The Insurance Australia Group Ltd (ASX: IAG) share price is being hammered by investors recently. The insurance giant is navigating its way through challenging market conditions caused by the COVID-19 pandemic.
At midday on Monday, IAG shares are swapping hands for $4.40, a drop of 0.57%. In the past month alone, IAG shares have fallen by nearly 11%, weighed down by negative investor sentiment.
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What's happened 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.
In its recent trading update, the company revealed a rise in net natural perils claim costs. It blames severe storm and hail activity experienced in October, mainly across South Australia and Victoria.
As such, the insurer is estimating the net natural perils claim costs for FY22 to be around $1,045 million. This is a significant increase from the previous assumption of $765 million.
Following the $280 million setback, IAG has been forced to downgrade its FY22 insurance margin guidance range between 10% to 12%. Previously, the insurance margin level was in the 13.5% to 15.5% range.
In addition, the Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court of Australia.
The allegations relate to IAG's failure to pass on the full discount 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 following a review it conducted 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.
What do the brokers think?
A number of brokers have rated the company with comparable price points since IAG released its business update on 2 November.
Leading Australian investment firm Morgans cut its 12-month IAG share price target by 5% to $5.36. Following suit, Macquarie had a similar stance, reducing its rating by 5.3% to $5.40.
However, Citi had a slightly improved outlook compared to the other brokers, slashing just 2.6% to $5.60.
About the IAG share price
Looking at the last 12 months, the IAG share price is down more than 17%, with year to date hovering 6.38% below. It's worth noting, however, the company's shares have lost about 50% of their value since July 2019.
In contrast, the S&P/ASX 200 Index (ASX: XJO) has gained around 10% from this time last year and in 2021. The benchmark index also reached a record high of 7,632.8 points in mid-August.
This shows that the ASX 200 has outperformed IAG shares. The ASX 200 historically tracks about 6% higher each year.
Based on valuation metrics, IAG has a market capitalisation of around $10.89 billion, with approximately 2.47 billion shares on issue.
