 Yeah, once again, welcome to Hyperledia Global Forum. Today, we are covering insurance link securities and Ricardian contracts. Nothing too heavy, but we're just introducing the concept of basic Ricardian contracts and how they're integrated. And what we're trying to do is provide a construct of Ricardian contracts deeply integrated. She says we cannot hear you, but I can hear you. It's very strange. Can you hear us, Marta? Can everyone else hear us? Can anyone comment? Yes. Okay, brilliant. Okay. We'll just go back then. Who's going to moderate the moderators? Okay, go ahead. No worries, Marta. Cheers. Okay. Going back to the conversations, yes. So we're talking about how we're looking at modeling and bringing in concepts of Ricardian contracts into insurance link securities. And the basic objective is to try and bring in some of the capital markets' rigour into the insurance industry. And that's what we're trying to achieve by this objective. There are a lot of initiatives which are parallelly going on within the market, and this is more of an observational study rather than a full-fledged development or a software product at this point in time. I'd like to first introduce Whippin Baratheon. Yes, my name is Whippin Baratheon. I've been involved in Hyperledger for over six years since its beginning. I mean, I guess. And I'm the chair of the Capital Market SIG and also of the Identity Working Group. And I'm also a lab steward. I have been working in capital markets for 15 years and many other industries, mostly as a technologist, but I got the blockchain bug back in 2014, I guess. Now it's been a full-blown infection. But the main thrust of our talk is going to be about securitization itself and how everything flows from there. So, Kirti, please introduce yourself and keep going and I will come in when you invite me to. Thank you. Thanks, Whippin. I'm Kirti and I'm a blockchain solutions architect by profession, doubling into data science and operations research. I've always worked in capital markets and financial services, especially in Lloyd's Market in London. Now I'm focused on two specific areas. One is looking at liquidity within the insurance link securities. I've been working very closely to Whippin as a part of the Hyperledger Capital Market Special Interest Group and one of the areas that we are pursuing as a part of this group is to look at some of the basic fundamental problems of better liquidity in the market for insurance link securities. I'm also doing a joint research paper with Balancer on trying to look at how regulated liquidity pools could possibly solve some of the challenges that we have today in the insurance capital side of things and securitization aspects as well. So, that's my brief introduction today. Here is a quick review of the agenda. What we're going to talk about is a brief introduction to insurance link securities, challenges. What is a Ricardian contract? How are we looking at automation within this space? What are the avenues for reporting verification measurements and some of the emerging opportunities for the risk transfer segue? The first slide, what are insurance link securities? So, these are financial instruments. They're sold to investors, sophisticated investors, so mostly institutional customers and for the investor, some of the benefits are to look at it as having no correlation to capital markets whatsoever. It's always back to an insurance risk, but for the insurer or the insurance firms, it means transferring risk from the insurance book into capital markets. Now, there are certain conditions or certain points in the insurance value stream when they choose specific ILS products, but we'll touch upon that as and when we get into the details. What is this? This is nothing but a simple journey which shows how risk is onboarded by an insurance company and passed on to capital markets. So, from the left, you can look at the sponsor, which is nothing but an insurance company. They use a contract structure, which is a risk contract to transfer a part of their risk book to a reinsurer and a reinsurer is passing that down. So, you can see that highlighted by these blue flags. These blue flags indicate any contract structure that exists within the value chain. What we simply want to talk about is the basic contracts that exist in this process. There are other multiple contracts that exist, but these are the dominant contracts that exist between most of the players. So, there is a reinsurer and now the risk is further ceded upstream to an insurance special purpose vehicle. Insurance special purpose vehicle is nothing but an entity, a legal entity, which basically transforms the risk into a financial instrument of some sort. It could be a bond, it could be a fund, so it could be packaged as a fund, and that's where the whole stream of capital is moved in from the capital markets and they are rewarded for the risk that they're taking on through what is known as a coupon or an instrument. And this is paid as per the prospectus or the understanding between both the vendors. Now, there's also an important element to the insurance special purpose vehicle within the whole segment. The insurance special purpose vehicle has what is known as a collateral trust and the collateral trust is where most of the proceedings are safely stored like capital is reinforced and it's actively invested in, I would say, highly liquid financial instruments that generate some sort of an income. So, it creates, I would say, levels of credit risk protection both for the insurer and for the reinsurer and the sponsor. So, moving from here, what are some of the benefits of this financial instrument? Why do we need to look at it? What does it provide? It's for the issuer, that is for the insurance company provides like a direct access to capital markets, an alternative source of capital, a better risk mitigation. Let's say exposure, I guess, to some of the credit default risk that exists, and sometimes the fronting partners have a longer duration, so that means there's capital available for a longer duration. For the investors, of course, the return is risk averse to a specific extent and, of course, it has no correlation to the plastic capital markets. And there's a very clear defined maximum loss and, of course, people know what they're getting into and it's a great way to diversify your investment portfolio. Of course, there's a tax element to it, which is clearly provided by these financial instruments to sophisticated investors. Some of the challenges that exist today within this space and they're really