(Adds details, quotes, share price)
* Q2 net profit 285 mln DKK vs 290 mln forecast
* Investment return falls to 2 mln DKK from 20 mln
* Nudges up full-year profit outlook
By Mette Fraende
COPENHAGEN, Aug 21 (Reuters) - Danish insurer Topdanmark raised its guidance for full-year net earnings as profitability at its core insurance business improved in a second quarter free of the extreme weather that can boost claims.
The group also said, however, that a drop in investment returns led to a 5 percent fall in second-quarter pretax profit.
Topdanmark said it expected full-year 2012 net profit to be between 1.30 billion and 1.40 billion Danish crowns instead of a previously guided range of 1.25 billion to 1.35 billion crowns.
Second-quarter net profit fell to 285 million Danish crowns from 301 million in the corresponding period last year, just short of an average 290 million crowns estimate in a Reuters poll of analysts.
"It is the investment result which disappoints in the second quarter," Jyske bank analyst Christian Hede said.
"It is a good result, but expectations have been very high, so even this turns out to be a small disappointment," Hede said.
The return on investments fell to 2 million crowns in the second quarter from 20 million in the same period a year before.
The company kept its full-year outlook for premium growth in life insurance unchanged at around 1-2 percent, but upgraded its forecast for its combined ratio - a measure of insurers' profitability - to around 90 percent from around 91 percent.
The combined ratio measures costs and claims as a percentage of premiums. A figure below 100 means underwriting is profitable. The lower the figure the better.
The second-quarter combined ratio improved to 84.9 percent from 86.6 percent a year earlier, Topdanmark said.
"A favourable development in claims has helped us reach a very satisfactory combined ratio," Chief Executive Christian Sagild said in a statement.
"The only headwind we have encountered is the strained financial markets which means that our investment return is very low," Sagild said.
The second quarter saw no extreme weather, and the biggest claims in the quarter were covered by re-insurance, he added.
The technical result, which reflects the core insurance business, rose to 336 million crowns from 309 million a year earlier, exceeding an average poll estimate of 304 million.
Last week, Danish rival Tryg reported forecast-beating quarterly profits on the back of a low level of large claims and a gain on reinsurance.
Shares in Topdanmark recovered from a dip to trade up 0.8 percent by 1138 GMT, against a 0.4 percent rise in the Copenhagen benchmark index and a 0.9 percent rise in the STOXX Europe 600 insurance sector index. (Reporting by Mette Fraende; Editing by Helen Massy-Beresford)