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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______
Commission file number: 001-40244
HAGERTY, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 86-1213144
(State of incorporation) |  | (I.R.S. Employer Identification No.)
121 Drivers Edge, Traverse City, Michigan |  | 49684
(Address of principal executive offices) |  | (Zip code)
| (800) 922-4050 |
| Registrant's telephone number, including area code |

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbols |  | Name of each exchange on which registered
Class A common stock, par value $0.0001 per share |  | HGTY |  | The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☒
Non-accelerated filer | ☐ | Smaller reporting company | ☐
|  | Emerging growth company | ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant had 90,032,391 shares of Class A Common Stock outstanding and 251,033,906 shares of Class V Common Stock outstanding as of October 25, 2024.

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Table of Contents

Title |  | Page
Forward Looking Statements |  | 4
Part I – Financial Information |  | 5
Item 1. Financial Statements (Unaudited) |  | 5
Condensed Consolidated Statements of Operations |  | 5
Condensed Consolidated Statements of Comprehensive Income |  | 6
Condensed Consolidated Balance Sheets |  | 7
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity |  | 8
Condensed Consolidated Statements of Cash Flows |  | 12
Notes Accompanying the Condensed Consolidated Financial Statements |  | 13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 49
Item 3. Quantitative and Qualitative Disclosures About Market Risk |  | 68
Item 4. Controls and Procedures |  | 68
Part II – Other Information |  | 69
Item 1. Legal Proceedings |  | 69
Item 1A. Risk Factors |  | 69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  | 69
Item 3. Defaults Upon Senior Securities |  | 69
Item 4. Mine Safety Disclosures |  | 69
Item 5. Other Information |  | 70
Item 6. Exhibits |  | 71
Signatures |  | 72

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Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report"), as well as other oral or written information we provide, contain statements that constitute "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact, are forward-looking statements, including those regarding our future operating results and financial position, our business strategy and plans, products, services, and technology offerings, market conditions, growth and trends, expansion plans and opportunities, and our objectives for future operations. The words "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and similar expressions, and the negative of these expressions, are intended to identify forward-looking statements.
The future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements. Factors that could cause actual results to differ include the risks and uncertainties described in Part II, Item 1A. of this Quarterly Report and Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report"), which highlight, among other risks, our ability to:
•compete effectively within our industry and attract and retain our insurance policyholders and paid HDC subscribers (collectively, "Members");
•maintain key strategic relationships with our insurance distribution and underwriting carrier partners;
•prevent, monitor, and detect fraudulent activity;
•manage risks associated with disruptions, interruptions, outages or other issues with our technology platforms or our use of third-party services;
•accelerate the adoption of our membership products as well as any new insurance programs and products we offer;
•manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation;
•address unexpected increases in the frequency or severity of claims;
•comply with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet, and accounting matters;
•manage risks associated with being a controlled company; and
•successfully defend any litigation, government inquiries, and investigations.
You should not rely on forward-looking statements as predictions of future events. We operate in a very competitive and rapidly changing environment and new risks emerge from time to time. The forward-looking statements in this Quarterly Report represent our views as of the date hereof. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website at investor.hagerty.com after we file them with, or furnish them to, the Securities and Exchange Commission ("SEC"). We use our investor relations website, investor.hagerty.com, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media channels. Information contained on or accessible through, including any reports available on, our website or social media channels is not a part of, and is not incorporated by reference into, this Quarterly Report or any other report or document we file with the SEC. Any reference to our website in this Quarterly Report is intended to be an inactive textual reference only.
Unless the context indicates otherwise, the terms "we," "our," "us," "Hagerty," and the "Company" refer to Hagerty, Inc. and its consolidated subsidiaries, including The Hagerty Group, LLC ("THG").
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hagerty, Inc.
Condensed Consolidated Statements of Operations (Unaudited)

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
REVENUE: | in thousands (except per share amounts)
Commission and fee revenue | $ | 116,161 |  |  | $ | 103,173 |  |  | $ | 333,817 |  |  | $ | 287,972 |  |  |
Earned premium | 165,686 |  |  | 139,785 |  |  | 474,917 |  |  | 384,498 |  |  |
Membership, marketplace and other revenue | 41,527 |  |  | 32,616 |  |  | 99,573 |  |  | 82,700 |  |  |
Total revenue | 323,374 |  |  | 275,574 |  |  | 908,307 |  |  | 755,170 |  |  |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |
Salaries and benefits | 47,192 |  |  | 51,318 |  |  | 161,001 |  |  | 160,122 |  |  |
Ceding commissions, net | 77,501 |  |  | 65,413 |  |  | 221,877 |  |  | 181,188 |  |  |
Losses and loss adjustment expenses | 99,430 |  |  | 57,485 |  |  | 226,515 |  |  | 159,461 |  |  |
Sales expense | 59,141 |  |  | 47,737 |  |  | 146,791 |  |  | 124,791 |  |  |
General and administrative | 20,837 |  |  | 22,166 |  |  | 62,072 |  |  | 64,865 |  |  |
Depreciation and amortization | 9,184 |  |  | 10,753 |  |  | 29,758 |  |  | 34,893 |  |  |
Restructuring, impairment and related charges, net | — |  |  | 473 |  |  | — |  |  | 8,857 |  |  |
Gains, losses, and impairments related to divestitures | — |  |  | 4,112 |  |  | (87) |  |  | 4,112 |  |  |
Total operating expenses | 313,285 |  |  | 259,457 |  |  | 847,927 |  |  | 738,289 |  |  |
OPERATING INCOME | 10,089 |  |  | 16,117 |  |  | 60,380 |  |  | 16,881 |  |  |
Gain (loss) related to warrant liabilities, net | (463) |  |  | 850 |  |  | (8,544) |  |  | (1,419) |  |  |
Interest and other income (expense), net | 8,359 |  |  | 6,260 |  |  | 27,945 |  |  | 15,677 |  |  |
INCOME BEFORE INCOME TAX EXPENSE | 17,985 |  |  | 23,227 |  |  | 79,781 |  |  | 31,139 |  |  |
Income tax benefit (expense) | 1,022 |  |  | (4,604) |  |  | (9,918) |  |  | (12,002) |  |  |
NET INCOME | 19,007 |  |  | 18,623 |  |  | 69,863 |  |  | 19,137 |  |  |
Net income attributable to non-controlling interest | (14,122) |  |  | (13,269) |  |  | (55,951) |  |  | (13,477) |  |  |
Accretion of Series A Convertible Preferred Stock | (1,875) |  |  | (1,838) |  |  | (5,552) |  |  | (1,838) |  |  |
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCKHOLDERS | $ | 3,010 |  |  | $ | 3,516 |  |  | $ | 8,360 |  |  | $ | 3,822 |  |  |
Earnings per share of Class A Common Stock: |  |  |  |  |  |  |  |  |
Basic | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |  |  |
Diluted | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |  |  |
Weighted average shares of Class A Common Stock outstanding: |  |  |  |  |  |  |  |  |
Basic | 89,691 |  |  | 84,479 |  |  | 86,689 |  |  | 84,042 |  |  |
Diluted | 89,691 |  |  | 84,479 |  |  | 87,601 |  |  | 84,042 |  |  |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
5

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Hagerty, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
| in thousands
Net income | $ | 19,007 |  |  | $ | 18,623 |  |  | $ | 69,863 |  |  | $ | 19,137 |  |  |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |
Change in net unrealized gain on available-for-sale investments | 7,970 |  |  | — |  |  | 8,718 |  |  | — |  |  |
Foreign currency translation adjustments | 402 |  |  | (955) |  |  | (425) |  |  | 392 |  |  |
Change in unrealized gain (loss) on interest rate swap | — |  |  | (97) |  |  | (2,234) |  |  | (245) |  |  |
Other comprehensive income (loss) | 8,372 |  |  | (1,052) |  |  | 6,059 |  |  | 147 |  |  |
Comprehensive income | 27,379 |  |  | 17,571 |  |  | 75,922 |  |  | 19,284 |  |  |
Comprehensive income attributable to non-controlling interest | (20,380) |  |  | (12,476) |  |  | (60,475) |  |  | (13,588) |  |  |
Accretion of Series A Convertible Preferred Stock | (1,875) |  |  | (1,838) |  |  | (5,552) |  |  | (1,838) |  |  |
Comprehensive income attributable to Class A Common Stockholders | $ | 5,124 |  |  | $ | 3,257 |  |  | $ | 9,895 |  |  | $ | 3,858 |  |  |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
6

TABLE OF CONTENTS
Hagerty, Inc.
Condensed Consolidated Balance Sheets (Unaudited)

| September 30, |  | December 31, |  |
| 2024 |  | 2023 |  |
ASSETS | in thousands (except share amounts)
Current Assets: |  |  |  |  |
Cash and cash equivalents | $ | 147,120 |  |  | $ | 108,326 |  |  |
Restricted cash and cash equivalents | 176,309 |  |  | 615,950 |  |  |
Investments | 61,827 |  |  | 10,946 |  |  |
Accounts receivable | 93,488 |  |  | 71,530 |  |  |
Premiums receivable | 201,992 |  |  | 137,525 |  |  |
Commissions receivable | 18,987 |  |  | 79,115 |  |  |
Notes receivable | 62,517 |  |  | 35,896 |  |  |
Deferred acquisition costs, net | 168,635 |  |  | 141,637 |  |  |
Other current assets | 77,995 |  |  | 49,293 |  |  |
Total current assets | 1,008,870 |  |  | 1,250,218 |  |  |
Investments | 471,965 |  |  | 5,526 |  |  |
Notes receivable | 11,667 |  |  | 17,018 |  |  |
Property and equipment, net | 18,674 |  |  | 20,764 |  |  |
Lease right-of-use assets | 45,916 |  |  | 50,515 |  |  |
Intangible assets, net | 92,035 |  |  | 91,924 |  |  |
Goodwill | 114,175 |  |  | 114,214 |  |  |
Other long-term assets | 54,710 |  |  | 38,033 |  |  |
TOTAL ASSETS | $ | 1,818,012 |  |  | $ | 1,588,212 |  |  |
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY |  |  |  |  |
Current Liabilities: |  |  |  |  |
Accounts payable, accrued expenses and other current liabilities | $ | 74,547 |  |  | $ | 87,175 |  |  |
Losses payable and provision for unpaid losses and loss adjustment expenses | 258,836 |  |  | 198,508 |  |  |
Commissions payable | 94,005 |  |  | 108,739 |  |  |
Due to insurers | 118,480 |  |  | 79,815 |  |  |
Advanced premiums | 30,639 |  |  | 20,471 |  |  |
Unearned premiums | 385,619 |  |  | 317,275 |  |  |
Contract liabilities | 38,890 |  |  | 30,316 |  |  |
Total current liabilities | 1,001,016 |  |  | 842,299 |  |  |
Long-term lease liabilities | 44,866 |  |  | 50,459 |  |  |
Long-term debt, net | 122,867 |  |  | 130,680 |  |  |
Warrant liabilities | — |  |  | 34,018 |  |  |
Deferred tax liability | 21,008 |  |  | 15,937 |  |  |
Contract liabilities | 15,834 |  |  | 17,335 |  |  |
Other long-term liabilities | 4,199 |  |  | 4,139 |  |  |
TOTAL LIABILITIES | 1,209,790 |  |  | 1,094,867 |  |  |
Commitments and Contingencies (Note 22) | — |  |  | — |  |  |
TEMPORARY EQUITY |  |  |  |  |
Preferred stock, $0.0001 par value (20,000,000 shares authorized, 8,483,561 Series A Convertible Preferred Stock issued and outstanding as of September 30, 2024 and December 31, 2023) | 82,788 |  |  | 82,836 |  |  |
STOCKHOLDERS' EQUITY |  |  |  |  |
Class A Common Stock, $0.0001 par value (500,000,000 shares authorized, 89,980,363 and 84,588,536 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively) | 9 |  |  | 8 |  |  |
Class V Common Stock, $0.0001 par value (300,000,000 authorized, 251,033,906 shares issued and outstanding as of September 30, 2024 and December 31, 2023) | 25 |  |  | 25 |  |  |
Additional paid-in capital | 601,867 |  |  | 561,754 |  |  |
Accumulated earnings (deficit) | (455,083) |  |  | (468,995) |  |  |
Accumulated other comprehensive income (loss) | 1,447 |  |  | (88) |  |  |
Total stockholders' equity | 148,265 |  |  | 92,704 |  |  |
Non-controlling interest | 377,169 |  |  | 317,805 |  |  |
Total equity (Note 16) | 525,434 |  |  | 410,509 |  |  |
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY | $ | 1,818,012 |  |  | $ | 1,588,212 |  |  |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

|  |  |  |  |  |  | Three months ended September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |
| Temporary Equity |  | Stockholders' Equity |  |
| Series A Convertible Preferred Stock |  | Class A Common Stock |  | Class V Common Stock |  | Additional Paid in Capital |  | Accumulated Earnings (Deficit) |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity |  | Non-controlling Interest |  | Total Equity |  |
in thousands | Shares |  | Amount |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |  |  |  |
Balance at June 30, 2024 | 8,484 |  |  | $ | 80,913 |  |  | 85,703 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 555,040 |  |  | $ | (459,968) |  |  | $ | (667) |  |  | $ | 94,438 |  |  | $ | 359,955 |  |  | $ | 454,393 |  |  |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,885 |  |  | — |  |  | 4,885 |  |  | 14,122 |  |  | 19,007 |  |  |
Accretion of Series A Convertible Preferred Stock | — |  |  | 1,875 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,875) |  |  | — |  |  | — |  |  | (1,875) |  |  | — |  |  | (1,875) |  |  |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,114 |  |  | 2,114 |  |  | 6,258 |  |  | 8,372 |  |  |
Issuance of shares under employee plans, net of shares withheld for employee taxes | — |  |  | — |  |  | 212 |  |  | — |  |  | — |  |  | — |  |  | (1,125) |  |  | — |  |  | — |  |  | (1,125) |  |  | — |  |  | (1,125) |  |  |
Warrant Exchange (see Note 17) | — |  |  | — |  |  | 3,876 |  |  | 1 |  |  | — |  |  | — |  |  | 42,569 |  |  | — |  |  | — |  |  | 42,570 |  |  | — |  |  | 42,570 |  |  |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,092 |  |  | — |  |  | — |  |  | 4,092 |  |  | — |  |  | 4,092 |  |  |
Exchange of THG units for Class A Common Stock | — |  |  | — |  |  | 189 |  |  | — |  |  | — |  |  | — |  |  | 2,055 |  |  | — |  |  | — |  |  | 2,055 |  |  | (2,055) |  |  | — |  |  |
Reallocation between controlling and non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,111 |  |  | — |  |  | — |  |  | 1,111 |  |  | (1,111) |  |  | — |  |  |
Balance at September 30, 2024 | 8,484 |  |  | $ | 82,788 |  |  | 89,980 |  |  | $ | 9 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 601,867 |  |  | $ | (455,083) |  |  | $ | 1,447 |  |  | $ | 148,265 |  |  | $ | 377,169 |  |  | $ | 525,434 |  |  |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
8

TABLE OF CONTENTS
Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

|  |  |  |  |  |  | Nine months ended September 30, 2024 |  |  |  |  |  |  |  |  |  |
| Temporary Equity |  | Stockholders' Equity
| Series A Convertible Preferred Stock |  | Class A Common Stock |  | Class V Common Stock |  | Additional Paid in Capital |  | Accumulated Earnings (Deficit) |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity |  | Non-controlling Interest |  | Total Equity
in thousands | Shares |  | Amount |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |  |
Balance at December 31, 2023 | 8,484 |  |  | $ | 82,836 |  |  | 84,589 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 561,754 |  |  | $ | (468,995) |  |  | $ | (88) |  |  | $ | 92,704 |  |  | $ | 317,805 |  |  | $ | 410,509 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,912 |  |  | — |  |  | 13,912 |  |  | 55,951 |  |  | 69,863 |
Accretion of Series A Convertible Preferred Stock | — |  |  | 5,552 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,552) |  |  | — |  |  | — |  |  | (5,552) |  |  | — |  |  | (5,552) |
Dividends related to Series A Convertible Preferred Stock | — |  |  | (5,600) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,535 |  |  | 1,535 |  |  | 4,524 |  |  | 6,059 |
Issuance of shares under employee plans, net of shares withheld for employee taxes | — |  |  | — |  |  | 1,195 |  |  | — |  |  | — |  |  | — |  |  | (5,713) |  |  | — |  |  | — |  |  | (5,713) |  |  | — |  |  | (5,713) |
Warrant Exchange (see Note 17) | — |  |  | — |  |  | 3,876 |  |  | 1 |  |  | — |  |  | — |  |  | 42,569 |  |  | — |  |  | — |  |  | 42,570 |  |  | — |  |  | 42,570 |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,018 |  |  | — |  |  | — |  |  | 13,018 |  |  | — |  |  | 13,018 |
Exchange of THG units for Class A Common Stock | — |  |  | — |  |  | 320 |  |  | — |  |  | — |  |  | — |  |  | 3,227 |  |  | — |  |  | — |  |  | 3,227 |  |  | (3,227) |  |  | — |
Distributions paid to non-controlling interest holders | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,320) |  |  | (5,320) |
Reallocation between controlling and non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,436) |  |  | — |  |  | — |  |  | (7,436) |  |  | 7,436 |  |  | — |
Balance at September 30, 2024 | 8,484 |  |  | $ | 82,788 |  |  | 89,980 |  |  | $ | 9 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 601,867 |  |  | $ | (455,083) |  |  | $ | 1,447 |  |  | $ | 148,265 |  |  | $ | 377,169 |  |  | $ | 525,434 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

|  |  |  |  |  |  | Three months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
| Temporary Equity |  | Stockholders' Equity
| Series A Convertible Preferred Stock |  | Class A Common Stock |  | Class V Common Stock |  | Additional Paid in Capital |  | Accumulated Earnings (Deficit) |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity |  | Non-controlling Interest |  | Total Equity
in thousands | Shares |  | Amount |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |  |
Balance at June 30, 2023 | 8,484 |  |  | $ | 79,159 |  |  | 84,406 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 556,595 |  |  | $ | (489,296) |  |  | $ | 83 |  |  | $ | 67,415 |  |  | $ | 311,395 |  |  | $ | 378,810 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,354 |  |  | — |  |  | 5,354 |  |  | 13,269 |  |  | 18,623 |
Accretion of Series A Convertible Preferred Stock | — |  |  | 1,838 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,838) |  |  | — |  |  | — |  |  | (1,838) |  |  | — |  |  | (1,838) |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (259) |  |  | (259) |  |  | (793) |  |  | (1,052) |
Issuance of shares under employee plans, net of shares withheld for employee taxes | — |  |  | — |  |  | 73 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,935 |  |  | — |  |  | — |  |  | 4,935 |  |  | — |  |  | 4,935 |
Non-controlling interest issued capital | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 179 |  |  | 179 |
Termination of MHH Joint Venture (see Note 9) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (917) |  |  | 376 |  |  | — |  |  | (541) |  |  | (1,526) |  |  | (2,067) |
Reallocation between controlling and non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (814) |  |  | — |  |  | — |  |  | (814) |  |  | 814 |  |  | — |
Balance at September 30, 2023 | 8,484 |  |  | $ | 80,997 |  |  | 84,479 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 557,961 |  |  | $ | (483,566) |  |  | $ | (176) |  |  | $ | 74,252 |  |  | $ | 323,338 |  |  | $ | 397,590 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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TABLE OF CONTENTS
Hagerty, Inc.
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)

|  |  |  |  |  |  | Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
| Temporary Equity | Stockholders' Equity
| Series A Convertible Preferred Stock |  | Class A Common Stock |  | Class V Common Stock |  | Additional Paid in Capital |  | Accumulated Earnings (Deficit) |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity |  | Non-controlling Interest |  | Total Equity
in thousands | Shares |  | Amount |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  |  |  |
Balance at December 31, 2022 | — |  |  | $ | — |  |  | 83,203 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 549,034 |  |  | $ | (489,602) |  |  | $ | (213) |  |  | $ | 59,252 |  |  | $ | 308,117 |  |  | $ | 367,369 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,660 |  |  | — |  |  | 5,660 |  |  | 13,477 |  |  | 19,137 |
Accretion of Series A Convertible Preferred Stock | — |  |  | 1,838 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,838) |  |  | — |  |  | — |  |  | (1,838) |  |  | — |  |  | (1,838) |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 37 |  |  | 37 |  |  | 110 |  |  | 147 |
Issuance of shares under employee plans, net of shares withheld for employee taxes | — |  |  | — |  |  | 1,016 |  |  | — |  |  | — |  |  | — |  |  | 906 |  |  | — |  |  | — |  |  | 906 |  |  | — |  |  | 906 |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 13,157 |  |  | — |  |  | — |  |  | 13,157 |  |  | — |  |  | 13,157 |
Exchange of THG units for Class A Common Stock | — |  |  | — |  |  | 260 |  |  | — |  |  | — |  |  | — |  |  | 2,311 |  |  | — |  |  | — |  |  | 2,311 |  |  | (2,311) |  |  | — |
Issuance of Series A Convertible Preferred Stock, net of issuance costs | 8,484 |  |  | 79,159 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Non-controlling interest issued capital | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 779 |  |  | 779 |
Termination of MHH Joint Venture (see Note 9) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (917) |  |  | 376 |  |  | — |  |  | (541) |  |  | (1,526) |  |  | (2,067) |
Reallocation between controlling and non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,692) |  |  | — |  |  | — |  |  | (4,692) |  |  | 4,692 |  |  | — |
Balance at September 30, 2023 | 8,484 |  |  | $ | 80,997 |  |  | 84,479 |  |  | $ | 8 |  |  | 251,034 |  |  | $ | 25 |  |  | $ | 557,961 |  |  | $ | (483,566) |  |  | $ | (176) |  |  | $ | 74,252 |  |  | $ | 323,338 |  |  | $ | 397,590 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)