important when it comes to the Ricardian element. So, why are we looking at the Ricardian contractor element of it is some of these basic challenges are raised within the industry and what we are trying to do is we are trying to break these boundaries down to provide better capital efficiency in the market and our objective is to solve some of these issues that exist both for the sponsor as well as for the investor. So, being able to do that would give us not only a great win in form of capital efficiency, it would also give quicker capital movement from capital markets to the insurer. So, what are we looking at over here? So, we're looking at better diversification. So, now most of the insurer ILS market is taken up by cap bonds. This is like 80 to 90 percent is in cap bonds and there is limited appetite to use ILS for any other aspects of risk transfer. So, it's interesting to see why. There's also a huge amount. What are cap bonds? Oh, catastrophic bonds, yes. These are financial instruments which are used to transfer the risk. So, this is one method of securitization in which the risk is securitized as a bond and this bond is then sold to end investors and these are generally triggered by climatic part. Anything which has got to do with climate risk or climate exposure to any type of assets, mostly into property. So, that is one class of business which is predominantly in focus here. Some of the other challenges is high brokerage cost, cost of routing through many brokers and intermediaries. That's one of the challenges of doing this and some brokers or intermediaries do not understand the niche underwriting element of the risks. So, it becomes difficult for them to secure capital through ILS and finding a fronting partner for unrated capital. So, sometimes because of the nature of the risk in itself means even some sophisticated partners find it difficult to interpret the extent of exposure and the possibility of something going wrong. Now, for the investor, I think the interesting bit is to look at better transparency. So, when you're investing into something, you'd always want to know the characteristics of the investment and what is important for the investor, flexibility. So, it's like looking at a better range. So, that's the basic requirement. So, possibly looking at an index or a fund of funds that could unlock some of the potential by using your cardian contracts. Of course, management fees. Management fees is an important purview because currently the cost is too high. Most of this has manual elements to it. There's barely any straight-through processing in these instruments. Most of that is manually done and most of this has handled as an OTC over-the-counter aspect of trading. And track collateral in the sense once the investor has invested money into a specific instrument, there is liquidity but the liquidity is in the terms of the issuer. And it becomes a little difficult for the investor to get in and out of a specific financial instrument. And these are some of the basic challenges that exist today, which I strongly believe that recording contracts would help us solve some of these problems inherently by design rather than anything else. This is where I'd like to invite Wipin to share his perspective of various layers and the simplification using the cardian contracts. Wipin? Yeah, before we go further, I have to say that the story of ILS is very similar to the way secretization is done in other fields, specifically any debt-based secretization like credit cards, like mortgage-backed securities, which obviously was prominently in the picture 10 years ago for whole 15, now it's getting on 12, 13 years ago, for cratering the market and causing lots of problems. And most of this has to do with the improper assessment of risk. But recording contracts, the concept was originated by Ian Gregg, so the basic elements of that would apply to any sort of secretization or even issuance. So basically, the idea is to create through the stack, which based on technology at the bottom, cryptography, software engineering, rights, and then rights is identity and linkage to the rights in a contract. And then it goes to accounting, which is basically payments or obligations. Then the contract evolves into governance value. And then finally, the finance aspects are emergent through all the layers of the stack, make it possible for the financial aspect of the recording contract. If you go to the next slide. So what is a recording contract? It's a software pattern, which has a single document, which means that everything about the contract, it's created by the issuer and is meant to be a contract between the issuer and the investor. It's a single document. That means there are no other places you should go to. It is a four corners of a page like in a legal sense. It is both human readable and machine possible because it is markup driven. So this is the basic innovation in a recording contract, and which is now familiar to all of us through the various ways in which it has been implemented using smart contracts inside blockchain driven structures. But you do not need a blockchain to do this because like the ideas that were created by Scott Stornetta, which is quoted by Satoshi Nakamoto, basically trying to create a global witness using a immutable commitment hashing and signatures of a document, a contract, is the primary foundation. And then, of course, Satoshi's innovation was to make this into a global witness using proof of work. That is a major innovation in Bitcoin, which has taken the world by storm. And if you see that the hash creates a contract that cannot be changed, and the other aspect of the contract is that the Ricardian PKI delivers clarity. That means in that same document, the public key of the issuer and the signing key are in the contract. And it is through relationships that you know that the issuer's public key is proper, not through some CA or something else, the certificate drop, excuse me. Yeah. And the presumption of possession, that is, the user has the contract, which is just that Kirti was talking about, which is transparency. Does the investor know the details of the contract? That means if I have the hash of the contract and the contract itself, I know the full contract. So it's easy to share the contract and it cannot be altered once it has been created because of the hash and the signature of the issuer that accompanies it. And of course, the promises made there result in payments in accounting. Next slide. So there it is, which is basically the bow time model, as it is called, the contract, which