Amlin, the insurance group that operates mainly through the Lloyd's of London market, today posted a 26 per cent fall in first-half profit, which it blamed on reduced investment income, saying its core underwriting business remained strong.

Amlin's shares fell 4 per cent to 270.5p after it reported pre-tax profit in the six months to June 30 plunged to £137.3 million, from £185 million in the same period a year ago. Despite the sharp slide, the result beat analyst forecasts of a profit of about £120 million.

Amlin said that, while its underwriting profit remained steady at £148.7 million, its investment income dropped 66 per cent to £22.5 million pounds. The insurer started to reduce its equities exposure as the credit crunch began to bite late last year, increasing its holdings of government bonds.

The first-half result was strengthened by the release of £59.9 million from reserves that were no longer needed.

Charles Philipps, chief executive of Amlin, said: "Even with the effects of the credit crisis on investment returns, in the first half we have achieved a strong return on equity. Over the next two years we expect the diversity of our underwriting to be increasingly recognised as a key strength as rate increases in areas, such as UK commercial motor and property lines, help compensate for the softening of rates in other parts of our business".

“Profit before tax is down, but the real message is that we continue to deliver some very strong underwriting returns,” Mr Philipps said.

“We were never going to hit (an annualised) return of equity of over 30 per cent, which we hit in the first half of last year, particularly in the light of the investment climate.”