1. What are tokenized catastrophe bonds?
Harneys, a Bermuda-based insurance law firm, and the tokenization platform dropRWA plan to issue tokenized catastrophe bonds in early 2027, according to details published on October 12. Each digital token would represent legal ownership of a cat bond, which passes hurricane, wildfire and earthquake risk to investors. The plan aims to widen access to a market where many offerings require at least $250,000.
A catastrophe bond, usually shortened to cat bond, lets an insurer move the financial risk of disasters onto investors in the capital markets. Putting the ownership record onchain changes how the bond is held and, potentially, how small a slice an investor can buy. It does not change the insurance risk the bond is built to carry.
The concept is moving from idea to plan. Harneys, a Bermuda-based law firm that specializes in global insurance, and the tokenization platform dropRWA intend to issue tokenized cat bonds in early 2027. In their design, a token would not be a loose claim on returns; it would stand for legal ownership of the cat bond itself. That distinction matters in a market where investors, insurers and regulators all care about who holds the legal title to a security.
The proposal arrives as the case for new sources of disaster capital keeps growing. Cat bonds are already an established tool, but the people behind this plan argue that the way they are distributed leaves room for improvement, and that tokenization could widen the pool of investors able to take part.
2. How large is the disaster-insurance gap?
Last year, natural disasters caused $220 billion in economic losses worldwide. Swiss Re estimates that insurance covered only $107 billion of that total. The remainder, roughly half, fell on households, businesses and governments, which had to absorb the damage with their own resources or with public money.
The shortfall is especially pronounced for floods, typhoons and wildfires. The Organisation for Economic Co-operation and Development reports that 91% of disaster losses in the Asia-Pacific region in 2023 were uninsured. The same body notes that thin claims histories and limited catastrophe models make these risks harder for insurers and reinsurers to price, particularly in places where the hazard is highest.
Pricing is central to the problem. An insurer that cannot estimate how often an event will occur, or how costly it will be, has difficulty offering coverage at a premium that both attracts buyers and covers the risk. Where data is sparse, the cost of capital rises or the coverage is simply not offered, and the protection gap persists.
3. Why are investors putting money into cat bonds?
Capital has continued to move into catastrophe bonds despite the scale of recent losses. According to the cat bond report from Artemis, the market had $65.6 billion outstanding in June. New issuance reached $11.3 billion in the second quarter, the largest quarterly total on record.
The appeal for the insurance side is straightforward. A cat bond transfers a defined slice of disaster risk to investors rather than leaving it on the balance sheet of an insurer or reinsurer. If the specified event does not occur, investors are paid as agreed. If it does, the money that would have gone back to them can instead be used to cover insured losses. That structure ties the investment to the weather or seismic activity rather than to the economic cycle, which is part of why institutions look to the asset class.
Record issuance suggests that demand from capital-market investors is not the bottleneck at the top of the market. The difficulty lies elsewhere: in reaching risks that are hard to model, and in the way the bonds themselves are sold.
4. How does a cat bond work in practice?
In a typical structure, investors hand over capital that is held in reserve and invested conservatively while the bond is outstanding. In return they receive regular payments for taking on the risk. The bond's documents define a triggering event, such as a hurricane of a certain strength striking a specified area. If no such event happens before maturity, investors get their capital back along with the payments they were promised.
If the trigger is met, some or all of the reserved capital goes to the insurer to pay claims, and investors absorb the loss. This is why the instrument is described as transferring risk rather than merely financing it. The investor is, in effect, acting as an insurer of last resort for a defined layer of losses.
Tokenization would sit on top of this arrangement as a record-keeping layer. The legal rights attached to the bond stay the same; what changes is the form in which ownership is evidenced and transferred. For the issuers, the attraction is that a digital record can be divided and distributed more flexibly than a traditional certificate held through a chain of intermediaries.
5. Who can buy cat bonds today?
The existing cat bond market is largely the domain of specialist funds and large institutions. Many offerings carry minimum investments of $250,000 or more, which puts them out of reach for most individual investors and for many smaller organizations that might otherwise be interested in a diversifying asset tied to insurance risk.
