Schroders Capital, the private markets business of Schroders Group, has collaborated with global reinsurer Hannover Re on a pilot tokenisation project, designed to enhance the way insurance-linked securities (ILS) investments are invested and managed.
It’s important to address, that this pilot further builds on Schroders Group’s commitment to innovation in digital assets, after having last year joined the Monetary Authority of Singapore’s Project Guardian, and participating in the first ever GBP Digital Bond issued by the European Investment Bank.
Working alongside Hannover Re, the initiative has been tested by Schroders on an internal-only basis, and has successfully enabled reinsurance contracts to be tokenised and traded on a public blockchain platform using smart contracts.
From what we understand, each token represents a share in a portfolio of reinsurance contracts, which clearly demonstrates how ILS funds may invest via a digital eco-system in the future.
In addition, the process of tokenising these contracts has, with the consistent oversight of investment professionals, allowed many time-consuming processes to be automated.
A key example, the pilot group was able to streamline the investment process by automating subscriptions and reducing settlement times.
Furthermore, by integrating key catastrophe insurance data sources into the smart contracts, Schroders explained that payments to the appropriate recipient could be automatically triggered, if specific natural disasters were to occur, such as U.S. hurricanes or earthquakes, or European windstorms.
Schroders Capital also noted, that the pilot demonstrated the potential for an improved client experience, boosting accessibility by allowing tokens to be held in investors’ own digital wallets alongside their other digital investments.
Further, the fact the pilot used a public blockchain has also enhanced transparency, while still allowing appropriate governance and controls to be applied.
This tokenised ILS project was a result of more than a year of collaboration between Schroders, Hannover Re and the i.AM Innovation Lab, under the oversight of the Guernsey Financial Services Commission (GFSC).
Stephan Ruoff, Co-Head of Private Debt and Credit Alternatives, Schroders Capital, commented: “The success of this pilot showcases the immense potential for enhancing transparency, streamlining investment processes and improving client experience in the reinsurance sector. It paves the way for a more interconnected and efficient digital ecosystem, and we are looking forward to exploring the broader application to wider investment scenarios and clients.”
Henning Ludolphs, Managing Director Retrocession & Capital Markets, Hannover Re, said: “This proof of concept was a great opportunity to understand the capabilities of blockchain technology when applied to the reinsurance market. With strong governance and embedded compliance in place, the pilot also showed that the regulatory and operational risks around blockchain are similar to those of other market transactions. While this is an emerging technology, we anticipate more appetite for blockchain-enabled investments in the future, and this pilot prepares us well to evolve our approach to generate further retrocession capacity via a different source.”
