Category Archive : InsurTech

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Cayman headquartered reinsurance company Oxbridge Re has reported that the firm’s first series of tokenized reinsurance sidecar securities have now realised a 49% return for the investors backing them, surpassing both initial and updated expectations.

oxbridge-re-token-suranceplusOxbridge Re launched its Web3 startup SurancePlus in 2022, raising $2.4 million through a sale of the first series of digital or tokenized reinsurance securities, which were named DeltaCat Re.

That $2.4 million of capital was put to work in support of collateralized reinsurance contracts underwritten via the reinsurer’s sidecar structure, Oxbridge Re NS.

The securities represent fractionalized interests in reinsurance contracts written by the reinsurance sidecar vehicle, Oxbridge Re NS, which enters into quota share arrangements with its parent.

As a result, the investors benefit from a return through the performance of the underlying reinsurance contracts that the sidecar held for the underwriting year, which ends at the mid-point of 2024.

Oxbridge Re had been anticipating that investors in the first series of tokenized reinsurance securities would receive a roughly 42% return for the first treaty year.

A few months later, Oxbridge Re CEO Jay Madhu explained that he anticipated a higher return for the sidecar securities investors, saying that it could be 45% for the latest treaty year.

Now, the company has reported today that SurancePlus earned a 49.11% return on its tokenized reinsurance security, DeltaCat Re far exceeding the initial projection of 42%.

Jay Madhu, President and CEO of Oxbridge Re, commented, “Last year, SurancePlus enhanced Oxbridge Re’s special purpose vehicle, Oxbridge Re NS, by integrating digital innovations and insights by offering an RWA tokenized security, thus making reinsurance more accessible as an alternative investment through the Avalanche blockchain. We are pleased with the impressive returns for DeltaCat Re token investors.

“Looking ahead, we are excited about the long-term prospects of our business as we approach the close of our capital raise for the 2024/25 EpsilonCat Re Token.”

Oxbridge Re began that process of raising up to a $10 million target for the EpsilonCat Re tokenized reinsurance securities that will be issued by its subsidiary SurancePlus Inc. and provide investors a way to participate in the 2024/25 underwriting treaty year of the Oxbridge Re NS sidecar structure.

Back in 2019, Oxbridge Re’s sidecar returned 36% to its investors in a catastrophe loss free year.

The 49% earned in the most recent treaty year is therefore both impressive and a reflection of the hard reinsurance market and much improved terms now available in the marketplace.

As we reported yesterday, Oxbridge Re has announced that it is considering “strategic alternatives” for the business, including a potential sale or merger, various capital actions, or even spinning out its tokenized reinsurance investments unit.

So the future is not yet clear for Oxbridge Re, or its strategy to leverage digital asset architecture to facilitate fractionalised investments in its reinsurance sidecar vehicle, but the stellar returns generated for investors should help the company attract attention.

Oxbridge Re’s tokenized reinsurance sidecar securities realise 49% return was published by: www.Artemis.bm
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Oxbridge Re Ltd., the Cayman Islands based reinsurance company, has announced today that it is considering “strategic alternatives” for the business, including a potential sale or merger, various capital actions, or even spinning out its tokenized reinsurance investments unit.

oxbridge-re-token-suranceplusOxbridge Re launched what it calls its Web3 startup SurancePlus back in 2022, since when it has been issuing tokenized reinsurance securities, that effectively give investors a way to access the returns of its catastrophe focused reinsurance business.

Previously, Oxbridge Re had been operating a typical collateralized reinsurance sidecar, alongside its own collateralized balance-sheet.

But the SurancePlus strategy sought to take advantage of digital securities technology, to provide an alternative access point for investors, utilising blockchain type infrastructure.

When we last reported on the company, Jay Madhu, the Chairman and Chief Executive Officer of Cayman headquartered reinsurer Oxbridge Re, had said that the firm’s first series of tokenized reinsurance sidecar securities were set to deliver investors a 45% return, surpassing the initial expectation of 42%.

The securities represent fractionalized interests in reinsurance contracts written by Oxbridge Re’s reinsurance sidecar vehicle, Oxbridge Re NS, which enters into quota shares with its parent.

So the investors access a return through the performance of the underlying reinsurance contracts that sat in the sidecar for the current underwriting year, which runs to the mid-point of 2024.

Today, Oxbridge Re said that its board of directors has “initiated a process to evaluate strategic alternatives to maximize shareholder value.”

Explaining that, “As part of the evaluation process, the Company will consider a full range of strategic alternatives for the Company, and/or its Web-3 division subsidiary SurancePlus Holdings Ltd, including a sale, spinout, merger, divestiture, recapitalization, and other strategic transactions, or continuing to operate as a public, independent company.”

CEO Madhu further said, “To reinforce our strategic vision, we are committed to exploring opportunities that will deliver value to our stakeholders and ensure continued success in our evolving industries.”

The company further said that it cannot guarantee that the evaluation of strategic options will result in any deal or transaction.

Oxbridge Re has never really scaled into a particularly meaningful reinsurance player. But its tokenized reinsurance securities are the first and only such tech-focused initiative to come out of the traditional reinsurance market and so could prove attractive to players that consider this a viable approach to partnering with investors and bringing alternative capital into an underwriting business.

