $3,712 
Weighted average shares of Class A Common Stock outstanding89,691 84,479 87,601 84,042 
Net income per share of Class A Common Stock, Diluted$0.03 $0.04 $0.09 $0.04 
Net Income Available to Class A Common Stockholders
Net income$19,007 $18,623 $69,863 $19,137 
Net income attributable to non-controlling interest(14,122)(13,269)(55,951)(13,477)
Accretion of Series A Convertible Preferred Stock(1,875)(1,838)(5,552)(1,838)
Undistributed earnings allocated to Series A Convertible Preferred Stock(212)(261)(607)(110)
Net income available to Class A Common Stockholders, Basic2,798 3,255 7,753 3,712 
Adjustment for potentially dilutive THG units— — — — 
Adjustment for potentially dilutive Series A Convertible Preferred Stock— — — — 
Adjustment for potentially dilutive share-based compensation awards— — 49 — 
Adjustment for potentially dilutive warrants— — — — 
Net income available to Class A Common Stockholders, Diluted$2,798 $3,255 $7,802 $3,712 
Weighted Average Shares of Class A Common Stock Outstanding
Weighted average shares of Class A Common Stock outstanding, Basic89,691 84,479 86,689 84,042 
Adjustment for potentially dilutive THG units— — — — 
Adjustment for potentially dilutive Series A Convertible Preferred Stock— — — — 
Adjustment for potentially dilutive share-based compensation awards— — 912 — 
Adjustment for potentially dilutive warrants— — — — 
Weighted average shares of Class A Common Stock outstanding, Diluted89,691 84,479 87,601 84,042 

42
The following table summarizes the weighted average potential shares of Class A Common Stock excluded from diluted earnings per share of Class A Common Stock as their effect would be anti-dilutive:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
THG units
255,252 255,499 255,378 255,579 
Series A Convertible Preferred Stock6,785 6,785 6,785 2,485 
Unvested shares associated with share-based compensation awards7,746 8,509 3,918 7,480 
Warrants— 19,484 — 19,484 
Total 269,783 290,277 266,081 285,028 

20 — Taxation

United States — With the exception of certain U.S. corporate and foreign subsidiaries, 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 under the IRC and pays corporate, federal, state, and local taxes with respect to income allocated from THG. Hagerty, Inc., Hagerty Insurance Holdings, 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.

The Company has a TRA with the Legacy Unit Holders that requires the Company to pay 85% of the tax savings that are realized as a result of increases in the tax basis in THG's assets as a result of an exchange of THG units and shares of Class V Common Stock for shares of Class A Common Stock or cash. See "Tax Receivable Agreement Liability" below for additional information.

Canada — Hagerty's Canadian entities are taxed as non-resident corporations and subject to income tax in Canada under provisions of the Canadian Revenue Agency.

United Kingdom — Hagerty's U.K. entities are taxed as corporations and subject to income tax in the U.K. under provisions of HM Revenue & Customs.

Bermuda — Hagerty Re made an irrevocable election under Section 953(d) of the U.S. IRC, as amended, to be taxed as a U.S. domestic corporation. As a result, Hagerty Re is subject to U.S. taxation on its world-wide income as if it were a U.S. corporation. In accordance with an agreement between Hagerty Re and the Internal Revenue Service ("IRS"), Hagerty Re established an irrevocable letter of credit with the IRS in 2021.

Tax Legislation — The Organisation for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While its uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. While the Company expects that its effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, management does not expect there to be a material impact to the Company's results of operations for the year ending December 31, 2024. The Company's assessment could be affected by legislative guidance and future enactment of additional provisions within the Pillar 2 framework.

43
Income Tax Expense — Income tax expense reflected in the Condensed Consolidated Statements of Operations differs from the tax computed by applying the statutory U.S. federal rate of 21% to "Income before income tax expense" as follows:

Nine months ended September 30,
20242023
in thousands (except percentages)
Income tax expense at statutory rate$16,754 21 %$6,539 21 %
State taxes360 — %377 1 %
(Income) loss not subject to entity-level taxes(7,992)(10)%4,961 17 %
Foreign rate differential(165)— %(219)(1)%
Change in valuation allowance(1,319)(2)%(635)(2)%
(Gain) loss related to warrant liabilities, net1,794 2 %298 1 %
Permanent items507 1 %711 2 %
Other, net(21)— %(30)— %
Income tax benefit (expense)$9,918 12 %$12,002 39 %

Deferred Tax Assets — As of September 30, 2024 and December 31, 2023, the Company had deferred tax assets of $145.3 million and $146.0 million, respectively, related to the difference between the outside tax basis and book basis of its investment in the assets of THG. The Company's deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods, as permitted by law, the Company believes it is more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of THG, will not be realized. As a result, the Company has recorded a valuation allowance of $171.8 million and $169.6 million against its deferred tax assets as of September 30, 2024 and December 31, 2023, respectively. In the event that management subsequently determines that it is more likely than not that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.

Tax Examinations — The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction, as well as many state and foreign jurisdictions. As of September 30, 2024, tax years 2020 to 2023 are subject to examination by various tax authorities. With few exceptions, as of September 30, 2024, the Company is no longer subject to U.S. federal, state, local or foreign examinations for years before 2020. THG is currently under audit by the IRS for the 2021 tax year.

The Canadian Revenue Agency examination of the Company for the 2018 tax year was closed in March 2024 with no changes to previously filed tax returns. In July 2024, the Canadian Revenue Agency selected Hagerty Drivers Club Canada, LLC for an audit of non-resident withholding tax for the period 2020 to 2022.

Uncertain Tax Positions — The calculation of the Company's tax liabilities involves uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. ASC Topic 740, Income Taxes ("ASC 740") states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records uncertain tax benefits ("UTB") as liabilities in accordance with ASC 740 and adjusts these liabilities when management's conclusion changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the UTB liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

As of September 30, 2024 and 2023, the Company did not have any unrecognized tax benefits and had no material accrued interest or penalties related to uncertain tax positions. If recorded, interest and penalties would be recorded within "Income tax benefit (expense)" in the Condensed Consolidated Statements of Operations.

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Tax Receivable Agreement Liability — The TRA provides for payment to the Legacy Unit Holders of 85% of the U.S. federal, state and local income tax savings realized by Hagerty, Inc. as a result of the increases in tax basis and certain other tax benefits as outlined in the Business Combination Agreement (provided as Exhibit 2.1, incorporated by reference within Item 6. Exhibits, in this Quarterly Report) upon the exchange of THG units and Hagerty, Inc. Class V Common Stock for Hagerty, Inc. Class A Common Stock or cash. 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 remaining 15% cash tax savings resulting from the basis adjustments will be retained by Hagerty, Inc.

The amount and timing of any payments under the TRA will vary depending on a number of factors, including, but not limited to, the increase in tax basis of THG's assets, the timing of any future redemptions, exchanges or purchases of THG units held by Legacy Unit Holders, the price of Hagerty, Inc. Class A Common Stock at the time of the purchase, redemption, or exchange, the extent to which redemptions or exchanges are taxable, the amount and timing of the taxable income that Hagerty, Inc. generates in the future, the tax rates then applicable and the portion of the payments under the TRA constituting imputed interest. The estimated value of the TRA recorded by the Company within "Other long-term liabilities" on the Condensed Consolidated Balance Sheets was $1.9 million and $0.6 million as of September 30, 2024 and December 31, 2023, respectively. The increase in value of $1.3 million is due to an increase in taxable income allocated to Hagerty, Inc. from THG and was recorded in Interest and other income (expense), net within the Condensed Consolidated Statements of Operations.

In general, cash tax savings result in a year when the tax liability of Hagerty, Inc. for the year, computed without regard to the deductions attributable to the amortization of the basis increase and other deductions that arise in connection with the payment of the cash consideration under the TRA or the exchange of THG units and Hagerty, Inc. Class V Common Stock for Hagerty, Inc. Class A Common Stock, would be more than the tax liability for the year taking into account such deductions. Payments under the TRA will not be due until the Company produces taxable income and the resulting cash tax liability is reduced by deducting the amortization of the basis increase on a filed tax return. The payments under the TRA are expected to be substantial.

21 — Related-Party Transactions

As of September 30, 2024, Markel and State Farm had the following equity interests in Hagerty and, as a result, are considered related parties:

Markel
State Farm
Equity InterestShares/Units
Percentage of total outstanding (1)
Shares/Units
Percentage of total outstanding (1)
Hagerty, Inc. Class A Common Stock3,108,000 3.5 %51,800,000 57.6 %
Hagerty, Inc. Class V Common Stock75,000,000 29.9 %— — %
Hagerty, Inc. Series A Convertible Preferred Stock1,590,668 18.8 %5,302,226 62.5 %
THG units
75,000,000 21.7 %— — %
Controlling Interest3,108,000 3.5 %51,800,000 57.6 %
Non-controlling Interest75,000,000 29.4 %— — 
(1)    The percentages reflected represent only the ownership of the specific security identified in each row, and are not reflective of the total economic ownership in Hagerty.

Refer to Note 16 — Stockholders' Equity and Note 15 — Convertible Preferred Stock for a description of each equity interest in the table above.

State Farm

Alliance Agreement

Hagerty has a 10-year master alliance agreement with State Farm (the "State Farm Alliance Agreement") under which State Farm's customers, through State Farm agents, are able to access Hagerty's features and services. This program began issuing policies in four initial states in September 2023. Under this agreement, State Farm paid Hagerty an advanced commission of $20.0 million, which is being recognized as "Commission and fee revenue" within the Condensed Consolidated Statements of Operations over the life of the arrangement.

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In conjunction with the State Farm Alliance Agreement, the Company also entered into a managing general underwriter agreement whereby the State Farm Classic+ policy is offered through State Farm Classic Insurance Company, a wholly owned subsidiary of State Farm. The State Farm Classic+ policy is available to new and existing State Farm customers through their agents on a state-by-state basis. Hagerty is paid a commission under the managing general underwriter agreement and ancillary agreements for each policy issued in the State Farm Classic+ program. Additionally, the Company has the opportunity to offer HDC membership to State Farm Classic+ customers which provides Hagerty an additional revenue opportunity. Commission revenue associated with State Farm Classic+ policies was not material to the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2024 and 2023.

Reinsurance Agreement

Hagerty Re has a quota share agreement to cede 50% of the risk assumed from a subsidiary of Markel in relation to High-Net-Worth Accounts to Oglesby Reinsurance Company, a wholly owned subsidiary of State Farm. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs.

The following tables summarize all balances related to the risk ceded by Hagerty Re to State Farm subsidiaries:

September 30,December 31,
20242023
Assets:in thousands
Commissions receivable$2,338 $1,963 
Deferred acquisition costs, net (1)
(4,646)(3,898)
Other current assets13,169 9,268 
Total assets$10,861 $7,333 
Liabilities:
Accounts payable, accrued expenses and other current liabilities$4,497 $3,775 
Total liabilities$4,497 $3,775 
(1)    Represents unearned ceding commission received from State Farm subsidiaries.

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
Revenue:in thousands
Earned premium (1)
$(4,089)$(1,645)$(12,111)$(3,035)
Expenses:
Ceding commission, net (2)
$(2,126)$(855)$(6,298)$(1,578)
Losses and loss adjustment expenses (3)
(906)(329)(4,510)(607)
Total expenses$(3,032)$(1,184)$(10,808)$(2,185)
(1)    Represents premiums ceded to State Farm subsidiaries, which are accounted for as a reduction to "Earned premium".
(2)    Represents commissions from State Farm subsidiaries related to ceded reinsurance, which are accounted for as a reduction to "Ceding commissions, net".
(3)    Represents loss recoveries associated with reinsurance ceded to State Farm subsidiaries, which are accounted for as a reduction to "Losses and loss adjustment expenses".

State Farm Term Loan

In September 2023, Hagerty Re entered into an unsecured term loan facility with State Farm in an aggregate principal amount of $25.0 million and an interest rate of 8.0% per annum. The State Farm Term Loan will mature in September 2033. Refer to Note 14 — Long-Term Debt for additional information.

