This page is based on a section of User blog: Robin Patterson/Col1 FAQ by Toby Douglass. Comments on it should be on its talk page rather than on the blog.Material copied from http://45mercystreet.com/computing/col94/index.html with specific (e-mail) permission of author (Toby Douglass)
Long experience playing Colonization indicates that there is a weighing factor in naval combat which is based on how heavily your navy outnumbers your opponents navy. The bigger your navy is, the greater the chance your ships will lose in combat. What's more, ships don't just lose more, they lose harder - your ships are much more likely to be sunk.
Interestingly, though, this weighing factor only seems to be applied when your ships attack other ships. If other ships attack you, combat proceeds as normal.
The only real solution to this is to keep your navy reasonably small; two or three privateers and one or two frigates.