Allianz Risk Transfer and Nephila Capital Limited have successfully piloted the use of Blockchain smart contract technology for transacting a natural catastrophe swap . The test run not only demonstrates that transactional processing and settlement between insurers and investors could be significantly accelerated and simplified by Blockchain-based contracts, but also points to other benefits such as increased tradability of cat bonds and wider opportunities to apply this technology in other insurance transactions. “Blockchain technology would increase reliability, auditability and speed for both cat swaps and bonds as less manual processing, authentication and verification through intermediaries is required to confirm the legitimacy of payments/transactions to and from the investors,” explains Richard Boyd, Bermuda-based Chief Underwriting Officer of ART. “By replacing the human interventions which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed – with a radical effect on the speed and efficiency of the process and, in the case of bonds, on the tradability of such securities.” So-called catastrophe or ‘cat’ swaps and bonds are financial instruments which transfer a specific set of risks, typically natural disaster risks such as hurricanes or typhoons, from an insurer to investors or other insurers utilizing triggers with defined parameters. In the case of a financial cat swap, the insurer pays a third party to assume the financial risk of a defined catastrophe event such as a Florida hurricane in exchange for a payment or series of payments. If the event occurs and meets the pre-defined trigger criteria, the third party is responsible for the pre-agreed financial risk.
Cat bonds follow a similar approach but with multiple parties assuming the catastrophe exposure through a securitized financial instrument in which the parties invest. If a qualifying cat event occurs, the investors lose all or […]
