LONDON (Reuters) - Lloyd's of London insurer Catlin on Friday reported a steeper than expected slide in first-half profit, hit by the BP oil spill, the Chilean earthquake and currency fluctuations.

Bermuda-based Catlin had a pretax profit of $86 million for the first six months of 2010, down from $240 million a year earlier, and below the $105 million pencilled in by analysts, according to the company's calculation of consensus expectations.

Catlin shares were down 5.6 percent at 366 pence by 1220 GMT, making them the second-steepest faller in the FTSE 250 share index, which was 0.3 percent higher. Prior to Friday's statement, the stock had risen 10 percent so far this year.

"A disappointing result from Catlin," Shore Capital analyst Eamonn Flanagan wrote in a note.

"We remain disappointed at the lack of progress in the rating environment."

Catlin said it absorbed total losses of $1 billion in the first half, an increase of 30 percent, driven mainly by the giant earthquake that struck Chile in February.

The company was hit by further claims relating to the BP oil spill and by $49 million in foreign exchange losses, while its investment returns fell 30 percent to $140 million as yields on government bonds dropped.

The property and casualty insurance industry is struggling in the face of falling prices due to intense competition between insurers holding abundant supplies of capital.

Chief executive Stephen Catlin said that in the absence of a major US hurricane this summer, prices looked set to remain broadly flat, denting insurers' financial performance.

"The whole industry is suffering from a lack of investment return, and if we're going to give the same return to shareholders as we have historically, we're going to have to put prices up on the underwriting side," he told Reuters.

"But I don't think the market as a whole has woken up to that yet."

However, Catlin said prices for energy-related insurance had started to rise in response to the BP oil spill, while there were signs also of an upturn in the aviation market.

The Catlin CEO has previously said the spill will lead to a surge in demand for liability insurance from big companies in many industries.