BF&M Ltd saw its 2010 earnings dip 11.7 percent last year as claims from Hurricane Igor and the rising cost of healthcare took their toll.Yesterday the company announced a full-year profit of $17.3 million, representing a return of 10 percent on shareholders’ equity.The decrease was driven by a 21 percent increase in claims and adjustment expenses, as well as a 16 percent increase in policy benefits.BF&M chief executive officer John Wight said in an interview that the policy benefits included health, life and annuity-related payments.“Most concerning to us were the increases in medical claims paid by BF&M from King Edward VII Memorial Hospital in 2010,” Mr Wight said. “These increased 17 percent over 2009. Clearly increases such as these are not sustainable.”This steep rise in healthcare payments was typical of the past two or three years, he added, and had been driven by the expansion of the list of medical treatment-related services that could be billed to the insurer. The consequent increase in claims had been higher than BF&M anticipated, Mr Wight said.“That level of increase is certainly not sustainable and we certainly can’t pass on such rate increases to our policyholders year on year,” he said. “That’s why we’ve been working with the Ministry of Health and the Health Council to research where we can moderate the rate of medical inflation.”BF&M was pleased with the dialogue it has with the Bermuda Hospitals Board, Mr Wight added.“We meet regularly with them to jointly address the concerns between KEMH and BF&M,” he added. “We are fully supportive of a new hospital facility in Bermuda.“The challenge is the balance between the hospital requiring necessary operating revenue to achieve its objectives and BF&M’s objectives of keeping policyholder premium increases annually to an acceptable level, particularly in light of the current economic climate.”The weakening economy also had some impact on the company’s results as customers sought ways to cut their expenses.“BF&M’s policyholders are feeling the effects of the continuing economic uncertainty in Bermuda,” Mr Wight said. “Large local companies such as BF&M are a barometer for how the Bermuda economy is faring.“In uncertain times, businesses and individuals will look for alternatives to the type of policies they may have had in prior years. For example, in order to pay less for motor insurance, some people have decided to have third party instead of fully comprehensive insurance. Others have opted for higher deductibles to reduce premiums.“Everybody is tightening their belt. As a result, BF&M is feeling the pinch too.”Hurricane Igor, which lashed Bermuda in September, fuelled a 21 percent increase in general insurance claims, particularly in property and marine lines. Higher claims experienced by the Insurance Corporate of Barbados Ltd, a BF&M majority-owned investment, were also a factor.“We were fortunate with Igor that it was not much worse,” Mr Wight said. “In the days before it hit the Island, it was category three or four, but when it hit it was a category one.” However, it had been powerful enough to cause some physical damage, he said.The company recorded higher insurance sales, as gross premiums written climbed five percent from 2009 to $235.7 million. Investment income climbed 46 percent to $19.5 million.Shareholders’ equity totalled $180.5 million at the end of 2010, while total assets were $794.2 million.The company’s board of directors maintained the dividend of 20 cents per share for shareholders of record at March 31, 2011, based on the strength of the company’s balance sheet and positive earnings.Mr Wight said he was happy that ratings agency had maintained the BF&M’s financial strength rating at A (excellent), “the strongest of any local insurer in the Bermuda marketplace”.The return on shareholders’ equity of 10 percent reflected a good performance in a difficult environment, the CEO felt. “When you compare that to what local companies of a comparable size have done, then we’re quite pleased with it,” he added.