Oxbridge Re considering “strategic alternatives” including sale or merger was published by: www.Artemis.bm
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Descartes Underwriting, the parametric insurance and data-driven risk transfer specialist managing general agency (MGA), has hired former OTT Risk employee Matthew James as its new Commercial Director, UK & Ireland.

matthew-james-descartes-underwritingJames joins Descartes after ten years at broker WTW and then a stint as Head of Business Development in London for the now defunct parametric MGA OTT Risk.

At Descartes, he will be tasked with leading business development activities in London for the firms parametric insurance solutions.

In his time at broker WTW, James worked on structuring novel parametric solutions designed to manage the weather-risk exposures of clients across a range of industry sectors.

He then joined parametric MGA startup OTT Risk, again in London, but that company shuttered its operations in the first-quarter of this year.

At Descartes, James is taking over from Paul Jones, who is leaving the company after a near three year stint, to pursue other opportunities.

“We’re really excited to have attracted someone of Matthew’s experience and ingenuity as the new head of our London office,” explained Descartes co-founder and Chief Executive Tanguy Touffut. “His experience working with clients as a broker, assessing their climate and insurance challenges then crafting parametric solutions, will bring a new perspective to our work. Our restated strategy remains to deliver strong growth in high-potential markets, and Descartes will continue to deliver, in London and around the world.

“I’d like to thank Paul for his contribution to our development over the years. His work, particularly in educating new brokers to the benefits of parametric and developing and distributing coverages for peak peril exposures, has been invaluable. I wish him every good fortune.”

“I am super-pleased to be joining Descartes,” Matthew James added. “They are renowned as a leader in parametric insurance and I’ve followed their growth closely since their birth in 2018. The team of data scientists in Paris and London boasts some serious brains. Their depth of expertise and understanding of climate change’s impact on business is hard to beat. I look forward to working with this team at the cutting edge of parametric insurance, and alongside Ola Jacob and the rest of Descartes’ London team.”

Descartes Underwriting hires OTT Risk’s James as Commercial Director, UK & Ireland was published by: www.Artemis.bm
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When global reinsurance firm Swiss Re announced its first-quarter results last week, the company also notified shareholders and markets that it intends to withdraw from its iptiQ business, a tech-focused initiative that effectively brought the giant balance-sheet of the reinsurer much closer to the risk.

christian-mumenthaler-swiss-re-ceoHaving a background (in a previous life) in technology, e-commerce and finding ways to match capital with sources of demand in the most direct and efficient ways possible, I was always a fan of the iptiQ strategy.

I’ve described it before as Swiss Re “finding innovative ways to source risk as directly as possible” and while Swiss Re always called its iptiQ digital platform a B2B2C strategy, I’ve always viewed it as an innovative way to “white-label the Swiss Re balance-sheet for third-parties that can originate risk.”

iptiQ allowed Swiss Re to bring its risk capital and underwriting rules much further forward in the markets value-chain, though the use of technology, API’s, embedded strategies and partnerships, really all very typical e-commerce techniques, but less typical in wholesale capital financing like reinsurance.

By white-labeling the Swiss Re balance-sheet, business rules, underwriting and pricing, then making them available to partners through the iptiQ tech platform, the reinsurance firm was also bringing the end-client much closer as well.

Just a few years ago, Christian Mumenthaler, the outgoing CEO of the company, had said that offering things outside of pure capital transfer, such as iptiQ, was a core strategy, saying that these initiatives were “a differentiator, compared to just this traditional, more commoditised reinsurance.”

Back then, iptiQ was seen as one of the crown jewels for an expansive Swiss Re, a way to do more business directly, sourcing risk premiums more directly from the end-customer, shortening the market chain and embedding the company values and capital resources within partners business models.

Mumenthaler himself had said that capital was not the main value proposition in reinsurance, it was just an entry ticket to the fray, while expertise, service and innovation would drive success.

As the iptiQ business was growing and Swiss Re’s focus on alternative capital and insurance-linked securities (ILS) investors had been rekindled with the expansion of its Alternative Capital Partners (ACP) unit and launch of dedicated ILS funds, we had described the iptiQ strategy as having:

“…the potential to become another source of risk for Swiss Re and its third-party capital partners, expanding the reinsurers reach and ultimately creating a bigger mouse-trap for risk.”

Fast-forward to 2024 and iptiQ is no longer a core focus, in fact it’s seen as an initiative to withdraw from by Swiss Re.

It’s important to note here, that Swiss Re is set to maximise as much value as it can from iptiQ, as it withdraws and potentially sells it as a whole or in parts, which could be quite lucrative given the entire venture was created and built in-house from scratch and you could see any buyer maintaining a relationship with the reinsurer and perhaps even some level of access to balance-sheet capacity.

Now, with CEO Christian Mumenthaler leaving Swiss Re after 25 years and Andreas Berger stepping in to that position from July 1st, Mumenthaler made a last appearance at the quarterly analyst call recently and explained his view on the planned withdrawal from iptiQ.

Which gave some insights into how Mumenthaler and Swiss Re thinks about the reinsurance market today, versus how the landscape looked just a few years ago.

Mumenthaler explained the backdrop to the creation of iptiQ during the analyst call, “There was a time where there was a significant anxiety around reinsurance and low-interest rates and capital flowing in. Remember, in about 2017 after the big nat cats in the US, for example, pricing really didn’t react.

