Bermuda is in danger of becoming a "one company town" with too much focus on reinsurance, according to Scott Lines, managing director of LOM (Holdings) Ltd.

In his report to shareholders on the year ended December 31, 2003, which saw profits soar from just over $200,000 in 2002 to $3.0 million for 2003, he said that there were worrying declines in other areas of business and that too much focus on reinsurance was risky.

"The enormous success Bermuda has had over the past several years in attracting re-insurance companies to the Island should not obscure the reality that we are suffering relative declines in many of our other international business areas," said Mr. Lines. "As a result Bermuda is in danger of becoming a "one company town" with all the risks that that situation entails."

And he made a side-swipe at Government and business in Bermuda by alluding to Bermuda and Bahamas as being filled with people who had never built a business or industry and made questionable decisions which affected the future of the nations and businesses.

Mr. Lines said that LOM viewed the Bahamas as emerging into a serious competitive alternative to traditional offshore centres like Bermuda due to the commitment by both the government and opposition to work with the investment and trust industry in order to grow and enhance international financial business.

He said: "It is a truth that as both companies and countries grow in size and success, with the passing of time and generations, the "management", whether corporate or national, become comprised of individuals who have never built a business or industry, and though they pay lip service to what is required for continuing success, their actions, being based upon their limited experience, often result in decisions that cause the enterprise's competitive demise. We fear this is happening in Bermuda and point to the continuing decline in the rate of incorporation of international companies."

While LOM's profits increased sharply, they were in no way back to levels seen in 2000 Slumping stock markets and the global economic slowdown resulted in a 90 percent drop in LOM (Holdings) Ltd. profits during 2001.

Net income for 2001 was a "modest" $206,459 compared to $7.079 million or $1.10 per share in 2000. And 2002 was much the same as 2001, with group net profits down slightly at $200,426.

In yesterday's report, LOM also wrote off its investment in the Bermuda Stock Exchange after fears that it would not get certification from a London body that the group thought was necessary for a return on their investment.

"The decision to write off our investment in the BSX was made not because we have lost faith in the long-term ability of the exchange to grow to profitability but because we feel that the success of the exchange is dependant on it achieving DIE (Designated Investment Exchange) status," he told shareholders. "This in turn is dependant upon the British Government. After many years of this approval being promised as imminent and then having the exchange's goal posts moved, we feel that the timing of approval is so uncertain that it would be prudent to make this financial write off at this time."

Mr. Lines also spoke of a sustained rebound in major world equity markets after a volatile start to the year.

He said this recovery was accompanied by strongly rising commodity prices as world economic expansion and the rapid acceleration of demand by China for raw materials has created a demand imbalance in both the energy and metals areas.

"A further very important event has been the decline in the US dollar, with a "wink and nod" by the administration, as the US seeks to escape its debt and trade imbalances through devaluation. We believe that these trends will continue through the rest of the year and expect that though volatile, economic output, stock markets and commodity prices will continue to rise and the US dollar will fall," he said.

LOM group net revenues rose 45 percent over 2003 with all of our divisions reporting healthy increases. Broking revenues were up 44 percent, asset management revenues rose 23 percent, investment services revenues rose 30 percent and net interest earnings rose 23 percent.

In a new leasing business revenues rose 115 percent over the year. He added: "Given the success of the leasing business we plan to expand our leasing activities into Grand Cayman."

Mr. Lines said that LOM's work during the past three years in reducing overheads while continuing to invest in "straight through processing" technology in order to enhance productivity had paid returns.

"As business activity rose we were able to hold costs relatively stable and allow a significant proportion of those increased revenues to drop through to the bottom line," he said. "Although our costs during 2003 rose 21 percent, this is a result of larger commission costs, which are directly related to our broking activities, and the write off of our investment in the BSX. Excluding these costs group expense rose only six percent, largely due to a significant increase in professional fees."

And he said that going forward LOM expected to be faced with some cost increases related to business expansion in their main revenue areas but anticipated that growth in marginal revenue will be significantly higher than any increases in marginal costs.

Mr. Lines reported that overall 2003 group net profits rose to $3,043,300 or $0.48 per share, a 13.7 percent return on capital.

A special dividend of $0.25 per share in November of 2003 and said that they were pleased that the group was able to demonstrate a more acceptable return on capital during 2003.

At the end of 2003 book value per share was $3.77, and LOM held $13 million in cash on its balance sheet, representing 54 percent of total capital. The group has no debt.

Mr. Lines added: "Conditions in the offshore environment remain a difficult place in which to operate, and carry challenges and costs not faced by our onshore competitors.

"Though the attacks by the OECD upon the offshore world have waned, mainly due to a firm stance taken by Switzerland in terms of what would and would not be acceptable in terms of a global "level playing field", it seems that the regulatory bodies in Bermuda and the Channel Islands are "falling over themselves" to prove to the world's onshore regulatory bodies how co-operative they can be.

"Their priorities to a global "bureaucratic brotherhood" are placed above the jurisdiction's duties and obligations to its clients."