| Nine months ended September 30, |  |
| 2024 |  | 2023 |  |
OPERATING ACTIVITIES: | in thousands
Net income | $ | 69,863 |  |  | $ | 19,137 |  |  |
Adjustments to reconcile net income to net cash from operating activities: |  |  |  |  |
Loss related to warrant liabilities, net | 8,544 |  |  | 1,419 |  |  |
Depreciation and amortization | 29,758 |  |  | 34,893 |  |  |
Provision for deferred taxes | 2,772 |  |  | 4,973 |  |  |
Impairment of operating lease right-of-use assets | — |  |  | 1,147 |  |  |
Loss on disposals of equipment, software and other assets | 401 |  |  | 2,019 |  |  |
Gains, losses, and impairments related to divestitures | (87) |  |  | 2,827 |  |  |
Share-based compensation expense | 13,018 |  |  | 13,157 |  |  |
Non-cash lease expense | 5,920 |  |  | 9,472 |  |  |
Other | (354) |  |  | 708 |  |  |
Changes in operating assets and liabilities: |  |  |  |  |
Accounts, premiums and commissions receivable | (28,062) |  |  | (107,001) |  |  |
Deferred acquisition costs, net | (26,998) |  |  | (47,936) |  |  |
Losses payable and provision for unpaid losses and loss adjustment expenses | 60,328 |  |  | 23,527 |  |  |
Commissions payable | (14,734) |  |  | 34,582 |  |  |
Due to insurers | 38,586 |  |  | 45,322 |  |  |
Advanced premiums | 10,166 |  |  | 11,800 |  |  |
Unearned premiums | 68,344 |  |  | 100,439 |  |  |
Operating lease liabilities | (6,781) |  |  | (9,018) |  |  |
Other assets and liabilities, net | (41,042) |  |  | (9,246) |  |  |
Net Cash Provided by Operating Activities | 189,642 |  |  | 132,221 |  |  |
INVESTING ACTIVITIES: |  |  |  |  |
Capital expenditures | (17,278) |  |  | (21,556) |  |  |
Acquisitions, net of cash acquired, and other investments | (23,865) |  |  | (8,690) |  |  |
Issuance of notes receivable | (55,030) |  |  | (11,405) |  |  |
Collection of notes receivable | 32,099 |  |  | 10,252 |  |  |
Purchases of fixed maturity securities | (565,838) |  |  | (7,277) |  |  |
Proceeds from sales of fixed maturity securities | 53,253 |  |  | — |  |  |
Proceeds from maturities of fixed maturity securities | 23,766 |  |  | 4,128 |  |  |
Purchases of equity securities | (10,602) |  |  | — |  |  |
Other investing activities | 1,005 |  |  | 86 |  |  |
Net Cash Used in Investing Activities | (562,490) |  |  | (34,462) |  |  |
FINANCING ACTIVITIES: |  |  |  |  |
Payments on long-term debt | (63,202) |  |  | (132,850) |  |  |
Proceeds from long-term debt, net of issuance costs | 52,718 |  |  | 100,345 |  |  |
Proceeds from issuance of Series A Convertible Preferred Stock, net of issuance costs | — |  |  | 79,159 |  |  |
Contribution from non-controlling interest | — |  |  | 779 |  |  |
Distributions paid to non-controlling interest unit holders | (5,320) |  |  | — |  |  |
Payment of Series A Convertible Preferred Stock dividends | (5,600) |  |  | — |  |  |
Funding of employee tax obligations upon vesting of share-based payments | (5,713) |  |  | — |  |  |
Proceeds from issuance of Class A Common Stock under employee stock purchase plan | — |  |  | 906 |  |  |
Net Cash Provided by (Used in) Financing Activities | (27,117) |  |  | 48,339 |  |  |
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents | (882) |  |  | 286 |  |  |
Change in cash and cash equivalents and restricted cash and cash equivalents | (400,847) |  |  | 146,384 |  |  |
Beginning cash and cash equivalents and restricted cash and cash equivalents | 724,276 |  |  | 539,191 |  |  |
Ending cash and cash equivalents and restricted cash and cash equivalents | $ | 323,429 |  |  | $ | 685,575 |  |  |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 21 for information regarding Related-Party Transactions.
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Hagerty, Inc.
Notes To Condensed Consolidated Financial Statements (Unaudited)
1 — Basis of Presentation and Accounting Policies
In these Notes to the Condensed Consolidated Financial Statements, the terms "Hagerty," and the "Company" refer to Hagerty, Inc. and its consolidated subsidiaries, including The Hagerty Group, LLC ("THG"), unless the context requires otherwise. In addition, the Company's insurance policyholders and paid Hagerty Drivers Club ("HDC") subscribers are collectively referred to as "Members".
Description of Business — Hagerty is a market leader in providing insurance for classic cars and enthusiast vehicles. Through Hagerty's insurance model, the Company acts as a Managing General Agent ("MGA") by underwriting, selling, and servicing classic car and enthusiast vehicle insurance policies. The Company then reinsures a large portion of the risks written by its MGA subsidiaries through its wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"). In addition, Hagerty offers HDC memberships, which can be bundled with its insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, Hagerty's proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. Lastly, to complement its insurance membership offerings, the Company offers Hagerty Marketplace ("Marketplace"), where car enthusiasts can buy, sell, and finance collector cars.
These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Basis of Presentation — The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the regulations of the Securities and Exchange Commission and include the accounts of Hagerty, Inc., which is comprised of THG and its consolidated subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as permitted by such rules and regulations.
The Condensed Consolidated Financial Statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of the Company's financial position and results of operations for the interim periods presented.
Principles of Consolidation — The Condensed Consolidated Financial Statements contain the accounts of Hagerty, Inc. and its majority-owned or controlled subsidiaries.
As of September 30, 2024 and December 31, 2023, Hagerty, Inc. had economic ownership of 26.1% and 24.9%, respectively, of THG and is its sole managing member. Hagerty, Inc. reports a non-controlling interest representing the economic interest in THG held by other parties.
The financial statements of THG are consolidated by the Company under the voting interest method in accordance with Accounting Standards Codification ("ASC") Topic 810, Consolidations ("ASC 810"). Non-controlling interest is presented separately on the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity.
All intercompany accounts and transactions have been eliminated in consolidation.
Variable Interest Entities — Broad Arrow Capital LLC ("BAC") and certain of its subsidiaries transfer notes receivable to wholly owned, bankruptcy-remote, special purpose entities (each, an "SPE") to secure borrowings under the BAC Credit Agreement (as defined in Note 14 — Long-Term Debt).
These SPEs are considered to be variable interest entities (each, a "VIE") under GAAP and their financial statements are consolidated by BAC, which is the primary beneficiary of the SPEs and also a consolidated subsidiary of the Company. BAC is considered to be the primary beneficiary of the SPEs because it has (i) power over the significant activities of the SPEs through its role as servicer of the notes receivable used to secure borrowings under the BAC Credit Agreement and (ii) the obligation to absorb losses or the right to receive returns that could be significant through its interest in the residual cash flows of the SPEs.
Refer to Note 5 — Notes Receivable and Note 14 — Long-Term Debt for additional information.
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The following table presents the assets and liabilities of the Company's consolidated variable interest entities as of September 30, 2024 and December 31, 2023:

| September 30, |  | December 31,
| 2024 |  | 2023
ASSETS | in thousands
Cash and cash equivalents | $ | 412 |  |  | $ | 83 |
Restricted cash and cash equivalents | 1,900 |  |  | 961 |
Accounts receivable | — |  |  | 190 |
Notes receivable | 62,773 |  |  | 30,125 |
Other assets | 2,218 |  |  | 2,900 |
TOTAL ASSETS | $ | 67,303 |  |  | $ | 34,259 |
LIABILITIES |  |  |
Accounts payable, accrued expenses and other current liabilities | $ | 2,086 |  |  | $ | 1,881 |
Long-term debt, net | 46,118 |  |  | 25,782 |
TOTAL LIABILITIES | $ | 48,204 |  |  | $ | 27,663 |

Emerging Growth Company — The Company currently qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 and can delay the adoption of new or revised accounting standards until those standards would apply to private companies.
The Company intends to avail itself of this extended transition period and, therefore, the Company may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or have opted out of using such extended transition period. As of September 30, 2024, t he Company has not delayed the adoption of any new or revised accounting standards despite qualifying as an emerging growth company.
Reclassifications — Certain prior period operating lease balances on the Condensed Consolidated Statements of Cash Flows originally reported within changes in "Other assets and liabilities, net" are now reported within "Non-cash lease expense" to conform to the current year presentation.
Further, in conjunction with Hagerty Re's investment diversification in the second quarter of 2024, prior period fixed maturity investment balances have been reclassified from "Other current assets" and "Other long-term assets" to "Investments" on the Condensed Consolidated Balance Sheets to conform to the current year presentation. Refer to Note 3 — Investments for additional information related to the Company's investment portfolio.
These reclassifications had no effect on the Company's previously reported operating income, net income, earnings per share, cash flows, or retained earnings.
Use of Estimates —The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenue and expenses during the reporting period. Although the estimates are considered reasonable, actual results could materially differ from those estimates.
Significant estimates made by management include, but are not limited to: (i) the provision for unpaid losses and loss adjustment expenses, including incurred but not reported claims (see Note 11); (ii) the valuation of the Company's deferred income tax assets (see Note 20); (iii) the amount of the liability associated with the Tax Receivable Agreement ("TRA") (see Note 20); (iv) the fair values of the reporting units used in assessing the recoverability of goodwill; (v) the valuation and useful lives of intangible assets (see Note 10); and (vi) the fair value of the Company's previous warrant liabilities (see Note 4 and Note 17). Although some variability is inherent in these estimates, management believes that the current estimates are reasonable in all material respects. These estimates are reviewed regularly and adjusted, as necessary. Adjustments related to changes in estimates are reflected in the Company's results of operations in the period during which those estimates changed.
Segment Information— The Company has one operating segment and one reportable segment. The Company's Chief Operating Decision Maker ("CODM") is the Chief Executive Officer ("CEO"), who makes resource allocation decisions and assesses performance based on consolidated financial information. The Company's segment presentation reflects a management approach that utilizes a decision making framework with its Members and customers at the center of all decisions, which requires the CODM to have a consolidated view of the Company's results.
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Investments — Fixed maturity securities are classified as available-for-sale and recorded on the Condensed Consolidated Balance Sheets at their fair value, with those having maturity dates within one year of the balance sheet date classified within current assets. On a quarterly basis, fixed maturity securities with unrealized losses are reviewed to determine whether the decline in fair value is attributable to a material credit loss. If a material credit loss is noted, an allowance is established and the credit loss is recorded in the Condensed Consolidated Statements of Operations.
Unrealized gains and losses on fixed maturity securities are recorded within "Change in net unrealized gain on available-for-sale investments", a component of "Accumulated other comprehensive income (loss)" on the Condensed Consolidated Balance Sheets. Realized investment gains or losses from sales of available-for-sale investments are recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.
Interest on fixed maturity securities is recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations. Premiums and discounts are amortized or accreted, respectively, over the lives of the related fixed maturity securities as an adjustment to the yield using the effective interest method.
Equity securities are recorded on the Condensed Consolidated Balance Sheets at their fair value and are classified within current assets. Dividend income, as well as realized and unrealized gains and losses on equity securities are recorded within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.
Refer to Note 3 — Investments and Note 4 — Fair Value Measurements for additional information regarding the Company's investment portfolio.
Supplemental Cash Flow Information — The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of September 30, 2024 and 2023:

| September 30,
| 2024 |  | 2023
| in thousands
Cash and cash equivalents | $ | 147,120 |  |  | $ | 90,710 |
Restricted cash and cash equivalents | 176,309 |  |  | 594,865 |
Total cash and cash equivalents and restricted cash and cash equivalents | $ | 323,429 |  |  | $ | 685,575 |

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The table below presents information regarding the Company's non-cash investing and financing activities, as well as the cash paid for interest and taxes for the nine months ended September 30, 2024 and 2023:

|  | Nine months ended September 30,
|  | 2024 |  | 2023
NON-CASH INVESTING ACTIVITIES: |  | in thousands
Issuance of notes receivable (1) |  | $ | 5,290 |  |  | $ | 6,067 |
Collection of notes receivable (1) |  | $ | 7,264 |  |  | $ | 4,547 |
Capital expenditures |  | $ | 248 |  |  | $ | 237 |
Acquisitions |  | $ | — |  |  | $ | 1,742 |
Termination of MHH Joint Venture (Refer to Note 9) |  | $ | — |  |  | $ | 2,929 |
NON-CASH FINANCING ACTIVITIES: |  |  |  |
Warrant Exchange (Refer to Note 17) |  | $ | 2,006 |  |  | $ | — |
Exchange of THG units for Class A Common Stock (Refer to Note 16) |  | $ | 3,227 |  |  | $ | 2,311 |
CASH PAID FOR: |  |  |  |
Interest |  | $ | 5,559 |  |  | $ | 4,236 |
Income taxes |  | $ | 17,500 |  |  | $ | 7,000 |

(1) In certain situations, BAC makes loans to refinance accounts receivable balances generated by Broad Arrow Group, Inc. ("Broad Arrow") auction or private sale purchases. These loans are accounted for on the Condensed Consolidated Balance Sheets as non-cash reclassifications between "Accounts receivable" and "Notes receivable" and are not presented within Investing Activities in the Company's Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such loans is classified within Operating Activities in the Company's Condensed Consolidated Statements of Cash Flows.
The issuance of Class A Common Stock resulting from the vesting of restricted stock units is a non-cash financing activity. Refer to Note 18 — Share-Based Compensation for information related to share-based compensation.
Supplemental Balance Sheet Information
Restricted Assets — As discussed in more detail below, certain of the Company's subsidiaries hold assets in trust and/or that are restricted as to their use.
The Company's MGA subsidiaries collect premiums from insureds on behalf of insurance carriers. Prior to remittance to the insurance carrier, these funds are required to be held in trust for the benefit of the insurance carriers and segregated from the Company's operating cash.
Hagerty Re maintains trust accounts for the benefit of various ceding insurers as security for their obligations for losses, loss expenses, unearned premium and profit-sharing commissions.
On September 1, 2024, the Company acquired Consolidated National Insurance Company, which was subsequently renamed Drivers Edge Insurance Company ("Drivers Edge"). Drivers Edge maintains assets on deposit with a number of regulatory authorities to support its insurance operations. Refer to Note 8 — Acquisition for additional information related to the Company's acquisition of Drivers Edge.
BAC and its consolidated subsidiaries maintain bank accounts that are required for the operation of the BAC Credit Facility (as defined in Note 14 — Long-Term Debt). The funds in these bank accounts represent security under the BAC Credit Facility and their use is restricted to the servicing of the debt outstanding under that facility.
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The following table presents the components of the Company's restricted assets as of September 30, 2024 and December 31, 2023:

| Balance Sheet Classification |  | September 30, |  | December 31,
|  | 2024 |  | 2023
|  |  | in thousands
Cash and cash equivalents | Restricted cash and cash equivalents |  | $ | 176,309 |  |  | $ | 615,950 |
Fixed maturity securities | Investments |  | 522,212 |  |  | 16,472 |
Equity securities | Investments |  | 11,580 |  |  | — |
Total restricted assets |  |  | $ | 710,101 |  |  | $ | 632,422 |

Accounting Standards Not Yet Adopted
Income Taxes — In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09 - Income Taxes (ASC 740), Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures through changes to the rate reconciliation and income taxes paid information. ASU No. 2023-09 modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign), and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU No. 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is still assessing the impact of ASU No. 2023-09 and upon adoption may be required to include certain additional disclosures in the footnotes to the Condensed Consolidated Financial Statements.
Segment Reporting — In November 2023, the FASB issued ASU No. 2023-07 - Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures, which enables investors to better understand an entity's overall performance and assess potential future cash flows through improved reportable segment disclosure requirements. The amendments enhance disclosures about significant segment expenses, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. The Company is still assessing the impact of ASU No. 2023-07 and upon adoption may be required to include certain additional disclosures in the footnotes to the Condensed Consolidated Financial Statements.
2 — Revenue
Disaggregation of Revenue —The tables below present Hagerty's revenue by distribution channel, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2024 and 2023. Commission and fee revenue and contingent underwriting commission ("CUC") revenue earned from the agent distribution channel includes revenue generated through Hagerty's relationships with independent agents and brokers. Commission and fee revenue and CUC revenue earned from the direct distribution channel includes revenue generated by Hagerty's employee agents.
Prior to 2024, the Company's MGA subsidiaries have earned a base commission of approximately 32% of written premium, as well as an additional contingent commission of up to 10% annually. In December 2023, the Company's alliance agreement and associated agency agreement with Markel Group, Inc. ("Markel") was amended to increase the base commission rate on the personal lines United States ("U.S.") auto business to 37% and to adjust the contingent commission to range from -5% to a maximum of +5% of annual written premium. This amendment resulted in a smaller proportion of total revenue being attributable to contingent commissions during the three and nine months ended September 30, 2024, when compared to the three and nine months ended September 30, 2023.
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| Three months ended September 30, 2024
| Agent |  | Direct |  | Total
in thousands
Commission and fee revenue | $ | 57,857 |  |  | $ | 47,606 |  |  | $ | 105,463 |
Contingent commission revenue | 5,997 |  |  | 4,701 |  |  | 10,698 |
Membership revenue | — |  |  | 14,800 |  |  | 14,800 |
Marketplace and other revenue | — |  |  | 26,727 |  |  | 26,727 |
Total revenue from customer contracts | 63,854 |  |  | 93,834 |  |  | 157,688 |
Earned premium |  |  |  |  | 165,686 |
Total revenue |  |  |  |  | $ | 323,374 |

| Three months ended September 30, 2023
| Agent |  | Direct |  | Total
| in thousands
Commission and fee revenue | $ | 44,387 |  |  | $ | 37,388 |  |  | $ | 81,775 |
Contingent commission revenue | 11,825 |  |  | 9,573 |  |  | 21,398 |
Membership revenue | — |  |  | 13,835 |  |  | 13,835 |
Marketplace and other revenue | — |  |  | 18,781 |  |  | 18,781 |
Total revenue from customer contracts | 56,212 |  |  | 79,577 |  |  | 135,789 |
Earned premium |  |  |  |  | 139,785 |
Total revenue |  |  |  |  | $ | 275,574 |

| Nine months ended September 30, 2024
| Agent |  | Direct |  | Total
in thousands
Commission and fee revenue | $ | 164,737 |  |  | $ | 136,597 |  |  | $ | 301,334 |
Contingent commission revenue | 17,869 |  |  | 14,614 |  |  | 32,483 |
Membership revenue | — |  |  | 42,385 |  |  | 42,385 |
Marketplace and other revenue | — |  |  | 57,188 |  |  | 57,188 |
Total revenue from customer contracts | 182,606 |  |  | 250,784 |  |  | 433,390 |
Earned premium |  |  |  |  | 474,917 |
Total revenue |  |  |  |  | $ | 908,307 |

| Nine months ended September 30, 2023
| Agent |  | Direct |  | Total
| in thousands
Commission and fee revenue | $ | 123,046 |  |  | $ | 104,229 |  |  | $ | 227,275 |
Contingent commission revenue | 33,506 |  |  | 27,191 |  |  | 60,697 |
Membership revenue | — |  |  | 39,528 |  |  | 39,528 |
Marketplace and other revenue | — |  |  | 43,172 |  |  | 43,172 |
Total revenue from customer contracts | 156,552 |  |  | 214,120 |  |  | 370,672 |
Earned premium |  |  |  |  | 384,498 |
Total revenue |  |  |  |  | $ | 755,170 |

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The following tables present Hagerty's revenue disaggregated by geographic area, as well as a reconciliation to total revenue for the three months ended September 30, 2024 and 2023:

| Three months ended September 30, 2024
| U.S. |  | Canada |  | Europe |  | Total
| in thousands
Commission and fee revenue | $ | 96,688 |  |  | $ | 6,952 |  |  | $ | 1,823 |  |  | $ | 105,463 |
Contingent commission revenue | 10,544 |  |  | — |  |  | 154 |  |  | 10,698 |
Membership revenue | 13,844 |  |  | 955 |  |  | 1 |  |  | 14,800 |
Marketplace and other revenue | 25,229 |  |  | 205 |  |  | 1,293 |  |  | 26,727 |
Total revenue from customer contracts | 146,305 |  |  | 8,112 |  |  | 3,271 |  |  | 157,688 |
Earned premium |  |  |  |  |  |  | 165,686 |
Total revenue |  |  |  |  |  |  | $ | 323,374 |

| Three months ended September 30, 2023
| U.S. |  | Canada |  | Europe |  | Total
| in thousands
Commission and fee revenue | $ | 73,891 |  |  | $ | 6,422 |  |  | $ | 1,462 |  |  | $ | 81,775 |
Contingent commission revenue | 21,360 |  |  | — |  |  | 38 |  |  | 21,398 |
Membership revenue | 12,942 |  |  | 893 |  |  | — |  |  | 13,835 |
Marketplace and other revenue | 17,779 |  |  | 229 |  |  | 773 |  |  | 18,781 |
Total revenue from customer contracts | 125,972 |  |  | 7,544 |  |  | 2,273 |  |  | 135,789 |
Earned premium |  |  |  |  |  |  | 139,785 |
Total revenue |  |  |  |  |  |  | $ | 275,574 |

The following tables present Hagerty's revenue disaggregated by geographic area, as well as a reconciliation to total revenue for the nine months ended September 30, 2024 and 2023:

| Nine months ended September 30, 2024
| U.S. |  | Canada |  | Europe |  | Total
in thousands
Commission and fee revenue | $ | 277,613 |  |  | $ | 18,878 |  |  | $ | 4,843 |  |  | $ | 301,334 |
Contingent commission revenue | 32,235 |  |  | — |  |  | 248 |  |  | 32,483 |
Membership revenue | 39,592 |  |  | 2,792 |  |  | 1 |  |  | 42,385 |
Marketplace and other revenue | 52,911 |  |  | 1,230 |  |  | 3,047 |  |  | 57,188 |
Total revenue from customer contracts | 402,351 |  |  | 22,900 |  |  | 8,139 |  |  | 433,390 |
Earned premium |  |  |  |  |  |  | 474,917 |
Total revenue |  |  |  |  |  |  | $ | 908,307 |

| Nine months ended September 30, 2023
| U.S. |  | Canada |  | Europe |  | Total
| in thousands
Commission and fee revenue | $ | 206,099 |  |  | $ | 17,379 |  |  | $ | 3,797 |  |  | $ | 227,275 |
Contingent commission revenue | 60,590 |  |  | — |  |  | 107 |  |  | 60,697 |
Membership revenue | 36,865 |  |  | 2,663 |  |  | — |  |  | 39,528 |
Marketplace and other revenue | 40,366 |  |  | 741 |  |  | 2,065 |  |  | 43,172 |
Total revenue from customer contracts | 343,920 |  |  | 20,783 |  |  | 5,969 |  |  | 370,672 |
Earned premium |  |  |  |  |  |  | 384,498 |
Total revenue |  |  |  |  |  |  | $ | 755,170 |

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Refer to Note 12 — Reinsurance for information regarding "Earned premium" recognized under ASC Topic 944, Financial Services - Insurance ("ASC 944").
Contract Assets and Liabilities — The following table is a summary of the Company's contract assets and liabilities as of September 30, 2024 and December 31, 2023:

| September 30, |  | December 31,
| 2024 |  | 2023
| in thousands
Contract assets | $ | 13,581 |  |  | $ | 75,891 |
Contract liabilities | $ | 54,724 |  |  | $ | 47,651 |

Contract assets, which are reported within "Commissions receivable" on the Condensed Consolidated Balance Sheets, consist of CUC receivables, which are earned throughout the year and have historically been settled by a cash payment from the insurance carrier in the first quarter of the following year. As a result of its amended alliance agreement and associated agency agreement with Markel, beginning in 2024, 80% of the CUC receivables from Markel are now being settled monthly rather than on an annual basis. This amendment resulted in a significant decrease in the contract assets balance compared to the prior year.
Contract liabilities consist of cash collected in advance of revenue recognition and primarily includes the unrecognized portion of HDC membership fees, the unrecognized portion of the advanced commission payment received from State Farm Mutual Automobile Insurance Company ("State Farm"), and, to a much lesser extent, cash collected in advance of the completion of Marketplace private sales. Refer to Note 21 — Related-Party Transactions for additional information regarding the Company's master alliance agreement with State Farm.
3 — Investments
During the second quarter of 2024, the Company diversified its investment portfolio, purchasing fixed maturity securities and, to a much lesser extent, equity securities, with the fixed maturity securities classified as available-for-sale.
During the third quarter of 2024, in conjunction with the acquisition of Drivers Edge, the Company acquired additional fixed maturity securities, classified as available-for-sale. Refer to Note 8 — Acquisition for additional information related to the acquisition of Drivers Edge.
The Company also holds fixed maturity securities consisting of Canadian Sovereign, Provincial, and Municipal bonds. Prior to the second quarter of 2024, these investments were classified as held-to-maturity because the Company had the intent and ability to hold the investments to maturity. However, in the second quarter of 2024, these investments were reclassified as available-for-sale because management now intends to opportunistically sell bonds from this portfolio in connection with the diversification of the Company's investment portfolio. As a result of this reclassification, the Company recognized an unrealized loss of $0.2 million in the Condensed Consolidated Statements of Comprehensive Income in the second quarter of 2024.
As of September 30, 2024, all fixed maturity securities had an investment grade rating from at least one nationally recognized rating organization.
Available-for-sale investments
The following table summarizes the Company's available-for-sale investments as of September 30, 2024:

| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  |  |  | Estimated Fair Value
Fixed maturity securities: | in thousands
Corporate | $ | 209,096 |  |  | $ | 4,895 |  |  | $ | (27) |  |  |  |  | $ | 213,964 |
U.S. Treasury | 108,530 |  |  | 1,054 |  |  | (23) |  |  |  |  | 109,561 |
States and municipalities | 38,211 |  |  | 1,718 |  |  | — |  |  |  |  | 39,929 |
Foreign | 18,632 |  |  | 56 |  |  | (54) |  |  |  |  | 18,634 |
Asset-backed securities | 25,126 |  |  | 650 |  |  | (9) |  |  |  |  | 25,767 |
Mortgage-backed securities | 111,585 |  |  | 2,804 |  |  | (32) |  |  |  |  | 114,357 |
Total fixed maturity securities | $ | 511,180 |  |  | $ | 11,177 |  |  | $ | (145) |  |  |  |  | $ | 522,212 |

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On a quarterly basis, fixed maturity securities with unrealized losses are reviewed to determine whether the decline in fair value is attributable to a material credit loss. As of September 30, 2024, no credit loss allowance was recorded and all unrealized losses on available-for-sale fixed maturity securities were in such position for less than one year. It is management's intent to hold these investments to recovery, or maturity, if necessary, to recover the decline in valuation as prices accrete to par.
The following table summarizes the contractual maturities of the Company's available-for-sale investments as of September 30, 2024:

| Amortized Cost |  | Estimated Fair Value
| in thousands
Due in one year or less | $ | 50,130 |  |  | $ | 50,247 |
Due after one year through five years | 239,695 |  |  | 244,116 |
Due after five years through ten years | 76,631 |  |  | 79,357 |
Due after ten years | 8,013 |  |  | 8,368 |
Mortgage-backed and asset-backed securities | 136,711 |  |  | 140,124 |
Total fixed maturity securities | $ | 511,180 |  |  | $ | 522,212 |

