Hagerty Ends Fronting Deal with Markel: Implications for Insurance Brokers

In a significant move that signals a shift in the insurance landscape, Hagerty, Inc. has announced the termination of its fronting arrangement with Markel, a decision that allows the company to retain full control over its underwriting and investment economics. This change, disclosed alongside its second-quarter financial results for 2026, raises important questions for brokers who place business through managing general agents (MGAs) backed by fronting carriers. As the insurance industry grapples with evolving regulatory pressures, understanding the implications of such a strategic shift is crucial for all stakeholders involved.

Hagerty's decision to exit the fee-based fronting arrangement comes in the wake of increased scrutiny from state regulators on fronting carriers, especially following the collapse of the insurtech Vesttoo, which involved a staggering $3.36 billion in forged letters of credit supporting reinsurance transactions. This incident has led to heightened awareness and examination of fronting arrangements in the insurance sector, particularly regarding underwriting oversight and collateral verification.

Understanding Fronting Arrangements

Before diving into the implications of Hagerty's decision, it's essential to understand what a fronting arrangement entails. In a typical fronting setup, an insurance company (the fronting carrier) issues policies on behalf of another company (the client or MGA) that ultimately retains the risk. This allows the MGA to operate under the fronting carrier's license while providing flexibility in risk management. However, the fronting carrier must be prepared to comply with stringent regulatory requirements and maintain adequate capital reserves to back the policies it issues.

Increased Regulatory Scrutiny

The collapse of Vesttoo has amplified the spotlight on fronting carriers, prompting state regulators to examine these arrangements more closely. While the National Association of Insurance Commissioners (NAIC) has not yet adopted a specific model act targeting fronting carriers, existing regulations like the Managing General Agents Model Act and Credit for Reinsurance Model Act are being leveraged more actively by states to review and scrutinize fronting programs.

For brokers, this means that the fronting carrier behind an MGA relationship is more likely to face regulatory examination. As a result, there is an increased chance that a fronting carrier may determine that the compliance costs associated with continuing the program outweigh the benefits, potentially disrupting the client's renewal process.

The Impact on Brokers and MGAs

Hagerty's decision to terminate its fronting arrangement has several implications for brokers and MGAs operating in the insurance market:

• Increased Due Diligence: Brokers must now exercise greater due diligence when assessing fronting carriers. This includes evaluating the financial strength and regulatory compliance of the fronting carrier.
• Regulatory Questions: When renewing policies, brokers should ask two critical questions: Is the fronting carrier currently facing increased regulatory scrutiny? Does the carrier have the scale to assume the risk independently, rather than relying on a front?
• Potential Disruption: Should a fronting carrier exit a program, even voluntarily, it can leave clients facing disrupted renewals and the need to find alternative coverage options.

As the insurance landscape evolves, brokers must remain vigilant about these changes and adapt their strategies accordingly.

Hagerty's Growth and Strategic Moves

Despite the challenges posed by ending its fronting arrangement, Hagerty reported impressive growth in its written premiums, which rose by 19% to reach $713 million in the first half of 2026. The company also welcomed a record 279,000 new members, bringing its total policies in force to 1.9 million. However, the firm did report a net loss of $5 million, primarily attributed to $153 million in pre-tax transitional costs tied to the Markel arrangement. These costs represent deferred ceding commissions for policies written before January 1, 2026, and will be fully amortized throughout the year.

Hagerty's CEO, McKeel Hagerty, emphasized the importance of building trust over the years, stating, "This is what forty years of building trust, one member, one partner, one car at a time, looks like when the flywheel hits its stride." This sentiment reflects the company's commitment to its members and the enthusiast community it serves.

Acquisition of Bennetts

In addition to ending its fronting arrangement, Hagerty is also set to acquire Bennetts, the United Kingdom's second-largest specialty motorcycle insurance broker. This acquisition, valued at £34 million with Lucida Group, is expected to triple Hagerty's UK revenue to approximately £25 million. This strategy of acquiring distribution channels, rather than merely appointing brokers, is becoming increasingly prevalent in the insurance industry as carriers and insurtechs aim to capture the full economics of niche markets.

Future Outlook and Industry Trends

Hagerty has raised its full-year outlook for 2026, projecting written premium growth of 16% to 17% and net income between $18 million and $30 million. This optimistic outlook underscores the company's resilience and ability to adapt to changing market conditions. For brokers, the key takeaway from Hagerty's strategic shift is to remain aware of the regulatory landscape surrounding fronting arrangements and to incorporate due diligence into their program renewals.

As regulatory pressure continues to build on fronting arrangements, it is likely that more carriers with sufficient scale will follow Hagerty's lead. This shift emphasizes the need for brokers to stay informed about the evolving landscape of insurance regulations and to proactively engage with their clients regarding potential changes in their coverage.

Key Takeaways

• Hagerty has exited its fronting arrangement with Markel, retaining full underwriting control.
• Brokers should conduct thorough due diligence on fronting carriers amid increasing regulatory scrutiny.
• The insurance landscape is shifting, with carriers increasingly acquiring distribution channels to capture full niche economics.
• Hagerty's growth signals resilience and adaptability in a changing market.

Frequently Asked Questions

What is a fronting arrangement in insurance?

A fronting arrangement occurs when an insurance company (the fronting carrier) issues policies on behalf of another company or managing general agent (MGA) that retains the risk. This structure allows the MGA to operate under the fronting carrier's license while potentially benefiting from the fronting carrier's regulatory compliance. However, it also means that the fronting carrier must be prepared to meet stringent regulatory obligations.

How does increased regulatory scrutiny affect fronting arrangements?

Following the collapse of Vesttoo, state regulators have intensified their scrutiny of fronting arrangements. This includes examining the financial and operational stability of fronting carriers and ensuring they have adequate reserves to back the policies they issue. As a result, fronting carriers may face more regulatory compliance costs, leading some to reconsider their participation in such arrangements.

What should brokers consider when working with MGAs backed by fronting carriers?

Brokers should prioritize due diligence when working with MGAs that utilize fronting carriers. This includes assessing the financial strength and regulatory compliance of the fronting carrier. Additionally, brokers should ask questions about the fronting carrier's current regulatory status and its potential ability to assume risks independently as part of their renewal discussions with clients.

What trends are emerging in the insurance industry regarding distribution?

There is a growing trend among carriers and insurtechs to acquire distribution channels, including brokers and MGAs, rather than merely appointing them. This strategy allows companies to capture the full economics of niche markets and improve their overall operational efficiencies. As this trend continues, brokers operating in specialized niches should be aware of the potential for acquisition and how it may impact their business dynamics.