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Best puts Vesttoo-connected fronting insurer under review

letter of credit

Rating agency A.M. Best Co. Inc. on Tuesday placed the A- rating of Clear Blue Insurance Group under review for a possible downgrade due to concerns over letters of credit it relies on to support its operations.

Clear Blue earlier this week said it was aware of allegations that letters of credit issued by China Construction Bank for reinsurance collateral on behalf of online reinsurance intermediary Vesttoo Ltd. were fraudulent.

In a statement, Best 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.”

A Best rating level of A- or higher is often required to remain on brokers’ lists of secure insurers.

The ratings of Clear Blue’s four operating insurers – Clear Blue Insurance Co., Clear Blue Specialty Insurance Co., Highlander Specialty Insurance Co. and Rock Ridge Insurance Co. – will remain under review pending discussions with the groups’ management about their ability to replace the letters of credit or find alternative backing, Best said.

Responding to the Best announcement, Clear Blue said in a statement it is confident it can meet Best’s requirements, continue to pay claims, and that it can replace the Vesttoo reinsurance collateral “within a reasonable period.”

Last year, Vesttoo announced it would supply $1 billion in capital markets-based capacity for Clear Blue.

Earlier on Tuesday, Best said it was reviewing fronting insurers and insurers that heavily rely on collateral in the wake of reports of the alleged fraud associated with Vesttoo.

Vesttoo said in a statement that its investigations into the issue continue, but “at a minimum” its procedures were circumvented.