ハーガティ（HGTY）2026年第3四半期決算説明会：利益ガイダンスを引き上げ

主要なポイント

• 第3四半期の計上保険料は16%増加し、9ヶ月累計の計上保険料は価格改定ではなく契約数の増加が主因となり18%増加しました。
• 調整後EBITDAは第3四半期に9,700万ドル、9ヶ月累計で前年同期比43%増の2億5,700万ドルとなりました。年初来の業績は、見積もり損失が3,200万ドル減少したことが寄与しました。
• ハガティ・リの9ヶ月累計の合算比率は85.2%となりました。同社は第3四半期中に、当事故年度の見積もり損失を2,600万ドル削減しました。
• 経営陣は2026年通期の業績見通しを引き上げ、GAAP純利益を4,800万〜6,000万ドル、調整後EBITDAを3億500万〜3億1,500万ドルとしました。
• 「ステート・ファーム・クラシック・プラス」は41州の専属代理店を通じて提供可能となっており、四半期末時点でステート・ファームの既存のクラシックカー保険52万5,000件の移行が26州で進められていました。
• ブロード・アローの年初からのオークション売上高は83%増加しましたが、経営陣は最高級コレクターカー価格の最近の上昇ペースが鈍化する可能性があると注意を促しました。

主要財務データ

事業および営業業績

ハガティは2026年の最初の9ヶ月間で過去最高となる40万2,000人の新規会員を獲得しました。継続率は88%を維持し、経営陣は2030年までに有効保険契約数300万件に到達する目標に向けて順調に進んでいると述べました。

四半期末時点の有効保険契約数は190万件でした。AIによる通話要約やワークフロー自動化の導入により、サービスセンターの生産性は前年同期比で20%向上し、フルタイム従業員1人あたり2,800件の契約を担当する規模になりました。

ブロード・アローは市場シェアの拡大を継続しており、年初からのオークション売上高は83%増加しました。モントレー・オークションでは85%の落札率を達成しました。しかし、第3四半期のマーケットプレイス売上高は、販売価格の全額が売上高として計上される自社在庫車両の販売台数が減少したため減収となりました。

ハガティは10月8日、英国第2位のオートバイ専門保険ブローカーであるベネッツの買収を完了しました。経営陣は本買収について、欧州における保険、オークション、愛好家コミュニティモデルを展開するための基盤になると説明しました。

同社はまた、ハガティ・ドライバーズ・クラブの強化を図っています。2027年には無料または試用メンバーシップへのアクセス経路を拡大し、ハガティのメディア、マーケットプレイス、イベント、保険エコシステムの利用者をより多く有料会員に転換することを目指しています。

経営陣による業績見通し

ハガティは2026年通期の計上保険料の伸び率について、16%〜17%の予想レンジの上限付近になると見込んでいます。

経営陣は、年初からの業績と持続的な事業モメンタムを反映し、GAAP純利益の見通しを4,800万〜6,000万ドル、調整後EBITDAの見通しを3億500万〜3億1,500万ドルに引き上げました。

調整後EBITDAの見通しには、MGA買収コストの資産計上による5,200万ドルの恩恵が含まれています。経営陣は、この一時的な恩恵は9月30日までにほぼ完了しており、2027年に再現することはないと述べました。同社は計画策定プロセスが完了した後に2027年の見通しを公表する予定です。

リスクと注視点

• 経営陣は、一部の最高級コレクターカーの評価額が短期間で最大3倍に上昇しており、今後は伸び悩みや冷え込みが生じる可能性があると述べました。
• 高価格帯車両の台数が限定的であることや在庫販売のタイミングが報告される売上高に大きく影響するため、マーケットプレイスの業績は変動する可能性があります。
• 保険契約数の増加には季節性があり、通常、第2四半期と第3四半期は第1四半期や第4四半期よりも好調に推移します。
• ステート・ファームの保険契約移行のタイミングは、州や展開スケジュールによってばらつきが生じる可能性があります。
• 公表されたGAAP売上高は、マーケルのフロンティング移行および関連する連結相殺消去の影響により、過去の期間と直接比較することはできません。
• 2026年の調整後EBITDAに寄与した買収コスト資産計上による5,200万ドルの恩恵は、2027年には再現されません。

