Insurance Australia Group has lifted its guidance on insurance profits for the 2013/14 financial year, but cut its forecast for growth in premiums.

The company behind NRMA Insurance and CGU updated its full year forecasts after reviewing its expected performance for the six months to the end of December.

It now expects to achieve an insurance margin of between 14.5 per cent and 16.5 per cent in the 2013/14 year, an improvement on its previous guidance of 12.5 per cent to 14.5 per cent.

Insurance margin is a measure of the profitability of its income from insurance operations.

But the company reduced its full year guidance for growth in the premiums it receives from customers, to between three and five per cent.

That is down from its previous guidance of between five and seven per cent.

Premium revenue is expected to have grown by about four per cent in the six months to December.

The reported insurance margin for the half year is expected to be around 17.5 per cent.

“We expect to record a strong first half underlying performance which builds on the improvement evident in prior periods,” IAG chief executive Mike Wilkins said.

“The reported result is also expected to benefit from higher than originally anticipated reserve releases.

“This expected first half outcome includes strong underlying performances from each of the businesses in Australia and New Zealand, as well as a small contribution from our Asian operations.”

Shares in IAG dropped 17 cents, or 2.95 per cent, to $5.60.