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BGC Group, Inc., the global brokerage and financial technology company, has added a new hire to its weather derivatives trading desk, taking Leah Loguidice from Arbol for a weather derivatives origination and structuring role.

BGC Group launched into the weather derivatives space in 2023, setting up a broking desk with the hires of well-known weather hedging and trading specialists Nicholas and Eric Ernst.

Now, the company is expanding its weather derivatives team, it appears, with the hiring of experienced energy and weather specialist Leah Loguidice

Loguidice was most recently employed at Arbol, a technology-led underwriter of parametric risk transfer, climate and weather insurance.

At Arbol, Loguidice was a Director and led Derivative Origination for that company since the start of 2023.

Prior to that, Loguidice had a short stint at RenewaFi, a marketplace for renewable energy offtake agreements, before which she worked at the CME Group for seven years, becoming the Director of Energy and Environmental Products before her departure from the Exchange.

Now, Loguidice joins BGC to originate and structure weather derivatives opportunities for the company.

She commented on LinkedIn; “I’m excited to share that I’ve started a new role at BGC Group, focused on structuring and originating Weather Derivatives. Looking forward to working with Nicholas Ernst and his team to help this fast growing market flourish! ”

The weather derivatives market has been undergoing somewhat of a resurgence in activity levels over the last few years and at the same time there has been growing recognition of parametric risk transfer and how it can be used to smooth revenues and offset exposure to weather related perils.

Making this a good time for BGC to be expanding its team, as the interest in these weather-linked parametric index-trigger products in pure derivative form is set to grow.

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Aon’s segregated accounts company White Rock Insurance (SAC) Ltd. has filed a lawsuit in New York against China Construction Bank, alleging an “inside man” at the bank had represented that letters of credit (LOC) involved in the Vesttoo fraud were authentic, and claiming a minimum $140 million in damages from the bank for the losses suffered, Artemis has learned.

It’s the latest twist in the now long-running Vesttoo fraud saga and seemingly reflects Aon’s desire to be compensated, and secure compensation for its clients, for some of the financial impacts the broker and its business partners have suffered from the fall-out of the global reinsurance fraud scheme.

White Rock Insurance (SAC) Ltd., represented by Quinn Emanuel Urquhart & Sullivan, LLP, has filed the lawsuit acting in respect of itself and Segregated Accounts T-94, T-95, T-96, T-100, T-102, T-103, T-107, T-108, T-111, T-113, T-122, T-125, T-126, and T-127, court documents seen by Artemis show.

A White Rock spokesperson stated, “White Rock’s lawsuit against China Construction Bank is another step in our efforts to maximize recoveries for clients impacted by the Vesttoo fraud. China Construction Bank’s direct role in the issuance of fraudulent letters of credit enabled the fraud and the bank should be held accountable for the harm it has caused.”

The case “arises from a global, multi-billion-dollar fraudulent scheme to defraud insurance companies engaging in reinsurance transactions,” the complaint states.

Going on to explain that the cedents involved and affected by Vesttoo’s fraud had used White Rock Bermuda to transform assets into insurance or reinsurance with a licensed Bermuda-based insurance company.

The complaint states, “Vesttoo’s entire apparatus was premised on the Cedents’ confidence that the reinsurance transactions were fully collateralized by rock-solid letters of credit (“LOCs”) that Vesttoo procured from leading international banks.

“Based on those representations, the Cedents transferred to Vesttoo at least $140 million in premiums, paid into designated segregated accounts established under White Rock Bermuda’s corporate structure (the “Cells” and, together with White Rock Bermuda, “White Rock”). But in July 2023, it came to light that the issuing banks refused to honor the LOCs.

“Vesttoo turned out to be a total sham, sustained by over $3 billion of useless collateral.”

Adding that, “Vesttoo did not act alone. A recently-founded, small startup, Vesttoo had neither the credibility nor the track record required to engage in large-scale reinsurance transactions with the world’s leading insurance companies. Vesttoo’s key to this market was LOCs apparently issued by some of the world’s largest and most reputable banks, which purported to fully collateralize the reinsurance transactions. Those LOCs gave Vesttoo credibility and provided third parties with confidence that the transactions were safe and compliant with applicable Bermuda law. Without the LOCs, the parties involved—White Rock included—would have never engaged with Vesttoo.”

As we’ve reported before, China Construction Bank had been named as the issuing institution for a significant amount of the fraudulent letters of credit (LOC) from the Vesttoo case.

Of the billions of dollars in letters of credit (LOC) that should have supported the reinsurance deals involved, most were found to be forged or invalid and the majority of those were said to have come from China Construction Bank.

In total, almost $3.36 billion of standby letters of credit (LOC) are presumed to have been fraudulently created under the Vesttoo scheme and of that amount, figures Artemis had seen towards the end of 2023 suggested that $2.81 billion of these were linked to China Construction Bank, with $362.5m purportedly linked to Standard Chartered Bank and $186m to Santander.

