Premium Growth Is Real; the 32% EBITDA Gain Is Not, and the Raised Guide Implies a Flat H2

Results vs. Consensus

Q2 2026 Scorecard

No published sell-side consensus exists for Adjusted EBITDA, written premium, or the combined ratio, so those lines are benchmarked against the prior year and against the guidance standing entering the print rather than against a Street number. The revenue and EPS consensus figures sat in a narrow band across the available captures: three independent sources put revenue within $0.04M of $316.2M with one outlier near $321.0M, and EPS ranged from $(0.08) to $(0.09). We use the conservative end of each.

Year-Over-Year Comparison

Four of the twelve expense and revenue lines above moved by more than 40% in a quarter in which the underlying book grew 19%. That is the signature of a reclassification, not of an operating event. Underwriting and other insurance expenses went from $1.2M to $62.9M and SG&A fell $66.4M because costs the MGA incurs in support of risk-taking now sit in the insurance captions rather than in SG&A. Total expenses rose 8.2%, which is the only line in that block worth reading directly.

Quarter-Over-Quarter Comparison

Hagerty reports only quarterly and year-to-date figures, so every Q1 2026 number above is the first-half result less the reported second quarter. The written premium and new business step-ups are seasonal and expected: management describes a demand curve that "starts in March and April and kind of starts tapering off in October." The two lines that are not seasonal artifacts are the loss ratio, which deteriorated 430 basis points sequentially, and Adjusted EBITDA, which fell 12.6% sequentially on a 13.8% sequential revenue increase.

Quality of Beat

• Revenue. The $38.6M beat is real but only partly operating. Marketplace contributed $12.8M of incremental revenue year over year and net investment gains contributed $6.0M, and the latter is an unrealized mark on the equity portfolio rather than a franchise event. The larger issue is that consensus was modeling a revenue line whose definition changed mid-stream, so a 12.2% beat on a line guided to fall 8% to 9% for the year is not the signal it would be at a normal company.
• Margins. The combined ratio held at 89.6%, which is the right headline, but the composition worsened. The loss ratio rose 40 basis points year over year and 430 basis points sequentially, and the offset came from the expense side, where the reclassification and the acquisition-cost deferral are both doing work. Insurance segment pre-tax margin fell to 0.9% from 17.2%.
• EPS. The $0.06 adjusted beat is arithmetically correct and analytically thin. Net income of $8.0M was struck after a $5.8M income tax benefit on $2.2M of pre-tax income, an effective rate of negative 260.3% driven by the ceding commission Hagerty Re deducts on its tax return but that consolidates away. Below net income, $7.8M went to the non-controlling interest and $1.9M to preferred accretion, leaving Class A holders with a $1.7M loss. The tax line, not operations, is what turned a $2.2M pre-tax result into an $8.0M net income.

Revenue assessment

Strip the accounting and the revenue question becomes simple: is the book growing and is the premium being retained? Both answers are yes. Written premium of $424.5M grew 19.2%, ahead of the 15% to 16% full-year growth the company was guiding to entering the quarter, and net assumed premium grew 40.8% because Hagerty now keeps all of the U.S. risk rather than four fifths of it. Earned premium of $252.0M is the line that will define reported revenue from here, and it grew 41.7%. Reported total revenue will keep falling through 2026 and will start tracking premium again in 2027. Investors who anchor on the reported line this year will draw the wrong conclusion in both directions.

Profitability assessment

This is where the quarter needs work. Reported Adjusted EBITDA of $74.5M grew 2.6%, and first-half Adjusted EBITDA of $159.7M grew 32.2%. Both figures include a benefit that did not exist a year ago and will not exist at this magnitude next year. Beginning in 2026, policy acquisition costs incurred by the MGA on Essentia policies are capitalized and amortized over the policy term rather than expensed as incurred. In Q2 the company deferred $32.1M and amortized $12.2M, a $19.9M net benefit; in H1 it deferred $57.2M and amortized $16.3M, a $41.0M net benefit. The CFO quantified it plainly.

"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. This resulted in a $41 million cumulative benefit in the first half, $20 million of which was realized in the second quarter."
— Patrick McClymont, Chief Financial Officer

Management's Adjusted EBITDA reconciliation adds back the transition's cost and keeps the transition's benefit. A symmetric treatment produces a materially different picture.

Two fair objections deserve stating. Deferring acquisition costs against the premium they generate is proper matching, so one could argue the 2026 presentation is the correct one and the prior year's expense-as-incurred treatment was the distortion. And the 2025 base was earned at an 80% quota share, so the comparison is unfair in the other direction too, since Hagerty now retains more of every dollar of underwriting profit. Both objections are legitimate. Neither changes the operative point: the reported 32% figure is not a like-for-like growth rate, management presented it as one, and the metrics that are genuinely clean are written premium, policies in force, and the combined ratio.

