SYDNEY, Australia (Reuters) - QBE Insurance Group Ltd., Australia's

top insurer by premium, on Monday flagged a 40% fall in first-half

net profit on equity losses and a lack of one-off gains,

disappointing investors who knocked its shares down 6.5%.

QBE, which has made more than 75 acquisitions in 10 years to spread

to 48 countries, said equity losses more than doubled to $228

million, while the year-ago period had one-off gains of about $220

million.

Analysts on average were expecting a 35% fall in net profits from

the $1.02 billion Australian ($915.0 million) reported last year and the downbeat

outlook sent the stock to its lowest since March 2009.

The shares recovered slightly to $17.06 Australian ($15.31) at 0235 GMT, but

were still down 5.1% in a broader market up 0.75%.

QBE's woes are not different from its global peers, which are facing

weak stock markets and lower bond yields. Last month, smaller rival

Insurance Australia Group Ltd. cut its 2010 forecast for the third

time in as many months.

"It seems like investors predicted a turnaround sooner," Angus

Gluskie, chief investment officer at White Funds Management, said.

"QBE is at a soft point in the insurance cycle. But all ingredients

are in place for a turnaround in the coming years."

Fund managers said analysts would adjust their short-term forecast

after QBE 's warning but expected them to leave the 2011 and 2012

forecast largely unchanged.

"The continued excellent underwriting results have been more than

offset by significantly lower investment income from reduced

interest yields, the fall in equity markets," QBE CEO Frank

O'Halloran said in a statement.

Still hopeful for 2010

QBE said it expected its insurance profit margin for the first half

to be 15.7%, below its 16-18% forecast range, hit by lower yields

and record levels of catastrophes in the first half.

However, Mr. O'Halloran said he still expected to end the year in

the target range. The insurer also said it expected to maintain its

interim dividend of $0.62 Australian.

The insurer, which decided to present its earnings in U.S. dollars

as overseas operations make up 75% of business and half the annual

premium is written in U.S. dollars, said gross written premium

should expand by a fifth to $6.9 billion.

Acquisitions and other initiatives for 2010 to date are set to add

around $400 million of net profit and about $2.3 billion of new

gross written premium annually by 2013, it said.

QBE is scheduled to report half year earnings on Aug 19.