Bridging the Gap: How Reinsurance is Going On-Chain with Bitcoin

Welcome back to Market movers.

The opening bell live from the New York Stock Exchange.

With markets facing sharp sell-offs, the CMC Crypto fear and greed index is now showing signs of extreme fear, but there's still a world of opportunity in blockchain as well as tokenization.

One key opportunity is in reinsurance a financial arrangement where one insurance company transfers some or all of its risks to another.

Now reinsurance is Moving on, chain bridging with crypto through tokenization, and this does open the door for retail investors as well as smaller institutions who were previously shut out to participate in this market.

Joining me here at the New York Stock Exchange is Steven Stamberg, CEO and co-founder of David, the first insurer to hold all regulatory capital in Bitcoin.

Stephen, great to have you here.

Thank you so much for joining us.

Pleasure to be here.

Thank you.

So for people who are Watching this right now and they're wondering how crypto as well as reinsurance are coming together.

Can you walk us through this?

Sure.

So first I'd say the nice thing about the reinsurance industry is we're not really affected by what's going on in markets and in fact, coming from markets into reinsurance, past performance is indicative of future results because it's all based on actuarial studies and history, so it's just very stable cash flows, which is why it's attractive.

And as you mentioned, we are seeing a selloff across equities, and we are seeing right across the board when it comes to the crypto majors.

But of course when we're talking about the benefit of bringing reinsurance on change, can you tell us about this?

Sure, so I think what we're doing is putting the balance sheet on change by bringing Bitcoin.

We're just trying to build a bridge between the two.

Everyone talks about convergence, and I think part of the reason you're seeing Bitcoin, you know, one of the downsides of the convergence, you now have options, you have leverage.

I'm surprised anyone is surprised that there's this much volatility.

On an already volatile asset class, so the reinsured industry needs capital, and people that are long term holders of Bitcoin institutions want to return.

So we're just trying to marry the two and build a bridge because while crypto and trad fire converging, everyone's forgotten about this multi-trillion risk asset class called insurance.

So we've started by just keeping the addressable market in dollars and not on the blockchain.

Reinsurance doesn't want to be innovative that way.

But it needs capital, so we've allowed our regulators allowing us to hold Bitcoin as an admitted asset.

So after a haircut, it's just cash.

We dollarize it then we can write whatever sort of risk that we'd like to do.

Yeah, and with opportunity comes risk.

So tell us about the risks.

So I think the risks of reinsurance, it's really, you know, it depends on what it's up to you.

I mean it's a massive multi-trillion market.

There's life insurance, then there's property and casualty, which is everything else.

There's insurance, which is B2C, I insure you, or there's reinsurance, which is we're focusing on large pools between insurer to insurer.

So you can then tailor it depending on your risk appetite, what sort of risk you'd like to get in dollars.

And when you're talking about what you're doing right now, how do you plan to scale moving forward?

So we have our own capital.

My co-founder, we've worked in a crypto exchange before and before that I had a trafi group.

We have a lot of our own capital and then we're talking to a lot of institutional holders that are Sitting on their Bitcoin that aren't do anything with it and it's already a volatile asset class.

You don't need to put more leverage or more options on top of it, especially with what we're seeing, but why not just use it as capital towards reinsurance and just you decide the risk and we set up our structure that we can manage that on behalf of others.

Yeah, and based on what you just said, there have been questions about yield when it comes to Bitcoin.

So what do you make of the landscape as we head into your and beyond?

Well, I'd say if you look at Bitcoin just as an asset, people liken it to gold, and it is classified as a commodity.

People don't invest their gold, so I, you know, to the extent that people are trying to invest Bitcoin and then try to get more leverage on top of it, again, I'm not surprised at some of the results that we're seeing in the market.

It's just a Deleveraging, but then if you look at just doing something like reinsurance, which you get as an admitted asset in an industry with very stable dollar returns, that's an interesting institutional use case.

So I think the market's still new.

I don't think there's a lot of options of what you can do with this asset class, but I think this is an example of how we're trying to be creative and solve two problems.

OK, Stephen, well, thank you so much for walking us through this, and thank you so much for joining us here on FinTech.