Insurer RSA warns over Brexit impact

* Brexit could have negative impact on revenue, investment returns

* FY op profit 523 million pounds vs f'cast 481 million

* Expects cost savings of 250 million pounds by 2016

* Shares (Berlin: DI6.BE - news) up nearly 8 pct (Recasts with Brexit comment, adds Middle East business, updates shares)

By Carolyn Cohn

LONDON, Feb 25 (Reuters) - RSA chief Stephen Hester said a British exit from the European Union could have a negative impact on the insurer's business and investment returns, underscoring a warning from top executives about the impact of withdrawal.

Hester was one of 36 CEOs of companies in the blue chip FTSE 100 index who this week signed an open letter saying that leaving the EU would put the British economy at risk, though some Brexit proponents seized on the lack of other CEO names from the list.

"Half of our market value comes from our European businesses, and in all of our markets, some of our major competitors are European," Hester told Reuters. "A level playing field between European competitors and ourselves is valuable to us in the long run."

The possibility of Brexit was also likely to cause market turmoil, Hester added, speaking after RSA reported a 43 percent rise in operating profit. Other groups to have warned over the impact of Brexit include the drug sector which said exit would threaten scientific research and jeopardise the system of regulation.

RSA, best known in Britain for its More Than brand, also ratcheted up its return targets and cost-cutting plans following last year's abandoned takeover bid from Zurich Insurance (LSE: 0QP2.L - news) , helping boost its shares nearly 8 percent and making them among to top gainers in the FTSE 100 (NasdaqGS: Z - news) .

Former RBS boss Hester was brought in two years ago to turn around RSA. He previously called the aborted 5.6 billion pound ($7.8 billion) takeover by Zurich a distraction.

Hester told a media call the group had received no other approaches after the Zurich bid fell away.

RSA said it expected to make cost savings of 250 million pounds by 2016, a year ahead of schedule, and was targeting more than 350 million pounds in gross annualised savings by 2018.

It said it was targeting the upper half of its medium-term goal of an underlying return on tangible equity of between 12 and 15 percent by 2017.

The company also said it had almost completed its disposal programme, though Hester said it was not close to selling its Middle Eastern business, given difficult market conditions.

Operating profit of 523 million pounds was well above analysts' consensus of 481 million in a company-supplied forecast.

The firm also published a solvency capital ratio of 143 percent under new European capital rules, prior to the completion of the sale of its Latin American business, and a target ratio of 130 to 160 percent. A solvency ratio of 100 percent means an insurer has set aside enough capital to meet underwriting, investment and operational risks.

RSA said it would pay a final dividend of 7 pence, taking its total payout to 10.5p, up 425 percent and compared with a forecast 10.4p. ($1 = 0.7181 pounds) (Editing by Rachel Armstrong and David Holmes)