Bermuda Special Purpose Insurers

Michael Frith, Gemma E. Carreiro • Posted 19/11/2010 • Under Articles

In line with its ongoing efforts to enhance the regulation of insurers in Bermuda and promote innovative insurance and insurance-linked transactions and securitizations, the Bermuda Monetary Authority (“BMA”) recently introduced the concept of “Special Purpose Insurers” (“SPIs”).

The fundamental characteristics of the SPI are that the insurance contracts must be fully-funded, and the parties to the transactions must be sophisticated. In return for this, the SPIs enjoy an expedited application process, overall lighter regulation and only nominal capital requirements.

The BMA retains broad discretion to determine, on a case by case basis, what is meant by the term “fully-funded”, and whether or not a particular party is deemed to be sufficiently sophisticated. Guidance notes have been developed by the BMA in very close consultation with industry participants, to assist in the interpretation of these SPI principles. In other words, the potential users of the SPI concept were instrumental in establishing how best to apply – and regulate it – effectively. The result is a very efficient and flexible structure capable of application in a wide variety of sophisticated insurance and insurance-linked transactions.

This article explores what makes the SPI so attractive to sophisticated players.