More Premium Economics, but the Profit Run Rate Still Needs Proving

Results vs. Consensus

Q1 2026 Scorecard

Year-Over-Year Comparisons

Quarter-Over-Quarter Comparisons

Revenue: Earned premium added $70.3 million year over year, while commission and fee revenue fell $83.9 million. The opposing movements reflect both greater risk retention and the elimination of the former Markel commission relationship in consolidation. Written premium is the clearer demand measure: growth of 18.3% exceeds the full-year 15–16% objective. The larger 41.5% earned-premium increase contains a structural step-up that will not repeat every year.

Margins: The 86.5% combined ratio supports profitable underwriting, but favorable development contributed approximately $6.5 million to earnings. Removing that benefit from EBITDA would leave roughly $78.7 million, still well above the prior-year $48.2 million. That sensitivity supports operating improvement without treating reserve releases as recurring growth. Expense reclassification also explains much of the reported SG&A decline; it does not establish a halving of the underlying cost base.

EPS: Adjusted EPS remains negative because its definition retains the Markel amortization that adjusted EBITDA excludes. The $85.2 million EBITDA figure starts from a $12.7 million net loss and adds back $89.0 million of transition costs alongside tax, depreciation and other adjustments. Fully exchanged adjusted shares were 360.9 million, versus 101.0 million shares in the GAAP loss calculation. We value the whole economic share base, with recurring stock compensation expensed, when estimating normalized earnings.

Segment Performance

Hagerty’s revenue streams show why higher insurance activity and lower reported sales can coexist. The mix is shifting toward retained premium; marketplace transaction values represent customer vehicle sales, rather than Hagerty revenue.

Insurance: More of the Economics, More of the Risk

Retaining the entire U.S. quota share enlarges both underwriting profits and the capital exposed to losses. State Farm adds a different earnings stream: its MGA fees do not carry the old Markel ceding-commission offset. As converted policies accumulate, fees can grow alongside premium rather than simply replace a surrendered margin.

Assessment: Distribution scale and specialist underwriting justify expecting sustained premium growth. The benefit is strongest when the new retained book preserves loss discipline; a larger quota share amplifies an adverse claims year just as it amplifies a good one.

Marketplace: Auction Success Does Not Yet Set the Revenue Trend

Aggregate auction sales rose 79.7% to $135.4 million, with the Amelia event generating $111 million and a 92% sell-through rate. Yet private sales fell 31.4% to $36.8 million, and lower inventory sales against the prior year’s Academy of Art collection reduced total marketplace revenue. High-end auction demand is healthy; the revenue decline reflects transaction mix as well as the inventory comparison.

Assessment: Auctions can contribute fees and bring potential insurance customers into Hagerty’s network. We give that acquisition channel strategic credit, but the quarter supplies no measured insurance conversion rate or standalone marketplace profit. Our base case does not require a marketplace margin breakout.

Membership: Useful Recurrence, Slower Growth

Hagerty Drivers Club paid membership increased 5.7% to 940,313, supporting 6.0% growth in membership and other revenue. This recurring relationship is valuable, but it is growing more slowly than the insurance policy base. A new policy is not automatically an additional paid club subscription.

Assessment: Membership reinforces customer engagement and contributes steadier revenue than individual auctions. Its current pace supports a modest contribution to earnings growth, rather than an independent justification for a higher stock multiple.

Investment Income and Collector-Car Lending

Net investment income grew 13.3% to $10.3 million. The balance sheet carries $720.9 million of investments, plus $212.4 million of unrestricted cash and $154.4 million of restricted cash. Broad Arrow’s loan portfolio reached $143.0 million, up 95.3% year over year, with $110 million of associated borrowing within $228.6 million of total debt.

Assessment: Retained premium supports an income-producing asset base, while lending adds financing revenue. The latter also introduces credit, collateral and funding exposure. We treat insurer investments and restricted cash as operating capital and value earnings after financing costs; we do not add the asset portfolio again to equity value.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: Management was confident about demand and underwriting, while measured on the annual spending trajectory. Its refusal to annualize Q1 or offer a 2027 EBITDA guide was more informative than the upbeat headline language.

