Insurance group BF&M said yesterday its net income for the first nine months of the year dropped 5.4 percent, which the company attributed to start-up expenses for an international unit.

For the nine months to September 30, net income was $14.8 million, down $857,510 from the $15.7 million recorded in the same period in 2005.

BF&M chief executive officer John Wight said it would take time to build up the business of Bermuda International Insurance Services Ltd. which markets and distributes offshore life insurance products to high net worth individuals around the world.

But he said he was confident that it would be a large profit centre for the company in the next three to five years.

And he noted the company had achieved its goal of a return on equity of more than 20 percent.

The company also saw both overall income and overall expenses rise substantially as a result of its purchase of a majority stake in the Insurance Corporation of Barbados into its operations.

BF&M bought 51.7 percent of the shares in ICBL for $25.8 million from the Barbados government and private shareholders last December as it aimed to diversify its business.

BF&M also raised $20.7 million through a rights offering in July.

Total income jumped from $80.1 million to $118.6 million in the period, but expenses also rose from $64.4 million to $103.7 million.

The major increase in expenses came in claims and adjustment expenses, which ballooned from $3.4 million to $19.3 million. A BF&M spokeswoman attributed the increase to the Barbados company, which is heavily concentrated in property and motor insurance.

On the income side, gross premiums written surged $48.7 million from $88.2 million to $136.9 million, but this was partially offset by an increase in reinsurance costs which jumped by $19 million from $24.7 million to $43.7 million. Again, this was largely due to the addition of the Barbados business.

After accounting for net changes in unearned premiums, net premiums earned were $98.7 million, compared to $62.3 million in the same period a year earlier.

Investment income rose strongly to $11.9 million from $7.2 million, while commissions and other income were up from $10.6 million to $17 million.

In other expenses, policy benefits ? which are largely due to health and life reinsurance claims, rose by more than $5 million to $48.4 million, operating expenses were up by $9.5 million to $23.7 million and interest on loans rose from $311,701 to $1.15 million. Expenses related to non-controlling interests were up to $3.8 million from $717,530.

The company?s assets jumped to $551.3 million from $316.4 million, while liabilities rose from $232.3 million to $449.33 million. There was a substantial increase in the provision for claims and adjustment expenses, which rose from $6.7 million to $48.5 million.

Shareholders equity? was $102.1 million, up from $84.1 million in the year earlier period.