UPDATE 1-Irish insurer FBD's earnings slide; cuts dividend

* Full-year dividend nearly halved

* Write-offs of nearly 127 million euros

* Shares down 15 percent

(Adds more detail, quotes)

DUBLIN, March 4 (Reuters) - Irish insurer FBD (FBD.I) reported on Wednesday a 46 percent drop in full-year underlying earnings, just shy of its own guidance, and nearly halved its dividend sending its shares sharply into the red.

FBD FBD.L, Ireland's third-largest general insurer, also said stiff competition in the local market and weaker investment returns could also hit this year's results after rising claims and lower returns hammered last year's performance.

"We would see our underwriting result at this stage of the cycle a little bit lower than the 2008 figure," Chief Executive Andrew Langford told Reuters.

"Our longer-term rate of investment return may be slightly lower as well because the longer-term outlook for interest rates is lower."

At 0940 GMT, FBD's shares were nearly 17 percent weaker at 5.92 euros in a general market .ISEQ up over 3 percent.

"A lot of investors would have been holding the stock to get the good dividend payout," said one Dublin-based dealer.

"FBD joined the queue of companies doing this (cutting the dividend) but if you look at the state of their balance sheet, it's in really, really good nick."

The group said it would pay out a dividend of 40.25 cents for 2008, nearly half last year's level.

Langford said the company wanted to be prudent with its capital but its long-term goal remained a payout ratio of about 40-50 percent of operating earnings after interest.

This year's dividend was around 25 percent of earnings.

TAKEN THEIR MEDICINE

For 2008, FBD reported adjusted operating earnings per share of 171.5 cents, just shy of a range of around 175.5 cents to 184.5 cents it flagged last year following a spike in claims in the aftermath of bad flooding and volatile investment markets.

The group wrote off 126.5 million euros from its balance sheet, mainly on equities, corporate bonds and its hotels, golf resorts and investment properties.

"You can't rule out any further writedowns but certainly we have taken quite a lot of our medicine, we feel at the moment," Langford said.

He said FBD had slashed its exposure to equities from 15 percent of assets to less than 4 percent.

"We are very glad we did that because otherwise the result would have been far worse."

Gross written premiums last year fell nearly 6 percent to 386 million euros as FBD raised prices on some products.

Langford said premium rates had started to harden across the market after six years of falls but said it may be difficult to raise prices too much in the face of a deepening recession.

"It will be a difficult enough environment to increase rates the way consumers are feeling at the moment and we are conscious of that." (Editing by Hans Peters)