Oxbridge Re Ltd., a Cayman Islands based reinsurance firm, has launched an initiative through which it aims to sponsor the issuance of digital or tokenized reinsurance securities, that will be used to raise capital and support collateralized contracts underwritten via its sidecar, Oxbridge Re NS.
To achieve this, the reinsurer has incorporated SurancePlus Inc. in the British Virgin Islands (BVI) as a new wholly-owned subsidiary.
SurancePlus will issue the tokenized reinsurance securities, which Oxbridge Re notes “indirectly represent fractionalized interests in reinsurance contracts.”
The underlying reinsurance contracts will be written by Oxbridge Re’s collateralized reinsurance sidecar subsidiary, Oxbridge Re NS.
SurancePlus will issue what are being called DeltaCat RE Tokens, which will be available to accredited investors in the United States under Rule 506(c) of Regulation D and to non-US investors pursuant to Regulation S.
The holders of the DeltaCat RE tokens will benefit from a return on the investment from the performance of the underlying reinsurance contracts.
So, in essence, the digital securities, or tokens, which are created on a blockchain of some description, provide another access point to Oxbridge Re’s sidecar structure (Oxbridge Re NS), which to date has always entered into a quota share with its parent.
It’s unclear whether Oxbridge Re NS could also write market-facing to other counterparties as well, which might make it more ILS fund like.
But the DeltaCat RE tokens effectively provide a different investment acsess point, one which can perhaps be bought, sold and traded, as well as broken down into different denominations more readily than a preferance share or note, which might be more typical of an insurance-linked securities (ILS) investment opportunity.
Oxbridge Re said that its SurancePlus subsidiary believes that token holders could receive an annualised return of up to ~20% to ~40%.
The Oxbridge Re NS reinsurance sidecar has delivered high double-digit returns to investors in the past (2019 saw ~36%, 2021 saw investor returns also in double-digits.
But having taken losses in recent years, the structure has shrunk to become extremely small, in reinsurance sidecar terms, with its latest iteration having raised just $216,000 in capital, while we believe it was impacted by hurricane Ian last year as well.
But, Oxbridge Re has clearly stated a desire to lift the third-party capital it has managed within the Oxbridge Re NS collateralized reinsurance sidecar and perhaps sees the digital asset industry and tokenization of securities as a way to both make access more simple for investors, while potentially providing more utility in the form of tradability of the tokens, plus by appealing to new investors as well.
SurancePlus has partnered with Securitize LLC, an SEC-registered transfer agent, to implement these tokenized reinsurance securities on its Securitize.io platform and an offering will begin the coming months, likely in time for Oxbridge Re’s main renewals, around the June and July reinsurance contract signings.
Securitize has a mission to make assets tradable, accessible and digitalised, using blockchain technology to construct the tokens which can then be issued through its platform and sold to investors.
So, the tokens will act as almost digital notes that represent an investment into a collateralized reinsurance pool, an interesting prospect, particularly if there is a secondary trading option for investors to make use of.
“High barriers to entry have traditionally excluded reinsurance as an alternative investment opportunity for many investors. SurancePlus will democratize access to reinsurance as an alternative investment opportunity by offering a solution that leverages key qualities of blockchain technology to create a well-designed digital security, the performance of which will not be correlated to the financial markets. Instead, the proceeds raised from the offering of the DeltaCat Re tokens will be invested in reinsurance contracts,” explained Oxbridge Re Holdings President and Chief Executive Officer Jay Madhu.
“By complying with applicable U.S. securities laws, we expect to create significant shareholder value by raising additional capital through token issuance and investing these funds in underwriting higher value reinsurance contracts.”
“Security tokens are an innovative way of both financing projects such as SurancePlus’ and enabling more investors to participate. With investors able to purchase fractional interests through a website and have their interest permanently and transparently recorded on a blockchain, investors can access opportunities that were typically out of reach,” added Jamie Finn, President of Securitize, Inc. “SurancePlus is leveraging the Securitize platform to validate and onboard their investors, whose security tokens will be transacted and recorded on the blockchain.”
It’s going to be interesting to see how successful this new venture is, as it represents a first, in terms of using a digital asset security as the mechanism for investing into an established reinsurance providers portfolio.
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