Clear Blue Insurance Group is the first external organisation that has signed up to appear in the Chapter 11 bankruptcy case of beleaguered insurtech Vesttoo, as the fronting specialist looks to protect its rights as a possible creditor.
As we’d reported before, given its market presence and the fact it had entered into a partnership to work with Vesttoo back in 2022, Clear Blue Insurance Group was always assumed to be the fronting carrier specialist with the highest potential exposure to issues related to allegedly fraudulent Vesttoo-linked letters of credit (LOC).
Clear Blue and Vesttoo signed an agreement back in August 2022, with the insurtech stating a plan to deploy as much as $1 billion of capacity from the capital markets through Clear Blue’s property and casualty (P&C) programs over the next year.
On the emergence of claims of letter of credit (LOC) fraud, Clear Blue stated that it did not expect a material impact to its ratings from the ramification of the issues unfolding at Vesttoo, but said it could seek out more reinsurance to protect its surplus and capital.
Rating agency AM Best then said it would investigate the fronting carriers with links to Vesttoo, later issuing a statement saying it had placed Clear Blue Insurance Insurance Group’s A- financial strength rating under review with negative implications.
With the scandal evolving still and there remaining a lack of clarity over how extensive any LOC fraud has been, fronting specialists such as Clear Blue have been facing the risk that reinsurance capacity is not there, or the security not valid, to support the functioning of client programs.
Which has driven much of the industry to seek to replace all cover linked to Vesttoo across the market, as the uncertainty around the validity and integrity of collateral drove those that are exposed to move fast and seek to distance themselves from any issues.
Clear Blue then said in late July that it had already managed to replace over half of the coverage needed, for reinsurance programs affected by collateral issues linked to Vesttoo.
Now, Clear Blue is seeking to protect its rights under the bankruptcy courts, seeing itself as a possible creditor to the Chapter 11 action involving Vesttoo entities.
It’s the first third-party company we’ve seen officially filing its appearance with the Delaware bankruptcy court.
A spokesperson told Artemis, “Clear Blue, through its counsel Skadden Arps, filed a notice of appearance in Vesttoo’s Delaware bankruptcy matter to protect Clear Blue’s rights as a creditor.”
In bankruptcy proceedings, it’s important to be included in the creditor list, so parties can be involved in the action and protect any rights they have to a claim against the debtor.
In this case it seems Clear Blue may feel it has a claim, as a creditor against Vesttoo as debtor, although at this stage there is no visibility as to what that might exactly be.
Of course, we’re likely to see many other third-parties, counterparties and partners come to light through the Vesttoo bankruptcy process and so it’s not surprising to see Clear Blue emerge as the first, given it is seen as one of the companies with the highest volumes of business transacted that Vesttoo had been linked to.