Homeowners of America, a subsidiary of Seattle-based home services software company Porch Group Inc. (Nasdaq: PRCH), is under temporary supervision from the Texas Department of Insurance (TDI), Porch announced on Tuesday.
The move stems from Homeowners of America's reinsurance contract with White Rock Insurance. The capital was arranged by Israel-based fintech Vesttoo, which filed for Chapter 11 bankruptcy in August after fraudulent letters of credit were found on its platform.
"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," Matt Ehrlichman, Porch's founder and CEO, said in a news release. "We do not believe HOA is alone here as others have been impacted and are seeking recovery."
Porch took a $48.2 million charge in the second quarter due to the contract with Vesttoo and said it is seeking to recover its losses. A Porch spokesperson said the company isn't commenting beyond the release.
Vesttoo offers an alternative version of reinsurance sourced from capital markets. The company raised $80 million and hit a $1 billion valuation in October 2022. Vesttoo is backed by Mouro Capital, the venture capital arm of Banco Santander. Since the fraudulent letters of credit were discovered, the company has closed offices, laid off employees and fired its CEO and chief financial engineer.
Porch acquired Irving, Texas-based Homeowners of America in 2021 for $100 million. Porch took an $18 million loss during the second quarter due to catastrophic weather. According to the release, Homeowners of America will still oversee day-to-day operations, and the supervision will last "until the TDI is sufficiently comfortable with HOA’s operations and financial position post-Vesttoo."
Porch was founded in 2013 as a marketplace but moved more into the software space roughly eight years ago. The company offers software for moving companies and home services companies, such as contractors, inspectors and utilities. Porch went public in 2020 through a merger with a special purpose acquisition company.
Porch generated $98.8 million in revenue during the second quarter, a 39% year-over-year increase. Its net loss, however, was $87.0 million, up from $27.3 million during the second quarter of 2022.
