UPDATE 2-ING's Q1 loss wider than expected

* Q1 loss bigger than expectations

* Company says market conditions remain "challenging"

* Falling asset prices weigh on insurance line (Adds detail, loan loss figures, insurance losses, broker comment)

AMSTERDAM, May 13 - Dutch banking and insurance group ING reported on Wednesday a much bigger than expected first-quarter net loss of 793 million euros ($1.1 billion), or 39 cents per share, hurt by a sharply weaker insurance business.

"Market conditions remained challenging in the first quarter as equity markets declined further, credit spreads remained elevated, real estate prices continued to fall and loan losses increased as the crisis spread from the financial markets to the real economy," said Chief Executive Jan Hommen.

The company also said the year would remain "challenging" due to market volatility.

Analysts polled by Reuters had on average expected a net loss of 451 million euros, or 22 cents per share. A year ago the company earned 1.54 billion euros, or 74 cents per share.

One Dutch broker said he was disappointed with the results.

"They were not as good as expected," the broker said.

In the insurance business ING was forced to recognise 325 million euros of fair value changes and impairments on real estate and private equity investments, 365 million euros of impairments on securities and 550 million euros in charges related to customer acquisition costs.

Overall insurance sales fell 27.5 percent year-on-year. The value of new business was down 57.4 percent and ING blamed a mix of lower sales and margin pressure.

Loan loss provisions in banking came in at 772 million euros, above the average of analysts' forecasts of 604 million euros, and ING warned of more to come.

"The current economic outlook points to elevated risk costs in the coming quarters of at least the level of the first quarter of 2009," the company said in a statement.

In addition to the loan loss provisions banking took an investment loss of 150 million euros, mostly on impairments related to mortgage securities.

But ING also said the deleveraging of its balance sheet on the banking side was ahead of schedule, having completed 79 billion euros of the planned 110 billion euros reduction by the end of the quarter.

ING is the largest Dutch bank and insurance group by balance sheet assets. In April it said it would sell assets to raise capital and cut risk while refocusing its diverse operations on Europe. ($1=.7336 euros)