Porch Group, a software-driven financial services group, recently announced a significant cash investment of $57 million in its insurance carrier subsidiary, Homeowners of America Insurance Company (HOA). The investment comes in exchange for a $49 million surplus note from HOA and the acquisition of HOA’s rights to potential claims linked to the letter of credit fraud associated with Vesttoo.
In early August, Porch Group disclosed that HOA had exposure to reinsurance contracts arranged via Vesttoo, resulting in a charge of $48.2 million in its Q2 financial results. This revelation highlighted the impact of the Vesttoo-linked fraud on HOA’s operations.
Furthermore, in September, Porch Group revealed that HOA had been placed under temporary supervision by the Texas Department of Insurance (TDI) due to its exposure to the Vesttoo-linked fraud. However, HOA had successfully replaced 84% of the affected reinsurance, amounting to $147 million.
Following these developments, HOA’s rating agency, Demotech, Inc., withdrew its financial stability rating. Porch Group has been actively collaborating with the TDI to restore surplus to an appropriate level and address the aftermath of the fraud.
To bolster HOA’s financial strength, Porch Group injected a cash investment of $57 million and issued a $49 million surplus note. The surplus note includes interest and principal payments, with early redemption subject to sufficient capitalization levels at HOA and TDI approval. Additionally, Porch Group acquired the rights to potential claims related to the fraud from HOA.
HOA will also continue to leverage Porch Group’s captive reinsurer to further enhance its financial stability and resilience.
In a significant development related to the Vesttoo fraud, Porch Group has been appointed to the statutory committee of unsecured creditors in Vesttoo’s Chapter 11 bankruptcy. This appointment indicates Porch Group’s intent to pursue the recovery of funds affected by the fraud.
Matt Ehrlichman, CEO of Porch Group, expressed satisfaction with the transaction and commended the team for their efforts in collaborating with TDI and other stakeholders. He emphasized the transaction’s positive outcome for HOA, Porch Group, and its stakeholders, both in the present and the future.
Ehrlichman reaffirmed Porch Group’s commitment to executing its strategic plans effectively and focusing on what it can control. He expressed optimism about the progress made across Porch Group and the future prospects of the company.
The investment and acquisition by Porch Group demonstrate its determination to address the challenges posed by the Vesttoo-linked fraud and support the financial stability of HOA. These measures reflect the company’s commitment to adapting and overcoming obstacles in pursuit of its long-term goals.