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Markel

Alliance Agreement

The Company and Markel have an alliance agreement (the "Markel Alliance Agreement") and associated agency agreement pursuant to which policies sold by Hagerty's U.S. MGAs are underwritten by Essentia Insurance Company ("Essentia") and reinsured with Evanston Insurance Company ("Evanston"), both of which are wholly owned subsidiaries of Markel.

The following tables provide information related to Markel-affiliated "Due to insurer" liabilities and "Commission revenue" associated with the Markel Alliance Agreement:

September 30,December 31,
20242023
in thousands (except percentages)
Due to insurer$108,039 $75,922 
Percent of total91 %95 %

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands (except percentages)
Commission revenue$105,461 $95,559 $305,105 $267,935 
Percent of total92 %94 %93 %95 %

Refer to Note 2 — Revenue for information related to the related party balances within "Commissions receivable", primarily consisting of CUC receivables due from Markel.

Reinsurance Agreement

Hagerty Re has a quota share agreement with Evanston to assume approximately 80% of the risks written through the Company's U.S. MGAs. Effective January 1, 2023, the quota share agreement with Evanston was amended to increase Hagerty Re's participation on High-Net-Worth Accounts from 80% to 100%. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs.

The following tables summarize all balances related to the Company's reinsurance business with Markel subsidiaries:

September 30,December 31,
20242023
Assets:in thousands
Premiums receivable$195,802 $134,376 
Commissions receivable568 630 
Deferred acquisition costs, net171,776 141,880 
Other current assets2,602 1,915 
Total assets$370,748 $278,801 
Liabilities:
Accounts payable, accrued expenses and other current liabilities$899 $1,553 
Losses payable and provision for unpaid losses and loss adjustment expenses246,883 189,520 
Commissions payable91,406 107,286 
Unearned premiums373,038 307,504 
Total liabilities$712,226 $605,863 

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Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
Revenue:in thousands
Earned premium$170,921 $140,674 $489,577 $384,646 
Expenses:
Ceding commission, net$79,193 $64,391 $226,589 $177,568 
Losses and loss adjustment expenses98,070 55,909 227,491 153,758 
Total expenses$177,263 $120,300 $454,080 $331,326 

Pursuant to the terms of the quota share agreement with Evanston, Hagerty Re maintains assets in trust for the benefit of Evanston. These assets are included within "Restricted cash and cash equivalents" and "Investments" in the Company's Condensed Consolidated Balance Sheets. The assets held in trust for the benefit of Evanston was $544.9 million and $517.2 million as of September 30, 2024 and December 31, 2023, respectively.

Other Related Party Transactions

From time-to-time, in the ordinary course of business, related parties, such as members of the Board and management, purchase insurance policies from the Company, receive payments on claims required by the Company's insurance policies, and buy and sell collector cars through Marketplace auctions or in private transactions.

22 — Commitments and Contingencies

Employee Compensation Agreements — In the ordinary course of conducting its business, the Company enters into certain employee compensation agreements from time to time which commit the Company to severance obligations in the event an employee terminates employment with the Company. If applicable, these obligations are included in the accrued expenses lines of the Condensed Consolidated Balance Sheets.

Litigation — From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business. Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The determination of the amount of any losses to be recorded or disclosed as a result of these contingencies is based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel. The amount of losses recorded or disclosed for such contingencies may change in the future due to new developments in each matter or a change in legal or settlement strategy. While the impact of any one or more legal claims or proceedings could be material to the Company's operating results in any period, management does not believe that the outcome of any of these pending claims or proceedings (including the data security incident discussed below), individually or in the aggregate, will have a material adverse effect on the Company's consolidated financial condition or liquidity.

Data Security Incident — In 2021, the Company experienced an unauthorized access into its online insurance quote feature whereby attackers used personal information already in their possession to obtain additional consumer data, including driver's license numbers. The unauthorized access issue has been remediated. This incident is the subject of coordinated industry-wide regulatory investigations in New York state. The Company could be subject to litigation, fines and/or penalties related to this incident. In 2023, the Company accrued an estimated liability related to this incident based on the facts known by management and developed through its assessment of the current status of ongoing dialog with the regulatory investigators. The amount of the estimated liability is not material to the Company's Condensed Consolidated Financial Statements. The amount of any fines, penalties, and/or settlements related to this incident could differ from the amount currently accrued and such difference is not currently estimable.

23 — Subsequent Events

Hurricane Milton

On October 9, 2024, Hurricane Milton made landfall along Florida's Central Gulf Coast. The Company estimates that pre-tax losses resulting from Hurricane Milton will be approximately $5.0 million, which is below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions, and therefore, the estimate may change as additional information emerges. Losses from Hurricane Milton will be reflected in the Company's results for the three months ended December 31, 2024.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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 classic cars and enthusiast vehicles. Through our insurance model, we act as a Managing General Agent ("MGA") by underwriting, selling, and servicing classic car and enthusiast vehicle insurance policies. Then, due to our consistent track record of delivering strong underwriting results, we reinsure a large portion of the risks written by our MGA subsidiaries through our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"). In addition, we offer Hagerty Drivers Club ("HDC") memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. Lastly, to complement our insurance and membership offerings, we also offer Hagerty Marketplace ("Marketplace"), where car enthusiasts can buy, sell, and finance collector cars. Through these offerings, our goal is to be the world's most trusted and preferred brand for enthusiasts to protect, buy and sell, and enjoy the special cars that are their passion.

Business Review

In 2023, we began a review of certain components of our operations which 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, we recognized approximately $4.1 million of losses and impairments in the third quarter of 2023 related to actions taken with respect to Hagerty Garage + Social and DriveShare, and a $0.1 million gain in the second quarter of 2024 related to the sale of MSR. 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. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.

Recent Developments

Warrant Exchange

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. As a result of the Warrant Exchange, we recognized a loss of $2.0 million during the three and nine months ended September 30, 2024, representing the difference between the fair value of the warrants immediately prior to the Warrant Exchange and the fair value of Class A Common Stock issued. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to the Warrant Exchange.

Acquisition

On September 1, 2024, our subsidiary, Hagerty Insurance Holdings, Inc., acquired Consolidated National Insurance Company, which was subsequently renamed to Drivers Edge Insurance Company ("Drivers Edge"), for a purchase price of $19.3 million, including $0.9 million in direct and incremental transaction costs. We believe that this acquisition will allow us to continue driving high rates of written premium growth, optimize our underwriting profits, and offer new products and coverages to fill an underserved segment of the enthusiast vehicle market. Refer to Note 8 — Acquisition in Item 1 of Part I of this Quarterly Report for additional information with respect to the Drivers Edge acquisition.

Hurricane Helene

On September 26, 2024, Hurricane Helene made landfall, causing significant damage in Florida as well as several other states including Georgia, South Carolina, North Carolina, Virginia, and Tennessee. As a result of Hurricane Helene, we recorded estimated pre-tax losses of $24.7 million during the three and nine months ended September 30, 2024. Our estimated pre-tax losses related to Hurricane Helene are currently below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions. Accordingly, our estimate may change as additional information becomes available.

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Hurricane Milton

On October 9, 2024, Hurricane Milton made landfall along Florida's Central Gulf Coast. We currently estimate that pre-tax losses resulting from Hurricane Milton will be approximately $5.0 million, which is below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions. Accordingly, our estimate may change as additional information becomes available. Losses from Hurricane Milton will be reflected in our results for the three months ended December 31, 2024.

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.

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
Operational Metrics
Total Written Premium (in thousands) (1)
$287,609 $255,569 $827,068 $714,314 
Loss Ratio (2)
60.0 %41.1 %47.7 %41.5 %
New Business Count — Insurance (3)
77,418 69,691 225,753 201,593 
GAAP Financial Measures
Total Revenue (in thousands)
$323,374 $275,574 $908,307 $755,170 
Operating Income (in thousands)
$10,089 $16,117 $60,380 $16,881 
Net Income (in thousands)
$19,007 $18,623 $69,863 $19,137 
Basic Earnings Per Share$0.03 $0.04 $0.09 $0.04 
Diluted Earnings Per Share$0.03 $0.04 $0.09 $0.04 
Non-GAAP Financial Measures
Adjusted EBITDA (in thousands) (4)
$24,165 $37,377 $104,605 $78,449 
Adjusted Earnings Per Share (4)
$0.05 $0.05 $0.22 $0.05 
September 30,December 31,
20242023
Operational Metrics
Policies in Force (5)
1,494,510 1,401,037 
Policies in Force Retention (6)
88.8 %88.7 %
Vehicles in Force (7)
2,553,589 2,378,883 
HDC Paid Member Count (8)
867,596 815,007 
Net Promoter Score (9)
82 82 
(1)    Total Written Premium is the total amount of insurance premium written by our MGA subsidiaries on policies that were bound by our insurance carrier partners during the period. We view Total Written Premium as an important metric as it most closely correlates with our growth in insurance commission revenue and Hagerty Re earned premium. Total Written Premium reflects the actual business volume and direct economic benefit generated from our policy acquisition efforts.
(2)    Loss Ratio, expressed as a percentage, is the ratio of (i) losses and loss adjustment expenses incurred to (ii) earned premium in Hagerty Re. We view Loss Ratio as an important metric because it is a benchmark for profitability. This benchmark allows us to evaluate our historical loss patterns, including incurred losses, and make necessary and appropriate adjustments. Refer to "Losses and Loss Adjustment Expenses" below for additional information regarding the changes in our loss ratio period over period.
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(3)    New Business Count represents the number of new insurance policies issued by our MGA subsidiaries during the applicable period. We view New Business Count as an important metric to assess our financial performance because it is critical to achieving our growth objectives. While we benefit from strong renewal retention, new business policies more than offset those cancelled or non-renewed at expiration. New policies often mean new relationships and an opportunity to sell additional products and services.
(4)    Refer to "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
(5)    Policies in Force ("PIF") represents the number of current and active insurance policies as of the applicable period end date. We view PIF as an important metric to assess our financial performance because policy growth drives our 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.
(6)    PIF Retention represents the percentage of expiring insurance policies that are renewed on the renewal effective date, calculated on a rolling twelve months basis. We view PIF Retention as an important measurement of the number of policies retained each year, which contributes to recurring revenue streams from MGA commissions, membership fees, and earned premiums.
(7)    Vehicles in Force represents the number of current insured vehicles as of the applicable period end date. We view Vehicles in Force as an important metric to assess our financial performance because insured vehicle growth drives our revenue growth and increases market penetration.
(8)    HDC Paid Member Count represents the number of current Members who pay an annual membership subscription as of the applicable period end date. We believe that HDC Paid Member Count is important 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.
(9)    We use Net Promoter Score ("NPS") as 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 new 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 classic car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies. In addition, under the terms of certain of our contracts with insurance carriers, we have the opportunity to earn a contingent underwriting commission ("CUC") based on written or earned premium and the loss ratio results of the insurance book of business.

Historically, our MGA subsidiaries have earned, on average, a base commission of approximately 32% of written premium, as well as a CUC of up to 10%. In December 2023, our alliance agreement and associated agency agreement with Markel Group, Inc. ("Markel"), which generates approximately 93% of our total commission revenue, was amended to increase the base commission rate to 37% and to adjust the contingent commission to range from -5% to a maximum of +5% of annual written premium, with 80% of the expected CUC being paid monthly, beginning in the first quarter of 2024.

Commission and fee revenue is earned when the policy becomes effective, net of allowances for policy changes and cancellations, as our performance obligation is substantially complete when the policy is issued.

Earned premium

We earn reinsurance premium revenue for the risks assumed by Hagerty Re from the classic car and enthusiast vehicle insurance policies underwritten by our MGA subsidiaries. Hagerty Re is registered as a Class 3A reinsurer under the Bermuda Insurance Act of 1978.

