The increasing cost of employing people in Bermuda will add to the pressure on the Island's global re/insurers to locate more jobs in cheaper jurisdictions.

That is the view of Stephen Catlin, co-founder and chief executive officer of Catlin Group Ltd., who said the increases in payroll tax announced by Finance Minister Paula Cox in last month's Budget came as a shock.

The rate of payroll tax for the coming fiscal year will be raised from 14 percent to 16 percent. In addition, a rise in the payroll tax cap means that high earners will pay the tax on their first $750,000 of employment income, rather than the first $350,000.

"Nobody likes a nasty surprise," Mr. Catlin said during an interview at Catlin's Victoria Street offices yesterday, where the company employs around 60 people. "I don't think the insurance industry had this adequately flagged. It was a shock.

"I really think that going forward — and I recognise that this is a two-way street — better communications between Government and the insurance industry would be a good thing. Both sides have to embrace it for it to happen."

Companies setting their budgets for this year had needed to build the increased employment expenses into their business models, Mr. Catlin said, adding that the extra costs were significant.

Monitoring the cost of its staff in different jurisdictions is an ongoing exercise at Catlin, which has 47 offices around the world.

"All of us who run global companies have a choice of where we employ people," Mr. Catlin said. "We need our underwriters at the coal face — they have to be where the business is done — but the support for those underwriters does not have to be in the same place.

"It's not cheap to employ people on the Island and I would urge the Government to be mindful of that when they make increases in employment costs.

"We know exactly what it costs to run each office and the costs per head of our employees, so we are constantly comparing and contrasting. Like every public company, we have a fiduciary responsibility to our shareholders to keep expenses down. And our people are a large part of our expenses."

He cited the example of Catlin's Kuala Lumpur office, where around 85 percent of the company's data inputting is done. Opened five years ago, the office has been a success. Mr. Catlin said the employees took pride in their work, did it well and were so happy to have their jobs that turnover had been virtually nil.

Catlin, a Lloyd's of London insurer, moved its holding company to Bermuda from London in 1999 and opened an underwriting operation on the Island in 2002. Last year, as the group made record net income of $600 million, the Bermuda office wrote some $450 million in mainly property catastrophe and casualty reinsurance premiums — around 15 percent of the group's total.

The group runs through a string of hub offices located in Bermuda, London, Atlanta, Toronto, Cologne and Singapore, all of which Mr. Catlin visits on a regular basis.

Asked whether Catlin planned to follow the example of Flagstone, which yesterday said it planned to redomesticate to Luxembourg, Mr. Catlin said: "We don't intend to move our holding company from here in the foreseeable future.

"We have looked at it — there is not a company that does not review where it is domiciled on a regular basis. We have a duty to do that."

Every jurisdiction had its challenges, Mr. Catlin said. In Bermuda, he felt there was a real need to instill in children the realisation that they could grow up to prosper and take some of the great opportunities the Island offers.

"In Bermuda, I think a rebalancing of the social strata is an important thing to do," Mr. Catlin said. "The key is get young Bermudians, especially boys, by the age of 10 to have a purpose in life and a self-belief that they can make themselves a decent living.

"If you just achieved that one thing, then a lot of things would change for the better."

Catlin has been proactive in its attempts to boost opportunities for young black males through a mentoring partnership started three years ago with CedarBridge Academy, which gives participants the opportunity to go on to further education, with some funding help.

Recent shooting incidents and a rise in crime had heightened the importance of ensuring children grew up with aspirations they could pursue.

"I think the business community has a responsibility to help the community and the Government to get through this," Mr. Catlin said. "We can't employ people who can't write or add up, but what we can do is help with people's education."

This year marks the 25th anniversary of Catlin, which started out on the Lloyd's market as a two-man operation and has grown into a global operation which wrote $4 billion in premiums last year and employs 1,500 staff around the world. For Mr. Catlin it's been "quite a journey".

During that time, he has seen London's relationship with the Bermuda market evolve. In the early 1980s, he said, London had not regarded Bermuda as a serious market. The formation of Ace Ltd. and XL Capital Ltd. in the mid-1980s boosted the Island's claim to being a financial centre.

"In the early 90s a lot of people in London viewed Bermuda with some contempt and as being hostile competition," Mr. Catlin recalled. "We have come a long way from that. Thirty percent of Lloyd's capital is now provided by the Bermuda market.

"Now I think Bermuda and Lloyd's reinsurers view each other with respect and see healthy competition. They recognise that they are part of a marketplace that neither party could own in its entirety."

When Catlin became the first London insurer to redomicile in Bermuda, Mr. Catlin recalled that some of his peer group in London had been less than impressed. But several have followed, including Hiscox, Omega and Hardy Underwriting, while others like Amlin have set up operating platforms on the Island.

"A lot of us now have a foot in both camps," he said. "Bermuda is geographically much closer to the US and so it's easier to write US business from here."