Gross written premiums were down more than 10 percent to 14.71 billion ($28.24 billion), which the market attributed to more disciplined underwriting by its member syndicates.

The combined ratio for Lloyd's also slipped a bit but remained at a profitable level of 96.9, compared with 90.7 for 2003.

Lloyd's emphasized that despite the slip, its combined ratio is still superior to the 98.7 estimated average for U.S. property-casualty insurers. The combined ratio also looks favorable compared with U.S. reinsurers, which had a 106.1 average, and European insurers and reinsurers, which booked a 98.2 combined ratio last year.

The major reason Lloyd's recorded lower annual profits in 2004 was what the insurance market referred to as the worst-ever year for industry losses from natural catastrophes. The market said heavy claims from a string of hurricanes that hit the Caribbean and Southeastern United States last autumn resulted in $2.3 billion in net claims after reinsurance.

On top of those losses, the Asian tsunami last December cost Lloyd's an additional 100 million (about $191 million). The catastrophe claims in 2004 ended up adding 11.3 combined ratio points, according to a calculation by Standard & Poor's Ratings Services.

Another factor that put a dent in Lloyd's profit level last year was a 323 million pretax hit (about $622 million) from the settlement the market reached with six insurers regarding a dispute over coverage that Lloyd's bought to protect its Central Fund. Under this insurance arbitration settlement, insurers led by Swiss Re paid Lloyd's 152 million ($290 million), but Lloyd's said it had to write off extra payments it had anticipated from the 500 million ($954 million) policy.

S&P, in reacting to Lloyd's results, also pointed out other smaller developments that put a drag on Lloyd's profitsincluding reserve strengthening for prior years and costs relating to run-off syndicates, which ran 300 million ($572 million) in total.

However, Lloyd's top management sounded pleased with its bottom line, considering the markets experience last year. These results, achieved despite significant losses from natural catastrophes, are testimony to the continually improving quality and strength of the Lloyd's market, announced Lord Peter Levene, chairman of Lloyd's.

Lloyd's CEO Nick Prettejohn added that his insurance market's performance compared well with global competitors, but he warned that while market conditions still remain profitable, they are increasingly competitive in a number of lines. We must remain vigilant if we are to continue to deliver a strong underwriting performance.

A.M. Best Company, which is keeping its A financial strength rating for Lloyd's following the annual result announcement, said the markets profit falls at the upper end of the range anticipated by the agency.

S&Pwhich is maintaining its A rating and the Stable outlook on the Lloyd's market and its triple-B-plus rating on its subordinated debtsaid the figures are generally better than its expectations. All in all, underlying profitability is very strong, the ratings agency noted.

Reproduced from National Underwriter Edition, April 8, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.