 and Hyperledger's Capital Market Special Interest Group. So this is a focus group that talks about anything and everything to do with capital markets and technology. So how can we make things better? Before we get into the subject of the call today, which is to do with tokenization and insurance link securities, I'd like to kind of talk about Hyperledger's antitrust policy and code of conduct. So what this simply means is we have to treat everyone on this call with respect and professionalism and fairness. So it's a mandate to be on these calls. Otherwise, there's a whole set of antitrust spit as well, which was covered as a part of this meeting. So the links are in the coordinated space. If you need to refer to any of that content, please feel free. I'm also going to quickly update a link in the chat. So if you can, please do register your names there so we can send out the decks and slides and everything at the end of the meeting. So that's all from Hyperledger perspective. Marta, did you want to cover anything at all? Nope, we are live on YouTube and this meeting is being recorded. Oh brilliant, okay. No pressure at all then. All right, thank you everyone who's made it today to be a part of the Hyperledger's Special Interest Group, Capital Market Special Interest Group. What we're doing today is we're doing a subset of the Special Interest Group today, which is focused on insurance markets. The whole idea of talking about this project is to take you guys through the whole journey that an insurance contract takes and how it converts itself into a financial asset. So insurance link securities and everything about it. So Habib, this is where I want to introduce Habib. He's one of the mentors and leaders at CVTAS Fintech. The project is being led by CVTAS Fintech and we're working with a couple of members in Bermuda and Guernsey, Jurisdictions, to try and put a regulatory structure which converts it into a clear financial asset. So off to you Habib, while I just please introduce yourself while I quickly pull up the slides that we want to share as a part of this call. Thank you, so just in terms of introducing myself, I have recently retired from investment management. I spent over 30 years investing in European equities, primarily for institutional clients and for retail clients across a wide range of sectors. I guess probably my starting point was I started off in the UK, some of the companies that have expanded across to a pan-European focus. Just looking to see where we are on the slides. Thanks, Cathy, great. So just really, I guess my bid was just give a bit of background on why insurance link securities are interesting to invest in. And I guess the key point I would make about that is we have the three reasons for people to be interested in insurance link securities. Cathy, can you? Thanks. So why are they interesting? So I'd say for an investor, I think the really most important part is uncorrelation. So these assets are uncorrelated to other markets, so equity markets, bond markets. And that's very important when people are looking to improve their risk-adjusted returns for their funds. And it's also important for the issuers as it provides capital. Particularly in a hard market, capital is short. So for an insurance company, the ability to optimize its capital and to get additional capital to underwrite is very important. So those are the two reasons. And then the first, please, Kofi. This is a very generic slide explaining the concept. It is a bit busy. It gets even busier later on. But Kofi will come to that. In the most simplistic terms, the way I see insurance companies securities is the ability to provide capital to an insurance company who would use that capital to underwrite risk. That risk can be across a number of sectors. Everything from aviation to weather related to even cyber risk. And the people who provide that capital are looking for a return. There are many different derivatives of how you think about insurance and securities. But the core part, the ones we're going to talk about today, you are operating as a special purpose vehicle, insurance special purpose vehicle. So I talked about why it would be attractive as an asset class. I said about a low correlation. That is really important. If you think about what is described as a risk-free rate, the 10-year risk-free rate, which this slide illustrates. So actually these rates have come up a little bit in the last few days, but still incredibly low interest rates. That you're going to get for your 10-year risk-free rate. So US Treasury is 1.35%. UK Guilds 0.7. And call your resume. So primarily bonds, actually negative rates over 10 years. So if you lend your money to the German government for the next 10 years, they'll promise to take only 0.3% off you for the per annum. Which kind of illustrates why people should be looking to uncorrelated returns, to diversify their portfolio, and to actually find some returns. So here we show that the ILS market. And there's an index out there for the performance of the ILS, which is a Eureka ILS advisors index has produced returns actually that have range from minus 5.4% in the worst year, which actually was 2017 to 13.2% in the best year. I think that the key here is understanding that actually the annualized return, which is really what people are looking at over a 15-year period would be 4.25%. That's an important number. When you think about the 10-year risk-free rate as it stands today. So there is attractiveness in returns and there's