Insurance boss Joseph Ziolkowski had previously founded two Bahamas-based insurance companies, but when it came time to set up pioneering Relm Insurance, he chose Bermuda.

Making opening remarks at the International Tech Summit in April, the Relm CEO and cofounder lauded the roles played by government and the island’s financial services regulator in the development of the island’s fintech sector.

The Denver-born entrepreneur, who captained the ice hockey team at Skidmore College, was equally positive about the quality of insurance sector talent on the island.

His staff of 15 people on the island is entirely Bermudian. Another 15 employees are stationed overseas.

Relm is a direct writer, licensed since December 2019, providing coverage for companies operating in new and emerging business sectors. That includes crypto, web3, cannabis and alternative therapeutics, among others.

Last year, Relm II was licensed – the first collateralised reinsurance facility that can accept both fiat and digital assets as regulated collateral. It sources capital to reinsure Relm Insurance’s direct writing.

Mr Ziolkowski previously ran Bahamas-based Long Cay Captive Management and Port Royal Insurance Company.

Sitting in the Relm boardroom on Victoria Street, he said alignment between Bermuda’s political and regulatory regimes was vitally important for the growth of the sector on the island.

The 2018 passing of the Digital Asset Business Act set the foundation for the industry, while the BMA’s receptive approach was a revelation compared to what he experienced in other jurisdictions.

Mr Ziolkowski said: “I was pitching this idea of setting up an insurance company specifically focusing on providing capacity for companies operating in the digital asset space in 2018 and 2019.

“If you can imagine sitting across the table from regulators that don’t know anything technically about what’s going on in the digital asset space, other than Mount Gox, Silk Road, nefarious activities, it’s a non-starter.

“Their eyes glaze over; they either don’t understand it or they jump to conclusions about the headline risk that so many people get caught up on.”

Mr Ziolkowski said his experience was entirely different in Bermuda, where he found regulators that understood the technology and were dedicating resources towards a sector that they deemed was credible and believed had potential.

“Combining that with sophistication on the insurance side, it was kind of a perfect home for Relm,” Mr Ziolkowski said.

Other factors that came into play included the island’s high calibre of service providers and industry talent.

Searching for that talent, Mr Ziolkowski said, he asked: “What do I really need in order to put ourselves in a position to make good underwriting decisions?”

The answer: “I need people who know finance, who understand technology, who are creative, who are solution-oriented. Those people come in different shapes and sizes and ages.”

He added: “Through that whole process over the last three years, we have been able to find a ton of enthusiastic Bermudians across all of our core operations and we are continuing to recruit and hire.

“We have a really great cross-section of people with a lot of insurance experience all the way down to zero insurance experience.

“But there’s a common denominator there, which is the need to be creative, and smart, and find solutions.”

Mr Ziolkowski said: “We have people on staff here in Bermuda that are not far removed from university and are actively contributing to product development initiatives in a way that is equal or more significant than some of our team members, or myself, that have been operating in the insurance industry for a dozen years. It’s a brainstorm internally.”

Since writing its first policy in March 2020, Relm has generated more than $100 million in gross premium, providing support to companies operating in more than 30 countries that are listed on more than a dozen national exchanges.

Lines of business include cyber liability, property exposure for Bitcoin miners, directors’ and officers’ liability insurance for token issuers, fiduciary liability, technology errors and omissions, product liability, crime, and investment management insurance.

Mr Ziolkowski said: “We start with traditional insurance products and we modify them to provide a relevant scope of coverage for the unique exposures arising from operations of companies doing innovative things.

“We anchor our book in traditional insurance underwriting and risk selection and pricing, and we use all that insight gleaned from that traditional way of doing business to do interesting, more innovative product development initiatives that enhance our solution delivery within the sectors we’re focusing on.”

As those sectors are emerging, there is little in the way of loss history to help in determining pricing and terms and conditions.

The company has adopted an account-based underwriting approach.

Mr Ziolkowski said: “If you don’t have the benefit of hindsight from data and loss history, that doesn’t mean you can’t underwrite risk.

“You just need to go about it with a different approach, and you need to really look at current state of affairs, and the trajectory. I believe if we can get enough information about what is going on today, and what will be going on tomorrow, we can still provide a dependable source of capacity for these companies.”

He added: “The one mandate that we have always had is we need transparency. What that ultimately means in the underwriting process is in and of itself a barrier to entry.

“A lot of companies that are superficial, or trying to pursue a pump and dump or any one of a number of nefarious, less than scrupulous operating activities, are not going to subject themselves to our underwriting process.

“When you start with diligent risk selection, and you also are underwriting eyes wide open in an industry that has embedded variability and volatility, regulatory uncertainty, and you are also doing that with no reinsurance support, then you have to be very certain that you are doing everything you can to make underwriting decisions.

“And once you have made those underwriting decisions, you have to be judicious with your capacity. So, we are very disciplined in the deployment of our capacity on a per contract basis, very sensitive towards pricing and retentions.”

But even a best practices approach does not always end happily.

Relm provided capacity to regulated FTX entities in the United States and Australia that fell outside the holding company structure.

Mr Ziolkowski said: “Could we have ever anticipated that FTX was going to implode in the way that it did? Never in a million years.

“We had plenty of due diligence to support FTX as a going concern – and I say FTX US and FTX Australia.

“But the fact that this thing has imploded in the way that it has, it only demonstrates further the importance of having coverage like directors’ and officers’ liability insurance.”

It was suggested to Mr Ziolkowski that the FTX implosion, as well as other mayhem last year in the crypto sector, were analogous to a hurricane in the property cat sector, with its knock-on effect on the insurance business.

He said: “It’s one thing to have a hurricane – it’s another thing to have six hurricanes over the course of a hurricane season.

“And that’s really the impact emotionally, financially, that the digital asset economy has experienced.”

But he added: “It’s a culling of the herd. The companies that are left standing today have done something productive and effective as it relates to managing the viability of their business.

“It’s going to create a stronger foundation off which to scale what I think is an incredible technology foundation that’s going to have some really positive impacts on all aspects of our more traditional global economy.”