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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2025
OR
For the transition period from ________ to _______
Commission file number: 001-40244
HAGERTY, INC.
(Exact name of registrant as specified in its charter)
(State of incorporation) (I.R.S. Employer Identification No.)
121 Drivers Edge, Traverse City, Michigan 49684
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbols Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
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 and posted on its corporate web site, if any, 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2025, based on the closing price of $10.11 for shares of the Registrant’s Class A Common Stock as reported by the New York Stock Exchange, was approximately $309.9 million. Shares of common stock beneficially owned by each executive officer, director, and holders of more than 10% of our common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The registrant had 101,066,533 shares of Class A Common Stock outstanding and 241,552,156 shares of Class V Common Stock outstanding as of February 20, 2026.
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement for its 2026 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of December 31, 2025, are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
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Table of Contents
Title Page
Where You Can Find More Information 4
Cautionary Statement Regarding Forward-Looking Statements 5
PART I 6
ITEM 1. BUSINESS 6
ITEM 1A. RISK FACTORS 15
ITEM 1B. UNRESOLVED STAFF COMMENTS 40
ITEM 1C. CYBERSECURITY 40
ITEM 2. PROPERTIES 41
ITEM 3. LEGAL PROCEEDINGS 41
ITEM 4. MINE SAFETY DISCLOSURES 42
ITEM 6. [ Reserved ] 44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 68
ITEM 9A. CONTROLS AND PROCEDURES 134
ITEM 9B. OTHER INFORMATION 136
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 136
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 136
ITEM 11. EXECUTIVE COMPENSATION 136
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 136
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 137
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Where You Can Find More Information
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 our website or social media channels is not a part of, and is not incorporated by reference into, this Annual Report on Form 10-K (this "Annual Report") or any other report or document we file with the SEC. Any reference to our website in this Annual 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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Cautionary Statement Regarding Forward-Looking Statements
This Annual 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 we provide, 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 implementations, 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.
We have based these forward-looking statements largely on our current expectations about future events, which may not materialize. Actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements. Some of the factors that could cause actual results to differ from our expectations include the risks and uncertainties described in Item 1A of Part I — Risk Factors of this Annual Report, which highlight, among other risks, our ability to:
•compete effectively within our industry and attract and retain our insurance policyholders and paid Hagerty Drivers Club 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 and marketplace products and services, as well as any new insurance programs and products we offer;
•successfully implement the fronting arrangement consummated with Markel Group Inc. (together with its subsidiaries, "Markel") and realize the anticipated benefits while also managing the increased exposure to underwriting volatility, catastrophes, reinsurance counterparty risk, and legal, compliance, and regulatory risks resulting from the shift to our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"), assuming 100% of the risk for policies written through this arrangement;
•underwrite and price new products, including Enthusiast+, consistent with expected loss ratios and risk tolerances;
•execute Broad Arrow Group, Inc.'s ("Broad Arrow") private sale, auction, and financing strategies;
•manage the cyclical nature of the insurance business and broader macroeconomic conditions, including inflation, interest rates, and potential recessionary pressures;
•achieve our investment objectives and avoid losses in our investment portfolio;
•address unexpected increases in the frequency or severity of claims, including catastrophe losses; and
•comply with the numerous laws and regulations applicable to our business, including without limitation state, federal, and foreign laws relating to insurance and rate increases, privacy and cybersecurity, marketing and advertising, digital services, accounting matters, tax, anti-money laundering, and economic sanctions.
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 Annual 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 Annual Report.
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PART I
ITEM 1. BUSINESS
Company Overview
We are a market leader in providing insurance for collector cars and enthusiast vehicles, helping the automotive enthusiast community protect and enjoy their special cars for more than 40 years. Our insurance products are complemented by our membership product, Hagerty Drivers Club ("HDC"), our renowned car events, and our media and entertainment platforms. We also operate a trusted marketplace where collectors and enthusiasts can buy and sell a wide range of vehicles, from entry level enthusiast vehicles to high value collector cars. Together, our integrated automotive ecosystem fosters a vibrant community where enthusiasts connect, share their passion, and access resources that enhance their ownership experience. Our vision is to be the world's most trusted and preferred brand for automotive enthusiasts to insure, buy, sell, and enjoy their special cars.
Beginning with this Annual Report, we present our Consolidated Financial Statements in accordance with Article 7 of Regulation S-X, reflecting the continued expansion of our insurance operations, including expanded risk assumption under the Markel Fronting Arrangement and the introduction of Enthusiast+, as discussed under "Markel Alliance" and "Drivers Edge Insurance Company"below. In addition, we now operate our business and report our financial performance using two segments: Insurance and Marketplace. Our segments provide management with a comprehensive financial view of our key businesses, as well as a framework for timely and rational allocation of resources.
Refer to "Transition to Article 7 Reporting Framework" in Item 7 of Part II of this Annual Report and Note 2 — Summary of Significant Accounting Policies in Item 8 of Part II of this Annual Report for additional information on the transition to Article 7 reporting.
Refer to Note 4 — Segment Reporting and Disaggregated Revenue in Item 8 of Part II of this Annual Report for additional information regarding segment reporting.
The first Hagerty company was founded in 1984. Hagerty, Inc., a Delaware corporation, was formed in 2020 and became a public company traded on the New York Stock Exchange ("NYSE") in 2021 under the ticker symbol HGTY.
Business Model and Competitive Strengths
The Hagerty brand has been carefully curated over the last four decades by providing Members with excellent customer service through our passionate team of automotive experts. We have become known as an automotive enthusiast brand built by drivers, for drivers. We believe that consumers who feel a part of an enthusiast community or club are more engaged and have higher renewal rates than those who simply purchase a good or service. With an insurance policy retention rate of nearly 90% and an average policy life of nine years, we have demonstrated a strong recurring revenue model that benefits from a combination of high insurance policy retention, new Member growth, and increases in premiums driven, in part, by the increasing values of insured vehicles over the long term.
Our connection to the automotive enthusiast community is complemented by HDC, our renowned car events, and our media and entertainment platforms, which generate positive ongoing engagement with current Members, as well as interest in our brand, products, and services from prospective members. The enthusiast community also benefits from the synergies of our trusted marketplace where we leverage our brand, relationships, and expertise to provide collectors and enthusiasts a seamless way to buy and sell a wide range of vehicles, from entry level enthusiast vehicles to high value collector cars.
Typical insurance businesses engage with their customers only a few times a year, but our diverse offerings result in numerous touchpoints with Members throughout the year. In addition, our media content features the work of talented automotive content creators, journalists, and storytellers who bring the automotive world to life in exciting and unexpected ways across a variety of digital, print, and video media formats. Our media team covers entertainment, news, market information, and vehicle valuation trends, all of which help generate an engaged audience that drives retention and attracts new Members. We believe our leading Net Promoter Score ("NPS")1 and strong retention rates reflect the effectiveness of our enthusiast ecosystem and that our business model is a significant advantage over competitors who, without strong affinity or engagement, are left to compete solely on price.
1NPS is a barometer of brand loyalty and engagement, supporting Member growth and policy retention. NPS is measured twice annually through a web-based survey sent by email invitation to a random sample of existing Members, which currently excludes customers in our Marketplace segment, and is reported annually using an average of the two surveys.
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Industry and Market Opportunity
We have established ourselves as one of the leading providers of collector car and enthusiast vehicle insurance with an overall market share of approximately 7% within the United States ("U.S.") collector car and enthusiast vehicle market of 36 million vehicles. This includes an estimated market share of approximately 15% for pre-1981 classic vehicles in the U.S. and an estimated U.S. market share for post-1980 collectible vehicles of 3%. On this basis, we estimate that our U.S. target market of collector cars and enthusiast vehicles represents approximately $15 billion of annual written premium based on our average vehicle premium of $423 per year. Over the last decade, we have increased our written premium by a compound annual growth rate of 14%, powered primarily by strong growth in the number of our insurance policies in force.
We believe that our strong brand and value proposition position us well to capture a larger share of this growing market over the coming decade, including through our recent acquisition of Drivers Edge Insurance Company ("Drivers Edge"). For more information regarding Drivers Edge, refer to "Insurance and Reinsurance — Drivers Edge Insurance Company" below.
In order to fully capitalize on this opportunity, we perform a data-driven Member and vehicle analysis to understand vehicle ownership data, demographic data, vehicle usage, and values. Based upon this analysis, we are able to identify key vehicle markets, explore additional opportunities within these markets, and overlay demographic and usage data to enrich our approach and leverage the information to better serve the automotive enthusiast community.
Insurance Segment
We operate as a Managing General Agent ("MGA") by underwriting, selling, and servicing collector car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Due to our consistent track record of delivering strong underwriting results, we then reinsure a significant portion of the risks written by our MGA subsidiaries through Hagerty Re. Hagerty Re reinsures risks predominantly from policies issued by Essentia Insurance Company ("Essentia"), a wholly owned subsidiary of Markel. Hagerty Re's quota share percentage for the risks that is assumes from Essentia has ranged from 25% at the program's inception to 80% as of December 31, 2025, and increased to 100% in 2026 as discussed under "Markel Alliance" below.
Our insurance offerings are centered around our "Guaranteed Value" insurance policy, which differentiates our coverage from the standard auto insurance market by insuring covered vehicles at their agreed upon value, rather than their depreciated value. We work closely with our Members to determine the right amount of coverage for their vehicle, utilizing Hagerty Valuation Tools, which has been built over decades of collecting vehicle sales information, to accurately assess the risk associated with insuring collector cars and enthusiast vehicles.
For over 40 years, we have consistently grown our insurance business and, as of December 31, 2025, 2.8 million collector cars and enthusiast vehicles were covered by our insurance policies. We have built a strong reputation for providing excellent customer service through our passionate team of member service center professionals, resulting in an NPS of approximately 81 in recent years, an insurance policy retention rate approaching 90%, and a typical policy life of approximately nine years.
For the years ended December 31, 2025, 2024, and 2023, Insurance segment revenue represented 92%, 96% and 97%, respectively, of our total revenue.
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Managing General Agent
Operating as an MGA allows us to offer our insurance products through an omnichannel distribution model, enabling us to sell our insurance wherever our policyholders need us. This omnichannel approach allows us to offer our insurance products across two channels: (i) directly to consumers; and (ii) through our agent channel, which includes a vast network of independent agents and brokers, as well as strategic distribution partnerships with large traditional auto insurers. We believe that this distribution model creates a win-win situation that allows us to capture more of the collector car and enthusiast vehicle insurance market. In connection with the servicing of insurance policies, we also handle claims on behalf of our insurance carrier partners to ensure that our Members receive a high level of service focused on the unique requirements of repairing vintage and rare vehicles.
When operating as an MGA, we earn commission and fee revenue primarily from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies written on behalf of insurance carriers. For the years ended December 31, 2025, 2024, and 2023, commission and fee revenue earned by our MGA subsidiaries represented 33%, 34%, and 36%, respectively, of our total revenue.
Direct Sales Channel
Our direct sales channel is serviced by our employee agents who sell policies in the U.S., Canada, and the United Kingdom ("U.K."). For the year ended December 31, 2025, approximately 44% of our total auto written premium was generated through direct sales.
Agent Channel
We market our insurance products through our insurance distribution partnerships, which include 9 of the top 10 largest auto insurers, as ranked by the National Association of Insurance Commissioners based upon 2024 direct premiums written. Under these arrangements, we generally make our specialty insurance products and related services available to the insurers' agents, who then refer or present Hagerty to their customers. Our track record of expertise and growth creates opportunities for cultivating strong, mutually beneficial distribution partnerships that allow us to continue to meaningfully grow our share of the collector car and enthusiast vehicle market in the U.S.
Most insurance companies offer and compete for multi-line insurance: auto, homeowners, umbrella, watercraft, aircraft, and other exclusive collectibles. Our focus on collector car and enthusiast vehicle products reduces competitive threats for partners and raises their confidence in transacting with us. Furthermore, we focus on developing capabilities that serve the interests of the automotive enthusiast market. This depth and discipline of focus has enabled us to maintain a "neutral" and non-threatening partner of choice position with the highest quality automobile insurance companies in the market as we help them reduce the risk of losing a customer and the total value of the bundled insurance and membership offerings.
