XML 48 R23.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

12 Months Ended

Dec. 31, 2022

15 — Fair Value Measurements

Hagerty measures and discloses fair values in accordance with the provisions of ASC 820. The Company’s significant fair value measurements primarily relate to interest rate swaps, warrant liabilities, and fixed income investments. The Company uses valuation techniques based on inputs such as observable data, independent market data and/or unobservable data. Additionally, Hagerty makes assumptions in valuing its assets and liabilities, including assumptions about risk and the risks inherent in the inputs to the valuation techniques.

The Company classifies fair value measurements 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 (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement 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 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for substantially the full term of the asset or liability.

•Level 3 — Unobservable inputs that management believes 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 at the end of the reporting period.

Recurring fair value measurements

Interest rate swaps

Interest rate swaps are determined to be Level 2 within the fair value hierarchy. The significant inputs, such as the SOFR forward curve, of interest rate swaps are considered observable market inputs. The Company monitors the credit and nonperformance risk associated with its counterparty and believes them to be insignificant. Refer to Note 17 — Interest Rate Swaps for additional information.

Warrant liabilities

The Company's 5,750,000 Public Warrants are Level 1 within the fair value hierarchy as they are measured utilizing quoted market prices. The Company has determined that its private warrants are Level 3 within the fair value hierarchy. The Company's private warrants include 257,500 Private Placement Warrants, 28,750 Underwriter Warrants, 1,300,000 OTM Warrants and 12,147,300 PIPE Warrants. The Company utilizes a Monte Carlo simulation model to measure the fair value of the private warrants. The Company’s Monte Carlo simulation model includes assumptions related to the expected stock-price volatility, expected term, dividend yield and risk-free interest rate. Refer to Note 20 — Warrant Liabilities for additional information.

The following table summarizes the significant inputs in the valuation model as of December 31, 2022:


Inputs	Private Placement Warrants	Underwriter Warrants	OTM Warrants	PIPE Warrants
Exercise price	$11.50	$11.50	$15.00	$11.50
Common stock price	$8.41	$8.41	$8.41	$8.41
Volatility	47.7%	47.7%	45.0%	47.7%
Expected term of the warrants	3.92	3.92	8.93	3.92
Risk-free rate	4.10%	4.10%	3.90%	4.10%
Dividend yield	$—	$—	$—	$—

The Company estimates the volatility of its common stock based on factors including, but not limited to, implied volatility of the Public Warrants, the historical performance of comparable companies, and management's understanding of the volatility associated with similar instruments of other entities.

The risk-free rate is based on the yield of the U.S. Treasury Constant Maturity for a term that approximates the expected remaining life, which is assumed to be the remaining contractual term, of the warrants.

The dividend rate is based on the Company’s historical rate, which the Company anticipates to remain at zero.

The fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis at December 31, 2022 and 2021, is shown in the table below:


	Fair Value Measurements
	Total		Level 1		Level 2		Level 3

	in thousands
	December 31, 2022
Financial Assets
Interest rate swaps	$	3,294	$	—	$	3,294	$	—
Total	$	3,294	$	—	$	3,294	$	—

Financial Liabilities
Public warrants	$	12,880	$	12,880	$	—	$	—
Private placement warrants	673		—		—		673
Underwriter warrants	75		—		—		75
OTM warrants	4,706		—		—		4,706
PIPE warrants	27,227		—		—		27,227
Total	$	45,561	$	12,880	$	—	$	32,681

	December 31, 2021
Financial Assets
Interest rate swaps	$	531	$	—	$	531	$	—
Total	$	531	$	—	$	531	$	—

Financial Liabilities
Public warrants	$	25,243	$	25,243	$	—	$	—
Private placement warrants	1,248		—		—		1,248
Underwriter warrants	139		—		—		139
OTM warrants	6,849		—		—		6,849
PIPE warrants	55,887		—		—		55,887
Total	$	89,366	$	25,243	$	—	$	64,123

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 years ended December 31, 2022 and 2021:


	Private Placement Warrants		Underwriter Warrants		OTM Warrants		PIPE Warrants		Total

	in thousands
Balance at December 31, 2020	$	—	$	—	$	—	$	—	$	—
Issuance of warrant liabilities	460		51		2,899		31,800		35,210
Change in fair value of warrant liabilities	788		88		3,950		24,087		28,913
Balance at December 31, 2021	1,248		139		6,849		55,887		64,123
Change in fair value of warrant liabilities	(575)		(64)		(2,143)		(26,754)		(29,536)
Exercise of warrants	—		—		—		(1,906)		(1,906)
Balance at December 31, 2022	$	673	$	75	$	4,706	$	27,227	$	32,681

Fixed Income Investments

The Company has fixed income investments that consist of Canadian Sovereign, Provincial and Municipal fixed income securities held in a trust account to meet the requirements of a third-party insurer, Aviva, in connection with Hagerty Re's reinsurance agreement.

The Company classifies its fixed income investments in connection with its reinsurance agreement as held-to-maturity, as the Company has the intent and ability to hold these investments to maturity. The Company has determined that its fixed income investments are Level 2 within the fair value hierarchy, as these investments are valued using observable inputs such as quoted prices for similar assets at the measurement date.

The following table discloses the fair value and related carrying amount of fixed income investments held within Hagerty Re's as of December 31, 2022 and 2021:


	Carrying Amount		Estimated Fair Value

	in thousands
	December 31, 2022
Fixed income securities, short-term	$	6,296	$	6,205
Fixed income securities, long-term	6,690		6,316
Total	$	12,986	$	12,521

	December 31, 2021
Fixed income securities, short-term	$	1,189	$	1,188
Fixed income securities, long-term	9,596		9,476
Total	$	10,785	$	10,664

The Company has reviewed the portfolio for other than temporary impairments and concluded that no impairment exists as of December 31, 2022 or 2021. The Company did not record any gains or losses on these securities during the years ended December 31, 2022 or 2021.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details