Hand touching blue hexagon with insurance written in the middle.
Blockchain

Extraordinary Re Fuels the Next Generation of Insurance-Linked Securities

By leveraging blockchain technology, Extraordinary Re delivers granular and real-time data to its participants.

Extraordinary Re, a startup focused on the reinsurance industry, plans to accelerate growth of the insurance-linked securities market by making new types of insurance risk available to investors.  

Over the past 20 years, the insurance-linked securities market has grown from a cold start to nearly $90 billion annually, according to Will Dove, chairman and chief executive officer of Extraordinary Re. While the market today is limited because of certain types of natural catastrophes, principally earthquakes and hurricanes, Extraordinary Re expects continued growth.

Accordingly, Extraordinary Re has partnered with Nasdaq, leveraging its cloud and blockchain technology to launch an insurance risk allocation platform in Bermuda. The platform, which will be powered by Nasdaq Financial Framework, provides investors with the opportunity to trade assets related to insurance liabilities.  

“Extraordinary Re aims to deliver new types of insurance risk to investors, and will enable it by providing access to highly granular data and real-time risk information,” Dove said in a March 2018 interview with #TradeTalks. “As Extraordinary Re expands the set of insurance risks available to institutional investors, it will enable asset managers to create packages for retail investors, and we will also over time be able to develop new indexes and other kinds of market data products.”

These products can fuel the market as insurance securities are attractive to traders and investors because they are a low correlation asset class compared to equities.  

“Every insurance policy is priced with an expected profit margin to be earned by the insurance company, but expectations can change over time, creating the opportunity for active trading,” said Dove. “And the factors that cause insurance claims to vary above or below the average are unrelated to the factors moving other financial assets classes like equities, commodities or fixed income.”  

Insurance and reinsurance companies also benefit from sharing the risks that they underwrite with a large pool of capital from institutional investors around the world, Dove said.

“The buying and selling activity through Extraordinary Re’s risk allocation system powered by Nasdaq technology will enable and create price discovery for kinds of insurance products where there is often little historical data available, and this kind of market data will be highly valued by insurance companies,” said Dove. 

“For businesses and consumers who rely on insurance to protect their assets or their livelihoods, Extraordinary Re will expand the pool of capital that’s able to bear that risk," Dove continued. "Over time, this will increase the availability and decrease the cost of insurance in the same way that we’ve seen with other financial products, like mortgages and credit cards in recent decades."

 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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