Our approach to distribution partnerships enables complementary growth. Our business model is attractive to our partners because we offer a full-service solution for their customers and their special cars. Our focus on the collector car and enthusiast vehicle space allows our distribution partners to focus on other parts of their business portfolios and because our financial interests are aligned, both parties benefit from the relationship. We do well when our partners win and grow, and we take great care to build partnerships with companies who share our focus on excellent customer service. As a result of these partnerships, both brands benefit symbiotically through longer-lasting and more intimate customer relationships.
We also have relationships with over 54,000 independent agents and brokers, representing all top 10 brokers in the U.S. by revenue. Our high-engagement and experiential approach to the market is often co-branded by independent agents and brokers to deliver automotive enthusiasts an experience the agent or broker could not deliver themselves.
For the year ended December 31, 2025, approximately 56% of our total U.S. auto written premium was generated through our agent channel.
Insurance and Reinsurance
Hagerty Re
Hagerty Re's primary function is to reinsure a significant portion of the risk underwritten by our MGA subsidiaries, allowing us to retain and manage risk on our balance sheet, efficiently deploy capital, and participate directly in the underwriting profit generated by our MGA operations.
Hagerty Re reinsures risks predominantly from policies issued by Essentia. Hagerty Re's quota share percentage for the risks that it assumes from Essentia has ranged from 25% at the program's inception to 80% as of December 31, 2025, and increased to 100% in 2026 as discussed under "Markel Alliance" below.
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Our risk management philosophy is rooted in actuarial discipline and a deliberate approach to underwriting. Through our MGA subsidiaries, we leverage proprietary data analytics, rigorous pricing models, and ongoing reserve analysis to ensure prudent risk selection and loss reserving. Over the last three years, Hagerty Re has achieved an average loss ratio of 42%, which is significantly better than the overall auto insurance industry average of approximately 74%, excluding loss adjustment expenses. This performance underscores our ability to deliver consistent, profitable underwriting results and highlights the effectiveness of our risk management framework.
Hagerty Re purchases catastrophe reinsurance to manage risk exposure and protect its capital from large catastrophic events, and facultative reinsurance to cede a portion of the physical damage exposure related to certain high value vehicles. In addition, Hagerty Re cedes 100% of its physical damage exposure on U.S. policies written or renewed with total insured values ("TIV") equal to or greater than $5.0 million ("High-Net-Worth Accounts") via quota share agreements with various reinsurers. These High-Net-Worth Accounts are assumed 100% from Essentia. Certain reinsurers involved in these quota share agreements are related parties. Refer to Note 16 — Reinsurance and Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information.
Hagerty Re is a registered Class 3A reinsurer under the Bermuda Insurance Act of 1978 and is subject to comprehensive regulatory oversight by the Bermuda Monetary Authority ("BMA"). Under its license, Hagerty Re is only permitted to accept business underwritten by our MGA subsidiaries on behalf of our insurance carrier partners. The BMA requires Hagerty Re to maintain minimum capital and surplus levels, comply with solvency and liquidity ratios, adhere to restrictions on dividends and investment activities, and satisfy reporting obligations. In addition, Hagerty Re's reinsurance arrangements are structured to ensure that all counterparties meet stringent credit quality standards, further reinforcing the financial strength and stability of our insurance platform.
For the years ended December 31, 2025, 2024, and 2023, Hagerty Re earned premium represented 50%, 52%, and 52%, respectively, of our total revenue.
Drivers Edge Insurance Company
In September 2024, we acquired all the issued and outstanding capital stock of Consolidated National Insurance Company ("CNIC"), which was a shell insurance company holding certain state licenses. CNIC was subsequently renamed Drivers Edge Insurance Company. In the third quarter of 2025, Drivers Edge launched Enthusiast+ in Colorado, which is a new insurance product tailored for modern enthusiast vehicles that are typically driven more frequently and stored more flexibly than traditional collector cars. This product evolved from our growing exposure to modern enthusiast vehicles and is designed to broaden our addressable market by offering coverage to a wider range of vehicles and customer profiles. The entirety of the risk underwritten by our U.S. MGA subsidiary on behalf of Drivers Edge is ceded to Hagerty Re.
We expect Enthusiast+ policies to command higher premiums and, given the distinct risk characteristics of the targeted vehicles and customer segments, have higher loss ratios relative to our traditional insurance offerings. Enthusiast+ features differentiated pricing and advanced coverage options, representing a strategic evolution in our risk profile and business model.
We plan to implement a phased, nationwide rollout of Enthusiast+ over the next four years. We believe that Enthusiast+ will generate attractive returns for us, widen our funnel of insurable vehicles, and contribute to the long-term growth and diversification of our insurance portfolio.
HDC, Events and Media
Our Insurance segment also offers HDC memberships, which are bundled with our insurance policies and provide Members with access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, special access to automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts. Lastly, our Insurance segment includes related ancillary activities such as our events and media and entertainment platforms, which support brand awareness and sales of our insurance policies through their distribution and high rates of pass-along circulation.
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Strategic Agreements
Markel Alliance
We are party to an alliance agreement (the "Markel Alliance Agreement") and associated agency and claims services agreements with Markel, which govern our long-standing business relationship related to marketing, underwriting, and administration of personal automobile insurance for collector cars and enthusiast vehicles in the U.S. Under this arrangement, our U.S. MGA subsidiary is licensed and authorized to develop insurance products, underwrite, bill, and perform claims services for policies written through Essentia. Essentia is exclusive to our U.S. MGA subsidiary and only writes insurance policies we produce. State laws govern many of the activities under this relationship and our MGA subsidiary must maintain the appropriate licensing as a producer and, where required, as an MGA, plus additional requirements in some states for claims adjusting. In 2025 and 2024, our U.S. MGA subsidiary earned a base commission rate of approximately 37%, as well as an additional contingent underwriting commission ("CUC") that scaled annually from -5% to a maximum of +5% of written premium.
On December 31, 2025, we entered into new contractual arrangements and amended the terms of our existing contractual arrangements with Markel and its affiliates. These coordinated transactions with Markel formed an arrangement that became effective January 1, 2026 (the "Markel Fronting Arrangement"). Under the Markel Fronting Arrangement: (i) we continue to issue policies through Essentia, with our underwriting authority (including pricing decisions, rate filing, insurance rating, and risk selections) and claims authority expanded to the maximum levels permitted by applicable law; (ii) we have assumed increased administrative responsibilities for the policies issued through Essentia; (iii) Hagerty Re controls 100% of the premium and assumes 100% of the risk for policies issued through Essentia; and (iv) Hagerty Re pays an initial fronting fee, representing 2% of written premium, to Markel for administrative support, which incrementally decreases based on the level of written premium in each calendar year. We expect these changes to result in increased profitability and additional control, allowing for enhanced operational efficiencies.
As a result of these changes, beginning in the first quarter of 2026, our accounting for the Essentia book of business will significantly change, impacting the recognition of commission revenue earned by our U.S. MGA subsidiary and ceding commission expense incurred by Hagerty Re. Refer to the section entitled "Recent Developments" within Item 7 of Part II of this Annual Report for additional information.
For the years ended December 31, 2025, 2024, and 2023, commission revenue associated with the Markel Alliance Agreement was $436.8 million, $388.0 million, and $340.5 million, respectively, representing 91%, 93%, and 95%, respectively, of total commission revenue.
Markel is a related party to the Company. Refer to Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information.
Aviva Canada Alliance
Aviva Canada Inc. ("Aviva") serves as the carrier for the specialty collector vehicle insurance policies sold by our Canadian MGA subsidiary ("Hagerty Canada"). The relationship with Aviva in Canada is exclusive with respect to specialty, enthusiast, classic, and collector vehicle insurance, with the exception of the Quebec province, where a third-party insurance agency carries the appropriate licenses and authority to submit business to Aviva. Aviva and Hagerty Re also have a quota share reinsurance agreement under which Hagerty Re reinsures 50% of the risk written by Hagerty Canada on behalf of Aviva. Canadian provincial laws govern many of the activities under this relationship and Hagerty Canada must maintain the appropriate licensing. The terms of our agreements with Aviva expire in 2030 and include a 5-year extension if certain thresholds are met.
State Farm Alliance
We have a 10-year master alliance agreement and associated managing general underwriter agreement with State Farm Mutual Automobile Insurance Company ("State Farm") (the "State Farm Master Alliance Agreement") under which State Farm Classic+ policies are offered to State Farm's customers through State Farm agents. This program began offering State Farm Classic+ policies in September 2023. As of December 31, 2025, State Farm Classic+ policies were being offered in 27 states, with conversions of their existing book of business occurring in seven of these states and plans to offer such policies in additional states in 2026 and 2027. Hagerty Re does not have a quota share reinsurance agreement with State Farm and as such, we do not reinsure any of the risk written under the State Farm Classic+ policies. Under the State Farm Master Alliance Agreement, State Farm paid Hagerty an advanced commission of $20.0 million in 2020, which is being recognized as "Commission and fee revenue" over the remaining life of the arrangement. In addition, we are paid a commission for underwriting, binding coverage, and issuing State Farm Classic+ policies and can offer HDC memberships to State Farm Classic+ customers, providing us an additional revenue opportunity.
State Farm is a related party to the Company. Refer to Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information.
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Seasonality
Our Insurance segment operates in certain geographic regions where vehicles are purchased and driven more frequently during the spring and summer months, and a larger portion of our annual insurance policies renew during those months. Accordingly, we experience peak MGA commission and fee revenue in the second and third quarters of the year. In addition, catastrophic loss events, such as hurricanes and wildfires, are typically more prevalent in the second half of the year, so our losses and loss adjustment expenses may reflect that seasonality. As a result of these factors, we have historically experienced seasonal fluctuations in our quarterly operating results, which may not fully reflect the underlying performance of our business.
Marketplace Segment
We strive to be the most trusted marketplace where collectors and enthusiasts can buy and sell a wide range of vehicles, ranging from entry level enthusiast vehicles to high value collector cars. Our marketplace offerings include live auctions and an online sale platform, as well as brokered private sales, where we facilitate transactions on behalf of sellers and buyers. From time to time, we also purchase cars or entire collections through our Marketplace segment when a seller prefers an outright sale instead of an auction or brokered private sale.
At the high-end of the collector car and enthusiast vehicle market, where values typically exceed $100,000, our live auctions and brokered private sales are conducted by our wholly owned subsidiary, Broad Arrow. In addition to consigning cars to auctions or through brokered private sales, from time to time, Broad Arrow opportunistically acquires collector cars and enthusiast vehicles when the owner(s) prefer an immediate sale rather than consigning the vehicle(s) for auction or private sale. In those instances, Broad Arrow opportunistically acquires the cars and offers them for sale at auction or through private sale. At lower price points, typically below $100,000, our Marketplace segment offers sellers the ability to list their vehicles on digital auctions through Hagerty Marketplace, where we earn a bidder fee for successful introductions on our online sale platform. Hagerty Marketplace also offers a classifieds platform for our Members, where we currently do not earn a fee.
As compensation for our live auction services, we earn a commission from both the buyer ("buyer's premium") and, to a lesser extent, the seller ("seller's commission") (collectively, "auction commission revenue"), both of which are typically calculated as a percentage of the hammer (sale) price of the vehicle sold at auction. We also earn private sales commissions through the direct brokering of purchases and sales of classic cars and enthusiast vehicles.
The market for buying and selling collector cars and enthusiast vehicles is substantial, encompassing live auctions and digital sales, as well as private sales. We estimate that there are approximately 36 million insurable collector cars and enthusiast vehicles in the U.S. and in 2025, in our U.S. insurance book alone, we observed over 300,000 collector car and enthusiast vehicle transactions. We believe we can differentiate ourselves from other platforms and services by incorporating a higher level of trust into this marketplace by using our existing size, scale, reach, improved processes, and trusted brand status.
During 2025, Broad Arrow expanded its live auction and private sale offerings in the EMEA region. This led to three inaugural European auctions for Broad Arrow: the Concorso d’Eleganza Villa d’Este Auction in partnership with BMW AG on the shores of Lake Como in Italy in the second quarter, the Zoute Concours Auction in partnership with Zoute Grand Prix Car Week held in Knokke-Heist, Belgium in the fourth quarter, and the Zürich Auction in partnership with Auto Zürich held in Zürich, Switzerland in the fourth quarter. In addition to Broad Arrow's European expansion, Broad Arrow became the official auction partner of Concours at Wynn Las Vegas, a new auction for Broad Arrow in the fourth quarter of 2025.
