Schroders Establishes Insurance-Linked Tokenisation

This pilot, in partnership with global reinsurer Hannover Re, marks Schroders' second digital assets initiative following the issuance of the first-ever GBP Digital Bond by the European Investment Bank.

The latest initiative has been successfully tested internally by enabling reinsurance contracts to be tokenised and exchanged on a public blockchain platform leveraging smart contracts. Each token represents a share in a portfolio of reinsurance contracts.

The tokenisation process is overseen by investment professionals, allowing many labour-intensive processes to be automated, streamlining subscriptions and reducing settlement timeframes.

Stephen Ruoff, (pictured) Co-Head of Private Debt and Credit Alternatives at Schroders, 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,” Ruoff added.

Officials stated that the process incorporated key catastrophe insurance data sources as part of the smart contract. Payments to the appropriate recipients are automatically triggered if specific natural disasters occur, such as US hurricanes/earthquakes or European windstorms.

The ILS team at Schroders currently manages $5 billion in funds as client demand expands. The unit sits within the firm’s Private Debt and Credit Alternatives business, which was launched last year and is now worth more than $30 billion.

Henning Ludolphs, Managing Director of Retrocession & Capital Markets at Hannover Re, concluded: “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.”