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Held-to-maturity investments
The following table summarizes the fair value and related carrying amount of the Company's held-to-maturity investments as of December 31, 2023:

|  |  |  |  | Carrying Amount |  | Estimated Fair Value
|  |  |  |  | in thousands
Short-term |  |  |  |  | $ | 10,946 |  |  | $ | 10,864 |
Long-term |  |  |  |  | 5,526 |  |  | 5,398 |
Total |  |  |  |  | $ | 16,472 |  |  | $ | 16,262 |

Net investment income
The following table presents the components of net investment income for the three and nine months ended September 30, 2024 and 2023:

| Three months ended September 30, |  | Nine months ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Interest income: | in thousands
Cash and cash equivalents and restricted cash and cash equivalents | $ | 4,514 |  |  | $ | 7,084 |  |  | $ | 21,154 |  |  | $ | 17,990 |
Fixed maturity securities | 5,127 |  |  | 121 |  |  | 8,921 |  |  | 344 |
Total interest income | 9,641 |  |  | 7,205 |  |  | 30,075 |  |  | 18,334 |
Dividends on equity securities | 34 |  |  | — |  |  | 58 |  |  | — |
Gross investment income | 9,675 |  |  | 7,205 |  |  | 30,133 |  |  | 18,334 |
Investment expenses | (91) |  |  | — |  |  | (213) |  |  | — |
Net investment income | $ | 9,584 |  |  | $ | 7,205 |  |  | $ | 29,920 |  |  | $ | 18,334 |

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Net realized and unrealized gains (losses) on investments
The table below presents the components of pre-tax net investment gains (losses) included in Net Income in the Condensed Consolidated Statements of Operations and the pre-tax change in net unrealized gains (losses) included in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024. The gross amounts of realized investment gains and losses on fixed maturity securities were not material to the Condensed Consolidated Financial Statements and are presented on a net basis in the table below.

| Three months ended |  | Nine months ended
| September 30, 2024
Fixed maturity securities: | in thousands
Net realized investment gains (losses) | $ | 700 |  |  | $ | 731 |
Equity securities: |  |  |
Total change in fair value of equity securities | 574 |  |  | 1,052 |
Net investment gains (losses) | $ | 1,274 |  |  | $ | 1,783 |
Change in net unrealized gains (losses) on available-for-sale investments included in Other comprehensive income (loss): |  |  |
Fixed maturity securities | $ | 10,081 |  |  | $ | 11,032 |

4 — Fair Value Measurements
Fair value measurements are classified within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input requires judgment.
The three levels of the fair value hierarchy are as follows:
•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date for substantially the full term of the asset or liability.
•Level 3 — Pricing inputs are unobservable, but management believes that such inputs are predicated on the assumptions market participants would use to measure the asset or liability at fair value.
The Company's policy is to recognize significant transfers between levels, if any, at the end of the reporting period. There were no transfers between levels during the current and prior reporting periods.
Investments
Fixed maturity securities are classified as Level 2 within the fair value hierarchy and equity securities are classified as Level 1. The fair value of these investments is determined after considering various sources of information, including information provided by a third-party pricing service, which provides prices for substantially all of the Company's fixed maturity securities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows, and prepayment speeds.
Refer to Note 3 — Investments for additional information related to the Company's investment portfolio.
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Interest rate swap
In December 2020, the Company entered into an interest rate swap with an original notional amount of $35.0 million, a fixed swap rate of 0.81%, and a maturity date in December 2025. The interest rate swap was designated as a cash flow hedge and the Company formally documented the relationship between the interest rate swap and its variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. The Company also assessed whether the interest rate swap was highly effective in offsetting variability in the cash flows of its variable rate borrowings. The hedge was deemed effective at inception and on an ongoing basis; therefore, any changes in fair value were recorded within "Change in unrealized gain (loss) on interest rate swap" in the Condensed Consolidated Statements of Comprehensive Income. The differential paid or received on the interest rate swap agreement was recognized as an adjustment to interest expense within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations.
As of December 31, 2023, the interest rate swap was in an asset position and had a fair value of $2.2 million, which was recorded within "Other long-term assets" on the Condensed Consolidated Balance Sheets. The interest rate swap was classified as Level 2 within the fair value hierarchy. The significant inputs used to determine the fair value of the interest rate swap, such as the Secured Overnight Financing Rate ("SOFR") forward curve, are considered observable market inputs.
In the second quarter of 2024, the Company reduced its borrowings under the JPM Credit Facility (as defined in Note 14 — Long-Term Debt) below the $35.0 million notional amount of the interest rate swap and, as a result, the interest rate swap was settled prior to its maturity date. In connection with the settlement of the interest rate swap, the Company received $2.3 million in cash proceeds and recognized a $2.3 million gain in the second quarter of 2024 within "Interest and other income (expense), net" in the Condensed Consolidated Statements of Operations, with a corresponding amount reclassified from Accumulated other comprehensive income (loss).
Warrant liabilities
As of December 31, 2023, the Company's Public Warrants were classified as Level 1 within the fair value hierarchy as they were measured utilizing quoted market prices. The Company's Private Warrants, Underwriter Warrants, OTM Warrants (together with the Private Warrants and Underwriter Warrants, the "Private Placement Warrants"), and PIPE Warrants were classified as Level 3 within the fair value hierarchy. The Company utilized a Monte Carlo simulation model to measure the fair value of the Level 3 warrants. The Company's Monte Carlo simulation model included assumptions related to the expected stock price volatility, expected term, dividend yield, and risk-free interest rate.
In the third quarter of 2024, the Company completed the Warrant Exchange, which resulted in the settlement of all outstanding warrants. Refer to Note 17 — Warrant Exchange for additional information related to the Warrant Exchange.
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Summary of assets and liabilities measured at fair value
The fair values of the Company's financial assets and liabilities as of September 30, 2024 and December 31, 2023 are shown in the following tables:

| Estimated Fair Value as of September 30, 2024
| Total |  | Level 1 |  | Level 2 |  | Level 3
| in thousands
Financial Assets |  |  |  |  |  |  |
Investments: |  |  |  |  |  |  |
Corporate | $ | 213,964 |  |  | $ | — |  |  | $ | 213,964 |  |  | $ | — |
U.S. Treasury | 109,561 |  |  | — |  |  | 109,561 |  |  | — |
States and municipalities | 39,929 |  |  | — |  |  | 39,929 |  |  | — |
Foreign | 18,634 |  |  | — |  |  | 18,634 |  |  | — |
Asset-backed securities | 25,767 |  |  | — |  |  | 25,767 |  |  | — |
Mortgage-backed securities | 114,357 |  |  | — |  |  | 114,357 |  |  | — |
Common stocks | 11,580 |  |  | 11,580 |  |  | — |  |  | — |
Total | $ | 533,792 |  |  | $ | 11,580 |  |  | $ | 522,212 |  |  | $ | — |
| Estimated Fair Value as of December 31, 2023
| Total |  | Level 1 |  | Level 2 |  | Level 3
| in thousands
Financial Assets |  |  |  |  |  |  |
Fixed maturity securities, held to maturity: |  |  |  |  |  |  |
Foreign | $ | 16,472 |  |  | $ | — |  |  | $ | 16,472 |  |  | $ | — |
Interest rate swap | 2,234 |  |  | — |  |  | 2,234 |  |  | — |
Total | $ | 18,706 |  |  | $ | — |  |  | $ | 18,706 |  |  | $ | — |
Financial Liabilities |  |  |  |  |  |  |
Public Warrants | $ | 9,488 |  |  | $ | 9,488 |  |  | $ | — |  |  | $ | — |
Private Warrants | 476 |  |  | — |  |  | — |  |  | 476 |
Underwriter Warrants | 53 |  |  | — |  |  | — |  |  | 53 |
OTM Warrants | 3,981 |  |  | — |  |  | — |  |  | 3,981 |
PIPE Warrants | 20,020 |  |  | — |  |  | — |  |  | 20,020 |
Total | $ | 34,018 |  |  | $ | 9,488 |  |  | $ | — |  |  | $ | 24,530 |

The following table presents a reconciliation of the Company's warrant liabilities that are classified as Level 3 within the fair value hierarchy for the nine months ended September 30, 2024 and 2023:

| Private Warrants |  | Underwriter Warrants |  | OTM Warrants |  | PIPE Warrants |  | Total
| in thousands
Balance at December 31, 2023 | $ | 476 |  |  | $ | 53 |  |  | $ | 3,981 |  |  | $ | 20,020 |  |  | $ | 24,530 |
Change in fair value of warrant liabilities | 55 |  |  | 5 |  |  | 546 |  |  | 4,056 |  |  | 4,662 |
Warrant Exchange (see Note 17) | (531) |  |  | (58) |  |  | (4,527) |  |  | (24,076) |  |  | (29,192) |
Balance at September 30, 2024 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Balance at December 31, 2022 | $ | 673 |  |  | $ | 75 |  |  | $ | 4,706 |  |  | $ | 27,227 |  |  | $ | 32,681 |
Change in fair value of warrant liabilities | 33 |  |  | 4 |  |  | 541 |  |  | 554 |  |  | 1,132 |
Balance at September 30, 2023 | $ | 706 |  |  | $ | 79 |  |  | $ | 5,247 |  |  | $ | 27,781 |  |  | $ | 33,813 |

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5 — Notes Receivable
BAC provides financing solutions to qualified collectors and businesses by structuring loans secured by collector cars. The loans underwritten by BAC include term loans and short-term bridge financings. The loans underwritten by BAC are recorded on the Condensed Consolidated Balance Sheets within "Notes receivable".
Loans carry either a fixed or variable rate of interest and typically have an initial maturity of up to two years, often with an option for the borrower to renew for one year increments, provided the borrower remains in good standing, including maintaining a specified targeted loan-to-value ("LTV") ratio for the loan. The carrying value of the BAC loan portfolio approximates its fair value due to the relatively short-term maturities and the variable interest rates associated with most loans.
Beginning in December 2023, a portion of the lending activities of BAC are funded with borrowings drawn from the BAC Credit Facility, with the remainder funded by the Company's available liquidity. Prior to December 2023, the lending activities of BAC were funded primarily by the Company's available liquidity. Refer to Note 14 — Long-Term Debt for additional information regarding the BAC Credit Facility.
BAC aims to mitigate the risk associated with a potential devaluation in collateral by targeting an LTV ratio of 65% or less (i.e., the principal loan amount divided by the estimated value of the collateral at the time of underwriting). The LTV ratio is reassessed on a quarterly basis or if the loan is renewed. The LTV ratio is reassessed more frequently if there is a material change in the circumstances related to the loan, including if there is a material change in the value of the collateral, a material change in the borrower's disposal plans for the collateral, or if an event of default occurs. If, as a result of this reassessment, the LTV ratio increases above the target level, the borrower may be asked to make principal payments and/or post sufficient additional collateral to reduce the LTV ratio as a condition of future financing, renewal, or to avoid a default. In the event of a default by a borrower, BAC is entitled to sell the collateral to recover the outstanding principal, accrued interest balance, and any expenses incurred with respect to the recovery process.
Management considers the valuation of the underlying collateral and the LTV ratio as the two most critical credit quality indicators for the loans made by BAC. In estimating the value of the underlying collateral for BAC's loans, management utilizes its expertise in the collector car market and considers an array of factors impacting the current and expected sale value of each car including the year, make, model, mileage, history, and in the case of classic cars, the provenance, quality of restoration (if applicable), the originality of the body, chassis, and mechanical components, and comparable market transaction values.
The repayment of BAC's loans can be adversely impacted by a decline in the collector car market in general or in the value of the collateral, which may be concentrated within certain marques, vintages, or types of cars. In addition, in situations when BAC's claim on the collateral is subject to a legal process, the ability to realize proceeds from the collateral may be limited or delayed.
As of September 30, 2024, BAC's net notes receivable balance was $74.2 million, of which $62.5 million was classified within current assets and $11.7 million was classified within long-term assets on the Condensed Consolidated Balance Sheets. As of December 31, 2023, BAC's net notes receivable balance was $52.9 million, of which $35.9 million was classified within current assets and $17.0 million was classified within long-term assets on the Condensed Consolidated Balance Sheets. The classification of a loan as current or long-term takes into account the contractual maturity date of the loan, as well as known renewals after the balance sheet date.
The table below provides the aggregate LTV ratio for BAC's loan portfolio as of September 30, 2024 and December 31, 2023:

| September 30, |  | December 31,
| 2024 |  | 2023
| in thousands
Secured loans | $ | 74,184 |  |  | $ | 52,914 |
Estimate of collateral value | $ | 139,108 |  |  | $ | 108,496 |
Aggregate LTV ratio | 53.3 | % |  | 48.8 | %

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As of September 30, 2024, four borrowers each had loan balances that exceeded 10% of the total loan portfolio. These loans total $42.1 million, representing 57% of the total loan portfolio. The collateral related to these loans was $79.1 million, resulting in an aggregate LTV ratio of 53%.
Management considers a loan to be past due when an interest payment is not paid within 10 business days of the monthly due date, or if the principal amount is not repaid by the contractual maturity date. Typically, a loan becomes past due only for a short period of time during which the loan is renewed or collateral is sold to satisfy the borrower's obligations. As of September 30, 2024 and December 31, 2023, the amount of past due principal and interest payments was not material.
A non-accrual loan is a loan for which future finance revenue is not recorded due to management's determination that it is probable that future interest on the loan will not be collectible. When a loan is placed on non-accrual status, any accrued interest receivable deemed not collectible is reversed against finance revenue. Any cash receipts subsequently received on non-accrual loans are first applied to reduce the recorded principal balance of the loan, with any proceeds in excess of the principal balance then applied to interest and expenses owed by the borrower. As of September 30, 2024 and December 31, 2023, there were no non-accrual loans.
As of September 30, 2024 and December 31, 2023, the allowance for expected credit losses related to the BAC loan portfolio was not material based on management's quarterly risk assessment, which takes into consideration a number of factors including the level of historical losses for similar loans, the quality of the collateral, the low LTV ratio of the loans, management's overall assessment of the current circumstances and risks related to each loan, and, to a lesser extent, the circumstances related to each borrower.
6 — Other Assets
As of September 30, 2024 and December 31, 2023, other assets, current and long-term, consisted of:

|  | September 30, |  | December 31,
|  | 2024 |  | 2023
|  | in thousands
Prepaid Software as a Service implementation costs | $ | 36,169 |  |  | $ | 21,941 |
Prepaid sales, general and administrative expenses | 16,744 |  |  | 21,300 |
Deferred reinsurance premiums ceded (1) | 21,867 |  |  | 10,474 |
Other investments |  | 10,332 |  |  | 4,363 |
Contract costs | 9,338 |  |  | 8,851 |
Reinsurance recoverable | 7,803 |  |  | 2,783 |
Inventory (2) | 8,947 |  |  | 5,038 |
Deferred financing costs |  | 3,953 |  |  | 5,053 |
Accrued investment income |  | 3,760 |  |  | 104 |
Other | 13,792 |  |  | 7,419 |
Other assets | $ | 132,705 |  |  | $ | 87,326 |

(1) Deferred reinsurance premiums ceded consists of the unearned portion of premiums ceded by Hagerty Re to various reinsurers. Refer to Note 12 — Reinsurance for additional information on the Company's reinsurance programs.
(2) Inventory primarily includes vehicles owned by Broad Arrow that have been purchased for resale purposes.
As of September 30, 2024, Other primarily included a $6.7 million tax receivable, $2.5 million of collector vehicle investments, and $2.3 million related to digital media content. As of December 31, 2023, Other primarily included $2.7 million of collector vehicle investments, $2.2 million related to digital media content, and the $2.2 million fair value of an interest rate swap.
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7 — Leases
The following table summarizes the components of the Company's operating lease expense for the three and nine months ended September 30, 2024 and 2023:

|  | Three months ended September 30, |  | Nine months ended September 30, |  |
|  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
|  | in thousands
Operating lease expense (1) |  | $ | 1,882 |  |  | $ | 3,172 |  |  | $ | 5,920 |  |  | $ | 9,472 |  |  |
Short-term lease expense (1) |  | 30 |  |  | 131 |  |  | 100 |  |  | 347 |  |  |
Variable lease expense (1) (2) |  | 1,475 |  |  | 2,031 |  |  | 3,375 |  |  | 3,680 |  |  |
Sublease revenue (3) |  | (344) |  |  | (202) |  |  | (1,000) |  |  | (399) |  |  |
Lease cost, net |  | $ | 3,043 |  |  | $ | 5,132 |  |  | $ | 8,395 |  |  | $ | 13,100 |  |  |

(1) Classified within "General and administrative" on the Condensed Consolidated Statements of Operations.
(2) Amounts include payments for maintenance, taxes, insurance, and payments affected by the Consumer Price Index.
(3) Classified within "Membership, marketplace and other revenue" on the Condensed Consolidated Statements of Operations.
The following tables summarize supplemental balance sheet information related to operating leases as of September 30, 2024 and December 31, 2023:

|  | September 30, |  | December 31,
|  | 2024 |  | 2023
|  | in thousands
Operating lease ROU assets | $ | 45,916 |  |  | $ | 50,515 |
Current lease liabilities (1) | 6,620 |  |  | 6,500 |
Long-term lease liabilities | 44,866 |  |  | 50,459 |
Total operating lease liabilities | $ | 51,486 |  |  | $ | 56,959 |
|  | September 30, |  | December 31,
|  | 2024 |  | 2023
| in thousands
ROU assets obtained in exchange for new operating lease liabilities | $ | 1,055 |  |  | $ | 632 |
Weighted average lease term | 8.39 |  | 9.01
Weighted average discount rate | 4.9 | % |  | 4.8 | %

(1) Current lease liabilities are recorded within "Accounts payable, accrued expenses and other current liabilities" on the Condensed Consolidated Balance Sheets.
The following table summarizes information about the amount and timing of the Company's future operating lease commitments as of September 30, 2024:

| in thousands
2024 | $ | 2,262 |
2025 | 8,964 |
2026 | 8,292 |
2027 | 7,907 |
2028 | 7,903 |
Thereafter | 28,296 |
Total lease payments | 63,624 |
Less: imputed interest | (12,138) |
Total lease liabilities | $ | 51,486 |

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8 — Acquisition
On September 1, 2024, the Company's subsidiary, Hagerty Insurance Holdings, Inc., acquired all of the issued and outstanding capital stock of Consolidated National Insurance Company, which was subsequently renamed to Drivers Edge, for a purchase price of $19.3 million, including $0.9 million in direct and incremental transaction costs. The acquisition of Drivers Edge is being accounted for as an asset acquisition with the $19.3 million purchase price allocated to approved state licenses ($11.3 million), cash and cash equivalents ($3.9 million), restricted fixed maturity securities ($3.7 million), and restricted cash and cash equivalents ($0.4 million).
9 — Divestitures
In 2023, management began a review of certain components of the Company's operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social, DriveShare, and Motorsport Reg ("MSR"), as discussed below. This initiative supports the Company's strategy to prioritize investments and resources in the areas of its business that offer the strongest growth and profit potential.
Hagerty Garage + Social
In the third quarter of 2023, Hagerty Ventures LLC ("HV"), a wholly owned subsidiary of THG, entered into an agreement with HGS Hub Holdings LLC ("H3") to terminate the joint venture agreement governing Member Hubs Holding, LLC ("MHH"), which operates as Hagerty Garage + Social. In connection with this agreement, H3's approximately 20% equity interest in MHH was redeemed and MHH's equity interests in the Palm Beach, Florida and Redmond, Washington locations of Hagerty Garage + Social were distributed to H3. Following the termination of the joint venture agreement, HV owns 100% of MHH and its remaining Hagerty Garage + Social locations in Delray Beach, Florida; Miami, Florida; Van Nuys, California; and Burlington, Ontario.
As a result of the joint venture termination, the Company recognized a loss of $2.9 million in the third quarter of 2023, representing the difference between the fair value of the approximately 20% equity interest in MHH received by HV and the carrying value of the equity interests distributed to H3. The fair value of the approximately 20% equity interest received by MHH is a Level 3 fair value measurement and was determined using a combination of the discounted cash flow model and the adjusted book value method. This loss is recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.
Immediately prior to the joint venture termination, MHH entered into an agreement to terminate the real estate lease held by the Culver City, California location of Hagerty Garage + Social. In connection with this lease termination agreement, MHH paid a termination fee funded by the Company and H3 in exchange for the extinguishment of its remaining obligations under the lease. As a result of this lease termination, the Company recognized a loss of $0.6 million in the third quarter of 2023, consisting of the lease termination fee paid to the landlord, partially offset by the net effect of the derecognition of the assets and liabilities related to the lease. This loss is reported within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations. Following this lease termination, MHH no longer operates a Hagerty Garage + Social location in Culver City, California.
Hagerty DriveShare
In the third quarter of 2023, THG entered into an agreement to sell Hagerty DriveShare, LLC ("DriveShare"), a peer-to-peer rental platform for collector vehicles, to a third party. The sale was completed on October 9, 2023. The Company recognized a $0.4 million loss related to this sale in the third quarter of 2023, which was recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.
Motorsport Reg
In the second quarter of 2024, THG entered into an agreement to sell substantially all of the assets and liabilities of MSR, a motorsport membership, licensing and event online management system, to a third party. The material elements of the sale consideration include a fixed purchase price and a contingent payment opportunity, based on future performance. The Company recognized a $0.1 million gain related to the sale of MSR in the second quarter of 2024, which was recorded within "Gains, losses, and impairments related to divestitures" on the Company's Condensed Consolidated Statements of Operations.
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10 — Intangible Assets
The cost and accumulated amortization of intangible assets as of September 30, 2024 and December 31, 2023 are as follows:

|  | Weighted Average Useful Life |  | September 30, |  | December 31,
|  |  | 2024 |  | 2023
|  |  |  | in thousands
Internally developed software |  | 3.3 |  | $ | 134,299 |  |  | $ | 126,972 |
Renewal rights |  | 9.9 |  | 19,702 |  |  | 20,226 |
Trade names and trademarks |  | 14.1 |  | 12,061 |  |  | 12,541 |
State licenses (1) |  | Indefinite |  | 11,288 |  |  | — |
Relationships and customer lists |  | 15.4 |  | 7,998 |  |  | 8,876 |
Other |  | 4.2 |  | 1,095 |  |  | 1,445 |
Intangible assets |  |  |  | 186,443 |  |  | 170,060 |
Less: accumulated amortization |  |  |  | (94,408) |  |  | (78,136) |
Intangible assets, net |  |  |  | $ | 92,035 |  |  | $ | 91,924 |

(1) Represents approved state licenses related to the acquisition of Drivers Edge. Refer to Note 8 — Acquisition for additional details.
Intangible asset amortization expense w as $6.2 million and $7.1 million for the three months ended September 30, 2024 and 2023, respectively, and $20.5 million and $20.9 million for the nine months ended September 30, 2024 and 2023, respectively.
Estimated future aggregate amortization expense related to intangible assets as of September 30, 2024 is as follows:

| in thousands
2024 | $ | 6,284 |
2025 | 23,032 |
2026 | 16,687 |
2027 | 13,110 |
2028 | 8,031 |
Thereafter | 13,603 |
Total | $ | 80,747 |

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11 — Provision for Unpaid Losses and Loss Adjustment Expenses
The following table presents a reconciliation of the beginning and ending provision for unpaid losses and loss adjustment expenses related to Hagerty Re, net of amounts recoverable from various reinsurers:

|  |  |  | Nine months ended September 30,
|  |  |  |  |  | 2024 |  | 2023 |  |
|  |  |  |  |  | in thousands
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year |  |  |  |  | $ | 136,507 |  |  | $ | 111,741 |  |  |
Less: Reinsurance recoverable on unpaid losses and loss adjustment expenses |  |  |  |  | 2,235 |  |  | 843 |  |  |
Net reserves for unpaid losses and loss adjustment expenses, beginning of year |  |  |  |  | 134,272 |  |  | 110,898 |  |  |
Incurred losses and loss adjustment expenses: |  |  |  |  |  |  |  |  |
Current accident year |  |  |  |  | 226,515 |  |  | 159,461 |  |  |
Prior accident year |  |  |  |  | — |  |  | — |  |  |
Total incurred losses and loss adjustment expenses |  |  |  |  | 226,515 |  |  | 159,461 |  |  |
Payments: |  |  |  |  |  |  |  |  |
Current accident year |  |  |  |  | 50,683 |  |  | 35,993 |  |  |
Prior accident year |  |  |  |  | 59,090 |  |  | 44,499 |  |  |
Total payments |  |  |  |  | 109,773 |  |  | 80,492 |  |  |
Effect of foreign currency rate changes |  |  |  |  | 84 |  |  | (42) |  |  |
Net reserves for unpaid losses and loss adjustment expenses, end of period |  |  |  |  | 251,098 |  |  | 189,825 |  |  |
Reinsurance recoverable on unpaid losses and loss adjustment expenses |  |  |  |  | 7,738 |  |  | 959 |  |  |
Gross reserves for unpaid losses and loss adjustment expenses, end of period |  |  |  |  | $ | 258,836 |  |  | $ | 190,784 |  |  |

