On the 12th of June 2019, Legal & General launched its Pension Risk Transfer blockchain reinsurance platform called “Estua-re”. Thomas Olunloyo, CEO at the Legal & General Reinsurance Company, based out of Bermuda, joined us in this podcast to share “Estua-re’s background and why blockchain was the best solution to answer his pension reinsurance challenge.

His company is the global reinsurance hub of the Legal & General Group. It writes pension  risk transfer for reinsurance in multiple countries around the world. But focus primarily on the UK, the Netherlands, Ireland and Canada.

 
What is blockchain?
Thomas thinks of blockchain in terms of the context in which they’re applying it with estua-re. Blockchain is a network with a number of participants that are here to sell risk and some who are here to take on risk. It allows these participants to have a single version of the truth built on consensus that exists at all times. For a business, like the Legal & General Reinsurance Company, that trades with contracts that can last up to 50 years if not more, being able to exchange data in an immutable way, built on consensus that is self-perpetuating, is an incredibly powerful thing. Smart contracts are programmable scripts that run on the blockchain that allows for the data to be used for some purpose or another.

 
Legal & General Reinsurance Company
The company does pension risk transfer for reinsurance around the world. What is pension risk transfer? L&G provides insurance to pension schemes either directly or indirectly. Provide a guarantee for the payment of pensions to all members of that scheme. So being a reinsurer, L&G stands behind insurers who provide these guarantees. However, being a reinsurer means L&G take a part of those guarantees to pay those pensions.

 
What was the problem, Estua-re was here to resolve?
Contracts in the pension risk transfer can be up to 50 years old if not more. Every months of those 50 years data is exchanged between L&G reinsurance company and its counterpart. Most of the time that exchange is bilateral but it can also be with a larger number of counterparties. Both parties, or more, are entirely separately exchanging data every month to try and determine how much to pay the individuals within an underline population.

For the duration of those 50 years all the parties are maintaining separate data sets, trying to calculate the same payments from those data sets and exchanging data by emails and data rooms. This is very inefficient. To add to it, any errors which are made are compounded overt time. For example, it can very difficult, if not impossible, to try pinpointing where something has changed and understand what happened 10 years ago, when managing massive data sets comprising tens of thousands of lives.

 
Why blockchain?
Thomas’ journey into solving this problem didn’t start off with blockchain. He had looked at a number of solutions and off the shelf software platforms. But none of them were really able to address the problem they had. Centralised databases with APIs worked well for bilateral business but not as well with multiple parties. Risk is shared among multiple parties. The more parties you have the less efficient it becomes to use centralised databases with APIs. Two years ago Thomas discovered DLT and blockchain which was increasingly gaining momentum and pace in the financial services industry. It then became apparent that blockchain / DLT was the only technology that was able to store data in an immutable way,