In a joint statement Robert A. Mulderig, Chairman and Chief Executive Officer and John Kessock, Jr., President said: "Operating results for the second quarter and first half of 2000 produced substantial improvement in Fees, Operating income, Profit margins and Return on equity compared to our last three quarters. However, comparisons to the first half of 1999 continue to reflect the decline in operating results, which took place in the 1999 third quarter. The commercial lines insurance market has finally improved after many years of decline and this is beginning to help our Corporate Risk Management business segment, which has been adversely affected by depressed commercial lines pricing. Our Program Business segment produced good fee growth of 11% for the second quarter aided by premium increases. We believe that these operating results demonstrate continued progress toward a return to our historic levels of growth and profitability."
Fee income increased 10% in the second quarter to $50.4 million and 5% to $95.7 million for the first six months of 2000, as compared to $45.8 million and $91.3 million, respectively, in 1999. Pre-tax profit margins were 25% for both the second quarter and first six months of 2000 as compared to 34% and 35% in the corresponding 1999 periods. Operating income for the second quarter decreased 37% to $12.3 million or $0.30 per common share on a diluted basis and by 38% to $23.8 million or $0.57 per common share on a diluted basis for the first six months of 2000, compared to the same periods in 1999.
Net investment income decreased by 10% to $8.5 million in the second quarter but increased by 27% to $21.1 million for the first six months of 2000. The first six month increase includes $3.7 million of investment income from a special purpose entity, Endeavour Real Estate Securities Ltd. ("Endeavour") in the first quarter of 2000. Endeavour was established by the Company's Financial Services segment to offer offshore investors an opportunity to invest in U.S. real estate investment trusts. The investment income from Endeavour in the first quarter was offset by $1.4 million of Realized losses, $1.9 million of Interest expense, $0.9 million of Operating expenses and $(0.8) million of Minority interest. In the second quarter of 2000, the ownership structure of Endeavour was changed so that it is no longer consolidated on a line by line basis, but is accounted for on an equity basis. Investment yields declined to 6.7% in the second quarter and first six months as compared to 9.0% and 7.8% in 1999. The higher yields in the 1999 periods were 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.
Operating expenses increased 24% to $37.7 million for the quarter, compared to $30.4 million in the second quarter of last year, and increased 22% to $72.4 million for the first six months of 2000, compared to $59.5 million in the first six months of 1999. The increase in Operating expenses is attributable to growth in personnel and other expenses to service the Company's businesses, the effect of recent acquisitions and $0.9 million of Operating expenses from Endeavour in the first quarter of 2000. Included in Other expenses are $0.7 million of expenses related to the Company's shelf registration of Senior Notes. Due to market conditions, the Company has decided to refinance its existing Bridge Loan with a bank syndicated Revolving Credit Facility, rather than offering Senior Notes. It expects the refinancing to close during the third quarter.
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 56% for the first six months of 2000 compared to 57% and 54% in the corresponding 1999 periods. Program Business fees increased 11% in the second quarter to $28.9 million and 10% to $53.9 million in the first six months as compared to $26.0 million and $49.0 million, respectively, in 1999. This resulted primarily from the growth of existing programs as a result of premium increases and decreased competition. Pre-tax margins were 27% for both the quarter and six months of 2000, down from 36% for the corresponding periods of 1999.
Gross premiums written increased 18% to $656.1 million for the first six months of 2000 as compared to $556.3 million in 1999, 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 27% to $64.0 million in the second quarter and 35% to $119.9 million in the first six months of 2000, as compared to $50.2 million and $89.0 million in the corresponding 1999 periods. These increases in Premiums earned were also primarily due to the growth within the Program Business segment and are offset by similar increases in Total insurance costs.
