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Why the Insurance Australia Group Ltd (ASX:IAG) share price is under pressure

The Insurance Australia Group Ltd (ASX: IAG) share price has fallen by over 7% since 21 June 2018 with the index only down by 0.5% during that time.

So far the Royal Commission has focused on Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX NAB) and AMP Limited (ASX: AMP).

However, in a couple of months the attention will turn to the insurance industry. An article in the AFR recently highlighted and questioned that IAG had put the company’s general counsel and company secretary, Chris Bertuch, on a three-month leave of absence. The AFR writer, Joe Aston, suggested that Mr Bertuch wouldn’t return from that leave.

Why would IAG remove its head legal official just before the Royal Commission?

Earlier this week IAG confirmed that Mr Bertuch had decided to leave the company effective 30 September 2018. Apparently he made the decision to leave whilst he was on his extended leave.

The IAG CEO and Managing Director Peter Harmer said “Chris has been a key member of my leadership team and has led a number of landmark transactions which have transformed IAG, cementing our position as Australia and New Zealand’s leading general insurer.

“We thank Chris for his contribution to IAG and we wish him all the very best for the future.”

It’s a very curious situation and it makes you wonder what will come to light under the Royal Commission. I doubt there will be anything as damaging as what befell AMP, but who knows?

Foolish takeaway

IAG is currently trading at 18x FY19’s estimated earnings with a grossed-up dividend yield of 6%. If IAG can come through the Royal Commission unscathed then it could be a good time to buy, but I’d wait until after IAG has been put under the Hayne microscope before considering buying.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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