LONDON (Reuters) - Bermuda-based insurer Catlin Group said yesterday trading in the first quarter was in line with expectations, with margins holding despite increased competition and an expected drop in premiums.

The insurer said gross written premiums were broadly constant at $1.2 billion in the first three months.

The London-listed firm said gross premiums written in London were some eight percent below the same quarter last year but its Catlin Bermuda operation achieved "modest growth". Other international offices, particularly those in Europe, managed "excellent growth".

And the company expected volumes to improve at Catlin US after a first quarter "slightly below expectations".

It said competition continued to increase for most classes of business, with the average weighted premium rate down five percent in the first quarter, hit by an eight-percent drop in its catastrophe classes of business.

Claims activity also increased year-on-year, but was in line with the group's assumptions for the year, Catlin said, while investments and cash rose to $6.1 billion, although the return on those assets in a turbulent market was only 0.6 percent.

Its shares were up 1.3 percent at 386.5 pence, in contrast to rivals Amlin and Hiscox which were all in negative territory. Catlin shares are trading around the level at which they opened the year.

"Catlin's IMS points to a pleasing Q1," said UBS in a note. "Premium volumes are flat year-on-year, which compares well against peers. Investment returns have been weak, although not out of line with the sector."

On Wednesday, rival Amlin, which has a Bermuda-based unit, said it had seen price cuts of around eight percent for the four months to the end of April, as competition intensifies for business in big-ticket insurance and reinsurance risks, but that margins remained acceptable as prices had come down from historic highs.

"We are pleased with Catlin's performance during the first quarter," chief executive officer Stephen Catlin said.

"Premium volume and rate adequacy met management's expectations, despite increasing competition across our portfolio of business.

"While loss incidence increased during the quarter, losses were within our expectations, and our underwriting result has benefited from the reinsurance synergies provided by the Wellington acquisition.

"We look ahead to the remainder of 2008 with confidence. While we expect that average weighted premiums rates will continue to decrease absent a catastrophic event, margins for most classes of business should remain good.

"We are encouraged by the growth in business underwritten by our international offices and the continued development of Catlin US.

"We also will continue to benefit from the embedded growth emerging from the Wellington acquisition as well as the more than $125 million in annual synergies expected to arise from the transaction."