Lloyd's of London saw profits halve and investment returns collapse last year as hurricanes battered the balance sheet and the global financial turmoil took its toll.

The world's oldest insurance market also warned that it may be almost impossible to make any money on its investments next year since bond and equity markets are likely to remain in strife. This means that insurance rates are sure to rise.

Lloyd's made profits of £1.9 billion in 2008 - a good result in the circumstances, it reckons.

That's down from £3.8 billion last year, a fall blamed on another year of traumatic weather which led to hefty payouts to policyholders.

Lloyd's made £957 million - down from £2 billion in 2007 - on its £40 billion of assets, an investment return of just 2.5%.

But given how much rivals such as AIG, the bailed-out giant American insurer, lost, Lloyd's can claim that its conservative approach to managing assets has proved prudent.

The life insurance sector has also approached crisis, with rising concern about solvency, affecting even some of the biggest players in the industry.

Finance director Luke Savage said: "We have a third of our assets in cash, a third in government bonds and a third in corporate bonds. We have shied away from mortgage-backed securities or subprime. It's a very vanilla investment mix. We are in the black rather than in the red, which in the circumstances is a result we are proud of."

With interest rates at all-time lows and equity markets also struggling, Savage said he is "not sure Lloyd's is going to be able to make any meaningful money on its investments" next year.

This means the cost of insuring for everything from car accidents to acts of God is likely to rise, although so far there's only minimal evidence of rates hardening.

Lloyd's, which started in 1688 as Edward Lloyd's Coffee House, is famed for insuring any number of quirky items from Rolling Stone Keith Richards' fingers to singer Celine Dion's vocal cords.

Last year was the third worst in Lloyd's history for natural disasters, largely because of hurricanes Gustav and Ike. The two worst years were 2004 and 2005, clear evidence for the effects of global warming, some say. Lloyd's expects a higher frequency of hurricanes and other extreme weather, but thinks having three such terrible years so close together was mostly just bad luck.

Savage said: "I think we have the same kind of view as everyone else. In the long term the frequency will increase."

Lloyds insists there is no danger of it backing away from the hurricane market. "We are here to insure those kind of risks," said Savage.