Q2 2026 Hagerty Inc Earnings Call

August 5, 2026

Operator: Hello, and welcome to Hagerty's Q2 2026 earnings call and webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask the question during the session, you will need to press star one on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to Jay Koval, Head of Investor Relations. Sir, you may begin.

Speaker #1: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised.

Speaker #1: To withdraw your question, please press star one one again. I would now like to hand the conference over to Jay Koval, Head of Investor Relations.

Speaker #1: Sir, you may begin.

Speaker #2: Thank you, operator, and good morning, everyone. Thank you for joining us to discuss Hagerty's results for Q2 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman, and Patrick McClymont, Chief Financial Officer.

Jay Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for Q2 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman, and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's investor relations section of the company's corporate website at investor.hagerty.com. Our earnings release slides and letter to stockholder covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on slide two of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance.

Jay Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for Q2 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman, and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's investor relations section of the company's corporate website at investor.hagerty.com. Our earnings release slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on slide two of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance.

Speaker #2: During this morning's conference call, we were referred to an accompanying presentation that is available on Hagerty's Investor Relations section of the company's corporate website at investor.hagerty.com.

Speaker #2: Our earnings release slides and letter to stockholders covering this period are also posted on the IR website, as well as in our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics.

Speaker #2: As described further on slide 2 of the earnings presentation, forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance.

Speaker #2: They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and sec.gov.

Jay Koval: They are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our investor relations website and sec.gov. The appendix to the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. With that, I'll turn the call over to McKeel.

Speaker #2: The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures, that are further supplemented by this morning's 8K filing.

Speaker #2: And with that, I'll turn the call over to McKeel.

Speaker #3: Thank you, Jay, and good morning, everyone. Summertime in the Midwest is something special. The days are long, the roads are open, and the fun cars are out.

McKeel Hagerty: Thank you, Jay. Good morning, everyone. Summertime in the Midwest is something special. The days are long, the roads are open, and the fun cars are out. Our 1.9 million members have been making the most of this year's driving season from the Sunday morning canyon runs and Cars and Coffee gatherings to track days and vintage car events. One Team Hagerty has been right there with them delivering the service, coverage, and community that define what we uniquely do. We report our Q2 results this morning. Let me give you the headline. The H1 2026 was the best in Hagerty's history, as measured by gains in policies in force, written premium, earned premium, and adjusted EBITDA. These are the metrics that best reflect the true vibrancy of our business.

Speaker #3: Our 1.9 million members have been making the most of this year's driving season, from Sunday morning canyon runs and cars and caffeine gatherings to track days and vintage car events.

Speaker #3: And Team Hagerty has been right there with them, delivering the service, coverage, and community that define what we uniquely do. We reported our Q2 results this morning, and let me give you the headline.

Speaker #3: The first half of 2026 was the best in Hagerty's history, as measured by gains in policies enforced, written premium, earned premium, and adjusted EBITDA.

Speaker #3: These are the metrics that best reflect the true vibrancy of our business. We blew through the 3 million vehicle insured milestone in the Q2, as we added a record 279,000 new members.

McKeel Hagerty: We blew through the 3 million vehicle insured milestone in Q2 as we added a record 279,000 new members. Importantly, we are delivering high rates of growth while simultaneously investing in our teams, technology, and member experience that will sustain growth as our compounding machine shifts into overdrive. Written premium growth of 19% came in well ahead of our prior full year expectations for 15% to 16% growth. Our written premium growth is powered by new business count rather than rate, unlike the broader industry that fluctuates with the pricing cycle. Earned premium jumped 42% due to the strong written premium gains, combined with the increase in economics under the new Markel fronting arrangement to 100%. Adjusted EBITDA grew 32% to $160 million due to the benefits of increasing scale, combined with cost discipline.

McKeel Hagerty: We blew through the 3 million vehicle insured milestone in Q2 as we added a record 279,000 new members. Importantly, we are delivering high rates of growth while simultaneously investing in our teams, technology, and member experience that will sustain growth as our compounding machine shifts into overdrive. Written premium growth of 19% came in well ahead of our prior full-year expectations for 15% to 16% growth. Our written premium growth is powered by new business count rather than rate, unlike the broader industry that fluctuates with the pricing cycle. Earned premium jumped 42% due to the strong written premium gains, combined with the increase in economics under the new Markel fronting arrangement to 100%. Adjusted EBITDA grew 32% to $160 million due to the benefits of increasing scale, combined with cost discipline.

Speaker #3: Importantly, we are delivering high rates of growth while simultaneously investing in our teams, technology, and member experience that will sustain growth as our compounding machine shifts into overdrive.

Speaker #3: Written premium growth of 19% came in well ahead of our prior full-year expectations of 15% to 16% growth. Our written premium growth is powered by new business count rather than rate, unlike the broader industry that fluctuates with the pricing cycle.

Speaker #3: Earned premium jumped 42% due to the strong written premium gains combined with the increase in economics under the new Markelle fronting arrangement to 100%.

Speaker #3: And adjusted EBITDA grew 32% to 160 million, due to the benefits of increasing scale combined with cost discipline. Reported GAAP revenue in the first half was down 6%, and our GAAP net loss was 5 million, reflecting the accounting mechanics from the new Markelle fronting arrangement that we have discussed on previous calls.

McKeel Hagerty: Reported GAAP revenue in H1 was down 6%, and our GAAP net loss was $5 million, reflecting the accounting mechanics from the new Markel fronting arrangement that we have discussed on previous calls. While the GAAP presentation of revenue and net income in 2026 continues to look different from prior years due to this new Markel fronting structure, the underlying business performance is stronger than ever. The key metrics above, policy count, written and earned premium, and adjusted EBITDA, are all running well ahead of expectations, causing us to increase our outlook for the year. More on that in a moment. Let me run through some of the H1 highlights in more detail, shown on slide three, and Patrick will focus on Q2. The 279,000 new members added in H1 was a record for any comparable six-month period, boosted by State Farm conversions.

Speaker #3: While the GAAP presentation of revenue and net income in 2026 continues to look different from prior years due to this new Markelle fronting structure, the underlying business performance is stronger than ever.

Speaker #3: The key metrics above—policy count, written and earned premium, and adjusted EBITDA—are all running well ahead of expectations, causing us to increase our outlook for the year. More on that in a moment.

Speaker #3: Let me run through some of the first half highlights in more detail, shown on slide 3, and Patrick will focus on the Q2. The 279,000 new members added in the first half was a record for any comparable 6-month period, boosted by State Farm conversions.

Speaker #3: The breadth of vehicles joining the Hagerty family continues to expand. Our classic cohort—Mustangs, Camaros, C10 pickups, and Porsche 911s to name a few—is growing quickly.

McKeel Hagerty: The breadth of vehicles joining the Hagerty family continues to expand. Our classic cohort, Mustangs, Camaros, C10 pickups, and Porsche 911s, to name a few, is growing quickly. The fastest-growing segment is the modern enthusiast vehicles, 1980s to 2000 sports cars from Japan, Germany, and the US, as well as off-road vehicles. The incremental demand is coming from the rising generation of younger collectors that grew up coveting these fun vehicles, and now they have the disposable income to acquire them. This is the Enthusiast Plus target demographic, and it is arriving as the demand from Gen X, Millennials, and Gen Z quickly ramps up. Year-to-date quote volume from these younger generations now exceeds 60% of total demand. Our Enthusiast Plus program in Colorado is performing in line with revised pricing assumptions, and we are applying those learnings as we expand it into three additional states in July.

Speaker #3: But the fastest-growing segment is the modern enthusiast vehicles, 1980s to 2000s sports cars from Japan, Germany, and the U.S., as well as off-road vehicles.

Speaker #3: The incremental demand is coming from the rising generation of younger collectors that grew up coveting these fun vehicles, and now they have the disposable income to acquire them.

