Hagerty, Inc. (HGTY) stock intrinsic value fair value estimate & owner earnings analysis

Hagerty insures collector and enthusiast vehicles. Its U.S. agency writes policies through Essentia, an insurer that writes only Hagerty business under a long-standing alliance with Markel, and its Bermuda-regulated reinsurer, Hagerty Re, takes on the risk. Hagerty also sells Hagerty Drivers Club memberships bundled with its policies, runs events and media, and has a fast-growing marketplace business ($119 million of revenue in 2025) that includes loans secured by collector cars. Total revenue rose from $619 million in 2021 to $1.46 billion in 2025. Earned premium was half of 2025 revenue. Commission revenue from the Markel arrangement was $436.8 million, or 91% of commission revenue. Other distribution comes through Aviva in Canada (agreements run to 2030) and a 10-year State Farm alliance that began selling State Farm Classic+ policies in September 2023. The biggest recent change is the Markel fronting arrangement, signed on December 31, 2025 and effective January 1, 2026. Hagerty Re now takes 100% of the premium and risk on Essentia policies, up from 80%. In return it pays Markel a fronting fee that starts at 2% of written premium and steps down as volume grows. Hagerty no longer books upfront commission revenue on these policies. Premium is instead earned over the policy term, and ceding commissions on 2025 policies are still being expensed through 2026. That is why the first half of 2026 shows revenue of $667 million against $708 million a year earlier, and a net loss of $4.7 million against a profit of $74.5 million. Operating cash flow over the same period rose to $186 million from $98 million, partly because unearned premium built up. We treat the weak reported first half as a timing effect of the new accounting, not a fall in earning power. We have not changed our earnings base on the strength of one transitional half-year. How we measured earnings: we started from operating cash flow. We removed all working-capital swings, including growth in unearned premiums, which is float rather than profit. We charged stock compensation ($18.9 million in 2025) as a real cost and deducted maintenance capital spending. Operating lease payments were kept as a cost. For 2025 we estimated them at the $8.9 million non-cash lease expense because the payment itself is not broken out. Two large 2025 non-cash items were excluded: a $32.2 million remeasurement of the tax receivable agreement and a $34.5 million deferred tax benefit. Owner earnings were about $52 million in 2023, $115 million in 2024 and $164 million in 2025, or $0.15, $0.33 and $0.47 per share. Per-share figures use about 347 million shares, which counts the operating-company units held outside the listed company as exchanged into Class A shares. Adding back cash interest ($10.2 million in 2025) gives the cash the business produces before its lenders: $0.36 per share in 2024 and $0.50 in 2025. We use the median of 2024 and 2025, $0.43 per share (about $149 million). The two years bracket Hagerty Re's loss experience. In 2024, a year that included Hurricanes Helene and Milton, losses were 46% of earned premium, against 39% in 2025. We left out 2023 (restructuring and divestiture charges, a smaller business) and 2021-2022, when owner earnings were negative during the listing year and rapid build-out. Owner earnings grew 43% in 2025. The base case assumes 7% for the first year. Base case ($9.19 per share): 2024-2025 earning power plus about $15 million a year after tax from keeping the extra 20% of the Essentia book. This is our estimate: written premium of roughly $1.1 billion, inferred from the commission revenue at the disclosed ~37% base rate, with the extra share's underwriting margin reduced by the fronting fee. Growth of 7% a year for five years, tapering to 3% by year 10, is credited as continued policy and premium growth. That is below the 14% and 13% growth in Markel commission revenue in 2024 and 2025. Nothing is credited for the Enthusiast+ product (launched in Colorado in 2025, with a nationwide rollout planned over four years) or for further marketplace expansion, because neither has a track record yet. After year 10, earnings hold flat through year 30 on the strength of an annually renewing book and exclusive carrier and distribution relationships. The business is worth about $3.53 billion ($10.18 per share). It owes about $341 million ($0.98 per share): about $216 million of borrowings at June 30, 2026, $85 million of Series A convertible preferred stock that ranks ahead of the common (convertible at $11.79, treated as a claim because conversion is not certain), and a $40 million tax receivable agreement liability at year-end 2025. That leaves $9.19 per share. Bear case ($3.84): taking 100% of the risk makes 2024-type catastrophe years the norm. Earning power stays at the 2024 level of $0.36 per share, and the fronting benefit is fully consumed by retained losses; the catastrophe program still leaves Hagerty with the first $35 million of each event. Growth of 3% a year for five years, then flat, and nothing credited after year 20. The business is worth about $1.67 billion ($4.82 per share), less $0.98 of claims. Bull case ($15.67): the fronting arrangement adds about $30 million a year as the fee steps down with volume. Growth is 10% a year for five years, still below recent rates, tapering to 4% by year 10, then flat indefinitely. The business is worth about $5.78 billion ($16.65 per share), less $0.98. Debt is modest in every case. Interest of about $10 million a year is covered many times by cash earnings even in the bear case. The main facilities are a $375 million JPMorgan revolver maturing March 2030, a revolving facility funding the collector-car loan book that matures November 2028 (the company reported compliance with its covenants at year-end 2025), and a $25 million State Farm term loan due September 2033. We did not count the $298 million of unrestricted cash at June 30, 2026 as surplus, because we judge it is needed to support premiums owed to insurers and Hagerty Re's obligations under the larger retained book. What could make this wrong: the fronting-arrangement benefit is our estimate from disclosed rates, not a reported figure. A full year under the new structure is needed to confirm it. Hagerty Re now bears all of a severe catastrophe year on the Essentia book, apart from what its reinsurance covers, and the Markel relationship accounted for 91% of 2025 commission revenue. Margin-of-safety price: $5.50, about 40% below the base value. The wide margin reflects the step-up in retained catastrophe risk and a year of hard-to-read accounting.