EPS and cash assessment

Operating cash flow of $186.2M for the first half, up 91% from $97.7M, was cited on the call as evidence of the model's vibrancy. It mostly is not. The single largest line in the first-half cash flow bridge is a $186.2M increase in unearned premiums, against a $53.0M increase a year ago, a $133.2M swing that by itself exceeds the entire $88.4M increase in operating cash flow. That is float arriving because Hagerty now collects and holds 100% of the premium rather than 80%, and it is a balance sheet event, not earnings. The receivable and ceding-commission-payable lines swung by hundreds of millions in the same transition. Cash flow will be a useful signal again in 2027. It is not one now.

Segment Performance

Insurance: the whole company, temporarily unreadable

Insurance revenue fell 10.6% and pre-tax income fell 95.4% to $2.8M. Both figures are transition artifacts. Within the segment, earned premium grew $74.2M or 41.7% while commission and fee revenue fell $119.6M or 83.5%, and the $64.1M of ceding commission amortization on 2025-vintage policies runs straight through the pre-tax line. The company publishes a standalone reconciliation that separates the pieces: Hagerty Re's Essentia 2025 policy year produced $44.3M of pre-tax income, the 2026 policy year and other carriers produced $38.4M, and $80.0M of consolidation entries reduced the total to $2.8M. The two operating units are earning roughly $83M of pre-tax income between them, and consolidation accounting is what leaves $2.8M on the face of the statements.

The volume underneath is strong. Subject premium of $376.3M was ceded at a 96.0% blended quota share against 78.1% a year ago, with the U.S. at 100% and Canada unchanged at 50%. New business count of 166,951 nearly doubled. PIF reached 1,855,649.

"Our written premium growth is powered by new business count rather than rate, unlike the broader industry that fluctuates with the pricing cycle."
— McKeel Hagerty, Chief Executive Officer and Chairman

Assessment: The insurance franchise is doing what it is supposed to do, and the reported segment economics will not show it until 2027. The one number in the segment that is both clean and slightly worse is the loss ratio, discussed below.

Marketplace: auctions inflecting, private sales collapsing, margin still a rounding error

Marketplace revenue grew 47.5% to $39.7M and the segment turned a $2.0M prior-year loss into $1.1M of pre-tax income, its best quarter as a standalone reporting unit. Aggregate auction sales more than doubled to $104.4M and net auction sales rose 110.5% to $94.4M, with the Concorso d'Eleganza Villa d'Este auction driving an 80.3% increase on its own. Broad Arrow Capital's average loan portfolio grew 80.2% to $146.4M on the credit facility upsized late last year, and finance revenue was the secondary contributor.

Private sales fell 61.5% to $44.1M, which sounds alarming and largely is not: the prior-year period included the private sale of a sizable single-owner collection, and brokered private sales are recognized on a net commission basis, so the volume decline does not flow proportionately into revenue. The genuine issue is margin. A 2.6% pre-tax margin on $39.9M of revenue is $1.1M, and management is candid that this is by design.

"It is not just a revenue line. It is a customer acquisition machine. Every car that trades hands is a potential Hagerty insurance policy."
— McKeel Hagerty, Chief Executive Officer and Chairman

Assessment: We accept the customer-acquisition framing and would not underwrite Marketplace as a profit center. But it consumed working capital and balance sheet through the BAC loan book, which grew 73.4% to $146.6M and carries $88M of back leverage, and at some point a business that absorbs capital needs to be measured on returns rather than on brand halo. Monterey Car Week auctions fall in Q3 and management flagged "some big sales coming up in the second half of the year," so Q3 is the segment's seasonal peak and the fair test of whether the inflection is structural.

Key Operating Metrics

Two derived ratios in that table deserve a sentence each because neither was discussed. Vehicles in force grew 13.8% against 19.0% policy growth, so the average policy now carries 1.63 vehicles against 1.71, a 4.4% decline. Policy count is therefore overstating exposure growth by roughly five points, which matters when the pipeline is described in policies but the underlying asset is vehicles. Separately, HDC paid members grew 5.9% against 19.0% policy growth, taking the implied attach rate from 58.2% to 51.8%. Membership and other revenue grew 3.0% for the quarter, which corroborates it. The State Farm channel is evidently not attaching the membership product at the legacy rate, and membership is the highest-margin revenue Hagerty has.

Key Topics & Management Commentary

Overall Management Tone: Confident, well-prepared, and consistently framed at the first-half level rather than the quarter level, which is a choice rather than an accident given that the second quarter's growth rates are materially weaker than the half's. Analyst pushback was mild and mostly technical, concentrated on how to model 2027 through the accounting fog; management engaged the mechanics willingly and declined every attempt to attach a number to them. The one place the posture thinned was on underwriting, where a 430 basis point sequential move in the loss ratio was addressed with a single clause about inflationary pressures and no follow-up from the line.

1. The Markel Fronting Arrangement Is the Whole Story This Year

Every unusual line in the quarter traces to one January 1 event. Hagerty Re's U.S. quota share went from roughly 80% to 100%, including for policies already in force, and Hagerty assumed control of the Essentia book. The company retains all of the underwriting profit and all of the investment income on the U.S. book, and in exchange gives up the reported commission revenue that used to flow from Markel to the MGA, because that revenue now eliminates against the matching ceding commission expense in consolidation.

