According to the Bermuda Monetary Authority (BMA), the convergence of tokenisation with Bermuda’s traditional insurance-linked securities (ILS) sector presents opportunities to enhance liquidity, reduce transaction costs and expand access to insurance risk transfer across the British overseas territory.Asset tokenisation, which signifies a transformative method within blockchain-based digital asset representation, is attracting significant interest within the industry.However, the BMA cautions that this attraction underscores the need to understand the far-reaching implications of tokenisation, including its risks and opportunities.In its recently published discussion paper, the BMA clarifies that asset tokenisation refers to the digital representation of a Real-World Asset (RWA), which can be either tangible or intangible, utilising Distributed Ledger Technology (DLT).

By allowing fractional ownership, tokenisation has the potential to promote wider market engagement and improve liquidity for certain high-value or traditionally illiquid asset classes.“DLT can streamline processes by reducing intermediaries, enhancing transparency and enabling more efficient settlement mechanisms, such as Delivery-Versus-Payment (DVP) and Delivery-Versus-Delivery (DVD), thereby lowering settlement risks.Additionally, tokenisation can embed regulatory requirements directly into smart contracts, offering ‘programmable compliance’ that may enforce transfer restrictions, investor qualifications, reporting obligations and disclosures,” the BMA explained.

Moreover, the BMA highlights that Bermuda’s digital asset framework already provides the legal basis for tokenisation by classifying it as a regulated digital asset business activity, which clearly establishes a foundation for this emerging sector.However, in its discussion paper, the BMA is seeking industry feedback on the opportunities, challenges and potential regulatory considerations that are related to asset tokenisation in Bermuda.Most relevant to our readers is where the BMA indicates in the paper that it is reviewing emerging activities as they relate to the tokenisation of insurance products, namely insurance-linked securities (ILS), and how such activities might be appropriately regulated under the existing framework for innovative insurance classes.

“Bermuda’s established regulatory frameworks for innovative insurers (Classes IIGB, IILT, along with Sandbox classes IGB and ILT) and digital assets (DABA), combined with the Segregated Accounts Companies Act 2000 and Incorporated Segregated Accounts Companies Act 2019, have created a proven foundation for insurance tokenisation, with existing licensees successfully demonstrating and operationalising DLT-based insurance products supervised under bespoke prudential capital requirements,” the paper reads.Adding: “The convergence of tokenisation with Bermuda’s traditional ILS sector – encompassing catastrophe bonds, collateralized reinsurance and sidecars – presents opportunities to enhance liquidity, reduce transaction costs and expand access to insurance risk transfer while maintaining prudential oversight.” Some of the key considerations that the BMA is exploring includes: the interaction between tokenised insurance products and existing Special Purpose Insurer (SPI)/collateralised insurer structures that currently dominate Bermuda’s ILS market; whether tokenisation enables new risk-sharing mechanisms that do not fit into current class distinctions, and how the secondary market trading of tokenised insurance risks compares to existing catastrophe bond trading on the Bermuda Stock Exchange.As well as this, the BMA also outlined that it is also exploring the implications for Bermuda’s position as global ILS markets consider tokenisation as a “next-generation infrastructure.” In addition, the paper also outlines the BMA’s intentions to examine how tokenisation intersects with emerging ILS trends, including the expansion beyond property catastrophe risks into cyber, mortality and casualty securitisation.

“As the traditional ILS market diversifies its risk profile and increasingly attracts capital inflows, tokenisation could accelerate this evolution by enabling more granular risk slicing, real-time exposure management and integration with parametric triggers and oracle networks,” the paper reads.Adding: “The regulatory framework should also consider whether Bermuda’s established ILS infrastructure – including service providers, administrators and listing requirements – needs adaptation to support tokenised structures, or whether the existing framework with targeted enhancements can accommodate this innovation.“Critical to this analysis is ensuring that any regulatory approach supports Bermuda’s strengths in speed-tomarket, regulatory sophistication and market confidence, while avoiding unintended barriers that could hinder the development of tokenised insurance products within the jurisdiction.” One organisation that’s establishing a key presence within tokenisation is Members Capital Management Limited (MembersCap), the Bermuda-regulated investment manager, This marked a notable milestone in bridging institutional reinsurance and blockchain-based finance.

Shortly following the launch of MCM Fund I, who explained how the fund opens up the private reinsurance market to a group of investors who previously had no exposure to this asset class before..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.