Ruben A. Gely-Ortiz, president at the International Insurer's Consulting Group
26 April 2023Analysis

Cryptocurrency caution urged for captives

Captive insurers should take a cautious approach when investing in cryptocurrencies, according to Ruben A. Gely-Ortiz, president at the International Insurer's Consulting Group.

In a post on LinkedIn Gely-Ortiz said that when it comes to captive insurers investing in cryptocurrencies, a conservative investment approach is particularly important due to the unique risks associated with these assets.

“Cryptocurrencies are highly volatile and speculative investments, with their value often fluctuating wildly in response to market events, regulatory developments, or other factors,” he pointed out. “This volatility means that investing a large portion of a captive insurer's portfolio in cryptocurrencies could expose the insurer to significant financial risk and potential losses.

“Furthermore, cryptocurrencies are not backed by any government or central authority, and their regulatory landscape is still evolving. This lack of regulation and oversight means that investing in cryptocurrencies could expose the insurer to a range of legal and regulatory risks, including the possibility of fraud, hacking, or theft.”

Gely-Ortiz therefore urged a cautious approach on the part of captive insurers to investing in cryptocurrencies.

He concluded that captive insurers should approach investing in cryptocurrencies with caution and should prioritise a conservative investment approach that aligns with their risk management goals and overall financial stability.

“By taking a careful and thoughtful approach to investing in cryptocurrencies, captive insurers can minimise their exposure to potential risks while still exploring the potential benefits of these innovative assets,” he said.