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3 reasons why Insurance Australia Group Limited shares are sinking today

Thanks to falls on overseas markets overnight, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is down 0.3% in late afternoon trade, with most of the top 20 stocks falling into the red. Insurance Australia Group Limited (ASX: IAG) has lost 1.2%, falling 7 cents to $5.81.

Here are three reasons why the IAG might be trading lower today…

1)      Profit-taking. Shares in IAG have rallied more than 7% in the past three months, handily beating the ASX 200’s measly 1% gain. Maybe investors are taking some money off the table after that run – despite the fact IAG is still paying a 6.5% fully franked dividend!

2)      Switching into competitors Suncorp Group Ltd (ASX: SUN) or QBE Insurance Group Ltd (ASX: QBE), with the former expected to pay out some handy dividends and possibly a special dividend, while QBE has a large exposure to the economic recovery in the US.

3)      Lower earnings. Consensus estimates for the 2015 financial year have IAG reporting 47 cents earnings per share, lower than this financial year’s 52 cents. Maybe they haven’t yet accounted for IAG’s purchase of Wesfarmers Limited’s (ASX: WES) underwriting business?

The ASX stock that is a better bet

Investing in insurance businesses can be difficult. Just ask long-term shareholders in QBE Insurance. So here's a company the Motley Fool's top analysts have tapped as their number one stock pick for 2014 and beyond.

This small-cap growth stock flies under the radar, yet is rapidly growing, and has a long runway ahead. The fully franked dividend is the icing on the cake. Click here now to claim your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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