Hagerty Inc

Previous wording

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 Note Regarding Forward-Looking Statements".

Current wording

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".

Previous wording

In 2023, we conducted a review of certain components of our operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social and DriveShare, as discussed below. This initiative supported 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 $4.0 million of losses and impairments in the third quarter of 2023 related to actions taken with respect to Hagerty Garage + Social and DriveShare. 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.

Current wording

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 and DriveShare. 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 $4.0 million of losses and impairments in the third quarter of 2023 related to actions taken with respect to Hagerty Garage + Social and DriveShare.

Previous wording

The tables below present a summary of our Key Performance Indicators, which include important operational metrics, as well as certain GAAP and non-GAAP financial measures as of and for the periods presented. 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.

Current wording

The tables below present a summary of our Key Performance Indicators, which include important operational metrics, as well as certain accounting principles generally accepted in the United States of America ("GAAP") and non-GAAP financial measures as of and for the periods presented. 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.

Previous wording

(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. It also contributes to maintaining our NPS, as discussed below.

Current wording

(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.

Previous wording

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 95% 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.

Current wording

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.

Previous wording

Salaries and benefits consist primarily of costs related to employee compensation, payroll taxes, employee benefits, and employee development costs. Employee compensation includes wages paid to employees, as well as various incentive compensation plans. Employee benefits include the costs of various employee benefit plans, including retirement, medical, dental, and wellness 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 over time as the business continues to grow but will likely decrease as a percent of revenue.

Current wording

Salaries and benefits consist primarily of costs related to employee compensation, payroll taxes, employee benefits, and employee development costs. Employee compensation includes wages paid to employees, 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, and wellness 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.

Previous wording

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 primarily 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.

Current wording

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.

Previous wording

General and administrative services primarily consist of expenses related to professional services, occupancy costs, and non-capitalized hardware and software. These costs are expensed as incurred. We expect this expense category to increase in dollar amount over time 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.

Current wording

General and administrative primarily consist of expenses related to professional services, occupancy costs, and non-capitalized hardware and software. 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.

Previous wording

Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives. Depreciation expense relates to leasehold improvements, furniture and equipment, vehicles, hardware, and purchased software. Amortization relates to investments associated with acquisitions, SaaS implementation, and internal software development, as well as investments made in and impairments of digital media content assets. 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.

Current wording

Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives. Depreciation expense relates to leasehold improvements, furniture and equipment, vehicles, hardware, and purchased software. Amortization relates to investments associated with acquisitions, software as a service ("SaaS") implementation, and internal software development, as well as investments made in and impairments of digital media content assets. 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.

Previous wording

Interest and other income (expense) primarily includes interest income related to our cash balances and interest expense related to outstanding borrowings, as well as changes in the value of the liability related to our Tax Receivable Agreement ("TRA") with Hagerty Holding Corp. ("HHC") and Markel. Refer to Note 17 — Taxation in Item 1 of Part I of this Quarterly Report for additional information related to the TRA.

Current wording

Interest and other income (expense) 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) 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.

Previous wording

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.

Current wording

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 Re, 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.

Previous wording

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023, and the dollar and percentage change between the two periods:

Current wording

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023, and the dollar and percentage changes between the two periods:

Previous wording

Commission and fee revenue from agent sources increased $7.9 million, or 19.3%, and Commission and fee revenue from direct sources increased $6.3 million, or 18.8%, during the year ended March 31, 2024. Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced).

Current wording

Commission and fee revenue from agent sources increased $10.5 million, or 17.7%, and Commission and fee revenue from direct sources increased $8.2 million, or 16.0%, during the three months ended June 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).

Previous wording

Earned premium at Hagerty Re was $151.6 million for the three months ended March 31, 2024, an increase of $34.4 million, or 29.3%, compared to 2023. This increase was primarily due to a higher volume of subject premiums written through our MGA subsidiaries in recent periods, partially offset by an increase in ceded reinsurance premiums related to high-net-worth accounts in the U.S., which commenced in 2023. In addition, effective January 1, 2024, Hagerty Re is no longer reinsuring classic auto risks produced by its U.K. MGA affiliate.

