BF&M Ltd’s profits fell by more than $1 million in the first quarter, as results were impacted by the knock-on effects of last year’s hurricane activity.

The insurer and pension provider reported net income of $6 million for the first three months of the year, down from $7.1 million in the same period in 2016.

John Wight, BF&M’s chief executive officer, described the earnings, which represented an annualised return on equity of 8.8 per cent, as “solid”.

“Core operating earnings in the first three months were lower than the same period in 2016 by $1.1 million, mainly due to the loss of profit commission as a result of the 2016 hurricanes — 2016 was the most active hurricane season that the group has ever seen collectively,” Mr Wight said.

BF&M revealed in April this year that claims from hurricanes cost it more than $10 million last year.

Some of the storm claims were related to Hurricane Nicole, which battered Bermuda last October, causing an estimated $15 million in total insured losses on the island.

Just days before, Hurricane Matthew had ravaged the Bahamas, one of 15 Caribbean islands where BF&M operates.

Gross premiums written for the first quarter totalled $80 million, down 8 per cent from the corresponding period last year as a result of a reduction in fronting business.

“Fronting business is generally fully reinsured and has little to no impact to the company’s bottom line,” BF&M said in a statement.

According to the International Risk Management Institute, fronting is the use of a licensed insurer to issue an insurance policy on behalf of a self-insured organisation or captive insurer without the intention of transferring any of the risk. The risk of loss is retained by the self-insured or captive insurer with a reinsurance agreement. Fronting companies charge a fee for this service.

BF&M said shareholders’ equity at March 31, 2017, was $269.1 million, up $4.6 million or 1.7 per cent from the end of last year.

General fund assets totalled $1.1 billion, of which $118.1 million was held in cash and cash equivalents.

Operating expenses increased by 3 per cent to $16.3 million.

Investment income for the year reflected a $2.8 million increase in the fair value of investments for the period.

Commission and other income increased from the prior year by 6 per cent to $10.3 million due to a profit share increase on life business, partially offset by the negative impact of 2016 hurricanes on reinsurance profit commissions on property business.

Short-term claims and adjustment expenses increased 16 per cent to $6.5 million on higher loss claims in 2017.

Life and health policy benefits, which are recorded at fair value, decreased by 22 per cent to $28 million, primarily as a result of a large fair value impact in 2016 of $11.2 million compared to $2.3 million in 2017.