Porch strikes $30m deal with Aon, releases all Vesttoo fraud claims

Porch Group, owner of a homeowners insurer that found a letter of credit (LOC) backing its reinsurance deal with insurtech Vesttoo was forged, has agreed a $30 million strategic arrangement with broking giant Aon that includes releasing all claims related to the fraud it had against the broker.

porch-aon-vesttooIt’s the first sign of any sort of agreement, or settlement, as an attempt to avoid potential litigation related to the Vesttoo letter-of-credit (LOC) reinsurance fraud, although it is not presented as such in the press communication.

The press release from Porch states, that as part of a “strategic business collaboration agreement” with broking giant Aon Corp. and its reinsurance arm Aon Re, Inc., the release of claims related to the Vesttoo fraud was also signed.

The strategic agreement will see Aon and reinsurance arm Aon Re providing a range of services to Porch Group companies, which will result in payments to Porch of around $25 million upfront and an expected further roughly $5 million over the following four years.

Porch explained that it was seeking, “a strong partner who could both deliver strong outcomes with reinsurance placements and importantly, provide other services across Porch Group such as data modeling and more.”

Under the arrangement, Aon and Porch Group are now set to work together to place 2024 reinsurance coverage at the upcoming renewal on April 1st 2024, the software and insurance focused company explained.

“As part of this agreement, the parties also signed a release of claims arising from the Vesttoo fraud,” Porch explained.

But the company added that it, “has not released any claims against non-Aon parties related to these matters and intends to vigorously pursue recovery.”

“We think Aon is the right partner for us. They are a well-known name in the insurance industry who can provide a variety of important services to help across our business. Porch and our insurance carrier have worked with Aon for many years and we are excited to expand this relationship with Aon as our sole partner for certain services through 2028,” explained Matt Ehrlichman, Chief Executive Officer.

Porch also added that when it say it could still pursue other parties, for claims related to the letter of credit (LOC) fraud, this does include Vesttoo itself, its officers and directors and others.

The agreement will see Aon paying Porch $24.65 million in cash this month (January 2024), with an additional cash payment expected in 2025.

On top of this, Aon is expected to share with Porch’s insurance carriers a percentage of reinsurance brokerage revenue for the placement of contracts on their behalf that incept or renew each calendar year from 2025 through 2028.

This agreement will remain in place until the end of 2028, so meaning Porch will get a more cost-effective reinsurance placement arrangement at its disposal until that time.

However, the agreement also has a benefit for Aon, in cementing a relationship over reinsurance brokerage for the coming years. If Porch places reinsurance with brokers that are not affiliated with Aon, the company may be required to refund some of the amounts paid by Aon to Porch, under the terms.

Homeowners of America Insurance Company (HOA), is the subsidiary of Porch that was known to have exposure to the Vesttoo fraud.

As we’d reported before, Porch realised a charge of $48.2 million in its second-quarter results as a result of the Vesttoo fraud and said it was pursuing $300 million of 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 the Vesttoo fraud issues, but was still placed under temporary regulatory supervision.

After which Porch said that it had made a cash investment of $57 million in HOA, in exchange for a $49 million surplus note from HOA and the acquisition of HOA’s rights to potential claims stemming from the fraud connected to Vesttoo and others, while it also joined the insurtech’s bankruptcy proceedings as a member of the official creditor committee.

Porch had also said it would “vigoursly” pursue all Vesttoo fraud related damages.

Porch’s insurer HOA had purchased reinsurance from Aon affiliate White Rock Insurance (SAC) Ltd., which was acting in respect of a segregated account named T96 – Homeowners.

That appears to be the cell where the forged letter of credit supplied via Vesttoo had been placed for reinsurance collateral purposes.

It appears Porch must have been pursuing claims against Aon, although it’s not clear if litigation had been filed. It’s also not clear whether the contents of the T96 cell contain any value still and whether that is now tied up due to the Vesttoo bankruptcy proceedings and the disagreements over cell access and ownership that have occurred.

Now, the parties have signed a “Settlement and Release Agreement” and under it is stated “There are a wide set of services that Aon believes it could provide to Porch or its Affiliates in exchange for its customary compensation, including reinsurance brokerage services, executive compensation consulting services, services around the monetization of data and analytics, collaboration(s) related to data obtained or managed by Porch or its Affiliates, corporate insurance, health, wealth and talent solutions and capital advisory services.”

Aon Re is set to enter into an exclusive reinsurance intermediary-broker agreements with Porch subsidiary insurer HOA and the firm’s captive insurer Porticus Re, as well as the Porch Reciprocal entity once it is licensed.

Under the agreement, Porch will also get access to Aon’s risk modelling and analytics services at no additional cost, as well as other analytical and actuarial services, we understand.

Overall, it appears there could be significant benefits in this agreement for Porch, suggesting the parties have found a middle-ground whereby the company feels it is recouping a sufficient amount of value from Aon to release all claims it may have had against the broker related to the Vesttoo fraud.

Could this herald other settlement agreements, that release claims that could result in litigation against parties in the chain of Vesttoo-linked reinsurance transactions?

It is possible. But, there is also a chance this is a special case, where the two companies involved have an alignment that allows them to find a way out of this fraud debacle without resorting to the courts.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.

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