In 2026, Broad Arrow expects to further expand its auction calendar. In the first quarter, Broad Arrow added an online auction during the Salon Retromobile week in Paris. In the third quarter, Broad Arrow will be the official auction partner of The Quail, a Motorsports Gathering in Carmel, California. The Quail Auction will replace the Monterey Jet Center Auction. In the fourth quarter, Broad Arrow will host its first auction as the official auction partner of the Audrain Newport Concours and Motor Week in Newport, Rhode Island. Each of these auctions are held in partnership with various well-established concurs and/or automotive events with multi-year partnership agreements.
We also provide financing solutions to qualified collectors and businesses in the U.S., Canada, the U.K., and certain European countries by structuring loans secured by their collector cars through our wholly owned subsidiary Broad Arrow Capital LLC ("BAC"). The loans underwritten by BAC include term loans and short-term bridge loans. Loans underwritten by BAC are typically $250,000 or higher, with a focus on collector cars and enthusiast vehicles that are typically not financed by traditional banks and lenders. The lending activities of BAC are funded, in part, with borrowings drawn from a dedicated revolving credit facility, with the remainder funded by our available liquidity. In November 2025, BAC amended its dedicated revolving credit facility to, among other things, increase its borrowing capacity from $75 million to $150 million. For information regarding the BAC loan portfolio, refer to Note 7 — Notes Receivable in Item 8 of Part II of this Annual Report.
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For the years ended December 31, 2025, 2024, and 2023, Marketplace segment revenue represented 8%, 4%, and 3%, respectively, of our total revenue.
Investments
Investment income is a meaningful component of our earnings. The predominant portion of our investment portfolio is held at Hagerty Re. As a reinsurer, Hagerty Re receives premiums and is required to provide ceding carriers with security, which it provides primarily in the form of trust accounts. Such funds make up a majority of our investment portfolio. Our investment portfolio predominantly consists of fixed maturity securities such as corporate bonds, U.S. treasury securities, and agency mortgage-backed securities. Our investment portfolio also includes a relatively small balance of equity securities and other strategic direct investments.
We seek to generate an attractive total return on an after-tax basis, net of fees, over the long-term, subject to the following objectives and constraints: (i) compliance with all legal, regulatory, and contractual requirements; (ii) maintaining strong liquidity; (iii) assuming a level of risk that is carefully calibrated and responsive to enterprise-wide considerations; and (iv) returns should be achieved through executing an efficient, diversified portfolio.
Our investments as of December 31, 2025 and 2024 are summarized as follows:
Estimated Fair Value % of Estimated Fair Value
Fixed maturities: in thousands (except percentages)
States and municipalities 30,146 2.9 %
Asset-backed securities 32,251 3.1 %
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Fair value % of total fair value
Fixed maturities: in thousands (except percentages)
States and municipalities 31,585 3.8 %
Asset-backed securities 23,680 2.9 %
Refer to the section titled "Risk Factors — Risks Related to Our Business — Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results." withinItem 1A of Part I — Risk Factors and Note 5 — Investments in Item 8 of Part II of this Annual Report for additional information.
Regulatory Environment
We operate across jurisdictions in North America and Europe and our businesses (in particular, insurance) are subject to comprehensive regulation and supervision. Each jurisdiction in which we operate has established supervisory agencies with broad administrative and oversight powers for various business practices (for example, financial services consumer protection and data protection). While we are not aware of any proposed or recently enacted domestic or international regulation that would have a material impact on our operations, earnings, or competitive position, we cannot predict the effect that future regulatory changes might have on us. Refer to the section titled "Risk Factors — Legal, Regulatory and Political Risks" within Item 1A of Part I — Risk Factors in this Annual Report for additional information.
Intellectual Property
We believe our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and electronic and physical security measures to establish and protect our proprietary rights. Though we rely in part upon these legal, contractual, and other protections, we believe that factors such as the skill and ingenuity of our employees and the functionality and frequent enhancements to our platform are large contributors to our success. We intend to pursue additional intellectual property protection on such enhancements to the extent we believe it would be beneficial and cost-effective.
As of December 31, 2025, we have two issued patents in the U.S. and one in Canada. The issued patents generally relate to (i) our vehicle information number decoder, which allows us to determine vehicle configuration details and associated vehicle values; and (ii) our method and system for storage and selective sharing of vehicle data. The issued patents are expected to expire in August 2030, May 2031, and May 2033, respectively. We continually review our development efforts to assess the existence and the ability to protect new intellectual property.
We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the U.S., Canada, U.K., European Union, and Australia. We have copyrights for our media and entertainment content and registered copyrights for our vehicle information tools in the U.S. We also have registered various domain names related to our brand for websites that we use in our business, including Hagerty.com.
Although we believe our intellectual property rights are valuable and strong, intellectual property rights are sometimes subject to invalidation or circumvention. Refer to the section titled "Risk Factors — Legal, Regulatory and Political Risks — Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted." within Item 1A of Part I — Risk Factors, in this Annual Report for additional information.
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Competition
We believe that our business model of integrated products and services is unique. While there are other specialty insurance companies offering collector car insurance, the size of their operations is small compared to ours. We believe our enthusiast-centered ecosystem, with a focus on community and engagement, is a significant competitive advantage over competitors who, without strong affinity or engagement, are left to compete solely based on price. We experience some competition in the larger standard auto insurance market as the majority of collector cars and enthusiast vehicles are currently insured through traditional auto insurance carriers. However, in lieu of competing directly with standard auto insurance carriers, we have formed relationships with many of them to offer their customers our specialty insurance products and HDC memberships. These relationships with the largest auto insurance carriers enable us to provide a high-touchpoint experience for customers, resulting in more appropriate levels of coverage and higher overall customer service satisfaction.
The collector car and enthusiast vehicle market is highly competitive for both Broad Arrow at the high-end of the market and Hagerty Marketplace at the lower price points. A fundamental challenge facing any auctioneer or dealer is the sourcing of high quality and valuable vehicles for sale either as agent or principal. The ability to obtain such vehicles for consignment is often dependent on collector and dealer relationships, which can sometimes take years to develop. In the market for high-end collector car and enthusiast vehicles, Broad Arrow primarily competes with other global auction houses, including RM Sotheby’s, Gooding Christie’s, Bonhams, and Artcurial. In the market for lower priced collector car and enthusiast vehicles, Hagerty Marketplace primarily competes with traditional auction houses including Barrett-Jackson and Mecum, and digital auction platforms including Bring a Trailer Auctions, Cars & Bids, PCARMARKET, and Collecting Cars.
Human Capital
Our performance-based culture is shaped by our people, and their engagement, accountability and alignment with our key objectives as an organization. Our strategy involves hiring great people, providing challenging and meaningful work, and investing in their professional and personal development, and we believe this creates a strategic advantage for us. Our objectives include effectively identifying, recruiting, retaining, and incentivizing our employees. As of December 31, 2025, we had 1,891 full-time employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
Compensation
Our compensation programs are designed to attract, retain, and motivate talented, deeply qualified, and committed individuals who believe in our mission, while rewarding employees for long-term value creation. We have a pay-for-performance culture in which employee compensation is aligned to company performance, as well as individual contributions and impacts. The potential for stock-based compensation awards through our equity incentive plan, as well as the opportunity to participate in an employee stock purchase plan are designed to align employee compensation to the long-term interests of our stockholders, while encouraging them to think and act like owners. We strive for a fair, competitive, transparent, and equitable approach in recognizing and rewarding our employees.
Health and Wellness
The health and wellness of our employees and their families is integral to our success. We have a comprehensive benefits program to support the physical, mental, and financial well-being of our employees. We have a self-insured medical plan in which our employees pay approximately 21% of the monthly estimated premiums. In addition to core medical benefits, we offer maternity and paternity benefits, as well as employee assistance programs to support the mental health of our employees. Additionally, aside from our competitive paid time off program, we offer caregiver time off, which provides employees 40 hours each year of paid time off for caregiver responsibilities.
Performance Culture
Our performance culture objective is to be a company where each employee genuinely belongs, is respected and valued, and is driven to do their best work. We take this to heart not just within our Company, but also within the broader automotive enthusiast community.
To help achieve our goals, we ensure fair and transparent processes in talent assessment, hiring, performance management, career progression, and retention. We are creating an environment focused on the respectful treatment of others, including employees, Members, and partners. Engagement and belonging are fueled by having a meaningful connection to others and opportunities to grow and develop careers. Across these dimensions, we are building programs, systems, and tools that foster greater belonging.
We intend to continue to invest and further develop our leadership training and support to ensure that all leaders — those promoted, developing, or hired — understand how to effectively lead a high-performance team.
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ITEM 1A. RISK FACTORS
Below are certain risks and uncertainties applicable to our business and the industry in which we operate, and some of which are beyond our control. These are not the only risks we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. You should carefully read these risks as well as the cautionary statements referred to in "Cautionary Statement Regarding Forward-Looking Statements" herein. If any of the risks and uncertainties described below or elsewhere in this Annual Report actually occur, our business, financial condition or results of operations could be materially and adversely affected, the trading price of our securities could decline, and you might lose all or part of your investment.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties of which you should be aware. Among others, these risks relate to:
•our ability to attract and retain Members and compete effectively within our industry;
•our dependence on a limited number of insurance distribution and underwriting carrier partners;
•our ability to prevent, monitor, and detect fraudulent activity;
•issues with our technology platforms and our ability to anticipate or prevent cyberattacks;
•our ability to continue to develop, implement, and maintain the confidentiality of our proprietary technology and prevent the misappropriation of our data;
•our reliance on a highly skilled management team, workforce, and unique culture;
•our ability to successfully execute and integrate future acquisitions, partnerships and investments;
•new products and services with limited operating history that may not achieve profitability as quickly as anticipated, or at all;
•the performance of our investment portfolio, which is subject to a variety of investment risks;
•our reliance on a limited number of payment processing services;
•our susceptibility to inflation, interest rate, and foreign currency exchange rate fluctuations;
•tariffs on imported goods, which may increase our costs and reduce consumer spending on collector cars and related services, which could adversely affect our business, financial condition, and results of operations;
•unexpected increases in the frequency or severity of claims, including increases caused by catastrophic events;
•compliance with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance and rate increases, privacy and cybersecurity, marketing and advertising, digital services, accounting matters, tax, anti-money laundering, and economic sanctions;
•the cyclical nature of the insurance business and our dependence on our ability to collect vehicle usage and driving data;
•the ability or unwillingness of our reinsurers to pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations;
•unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in the insurance policies we sell and service;
•our ability to realize the anticipated benefits from the growth and integration of our Marketplace segment offerings with our other businesses;
•the potential for significant fluctuations in the collector car market and asset values, which may materially impact our ability to obtain and sell consigned vehicles and may have an adverse effect on the loan-to-value ("LTV") ratio of our loan portfolio within the Marketplace segment;
•the accounting implications of the Markel Fronting Arrangement, which will impact the recognition of commission revenue and ceding commission expense, may not be readily understood by market participants;
•the fact that we are a "controlled company" within the meaning of the NYSE listing requirements, and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements;
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•whether investors or stockholder advisory firms view our stock structure unfavorably, particularly our dual-class structure;
•the fact that Hagerty Holding Corp. ("HHC") controls us, and its interests may conflict with ours or yours in the future;
•potential that the price of our securities may be volatile or may decline regardless of our operating performance; and
•the fact that Hagerty, Inc.'s only material asset is its interest in THG, and, accordingly, it will depend on distributions from THG to pay taxes and payments under the Tax Receivable Agreement ("TRA").
Risks Related to Our Business
We have experienced significant Member growth in recent years. Our business and revenue growth depend on our ability to continuously attract and retain Members, which we cannot assure, and Member retention may decline.
We believe our growth depends on our ability to: (i) retain existing Members; (ii) add Members in our current markets, as well as new geographic markets; (iii) add new insurance programs and products; and (iv) continue to grow our offering of non-insurance automotive enthusiast-related products. Increasing our Member count, expanding into new geographic markets, and introducing new product and service offerings may be time-consuming and expensive. In addition, if existing Members and consumers do not perceive our offerings to be of value, including if we introduce new or adjust existing features, coverage or service offerings, or change the mix of offerings in a manner that is not favorably received, we may not be able to retain existing Members or attract new Members. We may also, from time to time, adjust pricing or the pricing model itself, which may result in cancelled insurance policies or HDC memberships and fewer new Members joining our programs.
