Softening market conditions and a rise in attritional claims cutthe pre-tax profit of Lloyd's in half for the first six months ofthis year–down to ?949 million (about $1.88 billion at currentexchange rates) through June, compared with ?1.81 billion (about$3.48 billion) for the same period the year before.

Lloyd's said in a statement that a conservative investment mixhas resulted in a positive return of approximately 1 percent,“which showed the impact of the extreme volatility in the capitalmarkets, with both equity and bond holding adversely affected.”

“It comes as no surprise that our profits are reduced, becauseof softening market conditions and also an increased number ofclaims. We have been anticipating this,” said the chief executiveofficer at Lloyd's, Richard Ward.

“Our investment income has been impacted by the stability in thefinancial markets,” he added. “But given our conservativeinvestment strategy, we have produced a positive return. So we arewell positioned to face the challenges ahead.”

Mr. Ward said that while no organization “can isolate itselffrom what has happened in the financial markets–particularly overthe last three weeks,” he noted that from Lloyd's perspective, “wehave learned from our mistakes in the past. We have reduced ourexposure to financial institutions from an underwritingperspective, but we've also adopted a conservative investmentstrategy.”

As a result, Mr. Ward said, “any exposure we face will bemanageable.”

The market's combined ratio rose 6.1 points to 89.0, up from82.9 in June 2007–which, according to a joint statement from Mr.Ward and Lord Peter Levene, Lloyd's chairman, “once again compareswell with our peers, but the increase is indicative of thesignificant challenges faced with weaker prices and easing of termsand conditions across almost all lines of business.”

The two added that “reductions in the volume of business writtenby a significant number of established syndicates was a welcomesign of underwriting discipline. Revenues were boosted by newbusiness brought into the market by recent entrants.”

The interim report also noted that:

o Lloyd's combined ratio of 89 compares favorably with anestimated 99 for U.S. property and casualty insurers; 98 for U.S.reinsurers; 86 for Bermuda; and 96 for European insurers andreinsurers.

o Lloyd's said its investments returned ?346 million ($689million).

o Lloyd's reported its “strongest ever central assets” of ?1.936billion ($3.85 billion).

o Lloyd's financial strength ratings have been affirmed by A.M.Best, “A” (Excellent); Standard & Poor's, “A-plus” (Strong);and Fitch Ratings, “A-plus” (Strong).

Lloyd's expects to have capacity to write approximately ?15.95billion ($29.56 billion) of business in 2008 via 75 syndicates.Lloyd's said its writings place its market in fifth place in termsof global reinsurance premium income, adding that Lloyd's is thesecond-largest surplus lines insurer in the United States