Vesttoo cutting staff in wake of LOC controversy

Troubled insurtech Vesttoo has stated that is reducing costs and laying off staff as it tries to survive a controversy over fraudulent letters of credit used as collateral by investors in transactions organised by the company.

In a statement today, Vesttoo said: “In order to solidify the foundation of the company and reassure the industry, leadership must return its focus to core services while reducing overall costs, including parting ways with some of our employees.

“These are painful, but important decisions that we must make at this time. Our focus remains on regaining our footing and emerging from this challenge stronger than before.

“We thank those who are leaving us for their contributions and will be working to support them through this transition.”

The statement added: “The company is conducting a rigorous internal and external analysis of the events leading up to the first report of a fraudulent LOC. We have engaged an experienced global risk, audit and compliance expert and external attorneys to advise us throughout this process.”

News website CTech by Calcalist, which first broke the Vesttoo story, has reported that 150 employees or 75% of the workforce, is being let go. Bermuda:Re+ILS understands that the final number has not been determined but that the  number of staff is "significant".     

Insurance broker Aon has also confirmed that it is facing legal action from some clients and counterparties in the wake of the Vesttoo controversy.

Aon said in its quarterly report to the US Securities and Exchange Commission that it has “meritorious defences” and intends to “vigorously defend itself” against any claims and to seek recourse against third parties where appropriate.

Vesttoo, an insurtech headed by Yaniv Bertele (pictured), built a platform using artificial intelligence that linked reinsurance cedants and investors, especially for Insurance Linked Securities. It has announced that in at least two transactions, forged standby Letters of Credit were presented by investors, ostensibly from China Construction Bank, which has since said the documents did not come from the bank.    

Vesttoo, which is based in Israel with offices in Bermuda, New York and London, has launched a third party audit to determine the scope and scale of the problem, and has stated that its procedures were circumvented. One Bermuda executive, chief commercial officer Julia Henderson, has resigned from the company.

Aon said: “Certain of the Company’s clients and counterparties have initiated or indicated that they may initiate legal proceedings against the Company following allegations in July 2023 that fraudulent letters of credit were issued in the name of third-party banks in connection with transactions for which capital was arranged by Vesttoo Ltd.

“Vesttoo is one of the third parties that identifies capital providers to collateralize insurance and reinsurance obligations of the Company’s clients and counterparties.”

It added: “In certain transactions in which Vesttoo identified third party capital providers to collateralise reinsurance obligations, including transactions in which the Company or its affiliates provided brokerage or other services, some letters of credit from third party banks are alleged to have been fraudulent. The Company is actively investigating those allegations.

“The pending or threatened legal proceedings against the Company allege, among other theories of liability, that in certain circumstances the Company failed to comply with its alleged duty to procure appropriate letters of credit.

“Aon believes that it has meritorious defences and intends to vigorously defend itself against these claims and to seek recourse against third parties where appropriate.

“In addition, certain Bermuda regulatory authorities have initiated investigations or inquiries into this matter, and other regulatory authorities could initiate investigations or proceedings against the Company or third parties.”

The Bermuda Monetary Authority has stated it is monitoring the Vesttoo situation but has not publicly stated it has launched an investigation. Bermuda:Re+ILS has submitted questions to the BMA asking if an investigation is underway.

Ratings agency AM Best has placed the ratings of Clear Blue Insurance Company under review with negative implications. Vesttoo signed a $1 billion agreement with Clear Blue in 2022 to supply the latter with reinsurance capacity sourced from capital markets investors.  

It said: “The ratings of Clear Blue have been placed under review with negative implications given the current uncertainty around Clear Blue’s ability to rely on certain letters of credit, posted to back reinsurance placed by Clear Blue with certain reinsurers.

“The ratings will remain under review pending continued discussions with Clear Blue’s management and their ability to replace certain programmes and/or letters of credit to allow for proper reinsurance credit at the time of financial statement filings.”