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Allianz SE Testing Blockchain for Bond Trading

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Allianz SE Testing Blockchain for Bond Trading

Allianz SE (European Financial Services) expects the technology underpinning virtual currency bitcoin to strengthen trading in catastrophe bonds, which transfer the risk of natural disasters such as hurricanes to financiers.  Cat bond payments between guarantors and financiers can take weeks or even months after a storm hits, but the use of smart contracts agreements that are automatically executed via the blockchain when a set of predetermined conditions are met could cut this down to hours or a few days,  Allianz, Europe’s biggest insurer, teamed up with Bermuda-based investment manager Nephila Capital to test blockchain, or distributed ledger technology as many banks prefer to call it, in a natural catastrophe swap transaction.

Cat bonds and swaps allow investors to earn an enticing come back, but they risk losing their capital if a hurricane or other natural disaster hits.  Allianz and Nephila Capital mentioned that a test run showed that processing and settlement of payments between guarantors and financiers could be significantly accelerated and simplified by blockchain-based contracts.  Blockchain works as a tamper-proof ledger that is able to facilitate and process transactions, as well as other transfers of data, with no need for third-party proof.  It does not require manual processing, nor authentication through intermediaries, it can make payments more decent and more easily audited.  Blockchain also makes sure that the digital contract ownership cannot be duplicated or forged, which would boost public trading of catastrophe bonds, adding that it would now develop a more detailed business case and involve other financial partners.  The proponents say it has the potential to disrupt financial markets by making payments and the settling of securities transactions cheaper.

Financial regulators are still trying to determine the meaning of blockchain, and whether it could meet technical, governance, legal and regulatory neccesity.

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