Tokenization
The fractionation of a reinsurance contract into tradable tokens, making an illiquid asset liquid without changing the nature of the risk.
Tokenization turns a reinsurance contract, a right to a future, contingent cash flow, into an asset that can be split into thousands of tokens. Underwriting of the risk opens up to capital that had no access to it, and a secondary market appears. Its real contribution is financial: it reinvents the financing of insurance, not insurance itself, which remains a craft of selection, assessment and pooling. It abolishes neither the oracle problem, nor basis risk, nor selection. It introduces a new risk, the procyclicality of capital tradable in real time, liable to flee at the moment of loss.
Textbook case: a reinsurance token brought to market draws investors seeking a decorrelated yield, but someone must still decide which risk to accept and verify that the event occurred.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.