Hagerty Re's loss reserve estimates are updated based on an evaluation of inputs from many sources, including actual claims data, the performance of prior reserve estimates, observed industry trends, and internal review processes, including the views of the Company's actuary. These inputs are used to improve evaluation techniques and to analyze and assess the change in estimated ultimate losses for each accident year by line of business. These analyses produce a range of indications from various methods, from which an actuarial point estimate is recorded.
Losses and loss adjustment expenses for the nine months ended September 30, 2024 includes $24.7 million of estimated pre-tax losses related to Hurricane Helene. Claims from Hurricane Helene, which made landfall on September 26, 2024, are still being processed. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions, and therefore, the estimate may change as additional information emerges. Any losses above $28.0 million for this event will be recoverable under the Company's catastrophe reinsurance program. Refer to Note 12 — Reinsurance for additional information.
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12 — Reinsurance
The following table presents Hagerty Re's total premiums assumed and ceded on a written and earned basis for the three and nine months ended September 30, 2024 and 2023:

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
| in thousands
Premiums: |  |  |  |  |  |  |  |  |
Assumed | $ | 199,721 |  |  | $ | 178,319 |  |  | $ | 574,742 |  |  | $ | 498,962 |  |  |
Ceded | (9,906) |  |  | (5,838) |  |  | (42,875) |  |  | (28,107) |  |  |
Net | $ | 189,815 |  |  | $ | 172,481 |  |  | $ | 531,867 |  |  | $ | 470,855 |  |  |
Premiums earned: |  |  |  |  |  |  |  |  |
Assumed | $ | 176,611 |  |  | $ | 146,004 |  |  | $ | 506,398 |  |  | $ | 398,524 |  |  |
Ceded | (10,925) |  |  | (6,219) |  |  | (31,481) |  |  | (14,026) |  |  |
Net | $ | 165,686 |  |  | $ | 139,785 |  |  | $ | 474,917 |  |  | $ | 384,498 |  |  |

The following table presents gross, ceded, and net losses and loss adjustment expenses incurred for the three and nine months ended September 30, 2024 and 2023:

| Three months ended September 30, |  | Nine months ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
| in thousands
Gross losses and loss adjustment expenses | $ | 101,254 |  |  | $ | 58,014 |  |  | $ | 235,390 |  |  | $ | 159,791 |
Ceded losses and loss adjustment expenses | (1,824) |  |  | (529) |  |  | (8,875) |  |  | (330) |
Net losses and loss adjustment expenses | $ | 99,430 |  |  | $ | 57,485 |  |  | $ | 226,515 |  |  | $ | 159,461 |

Ceded Reinsurance
Hagerty Re purchases catastrophe reinsurance to protect its capital from large catastrophic events and to provide earnings protection and stability. Hagerty Re renegotiated its catastrophe reinsurance coverage effective January 1, 2024, with terms and limits similar to 2023. The 2024 catastrophe reinsurance program for accounts with total insured values ("TIV") of up to $5.0 million affords coverage in excess of a per event retention of $28.0 million in two layers; $22.0 million excess of $28.0 million, and $55.0 million excess of $50.0 million for a total of $105.0 million.
In 2023, Hagerty Re had quota share agreements with various reinsurers to cede 70% of its physical damage exposure on U.S. accounts written or renewed with TIV equal to or greater than $5.0 million ("High-Net-Worth Accounts"). These High-Net-Worth Accounts are assumed 100% from a wholly owned subsidiary of Markel. Effective January 1, 2024, Hagerty Re is ceding 100% of its High-Net-Worth Accounts physical damage exposure via quota share agreements with various reinsurers. Some of the reinsurers involved in these quota share agreements are related parties. Refer to Note 21 — Related-Party Transactions for additional information.
Hagerty Re receives ceding commissions related to premiums ceded under reinsurance contracts related to High-Net-Worth Accounts. Ceding commissions are recognized ratably over the terms of the related policies, which are generally 12 months, and are recorded within "Ceding commissions, net" in the Company's Condensed Consolidated Statements of Operations. Deferred portions of ceding commissions received are included in "Deferred acquisition costs, net" on the Company's Condensed Consolidated Balance Sheets.
Reinsurance contracts do not relieve Hagerty Re from its primary liability to the ceding carriers according to the terms of its reinsurance treaties. Failure of reinsurers to honor their obligations could result in additional losses to Hagerty Re. Hagerty Re evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure to individual reinsurers. All of Hagerty Re's reinsurers have an A.M. Best rating of A- (Excellent) or better, or fully collateralize their maximum obligation under the treaty.
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13 — Restructuring, Impairment and Related Charges
In the first quarter of 2023, the Company's board of directors (the "Board") approved a reduction in force (the "2023 RIF") following a strategic review of business processes as the Company focuses on driving efficiencies in order to achieve growth and profitability goals. As a result of these actions, the Company recognized $5.5 million within "Restructuring, impairment and related charges, net" in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023. These charges consisted of $5.1 million of severance-related costs associated with the 2023 RIF and a $0.4 million impairment charge to write-down the value of certain digital media content assets.
In the second quarter of 2023, the Company recognized $2.8 million of "Restructuring, impairment and related charges, net". These charges consisted of $2.6 million of impairment and related charges associated with operating lease ROU assets and leasehold improvements for office space that was vacated and listed for sublease in the period as a result of the Company's continuing transition to a "remote first" work model. The amount recognized in the second quarter of 2023 also included $0.2 million of additional severance related costs associated with the 2023 RIF.
In the third quarter of 2023, the Company recognized $0.5 million of costs associated with its vacated office space within "Restructuring, impairment and related charges, net".
As of December 31, 2023, all liabilities associated with the 2023 RIF were settled.
14 — Long-Term Debt
As of September 30, 2024 and December 31, 2023, "Long-term debt, net" consisted of the following:

|  |  | September 30, |  | December 31,
| Maturity |  | 2024 |  | 2023
|  |  | in thousands
JPM Credit Facility | October 2026 |  | $ | 51,791 |  |  | $ | 77,258 |
BAC Credit Facility | December 2026 |  | 46,118 |  |  | 25,782 |
State Farm Term Loan | September 2033 |  | 25,000 |  |  | 25,000 |
Notes payable | 2024-2025 |  | 2,113 |  |  | 6,875 |
Total debt |  |  | 125,022 |  |  | 134,915 |
Less: Notes payable, current portion |  |  | (1,620) |  |  | (3,654) |
Less: Unamortized debt issuance costs |  |  | (535) |  |  | (581) |
Total long-term debt, net |  |  | $ | 122,867 |  |  | $ | 130,680 |

JPM Credit Facility
THG has a credit agreement with JPMorgan Chase Bank, N.A. ("JPM"), as administrative agent, and the other financial institutions party thereto from time to time as lenders, as amended (the "JPM Credit Agreement").
The JPM Credit Agreement provides for a revolving credit facility (the "JPM Credit Facility") with an aggregate borrowing capacity of $305.0 million, including the new $75.0 million commitment provided by Wells Fargo Bank, National Association in May 2024. Additionally, the JPM Credit Agreement provides for the issuance of letters of credit of up to $25.0 million and borrowings in the British Pound and Euro of up to $40.0 million in the aggregate. The JPM Credit Agreement matures in October 2026, but may be extended if agreed to by the Company and the lenders party thereto. Any unpaid balance on the JPM Credit Facility is due at maturity.
The JPM Credit Facility accrues interest at the applicable reference rate, primarily Term SOFR, depending on the currency of the borrowing plus an applicable margin determined by the Company's net leverage ratio for the preceding period (as defined in the JPM Credit Agreement). The effective interest rate related to the JPM Credit Facility was 6.88% and 7.41% for the nine months ended September 30, 2024 and 2023, respectively.
JPM Credit Facility borrowings are collateralized by the assets and equity interests in THG and its consolidated subsidiaries, except for (i) the assets held by the SPEs related to the BAC Credit Facility and (ii) all or a portion of foreign and certain excluded or immaterial subsidiaries.
Under the JPM Credit Agreement, THG is required, among other things, to meet certain financial covenants (as defined in the JPM Credit Agreement), including a fixed charge coverage ratio and a leverage ratio. As of September 30, 2024, the Company was in compliance with the financial covenants under the JPM Credit Agreement.
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BAC Credit Facility
In December 2023, BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into a revolving credit facility with a certain lender (the "BAC Credit Agreement"). The BAC Credit Agreement provides for a revolving credit facility (the "BAC Credit Facility"), which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined based on the carrying value of certain BAC notes receivable. As of September 30, 2024, the applicable borrowing base for the BAC Credit Agreement was $46.1 million.
The revolving borrowing period provided by the BAC Credit Agreement expires on December 21, 2025 and the BAC Credit Agreement matures on December 21, 2026. The revolving borrowing period and the maturity date of the BAC Credit Agreement may be extended by one year if requested by BAC and agreed by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.
In connection with the BAC Credit Agreement, BAC and certain of its subsidiaries may transfer originated notes receivable to wholly owned, bankruptcy remote SPEs to secure the borrowings. The assets transferred to SPEs are legally isolated from us and our other (non-SPE) subsidiaries. Accordingly, those assets are not available to satisfy our debts or other obligations and our recourse under the BAC Credit Agreement is limited.
Recourse to the Company and its subsidiaries that originated and transferred notes receivable that represent collateral under the BAC Credit Facility is limited to (i) an obligation of the applicable seller to repurchase a note receivable if it is determined that there was a breach of any representation or warranty relating to such note receivable as of the relevant date specified in the related transfer agreement and (ii) a limited guarantee covering certain liabilities that may result under certain foreign exchange hedging activity of one of the SPEs.
BAC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants under the BAC Credit Agreement, including that BAC, as the servicer, maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio. As of September 30, 2024, the Company was in compliance with the financial covenants under the BAC Credit Agreement.
State Farm Term Loan
In September 2023, Hagerty Re entered into an unsecured term loan credit facility with State Farm in the aggregate principal amount of $25.0 million (the "State Farm Term Loan"). The State Farm Term Loan bears interest at a rate of 8.0% per annum and will mature in September 2033. State Farm is a related party to the Company. Refer to Note 21 — Related-Party Transactions for additional information.
Notes Payable
As of September 30, 2024 and December 31, 2023, the Company had outstanding notes payable, which are used to fund certain loans made by BAC in the United Kingdom ("U.K."), totaling $2.1 million and $6.9 million, respectively. The effective interest rates for these notes payable range from 8.5% to 9.8% with repayment due between December 2024 and October 2025. Refer to Note 5 — Notes Receivable for additional information on the lending activities of BAC.
Letters of Credit
As of September 30, 2024, the Company has authorized three letters of credit for a total of $11.1 million for operational purposes related to Hagerty Re's Section 953(d) tax structuring election and lease down payment support.
15 — Convertible Preferred Stock
In June 2023, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain accredited investors (the "Investors"), pursuant to which it closed, issued and sold (the "Closing") to the Investors an aggregate of 8,483,561 shares of the Company's newly-designated Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $80.0 million, at a per-share purchase price of $9.43 (the "Series A Purchase Price" and the transaction, the "Private Placement").
The Investors include State Farm, Markel, and persons related to Hagerty Holding Corp. ("HHC"). State Farm and Markel are both significant stockholders of the Company, each holding in excess of 5% of the outstanding common stock. McKeel Hagerty is the Company's CEO and the Chairman of its Board. Mr. Hagerty and Tammy Hagerty may be deemed to control HHC, which is the controlling stockholder of the Company. Prior to and continuing after the Private Placement, each of State Farm and Markel have the right to nominate one director to the Company's Board and HHC has the right to nominate two directors to the Company's Board. Refer to Note 16 — Stockholders' Equity and Note 21 — Related-Party Transactions for additional information.
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The net proceeds from the Private Placement after deducting issuance costs of approximately $0.8 million were $79.2 million, which was recorded within Temporary Equity on the Company's Condensed Consolidated Balance Sheets. The Company used the net proceeds from the Private Placement for general corporate purposes.
As of September 30, 2024, the estimated redemption value of the Series A Convertible Preferred Stock was $115.4 million, which represents the maximum cash payment, including cumulative dividends, that would be required to be paid if the Optional Term Redemption provision in the Certificate of Designations, as summarized below, is exercised as of the earliest possible redemption date of June 23, 2028. The decision to redeem the Series A Convertible Preferred Stock for cash is made at the discretion of the Company; however, the Company is controlled by HHC through its voting control of the Company. Accordingly, the redemption of the Series A Convertible Preferred Stock is considered outside the control of the Company and, as a result, the Series A Convertible Preferred Stock is recorded within Temporary Equity on the Company's Condensed Consolidated Balance Sheets.
The Company has elected to apply the accretion method to adjust the carrying value of the Series A Convertible Preferred Stock to its estimated redemption value. Amounts recognized to accrete the Series A Convertible Preferred Stock to its estimated redemption value are treated as a deemed dividend and are recorded as a reduction to "Additional paid-in capital". The estimated redemption value may vary in subsequent periods and the Company has elected to recognize such changes prospectively.
The captioned sections below provide a summary of the material terms of the Series A Convertible Preferred Stock, as set forth in the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the "Certificate of Designations").
Ranking — The Series A Convertible Preferred Stock ranks senior to the Class A Common Stock, the Class V Common Stock, and each other class or series of shares of the Company that the Company may issue in the future the terms of which do not expressly provide that such class or series ranks equally with, or senior to, the Series A Convertible Preferred Stock, with respect to dividend rights and/or rights upon liquidation, winding up or dissolution.
Dividends — Dividends on the Series A Convertible Preferred Stock are cumulative and accrue from the date of issuance at the rate per annum of 7% of the Series A Purchase Price of each share, plus the amount of previously accrued dividends, compounded annually (the "Accruing Dividends"). The Company may elect to pay the Accruing Dividends either in cash or in additional shares of Series A Convertible Preferred Stock. Prior to the third anniversary of the Closing, the Series A Convertible Preferred Stock will participate on an as-converted basis in dividends declared and paid on the Class A Common Stock. In June 2024, the Company paid $5.6 million of cash dividends on the Series A Convertible Preferred Stock to the Investors.
Conversion — Any shares of Series A Convertible Preferred Stock may, at the option of the holder, be converted at any time into shares of Class A Common Stock. The conversion price for the Series A Convertible Preferred Stock is initially $11.79 and is subject to adjustment upon certain events, including a stock split, a reverse stock split, or a dividend of the Class A Common Stock or Class V Common Stock to the Company’s common stockholders (as adjusted, the "Conversion Price"). The Company may require such conversion (i) if the closing price per share of Class A Common Stock, for at least twenty (20) of any thirty (30) consecutive trading days, exceeds: (a) on or after the third and prior to the seventh anniversary of the Closing, 150% of the Conversion Price; or (b) on or after the seventh and prior to the tenth anniversary of the Closing, 100% of the Conversion Price; and (ii) on or after the tenth anniversary of the Closing. The conversion rate in effect at any applicable time (the "Conversion Rate") is the quotient obtained by dividing the Series A Purchase Price by the Conversion Price.
As of September 30, 2024, no shares of Series A Convertible Preferred Stock had been converted and the outstanding shares of Series A Convertible Preferred Stock were convertible into 6,785,410 shares of Class A Common Stock.
Voting — The Series A Convertible Preferred Stock votes together with the Class A Common Stock on an as-converted basis, and not as a separate class. The Investors have veto rights over (i) changes to the terms of the Certificate of Designations or the Company's certificate of incorporation or bylaws that adversely impact the Series A Convertible Preferred Stock and (ii) the issuance of equity securities senior to the Series A Convertible Preferred Stock or other securities convertible thereto.
Liquidation Preference — In the event of any liquidation, dissolution or winding up of the Company, each share of Series A Convertible Preferred Stock will be paid the greater of (i) the Series A Purchase Price plus any Accruing Dividends accrued but unpaid thereon, and (ii) the amount that such share of Series A Convertible Preferred Stock would have received had it converted into the Class A Common Stock immediately prior to such liquidation, dissolution or winding up of the Company (the "Liquidation Preference"). After payment of the Liquidation Preference, the Series A Convertible Preferred Stock will no longer be convertible and will not participate in any distribution made to the holders of the Class A Common Stock or Class V Common Stock.
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Change of Control — Upon a merger, consolidation, sale or other change of control transaction as described in the Certificate of Designations (a "Change of Control"), either (i) the Company may elect to redeem the Series A Convertible Preferred Stock or (ii) each holder of Series A Convertible Preferred Stock, individually, may require the Company to redeem all or any portion of the Series A Convertible Preferred Stock. The redemption price per share to be paid by the Company would be the greater of: (a) the Series A Purchase Price plus any accrued but unpaid Accruing Dividends multiplied by (i) if prior to or on the third anniversary of the Closing, 120%; (ii) if after the third but prior to or on the fifth anniversary of the Closing, 110%; (iii) if after the fifth anniversary of the Closing, 100%; and (b) the amount such share of Series A Convertible Preferred Stock would have received had it converted into the Class A Common Stock prior to the Change of Control. Any shares of Series A Convertible Preferred Stock that are not so redeemed will automatically convert into shares of Class A Common Stock and be paid in connection with the Change of Control.
Fundamental Transaction — In the event of any acquisition by the Company with a transaction value of at least $500.0 million or any equity or debt financing by the Company that raises at least $500.0 million, either (i) the Company may elect to redeem the Series A Convertible Preferred Stock, or (ii) each holder of Series A Convertible Preferred Stock, individually, may require the Company to redeem all or any portion of its Series A Convertible Preferred Stock. The redemption price per share to be paid by the Company would be the Series A Convertible Preferred Stock plus any accrued but unpaid Accruing Dividends multiplied by: (a) if prior to or on the third anniversary of the Closing, 120%; (b) if after the third but prior to or on the fifth anniversary of the Closing, 110%; (c) if after the fifth but prior to or on the sixth anniversary of the Closing, 108%; (d) if after the sixth but prior to or on the seventh anniversary of the Closing, 106%; (e) if after the seventh but prior to or on the eighth anniversary of the Closing, 104%; (f) if after the eighth but prior to or on the ninth anniversary of the Closing, 102%; or (g) if after the ninth anniversary of the Closing, 100%.
Optional Term Redemption — Any time after the fifth anniversary of the Closing, the Company may redeem all or any portion of the then-outstanding shares of the Series A Convertible Preferred Stock for cash (a "Term Redemption"). The redemption price per share to be paid by the Company would be equal to the greater of: (i) the Series A Purchase Price plus any accrued but unpaid Accruing Dividends multiplied by: (a) if after the fifth but prior to the sixth anniversary of the Closing, 110%; (b) if on or after the sixth but prior to the seventh anniversary of the Closing, 108%; (c) if on or after the seventh but prior to the eighth anniversary of the Closing, 106%; (d) if on or after the eighth but prior to the ninth anniversary of the Closing, 104%; (e) if on or after the ninth but prior to tenth anniversary of the Closing, 102%; or (f) if on or after the tenth anniversary of the Closing, 100%; and (ii) the amount such share of Series A Convertible Preferred Stock would have received had it converted into Class A Common Stock prior to the Term Redemption.
Registration Rights Agreement — In connection with the Private Placement, the Company entered into a registration rights agreement with the Investors (the "Registration Rights Agreement") pursuant to which, the Investors will be entitled to certain demand, shelf and piggyback registration rights with respect to the Series A Convertible Preferred Stock and shares of the Class A Common Stock issuable upon conversion thereof.
16 — Stockholders' Equity
Class A Common Stock
Hagerty, Inc. is authorized to issue 500,000,000 shares of Class A Common Stock with a par value of $0.0001 per share. Holders of Class A Common Stock are entitled to one vote for each share. As of September 30, 2024 and December 31, 2023, there were 89,980,363 and 84,588,536 shares of Class A Common Stock issued and outstanding, respectively.
Class V Common Stock
Hagerty, Inc. is authorized to issue 300,000,000 shares of Class V Common Stock with a par value of $0.0001 per share. Class V Common Stock represents voting, non-economic interests in Hagerty, Inc. Holders of Class V Common Stock are entitled to 10 votes for each share. In connection with the business combination that formed Hagerty, Inc. in 2021, shares of Class V Common Stock were issued to HHC and Markel (together, the "Legacy Unit Holders") along with an equivalent number of THG units, as discussed below. Each share of Class V Common Stock, together with the corresponding unit of THG, is exchangeable for one share of Class A Common Stock. As of September 30, 2024 and December 31, 2023, there were 251,033,906 shares of Class V Common Stock issued and outstanding.
Preferred Stock
Hagerty, Inc. is authorized to issue 20,000,000 shares of Preferred Stock with a par value of $0.0001 per share. Hagerty, Inc.'s Board has the authority to issue shares of Preferred Stock with such designations, voting and other rights and preferences as may be determined from time to time.
In June 2023, Hagerty, Inc. issued 8,483,561 shares of newly-designated Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $80.0 million, at a per-share purchase price of $9.43. As of September 30, 2024 and December 31, 2023, there were 8,483,561 shares of Preferred Stock issued and outstanding. Refer to Note 15 — Convertible Preferred Stock for additional information.
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Non-controlling Interests
Hagerty, Inc. is the sole managing member of THG and, as a result, consolidates the financial statements of THG into its Condensed Consolidated Financial Statements. The Company reports a non-controlling interest representing the economic interest in THG held by other unit holders of THG. Hagerty, Inc. owns one THG unit for each share of Class A Common Stock outstanding.
The following table summarizes the changes in ownership of THG units for the periods presented:

| Three months ended September 30, |  | Nine months ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
THG units held by Hagerty, Inc. |  |  |  |  |  |  |
Beginning of period | 85,703,286 |  |  | 84,405,625 |  |  | 84,588,536 |  |  | 83,202,969 |
Issuance of shares under employee plans | 211,582 |  |  | 73,440 |  |  | 1,194,808 |  |  | 1,016,794 |
Exchange of THG units for Class A Common Stock | 189,294 |  |  | — |  |  | 320,818 |  |  | 259,302 |
Warrant Exchange (see Note 17) | 3,876,201 |  |  | — |  |  | 3,876,201 |  |  | — |
End of period | 89,980,363 |  |  | 84,479,065 |  |  | 89,980,363 |  |  | 84,479,065 |
Ownership percentage |  |  |  |  |  |  |
Beginning of period | 25.1 | % |  | 24.8 | % |  | 24.9 | % |  | 24.5 | %
End of period | 26.1 | % |  | 24.8 | % |  | 26.1 | % |  | 24.8 | %
THG units held by other unit holders |  |  |  |  |  |  |
Beginning of period | 255,367,640 |  |  | 255,499,164 |  |  | 255,499,164 |  |  | 255,758,466 |
Exchange of THG units for Class A Common Stock | (189,294) |  |  | — |  |  | (320,818) |  |  | (259,302) |
End of period | 255,178,346 |  |  | 255,499,164 |  |  | 255,178,346 |  |  | 255,499,164 |
Ownership percentage |  |  |  |  |  |  |
Beginning of period | 74.9 | % |  | 75.2 | % |  | 75.1 | % |  | 75.5 | %
End of period | 73.9 | % |  | 75.2 | % |  | 73.9 | % |  | 75.2 | %
Total THG units outstanding | 345,158,709 |  |  | 339,978,229 |  |  | 345,158,709 |  |  | 339,978,229 |

