Solidum Partners, the Switzerland-based investment firm that specialises in helping companies issue private cat bonds, has facilitated the issuance of the first insurance-linked security (ILS) whereby the traditional settlement system has been replaced with the use of blockchain.
Blockchain is a method of recording data—transactions, contracts, agreements—in a way that means the data are simultaneously stored, but also updated in real time—on hundreds or even thousands of computers globally. The advantage of this is that it makes the data almost impossible to tamper with or hack into—yet it is also accessible and updated instantly for every user.
Using the mechanism it has named ILSBlockchain, Dom Re has replaced the role of a traditional settlement systems such as Euroclear or DTC for this note issuance.
“It is not an exaggeration to describe the new Dom Re IC structure as a ground breaking, global first, not only for the ILS sector but for dematerialisation of listed securities generally,” said Mark Helyar, non-executive director of Solidum Re.
The $14.8 million deal issued by Dom Re takes the form of an asset-backed securitisation of a reinsurance contract. It was bought by six investors. Solidum Re acts as the paying agent and common depository of the permanent global note. Solidum Re also acts as the blockchain permission grantor and blockchain sponsor.
The investors subscribed for the notes, paying into a Guernsey trust where Artex Risk Services (Guernsey) acts as trustee. On the issue date the paying agent created cryptographically-certificated notes on the ILSBlockchain and then the investors were able to execute, peer-to-peer with the paying agent, delivery-vs-payment transactions on the ILSBlockchain to purchase the newly created notes.
Investors now hold their notes, cryptographically confirmed, on the ILSBlockchain. Secondary market traders wishing to purchase notes can do so by becoming participants on the ILSBlockchain and can then execute direct peer-to-peer delivery-vs-payment transactions to buy and/or sell notes seamlessly on the ILSBlockchain. Equally broker-dealers can also become participants on the ILSBlockchain in order to intermediate trades between the other participants.
Cedric Edmonds, director of Solidum Re, whose idea it was to use a blockchain and who was key in the design and the implementation of the ILSBlockchain and surrounding structural mechanics, explained that Dom Re required an alternative to Euroclear as it was becoming increasingly difficult to access Euroclear efficiently for smaller private placement note issues.
“It was a case of necessity being the mother of invention,” he said. “Without the excellent support and highly flexible services of the service providers in Guernsey, most notably Artex who picked up the baton at a late stage from another service provider and then ran amazing swiftly with it, completing this would not have been possible – my thanks go out to them.”
Paul Eaton, business development director of Artex, added: ‘’It has been a great experience to work alongside Cedric and Solidum for this innovative transaction which makes best use of Guernsey’s strengths and demonstrates the range of services that Artex is able to offer our clients.”
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Insurance-linked security, ILS, Blockchain, Technology, Bonds, Solidum Partners, Europe, Mark Helyar