1. State Farm Makes Growth Visible Through 2027

“The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, and we remain on pace to convert most of these members to the new Classic+ program by the end of 2027.”
— McKeel Hagerty, CEO

The target is new-business availability in 40 states by year-end, up from 27 at the end of 2025. Management said combined new and converted State Farm policies already exceed 100,000. These conversions follow a partner rollout schedule, which gives Hagerty a source of growth beyond normal spring and summer demand.

Assessment: The conversion pipeline supports our 15% written-premium growth assumption for 2027. It is also finite: growth after the large conversion years depends increasingly on new business, agent productivity and retention. The 50bp retention decline keeps acquisition quality on the watch list despite strong gross additions.

2. In-House Claims Is an Economic Investment

“And that return comes from when you're processing things in-house, velocity increases, the customer service is better and the ultimate economic outcomes are better as well.”
— Patrick McClymont, CFO

Specialist repairs require parts sourcing and the right workshop, making general auto-adjusting processes an imperfect fit. Bringing more claims in-house can reduce leakage while improving repair quality. Greater risk retention now allows Hagerty to retain more of those savings.

Assessment: Claims staffing can protect underwriting profitability rather than merely raise overhead. Nevertheless, the return has not been quantified, and favorable industry frequency and severity also helped. We assume modest future leverage without attributing the entire loss-ratio improvement to internal execution.

3. Premium Growth Is Broader Than Rate Increases

“Over the same 15-year period since 2010, our regulatory rate increases for Hagerty Re has averaged only 1.5% per year, bolstering our consumer-friendly value proposition.”
— McKeel Hagerty, CEO

Management also described low-single-digit long-run gains from higher guaranteed vehicle values, with occasional down years. That value component supplements new policies, but record prices for a handful of supercars do not imply comparable appreciation across ordinary collectors’ vehicles.

Assessment: Growth powered by policy additions is less dependent on the standard-auto rate cycle. We regard enthusiast-vehicle appreciation as a modest contributor, while recognizing that rising repair costs can erode margins if pricing and insured values fail to keep pace.

4. Cash Weakness Has a Timing Explanation, Not a Distribution Promise

“So in Q1 of 2026, we made both the direct payments and the reimbursement for Q4 2025 claims of approximately $65 million. This normalizes during the balance of 2026.”
— Patrick McClymont, CFO

Adding that approximately $65 million timing effect to reported operating cash flow gives roughly $81 million. This illustrates the transition’s impact; actual cash flow was $16.3 million. The $50.5 million loss-portfolio-transfer proceeds are financing, accompanied by assumed obligations, and are separate from that operating bridge. Net borrowing and the transfer explain why cash increased despite weak operating cash generation.

Assessment: Q1 does not establish a deterioration in long-run cash economics, but neither the timing illustration nor the higher cash balance is a dividend-capacity measure. We expect cash conversion to improve as the overlap ends and will judge that expectation against subsequent reported cash flow.

5. Enthusiast+ Remains an Option, Not a Growth Pillar

“E-Plus, we're in one state in Colorado, right? And so we're rolling this out over time. And we're learning in Colorado, and we'll learn in the other states in terms of what the right approach is on pricing and what that means in terms of the liability of the product and the profitability, I should say.”
— Patrick McClymont, CFO

The product extends Hagerty toward a wider enthusiast market, where competition with daily-driver insurers becomes more relevant. Management described its present contribution as very small. That limits near-term earnings exposure to the competitive auto-pricing cycle, while leaving product-level loss performance unresolved.

Assessment: The controlled rollout is appropriate. We include the associated investment burden but assign no material incremental profit to Enthusiast+ in our base valuation; scale should follow evidence that pricing compensates for the broader risk profile.

