Schroders Capital pilots tokenized insurance-linked securities investments

A new pilot designed to enhance the way insurance-linked securities investments are invested and managed has been announced by Schroders Capital.

The circa-$94 billion private markets business of Schroders Group collaborated with global reinsurer Hanover Re. on the proof of concept, designed to show how ILS funds may invest via a digital ecosystem in the future.

Tokenization and trading of reinsurance contracts on a public blockchain platform using smart contracts enables the automation of several time consuming aspects of the investments, streamlining processes with, for example, automated subscriptions and reduced settlement times.

It does not negate the importance of oversight from investment professionals but does have potential to improve customer experience with investors being able to hold their tokens alongside other digital assets in their own wallets.

Schroders Capital’s co-head of Private Debt and Credit Alternatives, Stephan Ruoff, noted that there are other benefits too.

“The success of this pilot showcases the immense potential for enhancing transparency, streamlining investment processes and improving client experience in the reinsurance sector,” he said. “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.”

INCREASED DEMAND

The firm has seen increased client demand for ILS investments, managing over $5 billion for clients according to its announcement in March 2024.

“With investor concerns over inflation and having to navigate higher for longer rates, portfolio diversification is key. Investors are clearly seeing the benefits of adding less-correlated assets such as ILS in a portfolio context,” Ruoff said at the time. “Fundamental indicators suggest a continuation of attractive conditions for ILS investors. Yields as well as underlying risk premiums remain very attractive as demand for insurance risk transfer remains high.”