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Shares in homeowners insurance and software platform Porch Group soared by more than 50 percent Friday after the company reported record profits and outlined plans to restructure its insurance business to better insulate it from catastrophic weather events.
While third quarter revenue was down 14 percent from a year ago, to $111.2 million, Porch turned a $14.4 million profit — after losing $78.6 million in the first half of 2024 and $133.9 million last year.
Porch said improved loss ratios in its insurance business, price increases for its software services, and “strong cost control” helped drive the turnaround.
Last month regulators signed off on the company’s plans to restructure its insurance business into a company that’s owned by policyholders and operated by Porch.
The approval “has been a long time coming, is a key milestone for Porch, and the culmination of tremendous work by the Porch team in partnership with the Texas Department of Insurance,” Porch CEO, founder and Chairman Matt Ehrlichman said in a statement.
Matt Ehrlichman
“We believe this will be the optimal structure for our insurance business, which we expect will result in a higher margin and a more predictable financial profile and equip our insurance operations to scale profitably in the future,” Ehrlichman said.
Shares in Porch, which in the last year have traded for as little as 86 cents and as much as $4.78, gained 55 percent Friday to close at $3.62.
Porch’s homeowners insurance business had been entangled in the fallout from the bankruptcy of its reinsurer, Vesttoo Ltd. Fraud allegations against Vesttoo rippled through the insurance industry last year, and Porch’s insurance subsidiary, Homeowners of America Insurance Company, was placed under temporary supervision by the Texas Department of Insurance.
Porch is looking to put that chapter of the company’s history behind it. After announcing a strategic business collaboration with reinsurance broker Aon Re Inc. in January, Porch applied to the Texas Department of Insurance in August to restructure its insurance business.
Texas regulators approved the plan last month, and Porch said it plans to sell Homeowners of America Insurance Company to a new homeowners insurance reciprocal exchange that’s owned by policyholders and operated by Porch on or around Jan. 1.
Forming Porch Insurance Reciprocal Exchange, or PIRE, “is a key step in Porch’s strategy to increase profitability and stabilize earnings … by reducing direct exposure to claims and weather risks,” the company said in announcing it had received a greenlight from Texas regulators in October.
While the future is looking brighter, Seattle-based Porch has racked up $785 million in losses since going public in a 2020 merger with a special purpose acquisition company (SPAC).
Property insights provide underwriting edge
While Porch’s insurance and warranty business accounted for 72 percent of Q3 revenue, its software and services business also generated $31.3 million in revenue.
Porch’s software and services business operates as several businesses including inspection software and services, title insurance software, mortgage software, moving services, mover and homeowner marketing, and measurement software for roofers.
Through its software and services business, Porch says it’s built deep relationships with 28,000 companies, giving it “unique insights into the majority of U.S. properties. This data helps feed our insurance underwriting models, better understand risk, and create competitive differentiation in underwriting,” the company said in its latest quarterly report to investors.
Companies that belong to Porch’s Inspection Support Network and other inspection brands conduct about 40 percent of all home inspections, Porch said in announcing price increases for those services in April.
Porch is approved in 16 states to use its data to improve risk accuracy in pricing policies — meaning it can charge lower premiums for policies that are low-risk, and higher premiums for policies with risk factors.
During the third quarter, porch said it launched three new “home factors” for pricing risk, including whether an electrical panel needs repairs. Porch estimates that a panel that needs repairs will result in a 41 percent higher frequency of claims.
Homeowners whose panels don’t need repairs could get an 18 percent discount, while those who need repairs could pay 13 percent more, Porch said in an investor presentation.
Porch’s earnings report also detailed the impact of Texas storms on its bottom line, and how recent premium increases have mitigated those impacts.
A hailstorm in the first quarter resulted in $16.5 million in gross losses, for example, while Hurricane Beryl resulted in approximately $44.9 million in losses.
Homeowners of America Texas premium increases
Source: Porch Group investor presentation.
Since 2021, Porch’s insurance carrier, Homeowners of America Insurance Company, has raised annual premiums in Texas from $1,245 to $2,508 per policy — a compound annual growth rate (CAGR) of 42 percent.
During the third quarter, Porch said its insurance business exited Georgia and moved away from coastal zip codes.
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