Security Token news for Week ending 24 January 2020

Week ending 17 January 2020 in Security Tokens

Here is our pick of the 3 most important Security Tokens news stories during the week:

One. Silicon Valley Coin by Andra Capital Uses Tezos Blockchain and TokenSoft for Its Security Token Offering

“Andra Capital, a San Francisco based venture capital firm, announced plans to issue Andra’s Silicon Valley Coin (SVC) via a Security Token Offering (STO). Collaborating with the Tezos Foundation, SVC will utilize TokenSoft’s issuance platform and be built on the Tezos blockchain.”

Equity ownership and governance are closely related in early stage ventures, so the use of Tezos is significant.

Two. EMURGO Establishes Strategic Task Force with Uzbekistan Government to Develop Framework for Security Token Offerings & Exchanges

“EMURGO Ptd. Ltd. – EMURGO – the official commercial arm of Cardano blockchain – announces the establishment of a blockchain task force with the National Agency of Project Management (NAPM) under the government of the Republic of Uzbekistan, and alongside advisors KOBEA Group & Infinity Blockchain Holdings, to lead the development of a legal framework for security token offerings (STOs) and exchanges (STXs) in the Republic of Uzbekistan. In addition, EMURGO & KOBEA will advise on infrastructure for digital asset banking & exchange, and blockchain education units, amongst others. EMURGO will provide advisory services to develop the framework and business units with the task force & mutually explore the potential for Cardano’s third-generation blockchain for infrastructure projects.”

Alternative blockchains such as Cardano have to battle the network effects around Ethereum and alternative jurisdictions such as Uzbekistan have to establish themselves in investor’s minds. So expect more partnerships such as this.

Three. GreyP Completes Equity Token Offering on Neufund. Securities are Distributed as Investors Will Also Benefit from Neu Token Distributions & Payouts

“GreyP Bikes (an e-bike company), one of the first “equity token offerings” or ETO to complete a primary issuance on the Neufund platform distributed the digital securities to investors last week. The security offering began last October with a pre-sale followed by a public sale that ended towards the end of November.

As was previously reported in December, GreyP raised €1.4 million from 1017 investors from 34 different countries – . The offering was described as the first IPO every completed on a blockchain-powered platform. The company sold the ETO at a pre-money valuation of €45 million.  Founded by Mate Rimac, who also created Rimac Automobili, GreyP claims the backing of large investors like Porsche and Camel Group.”

We like it when we see issuers who have nothing to do with Crypto/Blockchain as it indicates market traction. It is even better when, as in this case, the issuance transaction close/executes successfully.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context,  please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives. 

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Blueprint One- a building plan for a Lloyd’s digital/culture change decade, or pie in the culture change sky?


It’s really a tour de force, the 146 page Blueprint One recently released by leadership at Lloyd’s, a detailed road map for the staff and approximate ninety syndicate players that comprise the firm, its reinsurers, customers, associated MGAs, vendors, brokers and agents.  Plans, flow charts and implementation strategy that are planned for the next two years, with all the new moving parts in synch by close of 2022.  Oh, and did I mention the £35 billion in annual premiums that the organization generates through its stakeholders?  Bold plans for a three-hundred-year tenure organization.  And there is the unmentioned tension- an entrenched business model planning to evolve into an agile, cutting edge tech leader.

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.


Lloyd’s is the industry standard bearer for specialty risk management, AKA ‘the stuff an underwriter can’t thumb to in his/her U/W manual’.  Its technique and mystique have evolved during the more than three centuries since a few gents sat in front of some pints and pondered financial hedges against loss of shipping cargos.  Why then, does the firm think that several months of research, interviews, participant interviews, technology vendor schemes, and resulting blueprint from Lime St are the best answers to changing the course of the culture and operations of a complex global insurer?

Consider this voice from the street (location to remain unmentioned):

“Sadly, it seems that Lloyds underwriters have developed a degree of contempt for the XXXX market, over the last year I’ve seen the worst performance from certain Lloyds underwriters I’ve ever experienced in the last 20 years or so. In particular, not having renewal terms ready in time when renewal submissions have gone in well on time. It’s definitely a hard market from where I’m standing, and it isn’t particularly civilised either!”

