Climate change could put Bermuda at risk of greater economic damage and dent its sovereign credit rating more than many countries and islands.

That is the finding of a speculative report by Standard & Poor’s Ratings Services.

Using direct damage data from Swiss Re, the agency estimated the possible adverse effect of climate change on 38 countries.

It based its measurements on the expectation of a once-in-250-year natural catastrophe event striking, and the impact being exacerbated a further 20 per cent to represent the magnified additional damage expected to be inflicted due to climate change.

Projected out 35 years to 2050, the report suggests the costs associated with a once-in-250-year hurricane would increase Bermuda Government’s debt by 16 per cent of gross domestic product. That assessment jumps a further 8 per cent once the additional damaging impact of climate change is factored in.

Bermuda’s sovereign credit rating would be negatively impacted by 1.48 notches by such a catastrophic hurricane, and by a further 0.79 as a result of the added impact from climate change.

That places Bermuda squarely among countries and islands most likely to feel significant pressure on their rating.

While the report is highly speculative in nature, and is the first such survey undertaken by S&P, its findings give an interesting overview of potential future scenarios.

“In terms of average impact of climate change by peril, our simulations show that tropical cyclones and associated storm surges will be more damaging than floods as the Earth’s temperature rises. Geographically, ratings of sovereigns in the Caribbean and Southeast Asia appear most at risk,” said Marko Mrsnik, a S&P credit analyst.

The report, named The heat is on: how climate change can impact sovereign ratings, notes that wealthier nations should withstand climate change impacts, something picked up by Robert Hartwig, chief economist at the New York-based Insurance Information Institute.

“There are going to be countries that will be more vulnerable than they are today because of climate change,” he said. “Poorer and smaller nations will be vulnerable. But while Bermuda is one of the top ten [most affected] listed the effect on it might have been exaggerated, because Bermuda is in a different economic class than the others.”

The Bahamas, Dominican Republic, and Jamaica are among other countries in the top ten list of those facing the greatest potential impact.

“Bermuda is easily the most affluent among the top ten and is probably in a better position to invest in ways to mitigate the worst effects,” said Dr Hartwig.

This point was also reflected in the thoughts of Grant Gibbons, Minister of Economic Development. He said: “Bermuda is likely to be less affected and more economically resilient to hurricanes than other Caribbean sovereigns who feature in the report.

“In fact, Bermuda’s damage ratio and vulnerability have generally been a fraction of other Caribbean islands that don’t build to our standards.

“In addition the report notes the mitigating impact of higher insurance coverage on the economic consequences of cyclones — and again, Bermuda, on average, has high insurance cover penetration both for Government and the private sector.”

Dr Hartwig warned the report should be taken with a pinch of salt as it focused on possible events 35 years into the future. Furthermore, he said geopolitical and economic situations, as opposed to natural disasters, were normally the primary agents of change regarding sovereign credit ratings.

Likewise, Dr Gibbons noted that S&P said its report was “merely partial analysis of how climate change would affect sovereign ratings”, was a simplified model and should not to be taken as the company’s definitive view on likely future ratings trajectories.

However, he also observed: “The general view among both the public and most climate scientists is that global warming will likely make hurricanes more severe and possibly more frequent, so there’s no doubt that Bermuda needs to be well prepared, given our historical exposure.”