IAG lifts profit forecast as economy rebounds

Insurance Australia Group is the latest company to join a rush of corporates to lift their profit forecasts as the economy rebounds from the global financial crisis.

Australia's top car and home insurer lifted its full-year insurance margin to between 11.5 and 13 per cent, up from a previous forecast of 9 to 11 per cent on lower claims, cost and favourable credit spreads.

IAG, which also has a presence in UK and parts of Asia, said its first-half insurance profit is expected to more than double to $488 million representing an improved insurance margin of 13.4 per cent.

Shares rose as much as 6.1 per cent in early trade this morning and were recently trading 5 per cent higher at $3.99.

"Our performance has also been aided by narrowing credit spreads and natural peril claim costs ..., particularly in November and December which traditionally experience more weather events," chief executive Michael Wilkins said in a statement.

IAG is due to release earnings on February 25.

IAG competes with Suncorp Metway and QBE Insurance among others in the $31 billion general insurance market.

IAG joins Commonwealth Bank, Flight Centre, Computershare, takeover target AXA Asia Pacific and Aristocrat Leisure in lifting earnings forecast over the past few weeks largely on a stronger economy.

The Australian economy, which turned down but evaded recession last year, has outperformed its global peers mainly on strong demand from China for its resources and robust domestic consumption.

On Tuesday, the Reserve Bank was resoundingly upbeat on the domestic outlook saying the economy had proved stronger than expected with unemployment peaking much lower than feared.

IAG, which underwrites about $7.8 billion of premium a year said it expects underlying gross written premium growth of 5 per cent in the first half and 3-5 per cent for the full year, excluding divested business and forex movements.

But the reported gross written premium would fall 1.5 per cent in the first half and remain flat for the full year due to the strength of the Australian dollar, the company said.

It said natural peril claims were lower at $121 million compared to allowances of $166 million.

- Reuters