“So, it was really a question of, how is this whole value-chain going to develop and where will we play as Swiss Re in the future?

“That’s the time, I would argue you need to start to build strategic optionality and think about different places in the value-chain and have options in also the ACP (Alternative Capital Partners) space.”

Next, Mumenthaler explained why the context has changed today and why this makes iptiQ less attractive to retain, for the global reinsurance firm.

“What has changed is really, in the last one and a half years or so, a very strong interest rate increase ending this huge phase and stopping the capital flow, which was relentless coming from outside into the reinsurance business,” Mumenthaler said.

Continuing, “So, that means the coop is much more secure and the other thing that has changed is that, on the insurtech side, while things are developing, they are developing more slowly and there’s no real disruption to be seen.”

Going on to say, “So the question is not whether it can fundamentally be a good business or not. It is a question of, does it fit as part of our long-term future, does it fit with us?

“There I have to say, I think in another context, the sense was yes, this is a strategic optionality, we need.

“But, in the current context, I think the honest answer is, it’s very hard to see a future where we will need this, that’s more honest to say.”

Here, it’s worth pointing out, that Swiss Re’s reinsurance business has been expanding through the recent hardening of the market and now with stability largely the current market dynamic, profits look set to be attractive, loss activity and legacy effects allowing. So it’s perhaps not surprising the focus has changed, alongside this change in context and market dynamic.

Mumenthaler said that, at the time of iptiQ’s planning and launch, “We felt there was a very strong case for it.”

But given the changed dynamic in reinsurance in 2024, “Let’s be open that this is not a fit with us for our long-term strategic future. I can’t foresee a huge impact on us, so this is going to be managed for value.”

It’s really interesting to hear Mumenthaler’s viewpoints on this, as the changed dynamics he refers to are a lot to do with what drove the significant softening of reinsurance rates, especially in property catastrophe risks and also the growth of the insurance-linked securities (ILS) market.

But, perhaps it was not the growth of ILS capital that disrupted things and drove the reinsurer to explore initiatives such as iptiQ, rather it might have been the fact that all the major reinsurers of the world lowered their pricing, relaxed their terms and became far more competitive during that soft market phase, almost as a response to the rapid expansion of ILS and alternative capital.

Today, the ILS and alternative market is at least the same size, or bigger, and far more embedded in reinsurance than it had been back in 2017 and prior.

The main difference being, that ILS capital is now accepted as a stable, complementary, necessary capital extension and source of protection for the traditional industry. Not something to be afraid of in case it rapidly ate your lunch, so to speak.

The overall insurance and reinsurance industry has matured and learned to harness the appetite of institutional investors, to its benefit and we now stand with a much more robust capital framework for the industry today, than we did a decade ago thanks to ILS products and investors.

Will the dynamics ever return that could drive reinsurers to again seek to be innovative in bringing their capital right to the forefront of the market chain?

Quite possibly, in fact we do see this in many discrete areas, but for now we appear to be in a more balanced status-quo, between traditional and alternative, perhaps helped by the new balance in risk bearing between primary and reinsurer.

It won’t last forever, but finding a comfortable middle-ground where both sides flourish has been beneficial for profits and returns all round, meaning there are motivations to sustain the way traditional and alternative interact with less direct competition today.

All that said, it’s surely just a matter of time before some innovative company (maybe even Swiss Re) finds new ways to connect its balance-sheet capacity to burgeoning sources of risk far more directly (API’s to connect capital, algorithmic business rules to define the underwriting, anyone?).

The (reinsurance capital) context has changed: Mumenthaler, Swiss Re was published by: www.Artemis.bm
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CatX, a digital catastrophe and parametric risk exchange start-up, has launched a new artificial intelligence (AI) tool named Catamaran, which can create and analyse a reinsurance submission then provide rapid feedback on investor interest and pricing.

catx-catamaran-ai-reinsuranceThe stand-alone artificial intelligence-powered tool can be used by brokers and underwriters to prepare high-quality structured reinsurance submissions.

With the Catamaran AI, this can be achieved by uploading any existing documentation or modelling files, while the AI model can extract any data point to populate a digital submission that can be used to present risks to investors or reinsurers, CatX explained.

Most interesting though, is the fact Catamaran can then provide feedback on whether there is interest from the institutional investors using CatX’s platform in offering capacity to support the reinsurance deal.

In addition, the Catamaran AI can also provide indicative pricing, to support investor and reinsurer decision-making.

The Catamaran reinsurance submission tool can also provide an export of the information in a manner compatible with standard insurance file formats, such as MRCV3 or ACORD, CatX said.

CatX hopes that, with the use of Catamaran’s AI technology, the structured submissions can “help to make insurance opportunities appealing to a wider range of investors.”

Thanks to recently announced partnerships, CatX’s platform also allows users to run third-party risk models from providers such as RMS and Cybercube, so that risks can be presented in a more investor-friendly format.

Going into more detail CatX explained, “Investors and reinsurers will be able to use Catamaran to analyze incoming submissions and manage transaction pipelines. Investors can run analyses to extract key information about underlying portfolio and modelling data. They can also compare versions to identify similarities, differences, or changes in conditions and wordings. On the CatX platform, opportunities are matched with funds that define their investment preferences across minimum rates, cedents, underwriters, regions, and perils.”