アナリスト質疑応答の要点

経営陣は、純増契約数が前四半期比で若干減速したことについて、解約率悪化を反映したものではないと説明しました。同社はこの要因を季節性とステート・ファームからの移行タイミングによるものとしています。

調整後EBITDA見通しの引き上げに関して、経営陣は中央値での約3,500万ドルの増加のうち2,600万ドルが第3四半期の見積もり損失引き下げに起因すると説明しました。残りの900万ドルは、力強い業績、コスト管理、および組み込まれた営業レバレッジを反映しています。

保険金請求について、経営陣は物損コストの低減、賠償責任請求頻度の低下、ならびに物損・特別調査チームへの投資を挙げました。保険査定・請求組織の規模は2年前と比較して40%近く拡大しています。

経営陣は、AIに起因する顧客の比較購買行動に顕著な変化はまだ見られないと述べました。それでも同社は、社内でAIを活用して生産性を向上させると同時に、消費者と代理店の双方をサポートする将来の見積・サービスシステムを設計しています。

ハガティは、4億6,100万ドルの現金残高について、季節的な資金積み上がりではなく、投資ポートフォリオの一部をより低格付けの信用リスク資産（クレジットカーブのより下位）に順次移行する際の取引タイミングを反映したものだと説明しました。

決算説明会全文の文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and thank you for standing by. Welcome to Hagerty Q3 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jay Koval, Head of Investor Relations. Please go ahead.

Jason Koval

Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third quarter of 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer.

During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation.

Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov.

The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I'll turn the call over to McKeel.

McKeel Hagerty

Thank you, Jay, and good morning, everyone. Fall is a bittersweet time of the year as the lees change color across North America. Cars go back into their garages for their winter slumber and much of the action in the car world moves indoors to the auction room.

We saw this with the 9 price records Broad Arrow set at The Quail auction in Monterey during the third quarter and strong gains at more recent auctions in October with Zoute in Belgium, up 35% and this past weekend at the Wynn Concour in Las Vegas, where sales jumped sevenfold from last year's inaugural auction. If you've never been to a live auction, I take you inside the room in this quarter's stockholder letter. And I hope one day, you will join us in person and raise a paddle. Fair warning, it can be habit forming.

We have built a thriving business around people's love of fun cars. You see it in the consistency of our mid-teens written premium growth and the quality of our underwriting over the years. The third quarter of 2026 was our 15th quarter in a row of meeting or beating expectations shown on Slides 3 and 4. Over the first 9 months of 2026, written premium grew 18% as we added a record 402,000 new members. Adjusted EBITDA jumped 43% to $257 million and net income was $32 million. These profit metrics benefited from our $32 million of lower estimated losses.

We have invested significantly in our claims teams, which is almost 40% larger than it was 2 years ago. And I want to thank them for the great work they are doing. Careful underwriting, members who take care of their special cars and favorable industry trends also contributed to these results. Given the strength of our year-to-date numbers, we are increasing our full year 2026 profit outlook, reflecting premium growth, strong retention and improved underwriting economics.

Patrick will share the details, but the key takeaway is that we are executing well on our strategy and remain on track to reach 3 million policies in force by 2030. One more milestone since the quarter ended. On October 8, we closed our acquisition of Bennetts, the second largest specialty motorcycle insurance broker in the United Kingdom. While modest in size, it is an important step for us. Together with Broad Arrow's growing presence there, it gives us a base to bring insurance, auctions and community together for motorcycle and car enthusiasts in Europe. I would like to give a warm Hagerty welcome to Bennett's employees and their members.

Looking ahead, I see 3 reasons growth should continue, how we reach members, the next generation of collectors and what Broad Arrow brings to Hagerty. B2B distribution with large carriers and a network of 54,000 independent agents complement our direct efforts and should support consistent high rates of growth. The State Farm Classic Plus rollout is progressing well with our captive agents now selling Hagerty-powered policies in 41 states.

And the conversion of State Farm's existing Classic book of 525,000 policies is tracking to plan with 26 states in process at quarter end. As we look to the B2B pipeline for 2028 and beyond, we are making solid progress deepening existing relationships and cultivating new ones and look forward to sharing updates over the coming quarters.

