Fronting company MS Transverse has released a statement in light of the alleged issues with letters of credit (LOC) used as collateral for transactions facilitated by insurtech Vesttoo, explaining that the latter only participates on one program with MS Transverse, and that it believes any impairments “should be immaterial” to its business.
This is the first fronting company to release a formal statement following the news that an internal investigation is underway at Vesttoo after reports of fraudulent collateral in the billions of dollars.
In a statement, David Paulson, President of MS Transverse, said: “Vesttoo participates directly on only one program with MS Transverse. The Vesttoo participation began in the first quarter of 2023. The business written on MS Transverse paper is collateralized with cash. MS Transverse will continue to monitor and take all needed steps to ensure smooth operation of the program.
“To our full knowledge, all other exposure to Vesttoo would be indirect through other reinsurance capital providers having arrangements with the company. Our current belief is that impact to MS Transverse from any impairments to LOC collateral should be immaterial to our business and our investigation is ongoing.”
Adding: “MS Transverse recognizes that financial security is integral to our business and one of the key roles we strive to protect for the program market.
“As the only hybrid fronting carrier backed by a global P&C leader, we will continue to remain a stable force supporting our partners and the market.”
While it’s still unclear exactly what has happened and how, as so far it is still just claims, the alleged fraud has raised questions for the insurance and reinsurance industry, notably regarding the confidence of certain forms of collateral.
For fronting companies that have a relationship with Vesttoo, the issue brings into question the quality of the collateral sitting behind the transactions done with the insurtech, specifically whether it actually exits or has any true value, given the allegations that large amounts of collateral are either fraudulent or have faked signatures, with LOCs believed to be the structures in question.