Speaker #3: This is the enthusiast-plus target demographic, and it has arriving as the demand from Gen X and millennials and Gen Z quickly ramps up. Year-to-date quote volume from these younger generations now exceeds 60% of total demand.

Speaker #3: Our enthusiast-plus program in Colorado is performing in line with revised pricing assumptions, and we are applying those learnings as we expanded into three additional states in July.

Speaker #3: Our high rates of PIF growth and industry-leading retention of 88% powers consistent compounding growth and provides us with excellent visibility into future revenue streams.

McKeel Hagerty: Our high rates of PIF growth and industry-leading retention of 88% powers consistent compounding growth and provides us with excellent visibility into future revenue streams, particularly as we unlock our partnership opportunities by deepening existing relationships and adding new ones. The rollout of the highly integrated State Farm Classic+ program is accelerating. As of the end of Q2, State Farm agents are selling new Hagerty policies in 37 states. New tranches of states are coming online as planned and on budget. The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, with 14 states in motion, and we remain on pace to complete the transition by 2028.

Speaker #3: Particularly as we unlock our partnership opportunities by deepening existing relationships and adding new ones. The rollout of the highly integrated State Farm classic-plus program is accelerating.

Speaker #3: As of the end of Q2, State Farm agents are selling new Hagerty policies in 37 states. New tranches of states are coming online as planned and on budget.

Speaker #3: The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, with 14 states in motion, and we remain on pace to complete the transition by 2028.

Speaker #3: We are also excited about our new partnership with Liberty Mutual, as well as the progress made on securing larger cohorts of vehicles with progressive, and trial programs with other national carriers that are performing very well.

McKeel Hagerty: We are also excited about our new partnership with Liberty Mutual, as well as the progress made on securing larger cohorts of vehicles with Progressive and trial programs with other national carriers that are performing very well. In our independent agency channel, we believe we have an opportunity to better inform and activate these 54,000 agents. We are investing in straight-through processing and automated identification tools that enable agents to spot enthusiast vehicles already sitting in their daily driver books. We are also improving the educational resources that help agents understand what Hagerty can do for their customers, including enhancing customer retention. The addressable market of 36 million vehicles expands every year, and most of these cars are currently insured at generic daily driver rates by carriers that neither understand nor value them the way that Hagerty can.

Speaker #3: And our independent agency channel, we believe we have an opportunity to better inform and activate these 54,000 agents. We are investing in straight-through processing, and automated identification tools that enable agents to spot enthusiast vehicles already sitting in their daily driver books.

Speaker #3: We are also improving the educational resources that help agents understand what Hagerty can do for their customers, including enhancing customer retention. The addressable market of 36 million vehicles expands every year, and most of these cars are currently insured at generic daily driver rates by carriers that neither understand nor value them the way that Hagerty can.

Speaker #3: Omnichannel distribution is a key competitive advantage to drive outsized growth. And we deliver these high rates of growth with exceptional underwriting discipline. Hagerty reuse combined ratio for the first half came in at 88%, with a loss ratio at 41%.

McKeel Hagerty: Omnichannel distribution is a key competitive advantage to drive outsized growth, we deliver these high rates of growth with exceptional underwriting discipline. Hagerty Re's combined ratio for the H1 came in at 88%, with a loss ratio at 41%. 40 years of proprietary data on 48,000 makes and models, combined with members that treat their cars with exceptional care, is a combination that others cannot replicate. Let me turn now to our buy and sell business, Hagerty Marketplace, where total sales grew 17% to $65 million. Broad Arrow, our high-end live auction business, was the key driver of growth, with a H1 sales increase of 74% and an exceptional 91% sell-through rate. Private sales were down against the prior year period, which benefited from the sale of a large single-owner collection.

Speaker #3: 40 years of proprietary data on 48,000 makes and models combined with members that treat their cars with exceptional care is a combination that others cannot replicate.

Speaker #3: Let me turn now to our buy and sell business, Hagerty Marketplace, where total sales grew 17% to $65 million. Broad Arrow, our high-end live auction business, was the key driver of growth.

Speaker #3: For the first half, sales increased of 74% and an exceptional 91% sell-through rate. Private sales were down against the prior year period, which benefited from the sale of a large single-owner collection.

Speaker #3: The depth of demand we are seeing from buyers across multiple continents tells us something important about the health of our market. Great cars continue to appreciate in value, and buyers who care about provenance, condition, and expertise are choosing broad arrow because they trust our process and our team.

McKeel Hagerty: The depth of demand we are seeing from buyers across multiple continents tells us something important about the health of our market. Great cars continue to appreciate in value, buyers who care about provenance, condition, and expertise are choosing Broad Arrow because they trust our process and our team. I want to remind investors of something fundamental about our marketplace business. It is not just a revenue line. It is a customer acquisition machine. Every car that trades hands is a potential Hagerty insurance policy, every auction catalog that circulates through our global community of members reinforces the Hagerty brand as the most trusted name in collector cars. The flywheel is self-reinforcing, it grows more powerful with every member-centric interaction. Slide four is a useful reminder that the results we're reporting today aren't accidental.

Speaker #3: I want to remind investors of something fundamental about our marketplace business: It is not just a revenue line. It is a customer acquisition machine.

Speaker #3: Every car that trades hands is a potential Hagerty insurance policy, and every auction catalog that circulates through our global community of members reinforces the Hagerty brand as the most trusted name in collector cars.

Speaker #3: The flywheel is self-reinforcing. And it grows more powerful with every member-centric interaction. Slide 4 is a useful reminder that the results we're reporting today aren't accidental.

Speaker #3: They are the output of a deliberate, multi-year investment in distribution, technology, and the member experience. And the progress across each of these is exactly why we're raising our 2026 outlook.

McKeel Hagerty: They are the output of a deliberate multi-year investment in distribution, technology, and the member experience. The progress across each of these is exactly why we're raising our 2026 outlook. Let me close by stepping back to the bigger picture. We are now halfway through 2026, our structural transition year with the new Markel fronting arrangement, the business is performing well above the high end of the ranges we shared last quarter. Given the strength of our H1 and robust business momentum, we are raising our expectations for full-year written premium growth to 16% to 17%. With better-than-expected flow-through, we now expect GAAP net income of $18 to $30 million in 2026 and adjusted EBITDA of $270 to $280 million. Let me now turn it over to Patrick to run through the Q2 in more detail.

Speaker #3: Let me close by stepping back to the bigger picture. We are now halfway through 2026. Our structural transition year, with the new Markelle Fronting arrangement, and the business's performing well above the high end of the ranges we shared last quarter.

Speaker #3: Given the strength of our first half and robust business momentum, we are raising our expectations for full-year written premium growth to 16 to 17 percent. With better-than-expected flow-through, we now expect GAAP net income of $18 to $30 million in 2026, and adjusted EBITDA of $270 to $280 million.

Speaker #3: Let me now turn it over to Patrick to run through Q2 in more detail.

Speaker #1: Thank you, McKeel, and good morning, everyone. I will start by sharing some additional color on the Q2's excellent momentum shown on slides 5 and 6.

Patrick McClymont: Thank you, McKeel, and good morning, everyone. I will start by sharing some additional color on the Q2's excellent momentum, shown on slides five and six. We delivered written premium growth of 19% in the Q2 and 19% during the H1 of the year, marking an acceleration from last year's 14% growth due to record growth in new members. Adjusted EBITDA jumped 32% during the H1. This is what a healthy, compounding specialty insurer looks like when firing on all cylinders. As McKeel mentioned, the 2026 GAAP presentation reflects the Markel fronting transition. Starting 1 January 2026, Hagerty reassumed 100% of the underwriting risk on our US book. A great economic outcome for Hagerty, thanks to the 25% step-up in underwriting profits and investment income. Under the new structure, MGA commission revenue and the associated ceding commission expense eliminate against each other in consolidation.

Speaker #1: We delivered written premium growth of 19% in the Q2 and 19% during the first 6 months of the year, marking an acceleration from last year's 14% growth due to record growth in new members.

