Business Bermuda 2010 Economic Impact Study Demonstrates Depth And Mutual Importance Of Bermuda - U.S. Economic Relationship

Business Bermuda will release today its 2010 Economic Impact Study, which assesses the role that Bermuda plays in the U.S. economy and has examined Bermuda’s strong significance relative to Europe and Asia, based on economic data from 2008 and 2009. The 2010 Economic Impact Study will be issued at an evening presentation by Charles Ludolph, an expert and published author on international trade and econometrics, and Senior Vice President of Albright Stonebridge Group (ASG) on Thursday, June 17, 2010 at 4:00 pm in the Gazebo Room of the Fairmont Hamilton Princess.

According to the 2010 Economic Impact Study, Bermuda became more prominent relative to other economies that trade with the United States. U.S. exports of business and professional services to Bermuda actually increased significantly during the economic crisis. In separate but related analysis, figures show that there are a number of positive indications of a growing connection between Bermuda, Europe, the United Kingdom and Asia during 2007-2009.

Among the key highlights were:

• Notwithstanding the U.S. recession and redomestication of some U.S.-Bermudian companies to Europe, Bermudian company subsidiaries sustained more than 162,000 jobs and $40 billion in sales in the United States.
• During the 2008-2009 recession, Bermuda services trade with Europe, the United Kingdom and others increased trade to access Bermuda financial services capacity and gain access to the U.S. markets.
• Bermuda two-way services trade with Europe has grown to an estimated $16 billion annually. United Kingdom insurance and reinsurance imports from Bermuda leapt from $100 million to $1.5 billion since 2007.
• In the last three years, United Kingdom two-way trade in services with Bermuda increased by 250% seeking access to Bermuda financial platforms and relief from certain EU requirements.
• Similarly, German total trade in services with Bermuda increased by 50% driven by 100% increase in imports of financial services from Bermuda.
• Taiwan and other Asian semiconductor interests established Bermuda holding companies as platforms to access U.S. markets.
• According to economic estimates for just two European countries, Bermuda’s global economic profile grew by at least $10-$15 billion during the economic crisis.
• Some statistical indications suggest that Asian investment in Bermuda grew as Bermuda became a global gateway to access key developed markets like the United States, the United Kingdom and Canada.
• Trade relationships with the U.S. remained stable primarily because during the crisis, U.S. state and federal government capacities weakened much faster than the Bermuda financial sector and so therefore Bermuda remained a provider of critical financial capacity.

“U.S. government data revealed that Bermuda made a strong contribution to the U.S. economy throughout the 2007-2009 recession, providing jobs and capital when it was most needed," said Mr. Ludolph.

“Despite the global economic crisis, which clearly impacted everyone, this Business Bermuda 2010 Economic Impact Study shows that Bermuda continues to play a vital role in the U.S. economy and that our financial services sector has provided financial capacity that has been pivotal,” said Cheryl Packwood, CEO of Business Bermuda. “While we have certainly faced our fair share of issues, Bermuda remains strong and a vital partner that invests in the U.S., provides badly needed insurance and reinsurance services, and as importantly, is a direct and indirect source of jobs in the U.S. Bermuda has emerged as an important platform for investors from around the world including Europe, the UK, and Asia to access the U.S. market. Clearly, the efforts of Bermuda’s government to establish tax and regulatory agreements have been vital to this effort and provide assurance that we can continue to play this role in the global economy going forward.”

Ms. Packwood added, “This is a powerful story and an important message that all Bermudians can deliver as they do business around the world. I encourage everyone to take note of this study and support Bermuda’s efforts to extend its international business and economic success for decades to come.”

Executive Summary – Economic Impact Study 2010

The Bermuda-United States economic relationship remained strong throughout the global economic and financial crisis. In the last two years, overall growth in trade and investment remained at 2007 levels but did not decline. In fact Bermuda became more prominent relative to other economies trade with the United States. U.S. exports of business and professional services to Bermuda actually increased significantly during the economic crisis. In 2008 and 2009, Bermuda was the:

• Most important off-shore supplier of reinsurance, and payer of property and casualty losses to the United States.
• Second only to Canada as the most important export market for U.S. primary insurance.
• Sixth most important export market for U.S. financial services.
• Eighth most important supplier of energy shipping services to the United States.
• Fourteenth most important export market for U.S. business and professional services.
• And, in the top 20 most important export markets for total U.S. private sector services.

The Bermuda investment environment provides competitive advantages for certain U.S. businesses striving to compete globally. Bermuda’s own competitiveness in the U.S. market is based on a unique set of strategic advantages:

• Proximity to U.S capital market.
• UK and U.S.-compatible law and regulation.
• Extensive regulatory cooperation as well as recognized regulatory quality.

