LONDON (Reuters) - UK insurer Amlin Plc said yesterday it saw a more challenging year ahead, with the average drop in renewal rates in the first quarter at just over seven percent, though it retained 86 percent of business.

"The group continues to write a well balanced portfolio of business," Amlin, which has a Bermuda unit, said in a trading statement ahead of its annual shareholder meeting.

"While rates are softening in our non-marine, marine and Bermudian lines albeit from historic high levels, we remain well positioned to benefit from an upturn, when it comes, in our UK commercial and aviation lines."

Non-marine renewal rates dropped 10.1 percent, with Amlin Bermuda rates down 8.6 percent.

The insurer said gross written premiums for the quarter totalled £395.9 million ($785.8 million), down from £440.2 million a year ago, at March rates of exchange, hit by the drop in non marine and UK commercial, where it said 2008 was unlikely to offer many opportunities to increase premium volumes.

Amlin said its reinsurance classes, written within non-marine and Amlin Bermuda, were "coming off their peak rating levels" but margins remained acceptable.

The group said stronger competition in the U.S. large property insurance market, also within its non marine division, meant it had begun to retract from the business.

"Overall, 2008 is expected to be a more challenging year but we have confidence that we will continue to deliver acceptable returns for our shareholders," it said.

Amlin's investment return for the first quarter was 0.8 percent, on average funds under management of £2.5 billion.