Clear Blue Insurance Group has initiated legal action against China Construction Bank (CCB) in response to the multi-million dollar fraud involving fraudulent letters of credit (L/Cs) provided as reinsurance collateral through the insurtech platform, Vesttoo.

Widespread use of fabricated L/Cs is alleged in the Vesttoo fraud, which involved the creation of over 60 fraudulent L/Cs totalling over US$4 billion in imaginary collateral (DC World News, 19 July 2023).

Clear Blue and Vesttoo

In August 2022, Clear Blue partnered with Vesttoo to deploy up to US$1 billion from capital markets into Clear Blue's property and casualty programmes. This collaboration aimed to enhance fronting specialist Clear Blue's reinsurance capacity.

But investigations revealed that several L/Cs, purportedly issued by CCB as collateral for reinsurance transactions facilitated by Vesttoo, were fraudulent.

Clear Blue's legal actions:

Upon uncovering the fraud, Clear Blue terminated its relationship with Vesttoo and ceased accepting reinsurance capacity from the insurtech for new or renewal programmes.

Clear Blue is suing CCB for damages, alleging that the bank's failure to detect or prevent the issuance of fraudulent L/Cs caused significant financial harm. The lawsuit contends that CCB's oversight lapses contributed to the fraudulent activities.

Insurance industry implications

The alleged Vesttoo fraud has prompted regulatory bodies to review collateral arrangements and reinsurance counterparty risks, emphasising the necessity for stringent due diligence.

The fraud has affected multiple insurers and reinsurers, leading to legal actions and a re-evaluation of partnerships with novel platforms like Vesttoo.

Robust verification needed

Clear Blue's lawsuit against CCB also underscores the critical importance of robust L/C verification processes in financial transactions.

The case highlights the potential vulnerabilities in reinsurance arrangements and the need for comprehensive oversight to prevent similar incidents in the future.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.