The third pillar of the Island's economy should focus on investments held abroad by Bermudians, a Centre Reinsurance (Bermuda) Ltd. underwriting vice president said yesterday.

"Government has an obligation to encourage Bermudians to diversify beyond these shores,'' David Cash said.

Freedom to invest abroad would generate foreign investment income, which would ultimately strengthen Bermuda's economy, he said.

Tourism and international business, the twin pillars of Bermuda's economy, currently generate similar foreign exchange earning amounts.

Much has been said about Bermuda becoming a global financial centre but "rather than focusing on providing financial services to the rest of the world, I would like to see consideration given to encouraging the rest of the world to provide them to Bermuda.'' Bermudians are currently limited as to how much they can invest abroad though foreign exchange controls are being relaxed.

"Probably the single most important thing that could be done is to remove currency control completely and start a broad programme of investment education for Bermudians,'' he said.

"There will be a period of dislocation (but) the money would come back.'' Mr.

Cash made the comments at yesterday's Hamilton Lions luncheon.

The inability to invest abroad has resulted in real estate overexposure, he said.

"By my estimation, over 80 percent of local assets are linked to the value of the local real estate market.

"I don't know anyone who would want to have 80 percent of their investments in one product,'' he said.

That percentage includes Bermudians holding about 37 percent of their assets in homes, about 20 percent in rental units and about 24 percent in bank deposits.

"Historically, the most significant function of a bank was to accept deposits and make mortgage loans and this worked well until it became common for individuals to lend their money to corporations directly by purchasing stocks and bonds.

"At that point, the banks no longer had access to a captive source of capital and were obliged to seek capital from the financial markets by securitising mortgages,'' he said.

In banking, securitisation is the conversion of loans and other assets into marketable securities for sale to investors. The process merges credit and capital markets and spreads risk.

"Currently, this is just possibly starting in Bermuda and it needs to be increased as quickly as is feasible,'' Mr. Cash said.

Govt. urged to open doors for overseas investment Bermuda banks need to securitise mortgages because a significant portion of their assets are tied up in one product in one country, housing in Bermuda, he said.

"In order to supply the banks with capital to finance mortgages, it is necessary to limit the investment opportunities for Bermudians.

"As a result Bermudians are typically overinvested in the local economy -- the banks -- and as a result lose the opportunity to diversify their sources of income.'' Mr. Cash is a Fellow of the Casualty Actuarial Society who attended University of Waterloo as the Sir Harry D. Butterfield Scholar and Oxford University as Bermuda's Rhodes Scholar.

Since graduating from Oxford, he has worked in New York with actuarial firm Tillinghast and later ZRC, an affiliate of Centre Re. He joined Centre Re (Bermuda) in March.

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