* 2016 operating profit down 22 pct to 403.5 mln stg
* Follows cut in discount rate to minus 0.75 pct
* RBC analyst says performance better than expected
By Carolyn Cohn
LONDON, March 7 (Reuters) - British insurer Direct Line reported a 22 percent fall in full-year operating profit on Tuesday, after the government changed the way personal injury claims are calculated, pushing up lump sum payments.
Direct Line, whose brands include Churchill, Green Flag and Privilege, said operating profit from continuing operations was 403.5 million pounds ($493.60 million) for the year ended Dec. 31, compared with 520.7 million pounds a year earlier.
Several insurers have seen profits dented after Britain's justice ministry last week cut the discount rate used in the calculations of lump sum payments to minus 0.75 percent from 2.5 percent.
Direct Line's operating profit would have been 578.6 million pounds without the discount rate change, the insurer said in a trading statement.
RBC analysts said the results were better than expected when taking account of the discount rate change, reiterating their 'outperform' rating on the stock and raising their target price to 410 pence from 400 pence.
Direct Line Chief Executive Paul Geddes said the insurer was well-positioned "in a market disrupted by the reduction in the discount rate".
Gross written premiums for ongoing operations rose 3.9 percent to 3.27 billion pounds in the period, Direct Line said.
The FTSE 100 company achieved a full-year combined operating ratio from continuing operations of 97.7 percent, also hit by the discount rate change.
A level below 100 percent indicates an underwriting profit.
Direct Line has a 93-95 percent target range for the rate and said it maintained that target for 2017.
The insurer said it would pay a final dividend of 9.7 pence per share, for a total dividend, including a special dividend, of 24.6 pence per share, down 50 percent from a year earlier. ($1 = 0.8175 pounds) (Reporting by Carolyn Cohn and Noor Zainab Hussain; editing by Simon Jessop)