Insolvent Cayman reinsurer sued over alleged $135 million fraud

The Cayman Islands-registered reinsurer Alpha Re Limited went into court-supervised liquidation in March, but is now being sued by a Utah-based insurance company that claims to be a victim of a US$135 million fraud.

The number of international insurers in Cayman has been on a downslide over the last several years, falling from about 788 international insurers in 2013 to 696 at the end of 2017.

Alpha Re was established in 2011, and entered into a co-insurance agreement with the Utah-based Great Western Insurance Company since 2012, according to U.S. court documents.

Court documents state that the co-insurance agreement entailed Alpha Re reinsuring Great Western. To do that, Alpha Re was obligated to maintain a reinsurance trust account of more than US$120 million, which was supposed to be a security for the payment of Alpha Re’s obligations, according to court documents.

But Great Western stated in court documents that it was informed that the U.S. Securities and Exchange Commission was investigating Alpha Re “and/or” its affiliates. After that, in September 2016, Great Western started requesting an inspection of Alpha Re’s books and records regarding the assets in the trust account.

After about a year of correspondence without being satisfied that Alpha Re had the reinsurance trust account properly funded, Great Western petitioned an arbitration panel to order Alpha Re to deposit US$126,994,559 into the account.

“Without that credit, Great Western’s $86 million surplus becomes a deficit of about $40 million; and the Utah Department of Insurance will take control of Great Western,” Great Western stated in its petition for the award. “This is a nightmare scenario, but it is what Great Western faces if Alpha does not immediately meet its security obligations under the coinsurance agreement.”

On Nov. 29, the arbitration panel sided with Great Western, ordering Alpha Re to deposit the US$126,994,559 into the trust account within 15 days, and to open up a line of credit for nearly $5 million to cover Great Western’s unpaid monthly accounts. When Alpha Re apparently did not do that, Great Western filed a petition with a district court in New York to secure the arbitration ruling.

The court sided with Great Western, too, on Dec. 19. About a month later, Alpha Re placed itself into voluntary liquidation by unanimous special resolution, according to a claim filed with the Grand Court. In March, the Grand Court then placed the company under supervised liquidation.

Despite winning its arbitration hearing and securing a court order to enforce its ruling, Great Western states in its lawsuit – which is posted on the financial services website OffshoreAlert – that it has not been paid.

“Alpha has failed to comply with the Panel’s Interim Award, failed to satisfy the subsequent federal court judgment, failed to comply with the Panel’s Final Award, and failed to satisfy the July 9, 2018 federal court judgment, paying no part of the $131.4 million ordered by the Panel and the subject of two judgments,” Great Western states in its July 10 claim form.

While the arbitration panel awarded Great Western US$131.4 million last November, the company is now claiming at least US$135 million in damages.