BMA clarity gives Bermuda an advantage with cannabis captives

Bermuda has a clear advantage as a domicile for cannabis captives because of the clarity of the position of the Bermuda Monetary Authority (BMA), according to panelists speaking in the Bermuda Captive Conference’s Cannabis and Captives session last week.

Kim Willey, a senior corporate counsel at ASW Law, said the BMA is unique among regulators in terms of the clarity it had provided re/insurers around working with cannabis companies.

In November 2019 the BMA confirmed Bermudian re/insurers could work with cannabis companies as long as the business does not constitute criminal conduct at the federal level in the jurisdiction in which the business takes place. This threw the door open to working with Canadian cannabis companies, although working with other countries - particularly the US - remains problematic, Willey noted.

Other jurisdictions, by contrast, are not there yet with their regulations, said Patrick Ferguson, captive sales executive and senior vice president at Marsh Captive Solutions Group in Canada.

“The BMA has got out in front of this, and given Bermuda a clear advantage,” he said.

Ferguson noted the landscape in Canada had changed overnight when the country made cannabis legal at the federal level. A new generation of cannabis companies had emerged to take advantage of the newly liberalised regime, just as the market was hardening and making it harder to secure insurance from commercial providers.

The hardening market has been particularly challenging for cannabis companies, which commercial carriers were already nervous about working with for legal, operational and reputational reasons.

Jonathan Barnes, manager, insurance at KPMG in Bermuda, noted that insurers have found it particularly challenging working with cannabis companies because of the lack of data around the frequency and severity of losses in that market. This has left cannabis companies with a problem managing the risks any businesses face, as well as those that are unique to that industry.

Barnes noted that cannabis companies that establish a captive will be in a stronger position to negotiate with commercial carriers in coming years because they will have built up a track record on claims.

“In five years insurers will be more comfortable with cannabis risk,” he predicted. “Using a captive now allows companies to get ahead of that.”

Cannabis companies have a broad range of insurance needs, including D&O, property, liability, product recall, intellectual property and crop insurance, Barnes noted. “Captives can help provide this cover, but commercial insurers cant offer capacity or prices that are sustainable,” he added.

Ferguson said D&O was proving to be the starting point for many of Marsh’s clients in the cannabis industry thinking about launching a captive. “They have a broad spectrum of risks but it makes sense to start with one or two lines and broaden from there,” he said.

Ferguson admitted Canadian cannabis companies still have to use Canadian banks, as major Bermudian banks are still unwilling to do business with them, but said he was hopeful that would change in due course.