* Underlying profit up 4 pct, beats expectations
* AMP signs reinsurance deals for troubled life insurance unit
* Earnings slip 1 pct in wealth management division
* Shares slide 3.9 percent, biggest daily drop in 9 mths (Recasts on wealth-management segment result, adds share price reaction and analyst quote)
By Tom Westbrook
SYDNEY, Aug 10 (Reuters) - Australia's biggest life insurer, AMP Ltd, posted better-than-expected interim profit on Thursday although a 1-percent fall in earnings at its mainstay wealth unit sent its shares to their worst daily fall in 9 months.
The company said it expected wealth-management margins to tighten further and set a target of 5 percent revenue growth over the next five years for the unit, as customers increasingly switch to low-fee insurance options.
"It continues to underperform," Morningstar analyst David Ellis said.
"Profits in that business have been declining modestly over the last two-and-a-half years and that's not a good look."
Strong revenue growth from AMP's banking and capital divisions lifted underlying profit for the six months to June 30 by 4 percent to A$533 million ($420 million), compared with average analyst estimates of A$514.5 million.
Revenue jumped 25 percent to A$7.61 billion. The wealth management unit posted operating earnings of A$193 million.
AMP shares hit a two-week low, dropping as much as 4.3 percent to A$5.18 in afternoon trade, their largest intraday fall in nine months. The broader S&P/ASX 200 index traded 0.1 percent lower.
Investors were also "annoyed" by AMP's announcement that it had indefinitely paused a planned share buyback to consider other capital management opportunities, Shaw and Partners stock analyst David Spottswood said.
AMP signed a series of reinsurance agreements covering its troubled AMP Life unit, which are expected to release about A$500 million in capital that analysts said would could be directed to the buyback next year.
On a statutory basis, AMP reported an interim net profit attributable of A$445 million, down from A$523 million reported last year. ($1 = 1.2694 Australian dollars) (Additional reporting by Ambar Warrick; Editing by Stephen Coates)