Hagerty’s Premium Outlook, State Farm Timelines, and Loss Ratio Guidance Clash in Earnings Calls

Date of Call: Feb 26, 2026

Financials Results

• Revenue: $357 million, up 19% YOY
• EPS: GAAP basic and diluted EPS $0.06; Adjusted EPS $0.08

Guidance:

• Revenue for 2026 expected to be $1.28B to $1.3B, below 2025 due to accounting changes.
• Written premium growth expected to be 15% to 16%.
• Adjusted EBITDA guidance of $236M to $247M.
• Net income anticipated to be a loss of $41M to $51M due to transitional costs.
• Loss ratio expected around 41%, consistent with prior guidance.

Business Commentary:

Strong Financial Performance and Growth:

• Hagerty, Inc. reported a significant revenue increase of 17% for the full year 2025, with net income surging by 91%.
• The growth was driven by record new business count, efficiency gains, stable underwriting, and better-than-anticipated loss trends, which allowed for a $21 million reduction in reserves.

Written Premium and Member Growth:

• The company achieved written premium gains of 14% in 2025, supported by a record addition of 371,000 new members.
• This growth was attributed to share gains from their recurring revenue model and strong retention rates of 89%.

Expansion and Partnerships:

• Hagerty expanded its operations by selling new State Farm Classic Plus business in 27 states, converting 7 of them, and announced partnerships with Liberty Mutual and Safeco.
• The expansion into new markets and partnerships contributed to the growth in their written premium and membership base.

Technological Advancements and Efficiency:

• The company is focused on moving towards a modern cloud-based architecture, aiming for future efficiency gains and scalable growth.
• Investments in technology and AI are intended to enhance personalization and service efficiency, particularly as they aim to double their policies in force by 2030.

Marketplace Revenue and Auction Success:

• Marketplace revenue increased by 80% to $29 million in Q4 2025, with total vehicle transactions reaching $566 million.
• The success in the marketplace was driven by the expansion of auction businesses into Europe and strong performance in both live and digital auction formats.

Sentiment Analysis:

Overall Tone: Positive

• Management described 'excellent results' and 'record growth,' highlighted '91% surge in net income,' and stated '2026 will be another year of record growth.' They noted 'strong underlying growth in premiums and cash flow' and that 'the best is yet to come.'

Q&A:

• Question from Michael Phillips (Oppenheimer & Co. Inc.): Regarding the net loss guidance, adding back the $190M transitional cost, is 2026 still below the 2025 net income of $149M?
  Response: Yes, focusing on adjusted EBITDA, 2026 shows slightly more than 10% growth over 2025 excluding a $21M reserve release and other one-time benefits.

• Question from Michael Phillips (Oppenheimer & Co. Inc.): Is there potential for the $190M ceding commission to Markel to change?
  Response: No, the $190M is a solid, non-negotiable number.

• Question from Michael Phillips (Oppenheimer & Co. Inc.): What is the underlying loss ratio trend for 2026 excluding the reserve release and prior-year development?
  Response: The expected loss ratio is around 41%, consistent with prior guidance; 2026 includes potential cat and PYD impacts.

• Question from Charles Lederer (BMO Capital Markets): What are the drivers of the 15-16% written premium growth guidance, and how many State Farm conversions remain?
  Response: Growth is driven by core business, accelerating State Farm conversions (7 ongoing, more to come), and a modest contribution from the Liberty Mutual partnership. State Farm conversions will ramp significantly in 2026, with near completion by 2027.

• Question from Charles Lederer (BMO Capital Markets): What is the $190M ceding commission impact on 2026 commission and fee revenue?
  Response: Commission revenue from the Markel alliance will be eliminated in consolidation, but commissions from international operations (U.K., State Farm) will still flow through as revenue.

• Question from Gregory Peters (Raymond James): Why wasn't marketplace revenue highlighted in 2026 priorities despite strong 2025 growth?
  Response: The 2026 priorities are insurance-focused, but marketplace remains important; a large upcoming auction (Amelia Island) is expected to contribute significantly.

• Question from Gregory Peters (Raymond James): How is Hagerty deploying AI and technology, particularly in claims?
  Response: AI is being piloted across functions, including claims fraud detection and valuation analysis, to improve efficiency and personalization for a growing member base.

• Question from Elyse Greenspan (Wells Fargo Securities): What is the 2026 outlook for policies in force (PIF) growth and the ramp from State Farm conversions?
  Response: State Farm conversions are a major driver; 2026 will see real acceleration, with most states converted by year-end and full conversion completed by 2027.

• Question from Elyse Greenspan (Wells Fargo Securities): How is the 2026 loss ratio trending relative to 2025?
  Response: The expected loss ratio for 2026 is around 41%, consistent with prior guidance and considering potential cat and PYD impacts.

• Question from David Scharf (Citizens): What is the pipeline for new partnerships?
  Response: Active discussions with both large and mid-tier insurance partners, as well as non-traditional partnerships, are ongoing; the Liberty Mutual/Safeco partnership is a significant new addition.

