Hagerty's Q1 Surge: Balancing Growth and Margin Pressures in the Classic Car Insurance Market

Hagerty, Inc. (HGTY) delivered a robust Q1 2025 performance, with revenue surging 18% year-over-year to $320 million, fueled by strong demand in its core insurance business and high-margin ancillary services. The company’s expansion into live auctions, membership programs, and international markets has positioned it as a leader in the enthusiast vehicle ecosystem. However, underlying margin pressures and operational challenges reveal a complex path to sustained profitability.

The earnings call highlighted Hagerty’s dual-engine growth model: its risk-bearing insurance segment and its high-margin “non-risk” operations, such as live auctions and media platforms. Written premiums rose 12%, driven by high retention rates and new business wins. Meanwhile, membership, marketplace, and other revenue streams soared 60%, with live auctions—like the Amelia Island Concours d’Elegance and the prestigious AU sale—generating 30–35% contribution margins. This segment’s growth underscores the company’s success in monetizing its community of automotive enthusiasts.

Margin Expansion Amidst Challenges

Operating margins expanded by 360 basis points, lifting net income by 233% to $X million. However, CFO Patrick McClymont warned of margin compression risks. Technology investments, such as a new platform to streamline underwriting, and expansion costs ate into near-term profits. Additionally, $10 million in wildfire-related losses in Southern California increased the loss ratio, though Q1 typically sees a low loss ratio (30%) due to seasonal factors.

The margin gap between Hagerty’s businesses is stark: its risk-bearing insurance yields ~10% contribution margins, while non-risk operations like auctions and media deliver 30–35% and mid-single-digit margins, respectively. This structure creates both opportunities and vulnerabilities. High-margin activities are volatile (e.g., auction attendance fluctuates with economic conditions), while insurance margins are pressured by claims volatility and tech spending.

Growth Hurdles and Strategic Shifts

New customer acquisition slowed, partly due to weather disruptions and internal process changes aimed at reducing “quote flow friction.” The company’s focus on improving customer experience may have temporarily slowed volume growth but could pay dividends in retention and long-term profitability.

The Enthusiast Plus program, announced by CEO McKeel Hagerty, signals a strategic pivot. Targeting younger buyers interested in newer cars, this initiative aims to underwrite business previously rejected due to pricing or risk constraints. If successful, it could widen Hagerty’s underwriting funnel and diversify its customer base beyond classic car enthusiasts.

Risks and Mitigation

Tariffs and supply chain issues pose minimal risk, as most insured parts are domestically sourced, and vehicles over 25 years old face only 2.5% tariffs. However, GuruFocus flagged two undisclosed warning signs, which could relate to debt levels, cash flow, or regulatory risks. Hagerty’s heavy investment in tech and platforms may strain liquidity if growth slows further.

Conclusion: A Story of Long-Term Potential, Short-Term Trade-offs

Hagerty’s Q1 results reflect a company balancing rapid growth with operational complexity. The 18% revenue rise and 60% jump in high-margin ancillary revenue are impressive, but margin pressures and execution risks cannot be ignored. The Enthusiast Plus program and international expansion offer long-term growth avenues, while the company’s dominance in classic car insurance and events like Amelia Island provide a strong moat.

Investors should weigh the near-term margin headwinds against Hagerty’s structural advantages: 2.4 million insured vehicles, a loyal member base, and a diversified revenue model. If the company can stabilize margins by 2026—after absorbing tech costs—the stock could reward patient investors. For now, the path to profitability remains bumpy, but the destination appears promising.

In summary, HGTY is a buy for investors who prioritize long-term growth in a niche market, but caution is warranted for those focused on short-term earnings stability. The company’s ability to execute on its tech and expansion plans will be critical in turning today’s margin challenges into tomorrow’s success.