LONDON (Bloomberg) — Lloyd's of London, the world's biggest insurance market, said first-half profit declined for the first time in two years on lower rates and investment returns.

Pretax profit fell 47 percent to £949 million ($1.8 billion) in the six months ended June 30 from £1.8 billion a year earlier, the London-based market said yesterday in a statement.

"The market remains in a good position to face the challenges ahead even though the external conditions in which we operate are about to test our structure and resolve," Lloyd's chief executive officer Richard Ward said in the statement.

Ward is urging members to pull back their insurance underwriting next year as the most active hurricane season in three years has yet to reverse a 20 percent drop in prices. Lloyd's faces tougher conditions after two "extraordinary years" of good investment returns and an absence of catastrophe claims, said Ward.

Hurricane Gustav, which hit Louisiana this month, may have caused industry-wide claims of as much as $4.5 billion, while Ike, which lashed Texas, may bring as much as $12 billion of damage losses, according to estimates from Risk Management Solutions Inc.

Claims for the Lloyd's market for the hurricanes are probably within the range for a typical year of about £900 million, finance director Luke Savage said in a telephone interview.

Hurricanes and other disasters, which increase claims and reduce short-term profit for insurers and reinsurers, can also allow them to raise prices.

Insurance prices skyrocketed after Hurricane Katrina resulted in $41 billion of claims in 2005, RMS said.

Lloyd's posted record profit the following year.

Lloyd's combined ratio, or claims and expenses as a percentage of premiums, was 89 percent, compared with 82.9 percent, indicating higher commodity-price led inflation, Savage said. Investment returns declined to £346 million, from £846 million.