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Why is the IAG share price on a high today?

Posted: 11 February 2022 1:31 pm
News
IAG-shares-11Feb_1800x1000_Finder

Shares in the insurer are still down 10% in the last 12 months.

Shares in Insurance Australia Group (ASX: IAG), among the most traded stocks on the ASX on Friday, rose more than 4% to $4.74 in early trading despite a decline in the overall market.

Rival insurers remained mixed, with QBE (ASX: QBE) down 1.3%, while Suncorp (ASX: SUN) was up 0.6%, bucking the trend to be among the top performers on the ASX on Friday. At the time of writing, the stock was up 4.4% at $5.42.

What is boosting the IAG stock price?

Investors are cheering Australia's top general insurer after it returned to profitability as price increases helped offset losses from a string of floods and hailstorms.

IAG shares rose to their highest level since November after the owner of the NRMA and CGU brands posted better-than-expected first-half cash earnings of $176 million compared to a loss of $460 million a year ago.

The insurer reported a 6.2% increase in gross written premium to $6.6 billion, driven by higher rates and volume growth in the last 6 months. It helped IAG lift its underlying insurance margin to 15.1%, from 14.7% last year.

It benefited from a fall in vehicle insurance claims during the period when most of the eastern states were in COVID-19 lockdowns last year, resulting in a net benefit of $55 million to $65 million.

However, this was offset by higher natural peril claims for disaster events such as floods, tornados and storms, costing the group $681 million.

The company will pay a first-half dividend of 6 cents per share, slightly down from 7 cents a year ago.

Encouraging outlook

The insurer is projecting gross written premium (GWP) income will continue to grow in the second half. It reaffirmed the reported insurance margin forecast range of 10–12% and said it expects mid-single-digit GWP growth.

"IAG today is a much stronger, more resilient company than in recent years and we have the right foundations to position us well for the future. I am confident we will continue to deliver profitable business and customer growth in FY22 and longer-term value for our stakeholders," CEO Nick Hawkins said in a statement.

IAG's sale of its Vietnam business is near complete. The sale of its stake in Malaysian business AMGeneral3 is also expected to net the company $150 million. It has meanwhile taken its NRMA brand national and also launched a new car insurance brand (Rollin') to appeal to younger customers.

Citi analysts were positive on the IAG results, saying it is respectable enough with retained insurance margin guidance, an upgraded GWP growth target and higher-than-expected dividend.

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