Markel lifts credit loss impact from Vesttoo letters of credit (LOC) to $65m

Having reported one quarter ago that it recognised a $25 million credit loss against a fraudulent $50 million letter of credit (LOC) for reinsurance provided by insurtech Vesttoo, Markel Group has now increased the credit loss related to Vesttoo collateral to $65 million.

Last September, Markel joined the Vesttoo bankruptcy proceedings as a creditor, seeking remedies after two letters of credit (LOC) totalling $127.75 million in value were found to be fraudulent, in collateralized reinsurance transactions it had entered into.

Then, after the third-quarter, Markel reported the $25 million credit loss, which it said was in connection with a $50 million fraudulent letter of credit that was provided by an affiliate of Vesttoo  as collateral for reinsurance purchased against an intellectual property collateral protection insurance product that had faced a claim in the period.

At that time, in its Q3 2023 earnings, Markel revealed that Vesttoo was also the counterparty to a second ceded reinsurance contract on that same intellectual property related product line, with an aggregate limit of $77.8 million again backed by a forged letter of credit (LOC) supplied by the insurtech.

Markel warned at the time, “Although a loss has not yet been incurred under this policy, management believes the potential for a covered loss event is reasonably possible.”

It’s now clear losses have risen against the underlying intellectual property collateral protection contracts in question, resulting in a further impact to Markel.

The company said yesterday that, “We recognized losses on our intellectual property collateral protection insurance written within our professional liability product line in 2023 due to higher than anticipated levels of claims and loss experience.”

Adding, “Losses on this product line included $65.0 million of credit losses recognized in connection with fraudulent letters of credit that were provided by an affiliate of Vesttoo Ltd. as collateral for reinsurance purchased on two policies.”

Markel also said that it believes this figure now “represents our full exposure to credit losses on the related reinsurance recoverables.”

The company again stated that, “We are actively pursuing remedies to make recoveries on the reinsurance recoverables impacted by the fraudulent letters of credit and do not have any other ceded reinsurance contracts with Vesttoo Ltd. or its affiliates.”

Markel is one of the companies in the Official Committee of Unsecured Creditors to the Vesttoo bankruptcy case, so continues to pursue remedies against that company in the courts.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.