Software company Porch Group has had to revise its previously issued financial statements for the first three quarters of 2022, after identifying an “error” in the accounting of its reinsurance arrangements.
As a result of this error, the company determined that the cost of revenue was understated by $4.0 million for Q1, $0.7 million for Q2, and overstated by $0.3 million for Q3, for a total net understatement of $4.4 million across the periods.
Under Porch’s third-party quota share reinsurance program, the company’s insurance subsidiary ceded some liabilities related to losses and loss adjustment expenses (LAE) to third-party reinsurers.
Porch explains that the losses ceded to these reinsurers are subject to certain terms, which vary by participating reinsurer, which impact the amount of losses that it can cede under those respective terms.
After reviewing its financial statements for the previous year’s first three quarters, the company identified an error in the accounting for these arrangements, in that the terms were not fully considered in the calculation of losses ceded to third party reinsurance companies, it says.
The revisions came as Porch reported fourth quarter revenues of $64.1 million, up from $51.6 million from Q4 of the previous year. For the full year 2022, Porch posted revenues of $275.9 million, compared to $192.4 million in 2021.
However, its GAAP net loss for Q4 totalled $35.5 million, compared to a loss of $20.1 million for Q4 2021, as results were impacted by higher-than-expected claims driven by Winter Storm Elliott.
For the year, Porch’s net loss amounted to $156.6 million, compared with a loss of $106.6 million for the previous year.
