UPDATE 3-Fund investment losses hit Chubb's profit

* Chubb profit falls 48.6 percent

* Operating income of $1.43/shr beats Wall St view

* Shares little changed after report (Adds quotes from CEO, analyst, byline)

By Lilla Zuill

NEW YORK, April 23 (Reuters) - High-end property and casualty insurer Chubb Corp (CB.N) said on Thursday that earnings fell in the first quarter, hit by losses on fund investments and declining policy sales.

Chief Executive John Finnegan said the "difficult economic and investment environment" had caused some customers to scale back insurance spending.

The company has seen lower demand to provide insurance for jewelry, and the downturn in the housing market has meant fewer million-dollar homes need coverage, he added.

First-quarter net written premiums fell by 7 percent to $2.7 billion.

But rising insurance rates are expected to help offset those factors throughout 2009, Finnegan said on a post-earnings conference call.

The Warren, New Jersey-based insurer reported net income that was nearly halved from the year-earlier quarter, falling to $341 million, or 95 cents a share, compared with $664 million, or $1.77 a share, a year ago.

"The economic effect hitting Chubb in the first quarter is not a positive, but it is also not unique to Chubb and is more a topline than bottom line issue," said Paul Newsome, an analyst with Sandler O'Neill in Chicago, who does not own Chubb stock.

Net realized investment losses before taxes were $266 million, stemming primarily from losses on investments in private equity or hedge fund firms.

Fund performance is typically recorded on a one-quarter lag, meaning the losses taken in the first quarter were largely derived from the fourth quarter. Losses from fund investments are expected to be less than $50 million in the second quarter, the company said.

OPERATING PROFIT

While Chubb also reported a a decline in operating earnings, its $1.43 a share profit was better than analysts' average expectations of $1.38, according to Reuters Estimates.

A year earlier, operating earnings -- which exclude investment gains and losses -- were $1.65 a share.