Well, hard markets currently abound for many reasons across the globe, and anecdotal responses are a little unfair.  But the basis of the speaker’s concerns may not be- Lloyd’s is a huge, multi-variate, multi-cultural, global organization that cannot be changed under dictate, singular plan, or silo-driven flow chart.  Underwriters remain subject to the performance matrix of the day, and grand plans from on high take a rear seat when quotas aren’t met, or loss ratios are trending north.  Additionally, the firm remains entangled in aftereffects of sexual harassment accusations, mitigating the perceived impact of an over-arching office culture of suits and club decorum (although well past the days of PFLs), and recent years’ declining profitability.  Can Blueprint One be communicated, integrated and adapted uniformly in the face of these challenges? And can the evolution avoid the strong effects of the “Quarterlies?”

Culture and process changes aren’t new with the advent of Insurtech, innovation, globalization or change of leadership.  Much of what the blueprint discusses has its foundation in technology and transparency across the organization’s depth and breadth.  At its core we are talking insurance, so the topic may be busy, but it’s not rocket science.  Identify risk, understand risk, price risk, hedge risk, service occurrences that confirm risk (claims), and pay less than is taken in.  The firm is smart, therefore, to look to leverage technology for easy inclusion of participants across many regions and many forms of access, easier aggregation of business, more effective application of information, collection of data, and so on.

Consider the Blueprint’s ‘what it is’:

  • The firm’s strategic intent, description of vision.
  • Current thinking on each of six identified solutions-
    • Complex Risk platform
    • Lloyd’s Risk Exchange
    • Claims Solution
    • Capital Solution
    • Syndicate in a Box
    • Services Hub
  • Details of the initial phase of each solution
  • Invoking cooperation from Lloyd’s market players in the firm’s future
  • How and why success will be gained.

That’s on page 7 of the 146 page blueprint; it is an ambitious, wide scale road map.

It’s clear the more complex a plan is the greater the chance of incomplete implementation; the more incomplete or disuniformity of implementation the greater the chance of not achieving success.  The firm has its plan, its foundation for success, if the plan can be implemented.

Skipping forward to “Why we will succeed,” on page 11 , and I chime in with some observations that the principles suggest from other large org’s culture/ops changes:

  1. Capitalize on prior market investments (that’s funds spent previously on innovation).
    • This the “not throwing the baby out with the bathwater” approach. How to include the capital investments of the past few years in how we move forward.  A small anchor on innovative thought?
  2. Learn from the past
    • There are plenty of reorg carcasses along the wayside, let’s figure ways to have innovation not die at birthing. Of course putting the words, “Our collaborative approach to building the Future at Lloyd’s will ensure the solutions are designed for the benefit of Lloyd’s and the wider London market,” are contradictory right out of the box.  Perhaps solutions designed by and for Lloyd’s global staff and customers might sound more collaborative.
  3. Communicate regularly
    • Cascade those ideas from Lime St. to the world.
  4. Ensure the corporation and the market has (sic) the right skills to deliver the plan
    • Collaborators- prepare to invest time and money in change management plans that will be as successful as any change management programs. Can’t buy success.
  5. Deliver value to the market quickly
    • The rollout cannot interrupt business. There are those darn quarterly reports.
  6. Deliver the technology in parts
    • Deliver solutions in parts- of course each discipline needs different starting points; the law of unintended consequences will prevail.
  7. Retain control and operational responsibility (for tech)
    • Autonomy is resolving rollout issues will be suppressed to ensure uniformity. There will be scapegoats.
  8. Ensure the appropriate governance is in place
    • Central control of the collaborative integration. Decision making is the firm’s.

Rather than ramble on I am going to shamelessly borrow some innovation/org change concepts from a Property Casualty 360 article penned by Ira Sopic, Global Project Director at Insurance Nexus that has an apt perspective- “Agility is the key to technology innovation for insurers.”  But let’s build a contrast from Lloyd’s presentation.

Agile?  Can a global, £35 billion insurance giant be agile?  Do Lloyd’s customers demand innovation, or will they benefit materially from innovation?  We can see what the author and Lee Ng, VP of Innovation at Travelers Insurance say.

Fundamentally, the article notes org agility means looking at how decisions are made across an org and making significant changes.  That’s ambiguous until the addition of, “you can’t prove innovation before it happens.”  Uncertainty of innovation’s results can be overdone with analysis.  ‘Agile’ is the opposite of ‘waterfall’, an approach where plans and decisions are made at the top and cascaded down through the org as steps in a process are encountered.  Rolling out comprehensive plans by their nature inhibit iteration- big plans have milestones, have successive designs, benchmarks and schedules.  Agile has ideas, iterative maps, acceptance of failures.  Lloyd’s has established a grand approach to the former method- I kid you not, here’s an exemplar flow chart of planned core technology:

Core tech

Many participants influencing and accessing the tech core of the firm, and those magical skeleton keys to open the doors- APIs and interfaces.

