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Aon facing client & counterparty action over Vesttoo linked letters of credit


Insurance and reinsurance broking giant Aon has acknowledged that it is facing legal action over letters of credit (LOCs) related to the Vesttoo collateral investigation, but believes it has “meritorious defenses” in this case.

aon-legal-actionAon has disclosed that some of the broking group’s clients and counterparties have “initiated or indicated that they may initiate legal proceedings” against it, over the fall-out from the collateral fraud allegations at Vesttoo.

Aon noted that Vesttoo is one of the third parties it works with that identifies capital providers to collateralize the insurance and reinsurance obligations of Aon’s clients and counterparties.

Aon said, “In certain transactions in which Vesttoo identified third party capital providers to collateralize reinsurance obligations, including transactions in which the Company or its affiliates provided brokerage or other services, some letters of credit from third party banks are alleged to have been fraudulent.”

The broker added that it is “actively investigating those allegations.”

Aon suggests there are a range of “theories of liability” in the pending or threatened legal action against it, one of which is that the broker “failed to comply with its alleged duty to procure appropriate letters of credit.”

“Aon believes that it has meritorious defenses and intends to vigorously defend itself against these claims and to seek recourse against third parties where appropriate,” the broker explained.

Aon also highlighted that authorities in Bermuda have “initiated investigations or inquiries into this matter”, while the broker also acknowledges that “other regulatory authorities could initiate investigations or proceedings against the Company or third parties.”

Some of the insurance business media have reported that there are Aon intellectual property transactions with a link to Vesttoo’s collateral issues, as we explained Friday.

As we explained when these collateral issues first came to light, it seems there are parties to transactions that might have been expected to have provided some oversight of the collateral, helping to ensure its integrity and validity.

There are numerous entities in the chain of security, when it comes to risk transfer, especially for collateralized reinsurance.

So, it is not surprising that broker’s would come under some scrutiny, as too will other service providers that were either close to the collateral, or that had a duty of advocacy to the cedents involved in transactions affected by the Vesttoo linked collateral.

It stands to reason other brokers that had been involved in transactions linked to Vesttoo will also be facing questions from clients, with the potential for legal action where any collateral is proven invalid.

Also read:

July 28th – No comment from Aon on collateral issues, but LOCs seen as important.

July 28th – Corinthian operating under assumption all Vesttoo-sourced LOCs are fraudulent.

July 28th – Clear Blue: Over 50% of Vesttoo-linked reinsurance already replaced.

July 27th – Everest can lean in if opportunities emerge from Vesttoo collateral issue: Williamson.

July 27th – Vesttoo issue shows importance of sound counterparty risk practices: DBRS.

July 27th – Beazley CEO on Vesttoo: We would look to replace cover & recover premium.

July 26th – Clear Blue rating under review with negative implications on Vesttoo issues.

July 25th – Vesttoo: Updated statement says appears “procedures were circumvented”.

July 25th – AM Best to review fronting collateral in light of Vesttoo news.

July 25th – Fronting company Obsidian says Vesttoo exposure “de minimus”.

July 24th – Clear Blue: No material rating impact from Vesttoo issue. Reinsurance may be required.

July 21st – Vesttoo: Multiple LOCs from one bank in focus. Failure of security controls or KYC?

July 20th – MS Transverse: Any exposure to Vesttoo LOC collateral issues “immaterial”.

July 20th – Vesttoo: Collateral damage.

July 19th – Vesttoo: New report claims significant amount of forged LOCs. The question is how?

July 18th – Vesttoo faces fraudulent collateral claim. Confirms investigation, exit of some leaders.

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