When the questionably leveraged company that rescued Donald Trump with a last-minute $175 million court bond insured itself with its own parent company, it raised concerns about how the company was playing with its finances.

But now, as even more details come out about that parent company—particularly that it’s based in the Cayman Islands, a notorious tax haven—the concerns are just piling up.

Former industry regulators and investigators told The Daily Beast that Knight Specialty Insurance Company being financially backed by a firm based in the Cayman Islands should raise eyebrows at the New York AG’s office—particularly because companies frequently organize in the Cayman Islands not just to avoid taxes, but also to minimize visibility into its business practices, avoid more stringent U.S. regulations, and make liability harder should things go wrong.

All of those concerns could come into play if the New York Attorney General has to chase the company down for the money Trump currently owes for committing bank fraud.

“This just stinks to high heaven,” said Dave Jones, who oversaw the nation’s largest insurance market as California’s insurance commissioner for seven years until 2018.

“Taken in its totality, this dog does not hunt. Along every step of the way, this purported bond is problematic. It’s just one issue after another that calls into question whether this bond could ever possibly satisfy the judgment,” said Jones, who’s now the director of the Climate Risk Initiative at University of California Berkeley.

Former regulators described a potential worst-case scenario: Trump loses his bank fraud case on appeal and refuses to pay, the insurance company can’t actually come up with the money, and the New York Attorney General runs into problems chasing after a second company that never explicitly promised to pay this particular court judgment—and is based in a little-regulated foreign jurisdiction in the Caribbean Sea.

“The risk here is the company will not have the liquidity to pay on the bond when demanded, and the beneficiary of this bond, the New York AG, may not have a direct claim against the reinsurer,” said former New York Department of Financial Services superintendent Maria Vullo. “That the reinsurer is in the Cayman Islands compounds this issue as it is a non-U.S. jurisdiction, which makes collection very difficult.”

The deal that spared Trump the embarrassment of having the New York AG start snatching the real estate tycoon’s properties bears all the hallmarks of today’s complicated nexus of finance and law—a puzzling maze that’s designed to slow down the wheels of justice and frustrate lawyers.

There’s the wealthy former president whose potentially doomed properties in question are all over the United States and were once owned by New York City entities, until those shell companies relocated to MAGA-friendly Florida.

Former President Donald Trump speaks as he arrives at Hartsfield-Jackson Atlanta International Airport.

Former President Donald Trump speaks as he arrives at Hartsfield-Jackson Atlanta International Airport.

Alyssa Pointer/Reuters

Then there’s his rescuer, KSIC, which is run out of a nondescript corporate white box of a building in Los Angeles, California, but is officially based inside a two-story gray house in Wilmington, Delaware.

The similarly named Knight Insurance Company LTD is a different story. For starters, the company is “limited” in the sense that it’s owned by a select group of people—mostly billionaire financier Don Hankey, his family members, and a former software developer named Amit Bharatkumar Shah. It was merged in 2020 with its own parent company, according to a Delaware examination obtained by The Daily Beast.

It’s been little over a week since Trump—after struggling to find a surety firm willing to take on a half-billion-dollar risk—managed to score a deal with an insurance company run by a billionaire MAGA supporter with a sordid reputation for predatory car loans.

But since then, red flags have been popping up at every turn.

Knight Specialty Insurance Company is now under a microscope. State court clerks initially rejected the paperwork for being too vague. Then, New York AG Letitia James questioned whether KSIC is even good for the money. The Daily Beast documented how the company’s financial statements reflect it has only $138 million in “surplus,” meaning that its Trump bond alone vastly surpasses the state-regulated 10 percent cap by promising to pay a mind-boggling 127 percent of its dedicated reserves.

Earlier this week, The Daily Beast additionally revealed that KSIC hasn’t even subjected itself to a voluntary review by a quasi-state New York entity that would show it meets financial stability “eligibility standards.” But perhaps most alarming of all, the bond contract doesn’t actually promise it will pay the money if the former president loses his $464 million bank fraud case on appeal.

And yet, a closer look at the company’s corporate structure and its internal business deals raises even more questions, ones that touch on a highly technical and largely obscure corner of the insurance market called “reinsurance.”

Reinsurance is a duplicative term. It refers to the way insurance companies insure themselves, hedging their bets after taking on a ton of risk by making promises to pay policies then investing that money in stocks and bonds—knowing full well that the company would have to pay out huge sums of money someday. In effect, it becomes a simple way for insurance companies to clear liabilities off the books and free up other funds to form a “surplus,” wiggle room they can rely on when catastrophe hits and policyholders all demand to get paid or when investments underperform.

That surplus isn’t just breathing room allowing CEOs to sleep at night. It’s also what state insurance regulators look at when deciding whether or not an insurance company can keep operating legally. If the breathing room gets too tight, regulators will pull an insurer’s license for running the risk of being insolvent.

On the other hand, reinsurance can also be a way to game the market.

“Captive reinsurance” is an industry term that describes how a company can push off its liabilities by finding the most unlikely of companies to take on this ominous burden: an affiliated version of itself.

The whole arrangement can make experienced fraud investigators cringe.

Tom Gober is a forensic accountant and certified fraud examiner who previously did work with the FBI and frequently appears as a witness in court, one who specializes in reviewing the financial integrity of reinsurance companies and spots if they’ve been cooking the books. He told The Daily Beast that the Knight situation should make regulators more than concerned.

“The Caymans are widely recognized as a ‘secrecy jurisdiction.’ If you called the regulator in the Caymans and asked, ‘Can you tell me if Knight reinsurance has enough to cover these claims?’ Their laws require total confidentiality. Why?” he asked.

“In my professional opinion, all you really have to know is that you don’t know. It’s not transparent and it ought to be. They have less regulation and zero transparency. That’s all I need to know,” he said.