"The first half of 2026 has been the best in Hagerty's history, and our results give us the confidence to significantly increase our full year outlook. We delivered year-to-date written premium growth of 19% and Adjusted EBITDA gains of 32%, reflecting the compounding power of our model as we now control 100% of the economics on our U.S. book."
— McKeel Hagerty, Chief Executive Officer and Chairman

For scale: 2025 commission revenue associated with the Markel alliance was $437M and the matching 2025 ceding commission expense was $344M. Both disappear from the face of the statements. Prior-year revenue was also recast to include net investment income and gains under Article 7 insurance reporting standards, which is why Q2 2025 total revenue reads $379M here against the $369M originally published.

Assessment: The economics of the change are unambiguously favorable and permanent. The presentation of the change is unambiguously confusing and temporary. An investor's job this year is to look through the second to underwrite the first, and management has been reasonably helpful in providing the reconciliations to do it. The gap is that the helpfulness stops short of quantifying the parts that flatter.

2. Written Premium Growth Is Count-Driven, Which Is the Core of the Bull Case

Written premium of $424.5M grew 19.2%, an acceleration from the 14% growth of the prior year, and the driver is new policies rather than rate increases. That distinction is the single most important fact about this business. A specialty P&C book that grows on rate is riding a cycle and will give it back; a book that grows on count is compounding an installed base with 88% retention and a bundled membership attached.

The addressable market management describes is 36 million vehicles, "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." Hagerty insures 3.03 million. The demographic mix is also shifting in its favor: year-to-date quote volume from younger generations now exceeds 60% of total demand, and the fastest-growing cohort is 1980s-to-2000s sports cars and off-road vehicles rather than the traditional classic.

Assessment: This pillar is intact and is why the stock deserves a franchise multiple rather than an insurance multiple. It is also the pillar most exposed to the retention slippage discussed below, because compounding an installed base only works if the base stays.

3. State Farm Is the Contracted Growth Engine and the Reason New Business Doubled

The State Farm Classic+ program is now selling new Hagerty policies through State Farm agents in 37 states, and the conversion of State Farm's existing collector-car book is underway. Management gave the pipeline size twice, in two different units.

"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."
— McKeel Hagerty, Chief Executive Officer and Chairman

In Q&A the CFO put the figure at "north of 500,000 vehicles" and the state count at 15. Policies and vehicles are not the same unit, and at the current 1.63 vehicles per policy the difference between 525,000 policies and 500,000 vehicles is roughly a factor of 1.7 in what the pipeline is worth. Against a base of 1.86 million policies in force, 525,000 converting policies is roughly 28% of the book arriving over roughly two more years.

Assessment: This is the most valuable asset in the story and the most under-quantified. Contracted, multi-year, high-visibility volume of this size is rare, and no competitor can replicate it. But a pipeline described inconsistently in two units on the same call, with no disclosed premium, revenue, or margin contribution, is a pipeline the market has to take on faith. We would pay more for it with better disclosure.

4. New Business Count Doubled, and Most of It Is a Book Transfer

New business count of 166,951 rose 90.0% year over year and 49.2% sequentially. That headline invites the reading that customer acquisition doubled. It did not. Conversions of an existing State Farm book are recorded as new business by the MGA even though the customer relationship already existed inside the alliance.

"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."
— Patrick McClymont, Chief Financial Officer

Assessment: Not a criticism of the metric, which is defined exactly as one would expect, but a caution against extrapolating it. The conversion cohort is finite, runs through late 2027 and into 2028, and then stops. The right way to read new business count for the next two years is as two series layered on top of each other, and only one of them is a run rate.

5. Underwriting: The Combined Ratio Held, the Loss Ratio Did Not

Hagerty Re's combined ratio was 89.6%, flat year over year, and 88.1% for the half against 89.1%. Those are good numbers and the reason the equity deserves attention at all. Underneath them, the loss ratio moved the wrong way. It was 42.7% in Q2 against 42.3%, and the sequential path within 2026 is the more revealing series.

The 2026 loss ratios exclude the claims-handling expenses the MGA subsidiaries incur on Hagerty Re's behalf, $3.2M in Q2 and $9.1M in H1, per the company's stated methodology; the quarterly splits are the half-year figures less the reported second quarter. Read across: in 2025 the loss ratio was essentially flat between Q1 and Q2 at 42.0% and 42.3%. In 2026 it went from an unusually good 38.4% to 42.7%. The entire first-half improvement management cited was a Q1 phenomenon and Q2 gave all of it back and a little more.

"Hagerty Re's combined ratio came in at 90% in the second quarter, despite inflationary pressures."
— Patrick McClymont, Chief Financial Officer

Assessment: One quarter is not a trend and 42.7% is still an excellent loss ratio for any personal-lines book. But this is the metric the entire thesis rests on, the company just took on 20 more points of quota share so every basis point now costs 25% more than it did in 2025, and the only management commentary was three words about inflation. It should have been the most-pressed item on the call. It was not raised at all.

