Black Horse Financial Services, the bancassurance side of the group, was hit particularly badly, with profits slumping 41.5 per cent to £67.6m.
But a strong performance from the Lloyds Bowmaker finance arm helped restrict the group's overall decline in profits to 2.5 per cent.
Lloyds Abbey Life as a whole made £315.6m last year, much in line with market expectations. Analysts were cheered by a rise in the dividend from 18p to 19.5p, although Trevor May, at BZW, said that it was unclear what the dividend policy would be as the growth in cash earnings ran out of steam.
The shares, which have risen recently on rumours that Lloyds Bank would bid for the 37 per cent of the group it does not own, fell back 8p to 356p. Sir Simon Hornby, chairman, refused to comment on bid rumours.
But he sounded a warning that the public was being put off making adequate provision for the future by the wave of bad publicity that has engulfed the insurance industry.
He blamed the media in part for "suggesting all life insurance salesmen were crooks", and said that a return to confidence was essential. "That is going to happen as customers realise that regulation - and compliance with it - have taken place."
Stephen Maran, chief executive, said Black Horse's profits were hit disproportionately badly because the sales force underwent an extensive retraining programme and for technical reasons related to insurance accounting assumptions on embedded values.
The independent Abbey Life sales force produced better results, seeing a decline of just 8 per cent in pre-tax profits to £123.8m, against Black Horse's 41 per cent plunge.
Mr Maran acknowledged that the bancassurance sales force was less aggressive and less experienced than the Abbey Life one because it was newer to the field and because of the more conservative culture of banking.
Lloyds Bowmaker, the finance company where Mr Maran used to be chief executive, saw profits almost double to £73.2m on the back of a big fall in bad debts and a stronger car loans market.
Profits at Lloyds Bank Insurance services, which brokes insurance through the bank branches, jumped almost 20 per cent to £70.8m. Black Horse Agencies, the estate agency division, saw its losses rise £3m to £3.7m as the property market refused to recover.
Trans Leben, the German insurance subsidiary, lost a further £13.6m last year after a £15.9m loss in 1993.