Bermuda-based Mutual Risk Management Ltd. yesterday reported that the second half of last year was a disappointing one for it despite the company remaining profitable.

The news came in a joint statement from Chairman and CEO Robert A. Mulderig and President John Kessock, Jr., in which the firm announced its operating results for the fourth quarter and year ended December 31, 1999.

The pair said: "The second half of 1999 proved to be disappointing for Mutual Risk. For the first time as a public company our earnings failed to meet analysts' expectations.

"However, even during this disappointing year, Mutual Risk was solidly profitable.'' The news was backed by trading on the New York Stock Exchange which saw the company's share price rise 13/16, or 5.73 percent, to close at $15.

Fee income increased by 13 percent. Return on equity dropped but amounted to 17 percent excluding provisions for losses on terminated programmes taken in the third quarter, substantially above the industry average.

Mr. Mulderig and Mr. Kessock Jr. noted that the future also looked bright for the firm.

"We believe that 1999 will mark the bottom of the 12-year commercial property casualty market cycle, and that the next couple of years will present Mutual Risk with exceptional opportunity.

"Our Balance Sheet is strong and we have the experienced people and the tested products to take advantage of an improving market.'' For the fourth quarter of 1999, operating income amounted to $10.2 million or $0.25 per diluted share compared to $16.1 million or $0.35 per diluted share in the 1998 fourth quarter.

As expected, the fourth quarter of 1999 produced lower operating income than the third quarter, excluding the previously announced provisions, due to increased operating expenses and decreased fees and investment income.

For the full year, operating income amounted to $63.6 million or $1.40 per diluted share, excluding the provisions for losses on terminated programmes taken in the third quarter of $0.16 per diluted share as compared to the $1.43 per diluted share in 1998.

Fee income decreased slightly for the fourth quarter to $40.7 million, but increased 13 percent to $177.7 million for the full year as compared to $157.3 million in 1998.

Net investment income increased by eight percent to $8.4 million in the fourth quarter and by 14 percent to $33.6 million for the year.

The increase in investment income for the full year is due, in part, to the inclusion of investment income from one of the company's programmes, accounted for as claims deposit liabilities, which added $2.8 million for the year.

Excluding this, investment yields were 7.8 percent in the fourth quarter and 7.1 percent for the full year as compared to seven percent and 6.9 percent in 1998.

The increase in investment income was offset by realised capital losses in the portfolio.

Operating expenses increased 26 percent for the quarter and full year to $35.6 million and $128.5 million respectively.

The increase in operating expenses for the year is attributable to growth in personnel and other expenses resulting from the increased business, increased spending to improve customer service, and recent acquisitions.

The company's specialty brokerage business segment provides access to alternative risk transfer insurers and reinsurers in Bermuda and Europe.

The segment produced $4 million of total fee income in the fourth quarter and $13.7 million in the year, representing ten percent of total fee income for the fourth quarter and eight percent for the year.

Specialty brokerage fees grew by 76 percent in the fourth quarter and 52 percent in the year as a result of increased business placed in Bermuda and London.

Profit margins increased to 34 percent in the fourth quarter and 38 percent for the year, as compared to 23 percent and 25 percent in the corresponding 1998 periods as a result of the increased revenues.

During the fourth quarter, the company repurchased 2.6 million common shares at an average price of $11.31 per share and $14 million face amount of its convertible exchangeable subordinated debentures due 2015 at a cost of $6.3 million.

The company also established a $250 million bridge loan facility, $117 million of which was outstanding at December 31, 1999.

In December of 1999, the company made an additional contribution to the policyholders' surplus of its US insurance companies in the amount of $110 million from this facility.

The company expects to refinance this bridge loan facility with permanent financing during 2000, and recently filed a S-3 Shelf Registration Statement with the US Securities and Exchange Commission, covering up to $500 million of debt and preferred securities.