The Insurance Australia Group Ltd (ASX: IAG) share price is having a mildly positive time in 2023.
Since the start of the year, the insurance giant's shares are up approximately 3%.
This is largely in line with the performance of the ASX 200 index.
Where next for the IAG share price?
If the team at Goldman Sachs is to be believed, the IAG share price could be approaching fair value.
According to a recent note, the broker has a neutral rating and $5.18 price target on the insurer's shares. This implies potential upside of 5.9% from where its shares are currently trading.
And with the broker also expecting a 15.5 cents per share fully franked dividend in FY 2023, which equates to a 3.1% yield, the total potential return stretches to approximately 9%.
While not amazing, it certainly is not terrible in the current environment.
What did the broker say?
Goldman does sees positives on the horizon for the company from rate increases. However, it appears to believe this is more than built into the IAG share price now. It highlights that its shares trade at a significant premium to rival Suncorp Group Ltd (ASX: SUN). Goldman explains:
We remain Neutral on IAG. 1) We think 2H guidance continues to be a stretch target noting that more appropriate rate increases were only applied late last year in Motor. 2) We think yield curve movements over 2H23 are also placing 2H guidance at risk. 3) Perils allowances at risk from NZ events with Australia are proving benign to date.
However, outside of this, we think IAG is accelerating rate increases to around 10-15% in motor and 15-20% in home suggesting that IAG's broad intention to price for underlying claims inflation and reinsurance costs should manifest in margins over time even if not completely in 2H23. IAG will also benefit as claims inflation tapers off. We think IAG should also do well through commercial which is seeing strong rate increases helping toward its FY24 target of A$250m insurance profits. IAG trades at around 14x our FY24 forecasts about 2 P/E points more expensive than SUN.
