HAGERTY, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide the reader of the financial statements with a
narrative from the perspective of management on the financial condition, results
of operations, liquidity and certain other factors that may affect our operating
results. The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Condensed
Consolidated Financial Statements and related Notes included in Item 1 of Part I
of this Quarterly Report on Form 10-Q. In addition to historical financial
information, the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual
results and timing of selected events may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those discussed within Part II, Item 1A -"Risk Factors" in this
Quarterly Report on Form 10-Q and in Part I, Item 1A. "Risk Factors" of our
Annual Report on Form 10­K for the year ended December 31, 2021, filed on March
24, 2022.

Unless otherwise indicated or the context otherwise requires, references in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" to "we", "our", "Hagerty" and "the Company" refer to the business
and operations of The Hagerty Group, LLC and its consolidated subsidiaries prior
to the Business Combination and to Hagerty, Inc. and its consolidated
subsidiaries, following the consummation of the Business Combination.

Overview

We are a global market leader in providing insurance for classic and enthusiast
vehicles and we have built an industry-leading automotive enthusiast platform
that engages, entertains, and connects with subscribing members. At Hagerty,
everything begins and ends with the love of cars - an innate passion that fuels
our unique membership model and cultivates deep, personal connections with more
than 2.5 million members worldwide.

Hagerty was founded in 1984, and initially focused on providing insurance
coverage for antique boats. Today, our goal is to scale an organization capable
of building an ecosystem of products, services, and entertainment for car lovers
that catalyzes their passion for cars and driving.

Recent Developments Affecting Comparability

Business Combination

On December 2, 2021, The Hagerty Group completed a business combination pursuant
to the Business Combination Agreement with Aldel and Merger Sub. In connection
with the Closing, Aldel changed its name from Aldel Financial Inc. to Hagerty,
Inc.

Following the Closing, Hagerty, Inc. is organized as a C corporation and owns an
equity interest in The Hagerty Group in what is commonly known as an "Up-C"
structure. Under this structure, substantially all of Hagerty, Inc.'s assets and
liabilities are held by The Hagerty Group. As of March 31, 2022, Hagerty, Inc.
owned 24.7% of The Hagerty Group, HHC owned 52.8%, and Markel owned 23.4%.

Refer to Note 1 - Summary of Significant Accounting Policies and New Accounting
Standards and Note 4 - Business Combination in Item 1 of Part I of this
Quarterly Report on Form 10-Q for additional information on the Business
Combination.

Impact of COVID-19

In March 2020, the World Health Organization declared COVID-19 a pandemic. The
pandemic has impacted every geography in which we operate. Governments
implemented various restrictions around the world, including closure of
non-essential businesses, travel, shelter-in-place requirements for citizens and
other restrictions.

In response to COVID-19, we have taken several precautionary steps to safeguard
our business and team members from COVID-19, including implementing travel
restrictions, arranging work from home capabilities and flexible work policies.
The safety and well-being of our team members continues to be our top priority.
As restrictions were put in place, our employees were able to transition to a
work from home environment quickly and effectively due to our prior technology
investments. During the three months ended March 31, 2022, new business growth
returned to pre-pandemic pace, events were being held and new initiatives were
on track. Management will continue to follow and monitor guidelines in each
jurisdiction.

                                       35
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Key Performance Indicators and Certain Non-GAAP Financial Measures

In addition to the measures presented in our Condensed Consolidated Financial
Statements, we use the following key performance indicators and certain non-GAAP
financial measures to evaluate our business, measure our performance, identify
trends in our business against planned initiatives, prepare financial
projections and make strategic decisions. We believe these financial and
operational measures are useful in evaluating our performance when read together
with our financial results prepared in accordance with GAAP. The following table
presents these metrics as of and for the periods presented:

                                                                            

Three months ended March 31,

                                                                      2022                                 2021
Total Revenue (in thousands)                                        $167,811                             $129,200
New Business Count (Insurance)                                       47,514                               51,799
Total Written Premium (in thousands)                                $154,790                             $133,707
Policies in Force Retention (end of period)                           88.9%                                90.0%
Loss Ratio                                                            41.4%                                41.4%
HDC Paid Member Count (end of period)                                727,010                              666,609
Net Promoter Score (NPS)                                              82.0                                 82.0
Net Income (Loss) (in thousands)                                     $15,866                             $(6,851)
Adjusted EBITDA (in thousands)                                      $(5,959)                              $1,039
Basic Earnings (Loss) Per Share                                       $0.33                                 N/A
Adjusted Earnings (Loss) Per Share                                    $0.04                                 N/A
Operating Income (Loss) (in thousands)                              $(13,004)                            $(5,096)
Contribution Margin (in thousands)                                   $37,146                              $31,080



New Business Count

New Business Count represents the number of new insurance policies issued during
the applicable period. We view new business count as an important metric to
assess our financial performance because it is critical to achieving our growth
objectives. While Hagerty benefits from strong renewal retention, new business
policies more than offset those cancelled or non-renewed at expiration. Often
new policies mean new relationships and an opportunity to sell additional
products and services.

Total Written Premium

Total Written Premium is the total amount of insurance premium written on
policies that were bound by our insurance carrier partners during the applicable
period. We view Total Written Premium as an important metric, as it most closely
correlates with our growth in insurance commission revenue and Hagerty Re earned
premium. Total Written Premium excludes the impact of premium assumed by
unrelated third-party reinsurers and therefore reflects the actual business
volume and direct economic benefit generated from our customer acquisition
efforts. Premiums ceded to reinsurers can change based on the type and mix of
reinsurance structures we deploy.

Policies in Force Retention

Policies in Force (PIF) Retention is the percentage of current period policies
that are renewed on the policy renewal date. We view PIF Retention as an
important measurement of the number of policies retained each year, which
contributes to recurring revenue streams from MGA commissions, membership fees
and earned premiums. It also contributes to maintaining our NPS as discussed
below.

Loss Ratio

Loss Ratio, expressed as a percentage, is the ratio of (1) losses and loss
adjustment expenses incurred to (2) earned premium in Hagerty Re. We view Loss
Ratio as an important metric because it is a powerful benchmark for
profitability. The benchmark allows us to evaluate our historical loss patterns
including incurred losses, reset insurance pricing dynamics and make necessary
and appropriate adjustments.

                                       36
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
HDC Paid Member Count

HDC Paid Member Count is the number of current members who pay an annual
membership subscription as of an applicable period end date. We view HDC Paid
Member Count as important because it helps us measure membership revenue growth
and provides an opportunity to customize our value proposition and benefits to
specific types of enthusiasts, both by demographic and vehicle interest.

