Homeowners of America, the insurance subsidiary of Seattle-based home services software company Porch Group Inc. (Nasdaq: PRCH), is no longer under temporary supervision from the Texas Department of Insurance (TDI).
Porch announced the move Nov. 2, roughly two months after first being placed under temporary supervision. The action stemmed from Homeowners of America's reinsurance contract with White Rock Insurance, as the capital was arranged by fintech Vesttoo, which filed for Chapter 11 bankruptcy in August after fraudulent letters of credit were found on its platform.
“We appreciate the time and effort of the TDI, who did a thorough review of HOA’s financials and go-forward business plan. Our release from supervision reinforces our belief that our insurance business is well positioned for the future,” Porch founder and CEO Matt Ehrlichman said in a release.
The contract with Vesttoo caused Porch to take a $48.2 million charge in the second quarter. According to a news release, Porch made a $57 million investment in Homeowners of America in exchange for a $49 million surplus note and acquiring "rights to potential claims receivables related to the fraud connected to Vesttoo and others."
Vesttoo offered an alternative form of reinsurance, which is essentially insurance for insurance companies, sourced from capital markets. The company hit a valuation of $1 billion when it raised $80 million in October 2022. Mouro Capital, the venture capital arm of Banco Santander, is an investor.
Since the fraudulent letters of credit were discovered, the company has closed offices, laid off employees and fired its CEO and chief financial engineer. Vesttoo is reportedly trying to avoid liquidation and is looking for an acquisition of its technology.
Porch launched in 2013 as a marketplace but moved more into the software space about eight years ago. Porch offers software for moving companies and home services companies, such as contractors, inspectors and utilities. The company went public in 2020 through a SPAC (special purpose acquisition company) merger.
In 2021, it acquired Irving, Texas-based Homeowners of America for $100 million. Porch generated $129.6 million in revenue during the third quarter, up from $77.4 million during the third quarter of last year. In a release, Porch said its revenue was driven by its insurance business.
