Porch Group subsidiary Homeowners of America Insurance Company (HOA), a managing general agent (MGA) and insurance carrier hybrid with exposure to the Vesttoo-linked letter of credit (LOC) fraud, has now replaced some 84% or $147 million of reinsurance affected by the issues, but still been placed under temporary regulatory supervision.
As we reported previously, the company had revealed exposure to reinsurance contracts arranged via Vesttoo, then realising a charge of $48.2 million in its second-quarter results, while pursuing $300 million of collateral from a letter of credit (LOC).
Porch stated that it believed there had been appropriate checks on the letter of credit (LOC) in question.
The $300 million in letters of credit (LOCs) appeared to be from the China Construction Bank, the main bank named as being on fraudulent LOCs used in reinsurance deals facilitated by Vesttoo.
As we later reported, Homeowners of America Insurance Company (HOA) filed to appear as a creditor in the Chapter 11 bankruptcy case of beleaguered insurtech Vesttoo, as HOA looks to protect its rights and any possible recoveries that can be made.
The company said yesterday that it is now “pursuing recovery for all losses and damages incurred.”
But now HOA has been placed under temporary supervision by the Texas Department of Insurance (TDI), with the TDI seeking “more visibility and control during uncertain periods and to ensure there are sufficient plans to build capital surplus at the carrier.”
It’s expected the supervision will last “until the TDI is sufficiently comfortable with HOA’s operations and financial position post-Vesttoo.”
Porch said that since HOA terminated the Vesttoo-linked reinsurance agreement, it has secured roughly $147 million in supplemental reinsurance coverage with third parties, replacing approximately 84% of the reinsurance coverage that was in place under the now terminated agreement.
Pending regulatory approval, HOA is also planning to secure additional reinsurance with Porch Group’s captive reinsurer.
On top of this, HOA will also require additional capital to restore surplus, which it said is “primarily driven by the Vesttoo matter.”
“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 wide-spread 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,” explained Matt Ehrlichman, Chief Executive Officer of Porch Group.
It’s another reminder of the ramifications of the letter of credit (LOCs) issues linked to Vesttoo and how deeply they are affecting some companies in the market.
Update: It’s also notable that we’re told Demotech withdrew HOA’s rating yesterday.