Net Promoter Score

We use NPS as our "north star metric," measuring the overall strength of our
relationship with members. NPS is measured twice annually through a web-based
survey sent by email invitation to a random sample of existing members, and
reported annually using an average of the two surveys. Often referred to as a
barometer of brand loyalty and customer engagement, NPS is well-known in our
industry as a strong indicator of growth and retention.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) (the most directly comparable
GAAP measure) before interest, income taxes, and depreciation and amortization
(EBITDA), adjusted to exclude changes in fair value of warrant liabilities,
gains and losses from asset disposals and certain other non-recurring gains and
losses. We present Adjusted EBITDA because we consider it to be an important
supplemental measure of our performance and believe it is frequently used by
securities analysts, investors, and other interested parties in the evaluation
of companies in our industry.

Our management uses Adjusted EBITDA:

•as a measurement of operating performance of our business on a consistent
basis, as it removes the impact of items not directly resulting from our core
operations;

•for planning purposes, including the preparation of our internal annual
operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies;

•to evaluate our capacity to expand our business;

•as a performance factor in measuring performance under our executive
compensation plan; and

•as a preferred predictor of core operating performance, comparisons to prior
periods and competitive positioning.

By providing this non-GAAP financial measure, together with a reconciliation to
the most directly comparable GAAP measure, we believe we are enhancing
investors' understanding of our business and our results of operations, as well
as assisting investors in evaluating how well we are executing our strategic
initiatives. However, Adjusted EBITDA has limitations as an analytical tool, and
should not be considered in isolation, or as an alternative to, or a substitute
for net income (loss) or other financial statement data presented in our
condensed consolidated financial statements as indicators of financial
performance. Some of these limitations include:

•Adjusted EBITDA does not reflect our cash expenditures, or future requirements
for capital expenditures, or contractual commitments;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;

•Adjusted EBITDA does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;

•Adjusted EBITDA does not reflect our tax expense or the cash requirements to
pay our taxes; and

•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future and such
measures does not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate Adjusted EBITDA differently than
we do, limiting its usefulness as a comparative measure.

                                       37
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Due to these limitations, Adjusted EBITDA should not be considered in isolation,
or as an alternative to, or a substitute for net income (loss) or other
financial statement data presented in our condensed consolidated financial
statements as indicators of financial performance. The following table
reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which
is Net income (loss):

                                                         Three months ended March 31,
                                                              2022                    2021

                                                                 in thousands
Net income (loss)                                 $        15,866                  $ (6,851)
Interest and other (income) expense                           684                       437
Income tax expense                                          2,030                     1,318
Depreciation and amortization                               7,147                     4,371
Change in fair value of warrant liabilities               (31,686)                        -
Net (gain) loss from asset disposals                            -                     1,764
Adjusted EBITDA                                   $        (5,959)                 $  1,039



We incurred $9.3 million and $7.0 million during the three months ended
March 31, 2022 and 2021, respectively, for certain pre-revenue costs related to
scaling our infrastructure, newly-developed digital platforms and legacy
systems, human resources and occupancy to accommodate our alliance with State
Farm and potentially other distribution partnerships as well as to further
develop our Hagerty Marketplace transactional platform. These costs were not
included in the Adjusted EBITDA reconciliation above.

Pursuant to a defined set of activities and objectives, these expenses are
adding entirely new capabilities for us, integrating our new and legacy
policyholder, membership and Hagerty Marketplace systems with State Farm's
legacy policy and agent management systems and other third-party platforms. In
addition to onboarding a third-party project management related to these
initiatives, we leased a new member service center in Dublin, Ohio and added
several hundred new employees as of March 31, 2022 to meet the expected
transactional volume from these initiatives.

These costs commenced in 2020 and are expected to be substantially completed in
2023.

Adjusted EPS

We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated
Net income (loss) that is attributable to both our controlling and
non-controlling interest of $15.9 million divided by the outstanding and
potentially dilutive shares of Hagerty, Inc. (353.0 million shares) which
includes (1) the weighted average issued and outstanding shares of Class A
Common Stock, (2) all issued and outstanding shares of Class V Common Stock, and
(3) all un-exercised warrants.

The most directly comparable GAAP measure is basic earnings per share ("Basic
EPS"), which is calculated as Net income (loss) attributable to only controlling
interest in Hagerty, Inc. of $27.5 million divided by the weighted average
issued and outstanding shares of Class A Common Stock (82.4 million shares).

In accordance with ASC 260, for periods in which we report a net loss to
stockholders, diluted EPS would be the same as Basic EPS, because dilutive
common shares are not assumed to have been issued if their effect is
anti-dilutive. As a result, in periods where we report a net loss attributable
to controlling interest, such as during the year ended December 31, 2021, EPS
did not need to be differentiated between basic or diluted EPS because both
basic and diluted EPS were the same. In periods where we report net income
attributable to controlling interest, such as the three months ended March 31,
2022, we believe that Basic EPS is the most comparable GAAP measure to Adjusted
EPS.

We caution investors that Adjusted EPS is not a recognized measure under GAAP
and should not be considered in isolation or as a substitute for, or superior
to, the financial information prepared and presented in accordance with GAAP,
including Basic EPS, and that Adjusted EPS, as we define it, may be defined or
calculated differently by other companies. In addition, Adjusted EPS has
limitations as an analytical tool and should not be considered as a measure of
profit or loss per share.

We present Adjusted EPS because we consider it to be an important supplemental
measure of our operating performance and believe it is used by investors and
securities analysts in evaluating the consolidated performance of other
companies in our industry. We also believe that Adjusted EPS, which compares our
consolidated net loss (which includes our controlling and non-controlling
interest) with our outstanding and potentially dilutive shares, provides useful
information to investors regarding our performance on a fully consolidated
basis.

                                       38
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Our management uses Adjusted EPS:

•as a measurement of operating performance of our business on a fully
consolidated basis;

•to evaluate the performance and effectiveness of our operational strategies;

•to evaluate our capacity to expand our business; and

•as a preferred predictor of core operating performance, comparisons to prior
periods and competitive positioning.

The following table reconciles Adjusted EPS to the most directly comparable GAAP
measure, which is Basic EPS:

                                                                                   in thousands
                                                                                 (except per share
                                                                                     amounts)
Numerator:
Net income (loss) attributable to controlling interest(1)                       $         27,507
Net income (loss) attributable to non-controlling interest                               (11,641)
Consolidated net income (loss)(2)                                           

$ 15,866

Denominator:

Weighted-average shares of Class A Common Stock outstanding:
Basic(1)

                                                                                  82,433
Potentially dilutive shares outstanding:
Class V Common Stock outstanding                                                         251,034
Warrants outstanding                                                                      19,484
Potentially dilutive shares outstanding                                                  270,518
Fully dilutive shares outstanding(2)                                                     352,951

Basic EPS = (Net income (loss) attributable to controlling interest /
Weighted-average shares of Class A Common Stock outstanding)(1)

                 $           0.33

Adjusted EPS = (Consolidated net income (loss) / Fully dilutive shares
outstanding)(2)

                                                                 $           0.04

(1) Numerator and Denominator of the GAAP measure Basic EPS
(2) Numerator and Denominator of the non-GAAP measure Adjusted EPS

Contribution Margin

We define Contribution Margin as total revenue less operating expense adding
back our fixed operating expenses such as depreciation and amortization, general
and administrative costs and shared service salaries and benefits expenses. We
define Contribution Margin Ratio as Contribution Margin divided by total
revenue.