Many of our Members are referred to us by existing Members. Therefore, if our efforts to satisfy our existing Members are not successful, we may not be able to attract new Members, and as a result, our ability to grow our business will be adversely affected. Similarly, a large percentage of our revenues are derived from direct-to-consumer sales, including through digital channels. If we fail to meet consumer expectations for the Member experience through digital or other sales channels, our growth may be impacted through the loss of existing Members or inability to attract new Members.
A significant loss of Members could lead to declining revenue, which would adversely impact our profitability. If we are unable to remain competitive with Member experience, pricing, or insurance coverage options, our ability to grow and retain our business may also be adversely affected. In addition, we might not be able to accurately predict risk segmentation of new and renewal Members or potential Members, which could also reduce our profitability.
A large percentage of our Insurance segment products and services are distributed through a few relationships and the loss of business provided by any one of them could have an adverse effect on us.
In addition to our direct sales efforts and independent channels, we market our insurance products through several insurance distribution partners. For the year ended December 31, 2025, approximately 17% of our gross written premium was attributable to five distribution partner marketing relationships. For three of these distribution partners, we have long-term arrangements, which have expiration dates in 2029, 2030, and 2033. The other relationships have shorter durations. Upon expiration or termination of these agreements, these partners may decide to discontinue distributing our products and services or may be unwilling to do so on terms acceptable to us. If we are not successful in maintaining existing relationships and continuing to expand our distribution relationships, or if we encounter regulatory, technological, or other impediments to delivering our products and services to Members through these relationships, our ability to retain Members and grow our business could be adversely impacted. In addition, the broker/agent relationships with many of the partners we work with may change and their own internal strategy about how products are marketed may change, and, where we do not have exclusivity, we face competition by providers who seek to build or strengthen relationships with our distribution partners, which could cause a loss of focus on or exposure to our products and services, adversely impacting new sales.
We may not be able to prevent, monitor, or detect fraudulent activity, including transactions with insurance policies or payments of claims as well as transactions through our Marketplace segment.
If we fail to maintain adequate systems and processes to prevent, monitor, and detect fraud, including employee, agent, policy, vendor, marketplace, or claims fraud, our business could be materially adversely impacted. Fraud schemes have become increasingly more sophisticated and are ever evolving into different and creative avenues of fraudulent activity. While we believe that any past incidents of fraudulent activity have been relatively isolated, we cannot be certain that our systems and processes will always be adequate to detect such activity as fraudulent activity and schemes continue to evolve. While our employees are required to take comprehensive anti-fraud training and use a variety of tools to protect against fraud, these trainings and tools may not always be successful at preventing fraud.
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Instances of fraud may result in increased costs, including possible settlement and litigation expenses, higher deductibles and increased corporate insurance premiums, and could have a material adverse effect on our business and reputation. In addition, failure to monitor and detect fraud and otherwise comply with state Special Investigation Unit requirements can result in regulatory fines or penalties.
Like others in our industry, we face potential exposures to operational disruptions caused by cyber breaches or resiliency failures impacting us or third party technology providers upon whom we rely, which could impair website availability and crucial technology operations.
Cyberattacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, viruses, social engineering (including phishing) and other malicious internet-based activity are prevalent in our industry, and such attacks continue to increase with frequency, levels of sophistication, and persistence. We utilize third-party providers to host, transmit, or otherwise process electronic data in connection with our business activities. We and/or our vendors and business partners may experience attacks, unavailable systems, unauthorized access, or disclosure due to theft or misuse, denial-of-service attacks, sophisticated attacks by nation-state and nation-state supported actors, and advanced persistent threat intrusions. Despite our efforts to ensure the security, privacy, integrity, confidentiality, availability, and authenticity of information technology networks and systems, processing and information, we may not be able to fully anticipate, or to implement effective measures against all data security and privacy threats. The recovery systems, security protocols, network protection mechanisms, and other security measures that we have integrated into our systems, networks, and physical facilities, may not be adequate to prevent or detect service interruption, system failure, data loss or theft, or other material adverse consequences.
Any regulatory enforcement actions, such as the inquiry related to unauthorized access into our online quote feature described in the section "Data Security Incident" within Note 25 — Commitments and Contingencies in Item 8 of Part II of this Annual Report, or future cyberattacks on our systems, could result in reputational damage and/or cause current and prospective Members to stop using our services. Further, we may be required to expend significant financial and operational resources in response to a security breach, which could be costly and divert resources and the attention of our management and key personnel away from our business operations. Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
Our technology platforms may not function properly, which might subject us to loss of business and revenue, breach of contractual obligations, and place us out of compliance with state and federal rules and regulations.
We utilize numerous technology platforms throughout our business for various functions, including platforms to gather Member data to price and administer our insurance products, for claims management, to issue and service our membership products, provide valuation services, and transact live and digital auctions. We use proprietary algorithms in certain circumstances within our underwriting processes for efficiency. Our technology platforms require continued development and are complex. The continuous development, maintenance, and operation of our technology platforms may entail unforeseen difficulties, including material performance problems or undetected defects or errors. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our technology from operating properly. If our platforms do not function reliably, we may incorrectly underwrite or bill our Members, price insurance products, or pay or deny insurance claims made by our Members. These errors could result in inadequate insurance premiums collected relative to claims made, resulting in increased financial losses. These errors could also cause Member dissatisfaction with us, which could cause Members to cancel or fail to renew their insurance policies with us or make it less likely that prospective Members obtain new insurance policies from us. Additionally, platform errors may lead to unintentional bias in underwriting, exposing us to legal or regulatory liability and harm to our brand and reputation. If material performance, defects, or errors persist we may be forced to terminate our technology agreements and incur substantial additional costs transitioning to alternative solutions. Any of these eventualities could result in a material adverse effect on our business, financial condition, and results of operations.
Our future success depends on our ability to continue to develop and implement technology to transform or replace legacy technology, and to maintain the security and confidentiality of our legacy technology, each in compliance with evolving privacy and cybersecurity laws.
Our future success depends on us keeping pace with technological advances for interacting with our Members. New technology is complex, expensive, and requires an ongoing commitment of significant resources to implement. While we are implementing new technology, we must also continue to develop, implement, and maintain the security and confidentiality of our proprietary legacy technology in compliance with complex evolving privacy and cybersecurity laws. Changes to existing laws, their interpretation or implementation, or the introduction of new laws could impede the use of our legacy technology and/or the implementation of new technology. If we are delayed or unable to effectively update our technology or implement new technology it could result in systemic inefficiencies, negatively impact our competitive position and result in a material adverse effect on our business, financial condition, and results of operations.
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Future legal or regulatory requirements impacting internet and mobile technologies, marketing and advertising practices, transactions, or the collection and use of personal data may impact how we interact with our Members and prospective Members, and could adversely affect our business, financial condition, and results of operations.
We rely on the internet and mobile technologies to execute our business strategy and are subject to laws and regulations governing our marketing, advertising, and sales—online and offline—including the collection, use, retention, security, transfer, disclosure, and other processing of personal information. Existing and future laws, regulations, and consumer expectations may impede our use of the internet and mobile technologies and applications to interact with current and future Members and to effectively market, advertise, and sell our products and services. In particular, complex and evolving privacy laws regulate our ability to use personal data for targeted or cross-contextual behavioral advertising. Any of these outcomes could adversely affect our business, growth, member engagement, financial condition, and results of operations.
It is possible that the laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. As new laws, regulations, and consumer expectations are adopted, our compliance obligations may increase. Regulators may reinterpret or amend existing requirements, require changes to our operations, or impose penalties that restrict certain activities. At the same time, we may be subject to individual or class action claims by plaintiffs using both new and pre-existing laws based on new technologies, some of which are part of our sales and marketing efforts. Future legal developments, regulatory interpretations, or enforcement actions could require changes to our practices or otherwise increase our compliance risk.
Any actual or perceived noncompliance could harm our reputation and erode consumer trust, reduce engagement and revenue, and result in investigations, enforcement actions, or litigation by governmental entities or private parties, including matters such as the "Data Security Incident" referenced within Note 25 — Commitments and Contingencies in Item 8 of Part II of this Annual Report. Any such proceeding or action could hurt our reputation, force us to incur significant additional expense and time in defending regulatory proceedings or legal actions, and may result in the imposition of monetary liability. Court or regulatory orders may also demand the disgorgement of personal data and any algorithms trained on, or products or services derived from, such personal data. Regulatory proceedings or legal actions could increase our operational costs and decrease use of our mobile applications or websites by current and future Members. They may also divert management attention, increase operating costs, reduce Member usage of our mobile applications or websites, require indemnification of third parties, and result in losses that are not fully covered by insurance.
We may not be able to prevent or address the misappropriation of Hagerty-owned data or websites.
From time to time, third parties may misappropriate our data through website scraping, bots, or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites or mobile apps may misappropriate data and attempt to imitate our brand or the functionality of our website or our mobile applications. Although we may take technological and legal steps to detect and stop these activities, we may not identify all instances in a timely manner, and our efforts may be ineffective or insufficient to halt them.
Our ability to enforce rights may be limited, particularly against operators located outside the U.S. Regardless of outcome, efforts to address misappropriation may require significant time and expense and could divert resources. Misappropriation or copycat activity could also confuse consumers or advertisers, harm our brand, and adversely affect our business, financial condition, or results of operations.
Rapid evolution and adoption of artificial intelligence could adversely affect our competitive position, operations, and brand.
Artificial intelligence ("AI") technologies are evolving rapidly, and competitors or new market entrants may develop or deploy AI more effectively than we do, which could reduce our competitive advantages in product features, pricing, risk management, customer acquisition, and operating efficiency. If our AI adoption or commercialization is delayed or limited by cost, talent, data, or other constraints, we may fail to meet customer expectations, lose market share, or experience margin pressure.
Our use of AI may also produce unintended or harmful outcomes, including inaccurate or biased outputs, reduced transparency, degraded customer experiences, operational disruptions, data governance or security failures (including privacy, consent, cross-border transfer, and leakage), and reputational harm. Deficiencies in data governance, data labeling, or rights to training data, as well as misuse by vendors or partners, or noncompliance with evolving laws and standards, could increase regulatory scrutiny and expose us to legal claims or penalties. Any of these risks could reduce demand for our offerings, impair relationships with customers and partners, and adversely affect our business, financial condition, and results of operations.
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We rely on our Chief Executive Officer and other key employees. If we cannot attract, retain, or motivate key personnel, our business may be severely impacted.
Our success depends on the ability to attract, retain, and motivate a highly skilled and diverse management team and workforce. Our Chief Executive Officer is well known and respected in our industry. He is an integral part of our brand, and his departure would likely create difficulty with respect to both the perception and execution of our business. Additionally, the loss of key personnel within our senior management, Insurance segment, and Marketplace segment teams might significantly delay or prevent the achievement of our strategic business objectives and could harm our business. We rely on a small number of specialized experts, the loss of any one of whom could have a disproportionate impact on our business. Our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Moreover, if and when our equity awards are substantially vested, employees under such equity arrangements may be more likely to leave, particularly if the underlying shares have seen a significant appreciation in value.
Our inability to ensure that we have the depth and breadth of management and personnel with the necessary skills and experience could affect our ability to deliver growth objectives and execute our operational strategy. As we continue to expand and grow, we will need to promote or hire additional staff, and it may be difficult to attract or retain such individuals in a timely manner and without incurring significant additional costs. If we are unable to integrate new team members or if they do not perform adequately, our business may be harmed.
Our unique culture has contributed to our success, and if we are not able to maintain this culture in the future, our business could be harmed.
Our culture supports a high level of employee engagement, which translates into a service model that produces a high level of Member satisfaction and retention. We face a number of challenges that may affect our ability to sustain our culture, including:
•failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture, values, and mission;
•the size and geographic diversity of our workforce and our ability to promote a uniform and consistent culture across all our offices and employees working remotely;
•competitive pressures to move in directions that may divert us from our mission, vision, and values;
•the continued challenges of a rapidly evolving industry; and
•the increasing need to develop expertise in new areas of business needed to execute our growth plans and strategy.
If we are not successful in instilling our culture in new employees, or maintaining our culture as we grow, our operations may be disrupted, and our financial performance may suffer.