6. European Auctions Come Before an Insurance Expansion

“So right now, we are still just operating in the U.K. We write a little bit of some larger collection business in Europe, but we're looking at opportunities, but right now, focusing on just rounding out that auction schedule on the continent.”
— McKeel Hagerty, CEO

Auctions let Hagerty develop market knowledge and relationships before committing to a larger insurance presence. Regulatory complexity after Brexit makes a continent-wide insurance launch less straightforward than simply extending the existing U.K. operation.

Assessment: This sequence reduces the risk of scaling an unfamiliar insurance book too quickly. European marketplace growth can contribute to the franchise, but a separate continental insurance earnings stream remains outside our forecast.

Guidance & Outlook

Management is trending toward the top of its ranges, but it has not raised them. Our initial FY2026 estimates use $1.385 billion of written premium, $1.300 billion of revenue and $247 million of EBITDA. The call explicitly identified later hiring and investment as reasons not to annualize Q1.

Remaining-year requirement: The EBITDA range requires $150.8–161.8 million in Q2–Q4, averaging $50.3–53.9 million a quarter. At our high-end forecast, remaining written premium is $1,096.1 million, about 15.5% above the corresponding 2025 period. Remaining revenue averages $329.4 million a quarter. Premium seasonality helps the growth requirement, while staffing, investment and loss variability explain why we allow a materially lower EBITDA run rate than Q1.

The $190 million of transitional amortization should decline to approximately $10 million in Q4 and expire by year-end. This makes 2027 GAAP comparisons easier. It does not provide another $190 million of growth in adjusted EBITDA, which already excludes those costs. The next formal guidance reassessment is the Q2 call; the high-end language is a constructive signal, not a commitment to a raise.

Analyst Q&A Highlights

Why Q1 EBITDA Cannot Simply Be Annualized

Q: “Is there any seasonality considered for EBITDA through the balance of the year? It seems to me or as you pointed out, Patrick, right, it seems to me that at least through 1Q, you're running above the full year guide, and I'd expect revenues to increase through the balance of the year.”
— Pablo Singzon, JPMorgan

A: “And then we are investing in the business, and we talked about that on the last earnings call. And some of that ramps up over the course of the year. And we have the normal dynamic of inevitably in the first quarter, you don't end up filling all the headcount slots that are open. It just takes a little longer than expected. So we would expect to see some ramp-up of expenses embedded in the full year guidance. So I wouldn't just annualize the first quarter.”
— Patrick McClymont, CFO

Assessment: The answer names a concrete cost offset: unfilled positions and spending that ramps through the year. It does not quantify the quarterly increase, leaving room for upside if investment is absorbed well. We adopt the guidance ceiling but do not treat the quarter’s margin as the annual baseline.

What Reserve Maturation Says About Future Losses

Q: “Listen, I know you spent some time in your prepared remarks and maybe in the follow-up Q&A talking about the PYD, the prior year development. Can you just revisit that and just walk us through what's the source? Is it lower severity? And maybe take the results that you reported, is there anything -- any read-through as we look forward on how the reserves are seasoning?”
— Charles Peters, Raymond James

A: “The $6.5 million, it was predominantly the 2025 accident year. And we're starting to see that development in the fourth quarter, and that influenced what we did in the fourth quarter. But it just matured and continues to mature in a very attractive way for us. And so what we're seeing is a combination of from a severity standpoint, we're in a good spot, continue to be in a good spot. We talked about frequency before. We've talked about what we're doing in terms of claims outcomes. And so it's really just looking at the historical book of losses and as those are maturing and layering into that what we've done to make sure that we're delivering from a claim's standpoint, it's all adding up to that we end up in a better position. That's our market-to-market as of right now for prior years. We'll see how the balance of this year unfolds, but we think we're in a solid position right now.”
— Patrick McClymont, CFO

Assessment: The benefit reflects observed loss maturation, supported by frequency, severity and claims execution together. Management limits that judgment to its current view of prior years, so the forward read-through is reserve adequacy rather than a promised repeat release. Our earnings forecast assumes profitable underwriting without another $6.5 million benefit each quarter.

