From Names to Nayms

July 13, 2023

334 years ago an insurance market was formed by a few individuals gathering in a coffee house. Their aim was to provide information and protection for ship owners who were bringing tea and other
goods into London from overseas. The Lloyd’s coffee house has since evolved through a process of gradual iteration, from shipping information subscriptions to a network of insurers providing protection
for satellites, natural catastrophes and the phone in your pocket. Capital backing this market came from a group of high net-worth individuals called ‘Names’, capitalising pools called syndicates to share
in different risk exposures. This is Lloyd’s of London today.

In recent decades, the internet has given rise to vibrant innovation from insurtech companies. Labelled “web 2.0”, the internet as we know it can be described as the transfer of information. Blockchain
has given rise to a different type of transfer, the transfer of value, or web 3.0. Combined, this information and value transfer not only offers the insurtech industry architecture that can facilitate the
transfer of legal agreements, signatures and insurance policies, but now the transfer of premiums, claims, commissions, capital investment and even secondary trading of fractionalised risk. This coming
together of new technologies is allowing a modern insurance marketplace to take form. One that is transparent, immutable, and most importantly, digital. Not one that is iterating gradually on previous
innovations, but is starting anew. It incorporates a lot of the wisdom learned over the market’s history, but cuts out a lot of waste and complexity. Born is a digital market within which the transfer of risk
can occur.

A new coffee house. We call it Nayms.

In this post, I look to clarify some terminology by comparing features and principles of the Lloyd’s market with our own. We fully understand that Lloyd’s of London has a value that Nayms does not. For
one they write roughly £35Bn in premium each year. However we’re excited to start supporting a new market of insurtechs, who look to represent the new-age individuals who previously gathered at that
first coffee house, over three centuries ago.

At a Glance

From Syndicates to Segregated Accounts

Syndicates at Lloyd’s are pools of capital and act as their own insurance companies. They are often referred to as ‘annual ventures’ as they technically only exist for 1 year but are often renewed. They are
a legal collection or ‘partnership’ of capital providers such as ‘Names’ (where Names account now for only 10% of capital provision) and corporate capital from private equity companies, hedge funds and
even shareholder capital from the insurance company running the syndicate. Lloyd’s Names used to have unlimited liability and reached a height of 32,000 individuals in 1988. An asbestos controversy
throughout the 1980’s led to a following decline down to only 295 Names today (for those remaining with unlimited liability). All other individuals have seen a change to limited liability. Funds
supporting the syndicate are held by a corporate member. The term ‘corporate member’ is used to describe all types of capital providers other than individual members. They are not jointly responsible for
each other’s losses as they accept insurance business through syndicates for their own profit or loss. The below diagram lays out this structure:

Figure 1: Syndicate structure at Lloyd’s of London

At Nayms, we incorporate the concepts of syndicates, corporate members, bank accounts, balance sheets and trustees into business logic that sits on a smart contract. A smart contract is a transparent set of
coded rules that exist on a blockchain, where the blockchain is an immutable environment allowing monetary transactions to occur without any central authority. An insurance company looking to set up
their own ‘on-chain balance sheet’ would be given their allowed functions as a ‘sponsor’ — explained below — and could raise and manage funds within what is legally a ‘segregated account’. This

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 combination of the segregated account structure and smart contracts both legally and technically segregate funds from other insurance business within the marketplace. In other words, the operating legal
framework mirrors the technical implementation. The on-chain logic also ensures limited liability for the ‘nayms’ involved, i.e. the investors backing the various insurance pools.

In recent years, Lloyd’s has created the ‘Syndicate-in-a-Box’ option where a business looking to underwrite through Lloyd’s can be fast tracked into the market. Requirements include low expenses, a
strong capital position, business that is accretive to Lloyd’s and an eventual plan to transition to a full syndicate. With Nayms we provide the technical infrastructure, legal framework, regulatory licences
and access to alternative capital to offer a similar proposition. In addition, if users want to run a segregated account as a self-insured captive we can also provide underwriting support. This ‘captive-in-a-
box’ proposition is becoming popular amongst digital asset businesses who hold a lot of crypto assets and are looking at ways of building out bespoke insurance solutions for their clients.

