MRM Reports 17% Increase In Operating Income For Second Quarter

In a joint statement Robert A. Mulderig, Chairman and Chief Executive Officer and John Kessock, Jr., President said: "The operating results for the second quarter of 1999 again achieved record levels of both Fees and Operating income aided by the continued growth of our Program Business, Specialty Brokerage and Financial Services segments in which combined fees grew by 35%. Operating income increased 17% to a record $19.6 million, or $0.42 per Common Share on a diluted basis, and by 19% for the first six months of 1999 to $38.0 million, or $0.81 per Common Share on a diluted basis. Return on equity continued to meet our expectations at 20% for the first six months of 1999".

Fee income increased 21% in the second quarter to $45.8 million and 24% to $91.3 million for the first six months of 1999, as compared to $37.9 million and $73.7 million, respectively, in 1998. Pre-tax profit margins were 34% for the second quarter and 35% for the first six months of 1999 as compared to 38% and 36% in the corresponding 1998 periods.

Net investment income increased by 32% to $9.4 million in the second quarter and by 9% to $16.7 million for the first six months of 1999. Investment yields rose to 9.0% in the second quarter and 7.8% for the first six months of 1999 as compared to 7.0% and 7.5% in 1998. The increase in yield in the quarter was due to higher rates of return on invested assets in Bermuda and the inclusion of income from one of the Company's programs accounted for as Claims deposit liabilities. This increased yield was partly offset by Realized capital losses in the portfolio.

Operating expenses increased 29% to $30.4 million for the quarter, compared to $23.7 million in the second quarter of last year, and increased 27% to $59.5 million for the first six months of 1999, compared to $47.0 million in the first six months of 1998. The increase in Operating expenses is attributable to growth in personnel and other expenses resulting from the increased business as well as recent acquisitions. Excluding these acquisitions, the increase in operating expenses would have been 22% for the second quarter and 20% for the six months.

Program Business involves replacing traditional insurers and acting as a conduit between producers of specialty books of business and reinsurers wishing to write that business. The segment accounted for 57% of total Fee Income in the quarter and 54% for the first six months of 1999 compared to 52% and 48% in the corresponding 1998 periods. Program Business fees increased 33% in the second quarter to $26.0 million and 37% to $49.0 million in the first six months as compared to $19.5 million and $35.7 million, respectively, in 1998. This resulted from the continued expansion of this business segment especially through the growth of existing programs. Profit margins were 36% for the quarter and six months of 1999, down from 41% and 38% for the corresponding periods of 1998. However, excluding underwriting management operations, margins in the Program Business segment remained flat at approximately 47% for all periods.

Gross premiums written increased 27% to $556 million for the first six months of 1999 as compared to $436 million in 1998, primarily as a result of the growth within the Program Business segment. Program Business generally involves greater premium volume per unit than Corporate Risk Management business. Premiums earned increased 141% to $50.2 million in the second quarter and 79% to $89.0 million in the first six months of 1999, as compared to $20.9 million and $49.8 million in the corresponding 1998 periods. These increases in Premiums earned were also primarily due to the growth within the Program Business segment.

Corporate Risk Management, the Company's original business segment, involves providing services to businesses and associations seeking to insure a portion of their risk in a loss sensitive Alternative Market structure. This segment accounted for 26% of total Fee income in the second quarter and 29% for the first six months of 1999, down from 33% and 38% in the corresponding 1998 periods. Corporate Risk Management fees decreased by 7% in the second quarter to $11.8 million, compared to $12.7 million in the second quarter of 1998, and by 2% in the first six months to $26.8 million, compared to $27.4 million in 1998, reflecting the continuation of the soft insurance market cycle for commercial risks. Profit margins were 39% in the second quarter and 41% for the first six months of 1999, compared to 42% and 44% in the corresponding 1998 periods.

The Company's Specialty Brokerage business segment provides access to Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. The segment produced $3.3 million of total Fee income in the second quarter and $6.4 million in the first six months of 1999, representing 7% of total Fee income in both the second quarter and the first six months. Specialty Brokerage fees grew by 35% in the second quarter and 44% in the first six months of 1999 from $2.4 million and $4.5 million in the corresponding 1998 periods as a result of increased business placed in Bermuda and London. Profit margins increased to 38% in the second quarter and to 43% for the first six months from 34% and 25% in the corresponding 1998 periods as a result of the increased revenues.

Financial Services, the Company's newest business segment, provides administrative services to offshore mutual funds and other companies. The segment accounted for 10% of total Fee income for both the second quarter and six month periods of 1999. Fees from Financial Services increased in the quarter by 44% to $4.6 million over the 1998 corresponding period, and by 48% to $9.1 million for the half year, primarily as a result of an increase in the number of mutual funds under administration from 163 at June 30, 1998 to 237. Profit margins in the Financial Services segment have been adversely affected in 1998 and 1999 by the previously announced revised executive incentive plan and staff expansion costs to service new business, but increased to 4% in both the second quarter and the first six months of 1999. Excluding the effect of the revised executive incentive plan, the profit margins in this segment would have been 15% for the quarter and six months as compared to 20% and 15% for the corresponding 1998 periods.

Mutual Risk Management Ltd. provides risk management services to clients in the United States, Canada and Europe seeking alternatives to traditional commercial insurance for certain of their risk exposures, as well as financial services to offshore mutual funds and other companies. Mutual Risk Management Ltd. (MM) Common Shares are listed on the New York and Bermuda stock exchanges.