Beyond distribution gains, the market itself can provide tailwinds. While daily driver insurance companies underwrite to depreciating value curves, we underwrite collector cars that are positioned for modest appreciation over time. And collector car values have been moving higher this year, particularly at the high end. Total vehicle sales in Monterey in August across all auction houses reached a record $756 million, up 75% from the prior year.

Modern supercars and hypercars accounted for half of all sales with bidders from multiple continents and generations driving record prices. I have seen several peaks and troughs over the years, and I would not be surprised to see prices take a breather at some point after the sharp rise in 2026, but I believe the long-term trends on these increasingly scarce assets remains up and to the right. Why do I believe this? Heightened demand is partly the result of the generational shift we are seeing in our quote volume as Gen X, millennials and Gen Z now account for over 60% of our quotes. These younger cohorts are coveting the post 1980s cars of their youth, the same way boomers coveted 1960s, European race cars and American muscle cars.

Baby boomers remain an important driver of our growth. We recently met a Boomer collector at a September car show who owns an impressive portfolio of 14 British classics, including an Aston Martin DB 5, and Austin-Healey 3000 and a Jaguar E-type to name a few. But the car he chose to bring to the local car event was his newly acquired McLaren MP4. When asked, he told us the reason he loves Hagerty is that we not only protect his vintage collection of 1950s and '60s cars, but are also able to ensure a modern supercar like his McLaren.

Broad Arrow is benefiting from the demand across different age groups with year-to-date auction sales up 83%. The main driver of our results is the share we have gained since launching 5 years ago with the goal of becoming the trusted partner for car collectors. Similar to our insurance business, we are investing in Broad Arrow's capabilities because we intend to continue gaining share over the long run. Auctions are becoming an important channel for future members to first meet Hagerty. A buyer who takes home a car or a seller who trusts us with a consignment can become a policyholder, join Hagerty Drivers Club and come back for the next sale.

Retention of 88% and a Net Promoter Score roughly double the industry suggests those relationships tend to last. We want to make it easy for any new buyer of a collector car to insure with Hagerty. So we were pleased to see Barrett-Jackson name us as its official insurance partner. That is why we think of Broad Arrow as a customer acquisition and engagement platform for Hagerty in addition to being a great auction business. With that, I will turn it over to Patrick for details behind our strong third quarter.

Patrick McClymont

Thank you, McKeel, and good morning, everyone. Starting with Slides 5 and 6, we delivered written premium gains of 16% in the quarter and 18% during the first 9 months of the year. 2-year trends were steady in the third quarter as we compare against higher rates of growth from the second half of 2025. The increase is driven by policy count, not rate, as we continue adding high retention members attracted by our value proposition. As we described on prior calls, the 2026 GAAP presentation reflects the Markel fronting transition, where under the new structure, MGA commission revenue and the associated ceding commission expense eliminate against each other in consolidation. That is why reported year-to-date GAAP revenue of $1 billion declined 7%, even as written premium grew 18%.

Let me break down the components of our third quarter revenue. Earned premium grew 42% to $265 million due to written premium gains combined with the increase in our quota share to 100%. Commission and fee revenue for the quarter was $22 million. As noted, this line item is no longer comparable to prior periods given the elimination of Markel-related commissions and consolidation, but is ramping quickly as State Farm conversions progress.

Third quarter marketplace revenue declined 6% to $32 million. Auction growth of 65% was more than offset by lower inventory sales during the quarter. As a reminder, when we sell a car from our own inventory, we record the full sale price as revenue and the cost of the car as expense rather than just a commission. So revenue can swing more based on the level of inventory sales.

Marketplace's third quarter net loss improved by $3 million year-over-year. Monterey sell-through rates were 85% with the generational broadening McKeel described, helping drive demand at the high end. Membership and other revenue came in at $22 million with 6% growth in Hagerty Drivers Club paid memberships. Insurance members who are also HDC members retain and cross-purchase at higher rates. Net investment income was $13 million during the quarter, benefiting from our larger Hagerty Re portfolio and steady returns from the predominantly fixed income investments.

