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Related-Party Transactions | 9 Months Ended
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Sep. 30, 2024
Related Party Transactions [Abstract] |
Related-Party Transactions | 21 — Related-Party Transactions As of September 30, 2024, Markel and State Farm had the following equity interests in Hagerty and, as a result, are considered related parties:
|  | Markel |  | State Farm
Equity Interest |  | Shares/Units |  | Percentage of total outstanding (1) |  | Shares/Units |  | Percentage of total outstanding (1)
Hagerty, Inc. Class A Common Stock |  | 3,108,000 |  |  | 3.5 | % |  | 51,800,000 |  |  | 57.6 | %
Hagerty, Inc. Class V Common Stock |  | 75,000,000 |  |  | 29.9 | % |  | — |  |  | — | %
Hagerty, Inc. Series A Convertible Preferred Stock |  | 1,590,668 |  |  | 18.8 | % |  | 5,302,226 |  |  | 62.5 | %
THG units |  | 75,000,000 |  |  | 21.7 | % |  | — |  |  | — | %
Controlling Interest |  | 3,108,000 |  |  | 3.5 | % |  | 51,800,000 |  |  | 57.6 | %
Non-controlling Interest |  | 75,000,000 |  |  | 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. Refer to Note 16 — Stockholders' Equity and Note 15 — Convertible Preferred Stock for a description of each equity interest in the table above. State Farm Alliance Agreement Hagerty has a 10-year master alliance agreement with State Farm (the "State Farm Alliance Agreement") under which State Farm's customers, through State Farm agents, are able to access Hagerty's features and services. This program began issuing policies in four initial states in September 2023. Under this agreement, State Farm paid Hagerty an advanced commission of $20.0 million, which is being recognized as "Commission and fee revenue" within the Condensed Consolidated Statements of Operations over the life of the arrangement. In conjunction with the State Farm Alliance Agreement, the Company also entered into a managing general underwriter agreement whereby the State Farm Classic+ policy is offered through State Farm Classic Insurance Company, a wholly owned subsidiary of State Farm. The State Farm Classic+ policy is available to new and existing State Farm customers through their agents on a state-by-state basis. Hagerty is paid a commission under the managing general underwriter agreement and ancillary agreements for each policy issued in the State Farm Classic+ program. Additionally, the Company has the opportunity to offer HDC membership to State Farm Classic+ customers which provides Hagerty an additional revenue opportunity. Commission revenue associated with State Farm Classic+ policies was not material to the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2024 and 2023. Reinsurance Agreement Hagerty Re has a quota share agreement to cede 50% of the risk assumed from a subsidiary of Markel in relation to High-Net-Worth Accounts to Oglesby Reinsurance Company, a wholly owned subsidiary of State Farm. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs. The following tables summarize all balances related to the risk ceded by Hagerty Re to State Farm subsidiaries:
|  | September 30, |  | December 31,
|  | 2024 |  | 2023
Assets: |  | in thousands
Commissions receivable |  | $ | 2,338 |  |  | $ | 1,963 |
Deferred acquisition costs, net (1) |  | (4,646) |  |  | (3,898) |
Other current assets |  | 13,169 |  |  | 9,268 |
Total assets |  | $ | 10,861 |  |  | $ | 7,333 |
Liabilities: |  |  |  |
Accounts payable, accrued expenses and other current liabilities |  | $ | 4,497 |  |  | $ | 3,775 |
Total liabilities |  | $ | 4,497 |  |  | $ | 3,775 |
(1) Represents unearned ceding commission received from State Farm subsidiaries.
