LONDON (Reuters) - Lloyd's of London insurer Amlin reported a better-than-expected 29 percent increase in its half-year profit as its investment returns more than doubled, thanks to stronger financial markets.

Amlin, which has an underwriting unit in Bermuda, had a pretax profit of £177.1 million ($293.3 million) for the six months to June 30, up from £137.3 million in the same period last year, the company said yesterday.

Analysts had expected a profit of £128 million, according to the average of six estimates collected by the company.

Amlin shares were up four percent at 369 pence by 0825 GMT, valuing the company at about £1.8 billion.

"On first read, these results are strong," Oriel Securities analyst Tom Dorner wrote in a note.

"Profits are well ahead of consensus, which is driven by stronger underwriting and investment returns."

Amlin said the profits increase partly reflected higher prices for catastrophe insurance as insurers worldwide sought to recoup hefty losses caused by hurricanes Ike and Gustav last year.

The company said it also benefited from stronger financial markets, which boosted returns on its investment portfolio to £53.1 million from £22.5 million a year earlier.

Insurers were hit last year by a sharp drop in investment income as tumbling equity markets forced them to move into lower risk, lower-yielding securities. Amlin chief executive Charles Philipps said the company had called a halt to acquisitions following its $500 million takeover of Fortis Corporate Insurance in June, but would start looking for potential targets in the United States once the Fortis business is integrated.

"Our priority right now is on successfully integrating (Fortis) over the rest of this year and the early part of next year, so we're not looking to do any major acquisition in that period," he told reporters on a conference call.

"As and when we've got (Fortis) bedded in well, then we'll turn our mind to the next step, and we'll most likely focus on the United States."

Philipps also said that while the company's half-year investment performance had been boosted by a rise in the value of its corporate bonds, seen as more risky than government debt, its overall investment stance would remain conservative.

"Right at the moment we're pretty cautious about the economic outlook and we're nervous about overly exposing ourselves to equities, and would rather err on the side of caution," he told reporters on a conference call.

Equities accounted on average for just 6.8 percent of Amlin's investment portfolio in the first half, against 68.9 percent for corporate and government bonds combined, 21.5 percent for cash, and 2.8 percent for property.

The company's half-year combined ratio — a measure of underwriting profitability which expresses claims and costs as a percentage of premium income — was 73 percent, compared with 67 percent a year earlier.

Amlin raised its interim dividend by 8.3 percent to 6.5 pence per share.