Speaker #1: Adjusted EBITDA jumped 32% during the first half. This is what a healthy, compounding specialty insurer looks like, when firing on all cylinders. As McKeel mentioned, the 2026 gap presentation reflects the Markelle Fronting transition.

Speaker #1: Starting January 1, 2026, Hagerty reassumed 100% of the underwriting risk on our U.S. book. This resulted in a great economic outcome for Hagerty, thanks to the 25% step-up in underwriting profits and investment income.

Speaker #1: Under the new structure, MGA commissioned revenue and the associated seed and commission expense eliminate against each other in consolidation. That is why first half reported gap revenue of 667 million, declined 6%, even as written premiums grew 19%.

Patrick McClymont: That is why H1 reported GAAP revenue of $667 million declined 6%, even as written premiums grew 19%. Let me break down our Q2 revenue. Earned premium grew 42% to $252 million, reflecting the PIF count-driven written premium gains, combined with the increase to 100% quota share in our US book. This is the structural improvement in our reinsurance economics that we've been working toward for a decade with Markel. Commission and fee revenue for the Q2 was $24 million. As noted, this line is no longer comparable to prior periods given the elimination of Markel-related commissions in consolidation. As State Farm conversions ramp over the next two years, commission revenue inflects upward. Q2 marketplace revenue was $40 million, up 48%, thanks to strong gains for both auction and private sales.

Speaker #1: Let me break down our Q2 revenue. Earned premium grew 42% to $252 million, reflecting the PIF count-driven written premium gains combined with the increase to a 100% quota share in our US book.

Speaker #1: This is the structural improvement in our reinsurance economics that we have been working toward for a decade with Markelle. Commission and fee revenue for the quarter was 24 million.

Speaker #1: As noted, this line is no longer comparable to prior periods, given the elimination of Markel-related commissions in consolidation. As State Farm conversions ramp over the next two years, commission revenue inflects upward.

Speaker #1: Q2 marketplace revenue was 40 million, up 48%, thanks to strong gains for both auction and private sales. Particularly at the high end of the market and for modern cars, demand has inflected higher since the start of the year, and shows little sign of slowing.

Patrick McClymont: Particularly at the high end of the market and for modern cars, demand has inflected higher since the start of the year and shows little sign of slowing. Membership and other revenue came in at $21 million, reflecting 10% growth in Hagerty Drivers Club paid memberships. Net investment income was $11 million during the Q2, benefiting from our larger Hagerty Re investment portfolio and the steady returns from our predominantly fixed income allocation. Turning to profitability, shown on slides seven and eight, Hagerty Re's combined ratio came in at 90% in the Q2, despite inflationary pressures. We believe the investments we are making in our underwriting team and in-house claims capabilities result in better outcomes for members and lower loss costs for Hagerty Re. Adjusted EBITDA in the Q2 was $75 million, resulting in H1 EBITDA of $160 million, up 32% year-over-year.

Speaker #1: Membership and other revenue came in at 21 million, reflecting 10% growth in Hagerty drivers' club paid memberships. And net investment income was 11 million during the quarter, benefiting from our larger Hagerty reinvestment portfolio, and the steady returns from our predominantly fixed income allocation.

Speaker #1: Turning to profitability, shown on slide 7 and 8, Hagerty reuse combined ratio came in at 90% in the Q2, despite inflationary pressures. We believe the investments we are making in our underwriting team and in-house claims capabilities result in better outcomes for members, and lower loss costs for Hagerty re.

Speaker #1: Adjusted EBITDA on the Q2 was 75 million, resulting in first half EBITDA of 160 million, up 32% year over year. Gap net income was 8 million in the quarter, and includes the 64 million amortization of deferred seed and commissions for 2025 policies.

Patrick McClymont: GAAP net income was $8 million in the Q2 and includes the $64 million amortization of deferred ceding commissions for 2025 policies. H1 GAAP net loss was $5 million. During the H1 of 2026, we incurred approximately $57 million in new acquisition expenses that were capitalized, of which only $16 million was recognized on the P&L. This resulted in a $41 million cumulative benefit in the H1, $20 million of which was realized in the Q2. We expect this benefit to diminish to $15 million in the H2, with none in the Q4, as the new policy season and amortization catches up with costs. This is incorporated in our full-year 2026 bottom-line outlook, and we anticipate that 2027 should reflect a clean, steady state P&L as these acquisition expenses normalize. Back to the Q2.

Speaker #1: First half GAAP net loss was $5 million. During the first half of 2026, we incurred approximately $57 million in new acquisition expenses that were capitalized, of which only $16 million was recognized on the P&L.

Speaker #1: This resulted in a 41 million cumulative benefit in the first half, 20 million of which was realized in the second quarter. We expect this benefit to diminish to 15 million in the second half, with none in the fourth quarter, as the new policies season and amortization catches up with costs.

Speaker #1: This is incorporated in our full year, 2026 bottom-line outlook, and we anticipate that 2027 should reflect a clean, steady state P&L, as these acquisition expenses normalize.

Speaker #1: Back to the second quarter. Net loss attributable to class A common shareholders was 2 million. Gap basic and diluted loss were both 2 cents per share.

Patrick McClymont: Net loss attributable to Class A common shareholders was $2 million. GAAP basic and diluted loss were both $0.02 per share. Adjusted loss per share, based on approximately 361 million weighted average shares of Class A common stock outstanding, was also $0.02. We recorded an income tax benefit of $6 million in Q2 versus an expense of $6 million in the prior year period. The change in tax benefit period over period is driven by non-reversing differences between taxable income and pre-tax book income related to the Markel fronting arrangement. Chiefly, the ceding commission Hagerty Re deducts on its tax return, but that we eliminate in consolidation.

Speaker #1: Adjusted loss per share, based on the approximately 361 million weighted average shares of Class A common stock outstanding, was also $0.02. We recorded an income tax benefit of $6 million in the second quarter, versus an expense of $6 million in the prior-year period.

Speaker #1: The change in tax benefit period-over-period is driven by non-reversing differences between taxable income and pre-tax book income, related to the Markelle Fronting arrangement. Chiefly, the seed and commission Hagerty re deducts on its tax return but that we eliminate in consolidation.

Speaker #1: Operating cash flow during the first six months was $186 million, almost double the cash flow from the first half of 2025, and a clear indicator of the vibrancy and improved economics of the new Markel Fronting arrangement that also drove the accelerated movement of written premium to Hagerty Re under the new structure.

Patrick McClymont: Operating cash flow during H1 was $186 million, almost double the cash flow from H1 2025, and a clear indicator of the vibrancy and improved economics of the new Markel fronting arrangement that also drove the accelerated movement of written premium to Hagerty Re under the new structure. As of June 2026, we had $298 million in unrestricted cash and total debt of $216 million, which includes $88 million of backed leverage for Broad Arrow's portfolio of collector car loans. After the quarter ended, we announced that we had acquired Bennetts, the second-largest specialty motorcycle insurer in the UK for GBP 34 million. Our UK team has done a great job improving the performance of the business and returning to growth, and this opportunistic acquisition immediately triples our scale in an exciting market with a strong member-focused business model.

Speaker #1: As of June 2026, we had 298 million in unrestricted cash, and total debt of 216 million. Which includes 88 million of back leverage for broad arrows portfolio of collector car loans.

Speaker #1: After the quarter ended, we announced that we had acquired Bennetts, the second largest specialty motorcycle insurer in the United Kingdom, for £34 million.

Speaker #1: Our UK team has done a great job improving the performance of the business and returning to growth, and this opportunistic acquisition immediately triples our scale in an exciting market with a strong, member-focused business model.

Speaker #1: We are excited to welcome the Bennetts employees and members to the Hagerty family, and are looking forward to what the combined entity can do over the coming years.

