Real-world asset (RWA) integration with crypto is accelerating, and reinsurance—the business of insurers insuring one another—is the next great evolution.
This article explores how tokenised reinsurance could unlock a massive, untapped asset class for decentralized finance (DeFi), offering uncorrelated yield at scale that doesn’t rely on the broader market.
We’ll set the stage with the rise of RWAs in crypto, explain reinsurance and its market size, review how investors traditionally access (or struggle to access) reinsurance risk, and then outline why on-chain insurance models are game-changers.
RWAs are Growing, Yields are Compressing
Today, there are over $235 billion worth of tokenised assets across more than eight asset classes, representing ~8.5% of crypto’s $2.7 trillion market cap. Despite impressive growth of 80% in 2024 alone, we remain in the early stages—especially beyond fiat-backed stablecoins and tokenised U.S. Treasuries, which currently represent 96% of the segment.
Most tokenised assets today fall into "RWA 1.0": digital wrappers around traditional instruments such as bonds, credit, or real estate. While these products have found proven demand, they largely replicate legacy financial systems, offering composability but minimal innovation.
The next chapter—RWA 2.0—moves beyond replication. It’s about creating entirely new financial products uniquely possible on-chain, combining real-world risk origination with blockchain-native capital formation, programmability, and capital efficiency. Ethena, for example, synthesises crypto-native yield into a dollar-denominated stablecoin offering returns uncorrelated with traditional markets.
A record influx of stablecoins competing for the same limited DeFi yield opportunities has caused rates to collapse. A benchmark index of DeFi lending rates, which approached 14% APY in late 2024, has now dropped sharply to approximately 3% as of Q1 2025—partly due to fading airdrop incentives and reduced leverage demand.
This "great yield compression" marks a structural shift: capital is abundant, yield is scarce, and on-chain liquidity is actively seeking new sources of return. Tokenised reinsurance protocols are positioned perfectly to meet this demand while significantly improving upon the traditional insurance business model.
Enter Reinsurance: A Massive Untapped Opportunity
Reinsurance serves as the critical financial backbone of the $750bn+ global insurance industry. It enables primary insurers (ceding companies) to manage risk exposure by transferring portions to specialised reinsurers. This risk-sharing mechanism empowers insurers to underwrite policies beyond their capital constraints, promoting broader financial stability.
Reinsurers underwrite diverse policies across a broad set of insurance markets, covering risks from property damage and liability to life, health, and specialised exposure lines including cyber threats or aviation.
These risks are largely event-driven, such as natural disasters, accidents, or mortality patterns, rather than tied to economic or market cycles. As a result, reinsurance portfolios tend to perform independently of traditional financial assets, offering a source of returns that is historically uncorrelated with equities, credit, or crypto markets.
Global reinsurance premiums exceeded $700 billion in 2024 and are projected to triple to $2 trillion by 2034 (11% CAGR). Currently, the market is dominated by a small group of incumbents, with the top five reinsurers controlling over 20% market share. These incumbents possess enormous balance sheets, proprietary risk models, extensive regulatory licenses, and deep-rooted client relationships, creating a significant barrier to new entrants.
Historically, top reinsurers achieve between 8% and 15% return on equity (ROE), with peaks during favourable market cycles. In 2023-2024, conditions proved beneficial; Swiss Re, for example, recorded a net income of $3.2 billion from $45.6 billion in reinsurance premiums, achieving an impressive property and casualty (P&C) ratio of 89.9%. Berkshire Hathaway’s reinsurance unit posted a $2.7 billion net income from $23 billion in premium volume, driven primarily by catastrophe-focused portfolios.
A considerable portion of reinsurance profitability also arises from investment income on "float" premiums held between receipt and claim payout. Typically, 30-50% of reinsurer earnings derive from interest income on short-term government bonds and cash equivalents. This float becomes more lucrative during rising interest rates.
Reinsurers operate within stringent regulatory frameworks, yet their business models combining steady underwriting profits and substantial investment returns from float make reinsurance uniquely resilient across market cycles. This dual revenue structure supports consistent performance in stable conditions and allows for elevated profitability during periods of market stress or when premium pricing improves.
