Insurtech Nayms facilitated a first secondary exchange of stake tokens on its platform, as two parties exchanged a stake in what was the first cryptocurrency-denominated industrial loss guarantee (ILW) transaction.
Back in July we reported that insurance and reinsurance related asset manager, Resolute Global Partners, had partnered with insurtech Nayms to bring to market the industry’s first loss guarantee (ILW) to be denominated in a cryptocurrency.
This ILW deal saw Nayms provide retrocessional reinsurance protection against US windstorms that set itself above a $60 billion industry loss trigger, with ILW guaranteed using the cryptocurrency USD Coin (USDC), a so-called stable coin, as collateral within the separate account. .
The economic interests of investors in the ILW are represented in the stake tokens of the relevant insurance pool.
Nayms responded to the request for secondary trading of investable interests in this ILW transaction, with stake tokens linked to this ILW changing hands in the first transaction on its platform.
Nayms explained that investors looking to exit a capital position before the formal liquidation of an insurance pool can put their tokens up for sale on Nayms’ internal matching market at a price of their choosing.
A buyer who purchases tokens at the limit price or other suggested market clearing price then becomes the new pro-rata owner of the tokenized insurance assets, Nayms said.
In the case of this ILW secondary trade, Nayms explained that 50% of the instrument’s capital was traded between two capital providers, through digital transactions immutably recorded and transparently reconciled on the blockchain Ethereum.
Once ILW is redeemed at the end of its risk and reporting periods, investors holding tokens in it will be entitled to a distribution of pool assets, including principal and profits, in proportion to their holding.
This distribution is automatically allocated by the Nayms smart contract system, once triggered.
What is particularly interesting in this case is the exchange of a stake in a DMA.
Industrial Loss Warranties (ILWs) are not issued in note form and generally do not have secondary transferability. They therefore tend to be more buy and hold than an insurance linked security (ILS) asset that investors or fund managers would seek to trade.
The use of cryptocurrency and blockchain technology means that ILW can be efficiently mined and represented using a digital asset, the stake token, which can both split an ILW into multiple shares , while becoming tradable and the blockchain can also trace and record ownership.
This shows that other reinsurance contracts could have more liquidity, by being tradable and able to be broken into smaller pieces, making the ILS asset class more dynamic and investable.