Schroders Capital’s Private Debt & Credit Alternatives (PDCA) team, together with a leading global reinsurance company, Hannover Re, unveils the integration of an innovative tokenised capability into its insurance-linked securities (ILS) investment platform. This milestone includes the execution of the first real-world collateralised reinsurance transaction through this platform.

This innovation has the potential to become the basis for a significant part of the future of the approximately $130 billion ILS market, by modernising how collateralised reinsurance is structured, administered and accessed. Through tokenisation, this new development digitises the control and flow of the assets held within the reinsurance agreement, while optimising the yield through money market exposure.

Smart contracts are used to revolutionise the traditional manual, paper-based and intermediated process through automation. This in turn provides more accessibility and transparency for all parties involved, allowing Schroders’ flagship ILS investment funds to gain exposure to a digital form of the reinsurance agreement.

This represents the next generation of our landmark proof of concept launched in 2024, also with Hannover Re, in which an ILS instrument was successfully tokenised and structured using a smart contract, trialled by Schroders employees on an internal-only basis. The pilot was recognised as the Best Decentralized Finance (DeFi) Initiative at The Digital Banker’s Digital Assets Awards 2024.

The tokenised model delivers significant operational efficiencies for all participants with faster transactions and settlements, via secure and transparent infrastructure.

The launch of this new tokenised ILS capability is the next phase of Schroders’ commitment to innovating investment solutions for the benefit of the firm’s clients. It also forms the latest meaningful advance in Schroders’ digital asset strategy, which is part of its broader commitment to investment innovation.

Schroders is an active member of industry working group Guardian, which aims to bring industry and regulators together on digital asset standards for commercial scale. The firm also launched its Global Digital Assets Centre of Excellence in Singapore last July.

Flavio Matter, Head of Insurance Linked Securities, Schroders Capital, said:

“Tokenising reinsurance contracts is a key step to streamlining the ILS market and enhancing its operational efficiency.

“This launch builds on our successful tokenised ILS pilot and will introduce greater transparency, liquidity and scalability to this part of the reinsurance market. With further projects to come in the digitisation space, this also indicates our clear commitment to harnessing the latest innovations to enhance investment solutions for our clients.”

Dirk Heuer, Director Group Protection, Hannover Re, said:

“This tokenised transaction provided a valuable opportunity to deepen our understanding of blockchain technology and its application within the reinsurance and retrocession markets. Supported by robust governance frameworks and embedded compliance mechanisms, the deal demonstrated that the associated regulatory and operational risks are comparable to those encountered in traditional market transactions.

“Although blockchain remains an emerging technology, we expect increasing appetite for blockchain-enabled structures. This transaction therefore represents an important step in positioning us to evolve our approach and build knowledge and capabilities to be prepared for upcoming opportunities in the reinsurance and retrocession industry.”

This tokenised ILS capability will be available through a number of Schroders Capital’s core ILS strategies.

This capability is a considerable technical, legal and regulatory innovation, resulting from a long-term collaboration between Schroders Capital, HannoverRe, and i.AM Innovation Lab who also all contributed to the launch of the 2024 tokenised ILS pilot.

This capability was also enabled by additional expert input from regulated digital asset platform Archax, who acted as broker and provided the tokenisation and custody needed to facilitate digital access to the yield from the Schroders money market fund.

Source: Schroders Capital