The IAG share price has lost 10% since February. Is it an opportunity?

It’s been a rough couple of years for IAG shareholders.

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Key points

  • The IAG share price rose by 16% over the first three weeks of February 
  • Then it reversed course in a familiar two-year pattern for shareholders
  • The shares are down 10% from their February peak, as one broker weighs in on whether it's time to buy

The Insurance Australia Group Ltd (ASX: IAG) share price appeared to be recovering in February, rising from $4.24 at market close on 31 January to $4.92 by the end of the day on 23 February — an impressive 16% gain.

But as has occurred many times since the coronavirus crash, the trajectory of this ASX financials share suddenly changed gears. The IAG share price has since tumbled by just over 10%, trading at $4.43 at the time of writing. By comparison, the S&P/ASX 200 Financials Index (ASX: XFJ) has gained 5.42% over the same period.

So, what’s up with IAG shares?

Well, the IAG share price just can’t seem to get beyond $5.50 these days. It has been rangebound since mid-2020 when it dropped below $5.50 during the coronavirus slide. Since then, IAG shares have risen and fallen between the low $4 range — the lowest being $4.17 on 9 March this year — and back up close to $5.50 on several occasions. Just when it’s looking like a sustained recovery, as it did in early February, the IAG share price reverses course. For shareholders, it’s been a bit like circling the runway — for almost two years — hoping for a break in the clouds.

What’s news lately with IAG?

Well, as we reported at the time, IAG had a largely disappointing half-year result in February. This was despite announcing an earnings upgrade for FY22.

And you know all that rain and flooding we’ve been having on the east coast? Well, that sort of thing is generally never good for insurance shares. In a recent update, IAG said it had received more than 24,000 claims across southeast Queensland and New South Wales, and this was expected to increase.

But as my Fool colleague Aaron reported last week, IAG reassured investors that it has extensive reinsurance protection in place.

Current estimates of the net claims cost from the storm and flooding event were projected to be approximately $74 million. Pleasingly, this is lower than the $95 million forecast disclosed in early March due to development on previous claims. As such, IAG has utilised roughly $95 million of the $236 million of aggregate cover following the weather-related event.

Is the IAG share price a buy?

As my Fool colleague Zach reported recently, analyst sentiment on IAG is actually fairly positive.

JP Morgan rates IAG a buy with a share price target of — you guessed it — $5.50. In a recent note, the broker said:

IAG 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.

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.

Motley Fool contributor Bronwyn Allen 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. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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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