Schroders Capital Launches Innovative Tokenization Pilot for Insurance-Linked Securities

Earlier this month, Schroders Capital, the $94 billion private markets business of Schroders Group, announced the launch of an innovative tokenization pilot aimed at transforming the management of insurance-linked securities (ILS) investments. This pioneering project, conducted in collaboration with global reinsurance company Hannover Re, marks a significant step forward in Schroders’ commitment to leveraging digital assets to enhance investment processes.

Breakthrough in Tokenizing Reinsurance Contracts

The pilot program successfully demonstrated the ability to tokenize and trade reinsurance contracts on a public blockchain platform using smart contracts. Each token created represents a share in a portfolio of reinsurance contracts, showcasing a potential future where ILS funds operate within a digital ecosystem. This tokenization allows for the automation of numerous time-consuming processes, such as subscriptions and settlement times, significantly streamlining the investment process.

Enhancing Efficiency with Smart Contracts

Through the integration of key catastrophe insurance data sources into the smart contracts, the system can automatically trigger payments to the appropriate recipients if specific natural disasters occur, such as US hurricanes or European windstorms. This feature not only enhances efficiency but also ensures timely responses to catastrophic events, benefiting both investors and insurers.

Stephan Ruoff, Co-Head of Private Debt and Credit Alternatives at Schroders Capital, highlighted the potential of this pilot: “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.”

Improving Client Experience and Transparency

The pilot also demonstrated the potential for an improved client experience by allowing tokens to be held in investors’ digital wallets alongside other digital investments. Using a public blockchain has enhanced transparency while maintaining appropriate governance and controls. This innovation promises to make the real estate market more accessible and secure for global investors.

Henning Ludolphs, Managing Director Retrocession & Capital Markets at Hannover Re, expressed optimism about the future applications of blockchain in reinsurance: “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.”

A Commitment to Innovation

Schroders Capital’s focus on innovation continues, as evidenced by its participation in the Monetary Authority of Singapore’s Project Guardian and involvement in the first-ever GBP Digital Bond issued by the European Investment Bank. This latest initiative is a testament to Schroders’ dedication to pushing the boundaries of digital assets and blockchain technology.

Schroders Capital plans to use the findings from this proof of concept to explore further tokenization opportunities in the reinsurance market. Additionally, the firm recently unveiled its Generative AI Investment Analyst platform, designed to expedite the analysis of large volumes of data, further demonstrating its commitment to technological advancement.

About Schroders Capital

Schroders Capital provides investors with a wide range of private market investment opportunities, focusing on delivering risk-adjusted returns through direct investment capabilities and broader solutions. With $93.7 billion in assets under management, Schroders Capital offers strategies across various private market asset classes, including real estate, private equity, venture capital, infrastructure, and more.

About Hannover Re

Hannover Re is a leading global reinsurance company, known for its expertise in providing reinsurance solutions and risk management services. The company collaborates with clients and partners to develop innovative approaches to managing risk and creating value in the reinsurance market.

Image by Marcin Nowak from Unsplash

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