Fronting and program specialist Clear Blue Insurance Group has underlined its strong enterprise risk management procedures that protect its claims paying ability and financial strength, but has said that it may seek additional reinsurance, in response to allegations of fraudulent collateral issues at Vesttoo.
As allegations of fraudulent letters of credit (LOC) issued by the China Construction Bank for reinsurance collateral, on behalf of Vesttoo, continue to be investigated, Clear Blue has confirmed that its insurance companies have used Vesttoo for reinsurance capacity on certain programs over the past 18 months.
The fronting and program specialist explains that regarding any programs involving reinsurance collateral backed by Vesttoo and the bank in question, at all times, it has retained premiums, which were either directly withheld or retained in trust accounts that are fully accessible, which is in line with its enterprise risk management procedures.
“That premium, which we remain in possession of today, is more than sufficient to pay all claims on those programs,” says Clear Blue.
“Regardless of Vesttoo’s ability or willingness to honor its obligations, Clear Blue’s risk management processes have protected its claims paying ability. Clear Blue will continue to collect all premium going forward for those Vesttoo/China Construction Bank transactions. We do not expect a material impact to our AM Best rating or any other negative consequences to our business or our policyholders,” adds the firm.
The company adds that it continues to investigate the facts and is in dialogue with all stakeholders, and is developing action plans. Clear Blue has retained outside counsel to undertake a comprehensive investigation into the issue at Vesttoo, explaining that it will continue to be focused on achieving a resolution in a timely manner.
“In the normal course, we may seek additional reinsurance to protect our policyholder capital/surplus, but in the meantime, we want to emphasize that Clear Blue is and will continue to operate in a “business-as-usual” environment,” notes Clear Blue.
With numerous LOCs backing Vesttoo reinsurance participations in programs reported to be either fraudulent or forged, the risk for fronting companies is that the capacity is not there to support their clients programs.
As a result, those companies exposed to the issue at Vesttoo will be looking for replacement collateral, and fronting specialists will need to replace reinsurance that sits behind any impacted programs.
Going forward, Clear Blue says that it “will not be accepting Vesttoo as reinsurance capacity on new or renewal programs”.
Clear Blue and Vesttoo entered into a partnership in August 2022, under which the latter would deploy $1 billion in reinsurance capacity to Clear Blue’s P&C lines over the next year.
The statement from Clear Blue follows an announcement by fronting company MS Transverse last week, which explained that it believes any impairments following the issues at Vesttoo “should be immaterial” to its business.