At the end of each reporting period, THG equity attributable to Hagerty, Inc. and the non-controlling unit holders, respectively, is reallocated to reflect their current ownership in THG.
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Share-Based Compensation
Employees of THG subsidiaries are awarded share-based compensation in the form of restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") under the Company's 2021 Stock Incentive Plan. Upon the vesting of these awards, the employees receive shares of Class A Common Stock and the Company is issued an equivalent number of THG units. Employees of THG subsidiaries may also participate in the Company's 2021 Employee Stock Purchase Plan under which these employees may purchase shares of Class A Common Stock at a discounted price and the Company is issued an equivalent number of THG units.
During the nine months ended September 30, 2024 and 2023, the Company received 1,194,808 and 1,016,794, respectively, of THG units in connection with shares of Class A Common Stock that were issued as a result of share-based compensation awards vesting under the Company's 2021 Stock Incentive Plan, as well as shares purchased in connection with the ESPP (as defined in 18 — Share-Based Compensation). In addition, during the nine months ended September 30, 2023, the Company received 118,009 of THG units in connection with shares of Class A Common Stock that were issued related to the Company's 2021 Employee Stock Purchase Plan.
Exchange of THG Units
Each THG unit and, if applicable, the associated share of Class V Common Stock, is exchangeable for one share of Class A Common Stock. In connection with any such exchange, Hagerty, Inc. receives a corresponding number of THG units, thereby increasing its ownership interest in THG. Changes in Hagerty, Inc.'s ownership interest in THG while retaining its controlling interest are accounted for as equity transactions. Accordingly, exchanges of THG units by unit holders other than Hagerty, Inc. increase Hagerty, Inc.'s ownership in THG, thereby reducing the amount recorded as "Non-controlling interest" and increasing "Additional paid-in capital".
During the nine months ended September 30, 2024 and 2023, 320,818 and 259,302, respectively, of THG units were exchanged for an equal number of shares of Class A Common Stock. These exchanges resulted in reductions to "Non-controlling interest" and corresponding increases to "Additional paid-in capital" of $3.2 million and $2.3 million, respectively, representing the fair value of Class A Common Stock on the date of each exchange.
THG Preferred Units
In connection with the Private Placement, the Fourth Amended and Restated Limited Liability Company Agreement of THG was amended and restated in the form of a Fifth Amended and Restated Limited Liability Company Agreement (as subsequently amended and restated, the "THG LLC Agreement"), to, among other things, create a new series of preferred units within THG (the "THG Preferred Units"). The terms of the THG Preferred Units parallel the terms of the Series A Convertible Preferred Stock and are held entirely by Hagerty, Inc.
The THG Preferred Units are recorded on the financial statements of THG based on their estimated redemption value, which represents the maximum cash payment, including cumulative dividends, that would be required to be paid to Hagerty, Inc. if the Optional Term Redemption of the Series A Convertible Preferred Stock is exercised. Amounts recognized to accrete the THG Preferred Units to their estimated redemption value are treated as a deemed dividend due to Hagerty, Inc. The amount of this deemed dividend is attributed entirely to Hagerty, Inc. prior to allocating the remainder of THG's net income between controlling and non-controlling interests. In June 2024, THG paid $5.6 million of cash dividends to Hagerty, Inc. on the THG Preferred Units. Refer to Note 15 — Convertible Preferred Stock for additional information on the Private Placement and the Series A Convertible Preferred Stock.
Distributions to Unit Holders of THG
Under the terms of the THG LLC Agreement, THG is obligated to make tax distributions to its unit holders. During the nine months ended September 30, 2024, THG made tax distributions of $5.3 million to non-controlling interest unit holders and $1.1 million of tax distributions to Hagerty, Inc. There were no such tax distributions during the nine months ended September 30, 2023.
17 — Warrant Exchange
On June 3, 2024, the Company commenced an exchange offer (the "Offer") and consent solicitation (the "Consent Solicitation") relating to its (i) Public Warrants, (ii) Private Warrants, (iii) the Underwriter Warrants, (iv) the OTM Warrants (together with the Private Warrants and the Underwriter Warrants, the "Private Placement Warrants") and (v) PIPE Warrants (together with the Public Warrants and Private Placement Warrants, the "Warrants"), which provided all holders of the Warrants the opportunity to receive 0.20 shares of Class A Common Stock in exchange for each outstanding Warrant tendered by the holder and exchanged pursuant to the Offer.
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Concurrently with the Offer, the Company solicited consents from holders of the Warrants to amend (a) the warrant agreement governing the Public Warrants and Private Placement Warrants (the "IPO Warrant Amendment") and (b) the warrant agreement governing the PIPE Warrants (the "Business Combination Warrant Amendment" and together with the IPO Warrant Amendment, the "Warrant Amendments") to permit the Company to require that each Warrant that is outstanding upon the closing of the Offer be exchanged for 0.18 shares of Class A Common Stock, which is a ratio 10% less than the exchange ratio applicable to the Offer (the "Post-Offer Exchange"). Pursuant to the terms of the applicable warrant agreements, the IPO Warrant Amendment requires the vote or written consent of holders of both of (i) 50% of the Public Warrants outstanding and (ii) 50% of the Private Placement Warrants outstanding, and the Business Combination Warrant Amendment requires the vote or written consent of holders of 50% of the PIPE Warrants outstanding.
The Offer and Consent Solicitation expired on July 3, 2024 with (i) 5,019,278 Public Warrants, or approximately 87.3% of the outstanding Public Warrants, (ii) 1,561,381 Private Placement Warrants, or approximately 98.4% of the outstanding Private Placement Warrants, and (iii) 11,850,300 PIPE Warrants, or approximately 97.6% of the outstanding PIPE Warrants, being validly tendered prior to the expiration of the Offer. The Company completed the settlement and exchange of such warrants, each for 0.20 shares of Class A Common Stock, on July 5, 2024, which resulted in the issuance of 3,686,056 shares of Class A Common Stock. Following the expiration of the Offer, the Company processed Warrant exercises and settled the Post-Offer Exchange for the Warrants that remained outstanding, which resulted in the issuance of 189,438 shares of Class A Common Stock.
In the aggregate, the Company issued 3,876,201 shares of Class A Common Stock in exchange for 19,483,539 Warrants, with a nominal cash settlement paid in lieu of fractional shares (the "Warrant Exchange"). No Warrants remained outstanding following the Post-Offer Exchange. Accordingly, the Warrants that had been listed on the New York Stock Exchange were suspended from trading as of the close of business on July 19, 2024, and subsequently delisted.
In the third quarter of 2024, the Company recorded increases to "Class A Common Stock" and "Additional paid-in capital", representing the $42.6 million fair value of the Class A Common Stock that was issued in connection with the Warrant Exchange. The difference between the fair value of the Warrants immediately prior to the Warrant Exchange and the fair value of Class A Common Stock issued resulted in a $2.0 million loss, which is reflected within "Gain (loss) related to warrant liabilities, net" in the Condensed Consolidated Statements of Operations.
18 — Share-Based Compensation
The Company's 2021 Stock Incentive Plan provides for the issuance of up to approximately 38.3 million shares of Class A Common Stock to employees and non-employee directors. The 2021 Stock Incentive Plan allows for the issuance of incentive stock o ptions, non-qualified stock options, restricted stock awards, stock appreciation rights, RSUs, and PRSUs. As of September 30, 2024, there were approximately 27.5 million shares available for future grants under the 2021 Stock Incentive Plan.
Share-based compensation expense related to employees is recognized in the Condensed Consolidated Statements of Operations within "Salaries and benefits" and, to a much lesser extent, when applicable, "Restructuring, impairment and related charges, net". Share-based compensation expense related to non-employee directors is recognized within "General and administrative". The Company recognizes forfeitures of share-based compensation awards in the period in which they occur.
The following table summarizes share-based compensation expense recognized during the three and nine months ended September 30, 2024 and 2023:

|  | Three months ended September 30, |  | Nine months ended September 30, |  |
|  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
|  | in thousands
Restricted stock units |  | $ | 2,962 |  |  | $ | 4,220 |  |  | $ | 10,004 |  |  | $ | 10,846 |  |  |
Performance restricted stock units |  | 1,130 |  |  | 715 |  |  | 3,014 |  |  | 2,146 |  |  |
Employee stock purchase plan |  | — |  |  | — |  |  | — |  |  | 165 |  |  |
Total share-based compensation expense |  | $ | 4,092 |  |  | $ | 4,935 |  |  | $ | 13,018 |  |  | $ | 13,157 |  |  |

Restricted Stock Units
RSUs typically vest over a two to five-year period based on the requisite service period. The grant date fair value is determined based on the closing market price of the Class A Common Stock on the business day prior to the grant date and the related share-based compensation expense is recognized over the vesting period on a straight-line basis.
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The following table provides a summary of RSU activity during the nine months ended September 30, 2024:

|  | Restricted Stock Units |  | Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2023 |  | 4,678,032 |  | $ | 9.88 |
Granted |  | 941,492 |  | 9.20 |
Vested (1) |  | (1,805,137) |  | 10.15 |
Forfeited |  | (124,670) |  | 9.58 |
Unvested balance as of September 30, 2024 |  | 3,689,717 |  | $ | 9.58 |

(1) For the nine months ended September 30, 2024, 1,194,808 shares of Class A Common Stock were issued related to the vesting of RSUs in the period, net of shares withheld for the funding of employee tax obligations.
The following table provides additional data related to RSU award activity during the nine months ended September 30, 2024 and 2023:

|  | Nine months ended September 30,
|  | 2024 |  | 2023
|  | in thousands (except years)
Total fair value of shares vested (1) |  | $ | 18,324 |  |  | $ | 9,710 |
Unrecognized compensation expense |  | $ | 28,962 |  |  | $ | 36,413 |
Weighted-average period awards are expected to be recognized (in years) | 2.93 |  | 3.41

(1) The tax impact related to vested RSUs for the nine months ended September 30, 2024 and 2023 was not material to the Company's Condensed Consolidated Financial Statements due to the full valuation allowance on the deferred tax asset for the investment in the assets of THG.
Performance Restricted Stock Units
Market Condition PRSUs
In April 2022, the Company's Chief Executive Officer was granted 3,707,136 market condition PRSUs, which provide him the opportunity to receive up to 3,707,136 shares of Class A Common Stock. The award had a grant date fair value of approximately $19.2 million, which was estimated using a Monte Carlo simulation model. These PRSUs have both market-based and service-based vesting conditions. Shares of Class A Common Stock issuable under this award can be earned based on the achievement of the following stock price targets: (i) 25% of the shares can be earned when the stock price of the Class A Common Stock exceeds $20.00 per share for 60 consecutive days, (ii) 25% of the shares can be earned when the stock price of the Class A Common Stock exceeds $25.00 per share for 60 consecutive days, and (iii) 50% of the shares can be earned when the stock price of the Class A Common Stock exceeds $30.00 per share for 60 consecutive days. These market-based conditions must be met in order for the PRSUs to vest; therefore, it is possible that no shares will ultimately vest. If any of the market-based conditions are met, the PRSUs will vest contingent upon continued service through the earlier of three years after achievement of the stock price target or the end of the seven-year performance period. As of September 30, 2024, no market condition PRSUs had vested.
The Company will recognize the entire $19.2 million of compensation expense for this award over the requisite service period, regardless of whether such market-based conditions are met. As of September 30, 2024, unrecognized compensation expense related to this award was $12.1 million, which the Company expects to recognize over a period of 4.50 years.
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The following table summarizes the assumptions and related information used to determine the grant-date fair value of the market condition PRSUs awarded in April 2022:

Inputs |  | Performance Restricted Stock Units
Weighted average grant-date fair value per share |  | $5.19
Expected stock volatility |  | 35%
Expected term (in years) |  | 7.0
Risk-free interest rate |  | 2.5%
Dividend yield |  | —%

Performance Condition PRSUs
On March 29, 2024, the Talent, Culture, and Compensation Committee (the "Compensation Committee") of the Board adopted a new form of PRSU award agreement (the "2024 PRSU Agreement") to be used for awards of PRSUs to certain employees under the Company's 2021 Stock Incentive Plan.
PRSUs granted under the 2024 PRSU Agreement will be eligible to vest subject to the satisfaction of both performance-based and service-based conditions. The performance-based vesting condition will be satisfied contingent upon the Company's level of performance over the designated performance period (the "Performance Period") as measured against a financial performance target (the "Performance Target"), each as determined by the Compensation Committee. Following the end of the Performance Period, the Compensation Committee will determine the applicable attained performance level with payout percentages ranging from 35% to 200% (each, a "Payout Percentage") of the target number of PRSUs awarded. In the event of a Change in Control (as defined in the 2024 PRSU Agreement) before the end of a scheduled Performance Period, the Compensation Committee retains discretion to end the Performance Period early and measure performance levels as of a revised measurement date.
If both the service-based and performance-based vesting conditions are satisfied, the PRSU holder will be entitled to receive the number of shares of Class A Common Stock, if any, determined by multiplying the aggregate number of PRSUs subject to the applicable PRSU Agreement by the applicable Payout Percentage that corresponds to the level of achievement of the Performance Target pursuant to the payout formula approved by the Compensation Committee.
The amount of compensation expense ultimately recognized for PRSUs issued under the 2024 PRSU Agreement will be based on the Company's ultimate performance relative to the Performance Target. The amount of compensation expense recognized prior to the end of the Performance Period is dependent upon management's assessment of the likelihood of achieving the applicable payout levels. If, as a result of management's assessment, it is projected that a greater number of PRSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period when such determination is made. Conversely, if, as a result of management's assessment, it is projected that a lower number of PRSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period when such determination is made.
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The following table provides a summary of the activity related to PRSUs granted under the 2024 PRSU Agreement during the nine months ended September 30, 2024:

| Performance Restricted Stock Units |  | Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2023 | — |  | $ | — |
Granted | 339,564 |  | 9.31 |
Unvested balance as of September 30, 2024 | 339,564 |  | $ | 9.31 |

As of September 30, 2024, the maximum number of shares of Class A Common Stock that may be issued with respect to PRSUs granted under the 2024 PRSU Agreement is 679,128, assuming full achievement of the Performance Target.
The following table provides additional data related to performance condition PRSU award activity during the nine months ended September 30, 2024:

|  | Nine months ended September 30,
|  | 2024 |  |
|  | in thousands (except years)
Total fair value of shares vested |  | $ | — |  |  |
Unrecognized compensation expense |  | $ | 5,324 |  |  |
Weighted-average period awards are expected to be recognized (in years) | 2.50 |  |

Employee Stock Purchase Plan
The 2021 Employee Stock Purchase Plan (the "ESPP") allows substantially all of the Company's employees to purchase shares of Class A Common Stock at a discount. As of September 30, 2024, 197,819 shares had been purchased under the ESPP and there were approximately 11.3 million shares available for future purchases.
19 — Earnings Per Share
Basic earnings per share is calculated under the Two-Class Method using Net income available to Class A Common Stockholders, divided by the weighted average number of shares of Class A Common Stock outstanding during the period.
Diluted earnings per share is calculated using diluted Net income available to Class A Common Stockholders divided by the weighted average number of shares of Class A Common Stock outstanding during the period, adjusted to give effect to potentially dilutive securities.
The Company's potentially dilutive securities consist of (i) unvested share-based compensation awards, shares issuable under the employee stock purchase plan, and unexercised warrants (prior to completion of the Warrant Exchange) with the dilutive effect calculated using the Treasury Stock Method, and (ii) non-controlling interest THG units and Series A Convertible Preferred Stock, with the dilutive effect calculated using the more dilutive of the If-Converted Method and the Two-Class Method.
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The following table summarizes the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2024 and 2023:

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
| in thousands (except per share amounts)
Earnings Per Share of Class A Common Stock, Basic |  |  |  |  |  |  |  |  |
Net income available to Class A Common Stockholders | $ | 2,798 |  |  | $ | 3,255 |  |  | $ | 7,753 |  |  | $ | 3,712 |  |  |
Weighted average shares of Class A Common Stock outstanding | 89,691 |  |  | 84,479 |  |  | 86,689 |  |  | 84,042 |  |  |
Net income per share of Class A Common Stock, basic | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |  |  |
Earnings Per Share of Class A Common Stock, Diluted |  |  |  |  |  |  |  |  |
Net income available to Class A Common Stockholders | $ | 2,798 |  |  | $ | 3,255 |  |  | $ | 7,802 |  |  | $ | 3,712 |  |  |
Weighted average shares of Class A Common Stock outstanding | 89,691 |  |  | 84,479 |  |  | 87,601 |  |  | 84,042 |  |  |
Net income per share of Class A Common Stock, Diluted | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |  |  |
Net Income Available to Class A Common Stockholders |  |  |  |  |  |  |  |  |
Net income | $ | 19,007 |  |  | $ | 18,623 |  |  | $ | 69,863 |  |  | $ | 19,137 |  |  |
Net income attributable to non-controlling interest | (14,122) |  |  | (13,269) |  |  | (55,951) |  |  | (13,477) |  |  |
Accretion of Series A Convertible Preferred Stock | (1,875) |  |  | (1,838) |  |  | (5,552) |  |  | (1,838) |  |  |
Undistributed earnings allocated to Series A Convertible Preferred Stock | (212) |  |  | (261) |  |  | (607) |  |  | (110) |  |  |
Net income available to Class A Common Stockholders, Basic | 2,798 |  |  | 3,255 |  |  | 7,753 |  |  | 3,712 |  |  |
Adjustment for potentially dilutive THG units | — |  |  | — |  |  | — |  |  | — |  |  |
Adjustment for potentially dilutive Series A Convertible Preferred Stock | — |  |  | — |  |  | — |  |  | — |  |  |
Adjustment for potentially dilutive share-based compensation awards | — |  |  | — |  |  | 49 |  |  | — |  |  |
Adjustment for potentially dilutive warrants | — |  |  | — |  |  | — |  |  | — |  |  |
Net income available to Class A Common Stockholders, Diluted | $ | 2,798 |  |  | $ | 3,255 |  |  | $ | 7,802 |  |  | $ | 3,712 |  |  |
Weighted Average Shares of Class A Common Stock Outstanding |  |  |  |  |  |  |  |  |
Weighted average shares of Class A Common Stock outstanding, Basic | 89,691 |  |  | 84,479 |  |  | 86,689 |  |  | 84,042 |  |  |
Adjustment for potentially dilutive THG units | — |  |  | — |  |  | — |  |  | — |  |  |
Adjustment for potentially dilutive Series A Convertible Preferred Stock | — |  |  | — |  |  | — |  |  | — |  |  |
Adjustment for potentially dilutive share-based compensation awards | — |  |  | — |  |  | 912 |  |  | — |  |  |
Adjustment for potentially dilutive warrants | — |  |  | — |  |  | — |  |  | — |  |  |
Weighted average shares of Class A Common Stock outstanding, Diluted | 89,691 |  |  | 84,479 |  |  | 87,601 |  |  | 84,042 |  |  |

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The following table summarizes the weighted average potential shares of Class A Common Stock excluded from diluted earnings per share of Class A Common Stock as their effect would be anti-dilutive:

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2024 |  | 2023 |  | 2024 |  | 2023 |  |
| in thousands
THG units | 255,252 |  |  | 255,499 |  |  | 255,378 |  |  | 255,579 |  |  |
Series A Convertible Preferred Stock | 6,785 |  |  | 6,785 |  |  | 6,785 |  |  | 2,485 |  |  |
Unvested shares associated with share-based compensation awards | 7,746 |  |  | 8,509 |  |  | 3,918 |  |  | 7,480 |  |  |
Warrants | — |  |  | 19,484 |  |  | — |  |  | 19,484 |  |  |
Total | 269,783 |  |  | 290,277 |  |  | 266,081 |  |  | 285,028 |  |  |

20 — Taxation
United States — With the exception of certain U.S. corporate and foreign subsidiaries, THG is taxed as a pass-through ownership structure under provisions of the Internal Revenue Code ("IRC") and a similar section of state income tax law. As such, any taxable income or loss generated by THG is passed through to and included in the taxable income or loss of THG unit holders, including Hagerty, Inc.
Hagerty, Inc. is taxed as a corporation under the IRC and pays corporate, federal, state, and local taxes with respect to income allocated from THG. Hagerty, Inc., Hagerty Insurance Holdings, Inc., Broad Arrow, Hagerty Radwood, Inc., and various foreign subsidiaries are treated as taxable entities and income taxes are provided where applicable. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.
The Company has a TRA with the Legacy Unit Holders that requires the Company to pay 85% of the tax savings that are realized as a result of increases in the tax basis in THG's assets as a result of an exchange of THG units and shares of Class V Common Stock for shares of Class A Common Stock or cash. See "Tax Receivable Agreement Liability" below for additional information.
Canada — Hagerty's Canadian entities are taxed as non-resident corporations and subject to income tax in Canada under provisions of the Canadian Revenue Agency.
United Kingdom — Hagerty's U.K. entities are taxed as corporations and subject to income tax in the U.K. under provisions of HM Revenue & Customs.
Bermuda — Hagerty Re made an irrevocable election under Section 953(d) of the U.S. IRC, as amended, to be taxed as a U.S. domestic corporation. As a result, Hagerty Re is subject to U.S. taxation on its world-wide income as if it were a U.S. corporation. In accordance with an agreement between Hagerty Re and the Internal Revenue Service ("IRS"), Hagerty Re established an irrevocable letter of credit with the IRS in 2021.
Tax Legislation — The Organisation for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While its uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which the Company operates have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. While the Company expects that its effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, management does not expect there to be a material impact to the Company's results of operations for the year ending December 31, 2024. The Company's assessment could be affected by legislative guidance and future enactment of additional provisions within the Pillar 2 framework.
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Income Tax Expense — Income tax expense reflected in the Condensed Consolidated Statements of Operations differs from the tax computed by applying the statutory U.S. federal rate of 21% to "Income before income tax expense" as follows:

| Nine months ended September 30,
| 2024 |  | 2023 |  |
| in thousands (except percentages)
Income tax expense at statutory rate | $ | 16,754 |  |  | 21 | % |  | $ | 6,539 |  |  | 21 | % |  |  |  |
State taxes | 360 |  |  | — | % |  | 377 |  |  | 1 | % |  |  |  |
(Income) loss not subject to entity-level taxes | (7,992) |  |  | (10) | % |  | 4,961 |  |  | 17 | % |  |  |  |
Foreign rate differential | (165) |  |  | — | % |  | (219) |  |  | (1) | % |  |  |  |
Change in valuation allowance | (1,319) |  |  | (2) | % |  | (635) |  |  | (2) | % |  |  |  |
(Gain) loss related to warrant liabilities, net | 1,794 |  |  | 2 | % |  | 298 |  |  | 1 | % |  |  |  |
Permanent items | 507 |  |  | 1 | % |  | 711 |  |  | 2 | % |  |  |  |
Other, net | (21) |  |  | — | % |  | (30) |  |  | — | % |  |  |  |
Income tax benefit (expense) | $ | 9,918 |  |  | 12 | % |  | $ | 12,002 |  |  | 39 | % |  |  |  |

Deferred Tax Assets — As of September 30, 2024 and December 31, 2023, the Company had deferred tax assets of $145.3 million and $146.0 million, respectively, related to the difference between the outside tax basis and book basis of its investment in the assets of THG. The Company's deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods, as permitted by law, the Company believes it is more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of THG, will not be realized. As a result, the Company has recorded a valuation allowance of $171.8 million and $169.6 million against its deferred tax assets as of September 30, 2024 and December 31, 2023, respectively. In the event that management subsequently determines that it is more likely than not that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.
Tax Examinations — The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction, as well as many state and foreign jurisdictions. As of September 30, 2024, tax years 2020 to 2023 are subject to examination by various tax authorities. With few exceptions, as of September 30, 2024, the Company is no longer subject to U.S. federal, state, local or foreign examinations for years before 2020. THG is currently under audit by the IRS for the 2021 tax year.
The Canadian Revenue Agency examination of the Company for the 2018 tax year was closed in March 2024 with no changes to previously filed tax returns. In July 2024, the Canadian Revenue Agency selected Hagerty Drivers Club Canada, LLC for an audit of non-resident withholding tax for the period 2020 to 2022.
Uncertain Tax Positions — The calculation of the Company's tax liabilities involves uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. ASC Topic 740, Income Taxes ("ASC 740") states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
The Company records uncertain tax benefits ("UTB") as liabilities in accordance with ASC 740 and adjusts these liabilities when management's conclusion changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the UTB liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
As of September 30, 2024 and 2023, the Company did not have any unrecognized tax benefits and had no material accrued interest or penalties related to uncertain tax positions. If recorded, interest and penalties would be recorded within "Income tax benefit (expense)" in the Condensed Consolidated Statements of Operations.
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Tax Receivable Agreement Liability — The TRA provides for payment to the Legacy Unit Holders of 85% of the U.S. federal, state and local income tax savings realized by Hagerty, Inc. as a result of the increases in tax basis and certain other tax benefits as outlined in the Business Combination Agreement (provided as Exhibit 2.1, incorporated by reference within Item 6. Exhibits, in this Quarterly Report) upon the exchange of THG units and Hagerty, Inc. Class V Common Stock for Hagerty, Inc. Class A Common Stock or cash. THG made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of THG units. The remaining 15% cash tax savings resulting from the basis adjustments will be retained by Hagerty, Inc.
The amount and timing of any payments under the TRA will vary depending on a number of factors, including, but not limited to, the increase in tax basis of THG's assets, the timing of any future redemptions, exchanges or purchases of THG units held by Legacy Unit Holders, the price of Hagerty, Inc. Class A Common Stock at the time of the purchase, redemption, or exchange, the extent to which redemptions or exchanges are taxable, the amount and timing of the taxable income that Hagerty, Inc. generates in the future, the tax rates then applicable and the portion of the payments under the TRA constituting imputed interest. The estimated value of the TRA recorded by the Company within "Other long-term liabilities" on the Condensed Consolidated Balance Sheets was $1.9 million and $0.6 million as of September 30, 2024 and December 31, 2023, respectively. The increase in value of $1.3 million is due to an increase in taxable income allocated to Hagerty, Inc. from THG and was recorded in Interest and other income (expense), net within the Condensed Consolidated Statements of Operations.
In general, cash tax savings result in a year when the tax liability of Hagerty, Inc. for the year, computed without regard to the deductions attributable to the amortization of the basis increase and other deductions that arise in connection with the payment of the cash consideration under the TRA or the exchange of THG units and Hagerty, Inc. Class V Common Stock for Hagerty, Inc. Class A Common Stock, would be more than the tax liability for the year taking into account such deductions. Payments under the TRA will not be due until the Company produces taxable income and the resulting cash tax liability is reduced by deducting the amortization of the basis increase on a filed tax return. The payments under the TRA are expected to be substantial.
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.
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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.
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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 |

