The Insurance Australia Group Ltd (ASX: IAG) share price is continuing its recent strong run today.
Shares in the S&PASX 200 Index insurance stock are up 0.2% to $4.96. That puts the stock up 10.5% over the past month.
But could storm clouds be gathering over the IAG share price?
Headwinds on the horizon for the IAG share price?
Concerns are being raised that the insurance giant may downgrade its full-year insurance margin guidance. Those concerns stem from the massive and costly destruction left in the wake of Cyclone Gabrielle, which struck New Zealand in February.
The New Zealand government forecasts the total cost of the killer storm will be more than $10 billion. And fund managers are running their slide rules over the IAG share price, as the company has yet to update the ASX on the looming cost of claims from the storm.
To be clear, the insurer did offer an update on the cyclone damage on 3 February. It reported it had received more than 15,000 claims at that time across its AMI, State, NZI and partner brands.
Highlighting the company's reinsurance provisions, IAG CEO said:
Premium rates continue to increase in response to claims inflation and in anticipation of additional reinsurance and natural perils costs. Our retention rates have remained at very high levels.
The IAG share price closed down 2.1% on the day.
What are fund managers saying?
Tribeca Investment Partners portfolio manager Jun Bei Liu is among the fundies forecasting a downgrade in IAG's guidance.
According to Liu (courtesy of The Australian):
It's going through some challenging times and, even though underlying commercial [insurance] rates are very strong, the challenge is that with natural disasters it just means they're under-provisioned … it's really catching up with them.
You're looking at an earnings downgrade. It's coming.
Wilson Asset Management, on the other hand, doesn't believe a guidance downgrade is imminent. WAM contacted IAG directly and was satisfied with the level of disclosure.
According to Wilson's equity analyst Anna Milne:
Although we have had some of these high-profile storms and cyclones in the likes of New Zealand, they were in relatively low-density areas and Australia has had a relatively benign period, and so in terms of materiality on their P/L [profit and loss statement] they don't deem it worthy of updating the market … we were comfortable with that level of disclosure.
Milne said the insurer was likely capable of weathering the New Zealand storm without downgrading its guidance. And maintaining guidance should help support the IAG share price in the weeks ahead.
"They've recently really ramped up the amount of premium rate [increase] they are pushing through," she noted.
As The Australian reports, an IAG spokesman said the company had received some 45,000 claims related to the Auckland and North Island floods and Cyclone Gabrielle.
"Approximately 25,000 claims were due to the Auckland and North Island floods, the remainder due to Cyclone Gabrielle," he said.
The spokesman added:
We're dedicated to providing our investors and the market with all relevant information, in line with our continuous disclosure obligations, and have outlined the maximum financial impact of these severe weather events under our reinsurance.
IAG share price snapshot
As you can see in the chart below, the IAG share price has strongly outperformed the benchmark over the past 12 months, gaining 13%. The ASX 200 is down 3% over that same time.
