Beazley CEO on Vesttoo: We would look to replace cover & recover premium

Speaking this morning during his firm’s earnings call, Adrian Cox, the CEO of London headquartered specialty insurance and reinsurance firm Beazley, gave a “hypothetical” answer to a question about potential exposure to the Vesttoo linked collateral issue.

Beazley is one of the re/insurers that has been reported as having specific exposure to a reinsurance trade with Vesttoo.

But, it’s important to add that, at this time, it is not known whether there is any issue with the collateral sitting beneath any trades Beazley had entered into, where Vesttoo had facilitated the risk transfer.

But when asked about the situation this morning by an analyst, Beazley CEO Adrian Cox gave a good answer as to what a company like Beazley would do, should such an issue arise.

Cox said, “On Vesttoo, we don’t share much about our reinsurance purchasing or comment about rumours on it.”

Adding that, “I can say that we are very confident in the reinsurance cover that we’ve purchased across the business, and have processes in place to continually monitor and manage our cover and its effectiveness.”

He went on to explain, “I think, when we talk about reinsurance, as we have said before, we have a preference to trade with large professional reinsurers with whom we’ve built up a relationship over a very long period of time.

“So whilst we do business with a lot of reinsurers, and a lot of alternative capital, our exposure is very correlated to the large professional reinsurers who we’ve traded with, in some cases for well over 20 years.

“So our exposure, as you move away from that cohort of reinsurers, goes down quite quickly.”

Which implies that if Beazley is exposed to the Vesttoo issues, it is only a minor piece of its reinsurance arrangements.

CEO Cox moved on to explain what action Beazley might undertake, should it find itself in a situation where collateral underpinning any of its reinsurance proves insufficient, or lacking in integrity.

“Hypothetically, if we had reinsurance with a counterparty whose collateral was impaired, noting that no loss has happened, what we could do is to cancel and replace that reinsurance with another counterparty,” he explained.

“The only thing at-risk would be the premium that we paid the first counterparty, which we would then attempt to recover.

“So, were we in that sort of situation, that is what we could and what we would do.”

While the facts of the Vesttoo issue remain murky, with rumours still rife in the market and discussions still focused on a significant amount of collateral being in question, as letters of credit (LOC) were found to be invalid, Cox’s response is helpful as it lays out how a major player would deal with such an issue coming to light.

It’s also not clear whether Beazley has actually gone down this road, given his hypothetical answer. But given the firm’s stature in the market it seems unlikely it would have faced any significant problems replacing any reinsurance cover that did have Vesttoo links.

Also read:

July 26th – Clear Blue rating under review with negative implications on Vesttoo issues.

July 25th – Vesttoo: Updated statement says appears “procedures were circumvented”.

July 25th – AM Best to review fronting collateral in light of Vesttoo news.

July 25th – Fronting company Obsidian says Vesttoo exposure “de minimus”.

July 24th – Clear Blue: No material rating impact from Vesttoo issue. Reinsurance may be required.

July 21st – Vesttoo: Multiple LOCs from one bank in focus. Failure of security controls or KYC?

July 20th – MS Transverse: Any exposure to Vesttoo LOC collateral issues “immaterial”.

July 20th – Vesttoo: Collateral damage.

July 19th – Vesttoo: New report claims significant amount of forged LOCs. The question is how?

July 18th – Vesttoo faces fraudulent collateral claim. Confirms investigation, exit of some leaders.