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| 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.
22 — Commitments and Contingencies
Employee Compensation Agreements—In the ordinary course of conducting its business, the Company enters into certain employee compensation agreements from time to time which commit the Company to severance obligations in the event an employee terminates employment with the Company. If applicable, these obligations are included in the accrued expenses lines of the Condensed Consolidated Balance Sheets.
Litigation— From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business. Management is required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The determination of the amount of any losses to be recorded or disclosed as a result of these contingencies is based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel. The amount of losses recorded or disclosed for such contingencies may change in the future due to new developments in each matter or a change in legal or settlement strategy. While the impact of any one or more legal claims or proceedings could be material to the Company's operating results in any period, management does not believe that the outcome of any of these pending claims or proceedings (including the data security incident discussed below), individually or in the aggregate, will have a material adverse effect on the Company's consolidated financial condition or liquidity.
Data Security Incident— In 2021, the Company experienced an unauthorized access into its online insurance quote feature whereby attackers used personal information already in their possession to obtain additional consumer data, including driver's license numbers. The unauthorized access issue has been remediated. This incident is the subject of coordinated industry-wide regulatory investigations in New York state. The Company could be subject to litigation, fines and/or penalties related to this incident. In 2023, the Company accrued an estimated liability related to this incident based on the facts known by management and developed through its assessment of the current status of ongoing dialog with the regulatory investigators. The amount of the estimated liability is not material to the Company's Condensed Consolidated Financial Statements. The amount of any fines, penalties, and/or settlements related to this incident could differ from the amount currently accrued and such difference is not currently estimable.
23 — Subsequent Events
Hurricane Milton
On October 9, 2024, Hurricane Milton made landfall along Florida's Central Gulf Coast. The Company estimates that pre-tax losses resulting from Hurricane Milton will be approximately $5.0 million, which is below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions, and therefore, the estimate may change as additional information emerges. Losses from Hurricane Milton will be reflected in the Company's results for the three months ended December 31, 2024.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report and our Condensed Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Please refer to the section in this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements".
Overview
We are a market leader in providing insurance for classic cars and enthusiast vehicles. Through our insurance model, we act as a Managing General Agent ("MGA") by underwriting, selling, and servicing classic car and enthusiast vehicle insurance policies. Then, due to our consistent track record of delivering strong underwriting results, we reinsure a large portion of the risks written by our MGA subsidiaries through our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"). In addition, we offer Hagerty Drivers Club ("HDC") memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. Lastly, to complement our insurance and membership offerings, we also offer Hagerty Marketplace ("Marketplace"), where car enthusiasts can buy, sell, and finance collector cars. Through these offerings, our goal is to be the world's most trusted and preferred brand for enthusiasts to protect, buy and sell, and enjoy the special cars that are their passion.
Business Review
In 2023, we began a review of certain components of our operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social, DriveShare, and Motorsport Reg ("MSR"). This initiative supports our strategy to prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential. As a result of this review, we recognized approximately $4.1 million of losses and impairments in the third quarter of 2023 related to actions taken with respect to Hagerty Garage + Social and DriveShare, and a $0.1 million gain in the second quarter of 2024 related to the sale of MSR. We may incur additional losses and/or impairment charges in future periods as a result of actions which we may take related to this review. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.
Recent Developments
Warrant Exchange
In July 2024, we completed an exchange offer under which holders of our warrants were issued 3,876,201 shares of Class A Common Stock in exchange for 19,483,539 warrants, with a nominal cash settlement paid in lieu of fractional shares (the "Warrant Exchange"). No warrants remained outstanding following the completion of the Warrant Exchange. As a result of the Warrant Exchange, we recognized a loss of $2.0 million during the three and nine months ended September 30, 2024, representing the difference between the fair value of the warrants immediately prior to the Warrant Exchange and the fair value of Class A Common Stock issued. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to the Warrant Exchange.
Acquisition
On September 1, 2024, our subsidiary, Hagerty Insurance Holdings, Inc., acquired Consolidated National Insurance Company, which was subsequently renamed to Drivers Edge Insurance Company ("Drivers Edge"), for a purchase price of $19.3 million, including $0.9 million in direct and incremental transaction costs. We believe that this acquisition will allow us to continue driving high rates of written premium growth, optimize our underwriting profits, and offer new products and coverages to fill an underserved segment of the enthusiast vehicle market. Refer to Note 8 — Acquisition in Item 1 of Part I of this Quarterly Report for additional information with respect to the Drivers Edge acquisition.
Hurricane Helene
On September 26, 2024, Hurricane Helene made landfall, causing significant damage in Florida as well as several other states including Georgia, South Carolina, North Carolina, Virginia, and Tennessee. As a result of Hurricane Helene, we recorded estimated pre-tax losses of $24.7 million during the three and nine months ended September 30, 2024. Our estimated pre-tax losses related to Hurricane Helene are currently below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions. Accordingly, our estimate may change as additional information becomes available.
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Hurricane Milton
On October 9, 2024, Hurricane Milton made landfall along Florida's Central Gulf Coast. We currently estimate that pre-tax losses resulting from Hurricane Milton will be approximately $5.0 million, which is below the 2024 catastrophe reinsurance program per event retention of $28.0 million. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions. Accordingly, our estimate may change as additional information becomes available. Losses from Hurricane Milton will be reflected in our results for the three months ended December 31, 2024.
Key Performance Indicators
The tables below present a summary of our Key Performance Indicators, which include important operational metrics, as well as certain financial measures prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and non-GAAP financial measures. We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections, and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating our performance when read together with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
Operational Metrics |  |  |  |  |  |  |  |
Total Written Premium (in thousands) (1) |  | $ | 287,609 |  |  | $ | 255,569 |  |  | $ | 827,068 |  |  | $ | 714,314 |
Loss Ratio (2) |  | 60.0 | % |  | 41.1 | % |  | 47.7 | % |  | 41.5 | %
New Business Count — Insurance (3) |  | 77,418 |  |  | 69,691 |  |  | 225,753 |  |  | 201,593 |
GAAP Financial Measures |  |  |  |  |  |  |  |
Total Revenue (in thousands) |  | $ | 323,374 |  |  | $ | 275,574 |  |  | $ | 908,307 |  |  | $ | 755,170 |
Operating Income (in thousands) |  | $ | 10,089 |  |  | $ | 16,117 |  |  | $ | 60,380 |  |  | $ | 16,881 |
Net Income (in thousands) |  | $ | 19,007 |  |  | $ | 18,623 |  |  | $ | 69,863 |  |  | $ | 19,137 |
Basic Earnings Per Share |  | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |
Diluted Earnings Per Share |  | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |
Non-GAAP Financial Measures |  |  |  |  |  |  |  |
Adjusted EBITDA (in thousands) (4) |  | $ | 24,165 |  |  | $ | 37,377 |  |  | $ | 104,605 |  |  | $ | 78,449 |
Adjusted Earnings Per Share (4) |  | $ | 0.05 |  |  | $ | 0.05 |  |  | $ | 0.22 |  |  | $ | 0.05 |

|  | September 30, |  | December 31,
|  | 2024 |  | 2023
Operational Metrics |  |  |  |
Policies in Force (5) |  | 1,494,510 |  |  | 1,401,037 |
Policies in Force Retention (6) |  | 88.8 | % |  | 88.7 | %
Vehicles in Force (7) |  | 2,553,589 |  |  | 2,378,883 |
HDC Paid Member Count (8) |  | 867,596 |  |  | 815,007 |
Net Promoter Score (9) |  | 82 |  |  | 82 |

(1) Total Written Premium is the total amount of insurance premium written by our MGA subsidiaries on policies that were bound by our insurance carrier partners during the period. We view Total Written Premium as an important metric as it most closely correlates with our growth in insurance commission revenue and Hagerty Re earned premium. Total Written Premium reflects the actual business volume and direct economic benefit generated from our policy acquisition efforts.
(2) Loss Ratio, expressed as a percentage, is the ratio of (i) losses and loss adjustment expenses incurred to (ii) earned premium in Hagerty Re. We view Loss Ratio as an important metric because it is a benchmark for profitability. This benchmark allows us to evaluate our historical loss patterns, including incurred losses, and make necessary and appropriate adjustments. Refer to "Losses and Loss Adjustment Expenses" below for additional information regarding the changes in our loss ratio period over period.
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(3) New Business Count represents the number of new insurance policies issued by our MGA subsidiaries during the applicable period. We view New Business Count as an important metric to assess our financial performance because it is critical to achieving our growth objectives. While we benefit from strong renewal retention, new business policies more than offset those cancelled or non-renewed at expiration. New policies often mean new relationships and an opportunity to sell additional products and services.
(4) Refer to "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
(5) Policies in Force ("PIF") represents the number of current and active insurance policies as of the applicable period end date. We view PIF as an important metric to assess our financial performance because policy growth drives our revenue growth, increases brand awareness and market penetration, generates additional insight to improve the performance of our platform, and provides key data to assist us in strategic decision making.
(6) PIF Retention represents the percentage of expiring insurance policies that are renewed on the renewal effective date, calculated on a rolling twelve months basis. We view PIF Retention as an important measurement of the number of policies retained each year, which contributes to recurring revenue streams from MGA commissions, membership fees, and earned premiums.
(7) Vehicles in Force represents the number of current insured vehicles as of the applicable period end date. We view Vehicles in Force as an important metric to assess our financial performance because insured vehicle growth drives our revenue growth and increases market penetration.
(8) HDC Paid Member Count represents the number of current Members who pay an annual membership subscription as of the applicable period end date. We believe that HDC Paid Member Count is important because it helps us measure membership revenue growth and provides an opportunity to customize our value proposition and benefits to specific types of enthusiasts, both by demographic and vehicle interest.
(9) We use Net Promoter Score ("NPS") as an important measure of the overall strength of our relationship with insurance policyholders and paid HDC subscribers (collectively referred to as "Members"). NPS is measured twice annually through a web-based survey sent by email invitation to a random sample of existing Members, which currently excludes customers in our new Marketplace business, and is reported annually using an average of the two surveys. Often referred to as a barometer of brand loyalty and engagement, NPS is well-known in our industry as a strong indicator of growth and retention.
Components of Our Results of Operations
Revenue
Commission and fee revenue
We generate commission and fee revenue through our MGA subsidiaries, primarily from the underwriting, sale, and servicing of classic car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies. In addition, under the terms of certain of our contracts with insurance carriers, we have the opportunity to earn a contingent underwriting commission ("CUC") based on written or earned premium and the loss ratio results of the insurance book of business.
Historically, our MGA subsidiaries have earned, on average, a base commission of approximately 32% of written premium, as well as a CUC of up to 10%. In December 2023, our alliance agreement and associated agency agreement with Markel Group, Inc. ("Markel"), which generates approximately 93% of our total commission revenue, was amended to increase the base commission rate to 37% and to adjust the contingent commission to range from -5% to a maximum of +5% of annual written premium, with 80% of the expected CUC being paid monthly, beginning in the first quarter of 2024.
Commission and fee revenue is earned when the policy becomes effective, net of allowances for policy changes and cancellations, as our performance obligation is substantially complete when the policy is issued.
Earned premium
We earn reinsurance premium revenue for the risks assumed by Hagerty Re from the classic car and enthusiast vehicle insurance policies underwritten by our MGA subsidiaries. Hagerty Re is registered as a Class 3A reinsurer under the Bermuda Insurance Act of 1978.
Earned premium represents the earned portion of written premiums that Hagerty Re has assumed under quota share reinsurance agreements with our insurance carrier partners, net of premiums ceded to various reinsurers and the cost of catastrophe reinsurance coverage. Premiums assumed and ceded are recognized on a pro-rata basis over the term of the related reinsured policies, which is generally 12 months. The cost of catastrophe reinsurance coverage is recognized over the contract period in proportion to the related earned premium.
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Membership, marketplace and other revenue
We earn subscription revenue through HDC memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. We also earn fee-based revenue from Hagerty Garage + Social memberships, which include storage services in addition to the HDC Member benefits. Revenue from the sale of HDC and storage memberships is recognized ratably over the period of the membership. The membership is treated as a single performance obligation to provide access to stated member benefits over the life of the membership, which is currently one year.
Marketplace earns fee-based revenue primarily from the sale of collector cars through live auctions, time-based online auctions, and brokered private sales. In addition, Marketplace earns revenue from the sale of collector cars in inventory that have been acquired opportunistically for resale and from financing provided to qualified collectors and businesses secured by collector cars. Fee-based revenue earned by Marketplace is recognized when the underlying sale is completed. Revenue from the sale of collector cars from inventory is recognized at the point in time when title and control of the car is transferred to the buyer, which is generally upon payment of the full purchase price. Finance revenue is recognized when earned based on the amount of the outstanding loan, the applicable interest rate on the loan, and the length of time the loan was outstanding during the period.
Lastly, other revenue includes sponsorship, admission, advertising, valuation, registration, and sublease income. Other revenue is recognized when the performance obligation for the related product or service is satisfied.
Operating Expenses
Salaries and benefits
Salaries and benefits consist primarily of costs related to employee compensation, payroll taxes, employee benefits, and employee development costs. Employee compensation includes wages, as well as various incentive compensation plans, including share-based compensation. Employee benefits include the costs of various employee benefit plans, including retirement, medical, dental, wellness, and severance plans. Costs related to employee education, training, and recruiting are included in employee development costs. Salaries and benefits are expensed as incurred except for those costs which are required to be capitalized, which are then amortized over the useful life of the asset created, primarily software. Salaries and benefits are expected to increase in dollar amount over time as the business continues to grow but will likely decrease as a percent of revenue.
Ceding commissions, net
Ceding commissions, net represents the commissions paid by Hagerty Re to insurance carrier partners for the risk assumed under the quota share agreements with those carriers. These commissions represent Hagerty Re's pro-rata share of the carrier's costs including (i) policy acquisition costs, which consists of the commissions earned by our MGA subsidiaries, (ii) general and administrative costs, and (iii) other costs. Ceding commissions paid is recorded net of commissions received by Hagerty Re related to ceded reinsurance premiums. Ceding commissions, net is recognized ratably over the term of the related reinsured policies, which is generally 12 months.
Losses and loss adjustment expenses
Losses and loss adjustment expenses represent our best estimate of the losses related to the risk assumed by Hagerty Re. Losses consist of claims paid, case reserves, and incurred but not reported costs, which are recorded net of estimated recoveries from reinsurance, salvage and subrogation. Loss adjustment expenses consist of the cost associated with the investigation and settlement of claims. The estimates utilized in determining the amount of losses and loss adjustment expenses recorded in a period are based on statistical analysis performed by our internal and external actuarial team. Reserves are reviewed regularly and adjusted, as necessary, to reflect our estimate of the ultimate cost of settlement.
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Sales expense
Sales expense includes costs related to the sale and servicing of insurance policies, as well as costs related to our Membership and Marketplace offerings, such as broker expense, cost of sales, promotion expense, and travel and entertainment expenses. Broker expense is the compensation paid to our agent partners and national broker partners when an insurance policy is written through a broker relationship. Broker expense generally tracks with written premium growth. Cost of sales includes payment processing fees, emergency roadside service costs, postage and other variable costs associated with the sale and servicing of a policy. Cost of sales also includes the cost of vehicles held in inventory and sold through Marketplace, as well as interest expense and borrowing costs associated with the Broad Arrow Capital LLC ("BAC") credit facility ("BAC Credit Facility"). Promotion expense includes various costs related to branding, events, advertising, marketing, and customer acquisition. Sales expenses, in general, are expensed as incurred and will trend with revenue growth.
General and administrative
General and administrative primarily consist of expenses related to non-capitalized hardware and software, professional services, and occupancy costs. These costs are expensed as incurred. We expect this expense category to increase in dollar amount over time as the business continues to grow but will likely decrease as a percentage of revenue over the next few years after we reach scale to handle incoming business from new partnerships.
Depreciation and amortization
Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives. Depreciation expense relates to hardware, furniture and equipment, and leasehold improvements. Amortization relates to internally developed software, software as a service ("SaaS") implementation, and investments associated with acquisitions. Depreciation and amortization are expected to increase in dollar amount over time but will likely decrease as a percent of revenue as investments in platform technology reach scale.
Other Items
Gain (loss) related to warrant liabilities, net
Prior to the Warrant Exchange, which was completed in the third quarter of 2024, our warrants were accounted for as liabilities and were measured at fair value each reporting period, with changes in fair value recognized as non-operating income (expense) in our Condensed Consolidated Statements of Operations. In general, under the fair value accounting model, in periods when our stock price increased, the warrant liability increased, and we recognized additional expense. In periods when our stock price decreased, the warrant liability decreased, and we recognized additional income. In addition, "Gain (loss) related to warrant liabilities, net" includes the loss on the Warrant Exchange recorded in the third quarter of 2024. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information about the Company's Warrant Exchange.
Interest and other income (expense), net
Interest and other income (expense), net primarily includes interest income related to our cash balances and fixed maturity securities, dividend income on equity securities, realized gains or losses from the sale of fixed maturity securities, and realized and unrealized gains and losses related to equity securities. Additionally, Interest and other income (expense), net includes interest expense related to outstanding borrowings, primarily related to the JPM Credit Facility, and changes in the value of the liability related to our Tax Receivable Agreement ("TRA") with Hagerty Holding Corp. ("HHC") and Markel. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information related to the TRA.
Income tax benefit (expense)
The Hagerty Group, LLC ("THG") is taxed as a pass-through ownership structure under provisions of the Internal Revenue Code ("IRC") and a similar section of state income tax law, except certain United States ("U.S.") corporate subsidiaries and foreign subsidiaries. Any taxable income or loss generated by THG is passed through to and included in the taxable income or loss of all holders of THG units, including Hagerty, Inc. Hagerty, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes with respect to income allocated from THG. Hagerty, Inc., Hagerty Insurance Holdings, Inc., Broad Arrow Group, Inc. ("Broad Arrow"), Hagerty Radwood, Inc., and various foreign subsidiaries are treated as taxable entities and income taxes are provided where applicable. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.
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Results of Operations
Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023
The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023, and the dollar and percentage changes between the two periods:

|  | Three months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
REVENUE: |  | in thousands (except percentages)
Commission and fee revenue |  | $ | 116,161 |  |  | $ | 103,173 |  |  | $ | 12,988 |  |  | 12.6 | %
Earned premium |  | 165,686 |  |  | 139,785 |  |  | 25,901 |  |  | 18.5 | %
Membership, marketplace and other revenue |  | 41,527 |  |  | 32,616 |  |  | 8,911 |  |  | 27.3 | %
Total revenue |  | 323,374 |  |  | 275,574 |  |  | 47,800 |  |  | 17.3 | %
OPERATING EXPENSES: |  |  |  |  |  |  |  |
Salaries and benefits |  | 47,192 |  |  | 51,318 |  |  | (4,126) |  |  | (8.0) | %
Ceding commissions, net |  | 77,501 |  |  | 65,413 |  |  | 12,088 |  |  | 18.5 | %
Losses and loss adjustment expenses |  | 99,430 |  |  | 57,485 |  |  | 41,945 |  |  | 73.0 | %
Sales expense |  | 59,141 |  |  | 47,737 |  |  | 11,404 |  |  | 23.9 | %
General and administrative |  | 20,837 |  |  | 22,166 |  |  | (1,329) |  |  | (6.0) | %
Depreciation and amortization |  | 9,184 |  |  | 10,753 |  |  | (1,569) |  |  | (14.6) | %
Restructuring, impairment and related charges, net | — |  |  | 473 |  |  | (473) |  |  | (100.0) | %
Gains, losses, and impairments related to divestitures | — |  |  | 4,112 |  |  | (4,112) |  |  | (100.0) | %
Total operating expenses |  | 313,285 |  |  | 259,457 |  |  | 53,828 |  |  | 20.7 | %
OPERATING INCOME |  | 10,089 |  |  | 16,117 |  |  | (6,028) |  |  | (37.4) | %
Gain (loss) related to warrant liabilities, net |  | (463) |  |  | 850 |  |  | (1,313) |  |  | (154.5) | %
Interest and other income (expense), net |  | 8,359 |  |  | 6,260 |  |  | 2,099 |  |  | 33.5 | %
INCOME BEFORE INCOME TAX EXPENSE | 17,985 |  |  | 23,227 |  |  | (5,242) |  |  | (22.6) | %
Income tax benefit (expense) |  | 1,022 |  |  | (4,604) |  |  | 5,626 |  |  | (122.2) | %
NET INCOME |  | $ | 19,007 |  |  | $ | 18,623 |  |  | $ | 384 |  |  | 2.1 | %

Revenue
Commission and fee revenue
Commission and fee revenue was $116.2 million for the three months ended September 30, 2024, an increase of $13.0 million, or 12.6%, compared to 2023, consisting of increases of $11.3 million related to policy renewals and $1.7 million related to new policies.
The increase in revenue from policy renewals was primarily driven by a 13.4% increase in underlying policy premiums, as well as continued strong policy retention.
The increase in revenue from new policies was primarily driven by a 11.7% increase in underlying policy premiums, as well as sustained year-over-year growth in New Business Count, which increased 11.1% during the current year period.
The increase in underlying policy premiums for both policy renewals and new policies is a result of rate increases in several states due to inflation and higher vehicle repair costs, both of which contribute to higher premiums and, in turn, higher commission revenue. In addition, average premiums on newly issued policies increased as a result of writing policies with higher insured values at higher premium rates.
Commission and fee revenue from agent sources increased $7.6 million, or 13.6%, and Commission and fee revenue from direct sources increased $5.3 million, or 11.4%, during the three months ended September 30, 2024. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).
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Earned premium
Earned premium at Hagerty Re was $165.7 million for the three months ended September 30, 2024, an increase of $25.9 million, or 18.5%, compared to 2023. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, partially offset by an increase in ceded reinsurance premiums related to high-net-worth accounts in the U.S. In addition, effective January 1, 2024, Hagerty Re is no longer reinsuring classic auto risks produced by its United Kingdom ("U.K.") MGA affiliate, and the book is in run-off.
The following tables present the amount of premiums assumed by Hagerty Re and the related quota share percentages for the three months ended September 30, 2024 and 2023:

| Three months ended September 30, 2024
| U.S. |  | Canada |  | U.K. |  | Total
| in thousands (except percentages)
Subject premium | $ | 239,301 |  |  | $ | 17,967 |  |  | $ | (4) |  |  | $ | 257,264 |
Quota share percentage | 81.0 | % |  | 35.0 | % |  | 80.0 | % |  | 77.6 | %
Assumed premium in Hagerty Re | 193,437 |  |  | 6,288 |  |  | (4) |  |  | 199,721 |
Reinsurance premiums ceded |  |  |  |  |  |  | (9,906) |
Net assumed premium |  |  |  |  |  |  | 189,815 |
Change in unearned premiums |  |  |  |  |  |  | (23,109) |
Change in deferred reinsurance premiums |  |  |  |  |  |  | (1,020) |
Earned premium |  |  |  |  |  |  | $ | 165,686 |
| Three months ended September 30, 2023
| U.S. |  | Canada |  | U.K. |  | Total
| in thousands (except percentages)
Subject premium | $ | 210,754 |  |  | $ | 16,800 |  |  | $ | 2,651 |  |  | $ | 230,205 |
Quota share percentage | 81.0 | % |  | 35.0 | % |  | 80.0 | % |  | 77.5 | %
Assumed premium in Hagerty Re | 170,318 |  |  | 5,880 |  |  | 2,121 |  |  | 178,319 |
Reinsurance premiums ceded |  |  |  |  |  |  | (5,838) |
Net assumed premium |  |  |  |  |  |  | 172,481 |
Change in unearned premiums |  |  |  |  |  |  | (32,315) |
Change in deferred reinsurance premiums |  |  |  |  |  |  | (381) |
Earned premium |  |  |  |  |  |  | $ | 139,785 |

