The Insurance Australia Group Ltd (ASX: IAG) share price has been put through the wringer, but this could be the time to buy the beaten down shares.
The devastating floods hitting parts of New South Wales and Queensland, and worries about the insurer's exposure to the collapse of Greensill Capital are some its recent challenges.
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Insurance Australia Goup share price lags
The Insurance Australia Group share price crashed by nearly 17% over the past year when the S&P/ASX 200 Index (Index:^AXJO) surged by over 40%.
In contrast, other general insurers are also faring better than the Insurance Australia Group share price. The QBE Insurance Group Ltd (ASX: QBE) share price and Suncorp Group Ltd (ASX: SUN) share price are up about 20% each over the same period.
Is it time to buy the downtrodden IAG share price?
Several brokers think this is the time to buy the out of favour Insurance Australia Group share price.
Insurance Australia Group assured investors it has no liabilities relating to Greensill and has quantified its exposure to the NSW floods.
Management said it received 8,000 claims from the heavy storms that started on 16 March. But Morgans believes financial impact is "relatively contained" and the risk is smaller than its potential exposure to business insurance claims from COVID-19.
Broker upgrade on valuation
But even that isn't enough to dissuade Morgans from upgrading the Insurance Australia Group share price to "add" from "hold".
"IAG has had a difficult recent run, mainly tied to concerns around BI claims linked to COVID-19," said Morgans.
"However, we think substantial recent provisions raised in this area have taken this issue off the table and we think insurance margins will improve going forward on price increases and managements' new strategy."
The broker's 12-month price target on the IAG share price is $5.35 a share.
Other experts think IAG is a "buy"
Meanwhile, Citigroup and UBS reiterated their "buy" recommendations on Insurance Australia Group.
Citi acknowledged management will need time to restore its credibility even though the investment case looks sound.
"IAG is now set to exceed its FY21E perils allowance following recent floods and storms," said Citi.
"However, at this stage the overrun looks set to be only modest. The impact on EPS should also be partly mitigated by RACV's share of the losses."
UBS also believes the stock is looking oversold in light of the recent headwinds, although the downside risks to IAG's FY21 earnings has increased.
Citi's 12-month price target on Insurance Australia Group is $5.60 a share, while UBS's target is $6 a share.