6. Retention Slipped, and Management Conceded the Core Book Is Softening

PIF retention was 88.2% against 88.7% a year ago and, per the question that surfaced it, 30 basis points lower sequentially. The important part of the answer is that the mix is flattering the number rather than hurting it: the State Farm cohort is young and converting at a very high rate, and recent new business retains well, which means the core book is worse than the blended 88.2% implies.

"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."
— Patrick McClymont, Chief Financial Officer

Assessment: Candid and, on its own, minor. In combination with a falling HDC attach rate and falling vehicles per policy, it describes a book whose incremental policy is less valuable and slightly less sticky than the average policy already on it. None of those three ratios is dangerous today. All three point the same direction, and the company disclosed none of them as ratios.

7. Enthusiast+ Is Expanding on "Revised" Pricing Assumptions

Enthusiast+ is Hagerty's push beyond the garaged collector car into vehicles that get driven, which is a different underwriting problem: more mileage, different storage, higher frequency. It has been live in Colorado and expanded into three additional states in July.

"Our Enthusiast + 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."
— McKeel Hagerty, Chief Executive Officer and Chairman

"Revised" is the operative word and it went unexamined. Performing in line with assumptions that had to be changed is a materially weaker statement than performing in line with assumptions, and neither the direction nor the size of the revision was given. On the loss side, the CFO was straightforward that the risk profile is different.

"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."
— Patrick McClymont, Chief Financial Officer

Assessment: Enthusiast+ is strategically necessary. The 36-million-vehicle addressable market management cites is mostly driven cars, not garaged ones, and the younger cohorts now supplying more than 60% of quote volume are buying vehicles they intend to use. But this is the segment where Hagerty's 40-year data advantage is thinnest, and the company is scaling it from one state to four after revising its pricing. Watch the loss ratio here specifically as the state count grows.

8. The Acquisition-Cost Deferral Tailwind Peaks Now and Is Gone by Q4

Covered in the profitability assessment above, and it earns its own topic because it is the single largest swing factor in the second half. The benefit was $21.1M in Q1 and $19.9M in Q2, is guided at $15M for the entire second half, and is zero in Q4.

"We expect this benefit to diminish to $15 million in the second half, with none in the fourth quarter, as the new policy season and amortization catches up with costs."
— Patrick McClymont, Chief Financial Officer

In Q&A the CFO described the same dynamic in plainer language, calling it "an add back" and "a good guy" because the company is capitalizing the spend rather than running it through the P&L, and confirmed it normalizes into a steady state next year in which cash spend and P&L amortization track each other much more closely.

Assessment: A $41M first-half tailwind becoming a $15M second-half tailwind is a $26M sequential headwind inside a business guiding to $110M to $120M of second-half Adjusted EBITDA. It is roughly 60% of the H1-to-H2 step-down, disclosed clearly, and folded into guidance. What is not disclosed is what the 2027 base looks like once it is gone, and that is the number every 2027 estimate depends on.

9. Marketplace as Customer Acquisition, and the $146M Loan Book Nobody Asked About

The strategic case for Marketplace is that every car that changes hands is a policy lead and every auction catalog reinforces the brand. That case is coherent. The financial case is thinner: $1.1M of pre-tax income on $39.9M of revenue in the segment's best quarter, alongside a Broad Arrow Capital loan portfolio that grew 73.4% to $146.6M with $88M of back leverage against collector cars used as collateral.

Assessment: A growing secured lending book against an appreciating but illiquid asset class is a real credit exposure, and it received zero attention on the call. Collector car values have been strong, and management describes demand that "has inflected higher since the start of the year and shows little sign of slowing." That is exactly the environment in which a collateral book grows fastest and is tested least.

10. Bennetts, and a Capital Allocation Ranking That Puts Buybacks Last

After quarter end, Hagerty announced the acquisition of Bennetts, the second-largest specialty motorcycle insurance broker in the U.K., for GBP 34 million, tripling its scale in that market. The CFO laid out the capital priorities explicitly: invest in the business first, evaluate modest and infrequent strategic acquisitions second, return capital third.

"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."
— Patrick McClymont, Chief Financial Officer

On the M&A pipeline the CEO was deliberately unspecific, noting Bennetts "was actually not something that had been long on our radar," that the team is "not scrubbing the world looking for acquisitions," and that anything in the insurance side of the business would be "relatively modest."

Assessment: The ranking is defensible for a business genuinely reinvesting at high returns, and Bennetts at GBP 34 million is small enough not to matter to the thesis either way. The balance sheet supports the posture: $298M of unrestricted cash against $216M of total debt, $88M of which is asset-backed. The absence of buybacks removes one support under the stock during a year in which the reported numbers will look bad.

11. 2027 Is the Reset Year, and Management Will Not Frame It

The prepared remarks were explicit that next year is when the picture clears.

