* Q1 net profit up 0.7 pct to 233 mln euros
* Analysts had expected net profit of 216 mln euros
* Confirms guidance for FY net profit of 850 mln euros
* Shares indicated up 0.5 percent (Adds details)
FRANKFURT, May 7 (Reuters) - German reinsurer Hannover Re posted an unexpected rise in quarterly net profit to 233 million euros ($324.6 million), helped by higher investment income.
The world's third-biggest reinsurer had been expected to post a fall in first-quarter net profit to 216 million euros, the average of eight forecasts in a Reuters poll of banks and brokerages showed.
"The quarterly profit of 233 million euros was driven by a very pleasing underwriting result in non-life reinsurance and good investment income," Chief Executive Officer Ulrich Wallin said in a statement on Wednesday.
Hannover Re helps insurance companies shoulder big damage claims from hurricanes or earthquakes in exchange for part of the profit, competing against peers such as Munich Re and Swiss Re for the business.
The company said it had set aside 30.6 million euros in the first quarter for the loss of Malaysian Airlines flight MH370, thought to have crashed on March 8 with the loss of all 239 passengers.
Reinsurers have seen prices pressured by an influx of pension fund money into the reinsurance market. Insurers are also asking for a better deal from their reinsurers after reinsurers posted strong profits in 2013, helped by relatively low payouts for big damage claims.
Reluctant to enter a price war, Hannover Re has said it is prepared to accept modest declines in premium volume in its property and casualty business to preserve profitability.
Operating profit in its non-life reinsurance business increased by a better-than-expected 8.4 percent to 280.5 million euros despite a contraction in gross premiums.
Net investment income rose 1.8 percent to 361 million euros, ahead of the average forecast in a Reuters poll.
Hannover Re stuck by its target for full-year net profit of around 850 million euros this year and a dividend payout ratio of 35 percent to 40 percent of post-tax group income. (Reporting by Caroline Copley; Editing by David Goodman)