Earned premium 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 related 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.
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Membership, marketplace and other revenue 

We earn subscription revenue through HDC memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. We also earn fee-based revenue from Hagerty Garage + Social memberships, which include storage services in addition to the HDC Member benefits. Revenue from the sale of HDC and storage 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.

Marketplace earns fee-based revenue primarily from the sale of collector cars through live auctions, time-based online auctions, and brokered private sales. In addition, Marketplace earns revenue from the sale of collector cars in inventory that have been acquired opportunistically for resale and from financing provided to qualified collectors and businesses secured by collector cars. Fee-based revenue earned by Marketplace is recognized when the underlying sale is completed. Revenue from the sale of collector cars from inventory is recognized at the point in time when title and control of the car is transferred to the buyer, which is generally upon payment of the full purchase price. Finance revenue is recognized when 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.

Lastly, other revenue includes sponsorship, admission, advertising, valuation, registration, and sublease income. Other revenue is recognized when the performance obligation for the related product or service is satisfied.

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 incentive compensation plans, including share-based compensation. Employee benefits include the costs of various employee benefit plans, including retirement, medical, dental, wellness, and severance plans. Costs related to employee education, training, and recruiting are included in employee development costs. Salaries and benefits are expensed as incurred except for those costs which are required to be capitalized, which are then amortized over the useful life of the asset created, primarily software. 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 paid is 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 reinsured policies, which is generally 12 months.

Losses and loss adjustment expenses

Losses and loss adjustment expenses represent our best estimate of the losses related to the risk 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 the investigation and settlement of claims. The estimates utilized in determining the amount of losses and loss adjustment expenses recorded in a period are based on statistical analysis performed by our internal and external actuarial team. Reserves are reviewed regularly and adjusted, as necessary, to reflect our estimate of the ultimate cost of settlement.

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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 through a broker relationship. Broker expense generally tracks 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 vehicles held in inventory and sold through Marketplace, 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

General and administrative primarily consist 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 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 hardware, furniture and equipment, and leasehold improvements. Amortization relates to internally developed software, software as a service ("SaaS") implementation, and investments 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

Gain (loss) related to warrant liabilities, net

Prior to the Warrant Exchange, which was completed in the third quarter of 2024, 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. In addition, "Gain (loss) related to warrant liabilities, net" includes the loss on the Warrant Exchange recorded in the third quarter of 2024. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information about the Company's Warrant Exchange.

Interest and other income (expense), net

Interest and other income (expense), net primarily includes interest income related to our cash balances and fixed maturity securities, dividend income on equity 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 the JPM Credit Facility, and changes in the value of the liability related to our Tax Receivable Agreement ("TRA") with Hagerty Holding Corp. ("HHC") and Markel. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information related to the TRA.

Income tax benefit (expense)

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, except certain United States ("U.S.") corporate subsidiaries and foreign subsidiaries. Any taxable income or loss generated by THG is passed through to and included in the taxable income or loss of all holders of THG units, 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.

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Results of Operations

Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023, and the dollar and percentage changes between the two periods:

Three months ended September 30,
20242023$ Change% Change
REVENUE:in thousands (except percentages)
Commission and fee revenue$116,161 $103,173 $12,988 12.6 %
Earned premium165,686 139,785 25,901 18.5 %
Membership, marketplace and other revenue41,527 32,616 8,911 27.3 %
Total revenue323,374 275,574 47,800 17.3 %
OPERATING EXPENSES:
Salaries and benefits47,192 51,318 (4,126)(8.0)%
Ceding commissions, net77,501 65,413 12,088 18.5 %
Losses and loss adjustment expenses99,430 57,485 41,945 73.0 %
Sales expense59,141 47,737 11,404 23.9 %
General and administrative20,837 22,166 (1,329)(6.0)%
Depreciation and amortization9,184 10,753 (1,569)(14.6)%
Restructuring, impairment and related charges, net— 473 (473)(100.0)%
Gains, losses, and impairments related to divestitures— 4,112 (4,112)(100.0)%
Total operating expenses313,285 259,457 53,828 20.7 %
OPERATING INCOME10,089 16,117 (6,028)(37.4)%
Gain (loss) related to warrant liabilities, net(463)850 (1,313)(154.5)%
Interest and other income (expense), net8,359 6,260 2,099 33.5 %
INCOME BEFORE INCOME TAX EXPENSE17,985 23,227 (5,242)(22.6)%
Income tax benefit (expense)1,022 (4,604)5,626 (122.2)%
NET INCOME$19,007 $18,623 $384 2.1 %

Revenue

Commission and fee revenue

Commission and fee revenue was $116.2 million for the three months ended September 30, 2024, an increase of $13.0 million, or 12.6%, compared to 2023, consisting of increases of $11.3 million related to policy renewals and $1.7 million related to new policies.

The increase in revenue from policy renewals was primarily driven by a 13.4% increase in underlying policy premiums, as well as continued strong policy retention.

The increase in revenue from new policies was primarily driven by a 11.7% increase in underlying policy premiums, as well as sustained year-over-year growth in New Business Count, which increased 11.1% during the current year period.

The increase in underlying policy premiums for both policy renewals and new policies is a 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. In addition, average premiums on newly issued policies increased as a result of writing policies with higher insured values at higher premium rates.

Commission and fee revenue from agent sources increased $7.6 million, or 13.6%, and Commission and fee revenue from direct sources increased $5.3 million, or 11.4%, during the three months ended September 30, 2024. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).

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Earned premium

Earned premium at Hagerty Re was $165.7 million for the three months ended September 30, 2024, an increase of $25.9 million, or 18.5%, compared to 2023. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, partially offset by an increase in ceded reinsurance premiums related to high-net-worth accounts in the U.S. In addition, effective January 1, 2024, Hagerty Re is no longer reinsuring classic auto risks produced by its United Kingdom ("U.K.") MGA affiliate, and the book is in run-off.

The following tables present the amount of premiums assumed by Hagerty Re and the related quota share percentages for the three months ended September 30, 2024 and 2023:

Three months ended September 30, 2024
U.S.CanadaU.K.Total
in thousands (except percentages)
Subject premium$239,301 $17,967 $(4)$257,264 
Quota share percentage81.0 %35.0 %80.0 %77.6 %
Assumed premium in Hagerty Re193,437 6,288 (4)199,721 
Reinsurance premiums ceded(9,906)
Net assumed premium189,815 
Change in unearned premiums(23,109)
Change in deferred reinsurance premiums(1,020)
Earned premium$165,686 
Three months ended September 30, 2023
U.S.CanadaU.K.Total
in thousands (except percentages)
Subject premium$210,754 $16,800 $2,651 $230,205 
Quota share percentage81.0 %35.0 %80.0 %77.5 %
Assumed premium in Hagerty Re170,318 5,880 2,121 178,319 
Reinsurance premiums ceded(5,838)
Net assumed premium172,481 
Change in unearned premiums(32,315)
Change in deferred reinsurance premiums(381)
Earned premium$139,785 

Membership, marketplace and other revenue

Membership, marketplace and other revenue was $41.5 million for the three months ended September 30, 2024, an increase of $8.9 million, or 27.3%, compared to 2023.

Membership fee revenue was $14.8 million for the three months ended September 30, 2024, an increase of $1.0 million, or 7.0%, compared to 2023. This increase was primarily attributable to a $2.1 million, or 17.8%, increase in revenue attributable to new policies issued with a bundled HDC membership, partially offset by a $0.9 million, or 50.7%, decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the three months ended September 30, 2024 and 2023, membership fees were 35.6% and 42.4%, respectively, of the Membership, marketplace and other revenue total.

Marketplace revenue was $21.6 million for the three months ended September 30, 2024, an increase of $8.6 million, or 66.2%, compared to 2023, which was primarily due to stronger results from Broad Arrow's Monterey Jet Center auction in August, an increase of $7.8 million in Marketplace inventory sales, and an increase in finance revenue associated with the growth of the BAC loan portfolio. For the three months ended September 30, 2024 and 2023, Marketplace revenue was 51.9% and 39.8%, respectively, of the Membership, marketplace and other revenue total.

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Other revenue, which includes sponsorship, admission, advertising, valuation, and sublease revenue, totaled $5.2 million for the three months ended September 30, 2024, a decrease of $0.6 million, or 11.1%, compared to 2023. This decrease was primarily attributable to the loss of registration fee revenue associated with MSR, which was sold in the second quarter of 2024, partially offset by an increase in sublease and advertising revenue. For the three months ended September 30, 2024 and 2023, other revenue was 12.4% and 17.8%, respectively, of the Membership, marketplace and other revenue total. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information related to the sale of MSR.

Operating Expenses

Salaries and benefits

Salaries and benefits were $47.2 million for the three months ended September 30, 2024, a decrease of $4.1 million, or 8.0%, compared to 2023. This decrease was primarily due to a reduction in accrued incentive compensation which reflects the losses associated with Hurricane Helene in the period. The decrease in accrued incentive compensation was partially offset by increases in base salaries as a result of annual merit increases, which occur in the second quarter of each year, as well as an increase in employee benefit costs.

Ceding commissions, net

Ceding commissions, net was $77.5 million for the three months ended September 30, 2024, an increase of $12.1 million, or 18.5%, compared to 2023. This increase is primarily attributable to the 18.5% increase in Earned premium discussed above.

The following table summarizes the components of Ceding commissions, net for the three months ended September 30, 2024 and 2023:

Three months ended September 30,
20242023
in thousands (except percentages)
Ceding commission:
Ceding commission – reinsurance assumed$81,660 $66,654 
Ceding commission – reinsurance ceded(4,159)(1,241)
Ceding commissions, net$77,501 $65,413 
Percentage of earned premium46.8 %46.8 %

Losses and loss adjustment expenses

Losses and loss adjustment expenses were $99.4 million for the three months ended September 30, 2024, an increase of $41.9 million, or 73.0%, compared to 2023. This increase was primarily driven by $24.7 million of estimated losses related to Hurricane Helene, as well as the higher volume of assumed premium at Hagerty Re.

For the three months ended September 30, 2024, our loss ratio was 60.0%, including the impact of catastrophe losses, which added 16.2% to our loss ratio. For the three months ended September 30, 2023, our loss ratio was 41.1% including the impact of catastrophe losses, which added 2.1% to our loss ratio. Excluding the impact of catastrophe losses, our loss ratio was 43.8% and 39.0% for the three months ended September 30, 2024 and 2023, respectively.

Sales expense

Sales expense was $59.1 million for the three months ended September 30, 2024, an increase of $11.4 million, or 23.9%, compared to 2023. This increase was due, in part, to a $9.3 million increase in cost of sales, primarily as a result of a higher level of Marketplace inventory sales, as well as borrowing costs associated with the BAC Credit Facility which was entered into in December 2023. In addition, broker expense increased $2.2 million, which is consistent with written premium growth within the agent channel.

General and administrative

General and administrative expense was $20.8 million for the three months ended September 30, 2024, a decrease of $1.3 million, or 6.0%, compared to 2023. This decrease was primarily driven by a $1.7 million reduction in occupancy costs as a result of fewer Hagerty Garage + Social locations in operation, as well as lower insurance costs. The overall decrease was partially offset by an increase in professional fees primarily associated with various corporate initiatives.

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Depreciation and amortization

Depreciation and amortization expense was $9.2 million for the three months ended September 30, 2024, a decrease of $1.6 million, or 14.6%, compared to 2023. This decrease was primarily attributable to a smaller base of fixed assets and finite-lived intangible assets as of September 30, 2024 when compared to the same period in 2023.

Restructuring, impairment and related charges, net

In the third quarter of 2023, we recognized $0.5 million of costs associated with our vacated office space within "Restructuring, impairment and related charges, net". Refer to Note 13 — Restructuring, Impairment and Related Charges in Item 1 of Part I of this Quarterly Report for additional information with respect to our restructuring initiatives.

Gains, losses, and impairments related to divestitures

In the third quarter of 2023, we recognized $4.1 million of losses and impairments related to Hagerty Garage + Social and DriveShare. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.