Turning now to profitability, shown on Slide 7 and 8. Hagerty Re's combined ratio came in at 85.2% during the first 9 months, helped by $32 million of lower estimated losses. This includes a $26 million reduction related to our current accident year recorded in the third quarter. This reflects lower physical damage costs and liability claims running below our estimates and is in addition to the $6 million favorable development of 2025 accident year losses that we recorded in the first quarter.

We believe the substantial investments in our in-house claims capabilities are helping contribute to the lower losses. As McKeel noted, we intentionally grew that team by 40%, including doubling the size of the material damage and special investigation units. Industry frequency trends have also been favorable, which has helped as well. One of Hagerty's biggest strengths is how our losses behave compared to daily driver insurers.

Our members take meticulous care of their cars. And when a storm is forecast, our team alerts them through our Guardian program. With enough notice, many move their cars to higher and drier ground, whether that's one of the garage spots we reserve for them or an inland parking lot.

High drive-away rates are a big reason our losses have consistently come in better than daily driver CAT models would predict and why reinsurers and AM Best value this lack of correlation with daily driver losses. Our loss ratios are much more stable than the industry's with roughly 35% lower volatility since 2010, which is also a compelling story for reinsurers as we formalize next year's program at attractive prices. While we've had an uneventful CAT season for the last 2 years, the percentage impact that hurricanes can have on our profitability continues to diminish as we scale up.

In 2024, Hurricanes Helene and Milton totaled $27 million against adjusted EBITDA of $162 million. And with the growth of our EBITDA since 2024, similarly sized events would have roughly half the impact on current profits. On the technology front, we are making meaningful investments in our platforms and artificial intelligence that should allow us to both serve members better and drive operating leverage.

Our member service center is a great example, where we now require just one full-time employee for every 2,800 policies in force. This is a 20% year-over-year productivity improvement across a book of 1.9 million policies. AI-assisted call summaries and workflow automation are handling tasks that previously required manual effort. This frees up our team to focus on the work only they can do, such as assisting a stranded member with a flatbed for their 1968 Camaro, helping a new member understand the difference between guaranteed value and actual cash value coverage and building the kind of relationship that turns a first-time auction buyer into a 20-year Hagerty member.

Our Net Promoter Score remains top of the field, and our members rate their experience 4.93 out of 5 stars on Trustpilot, and we intend to keep investing in the technology and people behind those scores. In the third quarter, adjusted EBITDA was $97 million, resulting in year-to-date adjusted EBITDA of $257 million, up 43%.

During the first 9 months, we have incurred $88 million in new acquisition expenses that were capitalized, of which only $36 million was recognized on the P&L, resulting in a benefit to our adjusted EBITDA of $52 million. In the third quarter, we recorded an income tax expense of $5 million compared to a $33 million benefit in the prior year period when we released a portion of the valuation allowance.

The change in tax was driven by non-reversing differences between taxable income and pretax book income related to the fronting arrangement. Chiefly the ceding commission Hagerty Re deducts on its tax return, but that we eliminate in consolidation. GAAP net income of $36 million in the third quarter includes $36 million of amortization of deferred ceding commissions for 2025-year policies.

Year-to-date GAAP net income of $32 million includes $189 million of amortization related to deferred ceding commissions paid to Markel for policies written prior to January 1, 2026. Net income attributable to Class A common shareholders in the third quarter was $8 million. GAAP basic and diluted earnings per share were both $0.08. Adjusted earnings per share based on 361 million fully diluted shares came in at $0.10. 9-month operating cash flow was $280 million, up 48% from the prior year period, reflecting significantly enhanced economics to Hagerty under the new structure and improved working capital. As of September 30, 2026, we had $461 million in unrestricted cash and total debt of $247 million, which includes $103 million from the back leverage facility for Broad Arrow's portfolio of collector car loans.

The balance sheet is in great shape with ample liquidity to fund high-return investments in organic growth, the Bennetts acquisition and ongoing technology investments. Let me close with our updated 2026 outlook, which we increased again shown on Slide 9. We anticipate 2026 written premium growth to come in at the high end of our 16% to 17% range.

We are raising our expectations for GAAP net income to a range of $48 million to $60 million and for adjusted EBITDA to a range of $305 million to $315 million, reflecting our year-to-date outperformance and sustained business momentum. This outlook includes the $52 million benefit from capitalizing MGA acquisition costs in 2026, a timing effect that is largely complete as of September 30 and will not repeat again in 2027. That wraps up our prepared remarks. Operator, we can open the line for questions.