Patrick McClymont: We are excited to welcome the Bennetts employees and members to the Hagerty family and are looking forward to what the combined entity can do over the coming years. A few investors have asked how we think about capital allocation following last year's secondary, so let me share some thoughts. Our first priority is to make investments that create additional value for our members and generate high returns for Hagerty. This means initiatives that expand our policy count, deepen the flywheel, improve unit economics, and create a compounding cash flow machine. Our second priority is to evaluate strategic acquisitions such as Bennetts that expand our presence in the ecosystem. These tend to be modest in size and infrequent. The third priority is to return capital to shareholders. This is not on the agenda over the near term, given the high returns we can generate investing in our business.

Speaker #1: A few investors have asked how we think about capital allocation following last year's secondary. So let me share some thoughts. Our first priority is to make investments that create additional value for our members, and generate high returns for Hagerty.

Speaker #1: This means initiatives that expand our policy count, deepen the flywheel, improve unit economics, and create a compounding cash flow machine. Our second priority is to evaluate strategic acquisitions, such as Bennetts, that expand our presence in the ecosystem.

Speaker #1: These tend to be modest in size and infrequent. The third priority is to return capital to shareholders. This is not on the agenda over the near term, given the high returns we can generate investing in our business.

Speaker #1: Let me close with our increased 2026 outlook, shown on slide 9. The metrics that best reflect our operating momentum, policy growth, written premium, earned premium, and adjusted EBITDA are all tracking above expectations.

Patrick McClymont: Let me close with our increased 2026 outlook shown on slide nine. The metrics that best reflect our operating momentum, policy growth, written premium, earned premium, and adjusted EBITDA, are all tracking above expectations. Given the strength of our H1 results and visibility into H2, we are significantly increasing our full year 2026 guidance. We now anticipate written premium growth of 16% to 17%. We are also increasing our expectations for GAAP net income to $18 to $30 million and adjusted EBITDA of $270 to $280 million. Investors who are following GAAP revenue and net income will get a cleaner picture with every passing quarter as we move towards normalized results in 2027.

Speaker #1: Given the strength of our first half results, and visibility into the second half, we are significantly increasing our full year 2026 guidance. We now anticipate written premium growth of 16 to 17 percent.

Speaker #1: We are also increasing our expectations for gap net income to 18 to 30 million, and adjusted EBITDA of 270 to 280 million. Investors who are following gap revenue and net income will get a cleaner picture with every passing quarter, as we move toward normalized results in 2027.

Speaker #1: We expect 2027 gap revenue should more closely track our mid-teens written premium growth, and gap net income and adjusted EBITDA will be powered by our compounding profit machine, that is no longer masked by the 2026 Markelle Fronting transition expenses.

Patrick McClymont: We expect 2027 GAAP revenue should more closely track our mid-teens written premium growth and GAAP net income and adjusted EBITDA will be powered by our compounding profit machine that is no longer masked by the 2026 Markel fronting transition expenses. The investments we are making in distribution, technology, and product, State Farm conversion's accelerating, Enthusiast Plus scaling to additional states, Duck Creek delivering cost efficiencies, are designed to sustain premium growth and steadily expand margins in the years to come. That wraps up our prepared remarks. Operator, we can open the line for questions.

Speaker #1: The investments we are making in distribution, technology, and product, State Farm conversions accelerating, enthusiast plus scaling to additional states, Duck Creek delivering cost efficiencies, are designed to sustain premium growth and steadily expand margins in the years to come.

Speaker #1: That wraps up our prepared remarks, operator. We can open the line for questions.

Speaker #2: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press start 11 on your telephone, then wait for your name to be announced.

Operator: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tommy McJoynt with KBW. Your line is open.

Speaker #2: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Milan of Tommy McJoint with KBW.

Speaker #2: Your line is open.

Tommy McJoynt: Hey, good morning. Thanks for taking our questions. The first one here is, heard your comments around pitching to independent agents. Has your strategy around that shifted at all as you think about getting more of the 54,000 agents integrated into helping sell Hagerty policies?

Speaker #3: Hey, good morning. Thanks for taking our questions. The first one here is heard your comments around pitching to independent agents, has your strategy around that shifted at all as you think about getting more of the 54,000 agents integrated into helping sell Hagerty policies?

Speaker #4: Hey, Tommy, good morning. Thank you for the question. We think the independent agent channel is a really key piece of our growth strategy. The challenge is 54,000 that we've accumulated over a long period of time is a very large group.

Patrick McClymont: Hey, Tommy. Good morning. Thank you for the question. We think the independent agent channel is a really key piece of our growth strategy. The challenge is 54,000 that we've accumulated over a long period of time is a very large group. We've really put an incredible team together. Jeff Briglia brought in Adam Van Loon to lead this whole effort, and really is expert at thinking about how are we going to focus on the ones that will help us produce the most, how do we think about the ones that we can move the zero to one strategy on the front end.

Patrick McClymont: Hey, Tommy. Good morning. Thank you for the question. We think the independent agent channel is a really key piece of our growth strategy. The challenge is 54,000; that we've accumulated over a long period of time is a very large group. We've really put an incredible team together. Jeff Briglia brought in Adam Van Loon to lead this whole effort, and really is expert at thinking about how are we going to focus on the ones that will help us produce the most, how do we think about the ones that we can move the zero to one strategy on the front end.

Speaker #4: So we've really put an incredible team together Jeff, really, have brought in Adam Van Loon to lead this whole effort and really is expert at thinking about how are we going to focus on the ones that will help us produce the most, how do we think about the ones that we can sort of move the sort of 0 to 1 strategy on the front end.

Speaker #4: And then, how are we going to take advantage of the fact that we have this larger ecosystem, where we need to be communicating to agents that the idea of a classic car—sometimes the perspective that these are just very, very old cars—has really shifted.

Patrick McClymont: how are we going to just take advantage of the fact that we have this larger ecosystem where we need to be communicating to agents that the idea of a classic car, or sometimes the perspective that these are just very, very old cars has really shifted. That's a big part of our strategy. It's data, it's communications, it's education, it's all of the above, and we want to be that partner in an agent's office when somebody like this comes in, not just with a really vintage car, but with one of these enthusiast vehicles that they need to send it to us.

Patrick McClymont: how are we going to just take advantage of the fact that we have this larger ecosystem where we need to be communicating to agents that the idea of a classic car, or sometimes the perspective that these are just very, very old cars, has really shifted? That's a big part of our strategy. It's data, it's communications, it's education, it's all of the above, and we want to be that partner in an agent's office when somebody like this comes in, not just with a really vintage car, but with one of these enthusiast vehicles that they need to send it to us.

Speaker #4: That's a big part of our strategy. So it's data, it's communications, it's education—it's all of the above. And we want to be that partner in an agent's office when somebody like this comes in, not just with a really vintage car, but with one of these enthusiast vehicles—that they need to send to us.

Speaker #3: Got it. Thanks for that. And then a question around thinking about the transition kind of into next year once we have cleaner accounting. Obviously, there's a lot of accounting noise this year around the Markelle transition, and especially around the 199 million dollars of transitional cost add-back and the accounting for policy acquisition costs.

Tommy McJoynt: Got it. Thanks for that. A question around thinking about the transition into next year once we have cleaner accounting. Obviously, there's a lot of accounting noise this year around the Markel transition and especially around the $199 million of transitional costs add back and the accounting for policy acquisition costs. Right now, just to help us with modeling, is it your expectation that adjusted EBITDA growth in 2027 can sort of keep pace with the written premium growth that you guys are contemplating? Just kind of helping us think about the impacts of this accounting noise this year. Thanks.

Tommy McJoynt: Got it. Thanks for that. A question around thinking about the transition into next year once we have cleaner accounting. Obviously, there's a lot of accounting noise this year around the Markel transition and especially around the $199 million of transitional costs added back and the accounting for policy acquisition costs. Right now, just to help us with modeling, is it your expectation that adjusted EBITDA growth in 2027 can sort of keep pace with the written premium growth that you guys are contemplating? Just kind of helping us think about the impacts of this accounting noise this year. Thanks.