“We have seen first-hand how effective structured digital submissions can be in securing better-priced capacity from institutional investors. They will help to grow the alternative capital market through enhanced transparency which supports decision-making and helps to attract a broader investor base,” explained Benedict Altier, CEO of CatX. “Artificial intelligence will play a key role in helping the industry improve standardization, while still requiring underwriters and brokers to review key details to ensure accuracy.”

“With Catamaran, we are not only improving the quality of submissions but also paving the way for more advanced underwriting processes,” added Lucas Schneider, CTO of CatX. “Our machine-readable submissions are designed to facilitate algorithmic underwriting, ensuring that opportunities are accurately matched with the right markets.”

“Catamaran is the easiest way to bring submissions to new capital sources. The tool can automatically build a comprehensive deal page containing structured transaction information, contracts and modelling files,” Felix Terpstra, Lead Engineer of CatX also said. “Automating the basics allows underwriters and brokers to focus on getting the details right, therefore producing higher quality submissions with quicker turnaround times.”

It’s a very interesting addition to the CatX platform offering, but perhaps a first step away, or slight detour, from the initial goal of becoming a risk placement and exchange tool, to connect risk to the capital markets.

A number of attempts to create true risk exchange functionality for the reinsurance market have been stymied by brokers in the past.

So, positioning to add value that can support the broker community’s operations is a shrewd move, as that is the best way to gain traction in reinsurance, by supporting the broker processes and making their lives easier, while allowing them to continue owning their client relationships.

It’s a particularly delicate balancing act, to innovate in the reinsurance transaction placement and syndication space, while not stepping on broker toes.

CatX launches Catamaran AI, provides feedback on investor interest & pricing was published by: www.Artemis.bm
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Porch Group, the owner of insurer Homeowners of America Insurance Company (HOA) which was impacted by the Vesttoo reinsurance letter of credit (LOC) collateral fraud, has now taken the step of suing broker Gallagher Re, claiming it “grossly mismanaged” the administration of the reinsurance.

porch-vesttoo-gallagher-re-reinsuranceAs we reported last week, Porch Group filed a law suit in New York against China Construction Bank Corporation, over the Vesttoo reinsurance collateral fraud, accusing the massive Chinese bank of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

Now, as the company looks to recover damages it says total more than $100 million, Porch has directed attention also to its reinsurance broker, effectively claiming that its security as a counterparty and of the collateral supposed to be underpinning its reinsurance deals was not properly managed.

Porch states that Gallagher Re’s job was to secure it reinsurance coverage for its subsidiary Homeowners of America Insurance Company (HOA) but that it “grossly mismanaged” the administration of a new reinsurance facility that was established under Aon’s White Rock structure and that was supposed to have been backed by Vesttoo.

Interestingly, Porch stated in its lawsuit that there were “numerous red flags that Vesttoo and China Construction Bank… were unreliable.”

Stating in the case that has been filed in Dallas County, Texas, “Gallagher ignored critical red flags that would have warned any reasonably diligent insurance broker that the reinsurance contract arranged by Vesttoo and purportedly backed by a letter of credit issued by China Construction Bank was unreliable.

“Despite a clear contractual obligation to obtain written evidence of China Construction Bank’s agreement to guaranty reinsurance risk directly from China Construction Bank, Gallagher failed to do so, both in late 2021 when the 2022 contract was negotiated and in late 2022 when it secured the renewal contract and a new letter of credit for 2023.”

Porch even claims that Gallagher Re turned a “blind eye to red flags” and that the reinsurance broker “utterly failed to meet its most basic obligations to HOA under the parties’ contract and Texas law.”

“Gallagher’s contractual breaches and professional malfeasance caused HOA to suffer catastrophic losses when the reinsurance facility Gallagher arranged and administered suddenly went up in smoke,” Porch’s law suit states.

When the Vesttoo letter of credit (LOC) fraud scandal broke into the news and it became clear no collateral of any worth was underpinning HOA’s reinsurance deal with the insurtech, Porch was left with the resulting costs.

The company notes it had to “write off $48.2 million in losses, provide tens of millions to HOA in emergency capital funding, and obtain more expensive alternative coverage,” to fill the gaps it now claims were “caused by Gallagher”.

“Because of Gallagher’s breaches, Porch has sustained more than $100 million in losses, including the loss of funds released from the reinsurance account as a result of Gallagher’s authorization and failure to perform due diligence, the costs of losing its expected reinsurance coverage, the costs of alternative insurance coverage, the payment of millions of dollars in unearned commissions to Gallagher, the precipitous decline in Porch’s enterprise value from the crisis, the costs of heightened regulatory supervision, and attorneys’ fees that will total millions of dollars through trial. By this action, Porch seeks to recover those losses from Gallagher,” the company states in its law suit filing.

This isn’t the first lawsuit against a reinsurance broker in relation to the Vesttoo fraud, of course. The case brought against Aon by fronting specialist Clear Blue is also ongoing.

It’s worth also recalling here, that Porch agreed a $30 million strategic arrangement with Aon, that included releasing all claims related to the Vesttoo fraud that it had against the broker.

The Vesttoo fraud has of course raised questions over counterparty and collateral security responsibilities, which some of those damaged by the fraud were always going to try and seek recoveries for, with reinsurance brokers one of the more predictable avenues for this to be pursued.

