The Bermuda Monetary Authority has launched a public consultation on plans to create a new insurer category to support parametric insurance and reinsurance business, as the island looks to expand its alternative capital offering.

In a consultation paper published this week, the BMA said it is proposing to amend the Insurance Act 1978 to introduce a parametric special purpose insurer (PSPI) class.

“This new class will offer a dedicated framework tailored for Bermuda alternative capital re/insurers that plan to adopt parametric business models,” the authority said.

Parametric insurance pays out based on predefined triggers, such as wind speed or rainfall levels, rather than assessed losses. The BMA said it has seen more and more use of parametric, especially in connection with climate risks.

For instance, Jamaica received a $70.8 million parametric payout from the Caribbean Catastrophe Risk Insurance Facility within two weeks of Hurricane Melissa — the largest single payout in the organisation’s history, which was triggered by the storm’s high wind speed.

The proposed class in Bermuda would sit alongside the island’s existing special purpose insurer framework, which underpins much of the island’s insurance-linked securities market. The BMA said the new category will provide a clearer regulatory pathway for parametric business, while keeping the core features of the SPI regime, including full collateralisation and solvency protection.

“The authority has noted the increased use of parametric covers in the re/insurance market and views the parametric market as a supplemental product for the indemnity market,” the paper said.

Under the proposal, PSPIs would remain fully collateralised, but would be permitted to write a broader range of parametric products, including index-based contracts and some swap or derivative structures, subject to approval.

The new framework would also expand the pool of potential customers beyond rated reinsurers to include large corporates and public-sector entities, opening the door to new types of parametric business for Bermuda.

Insurers already offering parametric products would not be required to reclassify, with the PSPI being an additional route for new market entrants.

The consultation closes on February 27. The BMA said it is targeting legislative amendments later this year, with the new insurer class expected to take effect before the end of the second quarter of 2026.