From Managing Agents to Sponsors

The managing agent (MA) at Lloyd’s manages the syndicate. At Nayms we call this party a Sponsor. The MA has a board and other directors, employs underwriters, and runs reporting and other company
activities. Underwriters aren’t legally employed by the syndicates but by the MAs. At Nayms we hold the insurance (and digital asset) regulatory licences, so we delegate underwriting authority to the
Sponsors. In this sense we are less devolved than Lloyd’s so as to put our technology in the hands of global stakeholders, without them requiring specific digital asset licensing themselves. Sponsors can
therefore provide their own underwriting service to the segregated account or they can sub-delegate underwriting authority to a third party underwriter.

From Shareholder Agreements to Participation Tokens

As an insurtech, people sometimes forget that innovation can go far beyond the technology. At Nayms, we say that a lot of our innovation is not just in the technology, but how the appropriate regulatory
and legal frameworks are integrated into that technology. Our tech design benefits from over a decade of web 3 development that came before us, and we have applied this to the global use-case of
insurance. One great example is how we are tokenising balance sheets (‘Accounts’) set up by sponsors across our marketplace. These insurance programs, sitting on-chain, can raise funds from capital
markets much like in Lloyd’s. The difference is that we tokenise capital invested into these accounts with participation tokens. These tokens represent an investors ownership over any specific account,
and are tied to a global participation agreement signed between capital providers (who become ‘account holders’) and Nayms. These tokens are our way of introducing insurance as an asset class to the
new market of cryptocurrency investors. By holding these tokens, capital markets have proof of ownership over their invested capital in each account, can easily spread their investments across multiple
programs and are able to trade their insurance exposure within the Nayms market. By using a token to track ownership and hold legal and regulatory responsibilities, we give the insurance industry the best
chance of liquidity where appropriate, as such responsibilities can be traded with legal clarity and very little friction.

A simple flow of funds that incorporate participation tokens and segregated accounts is shown in figure 2 below:

At Lloyd’s, most syndicates are ‘fully aligned’ meaning they don’t use third party capital. For example a private equity firm could be the sole owner of an MA, providing 100% of the capital to the
corporate member. If a syndicate is raising third party capital (partially aligned), having a strong name as the managing agent over the syndicate involved is a good indicator to these investors of the
ongoing performance of that program. The arrangement of a syndicate is on a 100% quota share basis where both MA and investors share equally in the risk from the ground up.

This flexibility is also available at Nayms where participation tokens track ownership of capital in and out of segregated accounts. Any trade of participation tokens transfers all past, present and future
liabilities to make trading legally clear and risk is shared equally amongst all participation token holders. However in the traditional insurance industry, any trading of funds between capital market
participants would require some version of a shareholders resolution, a separate board approval, additional broker commissions, legal costs, and a substantial amount of time and uncertainty over who
holds outstanding or unrealised liabilities — not the prerequisites for any meaningfully liquid market. With participation tokens, they are instantly tradable via our matching market with guaranteed
liquidity coming soon via our Nayms Liquidity Fund, discussed below.

From Insurance Linked Securities to Tokenised Insurance Portfolios

In 2021 Lloyd’s launched their ‘London Bridge’ facility and an additional “LB2” in 2022. These are protective cell companies (PCC’s) formed for the purpose of securitising syndicates to encourage new,
alternative capital into the market. This Insurance Linked Securities (ILS) style aims to simplify the process of investing in syndicates. This structure brings flexibility to the fractionalisation of risk.

At Nayms, users can create a segregated account to run a fully-collateralised catastrophe bond. This would run like an ILS program (where the segregated account is the Special Purpose Vehicle (SPV)).
However an insurer could also set up an account to run, for example, a primary book of auto insurance. Here, we introduce tokenised insurance portfolios instead of securitised insurance policies. By
creating this function of the segregated account, we put tremendous flexibility into the hands of our users. Lloyd’s is approximately 64% primary insurance by Gross Written Premium, and 36%
reinsurance. We’ve built the Nayms platform to be just as flexible for the sponsors operating in our market.