also attractiveness in fact that they're uncorrelated. Given the time, I probably don't wanna go into every single part of this. I think it may be useful to take questions at some stage. So if people do have questions about the ILS structures, who is the, who the investors could be, et cetera, we could touch on that, but I just thought it would be useful to have that slide there. So that was my bit about the ILS before we get into talking about project Gainus. Would it be a good point to take some questions? Cool then. I think people... May I ask a question? Yeah, go for it. Yeah, I just think that you're comparing these ILS to a risk-free rate there, but obviously they're, presumably investing in ILS would not be risk-free. I suppose it's a difficult question, but how would you characterize the level of risk that there is in the ILS products out there at the moment? Well, if you, yes, I mean, clearly there is risk. And look, let's be honest, the risk-free rate is a phrase that's used. That basically means that they're guaranteed by governments. For example, U.S. Treasury Mark is guaranteed by the U.S. government. So it is fairly low risk. Doesn't mean that returns are guaranteed even there. You can have negative years in a U.S. Treasury market. So as I said, if you go back one other slide, please come through in terms of... So the performance range. Actually, the key things that people would look at is that performance range, the maximum drawdown as people talk about in terms of risk. And the fact that, is it correlated to other markets? So those three things suggest that. I think ILS should be a lower risk than many other assets, but not as risk-free as government bonds. So characterizing that range, if you think about drawdowns that you could see in equity markets, for example, the maximum drawdown of 12.5% would be much better than you'd see in equity markets over the last 15 years as well. Obviously, we've had at least two times where markets formed by 40% or 50% in equity markets. So lower risk than equities in theory, judging by those 15-year numbers, but obviously higher risk than government bonds. I give you, this is Manny. Hi, Manny. I agree. Can Habib talk about what kind of products are out there today in the ILS? What's floating today in the marketplace today? Well, as it stands today, there are a large number of different end-market risks, which I guess is... I hope I'm answering the right question. So when you think about ILS, those insurance risks are what defines the variations in terms of what you're investing in. And those insurance risks can be everything from whether related cap bonds to, as I say, other insurance risks. In fact, I believe there's over 20 different types of markets that actually have taken advantage of insurance, in terms of underwriting bills. But it's a very wide range. And you can also have, within an ILS, more than one market risk, so you can combine risks as well. So it is a very wide range. I see Gary's got his hand up. Yeah, thanks. I was just curious to understand what the difference is between an insurance-linked security and having an investment in an insurance syndicate. So the Lloyd's model is actually a very similar concept. It's a different structure with a very similar concept in terms of... If you think about an ILS as a syndicate, so you'd have a managing agent, members would give money to that syndicate and that syndicate would go and write underneath the Lloyd's umbrella. And obviously, within that, what does that syndicate do, it would be defined. And so in some ways, it's very similar to the Lloyd's model, but it's primarily, I guess, no, I don't know, it's... The important point is that, is that it is sharing that risk, just like a Lloyd's unwriter. It is also, now that Lloyd's has moved to a, what I would describe as a, I'm just trying to find the right words to define a difference because within the Lloyd's umbrella, you have lots of different rules which are controlled by Lloyd's. The ILS is not necessarily under that same umbrella. That would be more the SBV's own rules. So there's more flexibility to underwrite. But yes, I think it's, in principle, it's very similar. Okay, thanks. Oh, can I... I'm trying to work out how to raise my hand and I can't even though I've been on, I'm a mainly a Teams user. Is the answer there that presumably ILSs could operate along a certain class of products, for example, so not across the whole piece for a syndicate? Is that, because obviously the cap bonds is the primary example, isn't it? And that's obviously related to certain products. So would you, as an investor, you'd be able to choose, say, I want to get, I don't know, cyber ILS or I don't know, would you have more flexibility basically, is that in the answer somewhere? It is. I mean, obviously syndicates can also have very broad categories as well. So it depends on the syndicate. So you're right, the ILS can choose exactly which book of business it writes. Right, yeah. So you can build a portfolio of ILSs which would give you a broader thing. Or you could say, I want an ILS which has a very broad remit. But yes, it's, there's quite, as I said, there's a very large array. When I went through the list, there's literally hundreds of ILSs out there. And they all do have that different exposure, so yeah. Okay, thanks. Any more questions? No? Okay, so we'll move on. So the last slide that Habib touched upon is just some of the needs for a need for efficiency in the ILS structures that exist in the markets