Best’s Commentary: Vesttoo Highlights Importance of Managing Counterparty Risk

OLDWICK, N.J.--(BUSINESS WIRE)--
With the Vesttoo fallout as a backdrop, a new AM Best commentary details leading bank issuers of collateral letters of credit (LOC) to (re)insurance companies, as well as companies with LOC exposures to China Construction Bank Corp., which has been linked to the ongoing situation.

The Best’s Commentary, “Vesttoo Highlights Importance of Managing Counterparty Risk,” comes on the heels of published news reports about the fintech company filing for bankruptcy amid LOC-related issues.

For the commentary, AM Best surveyed reinsurance counterparty credit risk and the forms of collateral held by U.S.-domiciled insurers in statutory filing statements, and although it cannot identify which bank LOCs are related directly to Vesttoo transactions, a broad analysis shows that LOCs against business with unaffiliated reinsurers account for 22% of total collateral held. The 2021-2022 data also shows insurers have added some new banks to their roster of LOC providers, and that the growth in LOCs by some banks has been notable, and particularly at China Construction Bank Corp., which increased its LOC exposure by $1.2 billion in 2022 and has been named in published news reports. The data also shows companies with LOC exposure to China Construction Bank Corp., totaling nearly $1.3 billion for the U.S. insurance industry.

To access the full copy of this Best’s Commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=334668.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Jason Hopper
Associate Director, Industry Research and Analytics

+1 908 882 1896

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Senior Director, Industry Research and Analytics

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Source: AM Best