v3.23.2
Related-Party Transactions
 6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Related-Party Transactions
20 — Related-Party Transactions

As of June 30, 2023, Markel and State Farm had the following equity interests in Hagerty and as a result, are considered related parties:

Markel
State Farm
Equity InterestShares/Units
Percentage of total outstanding (1)
Shares/Units
Percentage of total outstanding (1)
Hagerty, Inc. Class A Common Stock3,000,000 3.6 %50,000,000 59.2 %
Hagerty, Inc. Class V Common Stock75,000,000 29.9 %— — %
Hagerty, Inc. Series A Convertible Preferred Stock1,590,668 18.8 %5,302,226 62.5 %
Hagerty Group Units75,000,000 22.1 %— — %
Controlling Interest3,000,000 3.6 %50,000,000 59.2 %
Non-controlling Interest75,000,000 29.4 %— — 
(1)    The percentages reflected represent only the ownership of the specific security identified in each row, and are not reflective of the total economic ownership in Hagerty. Further, these percentages do not reflect any ownership of warrants.

Refer to Note 15 — Stockholders' Equity for a description of each equity interest in the table above.
State Farm

Alliance Agreement

State Farm and Hagerty entered into a master alliance agreement in 2020 to establish an alliance insurance program whereby State Farm’s customers, through State Farm agents, will have access to Hagerty features and services. This program is expected to begin in the second half of 2023. Under this agreement, State Farm paid Hagerty an advanced commission of $20.0 million in 2020, which will be recognized into "Commission and fee revenue" over the life of the arrangement beginning in the period when policies may be issued under the agreement.

As part of the Company's master alliance agreement with State Farm, it also entered into a managing general underwriter agreement whereby the State Farm Classic+ policy will be offered through State Farm Classic Insurance Company, a new wholly-owned subsidiary of State Farm, subject to any applicable state regulatory review and approval. The State Farm Classic+ policy will be available to new and existing customers through State Farm agents on a state by state basis. Hagerty Insurance Agency, LLC will be paid a commission under the managing general underwriter agreement and ancillary agreements for servicing the State Farm Classic+ policies. Additionally, the Company will have the opportunity to offer HDC membership to State Farm Classic+ customers which provides Hagerty an additional revenue opportunity.
Reinsurance Agreement

Effective March 1, 2023, Hagerty Re entered into a quota share reinsurance agreement to cede 50% of the High-Net-Worth Accounts risks assumed from Evanston to Oglesby Reinsurance Company, an affiliate of State Farm. Refer to Note 9 — Reinsurance for additional information on the Company's reinsurance programs.

The following tables summarize all balances related to the Company's ceded reinsurance business with State Farm affiliates:

June 30,
2023
December 31,
2022
Assets:in thousands
Commissions receivable$2,909 $— 
Other current assets4,483 — 
Total assets$7,392 $— 
Liabilities:
Accounts payable, accrued expenses and other current liabilities$7,782 $— 
Total liabilities$7,782 $— 

Three months ended
June 30,
Six months ended
June 30,
2023202220232022
Revenue:in thousands
Earned premium$(1,390)$— $(1,390)$— 
Expenses:
Ceding commission$(723)$— $(723)$— 
Losses and loss adjustment expenses(278)— (278)— 
Total expenses$(1,001)$— $(1,001)$— 
Markel

Alliance Agreement

The Company's affiliated U.S. and U.K. MGA subsidiaries have personal and commercial lines of business written with Markel-affiliated carriers. The following tables provide information about Markel-affiliated due to insurer liabilities and commission revenue under the agreement with Markel subsidiaries:

June 30,
2023
December 31,
2022
in thousands (except percentages)
Due to insurer$116,411 $64,873 
Percent of total91 %95 %

Three months ended
June 30,
Six months ended
June 30,
2023202220232022
in thousands (except percentages)
Commission revenue$100,737 $86,716 $172,376 $146,252 
Percent of total93 %93 %95 %94 %
Reinsurance Agreement

For the six months ended June 30, 2023 and 2022, under a quota share agreement with Evanston, a wholly-owned subsidiary of Markel, Hagerty Re reinsured approximately 80% and 70%, respectively, of the risks written through the Company’s U.S. MGAs. Effective January 1, 2023, the quota share agreement with Evanston was amended to increase Hagerty Re's participation on High-Net-Worth Accounts from 80% to 100%. At the same time, Hagerty Re entered into a reinsurance agreement to cede 10% of the High-Net-Worth Accounts physical damage risks assumed from Evanston to Markel International, an affiliate of Markel. Additionally, under a quota share agreement with Markel International Insurance Company Limited, Hagerty Re reinsured approximately 80% and 70% of the risks for the six months ended June 30, 2023 and 2022, respectively, written through the Company’s U.K. MGA.

The following tables summarize all balances related to the Company's reinsurance business with Markel affiliates:

June 30,
2023
December 31,
2022
Assets:in thousands
Premiums receivable$185,458 $97,897 
Commissions receivable584 — 
Deferred acquisition costs, net135,769 103,869 
Other current assets1,217 — 
Total assets$323,028 $201,766 
Liabilities:
Accounts payable, accrued expenses and other current liabilities$1,956 $— 
Losses payable and provision for unpaid losses and loss adjustment expenses163,833 160,236 
Commissions payable98,331 75,898 
Unearned premiums293,507 227,192 
Total liabilities$557,627 $463,326 

Three months ended
June 30,
Six months ended
June 30,
2023202220232022
Revenue:in thousands
Earned premium$130,610 $89,738 $243,972 $175,428 
Expenses:
Ceding commission, net$59,419 $43,415 $113,177 $84,303 
Losses and loss adjustment expenses51,194 36,808 97,849 71,379 
Total expenses$110,613 $80,223 $211,026 $155,682 
Broad Arrow

In January 2022, the Company entered into a joint venture with Broad Arrow and acquired approximately 40% equity ownership interest in Broad Arrow. In August 2022, the Company acquired the remaining 60% of Broad Arrow in exchange for $73.3 million of Class A Common Stock and Hagerty Group Units exchangeable for Class A Common Stock. Prior to the Company's joint venture with Broad Arrow in January 2022, Broad Arrow was majority owned by Kenneth Ahn, the President of Marketplace, who received Hagerty Group Units as a part of this transaction. Refer to Note 6 — Acquisitions and Investments for additional information.
Speed Digital

In April 2022, Hagerty acquired Speed Digital for a purchase price of $15.0 million. Speed Digital was previously wholly-owned indirectly by Robert Kauffman, a director on Hagerty's Board, who will receive 100% of the proceeds of the purchase price. Refer to Note 6 — Acquisitions and Investments for additional information.