Continuing, agile can be successfully piecemeal- protect the primary ROI factors of the biz, experiment with agile ways of working with collateral functions, build the innovative environment without whacking the quarterlies.  The inherent problem with piecemeal approaches?  They are hard to measure for success, and hard to program into project management software.

Another agile tack to take? “Done is better than perfect’.  Resist the urge to over plan, over measure, and to set expectations that the first attempt is a go or no go for the entire org.  A popular innovation concept applies- try, and fail fast.  Then try again.  There are many vendors who are experts in narrow parts of an org’s innovation path- it’s OK to rely on them.  Investment in a POC or two is as good as implementation.

Perhaps another day will allow discussion of the plans for the six Solutions, particularly Claims and Risk Exchange (the nexus of provision of service and of customers’ expectations from the firm.)  In spite of a skeptical take on the Blueprint I certainly want Lloyd’s to remain the bastion of risk management in a increasing risky world, but the concern is the firm is approaching this insurance elephant as a full take away meal, instead of as tapas.

In closing consider this- if there are five levels of Blueprint implementation and each effort has a 98% probability of success, after the five levels there is an aggregate probability of integration success of 90%.  That’s not bad, unless the interplay of five operational areas serving clients is considered with 90% effectiveness at play- aggregate 59% average Blueprint compliance outcome.

Consider those little bites, Lloyd’s.  The industry is pulling for you.

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Green Home Loans A Reality Downunder

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia

The world must go green. How green is probably a debatable question, but slowly the tide is turning towards renewables and fossil fuel alternatives, with many hard-nosed climate conservatives even beginning to thaw on the issue.

Finance has a huge role to play in this greenification of the world. In Australia, companies like Ratesetter are leading the way in helping consumers access finance specifically to help fund the purchase and/or installation of an Approved National Cl…

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Addressing some symptoms of insurance issues, and not the underlying causes?

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There’s an odd contradiction in some of what the insurance industry does; the industry is built on predicting risk and strategizing risk sharing, yet in many ways it is victim of knowing its own concerns and reacting to and pricing the reaction, and not working to mitigating the effects of the outcomes.  And in at least one case looking to backfill its model to fit corporate strategy and perhaps not customer choice.

 Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.


Backfilling or buyer’s remorse?

Allstate Insurance (US P&C carrier) recently announced its digital insurance brand, Esurance, will be discontinued as part of Allstate’s migration into being an omnichannel carrier where customers have options under one access point/model for agency based or digital insurance acquisition and service.

Looking back to 2011 with Esurance being a $1 billion acquisition by ALL wherein the company’s CEO announced, “Allstate is uniquely positioned to serve different customer segments with unique products and services,” said Thomas J. Wilson, Allstate’s president, chairman and chief executive officer. “This transaction provides immediate incremental growth in customer relationships and makes Allstate the only company serving all four major consumer segments based on their preferences for advice and choice.”

Appears that ALL figures customers in 2020 expect only one access point that will provide purchase options.   Here’s the thing- Allstate had internal rules that inhibited customers from switching agents and/or internal brands, not external barriers; this change will reportedly alleviate the ALL system problem, and empower agents to better serve customers (per leadership and aligned with a previously announced commission decrease) as ALL migrates into being an insurance technology company.  But what of the 1.5 million Esurance policyholders who consciously chose the Esurance model, and may balk at being tied in with the legacy brand?  And, will marketing costs truly be saved if digital customers still need targeted messages?  It’s certain that Allstate’s advertising partners will create a clever omnichannel ad campaign, but legacy brand is legacy brand, and buying culture is buying culture- can ALL be a cleverer digital carrier under the parent name than was Esurance?  Additionally, will rolling the Esurance policies into the parent change how staff handle claims?  Perhaps, but the effects of several years of underwriting losses for the Esurance PIF will not disappear simply because those claim customers are now called Allstate customers.  Would it have been a more direct action to fix the Esurance claim handling issues? And what does this move in combination with centralizing customer service away from agents suggest for the agency model?


Maybe a good idea earlier in the finance value chain?

