By Ulrike Dauer

FRANKFURT--Germany's Munich Re AG (MUV2.XE) on Thursday said it will raise its dividend for 2014 despite a profit decline in the fourth quarter, as full-year earnings topped the company's guidance.

Fourth-quarter net profit fell 42% to around 700 million euros ($793 million) from around EUR1.2 billion a year earlier. The figure was shy of an average analyst forecast of EUR778 million because of a smaller contribution from the Ergo primary insurer and goodwill impairments following a new business segmentation at Ergo.

The world's biggest reinsurer by revenue ahead of Swiss Re AG (SREN.VX) said it will lift the dividend to EUR7.75 a share from EUR7.25 in 2013. The dividend rise marks the third in as many years.

Munich Re also said rates for contracts in its portfolio renewed in January continued to decline, by an average 1.3%. However, that was slightly below the 1.5% decline a year earlier. Price developments are closely watched as an indicator for profitability in the industry. Rates have been under pressure for several years. Smaller peer Hannover Re SE (HNR1.XE) on Wednesday said it was broadly satisfied with the renewals despite significant rate declines in many markets and lower-than-expected increases in business lines hit by losses last year, such as aviation.

The quarterly result also reflects some hits from forex translation and derivatives.

Full-year net profit was EUR3.2 billion, down from EUR3.3 billion in 2013, but in line with the latest guidance that it could top EUR3.1 billion.

Quarterly operating profit declined 46% to around EUR700 million, despite a higher investment result, which rose to EUR2 billion from EUR1.8 billion, beating forecasts of a decline to EUR1.77 billion.

Gross premium revenue were also lower in the last quarter, dropping to EUR12 billion from EUR12.5 billion.

Munich Re will release the full set of fourth-quarter and 2014 earnings on March 11, when it is expected to give a 2015 profit guidance.

-Write to Ulrike Dauer at ulrike.dauer@wsj.com

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