The Lloyd's of London insurance market today said rising claims costs and lower investment income contributed to a 47% fall in half-year profits.

The Lloyd's of London insurance market today said rising claims costs and lower investment income contributed to a 47% fall in half-year profits.

Lloyd's chairman Peter Levene said the drop to £949 million came as "no surprise", given a softening in rates from their recent peak.

The figures cover the period to the end of June and do not include the impact of recent North Atlantic hurricanes Gustav and Ike.

Lloyd's said: "While it is too early to assess the final economic cost of these storms, undoubtedly it will add pressure to underwriting earnings."

It warned that profitability in many of its lines was "now questionable" with current pricing levels leaving little margin to cover major catastrophe losses.

Today's half-year report said claims frequency was rising, particularly in the property, casualty and energy lines, fuelled in part by the deteriorating economic climate and political instability in various regions.

It added: "This increase in frequency is coupled with heavy claims inflation, fuelled by the escalating cost of raw materials."

The Lloyd's market, which is home to 75 insurance syndicates, has shown in recent years that it is more than able to cope with major catastrophes.

Among recent changes to modernise the market, Lloyd's introduced a new franchise structure and phased out the number of Names who backed the market with an unlimited liability. And reflecting its focus on underwriting for profit, its combined ratio - the industry measure of profitability - came in at 89% for the half year. A figure below 100% represents a profit.

The combined ratio was weaker than the 82.9% seen a year earlier, but still compared favourably with its peers, Lloyd's said.

The market made a £3.8 billion profit in 2007 after the insurance market benefited from a limited exposure to catastrophes. However, this put downward pressure on rates, amid a general softening of conditions across all lines of business.

Lloyd's is not an insurance company but a society of members, both corporate and individual, who underwrite in syndicates on whose behalf professional underwriters accept risk. Supporting capital is provided by investment institutions, specialist investors, international insurance companies and individuals.