Of course, with Vesttoo in bankruptcy and what little funds were left in the insurtech’s bank accounts either distributed in small settlements to some cedents, or having gone to pay legal bills, there is no other avenue to turn to where damages of this scale could be pursued anyway.

As we said last week in our article on Porch’s lawsuit against China Construction Bank, “It stands to reason that, given the extensive financial damage cause by the Vesttoo reinsurance collateral fraud, additional law suits will come to light over time, as those that faced damages look to recover some of the value lost.”

But, it remains to be seen how successful these legal actions are, when all parties in the reinsurance market value chain that touched these transactions appear to have been equally-duped by the fraud that occurred. No doubt we’ll see more legal action before the saga disappears from headlines though.

It was just a matter of time until more legal activity emerged. Although, we are still waiting for a criminal law focus to emerge, as there are parties that perpetrated this fraud that continue to avoid the legal spotlight, for now.

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

Porch sues Gallagher over brokers’ role in Vesttoo reinsurance transactions was published by: www.Artemis.bm
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Aon has again called for fronting specialist Clear Blue Insurance’s lawsuit against it, related to the reinsurance letter of credit (LOC) fraud perpetrated by Vesttoo, to be dismissed, calling it an attempt to distract from the depth of Clear Blue’s involvement with the insurtech and its own financial distress.

aon-clear-blue-vesttooAs we reported earlier this month, Clear Blue amended its legal complaint against Aon in the New York court lawsuit, strengthening the language used and accusing the insurance and reinsurance broking giant of soliciting the fronting specialist’s involvement in a scheme that it structured and masterminded.

As you’d expect, Aon has fired back and called for the amended complaint to be dismissed, reiterating previous assertions from its earlier call for dismissal of the first complaint, that Clear Blue has not met its burden of showing that the Court has jurisdiction over either either Aon plc or Aon Insurance Managers (Bermuda) Inc., and that the fronting company has failed to state a claim for any asserted cause of action.

A Clear Blue spokesperson has given a view as to how the fronting specialist sees the assertion that the New York court lacks jurisdictional oversight.

“Clear Blue believes it’s completely obvious that Aon has significant presence and operations in Manhattan / New York sufficient to support their jurisdiction in the New York courts, as evidenced by Aon’s 240,000 square foot office and executive officers located at One Liberty Plaza in the financial district.  Any statement otherwise by Aon is patently false and misrepresentation to the court,” the Clear Blue spokesperson told Artemis.

But Aon seeks to put the onus back onto the fronting specialist in its latest filing, stating that, “Clear Blue’s lawsuit against Aon plc and AIMB is an attempt to distract this Court and the market from the depth of its involvement with Vesttoo and its own financial distress.”

Here, the broker is referring to the fact that Clear Blue had a public relationship with Vesttoo, announced in 2022, through which it was hoping to partner on $1bn of capacity deals.

In addition, the broker has included a third reason for rebuttal of the lawsuit, in its latest response to the amended complaint, saying that Clear Blue’s claims are not ripe.

Here, Aon notes that it’s not clear what financial losses or impact Clear Blue has actually suffered, or when any losses may occur, because of the lack of collateral to back up reinsurance deals it had fronted on behalf of Aon’s clients.

Recall that, Vesttoo had been forging letters of credit (LOC) to support reinsurance arrangements, so as a fronting carrier involed in a number of deals Clear Blue found itself with no reinsurance to back up the contracts it had entered into.

Aon’s filing states, “Even if the Court finds Clear Blue could state a case, that case would fail because Clear Blue’s request for a declaratory judgment is not ripe. The Amended Complaint does not allege Clear Blue is currently obligated to settle any claims, and it is unclear when (or if) any claims will come due.”

Adding that, “New York courts have held a request for declaratory judgment is not ripe when the claim is based on a future event that is beyond the control of the parties and may never occur.”

Continuing by stating that, “Here, Clear Blue has not alleged that it owes any insured, only that “to the extent that the insured … makes a claim to Clear Blue under the reinsurance that it provided and is successful on such claim, then Aon should be required to indemnify Clear Blue.

“Clear Blue does not allege that any claims have been made or paid. As a result, its request for declaratory judgment must be dismissed.”

It’s anticipated that a further response from Clear Blue will be filed, in answer to Aon’s latest response to its updated complaint.

Quite where this case goes remains to be seen and it is now just one avenue of litigation that continues in the wake of the Vesttoo reinsurance collateral fraud and bankruptcy.

As we reported earlier today, Porch Group has now filed a law suit in New York against China Construction Bank Corporation, accusing it of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

The fallout from Vesttoo’s fraudulent activities looks set to reverberate for some time to come.

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

Aon calls Clear Blue’s amended Vesttoo fraud lawsuit “an attempt to distract” was published by: www.Artemis.bm
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Porch Group has filed a law suit in New York against China Construction Bank Corporation, over the Vesttoo reinsurance collateral fraud, accusing the massive Chinese bank of “enabling its personnel to perpetrate a colossal fraud” on the plaintiffs.

porch-vesttoo-china-construction-bankRecall that, Porch Group is the owner of Homeowners of America Insurance Company (HOA), an insurance carrier that found a letter of credit (LOC) that was supposed to provide the collateral to back a reinsurance deal it had entered into with insurtech Vesttoo was forged.