Our future growth and profitability may be affected by new entrants into the market or current competitors developing preferred offerings.
Our business is rapidly growing and evolving in highly competitive markets. We face competition from large, well-capitalized national and international companies, including other insurance providers, technology companies, automotive media companies, established automotive auction and marketplace providers, other well-financed companies seeking new opportunities, or new competitors using technologically advanced systems such as artificial intelligence, or other innovations. Many of our competitors have substantial resources, experienced management, and strong marketing, underwriting, and pricing capabilities. Because collector auto insurance constitutes a significant portion of our overall business, we may be more sensitive than other providers of insurance to, and more adversely affected by, trends that could decrease auto insurance rates or reduce demand or distribution channels for auto insurance over time, such as industry advances in mileage-based or usage-based insurance offerings, departures by some insurers from certain states that are prone to natural disasters, changes in vehicle technology, autonomous or semi-autonomous vehicles, or vehicle sharing arrangements. In addition, there are limited barriers to entry in the automotive lifestyle business. Accordingly, more established brands with significantly more resources may compete against us in in the future. If we are unable to compete effectively, we may not be able to grow our business and our financial condition and results of operations may be adversely affected.
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Future acquisitions or investments contain inherent strategic, execution, and compliance risks that could disrupt our business and harm our financial condition.
We have completed strategic acquisitions, including Drivers Edge in September 2024 and Broad Arrow in August 2022. In the future, we may pursue additional acquisitions or investments to grow our business in line with our strategic objectives. Our acquisitions or investments may not achieve their intended purpose or the desired return sought. Additionally, our acquisitions and investments may also result in unforeseen liabilities, expenses, or negative consequences, including contingent liabilities, high implementation costs, misalignment of culture, burdensome regulatory requirements, tax liabilities, and distraction of senior management from pursuing more profitable strategic objectives. If we are unable to effectively execute and integrate strategic acquisitions and make profitable investments, we may not be able to grow our business and our financial condition and results of operations may be adversely affected.
From time to time we introduce new products and services that have limited operating history, making it difficult to forecast operating results. We may not achieve profitability from these offerings as quickly as anticipated, or at all.
The success of new product and service introductions depends on a number of factors, including timely and successful development, market acceptance, our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products and services, the effective management of purchase commitments and vendor relationships in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products and services may have quality or other defects or deficiencies. Accordingly, we cannot determine in advance the ultimate effect of new product and service introductions and transitions. If our new products or services are not well received, or if we are unable to introduce them in a cost-effective manner, we may not be able to realize a profit on those products and services and may, in fact, recognize losses for some time. This could have an adverse effect on our financial condition and results of operations.
We are subject to payment processing risks which could adversely affect our results of operations.
We currently rely on a limited number of financial institutions and payment facilitators/processors to provide payment processing services, and our business would be disrupted if any of the banks and/or vendors become unwilling or unable to provide these services to us, and we are unable to find a suitable replacement on a timely basis. If we or our processing banks/vendors fail to maintain adequate systems for the authorization and processing of financial payment transactions, it could cause one or more of the financial institutions or acquiring banks to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ payment method on a timely basis, or at all, our business, financial condition and results of operations could be harmed.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to, or exploit weaknesses that may exist in the payment systems. There are potential legal, contractual, and regulatory risks if we are not able to properly process payments. If we are unable to comply with applicable rules or requirements for the payment methods that we accept, or if payment-related data is compromised due to a cybersecurity incident or a breach, we may be liable for significant costs incurred by payment regulatory bodies, payment card issuing banks and other third parties, subject to fines and higher transaction fees, subject to potential litigation or enforcement action, or our ability to accept or facilitate certain types of payments may be impaired.
In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we could face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, financial condition and results of operations.
Current economic conditions including inflation and interest rate uncertainty may affect demand for our products and services.
Unfavorable global economic conditions, including elevated inflation, higher interest rates, unemployment rate fluctuations, and volatility in the financial markets, create uncertainty in consumer discretionary spending. In such environments, consumers may reduce spending on collector cars and enthusiast vehicles, and related services, which could decrease demand for our products and services and negatively impact our revenue and profitability. Although the Federal Reserve Board lowered the federal funds rate by an aggregate of 75 basis points in 2025 and has indicated that rates may decrease further in 2026, there is no certainty as to the magnitude or timing of any such decreases, or whether rates will stabilize or increase. A sustained elevated interest rate environment, or any significant increases in benchmark interest rates, could increase our cost of borrowing, reduce credit availability, and adversely affect our ability to raise capital through the issuance of equity or debt on acceptable terms, particularly if equity markets become less favorable. These dynamics may also dampen consumer financing availability for purchases of collectible cars and enthusiast vehicles, further constraining demand. The combined impact of reduced consumer demand, higher capital costs, and tighter financing conditions could have a material adverse effect on our business, financial condition, and results of operations.
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The imposition of tariffs on imported goods could increase costs, reduce consumer spending on collector cars and related services, and negatively impact our business, financial condition, and results of operations.
The recent imposition of tariffs on certain imported goods could affect the availability and cost of parts to repair our insureds' vehicles, which could impact our cost of claims, insurance premiums, and customer satisfaction. Additionally, a significant number of collectible cars and enthusiast vehicles and related parts are imported from outside the U.S., and imposition of tariffs could impact our Marketplace business by increasing the cost of importing vehicles for sale. While we have not yet identified material direct effects from the recent changes in tariffs and other trade measures in our business, the long-term consequences of these actions remain uncertain and could negatively affect both the overall economy and our business. Any prolonged downturns in the economy or decreases in consumer demand for collector cars and related services could materially adversely affect our business, financial condition, and results of operations.
Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our financial condition and results of operations depend, in part, on the performance of our investment portfolio. The decisions related to our investment activity are governed by our Group Investment Policy, which has been approved by our Board and any proposed modifications are reviewed by our Finance and Capital Committee.
Historically, our investment portfolio was primarily invested in cash and cash equivalents and fixed maturity securities consisting solely of Canadian Sovereign, Provincial, and Municipal bonds. However, during the second quarter of 2024, we diversified our investment portfolio by opening positions in higher-yield fixed maturity securities, including principally corporate bonds, U.S. Treasury securities, and mortgage-backed securities, as well as, to a lesser extent, equity securities. Our investments in fixed maturity securities and equity securities are carried on our balance sheet at fair market value and are subject to potential losses and declines in market value.
The primary market risk to our investment portfolio is interest rate risk associated with our 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.
The value of our investment portfolio is also subject to the risk that certain investments in fixed maturity securities 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.
In addition to the risks associated with fixed maturity securities, our investment portfolio is also exposed to equity risk, particularly with respect to our holdings in publicly traded equities. Equity securities are inherently subject to greater volatility than fixed income securities, and their market values can fluctuate significantly in response to a variety of factors, including changes in general economic conditions, market sentiment, company performance, and geopolitical events. Periods of heightened volatility in the equity markets, such as those experienced during broad market corrections or economic downturns, can result in substantial declines in the value of our equity investments, which could materially and adversely affect our financial condition, results of operations, and liquidity.
Each of the foregoing factors could reduce our net investment income and/or result in realized investment losses. 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 concurrently with underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.
Changes to the law and social attitudes towards petroleum-powered vehicles may make ownership of collector vehicles less desirable, leading to a decline in demand for our products and services.
Changes to the law, governmental policies, consumer preferences, and social attitudes in favor of new vehicle technology and growing environmental concerns, may discourage the sale, use, and enjoyment of petroleum-powered vehicles which may in turn reduce the need or desire for many of our products and services, leading to lost revenue and lower profits and the inability to deliver on our purpose in an impactful manner.
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The traditional business model of car sales is starting to be complemented by a range of diverse, on-demand mobility solutions, especially in dense urban environments that proactively discourage private-car use. This shift, along with a significant rise in the annual growth of car sharing members and autonomous and electric vehicles, and legislative efforts to reduce carbon emissions, in the markets we currently conduct business, could have a trickle-down effect to the collector car space and result in reduced demand for our products and services, which could have a material adverse effect on our business, financial condition, and results of operations.
Our day-to-day operations create transactions, events, and conditions that give rise to the need for accounting estimates to be recognized or disclosed in our Consolidated Financial Statements. There is a risk that these estimates are incorrect, which could have a material adverse effect on our financial condition and/or results of operations.
The preparation of our financial statements requires us to make significant judgments, assumptions, and estimates that materially affect the amounts reported in our Consolidated Financial Statements. If these judgments, assumptions, or estimates prove to be incorrect, it could have a material adverse effect on our financial condition and/or results of operations. We have identified several accounting estimates as being "critical" to the fair presentation of our financial condition and results of operations because they involve major aspects of our business and require us to make judgments about matters that are inherently uncertain. Refer to the section "Critical Accounting Estimates" within Item 7 of Part II of this Annual Report for additional information.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms, and we may encounter difficulty in obtaining funds to meet our commitments.
We are exposed to credit risk, and liquidity risk, through our banking partners. If we were to experience operating losses and are not able to generate additional liquidity through a capital raise or other cash infusion, we may need to secure additional sources of funds, which may or may not be available. Additionally, a failure to generate additional liquidity could negatively impact our ability to operate our business. The revolving borrowing period provided by the primary credit facility agreement that supports the lending business of BAC is scheduled to expire in November 2027 unless it is extended upon the mutual agreement of BAC and the administrative agent for an additional year until November 2028. To the extent that we are unable to extend or replace this credit agreement on terms favorable to us, we may not be able to finance certain transactions that would otherwise be profitable to us and our expected growth and profitability could be adversely impacted. Furthermore, our ability to access liquidity from our subsidiaries may be limited. For example, our ability to dividend excess earnings from Hagerty Re is subject to regulatory and solvency requirements. As a result, we could have sufficient liquidity in aggregate but be unable to access it when needed.
To the extent that cash flows generated by our operations are insufficient to fund future operating requirements, or that our capital position is adversely impacted by a decline in the fair value of our investment portfolio, losses from catastrophic events or otherwise, we may need to raise additional funds. We also may be required to liquidate fixed maturity securities, which may result in realized investment losses. Any further sources of capital, including capacity needed for letters of credit, if available at all, may be on terms that are unfavorable to us. Our access to additional sources of capital will depend on a variety of factors, such as market conditions, the general availability of credit, the availability of credit to the industries in which we operate, our financial condition, results of operations, credit ratings and credit capacity, as well as pending litigation or regulatory investigations. Our ability to borrow under our revolving credit facilities and letter of credit facilities is contingent on our compliance with the covenants and other requirements under those facilities. Similarly, our access to capital may be impaired if regulatory authorities or rating agencies take negative actions against us. Additionally, to reduce the risk of a bank failure, we engage only with high-quality counterparties with high credit ratings. Our inability to obtain adequate capital when needed could have a negative impact on our ability to invest in, or take advantage of opportunities to expand our businesses, such as possible acquisitions or the creation of new ventures, and inhibit our ability to refinance our existing indebtedness on terms acceptable to us. Any of these factors could have a material adverse effect on our financial condition and results of operations.
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Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at a similar rate, if at all.
Market opportunity estimates and growth forecasts, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not every owner of collector cars or enthusiast vehicles, which underlie our market opportunity estimates, will necessarily purchase insurance from us or similar products in the near-term or at all, and some or many of these owners may choose to continue using insurance products offered by our competitors. It is impossible to have an insurance product that satisfies every potential customer, and our competitors may offer greater flexibility or other features that we do not provide. In presenting our total addressable market, we are not making any claim that we can realistically serve that market. The variables used in the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of owners of collector cars or enthusiast vehicles will generate any particular level of revenue for us, if any. Even if the market in which we compete meets our size estimates and growth forecasts, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry, customer preferences or the other risks set forth in this Annual Report and other documents we file with the SEC from time to time. If any of these risks materialize, it could harm our business and prospects.
Risks Related to Our Insurance Segment
The insurance products that we develop and sell for our underwriting carriers are subject to regulatory approval, and we may incur significant expenses in connection with the development and filing of new products before revenue is generated from new products.
The insurance products that we develop and sell require regulatory approvals in each respective jurisdiction. The product development and filing process can be lengthy and costly at times. The process can also be time-consuming, given the unknown timelines in which insurance departments might take to review and approve filings. Questions and objections from insurance departments may also delay product approval and launch, and may result in disapproval.
