Clear Blue: Over 50% of Vesttoo-linked reinsurance already replaced

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.

As we’d previously reported, Clear Blue is likely the fronting company with the highest exposure to Vesttoo linked issues, having had a significant partnership agreement in place with the now under-fire insurtech.

After the claims of letter of credit (LOC) fraud emerged, Clear Blue stated that it does not expect a material impact to its ratings from the ramification of issues at Vesttoo, but may seek out more reinsurance to protect its surplus and capital.

Then, rating agency AM Best said it would investigate the fronting carriers with links to Vesttoo, after which it issued a statement saying it had placed Clear Blue Insurance Insurance Group’s A- financial strength rating under review with negative implications.

With multiple letters of credit (LOCs) backing Vesttoo reinsurance participations in fronted programs now thought to be fraudulent or forged, fronting specialists face the risk that capacity is not there to support the functioning of client programs.

This has actually driven a desire to simply replace all cover linked to Vesttoo across the market, as the uncertainty around the validity and integrity of collateral has driven those exposed to move fast and seek to distance themselves from any issues.

As a reminder, Clear Blue and Vesttoo had entered into a partnership back in August 2022, where the insurtech had been planning to deploy much as $1 billion of capacity from the capital markets through Clear Blue’s property and casualty (P&C) programs over the next year.

Now, in a new update, Clear Blue has said that it has already secured replacement for over 50% of the affected reinsurance programs.

The company said it is “singularly focused on resolving all issues related to certain invalid letters of credit issued to Clear Blue in a timely manner.”

The process to reconfirm its AM Best rating is underway, while it works to “ensure the smooth replacement of reinsurance capacity on a small portion of our nearly $2 billion book of business.”

Clear Blue said that it estimates that this can be completed within 90 days, but that at this stage it has already secured replacement reinsurance for over 50%.

Meanwhile, in an update on its rating, Clear Blue explained, “AM Best has committed to immediately review their ratings decision with the goal of returning the Clear Blue rating to A- stable as soon as Clear Blue provides evidence that all Vesttoo related reinsurance capacity has been replaced.”

In addition, the company highlighted again the retention of all premiums for Vesttoo-linked reinsurance programs and said that its surplus stands at $176 million, to help support and backstop all obligations.

“Clear Blue will continue to ensure all claims are paid and we remain highly confident in our ability to meet the AM Best requirements, replace Vesttoo reinsurance and collateral within a reasonable period, and maintain Clear Blue’s strong capital position and growth,” the company said.

Also read:

July 27th – Everest can lean in if opportunities emerge from Vesttoo collateral issue: Williamson.

July 27th – Vesttoo issue shows importance of sound counterparty risk practices: DBRS.

July 27th – Beazley CEO on Vesttoo: We would look to replace cover & recover premium.

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.