today. So this is a key output which was generated by Willis Tower Watson and a survey which was openly published recently. And what they say is there are some very clear areas which are deemed to be as great opportunities by us. And what they say, I think I just want to touch upon a couple of themes here. So one is transparency is one of the biggest characteristics that most end investors want to see. Copper risk managers would like a little more of diversification. That's a key theme that I want to cover as well. And of course, the insurance and reinsurance firms are looking to access for better capacity using ILS structures by the end of the day. So, and more flexibility as well. So that all brings us to three specific teams and those themes can be characterized as the ease of flow of capital, say from the end investor to sponsor, the improved liquidity that we could possibly look at because today, cap bonds and ILS and all of these structures are not very liquid per se. There are some companies, disruptors are getting into the space of creating secondary markets to be able to trade these risks but we're still in a lower sense of maturity there. So we'll probably get there soon enough. And the third bit is to do more with costs. So the cost of managing an ILS. The cost of bringing capital in is one specific element of the whole capital adequacy piece but the second piece is to be able to manage this with a low expense ratio for the funding itself. So Project Janus touches on all these themes. So what we're trying to do is we're trying to ease the whole value chain but we're starting small and I'm gonna cover some of those themes going forward. So the first piece that we wanna talk about in phase one of Project Janus and what we are trying to do is we're trying to create better capital efficiency and how do we wanna do that is what I wanna cover. So this talks about how we foresee or how we envision the tech stack which complements some of the capabilities that ILS requires today, right? So for at least for the UK jurisdiction today most of the ILS funds and ILS structures and special purpose vehicles sit into this framework, regulatory framework which is governed by three specific bodies. So one is Bank of England. The other one is FCA, the Financial Conduct Authority and the third one is PRA, the Prudential Regulatory Authority. So all of these three specific entities, regulatory entities to a certain extent have to govern rules and specific rules which are clearly defined by the Solvency II framework. So if you want to create an asset today, if you want to transfer risk from your book and you want to seed it further that is transferred further down the lane and you want to ring fancy it in such a way that you create what is known as a financial asset out of that, that's where the Solvency II framework comes in and the newer technology that exists today which I call Blockchain 2.0, not Blockchain 1.0 has some of these key fundamental capabilities that help us model that very, very effectively with the models, some of these things very, very effectively with these technologies. Now we also see that in the specific tech stack, it all starts. So all of those guys who have a little bit of understanding of technology, there's always a user interface in the front end. That is something that it's like a browser, so something that you feel, click, interact with on a day-to-day basis. There is something which works underneath all of these stacks, which is something like a simple cake. Think about it as a cake, right? So there's icing on top of it, that's a pretty bit that you like and interact and then that's where you choose to pick up that pastry and try to sample it. But this is something very, very similar. The layers kind of help you understand how the whole tech stack comes together. So the first bit is user interface. The second bit is where all of the legal contract interface comes in. This is where we feel that the contract technology that is now live and now existent in the market can help move some great, some financial risks with great clarity into the digitization space. So which is now great. And we can do that using the Solvency 2 framework. Now the third bit is artificial intelligence logic layer. These are the things that actually drive the entire bit of business rules and everything that's associated with managing the fund, managing the ILS as well as managing the contract. And of course, the rest of the structures are more very technical in nature, which are to do with the substrate or the blockchain and other oracles which integrate with a specific structure. So I'm gonna cover that a little more in detail later. What I wanted to talk about is also the ability now to kind of look at multiple blockchains and be able to have like a common set of validators for that. So what that simply means is if you look at a specific ILS structure, the capital is ring fenced on a specific ledger. So, and there is data associated with that ledger and there's identity associated with that ledger. Now having a common set of validators can actually ease management of all of these multiple blockchains together. So that simply means that we now can work at a lower cost point and this kind of eases quite a bit of overhead that manually existed historically. And some of the other advantages that I probably want to cover now is more to do with expense ratio. So I touched upon that point on expense ratio, the ability to bring in on-demand capital. So the time required