We present Contribution Margin and Contribution Margin Ratio because we consider
them to be important supplemental measures of our performance and believe that
these non-GAAP financial measures are useful to investors for period-to-period
comparisons of our business and in understanding and evaluating our operating
results.

We caution investors that Contribution Margin and Contribution Margin Ratio are
not recognized measures under GAAP and should not be considered in isolation or
as a substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP, and that Contribution Margin and Contribution
Margin Ratio, as we define them, may be defined or calculated differently by
other companies. In addition, both Contribution Margin and Contribution Margin
Ratio have limitations as analytical tools because they exclude certain
significant recurring expenses of our business.

                                       39
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Our management uses Contribution Margin and Contribution Margin Ratio to:

•analyze the relationship between cost, volume and profit as revenue grows;

•measure how much profit is earned for any product or service sold; and

•measure how different management actions could affect the Company's total
revenue and related cost levels.

The following table reconciles Contribution Margin and Contribution Margin Ratio
to the most directly comparable GAAP measures, which are Operating income (loss)
and Operating income (loss) margin (Operating income (loss) divided by Total
revenue), respectively:

                                        Three months ended March 31,
                                        2022                       2021

                                     in thousands (except percentages)
Total revenue                    $      167,811                $ 129,200
Less: total operating expenses          180,815                  134,296
Operating income (loss)          $      (13,004)               $  (5,096)
Operating income (loss) margin               (8)  %                   (4) %

Add: fixed operating expenses    $       50,150                $  36,176
Contribution Margin              $       37,146                $  31,080
Contribution Margin Ratio                    22   %                   24  %

Key Factors and Trends Affecting our Operating Performance

Our financial condition and results of operations have been, and will continue
to be, affected by a number of factors, including the following:

Our Ability to Attract Members

Our long-term growth will depend, in large part, on our continued ability to
attract new members to our platform. Our growth strategy is centered around
accelerating our existing position in markets that we already serve, expanding
into new markets domestically across the U.S., internationally in Canada and the
U.K. and eventually the E.U., digital innovation and developing new strategic
insurance and lifestyle partnerships with key players in the automotive
industry.

Our Ability to Retain Members

Turning our members into lifetime fans is key to our success. We currently have
over 2.5 million members, including approximately 727,000 paid subscribers ("HDC
Members") and over 1.7 million who purchase insurance or interact with us but
have yet to join HDC and receive additional club-level benefits. Our ability to
retain members will depend on a number of factors including our NPS and members'
satisfaction with our products, pricing and offerings of our competitors.

Our Ability to Increase HDC Membership Subscriptions

Our long-term growth will benefit from our ability to increase our HDC
membership subscription base across the U.S., Canada and into the U.K. and the
E.U. We realize increasing value from each HDC Member who signs up with us or is
retained as a recurring revenue base, forming the basis for organic growth for
our new product offerings and improving our loss ratios over time. One of our
principal goals is to convert all of our members who are not currently HDC
Members to paid subscribers over time. We apply our highly scalable model, with
a tailored approach to each enthusiast type across all demographic groups.

We are also able to drive membership in HDC through our insurance distribution
channels. Approximately 75% of new insurance policy holders purchase memberships
in HDC.

                                       40
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Our Ability to Introduce New and Innovative Products

Our growth will depend on our ability to introduce new and innovative insurance
and automotive lifestyle products that will drive organic growth from our
existing member base as well as attract new customers. Our insurance offerings
as well as our membership and Hagerty Marketplace technology platforms provide
us with a foundation to expand our insurance and membership base, engage auto
enthusiasts and provide innovative products to members globally.

Our Ability to Manage Risk Through Our Technology

Risk is managed through our technology, proprietary algorithms, underwriting and
claims practices, data science and regulatory compliance capabilities, which we
use to determine the risk profiles of our members. Our ability to manage risk is
enhanced and controlled over time as data is continuously collected and analyzed
by our algorithms with the objective of lowering our loss ratios over time. Our
success depends on our ability to adequately and competitively price risk.

Our Ability to Manage Growth Related to Our Strategic Alliances

We have strategic alliances with several insurance carriers that we expect to
serve as a key driver in our growth in commission and fee revenue. For example,
we expect State Farm to begin offering our features and services to its
customers in late 2022, which we expect will begin to drive additional
commission and fee revenue.

Our Ability to Grow Quota Share

Hagerty Re's 2021 quota share of business assumed from Markel in the U.S. and
U.K. was 60%. The quota share percentage increased to 70% in 2022 and will
increase to 80% in 2023 and the years thereafter under a contract with Markel.
The increase in quota share will have the effect of increasing our revenue,
which will partially be offset by increases in our underwriting costs.

Components of Our Results of Operations

Revenue

We primarily generate revenue from the sale of automotive insurance policies and
HDC membership subscriptions as well as from participating in the underwriting
results on policies written by our insurance carrier partners. Our revenue model
incorporates multiple components in the insurance and lifestyle value chains,
built on data collection and member experience.

Commission and fee revenue

Our insurance affiliated intermediaries act as MGAs who, among other things,
write collector vehicle business on behalf of the insurance carrier partners. In
exchange for commissions paid by the insurance carrier partners, we generally
handle all sales, marketing, pricing, underwriting, policy administration and
fulfillment, billing and claim services. In addition, we also manage all aspects
of our omnichannel distribution, both direct and brokerage, including
independent agencies, national sales accounts, large agency and broker networks
and national partner relationships.

We earn new and renewal commissions for the distribution and servicing of
classic automobile and boat insurance policies written through personal and
commercial lines with multiple insurance carrier partners in the U.S., Canada
and the U.K. Additionally, policyholders pay fees directly to us related to
their insurance coverage. These commissions and fees are earned when the policy
becomes effective, net of policy changes and cancellations.

For policies that have elected to pay via installment plan, revenue is
recognized on the policy effective date as the insured becomes fully entitled to
the policy benefits, regardless of when payment is collected. Our performance
obligation to the insurance carrier partner is complete when the policy is
issued.

