Porch Group, the Seattle-based vertical software and insurance platform, disclosed on Tuesday that its Homeowners Association (HOA) has been placed under temporary regulatory supervision by the Texas Department of Insurance (TDI). The move comes in the wake of allegations of fraudulent activity against Vesttoo Ltd, which had arranged capital for a reinsurance contract between HOA and White Rock Insurance SAC Ltd, an Aon (NYSE: AON ) subsidiary.
According to a company announcement, the supervision order is intended to provide TDI with more visibility and control during this uncertain period and to ensure there are sufficient plans to build capital surplus at the carrier. Despite the supervision, HOA will continue to manage its day-to-day operations, including the writing of new business and renewals and the payment of claims.
The fraudulent allegations against Vesttoo first surfaced in July 2023. As a result, Porch recognized a $48.2 million charge in provision for doubtful accounts in its June 30, 2023 financials to reduce the net recorded balance receivable from the associated reinsurance contract. HOA is currently pursuing recovery for all losses and damages incurred due to the alleged fraudulent activity.
Following the termination of 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 about 84% of the reinsurance coverage that was in place under the now terminated agreement. Subject to TDI approval, HOA plans to place additional reinsurance with Porch Group's captive reinsurer.
The company held $358 million of unrestricted cash and investments as of June 30, 2023, including $192 million at HOA and $166 million in other Porch businesses and corporate entities. Additional capital will be required to restore surplus, primarily driven by the Vesttoo matter, and HOA is discussing its plans with the TDI.
“Vesttoo’s alleged fraudulent activity is an unfortunate event for insurance carriers and the reinsurance industry alike," said Matt Ehrlichman, Chief Executive Officer of Porch Group. "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."
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