24 May 2013News

Moody’s Bermuda downgrade linked to insurance industry

Following a review for possible downgrade initiated on April 3rd, Moody’s Investor Service has downgraded Bermuda’s government bond rating and placed a negative outlook on the rating. The bonds are now rated Aa3. Local currency bond and deposit ceilings were also moved down. According to the ratings agency, a lack of growth in the Island’s insurance sector was a factor in the downgrade.

Moody’s said the downgrade was prompted by a rise in government debt and a failure of the Bermudian economy to recover from the 2008 downturn. The debt, which has grown from 5.8 percent to an estimated 28.1 percent of GDP, is expected to top 30 percent according to the OBA’s inaugural budget. Moody’s traces Bermuda’s ills back to the ailing tourism industry and “less dynamic growth in the insurance sector”. The failure of both industries to pick up could “limit the pace of future growth”.

While Moody’s does expect the Bermudian government to address the rise of the debt, the agency considers their powers limited by the poor performance of the economy. The ratings agency wrote: “if the economy begins to record positive growth and the government is able to contain the rising debt trend, the rating outlook could return to stable. However, a continuation of the economic downturn and a lack of significant fiscal policy measures could prompt a further downgrade of the rating.”