Swiss Re announced this week the placement of US $225 million in parametrically triggered cat bonding for Bayview Asset Management’s MSR Opportunity Fund, covering mortgage default risk for Bayview’s loan portfolios in the states of California, Washington, Oregon, and South Carolina.  Bayview does manage ‘credit sensitive’ loan portfolios and derivative funds that include packaged mortgage portfolios, so a parametric product is an immediate hedge in the case of an event that meets the USGS survey index associated with the bond.  Seems a suitable move for the management company as it does not have direct ownership of properties but does have exposure to indirect loss if there are mortgage defaults for its funds mix of loans.  Makes one think- loan originators would be doing the market a service if along with property insurance requirements for loans in the respective states there would be either an EQ insurance requirement, or even a parametric option for mortgagors in the event of a trigger occurrence.  Hedging ‘up the food chain’ is good for the portfolio manager but does not help address the potential cause of default.  Swiss Re also has the unique opportunity to market the parametric default risk products to primary mortgagees.  It’s a changing risk mitigation world.

Problem hiding in plain sight

First California, now Australia in the news due to property owners encountering challenges with property underinsurance and unexpected increases in property repair costs.  These concerns are not new and become front burner issues each time a significant regional disaster occurs, always attracting the attention of those who sit at the head of the political insurance table, the insurance commissioners.  California’s commissioner enacted a moratorium on policy cancellations in brushfire areas (1 million property owners involved), and Australia’s Treasurer Josh Frydenberg recently asked Aus property insurance carriers for detailed information to help the government and population better understand where insurance recovery efforts stand.   Not Dutch boys with fingers in the dike, but certainly ex post actions for circumstances that pre-existed the respective regions’ disasters.

At least in California the primary drivers of the problem are property owner valuation knowledge (or lack of it), ineffective underwriting valuation tools, policy premium and market share competition driving carrier lack of enthusiasm for change, and unpredictability of post-disaster rebuilding costs. Also- misconception on the part of the public- few policies (close to zero) include wording of restoring to pre-loss condition, or replacement with like kind and quality.  The reality of the underinsurance problem is that there is now a de facto rise in insureds’ ‘deductibles’ after a disaster due to inadequate coverage limits. The ‘deductible’ effect is mitigated by insureds employing personal property settlement proceeds in the dwelling rebuild costs, but all in all it’s a relative fools’ game.  The worst effect is the extreme hardening of the property insurance market to the point where dwelling insurance becomes unavailable and/or unaffordable. The easy fix is better upfront estimation of rebuild costs, but even with that there is then a problem for carriers- the marginal premium increase suggested under current methods in moving from a $500K limit to a $750K limit is far less than a comparable change from $250K to $500K, so is there an overarching lack of motivation to raise coverage limits?  An unexpected related potential effect for carriers- earlier triggering of reinsurance treaties due to the weight of maximum losses and lessening of rei appetites for renewals under existing agreements.   Without question structural changes (no pun intended) are needed in property policy valuations and underwriting for areas where the frequency of regional disasters is high.

*Contrarian viewpoints of an industry observer, not to be confused with that of mainstream press, and presented in the light of knowing that there are many forward-thinking players in the industry who will work to lessening the effects noted above.

#innovatefromthecustomerbackwards  #newinsurancebalance

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Australia’s Open Banking Dream Drifts Away

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia

It would seem Australia’s hopes of having a quickly implemented open banking regime are fading fast, if not completely transparent already. An already delayed start date of February 2020 has been pushed out to July 2020, causing much consternation in the startup community, as fintechs continue to battle with unpredictability around the regime.

On top of this, fintech advocacy groups have highlighted the significant costs that fintechs will face to become accredited to use the system, making testing product-market fit near impossible, without significant upfront funding. As most founders will know, this is hugely problematic – most investors want some of the chicken and at least the egg before they’ll part with their dimes.

To add insult to injury for fintechs downunder, consumer groups are pushing for screen scraping technologies to be banned once open banking is in play, arguing that legacy fintechs must migrate to the higher standards of the open banking regime.

In principle, I’m sure many fintechs, even those on ‘legacy’ screen scraping technology, would migrate in a heartbeat – if it were commercially viable and simple to do so. But the fact of the matter is it isn’t. Firstly, it’s not even available, and secondly, what should be a simple and open set of standards, is mired in controversy and debate amongst stakeholders.

What seems to be lost in this debate is that for decades banks have sat on legacy data that has seen them pass on billions of dollars in unnecessary costs to consumers. If the nation is serious about actually challenging the stranglehold banks have on consumers, and the free-for-all of fee taking that currently exists, they would be bending over backwards to create an environment that allows fintechs to flourish.

Australia needs to invest in this infrastructure and invest fast. We need to stop talking about it and just do it. Internationally, it is somewhat embarrassing that we cannot even get this done. The UK is already years ahead of us. Developing nations, on our doorstep, are likewise leapfrogging us.