Current wording

Earned premium at Hagerty Re was $157.6 million for the three months ended June 30, 2024, an increase of $30.1 million, or 23.6%, 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., which commenced in 2023. 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.

Previous wording

Other revenue, which primarily includes sponsorship, admission, advertising, valuation, and registration income, was $7.3 million for the three months ended March 31, 2024 and 2023. For the three months ended March 31, 2024 and March 31, 2023, other revenue was 23.3% and 27.6%, respectively, of total Membership, marketplace and other revenue.

Current wording

Other revenue, which includes sponsorship, admission, advertising, valuation and registration income, totaled $6.4 million for the three months ended June 30, 2024, an increase of $1.2 million or 22.9%, compared to 2023, which was primarily attributable to an increase in advertising and sponsorship revenue. For the three months ended June 30, 2024 and 2023, other revenue was 23.9% and 22.1%, respectively, of the Membership, marketplace and other revenue total.

Previous wording

Losses and loss adjustment expenses at Hagerty Re were $62.4 million for the three months ended March 31, 2024, an increase of $13.9 million, or 28.8%, compared to 2023. This increase is consistent with the 29.3% increase in Hagerty Re Earned premium, discussed above. Hagerty Re's loss ratio was 41.1% for the three months ended March 31, 2024 and 41.3% for the three months ended March 31, 2023.

Current wording

Losses and loss adjustment expenses were $64.7 million for the three months ended June 30, 2024, an increase of $11.2 million, or 20.8%, compared to 2023. This increase is consistent with the higher volume of assumed premium at Hagerty Re. Hagerty Re's loss ratio was 41.1% for the three months ended June 30, 2024 and 42.0% for the three months ended June 30, 2023.

Previous wording

During the three months ended March 31, 2024 and 2023, the change in the fair value of our warrant liabilities resulted in losses of $6.1 million and $0.5 million, respectively. Refer to Note 11 — Fair Value Measurements in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

Current wording

During the three months ended June 30, 2024 and 2023, the change in the fair value of our warrant liabilities resulted in losses of $1.9 million and $1.8 million, respectively. Refer to Note 4 — Fair Value Measurements and Note 17 — Warrants in Item 1 of Part I of this Quarterly Report for additional information with respect to our warrants.

Previous wording

Commission and fee revenue was $88.8 million for the three months ended March 31, 2024, an increase of $14.2 million, or 19.1%, compared to 2023, consisting of increases of $10.9 million related to renewal policies and $3.3 million related to new policies.

Current wording

Commission and fee revenue was $217.7 million for the six months ended June 30, 2024, an increase of $32.9 million, or 17.8%, compared to 2023, consisting of increases of $26.1 million related to renewal policies and $6.8 million related to new policies.

Previous wording

The increase in revenue from renewal policies was primarily related to an increase of 19.2% in underlying policy premiums, as well as continued strong policy retention. The increase in renewal policy premiums reflects sustained year-over-year growth in PIF and changes in our mix of business by vehicle type and value. In addition, there were 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.

Current wording

The increase in revenue from renewal policies was primarily related to an increase of 17.8% in underlying policy premiums, as well as continued strong policy retention. The increase in renewal policy premiums reflects sustained year-over-year growth in PIF and changes in our mix of business by vehicle type and value. In addition, there were 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.

Previous wording

The increase in revenue from new policies was driven by sustained year-over-year growth in New Business Count, as well as rate increases in several states. The average premium on a newly issued policy increased 7.6% when compared to the prior year period as a result of writing policies with higher insured values at higher premium rates. Accordingly, premiums from new policies increased $8.2 million, or 23.2%, during the three months ended March 31, 2024. In turn, base commission revenue from newly issued policies grew by $4.7 million, or 42.6%, over the same period.

