Risk transfer platform Vesttoo has partnered with Clear Blue to deploy $1bn in collateralised capacity to the fronting carrier’s P&C portfolio over the next year in a deal that provides capital markets investors access to diversified risks and MGAs additional reinsurance capacity, Program Manager can reveal.
The partnership – initially agreed for 12 months – formalises a long-standing relationship between Tel Aviv-based Vesttoo and US carrier Clear Blue, which was an early adopter of the platform.
The Jerome Breslin-led fronting carrier has already deployed capital markets capacity through Vesttoo on a quota share basis, as well as aggregate stop loss, supporting a number of its programs.
Clear Blue’s current portfolio of programs is heavily weighted towards commercial auto and construction, including general liability.
That matches the lower volatility, higher frequency-type exposures that a growing number of capital markets investors are seeking as an alternative to the cat risk that has been the main focus of the ILS market over the last 15 years.
Vesttoo, which is led by co-founder and CEO Yaniv Bertele, aims to bridge the gap between the insurance and capital markets, scaling insurance-linked investments to provide reinsurance capacity.
The firm uses data-driven AI technology to model, price and structure flexible solutions for a diversified range of business lines.
In a statement confirming the partnership, it said that in addition to its AI-powered tech and expertise in fintech, insurance and asset management, Vesttoo will utilise Clear Blue’s underwriting, program management, data and analytical capabilities to enable faster reinsurance transactions.
It will also allow more investors to gain access to a diversified portfolio of P&C risk written by the AM Best A- rated fronting carrier, on an “efficiently collateralised basis”.
The companies said the capacity provided by Vesttoo to Clear Blue will be sourced from the capital markets through a variety of insurance-linked assets.
Vesttoo is understood to have various sources of capital which fund the segregated cell insurance vehicle used to support fronted MGA programs and other ceded needs of carriers as a reinsurer.
Low volatility, higher frequency risk appetite
Speaking exclusively to Program Manager, Vesttoo’s Bertele said the focus on commercial auto and construction in Clear Blue’s portfolio matches the appetite of investors working with the platform to access P&C risk.
“These lines are the ones that are mostly predictable, that fall within the standard deviation and are uncorrelated to the capital markets. They are the lines that the capital markets feel most comfortable with and these are the focus areas for us,” he explained.
The executive highlighted the opportunity to open up the ILS asset class to a much broader range of risks than cat, which has delivered diminishing returns to investors over the past few years as a result of the aggregation of losses.
“We can educate the capital markets that there is an alternative that satisfies both non-correlation and low severity, high frequency. If that is sustained while being validated by external entities like ratings agencies or consultancy firms, you can get broader capital market adoption,” he suggested.
That would bring in interest from a much wider range of capital providers than the more “insurance-savvy” investors that have traditionally supported cat-focused ILS funds.
“We want to go beyond the current players and increase access to the asset class to include significantly more sustainable capacity that allows banks, hedge funds and asset managers to participate, where they pledge their investment grade assets and enhance their yields with uncorrelated returns … and also diversify their portfolios,” said Bertele.
In turn that would significantly expand the flow of capacity into the insurance space, way beyond the capacity available today, he suggested.
Dedicated and diversified capacity
Clear Blue’s Breslin said the partnership with Vesttoo benefits from two types of diversification.
The fronting carrier can provide a diversified portfolio from its MGA partners to be transferred through Vesttoo to capital market investors because of the range of business lines, exposures, durations, returns and tail across the programs it has on its books.
That portfolio diversification is a key tenet of many fronting carriers as they seek to avoid exposure concentrations while building out their books of business.
“And then for us it’s the diversification of the capital sources. We already have traditional reinsurance across our book but with Vesttoo we’ve got three different buckets: contingent LOCs; balance sheet money they’ve raised; and the securitisations they engage in.
“For us it’s perfect because it gives us diverse capital backing at the same time as we have diverse production on lines of business, exposures and risk,” said the executive.
Clear Blue and its MGA partners will also benefit from the dedicated capacity that Vesttoo provides with the partnership.
“Finding MGA programs to look at in our pipeline is not hard but finding the capacity to fill out the slips and to get proper reinsurance behind them is.
“MGAs and reinsurance brokers will now know we have dedicated capacity. They can come to Clear Blue with a program and if it passes our process of underwriting and if it passes Vesttoo’s process of underwriting through their algorithms then the capacity is there, and that’s a game changer,” he said.
Vesttoo capacity will not be deployed as a quota share or aggregate stop loss across Clear Blue’s portfolio and will instead selectively support programs where they fit investor appetite and the AI-driven underwriting approach of the platform.
Statement of intent
The partnership between the parties is also not exclusive – Vesttoo continues to work with other fronting companies, while Clear Blue has a diverse range of reinsurance relationships with traditional and non-traditional partners.
However, both parties see the arrangement as a strategic, long-term play and a statement of intent that reflects the close relationship forged since Clear Blue fronted for Vesttoo’s first transaction in the space in a deal placed by Guy Carpenter with collateral from a major bank, as well as their ambitions to open up the market to new forms of capacity.
Bertele said there is also scope to grow the commitment beyond $1bn if the parties are able to demonstrate the performance of the transactions.
“The better that specific capacity performs, the more we could allocate, the more investors we could attract and the more diversification we can bring on the capital markets side,” he explained.
Meanwhile, Breslin highlighted the scale of the opportunity in the programs space.
“We know we have enough business today [to fill the $1bn capacity], and our pipeline is enormous. The MGA space is growing and all the fronting carriers are having a great year,” he observed.
The partnership is not confined to MGA business, however.
Vesttoo and Clear Blue have already worked with Lloyd’s syndicates to provide reinsurance capacity and have delivered innovative parametric solutions. They are also eyeing opportunities to work with aggregators in the US.
Vesttoo also plans to expand its coverage to more perils in the life and P&C sectors and is working on digitalising the transactional process to enable it to work at greater scale.