Consultation Paper - New Insurer Class - Parametric Special Purpose Insurance (2026-01-21)

Summary

This is a Bermuda Monetary Authority consultation paper proposing to amend the Insurance Act 1978 to create a new Special Purpose Insurer (SPI) sub-class called the Parametric Special Purpose Insurer (PSPI). The PSPI would provide a dedicated licensing pathway for fully collateralised (re)insurers writing parametric business, supplementing rather than replacing the existing SPI framework. It is a draft proposal open for industry comment, not yet in force.

• Scope: PSPI is defined as an SPI that writes fully collateralised (re)insurance and transfers risk via parametric (predefined, measurable loss event and payout) covers; reserved for traditional parametric business, while innovative parametric insurers remain under the BMA Insurance Innovation framework.
• Counterparties: Proposes broadening the SPI cedant requirement (currently non-affiliated, generally A- rated or better) to allow PSPIs to transact with other sophisticated cedants such as qualified regional/national corporates and experienced insurance buyers.
• Capital and collateral: PSPIs must be fully collateralised to an aggregate limit per contract equal to or greater than full exposure, using cash, cash equivalents and Letters of Credit; invested collateral must be in high quality, low risk assets; paid-up capital requirement remains $1.
• Governance and third parties: Governance must be commensurate with the insurer's nature, scale and complexity, with board composition meeting the Insurance Code of Conduct; external parties (claims assessors, consultants, technology providers) must be deemed sophisticated by the BMA.
• Structuring: PSPIs must demonstrate contractual certainty in governing documents; swap and derivative forms of executing parametric covers may be allowed case-by-case with BMA approval.
• Fees: Registration and annual business fees proposed to align with current SPI fees ($10,000 restricted, $15,000 unrestricted), with fees waived for structures licensed in the PSPI class's first year.

The BMA is seeking industry feedback on specific questions, including impacts on the Bermuda ILS market and concerns with the current SPI framework as applied to parametric business. If enacted, the PSPI class is targeted for addition to the Insurance Act 1978 in 2026 with an effective date before end of Q2 2026, to be followed by a separate technical guidance consultation.

Key obligations

• Interested stakeholders must submit comments on the consultation proposals to SPInsurer@bma.bm by 27 February 2026
• If the framework is adopted, PSPIs will be required to be fully collateralised to an aggregate limit per contract equal to or greater than their full exposure, using cash, cash equivalents or Letters of Credit
• If adopted, PSPI governance must be commensurate with the nature, scale and complexity of the insurer, with board composition sufficient under the Insurance Code of Conduct
• If adopted, all external parties used by a PSPI (claims assessors, consultants, technology providers) must be deemed sophisticated by the BMA
• If adopted, PSPIs must maintain contractual certainty in governing documents for each parametric transaction

Applies to

Special Purpose Insurers, Bermuda Alternative Capital (Re)insurers, prospective Parametric Special Purpose Insurer registrants, insurance industry stakeholders

Deadlines

• 27 February 2026: Deadline for market stakeholders to submit comments on the consultation paper
• 2026 (target effective date before end of Q2 2026): Intended timing for the PSPI class to be enacted into the Insurance Act 1978
• end of Q2 or early Q3 2026: Approximate timing for a subsequent technical guidance consultation following the effective date of the Insurance Act amendments

Related documents

• This document amends Insurance Act 1978