Car enthusiasts’ insurer gets A- rating

Hagerty Re, which provides motor insurance to car enthusiasts, has been assigned an A- financial strength rating from AM Best.

The Bermuda-based company, which operates as a reinsurer for managing general agent Hagerty, has a strong balance sheet and operating performance, neutral business profile and appropriate enterprise risk, AM Best said.

Hagerty Re’s capitalisation also benefited from a $25 million capital increase in September 2023, through a 10-year non-amortising loan from State Farm Mutual Automobile Insurance Company.

AM Best said it views Hagerty Re’s business profile as neutral, adding: “Though the company is essentially a mono-line niche writer with a relatively small share of a larger market, Hagerty Re has dominant name recognition within the enthusiast vehicle space.

“Additionally, Hagerty Re partners with the world’s largest auto insurers, reducing competition within their market. These large primary insurers work with the company due to their unique expertise and data advantage in the space, which relies heavily on partnerships with specialty auto shops and their ability to source replacement parts.”

The ratings agency also praised the company’s operating performance, saying its combined rations were consistently below personal auto peer averages, providing the company with ample operating income year over year.

“The company’s underwriting profitability is driven partially by Hagerty Re’s underwriting and valuation expertise, superior claims handling ability, with a vast network of collector vehicle repair experts, a special investigation unit to deter fraudulent activity, and on-staff parts finders.

“The company’s underwriting performance drives the majority of its net income, as Hagerty Re’s investment allocation is almost entirely allocated to low-yielding cash investments. However, Hagerty Re is benefiting currently from higher interest rates, which AM Best expects to generate outsized returns in 2023 compared with prior years. Capital generation has historically been entirely reliant on underwriting activity.”

It added: “The outlook of these credit ratings is stable; it is AM Best’s expectation that Hagerty Re will continue to grow capital organically through favourable underwriting results, as well as investment income, to meet the capital demands of its growing book of business and maintain a strong level of risk-adjusted capitalisation.”