Operator

[Operator Instructions] Our first question comes from the line of Charlie Lederer of BMO Capital Markets.

質疑応答

Charles Lederer

Congrats on the great results. Sorry to nitpick here a little bit, but if I look at the quarter-over-quarter net policy count growth, the net new PIF is slightly lower year-over-year, which is a little surprising just given the State Farm conversions, I would think would be more meaningful this year. It looks like it's maybe retention driven. Just wondering if you could update us on what you're seeing there.

Patrick McClymont

No, retention continues to be consistent with historical levels and right where we had planned it for. So there's no concerns on the retention front. On the PIF growth front, some of this is the seasonality, right? It's always going to be a little bit trickier to predict as we get deeper into the year. And some of it is the timing of state Farms.

We continue to roll out states, and we continue to move existing states into conversion. But that can be -- that can move around a bit depending on their schedule and rollouts. And so it can move. There's nothing that's giving us pause on that front.

Charles Lederer

Got it. And as my follow-up, we're seeing traditional home and auto insurance rates moderate and availability improve. And a lot of Hagerty's growth has come in some markets that were difficult or have been difficult in California and Florida. Obviously, you have a number of partnerships with the largest writers of these coverages. Should we think about this dynamic having a positive impact on your PIF and premium going forward? Or can you help us think that through?

McKeel Hagerty

Yes. This is McKeel. It's an excellent question. And as you know, we're -- because a decent amount of our new business is essentially downstream from these major partnerships that we have. And we're in a cycle where rates are softening. A lot of the big carriers are expressing softening new business growth.

We tend to be positioned really well in the sense that, again, retention is very strong. That's a big driver of how the book of business looks and especially given the fact that a very large amount of our new business is attributed to high Net Promoter Score customers referring new business to us. So while we're downstream from some of the softness in the larger P&C market, we tend to be, I think, holding pretty strong given the soft market.

Charles Lederer

And maybe just one last one, just on the -- in the marketplace business, just on your comments on the surge in prices at the top end, McKeel potentially taking a breather. Just wondering if you guys have a perspective or a view on how much of this quarter's or year-to-date marketplace revenues we should think about run rating or not think about run rating going forward?

Patrick McClymont

Yes. I think that was sort of the intent of the comment, right? So the very robust market continues, right? And that delivered for us really outstanding results in Las Vegas this past weekend, multiple world records. And so we're in that zone right now. I think we just recognize that for those type of cars, valuations are up in some cases, 3x in a relatively short period of time. And so it would be reasonable to expect that at some point that flattens and potentially, you could even see that cooling down a bit. So that's what we're communicating there. The overall market continues to be pretty stable for collector cars. We're going through our planning process right now for next year, and so we haven't finalized that yet. What I will say is it's similar to how we talk about private sales. You're talking about a relatively limited number of cars driving some pretty big outcomes in the market and for us specifically. And so as we look forward to 2027, the prudent thing to do is not to assume that, that will continue as it is certainly on the kind of the upward slope that it's on.

We haven't quite landed on what that means yet. We'll share that when we get together on the fourth quarter call and give guidance. But we don't want to plan for trees growing to the sky, right? We want to plan for what we think is sort of a more appropriate approach.

Operator

[Operator Instructions] Our next question comes from the line of Elyse Greenspan of Wells Fargo.

Elyse Greenspan

My first question, I guess it's just an accounting and somewhat a guidance question, right? So you guys have -- there was a $52 million benefit, right, this year from capitalizing right, some of those acquisition costs, and that goes away next year. So when we think about adjusted EBITDA, do we just kind of think about this $52 million somewhat being a headwind, right, relative when you put in place next year's guidance? And then can you just provide -- I mean, anything you want to provide just in terms of overall outlook on like EBITDA either from a growth or margin perspective when you think about '27? Or I guess, do you guys waiting for next quarter to give any '27 guidance?

