Currently have a $55.00 target. GLTA
TRISURA GROUP LTD.
Implications Of The Clear Blue / Vesttoo Situation
Our Take: The allegations of fraudulent letters of credit that were issued for a
large ILS manager (Vesttoo) is a fairly dramatic and significant event for the
insurance industry. Trisura has no material direct exposure to Vesttoo, but is
monitoring the only source of potential risk (i.e., second-order effects such as
the impact on reinsurance counterparties in the U.S. fronting entity). At the
present time, management is not aware of any reason for concern but is
actively investigating and hopes to update investors in the coming weeks.
Key Takeaways
• Allegations of fraudulent collateral have emerged for Vesttoo (a
provider of reinsurance capacity). A fairly dramatic series of
events has been unfolding in the insurance space over the past two
weeks. Allegations have emerged that certain letters of credit issued
to collateralize programs participated on by an insurance-linked
securities (ILS) manager, Vesttoo, are fraudulent. Clear Blue (which
is the second largest U.S. fronting entity) has partnered with Vesttoo
in a meaningful way and has quickly come under scrutiny for its
exposure to what could be potentially fraudulent reinsurance
collateral. This saga continues to unfold in real-time.
• No material direct exposure for Trisura. Vesttoo has only
partnered in a small way on a single program last year with Trisura’s
U.S. fronting entity, but is not participating this year or on a go-
forward basis. Given that Vesttoo is no longer participating in the
program (which is performing as expected anyway), Trisura believes
there is no direct exposure to this ILS manager.
• Only risk would be second-order impacts. The only potential
source of concern would be second-order impacts across the
broader insurance ecosystem. Vesttoo has scaled quite meaningfully
over the past 3.5 – 4 years, and it is unclear to what extent other
capacity providers might have exposure to this entity. A worst-case
scenario might entail a larger reinsurance counterparty of Trisura’s
having such a meaningful degree of exposure to Vesttoo that it
becomes crippled by this event and can’t continue to operate going
forward. In that scenario, Trisura would need to source additional
reinsurance to replace the lost capacity or take the program on itself.
Trisura is now doing work to investigate potential sources of second-
order risk and is hoping to update investors in the coming weeks.
• Trisura does not really partner with ILS managers. A significant
majority (i.e., >80%) of reinsurance recoverables are from rated
capacity. Most unrated capacity consists of either reinsurance
companies outside North America (which require collateral) or
traditional asset managers. Trisura does not really have exposure to
the ILS/insurtech model.