Speaker #3: Right now, just to help us with modeling, is it your expectation that adjusted EBITDA A growth in 2027 can sort of keep pace with the written premium growth that you guys are contemplating?

Speaker #3: Just kind of helping us think about the impacts of this accounting noise this year. Thanks.

Speaker #4: Sure. Yeah, obviously, we don't give guidance for 2027 until we get into 2027. What I would say is, once we get through the complexity of this year, then the economics of the business are largely driven by insurance, and that will continue to grow in the mid-teens.

Patrick McClymont: Sure. Obviously, we don't give guidance for 2027 till we get into 2027. What I would say is, once we get through the complexity of this year, the economics of the business are largely driven by insurance, and that will continue to grow in the mid-teens. That's the starting point. We'll figure out and communicate how much of our ability to drive margin expansion flows to the bottom line and how much of it we're going to invest back in the business. When I look at what's out there in terms of consensus, that's a reasonable starting point, and then we'll kind of give you our own point of view early next year.

Speaker #4: And so that's the starting point. And then we'll figure out and communicate how much of our ability to drive margin expansion flows to the bottom line, and how much of it we're going to invest back in the business.

Speaker #4: When I look at what's out there in terms of consensus, that's a reasonable starting point. And then we'll kind of give our own point of view early next year.

Speaker #3: Thank you.

Tommy McJoynt: Thank you.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from Milan of Charlie Litterer with BMO. Your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Charlie Lederer with BMO. Your line is open.

Speaker #4: Hey, thanks. Maybe just following up on that last question. If you think about the moving pieces, just from the accounting noise, I guess would the only kind of dynamic next year from a comparison standpoint be that you have the increase in deferred acquisition costs amortizing in the P&L—particularly, I guess, in the first half?

Charlie Lederer: Hey, thanks. Maybe just following up on that last question. If you think about the moving pieces, just from the accounting noise, I guess, would the only kind of dynamic next year from a comparison standpoint be that you have the increase in deferred acquisition costs amortizing in the P&L, particularly, I guess, in H1? Thanks.

Speaker #4: Thanks.

Patrick McClymont: The two things that'll be different will be, one, the transition cost of $199 million is gone, right? That's fully amortized by the end of this year. We don't have to worry about that next year. The other is this dynamic on the deferred acquisition costs that we're putting on the balance sheet this year. We kind of started from scratch, and we're building up that balance over the course of this year. That's been an add back. That's been a good guy, right? Because we're capitalizing that as opposed to running it through the P&L. As we build that up and the amortization starts kicking in, it normalizes. That dynamic goes away pretty much by the end of this year. Next year will be in a steady state. It'll grow, right? We'll continue to build up that balance.

Patrick McClymont: The two things that'll be different will be, one, the transition cost of $199 million is gone, right? That's fully amortized by the end of this year. We don't have to worry about that next year. The other is this dynamic on the deferred acquisition costs that we're putting on the balance sheet this year. We kind of started from scratch, and we're building up that balance over the course of this year. That's been an add-back. That's been a good guy, right? Because we're capitalizing that as opposed to running it through the P&L. As we build that up and the amortization starts kicking in, it normalizes. That dynamic goes away pretty much by the end of this year. Next year will be in a steady state. It'll grow, right? We'll continue to build up that balance.

Speaker #1: The two things that will be different will be one, the transition cost, the 199 million is gone, right? So that's fully amortized by the end of this year.

Speaker #1: And so that we don't have to worry about that next year. And the other is this dynamic on the deferred acquisition costs that we're putting on the balance sheet this year.

Speaker #1: So we kind of started from scratch. And we're building up that balance over the course of this year. That's been an add-back. It's been a good guy, right?

Speaker #1: Because we're capitalizing that as opposed to running it through the P&L. But as we build that up and the amortization starts kicking in, it normalizes.

Speaker #1: And so that dynamic goes away pretty much by the end of this year. And next year, it'll be a steady state. It'll grow, right?

Speaker #1: So you'll continue to build up that balance, but the relationship between what we're actually spending on a cash basis and what we're amortizing through the P&L will be much more consistent.

Patrick McClymont: The relationship between what we're actually spending on a cash basis and what we're amortizing through the P&L will be much more consistent. Was that helpful?

Speaker #1: Is that helpful?

Charlie Lederer: Thanks. Yeah, sorry. I guess I was thinking from an adjusted EBITDA standpoint. The DAC is in the adjusted EBITDA, but the transition costs are not, I think. Is that correct?

Speaker #3: Thanks. Yeah, yeah, sorry. I guess I was thinking from an adjusted EBITDA standpoint. So the DAC is in the adjusted EBITDA, but the transition costs are not, I think.

Patrick McClymont: They are this year. They will not be next year. Yes.

Speaker #1: They are this year. They will not be next year. Yeah, they are those transition costs are in there this year. What you'll see next year is zero under 2027.

Charlie Lederer: Yeah.

Patrick McClymont: Those transition costs are in there this year. What you'll see next year is zero under 2027.

Charlie Lederer: Yeah.

Speaker #1: And then for a year or two, we'll have to have the prior year number in there, and then it just goes away entirely. It's truly a moment in time issue.

Patrick McClymont: For a year or two, we'll have to have the prior year number in there, and then it just goes away entirely. It's truly a moment in time issue.

Charlie Lederer: Okay. Thank you. I guess just as for my follow-up, McKeel, you cited the Enthusiast Plus quote volume driving demand. I guess is that what's driving the upside to guidance and the results in the quarter? I guess, can you give us some color around the contribution between Enthusiast Plus, kind of legacy Hagerty, and then State Farm in the quarter? Thanks.

Speaker #3: Okay. Thank you. And then I guess just for my follow-up, McKeel, you cited the enthusiast plus quote volume, driving demand. So I guess, is that what's driving the upside to guidance and the results in the quarter?

Speaker #3: I guess, can you give us some color around the contribution between enthusiast plus kind of legacy Hagerty and then State Farm in the quarter?

Speaker #3: Thanks.

Speaker #4: No, thanks. Thanks. It's a good question. I mean, this is just overall demand. We came into this year with a lot of momentum. We know that when you get a lot of momentum building on the back half of the year, it tends to carry through.

McKeel Hagerty: No, thanks. It's a good question. This is just overall demand. We came into this year with a lot of momentum. We know that when you get a lot of momentum building in the back half of the year, it tends to carry through. We've seen this certainly through H1, it's across the board. Of course, we're absorbing this massive amount of State Farm business right now, which I mentioned is on pace in terms of both the new states that we're turning on for new business as well as the conversion states, those will kind of continue through a cadence and then on through the next year. What we hope is that we're fully live with State Farm by 2028. It's really across the board. Almost every channel is firing on all cylinders.

Speaker #4: We saw that. We've seen this certainly through the first half. And it's across the board. Of course, we're absorbing this massive amount of State Farm business right now, which I mentioned is on pace in terms of both the new states that we're turning on for new business, as well as the conversion states.

Speaker #4: And those will kind of continue through a cadence. And then on through the next year and what we hope is that we're fully, fully live with State Farm by 2028.

Speaker #4: But it's really across the board. Almost every channel is firing on all cylinders. And E plus is a piece of it, but it's still very, very new to us.

McKeel Hagerty: E-Plus is a piece of it, but it's still very new to us. We were in Colorado for a long time. We've turned on a few more states. We'll be turning on a few more this year. That's still very much, while the program itself is functioning almost in a startup mode, it's based on the fact that we get a lot of this demand for this business in the core program already. It's not like a brand-new thing for us, it's just an extension of what we already know. All cylinders are firing here, and that's the bulk of what's attributing to the growth and the raised guidance.

Speaker #4: We were in Colorado for a long time. We've turned on a few more states. We'll be turning on a few more this year. And that's still very much while the program itself is functioning almost in a startup mode, it's based on the fact that we get a lot of this demand for this business in the core program already.

