Insurtech Porch Group announced plans to transition its homeowners insurance business to a newly approved reciprocal exchange under the Texas Department of Insurance.
The conversion is aimed at making Porch's business model simpler and more predictable, with improved margins and growth prospects, according to CEO Matt Ehrlichman.
The company stated that the new exchange structure is expected to reduce its direct exposure to claims and weather-related risks, a report from AM Best said.
As part of the setup, Porch plans to inject $10 million in cash into the Porch Insurance Reciprocal Exchange in return for a surplus note, following the completion of standard regulatory procedures by the Texas Department of Insurance.
On or around Jan. 1, Porch intends to transfer its subsidiary, Homeowners of America Insurance Co, to the reciprocal exchange, including all associated policies, premiums, assets, and liabilities.
Porch will also receive an additional surplus note reflecting Homeowners of America's year-end surplus, minus a $49 million surplus note, which will be assigned to and retained by the exchange.
As the exchange’s operator, Porch expects to earn commissions and fees totaling about 20% of gross written premium, while the exchange will maintain an “appropriate, risk-based capital and surplus.”
Earlier this year, the Texas Department of Insurance placed Homeowners of America Insurance Co under temporary supervision after the company terminated a $175 million reinsurance contract with capital sourced by Vesttoo Ltd. due to alleged fraud. In response, Porch had secured supplemental reinsurance coverage.
Porch noted that the reciprocal exchange approval is not expected to impact its financials for the current year, with further details to be provided during its third-quarter earnings call scheduled for Nov. 7.
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