Re’s value equation is fairly simple: depositors either provide capital and mint assets (reUSD or reUSDe) or acquire those assets on the secondary market. Those assets earn yield: for reUSD, a blended yield of SOFR and the seven-day trailing average of the sUSDe yield rate, plus a protocol-determined spread; for reUSDe, SOFR plus a protocol-determined spread.

That spread (2.5% for reUSD and 8.5% for reUSDe, as of August 2026) is provided by Re’s yield source: real reinsurance activity. Depositor capital provides collateral with which Cover Re, Re’s licensed reinsurance partner, signs new reinsurance contracts. The yield from those contracts flows back to Re, and thence to holders of reUSD and reUSDe.

Returning that yield depends, of course, upon the performance of those contracts. So how is Re’s insurance strategy structured to keep that yield flowing? What goes into deciding which opportunities depositor capital will back? Let’s explore.

How Reinsurance Works

From a financial perspective, reinsurance is simple: primary insurers (those who sell insurance directly to customers) pass on a portion of the risk they’re taking on to reinsurers. They do so for multiple reasons: to smooth out earnings, to protect themselves from extreme outcomes, and to provide themselves with capital relief.

Insurers charge premiums to customers; in exchange for taking on that portion of risk, a reinsurer will inherit some of those premiums. Provided that those premiums exceed the costs incurred on the policy (payouts plus business expenses), the reinsurer will walk away with a profit.

Whether or not that happens depends in substantial part on a reinsurer’s strategy. And a substantial portion of reinsurer strategy is choosing its mix of risk.

Choose Your Risk

Reinsurance risk profiles exist across a spectrum between two poles: everyday stuff on one end, and catastrophes on the other.

Everyday losses cover events like car accidents, workers’ compensation, damage to a home, and so on. Across a given policy, such occurrences can be expected to happen frequently, but the claims are relatively small, they carry little or no correlation with each other (for example, a single car crash typically won’t generate a rash of other car crashes), and decades of loss data make them relatively predictable. Lower magnitude of risk often means lower premiums for the reinsurer, but it also means more predictable and more consistent results.

Catastrophe losses cover events like hurricanes, earthquakes, or wildfires, and they behave in a near-opposite way. Whereas everyday losses may happen every day (it’s in the name!), catastrophes happen rarely. But when they happen, losses are huge, and they’re inherently concentrated: the same event hits large geographical areas all at once. The premiums to be earned are greater than those from safer policies, but the results are more volatile, and the worst-case outcome is far worse.

Every reinsurance contract a reinsurer writes is a calculated bet. The closer the contract sits to the catastrophe end of the spectrum, the less safe the bet, and a bet on a catastrophe policy can land a stiff fiscal punch on a reinsurer if the covered event comes.

The Importance of Diversification

Reinsurers rarely hold only a single reinsurance contract at a given time. They almost invariably bundle together numerous contracts into their overall portfolio. A critical subcategory of the aforementioned risk profiles, when applied across a reinsurer’s overall portfolio, is diversification.

Take everyday losses, for example. These tend to be small in magnitude. A reinsurer can write a lot of them, and it can vary them: by line of business, and by geography. A given US reinsurer could (and often does) write contracts across any number of insurance categories in dozens of states.

The benefit of doing so: losses will rarely be correlated with each other. An extreme winter that causes an unusually bad auto insurance year in Maine won’t impact auto insurance losses in California, and it won’t correlate with workers’ compensation losses anywhere. If a reinsurer were to have concentrated heavily on auto policies in Maine, however, then that one bad winter would have had a much greater impact upon its portfolio (and balance sheet) as a whole. Risks are less concentrated.

Catastrophe losses are, again, the opposite. They’re inherently concentrated. Hurricane policies, for example, will cover large areas. If an area gets hit, that means a great deal of losses at the same time. Geographic diversification offers less protection; bad hurricane seasons often impact vast areas of hurricane-prone coastline (say, the US eastern seaboard), and a dry summer can increase the fire risk across wide swathes of territory.

And because catastrophe policies come with an inherently high ceiling on losses, each constitutes a larger slice of the portfolio pie. A single catastrophe may have a major impact upon a reinsurer’s financial big picture.

Re’s Strategy

Re’s goal is to deliver consistent yield to its holders. That means pursuing a strategy which prioritizes steadier, lower-volatility returns and consistent results: a focus upon low-volatility, everyday policies, diversified across a range of business lines and a wide geographical area, with minimal exposure to catastrophe risk.

Re’s portfolio has been consistently spread across five different categories of business: homeowners, commercial auto, small business, workers’ compensation, and personal auto. All are distinct from one another; unexpectedly high losses in any one are unlikely to correlate with high losses in any other. And these policies are spread across nearly every US state, reducing the likelihood a single loss event in any one, or two, or five locations will have an outsized impact upon the overall portfolio.

Full details on Re’s portfolio and strategy can always be found on the Re App.