"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."
— Patrick McClymont, Chief Financial Officer

The closing remarks added the longer-dated marker: "Our business is rapidly scaling as we work toward 3 million policies by 2030." Against 1.86 million today that implies roughly 12% annual policy growth over the next four-plus years, consistent with the mid-teens premium framing once rate and mix are added.

Assessment: The 2030 policy target is a useful anchor and we take it seriously. The 2027 EBITDA framing is where management stopped short, and the omission is not incidental: the entire question is what base the mid-teens growth applies to once the deferral benefit is gone. Pointing at consensus as "a reasonable starting point" answers a question about direction, not about level.

Guidance & Outlook

This is a genuine raise and a large one. Adjusted EBITDA went up $34M at the low end and $33M at the high end. Net income swung by $69M and $71M, from a guided loss to a guided profit. Written premium growth went from 15% to 16% up to 16% to 17%. Reported revenue guidance of $1,325M to $1,340M still implies a 9% to 8% decline for the year, which is the eliminations at work.

Implied second-half math. Subtracting first-half actuals from the new full-year ranges produces the picture management did not present.

The Adjusted EBITDA line is the one that matters. First-half Adjusted EBITDA grew 32.2%; the raised full-year guide implies second-half Adjusted EBITDA of roughly $115M at the midpoint against $116.0M a year ago, which is flat. A company that has just raised guidance twice in the same breath as reporting record volume is guiding its second half to no profit growth at all. The $26M reduction in the deferral tailwind explains a large part of the sequential step-down from $159.7M, and the H2 2025 net income comparison is not meaningful because that period contained a $42M valuation allowance release and a $21M fourth-quarter reserve reduction.

Street at: full-year revenue consensus of roughly $1.32B entering the print sat just below the new guidance range of $1.325B to $1.340B, so the raise clears where the Street was but not by much. Third-quarter revenue consensus of roughly $340M against the $658M to $673M implied second half leaves roughly $318M to $333M for the fourth quarter.

Guidance style: we read this as conservative rather than as a genuine forecast of flat second-half profit, for three reasons. The company has now raised twice off a base it set in February, it beat its own written premium growth guide by three to four points in the first half, and the Q3 Marketplace calendar including Monterey is the segment's seasonal peak with management flagging "some big sales coming up in the second half of the year." The alternative reading, that H2 economics genuinely flatten as the deferral benefit runs off and the loss ratio normalizes higher, cannot be ruled out on the evidence presented, and that ambiguity is precisely why this is a Hold rather than a buy.

Analyst Q&A Highlights

Whether the Independent Agent Channel Strategy Has Changed

The call opened on distribution rather than on the accounting, and specifically on the 54,000 independent agents Hagerty has accumulated over decades but activates unevenly. The answer described an organizational push rather than a product one: a dedicated leadership team, straight-through processing, automated tools that let an agent spot an enthusiast vehicle already sitting in a daily-driver book, and an education effort aimed at changing how agents perceive what a collector car is. No conversion metrics or channel-level premium contribution were offered.

Q: "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?"
— Tommy McJoynt, KBW

A: "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."
— McKeel Hagerty, Chief Executive Officer and Chairman

Assessment: An honest answer to a fair question, and an admission that the largest distribution asset in the company is also the least productive per unit. This is the channel that would carry growth after the State Farm conversion cohort exhausts in 2028, which makes it strategically important and, on current disclosure, entirely unmeasurable from outside.

Whether 2027 Adjusted EBITDA Growth Can Keep Pace With Premium Growth

The most important question asked on the call, put directly and answered directionally. The questioner framed it precisely, naming both the $199M transitional add-back and the policy acquisition cost accounting as the two sources of noise, and asked whether Adjusted EBITDA can grow with written premium once they clear. The response confirmed mid-teens insurance growth as the starting point, declined to say how much margin expansion flows to the bottom line versus back into the business, and pointed at consensus.

Q: "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?"
— Tommy McJoynt, KBW

A: "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 our own point of view early next year."
— Patrick McClymont, Chief Financial Officer

Assessment: A growth rate without a base. Mid-teens growth applied to a 2026 Adjusted EBITDA of $275M gives a very different answer than mid-teens applied to $219M once the deferral benefit is removed, and the difference is worth several dollars per share. The endorsement of consensus is the most concrete thing said about 2027 and it is still not a number management owns.

What Actually Normalizes in the P&L Next Year

A follow-up narrowed the same ground to the specific mechanics, asking whether the only 2027 comparison issue is the deferred acquisition cost amortization. The answer named two items rather than one and, in doing so, described the deferral benefit as a favorable item in the current year without quantifying its removal from next year's base.

Q: "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, BMO

A: "The two things that'll be different will be, one, the transition cost, $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."
— Patrick McClymont, Chief Financial Officer

Assessment: The clearest statement on the call that the current year's Adjusted EBITDA is flattered, delivered as an aside. Two exchanges later, management confirmed the transitional costs are inside 2026 Adjusted EBITDA as an add-back and will be zero in 2027, but never made the parallel point that the "good guy" is inside the same number and also does not repeat.