Emails that came to light during Vesttoo’s bankruptcy case show a China Construction Bank (CCB) employee, Chun-Yin Lam, used an official bank email address to communicate with some of the Vesttoo employees accused of perpetrating the fraud

CCB employee Lam had also identified the Chinese investor implicated in the fraud, Yu Po Holdings, as a client of the bank. Remember Yu Po Holdings was the name of the supposed primary investor in reinsurance transactions involving fraudulent LOCs issued by CCB, although questions remain over whether Yu Po actually exists as an investor, or was merely a shell used for the fraud, with most saying the latter is the more likely.

The complaint from Aon’s White Rock states, “LOCs issued by or out of CCB represented more than $2.8 billion of collateral CCB now refuses to honor. It was not that Vesttoo simply used CCB’s logo on a forged document and White Rock took its word for it. Rather, an inside man at CCB—an actual CCB banker acting for CCB as a Relationship Manager—represented to White Rock, its auditors, and other market participants that the LOCs were authentic.”

Adding, “By giving Mr. Lam access to its email domain, offices, and telephone system (and then breaching its duty to supervise him), CCB bestowed its full faith and credit on Mr. Lam. By so doing, CCB caused White Rock and others to justifiably rely on Mr. Lam’s representations to their detriment.”

Interestingly, White Rock’s legal complaint also states that, “Tellingly, according to official government records, Mr. Lam’s tenure with CCB closely tracked the fraud, and he ceased to be a licensed professional affiliated with CCB in July 2023—the exact same time the Vesttoo fraud was revealed.”

Going on to note that In recent court filings in the U.S. District Court for the Southern District of New York (“S.D.N.Y.”), CCB does not deny that Mr. Lam was, in fact, a bank employee during the relevant time. And tellingly still, CCB’s Chief Risk Officer stepped down and resigned around the exact same time.”

The complaint against China Construction Bank also states that “CCB was the lifeline for the Vesttoo fraud. Without CCB, the Vesttoo fraud could not have occurred: none of the Vesttoo reinsurance transactions would have closed or survived had Mr. Lam not transmitted and confirmed the LOCs using an official CCB email account and CCB’s arm in New York—CCBNY. Mr. Lam’s acts were committed entirely under the auspices of CCB, and CCB is directly and vicariously liable for them. CCB harbored a fraudster, gave him access to a CCB email address, office, and telephone number, and then failed to deter, prevent, and detect a massive fraud committed through those channels. On multiple occasions, White Rock, its auditors, and other market participants sought to verify the LOCs, and were satisfied when an unambiguous verification came from within CCB. White Rock thus reasonably and justifiably relied on Mr. Lam’s representations made on behalf of CCB.”

Because of the fraud and the representations made that resulted in the fraudulent letters of credit (LOC) being trusted as collateral, cedents and White Rock suffered “at least hundreds of millions of dollars in damages, including the lost premium amounts, incurred claim amounts, and legal fees,” the court filing also states.

Also stating, “The Cedents and White Rock incurred astronomical losses and expenses, and White Rock was placed under regulatory supervision (from which it has now emerged). But for CCB and Mr. Lam, White Rock would have never continued to do business with Vesttoo, and would have recognized Vesttoo as a sham. CCB sustained the Vesttoo fraud from inception and is liable for Mr. Lam’s inside job, which it negligently failed to prevent and detect. White Rock therefore brings this action for fraud, fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, and negligence against CCB. CCB’s acts and omissions should not go unpunished and, accordingly, White Rock Bermuda and the Cells seek damages which include, but are not limited to, the lost premium amounts paid by Cedents into the Cells totaling at least $140 million, White Rock’s legal fees, and all associated costs and damages.”

White Rock gives a number of causes of the legal action against CCB, including fraud, fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, and negligence.

Going on to say that for each and all of these claims, it seeks damages to be determined at trial but in no case less than the $140 million already mentioned, as well as costs, interest, fees incurred and any further relief the New York Supreme Court deems appropriate.

As we’ve reported before, this is not the first legal action China Construction Bank is facing over the Vesttoo reinsurance collateral fraud.

Porch Group’s Homeowners of America Insurance Company (HOA) had first filed a law suit in New York against China Construction Bank Corporation over the Vesttoo reinsurance collateral fraud.

We then more recently learned that program services and fronting specialist Incline P&C Group also has an open lawsuit against China Construction Bank in the same district court, over the Vesttoo reinsurance collateral fraud.

Now, Aon, through its subsidiary White Rock, has launched this legal action against the bank, raising the pressure on it over the reinsurance fraud scandal.

It’s not a surprising turn of events, but shows again the desire of those affected by the fraud to be compensated for the significant costs they have suffered as a result of the Vesttoo executives’ fraudulent actions and Aon’s desire to see itself and clients properly compensated for the damages experienced.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.

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According to Ashish Agarwal, Co-founder & CTO of Weather Risk Management Services (WRMS), combining parametric insurance with traditional risk management strategies can provide a comprehensive framework for managing supply chain risks.

In a recent interview with Artemis, Agarwal highlighted that supply chain disruptions, whether caused by natural disasters, infrastructure failures, or regulatory shifts, present serious risks to businesses globally.

