Porch Group unit under supervision due to exposure to alleged fraud

Porch Group, a provider of mortgage-related services and research, announced Tuesday that the Texas Department of Insurance is reviewing Homeowners Insurance Company of America's links to a global startup facing fraud claims.

The issue stems from allegations earlier this year aimed at Vesttoo Ltd., a fintech capital provider for companies like Aon subsidiary White Rock Insurance SAC Ltd. Aon White Rock is a reinsurer for the Porch Group insurance unit, and Vesttoo allegedly circulated falsified letters of credit.

The exposure to the credit lines has resulted in a $48.2 million charge at Porch for "doubtful accounts," and the new regulatory scrutiny is expected to focus on the homeowner policy provider's financial soundness in light of that concern.

"The supervision order provides the TDI with more visibility and control during uncertain periods and to ensure there are sufficient plans to build surplus at the carrier," Porch Group said in a press release.

The availability of homeowners insurance plays a key role in determining whether certain  property risks affect the ability to repay mortgages, and recent storms have compounded financial pressures some carriers face, intensifying regulatory scrutiny of financial stressors.

Porch Group reported that during the second quarter, it was "impacted by continued industry-wide headwinds and weather-related claims costs, including an $18 million loss from catastrophic weather events in the insurance segment."

Vesttoo, however, specialized in managing exposures to risks outside of those caused by natural disasters, according to the Wall Street Journal.

Porch CEO Matt Ehrlichman called the concern at Vesttoo a "one-time event" the company has worked to address.

"The Porch team has quickly reacted to and has done an excellent job of securing supplemental reinsurance coverage," Ehrlichman said in a press release. "HOA has historically produced strong results, and we look forward to working with TDI."

Porch Group has ended its reinsurance agreement with Aon White Rock and replaced roughly 84% or $147 million of the amount involved.

"Pending TDI approval, HOA plans to place additional reinsurance with Porch Group's captive reinsurer," the company said in its press release. "In addition, HOA will require additional capital to restore surplus, primarily driven by the Vesttoo matter."

The company had $358 million in unrestricted cash and investments at the end of the second quarter, $192 million of which was housed within the homeowner insurance unit.

Porch Group, Aon White Rock and Vesttoo all have reportedly said that they've been working to recover funds lost due to the alleged fraud, with the last two filing for bankruptcy protection and identifying a Hong Kong investor group in connection with the LOCs.

Former Vesttoo CEO Yaniv Bertele, who has been replaced on an interim basis by Ami Barlev, reportedly said he was "entirely unaware" of the alleged fraud. Barlev has served on the boards of several public and private companies, including startups, in Vesttoo's home market.

Vesttoo had positioned its capital markets platform as a way to use artificial intelligence to help insurers disperse and manage risk. Its lead investor in recent fundings was Mouro Capital, a spinoff of Banco Santander.