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Insurance Australia Group Limited (IAG) announced that it expected to achieve a full year insurance margin in the range of 11.5%–13%, up from previous guidance of 9%–11%. The company said based on unaudited results it expects to report a half-year insurance profit of $488 million, representing an improved insurance margin of 13.4%.

The company will announce its half year results on 25 February.

In the previous corresponding period IAG posted a half-year insurance profit of $227 million, on an insurance margin of 6.2%.

The company said the improved performance reflected improvement in the group’s underlying operating performance, lower natural peril claim costs, lower reserve releases, a favourable movement in credit spreads and no net writedown of deferred acquisition costs during the period.

IAG said the improvement has been achieved despite a significantly lower running yield applicable to technical reserves, which reduced the 1H10 insurance margin by around 3% compared to 1H09.

The company expects to report underlying gross written premium growth of 5% for 1H10, excluding divested businesses and the impact of foreign exchange movements.

”Reported GWP is likely to reduce by approximately 1.5%,” IAG said.

”For the full year, the group continues to expect underlying GWP growth of 3–5%, while reported GWP is now expected to be flat due to the strength of the Australian dollar.”

Managing director and CEO, Michael Wilkins, said more than half of the expansion in the company’s insurance margin derived from operational improvements.

“Our largest business, Australia Direct, recorded solid GWP growth and a strong insurance margin while our intermediated business, CGU, also recorded a further, steady improvement in underlying profitability,” Mr Wilkins said.

“In New Zealand, our business has experienced a sharp turnaround in performance on the back of remedial action and benign weather, building on the improvement evident in 2H09.”

The company’s Equity Red Star business in the UK reported GWP growth, however its insurance margin was affected by a deterioration in bodily injury motor claims for the 2007 and prior underwriting years.

Mr Wilkins said IAG’s performance had also been aided by narrowing credit spreads and natural peril claim costs below its allowances.

Athe close of trade Tuesday, IAG shares were trading at $3.79.

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