The IAG (ASX:IAG) share price has gone backwards so far in 2021. Here's why

What's happened to the company's shares?

| More on:
a man blown off his feet sideways hangs on with one hand to a lamp post with an inside out umbrella in his other hand as he is lashed by wind and rain with a grey cloudy sky background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Insurance Australia Group Ltd (ASX: IAG) share price has moved in circles over the past 11 months. This comes as the insurance giant has faced challenging trading conditions amid the COVID-19 pandemic.

At market close on Tuesday, IAG shares finished down 1.93% to $4.58 apiece. This means that its shares have fallen almost 12% in the past month alone.

What's going on with IAG shares?

There are a couple of possible catalysts as to why the IAG share price has failed to produce decent gains over the last 12 months.

At its most recent trading update, the company revealed a rise in net natural perils claim costs. It blamed severe storm and hail activity experienced in October, mainly across South Australia and Victoria.

As such, net natural perils claim costs for FY22 are estimated to be around $1,045 million. This is a significant increase from the previous assumption of $765 million.

Following the $280 million setback, IAG was forced to downgrade its FY22 insurance margin guidance range between 10%-12%. Previously, the insurance margin level was in the 13.5%-15.5% range.

In addition, the Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings against IAG in the Federal Court of Australia.

The allegations relate to IAG's failure to pass on the full discounts to a large number of NRMA Home, Motor, Caravan, and Boat Insurance customers between March 2014 and September 2019.

It's worth noting that IAG self-reported the issue to ASIC when it conducted a review in 2019. Since then, IAG has embarked on a remediation program for the affected policyholders. More than 80% of the impacted customers have been provided refunds.

How does the IAG share price compare to the ASX 200?

Over the last 12 months, the IAG share price has lost more than 8% with year-to-date down 2%. The company's shares have lost 50% of their value since July 2019, particularly when COVID-19 hit.

In contrast, the S&P/ASX 200 Index (ASX: XJO) has gained 20% from this time last year and is up 13% year-to-date. The ASX 200 also reached a record high of 7,632 points in mid-August.

Based on today's price, IAG presides a market capitalisation of roughly $11.35 billion, with approximately 2.47 billion shares on issue.

Motley Fool contributor Aaron Teboneras has no position 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.

More on Financial Shares

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Financial Shares

Why is this ASX 300 stock crashing 23% today?

Shareholders of this stock have been hit with some bad news.

Read more »

Happy man working on his laptop.
Financial Shares

3 things about AFIC stock every smart investor knows

These are underrated factors about the LIC.

Read more »

Frazzled couple sitting out their kitchen table trying to figure out their finances or taxes.
Dividend Investing

Here's the AMP dividend forecast through to 2026

There is some good news for AMP shareholders.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Earnings Results

Soul Patts share price struggles on falling profits

ASX 200 investment house Soul Patts reported its half year results this morning.

Read more »

Financial Shares

Buy this ASX All Ords stock for a 15% gain and 9% dividend yield

Goldman Sachs is tipping big returns from this stock.

Read more »

Man pointing at a blue rising share price graph.
Financial Shares

Big ASX news: Macquarie share price hits new 52-week high

It's been a great day to own Macquarie shares...

Read more »

a woman wearing a dark business suit holds her hand up in a stop gesture while sitting at a desk. She has a sombre look on her face.
Financial Shares

Guess which ASX All Ords stock is suspended amid takeover rumours

Another ASX share is rumoured to have received a takeover offer.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Financial Shares

Own Soul Patts shares? Here's the ASX 200 stock's result preview

What might the investment house report?

Read more »