Insurance Australia Group is tipped to raise dividends next month after profits were boosted by low claims from natural disasters and favourable movements on currency markets.
The insurer said on Wednesday that profit margins would be higher than previously thought, at between 16.8 and 17.2 per cent, compared with previous guidance of 12.5 to 14.5 per cent.
Claims from natural disasters over the past six months were also better than expected, at $470 million, rather than its previous assumption of $620 million.
Weather conditions have been unusually kind to insurers for much of this year, with few major sources of claims aside from ex-tropical cyclone Oswald and bushfires in NSW and Tasmania.
As well, revenue from premiums had grown more than expected, thanks mainly to the rise in the New Zealand dollar.
IAG makes about a fifth of its revenue in New Zealand, so an increase in the Kiwi dollar translates to higher total group earnings.
"Compared to our previously held assumptions, these factors have caused the group's insurance margin to exceed our earlier guidance. Meanwhile, the underlying performance of the group has remained strong over the course of the financial year," managing director Mike Wilkins said.
IAG said it intended to pay shareholders a dividend of 50 to 70 per cent of earnings, in line with its policy. Its shares rose 1.7 per cent to $5.94, and have risen 27 per cent this year.
Brokers upgraded their forecasts in response to the news. Nomura analyst Toby Langley said the final dividend would be the main "talking point" when IAG handed down its full-year results next month. Mr Langley said the board could pay a second-half dividend of 22¢ a share, taking the full-year dividend to 33¢, a year-on-year increase of 94 per cent.
The rise comes after the two major domestic insurers - IAG and Suncorp - enjoyed bumper profit growth when they last reported their results in in February.
At the time IAG said home and car premiums could rise 5 to 10 per cent over the next 12 to 18 months, as it passed on the growing cost of meeting claims to customers.
Some analysts question whether big insurance companies - which are facing growing competition from "challenger" brands, including those owned by supermarkets - will be able to continue propping up profits with higher premiums.