Bermuda’s wealth and strong institutions, including a top regulatory environment, are reflected in a rating agency’s decision to affirm long-term issuer ratings of A+ for the island today, with a stable outlook.

The new ratings report is from Kroll Bond Rating Agency, which said that Bermuda’s new corporate income tax could prompt more fiscal flexibility, although the agency acknowledges that risks exist.

KBRA also affirmed the short-term issuer ratings.

The foreign currency long-term rating and local currency long-term rating were both affirmed at A+, while both foreign and local currency short-term ratings were affirmed at K1+.

KBRA reported: “Bermuda’s stable outlook reflects its strides in fiscal consolidation and KBRA’s expectations that its status as a financial hub will continue to prosper.”

It said the island’s history of innovation has positioned it as a hub in emerging financial industries as it diversifies its international business services sector.

KBRA’s 2024 economic snapshot placed per capita income at about $100,000 and real gross domestic product growth up by about 4.5 per cent.

With no default history, and a low inflation rate (1.9 per cent), the island’s level of economic development was deemed high.

KBRA analysts said the ratings were affirmed because of key credit considerations.

They said: “Bermuda’s high wealth level and strong institutions, including a top-quality regulatory environment, underpin its status as a financial hub.

“Bermuda has been resilient to regulatory tax reform and is expected to be resilient to the global corporate income tax reform.

“The burden of a large government gross debt and financing costs are mitigated by large external assets principally in the government’s Public Service Superannuation Fund and the Contributory Pension Fund.

“The government’s net external asset position has tipped to negative territory at about -6 per cent of GDP, although the CIT reform should revert that ratio to surplus over the medium term.

“Fiscal restraint is integral to the policy environment and even if the tax produces a windfall, the government is expected to use it judiciously.

“Bermuda is well recognised for its world-class [insurance and] reinsurance and alternative capital sectors, such as insurance-linked securities. The expansion of new industries including in fintech and digital assets, and its promising role in climate mitigation finance, reflect Bermuda’s capacity to position itself for investment opportunities.

“IB services employment continues to grow and is at a record high, surpassing peak 2008 levels. Employment should surpass 2019 levels next year. Payroll taxes will be less important to the fiscal position with new CIT receipts.

“Bermuda appears likely to continue to post accelerated growth compared to the pre-Covid level and post-global financial crisis, when the island lost a substantial number of expatriates from its labour force. Immigration restrictions have eased but labour-related supply-side bottlenecks persist.

“About 10 per cent of employment is in tourism, the largest employer for Bermudians, and the island’s largest hotel is still closed.

“A strong IB services sector, improving capacity in hospitality, residential investment, immigration reform, sandbox initiatives and a payroll tax reform have assisted recent performance.

Bermuda has a reduced external vulnerability, the agency said, due to a large current account surplus and a sizeable net creditor standing, particularly in the financial sector. Lack of independent monetary policy and reliance on external funding are a vulnerability.

“Bermuda has no refinancing needs until 2027, and the fixed rate, long-term profile of government debt moderates risks. It is likely to be able to retire maturing debt given its expected fiscal performance.

“High capital levels at banks and strong supervision reduce risks.”

• For more on the KBRA Sovereigns Rating surveillance report for Bermuda, see Related Media

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