BF&M Ltd. took a financial hit from "very substantial legal expenses'' in the first half of 1999 totalling nearly $3 million, according to the insurance group's unaudited financial results released yesterday.

BF&M said the cost of the Bermuda Fire civil case currently being fought in Supreme Court Number 5 totalled $2,998,945 in the six months to June 30 -- versus $727,093 for the first half of 1998. This resulted in net earnings of $3.5 million for the period. But the company-noted results before the legal expenses showed a strong nearly 16 percent increase in earnings for the first half year to $6.5 million.

In a statement accompanying the results, Glenn Titterton, president and chief executive officer of BF&M, said: "Legal expenses included non-recurring Brief Fees to secure the services of leading London counsel, the heavy cost of preparation for the start of the court case and the costs of the first two months before the Supreme Court.'' However, legal expenses, Mr. Titterton added, are expected to be "considerably lower'' in the second half of the year.

The financial statements for the first six months of 1999 also show that BF&M's gross premiums increased by 12.8 percent to reach $34.8 million, compared with $30.8 million for the first half of 1997. Net premiums earned increased by 17.6 percent, thanks to the company reinsuring a smaller percentage of its gross premiums -- 26.6 percent in the first half of this year, against 29.5 percent for the comparable period a year earlier.

Growth of 15 percent in investment income for the period and a small increase in commissions and other income resulted in the company's income earnings for the first six months of 1999 reaching $34.5 million, ahead by 14.8 percent on the first half of 1998.

BF&M's operating expenses also increased by 12.8 percent in the first half of 1999. Also up were depreciation and commissions paid.

Claims and benefits paid in the first half of 1999 totalled $20.5 million, up 14.8 percent on a year earlier.

The outcome was operating earnings, before legal fees, for the six months ended June 30, 1999 of $6.5 million, a jump of 15.6 percent on the first half of 1998.

But legal fees, shown separately in the company's financial statements as a "below the line'' item, reduced net earnings for the six months to $3.5 million, a fall of 28 percent from last year's $4.9 million at the half-way point.

Commenting on the six months' results, Mr. Titterton said: "The success of our operating subsidiaries in the face of a rapidly changing business environment and the current soft market is a source of great pride.

"In this context, it is most satisfying to be able to report that our business is strong and growing.'' Among the company's operating divisions, the earnings of BF&M General Insurance Company increased by six percent year-on-year, although the Marine account produced an operating loss; net operating income in property and casualty accounts was "strong''; BF&M Life Insurance Company earnings increased by 23 percent; and income from risk management services produced what Mr. Titterton described as "a very satisfactory increase in net income.'' Separately, the company reported that it is "Y2K ready''.

BUSINESS BUC