Here’s why the IAG (ASX:IAG) share price is charging 4% higher today

IAG shares are ending the week on a high…

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Key points

  • The IAG share price is having a great finish to the week
  • Investors have responded positively to the insurance giant's half year results
  • Although its earnings fell short of expectations, its outlook appears to have won investors over

The Insurance Australia Group Ltd (ASX: IAG) share price is having a great day in comparison to the rest of the market.

In early afternoon trade, the insurance giant’s shares are up over 4% to $4.74.

The compares very favourably to the ASX 200, which is down by a disappointing 0.8% at the time of writing.

Why is the IAG share price outperforming the market today?

Investors have been bidding the IAG share price higher today after the insurer released its half year results.

IAG’s results were quite messy due to high natural perils costs, which were above its allowance by $299 million during the period. This reflects events including the Victorian earthquake and severe weather across Australia in October.

This ultimately led to IAG reporting a 57.8% decline in its insurance profit to $282 million and a 62% reduction in its cash earnings to $176 million. The latter appears to have fallen short of expectations.

For example, according to Morgans, it was expecting a first half cash profit of $210 million, whereas the consensus estimate stood at $285 million.

And while IAG’s interim dividend of 6 cents per share was in line with Morgans’ estimates, it was short of the consensus estimate of 8 cents per share. It was also the lowest interim dividend in a decade.

So why are its shares pushing higher?

The market appears to be overlooking the cash profit and dividend miss due to its FY 2022 guidance and its longer term outlook.

Management spoke very positively about current trading conditions and has upgraded its gross written premium (GWP) guidance from “low” to “mid single-digit” growth.

It also reaffirmed its reported insurance margin guidance of 10% to 12%, which management believes puts it on course to achieve its aspirational goal of 15% to 17% over the medium term.

In respect to the future, IAG’s CEO, Nick Hawkins, commented: “IAG today is a much stronger, more resilient company than in recent years and we have the right foundations to position us well for the future. I am confident we will continue to deliver profitable business and customer growth in FY22 and longer-term value for our stakeholders.”

Motley Fool contributor James Mickleboro 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 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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