Vermont captive regulator seeks details of Vesttoo exposure

Vermont’s captive regulator has sent a notice to captive managers and service providers in the state asking them if they have exposure to the fallout from insurtech Vesttoo.

The request for information follows the alleged fraud that surfaced last month involving Vesttoo. Earlier this week, Vesttoo said it will liquidate its collateralised insurer in Bermuda, Vesttoo Alpha P&C.

Whether any captive insurers or risk retention groups are directly impacted is unclear, but greater regulatory scrutiny around fronting arrangements and collateral options will follow, according to experts attending the Vermont Captive Insurance Association’s (VCIA) 2023 conference.

Disclosures that letters of credit issued in transactions involving the online reinsurance intermediary were allegedly fraudulent will prompt the captive, fronting and managing general agency markets to investigate and review their collateral arrangements, and possibly seek alternatives, the experts said.

Vermont is in the process of assessing whether there is any direct impact on any captive insurers domiciled in the state, said Sandy Bigglestone, deputy commissioner of the captive insurance division of the Vermont Department of Financial Regulation in Montpelier, in an interview with our sister paper Business Insurance at the VCIA conference.

“We immediately sent out a notice to all of our companies, service providers in the state, to say if you are impacted by this, please let us know,” she said.

Many companies have already responded that they have no exposure, including one that provided information ahead of the notice being issued, Bigglestone said. “I don’t expect there to be a lot of companies. There’s only one that I can think of that may have some exposure,” she said.

Companies have 30 days to respond to the notice.

Separately, ALIRT Insurance Research suggests that all parties exposed to the alleged fraudulent letters of credit involving Vesttoo bear some responsibility.

“While we concede that this was likely a well-designed fraud, it is difficult to fathom that it was able to evade multiple levels of due diligence… That is, unless corners were being cut in the race to place premium into difficult corners of a difficult P&C market,” the insurance research company says in a client report.

“All of the parties exposed to the recent fraudulent LOCs – wholesale brokers (managing general agents and programme managers), their reinsurance broker partners, the issuing insurers and their reinsurance counterparties, as well as the Vesttoo platform itself – bear some responsibility for this mishap,” it concludes.

This article first appeared on our sister website Business Insurance. For further news from Business Insurance, please click here.