Stagnation and uncertainty are the enemy of progress, and fintech seems to be caught right in the thick of it. Investors and founders be warned.

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Blockchain Thematic ETFs from the West to the East

blockchain ETFs

Listing on exchanges continues to dominate. Whether listing on regulated or unregulated Centralized exchanges (CEX) or Decentralized exchanges (DEX) of any sort; this has not changed at all for assets.

Brain Armstrong, the CEO of Coinbase, in his New Year medium post, foresees that we will be moving from a predominantly trading & speculation phase of cryptocurrencies and Tokens of all sorts, to a phase of actually Using Tokens.

In the meantime, however, incumbents and startups continue building all the necessary infrastructure to issue, custody, settle and clear, trade and invest of all sorts of digital assets.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

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Blockchain exposure a la ancienne

Investing via listed equities will never die. In fact, I foresee Blockchain will enable it grow exponentially. More listed equities, across more jurisdictions, better information, fractional ownership.

For now, the traditional way to participate in the growth of the Blockchain sector is to buy publicly traded stocks. For example, mining companies, companies building enterprise software, or hardware.

Hut 8 which is the largest publicly listed bitcoin-mining company worldwide. Listed on the Toronto stock exchange Hut 8 Mining (TSXV:HUT) has a market cap close to $100million. Most pure blockchain companies, have small capitalization (less than even $10mill). As a result, the market sees more potential to capture the upside in Blockchain by investing in publicly traded tech companies with significant strategic exposure to the sector.

Blockchain Stocks that lists and tracks such stocks, shows companies like Accenture, MasterCard or funds investing in the sector; as their picks in the List of Blockchain stocks and their list of Large cap Blockchain Stocks.

Traditional investors can otherwise consider public equity exposure to the Blockchain sector through thematic ETFs. In the US, there are 8 Blockchain thematic ETFs that have accumulated $240million?

Screen Shot 2020-01-13 at 10.42.03


Only 4 of them have managed to accumulate more than $10million and none of them have surpassed the $100million mark.

The top holdings of the two largest Blockchain ETFs are companies like the Japanese IT providers – GMO Internet and Digital Garage.

GMO is the company preparing for the launch of the first Yen backed stablecoin – GYEN. It is also expected to launch a new Bitcin mining device with low cost and electricity consumption, the B2 miner.

Digital Garage another Japanese company (4819-TYO) with and an ADR. They teamed up with Blockstream last year to serve institutional needs in the sector in Japan.

BLOK ETF has more than half a dozen Japanese companies in its top holdings, like LINE, KAKAO, SBI Holdings, and Korean Rakuten.

BLCN is more diverse with some Asian companies, like JD, Baidu, and LINE.

All Blockchain ETFs contain Bigtech companies, like Alphabet, SAP, or Nvidia.

In Europe, there is the Invesco Elwood Global Blockchain UCITS ETF listed on the LSE (BCHN:LN) with $38 million AUM since its launch last March.

Top holdings are similar to the US ETFs

Screen Shot 2020-01-13 at 11.18.01

In China, the Shenzhen Stock Exchange just launched a Blockchain 50 Index that includes listed companies on its exchange in the Blockchain sector.



The top holdings are Ping An Bank, Midea Group – electricity company, East Money Information.

The Shenzhen Stock Exchange, has applied to the China Securities Regulatory Commission for permission to list a blockchain exchange-traded fund (ETF) benchmarked off its index.

All these investment wrappers, are essentially offering tech exposure with a Blockchain tilt.

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Can industry changes soften a hard property insurance market in California?


There are suggestions of hardening markets for US property insurance participants, and there is no better example of this than what is occurring in California.  Non-renewals in wildfire prone areas, premium increases, reductions in coverage and the seeming ultimate reaction- regulatory prohibition of policy non-renewals.

How did the state get to this point, and is there a lesson to be gained for any area that is exposed to regional maximum losses?  Is the hardening multi-trillion dollar California homeowners market a bellwether for others?


Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.


Hard Market — in the insurance industry, the upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases. Can be caused by a number of factors, including falling investment returns for insurers, increases in frequency or severity of losses, and regulatory intervention deemed to be against the interests of insurers.[1]


An on point definition of a hard market for the California property insurance market prompted in great part by successive years of severe wildfires throughout the state, a circumstance that recently culminated in the state’s insurance commissioner to enact temporary regulations that prohibit non-renewal of homeowners’ policies for one million insured properties located within wildfire-prone areas. The commissioner’s action came as a result of insurance premiums in affected areas rising to seemingly unaffordable levels, in carriers refusing to underwrite properties, and in delayed recovery in wildfire areas due to limited availability of hazard insurance.


