FRANKFURT/ZURICH (Reuters) - The world's two biggest reinsurance companies, Munich Re (>> Muenchener Rueckversicherungs-Ges. AG) and Swiss Re (>> Swiss Re AG), prepared to reward shareholders by handing back cash in a year that saw both avoid massive claims for disasters like hurricanes or earthquakes.

Industry leader Munich Re on Thursday unveiled plans to buy back up to 1 billion euros ($1.35 billion) of its own shares in the coming months, hoping to cheer investors after a fall in third-quarter earnings.

Swiss Re, which saw quarterly net profit halve to $1.1 billion, said it was open to paying a special dividend for the second year running, depending on its full-year results.

Despite the quarterly profit declines, both companies' results turned out better than analysts had expected and both said they were still on track to reach their earnings targets.

"Today the firm is in a very strong position from a capital perspective," Swiss Re Chief Financial Officer George Quinn told a media conference call.

"We have the luxury. We can contemplate a number of different possibilities and even a combination," he added.

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Analysts busily began to pencil in the impact on dividends.

Stefan Schuermann of Vontobel saw a special dividend of 3.5 Swiss francs and said the ordinary dividend could rise to 4.0 francs from the 3.5 paid for 2012. Swiss Re paid a special dividend of 4.0 francs for last year.

Reinsurers have been hit by some big localised claims this year, such as hail storms and flooding in Germany, but have not faced the massive payouts for hurricanes or earthquakes they saw in recent years, creating leeway for improved dividends or share buybacks.

Reinsurers, which provide a financial backstop to insurance companies facing big claims in exchange for part of the premium, have also found it difficult to put their cash to work profitably because of low interest rates and increasing competition from pension and hedge funds.

These alternative investors have been providing reinsurance in lucrative markets like U.S. hurricane risk, driving down the pricing power of traditional reinsurers like Munich and Swiss.

The threats have clouded reinsurers' prospects.

Munich Re shares have risen 11 percent so far this year, underperforming the STOXX Europe 600 insurance index <.SXIP>, which is up 24 percent since January 1. Swiss Re shares have also lagged the sector index, but only modestly.

Munich Re said returning capital to shareholders would help bolster reinsurance underwriters' self-discipline in maintaining their pricing power over insurance companies.

"Our goal is to have an acceptable capital position but not an excessive one," Chief Financial Officer Joerg Schneider said.

Schneider's boss, CEO Nikolaus von Bomhard, had raised the possibility of a share buy-back as early as March, and the 1 billion euro figure is consistent with Munich Re's track record.

It bought back on average 1 billion euros worth of its own shares annually between 2006 and 2011.

"The announced share buy-back programme with a volume of 1 billion euros exactly matches our expectations but is still positive," said DZ Bank analyst Thorsten Wenzel in a note.

Munich Re's share fell 1 percent by 1245 GMT, while Swiss Re got a more positive reaction, its shares rising 2.3 percent.

The STOXX Europe 600 insurance index <.SXIP> rose 0.5 percent.

($1 = 0.7392 euros)

(Additioanl reporting by Kathrin Jones; Editing by Noah Barkin and Tom Pfeiffer)

By Jonathan Gould and Alice Baghdjian