Israeli AI Startup Vesttoo Sparks a Global Insurance Scandal

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insurance industry that typically pays a group of reinsurers to back their policies. Premiums for a group of 19 fronting insurers rated by AM Best more than doubled in two years, from $4.8 billion in 2020 to $10.6 billion last year. Some of that reinsurance involves securitized deals arranged by Vesttoo and sold to investors.

The Vesttoo blowup has prompted U.S. state insurance commissioners to scrutinize whether the fronting model of selling on risks could leave policyholders exposed, people close to the regulators said. “We are looking closely at [Vesttoo’s] relationship with our…insurers and how those entities may be impacted," a spokesman for the North Carolina Department of Insurance said.

North Carolina fronting insurer Clear Blue Insurance Group last year announced a “$1 billion partnership" with Vesttoo. Rating firm AM Best last month put Clear Blue’s “excellent" rating “under review with negative implications." Clear Blue said in a statement it has already replaced half the reinsurance affected by Vesttoo. It added that it has retained premiums related to the Vesttoo deals, which are “more than sufficient to pay all claims on the affected programs." One question echoing through the reinsurance world is why none of the lawyers, auditors and other professionals paid handsomely to vet the transactions apparently thought to call China Construction Bank to check if the letter of credit was genuine.

Insurer Clear Blue said its Vesttoo business was done through a Bermuda reinsurance unit of Aon called White Rock. Under Bermuda law, White Rock is required to provide appropriate collateral—such as letters of credit—to complete each reinsurance transaction, Clear Blue said. It added that it “strongly disagrees with any