Collateral news

As the story surrounding the discovery of fraudulent or forged letters of credit (LOCs) linked to collateralized reinsurance transactions facilitated by Vesttoo continues to develop, it’s become increasingly clear that any fraud that has occurred was particularly sophisticated, as numerous parties have not spotted any issues with the collateral in question.

As the audit and investigation into the discovery of fraudulent or forged letters of credit (LOCs) linked to collateralized reinsurance transactions facilitated by Vesttoo moves towards its third week, we now understand the FBI has begun its own investigation into the matter.

Under pressure insurtech Vesttoo is set to lay off a large portion of its global workforce as it continues to work to identify how the fraudulent letter of credit (LOC) collateral issue occurred.

Corinthian Group, the specialty non-catastrophe focused collateralized P&C reinsurance firm, has told its partners that it has agreed to terms on an up to $200 million injection of capital from a large investor, to replace collateral linked to Vesttoo.

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.

Executives from broking giant Aon would not be drawn to comment on the market issues around potentially invalid collateral, but President Eric Andersen did say that letters of credit (LOCs), as one of the forms the broker uses to match capital with risk, do bring the kind of capital they need for their clients.

Specialty non-catastrophe focused collateralized P&C reinsurance firm Corinthian Group said that in addressing issues related to reinsurance collateral sources via insurtech Vesttoo, the company is operating under the assumption that all letters of credit (LOCs) sourced from it are fraudulent.

Fronting specialist Clear Blue Insurance Insurance Group has already managed to replace over half of the coverage needed for reinsurance programs affected by the collateral issues linked to insurtech Vesttoo, the company said in an update.

Speaking today, Everest COO and Head of Reinsurance Jim Williamson said the company has the flexibility to lean in to any underwriting opportunities that emerge as a result of the fall-out from collateral issues linked to Vesttoo, although it would see them as secondary in terms of priority to its core focus.

Rating agency DBRS Morningstar says that the credit implications of the Vesttoo linked collateral issues should remain manageable for most insurance and reinsurance firms, but that “a number of fronting specialist insurers could have more significant exposure.”