Stephen Catlin has come around to accepting the increasingly mooted argument that global warming will be a significant factor in increasing insurers’ losses in years to come.

The chief executive officer of the Bermuda-based Catlin Group, the biggest insurer on the Lloyd’s of London market, said he had overcome his earlier doubts over the merits of the theory.

“I think it’s becoming increasingly clear that global warming is an issue for the insurance industry,” Mr. Catlin said. “I wasn’t immediately convinced. When you look back over the last 100 years, there have been periods of intense hurricane activity and benign periods.

“It was difficult to say at the get-go whether that was anything to do with climate change. But it does appear that there is an underlying trend arising for hurricanes to be more intense. And that is likely to lead to more catastrophe losses.”

Mr. Catlin’s comments come after Swiss Re, the world’s biggest insurer, said last week it expected global warming to lead to increased insurance claims in the future. And Lloyd’s chairman Peter Levene said earlier this year that climate change is the “number one issue” for the insurance industry.

The 2005 season saw a record number of Atlantic hurricanes — 15 — including Katrina, one of the worst natural disasters in US history. Some scientific studies have linked global warming to an increasing frequency and intensity of storms.

In an interview with The Royal Gazette, Mr. Catlin also talked about how Wellington Underwriting, a Lloyd’s rival bought by Catlin late in 2006, was now fully integrated into the Catlin operation.

Catlin owns a Bermuda property and catastrophe reinsurance unit, as well as its Lloyd’s Syndicate, and Mr. Catlin said the Island was “here to stay as an insurance market of excellence”.

He added that Bermuda had made great strides in insurance regulation over the past 20 years — although its regulators did not yet match the standards of the world’s best.

Last week Ace Ltd. CEO Evan Greenberg said financial regulator Bermuda Monetary Authority (BMA) was making progress towards better regulation — but more and higher-qualified staff were needed for the Authority to secure the Island’s reputation and future as a leading jurisdiction.

“I have a lot of sympathy with Evan Greenberg’s remarks,” Mr. Catlin said. “I think the BMA is moving in the right direction and I think it’s important that Bermuda is well and strongly regulated. It is very different from the early 1980s when there was virtually no regulation.

“As the headmaster of my old school used to say, ‘If there is one rotten apple in the barrel, it can bring the whole lot down’. It certainly would be a bad thing for Bermuda if a company went down because of a lack of regulation. And Bermuda regulation is not as strong as the FSA (the UK’s Financial Services Authority).

“I am now a fan of the FSA. It has gone from being prescriptive to statement of intent.

“That’s what you want to know from a regulator: What are the principles you should adhere to?”

Catlin Group became the biggest insurer on the Lloyd’s market after it paid around $1.1 billion to acquire Wellington. The deal looks like a good one after Wellington posted profits of $245 million last year, bouncing back after being badly hit by hurricane losses in 2005.

Merging Wellington’s operations with the Catlin Group is a process that has gone remarkably smoothly since the takeover was finalised last December, Mr. Catlin said.

“I think if you plan ahead of time and execute your plans quickly, then teething problems can be minimised,” Mr. Catlin said. “It’s all gone much better than expected.

“Less than three months after the closure of the transaction, all Wellington’s London staff had been relocated. Some of the underwriters moved the next day. And the rest of the staff had all moved by February 4.”

Loss of Wellington staff had been minimal, he added. “Of about 1,000 employees, we lost 80,” Mr. Catlin said. “Thirty resigned and 50, we let go. We lost only eight underwriters.

“But the bigger issue for us was how much of Wellington’s business we would be able to retain. When we acquired Wellington, our business thesis was that we would lose as much as 30 percent of Wellington business. But during the January 1 renewal season we were able to retain virtually all of it.”

Catlin announced last week that it made a $275 million pre-tax profit in 2006 — up twelvefold on the previous year. Coupled with the $245 million net earnings of Wellington, it gave the group results far better than analysts expected.

Mr. Catlin believes the Catlin Group is well set for more success in 2007, whether or not hurricanes strike the US.

“In 2005, we outperformed the vast majority of the Bermuda marketplace,” Mr. Catlin said. “We made the decision to ‘de-risk’ — reducing our property catastrophe exposure by approximately one third.

“I think 2006 was an unusual year in that it was so benign, but I think that going forward you have to assume there will be catastrophe losses on a regular basis, judging by the storms we have seen over the past ten years.

“As far as the property catastrophe market is concerned, I think rates will remain as they are. Who knows whether the wind is going to blow or the earth is going shake? But there continues to be a shortage of supply of property catastrophe reinsurance.”

The Catlin Group’s diversification of lines of business will help it to withstand a catastrophe-heavy year. It provides insurance for satellites, aeroplanes, medical malpractice and equine insurance, as well as many other specialities.

“In many respects, 2006 was a very good year, but we had two big losses in our satellite business,” Mr. Catlin said. “Our equine line, covering pony clubs, does not get hit by big losses, but does receive a steady level of claims. Diversification is good.”

The CEO spends one week in Bermuda, one week in the US and one week in the UK every month, with the other week spent “where I need to be”. He has seen big changes in Bermuda since he founded the company in 1984.

“As we all know the infrastructure of Bermuda is under a certain amount of pressure and that is creating a plethora of issues, including housing, education and the population of the Island for its size,” Mr. Catlin said. “It’s getting increasingly difficult to get the staff in Bermuda at a sensible cost.

“I think, provided the Government is strong and provided it enacts laws supporting the growth of business in Bermuda and supports the native Bermudian in terms of getting employment, then I think Bermuda is here to stay as an insurance market of excellence.”

Mr. Catlin occasionally has a moment to pause and take stock and admits to scarcely believing how the company he started 23 years has become a major global player.

“I often have to pinch myself when I wake up in the morning,” he said. “My next thought is to look forward with what needs to be done next, because there is still so much to do.”