Other Items

Gain (loss) related to warrant liabilities, net

During the three months ended September 30, 2024, Gain (loss) related to warrant liabilities, net was a $0.5 million loss, compared to a $0.9 million gain in 2023. The $0.5 million loss in the current year period consists of a $2.0 million loss related the Warrant Exchange that was completed in July 2024, partially offset by a $1.5 million gain resulting from the change in the fair value of our warrant liabilities prior to the completion of the Warrant Exchange. The $0.9 million gain during the three months ended September 30, 2023 was a result of the change in fair value of our warrant liabilities. Refer to Note 4 — Fair Value Measurements and Note 17 — Warrant Exchange 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, 2024 and 2023:

Three months ended September 30,
20242023$ Change% Change
in thousands (except percentages)
Interest income$9,641 $7,205 $2,436 33.8 %
Interest expense(1,447)(851)(596)(70.0)%
Net investment gains (losses)1,274 — 1,274 N/M
Other income (expense)(1,109)(94)(1,015)N/M
Interest and other income (expense), net$8,359 $6,260 $2,099 33.5 %
N/M = Not meaningful

Interest and other income (expense), net increased $2.1 million during the three months ended September 30, 2024, compared to 2023. This increase was primarily due to the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the opening of positions in higher yielding fixed maturity securities and, to a much lesser extent, equity securities. These increases were partially offset by an increase in interest expense as a result of a higher level of borrowings under the JPM Credit Facility.

Income tax benefit (expense)

Income tax benefit was $1.0 million for the three months ended September 30, 2024, which compares to income tax expense of $4.6 million in 2023. The income tax benefit recorded in the current period is primarily due to a $4.8 million pre-tax loss within Hagerty Re as a result of losses associated with Hurricane Helene, which is taxed as a corporation in the U.S. 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.

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Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023, and the dollar and percentage change between the two periods:

Nine months ended September 30,
20242023$ Change% Change
REVENUE:in thousands (except percentages)
Commission and fee revenue$333,817 $287,972 $45,845 15.9 %
Earned premium474,917 384,498 90,419 23.5 %
Membership, marketplace and other revenue99,573 82,700 16,873 20.4 %
Total revenue908,307 755,170 153,137 20.3 %
OPERATING EXPENSES:
Salaries and benefits161,001 160,122 879 0.5 %
Ceding commissions, net221,877 181,188 40,689 22.5 %
Losses and loss adjustment expenses226,515 159,461 67,054 42.1 %
Sales expense146,791 124,791 22,000 17.6 %
General and administrative62,072 64,865 (2,793)(4.3)%
Depreciation and amortization29,758 34,893 (5,135)(14.7)%
Restructuring, impairment and related charges, net— 8,857 (8,857)(100.0)%
Gains, losses, and impairments related to divestitures(87)4,112 (4,199)(102.1)%
Total operating expenses847,927 738,289 109,638 14.9 %
OPERATING INCOME60,380 16,881 43,499 257.7 %
Loss related to warrant liabilities, net(8,544)(1,419)(7,125)N/M
Interest and other income (expense), net27,945 15,677 12,268 78.3 %
INCOME BEFORE INCOME TAX EXPENSE79,781 31,139 48,642 156.2 %
Income tax expense(9,918)(12,002)2,084 (17.4)%
NET INCOME$69,863 $19,137 $50,726 265.1 %
N/M = Not meaningful

Revenue

Commission and fee revenue

Commission and fee revenue was $333.8 million for the nine months ended September 30, 2024, an increase of $45.8 million, or 15.9%, compared to 2023, consisting of increases of $36.9 million related to renewal policies and $9.0 million related to new policies.

The increase in revenue from renewal policies was primarily driven by a 16.2% increase in underlying policy premiums, as well as continued strong policy retention.
The increase in revenue from new policies was primarily driven by a 16.7% increase in underlying policy premiums. as well as sustained year-over-year growth in New Business Count, which increased 12.0% during the current year period.

The increase in underlying policy premiums for both policy renewals and new policies is a 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. In addition, average premiums on newly issued policies increased as a result of writing policies with higher insured values at higher premium rates.

Commission and fee revenue from agent sources increased $26.1 million, or 16.6%, and Commission and fee revenue from direct sources increased $19.8 million, or 15.1%, during the nine months ended September 30, 2024. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).

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Earned premium

Earned premium at Hagerty Re was $474.9 million for the nine months ended September 30, 2024, an increase of $90.4 million, or 23.5%, compared to 2023. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, partially offset by an increase in ceded reinsurance premiums related to high-net-worth accounts in the U.S. In addition, effective January 1, 2024, Hagerty Re is no longer reinsuring classic auto risks produced by its U.K. MGA affiliates, and the book is in run-off.

The following tables present premiums assumed by Hagerty Re and the related quota share percentages for the nine months ended September 30, 2024 and 2023:

Nine months ended September 30, 2024
U.S.CanadaU.K.Total
in thousands (except percentages)
Subject premium$689,745 $49,192 $(156)$738,781 
Quota share percentage81.0 %35.0 %80.0 %77.8 %
Assumed premium in Hagerty Re557,650 17,217 (125)574,742 
Reinsurance premiums ceded(42,875)
Net assumed premium531,867 
Change in unearned premiums(68,344)
Change in deferred reinsurance premiums11,394 
Earned premium$474,917 
Nine months ended September 30, 2023
U.S.CanadaU.K.Total
in thousands (except percentages)
Subject premium$590,205 $45,320 $7,713 $643,238 
Quota share percentage81.0 %35.0 %80.0 %77.6 %
Assumed premium in Hagerty Re476,930 15,862 6,170 498,962 
Reinsurance premiums ceded(28,107)
Net assumed premium470,855 
Change in unearned premiums(100,438)
Change in deferred reinsurance premiums14,081 
Earned premium$384,498 

Membership, marketplace and other revenue

Membership, marketplace and other revenue was $99.6 million for the nine months ended September 30, 2024, an increase of $16.9 million, or 20.4%, compared to 2023.

Membership fee revenue was $42.4 million for the nine months ended September 30, 2024, an increase of $2.9 million, or 7.2%, compared to 2023. This increase was primarily due to a $5.4 million, or 15.8%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership, partially offset by a $1.8 million decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the nine months ended September 30, 2024 and 2023, membership fees were 42.6% and 47.8%, respectively, of total Membership, marketplace and other revenue.

Marketplace revenue was $38.3 million for the nine months ended September 30, 2024, an increase of $13.5 million, or 54.2%, compared to 2023. This improvement was primarily due to stronger Broad Arrow auction results, an increase of $8.7 million in Marketplace inventory sales, and an increase in finance revenue associated with the growth of the BAC loan portfolio. For the nine months ended September 30, 2024 and 2023, Marketplace revenue was 38.5% and 30.1%, respectively, of total Membership, marketplace and other revenue.

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Other revenue, which primarily includes sponsorship, admission, advertising, valuation, and sublease revenue, was $18.8 million for the nine months ended September 30, 2024, an increase of $0.5 million, or 2.9%, compared to 2023. This increase was primarily attributable to an increase in advertising and sublease revenue, partially offset by the loss of registration fee revenue attributable to MSR, which was sold in the second quarter of 2024. For the nine months ended September 30, 2024 and September 30, 2023, other revenue was 18.9% and 22.1%, respectively, of total Membership, marketplace and other revenue. Refer to Note 9 — Divestitures 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 $161.0 million for the nine months ended September 30, 2024, an increase of $0.9 million, or 0.5%, compared to 2023. This increase was primarily due to an increase in base salaries as a result of annual merit increases, which occur in the second quarter of each year, as well as a higher level of share-based compensation expense and employee benefits. These increases were almost entirely offset by a decrease in accrued incentive compensation which reflects the losses associated with Hurricane Helene in the period.

Ceding commissions, net

Ceding commissions, net was $221.9 million for the nine months ended September 30, 2024, an increase of $40.7 million, or 22.5%, compared to 2023. This increase is primarily attributable to the 23.5% increase in Earned premium discussed above.

The following table summarizes the components of Ceding commissions, net for the nine months ended September 30, 2024 and 2023:

Nine months ended September 30,
20242023
in thousands (except percentages)
Ceding commission:
Ceding commission – reinsurance assumed$233,840 $183,440 
Ceding commission – reinsurance ceded(11,963)(2,252)
Ceding commissions, net
$221,877 $181,188 
Percentage of earned premium46.7 %47.1 %

Losses and loss adjustment expenses

Losses and loss adjustment expenses were $226.5 million for the nine months ended September 30, 2024, an increase of $67.1 million, or 42.1%, compared to 2023. This increase was primarily driven by $24.7 million of estimated losses related to Hurricane Helene, as well as the higher volume of assumed premium at Hagerty Re.

For the nine months ended September 30, 2024, our loss ratio was 47.7%, including the impact of catastrophe losses, which added 7.1% to our loss ratio. For the nine months ended September 30, 2023, our loss ratio was 41.5%, including the impact of catastrophe losses, which added 1.5% to our loss ratio. Excluding the impact of catastrophe losses, our loss ratio was 40.6% and 40.0% for the nine months ended September 30, 2024 and 2023, respectively.

Sales expense

Sales expense was $146.8 million for the nine months ended September 30, 2024, an increase of $22.0 million, or 17.6%, compared to 2023. This increase was due, in part, to a $13.5 million increase in cost of sales, primarily as a result of a higher level of Marketplace inventory sales, as well as borrowing costs associated with the BAC Credit Facility, which was entered into in December 2023. In addition, broker expense increased $7.4 million which is consistent with written premium growth within the agent channel. Lastly, credit card processing fees increased, primarily due to a shift in customer preference towards credit cards as a payment method within our MGA subsidiaries.

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General and administrative

General and administrative expense was $62.1 million for the nine months ended September 30, 2024, a decrease of $2.8 million, or 4.3%, compared to 2023. This decrease was primarily driven by a $4.2 million reduction in occupancy costs as a result of fewer Hagerty Garage + Social locations in operation, as well as lower insurance costs. The overall decrease was partially offset by a $2.9 million increase in professional fees associated with various corporate initiatives, including $0.8 million of professional fees associated with the exchange offer related to our warrants. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to the Warrant Exchange offer.

Depreciation and amortization

Depreciation and amortization expense was $29.8 million for the nine months ended September 30, 2024, a decrease of $5.1 million, or 14.7%, compared to 2023. This decrease was driven primarily by a $4.3 million impairment of digital media content assets recorded in the prior year period, which was the result of lower than anticipated advertising and sponsorship revenue associated with these assets. The remainder of the decrease was primarily driven by a smaller base of fixed assets and finite-lived intangible assets as of September 30, 2024 when compared to the same period in 2023.

Restructuring, impairment and related charges, net

In the first quarter of 2023, our Board approved a reduction in force (the "2023 RIF") following a strategic review of business processes as we focus on driving efficiencies in order to achieve growth and profitability goals. As a result of these actions, in the first quarter of 2023, we recognized restructuring, impairment and related charges of $5.5 million, which consisted of $5.1 million of severance related costs associated with the 2023 RIF and a $0.4 million impairment charge to write-down the value of certain digital media content assets.

In the second quarter of 2023, we recognized $2.8 million of restructuring, impairment and other changes. These charges consisted of $2.6 million of impairment and related charges associated with operating lease ROU assets and leasehold improvements for office space that was vacated and listed for sublease in the period as a result of our continuing transition to a "remote first" work model. The amount recognized in the second quarter of 2023 also included $0.2 million of additional severance related costs associated with the 2023 RIF.

In the third quarter of 2023, we recognized $0.5 million of costs associated with our vacated office space within "Restructuring, impairment and related charges, net".

Refer to Note 13 — Restructuring, Impairment and Related Charges in Item 1 of Part I of this Quarterly Report for additional information with respect to our restructuring initiatives.

