PROFITS at Lloyd’s of London soared by 127 per cent in 2003 as ideal trading conditions and successful restructuring produced a bumper year.

The 300-year-old insurance market crawled back from a disastrous £2.37 billion loss in 2001 to a £1.89 billion pre-tax profit in 2003.

Lloyd’s cut its combined ratio to a respectable 90.7 per cent, from 98.6 per cent last year, to beat the global average of 101 per cent.

Combined ratio is a measure of an insurer’s profitability, based on the ratio of claims plus expenses to premiums. A 100 per cent ratio equals breakeven. Less than 100 per cent is a profit, and a ratio of more than 100 per cent is a loss.

Circumstances last year favoured Lloyd’s. Premiums stayed high and payouts for catastrophic losses were low.

Favourable market conditions were combined with extensive restructuring in the market. Lloyd’s shut its doors to unlimited-liability names — rich individuals who provided underwriting capacity to insurers in the market — and set up a franchise board to ensure that all insurers in the market maintain the same standards.

Last year’s improved results let Lloyd’s raise its contribution to its central fund 49per cent to £711 million. The central fund is used by Lloyd’s governing council to pay claims if a market member lacks the resources to meet liabilities.

Nick Johnson, analyst with Numis Securities, said: “It does emphasise that some of the Lloyd’s companies are among the most profitable in the industry.”

Mr Johnson said that it was yet to be seen whether Lloyd’s reforms were sufficient to be effective in tougher market conditions. “We will have to wait to see whether the recent changes are effective when trading deteriorates and whether Lloyd’s can avert some of the crises that have hit it in the past,” he said.

Lloyd’s has staged a big turnaround since 2001, when losses from the September 11 attacks on the World Trade Centre imperilled many insurers.

The franchise board last year forced two insurers out of the market in a crackdown on poor performance. Lloyd’s yesterday said they were unlikely to be the last to be ejected.