Vesttoo, the platform that aims to be the eBay of reinsurance, is working to reassure clients, customers and other stakeholders as those with exposure to allegedly fake letters of credit at the centre of the storm endeavour to find a fix and restore confidence.

Neither Vesttoo nor concerned participants have been willing to put a number on the potential size of the problem — allowing an early report of $4 billion of bad collateral to remain unchallenged — while institutions struggle to calculate total market exposure to what AM Best calls the “Vesttoo problem”.

“We need additional visibility on the aggregate value of transactions cleared using the platform,” Morningstar said in a note on Vesttoo published on Thursday. In the report, it estimated outstanding transactions at $5 billion to $10 billion, though it provided no guess as to how much collateral may have been bad.

Tel Aviv’s Vesttoo was shaken when it found that some collateral used for transactions on its marketplace was in the form of fake letters of credit, which may have been issued by the Construction Bank of China, a state-owned lender.

The platform has a strong connection to Bermuda, as Vesttoo Alpha P&C, registered by the Bermuda Monetary Authority in late 2022, is central to the business model underpinning Vesttoo.

Bermuda-based Julia Henderson has resigned from Vesttoo as chief commercial officer, along with about half-a-dozen other executives globally, and the company is now represented on the island by an attorney.

“Vesttoo is taking this matter very seriously,” it said in a statement.

“While there is still much that is unknown at this stage, the company is doing all it can to determine how and where the fraudulent LoCs originated. At a minimum, it appears that Vesttoo’s procedures were circumvented.

“The company is conducting a rigorous internal and external analysis of the events leading up to the first report of a fraudulent LoC. That process includes the engagement of an experienced investigations team. The company will use the results of that analysis to take appropriate measures.

“In the meantime, Vesttoo is in the process of communicating with impacted parties — including investors, banks and cedants — and actively working with those who have been affected on potential solutions. The company is committed to understanding what happened.”

In 2022, Vesttoo agreed to provide up to $1 billion of capital-markets-sourced reinsurance capacity to Clear Blue, which is based in Charlotte, North Carolina and Guaynabo, Puerto Rico.

AM Best said in a report on Wednesday that 100 per cent of Clear Blue’s premiums have been ceded to reinsurers, and the ratings agency placed the company under review with negative implications owing to its reliance on letters of credit.

On Wednesday, Clear Blue responded, without detailing the extent of the problem.

“Clear Blue continues to operate as usual and remains singularly focused on investigating and resolving this matter swiftly and in the best interests of our policyholders, partners and all other stakeholders,” the statement read.

“AM Best stated that our ratings will remain under review pending continued discussions with Clear Blue’s management and our ability to replace certain programmes and/or letters of credit to allow for proper reinsurance credit at the time of financial statement filings.

“Clear Blue management is highly confident in our ability to meet these requirements, continue to pay claims, replace Vesttoo reinsurance and collateral within a reasonable period and maintain Clear Blue’s strong capital position and growth.

“In accordance with our strong enterprise risk management procedures, we have retained fully accessible premium that is more than sufficient to pay all claims on the affected programmes. We are working diligently with brokers and reinsurers to relocate and replace the Vesttoo reinsurance as quickly as feasible, and do not anticipate any negative impact to Clear Blue or its policyholders.

“We look forward to working with AM Best to provide detailed updates on our progress and insight into our reinsurance, capital and risk structures in order to ensure the resolution and removal of the review status as soon as possible.”