BF& M Announces Half Year Report To Shareholders

Net Earnings increased by 37% to $6,373,265 (2002 - $4,655,404) which was 10% better than budgeted. Total Assets stood at $222 million with Shareholders Equity at $64 million.

Gross Premiums Written increased by 12 % to $45.8 million (2002 - $40.8 million) and Net Premiums Earned increased by 11%. Investment Income increased 59%, marking a sharp turnaround from the unfortunate experience of 2002. Total Income, net after reinsurance, increased by 15% compared with an increase of 11% in Total Expenses, which was modestly less than budgeted.

While expenses were less than budgeted they still reflect substantial investment in training and development of human resources, and substantial investment in technology advances and systems.

BF&M GENERAL INSURANCE COMPANY LIMITED

Gross Premiums Written increased by 13% over the same period last year due to a combination of rate increases and new business acquisition.

Rate increases were applied to our Motor business due to continued poor results and further increases became necessary subsequent to the end of the period. Claims for Own Damage and Third Party Damage show no signs of reducing particularly in Autocycle and in Commercial Vehicle. This reflects not only the higher cost of repairs but also an increasing trend in the number of accidents. Premiums for motor insurance in Bermuda are far too low and must increase if the business is to become viable. Comparison with costs in other countries show just how under-priced cover is in Bermuda even taking into account the differing circumstances.

The programme of re-underwriting our Marine Account is well underway and our premium income has increased. This account is particularly exposed to storm damage and this issue is receiving close scrutiny.

Our Business Insurance Team has achieved good growth through the acquisition of new business, which is ahead of our plans for this year.

We continue to keep our costs under tight control.

BF&M LIFE INSURANCE COMPANY LIMITED

Gross Premiums Written increased by 12% over the same period last year.

The primary health reinsurer withdrew from the Bermuda market because of rising health care costs and poor loss experience both here and in the Caribbean. A highly reputable replacement was found but rising costs and loss experience led to a large increase in reinsurance premiums. This was only partially offset by rising insurance premiums in Bermuda and fortunately we benefited from improved investment returns. Policy Benefits increased by 13%. On balance, loss ratio on our Group Health and Life portfolios were satisfactory with a slight improvement in the loss ratio on our Individual Health portfolio.

Successful conversion of the Sun Life Group Life and Disability plans to BF&M products resulted in a considerable increase in premium income to these lines.

RISK MANAGEMENT SERVICES

This division includes our captive management company, BF&M Management Limited ("BF&MM"), BF&M Brokers, a division of BF&MM, and Fortress Insurance Company Limited, our rent-a-captive facility. Total income increased modestly against the comparable period with a notable increase in captive management fee income of 10% compared to 2002 income for the same period. This increase was partially offset by the expiration of certain rent-a-captive programs although new programs in development should more than compensate for this loss of fee income before year-end. Operating expenses increased as a result of certain salary and benefit items being accrued evenly throughout the year rather than year-end as in 2002, resulting in an overall reduction in net profit compared to 2002, which will reverse at year-end.

BF&M PROPERTIES LIMITED

Barr's Bay Properties Limited (60% owned) continued the development of the new PXRE House adjoining the Insurance Building on Pitts Bay Road. This project is about two months ahead of schedule and on budget, which is somewhat unusual in Bermuda. We anticipate completion in November, at which time PXRE will begin their fitting out project with the intention of moving in on 1st April 2004. At the same time we are constructing a "link block" between the two buildings, which will provide additional space for BF&M. The project also involves the extensive renovation and refurbishing of the Insurance Building which will occupy most of 2004 and involve the relocation of most of our staff at some stage during the process.

INVESTMENTS

Although the investment climate improved it was a long way from reflecting the confidence that we expect. Investment performance as compared to the same period in 2002 improved substantially, partially due to security write-offs that occurred in that period.

HUMAN RESOURCES

The development and success of our staff continues to be our main focus with 21 employees obtaining their International Computer Driving License (ICDL) and 16 employees obtaining or working towards professional designations ranging from CPCU to HIAA.

Business Education Partnership with the Bermuda College continues with 4 students receiving the BF&M Awards for 2003. As part of the program the students were employed by the company during their school vacations. With an extremely diverse staff there continues to be exciting opportunities for all.

This year BF&M offered summer employment to 11 young persons. This 'hands on' exposure to the insurance industry helps us grow our workforce of the future.

e-Commerce

BF&M continues to leverage its investment in e-commerce by bringing new "e-surance@bfm" products and services to the web (www.bfm.bm). During the first half of the year Marine renewals were added to our already extensive personal insurance offerings on-line. Even more significant a powerful web interface for agents in motor, home, and travel was introduced. The product has been well received by our agents and customers that utilize our agent's services. In addition we developed an Electronic Claims Transfer system for pharmacies allowing submission of claims and receipt of our insureds information securely and timely over the internet. Our rollout of the agent and ECT products by our Customer Relations Team continues into the later half of this year.

INFORMATION SYSTEMS

We continue to make significant investments in information systems and management as we recognize its importance in the success of our business. We have started to re-engineer our internal systems utilizing new technology to better meet the needs of our changing business and operating environment. This is a significant undertaking spanning several years that will translate to much improved efficiencies and enhanced, intuitive products and service offerings. We are also leveraging our Information Systems investment with a Customer Relationship Management (CRM) initiative to help us better

understand and serve our customers, embracing and taking to heart our core value of caring.

LEADERSHIP

We believe in the continuous development of our leadership team and in each report there is usually reference to advanced educational programmes. During this period Glen Gibbons who is Vice President, Customer Relations & Sales in BF&M General participated in the Advanced Management Programme at INSEAD in Fontenbleau, France. This complemented previous experiences and gave him a European perspective which is invaluable.

SHARES

Trading on the BSX continued to be light. Our Common Shares opened the year trading at $10.25 and closed the first half of the year unchanged.

CONCLUSION

The first half of 2003 was certainly a more positive period for business than the corresponding period in 2002. The business expanded at a very satisfactory pace, with growth in both BF&M Life and BF&M General. The Investment scene was more secure and income grew at an acceptable rate with no major write-downs. Claims experience was generally acceptable with the exception of Motor and Marine.

Without the difficulties experienced in 2002, the underlying strength of our business is again reflected in our results as demonstrated by Net Earnings for the period of $6.37 million.

We extend our thanks to our team who produced very good results in difficult circumstances. During the period they were subjected to continuous construction work in our basement and at PXRE House next door. The noise, dust and particularly the lack of air-conditioning for two months did not create a pleasant work environment but our team took the situation in their stride. We are grateful to our shareholders for their support and we continue to strive to produce extraordinary service for our customers.

Glenn M. Titterton, A.C.I.I., Chartered Insurer

President &

Chief Executive Officer