Bermudas Sovereign Ratings

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Bermudas Sovereign Ratings
Casey Reckman, Associate Director 30 September
2009
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Agenda
Fitch Ratings Overview
Bermudas Sovereign Ratings
Fitch Ratings Global Economic Outlook
Bermudas Economic and Ratings Outlook
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Agenda
Fitch Ratings Overview
Bermudas Sovereign Ratings
Fitch Ratings Global Economic Outlook
Bermudas Economic and Ratings Outlook
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Fitch Ratings

• Fitch Ratings is a leading global rating agency
  committed to providing the worlds credit markets
  with accurate, timely and prospective credit
  opinions. Built on a foundation of organic
  growth and strategic acquisitions, Fitch Ratings
  has grown rapidly during the past decade,gaining
  market presence throughout the world and across
  all fixed income markets.
• Fitch Ratings is dual-headquartered in New York
  and London, operating offices and joint ventures
  in more than 50 locations and covering entities
  in more than 150 countries. Fitch Ratings is a
  majority-owned subsidiary of Fimalac, S.A.,
  headquartered in Paris, France.

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Key Points

• Fitch Ratings helps issuers
• Broaden and diversify investor base
• Enhance liquidity and funding flexibility
• Pay consistent and appropriate yields
• How Fitch Ratings does it
• Timeliness and accuracy of ratings and research
• Recognized expert among investors, issuers, media
  and the sell side
• Clear and transparent rating methodology
• Analyst accessibility
• Effective communication to institutional
  participants

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Fitch Ratings is a global player with offices in
all major markets
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Fitch Ratings disseminates research, and analysts
maintain open dialogue with influential
investors, banks, and other key market
participants
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Mandate to Publication The Ratings Process
Explained
Ongoing dialogue and application of ratings to
new issues
Ratings released to public domain. Full rating
report available to subscribers
Preparation of final rating report and press
release
Rating committee review and decision
Ratings publicly released following agreement
with relevant authorities
Rating committee presentation and draft report
Authorities informed immediately
Further analysis
Sent to authorities for factual review and
confidentiality
Process requires interactive dialogue with
sovereign


Rating Mission
Agenda for Rating Mission
Review of available information
Primary and Support analysts designated
Rating Agreement Signed
Sovereign sends required information. Dates for
meeting
Time Line sensitive to information flow!
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Sovereign Rating Methodology

• Public Finances
• Fiscal sustainability and flexibility
• Debt dynamics
• Debt profile and management
• Payment history
• External Finances
• Gross and net solvency indicators
• International liquidity ratio
• Balance of payments sustainability
• External financing needs

• Macroeconomic Performance and Policies
• Track record of macroeconomic stability
• Capacity to withstand shocks
• Predictability and transparency
• Economic growth and inflation trends
• Structural Characteristics
• Political and social stability
• Business and investment climate
• Domestic savings and investment rates
• Financial sector

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Agenda
Fitch Ratings Overview
Bermudas Sovereign Ratings
Fitch Ratings Global Economic Outlook
Bermudas Economic and Ratings Outlook
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Selected high-grade peers
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Macroeconomic Performance and Policies Strength
Real GDP (5-yr average change)
Consumer prices (annual average change)
Source Fitch Ratings
Source Fitch Ratings
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Structural Characteristics Neutral
Governance Indicators (2008)
Structural Indicators (2008)
Govt Effectiveness
Sources World Bank, Fitch Ratings
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External Finances Neutral
Current Account Balance ( GDP)
Net Sovereign External Debt ( CXR)
Source Fitch Ratings
Source Fitch Ratings
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Public Finances Neutral
General Government Balance ( GDP)
General Government Debt ( GDP)
Source Fitch Ratings
Source Fitch Ratings
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Agenda
Fitch Ratings Overview
Bermudas Sovereign Ratings
Fitch Ratings Global Economic Outlook
Bermudas Economic and Ratings Outlook
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Share Price Indices
Source Datastream
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3-Month Libor-OIS Spread
Source Bloomberg
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Volume of World Merchandise Trade
(2000 100)
Source Dutch Bureau for Economic Policy Research
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Industrial Production
Sources Fed, Eurostat, Ministry of Economy
(Japan), ONS
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Manufacturing Purchasing Managers Indices
Source Bloomberg
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Services Purchasing Managers Indices
Source Bloomberg
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Fiscal Policy will Gain Traction
Automatic Stabilizers and Fiscal Policy Easing in
2009
Impact on fiscal deficit, GDP
Sources IMF, Fitch Ratings
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Consumer Confidence
Sources Conference Board, European Commission,
Cabinet Office (Japan)
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The Growth Forecast
GDP Growth in U.S., Euro area, UK, Japan

