Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hagerty Inc (HGTY, Financial) reported a 20% revenue growth over the first nine months of 2024, marking the seventh consecutive quarter of increased profitability.
- The company is on track to add a record 275,000 new members in 2024, driven by its diverse portfolio of offerings such as events, live auctions, and the Hagerty Drivers Club.
- Year-to-date operating income, excluding the impact of Hurricane Helene, was approximately five times higher than the previous year.
- Hagerty Inc (HGTY) achieved a net promoter score of 82, more than double the industry average, highlighting strong customer satisfaction.
- The company increased its full-year revenue outlook to approximately $1.18 billion, reflecting strong business momentum and operational efficiencies.
Negative Points
- Hurricanes Helene and Milton resulted in significant catastrophe losses, impacting the company's financial performance with a $30 million estimated loss.
- The year-to-date loss ratio increased by 6 points to 47% due to unusual catastrophe losses, affecting overall profitability.
- Despite revenue growth, the adjusted EBITDA declined by $13 million year-over-year in the third quarter due to the impact of Hurricane Helene.
- The combined ratio of 94% was slightly above the long-term target of 90%, primarily due to catastrophe losses.
- The underlying loss ratio for the quarter was 44%, higher than the traditional range, indicating potential volatility in loss ratios.
Q & A Highlights
Q: Hi. Good morning. My first question is on expenses. Is Hagerty a business where you can grow revenues mid-teens but keep expense growth at recent levels? Or will there be some catch-up in expenses at some point?
A: Hey, Pablo, good morning. We believe the business is built to deliver mid-teens written premium growth. On the cost side, we've been rightsizing the cost structure and maintaining discipline, which will continue. We expect margin expansion over time, even as we invest in initiatives like the State Farm rollout and technology transformation. We anticipate revenue will grow faster than costs, delivering leverage.
Q: On the attritional loss ratio ex Helene, you mentioned 44%. Is there anything unusual that brought you to 44% instead of 41% or 40%?
A: No, the range of loss ratio has been mid-30s to mid-40s. It can move around in a given quarter. There's nothing structural concerning us. The big loss ratio for the quarter was the cat event, but we remain confident about the underlying loss ratio.
Q: The losses from Helene and Milton, are these something you hope to reduce through pricing, or is it a matter of risk selection terms?
A: We always include a cat load in our pricing. If our modeling suggests changes are needed, those will flow through. We've been increasing rates, mainly on the liability side, but if necessary, we'll adjust for cat risks over time.
Q: Have you seen any change in shopping behavior with auto rates going up across the industry? How does this affect new business?
A: The hardening auto insurance market has pushed more people to shop, benefiting us. The increase in shopping may be leveling off, but post-hurricane season could change that. Our pricing and underwriting discipline work well in flood-exposed states, and we're benefiting from market dynamics.
Q: With industry rates up significantly, how does Hagerty's rate compare, and how does it affect growth?
A: In '23, industry rates were up 14%, and ours were up 3% to 4%. In '24, industry rates might be up 10%, and we'll be similar. This rate gap drives shopping, and our value proposition is compelling, helping us grow. We're on track to add 275,000 new customers this year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
