The Lloyd's of London insurance market announced yesterday it had returned to profitability during 2002.

Under its new annual accounting system, the world's oldest insurance market recorded a profit of £834 million for the year.

Lloyd's, which traditionally reports its results on a three-year basis, credited its performance to a combination of steep increases in insurance premiums, very low claims and disciplined underwriting by the market.

It is the first time the market has made profit since 1996.

Lloyd's recorded a loss of £3.11 billion for 2001 following the September 11 terrorist attacks and other catastrophes including the Petrobras oil rig accident and the attacks on an airport in Sri Lanka.

Chief executive Nick Prettejohn said: "These results demonstrate a very strong performance.

"It was the market's resilience and disciplined approach, at a time when the industry as a whole has faced many difficulties, that generated 2002's healthy result."

Lloyd's switched to reporting its results on an annual basis last year as part of a raft of reforms to modernise the market and make it more transparent and easier to compare with other major insurance centres, such as Bermuda.

Mr Prettejohn said Lloyd's had outperformed its international peers, with a combined ratio for 2002 of 98.6 per cent.

This means that for every £1 in premiums Lloyd's took in, it paid out £98.60 in claims and costs.

Its ratio compares with an average combined ratio of 105.1 per cent for European reinsurers and 121.3 per cent for US reinsurers.

During the year, the net resources of the market and its members increased by 85 per cent to £7.51 billion, while the assets in the central fund were up by 55 per cent at £563 million and are expected to reach £800 million by the end of this year.