Alternative LOC facility for casualty programs launched by Vanbridge & GreensLedge

Interesting news as Vanbridge, a diversified insurance and capital solutions company owned by program specialist and broker EPIC, and GreensLedge, a global investment banking and advisory specialist, together launched an alternative letter of credit (LOC) facility tailored specifically for casualty insurance programs.

The timing could be ideal, as the market continues to contemplate the ramifications of the biggest letter of credit (LOC) reinsurance collateral fraud in its history.

A fraud that has largely affected casualty program business, given the focus of the insurtech company involved.

Of course, we’re referring to the Vesttoo issues, where billions of dollars of LOCs posted as collateral for reinsurance deals proved to be fraudulent, leaving numerous market participants out of pocket and scrambling to stabilise their businesses.

Vanbridge and GreensLedge have launched a new joint venture company named Convergence Point Solutions (CPS).

CPS has then launched its Alternative Letter of Credit (ALOC) Facility, which the parties involved call “an efficient, off-balance sheet solution for companies to post collateral for Casualty insurance programs.”

It’s been designed for “companies that operate in industries that are required to post significant collateral for their Casualty insurance programs, thereby reducing their credit capacity, impacting liquidity and working capital.”

The story is that, Convergence Point Solutions has developed an alternative to satisfy the traditional collateral requirements of casualty insurance programs, through this new facility.

It creates off-balance sheet credit capacity (think third-party investor backed), outside of the traditional banking system, while companies pay a credit-based fee, and the facility arranges for an LOC to be issued by an NAIC-approved bank as collateral for their Casualty insurance policies.

As a result, the program manager or cedent can replace and release their existing collateral, dollar for dollar, while restoring their credit capacity.

Convergence Point Solutions manages the risk in the background, identifying the collateral as credit risk on a portfolio basis and recognising the regulatory protections for the true risk of default.

“By leveraging the financial and insurance capital markets together, we have created a solution to solve an insurance-related problem. We expect this solution to be transformative in industries where high collateral requirements are the norm,” explained Quentin Hills, Managing Principal at Vanbridge.

Lesley Goldwasser, Managing Partner of GreensLedge, also said, “We are excited to partner with Vanbridge and leverage our combined experience and expertise on this innovative solution that addresses a specific market need.”

The primary focus of the alternative LOC facility and structure is on providing liquidity to clients in a cost-effective manner, the companies said.

“We see this as a game-changing solution for these companies. Restoring their working capital capacity can substantially improve their operational capabilities, making it easier for them to adapt to market conditions and pursue growth opportunities,” added Philip V. Moyles, Jr., Managing Principal and CEO of Vanbridge.

The use of alternative capital structuring and financing techniques, to deliver a way casualty program owners and writers can secure new NAIC compliant collateral, is an interesting concept and could come in for some focus in the wake of the Vesttoo fraud, given the market’s focus on ensuring collateral (particularly LOC) quality and credit security.

This solution is not explicitly targeted at reinsurance for high frequency, low severity casualty program business, but it does seem that it could be suited to it and maybe worth exploration by those seeking new ways to make their collateral use and management more efficient, or seeking an alternative after the recent fraud episode that has affected the industry.