“Our supply chains are increasingly susceptible to a range of risks, from natural disasters to political instability and operational hiccups,” Agarwal said.

He continued, “Traditional risk management strategies often focus on identifying these risks, assessing their potential impacts, and putting preventive measures in place. However, in a world where risks can evolve unpredictably, relying solely on traditional methods can be limiting.”

As per Agarwal, parametric insurance, with its swift payout mechanisms and data-driven models, offers a powerful tool to mitigate these risks.

The integration of parametric insurance with traditional risk management strategies reportedly offers a multi-faceted approach to enhancing resilience, such as mitigating disruptions, addressing infrastructure vulnerabilities, and navigating regulatory changes.

He went on, “Unlike traditional insurance, which reimburses based on actual losses, parametric insurance provides payouts based on predefined triggers. These triggers could be specific weather conditions, geographic events, or other quantifiable factors.

“This model allows for rapid financial support when issues arise, which is crucial in minimizing the impact of supply chain disruptions.”

Agarwal additionally underlined how integrating parametric insurance can significantly impact financial stability. Citing various studies, he explained that this approach can reduce the financial impact of disruptions by up to 30%.

“For instance, organizations using both traditional risk management and parametric insurance report faster recovery times and reduced operational downtime. In sectors like logistics, where operational interruptions can lead to substantial losses, this integration proves especially valuable,” Agarwal said.

WRMS’ co-founder concluded, “Combining parametric insurance with traditional risk management strategies provides a comprehensive framework for managing supply chain risks.

“By addressing disruptions, infrastructure vulnerabilities, and regulatory challenges through this integrated approach, we can enhance our resilience and operational stability.

“As the risk landscape continues to evolve, leveraging both strategies is essential for maintaining a competitive edge and ensuring long-term

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Dr. Nigel Clarke, the Minister of Finance of Jamaica and the driver of that country’s multi-layered approach to disaster risk financing that includes the first catastrophe bond for a small-island state has been proposed to become a Deputy Managing Director of the International Monetary Fund (IMF).

Kristalina Georgieva, Managing Director of the IMF, announced her proposal to appoint Nigel Clarke to the position as of October 31st 2024, succeeding Antoinette Sayeh, who steps down on September 12th.

Georgieva explained, “Mr. Clarke is an exceptional public servant and policymaker, with proven leadership in institution building and economic crisis management, who has stewarded his country’s economy to a stronger and more sustainable position.

“Since 2016, he has been the IMF’s chief counterpart on successive and historically successful programs for Jamaica, including an Extended Fund Facility, a precautionary Stand-By Arrangement, and most recently a Precautionary Liquidity Line plus Resilience and Sustainability Facility, leaving the country with robust economic fundamentals. Nigel also brings a wealth of experience from a stellar private sector career.”

Clarke has been Jamaica’s Minister of Finance and the Public Service, and a Member of Parliament, since March 2018.

During his time working in Jamaica’s government, Clarke has overseen the countries implementation of a multi-layered disaster risk financing program.

As part of that, Jamaica became the first small country to independently sponsor a catastrophe bond, with World Bank assistance, the IMF highlighted in its announcement of his proposal to the Deputy MD role..

Jamaica first benefited from catastrophe bond coverage in 2021 when it sponsored the IBRD CAR 130 transaction.

This was renewed earlier this year, with the IBRD CAR Jamaica 2024 catastrophe bond issued in May.

Under Clarke’s watch, Jamaica has put together one of the best examples of a multi-layered approach to disaster risk financing and transfer, with a range of instruments, some of which parametric insurance and cat bonds, designed to respond to disasters of differing frequency and severity.

The disaster risk financing program was recently put to the test when major hurricane Beryl narrowly missed Jamaica, but still caused significant impacts to the country and its population.

While the World Bank catastrophe bond did not get triggered by the storm, a number of other instruments including parametric insurance from the CCRIF did, which ensured Jamaica had liquidity and funds available quickly for rebuilding and recovery.

Clarke went to great lengths to explain why the layered approach to disaster risk finance benefits Jamaica and that not every risk transfer instrument had been designed to respond to every storm.

As we reported recently, a line has to be drawn between affordability and coverage when it comes to parametric instruments, such as Jamaica’s cat bond and other risk transfer. This is something Clarke navigated with his team in developing the layered approach to disaster risk financing that benefits Jamaica.

Clarke was elected Chairman of the Board of Governors of the Inter-American Development Bank and the Inter-American Investment Corporation in 2022. Before entering public service, he was Vice Chairman and Chief Financial Officer of the Musson Group, a regional conglomerate, and began his career as an Equity Derivatives Trader at Goldman Sachs in London. Clarke holds a PhD in Numerical Analysis from Oxford University where he was a Rhodes Scholar, and a Master of Science Degree in Applied Statistics, also from Oxford, while he was a Commonwealth Scholar.

The IMF has itself long-called for greater use of catastrophe bonds and other responsive disaster risk financing instruments.

The IMF began to develop a focus on catastrophe bonds as long ago as 2008. In 2017 it put its weight behind calls for a Caribbean-wide catastrophe bond, recommended cat bonds for Bangladesh in 2019 and in 2022 said that cat bonds are one of “the most prominent innovations in the field of sustainable finance in the last 15 years.”