Does Mid-Teens Premium Growth Establish 2027 Profit Growth?

Q: “Patrick, you had mentioned that you probably see another year of mid-teens growth in written premium next year. Any early thoughts on EBITDA growth when we think about expenses that may be either ramping up or being leveraged? How should we think about EBITDA in 2027?”
— Mark Hughes, Truist Securities

A: “No, no early thoughts on that. We're going to stick to sort of the focus on the prompt year in terms of guidance. Hopefully, what came through in those comments, this is a business that continues to grow at that sort of very credible mid-teens type rate, so we feel good about that. And it's also a business that we have demonstrated that we've been able to expand margins over time. And then it's also a business that we're choosing to invest in to make sure that we deliver that growth, not just for the next year, the next 2 years, but for the long haul.”
— Patrick McClymont, CFO

Assessment: Management offers a growth-and-investment framework while explicitly withholding an EBITDA forecast. Our $285 million estimate for 2027 therefore assumes execution that has yet to be delivered. A sustained $320 million outcome would justify the bull valuation; it is not management guidance.

How Much Growth Comes from the Core Franchise?

Q: “When we look at the mid-teens premium growth in the guide this year, is there a roughly even split between the core legacy Hagerty business, State Farm and Enthusiast Plus? Or is there one of those contributing more than the others?”
— Thomas McJoynt-Griffith, KBW

A: “Yes. We're not going to kind of break it down by the different lines that you just described. What I will say is this year, 2026 and then 2027 are going to be big years for State Farm conversion.”
— Patrick McClymont, CFO

The response continued with more than 100,000 State Farm policies already new or converted, a 500,000-plus policy opportunity, consistent growth in the core business and very little contribution from Enthusiast+.

Assessment: The answer establishes the relative importance of the three channels, but not a numerical split. The investment consequence is a limit on terminal growth confidence: a conversion-led acceleration cannot establish the core franchise’s growth rate after conversions mature.

What They’re NOT Saying

1. Core policy growth excluding conversions: The absent split prevents a clean assessment of how much new demand persists when State Farm’s large migration ends.
2. The spending path behind the annual margin: Hiring and technology investment explain direction, but no quarterly expense bridge resolves the gap between Q1 profitability and the remaining-year guide.
3. Measured marketplace cross-selling: Auction activity creates prospects, but no disclosed conversion rate or acquisition-cost comparison establishes the claimed insurance benefit.
4. 2027 earnings and product profitability: There is no EBITDA guide or Enthusiast+ unit-economic disclosure. Our estimates depend on stable underwriting and modest leverage, with no material new-product profit.

Market Reaction

• Pre-print setup: HGTY closed May 5 at $10.29, down 23.4% year to date and 7.0% over the trailing 30 days, but up 15.9% over twelve months. Its pre-print 52-week closing range was $8.88–13.82.
• May 6 reaction session: Open $10.21, range $9.95–10.55, close $10.07, down $0.22 or 2.1%.
• Volume and benchmark: Trading was 0.9 times the preceding 30-day average. The S&P 500 rose 1.5% during the session and entered the print up 6.0% year to date.

The shares lagged a rising market despite stronger premium growth. In our view, the unchanged annual outlook and the gap between adjusted EBITDA and reported earnings help explain that response: the print improved confidence in the franchise without establishing a higher full-year profit commitment. This is an interpretation of the evidence, rather than a measured attribution of selling.

Volume below its recent average gives little support to a capitulation narrative. The stock’s year-to-date decline has improved the entry price, but the relevant question remains how much normalized earnings that price buys. At $10.07, our 2027 estimate implies approximately 24.1 times earnings.

Street Perspective

Debate: Accounting Transition or Earnings-Quality Problem?

Bull view: Temporary amortization masks a larger underwriting earnings base, making GAAP losses an unhelpful indication of steady-state profit.

Bear view: EBITDA exclusions and reserve development flatter the current result, while low operating cash flow makes the underlying improvement harder to judge.