Gains, losses, and impairments related to divestitures

During the nine months ended September 30, 2024, we recognized a $0.1 million gain related to the sale of MSR. During the nine months ended September 30, 2023, we recognized $4.1 million of losses and impairments related to Hagerty Garage + Social and DriveShare. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.

Gain (loss) related to warrant liabilities, net

During the nine months ended September 30, 2024, Gain (loss) related to warrant liabilities, net was an $8.5 million loss, compared to a $1.4 million loss in 2023. The $8.5 million loss in the current year period consists of a $2.0 million loss related the Warrant Exchange that was completed in July 2024 and a $6.5 million loss resulting from the change in fair value of our warrant liabilities prior to the completion of the Warrant Exchange. The $1.4 million loss during the nine months ended September 30, 2023 was a result of the change in fair value of our warrant liabilities. Refer to Note 4 — Fair Value Measurements and Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

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Interest and other income (expense), net

The following table presents a breakout of Interest and other income (expense), net for the nine months ended September 30, 2024 and 2023:

Nine months ended September 30,
20242023$ Change% Change
in thousands (except percentages)
Interest income$30,075$18,334$11,74164.0%
Interest expense(4,289)(4,872)(583)(12.0)%
Net investment gains (losses)1,783—1,783N/M
Other income (expense)3762,215(1,839)83.0%
Interest and other income (expense), net$27,945$15,677$12,26878.3%
N/M = Not meaningful

Interest and other income (expense), net increased $12.3 million during the nine months ended September 30, 2024, compared to 2023. This increase was primarily due to the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the opening of positions in higher yielding fixed maturity securities and, to a much lesser extent, equity securities. These increases were partially offset by a decrease in interest expense as a result of a lower level of borrowings under the JPM Credit Facility.

Income tax benefit (expense)

Income tax expense was $9.9 million for the nine months ended September 30, 2024, a decrease of $2.1 million compared to 2023. This decrease is primarily due to a decrease in pre-tax income of $9.6 million within Hagerty Re, which is taxed as a corporation in the U.S. 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 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 JPM Credit Facility, the BAC Credit Facility, and the unsecured term loan credit facility with State Farm Mutual Automobile Insurance Company (the "State Farm Term Loan"); (iv) funding potential cash dividend payments on the Series A Convertible Preferred Stock; (v) payment of income taxes; and (vi) funding potential payments under the TRA.

As of September 30, 2024, 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.

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Financing Arrangements

JPM Credit Facility

THG has a credit agreement with JPMorgan Chase Bank, N.A. ("JPM"), as administrative agent, and the other financial institutions party thereto from time to time as lenders, as amended (the "JPM Credit Agreement").

The JPM Credit Agreement provides for a revolving credit facility (the "JPM Credit Facility") with an aggregate borrowing capacity of $305.0 million, including the new $75.0 million commitment provided by Wells Fargo Bank, National Association in May 2024. The JPM Credit Agreement matures in October 2026, but may be extended if agreed to by us and the lenders party thereto.

As of September 30, 2024, total outstanding borrowings under the JPM Credit Facility were $51.8 million. JPM Credit Facility borrowings are collateralized by the assets of and equity interests in THG and its consolidated subsidiaries, except for (i) the assets held by the special purpose entities related to the BAC Credit Facility and (ii) all or a portion of certain foreign and certain excluded or immaterial subsidiaries.

Under the JPM Credit Agreement, we are required, among other things, to meet certain financial covenants, including a fixed charge coverage ratio and a leverage ratio. We were in compliance with these financial covenants as of September 30, 2024.

BAC Credit Facility

In December 2023, BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into the BAC Credit Agreement. The BAC Credit Agreement provides for the BAC Credit Facility, which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined based on the carrying value of certain BAC notes receivable. As of September 30, 2024, the applicable borrowing base for the BAC Credit Agreement was $46.1 million.

The revolving borrowing period provided by the BAC Credit Agreement expires on December 21, 2025 and the BAC Credit Agreement matures on December 21, 2026. The revolving borrowing period and the maturity date of the BAC Credit Agreement may be extended by one year if requested by BAC and agreed to by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.

In connection with the BAC Credit Agreement, BAC and certain of its subsidiaries may transfer originated notes receivable to wholly owned, bankruptcy remote special purpose entities (each, an "SPE") to secure the borrowings. The assets transferred to SPEs are legally isolated from us and our other (non-SPE) subsidiaries. Accordingly, those assets are not available to satisfy our debts or other obligations and our recourse under the BAC Credit Agreement is limited.

Recourse to the Company and its subsidiaries that originated and transferred notes receivable that represent collateral under the BAC Credit Facility 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 covering 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 under the BAC Credit Agreement, 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, 2024, we were in compliance with the financial covenants under the BAC Credit Agreement.

Refer to Note 14 — Long-Term Debt in Item 1 of Part I of this Quarterly Report for additional information related to the JPM Credit Agreement and BAC Credit Agreement.

Capital and Dividend Restrictions

We are a holding company with no material assets other than our ownership of 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, please see Item 1A — Risk Factors — Risks Related to Tax — "We are a holding company, and our only material asset is our interest in The Hagerty Group, and we will therefore be dependent upon distributions made by The Hagerty Group to pay taxes, make payments under the TRA and pay other expenses" in our Annual Report.

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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, 2024, 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 38 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, 2024, Drivers Edge maintained sufficient capital and surplus levels to comply with state insurance regulators.

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 Bermuda Monetary Authority ("BMA") is also required if Hagerty Re's proposed dividend payments would exceed 25% of its prior year-end total statutory capital and surplus. In 2024, Hagerty Re could pay approximately $55 million in dividends without prior BMA approval. As of September 30, 2024, 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, 2024, 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, 2024 and 2023:

Nine months ended September 30,
20242023$ Change% Change
in thousands (except percentages)
Net Cash Provided by Operating Activities$189,642 $132,221 $57,421 43.4 %
Net Cash Used in Investing Activities$(562,490)$(34,462)$(528,028)N/M
Net Cash Provided by (Used in) Financing Activities$(27,117)$48,339 $(75,456)(156.1)%
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, 2024 and 2023 is presented below:

Nine months ended September 30,
20242023$ Change% Change
in thousands (except percentages)
Net income$69,863 $19,137 $50,726 265.1 %
Non-cash adjustments to net income59,972 70,615 (10,643)(15.1)%
Changes in operating assets and liabilities59,807 42,469 17,338 40.8 %
Net Cash Provided by Operating Activities$189,642 $132,221 $57,421 43.4 %

Net cash provided by operating activities for the nine months ended September 30, 2024 was $189.6 million, an increase of $57.4 million, compared to 2023. This increase was due to a $40.1 million increase in Net income, after excluding non-cash adjustments, and a $17.3 million increase in cash from operating assets and liabilities.

The increase in Net income, after excluding non-cash adjustments, was primarily driven by revenue growth across all areas of our business, as well as management's cost containment measures. The increase in cash provided by operating assets and liabilities was primarily driven by this growth, as well as increased CUC payments collected in the current year as a result of an amendment to our alliance agreement and associated agency agreement with Markel, which accelerated the timing of these payments. The overall increase in cash provided by operating assets and liabilities was partially offset by a $13.9 million increase in cash paid for prepaid SaaS implementation costs. Refer to Note 2 — Revenue in Item 1 of Part I of this Quarterly Report for additional information with respect to our amendment to our alliance agreement and associated agency agreement with Markel.
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Investing Activities

Cash used in investing activities for the nine months ended September 30, 2024 increased $528.0 million when compared to 2023. This increase was primarily a driven by the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the purchase of investment-grade fixed maturity securities and, to a much lesser extent, equity securities.

Financing Activities

During the nine months ended September 30, 2024, we utilized available liquidity to reduce outstanding borrowings by $10.5 million and pay a $5.6 million cash dividend on the Series A Convertible Preferred Stock. In addition, we funded $5.7 million in employee tax obligations relating to share-based compensation vestings and $5.3 million in required distributions to THG non-controlling interest unit holders. During the nine months ended September 30, 2023, we took a number of actions to raise capital, including $79.2 million in net proceeds raised through the issuance of the Series A Convertible Preferred Stock.

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 on December 2, 2021. The TRA requires us to pay holders of our Class V Common Stock, HHC and Markel (together the "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, 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 Internal Revenue Service ("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.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements as of September 30, 2024.

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 — Basis of Presentation and Accounting Policies to Consolidated Financial Statements contained in our Annual Report. We include herein certain updates to those policies.

New Accounting Standards

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

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Non-GAAP Financial Measures

Adjusted EBITDA

We define Adjusted EBITDA as consolidated Net income, excluding interest and other income (expense), net, income tax (expense) benefit, and depreciation and amortization, further adjusted to exclude (i) gains and losses related to our warrant liabilities; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges, net; (iv) gains, losses and impairments related to divestitures; and (v) certain other unusual items.

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:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands
Net income$19,007 $18,623 $69,863 $19,137 
Interest and other (income) expense, net (1)
(8,359)(6,260)(27,945)(15,677)
Income tax (benefit) expense(1,022)4,604 9,918 12,002 
Depreciation and amortization9,184 10,753 29,758 34,893 
EBITDA18,810 27,720 81,594 50,355 
Restructuring, impairment and related charges, net— 473 — 8,857 
(Gain) loss related to warrant liabilities, net463 (850)8,544 1,419 
Share-based compensation expense4,092 4,935 13,018 12,869 
Gains, losses, and impairments related to divestitures— 4,112 (87)4,112 
Other unusual items (2)
800 987 1,536 837 
Adjusted EBITDA$24,165 $37,377 $104,605 $78,449 
(1)    Excludes interest expense related to the BAC Credit Facility, which is recorded within "Sales expense" on the Condensed Consolidated Statements of Operations.
(2)    Other unusual items includes professional fees associated with the Warrant Exchange, as well as certain material severance expenses for the three and nine months ended September 30, 2024 and a net legal settlement accrual for the three and nine months ended September 30, 2023. Refer to Note 17 — Warrant Exchange 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, less gains and losses related to our warrant liabilities, 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; (iv) all unissued share-based compensation awards; and (v) all unexercised warrants outstanding prior to the Warrant Exchange. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to 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.
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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 outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis.

Management uses Adjusted EPS:

•as a measurement of operating performance of our business on a fully consolidated basis;
•to evaluate the performance and effectiveness of our operational strategies; and
•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:

Three months ended
September 30,		Nine months ended
September 30,
2024202320242023
in thousands (except per share amounts)
Numerator:
Net income available to Class A Common Stockholders (1)
$2,798 $3,255 $7,753 $3,712 
Accretion of Series A Convertible Preferred Stock1,875 1,838 5,552 1,838 
Undistributed earnings allocated to Series A Convertible Preferred Stock212 261 607 110 
Net income attributable to non-controlling interest14,122 13,269 55,951 13,477 
Consolidated net income19,007 18,623 69,863 19,137 
(Gain) loss related to warrant liabilities, net463 (850)8,544 1,419 
Adjusted consolidated net income (2)
$19,470 $17,773 $78,407 $20,556 
Denominator:
Weighted average shares of Class A Common Stock outstanding (1)
89,69184,47986,68984,042
Total potentially dilutive securities outstanding:
Non-controlling interest units
255,178 255,499 255,178 255,499 
Series A Convertible Preferred Stock, on an as-converted basis
6,785 6,785 6,785 6,785 
Total unissued share-based compensation awards8,076 8,490 8,076 8,490 
Total warrants outstanding— 19,484 — 19,484 
Potentially dilutive shares outstanding270,039 290,258 270,039 290,258 
Fully dilutive shares outstanding (2)
359,730 374,737 356,728 374,300 
Basic EPS (1)
$0.03 $0.04 $0.09 $0.04 
Adjusted EPS (2)
$0.05 $0.05 $0.22 $0.05 
(1)    Numerator and Denominator, respectively, of the GAAP measure Basic EPS
(2)    Numerator and Denominator, respectively, of the non-GAAP measure Adjusted EPS
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the second quarter of 2024, we diversified our investment portfolio and, as a result, we are exposed to interest rate risk and credit risk related to our investments. For a discussion of our exposure to market risk, refer to the market risk disclosures set forth in Part II, Item 1A of this Quarterly Report and Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.

