insurer, said first-half profit rose 46.3 percent as investment income soared.

It warned second-half earnings would fall because of a charge and declining markets.

Profit rose to 1.374 billion Swiss francs ($989 million), or 29.43 francs per share, from 939.2 million francs, or 20.16 francs per share, a year earlier.

Zurich benefited from buoyant financial markets in the first half, which boosted investment income 10.3 percent to 3.42 billion francs. Its shares fell as much as 5.9 percent, however, after Zurich joined other financial-services companies, such as Swiss Reinsurance Co., in predicting slower second-half earnings as plunging markets cut investment earnings.

"All insurers have big equity portfolios, and that will impact their earnings in the second half,'' said Eugen Melliger, a vice president at Credit Suisse Asset Management, which has $140 billion under management, including Zurich shares. "The results are good, the outlook is still good, but financial stocks just aren't in favor right now.'' Shares in Zurich Allied AG, the Swiss parent, fell as much as 5.9 percent in a falling Swiss market. They fell 48 francs at 781 francs at midday. Allied Zurich Plc, the UK parent, fell as much as 3.2 percent. They fell 23 pence to 674p in London.

Zurich also said second-half profit would be affected by a $1.4 billion reorganisation charge. The company last week completed the $18.7 billion purchase of B.A.T Industries Plc's financial-services unit, which includes Los Angeles-based Farmers Group Inc. Zurich said if the unit were included in first-half earnings, it would have earned 1.416 billion francs. The company said the reorganisation charge won't affect its 1998 dividend and that it expects savings of $400 million from the purchase of the B.A.T unit.

Zurich, which owns the Bermuda-based Zurich and Centre Resources companies said the impact of falling markets, plunging currencies and economic slowdowns in Asia, Russia and other emerging markets in the first half was "limited''.

It said it generates 3.1 percent of premium income from those countries.

Still, it warned full-year profit won't exceed that of the first half.

"Profit for the entire year is not expected to reach the level of the first six months,'' said Zurich Chairman and Chief Executive Rolf Hueppi, according to documents released before a press conference. "Nevertheless, unless faced with exceptional unforeseen events, we anticipate a very good operating result in 1998.'' First-half operating income rose 29.7 percent to 1.73 billion francs as premium income rose 7 percent to 18.9 billion francs.

"Zurich's higher financial income contributed most to these excellent results,'' said Heinrich-Horst Wiemer, an analyst at Bank Sal. Oppenheim & Cie. "The company is well- placed to reap the benefits of the BAT acquisition, particularly in the US.'' Few analysts had first-half earnings forecasts for the company because of its B.A.T. purchase and because it was reporting under International Accounting Standards for the first time.