Clear Blue replaces Vesttoo reinsurance for all in-force business and takes $16mn Q2 charge

Hybrid fronting carrier Clear Blue has filed delayed Q2 statutory financial statements which include a $15.8mn charge for the writedown of collateral on run-off business in relation to Vesttoo and Corinthian Group, as it also said that it has replaced all reinsurance on its ongoing portfolio of business.

Although the fronting carrier did not reference the providers of replacement reinsurance capacity in its commentary in the quarterly statement, its Schedule F filing shows that new reinsurers at the end of Q2 included Roosevelt Road Re, MCK Re, XL Re Europe, start-up Northern Re and Canopius Re.

News that the Jerome Breslin-led company has replaced all reinsurance on its live book is likely to be welcomed by counterparties, as the carrier also looks to address concerns that led to a review with negative implications status being applied to its A- AM Best rating.

As previously reported, Clear Blue was the fronting carrier on a number of transactions that involved Vesttoo-facilitated reinsurance capacity that has since been found to be supported by fake letters of credit (LOCs) posted as collateral.

Clear Blue reported that it recognised a $49mn reduction in group capital and surplus between the end of the first and second quarters of 2023.

But $33mn of the reduction is temporary and relates to statutory surplus strain from prepaid commissions on unearned premium that will reduce to zero as premium earns through.

The $15.8mn charge specifically relates to a provision made for the current best estimate of deficiency of collateral on the run-off business associated with Vesttoo reinsurers and Corinthian Group.

In its statutory filing, Clear Blue confirmed it will retain the run-off business reinsured by Aon’s segregated cell platform White Rock and Corinthian Group and will cover the risk associated with the business with cash withheld in the company and in premium trusts.

In a statement to this publication, Clear Blue said its financial statements take into account information learned in the third quarter about Vesttoo, as requested by the Texas Department of Insurance.

Statutory accounting principles actually don’t require quarterly filings to adjust surplus for changes in circumstances after the period end, with a number of other carriers that have Vesttoo LOCs in their reinsurance recoverables understood to have filed as if the collateral was legitimate.

The statement added: “Clear Blue continues to operate without impairment and work towards finalising its permanent resolution of the Vesttoo-caused challenges.

“Management has been working diligently to identify and implement solutions to the challenges caused by the Vesttoo collapse and is working closely with AM Best to ensure Clear Blue’s A- rating is upheld. We look forward to continuing to engage with stakeholders, strengthen our business, and move forward as a market leader in insurance programs.”

In notes to the 30 June statutory statement filing by Clear Blue Specialty Insurance Company, the firm said that it had been informed that certain LOCs issued by the Corinthian Group – including Corinthian Re and Osprey Re – had been provided by Corinthian to Vesttoo and presumed to be invalid or “obtained fraudulently”.

It added that Clear Blue has been successful in securing reinsurance on current year’s treaties through third-party reinsurers and an affiliated reinsurer.

Clear Blue said it is in the process of obtaining collateral to support the risk associated with its portfolio of programs that had Vesttoo capacity, stating that it expects to have the collateral in place by the end of the third quarter.