Whether Enthusiast+ Is Driving the Guidance Raise

An attempt to decompose the upside into its channels: Enthusiast+, legacy Hagerty, and State Farm. Management declined the decomposition and characterized the strength as broad-based, while explicitly de-emphasizing Enthusiast+ as an early-stage program despite its prominence in the prepared remarks.

Q: "McKeel, you cited the Enthusiast + quote volume driving demand. I guess, is that what's driving the upside to guidance and the results in the quarter?"
— Charlie Lederer, BMO

A: "E + 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."
— McKeel Hagerty, Chief Executive Officer and Chairman

Assessment: "All cylinders are firing" is a fine answer when everything is working and a useless one for modeling. Notably, the answer downgrades Enthusiast+ from a headline of the prepared remarks to "almost in a startup mode" within twenty minutes, which is a reasonable characterization but sits awkwardly against the decision to expand it into three more states on revised pricing.

Retention Drift: Core Book Versus State Farm Mix

The only question on the call that pressed a deteriorating metric, and it produced the most useful admission. The framing was precise, citing both the 50 basis point year-over-year and 30 basis point sequential declines, and asking how much was mix. The answer inverted the expected direction: the State Farm cohort is retaining better than average, not worse, which means the blended 88.2% is flattered and the core book is weaker than it appears.

Q: "Retention was down 50 basis points year-over-year and 30 basis points sequentially. Can 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, Raymond James

A: "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."
— Patrick McClymont, Chief Financial Officer

Assessment: Credit for a direct and unflattering answer. The substance is a mild negative that will only become a real one if it compounds, but the mix insight is the part to carry forward: as the State Farm cohort ages past its first renewal, the flattering effect fades and the reported retention number will start telling the truth about the core book. That happens over the next four to six quarters.

The Incremental EBITDA Margin Implied by the Raised Guide

A sharp observation that the revenue raise and the Adjusted EBITDA raise imply an implausibly high incremental margin. The answer gave three drivers, all plausible and none quantified: outperformance versus internal plan, cost efficiency relative to plan, and Marketplace contributing more than budgeted with large second-half sales ahead.

Q: "It looks like the increase in revenues versus EBITDA implies very high incremental EBITDA margin. What's the driver of this?"
— Kevin Wijendra, JPMorgan

A: "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, and some big sales coming up in the second half of the year."
— Patrick McClymont, Chief Financial Officer

Assessment: The right question, and it stopped one step short. The revenue guide rose $45M at the low end while Adjusted EBITDA rose $34M and net income rose $69M, so the incremental flow-through exceeds 75% on revenue and the net income raise is double the EBITDA raise. The gap between the net income and EBITDA raises sits below the EBITDA line, and the full-year reconciliation now embeds an $11M to $13M income tax benefit. Cost efficiency explains part of a very unusual set of ratios.

What Drove New Business Count From Roughly 100,000 to 167,000

The mechanical follow-up, and the most informative answer of the session on the pipeline. Management confirmed the step-up is State Farm conversions rather than organic acquisition, described the two-phase state rollout of new business first and conversions second, and put an end date on the process that extends further than the prepared remarks implied.

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

A: "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, and initially we're just doing new business. After a period of months, once everybody's comfortable that everything's working, then we switch over, and 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."
— Patrick McClymont, Chief Financial Officer

Assessment: The most valuable disclosure of the call, and it also surfaced the two inconsistencies worth tracking. The prepared remarks said 14 conversion states and 525,000 policies; this answer said 15 states and north of 500,000 vehicles. It also extended the completion window to "late 2027 or even a little bit into 2028 for some states," where the prepared remarks said the transition completes by 2028. Small discrepancies, but they are the parameters of the single largest growth input in the model.

What They're NOT Saying

1. The second quarter's own Adjusted EBITDA growth rate. The release bullets disclosed the 3% figure, and the call did not repeat it. Prepared remarks attached the dollar amount to the quarter and the growth rate to the half: "Adjusted EBITDA in the second quarter was $75 million, resulting in first half EBITDA of $160 million, up 32% year-over-year." Every growth framing on the call ran through the first half.
2. That the transition adjustment is one-sided. Adjusted EBITDA excludes $153M of first-half transitional cost and includes $41M of first-half transitional benefit. Management explained both mechanics separately and never put them on the same page. Doing so takes first-half Adjusted EBITDA growth from +32% to -1.7%.
3. Any bridge from $159.7M to $270M–$280M. The raised guide implies second-half Adjusted EBITDA of $110M to $120M against $116.0M a year ago. Management presented the raise and never presented what it implies for the half that remains, and no one asked.
4. Why the loss ratio deteriorated 430 basis points sequentially. The only commentary was that the combined ratio held "despite inflationary pressures." With the quota share now at 100%, loss ratio sensitivity to earnings is 25% higher than it was in 2025, and this metric received less airtime than the Monterey event calendar.
5. The direction and size of the Enthusiast+ pricing revision. The program is "performing in line with revised pricing assumptions" and is expanding from one state to four. What was revised, by how much, and why is not disclosed.
6. State Farm's contribution in dollars. New business count is disclosed; premium, revenue, and margin contribution are not. The one direct request for a contribution split across Enthusiast+, legacy, and State Farm was declined in favor of "all cylinders are firing."
7. The HDC attach rate. Paid members grew 5.9% against 19.0% policy growth, taking implied attach from 58.2% to 51.8%. The call cited "10% growth in Hagerty Drivers Club paid memberships," which matches the disclosed 10.1% growth in revenue from newly issued policies carrying a bundled membership rather than the disclosed 5.9% growth in the member count.
8. Broad Arrow Capital's credit book. A secured loan portfolio against collector cars grew 73.4% to $146.6M with $88M of back leverage, in a market management describes as inflecting higher. Not one question.