Harneys and dropRWA are considering a structure that would permit smaller beneficial interests in a bond. Tokens are well suited to dividing ownership into smaller units, since a single security can be represented by many digital units, each carrying a proportionate share. The firms have not suggested that the barriers disappear. Any such structure would still need to comply with securities, insurance and investor-protection rules.
That caveat is significant. Reducing the minimum ticket size is a legal and regulatory question as much as a technical one. A cat bond is a complex instrument, and rules designed to protect investors apply to who may be offered it and under what conditions. The planned Bermuda issuance would take place within that framework rather than outside it.
6. What does Harneys say tokenization can and cannot do?
Henry Tucker, chief executive of the specialist insurance group Hearns, addressed the question of whether tokenization turns disaster protection into something closer to speculation. He said it does not, because the capital involved is fully committed to a defined insurance risk. In an interview, he contrasted that with a wager against another party, saying: "You're not buying a right to get paid by somebody else who's bet the other way at the casino."
The point he drew is that the investor in a cat bond is not on one side of a bet with a counterparty. The funds are set aside to back a particular risk, and the bond's terms determine what happens to them depending on whether the triggering event occurs. A token that records ownership of that bond leaves that arrangement intact.
Tucker was equally direct about limits. Tokenization will not make hurricanes, floods or wildfires less costly, and it does not guarantee cheaper insurance for people living in exposed areas. The argument is narrower: a token that serves as the legal ownership record, combined with smaller units, could draw more investors into a market that exists to absorb extreme losses.
7. Which risks could benefit most?
Tucker pointed to flood and typhoon protection in Southeast Asia as examples of risks that conventional reinsurers can struggle to place. The difficulty is often a lack of claims data or uncertainty about how large losses could be. Those are the same conditions the OECD identifies as obstacles to pricing in high-risk areas.
In his description, a specialist underwriter could use a tokenized structure to raise capital for a single defined risk. The issuer would set out its assumptions and the return it offers to investors, and those who accept the terms would supply the money. Because the structure is built around one risk, it allows investors to see exactly what they are backing.
This is a different path from a broad reinsurance program in which many exposures are pooled. A targeted issuance may suit a risk that large reinsurers consider too uncertain to include in a diversified portfolio, but which a specialist who understands the local hazard is willing to underwrite.
8. Is there a public-sector precedent?
Cat bonds are not limited to private insurers. In May, the World Bank arranged $200 million of hurricane coverage for Jamaica. The new arrangement replaced an earlier transaction that paid out after Hurricane Melissa in 2025, which means the earlier bond functioned as designed when the country was struck.
Jamaica's finance minister, Fayval Williams, described cat bonds as "an important piece ensuring capital market access" for the country's resilience strategy. Her comment reflects how governments in disaster-prone regions view the instruments: as a way to line up financing before a catastrophe occurs rather than relying solely on emergency borrowing or aid afterwards.
The Jamaican example shows that capital-market disaster coverage has been used and has paid out. Supporters of the tokenized approach would say the next question is who else can be reached with the same mechanism, and at what scale.
9. What happens next?
The Bermuda issuance is planned for early 2027. Between now and then, the structure must be finalized and shown to meet securities, insurance and investor-protection requirements. The details that matter most are still open: how small the beneficial interests could be, who would be eligible to hold them, and which risk or risks the first bond would cover.
Readers watching the market can look at several indicators. One is whether the issuers publish the final terms and the investor eligibility rules. Another is whether the first tokenized bond attracts demand from outside the specialist funds and large institutions that dominate today's market. A third is whether the approach spreads to risks, such as flood and typhoon exposure in Southeast Asia, where protection has been hardest to arrange.
The wider backdrop is the gap between $220 billion of economic losses and $107 billion of insured losses. A tokenized cat bond will not close that gap alone. The experiment is whether a more accessible ownership record can bring additional capital to the risks that remain uninsured.