Pre-project specialist Clear Blue Insurance Group said that while the fallout from Vesttoo’s problems was not expected to have a material impact on its ratings, the company would likely seek additional reinsurance to protect its surplus and capital.
Clear Blue is considered perhaps the most closely watched frontier company involved in reinsurance funding from the controversial insurtech Vesttoo.
With multiple Letters of Credit (LOCs) backing Vesttoo Reinsurance’s participation in schemes currently considered fraudulent or bogus, front-end specialists are at risk of not being able to support client scheme operations.
Clear Blue and Vesttoo entered into a partnership in August 2022, with the insurtech planning to deploy up to $1 billion in capacity from capital markets over the next year through Clear Blue’s property and casualty (P&C) program.
While we can’t say for sure how far the pair has come in achieving this goal, what is certain is that a relatively large amount of Vesttoo-related collateral already existed behind Clear Blue’s project when Clear Blue’s collateral issue arose.
Clear Blue has now issued a statement in which the front company said it was “aware that the reinsurance collateral letter of credit issued by China Construction Bank on behalf of Vesttoo was fraudulent” and that its insurer had “utilized Vesttoo’s reinsurance capabilities on some of our projects over the past 18 months.”
The front office expert said the company had strong risk management controls in place to protect its claims capacity and financial strength.
One of these is retention of client premiums under written plans, which the company said it has retained for all plans backed by Vesttoo Reinsurance and featuring reinsurance collateral backed by China Construction Bank, either directly withheld or held in trust accounts that Clear Blue has full access to.
Clear Blue said, “The premiums we still have today are sufficient to cover all claims on these plans.”
The front company said “Clear Blue’s risk management processes protected its ability to pay claims” regardless of the good faith of Vesttoo’s collateral.
Added, “Clear Blue will continue to collect all premiums on the Vesttoo/CCB transaction. We do not anticipate a material impact on our AM Best rating, nor any other negative impact on our business or policyholders.”
The company continued: “Clearblue is working diligently to investigate the facts, communicate with all stakeholders, and develop an action plan. We have hired outside counsel to conduct a full and thorough investigation of this matter, and we will continue to focus our efforts on resolving this issue in a timely and complete manner.
“Under normal circumstances we may seek additional reinsurance to protect our policyholder capital/surplus, but in the meantime we would like to emphasize that Clear Blue is and will continue to operate in a ‘business as usual’ environment.
“Clear Blue will not accept Vesttoo as a reinsurance capability for future new or renewal plans.”
We understand that the sale process that Clear Blue has undertaken in recent weeks has now been put on hold as the fallout from the Vesttoo collateral issue continues to unfold.
Companies facing the unfolding Vesttoo collateral crisis will now seek alternative collateral, leading experts to replace the reinsurance behind affected projects.
Acquiring alternative reinsurance now is likely to be a more onerous and expensive task than initially obtaining reinsurance from Vesttoo, as the market holds all the cards on price and terms, and the whole issue is seen as another stimulus for the continuation of difficult market conditions, our sources say.
21 July – Vesttoo: Multiple LOCs of one bank come into focus. Security controls or KYC failure?
20 July – MS Transverse: Any Vesttoo LOC collateral exposure is “immaterial”.
July 20th – Vesttoo: Collateral damage.
July 19th – Vesttoo: New report claims a large number of fake LOCs. The question is how?
July 18 – Vesttoo faces fraudulent collateral claims. Confirmation of the investigation, some leaders withdrew.