As such, Clarke should find plenty of support for the work he has undertaken in Jamaica during his time as Minister of Finance and could well find his experiences called upon as the IMF expands its work in the disaster risk financing arena.

Jamaica’s Dr. Nigel Clarke proposed as IMF Deputy Managing Director was published by: www.Artemis.bm
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NormanMax Insurance Holdings, the US based parametric insurance and reinsurance group that is the operator of the first pure-parametric syndicate at Lloyd’s, has announced the hiring of Jonathan Friedland from Universal Property & Casualty Insurance Company (UPCIC).

Friedland has joined the parametric insurance and reinsurance underwriting specialist as an Assistant Vice President and the firm’s Marketing Manager.

Friedland’s connectivity within the independent agency community and his experience acting as the primary point of contact for insurance agents across many of Florida’s most hurricane exposed counties will be beneficial to NormanMax as the company looks to expand its parametric risk portfolio.

He had worked at UPCIC since 2007, having joined the company as a senior underwriter, before going through a number of roles at the insurer and becoming its marketing director for South Carolina first, then its regional marketing manager for Florida.

It’s worth remembering that NormanMax founder Brad Meier was the Chairman, President and CEO of Universal across more than 20 years, so may have worked with Friedland before.

The company said, “With a proven history of expanding markets across the Southeastern US, Jonathan will play a key role in driving growth and achieving our business objectives.”

NormanMax launched and received market approval for its dedicated parametric syndicate 3939 at Lloyd’s earlier this year, since when the firm has been on a hiring spree to build-out its parametric expertise and the sales force required to originate more underwriting opportunities.

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In time, as wildfire risk models advance and the market becomes more accepting of them, Guy Carpenter executives suggest investor confidence may increase, resulting in a growing willingness to deploy ILS capital to support the California market’s need for wildfire protection.

Recently reinsurance broker Guy Carpenter held its California Summit event and senior executives from the company commented on the state of the reinsurance marketplace and its appetite for perils in the state.

David Priebe, Chairman of Guy Carpenter said, “It’s a dynamic and challenging time for the California property market. Guy Carpenter is excited to be leading the conversation with insurance carriers, capital providers and regulators to foster collaboration between parties, as we all work toward the goal of bringing sustainable capacity to residents and businesses in California while allowing capital providers to earn a fair return.”

Kelli Cronin, Managing Director, Treaty Broking, North America at the broker added, “Industry collaboration and knowledge sharing is critical to evolving our understanding of wildfire risk and increasing investor appetite for the peril.”

Cronin further explained that appetites are increasing, which could be a good sign for California, “Throughout the mid-year renewals, we saw an increase in reinsurer appetite, improved buying conditions and adequate capacity to meet increased demand.”

Ed Hochberg, Head of Global Risk Solutions at Guy Carpenter then highlighted capital market appetites for California wildfire, an area that has been suppressed in recent years after heavy losses from damaging wildfire seasons that occurred while the reinsurance market was still softened.

“Historically, the ILS market has been dominated by critical US catastrophe perils (US wind and US quake); however, we believe that there is measured investor appetite in the ILS space for perils such as wildfire,” Hochberg said.

But he added that, “It will take some additional maturity and consensus around the modeling for the peril in order to increase investor confidence and to create a more liquid market in wildfire-exposed transactions.”

On that front, James Mitchell, Consultant at the reinsurance broker explained, “It is essential that the industry collaborates to build sustainable risk solutions for complex perils such as wildfire. Leveraging recent and significant technical innovation, serves to deepen our ability to evaluate the risk and attract consistent partnership capital.”

Kimberly Roberts, Head of North America Peril Advisory pointed out that the peril itself is becoming more volatile.

Roberts said, “The complicated interplay between humans and natural environment is undoubtedly contributing to escalating wildfire risk, which is also occurring on the backdrop of a warming climate.”

Colleague Mark Hope, Senior Vice President of North America Peril Advisory added, “A peril as complex as wildfire requires multiple perspectives provided from multiple data sources and tools in order to build confidence and clarity in our understanding of risk.”

Finally, the role of parametric risk transfer was highlighted as an opportunity for channelling more capital to underpin California wildfire risks.

Guillermo Franco, Managing Director, Global Head of Catastrophe Risk Research at Guy Carpenter said that, “Parametric solutions continue to grow and evolve, complementing and enhancing indemnity coverages, and providing fast and versatile payouts after wildfire events.”

Appetites for assuming wildfire risk remain measured in insurance-linked securities (ILS) markets, but advances in models, data and tech can and will help.

This is a peril that challenges the traditional insurance and reinsurance market still and the need for risk capital to support a greater ability of those companies to service clients is clear, so we expect over time a growing amount of capital markets capacity will support wildfire risk underwriters.

We don’t expect any rush of capital to this peril, the appetite of ILS investors is likely to remain measured. But we do concur with Guy Carpenter, that it will likely grow over time, even if slowly to begin. While advances in how risk is viewed, analysed and priced could support that capital flowing to wildfire risk increasing faster over time.

