Hagerty, Inc.HGTY
Hagerty, Inc. Fair Value Disclosure
6 — Fair Value Measurements
Fair value measurements are classified 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 management judges to be significant to the fair value measurement in its entirety.
The three levels of the fair value hierarchy are as follows:
•Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting 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 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date for substantially the full term of the asset or liability.
•Level 3 — Pricing inputs are unobservable, but management believes that such inputs 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, if any, at the end of the reporting period. There were no transfers between levels during the current and prior reporting periods.
Investments
Fixed maturity securities are classified as Level 2 within the fair value hierarchy and equity securities are classified as Level 1. The fair value of these investments is determined after considering various sources of information, including information provided by a third-party pricing service, which provides prices for substantially all of the Company's fixed maturity securities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows, and prepayment speeds.
Refer to Note 5 — Investments for additional information related to the Company's investment portfolio.
Interest rate swap
In December 2020, the Company entered into an interest rate swap with an original notional amount of $35.0 million, a fixed swap rate of 0.81%, and a maturity date in December 2025. The interest rate swap was designated as a cash flow hedge and the Company formally documented the relationship between the interest rate swap and its variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. The Company also assessed whether the interest rate swap was highly effective in offsetting variability in the cash flows of its variable rate borrowings. The hedge was deemed highly effective at inception and on an ongoing basis; therefore, any changes in fair value were recorded within "Change in unrealized loss on interest rate swap" in the Consolidated Statements of Comprehensive Income. The differential paid or received on the interest rate swap agreement was recognized as an adjustment to interest expense within "Interest expense and other, net" in the Consolidated Statements of Operations.
In the second quarter of 2024, the Company reduced its borrowings under the Prior JPM Credit Facility (as defined in Note 18 — Debt) below the $35.0 million notional amount of the interest rate swap and, as a result, the interest rate swap was settled prior to its maturity date.
The interest rate swap was classified as Level 2 within the fair value hierarchy. The significant inputs used to determine the fair value of the interest rate swap, such as the Secured Overnight Financing Rate ("SOFR") forward curve, are considered observable market inputs.
Warrant liabilities
The Company's Public Warrants were classified as Level 1 within the fair value hierarchy as they were measured utilizing quoted market prices. The Company's Private Warrants, Underwriter Warrants, OTM Warrants, and PIPE Warrants were classified as Level 3 within the fair value hierarchy. The Company utilized a Monte Carlo simulation model to measure the fair value of the Level 3 warrants. The Monte Carlo simulation model included assumptions related to the expected stock price volatility, expected term, dividend yield, and risk-free interest rate.
In July 2024, the Company completed an exchange offer under which holders of the Company's warrants were issued 3,876,201 shares of Class A Common Stock in exchange for 19,483,539 warrants, with a nominal cash settlement paid in lieu of fractional shares (the "Warrant Exchange"). No warrants remained outstanding following the completion of the Warrant Exchange.
The Company recorded increases to "Class A Common Stock" and "Additional paid-in capital" on the Consolidated Balance Sheets, representing the $42.6 million fair value of the Class A Common Stock that was issued in connection with the Warrant Exchange. The difference between the fair value of the warrants immediately prior to the Warrant Exchange and the fair value of Class A Common Stock issued resulted in a $2.0 million loss, which is reflected within "Loss (gain) related to warrant liabilities, net" in the Consolidated Statements of Operations.
The following table presents a reconciliation of the Company's warrant liabilities that were classified as Level 3 within the fair value hierarchy for the year ended December 31, 2024:
| Private Warrants | Underwriter Warrants | OTM Warrants | PIPE Warrants | Total | |||||||||||||||||||||||||
| in thousands | |||||||||||||||||||||||||||||
Balance at December 31, 2023 | $ | 476 | $ | 53 | $ | 3,981 | $ | 20,020 | $ | 24,530 | |||||||||||||||||||
| Change in fair value of warrant liabilities | 55 | 5 | 546 | 4,056 | 4,662 | ||||||||||||||||||||||||
| Warrant Exchange | (531) | (58) | (4,527) | (24,076) | (29,192) | ||||||||||||||||||||||||
Balance at December 31, 2024 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
Summary of assets and liabilities measured at fair value
The fair values of the Company's financial assets as of December 31, 2025 and 2024 are shown in the following tables:
Estimated Fair Value as of December 31, 2025 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| in thousands | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Corporate | $ | 266,168 | $ | — | $ | 266,168 | $ | — | |||||||||||||||
| U.S. Treasury | 181,617 | — | 181,617 | — | |||||||||||||||||||
| States and municipalities | 30,146 | — | 30,146 | — | |||||||||||||||||||
| Foreign | 32,992 | — | 32,992 | — | |||||||||||||||||||
| Asset-backed securities | 32,251 | — | 32,251 | — | |||||||||||||||||||
| Mortgage-backed securities | 153,097 | — | 153,097 | — | |||||||||||||||||||
| Common stocks | 34,871 | 34,871 | — | — | |||||||||||||||||||
| Total | $ | 731,142 | $ | 34,871 | $ | 696,271 | $ | — | |||||||||||||||
Estimated Fair Value as of December 31, 2024 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| in thousands | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Corporate | $ | 231,189 | $ | — | $ | 231,189 | $ | — | |||||||||||||||
| U.S. Treasury | 145,875 | — | 145,875 | — | |||||||||||||||||||
| States and municipalities | 31,585 | — | 31,585 | — | |||||||||||||||||||
| Foreign | 21,057 | — | 21,057 | — | |||||||||||||||||||
| Asset-backed securities | 23,680 | — | 23,680 | — | |||||||||||||||||||
| Mortgage-backed securities | 124,302 | — | 124,302 | — | |||||||||||||||||||
| Common stocks | 11,839 | 11,839 | — | — | |||||||||||||||||||
| Total | $ | 589,527 | $ | 11,839 | $ | 577,688 | $ | — | |||||||||||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.