The nature of the product development and filing cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from new products. If we spend a significant amount of resources on research and development, and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect our business and results of operations.
Additionally, there could be a change in the anticipated Member demand for a product we are developing before the product is released. Member demand could decrease after the development cycle has begun. A decrease in Member demand for a new or improved product could cause us to fall short of our sales targets, and we might not be able to avoid the substantial costs associated with the product's development or improvement. If we are unable to complete product development and filing cycles successfully, in a timely manner, that meets Member demand for new or improved products, and generate revenues from these future products, the growth of our business could be harmed.
Our Insurance segment operates in a highly regulated environment for insurance product distribution and faces risks associated with compliance requirements, some of which cause us to make judgments that could have an adverse effect on us.
The industry in which our Insurance segment operates is subject to extensive regulation. We are subject to regulation and supervision both federally and in each applicable state or provincial jurisdiction. In general, these regulations are designed to protect policyholder and insured Members and to protect the integrity of the financial markets, rather than to protect stockholders or creditors. The ability of our Insurance segment to conduct business in these jurisdictions depends on its compliance with the rules and regulations promulgated by federal, state, or provincial regulatory bodies and other regulatory authorities. Maintaining compliance with rules and regulations is often complex, and sometimes requires us to make determinations that require judgments regarding uncertain issues that ultimately may be resolved differently than we have determined, which could have an adverse effect on us.
Unexpected increases in the frequency or severity of claims may adversely affect the operations of our Insurance segment and our financial condition.
The Insurance segment may experience increases in claim frequency on occasion. Any changes in claim frequency might be derived from changes in miles driven, driving behaviors, macroeconomics, weather-related events, or other factors. A significant increase in claim frequency could have an adverse effect on our financial condition and the results of operations of the Insurance segment. Short-term trends with an increase in claim frequency may not continue over the longer term.
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The Insurance segment could also experience increases in the severity of claims. Changes in bodily injury claim severity can be impacted by inflation in medical costs, litigation trends and precedents, regulation, and the overall safety of automobile travel. Changes in auto physical damage claim severity can be driven by inflation in the cost to repair vehicles, including parts and labor rates, the mix of vehicles that are declared total losses, the availability of parts to repair vehicles, the shrinking pool of qualified craftsmen to repair collector vehicles, and an increase in value for collector vehicles. Unanticipated increases in claim severity can arise from events that are inherently difficult to predict. Although we pursue various loss management initiatives to mitigate future increases in claim severity, these initiatives may not successfully identify or reduce the effect of future increases in claim severity. A significant increase in claim severity could have an adverse effect on our financial condition and the results of operations of the Insurance segment.
Severe weather events, catastrophes, and unnatural events are unpredictable, and we may experience losses or disruptions from these events.
Our Insurance segment may be exposed to catastrophic events such as tornadoes, tsunamis, tropical storms (including hurricanes), earthquakes, windstorms, hailstorms, severe thunderstorms, wildfires and other fires, as well as non-natural events such as explosions, riots, pandemics, terrorism, or war, which could cause the operating results of the Insurance segment to vary significantly from one period to the next. Our Insurance segment may incur claims from severe weather events, and catastrophe losses in excess of: (i) those experienced in prior years; (ii) the average expected level used in pricing; (iii) current reinsurance coverage limits; or (iv) loss estimates from external models at various levels of probability.
Generally, the frequency and severity of insurance claims and the occurrence of severe weather conditions are interconnected. The incidence and severity of severe weather conditions and catastrophes are inherently unpredictable, and the occurrence of one catastrophe does not render the possibility of another catastrophe greater or lower. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. In particular, severe weather and other catastrophes could significantly increase our costs due to a surge in claims following such events and/or legal and regulatory changes in response to catastrophes that may impair our ability to limit our liability under our policies. Severe weather conditions and catastrophes can cause greater losses, which could cause our liquidity and financial condition to deteriorate.
Environmental changes, including shifts in temperatures and weather patterns, may affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind and thunderstorm events, eruptions of volcanoes, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures. Consequently, changes in the frequency or severity of those events may cause an impact on the demand, price and availability of insurance. Due to significant variability associated with environmental changes, we are unable to predict the impact these types of events will have on our business.
We may not be able to adapt effectively and timely to any changes in law.
A failure to comply with regulatory requirements, or changes in regulatory requirements or interpretations, can result in actions by regulators, potentially leading to penalties and enforcement actions, and in extreme cases, revocation of authority to do business in one or more jurisdictions. This could result in adverse publicity and potential damage to our brand and reputation in the marketplace. In addition, we could face lawsuits by Members and other parties for alleged violations of these laws and regulations.
Insurance regulators and other governmental bodies are granted broad administrative authority in the supervision and regulation of many aspects of the insurance business, including the licensing of our insurance operations, the handling of third-party funds held in a fiduciary capacity, and trade practices, such as marketing, advertising, and compensation arrangements entered into by insurance brokers and agents. Additionally, the National Association of Insurance Commissioners supports the states' insurance regulators by continually reviewing laws and regulations, and setting industry standards and best practices.
We believe that generally our Insurance segment is in material compliance with applicable laws. However, should any regulatory agency take a contrary position and prevail, we may be required to change the manner in which we operate and we may be subject to penalties and other enforcement actions up to, and including, license suspension or revocation.
Regulatory review or the issuance of interpretations of existing laws and regulations may result in the enactment of new or amended laws and regulations that could adversely affect the operations of our Insurance segment or its ability to conduct business profitably. It is difficult to predict whether, and to what degree, changes resulting from new laws and regulations will affect the insurance industry or the business of the Insurance segment.
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Our MGA subsidiaries do business with a limited number of key underwriting carrier partners in our insurance markets, and we may not be able to find suitable replacements for our existing carriers.
Our MGA subsidiaries work with a limited number of carriers in the U.S., Canada, and the U.K. to offer our personal lines insurance products, and there is a risk that if one or more of the carriers becomes impaired or terminates its relationship with us such that the profitability of our Insurance segment may be adversely affected. If a carrier partner relationship terminates or there is loss of strategic support or alignment, we may be unable to transition to a new relationship without disruption, increased cost, lost profits, or lost market share, or a combination of the foregoing.
Our Insurance segment derives a large portion of its revenue from commissions and quota share reinsurance on the sale of personal lines insurance products. In the U.S., this is primarily through our MGA relationships with Essentia and State Farm, and in Canada and the U.K., it is through our MGA relationship with Aviva. If these carriers were to experience liquidity problems or other financial (such as rating agency downgrades) or operational difficulties, we could encounter business disruptions, and the results of operations of our Insurance segment may suffer.
Our alliance agreements with each of Markel and State Farm contain provisions that allow those partners to terminate our agreements with them at any time upon the occurrence of a change of control including, for example, if HHC ceases to own the majority of our voting shares. Accordingly, if we experience a change of control, we could lose our agreements with one or both of these partners, which could have a material adverse effect on the business, operations and financial results of our Insurance segment.
Rapid growth may strain our infrastructure, resources, and relationships, which could then impair service quality, operational execution, and financial performance of our Insurance segment.
Our Insurance segment has experienced, and may continue to experience, rapid growth in its business, including increases in premium volume, distribution partners, insureds, and the scope of services we provide as an MGA. Rapid growth places significant demands on our operational infrastructure, technology systems, underwriting and claims processes, compliance framework, financial controls, and human capital. If we are unable to scale our organization effectively and in a timely manner, we may be unable to maintain our service levels, product quality, and regulatory compliance. For example, growth beyond our current capacity could lead to delays or errors in underwriting and policy administration, slower claims handling, diminished responsiveness to brokers and insureds, and increased operational incidents or control failures. It may also increase the likelihood of errors and omissions claims and elevate our exposure to penalties or remediation costs if compliance gaps arise. Any of these factors could lead to an adverse effect on the business, financial condition, and results of operations of our Insurance segment.
A regulatory environment that requires rate increases to be approved and that can dictate underwriting and pricing and mandate participation in loss sharing arrangements may adversely affect our financial condition and the results of operations of our Insurance segment.
Political events and positions can affect the insurance market on occasion, including efforts to reduce rates to a level that may prevent our Insurance segment from being profitable or may not allow us to reach our goals. If the loss ratio for the insurance programs that we administer is favorable to that of the industry, regulatory authorities could impose rate restrictions, require payment of premium refunds to policyholders, or could challenge or delay efforts to raise rates. Rate changes may be required for us to achieve our profitability and return on equity objectives. Challenges in predicting when or if rate changes will be approved or delays in obtaining approvals for rate changes impact our ability to meet our profitability goals in the time desired. For example, certain states have enacted laws that require an insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations where rates may be restricted. Certain states also require insurers to offer coverage to all consumers, often restricting an insurer's ability to charge the price it might otherwise charge. Laws and regulations of many states also limit an insurer's ability to withdraw from one or more lines of insurance, except pursuant to a plan that is approved by the state insurance department. This limitation can prolong and provide additional challenges for executing on strategic business plans related to conversions, transfers, and book rolls. The operations, business, financial condition, or results of operations of our Insurance segment could be adversely affected by any of these factors.
The underwriting companies that we work with, Driver's Edge, and our MGA subsidiaries are periodically subject to examinations and audits by insurance regulators, which could result in adverse findings, enforcement actions, require payments of fines or penalties, and necessitate remedial actions.
In the U.S., our insurance agencies operate as an MGA for both Essentia and also State Farm Classic Insurance Company for servicing the State Farm Classic+ program. Essentia is domiciled in Missouri and has a classic auto insurance program in all 50 United States, plus the District of Columbia. We operate as the MGA for the Essentia program in all 51 jurisdictions. As of December 31, 2025, State Farm Classic+ policies were being offered in 27 states, with conversions of their existing book of business occurring in seven of these states and plans to offer such policies in additional states in 2026 and 2027. We also operate similar auto insurance programs in Canada and the U.K., underwritten by Aviva. Lastly, we also operate our own insurance carrier, Drivers Edge, which is a collector and enthusiast auto insurer.
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Both Hagerty Re and Drivers Edge must meet and maintain relevant solvency margin, liquidity, and other ratios under applicable law and their respective licensing. Hagerty Re's license limits it to accepting only business produced through our MGA subsidiaries that is underwritten by our subsidiaries or carriers rated A- or better by A.M. Best or similar rating agency.
Insurance regulators periodically subject the underwriting companies that we work with to audits and examinations to assess compliance with applicable laws and regulations, financial condition, and the conduct of regulated activities. These examinations and audits may be conducted during a jurisdiction’s typical review cycle, or because of a targeted investigation. Our MGA subsidiaries can also be subject to regulatory audits and exams. A formal examination or audit provides insurance regulators with an opportunity to review and scrutinize the underwriting companies we work with, the insurance programs we administer, and our operations. Drivers Edge is also subject to a financial examination in its state of domicile as part of the state's regular review cycle of the carriers domiciled in that specific jurisdiction. A financial examination ensures that a company is financially sound and assesses the company’s solvency, processes and controls, and verifies compliance with laws and regulations.
As a result of an examination or an audit, an insurance regulator could determine that an underwriting company's financial condition or capital resources are less than satisfactory. An insurance regulator could also determine that there are other aspects of either the underwriting company or our operations that are less than satisfactory, or that either we or the underwriting company that we work with are in violation of applicable laws or regulations. These types of examination or audit findings could lead an insurance regulator to require either us or the underwriting company that we work with to take one or more remedial actions or otherwise subject us to regulatory scrutiny or impose fines and penalties.
We cannot predict with precision the likelihood, nature, or extent, including the associated costs, of any necessary remedial actions, or any financial impact that could result from an examination or audit. Any regulatory or enforcement action or any regulatory order imposing remedial, injunctive, or other corrective action against us or any of the underwriting companies we work with resulting from these examinations or audits could have a material adverse effect on the business, reputation, financial condition, and results of operations of our Insurance segment.
We rely on external data and our digital platform to collect and evaluate information that we utilize in producing, pricing, and underwriting insurance policies (in accordance with the rates, rules, and forms filed with regulators, where required), managing claims and customer support, and improving business processes. Any future legal or regulatory requirements that might restrict our ability to collect or utilize this data could potentially have an adverse effect on the business, financial condition, and prospects of our Insurance segment.
