IAG's Strong Upgrade

  You will no doubt read a lot of guff about how QBE should have really moved last year to snap up & #160;Insurance Australia Group when the latter was vulnerable and changing CEOs and strategy.QBE eyed IAG off and on during 2008 and 2009, but either couldn't, or didn't pull the trigger on a full-fledged bid: it tried an indirect approach that went nowhere because it wasn't a 'here's the money' type of offer.QBE waved a half-hearted indicative offer at IAG shareholders of & #36;4.60 early in 2008.QBE chose to expand elsewhere and ended up having a good credit crunch and recession.With reinsurance giant, Munich Re, reporting a sharp improvement & #160;in its latest results this week, thanks to the low claims record last year for the re-insurance industry (QBE is a top 10 global re-insurer, especially through Lloyds of London), QBE should be doing better than the market thinks.QBE shares closed unchanged on & #36;23.10 yesterday, down from their 52 week high of & #36;25.70 at the start of this year.IAG shares rose 4.5% to & #36;3.96 after hitting & #36;4.02 in trading, the highest since the start of the year.There will be a lot of & quot;we told you so & quot; comments, but the reality remains that investors will keep a watchful eye on IAG until it can prove that it has changed its ways.The company developed an unfortunate ability to promise much and not deliver: it got caught with an ill-timed expansion into the UK and the credit crunch hit its earnings.But at least there's & #160;a glimmer for IAG investors to grab hold of, in that the company seems to be experiencing better times in the insurance market.IAG, the country's & #160;biggest car and home insurer lifted its estimated full-year insurance margin to between 11.5% and & #160;13%, from a previous forecast of 9%-11% because of & #160;lower claims, falling costs and favourable credit spreads.As a result, & #160;IAG said its first-half insurance profit is expected to more than double to & #36;488 million, representing an improved insurance margin of 13.4%That's up from the December 2008 earnings of & #36;227 million and an insurance margin of just 6.2%. & quot;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, & quot; chief executive Michael Wilkins said in a statement.As well, there was continued improvement in the Group's underlying operating performance, in line with that anticipated at the outset of the financial year;Lower natural peril claim costs of & #36;121 million (1H09: & #36;176m) compared to allowances of & #36;166 million;Reserve releases of & #36;80 million, compared to & #36;85 million in 1H09;A favourable movement in credit spreads, with a net gain of & #36;28 million, compared to a loss of & #36;86 million in 1H09; andNo net write-down of deferred acquisition costs during the period, compared with & #36;42 million in 1H09. & quot;This 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, & quot; the company explained.IAG is due to release earnings on February 25.IAG joins Commonwealth Bank, Flight Centre, Computershare, & #160;AXA Asia Pacific, & #160;Navitas, and Aristocrat Leisure in lifting earnings forecast over the past few weeks, largely on a stronger economy.IAG said it expects underlying gross written premium growth of 5% in the first half and 3-5% for the full year, excluding divested business and currency movements. & #160; & #160;  

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