to see the risk from a book and writing book to reinsurance and into a financial instrument can be done a lot more quickly. Anything which is associated with your fund that is paying out coupons or passing that return, investment return to the customer is done through what you call is block smart contracts can execute quite a few of those things. And of course the ability to fill that reserving capital pool with not only with stable coins but other assets in the future state, hopefully. And of course create some very, very innovative ways of linking this model to parametric insurance that exists out there. Imagine some of the reserves that you have to make when there is a trigger event which can instantaneously happen over a period of time. So if there is something, if there is an insurer who's got great technology platforms and they have a parametric trigger which can pass information very, very quickly onto us, this is more to the claims area that I'm speaking about. We can reserve the capital that they've passed on to us as a risk immediately without any delay whatsoever while the issue is being investigated. So I think some of the capabilities that are unlocked by using a great tech stack or phenomenal and I think it's a great opportunity for us to push this forward. Now on to the next slide in a second. Now in the previous slide Habib showed us the classic version of how insurance link securities work and how the whole structure is set up. In the digital era, what we envision that to look like is completely unique and different. So I've kind of taken the first slide that we've spoken about and kind of created a visual around it to say how we envision that to work in the real world scenario. What we talk about here is by the end of the day is trying to get capital so that we can help insurers take on more risks. And if we can do that in a non-demand fashion then it's absolutely great. So we've layered some of these technology stacks here. We've spoken about how sponsors, brokers, reinsurers can interact with each other on web 3.0 interfaces. I won't talk about the technology yet because we don't have the right NDAs in place. We have contract specification languages which can help transfer the risk from their books to, I would say, the prefront of the ledger. And then of course there's contract logic and all of those things which creates the specific structure which is required, business logic layer. And then compartmentalizing that capital into specific cells which themselves sit on specific ledgers which are then facilitated by bigger technologies which are out there. For example, Polkadot, Ocean Protocol and Polymath. So these are the technologies that we envision to work with in the future state. And that's where we think that we will open up the onset of bringing capital more seamlessly into the insurance ecosystem and give that benefit of clear visibility and transparency to regulators and investors at the same time. So that's what we're trying to achieve as a part of this project. Where we are today, we're simply at the contract specification language stage where we are trying to digitize the front end of the contract. So the word which is specific to a reinsurance contracts is in, I can't even see that, right? But it's a contract which is black and white. It's, when I remember the word, I'll surely tell you what it is. It's a clear legal term. And I can't recall that on the fly right now. So... Incontrovertible. Incontrovertible. Thanks for being, that was useful. Okay, so the whole premise is we take an incontrovertible contract in its digitized element. We use certain layers of logic and AI to be able to convert that specifically into enough rigor which models around Solvency 2 frameworks so we can create these specific cells and these cells that contain ledgers for ring fencing capital. So hopefully that was not too complicated for anyone. I'll pause briefly here and take any questions if anyone has any. So this is Dan, I've got a question. I appreciate that by embedding the description and the business logic in the contract, maybe even all the way through to the SPV, you get, we ought to have a higher level of control. But what do you do to test that the contract behaves as expected? I mean, if I were to contrast, on the one hand, human managers of the SPV and we're hoping that they live up to the terms and conditions of the SPV, with automated version of the same where maybe there's a wallet attached to the SPV and it's moving out collateral, what have you as is necessary. But how do we know that the logic is, like how do we know that the logic is good so that we're replacing the potential for human error or malfeasance with something that it can't be? It's a great call, but how do you know? I think it's to do with definition of roles and how those roles sit within the compliance of the business logic layer. Now, of course you have the whole set of AML and KYC, but all of this stuff works on web 3.0 swarm. So these swarms are created specially for specific users who have access to specific wallets. So everything is contained in the specific form when the business logic executes itself on that specific common domain language. When some of the languages that we are currently looking at to venture further into this is CDM. Is there CDM we think is a great fit for us at this specific stage. So it mitigates most of the risks that we could possibly experience from contract structure perspective at least and even from managing these SPVs