We use our digital platform to collect data points that we evaluate in pricing and underwriting insurance policies, managing claims and customer support, and improving business processes. The business model of our Insurance segment is dependent on its ability to collect vehicle and personal data. If federal, state, or international regulators were to determine that the type of data we collect, the process we use for collecting this data, or how we use it, unfairly discriminates against a protected class of people or otherwise violates applicable privacy and cybersecurity laws and regulations, regulators could prohibit or restrict our collection or use of this data. In addition, if evolving privacy laws were to restrict our ability to collect motor vehicle records and other related personal data, it could impair our capacity to underwrite insurance cost effectively, negatively impacting the revenue and earnings of our Insurance segment.
The insurance business, including the market for property and casualty insurance, is historically cyclical in nature, and there may be periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our Insurance segment.
Our Insurance segment operates primarily in North America and the seasonality of driving in that region has caused a large portion of its commission and fee revenue to be generated in the spring and summer months of each year. This in turn impacts operational cash flows and could produce volatility in its earnings. Fluctuations in the operating results of our Insurance segment could be due to a number of other factors, many of which may be outside of our control, including competition, but also the frequency and severity of catastrophic events, levels of capacity, adverse litigation trends, regulatory constraints, general economic conditions, and agreement on underwriting appetite with our carrier partners, and other factors. The supply of insurance is related to prevailing prices, the level of insured losses, and the level of capital available to the industry that, in turn, may fluctuate in response to changes in rates of return on investments being earned in the insurance industry. As a result, the auto insurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity, as well as periods when shortages of capacity increased premium levels.
Our Insurance segment operates in a specialty sector of the auto insurance market and needs to be mindful of these and other factors which could impact its operations. Demand for insurance depends on numerous factors, including the frequency and severity of catastrophic events, levels of capacity, the introduction of new capital providers, and general economic conditions.
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All of these factors fluctuate and may contribute to price declines generally in the insurance industry. We cannot predict with certainty whether market conditions affecting the auto insurance market and the insurance market in general will improve, remain constant, or deteriorate. Negative market conditions may impair our ability to underwrite insurance at rates we consider appropriate and commensurate relative to the risk assumed. Additionally, negative market conditions could result in a decline in policies sold, an increase in the frequency or severity of claims and premium defaults, and an uptick in the frequency of fraud, including the falsification of claims. If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected. Any of these factors could lead to an adverse effect on the business, financial condition, and results of operations of our Insurance segment.
The shift to Hagerty Re assuming 100% of the risk for policies written through the Markel Fronting Arrangement increases our exposure to underwriting volatility, catastrophes, reinsurance counterparty risk, and legal, compliance, and regulatory risks, which could adversely affect the capital, liquidity, and results of our Insurance segment.
Beginning on January 1, 2026, Hagerty Re began assuming 100% of the quota share on risks written by our U.S. MGA subsidiary through the Markel Fronting Arrangement, compared to 80% in recent years. While the change increases our participation in underwriting income, it also increases our exposure to adverse frequency and severity trends, and other large losses. If we are unable to obtain sufficient retrocessional protection on acceptable terms, we may need to retain more risk, adjust underwriting, or deploy additional capital or letters of credit to support statutory or rating requirements. A shortfall, delay, dispute, or insolvency involving any reinsurance counterparty could increase our retained losses and strain our liquidity and capital position. In addition, we will bear increased legal, compliance, and regulatory expenses and risks under the new arrangement. Any of these factors could lead to an adverse effect on the business, financial condition, and results of operations of our Insurance segment.
The reinsurance Hagerty Re purchases to protect against catastrophic and large losses may become unavailable on current coverage terms, limits, or pricing.
The business that Hagerty Re reinsures is exposed to catastrophic events that are inherently unpredictable and may cause capacity in the reinsurance market to become scarcer, leading to rate increases or changes in coverage terms, or a combination of both. This in turn may cause Hagerty Re to retain more risk, be unable to accept further risk and grow, or require greater capital investment that may not be available, in each case resulting in lower profits, as well as materially impacting our financial condition and insurance business results.
If we do not price and underwrite risks accurately at competitive, profitable rates, the business and financial condition of our Insurance segment could be adversely affected.
In general, the premiums for the insurance policies in our programs are established at the time a policy is issued and, therefore, before all of the underlying costs are known. The accuracy of the pricing is subject to our ability to adequately assess risks, estimate losses, and comply with insurance laws and regulations. Like others in the industry, we rely on estimates and assumptions in setting the premium rates. We also utilize the data that we gather through our interactions with Members.
Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses, and other costs. If we do not accurately assess the risks that are underwritten, adequate premiums may not be charged to cover losses and expenses, which would adversely affect the results of operations and profitability of our Insurance segment. Moreover, if we determine that the prices are too low, insurance regulations may prevent us from non-renewing insurance contracts, non-renewing Members, or raising prices. Alternatively, we could set the premiums too high, which could reduce our competitiveness and lead to lower revenues, which could have a material adverse effect on the business, financial condition, and results of operations of our Insurance segment.
Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs, expenses, and inflation trends, among other factors, for each of the products in multiple risk levels and many different markets. In order to accurately price the policies, we must, among other factors:
•collect and properly and accurately analyze a substantial volume of data from our Members;
•develop, test, and apply appropriate actuarial projections and rating formulas;
•review and evaluate competitive product offerings and pricing dynamics;
•closely monitor and timely recognize changes in trends;
•project both frequency and severity of our Members’ losses with reasonable accuracy; and
•in many jurisdictions, obtain regulatory approval for the resulting rates.
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We may not have success in implementing a pricing methodology accurately in accordance with our assumptions. Our ability to accurately price policies is subject to a number of risks and uncertainties, including, but not limited to:
•insufficient, inaccurate, or unreliable data;
•incorrect or incomplete analysis of available data;
•uncertainties generally inherent in estimates and assumptions;
•our inability to implement appropriate actuarial projections and rating formulas or other pricing methodologies;
•incorrect or incomplete analysis of the competitive environment;
•regulatory constraints on rate increases or coverage limitations;
•our inability to accurately estimate investment yields and the duration of our liability for loss and loss adjustment expenses; and
•unanticipated litigation, court decisions, and legislative or regulatory actions or changes to the existing regulatory landscape.
To address the potential errors or desired or required changes in our current business model, we may be compelled to increase the amount allocated to cover policy claims, or to address other economic factors resulting in an increase in future premium rates, or to additionally or alternatively adopt different underwriting standards. Any of these changes may result in a decline in new business and renewals and, as a result, have a material adverse effect on the business, financial condition, and results of operations of our Insurance segment.
Reinsurance subjects Hagerty Re to counterparty risk if reinsurers fail to pay or timely pay claims due to insolvency or otherwise fail to honor their obligations.
Hagerty Re is legally obligated to pay claims under the reinsurance agreements where Hagerty Re has assumed risk, regardless of whether Hagerty Re is able to secure its own reinsurance for ceded reinsurance coverages. If one or more of Hagerty Re's reinsurance providers become insolvent or default in payment when reimbursement is sought by Hagerty Re, this may have a material effect on Hagerty Re's financial condition and results of operations as well as its ability to accept risk. Such an event may cause Hagerty Re to require capital investments that may not be available.
Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in the insurance policies we sell and service could have a material adverse effect on the financial condition and operations of our Insurance segment.
We have specifically negotiated loss limitations and exclusions in the policies we sell and service, and these limitations and exclusions may not be enforceable in the manner we intend. As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority could nullify or void a limitation or exclusion, or legislation could be enacted modifying or barring the use of such limitations or exclusions. These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on the financial condition or results of operations of our Insurance segment. In addition, court decisions have eliminated long standing coverage limitations by a narrow reading of policy exclusions. Under the insurance laws, the insurer typically has the burden of proving an exclusion applies and any ambiguities in the terms of a loss limitation or exclusion provision are typically construed against the insurer. These types of cases and the issues they raise may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under the insurance contract may not be known for many years after a contract is issued. There could also be additional exposure with claims for other household vehicles that are not covered under an insurance policy issued by us, such as for someone's regular use vehicle. It is possible that our underwriting companies that we write business through may share in liability with these types of claims in certain instances.
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Hagerty Re's ultimate loss liability could exceed our loss and loss adjustment expense reserves, materially adversely affecting the financial condition and results of operations of our Insurance segment.
Significant periods of time often elapse between the occurrence of an insured or reinsured loss, the reporting of the loss to us, and our payment of that loss. To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities representing management's best estimate of unpaid losses related to both reported claims and incurred but not reported ("IBNR") claims. These reserves also include management's best estimate of all expenses associated with processing and settling claims. The process of estimating loss reserves is inherently complex and subjective and involves a high degree of judgment. The factors considered by management in estimating the provision for unpaid losses and loss adjustment expenses include the following:
•the views of our actuaries;
•historical trends in claim frequency and severity, including the impacts of adverse weather-related events;
•changes in claim cycle time and claim settlement practices;
•observed industry trends;
•the changing mix of business, predominantly due to the large growth in modern collectible cars which carry a different risk profile than the risks associated with collector cars;
•inflation or deflation;
•retention limits under current catastrophe and treaty reinsurance programs; and
•legislative and judicial changes in the jurisdictions in which we operate.
This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, and actual results will differ from original estimates. As part of the reserving process, we regularly review our loss reserves and make adjustments as necessary. Future increases in loss reserves may result in additional charges to earnings, which may be material. Our estimates could prove to be inadequate, and this underestimation could have a material adverse effect on our financial condition.
Our expansion into different insurance products and jurisdictions may subject us to additional costs and expenses, and our plans might not be as profitable as projected.
We believe that the growth of the business and revenue of our Insurance segment depends in part upon our ability to expand into different jurisdictions and accurately project profitability.
Increasing our Member count, expanding into new geographic markets, and introducing new products takes time. Such expansions also require us to navigate and comply with extensive regulations, and may happen more slowly than we expect or than it has occurred in the past. As a result, we may incur losses or otherwise not be successful in entering new markets or introducing new products.
If we are unable to remain competitive on Member experience, pricing, or insurance coverage options, our ability to grow and retain our business may also be adversely affected. In addition, we might not be able to accurately predict risk segmentation of new and renewal Members or potential Members, which could also reduce the profitability of our Insurance segment.
Our expansion into new markets and new products may place us in unfamiliar competitive environments and involve various risks, including competition, government regulation, the need to invest significant resources, and the possibility that returns on such investments might not be achieved for several years, or at all. If we grow our geographic footprint or product offering at a slower rate than expected, or if we are unable to overcome the challenges listed above, the business, financial condition and results of operations of our Insurance segment could be materially and adversely affected.
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Our reliance on technology and intellectual property from third parties for pricing and underwriting insurance policies, handling claims, and maximizing automation, could cause an adverse impact on the business and operations of our Insurance segment if these third parties become unavailable or provide us with inaccurate information.
We use data, technology, and intellectual property licensed from unaffiliated third parties in certain components of our products, including insurance industry proprietary information that we license, and we may license additional third-party technology and intellectual property in the future. Any errors or defects in this third-party technology and intellectual property could result in errors that could harm our brand and business. In addition, licensed technology and intellectual property may not continue to be available on commercially reasonable terms, or at all. Also, should a company refuse to license its proprietary information to us on the same terms that it offers to our competitors, we could be placed at a significant competitive disadvantage. If any technology and intellectual property we license from others becomes unavailable, we may not be able to find replacement technologies or intellectual property at a reasonable cost or at all, which could materially harm the business and results of operations of our Insurance segment.
Our failure to accurately and timely pay claims on our insurance programs could have an adverse impact on the business, financial condition and prospects of our Insurance segment.
We must accurately and timely evaluate and pay claims made under the policies in our insurance programs. There are many factors that could affect our ability to pay claims accurately and timely, including the efficiency of our claims processing, the training and experience of our claims adjusters, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions.
The risks included in our insurance programs are typically those of an antique, classic, or collectible vehicle nature. Adjusting claims on these types of risks often requires specialized knowledge of collector vehicles, so our claims staff is trained to have collectible vehicle expertise to provide an efficient, yet comprehensive, claims experience. The manner in which we handle claims is a differentiating factor for our business, and an inability to be able to continue to offer a timely and comprehensive claims experience could undermine our brand and position in the collector car and enthusiast vehicle insurance marketplace. Additionally, any failure to pay claims accurately or timely could also lead to regulatory and administrative actions or material litigation, loss or reduction in reinsurance recoverable, or result in damage to our reputation, any one of which could materially and adversely affect the business, financial condition, results of operations and prospects of our Insurance segment.
