Hagerty Ends Fronting Deal with Markel, Reinforces Underwriting Control

Hagerty, Inc. has concluded its long-standing fee-based fronting arrangement with Markel, choosing to maintain complete control over its underwriting and investment returns. This strategic shift allows Hagerty to retain 100% of its risk, a decision disclosed alongside its Q2 2026 results.

Significance of Hagerty's Decision

The move by Hagerty to sever ties with Markel comes at a time of heightened risk and uncertainty in the insurance market. By pulling away from the fronting arrangement, Hagerty not only gains complete control over its underwriting practices but also positions itself to reap the benefits of its investment returns. This is more significant than it looks; retaining full risk can be a double-edged sword, depending on market conditions. If claims rise significantly, Hagerty could face substantial financial burdens. Yet, by opting for this route, Hagerty demonstrates confidence in its risk models and market expertise.

Impacts on the Broader Insurance Market

The implications for brokers placing program business through managing general agents (MGAs) supported by fronting carriers are significant. Since the collapse of insurtech Vesttoo in 2023 — a failure linked to approximately $3.36 billion in counterfeit letters of credit backing reinsurance agreements — state regulators have intensified their scrutiny of fronting entities. This incident shook confidence across the industry, serving as a wake-up call regarding the vulnerabilities associated with fronting arrangements. The focus on underwriting practices and the verification of collateral now prompts brokers to reevaluate their partnerships with fronting carriers.

As the regulatory landscape shifts, the implications for the insurance sector are profound. While the NAIC has yet to enact a model act specifically addressing fronting carriers, existing regulations like the Managing General Agents and Credit for Reinsurance Model Acts are being applied more rigorously by various states to audit these setups. This only increases operational complexity and compliance costs for brokers, who must now grapple with more stringent requirements.

Challenges for Brokers

For brokers, this evolution underscores the necessity to inquire about the stability and compliance costs associated with fronting carriers during renewals. Questions about heightened regulatory scrutiny and a carrier's capacity to absorb risk independently are paramount. If you're working in this space, a decision by a fronting carrier to withdraw, whether voluntary or otherwise, can create significant challenges for clients amid a renewal cycle. In a market defined by tight margins and increasing scrutiny, brokers must ensure that they’re not caught off guard.

Hagerty's Financial Performance

In terms of recent performance, Hagerty reported a 19% growth in written premiums, reaching $713 million for the first half of 2026. The company also welcomed a record 279,000 new members, bringing policy counts to 1.9 million, up 19%. This spike in membership is indicative of Hagerty's evolving brand appeal and its ability to tap into niche markets effectively. Nevertheless, Hagerty recorded a net loss of $5 million in the same period, primarily due to $153 million in pre-tax transitional costs linked to the Markel arrangement. These costs stem from deferred ceding commissions for policies issued before January 1, 2026, and are set to be fully amortized throughout 2026. Adjusted EBITDA soared 32% to $160 million, suggesting underlying operational strength despite the immediate financial hit.

CEO McKeel Hagerty remarked on the trust built over 40 years, emphasizing that the company's momentum is a result of consistent, incremental growth. “This is what forty years of building trust, one member, one partner, one car at a time, looks like when the flywheel hits its stride,” he stated. This comment underscores Hagerty’s long-term strategic vision, pointing to a foundational belief in organic growth through strong customer relationships.

Strategic Expansion Plans

Additionally, Hagerty is on track to finalize its acquisition of Bennetts, the UK’s second-largest motorcycle insurance broker, for £34 million. This acquisition is expected to triple its revenue in the UK to approximately £25 million, marking an important step in Hagerty's international expansion strategy. The outright broker acquisition approach reflects a broader trend of carriers and insurtechs acquiring distribution to fully capture niche market profits. This tactic can substantially enhance a company's reach and revenue potential. Brokers operating in affinity-based or specialty niches should remain vigilant, as this trend signals potential acquisition targets in profitable segments.

Future Outlook for Hagerty and the Industry

Hagerty has also revised its full-year outlook, projecting written premium growth between 16% and 17%, along with net income ranging from $18 million to $30 million. This revised outlook serves as a reminder of the volatility inherent in the insurance business, particularly in specificity-driven market segments. What this means for you is that while Hagerty appears to be navigating the complexities of this landscape adeptly, many carriers may struggle to keep pace.

The clear takeaway for brokers is straightforward: as regulatory requirements for fronting arrangements tighten, expect an increasing number of carriers, especially those with adequate scale, to adopt similar strategies to Hagerty’s. The success of this model could set a precedent, encouraging other firms to reassess their risk-sharing mechanisms. And yet, as the regulatory environment continues to evolve, brokers will need to cultivate adaptive strategies to stay competitive.