perspective. So that's clearly highlighted and clear. And of course we look to the Solvency 2 model, which gives us a lot of control and rigor that needs to be put in place for specific SPVs. So that gives us like the second, I would say pillar by process and design to prevent that. And the last, I would say the pillar to contain the risk would be manual intervention where required. Kill contracts or anything that we could possibly execute on the ledger to control the issue. If the first two fail at all. Does that help, Dan? I mean, yes and no, yes and that. So it just highlights that controls need to be built up regardless of the embedding of the business logic and the smart contract. Yep. But no, in that it seems like and frankly after months of thinking about CDM and smart contracts, it just dawns on me that there's a question, an overall question about the validity of any individual contract making certain where they correctly describes the financial performance of what has been agreed. And that was really what I was getting to you. Is there a testing framework or some other mechanism that you've employed that says, oh, this is the loss that's described in the underlying agreement. And these are its codisols and its protections and how do we know that that's correctly been translated into the smart contract that's supposed to represent it. So I think this is where the contract specification language comes in when you say that it's an introvertable contract wherein the clauses are completely defined and clear. The Solvency 2 framework says that if capital is put into a ring-fenced environment, then the obligation for that specific capital is more towards the insurers rather than the investors. So the capital is protected no matter what with the primary obligation towards the insurers rather than the investors. And that clarity is provided with the way the contract is built. So there is no possibility of, I would say, a gray area that exists within the reinsurance contract. And look, it might be worthwhile moving past this but let me try a different way and say, what if that's what we believe, but it happens to be that in a certain circumstance, collateralism drawn down in the way that's expected. For whatever reason, the event has a three in it in the fourth digit and for whatever reason, the business implementation didn't catch, the testing didn't catch it. And all of a sudden the behavior of the SPV is no longer what's expected. And it's a broader, in the end, I realize this is a broader question than just the insurance thing product. It's actually... I think it's a very valid question and we'll probably come back to you with a good answer. Hopefully sooner rather than later. Thank you for raising that. And just to, what we're not changing is we're not automating the underwriting process and the creation of that underwriting contract. Underwritten, sorry, underwritten contract. It is still being done by humans in terms of that contract logic phase. It is still the same process that's been done in terms of the still human interface there in terms of the underwriting is done. And that creation of that contract is something that's been done for many, many years already. So we're not changing the structures of how the underwriting process works. We're just changing the, and again, this is excuse my lack of technology experience here. We're not changing, we're still reliant on that creation of that agreement which then creates the irrefutable contract. So that is still the process. The reason why that then goes into the SPV is the same thing that's been done for many, many years. So there is still the human interface at that point. We're not getting rid of humans at that point. I see a point down about, could there be an error further down, but it's that, the key is that contract. And that's what we're focusing at this stage which is making sure that the contract is still the right way of putting things together. It has been agreed, and it may go back and forth from the broker to the underwriter to have that dispute. But once it's agreed and it's sealed, if that's the right way of putting it, that is what we're trying to achieve in a digital manner. Yes, so once it's achieved, once it's agreed and sealed, then it becomes immutable, what you say, it's completely legalized as a contract. So yeah, and it's binding. So that's the word that I was looking for. So what we are doing in the contract specification language and what we are doing in that specific stage is the next step I'd like to cover. And the way we've envisioned this contract is to look at it in form of structured data and unstructured data. So there could possibly be some unstructured data, but we won't include that as a specificity of that contract. So we look at it in specific layers and how these layers are structured in form of fluid data. That's an IP that we float. We have what is known as a layer of intelligence which sits on top of the fluid data which is called Axon AI. And all of that is linked to the third layer, which is a digitization layer which converts it into different friendly formats. So what we talk about in these specific contracts is one. Fluid data helps you monitor certain aspects of change which are proactively defined as a part of a structural hash algorithm. So any change that you are agreeing upon is real time and life. So if there are three parties which are coming together to negotiate this contract, then it reflects one truth. There are a lot of people who are already