BF&M Ltd.'s profits fell by nearly a fifth last year, as its investments took a hit in treacherous markets.

The insurance company yesterday announced net earnings of $22.2 million for the year ended December 31, 2008, resulting in a 15 percent return on shareholders' equity, compared to record earnings of $27.3 million in 2007.

John Wight, president and CEO of BF&M, said the company was pleased overall as its core operating businesses performed well and that it maintained a conservative investment policy which served its shareholders and policyholders well during the economic climate that challenged its business in 2008, adding that the company's balance sheet has never been stronger.

"Overall, the core operating business performed very well during the year and our investment philosophy in good times and bad is that we have fairly conservative investment guidelines that ensure that the funds are put into high quality corporate and treasury securities," he said. Mr. Wight said that the majority of BF&M's investments were in bonds and mortgages, with some funds put into local securities, but little exposure to the equity market. Its bonds and equities held up well, declining in value by two percent.

"Even though our investments performed very well relative to other insurance companies globally and in Bermuda, the fact is overall that our portfolio did not perform as well in 2008 as 2007," he said.

"There was an increase in the fair value of investments in 2007 and a decrease in fair value of investments in 2008.

"Also, our claims experience in the health business was not as good in 2008 as it was in 2007 and that was as a result of the increase in local claims in Bermuda, both through the hospital and the doctors' offices.

"But I can say that we are guardedly optimistic for 2009, but a lot depends on the performance of other companies."

Shareholders' equity at the end of last year was $156.5 million, while the cash balance was $48,102,581, some of which the company will invest in the fixed income market when it is confident that the economy, both globally and locally, shows signs of improvement, said Mr. Wight.

Based on a healthy balance sheet and financial performance, the board of directors maintained a dividend of 20 cents per share for shareholders of record on March 31, 2009, with total assets for the consolidated group standing at $683.97 million the end of last year.

Gross premiums written for the year increased nine percent over 2007 to $211.88 million and investment income rose one percent to $17.3 million. Changes in the fair value of assets classified as held for trading decreased earnings by $2.6 million, as per the new accounting standards adopted by the company in 2007.

Meanwhile, commissions and other income increased three percent to $24.2 million, claims and adjustment expenses were up by seven percent to $20.1 million and policy benefits increased 14 percent to $90 million. Operating expenses also rose 13 percent to $40 million.