Membership, marketplace and other revenue
Membership, marketplace and other revenue was $41.5 million for the three months ended September 30, 2024, an increase of $8.9 million, or 27.3%, compared to 2023.
Membership fee revenue was $14.8 million for the three months ended September 30, 2024, an increase of $1.0 million, or 7.0%, compared to 2023. This increase was primarily attributable to a $2.1 million, or 17.8%, increase in revenue attributable to new policies issued with a bundled HDC membership, partially offset by a $0.9 million, or 50.7%, decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the three months ended September 30, 2024 and 2023, membership fees were 35.6% and 42.4%, respectively, of the Membership, marketplace and other revenue total.
Marketplace revenue was $21.6 million for the three months ended September 30, 2024, an increase of $8.6 million, or 66.2%, compared to 2023, which was primarily due to stronger results from Broad Arrow's Monterey Jet Center auction in August, an increase of $7.8 million in Marketplace inventory sales, and an increase in finance revenue associated with the growth of the BAC loan portfolio. For the three months ended September 30, 2024 and 2023, Marketplace revenue was 51.9% and 39.8%, respectively, of the Membership, marketplace and other revenue total.
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Other revenue, which includes sponsorship, admission, advertising, valuation, and sublease revenue, totaled $5.2 million for the three months ended September 30, 2024, a decrease of $0.6 million, or 11.1%, compared to 2023. This decrease was primarily attributable to the loss of registration fee revenue associated with MSR, which was sold in the second quarter of 2024, partially offset by an increase in sublease and advertising revenue. For the three months ended September 30, 2024 and 2023, other revenue was 12.4% and 17.8%, respectively, of the Membership, marketplace and other revenue total. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information related to the sale of MSR.
Operating Expenses
Salaries and benefits
Salaries and benefits were $47.2 million for the three months ended September 30, 2024, a decrease of $4.1 million, or 8.0%, compared to 2023. This decrease was primarily due to a reduction in accrued incentive compensation which reflects the losses associated with Hurricane Helene in the period. The decrease in accrued incentive compensation was partially offset by increases in base salaries as a result of annual merit increases, which occur in the second quarter of each year, as well as an increase in employee benefit costs.
Ceding commissions, net
Ceding commissions, net was $77.5 million for the three months ended September 30, 2024, an increase of $12.1 million, or 18.5%, compared to 2023. This increase is primarily attributable to the 18.5% increase in Earned premium discussed above.
The following table summarizes the components of Ceding commissions, net for the three months ended September 30, 2024 and 2023:

|  | Three months ended September 30, |
|  | 2024 |  | 2023 |
|  | in thousands (except percentages)
Ceding commission: |  |  |  |  |
Ceding commission – reinsurance assumed |  | $ | 81,660 |  |  | $ | 66,654 |  |
Ceding commission – reinsurance ceded |  | (4,159) |  |  | (1,241) |  |
Ceding commissions, net |  | $ | 77,501 |  |  | $ | 65,413 |  |
Percentage of earned premium |  | 46.8 | % |  | 46.8 | % |

Losses and loss adjustment expenses
Losses and loss adjustment expenses were $99.4 million for the three months ended September 30, 2024, an increase of $41.9 million, or 73.0%, compared to 2023. This increase was primarily driven by $24.7 million of estimated losses related to Hurricane Helene, as well as the higher volume of assumed premium at Hagerty Re.
For the three months ended September 30, 2024, our loss ratio was 60.0%, including the impact of catastrophe losses, which added 16.2% to our loss ratio. For the three months ended September 30, 2023, our loss ratio was 41.1% including the impact of catastrophe losses, which added 2.1% to our loss ratio. Excluding the impact of catastrophe losses, our loss ratio was 43.8% and 39.0% for the three months ended September 30, 2024 and 2023, respectively.
Sales expense
Sales expense was $59.1 million for the three months ended September 30, 2024, an increase of $11.4 million, or 23.9%, compared to 2023. This increase was due, in part, to a $9.3 million increase in cost of sales, primarily as a result of a higher level of Marketplace inventory sales, as well as borrowing costs associated with the BAC Credit Facility which was entered into in December 2023. In addition, broker expense increased $2.2 million, which is consistent with written premium growth within the agent channel.
General and administrative
General and administrative expense was $20.8 million for the three months ended September 30, 2024, a decrease of $1.3 million, or 6.0%, compared to 2023. This decrease was primarily driven by a $1.7 million reduction in occupancy costs as a result of fewer Hagerty Garage + Social locations in operation, as well as lower insurance costs. The overall decrease was partially offset by an increase in professional fees primarily associated with various corporate initiatives.
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Depreciation and amortization
Depreciation and amortization expense was $9.2 million for the three months ended September 30, 2024, a decrease of $1.6 million, or 14.6%, compared to 2023. This decrease was primarily attributable to a smaller base of fixed assets and finite-lived intangible assets as of September 30, 2024 when compared to the same period in 2023.
Restructuring, impairment and related charges, net
In the third quarter of 2023, we recognized $0.5 million of costs associated with our vacated office space within "Restructuring, impairment and related charges, net". Refer to Note 13 — Restructuring, Impairment and Related Charges in Item 1 of Part I of this Quarterly Report for additional information with respect to our restructuring initiatives.
Gains, losses, and impairments related to divestitures
In the third quarter of 2023, we recognized $4.1 million of losses and impairments related to Hagerty Garage + Social and DriveShare. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.
Other Items
Gain (loss) related to warrant liabilities, net
During the three months ended September 30, 2024, Gain (loss) related to warrant liabilities, net was a $0.5 million loss, compared to a $0.9 million gain in 2023. The $0.5 million loss in the current year period consists of a $2.0 million loss related the Warrant Exchange that was completed in July 2024, partially offset by a $1.5 million gain resulting from the change in the fair value of our warrant liabilities prior to the completion of the Warrant Exchange. The $0.9 million gain during the three months ended September 30, 2023 was a result of the change in fair value of our warrant liabilities. Refer to Note 4 — Fair Value Measurements and Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.
Interest and other income (expense), net
The following table presents the components of Interest and other income (expense), net for the three months ended September 30, 2024 and 2023:

|  | Three months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
|  | in thousands (except percentages)
Interest income | $ | 9,641 |  |  | $ | 7,205 |  |  | $ | 2,436 |  |  | 33.8 | %
Interest expense | (1,447) |  |  | (851) |  |  | (596) |  |  | (70.0) | %
Net investment gains (losses) |  | 1,274 |  |  | — |  |  | 1,274 |  |  | N/M
Other income (expense) | (1,109) |  |  | (94) |  |  | (1,015) |  |  | N/M
Interest and other income (expense), net | $ | 8,359 |  |  | $ | 6,260 |  |  | $ | 2,099 |  |  | 33.5 | %

N/M = Not meaningful
Interest and other income (expense), net increased $2.1 million during the three months ended September 30, 2024, compared to 2023. This increase was primarily due to the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the opening of positions in higher yielding fixed maturity securities and, to a much lesser extent, equity securities. These increases were partially offset by an increase in interest expense as a result of a higher level of borrowings under the JPM Credit Facility.
Income tax benefit (expense)
Income tax benefit was $1.0 million for the three months ended September 30, 2024, which compares to income tax expense of $4.6 million in 2023. The income tax benefit recorded in the current period is primarily due to a $4.8 million pre-tax loss within Hagerty Re as a result of losses associated with Hurricane Helene, which is taxed as a corporation in the U.S. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information with respect to items affecting our effective tax rate.
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Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023
The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023, and the dollar and percentage change between the two periods:

|  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
REVENUE: |  | in thousands (except percentages)
Commission and fee revenue | $ | 333,817 |  |  | $ | 287,972 |  |  | $ | 45,845 |  |  | 15.9 | %
Earned premium | 474,917 |  |  | 384,498 |  |  | 90,419 |  |  | 23.5 | %
Membership, marketplace and other revenue | 99,573 |  |  | 82,700 |  |  | 16,873 |  |  | 20.4 | %
Total revenue | 908,307 |  |  | 755,170 |  |  | 153,137 |  |  | 20.3 | %
OPERATING EXPENSES: |  |  |  |  |  |  |
Salaries and benefits | 161,001 |  |  | 160,122 |  |  | 879 |  |  | 0.5 | %
Ceding commissions, net | 221,877 |  |  | 181,188 |  |  | 40,689 |  |  | 22.5 | %
Losses and loss adjustment expenses | 226,515 |  |  | 159,461 |  |  | 67,054 |  |  | 42.1 | %
Sales expense | 146,791 |  |  | 124,791 |  |  | 22,000 |  |  | 17.6 | %
General and administrative | 62,072 |  |  | 64,865 |  |  | (2,793) |  |  | (4.3) | %
Depreciation and amortization | 29,758 |  |  | 34,893 |  |  | (5,135) |  |  | (14.7) | %
Restructuring, impairment and related charges, net | — |  |  | 8,857 |  |  | (8,857) |  |  | (100.0) | %
Gains, losses, and impairments related to divestitures | (87) |  |  | 4,112 |  |  | (4,199) |  |  | (102.1) | %
Total operating expenses | 847,927 |  |  | 738,289 |  |  | 109,638 |  |  | 14.9 | %
OPERATING INCOME | 60,380 |  |  | 16,881 |  |  | 43,499 |  |  | 257.7 | %
Loss related to warrant liabilities, net | (8,544) |  |  | (1,419) |  |  | (7,125) |  |  | N/M
Interest and other income (expense), net | 27,945 |  |  | 15,677 |  |  | 12,268 |  |  | 78.3 | %
INCOME BEFORE INCOME TAX EXPENSE | 79,781 |  |  | 31,139 |  |  | 48,642 |  |  | 156.2 | %
Income tax expense | (9,918) |  |  | (12,002) |  |  | 2,084 |  |  | (17.4) | %
NET INCOME |  | $ | 69,863 |  |  | $ | 19,137 |  |  | $ | 50,726 |  |  | 265.1 | %

N/M = Not meaningful
Revenue
Commission and fee revenue
Commission and fee revenue was $333.8 million for the nine months ended September 30, 2024, an increase of $45.8 million, or 15.9%, compared to 2023, consisting of increases of $36.9 million related to renewal policies and $9.0 million related to new policies.
The increase in revenue from renewal policies was primarily driven by a 16.2% increase in underlying policy premiums, as well as continued strong policy retention.
The increase in revenue from new policies was primarily driven by a 16.7% increase in underlying policy premiums. as well as sustained year-over-year growth in New Business Count, which increased 12.0% during the current year period.
The increase in underlying policy premiums for both policy renewals and new policies is a result of rate increases in several states due to inflation and higher vehicle repair costs, both of which contribute to higher premiums and, in turn, higher commission revenue. In addition, average premiums on newly issued policies increased as a result of writing policies with higher insured values at higher premium rates.
Commission and fee revenue from agent sources increased $26.1 million, or 16.6%, and Commission and fee revenue from direct sources increased $19.8 million, or 15.1%, during the nine months ended September 30, 2024. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).
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Earned premium
Earned premium at Hagerty Re was $474.9 million for the nine months ended September 30, 2024, an increase of $90.4 million, or 23.5%, compared to 2023. This increase was primarily due to continued growth of subject premiums written through our MGA subsidiaries, partially offset by an increase in ceded reinsurance premiums related to high-net-worth accounts in the U.S. In addition, effective January 1, 2024, Hagerty Re is no longer reinsuring classic auto risks produced by its U.K. MGA affiliates, and the book is in run-off.
The following tables present premiums assumed by Hagerty Re and the related quota share percentages for the nine months ended September 30, 2024 and 2023:

| Nine months ended September 30, 2024
| U.S. |  | Canada |  | U.K. |  | Total
| in thousands (except percentages)
Subject premium | $ | 689,745 |  |  | $ | 49,192 |  |  | $ | (156) |  |  | $ | 738,781 |
Quota share percentage | 81.0 | % |  | 35.0 | % |  | 80.0 | % |  | 77.8 | %
Assumed premium in Hagerty Re | 557,650 |  |  | 17,217 |  |  | (125) |  |  | 574,742 |
Reinsurance premiums ceded |  |  |  |  |  |  | (42,875) |
Net assumed premium |  |  |  |  |  |  | 531,867 |
Change in unearned premiums |  |  |  |  |  |  | (68,344) |
Change in deferred reinsurance premiums |  |  |  |  |  |  | 11,394 |
Earned premium |  |  |  |  |  |  | $ | 474,917 |
| Nine months ended September 30, 2023
| U.S. |  | Canada |  | U.K. |  | Total
| in thousands (except percentages)
Subject premium | $ | 590,205 |  |  | $ | 45,320 |  |  | $ | 7,713 |  |  | $ | 643,238 |
Quota share percentage | 81.0 | % |  | 35.0 | % |  | 80.0 | % |  | 77.6 | %
Assumed premium in Hagerty Re | 476,930 |  |  | 15,862 |  |  | 6,170 |  |  | 498,962 |
Reinsurance premiums ceded |  |  |  |  |  |  | (28,107) |
Net assumed premium |  |  |  |  |  |  | 470,855 |
Change in unearned premiums |  |  |  |  |  |  | (100,438) |
Change in deferred reinsurance premiums |  |  |  |  |  |  | 14,081 |
Earned premium |  |  |  |  |  |  | $ | 384,498 |

Membership, marketplace and other revenue
Membership, marketplace and other revenue was $99.6 million for the nine months ended September 30, 2024, an increase of $16.9 million, or 20.4%, compared to 2023.
Membership fee revenue was $42.4 million for the nine months ended September 30, 2024, an increase of $2.9 million, or 7.2%, compared to 2023. This increase was primarily due to a $5.4 million, or 15.8%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership, partially offset by a $1.8 million decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the nine months ended September 30, 2024 and 2023, membership fees were 42.6% and 47.8%, respectively, of total Membership, marketplace and other revenue.
Marketplace revenue was $38.3 million for the nine months ended September 30, 2024, an increase of $13.5 million, or 54.2%, compared to 2023. This improvement was primarily due to stronger Broad Arrow auction results, an increase of $8.7 million in Marketplace inventory sales, and an increase in finance revenue associated with the growth of the BAC loan portfolio. For the nine months ended September 30, 2024 and 2023, Marketplace revenue was 38.5% and 30.1%, respectively, of total Membership, marketplace and other revenue.
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Other revenue, which primarily includes sponsorship, admission, advertising, valuation, and sublease revenue, was $18.8 million for the nine months ended September 30, 2024, an increase of $0.5 million, or 2.9%, compared to 2023. This increase was primarily attributable to an increase in advertising and sublease revenue, partially offset by the loss of registration fee revenue attributable to MSR, which was sold in the second quarter of 2024. For the nine months ended September 30, 2024 and September 30, 2023, other revenue was 18.9% and 22.1%, respectively, of total Membership, marketplace and other revenue. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information related to the sale of MSR.
Costs and Expenses
Salaries and benefits
Salaries and benefits were $161.0 million for the nine months ended September 30, 2024, an increase of $0.9 million, or 0.5%, compared to 2023. This increase was primarily due to an increase in base salaries as a result of annual merit increases, which occur in the second quarter of each year, as well as a higher level of share-based compensation expense and employee benefits. These increases were almost entirely offset by a decrease in accrued incentive compensation which reflects the losses associated with Hurricane Helene in the period.
Ceding commissions, net
Ceding commissions, net was $221.9 million for the nine months ended September 30, 2024, an increase of $40.7 million, or 22.5%, compared to 2023. This increase is primarily attributable to the 23.5% increase in Earned premium discussed above.
The following table summarizes the components of Ceding commissions, net for the nine months ended September 30, 2024 and 2023:

|  | Nine months ended September 30, |
|  | 2024 |  | 2023 |
|  | in thousands (except percentages)
Ceding commission: |  |  |  |  |
Ceding commission – reinsurance assumed |  | $ | 233,840 |  |  | $ | 183,440 |  |
Ceding commission – reinsurance ceded |  | (11,963) |  |  | (2,252) |  |
Ceding commissions, net |  | $ | 221,877 |  |  | $ | 181,188 |  |
Percentage of earned premium |  | 46.7 | % |  | 47.1 | % |

Losses and loss adjustment expenses
Losses and loss adjustment expenses were $226.5 million for the nine months ended September 30, 2024, an increase of $67.1 million, or 42.1%, compared to 2023. This increase was primarily driven by $24.7 million of estimated losses related to Hurricane Helene, as well as the higher volume of assumed premium at Hagerty Re.
For the nine months ended September 30, 2024, our loss ratio was 47.7%, including the impact of catastrophe losses, which added 7.1% to our loss ratio. For the nine months ended September 30, 2023, our loss ratio was 41.5%, including the impact of catastrophe losses, which added 1.5% to our loss ratio. Excluding the impact of catastrophe losses, our loss ratio was 40.6% and 40.0% for the nine months ended September 30, 2024 and 2023, respectively.
Sales expense
Sales expense was $146.8 million for the nine months ended September 30, 2024, an increase of $22.0 million, or 17.6%, compared to 2023. This increase was due, in part, to a $13.5 million increase in cost of sales, primarily as a result of a higher level of Marketplace inventory sales, as well as borrowing costs associated with the BAC Credit Facility, which was entered into in December 2023. In addition, broker expense increased $7.4 million which is consistent with written premium growth within the agent channel. Lastly, credit card processing fees increased, primarily due to a shift in customer preference towards credit cards as a payment method within our MGA subsidiaries.
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General and administrative
General and administrative expense was $62.1 million for the nine months ended September 30, 2024, a decrease of $2.8 million, or 4.3%, compared to 2023. This decrease was primarily driven by a $4.2 million reduction in occupancy costs as a result of fewer Hagerty Garage + Social locations in operation, as well as lower insurance costs. The overall decrease was partially offset by a $2.9 million increase in professional fees associated with various corporate initiatives, including $0.8 million of professional fees associated with the exchange offer related to our warrants. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to the Warrant Exchange offer.
Depreciation and amortization
Depreciation and amortization expense was $29.8 million for the nine months ended September 30, 2024, a decrease of $5.1 million, or 14.7%, compared to 2023. This decrease was driven primarily by a $4.3 million impairment of digital media content assets recorded in the prior year period, which was the result of lower than anticipated advertising and sponsorship revenue associated with these assets. The remainder of the decrease was primarily driven by a smaller base of fixed assets and finite-lived intangible assets as of September 30, 2024 when compared to the same period in 2023.
Restructuring, impairment and related charges, net
In the first quarter of 2023, our Board approved a reduction in force (the "2023 RIF") following a strategic review of business processes as we focus on driving efficiencies in order to achieve growth and profitability goals. As a result of these actions, in the first quarter of 2023, we recognized restructuring, impairment and related charges of $5.5 million, which consisted of $5.1 million of severance related costs associated with the 2023 RIF and a $0.4 million impairment charge to write-down the value of certain digital media content assets.
In the second quarter of 2023, we recognized $2.8 million of restructuring, impairment and other changes. These charges consisted of $2.6 million of impairment and related charges associated with operating lease ROU assets and leasehold improvements for office space that was vacated and listed for sublease in the period as a result of our continuing transition to a "remote first" work model. The amount recognized in the second quarter of 2023 also included $0.2 million of additional severance related costs associated with the 2023 RIF.
In the third quarter of 2023, we recognized $0.5 million of costs associated with our vacated office space within "Restructuring, impairment and related charges, net".
Refer to Note 13 — Restructuring, Impairment and Related Charges in Item 1 of Part I of this Quarterly Report for additional information with respect to our restructuring initiatives.
Gains, losses, and impairments related to divestitures
During the nine months ended September 30, 2024, we recognized a $0.1 million gain related to the sale of MSR. During the nine months ended September 30, 2023, we recognized $4.1 million of losses and impairments related to Hagerty Garage + Social and DriveShare. Refer to Note 9 — Divestitures in Item 1 of Part I of this Quarterly Report for additional information.
Gain (loss) related to warrant liabilities, net
During the nine months ended September 30, 2024, Gain (loss) related to warrant liabilities, net was an $8.5 million loss, compared to a $1.4 million loss in 2023. The $8.5 million loss in the current year period consists of a $2.0 million loss related the Warrant Exchange that was completed in July 2024 and a $6.5 million loss resulting from the change in fair value of our warrant liabilities prior to the completion of the Warrant Exchange. The $1.4 million loss during the nine months ended September 30, 2023 was a result of the change in fair value of our warrant liabilities. Refer to Note 4 — Fair Value Measurements and Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.
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Interest and other income (expense), net
The following table presents a breakout of Interest and other income (expense), net for the nine months ended September 30, 2024 and 2023:

|  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
|  | in thousands (except percentages)
Interest income | $ | 30,075 |  | $ | 18,334 |  | $ | 11,741 |  | 64.0%
Interest expense | (4,289) |  | (4,872) |  | (583) |  | (12.0)%
Net investment gains (losses) |  | 1,783 |  | — |  | 1,783 |  | N/M
Other income (expense) | 376 |  | 2,215 |  | (1,839) |  | 83.0%
Interest and other income (expense), net | $ | 27,945 |  | $ | 15,677 |  | $ | 12,268 |  | 78.3%

