RSA became the first big European insurer to disappoint investors' 2011 dividend expectations, inviting unflattering comparisons with big payouts from rivals Allianz and Swiss Re .

RSA, Britain's biggest commercial insurer, said on Thursday it would raise its dividend by a prudent 4 percent because low interest rates were eroding its investment returns, falling short of the 5.2 percent expected by analysts in a company poll.

Investors have been closely scrutinising insurers' 2011 dividends amid worries that paltry investment yields, hefty natural disaster claims, and writedowns on European sovereign debt last year might sap their ability to pay while also keeping their capital reserves high enough.

It's a reflection of the reality of the situation, RSA Chief Executive Simon Lee told reporters.

When the economic environment changes, we hope to be in a position to grow the dividend more quickly.

Germany's Allianz, the European leader, kept its annual dividend unchanged even though a jump in catastrophe claims and hefty impairments on distressed Greek debt holdings halved its net profit.

The move, which analysts take as a sign of Allianz's confidence in its future earnings potential, boosted the proportion of its 2011 profit that will be handed to shareholders --the so-called payout ratio -- to over 80 percent.

Swiss Re, the world's second-biggest reinsurer, raised its dividend by 9 percent after its 2011 profit trebled thanks to a release of cash set aside in prior years against claims that did not materialise.

Axa and Zurich Financial Services , the other leading European insurers to have reported 2011 results so far, last week also sought to reassure investors with unchanged dividends.

RSA's subdued dividend increase will bring its payout ratio and dividend yield, historically among the highest in the European sector, more closely into line with its competitors'. The move partly reflects the insurer's more downbeat assessment of its growth prospects, analysts said.

It's getting ever more difficult to grow, they're spending too much on their dividend, and they need to save some of that, said Investec analyst Kevin Ryan.

Shares in RSA were down 4.5 percent by 3:40 p.m., making them the steepest faller in the Stoxx 600 European insurance share index <.SXIP>, which was flat. Allianz and Swiss Re were up 0.15 percent and 3.3 percent, respectively.

One of the bull cases (for RSA) has always been that it's got this big fat yield, and it's nice and steady, but that now has changed because of the economic environment, said Espirito Santo analyst Joy Ferneyhough, who calculates that RSA's dividend yield is still 50 percent higher than Allianz's.

RSA's 2011 operating profit rose 38 percent to 884 million, narrowly beating the 844 million pounds expected by analysts, while Allianz's net profit fell to 2.55 billion euros, missing forecasts by almost half a billion euros.

Swiss Re had a profit of $2.63 billion (1.67 billion pounds), well ahead of the $1.79 billion pencilled in by analysts.

RSA on Thursday also named Richard Houghton, finance chief at U.S. insurer Aspen, as its new chief financial officer.

The appointment clears the way for outgoing CFO George Culmer, recruited to the same role at bailed-out lender Lloyds Banking Group in November, to quit the insurer in May.

(Reporting by Myles Neligan; Additional reporting by Maria Sheahan in Frankfurt and Catherine Bosley in Zurich; Editing by Will Waterman)