Porchhad significant impacts from the fraud and has already been able to make some financial recoveries after its exposure to the Vesttoo fake reinsurance letter of credit (LOC) collateral fraud and scandal.

First, the company agreed a $30 million strategic arrangement with Aon, that included releasing all claims related to the Vesttoo fraud that it had against the broker.

Then it has also benefited from a small recovery under the Vesttoo bankruptcy case settlements, which we believe to have been up to $3 million, Artemis now understands.

Finally though, one of the injured parties that has suffered financial impacts of the extensive reinsurance collateral fraud has now taken the step of pursuing damages from a bank who’s staff had been accused of playing a facilitating role in the elaborate Vesttoo fraud scheme.

Of the billions of dollars in letters of credit (LOC) that should have backed up reinsurance deals involving Vesttoo, but were found to be forged or invalid, the vast majority were purported to have come from China Construction Bank.

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

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

With little in the way of financial recoveries able to be made from Vesttoo itself through its lengthy and expensive bankruptcy case, it was always going to be the case that parties would start to look elsewhere for recoveries.

China Construction Bank was an obvious candidate, given the alleged involvement and participation in the fraud by staff, and the first sign this could be on the horizon was when the Committee of Unsecured Creditors in the Chapter 11 bankruptcy case of Vesttoo filed a request to conduct legal discovery on China Construction Bank late in 2023.

Porch is a member of that committee and is the first to take the step of launching legal action against the massive Chinese bank.

China Construction Bank is named as the issuing institution for many of the fraudulent letters of credit (LOC) from the Vesttoo case and during the bankruptcy 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.

How far that discovery actually got is uncertain, as Chinese financial institutions have proven notoriously unresponsive to such proceedings in other international cases.

But Porch has now launched its suit against the bank, saying it is seeking to “recover from China Construction Bank—one of the largest banks in the world—for enabling its personnel to perpetrate a colossal fraud that has upended the reinsurance industry and imposed monumental losses on Plaintiffs.”

Stating that, “CCB affirmatively enabled its employee Chun-Yin Lam, a Relationship Manager in CCB’s Hong Kong S.A.R. office, to issue billions of dollars in false letters of credit purportedly made on behalf of CCB and originating from its New York branch.”

Lam is accused of working with the Vesttoo frausters, using the authority that China Construction Bank (CCB) bestowed on him to issue dozens of letters of credit for reinsurance transactions, which turned out to be fraudulent.

“These letters of credit falsely guaranteed insurance companies, including Plaintiffs, access to critical reinsurance funds to help pay policyholders’ insurance claims in the event of a major catastrophe,” Porch’s law suit states.

“The conspirators’ scheme worked for years. Plaintiffs and other insurance companies paid tens of millions of dollars in premiums for non-existent reinsurance until news broke in July 2023 that certain letters of credit backstopping Vesttoo’s reinsurance transactions were fake,” the law suit adds.

Porch’s HOA was one of the biggest victims, losing tens of millions of dollars when a $300 million letter of credit backing a reinsurance facility turned out to be fraudulent.

Porch has paid out more than $80 million to cover insurance claims that should have been reinsured, the company said.

Porch Group says that it is bringing its legal case against the bank, “to recover from CCB for affirmatively enabling its employees to commit their massive fraud and for negligently allowing their misconduct to continue unabated for years—to Plaintiffs’ extreme detriment.”

Porch states that Gallagher Re was the reinsurance broker that introduced HOA to Vesttoo and that Vesttoo provided its reinsurance via Aon’s White Rock SAC in Bermuda, while Yo Po Finance was supposed to have been the investor backing the collateral, and China Construction Bank issued the LOC to support the reinsurance cover.

Porch states that a collateral letter confirming that CCB would provide a $228 million letter of credit (LOC) was signed by a CCB Senior Vice President named Xu Yingde.

With CCB ranking as one of the largest banks in the world, Porch said it reviewed various information about the bank, its status as an NAIC-approved issuer of letters of credit for reinsurance transactions, and that the collateral letter document itself was stamped by the bank.

Porch also states that the collateral letter was “accepted by Gallagher Re, HOA’s reinsurance broker knowledgeable of the customs and practices of the reinsurance industry, as valid and reliable collateral for the reinsurance transaction.”

A further updated copy of this stamped collateral letter was sent by post from CCB’s Hong Kong office by UPS to HOA, with the name “Yin Lam” named as sender and an employee.

“At all relevant times before and after entering the 2021 Quota Share Reinsurance Contract with White Rock, HOA believed that it was supported by a valid and reliable letter of credit commitment from CCB,” Porch’s law suits states, noting that neither Gallagher Re or White Rock “expressed any skepticism or hesitation about the validity of the letter of credit documentation received from CCB.”

The letter of credit was increased over time to the full $300 million, to support the quota share reinsurance agreement.

Then, when news of the Vesttoo fraud broke in July 2023, Porch delivered a sight draft to CCB’s New York office asking to draw on the letter of credit, and emails were sent to CCB employees Chun-Yin Lam, Philip Ohara, and Allison Lee using official CCB email addresses.

The only response came from CCB’s lawyers, who denying issuing the letter of credit in the first place.

That triggered the chain of events at Porch that drove it to cancel its reinsurance and take actions to shore up the business.

Porch alleges that “CCB employees conspired to defraud HOA,” conspiring with Vesttoo and Yu Po employees and agents to inflict damage on the company.

