The exceptionally low level of catastrophes and a benign market lifted Lloyd's of London to a £3.7 billion (€5.4 billion) profit in 2006.

The specialist insurance market made a loss of £103 million in 2005. Lloyd's said its combined ratio of 83.1 per cent, down from 111.8 per cent in 2005, compared favourably with its peers in the US, Europe and Bermuda.

The combined ratio measures profitability calculated by dividing payouts by premium income - below 100 per cent indicates profitability.

"However, it would be unrealistic to expect such a favourable claims experience this year," warned Lord Levene, chairman of Lloyd's.

"With a trend for more frequent and severe natural catastrophes, we must continue our focus on underwriting for profit."

Richard Ward, following his first year as chief executive, said interest from new sectors, record capacity levels and new syndicate start-ups demonstrated that Lloyd's was "an attractive place to do business".

He added that the group's three-year restructuring plan had been developed and was fundamental to the market's future against the backdrop of increasingly demanding regulation, greater customer expectations, mobility of capital, a rise in regional markets and the complex underwriting cycle.

The market made a return on capital of 31.4 per cent, which Mr Ward said was clear evidence of the flexibility and underlying financial strength of the Lloyd's market.

He added that he hoped Lloyd's would be able to shield itself from the worst effects of the market by underwriting for profit rather than market share, the use of up-to-date modelling tools and better availability and application of data.

However, he added that the pace of change was still too slow and that the group would focus on three key issues to improve the service offered - electronic claims handling, accounting and settlement and pre-bind quality assurance.

In changing market conditions, he said Lloyd's would focus on underwriting discipline and modernisation in the year ahead.