Bermuda Paves the Way for Captive Insurers with New Stablecoin Policy

The new policy permits Limited Purpose Insurers (Captive Classes) to utilize recognized stablecoins for various critical functions, including premium collection, claims payment, and as part of their capital base. Notably, this can be done without requiring additional Innovative General Business (IIGB) or Innovative Insurer (Long Term) (IILT) class licenses, subject to BMA approval.

This policy positions Bermuda at the forefront of digital asset integration within the insurance sector, offering captive insurers greater flexibility and potentially new efficiencies in their financial operations.

The BMA has clearly defined what constitutes a “Recognized Stablecoin”:

• It must aim to maintain a stable value relative to a specific fiat currency.
• It must be fully collateralized by fiat currency reserves or highly liquid assets.
• It must be redeemable from the issuer or the issuer’s agent on a one-to-one basis at any time.
• Its backing must be attested by a recognized auditor on a monthly basis, or even more frequently.

The BMA specifies that “highly liquid assets” are financial assets with maturities of 90 days or less as of the balance sheet date, capable of being converted into the pegged fiat currency with minimal loss of value under normal market conditions.

While the policy opens new doors, the BMA has established clear parameters to ensure prudent implementation:

• Permissible Assets: The permission is exclusively for recognized stablecoins that meet the strict definition outlined.
• Eligible Entities: This policy applies solely to Captive insurers. Commercial class insurers and captives that are consolidated into a BMA-regulated commercial insurer or insurance group are explicitly excluded.
• Portfolio Constraints: A crucial safeguard is the limitation that no more than 25% of an eligible entity’s capital base may consist of recognized stablecoins, unless expressly permitted otherwise by the BMA. This provides a balance between innovation and financial stability.
• Reporting Currency: To maintain consistency and clarity in financial reporting, the statutory reporting currency must remain in USD.

Captives interested in incorporating recognized stablecoins into their operations are required to submit a formal change in their business plan to the BMA. Explicit approval from the BMA is mandatory before any implementation.

The BMA has also stated its commitment to reviewing this policy after 12 months to assess its effectiveness and identify any necessary adjustments. This proactive approach underscores the BMA’s dedication to maintaining a dynamic, yet secure regulatory environment.

This new supervisory policy is a testament to Bermuda’s ongoing commitment to supporting responsible innovation within its insurance sector, further solidifying its position as a leading global financial jurisdiction. For more detailed information on application requirements, captive insurers are advised to contact their assigned BMA supervisor.