Wyoming to Permit Insurers to Invest in Digital Assets

In what is apparently the first provision of its kind in the nation, on March 12, Wyoming amended its insurance code to expressly allow domestic insurers to invest in “digital assets.” Wyoming law defines a digital asset as “a representation of economic, proprietary or access rights that is stored in a computer readable format, and includes digital consumer assets, digital securities and virtual currency,” which encompasses cryptocurrency such as bitcoin as well as investment contracts. The new law is effective July 1, 2020.

Under the new provision, “digital consumer assets” are excluded. These are defined as digital assets that are used or bought primarily for consumptive, personal or household purposes and include an “open blockchain token constituting intangible personal property.” Examples include utility tokens, which may be used to purchase goods and services.

Within the past two years, Wyoming has emerged as a pioneer in blockchain and cryptocurrency legislation. Since March 2018, Wyoming has enacted a series of laws designed to draw blockchain and cryptocurrency businesses to the state by allowing for favorable tax treatment of cryptocurrency and facilitating the use of blockchain and cryptocurrency in transfer agencies, exchanges and banking.

Cryptocurrency is a form of digital or virtual currency that operates independently of a central bank and is secured using cryptography. Most cryptocurrencies rely on blockchain technology. Blockchain is a technology that uses a decentralized, public digital ledger to store, record and verify transactions without requiring validation from a third party. Because there is no need for third-party verification, cryptocurrency is believed by many to be a technology that could potentially disrupt and replace the traditional roles of banking and financial networks.

Whether insurance carriers take advantage of this law remains to be seen, as insurance companies are traditionally conservative with their investment portfolios (with portfolios typically invested mainly in high-grade bonds and mortgages). However, insurers may perceive — particularly in volatile financial markets — benefits such as noncorrelation to macroeconomic risks. The new law does not address issues such as valuation, accounting treatment or liquidity risk.