The Bermuda Monetary Authority is drafting an amendment to the Insurance Act 1978 to implement its proposed Parametric Special Purpose Insurer (PSPI) class in the fourth quarter of 2026, and intends to publish comprehensive guidance at the same time. The timetable is set out in a letter to stakeholders responding to feedback on the Authority’s consultation on the proposed class. The Authority confirms that insurers currently writing parametric risk under other licence classes may continue to do so without any requirement to re-license or re-domicile that business into a PSPI. It says the proposed class is intended to complement existing insurance classes rather than disrupt existing operations. Existing Special Purpose Insurers seeking to reclassify as PSPIs may apply, and the Authority is considering whether introductory fee waivers for new PSPIs would apply to such reclassifications. It also notes interest from Special Purpose Insurers seeking to transact both indemnity and parametric business, which may be permitted case by case, taking into account the nature, scale and complexity of the activities proposed. Applicants would have to demonstrate that their prudential, operational and governance frameworks are adequate to manage both lines. On the scope of the regime, the Authority says it will prioritise the substance of the risk transfer over the contractual form, which may include contracts structured as reinsurance, derivatives or swaps, provided they meet the applicable statutory and regulatory requirements. All parametric contracts written by a PSPI must demonstrate insurance risk transfer characteristics and be supported by appropriate governance arrangements, transparent triggers and collateralisation arrangements. The Authority distinguishes the framework from the Innovative Insurer General Business regime, which it says remains the appropriate vehicle for insurers conducting business subject to the Digital Asset Business Act. Its current position on collateral is that eligible assets should be of sufficient quality, readily realisable and enforceable, including cash, cash equivalents and letters of credit. It is reviewing whether a limited expansion to other assets may be appropriate, with the objective of ensuring collateral is sufficient to meet obligations promptly following a trigger event. Applicants will be expected to demonstrate the integrity and reliability of their offerings, showing that the parametric trigger methodology is appropriately designed, that data sources are independent and reliable, and that settlement mechanics are transparent. Further guidance is promised on expectations for third-party validators and on governance arrangements relating to product suitability. The Authority also says it will issue guidance clarifying how the term sophisticated participants should be interpreted. On transaction approvals, its preliminary view is that transactions falling within a PSPI’s approved business plan will not require further pre-approval, while prior engagement will be required for proposed transactions falling outside those parameters.