How did a bad fire situation get worse? Two years of homeowners’ lines’ loss ratios averaging in the 190 range, or $1.90 being paid out for every dollar of earned premium.  Who expects carriers to absorb that extent of loss without an according rise in premiums?  Let’s take a look at how the state got there (we’ll set aside the climate risk and fire damage negligence/liability discussion), and how things aren’t as simple as one might think.

Loss History

The state’s homeowners’ carriers were essentially the same in 2017-2018 as they were in the ten years preceding the heavy wildfire years.  Why does that matter?  Consider this chart of data for HO line earned premium, losses, and loss ratios for the ten years prior:[2]

CA Premiums Losses


$37.4 billion surplus of earned premiums over losses incurred during that ten-year span. That is not bad.


If one looks at the 2017 and 2018 results, the numbers flip:

Earned premiums–           $15.6 billion

Losses incurred–               $29 billion, or a $13.4 billion deficit. That gets companies’ attention.

A significant compounding concern for carriers for the 2017-18 period is that the losses were compressed into repetitive geographic areas, reflect concentration of maximum losses within same, and the factors behind the peril have not materially changed. So even though there was a $37 billion surplus noted for the ten years prior, carriers (being forward looking for revenues) reacted not only to raise premiums, but to restrict available coverage and restrict the scope of coverage, classic hard market characteristics.

Premiums and pricing

If the discussion continues to market factors regarding historic pricing, more evidence of the roots of a hard market come to the surface. Average homeowners’ policy premiums for the state relative to median property values are significantly skewed in comparison with other states with higher population and exposure to concentrated risk:[3]

States Premium

[3] data from

So the case builds for how a hard market builds- premium levels that seemingly fail to consider the potential effects of regional peril occurrences.  California having premium values one quarter of those in Florida?  There is also significant evidence that- on average- properties have been under-insured for value in that post-disaster rebuilding costs are exceeding coverage limits. The market (through pricing history) inadvertently set its own table for hardening.  And it’s not just carriers- homeowners and financing institutions are partners in the issue.


Homeowners do have options when persons have are unable to obtain voluntary insurance due to circumstances beyond their control- the state’s default insurer, the FAIR (Fair Access to Insurance Requirements) plan.  The state’s FAIR plan provides limited coverage for primary perils but its use requires property owners to have separate wrap around policies in order to have cover that reasonably matches the benefits of voluntary cover.  The FAIR plan is a syndicate pool supported by the state’s property insurance carriers, so think of it as analogous to auto/motor risk pool insurance.

Increasing the number of persons accessing the insurance of last resort is one thing, but considering a recent order by the state insurance commissioner to require FAIR to provide broadened coverage limits[4] (to $3 million) and broadened peril coverage (to mirror an ISO HO-3 policy form) seems (per FAIR leadership) to exceed the commissioner’s authority.  Right or wrong, the change in the FAIR plan does not alleviate the issues with concentration of risk, actuarially supported rates, or the fundamental fact that risk factors need to be mitigated.


What to do?

Property insurance is a keystone to any economy- borrowing, recovery, risk sharing, and risk management, etc. Absent a thriving insurance industry, a jurisdiction simply will flag in comparison with other areas. A hardening market is a wake-up call that the inherent cycle of insurance is at an attention point- carriers see challenges in the near future and are retracting access to insurance and placing a premium on price, even if company capital levels are currently higher than average.  Soft markets certainly reflect the reverse, but who complains when underwriting is easier and rate taking is de-emphasized? The surpluses in premiums gained during 2007-2016 are long forgotten.

Ideally the market would:

  • Set premiums at a level anticipating significant regional events
  • Price wildfire risk into all policies in the state (everyone gets affected when these events occur)
  • Leverage the available capital surplus and interest from reinsurers
  • Partner with private risk vehicles (ILS, Cat bonds) for broader backstopping of risk
  • Consider wildfire cover that is similar to earthquake or wind covers, with more substantial deductibles for that peril
  • Adopt complementary parametric plans that trigger when wildfires occur, providing immediate recovery funding to affected property owners rather than wait for government programs alone (that may take years to administer)
  • Refrain from using FAIR plan changes to circumvent needed changes in voluntary policies/underwriting/pricing
  • Tread very cautiously before having regulators take anecdotal actions ex post to occurrences
  • Implement immediate subsidies for areas that suffered direct and as yet unrecovered damage- not taking action affects all

With these efforts being in conjunction with all efforts being made to mitigate risk factors, encouraging behavior changes, and encouraging policies more in keeping with risk management- climate, economic, and functional.