Interest rate risk - Available-for-sale securities

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed maturity securities. Fluctuations in interest rates have a direct effect on the market valuation of these securities. When market interest rates increase, the fair value of our fixed maturity securities decreases. Conversely, as interest rates decrease, the fair value of our fixed maturity securities increases. We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio. The target duration of our investment portfolio is two to four years.

As of September 30, 2024, we held fixed maturity securities with a fair value of $522.2 million. The table below illustrates the sensitivity of the value of our fixed maturity securities with hypothetical changes in interest rates as of September 30, 2024:

September 30, 2024
Estimated Fair ValueEstimated Change in Fair ValueEstimated % Increase (Decrease) in Fair Value
in thousands (except percentages)
200 basis points increase$488,688 $(33,524)(6.4)%
100 basis points increase$505,555 $(16,657)(3.2)%
No change$522,212 $— — %
100 basis points decrease$538,199 $15,987 3.1 %
200 basis points decrease$554,056 $31,844 6.1 %

Credit risk - Available-for-sale securities

Credit risk is the potential loss resulting from adverse changes in an issuer's ability to repay its debt obligations. We have exposure to credit risk as a holder of fixed maturity securities. Our risk management strategy and investment policy are designed to invest in investment grade debt and to limit the amount of credit exposure with respect to a single issuer to no greater than 5%, except for the U.S. Federal Government. As of September 30, 2024, all fixed income securities in our investment portfolio were rated investment grade by at least one nationally recognized rating organization.

ITEM 4. CONTROLS AND PROCEDURES

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, 2024 to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms specified by the SEC and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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, 2024, 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.
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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.

Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Refer to Note 22 — Commitments and Contingencies in Item 1 of Part I of this Quarterly Report for additional information related to legal proceedings.

ITEM 1A. RISK FACTORS

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.

Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.

Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a portfolio of investments in accordance with our investment policy, which is routinely reviewed by our Investment Committee.

Historically, our investment portfolio was primarily invested in cash and cash equivalents and fixed maturity securities. However, during the second quarter of 2024, we diversified our investment portfolio by opening positions in higher-yield fixed maturity securities and, to a lesser extent, equity securities. Our investments in marketable equity securities are carried on our balance sheet at fair market value and are subject to potential losses and declines in market value.

The Federal Reserve began lowering interest rates in September 2024. If interest rates continue to decline, this would place pressure on our net investment income, particularly as it relates to our short-term investments, which, in turn, may adversely affect our operating results. Conversely, if interest rates were to increase, it could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase.

The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer's payments on such investments. Downgrades in the credit ratings of fixed maturity securities also have a significant negative effect on the market value of such securities.

Each of the foregoing factors could reduce our net investment income and result in realized investment losses. Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include, but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality. We cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
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ITEM 5. OTHER INFORMATION

(a) Paul Rehrig, President of Media & Entertainment and a named executive officer of Hagerty, Inc. (the "Company"), will be stepping down from his role with the Company and its subsidiaries on December 2, 2024 (the "Effective Date") to pursue entrepreneurial opportunities.

In connection with Mr. Rehrig's departure, he entered into an Employee Separation and Release of Claims Agreement (the "Separation Agreement") with Hagerty Insurance Agency, LLC pursuant to which Mr. Rehrig is entitled to receive (i) continued payment of his base salary for twelve (12) months following the Effective Date, (ii) a single lump sum payment for his accrued and unused paid time off through the Effective Date, and (iii) a single lump sum payment of an amount to be calculated in accordance with the Company's Annual Incentive Plan for the year ended December 31, 2024 as determined by the Company's Talent, Culture, and Compensation Committee that is due no later than March 15, 2025, with each payment subject to applicable tax and other withholdings. In the event Mr. Rehrig elects health insurance coverage under COBRA, Hagerty Insurance Agency, LLC has agreed to pay the applicable contribution towards his then-current health insurance coverage for a period of nine months.

The Separation Agreement also provides for a release and waiver of claims in favor of the Company and its subsidiaries and Mr. Rehrig's compliance with certain restrictive covenants, including, non-solicitation of employees or customers, non-competition, cooperation and non-disparagement obligations.

The foregoing summary is qualified in its entirety by reference to the full text of the Separation Agreement, which is attached hereto as Exhibit 10.3 and incorporated herein by reference.

(b) On August 9, 2024, Rob Kauffman, our director, in his capacity as sole member of Aldel LLC, adopted a programmed plan of transactions intended to satisfy the affirmative defense provided by Rule 10b5-1 (the "10b5-1 Plan"). The 10b5-1 Plan provides for a first possible trade date of November 19, 2024, and terminates automatically on the earlier of the execution of all trades contemplated by the 10b5-1 Plan or November 14, 2025. The aggregate number of shares to be sold pursuant to the 10b5-1 Plan is 3,500,000 shares of Class A Common Stock held by Aldel LLC. During the three months ended September 30, 2024, no director or officer of the Company, other than Mr. Kauffman, has adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 6 OF PART II EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial statements and financial statement schedules filed as part of this report are listed in the index included in Item 8 of Part II Financial Statements and Supplementary Data of this report.

(b) Exhibits. The following exhibits, as required by Item 601 of Regulation S-K, are filed with or incorporated by reference in this report as stated below.

Exhibit No.Description
2.1*
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3†
31.1
31.2
32.1#
32.2#
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL).

*The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
†Indicates management contract or compensatory plan or arrangement.
#This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

71
TABLE OF CONTENTS
Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 7, 2024.



HAGERTY, INC.
By:
/s/ McKeel O Hagerty
McKeel O Hagerty
Chief Executive Officer

HAGERTY, INC.
By:
/s/ Patrick McClymont
Patrick McClymont
Chief Financial Officer
72
Exhibit 10.3
CONFIDENTIAL

EMPLOYEE SEPARATION AND RELEASE OF CLAIMS AGREEMENT

This Separation and Release of Claims Agreement ("Agreement") is entered into by and between Hagerty Insurance Agency, LLC, a Delaware limited liability company, (the "Employer"), on behalf of itself, its parents, subsidiaries, and other corporate affiliates, and each of their respective present and former employees, officers, directors, owners, shareholders, and agents, individually and in their official capacities (collectively referred to as the "Employer Group"), and Paul Rehrig (the "Employee"), (the Employer and the Employee are collectively referred to as the "Parties") as of the date the Agreement is signed by both Parties (the "Execution Date").

The Employee's last day of employment with the Employer Group is December 2, 2024 (the "Separation Date"). After the Separation Date, the Employee will not represent and has not represented himself as being an employee, officer, attorney, agent, or representative of the Employer Group for any purpose. Except as otherwise set forth in this Agreement, the Separation Date is the employment termination date for the Employee for all purposes, meaning the Employee is not entitled to any further compensation, monies, or other benefits from the Employer Group, including coverage under any benefit plans or programs sponsored by the Employer Group, as of the Separation Date.

1.Return of Property. The Employee warrants and represents that no later than the Separation Date he will return all Employer Group property, including identification cards or badges, access codes or devices, keys, laptops, computers, telephones, mobile phones, hand-held electronic devices, credit cards, electronically stored documents or files, physical files, and any other Employer Group property in the Employee's possession.

2.Employee Representations. The Employee specifically represents, warrants, and confirms that through the Separation Date, the Employee:

(a)has not filed and will not file any claims, complaints, or actions of any kind against the Employer Group with any court of law, or local, state, or federal government or agency;
(b)has not made and will not make any claims or allegations to the Employer Group related to sexual harassment or sexual abuse, and that none of the payments set forth in this Agreement are related to sexual harassment or sexual abuse;
(c)has been properly paid for all hours worked for the Employer Group;
(d)has received all salary, wages, commissions, bonuses, and other compensation due to the Employee, with the exception of the Employee's payroll checks for salary and any accrued but unused Paid Time Off ("PTO") through and including the Separation Date, which will continue to be paid on the regularly scheduled payroll date, including the scheduled payroll date for the pay period including the Separation Date, and any vested equity or benefits accrued before the Separation Date under the terms of any written Employer Group policy or benefit program through and including the Separation Date; and
(e)has not engaged in, will not engage, and is not aware of any unlawful conduct relating to the business of the Employer Group.
If any of these statements is not true, the Employee cannot sign this Agreement and must notify the Employer Group immediately in writing of the statements that are not true. This notice will not automatically disqualify the Employee from receiving these benefits, but will require the Employer Group's further review and consideration.

Exhibit 10.3

3.Separation Benefits. As consideration for the Employee's execution of, non-revocation of, and compliance with this Agreement, including the Employee's waiver and release of claims in Section 4 and other post-termination obligations, the Employer Group agrees to provide the following benefits:

(a)Continued payment of Employee's base salary in accordance with the Employer Group's regular payroll practices, less all relevant taxes and other withholdings, for a period of 12 months starting on the first payroll date occurring on or after 60 days following the Separation Date. The first installment payment shall include all amounts that would otherwise have been paid to the Employee during the period beginning on the Separation Date and ending on the first payment date. Notwithstanding the foregoing, no payment shall be made or begin before the Effective Date (defined below) of this Agreement.
(b)A payment of an amount to be calculated in accordance with the Company’s Annual Incentive Plan for the year ended December 31, 2024 as determined by the Company’s Talent, Culture, and Compensation Committee, and on the same basis as all other actively employed Executive Officers with respect to Company Performance Goals as defined in the Third Amended and Restated Annual Incentive Plan (the “Plan”), less all relevant taxes and other withholdings, to be made no later than March 15, 2025. For purposes of calculating Employee’s bonus, Employee shall be deemed to have met 100% of his target for his Participant Performance Goals as defined in the Plan.
(c)PTO earned by Employee less any amount taken up to the Separation Date will be paid in a lump sum on the next regularly scheduled payroll date following the Separation Date, less all relevant taxes and other withholdings.
(d)Employee’s coverage under Employer Group’s group health insurance plans shall cease effective December 31, 2024, at which time Employee shall be eligible to continue such coverage as permitted under COBRA. In the event Employee elects health insurance coverage under COBRA, the Employer Group will pay the applicable contribution towards Employee’s then-current health insurance coverage (e.g., individual or family) for an applicable period of 9 months. To receive the Employer Group’s subsidy towards health insurance coverage, the Employee shall elect coverage under COBRA and the Employer Group’s contribution will be applied.
(e) Employee agrees to direct all requests for references to Employer Group’s Human Resources Department. In response to a request for a reference, Employer Group shall provide only Employee's dates of employment and job title.
The Employee understands, acknowledges, and agrees that the Employee is not entitled to any additional payment or consideration not specifically referenced in this Agreement. Nothing in this Agreement shall be deemed or construed as an express or implied policy or practice of the Employer Group to provide these or other benefits to any individuals other than the Employee. Should the Employee accept another position with the Employer Group prior to payment being issued under the terms of this Agreement, the Agreement will become void.

4.Release.