Under the terms of many of its contracts with insurance carrier partners, we
have the opportunity to earn an annual CUC, or profit-share, based on the
calendar-year performance of the insurance book of business with each of those
insurance carrier partners. Our CUC agreements are based on written or earned
premium and loss ratio results. Each insurance carrier partner contract and
related CUC is calculated independently. Revenue from CUC is accrued throughout
the year and settled annually.

Earned premium

Reinsurance premiums are earned by our single cell captive reinsurance company,
Hagerty Re. Hagerty Re reinsures the classic auto and marine risks written
through our affiliated MGAs in the U.S., Canada and the U.K. Hagerty Re is a
Bermuda-domiciled, Class 3A reinsurer. Hagerty Re was funded in December 2016
and was granted a license by the BMA in March 2017.
                                       41

--------------------------------------------------------------------------------

TABLE OF CONTENTS

Earned premium represents the earned portion of gross written premiums that
Hagerty Re has assumed under quota share reinsurance agreements with our
insurance carrier partners. Earned premium is recognized over the term of the
policy, which is generally 12 months.

Membership and other revenue

We earn subscription revenue and other revenue through membership offerings and
other automotive and lifestyle services sold to policyholders and classic
vehicle enthusiasts. HDC memberships are sold as a bundled product which give
members access to our products and services, including HDC Magazine, automotive
enthusiast events, our proprietary vehicle valuation tool, emergency roadside
services and special vehicle-related discounts. Hagerty Garage + Social storage
memberships include storage in addition to the HDC member benefits. Income from
the sale of HDC and storage membership subscriptions is recognized ratably over
the period of the membership, which is generally 12 months. Other revenue
includes advertising sales, admission income, sponsorships, event registration
fees, valuation services, merchandise sales and DriveShare rentals. Other
revenue is recognized when the performance obligation for the related product or
service is satisfied.

Costs and Expenses

Our costs and expenses consist of salaries and benefits paid to employees,
ceding commissions, losses and loss adjustment expenses paid to insurance
carrier partners, sales expenses, general and administrative services,
depreciation and amortization, change in fair value of warrant liabilities and
income tax expense.

Salaries and benefits

Salaries and benefits consist primarily of costs related to employee
compensation, payroll taxes, employee benefits and employee development costs.
Employee compensation includes wages paid to employees as well as various
incentive compensation plans. Employee benefits include the costs of various
employee benefits plans including medical and dental insurance, wellness
benefits and others. Costs related to employee education, training and
recruiting are included in employee development costs. Salaries and benefits
costs are expensed as incurred except for those costs which are required to be
capitalized, which are then amortized over the useful life of the asset created
(generally software or media content). Salaries and benefits are expected to
increase over time as the business continues to grow, but will likely decrease
as a percent of revenue.

Ceding commission

Ceding commission consists of the commission paid by Hagerty Re to our insurance
carrier partners for our pro-rata share of acquisition costs (primarily our MGA
commissions), general and administrative services and other costs. Hagerty Re
pays a fixed rate ceding commission which varies by insurance carrier partner,
averaging 48% of net earned premium for the three months ended March 31, 2022.
Ceding commission will change proportionately to earned premium assumed through
our various quota share reinsurance agreements.

Losses and loss adjustment expenses

Losses and loss adjustment expenses represent our share of losses assumed
through various reinsurance agreements and includes our portion of the net cost
to settle claims submitted by insureds. Losses consist of claims paid, case
reserves and losses, IBNR, net of estimated recoveries for reinsurance, salvage
and subrogation. Loss adjustment expenses consist of the cost associated with
the investigation and settling of claims. Losses and loss adjustment expenses
represent management's best estimate of ultimate net loss at the financial
statement date. Estimates are made using statistical analysis by our internal
actuarial team. These reserves are reviewed regularly and adjusted as necessary
to reflect management's estimate of the ultimate cost of losses and loss
adjustment expenses.

Our reinsurance contracts are quota share reinsurance agreements on the business
underwritten by our MGAs. These expenses are expected to grow proportionately
with written premium and increase as the quota share percentage contractually
increases.

                                       42
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Sales expense

Sales expense includes costs related to the sales and servicing of a policy,
primarily broker expense, cost of sales, promotion expense and travel and
entertainment expenses. Cost of sales includes postage, document costs, payment
processing fees, emergency roadside service costs and other variable costs
associated with the sale and servicing of a policy. Broker expense is the
compensation paid to our agent partners and national broker partners when an
insurance policy is written through a broker relationship. Promotion expense
includes various expenses related to branding, events, advertising, marketing,
and acquisition. Sales expenses, in general, are expensed as incurred and will
likely increase as we continue to grow. Broker expense and cost of sales will
likely track with written premium growth, while promotion expense and travel and
entertainment expense will decrease as a percent of revenue over the long term.

General and administrative services

General and administrative services consist of occupancy costs, hardware and
software, consulting services, legal and accounting services, community
relations and non-income taxes. These costs are expensed as incurred. We expect
this expense category to increase commensurate with our expected business volume
and growth expectations and be managed lower as a percent of revenue over the
next few years after we reach scale to handle incoming business from new
partnerships.

Depreciation and amortization

Depreciation and amortization reflects the recognition of the cost of our
investments in various assets over their useful life. Depreciation expense
relates to leasehold improvements, furniture and equipment, vehicles, hardware
and purchased software. Amortization relates to investments related to recent
acquisitions, SaaS implementation, internal software development and investments
made in digital media and content assets. Depreciation and amortization are
expected to increase slightly in dollar amount over time but will likely
decrease as a percent of revenue as investments in platform technology reach
scale.

Change in fair value of warrant liabilities

Our warrants are accounted for as liabilities in accordance with Accounting
Standards Codification ("ASC") Topic 815, Derivatives and Hedging and are
measured at fair value each reporting period, with changes in fair value
recognized as a non-operating income (expense). In general, under the fair value
accounting model, as our stock price increases, the warrant liability increases,
and we recognize additional expense in our Condensed Consolidated Statements of
Operations. As our stock price decreases, the warrant liability decreases, and
we recognize additional income in our Condensed Consolidated Statements of
Operations.

Income tax expense

The Hagerty Group is taxed as a pass-through ownership structure under
provisions of the Internal Revenue Code ("IRC") and a similar section of state
income tax law, except for Hagerty Re and various foreign subsidiaries. Any
taxable income or loss generated by The Hagerty Group is passed through to and
included in the taxable income or loss of Hagerty Group Unit Holders, including
Hagerty, Inc. Hagerty, Inc. is taxed as a corporation and pays corporate
federal, state, and local taxes with respect to income allocated from The
Hagerty Group.