Speaker #4: So it's not like a brand new thing for us. It's just an extension of what we already know. So all cylinders are firing here, and that's attributing to that's the bulk of what's attributing to the growth and the raise guidance.

Charlie Lederer: Thanks.

Speaker #3: Thanks.

Speaker #2: Thank you. Our next question comes from the line of Elise Greenspan with Wells Fargo. Your line is open.

Operator: Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Elyse Greenspan: Hi, thanks. Good morning. You guys highlighted progress, I think you said you made on securing larger cohorts of vehicles with Progressive and then trial programs with other national carriers that I think you said were performing well. Can you just expand on those relationships and just kind of put some numbers on that if possible?

Speaker #5: Hi, thanks. Good morning. You guys highlighted progress. I think you said you made unsecuring larger cohorts of vehicles with progressive and then trial programs.

Speaker #5: With other national carriers that I think you said were performing well. Can you just expand on those relationships and just and just kind of put some numbers on that if possible?

Speaker #4: Well, so we've had a number of these relationships up and running for a long time, progressive is one that we're very proud of. If you go to progressive today and try to get a quote on their website for some sort of vintage car, that works through a workstream that we've built together with progressive.

McKeel Hagerty: Well, we've had a number of these relationships up and running for a long time. Progressive is one that we're very proud of. If you go to Progressive today and try to get a quote on their website for some sort of vintage car, that works through a work stream that we built together with Progressive. Progressive is obviously growing very fast. They're a huge insurance company, turned on even more of a wider spigot, I guess you could put it to us. We're seeing really, really successful growth. In terms of some of the other partnerships we mentioned earlier, we have the Liberty Mutual partnership that we launched before, and we're starting to turn that on, and we'll be piloting more programs in the months to come that we'll be talking more specifically about.

Speaker #4: Progressive is obviously growing very, very fast. They're a huge insurance company. And they've turned on even more a wider spigot, I guess you could put it to us.

Speaker #4: So we're seeing really, really successful growth. And then, in terms of some of the other partnerships, we mentioned earlier we have the Liberty Mutual partnership that we launched before, and we're starting to turn that on.

Speaker #4: And we'll be piloting more programs in the months to come that will be talking more specifically about. But I guess what we're trying to say is our whole world is not just State Farm and turning on these great State Farm states.

McKeel Hagerty: I guess what we're trying to say is, our whole world is not just State Farm and turning on these great State Farm states. We have a lot of new partnerships that we're working on, that will be part of our growth picture in the years ahead when we talk more specifically about it.

Speaker #4: We have a lot of new partnerships that we're working on, and that will be part of our growth picture in the years ahead. When we talk more specifically about it.

Speaker #1: And Elise, just to give you on progressive, one of the big changes recently is historically, we were only seeing volume for those pre-1981 cars because that the VIN issue that we've talked about.

Patrick McClymont: Elyse, just to give you on Progressive, one of the big changes recently is historically, we were only seeing volume for those pre-1981 cars because of the VIN issue that we've talked about. It was a static group of cars that we could see quotes on. We've evolved that relationship, now that's 25 years old and older. We picked up, just through that alone, 17 years of additional cohorts that are out there and now just kind of roll forward on a go-forward basis.

Speaker #1: So it was a static group of cars that we could see quotes on. We've evolved that relationship. So now that's 25 years old and older.

Speaker #1: So we picked up just through that alone. 17 years of additional cohorts that are out there. And now just kind of roll forward on a go-forward basis.

Speaker #5: Thanks. And then as we think about just do business and just overall policy enforce trends in the back half of the year, is there any seasonality that we should be considering?

Elyse Greenspan: Thanks. As we think about just overall policies in force trends in the back half of the year, is there any seasonality that we should be considering?

Speaker #4: Well, and the normal seasonality that we've talked about before, Elise, is still in play. So there's kind of a big bell curve to our growth—it kind of starts in March and April and then starts tapering off in October.

McKeel Hagerty: Well, the normal seasonality that we've talked about before, Elyse, is still in play. There's a kind of a big bell curve to our growth, kind of starts in March and April and kind of starts tapering off in October. That pattern remains the same. Even though there are sunny weather states that that shouldn't be the case, it just seems it has been the historic pattern of this business going back for decades. It remains and the pattern is reflected in all of our past year numbers that you have available to you, and we'll continue to see that happen the same. Even as we've turned on some of these new partnerships, when large groups of policies become available for us, that same seasonality exists.

Speaker #4: That pattern remains the same. Even though there are sunny weather states that that shouldn't be the case, it just seems it has been the historic pattern of this business going back for decades.

Speaker #4: So it remains and it kind of show it reflects the pattern is reflected in all of our past year numbers that you have available to you.

Speaker #4: And we'll continue to see that happen the same. And even as we've turned on some of these new partnerships, when large groups of policies become available for us, that same seasonality exists.

Speaker #4: So kind of it's a springtime to falltime activity, and that's when people buy cars. And that's when they need their policies incepted.

McKeel Hagerty: It's a springtime to fall time activity, and that's when people buy cars, and that's when they need their policies incepted.

Elyse Greenspan: Thanks. Just quickly, Oh, go ahead.

Speaker #5: Thanks. And then just quickly, oh, go ahead.

Speaker #1: No, I was going to say under the new accounting, it's evolved a bit, right? Because it used to be that the commissions were showing up on the face of the P&L.

Patrick McClymont: No, I was going to say, under the new accounting, it's evolved a bit, right? It used to be that the commissions were showing up on the face of the P&L, and those were seasonal, right? Our big seasons were Q2 and Q3. Now that we're eliminating those commissions and what's really dominating the revenue is the earned premium, that's earned out over the life of the policy, so it has a smoothing effect relative to history.

Speaker #1: And those were seasonal. Right? People are big seasons were second and third quarter. Now that we're eliminating those commissions, and what's really dominating the revenue is the earned premium.

Speaker #1: That turned out over the life of the policy, so it has a smoothing effect relative to history.

Speaker #5: Thanks. And then just on capital right, you guys mentioned the recent Bennett's deal, and it sounds like right deals, I think you said, tend to be modest and infrequent.

Elyse Greenspan: Thanks. Just on capital, you guys mentioned the recent Bennetts deal. It sounds like deals, I think you said, tend to be modest and infrequent. I guess, how would you characterize the pipeline of potential transactions today as you think about just the M&A component of your capital strategy? Thank you.

Speaker #5: Are there other I guess, how would you characterize, I guess, the pipeline of potential transactions today as you think about just the M&A component of your capital strategy?

Speaker #5: Thank you.

Speaker #4: Well, thank you. And I think that language is about as specific as we can be at this point. Bennett's was actually not something that had been long on our radar.

McKeel Hagerty: Well, thank you. I think that language is about as specific as we can be at this point. Bennetts was actually not something that had been long on our radar. We've long wanted to find the right kind of acquisition that could help boost the scale of our UK business, which we've had for a long time, but it's never been huge for us. So Bennetts kind of came onto our radar, and we moved quickly at it, and we were able to make it happen. While we have a team that's very capable of analyzing and looking at these deals and making them happen, I was taking the approach of being very cautious for all the integration issues that companies see with absorbing employee groups and books of business and all that sort of thing. We'll look very carefully out into the future.

Speaker #4: And we've long wanted to find the right kind of acquisition that could help boost the scale of our UK business, which we've had for a long time, but it's never been huge for us.

Speaker #4: And so Bennett's kind of came onto our radar, and we moved quickly at it, and we were able to make it happen. And while we have a team that's very capable of analyzing and looking at these deals and making them happen, we just have I was taking the approach of being very cautious for all the integration issues that companies see with absorbing employee groups and books of business and all that sort of thing.

Speaker #4: And we'll look very carefully out into the future. So we're not scrubbing the world looking for acquisitions. But when they come up, we want to be able to act on them.

McKeel Hagerty: We're not scrubbing the world looking for acquisitions. When they come up, we want to be able to act on them. Our performance in the last year and what we think will be in the next couple of years will make it easy for us to take things on like this. I think when you look at the big, broad landscape of at least in the insurance side of our business, there aren't great big ones out there to look at and to acquire. When we see things like this, they'll be, I think, relatively modest, and we will be cautious.

