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Filling The Coverage Gap – Emerging Risks And Innovation In Bermuda

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Recent insurer registrations reported by the Bermuda Monetary
Authority (BMA) show that Bermuda continues to deliver on its
established reputation for finding innovative solutions for
capacity shortages. Four factors underpin the success story:

  • Bermuda’s established reputation
    for responsible regulation of complex emerging risks.
  • Bermuda’s recently-developed
    reputation for responsible regulation of digital assets
  • The development of a “regulatory
    sandbox” for innovative and experimental uses of technology in
    the conduct of insurance business.
  • Innovative use of technology in
    electronic trading and matching risk and capital.

Emerging risks and innovation in Bermuda


Crypto-assets?are a new and rapidly expanding asset class touted
with a total?market capitalisation of $300 billion.? The industry
has been described as suffering a “dramatic” lack of
insurance capacity, which is of such significance as to represent a
critical obstacle to the mass adoption of crypto-assets as a store
of value and medium of exchange. Due to the?highly
specialised?nature of underwriting?the risk associated with crypto
assets,? few insurers?operate in the sector.??

Bermuda has led the way in aiding industry unlock capacity in
this challenging area. Early in 2020, the BMA registered Nakamoto
Re, a Class 1 (single-parent captive) insurer reportedly providing
US$200 million of liability coverage to the US-based Gemini
crypto-currency exchange in respect of its cold wallet custodial

Nakamoto Re was followed by the registration of a small
commercial insurer, Evertas, which is expected to issue policies
for theft or loss of crypto-assets.

More recently, in May 2020, Relm Insurance Ltd. was registered
as a Class 3 (captive) insurer whose business plan reportedly
includes insurance of cryptocurrency risks.

Lawful cannabis businesses

Crypto-assets are not the only emerging risk in which Bermuda is
demonstrating its ability to unlock new capacity. Following the
BMA’s Notice of 12 November 2019, confirming an in principle
no-objection to the insurance of overseas cannabis businesses that
are lawful at all levels (including federal) within the countries
in which they are conducted, at least one overseas cannabis
business has registered its own captive in Bermuda, namely, Canopy
Growth Corporation Insurance Limited, a Class 2 insurer.
Furthermore, it is understood that Relm Insurance Ltd., referred to
above, plans to write cannabis- and hemp-related risks.

The BMA’s Notice was a helpful and pragmatic response to
demand for coverage in this developing area. In providing a
“green light” for coverage of lawful businesses, the
regulator also demonstrated its commitment to the detection and
prevention of money-laundering by emphasizing the need for
registrants to understand fully all applicable foreign laws and to
take appropriate precautionary measures, including conducting a
risk assessment of their clients.

Digital assets and insurance/use of the “regulatory

In June 2020, Nayms Ecosystems was registered under the
Insurance Act 1978 as an innovative general business insurer (IGB)
and as a Class M digital asset business licensee under the Digital
Asset Business Act 2018.

An IGB is an insurer carrying on general business in an
innovative and experimental manner. The IGB license is a creation
of 2019, reflecting the use of the “regulatory sandbox”
developed by the BMA for the trialling of new uses of technology by
insurers and insurance intermediaries in a safe regulatory
environment, until the registrant demonstrates “proof of

Nayms Ecoystem’s business plan is said to provide coverage
for digital assets risks and to use digital assets such as
crypto-currencies as collateral for special purpose business (ILS
and alternative capital). The choice of Bermuda as the domicile for
this entity reflects the jurisdiction’s prominence for ILS and
its reputation for professional expertise in the area of digital

Electronic platforms/trading

No less ground-breaking was the creation of an “insurance
marketplace” licence, for intermediaries providing electronic
or other platforms for the purpose of buying, selling or trading
contracts of insurance. This novel licence class provides the ideal
regulatory environment in which to develop trading platforms using
distributed ledger technology, price discovery algorithms and other
techniques which promise greater efficiencies in the sale of
insurance and a more direct, disintermediated process for matching
risk with capital. At least two such platforms have been tested in
Bermuda. AkinovA (Bermuda) Ltd. has recently graduated from a
sandbox licence (an instance of a registrant’s successfully
passing the proof of concept phase, referred to above) to become
Bermuda’s first fully-fledged insurance marketplace


Bermuda insurance regulation continues to adapt in response to
developments affecting the industry. At the forthcoming 2020
Bermuda Captive Conference (9-11 September 2020), the
jurisdiction’s reputation for expertise and its agile and
responsible regulator will no doubt impress attendees considering
setting up a captive.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances. Kennedys operates in Bermuda in
association with Kennedys Chudleigh Ltd.

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