Market Reaction

• Pre-print setup: HGTY closed at $11.72 on August 4, down 12.8% year to date against an S&P 500 up 13.0%, down 4.3% over the prior 30 days, and up 5.4% over the trailing twelve months. The 52-week closing range entering the print was $9.34 to $13.82, so the stock was sitting in the lower half of its own range while the market compounded.
• Reaction session: the release came before the open. The stock gapped to $12.66, traded a $12.65 to $13.97 range, and closed at $13.52, up 15.4% or $1.80 on the day. The S&P 500 fell 0.2% in the same session.
• Volume: 0.5 million shares against a 0.1 million share 30-day average, roughly 3.7 times normal and the heaviest single session in the sample. Turnover fell back to the 0.1 to 0.2 million range within three sessions.
• Two-week drift: the stock peaked at $13.61 on August 7 and closed at $12.81 on August 18, giving back 5.9% from the peak and retaining 9.3 points of the 15.4 point reaction-day gain. The S&P 500 fell 0.6% across the same August 4 to August 18 window, so the give-back is stock-specific rather than market beta.
• Sell-side response: price targets moved uniformly higher after the print, but modestly, and no rating migrated off neutral en masse. The highest target we can locate sits roughly 18% above the reaction close.

The initial move was the correct reaction to what was visible in the first ten minutes: written premium up 19%, a large guidance raise, and a swing from a guided full-year loss to a guided profit. A stock trading at the bottom of its range with a neutral Street and a below-price average target is positioned for exactly that kind of gap.

The two weeks since are the more informative half. Giving back a third of the move on falling volume, against a market that was also slightly down but not enough to explain it, is what happens when the second read is less flattering than the first. Nothing new was disclosed in that window. What changed is that anyone who worked through the implied second-half arithmetic found a guide that raises the full year while implying no profit growth in the half that remains, and anyone who worked through the Adjusted EBITDA reconciliation found a 32% growth rate that does not survive a symmetric adjustment. The fade is the market reconciling the headline with the mechanics.

Street Perspective

Debate: Is 2026 Adjusted EBITDA a Usable Base for 2027?

Bull view: the transition items are disclosed, quantified, and finite. The $199M of transitional cost is gone after this year, the company retains 100% of U.S. underwriting economics permanently, and management has told you insurance grows mid-teens. Apply that to the guided $275M and 2027 clears $315M with a clean GAAP presentation to match.

Bear view: the guided $275M includes roughly $56M of benefit from capitalizing acquisition costs against a deferred asset built from scratch this year. That is a transition item exactly as much as the $199M is, and it is inside the number rather than adjusted out. The honest 2026 base is closer to $219M, and mid-teens growth off that lands near $250M before any residual deferral build.

Our take: the bear has the arithmetic and the bull has the direction. Our own 2027 estimate of roughly $270M sits between them and, tellingly, is close to flat against the guided 2026 figure, which is the same conclusion the implied second-half math reaches by a different route. Anyone modeling 2027 off $275M times mid-teens is anchoring on a number that will not exist in its 2026 form.

Debate: Does the State Farm Pipeline Justify a Franchise Multiple?

Bull view: 525,000 collector-car policies converting through 2028 is roughly 28% of the current book arriving on a contracted schedule with a partner that has been engaged for years. No specialty insurer has visibility like that, and it sits on top of an independent agent channel of 54,000, a Progressive relationship that just expanded its eligible vehicle age from pre-1981 to 25 years and older, and a new Liberty Mutual program. Multi-year volume this visible deserves to be capitalized.

Bear view: a conversion is a book transfer, not a customer win, and it ends. New business count nearly doubling on conversions creates a growth optic that reverses in 2028 when the cohort exhausts. Meanwhile the converting cohort is diluting the two ratios that determine per-policy value: vehicles per policy is down 4.4% and the membership attach rate is down more than six points.

Our take: the bull is right that the pipeline is a real, rare asset and the bear is right that it is being priced as though it were organic. Both would be resolved by disclosure the company chooses not to give. Until State Farm's premium and margin contribution is separable, the market is being asked to capitalize a growth stream it cannot size, which is a reason to pay a fair multiple rather than a premium one.

