February 5, 2015 / 7:55 AM / 3 years ago

UPDATE 2-Munich Re sweetens tough outlook with cash to shareholders

* 2014 net profit in line with expectations at 3.2 bln eur

* 2014 dividend 7.75 euros a share vs forecast 7.54 euros

* Jan 1 renewed business volume -9.5 pct, prices -1.3 pct

* Share down 1 pct vs flat blue chips (Adds CFO quotes, analyst, context, shares)

By Jonathan Gould

FRANKFURT, Feb 5 (Reuters) - Munich Re predicted a third year of falling profits in 2015 amid low interest rates and declining reinsurance prices, and sought to mollify investors with a higher dividend and hints of another share buyback plan.

The world's largest reinsurer said on Thursday it was unlikely to reach a net profit of 3 billion euros ($3.4 billion) this year, after making 3.2 billion in 2014.

"It would be unrealistic to expect, adjusted for everything, again a 3 billion number under these circumstances," finance chief Joerg Schneider told a conference call.

Munich Re's shares fell 1 percent to 180.05 euros by 1320 GMT, lagging a flat German DAX index.

Big reinsurers are having trouble putting capital to work amid fierce competition and falling prices for the risk cover they provide insurance company clients, preferring instead to cut business volume rather than prices.

Unable to invest excess cash in their core businesses, they are returning it to shareholders.

Munich Re raised its 2014 dividend more than expected to 7.75 euros per share and hinted it could follow its plan to buy back 1 billion euros of its own shares by April 23 with more purchases.

"Our capital position is very strong and we have emphasised for a number of years that in addition to high dividends, we consider share buybacks very normal," Schneider said, adding no decision on a further buyback had been taken.

Equinet analyst Philipp Haessler said he expected another buyback to be announced, possibly with final fourth-quarter results on March 11.

TOUGH MARKET

The tough reinsurance market was evident in contracts Munich Re hammered out with insurance companies that took effect on Jan. 1, when it renewed more than half of its property casualty reinsurance business.

The volume of business dropped 9.5 percent to around 8.5 billion euros, while prices fell 1.3 percent, the German firm said, contrasting with peer Hannover Re which managed a 1 percent gain in premiums in January.

"Overcapacity and a relatively low number of major natural catastrophes in 2014 added to the competitive pressure, above all in catastrophe business," Munich Re said, adding the market environment for reinsurance was unlikely to change much in the months ahead.

JP Morgan analyst Michael Huttner said the modest drop in prices in the Jan. 1 renewals showed Munich Re was maintaining discipline in underwriting.

"This should support continued underwriting profitability in 2015, while the reduction in premium volumes releases capital," he added.

$1 = 0.8816 euros Additional reporting by Andreas Kroener; Editing by Thomas Atkins and Mark Potter

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