* 2010 operating profit 1 bln sterling, vs 1.05 bln consensus
* Total dividend up 24 percent
* Shares down 0.5 percent (Adds analyst comment, background, updates shares)
By Myles Neligan
LONDON, March 17 (Reuters) - Life insurer Legal & General said it would pay a bigger-than-expected dividend despite missing profit forecasts, and signalled it would benefit from higher savings levels as welfare provision declines.
"We are confident about the growth prospects for Legal & General," chief executive Tim Breedon said on Thursday.
"There is consolidation in many of our markets and this further underpins our confidence that L&G will be a growing force as the welfare state retrenches and individuals increasingly look to high-quality, good value risk, savings and investment provision."
L&G shares were down 0.5 percent at 110.45 pence by 1420 GMT, the only stock to lose ground in the Stoxx 600 European insurance index, which was up 3.3 percent after falling for three consecutive days because of the Japanese earthquake.
The shares are still up 10 percent so far this year, outperforming the European index's 5 percent rise.
Analysts said the decline reflected disappointment over L&G's 2010 operating profit, which came in at 1 billion pounds ($1.61 billion), below the 1.05 billion pounds expected by analysts, according to a consensus forecast calculated by the company.
"The only negative is the operating (profit) was down 10 percent and 5 percent below consensus," Oriel Securities analyst Marcus Barnard wrote in a note.
The decline reflected an increase in reserves to cover the cost of annuity customers living longer than expected, as well as a reduced capital benefit as the price of bonds used to underpin annuities rose relative to 2009.
L&G, Britain's fourth-biggest life insurer by market value, said its total dividend for 2010 would rise 24 percent to 4.75 pence per share, beating the 4.54 pence expected by analysts.
The higher payout came as L&G boosted cash generation by 4 percent to 728 million pounds, in line with an industry-wide focus on cash aimed at dispelling investor concerns that life insurers are opaque and highly capital-consumptive.
Rival insurer Prudential, which has also been emphasising its ability to generate cash, last week announced a forecast-beating 20 percent increase in its shareholder payout. ($1=.6221 Pounds) (Editing by Hans Peters and Sophie Walker)