Speaker #4: And our performance in the last year and what we think will be in the next couple of years will make it easy for us to take things on like this.

Speaker #4: I think when you look at the big broad landscape of at least in the insurance side of our business, there aren't great big ones out there to look at and to acquire.

Speaker #4: So, when we see things like this, they'll be, I think, relatively modest, and we will be cautious.

Speaker #5: Thank you.

Elyse Greenspan: Thank you.

Speaker #3: Thank you. Our next question comes from the land of Mitchell Rubin with Raymond James, your line is open.

Operator: Thank you. Our next question comes from the line of Mitchell Rubin with Raymond James. Your line is open.

Speaker #6: Hey, good morning. This is Mitchell for Greg. Retention was down 50 days at this point. See over a year and 30 point basis points sequentially.

[Analyst] (Raymond James): Hey, good morning. This is Mitch on for Greg. Retention was down 50 basis points year-over-year and 30 basis points sequentially. Could you talk about the trends you're seeing there and how much of that is on the core book versus mix from the State Farm book coming on?

Mitchell Rubin: Hey, good morning. This is Mitch on for Greg. Retention was down 50 basis points year-over-year and 30 basis points sequentially. Could you talk about the trends you're seeing there and how much of that is on the core book versus mix from the State Farm book coming on?

Speaker #6: Could you talk about the trends you're seeing there and how much of that is on the core book versus mix from the State Farm book coming on?

Patrick McClymont: Yeah. From a mix standpoint, the State Farm book is so young. It's converting at a very high rate because we're deep into conversions now in a bunch of states. The new business that we did place over the last year plus is also, the retention on that is quite high. It's a little bit of a downtrend in the core book. As we look at it's within the range of where we've been historically, so there's nothing about it that gives us particular pause.

Speaker #1: Yeah. So from a mixed standpoint, the State Farm book is so young. That's not it's converting at a very high rate because we're deep into conversions now in a bunch of states.

Speaker #1: And the new business that we did place over the last year plus, retention on that is also quite high. And so, it’s a little bit of a downtrend in the core book.

Speaker #1: As we look at it, there's nothing it's within the range of where we've been historically. So there's nothing about it that gives us particular pause.

Speaker #6: Thanks, I appreciate the color. And on the non-reversing tax difference you called out on the seating commission deduction, does that benefit carry into '27, or should that run off?

[Analyst] (Raymond James): Thanks. I appreciate the color. On the non-reversing tax difference you called out on the ceding commission deduction, does that benefit carry into 2027, or should that run off?

Mitchell Rubin: Thanks. I appreciate the color. On the non-reversing tax difference you called out on the ceding commission deduction, does that benefit carry into 2027, or should that run off?

Speaker #1: We're always going to have this dynamic. Just the nature of how the consolidation accounting works. It will be less impactful over time. It will start to normalize as we get towards the end of this year.

Patrick McClymont: We're always going to have this dynamic, just the nature of how the consolidation accounting works. It will be less impactful over time. It will start to normalize as we get towards the end of this year. Next year, it'll still flow through. It's not going to be as evident here. The other thing that's going on is when you're in the neighborhood of breakeven, from an effective tax rate perspective, it looks quite large. As that net income grows, right, next year we're going to get out of the Markel transition costs. That $199 goes away. We'll start producing more net income. The impact of this will be less visible in the tax line.

Speaker #1: And then next year, it'll still flow through, but it's not going to be as evident here. And then the other thing that's going on is when you have when you're in the neighborhood of kind of break even, from a rate effective tax rate perspective, it looks quite large.

Speaker #1: As that net income grows, right, next year, we're going to get out of the Markelle transition costs, that 199 goes away. We'll start producing more net income.

Speaker #1: And so the impact of this will be kind of less visible in the tax line.

Speaker #6: Got it. Appreciate it. Thank you guys.

[Analyst] (Raymond James): Got it. Appreciate it. Thank you, guys.

Mitchell Rubin: Got it. Appreciate it. Thank you, guys.

Speaker #3: Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Wijentra with JP Morgan, your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Vigintra with J.P. Morgan. Your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Wijendra with JP Morgan. Your line is open.

Kevin Vigintra: Hi, this is Kevin. Pablo, thanks for taking my question. The first is in relation to the guidance you issued. It looks like the increase in revenues versus EBITDA implies very high incremental EBITDA margin. What's the driver of this?

Kevin Wijendra: Hi, this is Kevin. Pablo, thanks for taking my question. The first is in relation to the guidance you issued. It looks like the increase in revenues versus EBITDA implies very high incremental EBITDA margin. What's the driver of this?

Speaker #7: Hi. This is Kevin on Pablo. Thanks for taking my question. So the first is in relation to the guidance you issued. It looks like the increase in revenues versus EBITDA implies very high incremental EBITDA margin.

Speaker #7: What's the driver of this?

Patrick McClymont: Well, there's a few things going on. One, the overall performance year to date obviously has been quite strong and ahead of our internal expectations, that's reflected in the increase in guidance. Part of what's going on is, from a cost standpoint relative to our own internal plans, we're in a better spot. We've done a good job in terms of providing efficiencies, that is going to result in more flow-through, the point you're making. Also the marketplace business is also contributing, again, better than what we had expected year to date, some big sales coming up in the second half of the year, that business comes through. We had planned for that. As you see in the disclosure, it hovers around breakeven, now it's actually producing more profitability, that impacts it as well.

Speaker #1: Well, there's a few things going on. One, the overall performance year to date, obviously, has been quite strong. And ahead of our internal expectations.

Speaker #1: And so that's reflected in the increase in guidance. And then part of what's going on is from a cost standpoint, relative to our own internal plans, we're in a better spot.

Speaker #1: We've done a good job in terms of utilizing efficiencies. And so that is going to result in kind of more flow-through, the point you're making.

Speaker #1: And then also the marketplace business is also contributing. Again, better than what we had expected. Year to date, and some big sales coming up in the second half of the year.

Speaker #1: And that business comes through we had sort of planned for that. As you see in the disclosure, it kind of hovers around break even.

Speaker #1: And now it's actually producing more profitability. And so that impacts it as well.

Kevin Vigintra: Great. Thanks. For my follow-up, there was a meaningful bump in new business count this quarter from the 100,000 to 160. What was the driver of that? Was there a discrete rollout?

Kevin Wijendra: Great. Thanks. For my follow-up, there was a meaningful bump in new business count this quarter from the 100,000 to 160. What was the driver of that? Was there a discrete rollout?

Speaker #7: Great. Thanks. And then for my follow-up, there was a meaningful bump in new business count this quarter from 100K to 160. What was the driver of that?

Speaker #7: Was there a discrete roll-up?

Speaker #1: Yeah. So the traditional business continues to grow at a strong rate. And then the incremental, the big bump is State Farm. So we are now into the conversion phase.

Patrick McClymont: Yeah. The traditional business continues to grow at a strong rate. The incremental, the big bump is State Farm. We are now into the conversion phase. I think it's 15 states that we're doing conversions in. Recall that with State Farm, we launch a new state, initially we're just doing new business. After a period of months, once everybody's comfortable that everything's working, we switch over, we start converting. We've talked about the fact that it's north of 500,000 vehicles that they have on their current program that end up getting converted over to Hagerty. That's what's driving that big increase in new business count. That continues for the balance of this year and into 2027.

Speaker #1: I think it's 15 states that we're doing conversions in. So recall that with State Farm, we launch a new state and initially we're just doing new business.

Speaker #1: And then after a period of months, once everybody's comfortable that everything's working, then we switch over and we start converting. And we've talked about the fact that it's north of 500,000 vehicles that they have in their current program that end up getting converted over to Hagerty.