If our claims adjusters are unable to effectively process our volume of claims in accordance with our service metrics and the manner that our Members expect, our ability to grow our business while maintaining high levels of Member satisfaction could be compromised, which in turn, could adversely affect the reputation, financial condition, and results of operations of our Insurance segment.
A downgrade in the financial strength rating of the carriers on our insurance programs may adversely affect our ability to conduct business as currently conducted.
The ability of our carrier partners to underwrite business on our insurance programs is dependent upon their financial strength ratings as evaluated by independent rating agencies. In the event that any of our carrier partners are downgraded, we believe our ability to write business through them would be adversely affected. In the normal course of business, we evaluate their capital needs to support the amount of business they write in order to maintain their financial strength ratings.
Hagerty Re is subject to regulatory requirements to maintain its license in Bermuda as a Class 3A insurer.
Hagerty Re is registered as a Class 3A insurer under the Bermuda Insurance Act. The BMA issues regulations and other guidance prescribing requirements that Bermuda-licensed insurance companies, like Hagerty Re, are required to comply with. For example, the BMA requires Bermuda-licensed insurers to maintain a minimum level of capital and surplus, comply with restrictions on dividends, make financial statement filings, prepare a financial condition report, maintain a principal office in Bermuda from which insurance business is directed and managed and allow for the performance of certain periodic examinations of financial condition. These statutes and regulations may restrict Hagerty Re's ability to write reinsurance contracts, distribute funds and pursue its investment strategy.
Under its license as a Class 3A insurer, Hagerty Re must meet and maintain the relevant solvency margin, and liquidity and other ratios applicable under Bermuda law. For example, Hagerty Re's license limits it to reinsuring business that is underwritten by our subsidiaries and carriers rated A- or better by A.M. Best or similar rating agencies. Additional operational requirements for Hagerty Re in Bermuda include:
•maintaining a principal office in Bermuda and having a certain number of Bermuda-domiciled managers involved in overseeing operations;
•obtaining prior approval for changes in ownership/transfers of shares;
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•having restrictions on dividends;
•complying with Bermuda know-your-customer and anti-bribery type laws;
•having audited financial statements and being subject to BMA examination; and
•carrying out operations in accordance with its filed and approved business plan.
Failure to operate properly in accordance with Bermuda law could cause Hagerty Re's license to be restricted or revoked, result in possible supervisory control of Hagerty Re and its assets and termination of reinsurance agreements with its ceding insurers.
Risks Related to Our Marketplace Segment
Our growth strategy involves the development and expansion of our Marketplace segment offerings, and if we are unable to realize the anticipated benefits from their growth and integration with our Insurance segment, the business, financial condition, and results of operations of our Marketplace segment could be materially and adversely affected.
Our Marketplace segment, through which automotive enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles, complements the offerings of our Insurance segment. It is possible that the anticipated development and expansion of our Marketplace segment, including the Broad Arrow business, could take longer than planned and may not complement the growth in our Insurance segment as we expect.
Any of the foregoing factors could result in the loss of valuable employees, Members, and buyer and seller relationships. These factors could also result in the disruption of our ongoing businesses, processes, systems, as well as inconsistencies in standards, controls, procedures, practices, policies, and compensation arrangements. Any of these disruptions could adversely affect our ability to achieve the anticipated benefits from the integration of our Marketplace segment with our Insurance segment.
Expansion into new markets exposes our Marketplace segment to complex, inconsistent global regulations and higher compliance costs, which may result in disruption to our ongoing businesses.
As Broad Arrow expands into new geographies, it subjects our Marketplace segment to complex, evolving, and sometimes inconsistent regulatory frameworks across different jurisdictions, including stringent consumer protection rules, advertising and distance selling requirements, auction and motor-vehicle transaction regulations, duties and value added tax ("VAT") schemes, economic sanctions, anti-money laundering and know-your-customer obligations, data privacy and security requirements, payment services and credit-related authorizations and conduct standards, and country-specific licensing, reporting, and disclosure regimes. Compliance demands may require significant investment in local expertise, systems, and controls; may necessitate changes to our platform design, business processes, and customer experience; may result in the disruption of our ongoing businesses, processes, and systems; and may limit or delay certain product features, monetization strategies, data uses, and cross-border operations.
Competition in the global market for sales of collector cars and enthusiast vehicles and the variability of the value, demand and availability of quality collector cars for sale may adversely impact the business, financial condition, and results of operations of our Marketplace segment.
Our Marketplace segment competes with other collector car auction houses, dealers, brokers, and classifieds platforms to obtain valuable consignments to offer for sale either at auction or through private sale. The level of competition can adversely impact our ability to obtain valuable consignments for sale, as well as the commission margins realized on such consignments.
The values and availability of quality collector cars and enthusiast vehicles for sale is influenced by a number of factors not within our control. The supply and demand for collector cars and enthusiast vehicles, and therefore the values of collector cars and enthusiast vehicles, are influenced not only by overall economic conditions, but also by changing trends in the collector car and enthusiast vehicle market as to which vehicles and provenance are most sought after and by the collecting preferences of individual collectors. Marketplace businesses generate revenues through fees and commissions generally based on a percentage of the final sale price, which can fluctuate based on the market dynamics. Further, the fees and commissions we charge may be lowered based on both the level of competition and the market dynamics between supply and demand for collector cars and enthusiast vehicles. These conditions and trends are generally unpredictable and may adversely impact our ability to obtain and sell consigned vehicles and our ability to maintain our fee structure, which may cause significant variability in the results of operations of the Marketplace segment from period to period.
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Many major consignments, and specifically large single-owner collection sale consignments, are often driven by personal circumstances of the owner, including but not limited to death, divorce, and/or other financial circumstances, all of which are unpredictable and may cause significant variability in the results of operations of our Marketplace segment from period to period.
Our Marketplace segment could be exposed to losses in the event of title, authenticity or other claims related to damage or theft.
The assessment of collector cars and enthusiast vehicles offered for auction or private sale can involve potential claims regarding title, authenticity of chassis, drivetrain and vehicle identification numbers, provenance, and condition. The vehicles we sell may be subject to statutory warranties as to title or other limited warranties that cannot be disclaimed under our General Conditions of Sale that are published online or in our auction sale catalogs and the terms stated in, and the laws applicable to, agreements governing private sale transactions. Our assessment of the vehicles we offer is based on scholarship and research, but necessarily requires a degree of judgment by our car specialists and researchers. In the event of a title, authenticity or other claim against us, we may have recourse against the consignor or seller of the property and may have the benefit of insurance, but a claim could nevertheless expose us to losses and to reputational risk.
Valuable collector cars and enthusiast vehicles are exhibited and stored at events and facilities around the world. Although we maintain security measures at our premises and insurance, valuable property may be subject to damage or theft. The damage or theft of valuable property despite these security measures and insurance could have an adverse impact on the business and reputation of our Marketplace segment.
If we are unable to maintain or obtain our dealer licenses, auctioneer licenses, and/or other applicable permits and licenses as required in certain jurisdictions in which we operate, or plan to operate, such licensing issues may adversely impact the business, financial condition, and results of operation of our Marketplace segment.
Our Marketplace segment businesses are licensed and permitted, as required, in the jurisdictions where they operate, including as a dealer, auction house, lender, or intermediary to facilitate the auction, sale, purchase, or financing of collector cars and enthusiast vehicles. Our inability to maintain or obtain the required licenses or permits in any jurisdiction where we operate or plan to operate may adversely impact the business, financial condition, and results of operations of the businesses within our Marketplace segment.
The limited operating history of BAC may not represent BAC's future operating results and the fact that there have been no material loan losses on the BAC loan portfolio to date may not be indicative of future loan loss experience. In addition, our ability to realize proceeds from the sale of collateral for BAC loans may be delayed or limited.
BAC, our wholly owned collector car financing business, has a limited operating history and has incurred no material losses on its loan portfolio to date. Accordingly, despite our conservative loan underwriting standards, our current loan loss experience may not be indicative of the future performance of the loan portfolio. In the event of a loan default, our ability to realize proceeds from the sale of collateral may be impaired where the collateral was incorrectly valued, or there are competing claims on the collateral, or disputes involving a borrower and/or the collateral including, but not limited to, bankruptcy, litigation or insolvency laws.
Changes to tax laws may affect the volume of collector car and enthusiast vehicle inventory available for our Marketplace segment and increase our compliance risks.
Because our Marketplace segment operates across many U.S. states and international jurisdictions, we are subject to a patchwork of rules on sales tax, use tax, VAT, and other transaction-based taxes. Governments are rapidly updating these laws to cover online platforms, and we may be required to register, collect and remit taxes in more places as we grow. These changes may make buying or selling through our Marketplace more expensive or burdensome for collectors, which could reduce the number of vehicles listed or sold through Marketplace operations.
As rules evolve, we may also face greater compliance obligations and scrutiny from tax authorities. If we misinterpret a requirement, are late in registering, or fail to collect or remit the proper tax or supporting documentation, we could be required to pay back taxes, penalties and interest, even when our collectors are responsible for the tax. We may also incur costs to update systems, processes or reporting to meet new rules. Any increase in tax complexity, liability or compliance burden could reduce Marketplace transaction volumes and negatively affect our financial results.
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Legal, Regulatory and Political Risks
The legal and regulatory requirements applicable to our business are extensive. If we are not able to comply, it could have an adverse effect on us. Extensive regulation and potential further restrictive regulation could increase our operating costs and limit our growth.
We are subject to extensive laws, regulations, and supervision in the jurisdictions in which we conduct business, including those related to:
•data privacy and cybersecurity;
•anti-money laundering, anti-corruption, and anti-bribery;
•domestic and international economic sanctions;
•restrictions on advertising and marketing;
•restrictions on rebating and inducements related to insurance transactions;
•restrictions on sharing insurance commissions and payments of referral fees;
•restrictions related to underwriting and pricing of insurance;
•approval of policy forms and premiums;
•restrictions on the adjustment and settlement of insurance claims;
•restrictions on the sale, solicitation, and negotiation of insurance;
•rules regarding licensing, affiliations, and appointments;
•regulation of registered securities, corporate governance and risk management, and consumer finance; and
•periodic examinations of operations, finances, market conduct, and claims practices.
These laws are complex and subject to change. Any adverse changes in, or the enactment of new, applicable laws and regulations may increase the complexity of the regulatory environment in which we operate, which could materially increase our direct and indirect compliance costs and other expenses of doing business, adversely impact our growth or profitability and result in adverse changes to our business practices.
While we believe that we have adopted adequate and effective risk management and compliance programs, compliance risks remain, especially as we become subject to additional rules and regulations. The increasing speed and volume of regulatory changes could hinder our ability to appropriately review, analyze, and implement processes to ensure compliance in a timely manner. Our failure to comply with applicable laws and regulations could subject us to regulatory fines, sanctions, equitable relief, changes to our business practices and other penalties, including restrictions on our ability to do business in affected jurisdictions, any of which could have a material adverse effect on our financial condition and results of operations.
Complex legal, regulatory, and contractual requirements regarding data privacy and cybersecurity may impact how we market and interact with existing and future Members, and could have an adverse effect on our business, financial condition, and operations.
We are subject to complex and evolving laws, regulations, industry standards, and contractual obligations, relating to the collection, use, retention, security, transfer, disclosure, and other processing of personal information. Compliance requirements may restrict our communications and marketing activities, limit permissible uses of data, increase operational complexity and costs, and reduce our ability to effectively acquire and retain Members.
As public and regulatory scrutiny of cybersecurity incidents in the insurance industry increases, new or revised requirements may further expand our compliance obligations and limit the effectiveness of our marketing and outreach, potentially reducing revenue and Member growth. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. Our insurance coverage relating to any data security and privacy damages and claim expenses may not be sufficient to compensate for all liabilities we may incur.
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Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
As we continue expanding our development of intellectual property across all channels, we may be unable to adequately protect and/or obtain appropriate rights, leading to increased risk. Additionally, our intellectual property rights may be subject to invalidation or circumvention. Competitors may target certain products or services and seek to assert competing rights. If appropriate contractual measures are not maintained, employees, contractors, and vendors may divulge trade secrets or claim ownership over our intellectual property.