“Measured appetite” in ILS for wildfire risks: Guy Carpenter’s Hochberg was published by: www.Artemis.bm
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The management of fronting specialist Clear Blue Insurance are praised for the rapid and determined response to the issues that arose when the company found itself caught up in the reinsurance letter of credit (LOC) fraud perpetrated by Vesttoo, according to rating agency KBRA.

Clear Blue’s management took decisive actions early on and KBRA sees this as both limiting the impact that could have been experienced, as well as putting Clear Blue on better footing to continue running its business effectively.

Both of which were achieved, according to KBRA’s latest rating analysis of the fronting specialist, in which it affirmed all of Clear Blue and its insurer’s ratings, putting them on a stable footing and citing the firm’s strong management, market position, capitalisation, structure and cash flow.

It’s a glowing report, but perhaps might not have been had the response to the Vesttoo fraud been less effective.

Clear Blue was particularly affected by the fraudulent letters of credit, having fronted a number of the reinsurance arrangements involved.

Recall that, Clear Blue had a significant relationship with Vesttoo and had said in 2022 it would help the insurtech deploy a billion dollars from the capital markets.

The company was far from the only major player to become embroiled in the fall-out after it emerged letters of credit were fraudulent.

But, the way Clear Blue responded to the crisis was critical, moving fast to reduce the impacts it felt after Vesttoo’s fraud was found out and coming through the experience with its business wholly intact, albeit not financially unscathed as there were definitely costs the company had to bear.

KBRA said, “During 2023, Clear Blue’s concentrated exposure to Vesttoo/China Construction Bank became a credit challenge – albeit one that the company quickly and materially addressed.

“In KBRA’s view, Clear Blue has leveraged lessons learned to strengthen ERM processes related to the use of unauthorized reinsurers and for accepting LOCs and trusts while simultaneously continuing to expand its franchise. The company is also exposed to key person risk but has been deepening its talent bench.”

Explaining one additional driver for the stable outlook for Clear Blue’s ratings, KBRA also said, “The Stable Outlook assumes that Clear Blue’s enhanced risk management procedures will serve it well, and that its reputation and market position will continue to remain intact as the Vesttoo matter recedes further into the past.”

Most importantly, KBRA explained that it believes the incident has not harmed Clear Blue’s reputation or business prospects.

“Clear Blue’s reputation and market position have remained intact post-Vesttoo with robust new business flows and a growing pipeline,” the rating agency explained.

In fact, KBRA believes that Clear Blue’s business is thriving in the wake of the Vesttoo fraud, reflecting the way the situation was dealt with effectively.

KBRA continued, “Management believes that its experience throughout the Vesttoo matter demonstrated its resiliency. In the wake of the discovery of fraudulent letters of credit, it replaced a significant amount of reinsurance in a short period of time for the current year book, while some prior year business was put in run-off. Management describes the market as responding favorably to it post-Vesttoo, as it is bringing in more and larger programs. Its pipeline remains robust.

“Additionally, the company reunderwrote its existing book of business, terminating certain programs and improving the quality of its book. A number of new programs have been added, including a federal crop program, the reinsurance panel for which includes relatively more high-quality reinsurers and less collateralized reinsurance compared with a number of its programs. Clear Blue has also enhanced processes and procedures and has supplemented enhancements with additional personnel. New hires include industry veterans in roles just below the C-Suite.”

It’s actually no surprise collateralized reinsurance participation would be lower for a crop book at this time. Crop is a line of business that many ILS managers and ILS capital providers view as less favourable, given the potential for attritional loss accumulation and weather volatility in the results of those books.

There were significant financial ramifications for Clear Blue’s management to deal with because of the Vesttoo fraud.

KBRA explained, “Beneath the headline results are various financial statement impacts related to the Vesttoo matter. Clear Blue took prompt action to replace reinsurance associated with the current year treaties where Vesttoo had provided reinsurance. Clear Blue obtained sufficient additional collateral from new reinsurers, and the replacement of the reinsurance on a significant portion of its portfolio resulted in a one-time adjustment to ceded premiums during 2023. Clear Blue did not replace the reinsurance of prior year treaties associated with Vesttoo and placed them in run-off. For the run-off business, Clear Blue recorded an allowance for credit losses. Any further loss related to this reinsurance would come through adverse development.”

Some of the moves Clear Blue had to make around the reinsurance exposure after LOCs turned out to be fraudulent resulted in a $21.1 million provision, related to prior-year Vesttoo treaties that were placed in run-off and KBRA noted this as a Schedule F penalty.

Clear Blue also made changes to its investment strategy, to ensure availability of cash it might have needed, but KBRA noted it has again extending duration to lock-in rates now that the impacts from the fraud are behind it.

The fronting company also set up a bank credit line, to support its solution to the Vesttoo matter, but that is expected to be closed once repaid, KBRA said.

The necessary moves Clear Blue had to make in response to the fraud did lift operating costs somewhat, but at the same time the company continued to invest in expanding the business and making new senior hires.

