Allianz Cornhill's motor and home book went into the red as the insurer reported a fall in profits for 2005.
The company reported pre-tax profits of £206.4m in 2005, down slightly from £210.6m in the previous year. The combined ratio changed little, rising to 94.9% from 94%, while gross premium income fell from £1,767.9m to £1,665.5m.
Chief executive Andrew Torrance said: "We are not expecting profits to increase markedly in 2006. Combined ratio will be very similar [next year], if anything it will improve because of internal sustainability projects."
But the insurer's combined ratio in home and motor lines deteriorated by over five points to 101.5% from 95.9% a year earlier. Gross written premium fell 15% from £323.4m to £275.8m.
Torrance said a combination of flat rates and claims inflation had resulted in the weakening of the combined ratio.
He said: "Continuing soft market conditions in the motor market as well as the more competitive conditions than anticipated for household business, resulted in a weaker than hoped for top line performance."
Allianz Cornhill's commercial lines business saw a slight improvement in its combined ratio, falling to 92.5% in 2005 from 92.8% in 2004. GWP also fell slightly to £1,032.7m from £1,059.5m.