Repercussions of the scandal involving allegedly fraudulent letters of credit (L/Cs) being used to perpetrate a massive US$4 billion fraud involving insurance fintech, Vesttoo (DC World News, 19 July 2023), are sounding across the insurance and reinsurance sectors.

The FBI Financial Crimes team has launched an investigation alongside those launched by other insurers and reinsurers (DC World News, 31 July 2023), while Vesttoo has responded to the allegations by substantially reducing its global operations.

The L/Cs were provided by investors to insurers for reinsurance transactions involving Vesttoo, but industry insiders suggest that confidence in L/Cs as collateral in such deals may be waning as a result of the alleged fraud.

FBI investigation

The FBI Financial Crimes team is investigating the alleged fraud involving Vesttoo, according to a statement from reinsurance firm Corinthian published on the Artemis website.

"In conjunction with our investigation, we have been in constant communication with the FBI Financial Crimes team who is [sic] conducting their own investigation into the alleged fraudulent activity," the statement says.

"The Corinthian team is committed to providing any and all relevant information to the FBI to assist with their investigation and we are confident that their involvement will provide answers to many of the unanswered questions that exist," it concludes.

Staff cuts

Vesttoo itself is investigating the alleged fraud and has responded to the scandal by shedding around 150 employees or 75 per cent of its staff and it is considering removing its CEO, Yaniv Bertele, and chief financial engineer, Alon Lifshitz.

The insurance fintech says it is also closing its Tokyo, Hong Kong and Seoul offices, while retaining some staff at its Tel Aviv headquarters and its offices in New York, London, Dubai and Bermuda.

Market jitters

Reports suggest that L/Cs have been increasingly used in the insurance and reinsurance market as collateral, but the Vesttoo scandal could cause some operators to review their collateral arrangements.

Global head of insurance credit ratings at Morningstar, Marcos Alveraz, last week told the Insurance Times that the scandal could temporarily precipitate a "potential weakening" in insurance market confidence in L/Cs.

The Insurance Times article, Vesttoo fallout could spur 'weakening in market confidence' over LOCs, can be found here.

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