As institutional adoption of digital assets accelerates, the demand for regulated insurance solutions covering crypto custody, infrastructure, and operational risks has grown significantly. Institutional participants, including exchanges, custodians, asset managers, and blockchain infrastructure providers, require regulated insurance carriers to mitigate risk and satisfy regulatory, operational, and fiduciary obligations.
Bermuda has emerged as the leading jurisdiction for digital asset insurance due to its sophisticated regulatory framework and the Bermuda Monetary Authority’s (“BMA”) proactive approach to regulating innovative insurers.
However, one of the most critical legal and regulatory decisions facing sponsors and founders is selecting the correct insurance licence structure.
Bermuda offers several licensing pathways, including:
- Class IIGB (Innovative Insurer – General Business) licence
- Collateralized Insurer licence
- Special Purpose Insurer (SPI) licence
Each licence serves a distinct regulatory purpose and is suited to different business models.
Selecting the appropriate licence structure is essential for regulatory approval, operational flexibility, and long-term scalability.
I. Overview of Bermuda’s Innovative Insurance Regulatory Framework
Bermuda’s insurance regulatory regime is governed by the Insurance Act 1978 and supervised by the BMA, one of the world’s most respected insurance regulators.
The BMA has developed specialized licence categories to accommodate innovative insurance models, including digital asset insurance platforms.
These licence categories allow insurers to operate within a fully regulated framework while supporting innovative capital structures and underwriting models.
Understanding the differences between these licence types is critical for establishing a compliant and scalable digital asset insurance platform.
II. The Class IIGB Licence: Full-Service Digital Asset Insurance Carrier
The Class IIGB licence is the most commonly used licence for digital asset insurance carriers.
This licence applies to insurers conducting general insurance business in an innovative manner, including blockchain and digital asset-related insurance.
Regulatory Purpose
The Class IIGB licence is designed for insurers that intend to operate as full-service insurance carriers underwriting third-party risk.
This includes underwriting insurance for:
- Digital asset custodians
- Cryptocurrency exchanges
- Blockchain infrastructure providers
- Institutional digital asset service providers
- Cybersecurity and operational risks
This licence enables insurers to operate independently and underwrite risks across a broad client base.
Operational Capabilities
Class IIGB insurers may:
- Underwrite insurance policies directly
- Accept premiums from third-party clients
- Maintain capital and reserves
- Purchase reinsurance
- Scale underwriting operations over time
This licence provides maximum operational flexibility.
Regulatory Advantages
The Class IIGB licence provides several key advantages:
- Full insurance carrier status
- Institutional regulatory credibility
- Ability to scale underwriting operations
- Flexibility in capital and operational structure
This licence is ideal for sponsors seeking to establish independent insurance carriers serving institutional clients.
Typical Use Case
The Class IIGB licence is most suitable for:
- Independent digital asset insurance companies
- Institutional insurance carriers underwriting crypto risks
- Insurers seeking long-term operational scalability
This is the preferred licence for most digital asset insurance platforms.
III. Collateralized Insurer Licence: Fully Funded Risk Transfer Structures
The Collateralized Insurer licence is designed for insurers that operate using fully collateralized underwriting structures.
This licence is commonly used where insurance obligations are fully backed by collateral.
Regulatory Purpose
Collateralized insurers provide insurance coverage backed by assets held as collateral.
This eliminates credit risk exposure because all insurance obligations are fully funded.
This structure enhances solvency strength and regulatory stability.
Operational Capabilities
Collateralized insurers may:
- Underwrite insurance risks backed by collateral
- Use digital assets or fiat assets as collateral (subject to regulatory approval)
- Participate in structured insurance transactions
However, collateralized insurers may have more limited operational flexibility compared to Class IIGB insurers.
Regulatory Advantages
Collateralized insurers benefit from:
- Reduced credit risk exposure
- Strong solvency profile
- Simplified risk management
This structure is particularly attractive for structured insurance transactions.
Limitations Compared to Class IIGB
Collateralized insurers may face limitations in:
- Operational flexibility
- Ability to scale into diversified insurance operations
- Broad underwriting across multiple counterparties
This licence is often used for specialized insurance vehicles rather than full-service insurance carriers.
Typical Use Case
Collateralized insurer licences are best suited for:
- Fully funded insurance vehicles
- Structured risk transfer platforms
- Insurance-linked capital structures
They are less commonly used as the primary licence for independent insurance carriers.
IV. Special Purpose Insurer (SPI) Licence: Insurance-Linked Securities and Capital Market Structures
The Special Purpose Insurer licence is designed for insurance vehicles facilitating insurance-linked securities and capital market risk transfer.
SPI licences are commonly used in reinsurance and structured finance.
Regulatory Purpose
SPIs allow insurance risks to be transferred to capital markets.
This includes issuing insurance-linked securities backed by insurance risk.
SPIs typically operate as transaction-specific vehicles.
Operational Capabilities
SPIs may:
- Assume insurance risk from cedents
- Issue insurance-linked securities
- Facilitate structured risk transfer
SPIs typically do not operate as independent insurance carriers underwriting multiple clients.