Speaker #1: And so that's what's driving that big increase in new business count. That continues for the balance of this year. And into 2027, it's not until late '27 or even a little bit into '28 for some states that we finalize that conversion process.

Patrick McClymont: It's not until late 2027 or even a little bit into 2028 for some states that we finalize that conversion process.

Speaker #7: Thank you.

Kevin Vigintra: Thank you.

Kevin Wijendra: Thank you.

Speaker #3: Thank you. Our last question comes from the line of Mark Hughes with Truist, your line is open.

Operator: Thank you. Our last question comes from the line of Mark Hughes with Truist. Your line is open.

Speaker #7: Yeah. Thank you. Good morning. The modern enthusiast business, could you refresh me on any differences there? Premium for policy or the loss ratio?

Mark Hughes: Yeah. Thank you. Good morning. The modern enthusiast business, could you refresh me on any differences there, premium for policy or the loss ratio?

Patrick McClymont: What do you mean by modern enthusiast, Mark?

Speaker #1: What do you mean by modern enthusiast, Mark?

Mark Hughes: Well, just the more recent vehicles. DriveShare's had good success in the marketplace there. That's a separate topic. The younger cars, newer cars, but still falling in the vintage category, just the modern enthusiast business as opposed to your more traditional older vehicles. Is there any difference in premium for policy? I think you made the point, some insurance companies just look at them as old cars, but you look at them differently. That being said, is there any difference in premium for policy versus your legacy business, let's call it, or in the loss experience?

Speaker #7: Well, just the more recent vehicles drive you that good success in the marketplace there as a separate topic. But the younger cars, newer cars, but still falling into vintage category.

Speaker #7: Just the modern enthusiast business as opposed to your more traditional older vehicles. Is there any difference in premium for policy? I think you made the point.

Speaker #7: Some insurance companies just look at them as old cars. But you look at them differently. And that being said, is there any difference in premium for policy versus your legacy business, let's call it, or in the loss experience?

Speaker #1: Okay. So the way to think about the current business that we've always been in, that will be driven that will be driven largely by value, right, what the agreed value is up front.

Patrick McClymont: Okay. The way to think about the current business that we've always done, that we drive largely by value, right? What the agreed value is up front and then our underwriting. It kind of depends, right? If we're talking about something that is truly that special car, then the rates are going to be pretty consistent with what we've talked about. Again, it really depends on value. I think what you're kind of headed towards is Enthusiast Plus. There, what we're talking about is cars that are typically going to be utilized more, and we're also having different underwriting around storage. Those are going to come with higher premiums. As McKeel described, that's a startup, and so it's in its early stages. Over time, that will start to flow through into the P&L.

Speaker #1: And then our underwriting. And so it kind of depends, right? If we're talking about something that is truly that special car, then the rates are going to be pretty consistent with what we've talked about.

Speaker #1: And again, it really depends on value. The I think what you're kind of headed towards is enthusiast plus. And there what we're talking about is cars that are going typically going to be utilized more.

Speaker #1: And we're also having different underwriting around storage, those are going to come with higher premiums. That's as McKeel described, that's a startup. And so in its early stages, over time, that will start to flow through into the P&L.

Speaker #7: Yeah. Very good. The on your existing relationships with carriers, is the productivity there or the kind of flow-through rate you're experiencing, is that improved?

Mark Hughes: Yep, very good. On your existing relationships with carriers, is the productivity there or the kind of flow-through rates, your experience, has that improved? Obviously, you've got benefits in terms of new business with State Farm, how is your experience with your other relationships, other referral relationships?

Speaker #7: Obviously, you've got benefits in terms of new business with State Farm. But how is your experience with your other relationships, other referral relationships?

Speaker #6: Yeah. Hey, Mark. As I might have mentioned earlier on the previous answer, I mean, we're really firing on all cylinders. All of our partnerships are being really well-managed.

McKeel Hagerty: Yeah. Hey, Mark. As I might have mentioned earlier on a previous answer, we're really firing on all cylinders. All of our partnerships are being really well managed, and those carriers are seeing the same opportunities that we are. Not only do new cohorts of cars kind of come into view each year, but in many cases, we're just getting greater penetration into their distribution networks year-over-year. A lot of that is just, call it the kind of ground war, time on task or just reps of us getting out there, meeting with their field teams, meeting with their territory managers, activating at agent events, all of that sort of thing. Both the independent agency side of the house and the kind of carrier partnership side of the house, they're all contributing to our great growth trajectory right now, and really grateful for these partnerships.

Speaker #6: And those carriers are seeing the same opportunities that we are. So not only did new cohorts of cars kind of come into view each year, but in many cases, we're just getting greater penetration into their distribution networks year over year.

Speaker #6: And a lot of that is just, call it the kind of ground war or time on task or just reps of us getting out there, meeting with their field teams, meeting with their territory managers, activating at agent events, all of that sort of thing.

Speaker #6: So both the independent agency side of the house and the kind of carrier partnership side of the house, I mean, they're all contributing to our great growth trajectory right now.

Speaker #6: And really grateful for these partnerships. And they're very sticky, our oldest partnerships are over 20 years old. And yet we're still turning new ones on.

McKeel Hagerty: They're very sticky. Our oldest partnerships are over 20 years old, and yet we're still turning new ones on. That's a pattern that we're going to work really hard to keep going.

Speaker #6: And that's a pattern that we're going to work really hard to keep going.

Speaker #7: Okay. Appreciate that. Thank you.

Mark Hughes: Okay. Appreciate that. Thank you.

Speaker #1: Thanks, Mark.

Patrick McClymont: Thanks, Mark.

Speaker #3: Thank you. Ladies and gentlemen, I would now like to turn the call back over to McKeel Hagerty for closing remarks.

Operator: Thank you. Ladies and gentlemen, I would now like to turn the call back over to McKeel Hagerty for closing remarks.

Speaker #6: Thank you, operator, and thanks to everyone on the call for your continued support. I want to close by repeating where we started this morning.

McKeel Hagerty: Thank you, operator, and thanks to everyone on the call for your continued support. I want to close by repeating where we started this morning. Hagerty has never been better positioned to serve the community of auto enthusiasts who trust us to protect their special toys. We have the fastest-growing specialty insurance franchise in the collector market, with a powerful recurring revenue model, low volatility, combined ratios of 90%, and consumer-friendly rates. Our business is rapidly scaling as we work toward 3 million policies by 2030. The path is clear. The team is exceptional. The market is ours to win as we are creating something genuinely unique in the insurance world. Thank you, One Team Hagerty. These results are the product of your passion, your excellence, and your hard work. I cannot wait to see what this team is capable of delivering over the next decade.

Speaker #6: Hagerty has never been better positioned to serve the community of auto enthusiasts who trust us to protect their special toys. We have the fastest growing specialty insurance franchise in the collector market with a powerful recurring revenue model, low volatility combined ratios of 90% and consumer-friendly rates.

Speaker #6: Our business is rapidly scaling as we work toward 3 million policies by 2030. The path is clear. The team is exceptional. The market is ours to win as we are creating something genuinely unique in the insurance world.

Speaker #6: Thank you one team Hagerty. These results are the product of your passion, your excellence, and your hard work. I cannot wait to see what this team is capable of delivering over the next decade.

Speaker #6: We look forward to seeing some of you in California next week where we will host our inaugural auction at the Quail Motorsports Gathering. And also at the Pebble Beach Concourt and our Motor Luxe Gathering and the Laguna Seca.

McKeel Hagerty: We look forward to seeing some of you in California next week, where we will host our inaugural auction at The Quail, A Motorsports Gathering, and also at the Pebble Beach Concours, our Motorlux gathering, and the Laguna Seca Historic Races. We'll be all over the Monterey Peninsula, and we hope that you might be there to join us during Monterey Car Week. Until then, never stop driving.

Speaker #6: Historic races will be all over the Monterey Peninsula. And we hope that you might be there to join us during Monterey Car Week. Until then, never stop driving.

Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Q2 2026 Hagerty Inc Earnings Call

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