                                       43
--------------------------------------------------------------------------------

  TABLE OF CONTENTS
Results of Operations

Summary

The following table summarizes our results of operations for the three months
ended March 31, 2022 and 2021, and the dollar and percentage change between the
two periods:

                                                                      Three months ended March 31,
                                                    2022                2021            $ Change             % Change

REVENUES:                                                           in thousands (except percentages)
Commission and fee revenue                     $   62,461            $ 54,373          $  8,088                    14.9  %
Earned premium                                     89,132              63,234            25,898                    41.0  %
Membership and other revenue                       16,218              11,593             4,625                    39.9  %
Total revenues                                    167,811             129,200            38,611                    29.9  %
OPERATING EXPENSES:
Salaries and benefits                              46,476              38,149             8,327                    21.8  %
Ceding commission                                  42,378              30,389            11,989                    39.5  %
Losses and loss adjustment expenses                36,919              26,193            10,726                    40.9  %
Sales expense                                      28,437              20,352             8,085                    39.7  %
General and administrative services                19,458              14,842             4,616                    31.1  %
Depreciation and amortization                       7,147               4,371             2,776                    63.5  %
Total operating expenses                          180,815             134,296            46,519                    34.6  %
OPERATING INCOME (LOSS)                           (13,004)             (5,096)           (7,908)                 (155.2) %
Change in fair value of warrant liabilities        31,686                   -            31,686                   100.0  %
Interest and other income (expense)                  (684)               (437)             (247)                  (56.5) %
INCOME (LOSS) BEFORE INCOME TAX EXPENSE            17,998              (5,533)           23,531                   425.3  %
Income tax expense                                 (2,030)             (1,318)             (712)                  (54.0) %
Income (loss) on equity method investment, net
of tax                                               (102)                  -              (102)                 (100.0) %
NET INCOME (LOSS)                              $   15,866            $ (6,851)         $ 22,717                   331.6  %



Revenue

Commission and fee revenue

Commission and fee revenue was $62.5 million for the three months ended
March 31, 2022, an increase of $8.1 million, or 14.9%, compared to 2021,
primarily driven by an increase of $9.6 million in revenue from renewal
policies. This increase was partially offset by lower new business count for the
three months ended March 31, 2022 compared to 2021. The increase in commission
and fee revenue was also driven by new and renewal average premium increases of
14.6% and 3.7%, respectively.

Commission and fee revenue from direct sources increased $3.8 million, or 15.0%,
from $25.1 million during the three months ended March 31, 2021 to $28.9 million
during the three months ended March 31, 2022. Our commission and fee revenue
from agent sources increased $4.3 million, or 14.8%, from $29.3 million during
the three months ended March 31, 2021 to $33.6 million during the three months
ended March 31, 2022. Commission rates, generating commission revenue, vary
based on geography but do not differ by distribution channel (i.e., whether they
are direct-sourced or agent-sourced).

                                       44
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
The following table presents the detail of our commission and fee revenues for
the three months ended March 31, 2022 and 2021 by geography:

                                   U.S.           Canada        U.K.         Total

                                                   in thousands
                                         Three months ended March 31, 2022
Commission and fee revenue    $   45,670         $ 2,318      $   884      $ 48,872
Contingent commission             13,468               -          121        13,589
Total                         $   59,138         $ 2,318      $ 1,005      $ 62,461

                                         Three months ended March 31, 2021
Commission and fee revenue    $   39,500         $ 1,893      $   716      $ 42,109
Contingent commission             12,119              18          127        12,264
Total                         $   51,619         $ 1,911      $   843      $ 54,373



During the three months ended March 31, 2022, we experienced consistent organic
growth across all jurisdictions in commission and fee revenue. CUC growth of
11.1% in the U.S. was below commission and fee growth of 15.6% as not all
premium are subject to CUC.

Earned premium

Earned premium revenue was $89.1 million for the three months ended March 31,
2022, an increase of $25.9 million, or 41.0%, compared to 2021. Organic growth
added approximately $24.2 million to earned premium revenue and the increase in
U.S. quota share percentage added approximately $1.7 million to earned premium
during the three months ended March 31, 2022. This increase in earned premium
generally correlates with an increase in written premiums assumed by the Company
of $25.0 million from $72.6 million for the three months ended March 31, 2021 to
$97.6 million for the three months ended March 31, 2022.

Membership and other revenue

Membership and other revenue was $16.2 million for the three months ended
March 31, 2022, an increase of $4.6 million, or 39.9%, compared to 2021.
Membership fee revenue was $10.3 million for the three months ended March 31,
2022, an increase of $0.6 million, or 6.6%, compared 2021, which was primarily
attributable to the increase in the issuance of new policies bundled with an HDC
membership, as well as growth of new stand-alone HDC subscriptions (i.e., HDC
subscriptions sold to members without insurance policies). For the three months
ended March 31, 2022, membership fees were 63.6% of the Membership and other
revenue total.

Other revenue was $5.9 million for the three months ended March 31, 2022, an
increase of $4.0 million compared to 2021, primarily due to newly acquired
events, driving increases of $1.7 million and $1.4 million in sponsorship income
and admission income, respectively, for the three months ended March 31, 2022
compared to 2021. Other revenue includes sponsorship, admission, advertising,
valuation and registration income and accounts for 36.4% of the membership and
other revenue total.

Costs and Expenses

Salaries and benefits

Salaries and benefits expenses were $46.5 million for the three months ended
March 31, 2022, an increase of $8.3 million, or 21.8%, compared to 2021. The
increase was primarily attributable to a net increase of over 200 employees in
our sales, member services, technology and distribution units, an increase of
approximately 16.0% year over year. Headcount increased to support current and
anticipated growth, such as the additions of several new large national
insurance partnerships and our continued development of new systems and digital
transformation technology investments, as well as several acquisitions primarily
in the event and lifestyle business.

Ceding commission

Ceding commission expense was $42.4 million for the three months ended March 31,
2022, an increase of $12.0 million, or 39.5%, compared to 2021. The increase was
primarily attributable to an increase in our U.S. quota share percentage from
60% in 2021 to 70% in 2022, which accounted for $6.3 million as well as higher
U.S. premium volume ceded to Hagerty Re from our insurance carrier partner,
which added approximately $5.0 million.
                                       45
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
The following table presents the amount of premiums ceded and the quota share
percentages for the three months ended March 31, 2022 and 2021:

                                            U.S.          Canada         U.K.          Total

                                                   in thousands (except percentages)
                                                   Three months ended March 31, 2022
       Subject premium                  $ 134,746       $ 5,756       $ 1,844       $ 142,346
       Quota share percentage                70.0  %       35.0  %       70.0  %         68.6  %
       Assumed premium in Hagerty Re    $  94,322       $ 2,015       $ 1,291       $  97,628
       Net ceding commission            $  40,406       $ 1,490       $   482       $  42,378

                                                   Three months ended March 31, 2021
       Subject premium                  $ 118,141       $ 4,914       $     -       $ 123,055
       Quota share percentage                60.0  %       35.0  %          -  %         59.0  %
       Assumed premium in Hagerty Re    $  70,884       $ 1,720       $     -       $  72,604
       Net ceding commission            $  29,087       $ 1,302       $     -       $  30,389



In the U.S., the increase in premiums assumed in Hagerty Re during the three
months ended March 31, 2022 compared to 2021 was primarily due to Hagerty Re's
U.S. quota share increasing from 60% in 2021 to 70% in 2022, which accounted for
$13.5 million of the overall $25.0 million increase. In the U.K., the increase
in premiums assumed in Hagerty Re from March 31, 2021 to March 31, 2022 was
primarily due to the entry into the U.K. reinsurance agreement, which became
effective during the first quarter of 2021.

