Chit Chat Stocks - Hagerty (HGTY) with CFO Fred Turcotte

Episode Date: June 2, 2022

Hagerty Insurance provides automobile and boat insurance products. The company specializes in insurance for car enthusiasts. Listen as Brett and Ryan ask Fred questions about the company, its business model, and valuation. Enjoy the show! This episode is brought to you by Masterworks. Join a community of 400,000 investors with access to exclusive blue-chip art investments. Use our link and get access today:  http://masterworks.art/CCM Subscribe to 7investing with the code "Money" and get $100 off: https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested to see more of Fred's work? Find him on LinkedIn here: https://www.linkedin.com/in/frederick-turcotte-9222b57b/ Contact us: [e-mail]  Timestamps Hagerty Insurance | (4:08) Business Model | (11:25) State Farm Relationship | (26:48) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday episode. And today we have on Fred Turcotte. He is the CFO of Hagerty, which is a really fascinating company. And I kind of knew about it going in. So I'm glad we were able to talk to him. Do you want to give maybe a little preview and some of your highlights? Yeah. So he's a CFO. He has decades of experience in insurance. So it was great to hear him talk about how their insurance model works. They are for enthusiast car owners and they're serving this niche of the market. They also have this data marketplace on valuations for these cars, which is very important for this market. And it is one of those idiosyncratic businesses that feels like it's serving this strange niche that makes a lot of sense. And then on top of that. They're adding all these sorts of other things on top. So, Drivers Club, these garages that people can store them in, these events, the magazine, plenty of other stuff that he goes into.

I'm actually forgetting it now. I'll have to re-listen. But I learned a ton about insurance and the enthusiast market in general. So, if you like insurance companies, I know they're not sexy, but they are incredible businesses when run correctly. And it seems like they have you know, something good going here. Yeah. And I reached out to a family member who is a car enthusiast before this, just to ask if you'd ever heard of Hagerty and they are in the collectible car universe. This is a very well-known brand. He basically said everyone loves them. And then Fred even mentions the net promoter score, which I think is a testament to just how much people appreciate Hagerty. But before we get to the interview, I do want to talk about our sponsor

for the episode. It's Masterworks. All right. If you took contemporary art, the likes of Andy Warhol, Pablo Picasso, Banksy, and turned it into a stock, it would have outpaced the S&P 500 by 164% over the past 25 years. That stat really surprised me. And we're kind of excited to share that you can use our promo code to skip the wait line. And I guess a little bit of background on masterworks they have recruited a team of researchers that spend uh they say all day pouring over five million data points to find particular artworks that could soar in price and they go through they lock down private art dealers to buy and sell artworks on your behalf there's over 400 000 members that already have joined the platform and so using our code go well

go to masterworks.com use the promo code ccm to skip their signup waitlist again it's masterworks.com promo code CCM. You can become an owner of some of the potentially a Banksy or Picasso artwork. I know it kind of gets lumped together, but you can call yourself an owner. I think that's the coolest part, but they also have had really solid returns. I would also have a disclosure. I got to see important regulation, a disclosures at masterworks.io slash CD. But once again, promo code CCM. It's definitely worth checking out. It's a really cool platform. Without further ado, though, let's get to the interview. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of

investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Okay, welcome in. Today, we are joined by Fred Turcotte. He is the Chief Financial Officer at Hagerty. I imagine a lot of our listeners probably haven't heard of Hagerty. So, maybe give, I guess, a one-liner on what Hagerty does. And then can you talk a little bit about yourself as well so people know who Fred Turcotte is? How did you end up at Hagerty?

Sure. Thanks, Ryan. Hagerty, simply put, is an automotive lifestyle brand whose purpose it is to save driving and car culture for future generations. And our mission is to build a business that's big enough to achieve that purpose and so that is what we've undertaken you know I've been with the company 15 years the company is you know started its auto and auto business back in 92 and its original its origins date back to about 1983 when it began writing collector boat business and the addressable market and boat was fairly limited and the construct or concept of guaranteed value, which is the kind of the product upon which Hagerty is built, was extended to automobiles in 92. In terms of my background, I've been a CFO for quite a

