US insurtech Porch Group has received approval from the Texas Department of Insurance to establish a homeowners insurance reciprocal exchange, named Porch Insurance Reciprocal Exchange (PIRE).
It is part of Porch’s plan to enhance profitability and earnings stability within its insurance segment by minimising direct claims and weather-related risks.
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The formation of PIRE, owned by its policyholders, mirrors the operational model of established entities such as Farmers Insurance and Erie Insurance.
Serving as the operator or attorney-in-fact, Porch will oversee PIRE’s operations.
Upon completion of standard administrative closing procedures, Porch will capitalise PIRE with a $10m cash contribution in return for a surplus note.
A transaction will be executed on or around 1 January 2025, when Porch will transfer Homeowners of America Insurance Company (HOAIC), including its policies, assets, and liabilities, to PIRE.
Porch will receive a surplus note reflecting HOAIC’s year-end surplus, adjusted for Porch’s existing $49m note which will be assigned to PIRE.
As PIRE’s operator, Porch will earn commissions and fees that average approximately 20% of the gross written premium while PIRE will maintain a focus on risk-based capital and surplus.
Porch CEO Matt Ehrlichman said: “I would like to thank the TDI for their partnership throughout this process and the Porch team for consistently living our values as we worked toward this moment.
“It has taken great effort, and we are pleased to have achieved this key milestone on our journey to become ‘A New Kind of Homeowners Insurance Company’.
“This is an important step for us to protect the homes of more homeowners in Texas and around the country where we plan to continue to be a great partner for both policyholders and insurance agents alike.”
Eversheds Sutherland and Mitchell, Williams, Selig, Gates & Woodyard offered advisory services to Porch on the move.
