The Insurance Australia Group Ltd (ASX: IAG) share price is having a tough start to the week.
In afternoon trade, the insurance giant's shares are down almost 4% to $4.55.
Why is the IAG share price under pressure?
The weakness in the IAG share price on Monday appears to have been driven by a broker note out of Morgans.
According to the note, the broker has downgraded the insurer's shares from a buy rating to a hold rating and cut the price target on them to $5.04.
While this still implies decent upside of 10% for its shares over the next 12 months, it isn't enough for the broker to have a more positive recommendation.
This is due to its concerns over recent updates and uncertainty over its new strategy. Morgans commented:
IAG is a quality franchise and we think the CEO's strategy to improve core insurance performance is the correct one. However after a period of disappointing market updates, we need to see clearer progress on execution to gain comfort. With the gap between our revised valuation (A$5.04) and IAG's share price reduced, we move back to a HOLD.
The broker also revealed that it has cut its earnings forecast materially for FY 2023 due to its half year update, which fell well short of expectations.
On IAG's 1H23 reported results, the headline 1H23 NPAT figure was 20% below consensus due to reserve strengthening (A$48m), but also mainly a large decline in IAG's underlying insurance margin (UIM) to 10.7% (versus 15.1% in the pcp). […] We downgrade IAG FY23F EPS by 33% on the softer 1H23 performance and also reduced full year guidance expectations. FY24F/FY25F EPS changes are minimal (~+1%) with higher premium growth offsetting softer margin expectations. Our PT is lowered to A$5.04.
