Bermuda Bma Launches Parametric Special Purpose Insurer (pspi) Consultation

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The Bermuda Monetary Authority (BMA) has now launched its awaited consultation process that proposes a dedicated regulatory framework for a new Parametric Special Purpose Insurance (PSPI) class of company (a Parametric Special Purpose Insurer).

As the island’s financial market regulator, the Bermuda Monetary Authority (BMA) aims to stimulate innovation within established sectors and this new class of insurance company sees it looking to secure an even greater role for Bermuda in what remains seen as a key area with growth potential, parametric risk transfer and parametric insurance-linked securities (ILS).

We first reported on this move last October, when the BMA was finalising plans to develop a new insurer class focused on parametric risk transfer and Taijaun Talbot, Assistant Director, Supervision (Insurance) BMA, announced an impending consultation process at this ILS Bermuda Convergence conference.

The BMA later confirmed in November that it was planning to release a consultation paper in the fourth quarter of 2025 regarding the establishment of a new special purpose insurer (SPI) that will primarily focus on the use of parametric triggers.

It’s taken a little longer than originally targeted, but now the consultation paper has been made public.

The BMA explained that the Parametric Special Purpose Insurer (PSPI) class of company is “designed to support Bermuda alternative capital (re)insurers that plan to adopt parametric business models.”

The regulator further said that the PSPI will also provide “an additional pathway for prospective registrants interested in entering the Bermuda market.”

The BMA believes that a “fit-for-purpose” PSPI framework will be “instrumental in growing a robust parametric insurance market.”

Further explaining that, ” The Authority’s view is that the development of a parametric insurance market will enhance policyholders’ resilience in today’s rapidly changing risk landscape. The financial impact of protection gaps on policyholders from non-insured losses continues to grow. By leveraging a recognised PSPI framework, the Authority plans to intensify its efforts to close the gaps associated with climate change and emerging risks.

“This evolution aligns with the BMA’s role in providing a credible and transparent regulatory environment that supports the continued innovation and resilience of Bermuda’s insurance sector.”

With Bermuda the dominant location for transacting insurance and reinsurance on a fully-collateralized basis to create insurance-linked securities (ILS) investment opportunities, as well as the home to the majority of catastrophe bond issuance, the creation of a tailored structure for those seeking to launch parametric businesses backed by alternative, third-party capital market investors is a natural step.

Importantly, existing registrants in Bermuda that already offer parametric coverage to clients will not need to reclassify their insurers such as SPI’s, this new PSPI class is seen as an additional pathway for prospective new registrants interested in utilising the Bermuda market for parametric insurance and reinsurance.

With the existing Bermuda Special Purpose Insurer (SPI) regime having catalysed the island’s dominant role in catastrophe bonds and ILS, the BMA said it is now “leveraging its established SPI framework to further the jurisdiction’s efforts to address the growing protection gap linked to climate-related and emerging risks that are not adequately covered.”

The regulator explained, “The nature, scale and frequency of Natural Catastrophe (Nat Cat) risks are evolving globally because of numerous factors, including those related to climate change. The protection gap for non-insured losses is widely reported to be continuously growing, and the financial impact on policyholders is intensifying. This is further compounded by emerging non-catastrophe risks, such as cyber risks. The Authority has noted the increased use of parametric covers in the (re)insurance market and views the parametric market as a supplemental product for the indemnity market. It is clear that parametric coverage can help safeguard policyholders in an intensifying risk landscape.”

Further adding that, “Parametric covers structured in a prudent and pragmatic manner can offer protection that can supplement the needs of policyholders where traditional indemnity covers do not adequately address their needs. In addition, parametric coverages offer features that enhance resilience after a significant loss event. For example, parametric coverages have an accelerated payout process, are customisable and include coverage of non-physical damages.”

The Parametric Special Purpose Insurer (PSPI) class is designed to underwrite fully-collateralised insurance and reinsurance business that transfers risk using a parametric trigger.

The new PSPI license has been designed to supplement the existing SPI framework, the BMA explained, to allow for parametric covers within a fully collateralised framework, while maintaining the core pillars of the existing SPI framework with specific caveats associated with the parametric insurance market.

It is designed to be “fit-for-purpose” for parametric risk transfer business, while offering “a pragmatic regulatory environment for market participants to become licensed and operate in,” the regulator continued.

The new PSPI class is reserved for entities that want to underwrite traditional parametric business only, while innovative re/insurers that want to write parametrics will remain under the BMA’s Insurance Innovation framework.

The PSPI will also allow for swap and derivative forms of executing parametric covers on a case-by-case basis, the BMA said, with approval required.

There will be both restricted and unrestricted licences of PSPI available, just like with the SPI, while the fees will be aligned with them at $10,000 and $15,000 respectively.

Notably for those in the parametric space that have been considering establishing fully-collateralised business structures, for the first year that the PSPI class is established the BMA will waive any fees, making it even more efficient to set up and get running in Bermuda.

The target is to add the PSPI to the existing insurance regulations before the end of the second-quarter of 2026 and the BMA said that after the initial consultation period there will be an additional consultation period focused on technical guidance for stakeholders, with a goal to have completed that by early Q3 2026 at the latest.

The PSPI will cover both insurance and reinsurance use-cases, across parametric and also index-trigger transactions and can be collateralised by cash or cash equivalents, as well as letters of credit from recognised financial institutions.

The new Parametric Special Purpose Insurer (PSPI) will provide an efficient way for those wanting to transact in pure parametric and index-trigger insurance and reinsurance arrangements to domicile in Bermuda.

It may not be suited to the growing wave of hybrid parametric deals, that utilise indemnity trigger features as well. That is perhaps the fastest growing are of parametrics, in premium volume terms, as the market is increasingly finding ways to bring the features of parametric risk transfer to more cedents by integrating them into more traditional contract structure forms.

The consultation paper seems to suggest a different license may be needed for that, while the PSPI will have a more pure focus on parametric instruments.

Bermuda BMA launches Parametric Special Purpose Insurer (PSPI) consultation was published by: www.Artemis.bm
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