Losses and loss adjustment expenses

Losses and loss adjustment expenses was $36.9 million for the three months ended
March 31, 2022, an increase of $10.7 million, or 40.9%, compared to 2021. The
increase was primarily driven by higher premium volume ceded to Hagerty Re from
our insurance carrier partners. The loss ratio, including catastrophe losses,
was 41.4%, for both the three months ended March 31, 2022 and 2021.

Sales expense

Sales expense was $28.4 million for the three months ended March 31, 2022, an
increase of $8.1 million, or 39.7%, compared to 2021. The increase was primarily
due to a $5.1 million increase in travel and promotion costs related to newly
acquired events and increased advertising, a $1.4 million increase in broker
expense which was driven additional premium volume across our agent distribution
channel and a $0.8 million increase in roadside costs from our towing provider.

General and administrative services

General and administrative services expenses were $19.5 million for the three
months ended March 31, 2022, an increase of $4.6 million, or 31.1%, compared to
2021. The increase was primarily driven by a $3.3 million increase in consulting
services and accounting services. The increase in consulting services was
primarily driven by scaling and growth of digital asset construction. The
increase in accounting services was primarily driven by additional accounting
fees related to public company audit requirements. The increase was also driven
by $0.9 million in software and hardware costs, primarily related to company
headcount growth.

Depreciation and amortization

Depreciation and amortization expense was $7.1 million for the three months
ended March 31, 2022, an increase of $2.8 million, or 63.5%, compared to 2021.
The increase was primarily attributable to a higher base of capital assets from
our digital platform development investment. Amortization on these capital
assets increased by $2.2 million.

Change in fair value of warrant liabilities

During the three months ended March 31, 2022, the change in fair value of
warrant liabilities was $31.7 million, which represents the net change in
valuation of our warrant liabilities during the three months ended March 31,
2022. We did not have warrants as of March 31, 2021. Refer to Note 8 - Fair
Value Measurements and Note 13 - Warrant Liabilities in Item 1 of Part I of this
Quarterly Report on Form 10-Q for additional information with respect to our
warrants.

                                       46
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Income tax expense

Income tax expense was $2.0 million for the three months ended March 31, 2022,
an increase of $0.7 million, or 54.0%, compared to 2021. The increase in income
tax expense for the three months ended March 31, 2022 compared to 2021 was
primarily due to an increase in net income before income tax expense of
$3.2 million within Hagerty Re, which is taxed as a corporation. Refer to Note
15 - Taxation in Item 1 of Part I of this Quarterly Report on Form 10-Q for
additional information with respect to items affecting our effective tax rate.

Liquidity and Capital Resources

Maintaining a strong balance sheet and capital position is a top priority. We
manage liquidity globally and across all operating subsidiaries, making use of
our working capital, equity proceeds from the Business Combination, and our
Credit Facility (as defined below) when needed.

Through our reinsurance subsidiary, Hagerty Re, we reinsure the same personal
lines risks that are underwritten by our affiliated MGA subsidiaries on behalf
of our insurance carrier partners. Our reinsurance operations are self-funded
primarily through existing capital and net cash flows from operations. As of
March 31, 2022, Hagerty Re had approximately $263.5 million in cash and cash
equivalents and municipal securities. Our MGA operations are financed primarily
through the commissions and fees received from our insurance carrier partners
and, if necessary, proceeds from our existing Credit Facility. Our
membership-related subsidiaries finance their operations from the sale of HDC
Member subscriptions, as well as proceeds, if necessary, from our existing
Credit Facility.

We, particularly Hagerty Re, pay close attention to the underlying underwriting
and reserving risks by monitoring the pricing and loss development of the
underlying business written through its affiliated MGAs. Additionally, Hagerty
Re seeks to minimize its investment risk by investing in low yield cash, money
market accounts and investment grade municipal securities.

Capital Restrictions

In Bermuda, Hagerty Re is subject to the BSCR administered by the BMA. No
regulatory action is taken by the BMA if an insurer's capital and surplus is
equal to or in excess of their enhanced capital requirement as determined by the
BSCR model. In addition, the BMA has established a target capital level for each
insurer which is 120% of the enhanced capital requirement. To ensure compliance
with BSCR standards, Hagerty Re's target is 130% of the enhanced capital
requirement. As of March 31, 2022, Hagerty Re's actual performance relative to
the enhanced capital requirement was in excess of 120%.

Dividend Restrictions

Under Bermuda law, Hagerty Re is prohibited from declaring or issuing a dividend
if it fails to meet its minimum solvency margin or minimum liquidity ratio.
Prior approval from the BMA is also required if the Hagerty Re's proposed
dividend payments would exceed 25% of its prior year-end total statutory capital
and surplus. The amount of dividends which could be paid by Hagerty Re in 2022
without prior approval is $26.8 million.

Regulation relating to insurer solvency is generally for the protection of the
policyholders rather than for the benefit of the stockholders of an insurance
company. We believe that our existing cash and cash equivalents and municipal
securities and cash flow from operations will be sufficient to support working
capital and capital expenditure requirements for at least the next 12 months.
Our future capital requirements will depend on many factors, including our
reinsurance premium growth rate, renewal rates, the introduction of new and
enhanced products, entry into, and successful entry in new geographic markets,
and the continuing market adoption of our product offerings.

Comparative Cash Flows

The following table summarizes our cash flow data for the three months ended
March 31, 2022 and 2021:

                                                          Three months ended March 31,
                                                 2022           2021        $ Change       % Change

                                                        in thousands (except percentages)
Net Cash Provided by Operating Activities    $    9,014      $ 20,997      $ (11,983)       (57.1) %
Net Cash Used in Investing Activities        $  (31,797)      (21,173)     $ (10,624)       (50.2) %
Net Cash Used in Financing Activities        $  (19,000)     $ (8,500)     $ (10,500)      (123.5) %



                                       47

--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Operating Activities

Cash provided by operating activities primarily consists of net income (loss)
adjusted for non-cash items and changes in working capital balances.

