Bermuda regulator clarifies parametric

The Bermuda Monetary Authority (BMA) has confirmed that contracts under its proposed Parametric Special Purpose Insurer (PSPI) framework can be structured as reinsurance, derivatives, or swaps. The regulator stated it will prioritize the substance of the risk transfer over the contractual form, provided statutory requirements are met.

This clarification comes nine months after the BMA launched a consultation on the new regulatory framework. The authority has now published a stakeholder letter addressing key themes from the feedback. The PSPI class is designed to support Bermuda's alternative capital insurers that plan to adopt parametric business models.

Regulatory scope and contract forms

One key question from stakeholders was whether the PSPI regime would be limited to traditional parametric business transacted under insurance contracts. In response, the BMA said the framework is intended for structured, fully collateralized parametric risk transfer. The authority's focus will be on the substance of the deal, not its legal structure.

The BMA emphasized that the PSPI framework is distinct from the Innovative Insurer General Business (IIGB) regime. The IIGB class remains the appropriate vehicle for insurers conducting business subject to the Digital Asset Business Act. All parametric contracts written by a PSPI must demonstrate insurance risk transfer characteristics and be supported by appropriate governance, transparent triggers, and collateralization.

Continuity for existing operations

Respondents also sought clarity on whether parametric risks could continue to be transacted under existing insurance classes. The BMA confirmed the proposed PSPI class is intended to provide a specialized framework that complements, rather than disrupts, current operations.

Insurers currently writing parametric risk under other license classes may continue to do so. They will not be required to re-license or re-domicile that business into a PSPI. This provides continuity for the market.

Transition for existing special purpose insurers

The BMA clarified its position for existing Special Purpose Insurers (SPIs) looking to transition to the new PSPI classification. The authority will consider applications from existing SPIs seeking to reclassify as PSPIs. It is also considering whether any introductory fee waivers for new PSPIs may apply to such reclassifications.

The authority noted interest from SPIs seeking to transact both indemnity and parametric business. Such arrangements may be permitted on a case-by-case basis. Applicants would need to demonstrate that their prudential, operational and governance frameworks are adequate to manage both lines of business.

Next steps and implementation

The BMA said it will continue reviewing consultation feedback as it develops the final framework. It confirmed it is currently drafting an amendment to the Insurance Act 1978 to implement the PSPI class. This implementation is targeted for the fourth quarter of 2026.

Comprehensive guidance will be published at that time to help stakeholders handle the final requirements. The final framework aims to be fit-for-purpose for the evolving parametric risk transfer market.