while. I've been in the insurance business about 32 years, having worked for companies like White Mountains, and Travelers Insurance, as well as a company called One Beacon. So I've had a fair amount of insurance experience, a lot of merger acquisition experience, and then just kind of spread that across sort of international footprint. So I'll be running companies, international companies or global companies. And what is enthusiast vehicle insurance? That's how Hagerty described his core business. I don't think it's something a lot of people even know exists. So maybe what is that niche that you guys fill? Yeah, no, I would say, first of all, let's break it up. Enthusiast, right? So an enthusiast, it represents around 69 million people in the U.S. that call themselves, self-proclaim themselves as a car enthusiast. So these are people that enjoy cars. They enjoy car culture. They may own classic cars. They may absorb automotive content, classic car content. These folks attend shows. They watch content on TV. So they like the car culture, the vehicle culture, number one.

And then in terms of insurance, Hagerty provides what we call guaranteed value insurance. So the guaranteed value is a value that we insure to that is actually negotiated between the company and the insured or the insured's agent. In our business, you know, it is not a newer car necessarily that would typically depreciate once acquired. and most cars will depreciate all the way down to what we call salvage value before you know as time goes on the car itself will become valuable so we'll call it the j curve and at the bottom of j curve will typically be uh what uh the car is worth uh at its end but many of our cars so most of our cars appreciate in value uh because of their provenance because of their age uh because of the market could be you know fewer cars built in a certain period of time that are attractive

to people but there are fewer there so that obviously has supply and demand effect of increasing value so so enthusiasts people love cars we want to be that steward for those folks that want to do this and and really enjoy the hobby and then the insurance element is a product that we provide and you know as most as you all know in most countries and states that people live in insurance is compulsory so you must have it in order to operate the vehicle we play to the i'll call it the passion side of the business so many of our enthusiasts enjoy their car they use it for pleasure for fun and for family they're not being used for commuting and in fact we do not insure cars that are simply used for commuting. We insure cars that are sort of that

second or third vehicle in the household that is driven on the weekends and on a nice, beautiful day and on a country road or your best version of your day out with your car. And so that's really where we focus. I think you just alluded to it a little bit, but can you give us a sense of the size of the market that Hagerty is going after? I think you said 69 million car enthusiasts. That might have been the number you said. And maybe related to how many customers you have today as well. Yeah. I would love to do that. Yeah. And so, one of the advantages we have and one of the reasons why we went public

is because of the total addressable market. And we look at the total addressable market in a few ways. First of all, one way is, as I described, by enthusiasts. So those that really love the collective vehicle market. The other one is vehicles. And so Hagerty has spent quite a bit of time, money, and effort determining how big the market is. And in the U.S., we think there are 43 million vehicles that would fit our program. And as we think about sort of the size of what we have in those two metrics, or those two addressable market metrics, we have roughly two and a half million members of Hagerty, of a pool of 69 million. And 69 is just the US. So it's a bit larger, if you were to sort of extrapolate it out from a global perspective,

you know it's it's closer probably to 80 or 85 90 million and then in terms of the vehicles we insure 2.1 vehicles of the 43 million so in each each case roughly four percent of the market so a lot of lot of runway for us in terms of the opportunity the other metric to look at in terms of total addressable market is premium written premium so people paying a premium for their car insurance. In the U.S., the total premium is roughly about $270 billion. And in our world, in the collective vehicle world, that portion is about $12 to $15 billion. And in terms of the premium that Hagerty has, it's sub $1 billion. Last year, we wrote $674 million.

And so, again, small percent of a very large addressable market. And one of the things we found when we went public was it's surprising to people that collector vehicles would have such a runway, be such a large market itself, something that we've known for a bit of time. to stream all your favorite movies and in the morning get fresh waffles with their free bright side breakfast or squeeze in a workout at their fitness center either way you're ready to conquer the day tonight la quinta tomorrow you triumph book your stay at lq.com i want to get to the business model because i think people are interested in how say a dollar of revenue gets earned for a specialty insurer like you guys but first i want to talk about maybe a question on how you're marketing to customers? Because it seems like the biggest hurdle is to get,

and correct me if I'm wrong, to get customers or potential customers to figure out that this type of insurance exists and it's worth it for them. So how are you guys trying to target and expand that audience of, I forget the exact number, from the 2.1 million you have now to say the 43 million in the US? Yeah. In terms of distribution, we can start there and we'll go to marketing. On the distribution side, 45% of our business comes from what we'll call the direct side, which is people going to our website and or calling our call center. So we have call centers in Dublin, Ohio, in Denver, Traverse City, near Toronto, and near London. And so 45% of the business comes from the direct side. About 32% comes from roughly 33,000 to 35,000 agents spread across each of the jurisdictions in which we operate. So agents work on behalf of the direct consumer.

