Ratings agency Moody’s has downgraded Bermuda’s macro profile from “moderate+” to “moderate”.

The agency said the move reflected “the lowering of its assessment for institutional strength based on the World Bank’s worldwide governance indicators for rule of law and government effectiveness”.

The Moody’s report said: “Bermuda’s moderate macro profile represents a balance of Bermuda’s very high institutional strength and a limited susceptibility to event risk, against the challenges of a small economy with limited diversification and poor growth of recent years, despite the island’s high gross domestic product per capita.

“Bermuda also lacks a central bank or true lender of last resort, leaving it with no institutionalised mechanism to assist banks in the event of distress.”

Moody’s also lowered its assessment of Bermuda’s institutional strength from “very high+” to “very high”.

The update said the change was “a result of the lowering of the World Bank’s worldwide governance indicators for rule of law and government effectiveness by six and one level respectively, in accordance with its bank rating methodology”.

It added: “The change in profile reflects the weaker assessment of this key macro strength of Bermuda as well as its low score for economic strength relative to both ‘moderate+’ and ‘moderate’ peers.”

But the report said: “Bermuda’s institutions nevertheless continue to score highly compared with other rated sovereigns according to the World Bank survey.

“Strong scores for government effectiveness and rule of law reflect the government’s strong willingness to respect contracts and repay debt, as well as its capacity to promote economic policies that support growth.”

The Moody’s report added that Bermuda’s regulatory framework supports the development of a globally competitive insurance industry, which is a major component of the economy.

It added that banking regulations reflect global standards as the Basel III capital and liquidity requirements were introduced last year.

The change in the macro profile does not affect the financial factors or stand-alone baseline credit assessment of Butterfield Bank, which is A3 negative, and the only rated Bermudian bank.