Hagerty (HGTY) Q4 2025 earnings review
Premium Growth Accelerates, But 2026 Looks Messy
Hagerty closed out 2025 on a high note, delivering 14% Written Premium growth and a 91% surge in Net Income. However, the surface-level numbers hide two major distortions. First, Q4 bottom-line results were artificially boosted by a $21M reserve release. Second, 2026 will be an accounting labyrinth. As Hagerty transitions to retaining 100% of risk with Markel, $190M in non-cash transition costs will push GAAP Net Income into the red. Most concerning: despite management's narrative of 'compounding profit growth,' 2026 Adjusted EBITDA guidance implies severe deceleration, slowing to just ~2% growth.
🐂 Bull Case
The State Farm rollout (converting ~500k policies) is accelerating, and the new Liberty Mutual/Safeco book roll provides visibility into sustained, multi-year policy growth.
Shifting from an 80% quota share to retaining 100% of risk with Markel starting January 2026 will permanently increase underlying underwriting and investment income.
🐻 Bear Case
Adjusted EBITDA growth is decelerating from 46% to virtually flat in 2026. Transition costs, technology investments (Duck Creek), and new product ramp-ups are compressing margins.
Marketplace revenue surged 119% in 2025, but management has signaled that live auction growth will decelerate as the physical event calendar is now fully saturated.
⚖️ Verdict: ⚪
Neutral. The core insurance business is stable and growing nicely via elite distribution partnerships. However, the 2026 financial optics are terrible, and the stark deceleration in Adjusted EBITDA growth contradicts the bullish 'margin expansion' narrative.
Key Themes
The 'Big Three' Distribution Partnerships
Hagerty's primary growth engine is firing on all cylinders. The State Farm Classic+ conversion (525k policies across 27 states) is accelerating. The newly announced Liberty Mutual/Safeco partnership adds tens of thousands of customers. Finally, the evolution of the Markel arrangement—shifting to 100% risk retention for a 2% fronting fee—fundamentally improves unit economics. These three pillars provide high visibility for the guided 15-16% Written Premium growth in 2026.
Data Contradicts Narrative: The 2026 EBITDA Disconnect
Management's primary messaging emphasizes 'compounding profit growth' and margin expansion. Yet, the 2026 Adjusted EBITDA guidance of $236M-$247M implies growth decelerating violently to just ~2% at the midpoint. If Hagerty is retaining 100% of the underwriting economics in 2026 (up from 80%) while growing premiums by 15.5%, a flat EBITDA profile suggests massive underlying cost inflation or a spike in expected loss ratios that is not being overtly discussed.
Low-Quality Q4 Earnings Beat
On the surface, Hagerty Re's Q4 Loss Ratio of 31.4% looks spectacular compared to the mid-40s run rate. However, this was driven almost entirely by a $21M pre-tax reserve reduction (favorable development for the 2024 accident year). Without this one-time tailwind, which provided a 10.6 percentage point benefit, the underlying loss ratio would have been ~42.0%, perfectly stable with prior quarters but far less impressive.
Widening the Funnel with Enthusiast+
Launched on the new Duck Creek platform, the Enthusiast+ product is designed to capture the massive, underpenetrated market of post-1980 modern classic vehicles. Hagerty estimates this market at 24 million vehicles, where its current penetration is just 3.1%. By 'saying yes' to cars that didn't fit legacy underwriting boxes, this represents a massive TAM expansion.
Marketplace Ceiling Approaching
Marketplace revenue (auctions, private sales) was the standout metric of 2025, accelerating to 119% YoY growth ($119M). However, management previously warned that live auction growth will face headwinds as the event calendar is full. With expansion into Europe (Switzerland, Belgium, Italy) largely complete, year-over-year comparables will become brutally difficult in 2026.
Macro Impact: Tariffs & Repair Costs
While management believes the impact of auto tariffs will be 'muted' because cars over 25 years old generally face exemptions, modern classic parts supply chains remain exposed. Any tariff-driven inflation in parts would pressure severity and force Hagerty into a lengthy regulatory process to secure rate increases.
Other KPIs
Reversing positively, but artificially. Dropped sharply from 42.8% a year ago, but driven by a $21M reserve release. Normalizing for this, underlying loss ratios remain stable around 42%.
Stable. The foundation of Hagerty's defensive business model remains intact, coming in virtually flat compared to 89.0% at the end of 2024. Total insured vehicles grew 9% to 2.8 million.
Stable. Up 7% YoY. As Hagerty transitions to the 100% Markel fronting arrangement, the capital base supporting the insurance book will grow, making this line item a much larger driver of future earnings.
Guidance
Accelerating. An upgrade from the 14% growth delivered in 2025. Driven entirely by the scaling of the State Farm conversion and the new Liberty Mutual/Safeco partnership.
Reversing. This is purely an accounting optic. Because Hagerty will now control the Markel book under the new fronting arrangement, massive commission revenues (and corresponding ceding commission expenses) will be eliminated in consolidation. Investors must look past this metric.
Reversing heavily into negative territory. Driven by ~$190M in non-cash transitional costs from amortizing deferred ceding commissions paid to Markel in 2025. This amortization will burn off sequentially throughout the year ($90M in Q1 down to $10M in Q4).
Decelerating. At the midpoint, this represents a mere ~2% growth over 2025's $237M. For a company taking on 100% of its risk economics and growing premiums at 15%+, this profit stall is the most glaring warning sign in the report.
Key Questions
The EBITDA Growth Stagnation
You are shifting to 100% risk retention and accelerating premium growth to 15%+, yet Adjusted EBITDA guidance implies roughly 2% growth. What exactly is consuming all of the incremental gross profit in 2026? Are Duck Creek and Enthusiast+ investments permanent margin drags?
Enthusiast+ Loss Ratio Risk
As the Enthusiast+ product targets younger demographics and more modern cars that are driven more frequently, how are early loss ratios trending compared to the legacy pre-1981 classic book?
Liberty Mutual/Safeco Deal Economics
With the new Liberty Mutual/Safeco book roll commencing, how do the distribution economics and expected retention rates compare to the ongoing State Farm Classic+ conversion?