Schroders Capital, the private markets business of Schroders Group, has announced the launch of a tokenization pilot aimed at enhancing the management and investment of insurance-linked securities (ILS), developed in collaboration with global reinsurance company Hannover Re.
The pilot builds on Schroders Group’s ongoing commitment to innovation in digital assets. Last year, Schroders joined the Monetary Authority of Singapore’s (MAS) Project Guardian and participated in the first-ever GBP Digital Bond issued by the European Investment Bank.
The initiative with Hannover Re, tested internally by Schroders, successfully tokenized reinsurance contracts and enabled their trading on a public blockchain platform using smart contracts. Each token represents a share in a portfolio of reinsurance contracts, demonstrating a potential future model for ILS fund investments in a digital ecosystem.
Tokenizing these contracts has allowed the automation of several time-consuming processes, such as streamlining the investment process by automating subscriptions and reducing settlement times, under the consistent oversight of investment professionals.
The integration of key catastrophe insurance data sources into the smart contracts has enabled automatic payments to recipients if specific natural disasters occur, such as US hurricanes, earthquakes, or European windstorms.
The pilot also highlighted the potential for improved client experience by enhancing accessibility. Tokens can be held in investors’ digital wallets alongside their other digital investments. The use of a public blockchain has improved transparency while maintaining appropriate governance and controls.
Earlier this year, Schroders Capital announced that its ILS team is now managing over $5 billion in funds due to growing client demand. The ILS team is part of Schroders Capital’s Private Debt and Credit Alternatives (PDCA) business, which was launched in 2023 and manages over $30 billion in assets.
Stephan Ruoff, co-head of private debt and credit alternatives at Schroders Capital, stated that the success of the pilot shows the potential of tokenized ILS in the reinsurance sector.
“It paves the way for a more interconnected and efficient digital ecosystem, and we are looking forward to exploring broader application to wider investment scenarios and clients,” Ruoff said.
This project resulted from over a year of collaboration between Schroders, Hannover Re, and the i.AM Innovation Lab, under the oversight of the Guernsey Financial Services Commission (GFSC).
Henning Ludolphs (pictured above), managing director of retrocession and capital markets at Hannover Re, said that the proof of concept provided an opportunity to understand the capabilities of blockchain technology in 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,” Ludolphs said.
Schroders Capital plans to use the findings of this proof of concept to explore further tokenization opportunities in the reinsurance market.
Additionally, in late June, Schroders Capital unveiled its Generative AI Investment Analyst (GAiiA) platform, designed to speed up the analysis of large volumes of data.
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