Current wording

The increase in revenue from new policies was driven by sustained year-over-year growth in New Business Count, as well as rate increases in several states. The average premium on a newly issued policy increased 6.1% when compared to the prior year period as a result of writing policies with higher insured values at higher premium rates.

Previous wording

The following table presents premiums assumed by Hagerty Re and the related quota share percentages for the three months ended March 31, 2024 and 2023:

Current wording

The following tables present premiums assumed by Hagerty Re and the related quota share percentages for the six months ended June 30, 2024 and 2023:

Previous wording

Membership fee revenue was$13.5 million for the three months ended March 31, 2024, an increase of $0.9 million, or 7.2%, compared to 2023. This improvement was primarily due to a $1.5 million, or 14.0%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership, partially offset by a decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the three months ended March 31, 2024 and 2023, membership fees were 43.0% and 47.3%, respectively, of total Membership, marketplace and other revenue.

Current wording

Membership fee revenue was$27.6 million for the six months ended June 30, 2024, an increase of $1.9 million, or 7.4%, compared to 2023. This increase was primarily due to a $3.3 million, or 14.8%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership, partially offset by a $0.9 million decrease in storage revenue as a result of fewer Hagerty Garage + Social locations in operation. For the six months ended June 30, 2024 and 2023, membership fees were 47.5% and 51.3%, respectively, of total Membership, marketplace and other revenue.

Previous wording

Marketplace revenue was $10.5 million for the three months ended March 31, 2024, an increase of $3.9 million, or 57.9%, compared to 2023. This improvement was primarily due to the successful Broad Arrow auction at The Amelia, as well as a higher level of private sale revenues and an increase in finance revenue associated with the lending activities of BAC. For the three months ended March 31, 2024 and 2023, Marketplace revenue was 33.6% and 25.1%, respectively, of total Membership, marketplace and other revenue.

Current wording

Marketplace revenue was $16.8 million for the six months ended June 30, 2024, an increase of $4.9 million, or 41.2%, compared to 2023. This improvement was primarily due to the successful Broad Arrow auction at The Amelia, as well as an increase in finance revenue associated with the growth of the BAC loan portfolio. For the six months ended June 30, 2024 and 2023, Marketplace revenue was 28.9% and 23.7%, respectively, of total Membership, marketplace and other revenue.

Previous wording

Sales expense was $39.7 million for the three months ended March 31, 2024, an increase of $4.5 million, or 12.9%, compared to 2023. The higher level of sales expense was due, in part, to a $2.4 million increase in Marketplace cost of sales resulting from a higher level of auction and private sales during the period, as well as borrowing costs associated with the BAC Credit Facility, which was entered into in December 2023. In addition, broker expense increased by $2.3 million, which is consistent with the written premium growth at our MGA subsidiaries across the agent distribution channel.

Current wording

Sales expense was $87.7 million for the six months ended June 30, 2024, an increase of $10.6 million, or 13.8%, compared to 2023. This increase was due, in part, to a $5.2 million increase in broker expense which is consistent with written premium growth within the agent channel. In addition, cost of sales increased $4.2 million primarily as a result of borrowing costs associated with the BAC Credit Facility, which was entered into in December 2023, as well as a higher level of auction and private sale activity during the period. 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.

Previous wording

General and administrative services expense was $19.9 million for the three months ended March 31, 2024, a decrease of $1.5 million, or 7.1%, compared to 2023. This decrease was primarily driven by a $1.5 million reduction in occupancy costs as a result of fewer Hagerty Garage + Social locations in operation.

Current wording

General and administrative expense was $41.2 million for the six months ended June 30, 2024, a decrease of $1.5 million, or 3.4%, compared to 2023. This decrease was primarily driven by a $2.5 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 $1.9 million increase in professional fees associated with various corporate initiatives, including $0.7 million of professional fees associated with the exchange offer related to our warrants. Refer to Note 17 — Warrants in Item 1 of Part I of this Quarterly Report for additional information with respect to the warrant exchange offer.

