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UPDATE 1-Insurer Lancashire Holdings H1 pretax profit up 18 pct

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LONDON, July 27 (Reuters) - Property and casualty insurer Lancashire Holdings Ltd reported an 18 percent rise in first-half pretax profit on Thursday as it kept a tight rein on overheads and underwriting in challenging markets.

Competition from investment funds and others have put pressure on speciality insurers and re-insurers and Bermuda-based Lancashire said previously it was likely to write less business in 2017.

Against this backdrop, better-than-expected investment returns helped the company - which writes policies for heavy-duty assets such as oil rigs, ships and aircraft - to deliver pretax profit of $66.7 million in the six months ended June 30, from $56.6 million a year earlier.

The insurer's gross written premiums fell to $381.2 million in the first half of the year, and its combined ratio - a key industry measure - fell to 78.4 percent year to date from 76.2 percent last year.

Lancashire said it would pay an interim dividend of 5 cents per common share, flat from a year earlier.

"With our risk levels at historic lows, if there are no major events over the coming wind season, and no change in market conditions, we anticipate returning earnings to our shareholders later in the year," Group Chief Financial Officer Elaine Whelan said. (Reporting by Dasha Afanasieva in London and Noor Zainab Hussain in Bengaluru; Editing by Edmund Blair and Mark Potter)