Clear Blue continued to expand its gross written premiums through 2023, continuing a growth curve that has been in effect since its formation and showing that the issues faced did not slow down its ability to attract new business.

KBRA sums up that, “The Vesttoo matter gave rise to financial, reputational, and ratings risk, and, potentially, to business model implications.

“The Vesttoo situation developed rapidly, and management responded quickly and aggressively to limit the impact. Management successfully implemented solutions that addressed its market position and reputation.”

One additional point of note, Clear Blue’s majority owner, investment firm Pine Brook, has been reported to have looked to sell its position in the fronting specialist in recent years, although has not yet found a deal that made it want to offload its stake.

But, when the Vesttoo fraud hit, the majority owner doubled-down and backed its investment, making an additional $10 million private equity investment in Clear Blue as part of the solution to the Vesttoo matter, KBRA explained.

That speaks volumes, as Pine Brook is a sophisticated investor and will have understood that Clear Blue’s management could pull the company through the challenges posed by the Vesttoo fraud.

It seems that proved a safe bet to make, given the glowing report and details of the actions taken and the way Clear Blue responded decisively.

Finally, Clear Blue remains in a court process with insurance and reinsurance broker Aon, having sued that company over the Vesttoo fraud transactions, accusing Aon of soliciting the fronting specialist’s involvement in a scheme it said was structured and masterminded by the broker.

Aon fired back and said the lawsuit was an attempt to distract from the depth of Clear Blue’s involvement with Vesttoo and its own financial distress.

The rating report would seem to suggest that Clear Blue is not in any financial distress now, but it has faced relatively significant costs and it’s no surprise the company continues to look for an avenue to recover some of that.

The latest in this lawsuit is that a law firm representing Aon plc and Aon Insurance Managers (Bermuda) Ltd. has called for the judge to give the opportunity for oral argument to be heard in the case.

Saying, “We believe that oral argument will substantially assist the Court in understanding and deciding the issues presented in this action. As this Court has not yet had the opportunity to hear any argument on the legal issues presented by the pending Motion to Dismiss, we believe that oral argument will helpful in elucidating the crucial issues raised in the motion.”

At this time there hasn’t been a response to that, but it will be interesting to see whether speaking can lead to mediating and potential resolution, or whether the arguments become even more vocal when not written down.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.

Clear Blue responded “quickly and aggressively” to limit Vesttoo impact: KBRA was published by: www.Artemis.bm
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NormanMax Insurance Holdings, the US based parametric insurance and reinsurance group launched by former Universal founder and CEO Bradley Meier, has expanded the reach of its parametric reinsurance solutions to include coverage for earthquakes in Chile.

Seeing a need for greater availability of responsive risk transfer solutions, NormanMax has been expanding the scope of its product offering over recent months.

The company recently began offering a parametric retrocession product that is underwritten via its recently launched Lloyd’s syndicate.

Now, NormanMax has announced a new location where it can support parametric reinsurance arrangements, Chile.

The company said, “As Chile continues to navigate the challenges posed by seismic activity, the need for innovative and responsive insurance solutions has never been greater.

“At NormanMax Insurance Solutions, we understand the critical importance of safeguarding businesses, and infrastructure from the devastating impact of earthquakes.

“Our team at NormanMax is proud to offer tailored reinsurance solutions designed to address the unique risks faced by cedents in Chile. Unlike traditional reinsurance, our parametric reinsurance products can provide swift, predefined payouts based on the intensity of the earthquake, enabling faster recovery and continuity for affected regions.”

With its dedicated parametric syndicate 3939 at Lloyd’s now providing NormanMax with its own capacity source, the company is building out its product range in regions where the insurance and reinsurance industry are active, but hazard levels often deter more traditional indemnity solutions or make them overly expensive.

Chile faces a particularly high-level of earthquake hazard, making it a perfect location for parametric risk transfer solutions.

While parametric insurance can support businesses directly, a parametric reinsurance offering can also support global insurance carriers that operate in the country, which can allow them to be more confident in deploying capacity knowing there is a responsive reinsurance or hedging solution available to them.

NormanMax explained, “Chile’s geographic location makes it particularly vulnerable to earthquakes, and NormanMax Insurance Solutions is committed to helping transfer these risks. Our parametric reinsurance solutions are built to support resilience, helping businesses and communities bounce back faster after an event.

“We’re here to work with insurance companies, brokers, and risk managers across Chile to provide robust reinsurance solutions. Together, we can create a more resilient future for everyone.”

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Sponsors of catastrophe bonds with parametric triggers may benefit from advances in data and analytics that can help them in gaining a better understanding of the basis risk inherent in these instruments, analysis from AM Best suggests.

In its latest report on the insurance-linked securities (ILS) market, rating agency AM Best has highlighted the continued use of parametric triggers in catastrophe bonds, especially for government sponsors.

“Record cat bond issuance volume and persistently large cat bond spreads demonstrate that demand for reinsurance capacity remains high. To satisfy that demand, reinsurance and ILS covers with parametric triggers continued to see interest from cedents and capacity providers in the first half of 2024,” AM Best explained.