Previous wording

Depreciation and amortization expense was $10.6 million for the three months ended March 31, 2024, a decrease of $3.2 million, or 23.2%, compared to 2023. This decrease was driven primarily by a $3.6 million impairment of digital media content assets recorded in the prior year period, partially offset by a $0.4 million increase in amortization attributable to a higher base of information technology assets in the current period.

Current wording

Depreciation and amortization expense was $20.6 million for the six months ended June 30, 2024, a decrease of $3.6 million, or 14.8%, compared to 2023. This decrease was driven primarily by a $3.8 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.

Previous wording

Salaries and benefits were $56.1 million for the three months ended March 31, 2024, an increase of $0.9 million, or 1.6%, compared to 2023. This increase was primarily due to an increase in stock-based compensation expense, partially offset by headcount reductions associated with a reduction in force that occurred in the first quarter of 2023. Refer to Note 10 — Restructuring, Impairment and Related Charges in Item 1 of Part I of this Quarterly Report for additional information.

Current wording

Restructuring, impairment and related charges, net

Previous wording

In the first quarter of 2023, the Board of Directors approved a reduction in force (the "2023 RIF") following a strategic review of our business processes as we focus on driving efficiencies in order to achieve growth and profitability goals. As a result, we recognized restructuring, impairment and related charges of $5.5 million during the three months ended March 31, 2023, 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.

Current wording

In the first quarter of 2023, the 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.

Previous wording

Income tax expense was $5.1 million for the three months ended March 31, 2024, an increase of $1.5 million compared to 2023. This increase was primarily due to a $7.2 million increase in Hagerty Re taxable income. Refer to Note 17 — Taxation in Item 1 of Part I of this Quarterly Report for additional information with respect to items affecting our effective tax rate.

Current wording

Income tax expense was $10.9 million for the six months ended June 30, 2024, an increase of $3.5 million compared to 2023. This increase in income tax expense for the three months ended June 30, 2024 compared to 2023 was primarily due to an increase in income before income tax expense of $17.1 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.

Previous wording

Our primary liquidity needs and capital requirements include cash required for: (i) the funding of business operations, including strategic investments; (ii) the 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 ("State Farm Term Loan"); (iii) the payment of income taxes; and (iv) the funding of potential payments under the TRA.

Current wording

Our primary liquidity needs and capital requirements include cash required for: (i) the funding of business operations; (ii) the funding of strategic investments and acquisitions; (iii) the 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) the funding of potential cash dividend payments on the Series A Convertible Preferred Stock; (v) the payment of income taxes; and (vi) the funding of potential payments under the TRA.

Previous wording

We believe that Hagerty Re's existing cash and cash equivalents, municipal securities, and cash flow from operations will be sufficient to support its working capital and capital expenditure requirements for at least the next 12 months. Hagerty Re's future capital requirements will depend on many factors, including its reinsurance premium growth rate, renewal rates, underwriting results, successful entry in new geographic markets, and the continuing market adoption of its product offerings.

Current wording

Based on our current expectations, 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. Our future capital requirements are dependent, in part, on the future capital requirements of Hagerty Re and will depend on many factors, including Hagerty Re's reinsurance premium growth rate, renewal rates, underwriting results, successful entry in new geographic markets, and the continuing market adoption of its product offerings.

Previous wording

THG has a credit agreement with JPMorgan Chase Bank, N.A., 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 $230.0 million. The JPM Credit Agreement matures in October 2026, but may be extended if agreed to by us and the lenders party thereto. As of March 31, 2024, total outstanding borrowings under the JPM Credit Facility were$37.0 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 March 31, 2024.

Current wording

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 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.

Previous wording

On December 21, 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 by a calculation that is primarily based upon a percentage of the carrying value of certain BAC notes receivable. As of March 31, 2024, the applicable borrowing base for the BAC Credit Agreement was $29.2 million.

