IAG has beaten its insurance margin forecast after lower-than-expected natural disaster claims.

The company expects to report a margin of 16.8% to 17.2% for the year to June 30, compared with earlier guidance of 12.5-14.5%.

Its net natural peril claim expense is about $470 million compared with its initial forecast of $620 million, while a favourable credit spread impact of about $110 million beats the expected $90 million.

Reserve releases of about 2.5% of net earned premium compare with guidance of 1-2% following a favourable experience in long-tail classes amid low inflation.

“The underlying performance of the group has remained strong over the course of the financial year,” CEO Mike Wilkins said.

IAG’s anticipated gross written premium growth of 11.8% exceeds previous guidance of 9.5% to 11.5%, driven by foreign exchange movements.

Deutsche Bank director Kieren Chidgey says the upgrade “is not too far different from what we had expected” and has not prompted the bank to reassess other insurance stocks.

“Underlying profitability came in line with our expectations, which is reassuring,” he told insuranceNEWS.com.au. “The business is performing well.”

IAG will release full results and an outlook for the current year on August 22.

A Bank of America Merrill Lynch report says the benign catastrophe environment, high reserve releases and narrower credit spreads that have aided IAG’s margins are “unsustainable drivers”.

It says underlying margins are likely to peak this financial year, then decline as challenger brands take volume, compulsory third party reforms work through and lower interest rates affect returns.