Why the IAG (ASX:IAG) share price is down 5% in 7 days

IAG shares have been on a downwards run over the last week.

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The Insurance Australia Group Ltd (ASX: IAG) share price has lagged the major benchmarks over last few days.

Whereas the S&P/ASX 200 Index (ASX: XJO) has slipped 1.65% into the red over the last week, IAG shares have fallen 5% in the previous 7 days to trade at $5.165 each.

Let's take a closer look at why IAG's share price has fallen behind this past week.

sad, dejected person looking at document with laptop and cup of tea nearby

Image source: Getty Images

What's up with the IAG share price lately?

It seems a major selling pressure was triggered when IAG advised that CMC Hospitality Pty Ltd recently filed applications to the Federal Court to start a "representative proceeding" against the company.

As it stands, IAG "has not been served with the application" and, therefore, does not have extensive details on its nature – just yet.

But it does know the application "appears to relate to insurers who hold policies with CGU and business interruption losses related to COVID-19", as per the company's announcement.

For reference, CGU is an intermediary-based insurance company that is backed by its parent, none other than IAG.

In view of the spate of lockdowns in NSW and Victoria, it makes sense businesses would claim their insurance options to meet their financial obligations in a bid to remain solvent.

Indirectly acknowledging this point, IAG stated it is "one of a number of insurers" participating in an "industry test case" in the Federal Court. The hearing for this test case began on 6 September.

IAG believes the test case "is the most efficient process to obtain clarity and to resolve issues for customers with business interruption claims".

As such, it "intends to follow the final rulings" made by the courts. It will also "assess any business interruption claims as quickly as possible" following the "final resolution of the issues in court".

On the flip side

Zooming out and taking a long term view, it's clear the IAG share price has lagged the major Australian indices since 2019.

Yet, despite this underperformance, it appears that money managers with a contrarian flavour to their investing style see an attractive buying opportunity in IAG shares right now.

Aberdeen Standard Investments' Michelle Lopez was recently quoted as saying the "premium rate cycle momentum is expected to persist", which could allow insurers to "restore margins".

In addition, The Motley Fool's Tony Yoo reported last month that the Firetrail Australian High Conviction Fund is overweight on IAG shares.

This is backed by bullish sentiment from analysts, with 7 out of 11 analysts recommending a "strong buy" on IAG shares.

Also, let's not forget that IAG doubled its final dividend in its last earnings report.

So even though the IAG share price has been a major underperformer over the last few years, some experts in the field appear to hold the opposite view for its future.

IAG share price snapshot

While some experts hold a bullish view on the IAG share price into the future, when looking backwards, it's been a choppy year on the chart.

IAG shares have gained 10% since January 1, extending the return over the last 12 months to 11%.

Both of these returns have lagged the broad index's return of around 25% over the past year.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. 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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