FRANKFURT (Reuters)—Munich Re, the world's biggest reinsurer, expects to beat its 2012 net profit target of €2.5 billion ($3.1 billion) after rising premiums and improved underwriting performance boosted the German group's quarterly earnings.

"We are well on track to slightly surpass the originally envisaged profit for the year," chief executive Nikolaus von Bomhard said, adding the group would benefit in the second half from funds no longer needed to cover past damage claims.

Munich Re cited the potential for big damage claims from hurricanes in the second half and expected triple-digit million euro restructuring costs at insurance unit Ergo as reasons for not raising its 2012 target more significantly.

It had been expected to post a net profit of €2.6 billion ($3.22 billion) this year, according to a Reuters poll.

Munich Re shares were up 1.1% to €118.85 ($147.22) by 1040 GMT on Tuesday, outpacing a 0.3% higher DAX blue-chip index.

Its second quarter saw payouts for big damage claims fall nearly one-third to €452 million ($559.9 million). Munich Re expected claims for crop failure after a drought in the United States to cost around €160 million ($198.2 million).

A quarterly net profit of €808 million ($1 billion) topped the highest forecast for €801 million ($992.2 million) in the Reuters poll and compared with an average forecast for €696 million ($862.1 million).

In contract renewals with insurance company clients in Australia, Latin America and the United States in July, Munich Re managed to boost premium volumes by 18.5% while also raising prices about 2%.

Munich Re said low yields on its €190 billion ($235.35 billion) portfolio of fixed-income securities remained a major threat for which it was trying to compensate through price increases and greater underwriting discipline.

"Munich Re deems the challenge of the still very low interest rate levels to be far greater than that of the volatility of the financial markets or the worsened global economy," it said.

The company has further reduced its investments in government bonds from southern European countries, it said.

While Munich Re shares have risen a quarter in value this year, they lag the 30% gains at rivals Hannover Re and Swiss Re.