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 23% of total Fee income in the second quarter and for the first six months of 2000, down from 26% and 29% in the corresponding 1999 periods. Corporate Risk Management fees decreased by 1% in the second quarter to $11.7 million, compared to $11.8 million in the second quarter of 1999, and by 18% in the first six months to $22.1 million, compared to $26.8 million in 1999. Profit margins were 27% in the second quarter and 25% for the first six months of 2000, compared to 39% and 41% in the corresponding 1999 periods. The Company continues to expect that a firming of prices generally will begin to improve the sale of Corporate Risk Management accounts in the second half of 2000.
The Company's Specialty Brokerage business segment provides access to Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. The segment produced $3.5 million of Fee income in the second quarter and $7.3 million in the first six months of 2000, representing 7% of total Fee income in the second quarter and 8% for the first six months. Specialty Brokerage fees grew by 6% in the second quarter and 14% in the first six months of 2000 from $3.3 million and $6.4 million in the corresponding 1999 periods as a result of increased business placed in Bermuda and London. Profit margins decreased to 24% in the second quarter and to 30% for the first six months from 38% and 43% in the corresponding 1999 periods, as a result of increased operating expenses.
Financial Services, the Company's newest business segment, provides administrative services to offshore mutual funds and other companies and offers a proprietary family of mutual funds as well as asset accumulation life insurance products for the high net worth market. The segment accounted for 13% of total Fee income for both the second quarter and six month periods of 2000. Fees from Financial Services increased in the quarter by 38% to $6.4 million over the 1999 corresponding period, and by 37% to $12.4 million for the half year, primarily as a result of an increase in the number of mutual funds under administration from 237 at June 30, 1999 to 320. Profit margins in the Financial Services segment have been adversely affected since 1998 by the previously announced revised executive incentive plan and staff expansion costs to service new business, but increased to 15% in the second quarter and 18% for the first six months of 2000 from 4% in the prior periods. Excluding the effect of the revised executive incentive plan, which will end in December 2000, the profit margins in this segment would have been 19% for the quarter and 23% for the first six months of 2000 as compared to 15% in both periods of 1999.
The Company has entered into an agreement to acquire Valmet Group Ltd. ("Valmet"). Valmet is a leading independent fiduciary Company, providing trust and corporate services through offices in the Isle of Man, Amsterdam, Geneva, Gibraltar, Cyprus, Dublin and Mauritius. Valmet employs 122 people and in 1999 earned revenues of $12.3 million. Messrs. Mulderig and Kessock commented that: "The acquisition of Valmet will greatly expand our existing Bermuda and Jersey private client business within our Financial Services segment". The acquisition is expected to close in the third quarter and is subject to a number of conditions, including regulatory approval.
During the second quarter the Company completed two arbitration proceedings; one with a managing general agent and one with a reinsurer. In the first arbitration, the Company won the arbitration award, although the amount awarded was less than expected. In the second arbitration, the Company was awarded the full amount due from the reinsurer. The Company is involved in ongoing arbitration and litigation with two life insurance companies that wrote workers' compensation reinsurance for the Company, and with a number of Lloyd's syndicates and other companies on a series of related accident and health accounts. The Company currently expects to prevail in these disputes. These disputes have adversely affected the operating cash flow, however, cash flow still improved to $3.9 million for the second quarter and $4.0 million for the first half of 2000 as compared to negative $0.8 million and $19.3 million in 1999.
The Company also announced that James C. Kelly, its Chief Financial Officer, expects to leave that position and transfer to the Company's operations in Europe during the first half of 2001. This transfer is for personal reasons. The Company expects to replace Mr. Kelly as Chief Financial Officer by the end of the year.
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.
This press release contains forward-looking statements within the meaning of the U.S. federal securities laws with regard to our future growth, profitability and income from some of our business segments. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in these laws. These statements are not guarantees of performance. Actual events or results may differ materially from our expectations. Important factors that could cause our actual results to be materially different from our expectations include changing market conditions and those factors discussed in our Annual Report on Form 10-K, as amended, under the caption "Risk Factors".