Porch Group has announced that its insurance carrier, Homeowners of America Insurance Company (HOA), has been placed under temporary supervision by the Texas Department of Insurance (TDI) with regard to its exposure to the Vesttoo-linked letter of credit fraud, though has now replaced 84% of reinsurance affected by the issues.
As reported early last month, Porch disclosed in its Q2 results that HOA had a reinsurance contract with White Rock Insurance SAC Ltd, an Aon subsidiary, for which Vesttoo arranged capital.
As a result of these allegations against Vesttoo, Porch recognised a $48.2 million charge in provision for doubtful accounts to “reduce the net recorded balance receivable from the associated reinsurance contract.”
According to Porch, HOA is pursuing recovery for all losses and damages incurred, with the firm adding, “HOA held $192 million of unrestricted cash and investments as of June 30, 2023, and will continue to remain responsible and committed with respect to all claims and claim settlement expenses under its policies.”
Porch went on to note that the supervision order provides the TDI with “more visibility and control during uncertain periods and ensures there are sufficient plans to build capital surplus at the carrier.”
“HOA continues to maintain management of the day-to-day operations of the company and its assets, including the writing of new business and renewals and the payment of claims, subject to the TDI’s supervision,” Porch said.
The firm anticipates the supervision order to last until the TDI is sufficiently comfortable with HOA’s operations and financial position post-Vesttoo.
Porch noted that since terminating its reinsurance agreement with Aon White Rock effective July 1, 2023, HOA has secured approximately $147 million in supplemental reinsurance coverage with third parties. This replaces approximately 84% of the reinsurance coverage that was in place under the now-terminated agreement, the firm said.
Pending TDI approval, HOA plans to place additional reinsurance with Porch Group’s captive reinsurer. In addition, HOA will require additional capital to restore surplus, primarily driven by the Vesttoo matter, and is discussing its plans with the TDI.
Matt Ehrlichman, Chief Executive Officer of Porch Group, commented, “Vesttoo’s alleged fraudulent activity is an unfortunate event for insurance carriers and the reinsurance industry alike.
“That said, it is a one-time event that the Porch team has quickly reacted to and has done an excellent job of securing supplemental reinsurance coverage. HOA has historically produced strong results, and we look forward to working with the TDI and providing clarity on HOA’s plans for continued strength moving forward.
“We view TDI’s supervision order as a sensible action for a regulator to take given Vesttoo’s widespread impact on the insurance industry. We do not believe HOA is alone here as others have been impacted and are seeking recovery. We remain confident in our strategy and our team to deliver against our goals.”
