Bermuda’s ILS sector well-placed to benefit from stablecoin development: BMA

As the global financial services sector is currently undergoing a transitional shift which sees stablecoins moving from niche instruments into a key system of institutional finance, the Bermuda Monetary Authority (BMA) has outlined how the island’s insurance-linked securities (ILS) sector is well placed to benefit from this form of cryptocurrency.

This comes as the BMA has recently published a consultation paper, in which it is seeking feedback from industry figures surrounding the use of stablecoins within insurance, ILS and investment funds.

As mentioned, stablecoins have begun to move from niche instruments used primarily in digital asset markets into integral components of institutional finance, in order to help support payment, settlement, treasury management, collateral mobility and liquidity across insurance, reinsurance, investment funds and the capital markets.

The BMA highlights how global stablecoin issuance has exceeded $300 billion as of mid-2026, with the market dominated by a small number of USD pegged stablecoin issuers.

“Industry projections suggest continued growth driven by the tokenisation of real-world assets, the expansion of cross-border payment use cases and increasing institutional adoption. While current demand remains concentrated outside the United States and primarily in crypto-asset settlement, the passage of the U.S. GENIUS Act and associated regulatory developments in other major jurisdictions signal a material shift towards institutional and commercial stablecoin use. These developments have potential implications for Bermuda-regulated entities and structures and warrant monitoring and consideration,” the BMA explained.

In its report, the BMA states that Bermuda’s insurance, ILS and investment fund sectors, characterised by their speed, innovation capacity and international connectivity, “are well-placed to benefit from these developments.”

“ILS solutions include faster and lower-cost crossborder settlement, more efficient collateral deployment, enhanced treasury flexibility, and a greater ability to support emerging parametric and programmable insurance structures,” the BMA added.

As noted, the Bermuda Monetary Authority is consulting with industry specialists on the use of stablecoins within insurance, ILS and investment funds.

One of the core focuses of the Authority’s Consultation Paper is to seek feedback on the BMA’s proposed Guidance Note on the use of recognised stablecoins within Bermuda Limited Purpose Insurers (LPI), ILS and investment fund sectors, insurance managers, agents, brokers, insurance marketplace providers and innovative intermediaries.

Moreover, the Authority states that it recognises that high-quality fiat-backed stablecoins may support payment, settlement, treasury management, liquidity management, collateral mobility and operational efficiency in appropriate use cases, amongst Bermuda’s insurance, ILS and investment fund structures.

However, the BMA emphasised that it is aware that stablecoins also offer specific prudential, operational, legal, technology, AML/ATF, sanctions, custody, settlement finality, valuation, disclosure and reputational risks that must be appropriately governed and mitigated.

Under the proposed Guidance Note, the BMA notes that ILS funds may use recognised stablecoins for subscriptions, redemptions, treasury management and settlement rails/arrangements, subject to the common requirements that the Authority explains within its paper, as well as any applicable fund-specific requirements.

As well as this, the BMA notes that where an ILS fund invests in funds or supports a traditional restricted or unrestricted special purpose insurer (SPI), recognised stablecoins should be converted into fiat before deployment into the SPI collateral structure unless otherwise addressed through the applicable statutory or supervisory process.

“The fund should ensure that depeg risk, conversion risk, transaction fees and operational settlement risk are allocated in a manner that does not adversely affect policyholders, cedants or the SPI’s collateral sufficiency,” the paper reads.

Adding: “ILS funds should maintain operational workflow documentation sufficient to allow the fund operator, administrator, auditor and the Authority to understand and monitor stablecoin flows, conversion points, wallet controls, service provider responsibilities, NAV impact, collateral impact and counterparty risk allocation.”

It’s important to note that the BMA does state that “The Authority’s current supervisory position is that traditional restricted and unrestricted Special Purpose Insurer (SPI) collateral structures should remain fiat-based, unless otherwise considered by the Authority through the applicable statutory or supervisory process. This Guidance does not amend the existing SPI frameworks.”

So there is no suggestion the BMA would allow stablecoins to provide collateral for instruments such as catastrophe bonds, for example. Rather, the best way to think about the BMA’s current thinking is about how stablecoins and other digital technologies can enhance the rails for collateral deployment, settlement etc.

To conclude, the BMA also outlined that it will continue to monitor the uptake and development of recognised stablecoin use within Bermuda-regulated structures, including trends by stablecoin, issuer, sector, use case, transaction volume, exposure size, custody model, conversion arrangements and reliance on material service providers.

“This monitoring will support the Authority’s assessment of potential financial stability, banking-sector concentration, liquidity, operational resilience and interconnectedness risks. The BMA will inform whether additional reporting, prudential limits, supervisory conditions or future policy adjustments may be warranted as market adoption develops,” the BMA added.