(a)Employee's General Release and Waiver of Claims

In exchange for the consideration provided in this Agreement, the Employee and the Employee's heirs, executors, representatives, administrators, agents, insurers, and assigns (collectively, the "Releasors") irrevocably and unconditionally fully and forever waive, release, and discharge the Employer Group, including each member of the Employer Group's parents, subsidiaries, affiliates, predecessors, successors, and assigns, and each of

Exhibit 10.3
its and their respective officers, directors, employees, shareholders, trustees, and partners, in their corporate and individual capacities (collectively, the "Released Parties"), from any and all claims, demands, actions, causes of actions, judgments, rights, fees, damages, debts, obligations, liabilities, and expenses (inclusive of attorneys' fees) of any kind whatsoever, whether known or unknown (collectively, "Claims"), that Employee may have or has ever had against the Released Parties, or any of them, arising out of, or in any way related to the Employee's hire, benefits, employment, termination, or separation from employment with the Employer Group by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter from the beginning of time up to and including the date of the Employee's execution of this Agreement, including, but not limited to:

(i)any and all claims under Title VII of the Civil Rights Act of 1964 (Title VII), the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA) (regarding existing but not prospective claims), the Fair Labor Standards Act (FLSA), the Equal Pay Act, the Employee Retirement Income Security Act (ERISA) (regarding unvested benefits), the Civil Rights Act of 1991, Section 1981 of U.S.C. Title 42, the Fair Credit Reporting Act (FCRA), the Worker Adjustment and Retraining Notification (WARN) Act, the National Labor Relations Act (NLRA), the Age Discrimination in Employment Act (ADEA), the Uniform Services Employment and Reemployment Rights Act (USERRA), the Genetic Information Nondiscrimination Act (GINA), the Immigration Reform and Control Act (IRCA), the Michigan Elliott-Larsen Civil Rights Act (ELCRA), the Michigan Persons with Disabilities Civil Rights Act, the Payment of Wages and Fringe Benefits Act, the Michigan Whistleblowers Protection Act (WPA), the Bullard-Plawecki Employee Right to Know Act, the Michigan Workforce Opportunity Wage Act, the Michigan Occupational Safety and Health Act (MIOSHA), the Michigan Social Security Number Privacy Act, the Michigan Internet Privacy Protection Act, the Michigan Sales Representative Commission Act, all including any amendments and their respective implementing regulations, and any other federal, state, local, or foreign law (statutory, regulatory, or otherwise) that may be legally waived and released; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute or law shall not limit the scope of this general release in any manner;
(ii)any and all claims under the Colorado Anti-Discrimination Act (CADA), the Lawful Off-Duty Activities Statute (LODA), the Personnel Files Employee Inspection Right Statute, the Colorado Labor Peace Act, the Colorado Labor Relations Act, the Colorado Equal Pay Act, the Colorado Overtime and Minimum Pay Standards Order, the Colorado Healthy Families and Workplaces Act and Colorado FAMLI, all including any amendments and their respective implementing regulations, and any other state or local law (statutory, regulatory, or otherwise) that may be legally waived and released; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute or law shall not limit the scope of this general release in any manner; any and all claims for compensation of any type whatsoever, including but not limited to claims for salary, wages, bonuses, commissions, incentive compensation, vacation, and severance that may be legally waived and released;
(iii)any and all claims arising under tort, contract, and quasi-contract law, including but not limited to claims of breach of an express or implied

Exhibit 10.3
contract, tortious interference with contract or prospective business advantage, breach of the covenant of good faith and fair dealing, promissory estoppel, detrimental reliance, invasion of privacy, nonphysical injury, personal injury or sickness or any other harm, wrongful or retaliatory discharge, fraud, defamation, slander, libel, false imprisonment, and negligent or intentional infliction of emotional distress; and
(iv)any and all claims for monetary or equitable relief, including but not limited to attorneys' fees, back pay, front pay, reinstatement, experts' fees, medical fees or expenses, costs and disbursements, punitive damages, liquidated damages, and penalties; and
However, this general release and waiver of claims excludes, and the Employee does not waive, release, or discharge: (A) any right to file an administrative charge or complaint with, or testify, assist, or participate in an investigation, hearing, or proceeding conducted by, the Equal Employment Opportunity Commission, Colorado Civil Rights Division, or other similar federal or state administrative agencies, although the Employee waives any right to monetary relief related to any filed charge or administrative complaint; and (B) claims that cannot be waived by law, such as claims for unemployment benefit rights and workers' compensation; (C) indemnification rights the Employee has against the Employer Group; (D) any right to file an unfair labor practice charge under the National Labor Relations Act; (E) any rights to vested benefits, such as equity, pension or retirement benefits, the rights to which are governed by the terms of the applicable plan documents and award agreements; and (F) the right to enforce this Agreement.
If the Employee applies for unemployment benefits, the Employer Group shall not actively contest it. However, the Employer Group will respond truthfully, completely, and timely to any inquiries by the Colorado Department of Labor and Employment concerning the termination of Employee's employment.
(b)Specific Release of ADEA Claims

In further consideration of the payments and benefits provided to the Employee in this Agreement, the Releasors hereby irrevocably and unconditionally fully and forever waive, release, and discharge the Released Parties from any and all Claims, whether known or unknown, from the beginning of time through the date of the Employee's execution of this Agreement arising under the Age Discrimination in Employment Act (ADEA), as amended, and its implementing regulations. By signing this Agreement, the Employee hereby acknowledges and confirms that:

(i)the Employee has read this Agreement in its entirety and understands all of its terms;
(ii)by this Agreement, the Employee has been advised in writing to consult with an attorney of the Employee's choosing before signing this Agreement;
(iii)the Employee knowingly, freely, and voluntarily agrees to all of the terms and conditions set out in this Agreement including, without limitation, the waiver, release, and covenants contained in it;
(iv)the Employee is signing this Agreement, including the waiver and release, in exchange for good and valuable consideration in addition to anything of value to which the Employee is otherwise entitled;

Exhibit 10.3
(v)the Employee was given at least twenty-one (21) but not more than forty-five (45) days to consider the terms of this Agreement and consult with an attorney of the Employee's choice, although the Employee may sign it sooner if desired, and changes to this Agreement, whether material or immaterial, do not restart the running of the applicable period;
(vi)the Employee understands that the Employee has seven (7) days after signing this Agreement to revoke the release in this paragraph by delivering notice of revocation to the Employer Group as outlined below before the end of this 7-day period; and
(vii)the Employee understands that the release contained in this paragraph does not apply to rights and claims that may arise after the Employee signs this Agreement.
5.Knowing and Voluntary Acknowledgment. The Employee specifically agrees and acknowledges that:

(a)the Employee has read this Agreement in its entirety and understands all of its terms;
(b)by this Agreement, the Employee has been advised to consult with an attorney before executing this Agreement;
(c)the Employee knowingly, freely, and voluntarily assents to all of this Agreement's terms and conditions including, without limitation, the waiver, release, and covenants contained in it;
(d)the Employee is signing this Agreement, including the waiver and release, in exchange for good and valuable consideration in addition to anything of value to which the Employee is otherwise entitled;
(e)the Employee is not waiving or releasing rights or claims that may arise after the Employee signs this Agreement; and
(f)the Employee understands that the waiver and release in this Agreement is being requested in connection with the Employee's separation of employment from the Employer Group.
The Employee further acknowledges that the Employee is waiving and releasing claims under the Age Discrimination in Employment Act (ADEA), as amended, and has had at least twenty-one (21) but not more than forty-five (45) days to consider the terms of this Agreement and consult with an attorney of the Employee's choice, although the Employee may sign it sooner if desired and changes to this Agreement, whether material or immaterial, do not restart the applicable period. Further, the Employee acknowledges that the Employee shall have an additional seven (7) days from signing this Agreement to revoke consent to Employee's release of claims under the ADEA by delivering notice of revocation to the Employer Group as outlined below before the end of the 7-day period. In the event of a revocation by the Employee, this Agreement shall be null and void in its entirety.

Effective Date. This Agreement shall not become effective until the eighth (8th) day after the Employee signs, without revoking, this Agreement ("Effective Date"). No payments due to the Employee under this Agreement shall be made or begin before the Effective Date.

6.Post-Termination Obligations and Restrictive Covenants.


Exhibit 10.3
(a)Acknowledgment

The Employee understands and acknowledges that by virtue of the Employee's employment with the Employer Group, the Employee had access to and knowledge of Confidential Information, was in a position of trust and confidence with the Employer Group and benefitted from the Employer Group's goodwill. The Employee understands and acknowledges that the Employer Group invested significant time and expense in developing the Confidential Information and goodwill.
The Employee further understands and acknowledges that the restrictive covenants below are necessary to protect the Employer Group's legitimate business interests in its Confidential Information and goodwill. The Employee further understands and acknowledges that the Employer Group's ability to reserve these for the exclusive knowledge and use of the Employer Group is of great competitive importance and commercial value to the Employer Group and that the Employer Group would be irreparably harmed if the Employee violates the restrictive covenants below.
(b)Confidential Information

The Employee understands and acknowledges that during the course of employment with the Employer Group, the Employee has had access to and learned about confidential, secret, and proprietary documents, materials, and other information, in tangible and intangible form, of and relating to the Employer Group and its businesses and existing and prospective customers, suppliers, investors, and other associated third parties ("Confidential Information"). The Employee further understands and acknowledges that this Confidential Information and the Employer Group's ability to reserve it for the exclusive knowledge and use of the Employer Group is of great competitive importance and commercial value to the Employer Group, and that improper use or disclosure of the Confidential Information by the Employee may cause the Employer Group to incur financial costs, loss of business advantage, liability under confidentiality agreements with third parties, civil damages, and criminal penalties.

For purposes of this Agreement, Confidential Information includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic, or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, operating systems, software design, web design, work-in-process, databases, device configurations, embedded data, compilations, metadata, algorithms, technologies, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, formulae, notes, communications, product plans, designs, styles, models, ideas, audiovisual programs, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, customer information, customer lists, client information, and client lists of the Employer Group or its businesses or any existing or prospective customer, supplier, investor, or other associated third party, or of any other person or entity that has entrusted information to the Employer Group in confidence.


Exhibit 10.3
The Employee understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified or treated as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.

The Employee understands and agrees that Confidential Information developed by the Employee in the course of the Employee's employment by the Employer Group is subject to the terms and conditions of this Agreement as if the Employer Group furnished the same Confidential Information to the Employee in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Employee, provided that the disclosure is through no direct or indirect fault of the Employee or person(s) acting on the Employee's behalf.

(c)Disclosure and Use Restrictions.

(i)Employee Covenants. The Employee agrees and covenants:

(A) to treat all Confidential Information as strictly confidential;
(B) not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other employees of the Employer Group) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Employer Group and, in any event, not to anyone outside of the direct employ of the Employer Group except as required in the performance of any of the Employee's remaining authorized employment duties to the Employer Group and only after execution of a confidentiality agreement by the third party with whom Confidential Information will be shared or with the prior consent of an authorized officer acting on behalf of the Employer Group in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and
(C) not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Employer Group, except as allowed by applicable law, as required in the performance of any of the Employee's remaining authorized employment duties to the Employer Group, or with the prior written consent of an authorized officer acting on behalf of the Employer Group (and then, such disclosure shall be made only within the limits and to the extent of such law, duties, or consent).
The Employee understands and acknowledges that the Employee's obligations under this Agreement regarding any particular Confidential Information begin immediately and shall continue during and after the Employee's employment by the Employer Group until the Confidential Information has become public knowledge other than as a result of the Employee's breach of this Agreement or a breach by those acting in concert with the Employee or on the Employee's behalf.


Exhibit 10.3
(ii)Permitted Disclosures. Nothing in this Agreement shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. The Employee shall promptly provide written notice of any such order to an authorized officer of the Employer Group.

Nothing in this Agreement prohibits or restricts the Employee (or Employee's attorney) from initiating communications directly with, responding to an inquiry from, or providing testimony before the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization, or any other federal or state regulatory authority regarding this Agreement or its underlying facts or circumstances or a possible securities law violation.

Nothing in this Agreement in any way prohibits or is intended to restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement, or otherwise disclosing information as permitted by law.

(iii)Notice of Immunity Under the Defend Trade Secrets Act of 2016. Notwithstanding any other provision of this Agreement:

(A) The Employee will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(B) If the Employee files a lawsuit for retaliation by the Employer Group for reporting a suspected violation of law, the Employee may disclose the Employer Group's trade secrets to the Employee's attorney and use the trade secret information in the court proceeding if the Employee: (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order.
(d)Non-Solicitation of Employees

The Employee understands and acknowledges that the Employer Group has expended and continues to expend significant time and expense in recruiting and training its employees and that the loss of employees would cause significant and irreparable harm to the Employer Group. The Employee agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Employer Group for the remainder of the Employee's employment with the Employer Group and for a period of 12 months, to run consecutively, beginning on the Separation Date.

