Bermuda's conservative financial and debt policies are unlikely to change regardless of which party wins the next General Election, a leading US credit rating agency said yesterday.

In its annual report on Bermuda, Moody's Investors Service yesterday said reaffirmed the Island's credit rating.

"The country's AA1 foreign currency country ceilings, AAA domestic currency government bond rating, and stable outlook reflect the island's prudent macroeconomic policies, favourable external position, and low debt and debt-service ratios," Moody's said.

And the agency said the Progressive Labour Party had continued the former United Bermuda Party Government's "commitment to sound fiscal policies and low government debt levels".

"Regardless of which party wins the 2003 election, we believe that there is little threat to the island's fiscal conservatism, including the long-standing policy of keeping government debt at less than ten percent of GDP," said Moody's Vice President Steven Hess, author of the report.

Moody's said it was also watching US Congressional moves to amend legislation against offshore tax havens like Bermuda, warning that any changes could affect the Island's international business sector.

"While tourism remains important, especially as a source of jobs, it has been replaced by offshore business as the largest industry and the driver of the country's economic activity," said Mr. Hess.

"Together, international business and tourism account for about 50 percent of GDP and 85 percent of foreign exchange earnings with tourism experiencing a steady decline over the last 20 years."

Moody's said tax law changes "could have a significant impact on Bermuda's insurance sector", though this is considered less likely following Republican success in the mid-term congressional elections. "Bermuda's regulatory and tax environment has successfully withstood scrutiny from the OECD and Financial Action Task Force investigations, which focused on tax harmonisation and money laundering," said Mr. Hess.

"Bermuda's tax and regulatory regimes have generally been judged as sound - an important factor in the island's ability to attract international business."

While both the insurance and tourism sectors were affected by the terrorist attacks on the World Trade Center, the Bermudan government took a number of steps that limited the effects on its fiscal position and on Bermuda's macroeconomy, said Moody's. "Bermuda's insurance sector had more than adequate liquidity to face the large losses caused by September 11," said Hess. "However, a loss of equal magnitude in the short term would inflict severe losses on the industry that could also affect the country's overall economic health."

The rating agency's report, "Bermuda: Global Credit Research," is a yearly update to stock and bond markets and is not a formal action to alter the credit rating of the issuer.