And then the other piece, which is a real growth opportunity for us, is what we're calling national partners. And so these are the top insurance companies in the States, if we just limit it to the U.S. We have relationships and partnerships with nine of the top 10 insurance companies in the U.S. and 22 of the top 25. And what we've decided to do, and we looked at this when we were looking at the addressable market and the premium, Most of the premium that I quoted, the $12 to $15 billion, sits in the standard market, so sits in these very large insurance carriers. Our focus was really to partner to win, provide them a solution for a collective vehicle that's much different than the standard auto market. Large carriers are very good at processing large volumes of premium and policies, But they don't understand, you know, in the collective vehicle world, they don't understand parts and where to get them.

They don't understand valuation, how to value these cars so that you get the right amount of insurance. And they do not excel at claims. The claims process that's applied to collective vehicle is the same claims process that is applied to any other vehicle. Well, in our world, claims can be very difficult, from parts finding to getting the right expert repair. We have roughly 420 or so expert repair network stations, if you will, of businesses around the country who specialize in collective vehicle repair. So, you know, to someone whose toy is really important to them, we're able to help these large insurance companies through the sale process, through the valuation process, through the claims process. And ultimately, we also add to that storage. We have a series of Hagerty Garage and social locations, six now and more to come, one in Toronto and the others in the U.S.

And these are storage facilities where people are looking to store their toy, their classic vehicle, because they cannot store it at home for lack of space or safety. So we now have the ability to kind of finish the cycle. So we're able to market to them, we're able to sell to them, we're able to provide claims work, valuation work, and now we can give them a space where they can store it. So there's a national network being built out of these facilities. In terms of marketing, we are not playing the big game of typical marketing spend that you see in the standard auto insurance market. Many, many of those companies that compete head-to-head obviously compete with very large budgets for marketing. The way we market is grassroots. We have a series of events that we attend, over 2,500 events in the U.S. alone each year. We have teams that are national, with a national reach that are engaging at the local level. We have the ability to use our media.

We have the largest magazine, second largest magazine in the world for automobiles. So it's second only to one other and roughly 750,000 magazines that are printed six times a year. So it's marketing through events. It's marketing through our distribution network. It's marketing through digital media. It's marketing through traditional media. All right. That's a great overview.

I think the big question, and this is especially true for a lot of people who don't really understand the insurance model too well. It's a little bit of a black box for them. When Hegarty brings in a dollar of insurance premiums, where does it go? And what are your costs? And how much do you earn on that dollar in profit? on average sure you know and being a public company i can tell you what we've what we've disclosed um but very simply um if a dollar of premium comes to hagerty first you have to take care of your company or your constituencies that have losses and so when there is a claim

41 cents on average is paid in claims from that dollar the mga which is one of our companies that facilitates the sales and the marketing the underwriting receives a fee 32 cents for that work so that's another 32 cents it also has the ability to earn what they call a profit commission, which in the U.S. could be upwards of another $0.10. Then finally, the underwriting carrier partner we have has its own SG&A cost, which is typically $0.05 to $0.06, but the remaining amount being profit. So on a dollar of premium, our business will yield somewhere in, you know, I'll call it $0.10, $0.11 category. Okay, that makes sense.

And I wanted to talk a little bit, do you have anything else or does that kind of cover it? Well, those are the main components. losses, you know, paying the MGA for its services, which effectively we're paying ourselves and then paying the carrier partner. And then the remaining amount is, is, is profit that we share with our carrier partner. Right. And I guess maybe like a typical insurer, are you guys able to invest in, you know, some say interest bearing assets or how quick is that turnover? Are you guys able to, you know, invest? I don't know. And is it just mainly a bond portfolio, treasury, stuff like that?

