LONDON (Bloomberg) — Hiscox Ltd., a Lloyd's of London insurer, posted first-half profit that surpassed analysts' estimates as claims and costs fell and the company retreated from unprofitable business.

Pretax earnings rose 3.4 percent to a record £109.2 million ($204 million), beating the £95.1 million average estimate of five analysts surveyed by Bloomberg. Net income rose to £84.4 million from £80 million a year earlier, the Hamilton, Bermuda-based company said in a statement yesterday.

Chief executive officer Bronek Masojada plans to reduce sales in the Lloyd's market and scale back property reinsurance in Bermuda, as prices come under pressure from increased competition and lower natural catastrophe losses. The insurer, which covers risks ranging from fine-art to kidnap and ransom, plans to concentrate on regional operations in Britain, Europe and the US to lift growth.

"We expect prices to go down in the absence of a major event in the second half of the year," Masojada said in a telephone interview. "You can expect to see continued discipline which will pay off in good profitability."

Hiscox shares have declined 23 percent this year, the second- worst performer after Beazley Plc in the nine-member FTSE 350 Non-Life Insurance Index.

The insurer's combined ratio, or claims and expenses as a proportion of premiums, declined to about 80 percent from about 85 percent, indicating improved profitability in underwriting.

"You can't argue with these numbers," said Charles Coyne, an analyst at KBC Peel Hunt Ltd. in London who has an "add" rating on the stock. "It's the underwriting which has performed for them."

Gross premiums written declined 13 percent to 639.4 million pounds, the company said. The dividend rose 6.3 percent to 4.25 pence a share and the company will buy back stock "as suitable opportunities arise," Hiscox said.

Profit from investments declined to £17.3 million from £46.8 million because of a "weakness in markets", Hiscox said. The company benefited from higher reserve releases from prior years, said Masojada.

"It is very pleasing (and slightly surreal) to be able to announce our half-year results when the financial markets are in turmoil, and our rating by the stock market is so low," said chairman Robert Hiscox in the statement.

The company last month created a team to add new insurance and reinsurance business lines to its international unit.

Earnings rose to 20.9 pence a share from 19.6 pence a share, the company said.