• Question from Maxwell Fritscher (Truist Securities): What is the outlook for free cash generation and year-end cash balance in 2026?
  Response: Cash conversion expected similar to 2025, with consistent CapEx primarily for IT; adjusted EBITDA growth will reflect earnings power.

• Question from Maxwell Fritscher (Truist Securities): Are there AI opportunities in distribution?
  Response: AI is being piloted in marketing and lead generation; fully AI-driven distribution channels are not currently a focus but are being explored.

• Question from Thomas Mcjoynt-Griffith (Keefe, Bruyette, & Woods): What is the outlook for written premium per policy in 2026?
  Response: Disciplined rate increases (~2% vs. industry ~6%) will be a tailwind, but the lower-premium State Farm business will pull the average down.

• Question from Thomas Mcjoynt-Griffith (Keefe, Bruyette, & Woods): What is the cadence of the DAC deferral/amortization impact on quarterly earnings in 2026?
  Response: DAC expenses will ramp up in 2026 as policies are written and amortized over their term, with a full balance sheet impact by year-end, normalizing in 2027.

Contradiction Point 1

2026 Written Premium per Policy Outlook

Contradiction on whether per-policy premiums will decelerate or return to historical levels in 2026.

Thomas Mcjoynt-Griffith (Keefe, Bruyette, & Woods) - Thomas Mcjoynt-Griffith (Keefe, Bruyette, & Woods)

2025Q4: The core business will see tailwinds from disciplined rate increases (~2% vs. industry ~6%), but State Farm's lower premiums will be a counterbalance. - Patrick McClymont(CFO)

What is the outlook for written premium per policy in 2026, considering State Farm's lower premiums and potential rate changes? - Charlie Lederer (BMO Capital Markets)

2025Q3: Over the next few years, written premium per PIF may decelerate due to the intake of State Farm policies... After integrating State Farm’s 525,000 policies, the metric should return to more historical levels. - Patrick McClymont(CFO)

Contradiction Point 2

2026 Loss Ratio Trend

Contradiction on the expected progression of the loss ratio in 2026, with one providing a specific target and the other indicating a potential worsening trend.

Elyse Greenspan (Wells Fargo Securities) - Elyse Greenspan (Wells Fargo Securities)

2025Q4: The loss ratio is expected to remain around the low 40%, roughly 41%, consistent with prior guidance. - Patrick McClymont(CFO)

What is the outlook for 2026 policies in force (PIF) growth, including the expected ramp from 525,000 State Farm policies, and how is the loss ratio trending in 2026 versus 2025 excluding PYD? - Hristian Getsov (Wells Fargo)

2025Q3: For the Enthusiast Plus rollout... It is too early to speak to specific loss results, but initial indications are positive. - McKeel Hagerty(CEO)

Contradiction Point 3

AI Investment Timeline and Revenue Ramp

Contradiction on whether AI spending is a transition period or a sustained investment.

Maxwell Fritscher (Truist Securities) - Maxwell Fritscher (Truist Securities)

2025Q4: The company is piloting and using AI across functions... AI is being piloted in marketing and lead generation for distribution. - McKeel Hagerty(CEO), Patrick McClymont(CFO)

How do free cash generation and AI-driven distribution opportunities impact your 2026 year-end cash balance? - Mark Hughes (Truist Securities)

2025Q2: The $15 million tech portion... is pre-revenue investment. Revenue from the platform will ramp up in H2 2025 and into the future. Spending is part of a transition period as revenue catches up to the investment. - Patrick McClymont(CFO)

Contradiction Point 4

State Farm Partnership Conversion Timeline

Contradiction on the timeline for converting existing State Farm policyholders.

What were Elyse Greenspan's (Wells Fargo Securities) key questions during the earnings call? - Elyse Greenspan (Wells Fargo Securities)

2025Q4: State Farm... converting from 27 states (7 in conversion mode) to nearly full penetration by year-end 2026... The loss ratio is expected to trend around the low 40%, roughly 41%. - Patrick McClymont(CFO)

What is the outlook for PIF growth in 2026, including the expected contribution from the 525,000 State Farm policies, and how is the loss ratio trending in 2026 compared to 2025 excluding PYD? - Charles Peters (Raymond James)

2025Q2: Conversion of existing State Farm program members... will begin in the original four states and expand to others in the fall. The goal is to be in 25 states by year-end and all available states within a few years. - McKeel Hagerty(CEO), Patrick McClymont(CFO)

Contradiction Point 5

Marketplace Business Profitability and Strategic Priority

Contradiction on whether Marketplace is a core, high-margin business or a lumpy, non-priority segment.

What were the key takeaways from the earnings call? - Gregory Peters (Raymond James)

2025Q4: The Marketplace business is important but lumpier and episodic compared to insurance, hence not a priority item. - McKeel Hagerty(CEO)

Given the strong 2025 Marketplace revenue results, why weren't they emphasized in the 2026 priorities, and what is the growth outlook and income statement flow-through for the Marketplace business in 2026? - Pablo Singzon (JPMorgan)

2025Q1: The marketplace business, when working well, is very profitable. Contribution profit margins... are typically 30% to 35%. - Patrick McClymont(CFO)