Schroders Capital has announced the launch of an innovative pilot project designed to enhance the investment and management of insurance-linked securities (ILS). This pilot has been a collaboration with the global reinsurance company Hannover Re.
The project is part of Schroders’ commitment to innovation and leadership in digital assets, following their participation in the Monetary Authority of Singapore’s “Project Guardian” last year and the issuance of the first digital bond in sterling by the European Investment Bank.
The initiative with Hannover Re, tested internally by Schroders, has successfully tokenized reinsurance contracts and traded them on a public blockchain platform using smart contracts. Each token represents a stake in a portfolio of reinsurance contracts, demonstrating how ILS funds could invest through a digital ecosystem in the future.
According to the investment firm, tokenizing these contracts has allowed, with constant oversight from investment professionals, the automation of many time-consuming processes. For instance, the investment process has been streamlined by automating subscriptions and reducing settlement times.
Additionally, by integrating key data sources for catastrophe insurance into smart contracts, payments to the appropriate recipient are automatically triggered if specific natural disasters, such as hurricanes or earthquakes in the U.S. or windstorms in Europe, occur.
The pilot project has also shown the potential to improve the customer experience by increasing accessibility, allowing tokens to be held in investors’ digital wallets alongside their other digital investments. The use of a public blockchain has also enhanced transparency while maintaining proper governance and controls.
Earlier this year, Schroders Capital 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 (PCDA) 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 enhance the customer experience in the reinsurance sector. It paves the way for a more interconnected and efficient digital ecosystem, and we look forward to exploring the broader application of this technology to more investment scenarios and clients,” said Stephan Ruoff, Co-Head of Private Debt and Credit Alternatives at Schroders Capital.
Henning Ludolphs, Managing Director of Retrocession and Capital Markets at Hannover Re, added, “This pilot project has been a great opportunity to understand the capabilities of blockchain technology when applied to the reinsurance market. With solid governance and integrated compliance, the pilot also demonstrated that the regulatory and operational risks surrounding blockchain are similar to those of other market transactions. While it is an emerging technology, we foresee greater appetite for such investments in the future, and this pilot prepares us well to evolve our approach and generate more retrocession capacity through a different source.”
Innovation is a key aspect of Schroders Capital’s strategy, and the findings from this project will be used to explore further tokenization opportunities in the reinsurance market. Additionally, the company recently unveiled the launch of the Generative AI Investment Analyst platform, designed to accelerate the analysis of large volumes of data.