U.S./Bermuda Cross-Border Trade. In 2009, estimated two-way trade and multinational corporation subsidiary sales between Bermuda and the U.S. was $64 billion. Bermuda and U.S. company affiliates invested in each others markets supplied about $40 billion in two-way sales as well as $24 billion of U.S. exports and imports with Bermuda. Bermuda’s trade and investment relationship with the United States sustained 162,000 jobs in 2009.

• 94,500 U.S. jobs were created by annual U.S. exports to Bermuda.
• 66,000 U.S. jobs derived from U.S. substantially majority-owned subsidiaries of Bermuda companies

Insurance and Reinsurance. The Bermuda insurance industry, and the professional services that support that sector, are the leading foreign sources of insurance and reinsurance services to the U.S.

According to recent studies:

• Bermuda supplies 50% of Florida’s homeowner catastrophic insurance market, and offers Florida homeowners premiums that are less expensive than competitors in the United States and Europe.
• Twenty-three Bermuda reinsurance companies supply 40% of the catastrophic event property and casualty coverage for the entire U.S. market.

Bermuda insurance companies have helped stabilize the U.S. economy in the wake of numerous catastrophic events.

• In the 15 years between Hurricane Andrew (Florida, 1992) and Hurricane Ike (Texas, 2007) the United States sustained $500 billion in property and casualty losses, inclusive of earthquakes, terror attacks, etc. Of this total amount, Bermuda covered $84 billion or 16.8% of these losses.
• After Hurricane Katrina in 2005, businesses in eight Gulf Coast states, from Texas to Florida, needed $65 billion in private and public assistance to rebuild (in addition to assistance needed by homeowners). The federal government supplied $34 billion, while the rest came from insurance. It is estimated that Bermuda insurance payments to U.S. businesses supplied more than 10% of that assistance. Bermuda insurance restored or created more than 20,000 jobs in 2006 in those regional economies.

Bermuda is also a major insurer of American agricultural cropland.

• Thirty-five percent of U.S. crop insurance is underwritten by six Bermuda-owned insurance affiliates, and 55% of the gross premiums ceded by insurers to reinsurers come from Bermuda.
• In 2009, more than 250,000 U.S. farms in 40 states depended on Bermuda insurance and reinsurance firms to hedge annual crop-related risks.

Bermuda’s captive commercial liability insurance and reinsurance sector fills an important capacity shortage for U.S. companies.

• Approximately 75% of the 500 leading companies in the U.S. have captive insurance subsidiaries in Bermuda, which help provide worker’s compensation and other lines of liability coverage.

International Money Management and Investment Funds. Over the last 10 years, Bermuda has evolved into a significant international financial center, with important ties to the U.S. investment community.

• In 2008, Bermuda had more than 1,100 domiciled and regulated investment funds with almost $200 billion in net assets.
• Although difficult to estimate, it appears that U.S.-owned corporate and tax exempt funds accounted for as much as $70 billion of these assets, and U.S. individuals’ account for another $30 billion. Most of these Bermudian investments are U.S. offshore funds established by U.S. money managers.
• Bermuda provides key advantages to U.S. money managers to attract non-U.S. investors to their funds due to its proximity to the U.S., lower costs, sophisticated infrastructure, favorable tax structure and its effective and respected regulatory framework.

In turn, Bermuda is tied for tenth place as the largest foreign portfolio investor in U.S. securities, its portfolio investment doubling to $200 billion from 2000 to 2008. Furthermore, Bermudian investors are the 15th largest holders of U.S. government agency asset-backed bonds.

Shipping. Bermuda is a major contributor to U.S. energy security.

• Bermuda-domiciled shipping companies provide $1.2 billion in energy-related shipping services (oil tankers, oil rigs and LNG ships) that are designed to work with existing U.S. refineries, ports, and pipelines.
• Ships registered in Bermuda to take advantage of its regulatory policies, access to fleet financing, and access to environmental liability insurance coverage that is compliant with U.S. requirements under the U.S. Oil Pollution Act of 1990.

This study was commissioned originally in February 2009 by Business Bermuda with Charles Ludolph, an expert and published author on international trade and econometrics, and currently Senior Vice President of Albright Stonebridge Group, a global strategy firm. Mr. Ludolph prepared an update and included some high-level information on Europe and Asia as part of this year's update study. A detailed review of the methodologies used to develop the economic research can be found on page 36 through page 40 of the 2010 study.