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A year without too many major catastrophes has benefited insurance market Lloyds of London, which has posted an annual pre-tax profit of £3.8 billion compared to £3.66 billion from last year.

A drop in claims led to a profitable year for underwriting, and Lloyds reported a combined ratio of 84 per cent, in contrast to last year's 83.1 per cent. The closer the ratio is to 100 per cent, the more profitable an insurer's underwriting operations are.

Chairman of Lloyd's, Lord Levene, said: "2007 was another profitable year for Lloyd's with the market reporting a £3.8 billion profit and continuing to outperform its major international peers."

However, Lord Levene warned: "Lloyd's benefited from a limited exposure to catastrophes but this has resulted in increased pressure on rates across all lines of business."

Lloyd's paid out £8.7 billion in claims in 2007, compared to £11.7 billion in 2006.

The group added its return on investments of 5.6 per cent is the highest for five years.

In addition, the market made significant progress in reforming its processes during 2007, Lloyd's said. Over 70 per cent of all claims and original premium transactions are now processed electronically.

Lloyd's is made up of 75 underwriting syndicates, which insure a wide range of items and businesses.