Local insurance company the Argus Group has posted lower earnings than the previous year at the same time as experiencing a significant increase in investment income.

Argus reported yesterday that its net earnings for the year ended March 31, 2002 were $12.47 million, a 12.31 percent drop over the $14.22 million earned in the previous year.

The drop in income was attributed to poor underwriting results from the Group's health insurance and motor portfolios.

President and CEO Gerald Simons said: "Health insurance claims increased alarmingly in the year far outstripping premium increases imposed at renewal.

"In addition to being faced with several large neo-natal claims this year, prescribed drug claims increased dramatically and utilisation increased noticeably across all health claim categories.

"The end result was a significant underwriting loss in the health portfolio.

"Our motor portfolio also experienced an underwriting loss. However, premium increases have now been effected in both the health and motor portfolios which, supported by careful underwriting, should improve this situation in the current financial year," Mr. Simons said.

Looking at lines of business that did well over the last fiscal year, Mr. Simons said: "Local life operations were very successful this year and Bermuda Life Worldwide Limited also made a significant contribution to earnings. The Group's pension and annuity business also performed creditably," he said.

Mr. Simons added: "During the year we continued our efforts to build our international life insurance operations and expenditures of almost $1million were incurred in creating product and a viable business process. We have chosen to write off this expense against earnings this year and we are confident that this expenditure will generate significant earnings in the years ahead."

Total premiums written, net of reinsurance, was $96.77 million compared to $55.55 million in the previous period.

Mr. Simons reported that $34 million of the $41 million premium increase related to the acquisition of a sizeable portfolio of immediate annuities.

Operating expenses and commissions increased from $16.4 million to $18.44 million or by 12.41 percent.

To this end, Mr. Simons said the company considered expenses to have peaked following a period of substantial change to the Group's products, computer hardware and operating systems.

"We are committed to reducing operating costs to their historic and more acceptable levels." he said.

Despite lower earnings and increases in operating expense, Argus saw a 34 percent increase in its investment income from $14.26 million the previous year to $19.11 million for the year ended March 31, 2002.

The return on investment was something Mr. Simons called "a remarkable result," adding: "Argus is fortunate in that our investment portfolio has been split between international investments and investments in companies quoted on the Bermuda Stock Exchange. It happens that during the period when international investments have not done very well, the Bermuda Stock Exchange has performed exceptionally well. And we are a beneficiary of that significant performance in Bermuda. It is a classic example of diversification."

General account assets of the Group at March 31, 2002 totalled $283 million and separate account assets under the Group's control were $442 million. Shareholders' equity at March 31, 2002 stood at $103 million.

The Argus Group is a multi-line insurance organisation and the leading provider of employee benefits in Bermuda. Argus is the first and only Bermudian owned insurance company to be rated A (Excellent) by rating agency AM Best.