Schroders Capital launches a pilot tokenization project to invest in insurance-linked securities
19 JUL, 2024
Schroders Capital has announced the launch of an innovative tokenization pilot project designed to improve the way insurance-linked securities (ILS) investments are invested and managed. The pilot test was a collaboration with the global reinsurance company Hannover Re.
The pilot project is part of Schroders' commitment to innovation and leadership in digital assets, having joined the “Guardian” Project of the Monetary Authority of Singapore last year and participated in the first digital bond in pounds sterling issued by the European Investment Bank.
The initiative with Hannover Re, which has been tested by Schroders internally, has managed to tokenize reinsurance contracts and trade them on a public blockchain platform using smart contracts. Each token represents a stake in a portfolio of reinsurance contracts, and shows how ILS funds could invest through a digital ecosystem in the future.
The tokenization of these contracts has allowed, with the constant supervision of investment professionals, to automate many time-consuming processes. For example, the investment process has been streamlined by automating subscriptions and reducing settlement times.
In addition, thanks to the integration of key catastrophe insurance data sources into smart contracts, payments to the corresponding recipient are automatically triggered if specific natural disasters occur, such as hurricanes or earthquakes in the United States, or wind storms in Europe.
The pilot project has also demonstrated the potential to improve the customer experience, increasing accessibility by allowing tokens to be held in investors' own digital wallets along with their other digital investments. The use of a public blockchain has also improved transparency, while continuing to apply appropriate governance and controls.
Earlier this year, Schroders Capital also announced that its ILS team now manages over $5 billion in funds, as client demand continues to grow. The ILS team is part of Schroders Capital's Private Debt and Credit Alternatives (PDCA) business, which was launched last year and manages over $30 billion in assets.
The success of this pilot project highlights the immense potential to increase transparency, streamline investment processes, and improve the customer 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 wider application of this technology to broader investment scenarios and clients.
The success of this pilot project highlights the immense potential to increase transparency, streamline investment processes, and improve the customer 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 wider application of this technology to broader investment scenarios and clients.
Stephan Ruoff, co-head of private debt and alternative credit at Schroders Capital
This project has been the result of over a year of collaboration between Schroders, Hannover Re and the i.AM Innovation Lab, under the supervision of the Guernsey Financial Services Commission (GFSC).
This pilot test has been a great opportunity to understand the capabilities of blockchain technology when applied to the reinsurance market. With robust governance and integrated compliance, the pilot has also shown that the regulatory and operational risks around blockchain are similar to those of other market transactions. While it is an emerging technology, we foresee a greater appetite for this type of investments in the future, and this pilot prepares us well to evolve our approach and generate more retrocession capacity through a different source.
Henning Ludolphs, managing director of retrocession and capital markets at Hannover Re
Innovation is a key aspect of Schroders Capital's strategy so the findings of this project will serve to explore more tokenization opportunities in the reinsurance market. In addition, last week the company also announced the launch of the Generative AI Investment Analyst platform, designed to accelerate the analysis of large volumes of data.
