AM Best has placed its A- rating for Clear Blue Insurance Group under review in response to uncertainty surrounding its ability to rely on certain letters of credit that were posted to back its reinsurance agreements.
The announcement follows the credit rating agency’s decision to review collateral arrangements at rated fronting insurance companies over fraud allegations involving Vesttoo, an Israel-based insurtech that connects capital markets participants with reinsurance risks.
Clear Blue had confirmed that it was aware of the allegations claiming that the letters of credit issued by the China Construction Bank for reinsurance collateral on behalf of Vesttoo were fraudulent, according to a report by Calcalist.
The group entered a partnership with the startup in 2022, which supplied its P&C lines with reinsurance capacity sourced from capital markets investors totaling $1 billion.
As for AM Best’s decision, the credit rating agency said Clear Blue will “remain under review” pending discussions with management regarding “their ability to replace certain programs and/or letters of credit to allow for proper reinsurance credit at the time of financial statement filings.”
It also highlighted that Clear Blue retains premiums for programs involving collateral on a funds-withheld basis or in trust accounts to cover associated claims.
While acknowledging that Clear Blue is “aggressively looking to address concerns,” AM Best went on to emphasize the “execution and timing risks” associated with the process, noting that its review period will offer an opportunity to closely monitor “the effectiveness of management initiatives in mitigating any potential impact.” This includes assessing whether additional reinsurer participation or other measures can protect its balance sheet.
Clear Blue members affected by the review include Clear Blue Insurance Company, Clear Blue Specialty Insurance Company, Highlander Specialty Insurance Company, and Rock Ridge Insurance Company.
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