UPDATE 3-Zurich Financial misses forecast on hedge spend

* Q3 business operating profit 1.5 bln Sfr, up 138 pct

* Solvency ratio rises to 209 pct, combined ratio 98 pct

* CFO says still aims for "sustainable, healthy" div

* Shares fall 4 percent

(Adds analyst comment, updated shares)

By Jason Rhodes

ZURICH, Nov 5 (Reuters) - Zurich Financial Services AG's (ZURN.VX) third-quarter profit missed expectations due to spending on additional hedges, but the Swiss insurer hinted at healthy payouts to shareholders and strengthened capital.

Europe's fourth-largest insurer by market value said on Thursday third-quarter business operating profit was $1.5 billion, up from $636 million a year earlier, when hurricanes Gustav and Ike battered earnings. The average forecast was $1.6 billion in a Reuters poll of analysts.

Chief Financial Officer Dieter Wemmer said additional balance sheet and credit exposure hedges probably explained the shortfall on consensus profit estimate.

"These hedges cost us in our net income number more than $100 million in the third quarter and $200 million in the nine months," Wemmer said.

The company's general insurance combined ratio, a measure of profitability, improved to 98.0 percent for the third quarter, owing to low payouts on catastrophes and cost cuts but missed expectations for 96.6 percent. A combined ratio below 100 percent shows insurance operations are profitable.

The company said shareholders' equity rose 29 percent on-year and its solvency ratio increased to 209 percent, showing a strong capital base. The higher the solvency number, the less likely a company is to default on its debt obligations.

"The results are mixed. We focus on risk and therefore like the strong improvement in shareholders equity," said Kepler Capital Markets analyst Fabrizio Croce. "The company is well prepared for further market volatilities."

Shares fell 4.2 percent to 227.50 Swiss francs by 0910 GMT, underperforming a 2.3 percent drop in the DJ Stoxx European insurance index.SXIP, with traders citing disappointment at below-forecast profit and combined ratio.

UNCHANGED DIVIDEND

Zurich remained bullish on its prospects even as general insurance gross written premiums fell 10 percent in the first nine months, reflecting lower volumes in North America and difficult market conditions across Western Europe.

"Zurich is well positioned for the future under any economic scenario," said Zurich Chief Executive James Schiro, who steps down at the end of the year after transforming the company into one of the world's most stable insurers.

"We still aim to pay a sustainable, healthy dividend," said CFO Wemmer. "The solvency level will provide us with sufficent capital to do this at year end."

Reporting earlier this week, UK insurer's Aviva (AV.L) and Legal & General (LGEN.L) said sales fell in the first nine months of 2009 but that they expected consumer confidence to return in the coming year.nL4413629

Zurich shares trade at around 9.5 times consensus 2009 earnings estimates, more than German rival Allianz (ALVG.DE) at 8.6 times, but a discount to France's Axa (AXAF.PA) and Italy's Generali (GASI.MI) at 10.3 and 16.0, respectively. [ID:nL4413629] [ID:nL3553528] (Editing by Anshuman Daga and by Hans Peters)