Harneys and dropRWA plan tokenized catastrophe bonds for early 2027

Harneys, a Bermuda-based law firm specializing in global insurance, and tokenization platform dropRWA plan to issue tokenized catastrophe bonds early in 2027, CoinDesk reported. Each token would represent legal ownership of the catastrophe bond, and the two are weighing a structure that could hold smaller beneficial interests, subject to securities, insurance and investor-protection rules.

Catastrophe bonds let insurers pass the financial risk of a hurricane, wildfire or earthquake to capital-market investors. The market had $65.6 billion outstanding in June, and new issuance reached $11.3 billion in the second quarter, the largest quarterly total on record, according to Artemis. Swiss Re counts last year's natural-disaster economic losses at $220 billion and insured losses at $107 billion, leaving households, businesses and governments to absorb the remaining $113 billion.

The gap is widest in Asia-Pacific, where 91% of disaster losses in 2023 were uninsured, according to the OECD. The organization also said limited claims data and catastrophe models can make it harder for insurers and reinsurers to price coverage, particularly in high-risk areas.

Henry Tucker, chief executive of specialist insurance group Hearns, told CoinDesk that flood cover and typhoon protection in Southeast Asia are the kind of risks that are difficult to place with conventional reinsurers, particularly when claims data is limited or loss estimates are uncertain. A specialist underwriter, he said, could use a tokenized structure to raise capital for a single defined risk and set out the assumptions and the return offered to investors.

Tucker also pushed back on the idea that a tokenized structure turns disaster coverage into a casual retail investment, since the capital is fully committed to a defined insurance risk. "You're not buying a right to get paid by somebody else who's bet the other way at the casino," he told CoinDesk.

The market the plan would sell into has been available largely to specialist funds and large institutions, and many catastrophe-bond offerings carry minimum investments of $250,000 or more. Smaller beneficial interests are the feature under consideration.