Source Fitch Ratings
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June GEO Against Previous Recoveries in GDP
U.S.
GDP in quarter prior to recession 100
Source Fitch Ratings
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Household Sector Deleveraging Pressures
Household Debt ( of Disposable Income)
Debt Service Burden ( of Disposable Income)
Interest regular mortgage repayments
unsecured debt payments assuming 5 year maturity
Sources Fed, ONS, BOE, Fitch
Sources ECB, Fed and ONS
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UK Unemployment Should Peak Below 1980s
Unemployment Rate and Annual GDP growth


Sources Datastream, Fitch Ratings
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U.S. Unemployment More Stable Through Time
Unemployment Rate and Annual GDP growth


Sources Datastream, Fitch Ratings
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What Impact From Quantitative Easing?
Central Banks Balance Sheets ( of GDP)
Bond Market Implied Inflation (5 years ahead)
Source Fitch Ratings
Source Bloomberg
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Fiscal Policy Easing Has Its Limits
General government Gross Debt
( GDP)
Source Fitch Ratings
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The June 2009 Global Economic Outlook Forecast

• Green shoots in financial sector and in
  confidence
• Stabilization of the world economy in mid-2009
• Return to positive growth in 2009H2 and 2010
  driven by
• Normalization of trade finance
• Inventory cycle
• Policy stimulus
• But projected recovery is anemic and very weak by
  historical standards
• Households are deleveraging
• Unemployment still rising well into 2010
• Credit supply is constrained
• Monetary policy will remain expansionary until
  late 2010
• 2011 can the private sector take over?

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Global Forecast Summary
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Agenda
Fitch Ratings Overview
Bermudas Sovereign Ratings
Fitch Ratings Global Economic Outlook
Bermudas Economic and Ratings Outlook
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Key Indicators Bermuda (AA, Stable)
Sources IMF IFS, National Authorities, Fitch
Ratings
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Macroeconomic Performance and Policies Stable
Trend
REER Volatility (10-yr rolling SD)
Inflation and GDP Growth ()
Source Fitch Ratings
Source Fitch Ratings
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Structural Characteristics Stable Trend
GDP per capita (USD, mkt exchange rates)
Gross Domestic Savings ( of GDP)
Source Fitch Ratings
Source Fitch Ratings
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External Finances Stable Trend
Liquidity Ratio ()
Net External Debt ( of CXR)
Source Fitch Ratings
Source Fitch Ratings
www.fitchratings.com
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Public Finance Stable Trend
General Government Debt ( of Revenues)
Revenues and Grants ( of GDP)
Source Fitch Ratings
Source Fitch Ratings
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Key Rating Drivers

• Sizeable fiscal slippage which results in a
  sustained increase in the sovereigns debt burden
  could put downward pressure on Bermudas ratings.
• Changes in Bermudas tax regime which result in
  erosion of the territory's attractiveness as a
  domicile for international companies could also
  be negative for creditworthiness.
• Fulfillment of the governments expressed
  commitment to fiscal consolidation and debt
  reduction when the economy recovers would help
  uphold Bermudas ratings.

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