$11.1 million or $2.74 a share for the year to December 31.

Company president and chief executive officer Glenn Titterton said BF&M subsidiaries achieved a strong performance in the face of tough competition.

Total revenues were $62.6 million, a gain of $2.37 million over the 1997 results. The company had net premiums earned of $44.54 million, an increase of 3.2 percent over the previous year. Investment income increased 6.4 percent to $9.04 million while commissions and other income gained 5.4 percent to $9.04 million.

Total expenses, which included depreciation of $1.76 million, increased two percent to $51.56 million. Operating expenses fell two percent to $49.79 million. The company paid out claims, benefits and claim expenses during the year of $36.65 million, an increase of $1.31 million. In the life insurance market BF&M increased market share, maintaining its number two position behind Argus Insurance Co. Ltd.

"We are hot on their heels,'' Mr. Titterton said.

Premium income, excluding pension deposits, increased by 13 percent. Overall, premium income increased by four percent over 1997. Net earnings in the line of business increased 27 percent. In the health line, premium income increased 12 percent over the previous year while claims costs increased by ten percent.

BF&M reports 12 percent increase in net earnings "Employers are increasingly adding dental insurance to their health plans so that the number of persons covered for dental benefits increased by 13 percent,'' BF&M stated.

Health care costs continue to increase at ten percent per year the company noted. About 85 cents of every $1 in premium is paid out in claims.

"The escalating usage and cost of prescription drugs is a cause for great concern,'' BF&M stated. "We will actively pursue the pharmaceutical and medical professions to assume more responsibility for this situation and to provide better advice and more cost effective solutions.'' In the group life and disability business the company had higher than expected claims resulting in decreased profits. Premium income increased 16 percent over 1997.

In the property book the company managed to offset falling rates with new business. Gross premiums fell two percent. Mr. Titterton said the signs were that rates would stabilise this year.

"The Island experienced another year without serious storm damage,'' BF&M reported. "There were no abnormally large fires and as a result claim and claim expenses were reduced. Operating expenses were also down with the result that net operating income increased significantly.'' The company warned that in the face of rising construction costs, owners have not brought their insurance into line.

"We remained concerned that sums insured for both private homes and commercial properties are generally not keeping pace with rising construction costs and this can only mean problems for owners in the event of a serious claim,'' the company stated.

In the casualty book gross premiums earned increased by 17 percent through a combination of new business and increased cover. The company also called on Government to review the Workmen's Compensation Act to make benefits more equitable.

"The benefits under the Workmen's Compensation Act 1965, as amended, were last reviewed in 1988,'' BF&M stated. "The value of these benefits, never high to start with, have been eroded by inflation. Customarily these benefits would be reviewed every ten years and we urge Government to treat this review as a matter of some urgency.'' While BF&M increased its market share in the motor insurance sector, the company suffered a net loss for the year. The motor insurance business has lost money four out of the past five years. Gross premiums earned in 1998 increased by five percent but gross claims increased 29 percent. BF&M rapped Bermuda's drivers for poor driving habits.

"In particular, third party liability claims for death and injury, continue to increase,'' the company stated. "There is real concern that deteriorating driving standards could result in an increase in the number of claims. A combination of increased frequency and increased severity will produce even worse results in the future, driving the cost of motor insurance higher.'' The company has stated that as a result premiums will increase this year to reflect higher losses. Mr. Titterton said the company aimed at returning the area of business to profitable levels this year.

During the two years the company had reduced the size of its management team to 15 from 22. Mr. Titterton said the company decided to focus management from "back room'' to "front room'' personnel who dealt more with customer service, relations, and sales.

"Our companies, our systems and our process have been re-engineered to create a customer-focused organisation,'' he stated. "A new personal insurance team has been created. Staff have been professionally assessed, trained and assigned to new teams most suited to their skills, aptitudes and strengths.'' The company is creating a new customer service centre on the ground floor of its headquarters on Pitts Bay Road.

At December 31 the company had shareholders equity of $70.49 million and total assets of $169.94 million. Return on equity was 20.9 percent while book value increased to $14.30 from $11.89.

Next month BF&M will involved in a major civil suit in which Bermuda Fire & Marine Insurance Co. Ltd. liquidators are contesting ownership of the company's common shares. The civil trial begins May 4.

The case is set to become one of the fiercely fought court battles, pitting liquidators of one of the most controversial bankruptcies in Bermuda's history against some of the Island's top lawyers, law firms and businessmen as defendants.

The liquidators want to seize the ordinary shares as assets of Bermuda Fire.

The liquidators have estimated Bermuda Fire to be insolvent by about $1.4 billion. The common shares have been suspended from trading since the writ was filed. Mr. Titterton said the company welcomed the start of the case.

"We are absolutely delighted it's finally starting,'' he said. "The action has been a tremendous diversion for us. We are not looking forward to getting it going.'' Liquidators Ernst & Young are suing for recovery of assets they allege were stripped from the company and given as common stock to about 1,000 Bermuda Fire shareholders. BF&M was set up under a plan made by company directors in 1991 to buy Bermuda Fire's profitable domestic assets. Two years later Bermuda Fire went into liquidation with debts owed mainly to US insurance companies.

The liquidators allege the sale was an attempt to avoid paying claims. Bermuda Fire's 1991 directors have said they acted in the best interests of the shareholders and policyholders, who include creditors.

Other defendants are law firm Conyers Dill & Pearman, accounting firm Cooper & Lines, and 1991 Bermuda Fire directors Charles Collis (now deceased), William Cox, Donald Lines, Greg Haycock and Michael Collier.

BF&M's annual general meeting is scheduled for April 22.