Debate: Is the Loss Ratio Drift Noise or the Start of Something?

Bull view: 42.7% is an outstanding loss ratio, the combined ratio held at 89.6% and improved to 88.1% for the half, and one quarter of a 40 basis point year-over-year move in a business with 40 years of proprietary data across 48,000 makes and models is not a signal. Claims inflation is an industry condition, not a Hagerty condition.

Bear view: the sequential path is the concern, not the year-over-year. The 38.4% first quarter was the anomaly and Q2's 42.7% is the reversion, which means the first-half improvement management cited was never durable. The company is simultaneously scaling Enthusiast+, a product with more driving exposure and different storage underwriting, on assumptions it has already revised once, into three additional states.

Our take: a single quarter proves nothing, and this is the metric that would break the thesis if it kept moving. At 100% quota share every basis point costs a quarter more than it did last year, and the Q3 print with Enthusiast+ live in four states is the first real test. That it drew no question at all on the call is a reason to watch it more closely, not less.

Debate: Is Marketplace a Flywheel or a Capital Sink?

Bull view: revenue up 47.5%, first meaningful profit, auction sales more than doubled, a 91% sell-through rate, and international demand deepening. Every transaction is a policy lead into the highest-margin part of the business, so measuring it on its own P&L misses the point entirely.

Bear view: $1.1M of pre-tax income on $39.9M of revenue in its best-ever quarter, plus a lending book that grew 73.4% to $146.6M against illiquid collateral with $88M of leverage behind it. The lead-generation argument is unfalsifiable because no lead-to-policy conversion data is published.

Our take: the strategic logic is sound and the segment is too small to move the valuation either way today. The lending book is not too small to matter in a downturn, and it is the part of the story with the least disclosure and the least analyst attention. We would like to see loan-to-value and vintage disclosure before the portfolio doubles again.

Model Framework & Valuation

Aardvark Labs does not currently maintain a published financial model for Hagerty. The framework below is what we underwrite the initiation on, with each assumption traced to a disclosed figure or a stated management expectation.

The single most consequential assumption is the residual deferral benefit in 2027. Management confirmed the DAC balance keeps building as the book grows, so the benefit does not go to zero, but it normalizes from a first-year-of-a-new-pool $56M to something proportional to growth. We carry $12M. If it is materially larger, our 2027 estimate is too low; if the loss ratio drifts another 100 basis points, it is too high by a similar amount.

Capital structure. On a fully exchanged basis the share count is 361.5 million, which assumes conversion of the 245.0 million THG units held by the non-controlling interest, the Series A preferred, and unvested awards. At the August 18 close of $12.81 that is $4.63B of equity value. Adding $216M of total debt and the $38M tax receivable agreement liability and deducting $298M of unrestricted cash gives an enterprise value of roughly $4.59B. Restricted cash of $169M is insurance float and is excluded.

Scenario Framework and Target

12-month target: $14, from the base scenario, implying roughly 9% upside from the August 18 close. The bear case assumes the loss ratio drifts toward the mid-forties and the deferral benefit proves smaller than we carry; the bull case assumes the second-half guide proves conservative, Enthusiast+ scales without a pricing problem, and the market pays a franchise multiple for the 2030 policy target once a clean year is printed. A 9% base case against a market that has compounded 13% year to date is the definition of a Hold.

Thesis Scorecard

This is initiating coverage, so the scorecard below establishes the pillars we will carry forward and grade each quarter rather than scoring against a standing thesis.

Overall: thesis established. The franchise pillars are intact and better evidenced than we expected; the accounting and disclosure pillars are weaker than the headline suggests. The two sets of findings largely offset, which is what produces a neutral rating on a business we admire.

Action: Hold. We would move to Outperform on any of three developments: a clean 2027 Adjusted EBITDA framework from management that survives the deferral adjustment, two consecutive quarters of a stable-to-improving loss ratio with Enthusiast+ live in four or more states, or a pullback toward the $11 pre-print level without a deterioration in written premium growth. We would move to Underperform if the loss ratio moves through the mid-forties or if core-book retention breaks below 87%.

Bottom Line

Hagerty runs one of the more genuinely differentiated franchises in specialty insurance. It grows on policy count rather than rate, retains 88% of what it writes, runs a sub-90% combined ratio, insures 3.03 million vehicles in a market it puts at 36 million, and has a contracted pipeline that adds roughly a quarter of its current book over the next two years. Very few insurers can say any of that, and none can say all of it.

The problem with this quarter is not the business. It is that management chose to present a transition year using a metric the transition flatters, and then framed the whole call at the half-year level where the flattery is largest. Strip the accounting symmetrically and first-half Adjusted EBITDA was down slightly rather than up 32%; work the raised guidance backward and the second half is guided flat. Neither of those facts is hidden, and neither was volunteered.

At roughly 16.7 times a guided Adjusted EBITDA that will not repeat in its current form, and roughly 17 times our estimate of the first clean year, the stock already pays for the compounding. We are happy to own the franchise. We would rather own it after we have seen a printed year we can read.