From Buying Reinsurance to Building Re

Karn first encountered the world of reinsurance as a buyer. After his earlier e-commerce startup was acqui-hired by Shopify, he co-founded Cover, a mobile insurance app that allowed people to shop for insurance by taking photos or videos of what they wanted to cover. Over the next seven years, Cover first grew into a national insurance agency; it ultimately became a managing general agent (MGA), an agency that underwrites and administers policies on behalf of insurers.

During his time with Cover, Karn purchased reinsurance through brokers. As Karn put it, what reinsurers were really selling him was balance sheet capacity: the ability to write more insurance policies than Cover could have written on its own. In exchange for premiums, the reinsurers took on part of the risk and promised to pay the losses the contracts covered. That promise gave Karn the idea for Re: to make the assets behind those promises verifiable.

“There’s an entire world of digital assets out there that could be pledged as collateral to back up the promises that these reinsurers are making to me and to other customers.”

— Karn

Today, Re operates more than 50 reinsurance programs with more than 30 insurers across 48 states, backing nearly a million policyholders. Re has reached more than $520 million in bound premium since inception.

Where Reinsurance Returns Come From

The yield available onchain today largely moves with one market or another. Francesco pointed out that much of the RWA yield available comes from US treasuries, crypto funding rates, and arbitrage; treasury yields depend upon interest rates, and the latter two follow traders’ appetite for leverage. If the holdings in a portfolio all depend upon the same small number of market forces, they can all fall due to the same market events.

Reinsurance returns, on the other hand, depend upon something different: reinsurance treaty performance. Interest rates, stock prices, and crypto markets have little direct impact, for example, upon the financial outcome of a commercial auto or workers’ compensation policy. If premiums exceed the combination of claims and costs, the policy makes a profit, and market events have little impact upon that.

“You have a million little arrows moving in different directions that give you this law of large numbers, frequency oriented business that is baseline just different from traditional capital markets.”

— Karn

That’s what makes reinsurance performance largely uncorrelated with the performance of other markets. A yield source like that can help diversify a portfolio that’s otherwise built mostly on market-driven yield.

How Re Chooses Its Risks

The law of large numbers that Karn describes fits best into a particular type of insurance strategy: a large number of small, diversified risks that avoid concentration. Catastrophe reinsurance is on the other end of the spectrum; it deals in highly concentrated risk, as a single hurricane or earthquake can trigger thousands of policies at once and generate severe losses. Catastrophe policies pay higher premiums to compensate for this, but heavy catastrophe exposure inherently means higher volatility, and a single bad catastrophe year can have a dire impact upon a reinsurer’s finances.

Karn said that Re deliberately took the steadier path even though it meant potentially leaving some money on the table:

“We actually could have made a lot more money the last couple of years if we had titrated in catastrophic risk. And so that’s, as you described, way higher margin, but higher variability. And though it is a source of additional uncorrelated return, the severity of those outcomes could wipe out capital.”

— Karn

Reinsurance has traditionally relied heavily upon institutional capital to underwrite new contracts. Re sources capital from DeFi instead; this meant asking regulators, insurers, and DeFi capital allocators to trust an entirely new model, and Karn said that Re’s strategy had to send the message that it would be around for the long run. Choosing risks with more predictable results was part of making that case.

That doesn’t mean avoiding catastrophe risk in its entirety; Re’s portfolio has modest exposure to catastrophe today, and Karn said that catastrophe risk could make sense as a small component of a larger profile alongside plans to limit potential losses and pass on some of the risk to other reinsurers.

That same degree of selectivity applies across the rest of Re’s portfolio. Re looks at each line of business on its own merits; when pricing for a particular line no longer makes sense, business is found elsewhere or the capital is left unallocated. Writing poorly priced business just to put capital to work would endanger margins.

Re’s Own Capital Takes the First Loss

Emphasizing smaller risks and a diversified portfolio makes portfolio-scale losses a good deal less likely. But no reinsurance strategy can eliminate the possibility altogether. Should losses occur, it matters to holders of reUSD and reUSDe, Re’s yield-bearing tokens, where the impact of those losses would be first felt.

