The Bermuda Monetary Authority (BMA) and White Rock Insurance (White Rock Bermuda) have jointly agreed to take the Vesttoo case to the Supreme Court of Bermuda in order to focus on pursuing maximum recovery for the (re)insureds impacted by the alleged fraud involving segregated accounts.
Meanwhile, Vesttoo filed for Chapter 11 bankruptcy protection on 14 August in US District Court in Delaware.
White Rock is the cell company owned by Aon used for various types of transactions, including transformer vehicles for insurance-linked securities (ILS) deals, captive retention, reinsurance access and legacy management.
The insurtech Vesttoo connects capital market participants with (re)insurance risk and has been embroiled in claims regarding fraudulent collateral.
The BMA and White Rock have agreed for the Bermuda Supreme Court to appoint Charles Thresh and Michael Morrison of Teneo (Bermuda) Limited to act as joint provisional liquidators (JPLs) for White Rock Bermuda with respect to the impacted Vesttoo Cells.
The JPLs and the board of directors and management of White Rock Bermuda will bring their resources together to address the matter.
Various press reports since late July 2023 have alleged claims of fraudulent letters of credit (LOCs) from a single non-US bank related to transactions that had been facilitated by Vesttoo.
In a statement concerning the Chapter 11 bankruptcy protection filing, Vesttoo’s interim CEO said: “We believe the steps we are taking are best for Vesttoo’s long-term growth and success.
“Not only will they result in a strong, more sustainable capital structure, but they will provide us with the platform to aggressively pursue all parties that harmed our business.”
AM Best noted in a report last week that although it cannot identify which bank LOCs are related to Vesttoo transactions, a broad analysis shows that LOCs against businesses with unaffiliated reinsures accounts for 22% of total collateral held.
The data shows that nearly 19% of the LOCs used for collateral in 2022 were issued by Citibank.
“The 2021-2022 data also shows insurers have added some new banks to their roster of LOC providers, and that the growth in LOCs by some banks has been notable, and particularly at China Construction Bank Corp., which increased its LOC exposure by $1.2bn in 2022 and has been named in published news reports,” the AM best report added.
The China Construction Bank (CCB) is the primary bank named in relation to the alleged collateral fraud involving Vesttoo.
LOCs are commonly used by captives to guarantee fronting programmes and the case has caught the attention of captive regulators, banks and fronting partners on both sides of the Atlantic.
The ratings agency has already stated it will review all its rated fronting carriers in light of the fraud claims.
Sandy Bigglestone, deputy commissioner for captive insurance at the Vermont Department of Financial Regulation, has been monitoring developments concerning Vesttoo and notified local captive managers on 26 July alerting them of “a critical risk involving the insurtech company, Vesttoo”.
Bigglestone told Captive Intelligence there has been no reported exposure from the industry responses received to date.
Despite the lack of known exposure, Captive Intelligence published an article last week highlighting that extra due diligence will be required from the captive market if it is to avoid a repeat of the Vesttoo fraud allegations.