is a human readable contract and is legal. The word of law has, in this case, a PGP signature, which is obviously dates the document. And also a hash is created of that document and it is immutably linked to that signature. And that becomes the founding or the Genesis document for a whole stream of accounting payments that result from it. And this is the idea also in CDM, that is Common Domain Model. You can say that it's an expression of other cardian contract. Now, Kirti, you're going to finish up by linking these ideas to the challenges of ILS and how your solution solves those problems. If we have a Q&A questions, we will answer it in the end. Thank you. And Kirti, please continue. Thanks, Wipin. So, Wipin kind of gave us the fundamental workings of how the bow time model works. And we take it away from here to see how we can apply some of these basic fundamentals into the actual practical use in operations, that is, in investment operations perhaps. So now, what we talk about here is the concept of several layers and data structures that could possibly exist. And some of these are derived by the solutions that we are currently researching. And what we feel is segregation of data, which is the core data versus, which is structured data versus unstructured data, creating what is known as an integrated data structure on top of that. So this is color coded in these specific layers. And it talks about how we're taking some of the best practices which are already available within the industry to integrate it upwards into a usable format to ease automation within the investment operations or insurance operations space or the ISPV space perhaps, and make it a lot more relevant. Now, the core data can be broken into financial data as well as contract specific data, which is legal terms. And this is separated within the core data element to say what is structured versus what is unstructured. The structured part of the contract will still hold things within the CDM format and follow most of the CDM, which is nothing but a common domain model which has been specified by International Swaps and Derators Association. And what we do over here is to look at two things. One is the core data constantly has what is known as the integrity and the data structure check, something like a Linux operating system. So every time the contract is loaded, it checks it for integrity and this layer on top of that is integrated into what is known as a logic layer. The logic layer is what connects the contract information to everything which has got to do with day-to-day operational elements. So think about it as modeling a complex system. So when you look at a complex system and you look at what the structure of a financial instrument looks like today, we talk about replicating that into some form of a digital twin. And what this digital twin is nothing but a set of information, which is financial information, which takes in signals, which could be either analog or digital. So digital is something which is triggered from within the system. Analog signals are something that can be optimally triggered from the user or sometimes even from the system perhaps. So it's just about creating the model in such a way that it is a replicable digital twin of the whole contract in itself and in its elemental form represent all the contractual truth and legal enforceability of the contracts which are built on top of it. Now the last layer on top of it is called as a digitization layer that we're currently looking at. And this helps you plug the interoperability. Why is this important is because data is, this makes data incredibly portable and easy to plug in. So irrespective of blockchains and what stacks you're using, when data is built in a specific format it makes it incredibly easy to port the data from one technology to the other. So that's the fundamental approach for this method. Second, it talks about how the model integrates with various elements and it's again color coded to show what integrates to other parts of possible day-to-day operations and forward integration into other systems and how this can be defined very clearly. So you can see that the core data could be anything. It could be a counterparty risk contract, it could be risk transfer contract and it could also be a CDM. So you could also look at it in the transaction structure. You can look at it as between two specific entities or you can look at it as completely as a financial instrument. But the data structure remains the same. And of course there's forward integration into every element. So you're able to do cash and transaction management by linking basic information which is available in the Eurocardian contract structure and do computations on top of it. You can do asset performance. You can also do capital ring fencing and do solvency reporting if that is what is required and that is built into the structure. Analytics of course, that is the best bit. And incredible portability of taking in signals. When I spoke about signals earlier, I spoke about both analog and digital. Maybe in the future state we could look at oracles which give direct information into a risk transfer contract which sits within an ISPB which could trigger when required. If there was a flood somewhere in some geolocation it would directly trigger and it would create the computation required to pay out whatever the claim is directly or settle it or liquidate parts of the collateral which are required to pay out to the insured. So that is the basic elemental structure of it and we think that some of the possible benefits of doing, implementing the Eurocardian structure into our contracts is better audit trail reporting of course that's a great benefit. And I think straight through processing is one of the biggest boons and that cuts down the time so it may cut down the time of transfers. You might want to wrap it up. Yeah absolutely. Reduction of course in errors and last but not the least the most important bit is expense ratio reduction because of lower manual intervention. So that brings us to the last part which is compliance by design because at any given point in time you know if you're solving at all. So that is the whole bit about Eurocardian contracts and how it mitigates some of the challenges we had shared earlier within these slides and I hope that was useful for today. Wipin any closing comments? Yeah just that we have the references at the end and thank you for attending and most of it is attributed to Ian and thanks. Hyperledger. Hyperledger and thank you to Marta for moderating. Thanks Marta.