Stablecoins in Bermuda insurance, ILS and fund structures: the BMA proposes a controlled pathway

Background

Stablecoins are increasingly important to international financial services. With its globally recognised insurance and digital asset industries, Bermuda is well placed to play a leading role.

On 20 July 2026, the Bermuda Monetary Authority (BMA) published a Consultation Paper on proposed guidance for the use of recognised stablecoins in certain insurance, insurance-linked securities (ILS) and investment fund structures (the Guidance). Comments are invited by 30 September 2026.

Overview

The Guidance does not create new statutory obligations or a standalone approval process. Instead, it sets out the standards against which the BMA assesses proposals through existing licensing, business plan, disclosure and supervisory processes (paras. 7, 11 and 122-125). It applies to “eligible entities”, being Bermuda-regulated investment funds, limited purpose insurers (LPIs), insurance managers, agents, brokers, insurance marketplace providers and innovative intermediaries. Eligibility is not automatic and commercial insurers are out of scope (paras. 7 and 12-13).

A “recognised stablecoin” is a digital asset under the Digital Asset Business Act 2018 (DABA) meeting five criteria: a fiat peg with minimal deviation from par in normal and stressed conditions; par redemption by the close of the next business day; full one-to-one backing by segregated, unencumbered cash or cash equivalents; at least monthly independent attestation or audit; and use principally for payment, settlement, liquidity or treasury purposes rather than speculation (para. 19). Algorithmic, synthetic, crypto-backed and materially under-collateralised coins are generally excluded (para. 22).

Meeting those criteria does not confer automatic approval. The BMA will assess the particular stablecoin, entity and proposed use case, including reserve quality, issuer home jurisdiction regulation, redemption arrangements, financial crime controls and operational risks. Acceptance for one arrangement does not mean approval for others, nor would recognition make a stablecoin cash, a cash equivalent or regulatory capital (paras. 20-32). The proposed framework is directed at operational uses rather than speculative investment activity (para. 36).

Sector-specific expectations

Limited purpose insurers. LPIs can apply to use recognised stablecoins for premium collection, claims payment, treasury management and as part of their capital base by updating their approved business plan (para. 91). As a proposed supervisory policy position, the BMA generally expects an LPI’s recognised stablecoin exposure to remain within 25% of total statutory capital and surplus or net assets. This is not a statutory capital limit and higher exposure may be considered through the applicable supervisory process (paras. 93-94). An LPI does not necessarily require a Class IIGB or IILT licence, provided the use remains within its approved business model and is accepted through that process (para. 95). For segregated accounts companies, the BMA may assess exposure and controls at company, cell or account level (para. 96).

Insurance-linked securities. ILS funds can use recognised stablecoins for subscriptions, redemptions, treasury management and settlement arrangements (para. 107). However, the BMA’s current position is that traditional restricted and unrestricted special purpose insurer (SPI) collateral structures should remain fiat-based. Stablecoins used at the fund level should ordinarily be converted into fiat before deployment into SPI collateral, unless the BMA agrees otherwise through the applicable process (paras. 16-17 and 108).

Insurance intermediaries. Agents, brokers, insurance managers and marketplace providers are not treated as bearing the underlying insurance, investment, collateral or stablecoin exposure merely because they support a structure. They nevertheless remain responsible for conduct, governance, disclosure, systems, sanctions and, where applicable, AML/ATF requirements relevant to their role, including proportionate due diligence on outsourced technology and digital asset service providers (paras. 119-121).

Governance and legal requirements

The operational requirements extend beyond obtaining a business plan amendment or regulatory non-objection. Depending on the use case, the BMA expects a documented risk management framework, board oversight, due diligence on the stablecoin issuer and service providers, robust custody and wallet controls, AML/ATF and sanctions screening, valuation and accounting analysis, stress testing, fiat fallback arrangements and incident reporting (paras. 41-90 and 122-127). Using or accepting a recognised stablecoin does not by itself make an entity a digital asset business, but issuing, redeeming, exchanging, custodying or providing digital asset services may require separate licensing under DABA or the Digital Asset Issuance Act 2020 (paras. 18 and 58).

Practical implications

Contractual mechanics will be central. Insurance, reinsurance and collateral documents may need to address when a stablecoin payment constitutes valid and final discharge, conversion mechanics and costs, allocation of depeg, network, custody and settlement risks, ownership and security interests, insolvency treatment and fallback arrangements. The BMA expects entities not to rely solely on technological settlement finality (paras. 75-79). The application checklist also contemplates legal opinions as a standard expectation for insurance, reinsurance, collateral, novel settlement and cross-border arrangements where enforceability is not otherwise established.

Entities considering stablecoin-based premium, claims, treasury, capital or settlement arrangements should document the proposed use, transaction flows, parties, timing and risk allocation and engage with their assigned BMA supervisor at an early stage to establish the applicable submission route (paras. 122-124 and Annex 1).

A material depeg requires immediate BMA notification, activation of the entity’s depeg and fiat-conversion plan and an assessment of the effect on capital, collateral and obligations to policyholders, cedants and counterparties (para. 30).

The Guidance leaves room for future parametric and digitally enabled insurance structures, but does not create or approve a new product or licence class. Such proposals would be considered separately and would require enhanced scrutiny of smart contracts, oracle arrangements, custody, settlement finality, legal enforceability and fallback mechanisms (paras. 110-115).

This note summarises a consultation draft and is not legal advice. Please contact us should you wish to discuss in detail.

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