Or how do you guys typically work with that, with that regard? Yeah, that's a great question, Brett. You know, most insurance companies invest at duration periods that's consistent with their liabilities as an insurance company. And so when you think of automobile insurance, at least in our world, the liability typically is a 12 to 24-month liability at the maximum. So 12 to 18, typically 12 to 24, worst case. And that's what they call duration. So the duration of your liability is 12 to 24 months.

Well, you have to invest your capital to meet that duration so that you can pay out capital to fund claims that have a duration in that period of time. So the investment thesis or the investment approach to capital management in our world is typically short-duration investments. So in this world that we live in today, and we have been living in for quite a while now, your choices are fairly limited in terms of maximizing yield in short-duration investments. So if you look at our balance sheet, you'll see that we're very heavily into cash, and we have some shorter-term maturity investments. But for the most part, what we've done is we've kept ourselves in cash, which today looks like we've done a good job in terms of estimating what the market correction is and is in the middle of. As we grow, my sense would be that we would expand beyond the cash piece into, I'll call it shorter, safer, more liquid investments that would typically kind of include treasury securities and those sorts of things. So really not an aggressive approach to the investment side of the business with the cash that we receive. We try to we try to get yield where we can, but do it within the construct of being conservative and protecting the capital.

Makes sense. And you guys joined the public markets, I think, a little over six months ago, if I'm not mistaken. And you guys joined via SPAC. I'm curious why you guys chose the SPAC vehicle as opposed to a traditional IPO. um well you know we eventually were looking to the equity markets uh you know and and so the spac uh tool was was something that became available uh and you know as we looked at the the acquisition vehicle that it provided It was something that had a couple of advantages vis-a-vis a traditional IPO. The first one was that you can execute them faster. And so a traditional IPO can be 18 months.

A SPAC IPO, we did eight months. It's typically cheaper from a fee perspective, all the fees that you have to pay. than a traditional IPO. It works well for companies that are established to have a revenue stream and an historical growth rate, which was our case. And so others have done what they have done in terms of the SPAC mergers with target companies. In our case, the merger with Aldell was a situation where Hagerty

had a track record of a long-term track record of success in the years five years prior to 2021 we you know we grew on average compounding our growth rate roughly 29 percent and our guidance for 2022 is 24 to 28 percent in terms of total revenue growth so consistent with historical performance, the ability to have a track record then lends credence to the projection that you're providing to investors in a SPAC process that includes the SPAC investor itself, as well as what they call the pipe, right? And so the pipe investor group is part of the marketing process after you align with a SPAC. And again, the investors in that group, it depends on the target, but you want to have long-term investors that come with you as part of the SPAC sponsor group, as well as the pipe group.

In our case, we've had long-term relationships with Markel Corporation, and they invested in the pipe, having also invested in us back in 2019. And they have a very large commercial relationship where they underwrite the fronting carrier partner in the U.S. and in the U.K. We also included in the pipe investor group State Farm. State Farm is the largest auto writer in the world, roughly 48 million policies. And so we have a commercial relationship with them that we can talk about a little bit later. But they invested half a billion dollars in the pipe. So, you know, kind of credibility to Hagerty and its relationship with State Farm. They were willing to make an equity investment of that level and also asked that their CEO be added to our board.

So, you know, we think, you know, from the perspective of credibility, long term investment horizon and the ability to grow over time and execute on our strategies. In our case, you know, the SPAC and pipe process worked very well. And so our next job is to steward that capital, invest that capital in our growth. And that's what we intend to do. And in the first quarter, we took a step towards meeting our 2022 guidance. And we're executing every day, doing our work and making sure that we do all the things necessary to return the capital to our shareholders. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts.