Net cash provided by operating activities is presented below:

                                                           Three months ended March 31,
                                                  2022           2021        $ Change       % Change

                                                         in thousands (except percentages)
Net income (loss)                             $   15,866      $ (6,851)     $  22,717        331.6  %
Non-cash adjustments to net income (loss)        (23,727)        7,059        (30,786)      (436.1) %
Changes in operating assets and liabilities       16,875        20,789      

(3,914) (18.8) %
Net Cash Provided by Operating Activities $ 9,014 $ 20,997 $ (11,983) (57.1) %

Net cash provided by operating activities for the three months ended March 31,
2022 was $9.0 million. Cash used during the period included $7.9 million from
net income (loss) after non-cash expenses are excluded. Non-cash expenses
primarily included a gain related to the change in fair value of warrant
liabilities of $31.7 million, partially offset by depreciation and amortization
expense of $7.1 million. Changes in operating assets and liabilities provided
$16.9 million of operating cash. The increase in cash from changes in operating
assets and liabilities was primarily attributable to a decrease in commission
receivable of $43.4 million, an increase to due to insurers of $16.4 million and
an increase in advanced premiums of $15.6 million. These changes were partially
offset by an increase in premiums receivable of $22.3 million, an increase in
prepaid expenses and other assets of $15.2 million, and a decrease in
commissions payable of $14.8 million.

Net cash provided by operating activities for the three months ended March 31,
2021 was $21.0 million. Cash provided during this period included $0.2 million
from net income (loss) after non-cash expenses are excluded. Non-cash expenses
primarily included depreciation and amortization expense of $4.4 million and a
loss on disposal of software development of $2.1 million. The increase in cash
from changes in our operating assets and liabilities was primarily attributable
to decreases in commission receivable of $40.4 million, an increase to the due
to insurers of $16.2 million and an increase in advanced premiums of $12.0
million. These changes were partially offset by an increase in premiums
receivable of $22.4 million, an increase in prepaid expenses and other assets of
$13.1 million and a decrease in accrued expenses of $11.0 million.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2022
increased $10.6 million compared to 2021. We invested approximately $10.5
million in property, equipment and software (excluding acquisitions), comparable
to the same period in 2021. Additionally, we had payments related to
acquisitions, net of cash acquired, totaling $6.0 million during the three
months ended March 31, 2022, an increase of $2.9 million compared to 2021. We
also invested approximately $15.3 million as an equity method investment and
joint venture with Broad Arrow. For additional information regarding our 2022
acquisitions and equity method investments, refer to Note 5 - Acquisitions and
Investments in Item 1 of Part I of this Quarterly Report on Form 10-Q. Lastly,
during the three months ended March 31, 2021, Hagerty Re invested in fixed
income securities in connection with our reinsurance agreement with Aviva of
approximately $7.4 million. Hagerty Re made no such additional investments
during the three months ended March 31, 2022. For additional information
regarding our fixed income securities, refer to Note 8 - Fair Value Measurements
in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Financing Activities

Cash used in financing activities for the three months ended March 31, 2022
increased $10.5 million compared to 2021, primarily due to a decrease in
outstanding debt under our Credit Facility. There were total net cash outflows
of $18.0 million related to draws under our Credit Facility during the three
months ended March 31, 2022, compared to $7.5 million during the three months
ended March 31, 2021.

Future Sources and Uses of Liquidity

Our sources of liquidity are our (1) cash on hand, (2) net working capital, (3)
cash flows from operations and (4) our credit facility. Based on our current
expectations, we believe that these sources of liquidity will be sufficient to
meet our needs for at least the next 12 months.

                                       48
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
We expect that our primary liquidity needs will include cash used to (1)
facilitate the organic growth of our business, (2) pay operating expenses,
including cash compensation to our employees, (3) fund the growth of our
membership and Hagerty Marketplace initiatives, (4) pay interest and principal
due on borrowings under our Credit Agreement (as defined below), (5) pay income
taxes and (6) make payments under the Tax Receivable Agreement.

Financing Arrangements

Multi-bank Credit Facility

In October 2021, we entered into a Third Amendment to the Amended and Restated
Credit Agreement (the "Credit Agreement"), which amended the terms of our
revolving credit facility (the "Credit Facility") with JPMorgan Chase Bank,
N.A., as administrative agent, and the other financial institutions party
thereto from time to time as lenders.

The current term of the Credit Agreement expires in October 2026 and may be
extended by one year on an annual basis if agreed to by us and the lenders party
thereto. Any unpaid balance on the Credit Facility is due at maturity.

The Credit Facility borrowings are collateralized by our assets, except for the
assets of our U.K., Bermuda and German subsidiaries as well as the assets of
Hagerty Events, LLC and the non-wholly owned subsidiaries of MHH.

Under the Credit Agreement, we are required, among other things, to meet certain
financial covenants, including a fixed charge coverage ratio and a leverage
ratio. We were in compliance with these covenants as of March 31, 2022.

Interest Rate Swap

Interest rate swap agreements are contracts to exchange floating rate for fixed
rate interest payments over the life of the agreement without the exchange of
the underlying notional amounts. The notional amounts of the interest rate swap
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The differential paid or
received on the interest rate swap agreements is recognized as an adjustment to
interest expense.

The purpose of the interest rate swap agreement is to fix the interest rate on a
portion of our existing variable rate debt in order to reduce exposure to
interest rate fluctuations. Under such agreements, we pay the counterparty
interest at a fixed rate. In exchange, the counterparty pays us interest at a
variable rate, adjusted quarterly and based on LIBOR or the alternative
replacement of LIBOR. The amount exchanged is calculated based on the notional
amount. The significant inputs, primarily the LIBOR forward curve, used to
determine the fair value are considered Level 2 observable market inputs. We
monitor the credit and nonperformance risk associated with its counterparty and
believes the risk to be insignificant and not warranting a credit adjustment at
March 31, 2022.

In December 2020, we entered into a 5-year interest rate swap agreement with an
original notional amount of $35 million at a fixed swap rate of 0.78%.

In March 2017, we entered into an interest rate swap agreement with an original
notional amount of $15 million at a fixed rate of 2.20%. The swap matured in
March 2022.

Tax Receivable Agreement

Hagerty, Inc. expects to have adequate capital resources to meet the
requirements and obligations under the Tax Receivable Agreement entered into
with the Legacy Unit Holders on December 2, 2021 that provides for the payment
by Hagerty, Inc. to the Legacy Unit Holders of 85% of the amount of cash
savings, if any, under U.S. federal, state and local income tax or franchise tax
realized as a result of (1) any increase in tax basis of Hagerty, Inc.'s assets
resulting from (a) purchase of Hagerty Group Units from any of the Legacy Unit
Holders using the net proceeds from any future offering, (b) redemptions or
exchanges by the Legacy Unit Holders of Class V Common Stock and Hagerty Group
Units for shares of Class A Common Stock or (c) payments under the Tax
Receivable Agreement and (2) tax benefits related to imputed interest deemed
arising as a result of payments made under the Tax Receivable Agreement.

