Corinthian operating under assumption all Vesttoo-sourced LOCs are fraudulent

Specialty non-catastrophe focused collateralized P&C reinsurance firm Corinthian Group said that in addressing issues related to reinsurance collateral sources via insurtech Vesttoo, the company is operating under the assumption that all letters of credit (LOCs) sourced from it are fraudulent.

In a statement shared with Artemis, Corinthian Group explained that the company was “incredibly surprised and disturbed” by the emergence of allegations that letters of credit (LOCs) issued by China Construction Bank to insurance companies for reinsurance transactions facilitated through the Vesttoo platform were forged.

“Because Vesttoo has historically been a notable source of financial capacity for reinsurance programs facilitated through a Corinthian vehicle, the Corinthian team has immediately undertaken its own, ongoing investigation to (i) verify the veracity of these allegations, and (ii) evaluate the potential impact on programs operated through a Corinthian vehicle,” the company explained.

Adding that, “In addition, Corinthian representatives have been in contact with law enforcement authorities to ensure that they are simultaneously investigating this alleged wrongdoing.”

This is encouraging, as it is the first time law enforcement has been mentioned in any statements related to this collateral issue and the alleged fraud and it is important authorities investigate any such allegations appropriately.

Corinthian explained that China Construction Bank (CCB), through its counsel, has “indicated generally that some or all LOCs are invalid.”

But, the collateralized reinsurance specialist notes that it, “Remains unclear whether (i) CCB may still have some financial responsibility for the LOCs depending on exactly what occurred with respect to their issuance, or (ii) Vesttoo separately maintains sufficient financial capacity or other means to satisfy its contractual obligations to the Corinthian vehicles that sourced collateral capacity through Vesttoo.”

The company stated, “Until the investigation is complete and these questions are answered, it is impossible to understand the precise impact on the distinct Corinthian vehicles and the carrier partners. However, because of the size and sophistication of this alleged fraud, it will potentially take several months to complete the investigation and fully resolve the open questions.”

Further explaining that, “Accordingly, in order to best protect the relevant interests involved, Corinthian is operating under the assumption that all Vesttoo-sourced LOCs are fraudulent. While operating under that assumption, the Corinthian team has been working closely with its carrier and producer partners to quickly identify and implement collateral capacity to replace the Vesttoo-sourced LOCs.”

Corinthian’s statement is clear and also provides a unique insight into the complexity of the challenges now faced by market players that have exposure to the Vesttoo-linked collateral issues.

While the work to replace collateral is one thing, actually identifying where problems may lie is another, when there is still no clarity over the true extent of the issue, or its cause and who may have been behind any fraud that has occurred.

Corinthian is being transparent about the actions it is taking and also honest about the fact this is no simple task and could take several months, given the complexity of what has occurred.

“Corinthian has spent years developing its reputation as an upstanding and industry-leading player in the collateralized reinsurance market and despite being one of many victims of this unprecedented alleged fraud, it is committed to doing everything it can to mitigate the adverse impact of such alleged fraud on Corinthian, its reinsurance vehicles, its partners and the reinsurance industry as a whole,” the company said.

Also read:

July 28th – Clear Blue: Over 50% of Vesttoo-linked reinsurance already replaced.

July 27th – Everest can lean in if opportunities emerge from Vesttoo collateral issue: Williamson.

July 27th – Vesttoo issue shows importance of sound counterparty risk practices: DBRS.

July 27th – Beazley CEO on Vesttoo: We would look to replace cover & recover premium.

July 26th – Clear Blue rating under review with negative implications on Vesttoo issues.

July 25th – Vesttoo: Updated statement says appears “procedures were circumvented”.

July 25th – AM Best to review fronting collateral in light of Vesttoo news.

July 25th – Fronting company Obsidian says Vesttoo exposure “de minimus”.

July 24th – Clear Blue: No material rating impact from Vesttoo issue. Reinsurance may be required.

July 21st – Vesttoo: Multiple LOCs from one bank in focus. Failure of security controls or KYC?

July 20th – MS Transverse: Any exposure to Vesttoo LOC collateral issues “immaterial”.

July 20th – Vesttoo: Collateral damage.

July 19th – Vesttoo: New report claims significant amount of forged LOCs. The question is how?

July 18th – Vesttoo faces fraudulent collateral claim. Confirms investigation, exit of some leaders.