Patrick McClymont

On the first one, yes, I think as you think about bridging 2026 to 2027, you should kind of start your 2026 by adjusting that out or treating it as a sort of a onetime item that was a tailwind this year that goes away next year. So that is the right way to think about that. And that's why we've been so clear about it all year long to make sure people understand that dynamic.

And then, yes, we're going to wait until the fourth quarter call and lay out guidance after we finished our planning process and have clarity on that. So no update right now.

Elyse Greenspan

And then going back to Charlie's question, I guess, on PIF, and you guys were alluding to, right, some seasonality. As we think about just like the fourth quarter and then like heading into the first part of '27, I guess, any seasonality you would just kind of highlight in terms of thinking about just PIF growth over the next few quarters?

Patrick McClymont

Yes. Well, I think you can -- we've given our written premium updated guidance, and so you can kind of derive from that what we think the fourth quarter looks like. And as you expect, it does slow down seasonally. No comments yet on next year other than the nature of our business is we're able to -- the driving season is the second and third quarters. Typically, the second is going to be the peak. And during the first and fourth, it's typically quieter from a new business standpoint. So we don't expect that to change.

Under the new accounting approach, right, there's much less seasonality in the revenues. You asked that question on the last call or the one before that, and you were spot on. And so the P&L looks different on a go-forward basis. But the underlying sales cycle is the same.

Operator

Our next question comes from the line of Michael Phillips of Oppenheimer.

Michael Phillips

You've been clear in the past about talking about investing well ahead of growth, but those costs probably wouldn't go away, I guess, as the business grows. I want to get a sense of, as we look past maybe '27 into the longer term, '28 and prior and after that, are we approaching a period where the earnings growth -- where those investments kind of flow track into earnings? Or do more investment opportunities to keep that spending growth kind of elevated?

Patrick McClymont

Well, we've talked about in terms of long term, and I guess we're 1.5 years into this or so, but doubling the business by 2030, right? And so that's in terms of the members that we serve. And we do -- we are investing to support that growth, and we'll continue to do so. If you look at the numbers, we've continued to expand margins since we began that journey sort of in 2023. And we'll see how this year wraps up, but we'll -- I expect that we're expanding margins again this year, which is what we guided to. And so it's a balancing act, right? We want to continue to march on a path to what we think is the right long-term margin structure for the business. But because we're deep enough into that path, we do have the flexibility to invest well ahead of growth. And that's a balancing act that our leadership team and McKeel and myself, we spend a lot of time on.

We're going through it right now for the planning process. If we want to keep growing for the long haul, not just double by 2030, but continue to have this be a growth business, there always will be opportunities to invest to support that growth. Our job is to strike that balance and kind of give you communications on a year-by-year basis, how we think the margins are trending.

Michael Phillips

Okay. Patrick. I guess I want to switch gears to the Enthusiast Plus program. I know it's small and it's in early stages, but I'm trying to get a sense of what the price sensitivity of that book might -- or those customers might be relative to your core book. I'm curious if there's any differences there, given obviously the soft market that traditional insurance is in, if those folks have more sensitivity to price, does that maybe make the early stages of growth for the Enthusiast Plus a little more difficult than what otherwise might be the case?

Patrick McClymont

I think the answer is it's too early to tell. We've been in one market for 1.5 years or so now. The other markets are just in the last handful of months. And so we're learning. We have launch in these markets. We're only doing direct as we've talked about direct-to-consumer. We're not doing anything through agents and brokers. So it's out in the wild on a limited basis, and we are learning, but it's too early to draw any conclusions.

Operator

[Operator Instructions] Our next question comes from the line of Kevin Wijendra of JPMorgan.

Kevin Wijendra

This is Kevin on for Pablo. There's been some fears on AI disrupting the personal auto market. And is there any impact you're seeing from AI on shopping trends so far? And if so, there's -- it looks like 55% of your sales comes through your agent channel. how is Hagerty positioned to deal with AI coming into the market?

McKeel Hagerty

It's the question of the hour, the month, every single conference I go to. The way we look at AI is it's really a layered approach. So the investments we're making in AI for our own purposes range from, as was described already in our previous comments, how we can assist our team members and how call flows work, all that sort of thing, whether those come from a direct consumer, whether they come from agents, just it's really amplifying the work that our great team members can already do. There's also the big great opportunities in the middle of this business, the sort of middleware part of the business, which is how we administer the organization itself, the efficiencies that we can find there.

