Shares in Insurance Australia Group Ltd (ASX: IAG) have compressed this past month and are 8% down over that period, now trading at $4.41.
While most other ASX financials have been roaring, IAG has been left behind. This is illustrated by a comparison with the S&P/ASX 200 Financials Index (ASX: XFJ) which has almost broken even these past five years (after consistent gains from April 2020). In contrast, the IAG share price has erased around half its value from a closing high of $8.62 in the same time.
This year to date, the index is climbing nearly 5% higher, whilst IAG has just scraped past a 350 basis points gain. On all other major time frames, it sits in the red.
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So, what's the outlook for IAG shares in April?
Despite an extended period of downside, you may be surprised to find that analyst sentiment is actually quite positive on the insurer.
More than 58% of analysts covering the stock rate it as a buy right now, with the consensus price target sitting at $5.10 per share, according to Bloomberg data.
JP Morgan is constructive on IAG, rating it a buy with a $5.50 valuation, slightly ahead of consensus. In a recent note, it said:
AG has a strong position in the Australian and NZ personal lines market, but has suffered in recent times from concerns around COVID-19 Business Interruption losses and concerns on market share losses in personal line.
Short- to medium-term margin pressures have proved challenging for IAG, including higher reinsurance costs, lower yields, higher natural perils and reducing reserve releases.
Nonetheless, the broker is certainly optimistic about IAG's prospects, but retains a heavy undertone of caution in its forecasts, adding:
Our PT [price target] is $5.50… We maintain an element of caution in setting our price target, reflecting uncertainty as to how personal lines insurers may trade coming as economies emerge from COVID-19 induced lockdowns, and mobility increases.
Meanwhile, analysts at Fitch Ratings said that Australian insurers were set to face net losses from extreme weather in February.
Companies like IAG will feel the effect at the earnings level instead of their capital base, the ratings agency added.
It said in a recent note that "higher modelled catastrophe losses and rising reinsurance costs in the face of increasingly frequent extreme weather events, coupled with reduced appetite from global reinsurers, pose risks to insurers' credit profiles over the medium term".
Fitch estimates the gross loss to be lower than the Insurance Council of Australia's call of $2.5 billion, but that uncertainties remain as the La-Nina weather cycle is set to drench the nation further.
It notes that IAG is likely to be heavily affected versus other Australian insurers.
IAG shares have slipped 6% into the red during the last 12 months and are trading 3% down over the previous week of trade.
