Vesttoo considering replacing CEO and founder

Troubled insurtech Vesttoo has placed its chief executive officer and chief engineering officer on paid leave and is considering removing them in the wake of a fake collateral scandal.

Vesttoo’s board said in a statement that Vesttoo was "exploring multiple options" for interim replacements for CEO Yaniv Bertele and Chief Financial Engineer Alon Lifshitz, but no decision had yet been taken. Both Bertele and Lifshitz are on paid leave until a final decision is made.

Vesttoo, which is based in Israel and uses artificial intelligence to connect the insurance industry and capital markets, said earlier this week it was laying off about 75% of its staff and closing some offices in Asia, as it tries to recover from a scandal over a fraudulent letter of credit used as collateral in a transaction with an insurer.

According to Reuters news agency, Bertele and Lifshitz did not immediately respond to requests for comment.

The board added: “We want to emphasize that there are no plans to liquidate the company. Our aim is to help the company overcome this crisis, provide solutions to affected clients, and focus on our core services and value proposition in order to rebuild the company.

“The board has actively stepped in to assist in the company’s day-to-day operations for this purpose

The company said this week it was closing its Tokyo, Hong Kong and Seoul offices, but would maintain staff in Tel Aviv, New York, London, Dubai and Bermuda.

Julia Henderson, Vesttoo’s chief commercial officer and head of the Bermuda office, resigned shortly after the scandal broke last month.

Led by Santander Bank venture capital unit Mouro Capital, Vesttoo raised $80 million at a $1 billion value last October. At the time, it said it would use the funds to further expand its global presence.

It has paused plans to raise  around $200 million in a late stage funding round that would have valued the firm at nearly $2 billion.

Vesttoo had hired a third party law firm to conduct an audit of the false standby letters of credit that were used in a transaction. The results of that audit have not been made public, but Vesttoo has said that its procedures were bypassed.

Analyst Conning said in a recent note that the Vesttoo scandal could have an effect on the ability of managing general agents to attract capital.

In a report, Conning said fronting companies accounted for more than $12 billion in premium written by MGAs in 2022, a rise of 38% over the previous year. Approximately 15% of total MGA premium is now supported by fronting companies, a share that has more than doubled in the past two years. Total US MGA premium was estimated at $85 billion last year.

Conning said As competition has intensified among fronting carriers, the fronting model has come under growing scrutiny, most recently following news that Vesttoo, a provider of ILS (insurance-linked security) capacity to many fronting companies, was investigating issues relating to the collateral afforded by letters of credit for two transactions.

Insurance ratings agency AM Best said last week it was "monitoring the rapidly evolving situation" at Vesttoo and "reviewing...insurers that have material amounts of reinsurance counterparty credit risk and reliance on various forms of collateral".

Major insurance broker Aon said in a filing last week that some of its clients and counterparties have begun, or said they might begin, legal proceedings against Aon over the fraudulent letters of credit. Aon also said an investigation was underway in Bermuda.

The Bermuda Monetary Authority has said it is "aware of the recent developments surrounding Vesttoo", a spokeswoman said by email.

"Per the BMA’s remit, it is closely examining and, where needed, will act accordingly."