“CCB, through its employees and agents, was a central participant in the conspiracy to defraud HOA, and other insurance company cedents, through the issuance of falsified letters of credit.”

The named CCB employee Lam used CCB emails, addresses and documents to perpetrate the fraud and cover-up the fraudulent nature of the letters of credit.

Porch also believes others were involved, stating, “On information and belief, Lam’s fraudulent scheme involved other CCB employees at various levels of seniority, who provided support to Lam and oversaw the fraudulent execution of the LOCs.”

They also state that Lam hosted meetings at CCB’s office in Hong Kong with Vesttoo executives and employees.

Porch alleges a network within CCB that arranged and forged the LOC’s, with involvement in Hong Kong, Beijing and New York.

“On information and belief, the execution of LOCs was within these groups’ respective job duties. On information and belief, individuals in these groups, in coordination with Lam, were ultimately responsible for affixing the “Xu Yingde” signatures and coordinating with individuals at CCB that provided final approval for the fraudulent LOCs,” Porch’s law suit explains.

Also stating that, “As one of the largest banks in the world, CCB should have had extensive protocols in place to protect against and detect the type of fraud perpetrated by its employees.”

“Under CCB’s watch, Lam worked with other employees at CCB and co-conspirators at Vesttoo and Yu Po to defraud HOA—to Plaintiffs’ severe detriment.”

It remains to be seen how successful such a law suit can be. In the past, legal action against Chinese banks has not always resulted in recoveries for the injured parties.

It stands to reason that, given the extensive financial damage cause by the Vesttoo reinsurance collateral fraud, additional law suits will come to light over time, as those that faced damages look to recover some of the value lost.

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

Porch sues China Construction Bank over Vesttoo reinsurance collateral fraud was published by: www.Artemis.bm
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Clear Blue Insurance has amended its complaint against Aon, in the New York court lawsuit related to the reinsurance letter of credit (LOC) fraud perpetrated by insurtech Vesttoo, with the language strengthened and Aon now accused of soliciting the fronting specialist’s involvement in a scheme it says was structured and masterminded by the broker.

aon-clear-blue-vesttooClear Blue had filed a lawsuit against insurance and reinsurance broking giant Aon and subsidiary Aon Insurance Managers in the New York court last year, with the fronting specialist looking to recover some of its losses caused by its exposure to the fraudulent activity undertaken by Vesttoo.

Recall that Vesttoo linked transactions were found to have fake and forged letters of credit (LOC) against them as collateral, resulting in the drawn-out legal action and bankruptcy case that Artemis has covered in-depth.

Clear Blue had been involved as the fronting carrier within many Vesttoo linked collateralized reinsurance transactions, including certain intellectual property deals brokered by Aon.

The fronting company has been facing significant financial ramifications after it transpired that deals it had fronted were not backed by valid collateral, as the letters of credit (LOC) purportedly from international banks turned out to be fake.

After an extended deadline, stipulating that Aon should respond to the complaint by the end of January 31st 2024, passed, broker Aon then filed a motion calling for the New York state lawsuit to be dismissed in its entirety.

Then, earlier in April 2024, we’ve now learned that Clear Blue filed a first amended complaint, updating the language in the original and in the process being much more direct in its accusations, it appears.

The amended complaint still demands a jury trial be held to decide on the issues Clear Blue believes need to be heard.

In changes and additions to the language used, Clear Blue now accuses the broker of soliciting it to become engaged in a trading relationship “with Aon and its partner named Vesttoo, in which they provided reinsurance capacity and coverage to Clear Blue.”

The complaint continues to claim that Aon breached its contractual duties, but now also adds an accusation that this included breaching “the implied covenant of good faith and fair dealing” with all participants of the program, including Clear Blue.

Where previously the complaint stated that, “The scheme was structured where Vesttoo purported to provide letters of credit as collateral to the Aon’s controlled affiliate White Rock Insurance (SAC) Ltd. (“White Rock”), whose sole function was to transform the letters of credit into insurance and reinsurance capacity.”

The amended complaint now states (emphasis on the edit), “The scheme was structured and masterminded by Aon where Vesttoo purported to provide letters of credit as collateral to the Aon’s controlled affiliate White Rock Insurance (SAC) Ltd. (“White Rock”), whose sole function was to transform the letters of credit into insurance and reinsurance capacity.”

The amended complaint goes into some detail on the intellectual property insurance product in question, that had been fronted by Clear Blue and those arrangements backed by reinsurance capacity provided by Vesttoo which turned out to have no substance, as the collateral LOCs were forged.

Another edit that shows the intent of Clear Blue to ramp up the seriousness of its complaint, is where previously the original complaint had stated, “Clear Blue entered into a series of reinsurance transactions…”

Has been updated in the amended complaint to state (again, with emphasis on the edits), “Aon induced Clear Blue to participate in a series of reinsurance transactions…”

Further, Clear Blue has also claimed in an addition to the amended complaint, regarding the defendants Aon and Aon Insurance Managers, “In every instance where Defendants failed to verify the letters of credit to collateralize the Segregated Accounts, Defendants took no other steps to ensure that there were valid and collectible assets linked to the liabilities of the segregated accounts.”

The amended complaint also states that Aon had represented in its marketing materials that it would ““insure the compliance with” the collateral requirements of each transaction,” Clear Blue has added.

