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Can the IAG (ASX: IAG) share price withstand a billion dollar hit?

asx sectors hit by covid represented by man being pinned to ground by covid fist
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It hasn’t been a great twelve months for the Insurance Australia Group Ltd (ASX: IAG) share price. Since January 2020, IAG has taken a roughly 36% dive from around $7.50 a share to where it opened today at $4.78.

Yesterday, we talked about how the IAG share price was creeping up. At the same time, the Australian Financial Review (AFR) reported that “Insurance Australia Group will take a $1.15 billion hit to earnings in its half-year results in February.”

So what’s been going on with IAG, and what are analysts saying about the IAG share price in advance of the February earnings season?

COVID-19 keeps coming back

Since its earliest impacts on the economy, COVID-19 has been causing fights between small business owners, insurance companies and regulators. 

As a result of this, many small business owners are unhappy. They believe that insurance companies are failing to provide the financial support that their insurance policy entitles. This has resulted in the Australian Securities & Investment Commission (ASIC) stepping in to try and pacify what continues to be a hostile situation.

According to the AFR article, IAG has been insisting that the company’s business interruption policies don’t cover pandemic-related losses. The NSW Court of Appeal disagreed back in November. Regardless, IAG is still refusing to pay business interruption claims related to the coronavirus. The matter remains in the courts. 

Bushfires, hail storms and other catastrophes

Besides managing the ongoing coronavirus dramas, IAG is still trying to recuperate after the devastating bushfires and hail storms from last summer, along with whatever other claims are coming in daily.

By finalising its catastrophe reinsurance program, IAG was able to provide some relief to nervous investors concerned about the brunt of so many claims coming in, and we saw the IAG share price climb yesterday.

Will the IAG share price continue to suffer?

With the company’s half-year results on the horizon, analysts seem to have mixed emotions about what’s in store for the IAG share price. 

Morgan Stanley and Macquarie have listed the stock to ‘outperform’. Citi’s opinion of the IAG share price isn’t quite as optimistic. Citi recently downgraded the stock from ‘buy’ to ‘neutral’. 

When IAG reports its half-year performance, we’ll see what a $1.15 billion earnings hit really looks like. With a market cap of over $11 billion, there will undoubtedly be a lot of investors keen to hear what the company has to say.

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Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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