And then from a real underlying basis, how is this going to help sort of transform insurance. And when I say help, I mean really help. Insurance is a business that can really, I think, benefit greatly from the opportunities that AI tools bring to it, the way you analyze data, the way that you process information, the way that you serve customers.

So, so far, we are not seeing some very different type of customer behavior based on them using AI to shop differently. We're not seeing it either on the direct or on the kind of B2B side of the house. But we're anticipating it. We know our future quoting engines and servicing engines are going to have to be capable of not only helping people on the other side of the transaction, but also to be able to help agents on the other side of the transaction. And so we're designing for it. We're building it in. And we're already seeing some benefit with the internal in those kind of 3-layered approach that we have, but we're really preparing for that future you're describing.

Operator

[Operator Instructions] Our next question comes from the line of Mark Hughes of Truist.

Mark Hughes

With the better loss experience, it sounds like you're doing really well with the internal claims capability. Is there a potential for loss picks potentially to be a little bit lower?

Patrick McClymont

Yes. We'll tell you when we tell you, Mark. We're going through that process now, and we'll share guidance on the fourth quarter call. We are pleased with both sort of our internal performance and then obviously, the market trends as we've talked about. And so that's part of our consideration set as we do the plan for next year, but nothing to preview right now.

Mark Hughes

Yes. Okay. Very good. When you think about the improved performance on the liability claims, you just alluded to the fact that you're seeing broader market improvement. I'm not sure if it's the liability specifically, but anything you could say about that seems significant. Just sort of curious what your experience might be telling you on the liability front.

McKeel Hagerty

Yes, I mean, a lot of what we talked about in the remarks are how we've been investing on the physical damage side or material damage side of the business, and that includes -- and also on the SIU standpoint. So we've been boosting our capabilities on material damage, which is how we internally adjust our losses and work with repair shops, restoration shops to get our members' cars back on the road.

The SIU, which is, of course, special investigative stuff is really meant to make sure that we're managing our results by carefully looking at losses to make sure that they are -- that there's no fraud involved with them. You cannot price for fraud in insurance. So you have to be really careful when you identify instances of it. We're really proud of the teams really having millions of dollars of benefit to the business as we're being very, very careful with it.

On the liability side, frequency is down. So it's a unique thing that's happening right now post COVID when there was a lot of people out driving, a lot of people buying all sorts of cars. Frequency is down. And so that does have a downstream impact, of course, in liability losses. But I would also say, even though we -- the rate increases that we have taken, and as we've described to you in the past, the rates that we have taken, while modest in comparison to daily driver insurance, many of the rate increases were targeted in the lines of liability. Those are the areas that there are a lot of elements to liability claims that are out of our control, whether it's when you're talking about tort-type situations or other legal situations where we just kind of get wrapped up in things. So I think we're targeting the right things with the modest rate increases that we take, and we're focused on the other things that we can really control, which is material damage and SIU.

Operator

Operator Instructions] Our next question comes from the line of Mitchell Rubin of Raymond James.

Mitchell Rubin

This is Mitch on for Greg. On Slide 4, you identify refining the drivers Club offering as a priority. What changes are you making? And how do you see its role within the broader Hagerty business evolving?

McKeel Hagerty

It's a great question, one I'm very passionate about. I think one of the things that differentiates Hagerty is how we treat our members. And when we say member, it's not just a throwaway term. It's really welcoming them into our ecosystem as somebody we care about, somebody that we're -- we understand. They're not just a car owner ideally that insures with us, but they may be browsing on our marketplace. They may be buying a Broad Arrow site. They may be buying a ticket to one of our events or they're reading our media.

So the big thing for us is how do we bring the maximum amount of people who are already consuming some part of the Hagerty ecosystem, but perhaps not even insurance and how do we make them a member. And that really -- that will -- the design change will really emphasize how we can bring people in as ideally a premember or a trial member as they come into Hagerty Drivers Club. And then for those who want to pay for the paid levels, of Hagerty Drivers Club over time, that's very, very easy for them to do. Ideally, that attaches to an insurance policy. It's great when we insure cars and then also make them a paid member. But we really need that HDC benefit that we're already investing in and is already being consumed by a lot of people to bring more people into the door in that free or trial membership basis. So that's the design change, and we look forward to rolling more of that out next year.

