The private markets arm of Schroders Group is piloting the management and distribution of tokenised insurance linked securities in a collaboration with Hannover Re.
The initiative was tested by Schroders Capital on an internal-only basis and has enabled reinsurance contracts to be tokenised and traded on a public blockchain platform using smart contracts.
Each token represents a share in a portfolio of reinsurance contracts, demonstrating how ILS funds can invest using a digital ecosystem.
Schroders said tokenising these contracts allowed several “time-consuming” processes to be automated, such as streamlining the investment process by automating subscriptions and reducing settlement times.
It comes after the investment group joined the Monetary Authority of Singapore’s Project Guardian programme last year and participated in the first ever sterling digital bond issuance by the European investment Bank.
Stephan Ruoff, co-head of private debt and credit alternatives at Schroders Capital said the project demonstrates 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.”
This project was the 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).
Henning Ludolphs, managing director retrocession & capital markets, Hannover Re said this “proof of concept” was an 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.”