Porch to “vigorously” pursue all Vesttoo fraud related damages
Porch Group, the software-focused financial services group with a home insurance arm that was hit after a letter of credit (LOC) backing a reinsurance deal it had with insurer Vesttoo was found to be fraudulent, intends to pursue damages vigorously and not just against Vesttoo, it seems.
Recall that Porch had revealed that its subsidiary Homeowners of America Insurance Company (HOA) had a exposure to reinsurance contracts concluded via Vesttoo.
As a result, the company took a $48.2 million charge in its second-quarter results and said it was seeking $300 million in collateral from a letter of credit (LOC).
The company had reported that Homeowners of America Insurance Company (HOA) replaced 84%, or $147 million, of the reinsurance limit affected by Vesttoo’s fraud issuesbut was still placed under temporary regulatory supervision.
After which Porch said he had made a $57 million cash investment in HOA, in exchange for a $49 million HOA surplus note and the acquisition of HOA rights to potential claims arising from the fraud linked to Vesttoo and others, while also joining in the insurtech’s bankruptcy proceedings as a member of the official committee of creditors.
Last week, Porch Homeowners Carrier HOA emerged from regulatory oversight, while also receiving an Outstanding Financial Stability Rating of A, from Demotech.
“HOA is now out of TDI’s supervision, with a strong third quarter on the books with a gross loss ratio of 39% and a combined ratio of 58%, and an A rating from Demotech. Recovering so quickly from the Vesttoo fraud confirms the strength of our business: the financial performance, healthy surplus, reinsurance program and business plan for the future are solid. We value and appreciate the partnerships with Demotech and TDI and look forward to continued success,” said then-CEO Matt Ehrlichman.
During Porch’s third-quarter earnings call, Ehrlichman and other senior Porch executives discussed the Vesttoo issue and said pursuing lawsuits against the insurtech and others remained a priority.
Ehrlichman said the Vesttoo scandal was an unpredictable “headwind” and an “unexpected challenge”, adding: “I want to pay tribute to our team who focused on this topic, who worked with the TDI in the most promptly. to answer their questions and allowed them to quickly exit supervision.
Ehrlichman also said that the company has now fully replaced the reinsurance limit it lost after the termination of the agreement with Vesttoo: “Our reinsurance team has done an excellent job, after the termination of Vesttoo, in turning into the third-party reinsurance market and replenishing our excess loss pile and bringing other leading and Category A reinsurers into this program.
“So we’ve completely rebuilt this program and we’ve had it in place for a while now, to make sure we’re protected. »
Shawn Tabak, Porch’s chief financial officer, explained that the damage recovery work is ongoing and involves more parties than just Vesttoo.
“Last quarter we discussed that HOA had a reinsurance contract that Vesttoo arranged capital for. Vesttoo has since filed for bankruptcy in the United States Federal Court and admitted that its team committed a massive fraud affecting many in the industry,” Tabak said.
Adding that “As soon as we became aware of these issues, our team quickly mobilized to assess the situation, terminate the contract and maximize recovery.
“We have established a task force to recover funds, replace reinsurance coverage and respond to the TDI monitoring order. HOA was also appointed by the U.S. Bankruptcy Trustee to a 5-member committee of creditors that is currently empowered to investigate Vesttoo, the banks and others and seek recoveries.
Tabak added: “This approach will help all creditors pursue recovery while managing associated costs. »
Then he explained: “We currently intend to vigorously assert our rights and pursue all damages. At the right time, we will provide more information about the law firm, the specific companies we will pursue in claims and disputes and which reinsurance broker we plan to work with in the future.
This latest comment suggests that Porch is changing reinsurance brokers in light of the Vesttoo reinsurance fraud issue, which could also indicate that the company could explore the possibility of seeking damages.
“We are also exploring other avenues for recovery, which I will not comment further on at this time,” Tabak said.
Given the amount of losses and damages, for all creditors, in this fraud, it seems likely that the ceding companies in particular will seek damages from several parties, as it is difficult to believe that the bankruptcy of Vesttoo will allow for one of them to feel whole again.
