The Insurance Australia Group Ltd (ASX: IAG) share price has been amongst the biggest movers on the market today.
In morning trade the insurance giant's shares are up 4.5% to $6.84.
Why are its shares higher?
This morning Insurance Australia advised that it has completed its preliminary review of prior period reserve releases for the financial year ended 30 June 2017.
Pleasingly, the review indicates an outcome equivalent to at least 5% of net earned premium (NEP). Previous guidance provided by the insurer was for at least 2% of NEP.
According to the announcement, the reserve release relates primarily to its Australian long tail classes. These comprise CTP, liability, professional risks, and workers' compensation.
Management advised that the higher indicated outcome reflects its favourable experience against underlying assumptions for claim size and inflation.
What does this mean for its results?
In light of this expected increase in its reserve releases, Insurance Australia has increased its margin guidance range for FY 2017 from between 10.5% and 12.5%, to 13.5% and 15.5%.
This guidance also takes into account net losses from natural perils of $850 million and a small net negative from its optimisation program initiatives.
Should you invest?
While my preference in the industry remains Suncorp Group Ltd (ASX: SUN), which has also climbed higher on the news, I believe Insurance Australia is certainly worth considering as an investment today.
Especially for investors in search of income. Even after today's gain its shares still provide a trailing fully franked 3.8% dividend.
And with its margins set to expand this year as a result of the reserve release, I wouldn't be surprised to see management lift its final dividend significantly.
