ZURICH (Feb 17): Allianz, Europe's largest insurer, proposed spending 3 billion euros (US$3.2 billion) on buying back its own shares on Thursday after the Munich-based firm posted higher than expected profits and said it was adjusting its policy on budgeting for possible takeovers.

The company announced a 4.1% rise in the dividend to 7.60 euros per share after posting a 23% rise in its fourth-quarter net profit to 1.7 billion euros, beating the average of 1.54 billion euros forecast by analysts, according to a Reuters poll.

Net profit for the full year was up 4% at 6.9 billion euros, just ahead of the average of forecasts of 6.77 billion euros.

"In future, 50% of group net attributable income will still be returned to shareholders in the form of a regular dividend," the group said in a statement.

"However, Allianz no longer intends to link its budget for external growth to shareholder pay-outs in a three-year cycle.

"Rather, half of net income should be used as deemed appropriate to finance growth, or it will be returned to shareholders on a flexible basis."

The new 12-month buyback programme which is due to start on Feb 17 remains subject to the company maintaining a Solvency II capital adequacy ratio of above 160% of the minimum requirement, Allianz said in a statement, and represents 4.2% of the group's current market capitalisation.

"The year (2016) was filled with surprises, not all of them welcome, that challenged many assumptions, fueled geopolitical uncertainty and market volatility, and that make 2017 difficult to predict," Chief Executive Oliver Baete said in a statement.

"Nevertheless, we feel confident enough to raise our operating profit target range," he said, referring to a target of 10.8 billion euros, plus or minus 500 million, in 2017.

Operating profit in 2016 rose 0.9% to 10.8 billion euros, which compared with an average of analysts' forecasts of 10.87 billion.

(US$1 = 0.9386 euros)