Why this?

The state has other, potentially bigger concerns with risk- earthquakes.  Wildfire risk has had terrible effects, multi-billion dollar effects, most often in more remote or less densely populated areas than urban Los Angeles, San Francisco, and Oakland, heavily populated and developed high-risk earthquake areas.  EQ insurance penetration (approximately 11% of property owners) suggests uninsured losses will far eclipse wildfire losses if a significant quake occurs, and there is not enough resources (currently) for the state to back-fill an EQ disaster recovery.  The entire country will be affected.

And what of the balance of the world’s economies?  A recent Swiss Re Institute assessment of insurance protection globally denotes an estimated $222 billion natural disaster gap[5], a number that again would be overshadowed by temblor damage in developed regions.  What of the wildfires in Australia, where the affected areas are more than six times greater than the 2018 California wildfires affected?


Hardening of insurance markets- that’s a challenge for insurance customers, but for markets like California’s homeowners’ lines it’s a precursor for what may be coming elsewhere.


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Facts & Figures, Risks & Challenges in the ETF market

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I am starting the New Year with a focus on ETFs, a 30yr old financial product that has shown Resilience, and relentless Growth. It is simple in its use but not that simple in creating and going to market. It has even been the wrapper of choice to bridge the old world to the new digital asset world. But Distribution remains key.

In 2016, I reviewed the process of issuing an ETF and the `hidden` risks and costs. Hidden not in a deliberate sense but in the sense that investors get carried away and ignore the devil in the details.

Are ETFs Trackers that Fintech can turn into Trucks with No Brakes? Worth a review of the details since each one of us owns ETFs directly or indirectly.

Remember, 2016 was the year of The Betterment/Brexit incident that showed the ugly head of illiquidity and out of whack bid-ask spreads in ETFs.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

State Street, one of the major ETF issuers, has been campaigning consistently about the myths regarding ETF costs

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Let’s call these things with their name.

The ETF industry continues to grow and 2019 was a year of several milestones.

European ETFs AUM was hit by underperformance and closed 2018 with €633.1 bn AUM. In 2019, European ETFs reached close to $1 trillion. ETFGI, reports $960bn = €860bn.

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A record $4.4 trillion of assets flowed into ETFs and ETPs in the US. ETFGI research reports this 30% growth.

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The reality is that growth was mainly performance-driven.

The fact remains that it is very difficult to launch a new ETF and get it over the $100million AUM mark. This is a small-cap hell for ETFs.

2019 was the year of what I call the `Robinhood-effect`, in other words the zero-fee breakout. Several large incumbents in the US followed suit after Charles Schwab announced its zero-commission policy for trading single line stocks. This may seem as the green light to replicate indices at no cost and the democratization of rebalancing towards any kind of benchmark. But of course, nothing is what it looks like at the surface.

Indices have licensing fees that ETF issuers have to incur. Managing the tracking error of the portfolio with respect to the benchmark, simultaneously with the cash drag, comes also at a cost. Custodial charges, brokerage charges may or may not be offset by revenues from lending out securities held in the portfolio. Securities lending for ETFs that hold stocks that hedge funds may want to short (borrow) is a business that is not unusual. It is actually the way that ETFs earn some revenue and are able to offer nearly-zero cost ETFs. I am referring to the expense ratio of the ETF.

Expense ratios of ETFs (asset mgmt. fees) have been dropping too but taking into account the bid/ask spread of the ETF (which is linked to the size) is important. Also, differentiating between trading fees and asset mgt. fees.

The lowest expense ratios of ETFs are in the range of 2 or 3 bps but the catch is that their bid-ask spread may shoot up to 50bps in certain market conditions. For a complete list of low expense ratio ETFs see here.

  • SPY, one the largest ETFs, has over $300billion AUM and an expense ratio of 9bps.
  • Vanguard S&P 500 ETF (VOO) is another S&P500 ETF tracker with a much lower expense ratio of 3bps and $130billion AUM.
  • The Invesco QQQ (QQQ) NASDAQ 100 tracker has a rather high expense ratio of 20bps and $87Billion AUM.

