Reinsurance News

Crypto insurer Relm reserves for FTX collapse exposure

7th December 2022 - Author: Pete Carvill

The co-founder and CEO of insurer Relm has said that the firm has allocated an undisclosed amount of its general reserve for claims arising from the implosion of crypto exchange FTX.

cryptoWriting on the firm’s website, Joseph Ziolkowski said that it had been ‘a difficult period’ in the ‘digital asset industry’ with particular reference to FTX, Alameda Research, and their affiliated entities. It was only in April that Relm launched its reinsurance business that accepted both fiat and crypto as collateral.

Ziolkowski wrote: “As has been reported in the media, Relm provides insurance coverage to West Realm Shires Inc. (commonly known as FTX.US) and FTX Australia Pty Ltd. We also provide insurance coverage to companies that have been compromised due to their relationship with FTX and Alameda and we are actively assessing the extent to which our coverage could be triggered.”

He added: “Accounting for the potential for direct and indirect losses, we have allocated a portion of our general reserve for both known and unknown claims related to this market impact. Following a detailed review of our entire portfolio, we remain confident that we will continue to be well-capitalised to serve the needs of the industry as the fallout from this event evolves. On the asset side of our balance sheet, we have remained highly conservative with approximately 95% of our assets in cash or US Treasury Bills.”

In his written article, Ziolkowski reiterated that the firm is ‘committed to the digital asset space’. This, he said, is done through, ‘not just by issuing policies and collecting premiums but also by paying legitimate, covered claims’.

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He added: “We genuinely believe in the potential of distributed ledger technology, and that belief informs a major part of our underwriting appetite for innovation. Our commitment to the support and rebuilding of this sector during and following this trying time remains unwavering.”

The FTX story is still developing but the firm filed for bankruptcy on November 11th, 2022, in the US court system following a liquidity crisis. It had been one of the world’s largest exchanges by volume, with backing from some of the biggest names in venture capital.

The trouble started when a popular crypto industry news service reported that a crypto hedge fund also owned by Bankman-Fried held billions of dollars worth of FTT, which is FTX’s own cryptocurrency, and had been leveraging it as collateral in risky trades.

A Reuters report claims that as much as $10bn in user funds were moved to sister firm Alameda Research, with sources revealing that $1bn to $2bn in client money is unaccounted for.

The failure of Bahamas-based cryptocurrency exchange – launched in 2019 by Sam Bankman-Fried – is likely to result in years of litigation in numerous jurisdictions and major losses for both shareholders and customers.

AM Best said a few days ago that although FTX is not an insurance company, the ratings agency asserts that the series of events leading to its collapse should nonetheless provide ‘a sobering warning for the insurance industry’.

Among the main governance issues flagged by AM Best was the lack of a board of directors at FTX and the concentration of power into the hands of a single individual, combined with a lack of experience amongst its senior management team.

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