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Advanced security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. Right. That makes sense. And let's hit on that State Farm relationship, if you can. What other details are there that you think it's important for investors to know about? Very key piece. They are bringing roughly 640,000 additional policies with them, which is about 37% of our total today. So a very large block of business. The business will incept in the fourth quarter of 2022. And since their policies are six-month policies, the conversion from their old program onto the Hagerty program into a newly formed State Farm Classic Insurance Company. So they stood up a dedicated carrier for us to put just our business in. uh and so all of that is in process the development of the systems and integration

with us and and state farms is done we're in testing phase we're getting ready for q1 so a couple other things uh 600 640 or so thousand policies um you know our average vehicle vehicle amount of premium is about 300 so people can start doing the math and saying okay well that's a sizable addition of premium and it's coming in 2023 will incept in 2022 with a rollout of certain states and then every couple of weeks or three weeks we'll be rolling out you know chunks of other states such that you know when we get into the middle of 2023 most of the states will be writing policies on the new platform. In terms of State Farm itself,

we couldn't be happier with the relationship. We bring to them our Hagerty Drivers Club membership program, which they don't have. So we're able to provide to their clients and their agents a lot of what we've built around the engagement piece of being in the collector car hobby um it's it's not really about an insurance transaction you know it's obviously compulsory uh it's needed but haggardy isn't marketing itself necessarily as an insurance company if you if you you know if you recall my intro it's an automotive

lifestyle brand with a purpose and a mission and i never said the word insurance and that's because While insurance is a major product and absolutely the engine from a cash flow perspective to grow our business, we don't think of ourselves necessarily as insurance first. We think of member first. How can we engage our members with products, services, events that they want to spend time on and they want to spend money on? And at the end of the day, just getting more of that discretionary spend of an enthusiast, someone in this passion sector, is what we try to do. So give them something of value, charge the right amount in terms of what that value is worth to people, and then really engage and enjoy the hobby together. I mean, that's really what Hagerty's found. I mean, you just talked about the Hagerty Drivers Club. So maybe can you give more context around that? What exactly is it? And then what are the long term goals of the Drivers Club?

Sure. Yeah. So Hagerty Drivers Club is a membership in a it's a fee based membership. It's $70 per year. And for that, a member gets several things. That person will receive a magazine six times a year, which is that very large Cirque magazine that I mentioned called Hegarty Drivers Club. The other kind of benefits of the program include what you'd normally expect with roadside, but this is white glove roadside. So these are service shops and roadside shops that we've specially selected that have the ability to handle these kinds of vehicles if there's an emergency roadside event. They're not stacked on each other, one car per tow, white glove service. So roadside, important element. the other couple of elements is valuation so we have the largest valuation database in the world

this allows us to understand what that what cars are worth and every car is different you know you can look at a 67 camaro and have an opinion of value but if you don't understand what parts are in there and understand the dynamic of a serial number pre-81 on, you might not understand that certain of those cars are worth more than others, even though they look the same and they both have make and model that are the same. So understanding how important valuation can be to a buying and selling, so the transactional piece of the business, it's very important from an insurance perspective. So that I mentioned guaranteed value. So the valuation piece of our research is shared with the insured so they understand where the potential value lies for their vehicle.

And they can buy coverage, insurance coverage up to that value, or they may decide not to. But at least we're providing that data to them. So valuation is an important element. I mentioned the Hagerty Garage and social locations. Membership gets you into those clubs so that you can go enjoy cars and caffeine on a Saturday morning at one of our locations, even if you don't have a car, but you're a member of HDC. And then there's a series of discounts. A lot of our clients pay for their membership by simply acquiring automotive parts, supplies, automobilia, if you will. They receive discounts with some of our affinity partners, and they effectively are paying for their $70 with discounts on things they need. Think of tires and that sort of thing.

And have you found that there's a lot of, I guess, is the insurance or are the people that are insured kind of a good top of the funnel for the driver's club? Is there a lot of cross selling in that regard? That's a great question, Ryan. So three out of four people who buy an insurance policy with us, first time, new business, adopt HTC, pay for the membership. So it's very sticky, right? So, you know, you get three out of four people buying in to the membership. And then once they're members of Hagerty Drivers Club, the retention rate is in the mid-80s. So, you know, eight out of ten, eight and a half out of ten stay with us the next year.

And it's a little lower than but close to our insurance policies, our insurance clients who are members. We keep our retention rate on insurance is eighty nine and eighty nine percent. So roughly 90 percent, nine out of 10 insureds, new insureds will renew with us. So we have so we call it stickiness, but we have this retention on the insurance that's high. And then we have the retention on the membership, which is high as well. And a lot of that, we tie back to what we do for the enthusiasts. Our net promoter score is 82, which is very high in the insurance industry. I think the average is down in the 50s.

