Related-Party Transactions

12 Months Ended

Dec. 31, 2022

23 — Related-Party Transactions

As of December 31, 2022, Markel had a 23.0% ownership in The Hagerty Group and State Farm had a 14.8% ownership in The Hagerty Group. As such, both Markel and State Farm are considered related parties.

State Farm

State Farm and Hagerty entered into a master alliance agreement in 2020 to establish an alliance insurance program where State Farm’s customers, through State Farm agents, will have access to Hagerty features and services which is expected to begin in the second half of 2023. Under this agreement, State Farm paid Hagerty an advanced commission of $20.0 million in 2020, to be recognized into Commission and fee revenue over the life of the contract beginning with the ability to issue policies. The parties have entered into a managing general underwriter agreement where the State Farm Classic+ policy will be offered, through State Farm Classic Insurance Company, a new wholly owned subsidiary of State Farm, subject to any applicable state regulatory review and approval. The State Farm Classic+ policy will be available to new and existing customers through State Farm agents, on a state-by-state basis. Hagerty Insurance Agency, LLC will be paid commission under the managing general underwriter agreement and ancillary agreements for servicing the State Farm Classic+ policies. Additionally, we have the opportunity to offer HDC membership to State Farm Classic+ customers which provides Hagerty an additional revenue opportunity.

Markel

Alliance Agreement

The Company's affiliated U.S. and U.K. MGA subsidiaries have personal and commercial lines of business written with Markel-affiliated carriers. The following tables provide information about Markel-affiliated due to insurer liabilities and commission revenue under the agreement with Markel subsidiaries:


	December 31,
	2022			2021

	in thousands (except percentages)
Due to insurer	$	64,873		$	54,850
Percent of total	95		%	95		%

	Year Ended December 31,
	2022			2021
Commission revenue	$	285,254		$	239,432
Percent of total	95		%	90		%

Reinsurance Agreement

Under a quota share agreement with Evanston, Hagerty Re reinsured 70% and 60% of the risks for the years ended December 31, 2022 and 2021, respectively, written through the Company’s U.S. MGAs. Additionally, under a quota share agreement with Markel International Insurance Company Limited, Hagerty Re reinsured 70% and 60% of the risks for the years ended December 31, 2022 and 2021, respectively, written through the Company’s U.K. MGA. All balances listed below are related to business with a Markel affiliate:


	December 31,
	2022		2021

Assets:	in thousands
Premiums receivable	$	97,897	$	72,697
Deferred acquisition costs, net	103,869		78,449
Total assets	$	201,766	$	151,146
Liabilities:
Losses payable	$	53,800	$	33,459
Provision for unpaid losses and loss adjustment expenses	106,436		70,680
Unearned premiums	227,192		167,541
Commissions payable	75,898		59,511
Total liabilities	$	463,326	$	331,191

	Year Ended December 31,
	2022		2021

Revenue:	in thousands
Earned premium	$	386,696	$	281,794
Expenses:
Ceding commission	$	184,124	$	134,946
Losses and loss adjustment expenses	182,340		116,396
Total expenses	$	366,464	$	251,342

Broad Arrow

In January 2022, the Company entered into a joint venture with Broad Arrow and acquired approximately 40% equity ownership interest in Broad Arrow. In August 2022, the Company acquired the remaining 60% equity interest of Broad Arrow in exchange for $73.3 million of Class A Common Stock and Hagerty Group Units exchangeable for Class A Common Stock. Prior to the Company's joint venture with Broad Arrow in January 2022, Broad Arrow was majority owned by Kenneth Ahn, the President of Marketplace, who received Hagerty Group Units as a part of this transaction. Refer to Note 9 — Acquisitions and Investments for additional information.

Speed DigitalIn April 2022, Hagerty acquired Speed Digital for a purchase price of $15.0 million. Speed Digital was previously wholly owned indirectly by Robert Kauffman, a director on Hagerty's Board, who will receive 100% of the proceeds of the purchase price.