KBRA Assigns A+ Long-Term Ratings to Bermuda

Kroll Bond Rating Agency (KBRA) assigns A+ long-term issuer ratings to Bermuda. KBRA also assigns K1+ short-term issuer ratings to the sovereign. The long-term ratings have a Stable Outlook. The ratings are unsolicited.

Ratings
RatingOutlookAction
Foreign Currency Sovereign Rating – Long TermA+StableAssigned
Local Currency Sovereign Rating “ Long TermA+StableAssigned
Foreign Currency Sovereign Rating “ Short TermK1+Assigned
Local Currency Sovereign Rating “ Short TermK1+Assigned

Main Credit Support Factors:

  • Stable policies and sound management of the economy
  • Successful development of its insurance and reinsurance sectors
  • High wealth level as measured by per capita income exceeding $100,000
  • Strong institutions as marked by a high quality regulatory environment “ critical underpinnings of its status a financial hub
  • Low external vulnerability due to large current account surpluses and sizeable net external asset positions of the financial sector (and less so, the government)

Main Credit Concerns:

  • Tax changes in the U.S. under the Tax Cuts and Jobs Act (2017) reduce the attractiveness of Bermudas insurance and reinsurance industries which rely on investments from largely U.S. concerns.
  • Very weak growth since the financial crisis underscores Bermudas high degree of economic concentration
  • Significant competition from Caribbean tourism destinations
  • Limited policy tools to manage the economy, given the pegged exchange rate to the U.S. dollar (and lack of independent monetary policy). There are considerable constraints to using the government balance sheet including the limited domestic capital market.
  • Sizeable debt burden and debt financing costs

Bermudas economy is characterized by a very high per capita GDP of over $100,000 and strong and stable institutions. Bermuda has developed a niche in international financial services, especially insurance and reinsurance, thanks in part to its favourable tax structure and its very sound regulations, supervision, and economic policies, all of which make it an attractive destination for such industries. The Global Financial Crisis led to a large-scale drop in employment (and population) in the international financial services sector, with negative consequences for the economy. The protracted recession caused fiscal deficits and debt to expand but policy measures and the return to growth are leading to stronger fiscal consolidation.

New tax measures under the U.S. Tax Cuts and Jobs Act (TCJA) signed into law at YE 2017 introduce uncertainties for the insurance and reinsurance industry, but KBRA expects the negative impact to be contained due to adjustments being made in the industry to mitigate the change. KBRAs recent report on Bermudas insurance industry describes our expectation for innovation to foster growth despite the headwinds. KBRA expects that Bermuda will diversify into new niche industries such as fintech and cybersecurity successfully, thanks to its regulatory status, its high quality regulatory environment, and its proven ability to innovate. Bermudas large net international creditor position and double digit current account surpluses enhance its sovereign ratings, as does its responsible yet adaptive business environment.

The Stable Outlook on the ratings reflects KBRAs expectation that fiscal consolidation and debt reduction will continue to proceed, based on the return to stable positive economic growth and employment creation.

The rating methodology used for these ratings was Sovereigns Rating Methodology published on May 10, 2017.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Analytical Contacts:
KBRA
Joan
Feldbaum-Vidra, Managing Director
646-731-2362
[email protected]
or
Alan
Madden, Director
+353 (1) 669-2683
[email protected]
or
Van
Hesser, Senior Managing Director
646-731-2305
[email protected]