> For the complete documentation index, see [llms.txt](https://docs.re.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.re.xyz/risk-controls-and-what-can-go-wrong/risk-overview.md).

# Risk overview

## Risk, Controls, and What Can Go Wrong

*Note: full details of Re’s reinsurance portfolio can be found at* [*https://app.re.xyz/transparency*](https://app.re.xyz/transparency)

Reinsurance is inherently the practice of insurance companies paying premiums in order to pass on risk to reinsurers. That risk can be subdivided into a number of categories.

### Tail Risk

Tail risk is the risk that losses turn out to be worse than expected in any given line of business. This can happen by two paths:

* Tail length = how long it takes for losses to fully emerge and settle
* Tail width = how bad losses can become in extreme scenarios

Let’s subcategorize that a little further!

* Thin tail (e.g., personal auto insurance): losses are predictable and tend to have little variance
* Fat tail: (e.g., catastrophe insurance): losses can be extreme and far worse than expected
* Short tail (e.g., auto collision): claims are reported and settled quickly
* Long tail (e.g., worker’s compensation): claims take a long time to fully emerge and settle, and the full cost might not be known for years

Re’s investment strategy minimizes tail risk by focusing chiefly on thin-tailed lines of reinsurance, with minimum exposure to catastrophic risk.

### Correlation Risk

Correlation risk is the risk of being too heavily exposed to a single line of business, geography, insurer, or type of event. Even a portfolio that looks diversified can still be vulnerable if the wrong variables are correlated.

This, too, can be subcategorized. Some examples include:

* **Event correlation:** the risk of multiple lines being hit simultaneously by the same event. For example, an earthquake won’t just generate homeowners claims; it’ll also generate claims for auto insurance, liability, and so on.
* **Geographical correlation:** the risk of excessive geographical concentration producing events that affect many policyholders simultaneously. A reinsurer concentrated in Florida, for example, is highly vulnerable to hurricanes.
* **Economic correlation:** the risk of a financial crisis generating claims across multiple lines.

Re minimizes correlation risk by focusing on an intentionally diverse array of reinsurance lines and geographies.

### Liquidity Risk

Liquidity risk is the risk of the reinsurer not having enough cash on hand to pay claims when they come due. Reinsurers can suffer financial losses via being forced to sell illiquid assets at a loss in order to pay claims on time, and those losses can risk them failing to pay out claims altogether.

A reinsurer that fails to pay out claims in a timely manner can face termination of contracts with insurers, which can compound a liquidity crisis by necessitating the reinsurer to return the contract premiums. It can also make the acquisition of future business with insurers more difficult, thereby further depriving the reinsurer of capital. Re materially reduces liquidity risk by sequestering collateral in Regulation 114 trust accounts for the benefit of the ceding insurer.

### Oracle/Pricing Risk

Oracle/pricing risk is the risk that oracles provide the wrong data, whether by manipulation, delays, or simple inaccuracy, leading to decisions made on bad data. This can result in losses for holders or the protocol.

Re maintains its own oracles for reUSD and reUSDe. These are updated daily and reflect the current price at which the protocol will mint or redeem each token.

***

<sub>*For educational and informational purposes only. Nothing on this Site is investment, financial, legal, or tax advice, or an offer, solicitation, or recommendation to buy, sell, or hold any digital asset, including reUSD and reUSDe. Yields are not guaranteed and all figures are illustrative, not a promise of return; past performance is not a reliable indicator of future results. Digital assets involve significant risk, including total loss of principal — the Tokens are not bank deposits and are not insured by any government agency. The Tokens are available only to eligible non-U.S. persons in permitted jurisdictions and are subject to KYC/AML requirements. The binding terms of the applicable agreements govern and prevail over this summary. See our full*</sub> [<sub>*Disclosures*</sub>](https://re.xyz/disclosure) <sub>*for important additional information.*</sub>\
\ <sub>*Cover Re SPC is unaffiliated with Resilience Foundation. The protocol governs token issuance and capital routing. The reinsurer operates independently under CIMA oversight.*</sub>