Hagerty, Inc. Q3 FY2024 earnings call

• Year-to-date written premium growth was 16%, on track to add a record 275,000 new members in 2024. - Impressive portfolio of value-added offerings including events, live auctions, Hagerty Drivers Club, and Media driving mid-teens compounding revenue growth. - Disciplined underwriting approach helped during catastrophes like Hurricanes Helene and Milton, with strong customer service leading to high Net Promoter Score (82). - Year-to-date operating income excluding Helene's impact was ~5 times prior year, operating margin expanded 440 basis points despite Helene's drag. - Cost discipline led to year-to-date decline in G&A of 4% and salaries/benefits growth of just 1%. - 2024 priorities: improving loyalty, enhancing member experience cost-effectively, building Hagerty Marketplace, and launching Enthusiast Plus in early 2025 through newly acquired insurance company.

Commission and fee revenue grew 16% in line with written premium gains, with 220,000 new members added in the first nine months. Earned premium for Hagerty Reinsurance jumped 24% due to written premium growth and historical quota share increases. Membership Marketplace and other revenue grew 20%, with Marketplace up 54% from strong results at Monterey live auction, higher inventory sales, and increased financing revenue. Revenue contribution details: Commission and fee revenue, Hagerty Reinsurance earned premium, and Membership Marketplace and other revenue each played their parts in the overall revenue growth.

• Increased full year 2024 revenue outlook to approximately $1.18 billion with 15% written premium growth. - Underlying profit outlook remains in line with prior expectations, with net income expected $65 million to $74 million and adjusted EBITDA $110 million to $120 million, incorporating estimated losses from Helene and Milton of $30 million. - Plan to continue investing in key growth initiatives like State Farm rollout, Enthusiast Plus launch, and Hagerty Marketplace build-out in 2025 for sustained profit growth.

• Catastrophic events such as Hurricanes Helene and Milton can impact loss ratios; year-to-date loss ratio was 47%, 6 points higher than prior year due to unusual cat losses including Helene. - The combined ratio was slightly above long-term target due to cat losses, although Hagerty Re delivered a healthy 26% return on equity.

Q: Regarding expenses, can Hagerty grow revenues mid-teens while keeping expense growth at recent levels or will there be catch-up in expenses?

A: Hagerty believes the business is built for mid-teens written premium growth. They've been rightsizing cost structure and maintaining discipline, expecting margin expansion. Currently in a phase of investment in initiatives like State Farm and technology transformation, but expect margin expansion to continue with leverage as investments are completed.

Q: About the attritional loss ratio ex-Helene at 44%, anything unusual this quarter?

A: Loss ratio can move around in the range of mid-30s to mid-40s. There's nothing structural concerning; the big loss ratio for the quarter was the cat event, but underlying loss ratio is still confident.

Q: Will losses from Helene and Milton impact pricing going forward?

A: Hagerty always includes a cat load in pricing. They look at pricing and will adjust cat-related loadings as modeling suggests, with recent rate increases often on liability side but will adjust cat side as needed.

Q: Any change in shopping behavior due to auto rates going up?

A: The hardening of the auto insurance rate market has pushed more people to shop, benefiting Hagerty. Heading into summer, rate increase predictions were slowing in regular auto markets, but it's interesting to see post-hurricane season impact. Hagerty's rate gap with industry is wide, and they're on track to bring in 275,000 new customers in 2024 vs. 250,000 last year, with a compelling value prop helping growth.