IAG has emerged from a year of rebuilding with a net profit of $181 million, driven mainly by strong growth within its direct insurance division.

It was a welcome return to profitability for IAG, which last year lost $261 million. The company has since shed 600 staff and delivered $130 million in savings through an internal restructure.

CEO Michael Wilkins says the improved overall result still falls short of expectations.

"This year we have strengthened the business and now have a platform for future success," he said. "While the early benefits of this are visible in the full-year 2009 result, we expect to see a stronger performance in the 2010 financial year."

The group's reported gross written premium edged ahead 0.6% to $7.84 billion, while insurance profit lifted 31% to $515 million. The insurance margin improved to 7.1% from 5.4%.

The combined ratio of 100.1% reflected a cluster of severe weather events that resulted in $451 million in claims from natural perils.

IAG has forecast an increase in gross written premium of 1-3% for the next financial year with an insurance margin of 9-11%.

The Australia Direct division - which contains NRMA Insurance, SGIO and SGIC - performed well with a profit of $373 million, up 18% on the corresponding period last year. Gross written premium increased 9.1%.

Commercial insurer CGU was hit hard by challenging economic and market conditions, with profit slumping 64% to $48 million.

IAG's decision to retain profitable UK businesses paid dividends, with profit surging 113% to $113 million, but the NZ business - State and NZI - failed to make money after a poor first half.

Storms in July last year led to the disappointing result despite the business managing to return to profit in the second half. IAG's NZ operations have continued to struggle, making a profit of just $12 million in the previous financial year.