And so differentiating our product, differentiating our service, having fun with it, being where they are, the enthusiasts are, and providing them what we think or they ask for, right? I mean, we do a lot of surveying and what would be better experience, better engagement for you. And we answer the call with new product and services or appending the existing programs. Okay, I want to close things up on the insurance aspect.

And I think this will be important for anyone that's trying to track you guys as a potential investment. what do you use internally to track or to evaluate the success of Hagerty's insurance business? Is it just your loss ratios, total premiums earned? And then I want to add in, I saw you guys do reinsurance. I'm not an expert in this field at all, but how does reinsurance fit into things? Does it help? I don't know. How does it help you guys? Yeah, no, great question. A couple of things. I mean, so what do I care about? So we're a growth company. And being a growth company, I care about maintaining what we put out in guidance. Annual total revenue growth of 24% to 28%, number one. Number two, keeping the clients. Retention is a powerful vehicle for us.

And so keeping that near 89, 90% is key. Keeping our net promoter score at 82, that's a score of loyalty and engagement and brand. Loss ratio, a big differentiator for us. Our loss ratio is 41%. Industry average is 66, 67. So we have a 25-point advantage, which allows us to take a portion of that $1 premium and invest it differently. We invest in growth of membership, the investment in marketplace, the recent investments there. We're able to invest because of that low loss ratio.

That loss ratio isn't going – that $1 premium isn't going to pay claims like – or at the level it does in the standard market. So definitely growth, loss ratio, retention, and at the end of the day, making sure that our net promoter score stays right around that 82. In terms of reinsurance, reinsurance for us is a vehicle that provides two things. It keeps more of the profit, the underwriting profit with Hagerty versus its insurance partner. And the other thing that it does is it provides real capital, right? So it creates balance sheet strength. And so the first one, I mentioned in our pie chart that the MGA receives $0.32 per dollar to start with and can earn another $0.10, up to $0.42. And then, of course, it pays its costs as an MGA for the sales, marketing, underwriting claims people that it employs.

But the $0.10, the $0.1011 I mentioned, what we do is we reinsure that. So the insurance company in the U.S. is Markel. Markel initially would collect the entire $0.1011, and we renegotiated that with Markel a few years back. And part of that was to enter into a reinsurance transaction with our newly formed Bermudian company to begin to take a portion of that $0.10 to $0.11 and start it out at 25%. This year, it's 70%, and next year, it'll be 80%. So think of it this way. The MGA is doing all of the underwriting, doing all of the risk assessment and making and pricing, if you will, the premium. That's because we have all the data.

So the very business that we are writing as an MGA is the only business that we reinsure into the Hagerty Reinsurance Company. It doesn't take risk for anything else. And so effectively, it's, you know, it's basically underwriting our own, or Agri-Re is sharing in the underwriting of our own sister company that's actually doing the work. So it's more share of profit, if you will. I mentioned more, you know, get a greater share of discretionary spend. That's what this is. um we have a similar arrangement with uh our insurance partner in canada aviva and so we take a quarter share their share of the profit for that business

generated up in canada okay that makes total sense hopefully that helps yeah yeah that helps a lot um i guess you talked a lot about the new initiatives already but just final questions on that. Anything you guys missed there that has you excited? Because I know you got a few things going outside of insurance. And how do you evaluate where to invest more capital for growth across these segments? I'll throw an extra question on this too. I know we're giving multiple questions, but in looking through Hagerty, I was fascinated with the drive share business because that looked really interesting to me. What do you think of that? And then More generally, to Brett's point, I guess, how do you think about investing in those different initiatives?

A key growth and value driver for us, I think we do insurance pretty well. I think we have the organic growth at a point now where it will yield sort of, I'll call it contractual results, right? Because a lot of these streams of income are contractual. State Farm is a 10-year deal. We have other large partnerships that are multi-year deals as well. Our underwriting partnerships are all 10 years or more. So we're with them for a while. And we don't have to sell one more policy to take advantage of the quota share laddered effect that I mentioned where next year would be 80%.

