Insurer, pension provider and investment company BF&M Ltd.'s insurance operating companies have seen their financial strength rating affirmed at A (excellent) by rating agency AM Best Co.

But the New Jersey-based agency has expressed some concern at the high proportion of mortgages in the investment portfolios of two operating companies, BF&M Life Insurance Company Ltd. (BF&M Life) and BF&M General Insurance Company Ltd. (BF&M General).

"The investment portfolio at both BF&M Life and BF&M General contains a fair amount of mortgages: 40 percent at BF&M Life and 22 percent at BF&M General," Best stated in its ratings commentary.

"While the amount of loans past due has improved in 2009 compared with 2008, the high percentage of total investments is of concern."

However, Best added that the A (excellent) rating reflected the company's consistent premium growth and positive net income over the past five years.

It also pointed out that the company had a high level of market share in Bermuda and strong capitalisation, boosted by consistent positive earnings.

The issuer credit ratings for BF&M Life and BF&M General The issuer credit ratings for BF&M Life and BF&M Generalremain at "a", and at "bbb" for BF&M Ltd. The outlook for all ratings is stable.

Best said BF&M Life and BF&M General's high levels of capital continued to be more than adequate to support their current level of business and risk profiles.

Best noted that BF&M has a concentrated book of business in the local Bermuda market. BF&M Life and BF&M General mainly operate in the local Bermuda market and offer property/casualty, life, health and pension products in the private and commercial sectors.

"The Bermuda insurance market is mature, and significant growth in the domestic market is limited," Best said. "Earnings at BF&M Life have trended downward over the past two years, with a large decline in 2009 resulting from earnings in its core health insurance line of business.

"However, earnings should begin to improve in 2010 as a result of rate increases that were implemented."

BF&M General's property business is exposed to financial risk associated with tropical storms and hurricanes, Best added, but the company mitigates this risk with extensive reinsurance arrangements.