Cornhill Insurance said claims inflations for bodily injury awards was partly to blame for an operating loss of £0.8m in 1999, compared to a profit of £62.9m in 1998.
Pre-tax profits for the UK arm of the Anglo-German insurer fell massively from £159.6m in 1998 to £10.5m in 1999.
However, these results mask a strong growth in net premium income, which broke the £1bn barrier for the first time.
General business premiums increased by more than 24% to £938.6m last year, although life premiums fell slightly by 3.9% to £96.7m because of more costly reassurance arrangements.
A Cornhill spokesman said: "Cornhill's commercial lines and motor business has been affected by low rates and increasing claims costs particularly with regard to personal injury awards which are rising above inflation."
Cornhill chief executive Ray Treen said that rates were at last increasing after years of unprofitability in the motor business. "These increases together with other remedial underwriting action will have a beneficial impact on the trading results in 2000, although their full effect will not be felt until 2001," said Treen.
He added that Cornhill, which is owned by German insurer Allianz, has reorganised its principal distribution channel into two divisions – Allianz Cornhill Regional and Allianz Cornhill International – to increase closer liaison with its broker customers.