Accessing Reinsurance: Traditional Investment Landscape
Given the attractive and largely uncorrelated returns offered by reinsurance, institutional investors have steadily increased their allocation to this asset class—particularly through vehicles such as catastrophe bonds (Cat bonds), sidecars, and dedicated reinsurance funds.
In 2024, total dedicated reinsurance capital reached a record high of $769 billion, comprising $629 billion from traditional reinsurers (such as Munich Re) and $114 billion from alternative sources, including insurance-linked securities (ILS). Alternative capital has been the fastest-growing segment, significantly outpacing the growth of traditional reinsurer capital in recent years.
Prior to the Global Financial Crisis, catastrophe bonds represented the bulk of alternative capital. However, their share has now declined to roughly one-third, with approximately $40-50 billion in catastrophe bonds outstanding today. This shift highlights the expanding role and diversification of alternative capital sources—such as ILS funds and sidecars—in underwriting an ever-growing portion of global reinsurance risk.
Let’s briefly survey the traditional ways investors can get exposure to reinsurance and their key features. Each has pros and cons in terms of accessibility, risk, and return profile:
Regulatory Constraints on Reinsurance Float Investments
Although reinsurance is structurally attractive, investor access is shaped by regulatory and operational barriers that define how capital is held and deployed.
Reinsurance companies generate income from both underwriting premiums and investing the "float"—the pool of premiums collected before claims are paid out. This float, often accounting for more than 30% of reinsurers’ total earnings, is tightly controlled by regulatory frameworks like Europe’s Solvency II and the United States’ Risk-Based Capital (RBC) requirements. These regulatory regimes are designed primarily to ensure insurer solvency and market stability, imposing strict limitations on asset allocation.
Under Solvency II, insurers must align their asset duration and liquidity closely with liabilities. Consequently, reinsurers are largely confined to low-risk, highly liquid investments, predominantly short-duration government bonds and investment-grade fixed-income instruments. While these conservative investment mandates significantly reduce risk, they also severely limit potential returns, particularly in low interest-rate environments, directly impacting reinsurers' profitability and investor returns.
High Capital Requirements and Complex Onboarding Processes
Beyond regulatory limitations, traditional pathways for reinsurance investment involve considerable hurdles related to capital and operational complexity. For example, direct participation in ILS or catastrophe bonds typically requires minimum investments ranging from $1 million to as much as $25 million, effectively limiting market entry to large institutional investors, family offices, and ultra-high-net-worth individuals. Even dedicated ILS funds generally enforce substantial minimum thresholds and restrict entry to accredited or institutional investors only.
In addition to high capital thresholds, prospective investors face rigorous and often lengthy onboarding processes. These include extensive accreditation and identity verification, comprehensive legal documentation, due diligence procedures, and compliance requirements, all designed to adhere to stringent investor protection standards and regulatory scrutiny. This complexity is frequently a deterrent to potential investors who might otherwise have appetite or capacity to invest in the asset class.
To summarise: Collectively, these barriers—both regulatory and practical—constrain market participation, narrowing the pool of available capital and restricting potential investor returns. The net result is a highly fragmented and less liquid investment landscape, accessible only to a narrow segment of specialised institutional investors.
How Crypto-Native Reinsurance Changes the Game
By leveraging blockchain rails, automated execution, and composable digital collateral, crypto-native reinsurance structures offer a more liquid, transparent, and capital-efficient approach to underwriting real-world risk
Regulatory innovation is a key enabler for tokenised reinsurance. Jurisdictions such as Bermuda and the Cayman Islands have introduced progressive regulatory frameworks and sandbox environments specifically designed to accommodate digital asset-backed reinsurance models (see Figure 1 in Appendix). These flexible regimes permit tokenised reinsurers to hold collateral in innovative, yield-bearing forms such as stablecoins or tokenised money-market instruments. This approach enables them to generate significantly higher returns on their float compared to traditional reinsurers, who are generally limited to low-yield government bonds due to stricter regulatory constraints.
