The Bermuda Monetary Authority’s new policy framework allowing captive insurers to integrate recognised stablecoins into their operations is significant, the law firm Appleby says in a recently published article.

The firm said it paves the way for captive insurance companies, marking a progressive step for the island’s competitive insurance jurisdiction.

The new BMA policy allows captive insurers to integrate “recognised stablecoins” into their operations, a move Appleby said could reshape risk and payment processes on the island.

The article said: “This move comes in response to increasing market demand and reinforces Bermuda’s commitment to fostering responsible innovation while maintaining robust regulatory oversight.”

Captive insurers can use stablecoins to collect premiums, make claims payments and even hold part of their capital without needing extra innovation licences, once they get BMA approval.

Under the rules, these digital dollar alternatives must be fully backed by real currency or liquid assets, redeemable 1:1 and audited at least monthly, according to Brad Adderley, managing partner at Appleby’s Bermuda office, and Ojeda Smith, senior associate, in the recent bulletin.

A notable safeguard is the cap allowing only 25 per cent of a captive’s capital in stablecoins, and USD must remain the reporting currency.

Captives seeking to adopt the new approach must include it as part of a formal change to their business plan and await the BMA’s sign-off. The policy will be reviewed after 12 months to gauge its impact.

This comes on the heels of Bermuda hosting its first “regulated stablecoin airdrop” at the recent Digital Finance Forum.

The Government supported the event in May by distributing more than 150 free Community Day tickets. Those attendees who downloaded a Coinbase Wallet received USDC worth $100, spendable at local businesses in the event’s “Vendor Village”.

The forum drew 500 attendees and generated about $40,000 in digital transactions.

Stablecoins are designed to hold steady values by pegging to fiat currency, making them more dependable than volatile cryptocurrencies. Airdrops offer free tokens to encourage users to try new payment systems. Since passing its groundbreaking Digital Asset Business Act 2018 and through initiatives such as the stablecoin drop, Bermuda aims to be a live test bed for digital finance.

“This new supervisory policy is a testament to Bermuda’s ongoing commitment to supporting responsible innovation within its insurance sector, further solidifying its position as a leading global financial jurisdiction,“ the Appleby bulletin stated.