Our take: The dated runoff and claims-payment overlap substantiate the accounting explanation. But cash conversion must improve in actual reported results, and spending must fit within the guide. We underwrite a normalized earnings recovery without extrapolating Q1’s full profit level.

Debate: Durable Growth or a Temporary Conversion Wave?

Bull view: State Farm’s agents and existing policy base give Hagerty a distribution advantage, complemented by its specialist brand and high retention.

Bear view: Conversions inflate gross additions, while retention has weakened and the core growth contribution is not separately disclosed.

Our take: The pipeline supports growth through 2027, enough to underpin our forecast. The bear case matters more beyond that period. We would become more confident in a premium multiple if core growth remains strong as conversions fade, rather than relying on an expanding list of new initiatives.

Debate: Auction Records Versus Broader Demand

Bull view: Amelia demonstrates Hagerty’s ability to attract valuable inventory and international buyers, creating fees and insurance prospects.

Bear view: A strong high-end sale can coexist with weaker private transactions and a larger, debt-financed lending book.

Our take: Auction execution is a positive, but it does not establish a broad-based collector-car boom. Our valuation rests on insurance earnings, with limited dependence on marketplace cross-selling and no separate premium for international insurance.

Our Estimates & Valuation

We initiate estimates at the upper end of the 2026 outlook, then assume 15% written-premium and revenue growth in 2027. EBITDA rises from $247 million to $285 million: approximately $37 million from growth at a constant EBITDA margin, plus roughly $1 million of net leverage. That restrained leverage assumption allows claims, technology and distribution investment to consume most scale efficiencies.

The FY2026 GAAP net loss estimate remains $41 million. Normalized EPS removes the transitional charge and applies a consistent corporate tax burden to all economic ownership interests; it differs from company adjusted EPS, which retains the charge. Our 2027 estimate assumes that charge has ended. Net investment income remains in earnings, and recurring stock compensation remains an expense. No exceptional investment gains or continuing reserve releases are required.

Twelve-month value: We apply 26 times FY2027 normalized EPS of $0.4182 to reach $10.87 per share by May 2027. The multiple is our judgment, supported by mid-teens growth, specialist underwriting and the State Farm runway, but constrained by underwriting volatility and investment needs. It is a modest premium to the current 24.1 times estimate, rather than an assumption that Hagerty will become valued as a capital-light software business. No common dividend is assumed, so price return equals expected total return.

All scenarios use $44 million of depreciation, $21 million of stock compensation, $5 million of residual financing expense, 29% tax and 365 million shares. The bear case produces EBITDA below our 2026 estimate despite premium growth, reflecting the sensitivity of a fully retained insurance book to losses and spending. Every $10 million change in annual pretax earnings changes EPS by about $0.0195 and value at 26 times by approximately $0.51. A two-turn multiple reduction alone takes base value to about $10.04.

The base return of approximately 8% is broadly in line with our explicit 8% twelve-month S&P 500 total-return planning assumption. A 27.8% downside scenario outweighs the incremental base upside available for taking company-specific risk. That combination supports Hold: the business is improving, but the price already requires a meaningful normalized earnings recovery.

Thesis Scorecard Post-Earnings

This quarter establishes our initial investment case.

Overall: Hagerty enters coverage with an attractive specialty franchise and a credible distribution runway. The unresolved issue is the profit and cash yield from that growth after investment and underwriting risk, which keeps the initial conviction at 6 out of 10.

What would change our view: A higher 2026 profit outlook backed by reported cash conversion and stable loss experience would strengthen the case for Outperform. A delayed State Farm rollout, continued retention erosion or expense growth that pushes 2027 EBITDA toward our $240 million bear case would weaken it. The next dated tests are the Q2 guidance review, 40-state availability by year-end, and the planned end of Markel amortization in December.

Action: Initiate Hold. At $10.07, the approximately 8% base return compensates for ordinary market exposure but provides limited additional reward for Hagerty’s transition and underwriting risks.