Australia's largest car and home insurer expects sharp drop in first-half profit due to weak investment returns.

Insurance Australia Group Ltd raised A$450 million ($287 million) equity through an institutional placement at A$3 a share. This was a 13.3 percent discount to Tuesday's closing price. Goldman Sachs JBWere was the placement's underwriter.

The funds will be used to improve the company's capital mix and provide additional financial flexibility.

Insurance Australia Group is Australia's largest car and home insurer.

It expects a sharp drop in first-half profit due to weak investment returns. It cut its full-year insurance margin forecast to 6 percent from 10 percent due to widening credit spreads and to reflect claims from this month's bushfires in southern Australia.

It expects gross written premium growth of 3-5 percent.

IAG expects to report that its July-December net profit slumped to just A$4m from A$110m a year earlier.

In December, IAG sold its mass distribution businesses in the UK for A$165m.