                                       49
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Legacy Unit Holders may, subject to certain conditions and transfer restrictions
described above, redeem or exchange their Class V Common Stock and Hagerty Group
Units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one
basis. The Hagerty Group made an election under Section 754 of the IRC of 1986,
as amended, and the regulations thereunder effective for each taxable year in
which a redemption or exchange of Class V Common Stock and Hagerty Group Units
for shares of Class A Common Stock occurs, which is expected to result in
increases to the tax basis of the assets of The Hagerty Group at the time of a
redemption or exchange of Hagerty Group Units. The redemptions and exchanges are
expected to result in increases in the tax basis of the tangible and intangible
assets of The Hagerty Group. These increases in tax basis may reduce the amount
of tax that Hagerty, Inc. would otherwise be required to pay in the future. This
payment obligation as a part of the Tax Receivable Agreement is an obligation of
Hagerty, Inc. and not of The Hagerty Group. For purposes of the Tax Receivable
Agreement, the cash tax savings in income tax will be computed by comparing the
actual income tax liability of Hagerty, Inc. (calculated with certain
assumptions) to the amount of such taxes that Hagerty, Inc. would have been
required to pay had there been no increase to the tax basis of the assets of The
Hagerty Group as a result of the redemptions or exchanges and had Hagerty, Inc.
not entered into the Tax Receivable Agreement. Estimating the amount of payments
that may be made under the Tax Receivable Agreement is by nature imprecise,
insofar as the calculation of amounts payable depends on a variety of factors.

Contractual Obligations

The following table summarizes of significant contractual obligations and other
commitments as of March 31, 2022:

                          Total          2022          2023         2024         2025          2026         Thereafter

                                                                 in thousands
Debt                   $ 117,500      $      -      $      -      $     -      $     -      $ 117,500      $         -
Interest payments          1,024           205           273          273          273              -                -

Operating leases 94,504 6,708 8,774 8,596

      8,465          7,951           54,010
Purchase commitments      11,346         9,682         1,664            -            -              -                -
Total                  $ 224,374      $ 16,595      $ 10,711      $ 8,869      $ 8,738      $ 125,451      $    54,010

Interest payments excludes variable rate debt interest payments and commitment
fees related to our Credit Facility.

Critical Accounting Policies and Estimates

Our unaudited Condensed Consolidated Financial Statements are prepared in
accordance with GAAP, which require management to make certain estimates and
apply judgment. Estimates and judgments are based on historical experience,
current trends and other factors that management believes to be important at the
time the unaudited Condensed Consolidated Financial Statements are prepared. On
a regular basis, we review our accounting policies and how they are applied and
disclosed in the unaudited Condensed Consolidated Financial Statements. These
accounting policies, among others, may involve a high degree of complexity and
judgment on the part of management. Further, these estimates and other factors
could have significant adverse impact to our financial condition, results of
operations and cash flows. We evaluate our significant estimates on an ongoing
basis and base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results could differ materially from those estimates.

Our accounting policies are set forth in Note 1 to Consolidated Financial
Statements contained in the Company's 2021 Annual Report on Form 10-K. We
include herein certain updates to those policies.

                                       50
--------------------------------------------------------------------------------
  TABLE OF CONTENTS
Redeemable Non-Controlling Interest

As of December 31, 2021, redeemable non-controlling interest represented the
economic interests of Legacy Unit Holders. Income or loss is attributed to the
redeemable non-controlling interest based on the weighted average ownership of
the Hagerty Group Units outstanding during the period held by Legacy Unit
Holders. In connection with the Business Combination, Hagerty, Inc. entered into
an Exchange Agreement with the Legacy Unit Holders. The Exchange Agreement
permitted the Legacy Unit Holders to exchange Class V Common Stock and
associated Hagerty Group Units for an equivalent amount of Class A Common Stock,
or at the option of the Company, for cash. Because the Company has the option to
redeem the non-controlling interest for cash and the Company is controlled by
the Legacy Unit Holders through their voting control, the non-controlling
interest was considered redeemable outside the Company's control. The redeemable
non-controlling interest was measured at the greater of the initial fair value
or the redemption value and was required to be presented as temporary equity on
the Condensed Consolidated Balance Sheets.

The Exchange Agreement was amended as of March 23, 2022. As a result of this
amendment, the redeemable non-controlling interest held by the Legacy Unit
Holders outstanding was recorded as non-controlling interest and presented as
permanent equity on the Condensed Consolidated Balance Sheets. Refer to Note 11
- Members' and Stockholders' Equity, in Item 1 of Part I of this Quarterly
Report on Form 10-Q for additional information.

New Accounting Standards

New accounting standards are described in Note 1 - Summary of Significant
Accounting Policies and New Accounting Standards, in Item 1 of Part I of this
Quarterly Report on Form 10-Q.

Seasonality and Quarterly Results

                                                                                    2021                                                    2022
                                                                                                                       Fourth           First Quarter
                                             First Quarter           Second Quarter           Third Quarter          Quarter (1)             (2)

                                                                                          in thousands
Commission and fee revenue                 $       54,373          $        

83,443 $ 76,188 $ 57,567 $ 62,461
Earned premium

                                     63,234                   70,437                  78,700              83,453              89,132
Membership and other revenue                       11,593                   13,529                  13,198              13,364              16,218
Total revenues                             $      129,200          $       

167,409 $ 168,086 $ 154,384 $ 167,811

Total operating expenses                          134,296                  153,135                 166,328             175,390             180,815
Operating income (loss)                    $       (5,096)         $        14,274          $        1,758          $  (21,006)         $  (13,004)

Net income (loss)                          $       (6,850)         $        12,503          $         (548)         $  (66,459)         $   15,866


(1) The fourth quarter 2021 net loss of $66.5 million is primarily due to a
change in fair value of warrant liabilities expense of $42.5 million that was
recognized as a non-operating expense, as well as approximately $13.3 million,
which consisted primarily of accelerated vesting of incentive plans related to
the Business Combination.
(2) The first quarter 2022 net income of $15.9 million is primarily due to a
decrease in the fair value of warrant liabilities, which generated a gain of
$31.7 million that was recognized as non-operating income.

Due to our significant North American footprint, our revenue streams, and in
particular, commission and fee revenue, exhibit seasonality peaking in the
middle of the second calendar quarter and diminishing through the rest of the
year, with the lowest relative level of commission and fee revenue expected to
occur in the fourth calendar quarter and beginning of the first calendar
quarter. We expect to experience seasonal and other fluctuations in our
quarterly operating results, which may not fully reflect the underlying
performance of our business.