(e)Non-Solicitation of Customers

The Employee understands and acknowledges that the Employer Group has expended and continues to expend significant time and expense in developing customer relationships, customer information, and goodwill, and that because of the Employee's

Exhibit 10.3
experience with and relationship to the Employer Group, the Employee has had access to and learned about much or all of the Employer Group's customer information ("Customer Information"). Customer Information includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, pricing information, and other information identifying facts and circumstances specific to the customer and relevant to sales/services.

The Employee understands and acknowledges that loss of any of these customer relationships or goodwill will cause significant and irreparable harm to the Employer Group.

The Employee agrees and covenants for the remainder of the Employee's employment with the Employer Group and for a period of 12 months, to run consecutively, beginning on the Separation Date, not to directly or indirectly solicit or attempt to solicit, contact (including but not limited to communications using email, regular mail, express mail, telephone, fax, instant message, social media, or any other oral, written, or electronic transmission), attempt to contact, or meet with the Employer Group's current, former, or prospective customers for the purpose of offering to provide goods or services similar to or competitive with those offered by the Employer Group.

This restriction shall only apply to:
(i)customers or prospective customers the Employee contacted in any way during the 12 months before the Separation Date;
(ii)customers about whom the Employee has trade secret or Confidential Information;
(iii)customers about whom the Employee has information that is not available publicly; or
(iv)customers who became customers during the Employee's employment with the Employer Group.
(f)Non-Competition

For the remainder of the Employee's employment with the Employer Group and for a period of 12 months, to run consecutively, beginning on the Separation Date, the Employee will not:
(i)directly or indirectly engage in a Competitive Business; or
(ii)be employed by, perform services for, advise or assist, own any interest in or loan or otherwise provide funds to, any other business that is engaged (or seeking Employee’s services with a view to becoming engaged) in any Competitive Business.
“Competitive Business” means (a) vehicle, boat and collectible insurance business and ancillary businesses relating to the preservation, safety and enjoyment of vehicles, boats and collectibles and (b) any other business primarily in the automotive space in which the Employer Group are actively engaged or actively seeking to become engaged during Employee’s employment with the Employer Group. This provision does not prohibit Employee from owning not more than two percent (2%) of any class of securities of a publicly traded entity, provided that Employee does not engage in other activity prohibited by this Section 6.

7.Cooperation. The parties agree that certain matters in which the Employee has been involved during the Employee's employment may need the Employee's cooperation with the

Exhibit 10.3
Employer Group in the future. Accordingly, to the extent reasonably requested by the Employer Group, the Employee shall cooperate with the Employer Group regarding matters arising out of or related to the Employee's service to the Employer, provided that the Employer Group shall make reasonable efforts to minimize disruption of the Employee's other activities. The Employer Group shall reimburse the Employee for reasonable costs and expenses incurred in connection with this cooperation.

8.Non-Disparagement. The Employee agrees and covenants that the Employee shall not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory, maliciously false, or disparaging remarks, comments, or statements concerning the Employer Group or its businesses, or any of its employees, officers, or directors and their existing and prospective customers (of which Employee has knowledge), suppliers, and investors, now or in the future.

This Section does not in any way restrict or impede the Employee from exercising protected rights, to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order or subpoena of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. The Employee shall promptly provide written notice of any such order or subpoena to Employer Group.

9.Confidentiality of Agreement. The Employee agrees and covenants that the Employee shall not disclose any of the negotiations of, terms of, or amount paid under this Agreement to any individual or entity; provided, however, that the Employee will not be prohibited from making disclosures to the Employee's spouse or domestic partner, immediate family, attorneys, tax and financial advisors, or as may be required by law.

This Section does not in any way restrict or impede the Employee from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid subpoena or order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. The Employee shall promptly provide written notice of any such order or subpoena to Employer Group.

10.Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee hereby consents and agrees that the Employer Group shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages, and without the necessity of posting any bond or other security. Any equitable relief shall be in addition to, not instead of, legal remedies, monetary damages, or other available relief.

If the Employee fails to comply with any of the terms of this Agreement or post-employment obligations contained in it, the Employer Group may, in addition to any other remedies it may have, seek by legal process to reclaim any amounts paid to the Employee under the provisions of this Agreement and terminate any benefits or payments that are later due under this Agreement, without waiving the releases provided in it.

The Parties mutually agree that this Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of the Agreement.

11.Successors and Assigns.

(a)Assignment by the Employer Group

Exhibit 10.3

The Employer Group may freely assign this Agreement at any time provided the assignee assumes all of Employer Group’s obligations hereunder in writing. This Agreement shall inure to the benefit of the Employer Group and its successors and assigns.

(b)No Assignment by the Employee

The Employee may not assign this Agreement in whole or in part. Any purported assignment by the Employee shall be null and void from the initial date of the purported assignment.

12.Arbitration. The Parties agree that any dispute, controversy, or claim arising out of or related to the Employee's employment with the Employer Group or termination of employment, this Agreement, or any alleged breach of this Agreement shall be governed by the Federal Arbitration Act (FAA) and submitted to and decided by binding arbitration to be held in Grand Traverse County, Michigan. Arbitration shall be administered before the American Arbitration Association in accordance with its rules for employment arbitration and any requirements imposed by Michigan law, except as modified by this Agreement. Each Party shall pay its own costs of arbitration. Any arbitral award determination shall be final and binding on the Parties and may be entered as a judgment in a court of competent jurisdiction.

13.Governing Law, Jurisdiction, and Venue. This Agreement and all matters arising out of or relating to this Agreement and the Employee's employment by Employer Group, whether sounding in contract, tort, or statute, for all purposes shall be governed by and construed in accordance with the laws of Michigan (including its statutes of limitations) without regard to any conflicts of laws principles that would require the laws of any other jurisdiction to apply. Any action or proceeding by either of the Parties to enforce this Agreement shall be brought only in any state or federal court located in the state of Michigan, county of Grand Traverse. The Parties hereby irrevocably submit to the exclusive jurisdiction of these courts and waive the defense of inconvenient forum to the maintenance of any action or proceeding in such venue.

14.Entire Agreement. Unless specifically provided herein, this Agreement contains all of the understandings and representations between Employer Group and Employee relating to the subject matter hereof and supersedes all prior and contemporaneous understandings, discussions, agreements, representations, and warranties, both written and oral, regarding such subject matter. In the event of any inconsistency between this Agreement and any other agreement between the Employee and the Employer Group, the statements in this Agreement shall control.

15.Modification and Waiver. No provision of this Agreement may be amended or modified unless the amendment or modification is agreed to in writing and signed by the Employee and by Employer Group. No waiver by either Party of any breach by any other party of any condition or provision of this Agreement to be performed by any other Party shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the Parties in exercising any right, power, or privilege under this Agreement operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power, or privilege.

16.Severability. If any provision of this Agreement is found by a court or arbitral authority of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, or enforceable only if modified, such finding shall not affect the validity of the remainder of this Agreement, which shall remain in full force and effect and continue to be binding on the Parties.


Exhibit 10.3
The Parties further agree that any such court or arbitral authority is expressly authorized to modify any such invalid, illegal, or unenforceable provision of this Agreement instead of severing the provision from this Agreement in its entirety, whether by rewriting, deleting, or adding to the offending provision, or by making such other modifications as it deems necessary to carry out the intent and agreement of the Parties as embodied in this Agreement to the maximum extent permitted by law.

Any such modification shall become a part of and treated as though originally set forth in this Agreement. If such provision or provisions are not modified, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth in it. The Parties expressly agree that this Agreement as so modified by the court or arbitral authority shall be binding on and enforceable against each of them.

17.Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.

18.Counterparts. The Parties may execute this Agreement in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart's signature page of this Agreement by facsimile, email in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document has the same effect as delivery of an executed original of this Agreement.

19.No Admission of Liability. Nothing in this Agreement shall be construed as an admission by the Employer Group of any wrongdoing, liability, or noncompliance with any federal, state, city, or local rule, ordinance, statute, common law, or other legal obligation. The Employer Group specifically disclaims and denies any wrongdoing or liability to Employee.

20.Notices. All notices under this Agreement must be given in writing by regular mail or receipted email at the addresses indicated in this Agreement or any other address designated in writing by either Party. When providing written notice to Employer Group, a copy must be provided to Employer Group 's Chief Legal Officer at the address below.

Notice to Employer Group:

Hagerty Insurance Agency, LLC
Attn: Diana Chafey, Chief Legal Officer
121 Drivers Edge
Traverse City, MI 49684
dchafey@hagerty.com

21.Tolling. If the Employee violates any of the post-termination obligations in this Agreement, the obligation at issue will run from the first date on which the Employee ceases to be in violation of such obligation.

22.Attorneys' Fees and Costs. If either party breaches any terms of this Agreement or the post-termination obligations referenced in it, to the extent authorized by Michigan law, the non-breaching party will be responsible for payment of all reasonable outside attorneys' fees and costs that the non-breaching party incurred in the course of enforcing the terms of this Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.


Exhibit 10.3
23.Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A), including the exceptions thereto, and shall be construed and administered in accordance with such intent. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service, as a short-term deferral, or as a settlement payment pursuant to a bona fide legal dispute shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, any installment payments provided under this Agreement shall each be treated as a separate payment. To the extent required under Section 409A, any payments to be made under this Agreement in connection with a termination of employment shall only be made if such termination constitutes a "separation from service" under Section 409A. Notwithstanding the foregoing, Employer Group makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall Employer Group be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by Employee on account of non-compliance with Section 409A.

24.Notice of Post-Termination Obligations. When the Employee's employment with the Employer Group terminates, the Employee agrees to notify any subsequent employer of the restrictive covenants contained in this Agreement. In addition, the Employee authorizes the Employer Group to provide a copy of the restrictive covenants contained in this Agreement to third parties, including but not limited to, the Employee's subsequent, anticipated, or possible future employer.

25.Acknowledgment of Full Understanding. THE EMPLOYEE ACKNOWLEDGES AND AGREES THAT THE EMPLOYEE HAS FULLY READ, UNDERSTANDS, AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EMPLOYEE ACKNOWLEDGES AND AGREES THAT THE EMPLOYEE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF THE EMPLOYEE'S CHOICE BEFORE SIGNING THIS AGREEMENT. THE EMPLOYEE FURTHER ACKNOWLEDGES THAT THE EMPLOYEE'S SIGNATURE BELOW IS AN AGREEMENT TO RELEASE EMPLOYER GROUP FROM ANY AND ALL CLAIMS THAT CAN BE RELEASED AS A MATTER OF LAW.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the Parties have executed this Agreement as of this 4th day of November.
HAGERTY INSURANCE AGENCY, LLC
By /s/ Coco Champagne
Name: Coco Champagne
Title: Chief Human Resources Officer & Chief Administrative Officer

EMPLOYEE

Signature:

/s/ Paul Rehrig
Paul Rehrig


Exhibit 10.3


Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, McKeel O Hagerty, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Hagerty, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and




Exhibit 31.1
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2024
By:/s/ McKeel O Hagerty
McKeel O Hagerty
Chief Executive Officer
(Principal Executive Officer)


Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick McClymont, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Hagerty, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and




Exhibit 31.2
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2024
By:/s/ Patrick McClymont
Patrick McClymont
Chief Financial Officer
(Principal Financial Officer)

Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, McKeel O Hagerty, Chief Executive Officer of Hagerty, Inc. (the “Company”), hereby certify, that, to my knowledge:

1.    The Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date: November 7, 2024
By:/s/ McKeel O Hagerty
McKeel O Hagerty
Chief Executive Officer
(Principal Executive Officer)

Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Patrick McClymont, Chief Financial Officer of Hagerty, Inc. (the “Company”), hereby certify, that, to my knowledge:

1.    The Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date: November 7, 2024
By:/s/ Patrick McClymont
Patrick McClymont
Chief Financial Officer
(Principal Financial Officer)