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14 August 2023 Insurance

Aon strikes back at Vesttoo; names $137m losses in collateral scandal

Aon's Bermudian segregated accounts reinsurance vehicle, White Rock Insurance, will launch an arbitration suit against insurtech ILS platform  Vesttoo in the next major move in the unfolding collateral scandal and has already scored a quick temporary injunction to keep possible damages frozen on Vesttoo accounts.

White Rock will head to Bermuda arbitration against Vesttoo for what White Rock calls “large-scale fraud scheme” surrounding letters of credit, the latest step in a story of allegedly fraudulent collateral deals that have rocked the insurance linked securities market and the fronting insurance business.

White Rock will seek confirmation that Vesttoo presented fraudulent collateral for deals it handled, then demand a return of all distributions made from segregated accounts to date, fresh acceptable collateral across the board and indemnification of White Rock for the fall out to clients.

White Rock named 21 segregated accounts and claims to have made distributions to Vesttoo to date totalling approximately $136.7 million.

The list of deals includes titles naming fronting insurer Clear Blue, Beazley, including one titled for cyber, Homeowners, Convex, United Auto, Chaucer, SiriusPoint, Avant, Allianz cyber and others.

White Rock secured a quick injunction from a New York court forcing Vesttoo to keep its cash on its US accounts citing terms of the New York Convention on international arbitration. Vesttoo will have its say on the continuation of the temporary injunction on August 15.

White Rock has not made any other court-room forays in the matter nor does it intend to pursue any rights through the Israeli judicial system to freeze assets there.

White Rock Insurance, an indirectly wholly-owned subsidiary of Aon, offers reinsurance solutions through segregated account facilities and, starting end-2021, began working with Vesttoo, tasked to bring in capital market backers for reinsurance deals. Ironically, a good portion of those deals are for collateral protection, often on loans taken against intellectual property rights.

Things unravelled quickly on a report out in July that the collateral backing just such a collateral protection policy had failed when presented for collection.

Aon has already found itself on the receiving end in the Vesttoo fiasco as unspecified disgruntled clients have filed or lined up a series of lawsuits, alleging the broker failed to protect them from the reportedly fraudulent collateral, Aon admitted in its own first half report.

Aon said it has a “robust” defence lined up and appeared to question the primacy of its responsibility to guarantee the collateral in the deals, a responsibility it says its segregated cell deals lay squarely on Vesttoo.

Bermuda regulatory authorities have initiated investigations into the matter and other regulatory bodies could very well follow suit, Aon has additionally noted.

The injunction went to New York federal court where a Vesttoo unit had hustled the streets to secure the letters of credit from China Construction Bank, which rejected the initial alleged letter of credit, as well as such names as Banco Santander and Standard Chartered Bank, White Rock noted in its court filings.

As the scandal has unfolded, Vesttoo has admitted that unspecified letters of credit have failed and that its own internal procedures had been circumvented.

The group has enacted a deep restructuring of senior management and laid off some 75% of staff, but vowed a strong set of legal actions its own. White Rock claims that the demands it has put to the firm have gone fundamentally unanswered.

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