N/M = Not meaningful
Interest and other income (expense), net increased $12.3 million during the nine months ended September 30, 2024, compared to 2023. This increase was primarily due to the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the opening of positions in higher yielding fixed maturity securities and, to a much lesser extent, equity securities. These increases were partially offset by a decrease in interest expense as a result of a lower level of borrowings under the JPM Credit Facility.
Income tax benefit (expense)
Income tax expense was $9.9 million for the nine months ended September 30, 2024, a decrease of $2.1 million compared to 2023. This decrease is primarily due to a decrease in pre-tax income of $9.6 million within Hagerty Re, which is taxed as a corporation in the U.S. Refer to Note 20 — Taxation in Item 1 of Part I of this Quarterly Report for additional information with respect to items affecting our effective tax rate.
Liquidity and Capital Resources
Maintaining a strong balance sheet and capital position is a top priority for us. As a holding company without direct operations, we manage liquidity globally and across all operating subsidiaries.
Sources and Uses of Liquidity
Our sources of liquidity include our: (i) balances of cash and cash equivalents; (ii) net working capital; (iii) cash flows from operations; (iv) borrowings from the JPM Credit Facility (as defined below) to fund the general corporate needs of THG and its subsidiaries; and (v) borrowings from the BAC Credit Facility (as defined below) to fund a portion of the lending activities of BAC.
Our primary liquidity needs and capital requirements include cash required for: (i) funding the business operations of THG and its subsidiaries; (ii) funding strategic investments and acquisitions; (iii) servicing and repayment of borrowings under the JPM Credit Facility, the BAC Credit Facility, and the unsecured term loan credit facility with State Farm Mutual Automobile Insurance Company (the "State Farm Term Loan"); (iv) funding potential cash dividend payments on the Series A Convertible Preferred Stock; (v) payment of income taxes; and (vi) funding potential payments under the TRA.
As of September 30, 2024, we believe that our sources of liquidity will be sufficient to provide an adequate level of capital to support our anticipated short and long-term commitments, operating needs, and capital requirements.
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Financing Arrangements
JPM Credit Facility
THG has a credit agreement with JPMorgan Chase Bank, N.A. ("JPM"), as administrative agent, and the other financial institutions party thereto from time to time as lenders, as amended (the "JPM Credit Agreement").
The JPM Credit Agreement provides for a revolving credit facility (the "JPM Credit Facility") with an aggregate borrowing capacity of $305.0 million, including the new $75.0 million commitment provided by Wells Fargo Bank, National Association in May 2024. The JPM Credit Agreement matures in October 2026, but may be extended if agreed to by us and the lenders party thereto.
As of September 30, 2024, total outstanding borrowings under the JPM Credit Facility were $51.8 million. JPM Credit Facility borrowings are collateralized by the assets of and equity interests in THG and its consolidated subsidiaries, except for (i) the assets held by the special purpose entities related to the BAC Credit Facility and (ii) all or a portion of certain foreign and certain excluded or immaterial subsidiaries.
Under the JPM Credit Agreement, we are required, among other things, to meet certain financial covenants, including a fixed charge coverage ratio and a leverage ratio. We were in compliance with these financial covenants as of September 30, 2024.
BAC Credit Facility
In December 2023, BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into the BAC Credit Agreement. The BAC Credit Agreement provides for the BAC Credit Facility, which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined based on the carrying value of certain BAC notes receivable. As of September 30, 2024, the applicable borrowing base for the BAC Credit Agreement was $46.1 million.
The revolving borrowing period provided by the BAC Credit Agreement expires on December 21, 2025 and the BAC Credit Agreement matures on December 21, 2026. The revolving borrowing period and the maturity date of the BAC Credit Agreement may be extended by one year if requested by BAC and agreed to by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.
In connection with the BAC Credit Agreement, BAC and certain of its subsidiaries may transfer originated notes receivable to wholly owned, bankruptcy remote special purpose entities (each, an "SPE") to secure the borrowings. The assets transferred to SPEs are legally isolated from us and our other (non-SPE) subsidiaries. Accordingly, those assets are not available to satisfy our debts or other obligations and our recourse under the BAC Credit Agreement is limited.
Recourse to the Company and its subsidiaries that originated and transferred notes receivable that represent collateral under the BAC Credit Facility is limited to (i) an obligation of the applicable seller to repurchase a note receivable if it is determined that there was a breach of any representation or warranty relating to such note receivable as of the relevant date specified in the related transfer agreement and (ii) a limited guarantee covering certain liabilities that may result under certain foreign exchange hedging activity of one of the SPEs.
BAC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants under the BAC Credit Agreement, including that BAC, as the servicer, maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio. As of September 30, 2024, we were in compliance with the financial covenants under the BAC Credit Agreement.
Refer to Note 14 — Long-Term Debt in Item 1 of Part I of this Quarterly Report for additional information related to the JPM Credit Agreement and BAC Credit Agreement.
Capital and Dividend Restrictions
We are a holding company with no material assets other than our ownership of THG and its operating subsidiaries. Accordingly, our ability to meet our cash requirements depends on THG's financial performance and the distributions we receive from THG. Our subsidiaries' ability to make distributions, pay dividends and make other payments may be regulated by the states and territories where they are domiciled.
For a discussion of the risks associated with our holding company structure, please see Item 1A — Risk Factors — Risks Related to Tax — "We are a holding company, and our only material asset is our interest in The Hagerty Group, and we will therefore be dependent upon distributions made by The Hagerty Group to pay taxes, make payments under the TRA and pay other expenses" in our Annual Report.
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Capital Restrictions
Our reinsurance company, Hagerty Re, is subject to the Bermuda Solvency Capital Requirement ("BSCR"), which establishes a target capital level and enhanced capital requirements for each insurer. As of September 30, 2024, Hagerty Re maintained sufficient statutory capital and surplus to comply with the BSCR. Similarly, our U.S. insurance company subsidiary, Drivers Edge, which holds certificates of authority in 38 states, is subject to state-specific minimum capital and surplus requirements, as well as risk-based capital ("RBC") requirements. RBC levels are reported on an annual basis. As of September 30, 2024, Drivers Edge maintained sufficient capital and surplus levels to comply with state insurance regulators.
Dividend Restrictions
Under Bermuda law, Hagerty Re is prohibited from declaring or issuing a dividend if it fails to meet its minimum solvency margin or minimum liquidity ratio. Prior approval from the Bermuda Monetary Authority ("BMA") is also required if Hagerty Re's proposed dividend payments would exceed 25% of its prior year-end total statutory capital and surplus. In 2024, Hagerty Re could pay approximately $55 million in dividends without prior BMA approval. As of September 30, 2024, there were no plans to issue dividends from Hagerty Re.
Similarly, state statutes restrict the amount of dividends that Drivers Edge may pay without prior approval of state insurance regulators. As of September 30, 2024, there were no plans to issue dividends from Drivers Edge and a change in such plans may require regulatory approval.
Comparative Cash Flows
The following table summarizes our cash flow data for the nine months ended September 30, 2024 and 2023:

|  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
|  | in thousands (except percentages)
Net Cash Provided by Operating Activities |  | $ | 189,642 |  |  | $ | 132,221 |  |  | $ | 57,421 |  |  | 43.4 | %
Net Cash Used in Investing Activities |  | $ | (562,490) |  |  | $ | (34,462) |  |  | $ | (528,028) |  |  | N/M
Net Cash Provided by (Used in) Financing Activities | $ | (27,117) |  |  | $ | 48,339 |  |  | $ | (75,456) |  |  | (156.1) | %

N/M = Not meaningful
Operating Activities
Cash provided by operating activities primarily consists of net income, adjusted for non-cash items, and changes in working capital balances. Net cash provided by operating activities for the nine months ended September 30, 2024 and 2023 is presented below:

|  | Nine months ended September 30,
|  | 2024 |  | 2023 |  | $ Change |  | % Change
|  | in thousands (except percentages)
Net income |  | $ | 69,863 |  |  | $ | 19,137 |  |  | $ | 50,726 |  |  | 265.1 | %
Non-cash adjustments to net income |  | 59,972 |  |  | 70,615 |  |  | (10,643) |  |  | (15.1) | %
Changes in operating assets and liabilities |  | 59,807 |  |  | 42,469 |  |  | 17,338 |  |  | 40.8 | %
Net Cash Provided by Operating Activities |  | $ | 189,642 |  |  | $ | 132,221 |  |  | $ | 57,421 |  |  | 43.4 | %

Net cash provided by operating activities for the nine months ended September 30, 2024 was $189.6 million, an increase of $57.4 million, compared to 2023. This increase was due to a $40.1 million increase in Net income, after excluding non-cash adjustments, and a $17.3 million increase in cash from operating assets and liabilities.
The increase in Net income, after excluding non-cash adjustments, was primarily driven by revenue growth across all areas of our business, as well as management's cost containment measures. The increase in cash provided by operating assets and liabilities was primarily driven by this growth, as well as increased CUC payments collected in the current year as a result of an amendment to our alliance agreement and associated agency agreement with Markel, which accelerated the timing of these payments. The overall increase in cash provided by operating assets and liabilities was partially offset by a $13.9 million increase in cash paid for prepaid SaaS implementation costs. Refer to Note 2 — Revenue in Item 1 of Part I of this Quarterly Report for additional information with respect to our amendment to our alliance agreement and associated agency agreement with Markel.
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Investing Activities
Cash used in investing activities for the nine months ended September 30, 2024 increased $528.0 million when compared to 2023. This increase was primarily a driven by the diversification of Hagerty Re's investment portfolio in the second quarter of 2024, which resulted in the purchase of investment-grade fixed maturity securities and, to a much lesser extent, equity securities.
Financing Activities
During the nine months ended September 30, 2024, we utilized available liquidity to reduce outstanding borrowings by $10.5 million and pay a $5.6 million cash dividend on the Series A Convertible Preferred Stock. In addition, we funded $5.7 million in employee tax obligations relating to share-based compensation vestings and $5.3 million in required distributions to THG non-controlling interest unit holders. During the nine months ended September 30, 2023, we took a number of actions to raise capital, including $79.2 million in net proceeds raised through the issuance of the Series A Convertible Preferred Stock.
Tax Receivable Agreement
We expect to have adequate capital resources to meet the requirements and obligations under the TRA entered into with the Legacy Unit Holders on December 2, 2021. The TRA requires us to pay holders of our Class V Common Stock, HHC and Markel (together the "Legacy Unit Holders"), 85% of the amount of cash savings, if any, under U.S. federal, state and local income tax or franchise tax realized as a result of (i) any increase in tax basis of Hagerty, Inc.'s assets resulting from (a) the purchase of THG units from any of the Legacy Unit Holders using the net proceeds from any future offering, (b) redemptions or exchanges by the Legacy Unit Holders of Class V Common Stock and THG units for shares of Class A Common Stock or (c) payments under the TRA and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA.
Legacy Unit Holders may, subject to certain conditions and transfer restrictions as described in the Legacy Unit Holders Exchange Agreement executed in connection with the Business Combination, redeem or exchange their Class V Common Stock and THG units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one basis. THG made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the Internal Revenue Service ("IRS") Commissioner and will be in place for any future exchange of THG units. The redemptions and exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of THG. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future. This payment obligation as a part of the TRA is an obligation of Hagerty, Inc. and not of THG. For purposes of the TRA, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Hagerty, Inc. (calculated with certain assumptions) to the amount of such taxes that Hagerty, Inc. would have been required to pay had there been no increase to the tax basis of the assets of THG as a result of the redemptions or exchanges and had Hagerty, Inc. not entered into the TRA. Estimating the amount of payments that may be made under the TRA is by nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of September 30, 2024.
Critical Accounting Policies and Estimates
The preparation of the unaudited Condensed Consolidated Financial Statements in accordance with GAAP requires management to make significant judgments, assumptions, and estimates that materially affect the amounts reported in the Company's Condensed Consolidated Financial Statements. Management's judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Condensed Consolidated Financial Statements. Actual results may ultimately differ from management's original estimates, as future events and circumstances sometimes do not develop as expected.
Our accounting policies are set forth in Note 1 — Basis of Presentation and Accounting Policies to Consolidated Financial Statements contained in our Annual Report. We include herein certain updates to those policies.
New Accounting Standards
New accounting standards are described in Note 1 — Basis of Presentation and Accounting Policies, in Item 1 of Part I of this Quarterly Report, which are incorporated herein by reference.
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Non-GAAP Financial Measures
Adjusted EBITDA
We define Adjusted EBITDA as consolidated Net income, excluding interest and other income (expense), net, income tax (expense) benefit, and depreciation and amortization, further adjusted to exclude (i) gains and losses related to our warrant liabilities; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges, net; (iv) gains, losses and impairments related to divestitures; and (v) certain other unusual items.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management uses Adjusted EBITDA as a measure of the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.
By providing this non-GAAP financial measure, together with a reconciliation to Net income, which is the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for Net income or other financial statement data presented in our Condensed Consolidated Financial Statements as indicators of financial performance. Our definition of Adjusted EBITDA may be different than similarly titled measures used by other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is Net income:

|  | Three months ended September 30, |  | Nine months ended September 30, |  |
|  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
|  | in thousands
Net income | $ | 19,007 |  |  | $ | 18,623 |  |  | $ | 69,863 |  |  | $ | 19,137 |  |  |
Interest and other (income) expense, net (1) | (8,359) |  |  | (6,260) |  |  | (27,945) |  |  | (15,677) |  |  |
Income tax (benefit) expense | (1,022) |  |  | 4,604 |  |  | 9,918 |  |  | 12,002 |  |  |
Depreciation and amortization | 9,184 |  |  | 10,753 |  |  | 29,758 |  |  | 34,893 |  |  |
EBITDA | 18,810 |  |  | 27,720 |  |  | 81,594 |  |  | 50,355 |  |  |
Restructuring, impairment and related charges, net | — |  |  | 473 |  |  | — |  |  | 8,857 |  |  |
(Gain) loss related to warrant liabilities, net | 463 |  |  | (850) |  |  | 8,544 |  |  | 1,419 |  |  |
Share-based compensation expense | 4,092 |  |  | 4,935 |  |  | 13,018 |  |  | 12,869 |  |  |
Gains, losses, and impairments related to divestitures | — |  |  | 4,112 |  |  | (87) |  |  | 4,112 |  |  |
Other unusual items (2) | 800 |  |  | 987 |  |  | 1,536 |  |  | 837 |  |  |
Adjusted EBITDA | $ | 24,165 |  |  | $ | 37,377 |  |  | $ | 104,605 |  |  | $ | 78,449 |  |  |

(1) Excludes interest expense related to the BAC Credit Facility, which is recorded within "Sales expense" on the Condensed Consolidated Statements of Operations.
(2) Other unusual items includes professional fees associated with the Warrant Exchange, as well as certain material severance expenses for the three and nine months ended September 30, 2024 and a net legal settlement accrual for the three and nine months ended September 30, 2023. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.
Adjusted EPS
We define Adjusted Earnings Per Share ("Adjusted EPS") as consolidated Net income, less gains and losses related to our warrant liabilities, divided by our outstanding and total potentially dilutive securities, which includes (i) the weighted average issued and outstanding shares of Class A Common Stock; (ii) all issued and outstanding non-controlling interest units of THG; (iii) all issued and outstanding shares of our Series A Convertible Preferred Stock on an as-converted basis; (iv) all unissued share-based compensation awards; and (v) all unexercised warrants outstanding prior to the Warrant Exchange. Refer to Note 17 — Warrant Exchange in Item 1 of Part I of this Quarterly Report for additional information with respect to the Warrant Exchange.
The most directly comparable GAAP measure to Adjusted EPS is basic earnings per share ("Basic EPS"), which is calculated as Net income available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock shares outstanding during the period.
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We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by securities analysts, investors and other interested parties in evaluating the consolidated performance of other companies in our industry. We also believe that Adjusted EPS, which compares our consolidated Net income with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis.
Management uses Adjusted EPS:
•as a measurement of operating performance of our business on a fully consolidated basis;
•to evaluate the performance and effectiveness of our operational strategies; and
•as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.
We caution investors that Adjusted EPS is not a recognized measure under GAAP and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, including Basic EPS, and that Adjusted EPS, as we define it, may be defined or calculated differently by other companies. In addition, Adjusted EPS has limitations as an analytical tool and should not be considered as a measure of profit or loss per share.
The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS:

|  | Three months ended September 30, |  | Nine months ended September 30, |  |
|  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
|  | in thousands (except per share amounts)
Numerator: |  |  |  |  |  |  |  |  |
Net income available to Class A Common Stockholders (1) | $ | 2,798 |  |  | $ | 3,255 |  |  | $ | 7,753 |  |  | $ | 3,712 |  |  |
Accretion of Series A Convertible Preferred Stock | 1,875 |  |  | 1,838 |  |  | 5,552 |  |  | 1,838 |  |  |
Undistributed earnings allocated to Series A Convertible Preferred Stock | 212 |  |  | 261 |  |  | 607 |  |  | 110 |  |  |
Net income attributable to non-controlling interest | 14,122 |  |  | 13,269 |  |  | 55,951 |  |  | 13,477 |  |  |
Consolidated net income | 19,007 |  |  | 18,623 |  |  | 69,863 |  |  | 19,137 |  |  |
(Gain) loss related to warrant liabilities, net | 463 |  |  | (850) |  |  | 8,544 |  |  | 1,419 |  |  |
Adjusted consolidated net income (2) | $ | 19,470 |  |  | $ | 17,773 |  |  | $ | 78,407 |  |  | $ | 20,556 |  |  |
Denominator: |  |  |  |  |  |  |  |  |
Weighted average shares of Class A Common Stock outstanding (1) | 89,691 |  | 84,479 |  | 86,689 |  | 84,042 |  |
Total potentially dilutive securities outstanding: |  |  |  |  |  |  |  |  |
Non-controlling interest units | 255,178 |  |  | 255,499 |  |  | 255,178 |  |  | 255,499 |  |  |
Series A Convertible Preferred Stock, on an as-converted basis | 6,785 |  |  | 6,785 |  |  | 6,785 |  |  | 6,785 |  |  |
Total unissued share-based compensation awards | 8,076 |  |  | 8,490 |  |  | 8,076 |  |  | 8,490 |  |  |
Total warrants outstanding | — |  |  | 19,484 |  |  | — |  |  | 19,484 |  |  |
Potentially dilutive shares outstanding | 270,039 |  |  | 290,258 |  |  | 270,039 |  |  | 290,258 |  |  |
Fully dilutive shares outstanding (2) | 359,730 |  |  | 374,737 |  |  | 356,728 |  |  | 374,300 |  |  |
Basic EPS (1) | $ | 0.03 |  |  | $ | 0.04 |  |  | $ | 0.09 |  |  | $ | 0.04 |  |  |
Adjusted EPS (2) | $ | 0.05 |  |  | $ | 0.05 |  |  | $ | 0.22 |  |  | $ | 0.05 |  |  |

(1) Numerator and Denominator, respectively, of the GAAP measure Basic EPS
(2) Numerator and Denominator, respectively, of the non-GAAP measure Adjusted EPS
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the second quarter of 2024, we diversified our investment portfolio and, as a result, we are exposed to interest rate risk and credit risk related to our investments. For a discussion of our exposure to market risk, refer to the market risk disclosures set forth in Part II, Item 1A of this Quarterly Report and Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.
Interest rate risk - Available-for-sale securities
Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed maturity securities. Fluctuations in interest rates have a direct effect on the market valuation of these securities. When market interest rates increase, the fair value of our fixed maturity securities decreases. Conversely, as interest rates decrease, the fair value of our fixed maturity securities increases. We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio. The target duration of our investment portfolio is two to four years.
As of September 30, 2024, we held fixed maturity securities with a fair value of $522.2 million. The table below illustrates the sensitivity of the value of our fixed maturity securities with hypothetical changes in interest rates as of September 30, 2024:

| September 30, 2024
| Estimated Fair Value |  | Estimated Change in Fair Value |  | Estimated % Increase (Decrease) in Fair Value
| in thousands (except percentages)
200 basis points increase | $ | 488,688 |  |  | $ | (33,524) |  |  | (6.4) | %
100 basis points increase | $ | 505,555 |  |  | $ | (16,657) |  |  | (3.2) | %
No change | $ | 522,212 |  |  | $ | — |  |  | — | %
100 basis points decrease | $ | 538,199 |  |  | $ | 15,987 |  |  | 3.1 | %
200 basis points decrease | $ | 554,056 |  |  | $ | 31,844 |  |  | 6.1 | %

Credit risk - Available-for-sale securities
Credit risk is the potential loss resulting from adverse changes in an issuer's ability to repay its debt obligations. We have exposure to credit risk as a holder of fixed maturity securities. Our risk management strategy and investment policy are designed to invest in investment grade debt and to limit the amount of credit exposure with respect to a single issuer to no greater than 5%, except for the U.S. Federal Government. As of September 30, 2024, all fixed income securities in our investment portfolio were rated investment grade by at least one nationally recognized rating organization.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024 to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms specified by the SEC and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the three months ended September 30, 2024, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.
Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Refer to Note 22 — Commitments and Contingencies in Item 1 of Part I of this Quarterly Report for additional information related to legal proceedings.
ITEM 1A. RISK FACTORS
Other than the risk factor below, as of the date of this Quarterly Report, there have been no material changes to our risk factors as previously disclosed in our Annual Report. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks that we currently do not know about or currently view as immaterial may also materially adversely affect our business, financial condition, or operating results.
Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a portfolio of investments in accordance with our investment policy, which is routinely reviewed by our Investment Committee.
Historically, our investment portfolio was primarily invested in cash and cash equivalents and fixed maturity securities. However, during the second quarter of 2024, we diversified our investment portfolio by opening positions in higher-yield fixed maturity securities and, to a lesser extent, equity securities. Our investments in marketable equity securities are carried on our balance sheet at fair market value and are subject to potential losses and declines in market value.
The Federal Reserve began lowering interest rates in September 2024. If interest rates continue to decline, this would place pressure on our net investment income, particularly as it relates to our short-term investments, which, in turn, may adversely affect our operating results. Conversely, if interest rates were to increase, it could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase.
The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer's payments on such investments. Downgrades in the credit ratings of fixed maturity securities also have a significant negative effect on the market value of such securities.
Each of the foregoing factors could reduce our net investment income and result in realized investment losses. Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include, but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality. We cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
(a) Paul Rehrig, President of Media & Entertainment and a named executive officer of Hagerty, Inc. (the "Company"), will be stepping down from his role with the Company and its subsidiaries on December 2, 2024 (the "Effective Date") to pursue entrepreneurial opportunities.
In connection with Mr. Rehrig's departure, he entered into an Employee Separation and Release of Claims Agreement (the "Separation Agreement") with Hagerty Insurance Agency, LLC pursuant to which Mr. Rehrig is entitled to receive (i) continued payment of his base salary for twelve (12) months following the Effective Date, (ii) a single lump sum payment for his accrued and unused paid time off through the Effective Date, and (iii) a single lump sum payment of an amount to be calculated in accordance with the Company's Annual Incentive Plan for the year ended December 31, 2024 as determined by the Company's Talent, Culture, and Compensation Committee that is due no later than March 15, 2025, with each payment subject to applicable tax and other withholdings. In the event Mr. Rehrig elects health insurance coverage under COBRA, Hagerty Insurance Agency, LLC has agreed to pay the applicable contribution towards his then-current health insurance coverage for a period of nine months.
The Separation Agreement also provides for a release and waiver of claims in favor of the Company and its subsidiaries and Mr. Rehrig's compliance with certain restrictive covenants, including, non-solicitation of employees or customers, non-competition, cooperation and non-disparagement obligations.
The foregoing summary is qualified in its entirety by reference to the full text of the Separation Agreement, which is attached hereto as Exhibit 10.3 and incorporated herein by reference.
(b) On August 9, 2024, Rob Kauffman, our director, in his capacity as sole member of Aldel LLC, adopted a programmed plan of transactions intended to satisfy the affirmative defense provided by Rule 10b5-1 (the "10b5-1 Plan"). The 10b5-1 Plan provides for a first possible trade date of November 19, 2024, and terminates automatically on the earlier of the execution of all trades contemplated by the 10b5-1 Plan or November 14, 2025. The aggregate number of shares to be sold pursuant to the 10b5-1 Plan is 3,500,000 shares of Class A Common Stock held by Aldel LLC. During the three months ended September 30, 2024, no director or officer of the Company, other than Mr. Kauffman, has adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6 OF PART II EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial statements and financial statement schedules filed as part of this report are listed in the index included in Item 8 of Part II Financial Statements and Supplementary Data of this report.
(b) Exhibits. The following exhibits, as required by Item 601 of Regulation S-K, are filed with or incorporated by reference in this report as stated below.

Exhibit No. |  | Description
2.1* |  | Business Combination Agreement, dated as of August 17, 2021, by and among Aldel Financial Inc. Aldel Merger Sub LLC and The Hagerty Group, LLC (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-40244), filed with the SEC on August 18, 2021).
3.1 |  | Third Amended and Restated Certificate of Incorporation of the Company, dated December 2, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Amendment No.3 to Form S-1 (File No. 333-261810), filed with the SEC on January 20, 2023).
3.2 |  | Amended and Restated By-Laws of the Company, dated December 2, 2021 (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K (File No. 001-40244), filed with the SEC on December 8, 2021).
3.3 |  | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the Company dated June 23, 2023 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-40244), filed with the SEC on June 23, 2023).
4.1 |  | Form of Warrant Certificate of the Company (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K (File No. 001-40244), filed with the SEC on December 8, 2021).
4.2 |  | Warrant Agreement, dated April 8, 2021, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 333-253166), filed with the SEC on April 13, 2021).
4.3 |  | Warrant Agreement, dated December 2, 2021, between Continental Stock Transfer & Trust Company and the Company (incorporated by reference to Exhibit 4.5 of the Company’s Form 8-K (File No. 001-40244), filed with the SEC on December 8, 2021).
10.1 |  | Amendment No. 1 to Warrant Agreement, dated July 3, 2024, by and between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K (File No. 001-40244), filed with the SEC on July 5, 2024).
10.2 |  | Amendment No. 1 to Warrant Agreement, dated July 3, 2024 , by and between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K (File No. 001-40244), filed with the SEC on July 5, 2024).
10.3† |  | Separation and Release of Claims Agreement, dated November 4, 2024, by and between Paul Rehrig and Hagerty Insurance Agency, LLC, filed herewith.
31.1 |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.
31.2 |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.
32.1# |  | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
32.2# |  | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
101.INS |  | XBRL Instance Document.
101.SCH |  | XBRL Taxonomy Extension Schema Document.
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL).

* |  | The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
† |  | Indicates management contract or compensatory plan or arrangement.
# |  | This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 7, 2024.

|  | HAGERTY, INC. |
|  | By: | /s/ McKeel O Hagerty |
|  |  | McKeel O Hagerty |
|  |  | Chief Executive Officer |

|  | HAGERTY, INC. |
|  | By: | /s/ Patrick McClymont |
|  |  | Patrick McClymont |
|  |  | Chief Financial Officer |

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