Adding, “Sponsors issued six natural catastrophe bond tranches with parametric triggers in first-half 2024, accounting for approximately 7% of volume during the period, just above the 6.2% issuance volume during first-half 2023. Once again, government sponsors are sourcing parametric reinsurance from the cat bond market.”

In addition, AM Best highlighted the first parametric cyber catastrophe bond,the Cumulus Re (Series 2024-1) transaction that provides reinsurance firm Hannover Re with cover against cloud outage risks.

“The Cumulus Re transaction serves as evidence of the interest in deploying the concepts and techniques of parametric risk transfer, originally rooted in meteorological and seismic phenomena, to other types of risk,” AM Best said.

The rating agency also highlighted regulatory moves that are expected to help drive more interest in parametric risk transfer, such as Vermont’s update to its protected cell law to allow for use of different parametric structures.

In recent months there have also been regulatory moves in Latin America to support greater use of parametric insurance in the region.

“The transparency of these triggers makes them appealing to capacity providers as well as cedents. The lower uncertainty of the triggers may motivate capacity providers to expand coverage to other perils and other geographies, allowing investors to benefit from potentially greater diversification in their ILS portfolios,” AM Best continued.

But that has not come without its challenges for sponsors, as there remains a lack of education around how parametric coverage can work alongside traditional forms of indemnity based protection, or other financing sources.

Case in point, the fact Jamaica’s parametric cat bond did not trigger after hurricane Beryl has now hit mainstream headlines, as well as other news sources.

The coverage fails to recognise how Jamaica has built out a layered approach to disaster risk transfer and financing, which seems important information to consider when discussing what instruments did respond, or not, and most importantly why.

That country’s Minister of Finance Dr. Nigel Clarke went to some lengths to explain why certain instruments paid out after Beryl, while others didn’t, saying the program was designed in the knowledge that not every instrument is expected to be activated after every storm.

Jamaica’s cat bond sits in the top, most remote, layer of its program of disaster risk financing instruments, which you can see more details on here.

There have been calls for parametric cat bond triggers to be redesigned to ensure countries get a payout whenever severe conditions hit them.

It would certainly have been possible for Jamaica’s cat bond to be structured in such a way that it would have responded to hurricane Beryl. But, for every adjustment to the trigger structure to support payouts for less severe or intense events, the costs of coverage would have increased and somewhere a line must be drawn between affordability and payout-potential.

It’s also important to note, which other media coverage has mostly failed to do, that Jamaica’s $150 million cat bond coverage now remains fully in-force through to the end of the 2027 hurricane season (so the rest of this season and three more), to provide its protection should any other major storms strike the island that do breach the trigger parameters. That’s a fact often lost in the discussion.

All that said, it is entirely understandable that when a cat bond trigger experiences such a near-miss as Jamaica’s did with Beryl, that questions get asked.

AM Best explains in its report that “reinsurance covers based on parametric triggers complement indemnity-based covers, rather than directly substitute for them,” another fact that often gets lost in the eventual discussion about these instruments.

The rating agency continued, “They can be used by insurers to plug holes in reinsurance towers for earnings protection, particularly in the harder-to-place lower layers. Or they may be used when indemnity coverage is simply not practical, as in the case of the parametric cat bonds reinsuring governments.

“Sponsors that use parametric coverage must be comfortable with basis risk and the potential for over- and under-recoveries.

“However, advances in data and analytics may help sponsors better understand the extent to which a parametric trigger correlates with the magnitude of loss they might incur during an event.”

That is something we have been saying in our tracking of the use of parametric triggers in the catastrophe bond market for over two decades.

Triggers have been improving, helped by advances in both the models available and the data used, as well as continued advancements in structuring techniques. But still there is a need for continued education, not just about how triggers work but also about the reasons for using parametric triggers, how they work alongside other financing sources, the risk they don’t payout and the potential for gaps between economic impacts and those payouts.

AM Best’s assessment, that enhancements to the available sets of data and the risk models used can assist in educating on the basis risk inherent in the coverage, resonates with findings from our sister publication Reinsurance News in a recent poll.

Reinsurance News asked what is holding back greater use of parametric insurance and risk transfer and the top answers to the poll were a lack of data and models, followed by a lack of education on the structures.

It’s not so much understanding what parametric triggers can do for a cat bond sponsor, or risk transfer buyer. It’s more understanding how the structure fits within its overall program and financial protection, when it should anticipate a payout and importantly what it can do to layer other instruments around the parametric solution to provide much-needed payouts when an event is not severe enough, or misses the specific trigger parameters.

That is something Jamaica has spent significant time and resources on understanding, resulting in its sophisticated multi-layered and multi-instrument based approach to its disaster risk financing program.

As we said, there is also a necessary trade-off between affordability and the cost of the protection as well. Structures must clearly define the parameters required for payouts to occur, so that risk metrics of the transaction can be defined and thus pricing be derived.

How that line is drawn, between the cost, efficacy of coverage and the potential for a payout to occur, is undoubtedly something that the industry can and will continue to work to improve, while more advanced structuring techniques, improved data availability, entirely new data sources, and model enhancements, are all going to assist greatly in this regard.

