Porch Group has announced a cash investment of $57 million in its insurance carrier subsidiary, Homeowners of America Insurance Company (HOA), in exchange for both a $49 million surplus note from HOA and the acquisition of HOA’s rights to potential claims stemming from the letter of credit fraud connected to Vesttoo.
In early August, the software-driven financial services group revealed HOA’s exposure to reinsurance contracts arranged via Vesttoo, thus realising a charge of $48.2 million in its Q2 results.
Then, in September, Porch disclosed that HOA had been placed under temporary supervision by the Texas Department of Insurance (TDI) with regard to its exposure to the Vesttoo-linked fraud, though had replaced 84%, or $147 million, of reinsurance affected by the issues.
Subsequently, HOA’s rating agency Demotech, Inc. withdrew its financial stability rating. Porch noted that it has worked closely with the TDI to “restore surplus to an appropriate level.”
Porch has now made a $57 million cash investment in HOA to increase surplus, in exchange for a $49 million surplus note, with interest and principal payments, and early redemption subject to sufficient capitalisation levels at HOA and TDI approval, and the purchase of all rights from HOA for potential claims related to the fraud connected to Vesttoo and others.
Additionally, HOA will continue to use Porch Group’s captive reinsurer to” further support financial strength.”
Porch has also been appointed to the statutory committee of unsecured creditors in the Chapter 11 bankruptcy of Vesttoo and intends to “pursue recovery of funds.”
Matt Ehrlichman, Chief Executive Officer, Porch Group, said, “This transaction is a credit to the team who worked tirelessly with TDI and others to find a structure which supports HOA and is a good outcome for Porch and our stakeholders now and into the future.
“We continue to focus on strong and consistent execution of things we can control and are pleased with the progress being made across Porch and what is ahead.”