Another amendment is the explicit inclusion of the word damages to the sentence, “Clear Blue seeks to recover damages for the wrongs perpetrated against it by Aon, in hosting a rogue operation on its Bermuda-based Platform in clear violation of law, regulation, contract, and standard market practice.”

A further change amends the line “Aon took deliberate actions to avoid confirming wrongdoing by Vesttoo despite knowledge of critical facts respecting the required collateral for the subject business,” to now read, “Aon took calculated actions to avoid confirming wrongdoing by Vesttoo despite knowledge of critical facts respecting the required collateral for the subject business.”

The amended complaint also explicitly states that “Aon held itself out as the “exclusive reinsurance broker” on these transactions.”

After which it adds further text to explain why Clear Blue feels the New York court does have jurisdiction over its complaint against Aon, which is something Aon had contested in its motion to dismiss the original.

At the heart of the complaint remains Clear Blue’s assertion that, while Aon had said it would ensure compliance with collateral requirements for the reinsurance deals, it had not undertaken a validation of the letters of credit (LOC), that later turned out to be fraudulent.

Of course, it’s important to note that many parties (outside of this specific lawsuit) saw some of the fraudulent LOCs and conducted whatever checks they typically did, without noticing their fraudulent nature, including other cedents, intermediaries, brokers and carriers. Presumably Clear Blue saw them too.

But still the LOCs passed undetected across the entire industry, until the first claim against one was attempted which triggered this whole LOC fraud saga.

As we’ve said in our previous reporting on the Vesttoo LOC fraud saga, it still isn’t clear-cut as to who, if anyone, within the reinsurance market chain should take any responsibility for the events that occurred, outside of the perpetrators of the fraud, so Vesttoo themselves.

Clearly, Clear Blue feels Aon failed in its duty, but in that case so did everyone else involved in any of the transactions affected by the fraud, including the fronting specialist itself.

Every participant must take some ownership, for the failure of industry checks and balances, as well as of collateral security controls.

But, as we’ve also said, with billions of dollars of value damaged or destroyed, legal action and settlements are inevitable, as the Vesttoo bankruptcy case outcome showed.

In terms of who might have been solicited, it was the way the fraudsters conjured up a perception across the industry that they had ample capital to conduct reinsurance deals, an innovative way to analyse and price them, along with what we understand to have been especially keen price points too, that really attracted those that did to work with them.

Had they not given that perception and created that allure, it’s clear that none of the major re/insurance related firms named in the bankruptcy court, or in other cases such as this, would have given a minutes thought to participating in their deals.

Whether Clear Blue can succeed in its pursuit of damages from Aon remains to be seen.

Efforts may have been better directed at the fraudsters themselves. But, of course, Vesttoo had little in capital at the end and the bankruptcy case has already eroded most (if not all) of that, leaving nothing to be recovered through any additional litigation. It’s no surprise the focus has shifted away from the perpetrators of the fraud at this stage, as parties damaged financially by those events look to any other source of potential recoveries.

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

Clear Blue updates Aon complaint, claims broker solicited Vesttoo engagement was published by: www.Artemis.bm
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With the insurance-linked securities (ILS) and reinsurance marketplaces being document-heavy, UK-based legal and regulatory technology company Scribestar has an ambition to streamline document production and compliance for these sectors and is rolling out its platform globally.

scribestar-logoScribestar offers a secure collaboration platform that can automate and streamline the administration of paper-heavy processes related to the structuring of complex financial transactions and documents use-cases in private and public markets.

Already, Scribestar has worked with an unnamed Bermuda based reinsurance company that sponsored a 144A catastrophe bond, to help it prepare and manage the extensive documentation used within such an ILS transaction.

Scribestar is already a tech-service provider to the London Stock Exchange Issuer Services Marketplace, with its technology having been used by law firms, issuers, and complete deal teams to produce capital markets documents, compliance forms and checklists for a range of public issuances and private transactions.

The goal is to provide an efficient and cost-effective document production and publication process for high quality outputs, Scribestar explained.

Working with the Bermuda-based reinsurer, Scribestar’s platform enabled the company to collaborate among the lawyers, sponsors, and issuers, providing a single source of truth for inputting information to the 144A catastrophe bond documents, while streamlining legal and administration processes, and helping it to be ready to access the market at the optimal time.

Having been trialled in the ILS and reinsurance markets, Scribestar says it has “identified documentation production and compliance challenges that its technology is well-positioned to alleviate.”

The ILS and reinsurance market is well-known for its inefficiencies when it comes to documentation and Scribestar aims to improve that, regardless of the transaction type (private, Rule 144A, specialty, etc.).

Srinivas Suravarapu, CEO of Scribestar explained, “We are excited to offer our unique platform for use in the ILS and Reinsurance market and look forward to introducing it to issuers, lawyers, sponsors and other market participants. Having spoken extensively to reinsurance brokers, sponsors and the Bermuda Stock Exchange about challenges in this space, we followed it up with extensive testing, trials and integration of market rules, forms and checklists.

“We are confident that some of the best practices we have learned from capital markets can now be passed on to users in this sector by offering a secure and seamless service that brings meaningful efficiencies to their operations. We invite them to reach out to us to learn more and see the platform in action.”

Scribestar aims to streamline documentation for ILS & reinsurance was published by: www.Artemis.bm
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