Co-written by Stafford Lowe of Your Partners and Sarah Demerling, Partner at Walkers Bermuda
In the “flight to quality” to well regulated jurisdictions, Bermuda is the premier domicile for the wide spectrum of innovative companies building the future of finance and (re)insurance. Strong, credible regulation combines with access to insurance to create a unique twin-pronged solution which turbo charges the digital asset industry’s march towards mainstream adoption.
Quietly, but extremely effectively since 2018, the island has attracted and licensed a selection of significant digital asset companies committed to building their global businesses on Bermuda’s unique platform.
Bermuda now has around 20 BMA licensed companies at different stages of development. Some are early-stage companies bringing their first products to market, others are Series D companies with close to 1,000 employees globally.
Together, they comprise a differentiated ecosystem of digitally native players: exchanges, custodians, wallet providers, digital asset managers, digital fund services companies, next gen (re)insurers, innovative financial services providers and even a newly licensed digital asset bank.
These companies all have a different business purpose, but the red thread that connects them is that they view Bermuda as a place to develop their institutional grade product offering under a credible and innovation-friendly licensing regime.
“Quite simply put, Bermuda has the best digital asset legislation on the planet!”
The General Counsel of one of Bermuda’s largest companies
Even prior to the disruption caused by the Terra Luna collapse, many digital asset businesses have realised the advantage of strong regulation to facilitate access to mainstream markets.
As a business, if you are seeking to gain your clients’ trust, a credible regulatory framework like Bermuda’s 2018 Digital Asset Business Act and related Rules, Statement of Principles and Code of Practice issued by the Bermuda Monetary Authority (“BMA”) allows you to communicate that your internal processes are on a par with those found in the already battle-tested traditional financial industry.
Having a blue-chip regulator like the BMA with a 40-year playbook for supporting market innovation in other key global industries, including (re)insurance and asset management, is another enormous advantage.
Bermuda offers institutionally minded digital asset companies the unique combination of regulatory certainty and a reassuringly high bar, with oversight from a single, accessible regulator with the proven ability to walk the line between progressive and appropriate licensing requirements.
But wait, there’s more..
The World’s Risk Capital
Bermuda is one of the largest (re)insurance hubs in the world, known for providing substantial capacity and innovative products. The market comprises over 1,200 (re)insurers holding total assets in excess of $800 billion and writing gross premium of approximately $150 billion (as of 2019).
To supplement its market-leading position in licensing digital asset businesses, Bermuda offers unique opportunities in the field of insurance innovation. Insurance is often touted as the missing piece of the puzzle for businesses looking to establish mainstream adoption and Bermuda is singularly well positioned as the World’s Risk Capital to enable the digital asset industry to level-up.
While the world of (re)insurance learns how to price the risk of the evolving digital asset markets, which is something which will be solved by time and better data, Bermuda’s captive insurance model neatly solves the notorious “cold start” problem.
Digital asset companies who care about both providing adequate levels of consumer protection and creating an enhanced approach to how they manage their regulatory capital, can lean on their own digital asset market risk management expertise to self-insure parts of their business via a captive insurance company.
$200M in crypto-custody cover
At the time this was understood to be the largest limit of insurance coverage purchased by any crypto custodian in the world.
In 2020 a major New York State regulated digital asset exchange and custodian set up a Bermuda captive insurance company, Nakamoto, Ltd, which wrote $200m in crypto custody cover. At the time this was understood to be the largest limit of insurance coverage purchased by any crypto custodian in the world.
While Nakamoto was genuinely ground-breaking for the digital asset industry, the concept of self-insurance is a well-trodden path for major traditional finance players, who have been attracted by the opportunity to optimize their insurance costs, augment their enterprise risk management processes and invest any excess capital, providing greater flexibility.
Bermuda maintains its position as the premier jurisdiction for captives, with a total of 700+ captives, supporting primarily Fortune 500 corporations and writing annual gross premiums of approximately $40 billion. Continued growth is expected with both long-standing exposures and emerging risks being underwritten including digital assets and legalised cannabis.
What is now a decades old model is so well understood by the entire Bermuda (re)insurance ecosystem, that digital asset businesses need not fear lengthy delays in getting their captives set up. In fact, depending on how the captive is structured and capitalized, and how it is subsequently classified by the BMA, it is possible to have a regulated vehicle up and running inside of 2 weeks!
This speedy turnaround is further augmented by the BMA’s sophisticated understanding of what goes on under the hood of digital asset businesses, which allows them to familiarize themselves with the details found in the captive insurance company’s business plan and enables fast feedback cycles.
For companies looking to push the boundaries a little further, the BMA has an Insurance Regulatory Sandbox where new concepts can be trialed and feedback provided to help companies build innovative structures either for their own benefit or to be marketed to their clients.
Captive insurance is one of many Bermuda insurance solutions
Bermuda can offer access to the (re)insurance markets for digital asset businesses across D&O insurance, Cyber Risk, Professional Indemnity and Commercial Crime cover. There are even solutions being developed to insure smart contracts and create digitally native insurance linked securities.
Bermuda offers an incredible amount of opportunity to innovative companies looking to make Bermuda their platform for building sustainable and credible businesses.
If you want to learn more about how to access this vibrant ecosystem, Your Partners and Walkers would be happy to help you get perspective!
About Walkers Bermuda: Actively advising companies on both Captive Insurance and Digital Asset Business matters, Walkers Bermuda delivers a unique offering to the Bermuda marketplace by providing combined legal, corporate, regulatory and compliance services under one roof.
We’re excited by the myriad ways that Bermuda is able to support the growth of the global FinTech and InsurTech ecosystems. If you’d like to share thoughts or ask us questions please reach out to info@y.partners
