Fronting company Obsidian says Vesttoo exposure “de minimus”

Obsidian Insurance Holdings, Inc., a hybrid program insurance and fronting carrier holding company, has told us that any impact from the fall-out of collateral related issues at insurtech Vesttoo could only have “de minimus” impact to its business.

Like other fronting specialists, Obsidian operates between the MGA and reinsurance capital, helping their access to it and linking capital more closely to the risks underwritten by specialist MGA’s.

With multiple letters of credit (LOCs) backing Vesttoo reinsurance participations in programs now thought to be fraudulent or forged, there is a risk to fronting specialists that capacity is not there to support the functioning of client programs.

But Obsidian told us that the impact would be insignificant, suggesting only minimal exposure to any reinsurance capital facilitated by Vesttoo.

A spokesperson told us, on the Vesttoo collateral question, that, “Obsidian is closely monitoring the situation.”

Adding that, “The potential  impact with respect to existing business and ceded recoverables is de minimus.”

Recall that fronting specialists MS Transverse had stated that Vesttoo only participates directly on one program with it and that this business is fully collateralized with cash, so any exposure to collateral issues at the insurtech is “immaterial.”

While fronting specialist Clear Blue Insurance Group said it does not expect a material impact to its ratings from the ramifications of the issues at Vesttoo, but that the company may seek out more reinsurance to protect its surplus and capital.

Until more detail and confirmation emerges about the true extent of any letter of credit (LOC) issues linked to transactions undertaken by Vesttoo, it is extremely challenging to understand the true fall-out and how widely it could reach.

Fronting and program specialists are potentially exposed, as too are their clients, where they may have had Vesttoo participation on reinsurance panels and where that turns out to have letter of credit (LOC) involvement.

The lack of clarity is making it hard to understand who could be involved and how impactful it might be, but we understand that Vesttoo continues to work with its clients and partners, so keeping them informed.

We’re also told that brokers involved in trades undertaken by Vesttoo have been active in informing clients and trying to help them understand what this episode might mean for their reinsurance arrangements and whether alternatives need to be found.

It’s clear from the statements and responses made by fronting companies that they feel any exposure is either manageable, or deemed to be insignificant, as in the case of Obsidian.

Also read:

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.