Artemis spoke to Benjamin Fox, Co-Founder and Chief Investment Officer of Members Capital Management Limited (MembersCap), who explained how the fund opens up the private reinsurance market to a group of investors who previously had no exposure to this asset class.Launched in July, MCM Fund I represents a pioneering approach to reinsurance investing, leveraging blockchain technology to lower entry barriers, bringing a traditionally exclusive, high-yield asset class to a broader range of investors.During a recent interview with Artemis, Fox, a well-known insurance-linked securities (ILS) industry executive, discussed how MembersCap is leveraging new technology to bring a new source and form of risk capital to the ILS market.“If we start at a macro level, we need to recognize that there’s a fundamental shift societally in the understanding and adoption of blockchain technology.  There’s no doubt that the current US administration has provided significant tailwinds and the socialization of digital assets and ‘crypto’ in the mainstream media has been astounding,” Fox explained.

“We believe this is the start of a secular shift, with technology as the core driver, and the convergence space of trad-fi and defi is an extremely interesting and exciting place to be positioned in today.“We see the benefits of digital asset technology through two lenses. Firstly, as a source of differentiated, scalable risk capital, and secondly as tech-enabled infrastructure that can bring myriad efficiencies across the insurance value chain,” Fox told Artemis.

“MCM Fund I – our tokenized reinsurance fund – allows access to the private reinsurance market for cohorts of investors who previously have not been exposed to the asset class.” As Fox affirms, this simultaneously affords a fully on-chain experience for digitally native investors, such as those managing large digital asset treasuries, as well as lowering the barrier to entry for smaller, sophisticated investors who are not served by existing products or managers.Moving forward, we asked Fox to explain what key benefits that MCM Fund I will bring towards the ILS sector and the reinsurance industry.“With MembersCap a strong champion of the use of digital asset technology, I’d highlight a few areas where I think we will bring significant benefits.

Our use of digital payment rails makes it quicker and more efficient for investors to come into the fund, and the associated use of blockchain ledger technology allows us to make the associated fund management administration more efficient too, lowering the minimum investment ticket size to $50k.“At the heart of insurance is the concept of trust, and this is exemplified in the case of the security underpinning individual transactions.Historically, this has always been related to the strength of a counterparty’s balance sheet, or the creditworthiness of fiat funds in trust.

To me, the next clear evolution is to embrace digital funds on chain, and I think there’s a phenomenal opportunity here,” Fox said.Fox also notes that MembersCap recognises that there’s significant education required across the industry for this technology but reaffirms that the organisation is looking forward to driving this opportunity across the sector.Concurrently, Fox also explains how MCM Fund I is being positioned as a reinsurance-focused investment fund that aims to deliver moderate but attractive returns, with relatively low volatility and an emphasis on protecting investor capital, as an alternative to more traditional income-oriented investments such as bonds or private credit.

“With target net returns to investors of 9-12%, MCM Fund I is very much positioned as an alternative to private credit and other fixed income strategies in the traditional space.Our flagship fund offering is deliberately constructed with a defensive risk profile with capital preservation very much our north star.  For many of our investors, this is their first exposure to reinsurance and we’re looking to deliver as low volatility experience as possible,” Fox said.“What I think is actually more interesting here is our positioning versus other investment strategies available across the digital assets space.

In this case an investment in MCM Fund I represents a yield enhancement opportunity for holders of select, qualified digital assets.This yield is derived from reliable attractive returns coming from the global private reinsurance market and therefore completely uncorrelated to the wider crypto markets.“Additionally, I’d add that in the RWA (real world assets) convergence space between defi capital and ‘real world’ sources of yield, there is a current dearth of institutional-grade investment products.

As such, there’s a phenomenal opportunity to deliver high-quality offerings, regardless of the underlying asset class whether it be credit, real estate, or reinsurance in our case.“I consider MembersCap to be extremely well placed to take advantage of this dynamic, and as one of the pioneers in this space challenge the traditional wisdom that reinsurance should only represent a 1-2% allocation of a large, sophisticated investment portfolio.There’s no reason for the new cohorts of investors that we’re working with, that their reinsurance allocation can’t be significantly higher,” Fox added.

Lastly, Fox also explained to Artemis how MembersCap plans to address the widening insurance protection gap, by specifically targeting cyber and parametrics.“The two areas that we’re specifically targeting here are cyber and parametrics.We see a great opportunity in cyber and have an implicit mandate from our investor base in a way our peers simply do not.

This was reflected in its initial weighting in our portfolio at launch (~30%) and we expect the contribution of cyber to the portfolio to remain meaningful.Cyber is an opportunity we are happy to lean into and help contribute to narrowing the sizeable cyber insurance gap.“We also consider parametrics a natural fit for us, especially as we promote the propagation of blockchain technology upstream in the (re)insurance risk transfer chain.

For contracts where cedent UNLs or final industry losses can take months, and even years to be confirmed, it doesn’t matter how efficient or dynamic your underlying infrastructure is.“I think of parametrics and blockchain as being highly complementary, ensuring rapid settlement times and disbursement of much needed funds.During my time working at the World Bank and as a subsequent supporter of their insurance products, I’m very aware of the need for fast settlement and certainty of funds following large catastrophic events.

It’s a no-brainer that blockchain technology has a transformative role to play here,” Fox concluded...All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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