Operational efficiency and transparency represent another substantial advantage. By leveraging smart contracts, tokenised reinsurers can automate premium collections, claims processing, and fund distributions, substantially reducing administrative overhead and minimising human error. This automation is particularly beneficial for parametric insurance policies—such as those offered by Ensuro—where claims verification relies on real-time data feeds and blockchain-based oracles, enabling near-instant settlement following predefined event triggers. The transparency provided by the blockchain also enhances investor confidence, as every transaction and risk exposure is auditable in real time.
Liquidity and composability are significantly improved by tokenisation. Unlike traditional ILS instruments—which typically lack liquid secondary markets—tokenised reinsurance positions can integrate directly into DeFi ecosystems, enabling the creation of secondary trading venues and collateralised lending pools. Investors can thus trade, hedge, or borrow against their tokenised reinsurance stakes, substantially increasing market depth and liquidity.
Several platforms are pioneering the on-chain reinsurance space, each offering unique models and benefits:
Why Now?
We are at a uniquely opportune moment for the emergence of structured yield products that bridge regulated real-world cash flows with crypto-native infrastructure. The maturity and robustness of DeFi, coupled with historically low yields in traditional crypto lending markets, have created substantial investor appetite for new, uncorrelated sources of returns.
Simultaneously, the traditional reinsurance market faces increased capital demands due to intensifying global risks, notably climate-related catastrophes, which have strained existing reinsurance capacity and driven premiums higher.
Alternative reinsurance capital has already seen rapid growth, surpassing $114 billion in 2024. Despite this, a significant protection gap remains, particularly in peak-risk regions. Tokenised reinsurance addresses this shortfall by unlocking global crypto liquidity, democratising investor access, and providing fresh capital to underwrite critical real-world risks. Supported by forward-thinking regulators in jurisdictions such as Bermuda and the Cayman Islands, tokenised reinsurance platforms can now structure innovative financial products that utilise yield-enhancing digital collateral, offering investors attractive risk-adjusted returns.
Looking ahead, tokenised reinsurance has the potential to revolutionise the insurance sector fundamentally. Imagine decentralised, global risk pools managed autonomously via decentralised autonomous organisations (DAOs), instantly settling claims verified through blockchain oracles. Investors worldwide could seamlessly contribute capital and diversify risk exposures programmatically, significantly enhancing global risk management efficiency. This scenario is ambitious yet realistic—the foundational technology and regulatory frameworks are already in place, and pioneering platforms are actively building the infrastructure necessary to turn this vision into reality.
In short, the pieces have come together to enable a transformation that not only modernises reinsurance but also establishes a powerful new asset class, one that is transparent, efficient, liquid, and universally accessible.
What’s emerging is not a replication of traditional systems, but a new market architecture, one that blends decentralised capital, automated underwriting, and compliant access to real-world risk. Reinsurance, once static and siloed, is being transformed into a composable, accessible financial primitive with broad relevance across the new RWA landscape.
Sources
RWA.xyz – Stablecoins Dashboard (Market Caps & On-Chain Metrics) RWA.xyz
RWA.xyz – Tokenized U.S. Treasuries Dashboard (Market Caps & Yields) RWA.xyz
Aavescan – USDC on Aave V3 Ethereum (Supply & Borrow Rates) aavescan.com
Precedence Research – Global Reinsurance Market Size & Forecast 2024-2034 Precedence Research
Gallagher Re – Reinsurance Market Report: Full-Year 2024 Results Gallagher
Swiss Re – Annual Report 2024 (Financial & Strategic Overview) Swiss Re
Berkshire Hathaway – 2024 Annual Report & Chairman’s Letter berkshirehathaway.com
Gallagher Re – Reinsurance Market Report: Full-Year 2023 Results (Apr 2024) Gallagher
Artemis – Alternative Capital as Main Reinsurance Inflow in 2024 (Apr 2025) Artemis
Meketa – Insurance-Linked Securities Whitepaper (Aug 2020) Meketa Investment Group
Swiss Re – FY 2024 Results Press Release (Feb 27 2025) Swiss Re
Swiss Re – The Essential Guide to Reinsurance (2013) Swiss Re
Aon – Reinsurance Market Dynamics Report (January 2025 Renewals) assets.aon.com
Appendix
Figure 1: Table below compares accepted capital, capital types and capital regime differences:
