Lloyd’s of London has insisted it remains in good shape despite seeing its profits almost halved last year.

The insurance giant posted profits of £1.9bn – down from £3.85bn a year earlier – a figure that reflects lower insurance rates and the impact of significant claims from natural catastrophes such as North Atlantic hurricanes Gustav and Ike.

Investment returns fell to £957m from £2bn in 2007, but that was partially offset by favourable currency movements and prior year surpluses.

The vast majority of its investments are held in cash, government bonds or highly rated corporate bonds.

Chairman Lord Levene told Sky News:”With the insurance world you can’t plan to be making a little bit more money every year than you did the last year.

“In 2006 and 2007 we had no hurricanes, so we made very significant profits which we have to keep behind us for the very rainy day which comes when the hurricanes do come.

“So in view of the size of those hurricanes in 2008, the fact that we can still produce what in fact is our third highest profits since we started reporting annually is we think pretty good.”

With minimal exposure to equities, Lloyd’s has not been subject to the kind of capital erosion that some parts of the life insurance industry have experienced.

Lloyd’s solvency position improved over the year, with total assets growing to more than £2bn.

The Lloyd’s market, which is made up of 80 insurance syndicates, has shown in recent years that it is more than able to cope with major catastrophes.

Among recent changes to modernise the market, Lloyd’s introduced a new franchise structure and phased out the number of Names who backed the market with an unlimited liability.

And reflecting its focus on underwriting for profit, its combined ratio – the industry measure of profitability – came in at 91.3% for 2008. A figure below 100% represents a profit.

Lloyd’s is not an insurance company but a society of members – corporate and individual – who underwrite in syndicates on whose behalf professional underwriters accept risk.

There are now 773 individual Names participating at Lloyd’s, providing less than 5% of the capital.