Market claims underwriting discipline remains strong.

Lloyd’s insisted it was performing well this week, despite a 50% year-on-year drop in pre-tax profit to £949m for the first half of 2008.

Luke Savage, finance director at Lloyd’s, said underwriting discipline remained strong in the market and its exposure to AIG and the global economic turmoil was limited.

He also pointed out that 2007 was unusually profitable because there were few large claims, meaning a year-on-year comparison was not an accurate picture of the market’s performance. In 2008, there have been a large number of attritional claims and a rise in the cost of claims, leading to the lower figure.

“We have been helped by the fact that Lloyd’s has never got into credit default swaps [which caused many of the problems at AIG, the insurer that was effectively nationalised by the US government last week],” said Savage.

“From the late 1980s, some of our peers have moved into financial products, but Lloyd’s is a marketplace and has never been geared up for that.”

He added that most of the market’s dealings with AIG were through its reinsurance business, Transatlantic Re, which had not suffered any financial difficulties and still had an AA rating.

Lloyd’s posted a combined ratio of 89%, which compares well to an estimated average of 99% for US property and casualty insurers. Bermuda had 86% and European insurers and reinsurers had 96%.

The market reported its strongest ever central assets of £1.94bn. This includes the Central Fund and other assets. Lloyd’s was not immune to the volatility in the capital markets, however, with a positive return on investment of just 1%, or £346m.

Lord Levene, the Lloyd’s chairman, said: “We have reported a strong performance in extremely challenging circumstances. The result for the first half comes as no surprise with profits heavily influenced by falling investment income and increased cost of claims, while the second half will remain subject to the incidences of natural catastrophes.”

Lloyd’s chief executive Richard Ward added: “The market remains in a good position to face the challenges ahead.”