QBE Insurance Group, Australia's top insurer by premium income, raised its bid for smaller rival Insurance Australia Group to A$8.7 billion ($8.3 billion) but said it thought the new and final offer would be rejected.
Shares in IAG fell 5.2 percent to A$4.20 after the announcement of the new offer, which values IAG at A$4.60 a share based on Friday's closing price. That is up from an earlier offer of A$4.33 a share and is a 3.8 percent premium to Friday's close of A$4.43.
IAG Chairman James Strong had indicated the new offer was still well short of IAG's expectations, QBE said.
QBE is now offering 0.145 of its shares and A$0.90 in cash for each IAG share, up from 0.142 of its own shares and A$0.70 in cash.
"QBE is not going to raise its offer any more and if IAG rejects this, it's the end of story," said Peter Vann, head of investment research at Constellation Capital Management. "IAG will have to defend themselves now."
With IAG's earnings sliding this year and its credit rating recently cut, investors see little chance of another suitor trumping QBE, as it has the most to gain from putting the businesses together.
IAG had rejected an A$8.2 billion QBE bid in mid April, saying the offer was totally inadequate. But on April 28, IAG cut its outlook for growth in premiums for the second time this year.
With its earnings set to fall 55 percent this year, IAG might have to cut its dividend to shore up its capital, analysts have warned. IAG lost its AA- credit rating from Standard & Poor's.
"QBE considers its final proposal is very fair and reasonable given IAG's declining profitability in the past three years and the recent profit downgrade," said QBE Chief Executive Officer, Frank O'Halloran.
The acquisition would be earnings per share accretive in the first year, O'Halloran said.