doing this in the market. This is not something which is being done very, very uniquely by us. But what we're trying to do at this stage is we're trying to build the AI that simply works very seamlessly with fluid data at the specific stage. What does this AI do? It simply ensures that we capture some of the basic rules which are required at a very, very earlier stage in the contract to do some simple mathematics which is associated with tax, cadule exposure and credit line. So these are the things that we can kind of do at a very early stage just by looking at some part or some segment of that specific risk contract. The last bit is more to do with the digitizer which is highlighted in yellow. So what it does is it helps transmit that information successfully from the contract layer into the whole what you call as a business logic layer where we take up that information and we look at ways of making it a lot more interoperable across different ledgers. Whoever wants to access it, if it's a swarm third party who's got access to this, they will have clear access to the contract and that digitized format can work in any JSON related format or XML related format that can help them extract the data and model that data specifically to their need. Moving on from here, I just want to quickly show you guys what flu data and axon AI does. So we take up bits and pieces of information, we sort them, we structure them and then what we do is we run specific AI algorithms which help us do this really well at an earlier stage. And we envision certain, I would say efficiencies. What we are keyly underpinning today is we're saying that it gives us a lot of flexibility to kind of take that contract and convert it into any of the digitized ISPV formats that people are looking for. They can have multiple cells under the same SPV, special purpose vehicle. They can create on demand products, they can model it the way they want. It has great accessibility to data, so we don't have to worry about data. Virtual presence, yes. Web 3.0 ensures that you have clear virtual presence. Of course, there's an underbit element of savings which is absolute reduced cost because of clear workflow. And of course, the ability to share this one reflective truth, especially upstream with all the parties who are involved as a part of this value proposition. So that's something which is really interesting. And I also see that when we tackle some of these efficiencies, what we project the expense ratios for at least on the fund side to reduce from 15 to 20% on the total expense ratio of the specific fund. This is something that we want to do in a part of our first MVP. What we're trying to do is, in this specific slide, what we're trying to highlight is we are linking, we have color-coded specific layers and we've spoken about what layer of that specific contract type would interact with what parts of the specific business, how does it convert itself into finality? So what does finality mean? Finality means that when a business logic is completely executed itself to the final state, only then can you say, you can put something on the blockchain to say it's a confirmed transaction. So until it goes into those specific stages and layers, then we feel that some of these things are best kept in business logic layer. We feel that there are certain areas which are suitable for smart contracts and there are certain areas which are not suitable for smart contracts. So we want to keep that level of control in business logic layer rather than the blockchain layer. So we're kind of moving the delegation up and down. And by the end of this first proof of concept, what we want to achieve is we want to achieve the integrity management of the full contract. We want to be able to show automatic, I would say accounting and settlement because we feel that we can work really well with polka dot structures to do cross-chain settlements, which it enables us to do at this stage. We haven't explored so far yet with it. And of course, build some sort of a full digital structure to automate and digitize aspects of the contract. So that's what we are trying to achieve. Last but not the least, some of the teams and of course, I've included some slides on specific ILS cell structures within Svaldbland C2 frameworks. If there's someone else who wants to look at this, I'm going to send them across to you as well. So that concludes our presentation for today. If there are any questions now, I'll take them. What's the time scale for the MVP? The time scale for MVP is end of July. That's something that we initially targeted. And the MVP only covers the digitization aspect of the contract. So we are not going after all classes of business. We are picking a very specific class of business and then we are trying to work through it as quickly as possible. Okay, so looking at scale and the magnitude of the MVP, I would just be certain, which July you're talking about. July 2021. Okay, thank you. Cool, questions, anyone? Okay, I think that concludes our session for today. Marta, do we need to do anything else from a hyperledger perspective today in form of closure? No, it's all taken care of. Cool, that's, all right, guys. Thank you so much for joining us today. So that concludes our session and hopefully we can come back to you next time with a demo and show you how this actually works in a real-life scenario. Okay, thanks, guys. Thanks, guys. Cheers, take care. Thank you. Take care, Nick. Bye-bye. Thanks so much. Thanks, this was great.