December 3, 2023

Obsidian Insurance Holdings, Inc., a hybrid plan insurance and front carrier holding company, told us that any impact from insurtech Vesttoo’s collateral-related issues would only have a “minimal” impact on its business.

Sisto ObsidianLike other leading specialists, Obsidian works between MGA and reinsurance capital, helping them secure funding and link capital more closely to the risks underwritten by specialty MGAs.

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.

But Obsidian told us the impact was insignificant, suggesting little exposure to any reinsurance capital that Vesttoo facilitated.

Regarding the Vesttoo collateral issue, a spokesperson told us, “Obsidian is monitoring developments closely.”

It added that “the potential impact on existing operations and the transfer of recoverable assets is minimal.”

Recall that frontier specialist MS Transverse has said that Vesttoo is only directly involved in one of its schemes and that the business is entirely cash-collateralized, so any collateral issues facing the insurtech are “irrelevant”.

While leading specialist Clear Blue Insurance Group said it did not expect the fallout from Vesttoo’s problems to have a material impact on its ratings, the company may seek additional reinsurance to protect its surplus and capital.

Until more details and confirmation of the true scope of any letter of credit (LOC) issues related to transactions with Vesttoo emerge, it will be extremely challenging to understand the true impact and the extent of it.

The front desk and project specialists could be affected, as could their clients, who may have engaged Vesttoo in the reinsurance group, which, it turns out, was also involved in the letter of credit (LOC).

The lack of clarity makes it difficult to understand who could be involved and how much impact it might have, but we know Vesttoo continues to work with customers and partners so keep them informed.

We have also been told that brokers involved in the Vesttoo deal have been actively informing clients and trying to help them understand what this event might mean for their reinsurance arrangements and whether alternatives need to be looked at.

It is clear from the statements and responses of the front companies that they believe any risk is either manageable or considered insignificant, as was the case with Obsidian.

Also read:

July 24 – Clear Blue: Vesttoo issues have no material impact on ratings. Reinsurance may be required.

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.

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