Vesttoo says compliance procedures were circumvented

Insurtech Vesttoo, which has been plunged into controversy after an investor allegedly used false letters of credit as proof of collateral, said today it appears Vesttoo’s compliance procedures were circumvented.

Bermuda:Re+ILS has also confirmed that Julia Henderson, who ran the Israeli-based company’s Bermuda office, has left the company.

Vesttoo said earlier this month that it had discovered at least two LOCs had been misstated and it had retained a third-party law firm to conduct an audit into the events to determine their severity and scope.

In the first public statement since then, a Vesttoo spokesperson said today: “Vesttoo is taking this matter very seriously. While there is still much that is unknown at this stage, the company is doing all it can to determine how and where the fraudulent LOCs originated. At a minimum, it appears that Vesttoo’s procedures were circumvented.

“The company is conducting a rigorous internal and external analysis of the events leading up to the first report of a fraudulent LOC. That process includes the engagement of an experienced investigations team. The Company will use the results of that analysis to take appropriate measures. 

“In the meantime, Vesttoo is in the process of communicating with impacted parties – including investors, banks and cedents – and actively working with those who have been affected on potential solutions. The company is committed to understanding what happened.”

Industry sources confirmed to Bermuda:Re+ILS that Henderson, the company’s chief commercial officer, had left the company after the controversy was made public. Henderson had previously worked at insurtech Stable, ILS fund Peak Capital and as underwriter at PartnerRe and Brit Insurance.

Sources said she and others who had come to Vesttoo from corporate backgrounds as opposed to start-ups were concerned about reputational damage and had therefore resigned. There was no suggestion of wrongdoing, the sources said.

Vesttoo acted as an intermediary between insurance cedants and investors, primarily in the insurance linked securities sector. Its platform used artificial intelligence to model the risk to investors and then connected cedants.

Various forms of collateral, incluidng LOCs, are used by investors to back their investments.

Sources also confirmed reports that the bank whose LOCS were allegedly falsified was China Construction Bank. It is understood that when a cedant in one of the transactions went to the bank, it had no record of the LOC, which appeared to have been forged.

The industry sources said there is no suggestion of fraud on the part of Vesttoo or its employees and the company is now attempting to secure new investment support for the cedants who have been affected.

AM Best said yesterday that it is monitoring the rapidly evolving situation and reviewing its rated fronting carriers and other insurers that have material amounts of reinsurance counterparty credit risk and reliance on various forms of collateral. 

"Based on this review, rating actions will be taken as warranted," the ratings agency said.