Storm damage claims hit operating profits at Legal & General's household and motor insurance business, much of which is run from Birmingham, last year.
Earnings slumped by more than half to #14 million from #32 million in 2004, even though improved volumes in household and healthcare policies produced a three per cent rise in premium income to #334 million.
L&G said the "significantly lower" operating profit was a result of higher bad weather claims in the first half of 2005 combined with tougher competition.
The group, which employs about 800 people at its Birmingham insurance centre, said that elsewhere in the book, improved results from accident, sickness and unemployment insurance were offset by increased motor losses and a smaller release of reserves from the mortgage indemnity book.
Overall, however, L&G delighted the City yesterday by announcing better than expected profits on the back of record amounts of new business.
Operating profits rose by 43 per cent last year to #1.09 billion - a result that sent shares soaring by seven per cent on a day when the FTSE 100 Index burst through the 6,000 mark.
The results were boosted by strong growth in the UK following a series of distribution deals with banks and building societies to sell Legal products. Life and pensions profits in the UK grew 69 per cent to #801 million.
Legal chief executive Tim Breedon said: "2005 was another record year for Legal & General - record new business and record profits."
L&G announced a dividend of 5.28p - up more than four per cent on the previous year.
Cazenove analyst James Pearce summed up market sentiment, saying: "L&G has delivered a splendid set of figures."
Mr Breedon said yesterday the company had nothing to fear from increased competition in the bulk annuities market.
For years L&G and arch rival Prudential have had the field to themselves but are now facing the prospect of new players moving into the field.
Bulk annuities is a specialised area of operations in which insurers take over company pension schemes.
"If you're in a pension scheme and your employer decides to close it, you'd be looking for a company with financial strength, reliability and long-term commitment to take it over," Mr Breedon said.
"There are new companies wishing to enter the market, but there's quite a long list of desirable characteristics that they need to meet."
With more employers seeking to offload their pension liabilities, the bulk annuity market looks set to grow fast enough to accommodate some new players.
"There's a growing recognition that the market is attractive, which certainly hasn't always been the case. More people will be looking at it, but it's a big market, and a growing one," Mr Breedon added.