Twelve Years into Insurance

Karn is now in his twelfth year building technology in the insurance space.

The team's experience scaling the business toward a billion dollars in premiums revealed a deep disconnect between how people wanted to buy insurance and how the industry delivered it. The team responded by building a national insurance agency operating in all fifty states, and eventually stood up an insurance company from scratch, hiring executives who had run publicly traded insurers and working directly with reinsurance brokers and reinsurers along the way.

"We're amongst the few people on earth that have stood up an insurer from scratch and then also made the bridge directly into DeFi. And of those few people, most of them are on our team at this point."

Karn Saroya, CEO of Re

Reinsurance, From First Principles

Karn's explanation of reinsurance rests on the premise that though insurance companies promise to pay, a promise to pay also requires proof of the ability to pay. Reinsurance is the financial backstop behind that promise.

The market is enormous. More than half a trillion dollars in reinsurance premium sits beneath seven and a half trillion in global insurance premium.

"We are an insurance company for insurance companies, at the end of the day."

Why Onchain, Why Now

Re brings two strengths of onchain finance, transparency and verifiable capital, to the capital behind reinsurance. That approach is working. At the time of recording, Re had 51 reinsurance treaties across the United States, roughly 30 insurance company partners, and more than half a billion in business.

"It's not a toy anymore. It's really at the inflection point where this zooms to tens of billions in premium over the mid-term. The implication is that digital assets are going to be supporting tens of millions of business owners, people trying to get to work, people trying to buy homes."

The Capital Stack, and Who Takes the First Hit

The segment that landed most for the hosts was Re's first-loss structure. The stack has three layers:

• Re's own capital: Roughly $80 million of earned premium and equity sits at the bottom of the stack as the first-loss layer, absorbing portfolio losses before they reach depositor capital. It earns an annual return on equity in the mid-teens to low twenties.
• reUSDe: A mezzanine layer with quarterly, actuarially gated redemptions. It takes on some insurance risk in exchange for a higher spread.
• reUSD: The senior tranche, with instant redemptions. It takes on lower risk than reUSDe and has access to higher liquidity, but receives a lower spread as a result. It's the Re product with the widest DeFi integration so far.

The structure is designed so that Re does not have to rely on insurance capital becoming liquid before the underlying policies have run their course. Re's own capital absorbs portfolio losses first, while collateral is released over time as policies earn out. The differing liquidity and yield profiles for reUSD and reUSDe reflect where each sits within that structure.

"We've got this massive safety pool, which is our assets, earned premium, and our equity, that eats any volatility in the underlying insurance portfolio first. So we can credibly say that if we win, you win. If we lose, you probably are still going to win."

A Moat Built on Execution and a Balanced Book

Re's moat lies in the combination of capabilities required to connect onchain capital with the reinsurance market. The onchain components can be copied; the token structure, contracts, and mechanics are all visible. But replicating the model as a whole would require a competitor to build the regulated infrastructure needed to conduct reinsurance business and to develop the broker and insurer relationships needed to source it. Re has been approved as a reinsurance market with most of the major reinsurance brokers in the world.

The book is deliberately balanced, with minimal exposure to catastrophe risk. It focuses on lines of insurance in which losses are generally smaller and more predictable, such as auto, home, small-business commercial, and parts of workers' compensation.

"There's no circumstance here where you have a binary outcome. If a hurricane hits Florida, we're not going to show up and say we lost all of your money, because that's not the type of business that we write."

AI Underwriters and the 30-Cent Problem

Re already uses agents internally to ingest data, run actuarial analysis, draft underwriting write-ups, and recommend capital provisioning. But Karn sees the bigger unlock one level up as AI-enabled insurance companies sitting on top of programmable capital.

His example imagines a CFO whose AI system analyzes the company's financials, flags its most significant insurable risks, and finds coverage, matched behind the scenes with onchain capital supplied through Re and adjusted as needs change.

"What I just described is like 30 cents on the dollar in insurance: the expense load, the origination load, taxes and everything else that doesn't come back into the pocket of the policyholder. That's going to get squashed."

Reinsurance as a Capital Formation Engine

Where does Re fit into the real-world asset (RWA) movement, the push to bring offchain assets like treasuries and private credit onchain? Karn's view is that insurance and reinsurance could plausibly encompass 10% to 15% of all of DeFi at scale, because the asset class does something few RWAs can: it creates capital rather than merely absorbing demand.

"You stick a dollar of collateral in an account, you can now write four or five dollars of insurance business. That could find its way back into stables, into other digital assets. It ends up being a force multiplier on the aggregate amount of digital assets out there in a way that very few RWAs can do."

What to Watch on Re's Dashboard

Karn highlighted two metrics for evaluating Re's progress: total premium written and underwriting performance. Re publishes combined ratios across all of its reinsurance treaties. A combined ratio below 100 means the premiums earned on that business exceeded the total of claims and underwriting expenses. Re's active treaties all enjoy ratios in the 80s and 90s, indicating profitable underwriting.

Premium receivable provides another view, that of business already under contract but not yet collected. Those premiums arrive over time as payments come due. Re does not deploy the corresponding collateral until the premium has been received, avoiding a situation where it puts capital at risk before the insurer has paid.

Governance Modeled on Lloyd's

Cover Re is the first reinsurer to use Re's protocol to access onchain capital. The infrastructure is designed to eventually support other insurers and reinsurers as well. Karn compared Re's model to Lloyd's, in which multiple insurers operate through shared marketplace infrastructure and capital.

Governance with the $RE token is designed to emulate the Council of Lloyd's, allowing stakers to vote on acceptable counterparties, required collateral, aligned economics, and network fees.

Karn closed with the reason he calls reinsurance his life's work:

"This is civilizational technology. It enables risk taking everywhere by folks who want to take risks and build things. It is only natural that it ends up onchain."