What’s driving the IAG (ASX:IAG) share price lower on Wednesday?

IAG shares have been making gains in 2022 so far. That’s before the market digested today’s news on the insurer’s second business interruption test case.

| More on:
A masked shopkeeper holds a closed sign in his empty store.

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

Key points

  • IAG shares are getting some attention as more updates from the second business interruption test case emerge
  • IAG reports there will be no adjustments to its net provision for potential business interruption claims, but not everyone agrees
  • The IAG share price has crumbled more than 4% into the red over the past 12 months

Shares in Insurance Australia Group Ltd (ASX: IAG) are rangebound on Wednesday. IAG shares now trade less than 1% in the red at $4.58.

Earlier in the day, shares were trading at a high of $4.68. That’s before the market digested a market-sensitive update regarding the second business interruption test case, handed down in February.

TradingView Chart

Why are IAG shares tracing lower today?

IAG advised that the 28-day deadline for parties to lodge an application to seek leave to appeal on the case has now passed.

Policyholders have lodged applications for special leave to appeal aspects of the judgement, handed down by the Full Court in the High Court of Australia, per the release.

The release also says that IAG has filed an application for special leave to appeal the Court’s finding on JobKeeper payments.

“At this stage, there will be no adjustment to IAG’s $1,222 million net provision for potential business interruption claims,” it said.

The company also said that as it gains more clarity on its legal position it will “refine the prediction of ultimate claim costs.” It will then make appropriate provision adjustments, if and where warranted.

“Current indications are that a release from the provision will occur and is likely to be recognised over time,” it added, noting that there are still processes and costs to be realised.

Analysts covering the financial industry at Bloomberg Intelligence were quick to react to the update, noting that any changes to provisions might hurt IAG dividends and or buybacks.

“IAG’s 2023 distribution might drop to A$300 million this year from a possible A$1 billion including buybacks if the High Court reverses a Federal Court finding in the business interruption test case that favoured insurers,” Matt Ingram and Jack Baxter from Bloomberg Intelligence wrote today.

“Even if the court finds against insurers, that shouldn’t impact profit at IAG, which has a $A1.2 billion provision,” the pair added.

“IAG has said it may return a 2020 A$776 million capital raise if the finding in favour of insurers holds.”

IAG share price snapshot

The IAG share price has crumbled more than 4% into the red over the past 12 months, but is charging up 7.5% higher this year to date.

During the previous month, IAG shares fell more than 5% but have held gains over the past week of trading.

Motley Fool contributor Zach Bristow 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.

More on Financial Shares

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Financial Shares

Can the Macquarie share price get back over $200 this year?

Macquarie shares have been going up but is $200 on the cards in 2022?

Read more »

A person sitting at a desk smiling and looking at a computer.
Earnings Results

Money3 share price rockets after ‘record breaking’ results

The loan provider also increased its dividend to celebrate its buoyant numbers across all key metrics.

Read more »

A male executive worker wearing glasses and a blue collared shirt looks at his laptop screen with a concerned look on his face and his hand to his forehead as he watches his screen.
Earnings Results

Challenger share price tumbles 10% on FY22 profit woes

Challenger has commenced a strategic review of the Bank, acquired in December 2020 and not living up to expectations in…

Read more »

Disappointed woman with her head on her hand.
Financial Shares

Why is the AMP share price having such a lousy start to the week?

What's happened to AMP shares today?

Read more »

Businessman in suit and holding a briefcase jumps into the sky celebrating the rising share price.
Earnings Results

Bailador Technology share price leaps 5% as FY22 profits soar

Bailador is a specialist investor in the information technology and media sectors.

Read more »

a bearded man sits at his desk with hands behind his head and feet on his desk smiling widely while looking at his computer screen which has market data on it, indicating a please share price rise.
Earnings Results

Argo share price lifts on record 2022 financial year profit results

The strong profits were driven by record dividend payouts from some of the LIC’s holdings.

Read more »

Two businesspeople in suits run, one chasing the other.
Financial Shares

Is this why the NIB share price is lagging Medibank on Friday?

Both health insurers are in the red today, but one is faring worse.

Read more »

A man and a woman sit in front of a laptop looking fascinated and captivated.
Financial Shares

Looking to buy AMP shares? Read this first

We check out what a broker has to say about the financial services company.

Read more »