Premiums are the immediate loss layer: they’re priced to absorb claims and expenses and still produce a margin. Underwriting loss occurs when claims and expenses exceed those premiums instead. In the event that portfolio-wide treaty performance has a poor year, Re’s own accumulated capital and reserves stand as a first-loss layer to absorb potential losses before either token is impaired. As of October 2026, that layer stands at $77 million.

“Core to our philosophy here is incentive alignment. And so you can see on chain that we’ve got quite a bit of our assets and all of our equity kind of tied up in first loss position. So we eat our own cooking and we’ll continue to do so to give the market comfort as we scale up.”

— Karn

What You Can See Behind the Yield

All of the above depends upon an offchain business. Cover Re SPC Ltd., Re’s reinsurance company, operates the reinsurance side, and revenue from underwriting flows back to Re Protocol to support yield for holders. Those holders may, understandably, be interested in how Cover Re is performing. In traditional reinsurance, outsiders typically can’t see into the operations of any given provider; as Karn put it, in fact, that opacity is a big part of the reinsurance industry’s business model.

Re takes the opposite approach. A full suite of protocol metrics, including onchain and offchain reserves, deposits into the protocol, reinsurance strategy, portfolio performance (down to the level of the individual treaty), and more, is published on the Re App and updated daily.

“You can see where all the capital is, you can see how it’s encumbered.”

— Karn

Furthermore, Grant Thornton Attest (Cayman) LLP audited the 2024 and 2025 financial statements of the Cover Re portfolio that Re’s capital backs, and Re has published the results. Audited financial statements give Re’s depositors access to the level of reporting that institutional investors expect.

Why DeFi Integrations Matter to Insurers

Francesco asked Karn about reUSD’s Solana integrations with Kamino, Jupiter Lend, and Exponent. Integrations such as these allow reUSD to fit into DeFi’s standard capital flows; they allow holders to lend it, borrow against it, or separate its yield from its principal, rather than just holding it. More integrations means more uses for reUSD, allowing more routes for capital inflow.

Karn’s point was that the same integrations matter on the insurance side:

“This is turning our product into basically the insurance dollar, like the insurance dollar primitive for a trillion dollar market. And if you play this forward, if the global insurance market wants access to on-chain capital, it’s way, way easier for them just to use us and be plugged into everything immediately versus trying to replicate the BD effort, the integration efforts, the infrastructure that’s necessary.”

— Karn

The Team That Brings In the Business

Sourcing the capital is only the first part of the job; from there, Re needs to find the contracts to back with that capital. Reinsurance operates on track records and relationships, and Re was asking insurers to effectively work with a new model of reinsurance. Toward that end, Re hired insurance personnel with extensive experience and established industry relationships.

When Francesco asked how Re has approached growth, Karn pointed to the insurance side as a category in which Re had done particularly well. He gave much of the credit for this to the insurance team:

“What we’ve been able to do is build out a team that has the domain expertise, the network access, the experience managing multi-billion dollar books of insurance business, brought them in-house, and now we have them out in the world explaining our model, showcasing this as a novel way to capitalize the insurance businesses of the customers that we’re approaching.”

— Karn

A Capital Market for More Reinsurers

The Resilience Foundation, which operates the Re Protocol, has deployed $165 million to Cover Re in 2026; this began with an initial investment note of $100 million in April, followed by an additional $65 million in October.

Capital deployed through the notes is sent offchain, where Cover Re converts it from stablecoins into US dollars and uses it to back new reinsurance contracts. Payments on those notes flow back onchain to support yield for holders of reUSD and reUSDe.

Karn noted that Re currently does business with reinsurers beyond Cover Re via retrocession, reinsurance for reinsurers. His ultimate aim is for additional reinsurers to access onchain capital through Re’s infrastructure. He pointed to Lloyd’s as a model for that shared marketplace:

“What you would expect is that this protocol that we’ve created behaves like Lloyd’s. Lloyd’s is a big pot of money. It has insurance companies over top of it and infrastructure that serves those insurance companies.”

— Karn

Bringing It Together

Karn described what Re has demonstrated thus far: that the traditional insurance industry can source capital through onchain assets, and that the system connecting the two is working.

“We’re showing the world that digital assets and the stablecoin DeFi markets are actually accessible. There’s a pathway. It’s been proven and it can scale in a significant way.”

— Karn

Listen to the full conversation on Castle Labs.