Property insurers have faced significant headwinds in recent years due to the combination of severe weather events, inflation, volatility in reinsurance availability and pricing, regulatory uncertainty and technological disruption. Agile operators can adapt to these challenges through innovation to serve customers and remain in sound financial health. One of these innovative companies is Porch Group, Inc. (Nasdaq: PRCH), which has plans to build a profitable homeowners insurance business using a reciprocal insurance exchange as its platform, which it chose in part because it’s a structure that better separates operations from direct exposure to the volatility of weather risk. Eversheds Sutherland Partner John Pruitt sat down with Matt Cullen, Porch Group’s Senior Vice President, General Counsel, and Corporate Secretary, to discuss the new reciprocal model.
John Pruitt: Matt, we have worked together for several years. For those who are not familiar, what is your role at Porch Group and in the launch of its new business structure?
Matt Cullen: Thanks, John. I joined Porch in 2020, as its General Counsel, reporting to the Chief Executive Officer and Chairman of the Board. Back then, the Company generated $50M in annual revenue. After I joined, our executive team led a transformation from a private company into a publicly listed company on Nasdaq, culminating with a successful billion-dollar IPO. This year, we expect to generate more than $400 million in revenue (and a comparable amount of gross written premium) and substantial profits at approximately 80%+ gross margins.
I lead the legal function, with oversight and responsibility for the functional P&L, board governance, litigation, regulatory relations, transactions (financings, M&A) and compliance across Porch Group, and I serve as a member of the executive team responsible for go-forward strategy. I also serve on the boards of directors of our captive reinsurer based in the Cayman Islands and our Texas-based insurance carrier and underwriter, Homeowners of America Insurance Company (HOAIC).
John: I know the Porch business underwent a years’ long, complex restructuring. Tell us a little about what happened.
Matt: Porch's journey into insurance began in 2021, with the acquisition of HOAIC, a homeowners and allied lines insurer predominantly operating in Texas. We believe homeowner insurance in the United States is a very large market ($160+ billion in premium) with forecasted meaningful expansion over time. In 2022, we embarked on the process of converting Porch’s homeowners’ business into a higher margin reciprocal. This culminated in approval of Porch's application to form and license Porch Insurance Reciprocal Exchange (Reciprocal) by the Texas Department of Insurance (TDI) in 2024. The TDI also approved the Reciprocal’s purchase of HOAIC, and the formation of the Reciprocal and sale of HOAIC to the Reciprocal were completed in January 2025.
John: Certainly, lots of transformation in that period, Matt – congratulations. So here is an obvious question: what even is a reciprocal exchange?
Matt: A reciprocal insurance exchange is an unincorporated entity through which insureds (i.e., the homeowner policyholders), called "subscribers," collectively insure and are insured by each other. Unlike a stock insurer, a reciprocal exchange is owned by its subscribers, and its interests are directly aligned with its homeowner policyholders.
A reciprocal appoints an attorney-in-fact (AIF) to manage its operations, but the AIF does not own the reciprocal. The AIF receives recurring commissions and fees for the services it provides.
Because reciprocal exchanges are unincorporated, they cannot sell stock or access equity markets. As such, the AIF must raise initial capital in private or public markets via “surplus notes” issued by the reciprocal and/or raise additional capital by collecting surplus contributions from each subscriber.
John: Thanks, Matt. Why is this model attractive, and how is it expected to be funded?
Matt: Porch provided the initial funding for the Reciprocal in the form of surplus notes. Over time, it is expected that this contributed surplus will be supplemented or replaced by subscriber surplus contributions and/or third-party financing. This ability to grow surplus through subscriber contributions and to operate under a fee-for-services business model is one of the features that makes the reciprocal structure attractive to Porch.
As I mentioned above, Porch is now the operator (and not the owner) of the Reciprocal insurance carrier and receives commissions and fees for its services. This is a simpler and less volatile business than a traditional stock insurance carrier but one that allows Porch to continue to participate in attractive growth in homeowner’s insurance. The business has a higher margin as it is more isolated from weather claims.
John: What was a key challenge in the transformation process in terms of fiduciary duties and board governance?
Matt: Getting to where we are now required a rethinking of many aspects of the business, ranging from governance and reporting to products, rates and distribution. We had to consider all relevant constituencies—our board, investors, regulators, reinsurers, agents, employees, rating agencies and, most importantly, customers (i.e., policyholders). Careful advance planning with mindfulness of each of these constituencies was key.
In addition, Porch fostered a proactive and collaborative relationship with TDI during the application and review process. Porch reached out to TDI early in the process and maintained full transparency throughout. The collaborative relationship we fostered with TDI was instrumental in receiving their approval, and maintaining transparency throughout the process was key to our success.
Porch also maintained active engagement with its public company board of directors throughout the application and review process. Independent directors were updated on Porch's progress during quarterly and interim board meetings and provided Porch with regular oversight. Engagement with the board resulted in improved and more thoughtful planning. Interaction with our board of directors and receiving their unanimous support was crucial.
Constant awareness of our disclosure obligations and the impact of disclosures on investors was also integral to our ability to execute the transaction smoothly without surprises that could potentially disrupt our share price.
John: Any parting words to sum up this unique experience and the great outcome?
Matt: This particular experience has reinforced the importance of proactive communication, collaboration, and transparency in achieving regulatory approval and successfully executing complex transactions. The legal team, led by the general counsel, must find innovative ways to add value at a strategic level, just as other executives must. New structures and governance considerations presented myriad opportunities in this case for the lawyers to contribute to and at times lead the transformation.
