RSA profit beats target but dividend miss hits shares

* Operating profit up 15 pct to 360 mln pounds

* Dividend up 32 pct to 6.6 pence but below forecast

* No special dividend, share buyback before 2018 - CEO (Recasts with more detail, analysts, share price, CEO)

By Carolyn Cohn

LONDON, Aug 2 (Reuters) - A lower than expected dividend payment hit shares of British motor and home insurer RSA on Wednesday, making it the worst performer in the FTSE 100 index and overshadowing above-forecast first-half profit.

Best known in Britain for its More Than brand, RSA has been selling businesses and cutting costs under Stephen Hester, the former boss of Royal Bank of Scotland (LSE: RBS.L - news) who joined in 2014 to overhaul the insurance company.

RSA said the restructuring was now complete.

Some analysts had expected RSA to increase its dividend pay-out ratio, but the firm kept it at 40 to 50 percent of earnings after reporting a better than expected operating profit of 360 million pounds ($475.5 million), led by strong performances in Canada and Scandinavia.

RSA said it would pay an interim dividend of 6.6 pence, up 32 percent but below a forecast 7 pence.

Hester told a media call the company was still on track to offer further cash to shareholders in 2018 through special dividends or share buybacks.

"The dividend upgrade we forecast did not occur," KBW analysts said in a note, though they reiterated their outperform rating on the stock.

RSA's shares were down 2.3 percent at 642.2 pence at 0828 GMT, dropping from eight-year highs.

Barrie Cornes, analyst at Panmure which has a hold rating on the stock, said RSA's recent strong share price performance had cut the chances of an offer for the company after rival insurer Zurich abandoned a bid in 2015.

RSA's combined ratio, a measure of underwriting profitability, strengthened to a record 93.2 percent. A level below 100 percent indicates a profit.

The firm's Scandinavian and Canadian businesses did well, despite some large losses in Canada, RSA said. Its Irish business, hit by an accounting scandal in 2013, returned to profit.

However, group underwriting profit for RSA's business in the United Kingdom dropped nearly 80 percent to 17 million pounds following an unexpected large cut in the rate used to calculate personal injury claims, pushing up the size of those payments. ($1 = 0.7572 pounds) (Reporting by Carolyn Cohn; editing by Rachel Armstrong and David Clarke)