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Porch Group, an Insurtech company, has recently announced its plans to transfer its homeowners insurance business to a newly approved reciprocal exchange under the Texas Department of Insurance. This move is aimed at simplifying Porch’s business model, making it more predictable, and improving margins and growth prospects, according to CEO Matt Ehrlichman.

The company believes that the new exchange structure will help reduce its direct exposure to claims and weather-related risks. In order to facilitate this transition, Porch plans to invest $10 million in cash into the Porch Insurance Reciprocal Exchange once all regulatory procedures are completed by the Texas Department of Insurance.

Scheduled for around Jan. 1, Porch will transfer its subsidiary, Homeowners of America Insurance Co, to the reciprocal exchange. This transfer will include all associated policies, premiums, assets, and liabilities. Additionally, Porch will receive a surplus note reflecting Homeowners of America’s year-end surplus, minus a $49 million surplus note that will be retained by the exchange.

As the operator of the exchange, Porch expects to earn commissions and fees totaling about 20% of gross written premium. The exchange itself will maintain an appropriate level of risk-based capital and surplus to ensure its stability.

Earlier this year, Homeowners of America Insurance Co was temporarily supervised by the Texas Department of Insurance after terminating a reinsurance contract due to alleged fraud. Porch acted swiftly to secure supplemental reinsurance coverage in response to this situation.

Porch has reassured investors that the approval of the reciprocal exchange is not expected to have a significant impact on its financials for the current year. More details regarding this transition will be provided during the company’s third-quarter earnings call scheduled for Nov. 7.

Overall, this move by Porch Group reflects its commitment to improving its business operations and reducing exposure to risks. The company’s proactive approach to regulatory changes and its focus on financial stability are key factors in its long-term success. It will be interesting to see how this transition unfolds and the impact it has on Porch’s performance in the coming months.