Porch invests in HOA, buys rights to any Vesttoo fraud related claims

Porch Group, a software driven financial services group with a homeowners insurance arm, continues to proactively strengthen its business to recover from exposure to the Vesttoo-linked letter of credit (LOC) collateral fraud that affected certain reinsurance deals its Homeowners of America Insurance Company (HOA) subsidiary had entered into.

Homeowners of America Insurance Company (HOA) is a managing general agent (MGA) and insurance carrier hybrid subsidiary of Porch.

Back in August, Porch had revealed HOA’s exposure to reinsurance contracts arranged via Vesttoo, realising a charge of $48.2 million in its second-quarter results, while pursuing $300 million of collateral from a letter of credit (LOC).

Then, earlier in September, the company had reported that Homeowners of America Insurance Company (HOA) had replaced some 84%, or $147 million, of reinsurance affected by the Vesttoo fraud issues, but had still been placed under temporary regulatory supervision.

Now, Porch has said that it has made a cash investment of $57 million in HOA, in exchange for a $49 million surplus note from HOA and the acquisition of HOA’s rights to potential claims stemming from the fraud connected to Vesttoo and others.

In addition, Porch has now joined the statutory committee of unsecured creditors in the Chapter 11 bankruptcy of Vesttoo, replacing HOA which had joined the bankruptcy proceedings as a creditor back in August.

Porch said that it “intends to pursue recovery of funds.”

The injection of capital into HOA is designed to increase the insurers surplus, a move undertaken after working closely with the Texas Department of Insurance (TDI), Porch said.

The company also said that HOA is expected to make continued use of Porch Group’s captive reinsurer to further support its financial strength.

“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,” explained Matt Ehrlichman, Chief Executive Officer.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.