Beatle George Harrison wrote a song called Here Comes the Sun in which he talked about smiles returning to faces.

Smiling faces were evident among shareholders in Insurance Australia Group (IAG) last week as the insurer announced a surge in net profit to $329 million for the half-year to December 31.

It’s a massive recovery from the $4 million result from the previous corresponding period and is nicely complemented by an insurance margin improvement to 13.4% from 6.2%.

And the sun is appropriately shining on CEO Mike Wilkins, who is achieving the desired reinvention of IAG he pledged to make happen when he took the reins in May 2008.

On his long and winding road so far the tough tasks have included selling off unprofitable assets in Britain, restructuring business units, downsizing staff levels and presiding over a more disciplined approach to underwriting.

The bottom line suggests it’s all paying off.

Of course, it doesn’t hurt when the sun comes out courtesy of an El Nino effect which translates to a drop in natural catastrophes – and in the case of IAG a fall in claims costs to $121 million from $176 million in 2008.

Improved conditions in investment markets also helped, with favourable credit spreads adding $28 million to the bottom line.

George Harrison could also feel the ice slowly melting, and in that regard IAG like any other insurer cannot afford to underestimate the potential effects of climate change on claims experience.

IAG’s second-half natural perils allowance of $184 million as part of revised guidance for the current financial year may well be put to the test.

On the other hand, in the absence of big claims events, the upward pressure on rates and volume experienced recently in direct business will be hard to sustain.

But to be in the position of upwardly revising the insurance margin guidance to 11.5-13% from 9-11% is quite an achievement.

So too is having in place the underwriting and claims management disciplines that have seen intermediated business turn around from a $7 million loss to a $112 million profit in a soft market.

It will be interesting to see how IAG’s Asian operations perform in the medium term, particularly the joint venture with the State Bank of India that is expected to kick off toward the end of the current half year.

As the company points out, the Indian venture’s contribution to gross written premium, although small now, will be an important part of its growth strategy.

And IAG’s unfortunate British experience will no doubt serve as a caution against chasing volume in a foreign land.

“Further steady improvement” in operating performance is what Mr Wilkins expects for the rest of his company’s financial year.

And the shareholders, like George Harrison, say “it’s all right”.