BF&M Ltd.'s first-quarter earnings plunged by 88 percent as the accounting value of conservative long-term investments fell by more than $10 million.

The insurer and pension provider recorded net earnings of $0.89 million for the first three months of the year, compared to $7.88 million in the same period last year.

Chief executive officer John Wight said the main reason for the decline was a fall in the value of long-term US Treasury securities, due to risng interest rates.

The company's insurance operations produced a strong quarter with gross premiums written rising 12 percent.

And the company's directors maintained the quarterly dividend payment to shareholders at 20 cents per share, for shareholders of record at June 30, 2009.

"While our core operating businesses performed well during the first quarter, our investment portfolio was adversely affected by the underperformance of, in particular, long-term US Treasury securities that decreased in value as interest rates increased," Mr. Wight said.

"Overall the fair value of investments decreased $10.7 million for the three-month period ended March 31, 2009. This compared with an increase of $2.5 million for the same period in 2008. These changes in fair value must flow through earnings in accordance with accounting standards adopted in 2007."

In an interview with The Royal Gazette, Mr. Wight stressed that all of the losses were unrealised — none were permanently written down — and he expected values to recover in future.

"With the fair value accounting rules, the volatility of all insurance companies' results will from quarter to quarter increase and it will be difficult to determine how well companies will perform," Mr. Wight said.

"We have a very conservative investment policy and in 2008, the value of our investments went down by one percent, which was an excellent return compared to our competitors, locally and internationally."

BF&M purchases products such as 30-year US Treasury bonds to match its long-term liabilities, such as annuities, with long-term assets.

Mr. Wight said 60 percent of BF&M's investment portfolio was in Government and corporate bonds and all of these were rated investment grade by independent rating agencies. The company has no direct exposure to the sub-prime mortgage market.

Five percent of BF&M's investment portfolio is in equities and the portfolio had been impacted by the fall in value of local companies during the quarter.

Gross premiums written for the first quarter increased 12 percent over the same period in 2008 to $54.35 million.

Total assets for the consolidated group at March 31, 2009 were $703.7 million, having risen seven percent over the previous 12 months. Shareholders' equity rose six percent to $155.32 million, compared to the prior year.