Harneys and dropRWA are planning to launch a tokenized catastrophe bond early next year, according to CoinDesk, as cited by ChainCatcher.
Swiss Re data showed that natural disasters caused $220 billion in economic losses last year. Insurance covered only $107 billion of that total, with the remainder borne by households, businesses, and governments.
Catastrophe bonds let insurers transfer the financial risk of hurricanes, wildfires, or earthquakes to capital market investors. Artemis reported that the outstanding catastrophe bond market reached $65.6 billion as of June this year, while new issuance in the second quarter totaled $11.3 billion, the highest level ever recorded for a single quarter.
Tokenized structure planned on top of the traditional market
Harneys, a Bermuda law firm focused on global insurance business, and tokenization platform dropRWA plan to issue a tokenized catastrophe bond in which each token represents legal ownership of a catastrophe bond.
The structure is being built on top of the traditional market. Until now, catastrophe bonds have largely been sold to specialist funds and large institutions, and many products carry minimum investment sizes of $250,000 or more. The two parties are considering a structure that can accommodate smaller beneficial interests, but it would still need to comply with securities, insurance, and investor protection rules.
Funds would be tied to clearly defined risks
Henry Tucker of Harneys said the tokenized structure would not turn disaster protection into a casual retail investment. He said the funds would be used entirely to cover clearly defined insurance risks.
Tucker also said risks such as flood and typhoon protection in Southeast Asia can be difficult to place through traditional reinsurers. In those cases, specialist underwriters could use a tokenized structure to raise capital for a single, clearly identified risk.
The report also noted that the World Bank arranged $200 million in hurricane protection for Jamaica in May.