Current wording

On December 21, 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 by a calculation that is primarily based upon a percentage of the carrying value of certain BAC notes receivable. As of June 30, 2024, the applicable borrowing base for the BAC Credit Agreement was $38.7 million.

Previous wording

Through our reinsurance subsidiary, Hagerty Re, we reinsure the same personal lines risks that are underwritten by our MGA subsidiaries on behalf of our insurance carrier partners. Hagerty Re's reinsurance operations are funded primarily through existing capital and net cash flows from operations. As of March 31, 2024, Hagerty Re had approximately $521.2 million in "Cash and cash equivalents" and "Restricted cash and cash equivalents". The balance of "Restricted cash and cash equivalents" is maintained in a trust account for the benefit of the ceding insurer as security for Hagerty Re's obligations for losses, loss expenses, unearned premium and profit-sharing commissions. The use of the funds in this trust account is restricted to the payment of these amounts.

Current wording

Hagerty Re's reinsurance operations are funded primarily through existing capital and net cash flows from operations. As of June 30, 2024, Hagerty Re had approximately $80.2 million in "Cash and cash equivalents" and "Restricted cash and cash equivalents", as well as $65.4 million of short-term investments. The restricted cash and investment balances are maintained in trust accounts for the benefit of the ceding insurers as security for Hagerty Re's obligations for losses, loss expenses, unearned premium and profit-sharing commissions. The use of the funds in these trust accounts is restricted to the payment of these amounts.

Previous wording

We, and particularly Hagerty Re, pay close attention to the underlying underwriting and reserving risks by monitoring the pricing and loss development of the underlying business written through our MGA subsidiaries. Additionally, Hagerty Re manages its investment portfolio in accordance with an investment policy approved by its Board of Directors that seeks to generate an attractive total return on an after-tax basis on its investment assets, over the long-term, subject to compliance with several constraints and objectives including a requirement to assume only a modest amount of risk of principal loss.

Current wording

We pay close attention to Hagerty Re's underwriting and reserving risks by monitoring the pricing and loss development of the underlying business written through our MGA subsidiaries. Additionally, Hagerty Re manages its investment portfolio in accordance with an investment policy approved by its board of directors that seeks to generate an attractive total return on an after-tax basis on its investment assets, over the long-term, subject to compliance with several constraints and objectives including a requirement to assume only a modest amount of risk of principal loss. During the second quarter of 2024, Hagerty Re diversified its investment portfolio in accordance with its investment policy, purchasing investment-grade fixed maturity securities and, to a much lesser extent, equity securities.

Previous wording

The following table summarizes our cash flow data for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flow data for the six months ended June 30, 2024 and 2023:

Previous wording

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 three months ended March 31, 2024 and 2023 is presented below:

Current wording

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 six months ended June 30, 2024 and 2023 is presented below:

Previous wording

Net cash provided by operating activities for the three months ended March 31, 2024 was $58.2 million, an increase of $46.5 million, compared to 2023. This increase was due to a $24.0 million increase in Net income, after excluding non-cash adjustments, and a $22.5 million increase in cash from operating assets and liabilities.

Current wording

Net cash provided by operating activities for the six months ended June 30, 2024 was $122.3 million, an increase of $51.7 million, compared to 2023. This increase was due to a $46.1 million increase in Net income, after excluding non-cash adjustments, and a $5.6 million increase in cash from operating assets and liabilities.

Previous wording

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 a $16.0 million increase in CUC payments associated with 2023 results, as well as an amendment to our alliance agreement and associated agency agreement with Markel whereby, beginning in 2024, 80% of our CUC receivables are settled monthly rather than on an annual basis.

Current wording

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 $11.5 million of CUC payments collected in respect of 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. 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.

Previous wording

Hagerty, Inc. expects 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 provides for the payment by Hagerty, Inc. to the Class V Common Stock holders, HHC and Markel (together the "Legacy Unit Holders"), of 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.

Current wording

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.