From Lloyd’s and the FCA to the BMA, SACs, DABA and IIGB
First, some clarification:

FCA — Financial Conduct Authority

BMA — Bermuda Monetary Authority
SAC — Segregated Accounts Company
DABA — Digital Asset Business Act
IIGB — Innovative Insurer General Business

A huge value proposition of the Lloyd’s Market is their global regulatory reach. Joining Lloyd’s allows firms to write business almost anywhere in the world. Lloyd’s acts as a pseudo regulator requiring
strict reporting as they work closely with the FCA, the UK’s financial regulator where brokers and managing agents must also be regulated. At Nayms, as mentioned previously we use the segregated
accounts structure to allow our insurers to operate under our licensing so that they don’t have to be based in Bermuda themselves. We hold the regulatory responsibility with the regulator, the BMA. This
removes the restrictions of users having to hold their own DABA licence to operate on-chain, as well as the restriction of having to be regulated by the BMA in Bermuda themselves. This is how we
achieve a similarly global proposition, by operating the entire ‘balance sheet’ of the marketplace out of Bermuda. The alternative would have been to create an Incorporated Segregated Accounts Company
(ISAC) which would have required global stakeholders to have their own licensing and digital asset status on-island.

Another major benefit at Lloyd’s is the rating. The Lloyd’s Market is rated by AM Best and SNP so by operating in any of these countries, participants bring along that rated ‘Lloyd’s stamp’. Nayms is
working with AM Best to become rated as well, so look out for an announcement on this in the year ahead.

From the Central Fund to the Liquidity Fund

A final benefit of Lloyd’s is leverage. This is due to the diversification achieved across the market where Lloyd’s maintains aggregate oversight through a mutualisation of syndicates via the Lloyd’s
Central Fund. However due to “the combined impact of inflation, rate rises, significant dollar appreciation, and growth ambitions in a rising market” seen throughout 2022, Lloyd’s is requiring syndicates
to post more capital, “curbing [the] market’s leverage benefit”. The Lloyd’s Central Fund currently sits above £2.7bn today. The central fund can be used “at the discretion of the Council of Lloyd’s, to

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 meet any valid claim that cannot be met from the resources of any member”. This not only provides reputational support for Lloyd’s but also provides additional capital that goes towards their strong
rating. This is why Lloyd’s oversees the various lines of business in the market by aggregating all activity from a risk standpoint (classes of business, risk codes etc). There are very strict aggregate limits
on certain classes of business such as property lines due to such lines receiving heavy losses in recent years. By looking at the concentrations of risk across the network, the Central Fund can be modelled
to provide support when needed.

Nayms has looked to achieve a similar pillar of support for the network, but with modern utility by achieving index returns and liquidity provision for the market. Our solution is the Nayms Liquidity Fund
(NLF) powered by NAYM, the Nayms utility token, where investors can buy NAYM from the NLF in return for crypto assets. Funds in the NLF are then used to take positions across the marketplace in
return for a basket of participation tokens. From here the fund algorithmically provides buy and sell orders to existing capital providers, supported by our market making partner, giving them flexibility to
enter and exit live programs before redemption. In doing so the NLF generates index style returns for token holders by giving them access to diverse exposures across all marketplace programs. We will be
issuing our latest paper on NAYM in the months to come.

From Names to Nayms

The Nayms Marketplace is a result of modernising powerful features of the world’s largest insurance market, and replacing tremendous complexity by integrating clean business logic into web 3
technology. What Lloyd’s of London is for insurance, we are building Nayms to be for insurtech. In the first half of 2023 we issued our first two insurance programs and have a whole host of others across
crime, cyber and tech E&O lines to property ILWs and primary travel programs. As we move to a leveraged model, become rated and grow the utility of NAYM, we are very excited to see what the new
wave of insurtech pioneers can achieve with a truly modern ecosystem at their fingertips.

It is about time we moved from Names to Nayms.

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