Gober explains reinsurance gone wrong this way: Consider a person who has a $300,000 mortgage, but the bank balks when they want to borrow another $100,000. Now imagine that person claims they loaded off most of their debt to another person—only to have the bank find out the other person was their 1-year-old child.

One insurance regulator, who spoke to The Daily Beast on condition of anonymity, questioned whether the company that rescued Trump is playing a shell game with its parent company—knowing full well that no New York or Delaware insurance regulator would be any the wiser.

In this case, KSIC is already being criticized for being potentially undercapitalized with only $138 million in surplus while taking on an even greater amount in Trump’s bond alone. But its sworn financial statements, obtained by The Daily Beast, reveal that it hasn’t just offloaded some liability to its parent company; it’s offloaded much more liability than even the surplus it purports to have.

According to the latest figures issued Dec. 31, 2023, KSIC has moved $323 million in liabilities off its books to three firms: its parent company KIC and two sister companies, “Knight Insurance Company SPC FBO Hankey Re,” and “Knight Insurance Company SPC FBO Wilshire Re.”

Former President Donald Trump attends a campaign rally in Green Bay, Wisconsin.

Former President Donald Trump attends a campaign rally in Green Bay, Wisconsin.

Brian Snyder/Reuters

By comparison, KSIC has only managed to move $20 million to well-known reinsurers with a proven track record, like Swiss Re, the W. R. Berkley Corporation, and others.

“Why would you choose to send virtually all of your reinsurance to your own three companies in the Caymans? That’s like moving money from one pocket to another. The big question is: Do the Cayman affiliates have $323 million in liquid assets to honor these claims to Knight Specialty? If not, you’ve got problems,” Gober said.

That total, which amounts to nearly a third of a billion dollars, isn’t some nebulous risk the company might very well avoid entirely. As Gober explained, that figure represents the “rock bottom” estimate of the claims the insurance company has promised to pay—valued at the concrete present dollar value. Trying to push that risk off to a big name firm would be no different than taking out a regular insurance policy. The company would have to show it has collateral and prove it has assets to back it up.

“If it’s not affiliated, I’m not concerned—especially in the world of reinsurance. If you cede to a legitimate independent company with its own money, it’s likely legitimate,” Gober added. “Looking at their list of reinsurers, note the traditional, independent ones are authorized and unaffiliated and have very small amounts. The big money is with their own affiliates in the Caymans.”

As several sources noted to The Daily Beast, the bulk of the liabilities were moved to companies that are affiliated, unauthorized, and based in the Cayman Islands. The fact that they’re affiliated within the same umbrella of corporations is a red flag, because it opens the door to self-dealing.

But the fact that they’re unauthorized shows that they’re not regulated by the standard-setting and state government-assembled National Association of Insurance Commissioners—hence why they don’t even have the accepted NAICs code assigned to trusted firms.

Of course, there’s also the fact that the companies are all based in a tropical paradise roughly the size of Martha’s Vineyard in Massachusetts.

The Cayman Islands refers to a self-governing British territory made up of essentially underwater mountain peaks, western offshoots of the mountains on the Cuban Sierra Maestra. The trio of islands lie just south of Cuba and boast the highest standard of living in the region—a natural consequence of billionaires stashing money there because the state doesn’t charge income taxes. It should come as no surprise that Amazon billionaire Jeff Bezos sails his megayacht Koru under a Cayman flag. In 2021, the Tax Justice Network ranked it as the No. 2 best tax haven in the world, scoring a perfect 100 but losing to the British Virgin Islands.

The Cayman Islands also have their own courts, which is where the New York AG might have to go to get the $175 million she was promised if KSIC doesn’t honor the bond it completed for Trump.

Jones, the director of the Climate Risk Initiative at UC Berkeley, thinks that could be a challenge—and maybe even an insurmountable one. He recalled facing a similar situation when he was the top insurance regulator in California, where the state had secured a judgment against a French company, only to have experts tell his department that the fight would be long and fruitless.

“What the New York AG must be thinking is, ‘What recourse do I have in Cayman Island courts? If I get a judgment against the bond, even if I sue the reinsurer, can I enforce that judgment in a Cayman Island court? Maybe, maybe not.’ It raises a whole other level of complexity,” he said.

And in reality, it’s even worse than that. Trump’s bond only came from KSIC. And while the smaller firm cleared some of its books by saddling its parent company with liability, reinsurance agreements exist to keep an insurance company alive. There’s nothing in the bond filed in court that explicitly states the larger parent company will swoop in to pay New York on Trump’s behalf.

“It’s not clear she’ll have recourse against reinsurer if the bond issuer doesn’t pay,” Jones said. “One potential problem is that typically policyholders who have a claim against an insurance company don’t have a claim against the reinsurance that’s being provided to the insurance company, unless there’s a cut-through provision in the reinsurance contract.”

But we don’t know that, because neither KSIC nor its parent company have explained the exact terms of their Trump deal. Questions sent to the company went unanswered Thursday.

“Even if there is a cut-through provision, there’s an issue of the practicality of enforcing that in the Caymans, and whether the reinsurer is adequately capitalized itself,” Jones said.

But that, too, is hard to prove.

Companies in the Caymans aren’t required to submit sworn financial statements to 50 state regulators every year, nor are they forced to open their books to state regulators. So while KSIC allowed certified fraud examiners with Delaware’s insurance department to conduct a “full scope” examination of the company in 2016 and 2019—and is due for another one this year—its convenient reinsurance arrangement has allowed it to shove a ton of liability to a company that’s totally outside U.S. regulators’ line of sight.

“There’s a reason why some insurers go to the Cayman Islands. Their perspective is that their regulations are lax when it comes to these requirements,” Jones said.

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