Mitchell Rubin

I appreciate the color. How are the investments in your independent agent channel translating into new business production? And where do you see the biggest opportunity to increase productivity?

McKeel Hagerty

I mean this is really a big investment in the team. So we have some incredible new leadership in the insurance side in this channel. So Jeff Briglia,, who's the President of our Insurance business, has recruited really an A-level team, Adam Van Loon, who comes to us with like an incredible career of experience in building out these types of channels. So when I think of this side of the business, of course, you've got the big partnerships we have with the big company underwriting carriers like the State Farm, Allstate, Progressive and down the line. But we already mentioned we have 54,000 agents that we're working with that are just many times just Main Street agents with access to great customers.

So one of our big jobs there is to be segmenting that business, focusing on the agents that are really growing, where we know that there's opportunities using data resources to help them understand that as the vehicles that we're seeing coming in per se, in the direct channel are getting newer with younger collectors more interested in these newer vehicle segments.

Our job is to make sure that we're communicating that to agents. We're helping them understand that there's a lot of that opportunity in their own books of businesses already. And so it's a big communications opportunity, a big communications challenge. And it's really, in my mind, the ground war that's going to help us on this path to doubling the business by 2030 and to keep that trajectory strong out past into the 2030s. So a very important part of our growth strategy.

Operator

Our last question comes from the line of Tommy McJoynt of KBW.

Thomas Mcjoynt-Griffith

When we look at the full year adjusted EBITDA guide, so it increased by about $35 million at the midpoint. In your guys' own internal projections, was the improvement this quarter entirely driven by the better loss and claims experiencing loss ratio? Or was there anything else on the operating expense side or revenue side that allowed you to raise the full year guide?

Patrick McClymont

I think you talked about the $35 million is the increase, right? And so $26 million of that is what we released in this quarter. And so the other $9 million are strong operations within the business. And that's -- the way we think about that is a fair bit of that is the fact that there is operating leverage inherent in the business, and we are being disciplined and we're making investments that we talked about earlier on the call, but we're also being disciplined in terms of our cost structure and our headcount. And so that leverage is working. And so it's not entirely the reserve releases. There's other benefits in the business that are flowing through.

Thomas Mcjoynt-Griffith

Okay. Got it. And then looking at the balance sheet, the cash balance has ballooned here to $460 million at the end of the third quarter. Is there any seasonality to why that build happened? Or if not, what do you have any plans for how you think about deploying some of that cash?

Patrick McClymont

It's just a timing thing. We are evolving our investment strategy, as we've talked about. We're modestly moving into riskier assets. That's going to be primarily things like credit investments that are a little bit further down the credit curve from our historical approach. And so at quarter end, we had -- we're halfway through a couple of transactions on that front. And so it shows up that it's in cash, but it will move into investments. So there's -- it's not seasonality. It's just literally timing of execution of that strategy.

Operator

This concludes the question-and-answer session. I would now like to turn it back to McKeel for closing remarks.

McKeel Hagerty

Thank you, operator, and thanks to everyone on the call for your continued support. I want to close by coming back to where we started this morning. People love to drive fun cars. These cars are passion projects, identity markers and a source of great memories. Our job is to understand what these cars mean to our members and to take excellent care of them. When I think about why this business works so well, I think about the 1967 Porche 911S that my father and I restored together. I've heard many similar stories of parents rebuilding cars in the garage with their kids, of a newcomer to the U.S. who saved up to buy a muscle car they first saw on an American television show of the Gen X buyer who finally found that clean Toyota Supra, they cannot afford in college.

After 4 decades in the car world, I believe we are just beginning to capitalize on our opportunity. We ensure less than 8% of the 36 million vehicle target market in the U.S. today, and there is also a large opportunity for us across the Atlantic. We are fortunate to operate in a niche that happens to be quite large, and I am optimistic about the road ahead as we keep reinvesting in our members. Thank you to One Team Hagerty. These results are yours. I am proud of every one of you, and I cannot wait to see what this team delivers in the final stretch of 2026. Until then, never stop driving.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.