And that additional 10 points is just going to come through the bottom line without selling one more policy. So, you know, back to the marketing point, in our case, parts of our growth are needed to be supported by marketing because of the contractual nature of the insurance side. the investment side um and we'll invest in the insurance side as it relates to platform development systems just on an ongoing basis but the real fun part the exciting part is and i'll start with drive share investment we made back and made back in 2017 it's a peer-to-peer rental business where we have owners and most of the time they're clients, they're members that will actually offer one of their cars for rental in the specific market they live and we're across the U.S. And someone visiting Los Angeles might decide that they would like

to take a drive uh on the the pch uh they can go on the drive share website hegertydriveshare.com they can rent uh an mgb maybe they want to rent a c8 vet and for the weekend and uh enjoy a drive up and down the pch uh it's it's good margin business it's growing um we we rebranded it And we've invested in it in the last year or so. So we're very, very excited about DriveShare and how it can grow. It's a component of what we're calling Hagerty Marketplace, which we launched at the beginning of this year with our investment in Broad Arrow Group. We invested $15.2 million in 40% interest in this company. this company um will provide uh a series of products over time and we'll be announcing

them as they as they become ready uh this is a buy sell marketplace of which the drive share is a part there's a rent piece of it the drive share but the big the big opportunity is for us to take advantage of our data sets. And I'll get to that example in a minute and provide what our members are asking, which is, can you give us a trust-based platform to buy and sell collective vehicles? There are other sites out there that some have been successful, some have not. But in our case, we see that business with a very large runway. We estimate that in the U.S. alone, the transactional value of cars that are bought and sold in any one year can approximate $800 to $850 billion. And as an example, in 2021, our members, Hagerty's members, transacted 270,000 times at a transactional value of $9.6 billion that we saw in our systems and in our data that we didn't collect a dime on because we hadn't launched Marketplace.

Now that it is launched, we have the ability to start capturing the revenue flows from that book of business. There's really four businesses that are being developed, and then there's a fifth one that we've already developed and launched and announced. I'll start with the latter. That is Hagerty Classifieds. This is a classified site currently member-to-member only. So in order to participate, you have to register as a member. And we're very excited in terms of the initial take rate, in terms of how many people are putting their cars up for sale on the classified site and how many transactions have occurred. And it's only been up for about three weeks now, maybe four.

So very excited about that piece. um then the broad arrow group team brings really four businesses um one is live auctions uh and broad arrows team management team uh came from a very large auction um company um and joined and and created their own company we uh then had an opportunity to talk to them about how they might help integrity um and and so they are now partnering with us not only from an investment perspective but we've hired a few of their senior people to help us work through how we integrate live auctions uh digital auctions so think of virtual auctions which are becoming more and more successful um how do we then also integrate private treaty sales which is a third element

a third business. And then, believe it or not, a lot of our members and people, just enthusiasts in general, do need vehicle financing. And we think it should start at least initially at the higher end of the market, higher end cars. So think of anything over a couple hundred thousand dollars people will finance those purchases and we we've created a financing capability uh that's off our balance sheet so it's other you know other lenders balance sheets that we partner with uh that is providing the the loan uh and hagerty is um managing that process that financing process so you've got live auctions you've got virtual auctions you've got private treaty sales which is you know these are you and i getting together and just buying buying and

selling a car um at the high end of the market you know the more expensive cars a lot of a lot of those transactions occur so facilitating that uh we think has um has some uh some upside for us and then finally the financing piece so we're ecstatic that the team is here we are now able to talk about it you know we could not talk about it last year but it's been in development for quite a while now and we're happy to start launching elements of it in 2022 so i'm pumped about that really really excited about the marketplace yeah there's no one those uh new initiatives look really exciting uh i'm gonna end with because i know we're getting close on time here i want to wrap with the hard-hitting question are you a car collector yourself

i'm blessed that i'm able to do it yes i i have a c8 so i have a 2021 c8 convertible i have a cls 55 2000 it's 2009 so mercedes uh cls as well as a few others uh so yeah i'm a car guy okay all right well i think that's all the questions we have fred thank you for your time um listeners if you want to keep up with hagerty go to their website i really recommend checking out the DriveShare site. I thought it was really cool. They have good information on there. Yeah. But yeah, thanks again, Fred, for your time. I want to remind our listeners that Brett and I are not financial advisors. So anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital. So clients may have

positions in the securities discussed on this podcast. Thank you all for listening. We'll see you next time. you