Yes, there are currently close to 2,000 ETFs that trade on platforms with zero trading commissions (according to a WS article). Fidelity has launched its own commission free trading of ETFs that already includes 500 such ETFs. This does not mean that these ETFs have zero expense ratios. Charles Schwab and TD Ameritrade also offer more than 500 commission-free ETFs on their platforms. Vanguard leads the pack with 1,800 commission-free ETFs on its platform[1].

Commission-free trading is less likely to help ETFs in increasing their assets, much like low expense ratios have not actually proven to be the key to large scale distribution of ETFs. The market has spoken on this front and the verdict is `It is all about distribution channels`.

Look at SoFi`s zero-cost S&P ETF , the SoFi 500 ETF (SFY) launched in April 2019 with zero expense ratio (at least until June 2020). The online lender has managed to accumulate $72million AUM and the average bid ask spread is 21bps (compared to zero for SPY and VOO).

Salt Financial played the same game and in an even more aggressive way last Spring. They launched an ETF with a 5bps rebate until it reached $100million AUM (a negative expense ratio). The Salt Low truBeta US Market ETF – LST has only accumulated approx. $10million AUM by now.

Their strategy was that the rebate (negative expense ratio) would be their marketing budget and when they accumulated $100million AUM, they could cover costs through securities lending. That is also the way some Vanguard Index ETFs beat their benchmark – by distributed to investors their revenues from securities lending (3 or 4bps).

CNBC reports that over the past year, there are only 4 new ETFs that have managed to accumulate more than $100million AUM. It remains bloody difficult to grow a new ETF. The only new ETFs that reached $1 billion mark are two ETFs that were heavily funded by an insurance company.  The Blackrock ETF iShares ESG MSCI USA Leaders launched in May has already $1.84billion with an expense ratio 10bps and a bid-ask spread of 5ps. And the Xtrackers MSCI USA ESG Leaders Equity launched in March has already $1.7billion with an expense ratio 10bps and a bid-ask spread of 5ps and in these cases the ETFs were seeded with big money from an insurance company.

Issuers of ETFs like Schwab, BNY Mellon, Goldman Sachs, Fidelity have essentially in-house distribution channels. Schwab feeds its Schwab Intelligent Portfolios investment platform, BNY Mellon its custody client needs, Goldman Sachs has United Capital and S&P Investment Advisory to place its zero-cost ETFs, and Fidelity has its fund families. Bloomberg reports that more than 70% of U.S. ETF assets are in low expense ratio funds. In 2019, 93% of new money flowed into such low-cost products[2].

Image source statistica

[1] Data is as of July 2019 from

[2] There’s a Dark Side to Zero-Cost Investing You Can’t Ignore


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Thank You

Happy New Year. Today is my last post on Daily Fintech. Before signing off, I just wanted to say a few words of thanks.

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Before Daily Fintech, I was a Fintech enthusiast and an investor. However, I had not written regularly on a focused subject anywhere. I only knew I could write, but had to prove it to myself.
When I reached out to Bernard about this time three years ago, he was kind enough to offer me the Friday slot on Daily Fintech. Writing became a routine, but more importantly, reading up became a religion.
I had to read so much to get a holistic view of a topic, think through the trends, figure out a pattern and create a storyline around that. It was an intellectual journey that I look(ed) forward to every week.
In the initial days, writing an article took almost a day. It became a lot easier as I kept reading, connecting dots and writing. Especially after a panel discussion, an event or a speech, the article would take less than an hour to write.
I learnt a lot in the process. In my meetings with potential investors for my fund, the wealth of knowledge I had accumulated in Fintech helped. It helped establish immediate credibility and made fund raising a lot easier.
It was especially true when I first met Banesh Prabhu, who was the ex Global COO of Citigroup consumer bank international. Our discussion got to a point where I was competing with him on a Fintech trend discussion. It was no simple task doing that with Banesh. He eventually became a cornerstone investor in my first fund, and is now my partner at Green Shores Capital, my second fund.
Daily Fintech was one of the top reasons for my first book offer. I was headhunted by a top publisher to write a book. The book should launch in Q1 2020.
I must thank Bernard Lunn for giving me the opportunity to write on Daily Fintech. It has been a challenging and rewarding journey writing alongside great minds like Bernard, Efi, Jessica, Pat and Ilias. It was a nervous journey at the start, but this community of authors made it quite an enjoyable ride.
Thanks to all my readers, for the comments, social media support and engagement. That is often the biggest validation for a writer.
I will still be writing on sustainable and climate friendly innovation. I believe there is a lot of work to be done in that space. Please do connect with me on LinkedIn if you have enjoyed my writing and would like to follow my work.
Thank you and a very happy New Year!

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