UPDATE 1-Ace Ltd posts 46 percent drop in 1st-quarter net

(Adds financial detail, Reuters Estimates, after-market share activity)

NEW YORK, April 29 (Reuters) - Ace Ltd (ACE.N), the largest Bermuda insurance company, said on Tuesday net income fell 46 percent in the first quarter, but operating earnings beat Wall Street expectations.

Ace, which provides insurance as well as reinsurance to other property and casualty carriers, reported earnings of $377 million, or $1.10 a share, down from $701 million, or $2.10 a share, in the year earlier quarter.

Net income was hurt by "unprecedented volatility experienced in the debt and equity markets," Chief Executive Evan Greenberg said in the company's earnings statement. The results included $353 million in net realized losses.

But the Hamilton, Bermuda-based insurer posted a 9.5 percent increase in operating earnings, and raised its 2008 outlook for operating earnings to between $7.40 and $7.90 a share, from an earlier range of $7 to $7.50.

Operating earnings, which analysts use to measure performance because it excludes investments, totaled $725 million, or $2.16 a share.

Analysts on average had expected the insurer to earn $1.92 a share on an operating basis, according to Reuters Estimates.

In the year-ago quarter, Ace earned $1.98 a share from operations.

Ace said net premiums written fell 4 percent over the prior year, but underwriting income for its property and casualty lines of business rose 14 percent, benefiting from the release of about $137 million that had been set in reserve for possible losses from prior-year periods.

The company's insurance business, based on net written premiums, declined in North America by about 10 percent and elsewhere by 13 percent, Ace said.

In reinsurance, there was a more dramatic decrease with net premiums written down 28 percent. Net investment income rose nearly 8 percent.

Ace shares fell almost 1 percent in the main session on Tuesday, closing at $58.35 and were flat in after-market activity.

Based on Tuesday's closing price, Ace has fallen about 3 percent over the last 12 months, while the Standard & Poor's insurance index .GSPINSC has dropped more than 20 percent. (Reporting by Lilla Zuill; Editing by Andre Grenon)