|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Revenue: |  | in thousands
Earned premium (1) |  | $ | (4,089) |  |  | $ | (1,645) |  |  | $ | (12,111) |  |  | $ | (3,035) |
Expenses: |  |  |  |  |  |  |  |
Ceding commission, net (2) |  | $ | (2,126) |  |  | $ | (855) |  |  | $ | (6,298) |  |  | $ | (1,578) |
Losses and loss adjustment expenses (3) |  | (906) |  |  | (329) |  |  | (4,510) |  |  | (607) |
Total expenses |  | $ | (3,032) |  |  | $ | (1,184) |  |  | $ | (10,808) |  |  | $ | (2,185) |
(1) Represents premiums ceded to State Farm subsidiaries, which are accounted for as a reduction to "Earned premium". (2) Represents commissions from State Farm subsidiaries related to ceded reinsurance, which are accounted for as a reduction to "Ceding commissions, net". (3) Represents loss recoveries associated with reinsurance ceded to State Farm subsidiaries, which are accounted for as a reduction to "Losses and loss adjustment expenses". State Farm Term Loan In September 2023, Hagerty Re entered into an unsecured term loan facility with State Farm in an aggregate principal amount of $25.0 million and an interest rate of 8.0% per annum. The State Farm Term Loan will mature in September 2033. Refer to Note 14 — Long-Term Debt for additional information. Markel Alliance Agreement The Company and Markel have an alliance agreement (the "Markel Alliance Agreement") and associated agency agreement pursuant to which policies sold by Hagerty's U.S. MGAs are underwritten by Essentia Insurance Company ("Essentia") and reinsured with Evanston Insurance Company ("Evanston"), both of which are wholly owned subsidiaries of Markel. The following tables provide information related to Markel-affiliated "Due to insurer" liabilities and "Commission revenue" associated with the Markel Alliance Agreement:
| September 30, |  | December 31,
| 2024 |  | 2023
| in thousands (except percentages)
Due to insurer | $ | 108,039 |  |  | $ | 75,922 |
Percent of total | 91 | % |  | 95 | %
| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
| in thousands (except percentages)
Commission revenue | $ | 105,461 |  |  | $ | 95,559 |  |  | $ | 305,105 |  |  | $ | 267,935 |  |  |
Percent of total | 92 | % |  | 94 | % |  | 93 | % |  | 95 | % |  |
Refer to Note 2 — Revenue for information related to the related party balances within "Commissions receivable", primarily consisting of CUC receivables due from Markel. Reinsurance Agreement Hagerty Re has a quota share agreement with Evanston to assume approximately 80% 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%. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs. The following tables summarize all balances related to the Company's reinsurance business with Markel subsidiaries:
| September 30, |  | December 31,
| 2024 |  | 2023
Assets: | in thousands
Premiums receivable | $ | 195,802 |  |  | $ | 134,376 |
Commissions receivable | 568 |  |  | 630 |
Deferred acquisition costs, net | 171,776 |  |  | 141,880 |
Other current assets | 2,602 |  |  | 1,915 |
Total assets | $ | 370,748 |  |  | $ | 278,801 |
Liabilities: |  |  |
Accounts payable, accrued expenses and other current liabilities | $ | 899 |  |  | $ | 1,553 |
Losses payable and provision for unpaid losses and loss adjustment expenses | 246,883 |  |  | 189,520 |
Commissions payable | 91,406 |  |  | 107,286 |
Unearned premiums | 373,038 |  |  | 307,504 |
Total liabilities | $ | 712,226 |  |  | $ | 605,863 |
| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
Revenue: | in thousands
Earned premium | $ | 170,921 |  |  | $ | 140,674 |  |  | $ | 489,577 |  |  | $ | 384,646 |  |  |
Expenses: |  |  |  |  |  |  |  |  |
Ceding commission, net | $ | 79,193 |  |  | $ | 64,391 |  |  | $ | 226,589 |  |  | $ | 177,568 |  |  |
Losses and loss adjustment expenses | 98,070 |  |  | 55,909 |  |  | 227,491 |  |  | 153,758 |  |  |
Total expenses | $ | 177,263 |  |  | $ | 120,300 |  |  | $ | 454,080 |  |  | $ | 331,326 |  |  |
Pursuant to the terms of the quota share agreement with Evanston, Hagerty Re maintains assets in trust for the benefit of Evanston. These assets are included within "Restricted cash and cash equivalents" and "Investments" in the Company's Condensed Consolidated Balance Sheets. The assets held in trust for the benefit of Evanston was $544.9 million and $517.2 million as of September 30, 2024 and December 31, 2023, respectively. Other Related Party Transactions From time-to-time, in the ordinary course of business, related parties, such as members of the Board and management, purchase insurance policies from the Company, receive payments on claims required by the Company's insurance policies, and buy and sell collector cars through Marketplace auctions or in private transactions.

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