US insurers are heavily dependent on Bermuda for financial stability — that is according to a report by a top American economist.

The study, entitled Bermuda Insurance Market: An Economic Analysis and written by Dr. David Cummins of the Wharton School at the University of Pennsylvania and the Fox School at Temple University, revealed that insurance companies in the US are particularly reliant in risky lines such as other liability, ocean marine and non-proportional reinsurance.

The report, which was launched on the Bermuda Insurance website and presented by Roger Gillett, chairman of the Bermuda Insurance Development Council, at the Insurance Day Summit yesterday, gave an independent outlook on the Island's insurance industry.

It found that Bermuda provided many advantages as an insurance domicile and compared to jurisdictions like the UK and the US it had a more flexible approach to regulation, with close co-operation developing between the regulator and the industry and new companies being able to be formed in a matter of weeks, encountering much less regulatory bureaucracy and red tape than other competitors.

"The flexible regulatory approach does not appear to have come at the cost of higher insolvency risk, as the Bermuda market continues to be populated by companies with superior financial strength and stability," it read.

"Bermuda also provides a relatively attractive tax environment for insurers, in that it levies no income tax. Because of the regulatory and tax flexibility, Bermuda has become the jurisdiction of choice, especially for reinsurers responding to changing demands for reinsurance from primary jurisdictions such as the US.

"When the US insurance market needs more high-end risk capital, the capital tends to flow into Bermuda rather than into US start-ups, precisely because of the regulatory and tax costs that such firms would face if they organised in the US."

Other factors in Bermuda's favour were a politically stable environment, a sound monetary system and a high sovereign debt rating, allied to a highly educated workforce and being an attractive place to live and work, said the report.

Dr. Cummins' findings showed that Bermuda had grown significantly as a centre for re/insurance between 1981 and 2005, with gross premiums written for companies based on the Island totalling $115 billion in 2006 and capital and surplus amounting to $157 billion, and a projected figure of $125 billion and $180 billion respectively for 2007, according to Mr. Gillett.

Total assets for 2006 reached $440 billion, while the Class 4 insurers accounted for 37 percent of the total capital and surplus and 33 percent of the net premiums, reflecting their dominance in the market, especially in terms of premium volume.

"Bermuda's percentage of the world reinsurance market has grown from five percent in 1996 to 11 percent in 2005, according to the report," said Mr. Gillett.

"I think it is arguable that Bermuda's role in the world insurance market is significant and has really grown.

"The US is dependent on Bermuda-based reinsurers in particular and what Dr. Cummins has concluded by looking at 12 lines of business is that Bermuda's role is significant in all 12 lines.

"What I think is significant is that the report shows Bermuda-based insurance companies accounts for the provision of 42 percent of the premiums paid by US insurers for homeowners insurance.

"What became quite clear from the report and Dr. Cummins' analysis was that it was his belief that Bermuda's success has been derived from the deficiency from other markets in the world and in tough times Bermuda seems to flourish."