Because of the very nature of a parametric trigger though, in requiring certain pre-defined event parameters to be breached for a payout of coverage to come due, there is always going to be a risk of near misses, no matter how the structure is designed.

Many parametric insurance companies now offer blended products, including an element of indemnity within the trigger, so a proof of loss. But that is generally a way to help in dovetailing parametric coverage with traditional, while also keeping costs more affordable by reducing basis risk on the carrier side.

In the past we’ve discussed the potential to construct hybrid parametric triggers that also feature an economic loss trigger for sovereign or government sponsors, but that requires a third-party reporting agent for the economic portion, as without one many would say an element of moral hazard could be introduced.

With parametric risk transfer techniques advancing all the time and prevalence of parametric risk transfer increasing across the insurance and reinsurance market, it is to be expected that innovation will help to drive forwards the design of these triggers and structures.

Ultimately, this will serve to both make them more understandable for the sponsors, those seeking protection, and for investors or capacity providers. While also allowing the trigger itself to be more tightly calibrated to both the exposure being protected and importantly the use-case (or payout cases) envisaged for them.

You can view details of catastrophe bonds featuring parametric triggers in the extensive Artemis Deal Directory, by filtering the list of transactions by trigger type.

You can also track the use of parametric triggers over time in the cat bond market using one of our charts.

Data and analytics advances may help parametric cat bond sponsors on basis risk: AM Best was published by: www.Artemis.bm
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A pair of lawsuits that allege China Construction Bank staff were complicit in the reinsurance collateral fraud perpetrated by executives at Vesttoo could now be combined, as the Southern District of New York court looks to save time and conserve judicial resources.

The Vesttoo letter of credit (LOC) fraud scandal continues to create litigation costs for the parties involved and we’ve now learned of another ongoing case in the Southern District of New York, as well as the fact the outstanding lawsuits against China Construction Bank may now be brought together.

As we’d reported before, Porch Group’s Homeowners of America Insurance Company (HOA) had filed a law suit in New York against China Construction Bank Corporation over the Vesttoo reinsurance collateral fraud.

Porch accused the massive Chinese bank of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

China Construction Bank had been named as the issuing institution for a significant amount of the fraudulent letters of credit (LOC) from the Vesttoo case.

As a reminder, of the billions of dollars in letters of credit (LOC) that should have supported the reinsurance deals involving Vesttoo, most were found to be forged or invalid and the majority of those were purported to have come from China Construction Bank.

In total, almost $3.36 billion of standby letters of credit (LOC) are presumed to have been fraudulently created under the Vesttoo scheme.

Of these, figures Artemis had seen towards the end of 2023 suggested that $2.81 billion of these were linked to China Construction Bank, with $362.5m purportedly linked to Standard Chartered Bank and $186m to Santander.

During the bankruptcy of Vesttoo, it came to light that emails show a China Construction Bank (CCB) employee, Chun-Yin Lam, used an official bank email address to communicate with some of the Vesttoo employees accused of perpetrating the fraud, including co-founders Yaniv Bertele and Alon Lifshitz, as well as capital finder Udi Ginati.

CCB employee Lam had also identified the Chinese investor implicated in the fraud, Yu Po Holdings, as a client of the bank. Recall that Yu Po Holdings was the primary investor in reinsurance transactions involving fraudulent LOCs issued by CCB, although questions remain over whether Yu Po actually exists as an investor, or was merely a shell used for the fraud, with most saying the latter is the more likely.

Now, we’ve learned that program services and fronting specialist Incline P&C Group also has an open lawsuit against China Construction Bank in the same district court, over the Vesttoo reinsurance collateral fraud.

Incline P&C Group entities are seeking damages from China Construction Bank for much the same reasons as Porch Group, alleging that several letters of credit (LOCs) each “constituted a valid and enforceable contract” between their insurance entities and CCB, so they seek breach of contract damages .

The LOCs affecting Incline P&C linked reinsurance deals, each of which were among those fraudulently created during the Vesttoo fraud it seems, have been collectively valued at more than $43 million.

In both cases, China Construction Bank has sought to have the case dismissed, claiming the New York court does not have jurisdiction over it, but the plaintiffs are persisting and have rejected the attempt to dismiss the lawsuits, leading to a proposal to combine the cases, we understand.

Now, the parties involved have been given seven days to object to the pre-trial consolidation of the cases against China Construction Bank.

As the cases appear to be following a similar pattern of calls for dismissal and updated complaints, while the ultimate grievance is the same, it perhaps makes sense to save judicial time and bring the actions together.

So, Incline P&C emerges as another company seeking to be compensated for the damage it suffered as a result of the Vesttoo reinsurance collateral fraud, joining others seeking to hold to account companies linked to the fraud that occurred.

The costs of legal action related to the Vesttoo scandal continue to rise at the same time.

How successful attempts to get recoveries from the defendants in these various Vesttoo-linked court cases will be remains to be seen, while the still conspicuously absent criminal case remains just that.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.

Vesttoo case: Porch & Incline P&C lawsuits against China Construction Bank may combine was published by: www.Artemis.bm
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