hen Hurricane Beryl struck Jamaica in 2024, the country’s $150 million World Bank catastrophe bond did not trigger because the storm’s air pressure failed to meet the predefined parametric threshold, despite significant on-the-ground damage. Hurricane Melissa, which made landfall in October 2025 as Jamaica’s most powerful storm, put the same instrument to a very different test. The bond triggered at a full 100% payout, with Jamaica receiving $150 million by December.¹ The contrast illustrated both the promise and a key limitation of parametric instruments: rapid payouts when triggers align, but exposure to basis risk when they don’t.

Yet accessing these instruments remains structurally constrained. Under Bermuda’s existing Special Purpose Insurer (SPI) framework, which underpins about 85% of global Insurance-Linked Securities (ILS) capacity², SPIs can only write reinsurance, and eligible cedants are limited to A-rated (re)insurers, government insurance pools, and Bermuda Monetary Authority (BMA)-approved entities.³ Governments and corporates seeking parametric coverage must work through intermediaries such as risk pools, fronting arrangements, or development bank structures.

In January 2026, the BMA proposed a new Parametric Special Purpose Insurer (PSPI) class to address these limitations.² The PSPI would allow direct insurance alongside reinsurance and expand eligible counterparties to include sophisticated corporates and government entities. It would also permit swaps and derivatives subject to case-by-case approval. By reducing the need for intermediary structures, the framework could lower friction and cost. Like existing SPIs, PSPIs would remain fully collateralized and bankruptcy-remote. The BMA has positioned the proposal as part of its effort to address the widening protection gap driven by climate change and emerging risks like cyber, where parametric products can supplement traditional indemnity coverage.

The PSPI proposal suggests that parametric risk transfer is becoming less of a niche structuring solution and more of a regulated insurance vehicle, opening the market to a wider range of buyers that may be able to transact directly rather than through reinsurers, pools, or fronting structures. Many of those buyers will be less familiar with the tradeoff at the heart of parametric cover: fast, rules-based payout in exchange for basis risk. The actuary’s job is not just to define that tradeoff, but to show it in terms the buyer can evaluate. That means using scenario analysis and stress testing to show how the trigger behaves across plausible events and where payout may diverge from economic loss, then complementing that view with metrics such as probability of any or full principal impairment, and other tail-risk measures. It also means testing trigger design, validating data sources, and reviewing the calculation and verification process that ultimately determines payout.