Regulatory Advantages
SPI structures provide:
- Efficient capital market risk transfer
- Fully collateralized risk structures
- Regulatory clarity for structured insurance transactions
However, SPIs are highly specialized vehicles.
Limitations Compared to Class IIGB
SPI licences are not designed for operating independent insurance businesses.
They are typically limited to specific structured transactions.
They lack the operational flexibility of Class IIGB insurers.
Typical Use Case
SPI licences are best suited for:
- Insurance-linked securities
- Capital market insurance transactions
- Structured reinsurance vehicles
They are not typically suitable as primary licences for insurance carriers.
V. Why Class IIGB Is the Optimal Licence for Most Crypto Insurance Platforms
For most digital asset insurance platforms, the Class IIGB licence is the most appropriate and strategically advantageous licence.
Full Insurance Carrier Status
The Class IIGB licence allows insurers to operate as independent insurance carriers.
This enables insurers to build scalable insurance operations serving institutional clients.
Collateralized insurers and SPIs are typically more limited in scope.
Maximum Operational Flexibility
Class IIGB insurers have the flexibility to:
- Underwrite multiple clients
- Expand underwriting operations
- Purchase reinsurance
- Scale operations over time
This flexibility is essential for long-term growth.
Institutional Credibility
The Class IIGB licence provides strong regulatory credibility with institutional clients, reinsurers, and counterparties.
This credibility is critical for establishing trust in digital asset insurance markets.
Ability to Incorporate Collateralized Structures
Class IIGB insurers may still use collateralized underwriting structures if desired.
This allows insurers to combine operational flexibility with capital efficiency.
VI. When Alternative Licence Structures May Be Appropriate
Collateralized insurer or SPI licences may be appropriate in certain circumstances.
These include:
- Fully funded single-risk structures
- Capital market insurance vehicles
- Transaction-specific insurance vehicles
However, these licences are typically used alongside or after establishing a primary insurance carrier.
VII. Strategic Licensing Considerations for Digital Asset Insurance Sponsors
Sponsors should consider several key factors when selecting licence structures.
Long-Term Business Objectives
Sponsors seeking to build scalable insurance carriers should pursue Class IIGB licences.
Sponsors focused on single-risk structures may consider collateralized insurer or SPI licences.
Capital Structure
Collateralized structures may enhance capital efficiency.
However, operational flexibility must also be considered.
Regulatory Strategy
Regulatory structuring must align with business objectives and regulatory expectations.
Proper licence selection significantly improves licensing success probability.
VIII. Conclusion
Selecting the correct licence structure is one of the most critical decisions when establishing a digital asset insurance platform.
While Bermuda offers several innovative licensing pathways, the Class IIGB licence provides the optimal balance of regulatory credibility, operational flexibility, and scalability for most digital asset insurance carriers.
Collateralized insurer and SPI licences serve important roles in structured insurance transactions but are typically more specialized.
For sponsors seeking to establish institutional digital asset insurance carriers, the Class IIGB licence represents the most appropriate and strategically advantageous regulatory foundation.
FAQs
1. What is the difference between a Class IIGB, Collateralized Insurer, and SPI in Bermuda?
A Class IIGB is a fully licensed innovative insurer regulated by the BMA for ongoing underwriting operations. A Collateralized Insurer is a special-purpose structure backed entirely by collateral assets, typically used for single-risk transactions. An SPI (Special Purpose Insurer) is a defined-purpose vehicle for specific reinsurance or risk-transfer arrangements — not general insurance operations.
2. Which Bermuda insurance structure is best for a crypto insurance platform?
Class IIGB is best for crypto insurance platforms underwriting multiple risk types — including custody risk, cyber risk, and smart contract failure — on a recurring basis. SPIs and Collateralized Insurers suit single-transaction or capital-markets-linked structures. Most crypto insurance founders building an ongoing underwriting business require a Class IIGB licence.
3. What is a Bermuda Special Purpose Insurer (SPI) and when is it used?
A Bermuda SPI is a ring-fenced entity authorized to conduct a specific, defined insurance or reinsurance transaction — typically linked to capital market instruments like insurance-linked securities (ILS). It cannot underwrite general ongoing business. Crypto platforms use SPIs for structured risk-transfer deals, not for building a retail or institutional insurance carrier.
4. What is a Collateralized Insurer in Bermuda?
A Bermuda Collateralized Insurer is a regulated entity whose insurance obligations are fully backed by collateral assets held in trust. It accepts premium and pays claims from that collateral pool. It is commonly used in catastrophe bond and ILS structures. For crypto insurance platforms, it suits single large-risk exposures rather than diversified ongoing underwriting portfolios.
5. Can a crypto insurance platform use an SPI instead of a Class IIGB licence?
Only in limited scenarios. SPIs are restricted to defined, single-purpose insurance transactions. A crypto platform seeking to issue recurring insurance policies — covering custody loss, exchange failures, or DeFi protocol risk — requires a Class IIGB licence. Using an SPI for ongoing general underwriting would breach BMA regulatory scope restrictions.