Nayms facilitates secondary trade of tokenised crypto-denominated ILW

Insurtech Nayms has facilitated a first secondary trade of participation tokens on its platform, as two parties traded a participation in what was the first cryptocurrency denominated industry loss warranty (ILW) transaction.

Back in July we reported that insurance and reinsurance linked asset manager Resolute Global Partners had partnered with insurtech Nayms to bring to market the first industry loss warranty (ILW) to be denominated in a cryptocurrency.

That ILW arrangement saw Nayms providing US named windstorm retrocessional reinsurance protection that attached above an industry loss trigger of $60 billion, with the ILW collateralized using the cryptocurrency USD Coin (USDC), a so-called stable coin, as the collateral within the segregated account.

Investors economic interests in the ILW are represented in the participation tokens for the relevant insurance pool.

Nayms has responded to the demand for secondary trading in the investable interests in this ILW transaction, with participation tokens related to this ILW changing hands in the first trade on its platform.

Nayms explained that investors looking to exit a capital position before an insurance pool is formally wound up can list their tokens for sale on Nayms’ internal matching market at a price of their choosing.

A buyer who purchases tokens at the limit price, or at another suggested market-clearing price, then becomes the new pro rata owner of the tokenised insurance assets, Nayms said.

In the case of this secondary ILW trade, Nayms explained that 50% of the instrument’s capital was traded between two capital providers, through digital transactions that were immutably recorded and seamlessly reconciled on the Ethereum blockchain.

Once the ILW is commuted at the end of its on-risk and reporting periods, investors that hold tokens in it will be entitled to a distribution of the pool’s assets, inclusive of principal and profits, in proportion to their holding.

This distribution is allocated automatically by Nayms’ smart contract system, once it is triggered.

What’s particularly interesting in this case is the trading of an interest in an ILW.

Industry loss warranties (ILW’s) are not issued in note form and do not typically come with secondary transferability, so tend to be more buy and hold than an insurance-linked security (ILS) asset that investors or fund managers would seek to trade.

Using crypto currency and blockchain technology means that the ILW can be effectively abstracted and represented using a digital asset, the participation token, which can both break an ILW up into multiple shares, while also becoming tradable and the blockchain can also trace and record ownership.

It shows a way that other reinsurance contracts could have more liquidity, in being tradable and able to be split into smaller chunks, making the ILS asset class more dynamic and investable in the process.