ASX insurance shares are on the rise this year largely due to insurers' inflation-busting ability to raise premiums.
This is because insurance policies are among the goods and services that most Australians still want despite the rising cost of living.
Annual inflation in Australia peaked at 8.4% in December and declined to 5.6% in May, with the latest quarterly figures due out tomorrow.
But as we've previously reported, insurance companies are raising premiums by much more than that.
This, along with improving investment income from bonds, makes the big insurers appealing investments at the moment.
Case in point: Three of the biggest ASX insurance shares have hit 52-week highs this month.
But one top broker says there could be a catch.
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IAG the latest insurance stock to hit a 52-week high today
Here's what's happening with these three ASX insurance shares in July:
- The Insurance Australia Group Ltd (ASX: IAG) share price hit a new 52-week high of $5.92 today
- The QBE Insurance Group Ltd (ASX: QBE) share price is currently $15.63. QBE shares hit a 52-week high of $16.03 per share earlier this month
- The Suncorp Group Ltd (ASX: SUN) share price is currently $13.74. Suncorp shares hit a 52-week high of $14.09 yesterday
Now take a look at the 12-month percentage increase for these ASX insurance shares in the chart below.
Pretty impressive growth, especially compared to the benchmark S&P/ASX 200 Index (ASX: XJO) which is up 7.9% over the same period.
What's the catch?
The catch could be those increasing premiums, according to top broker Morgan Stanley.
The Australian reports that Morgan Stanley analyst Andrei Stadnik reckons consumers will eventually get to a point where they're not willing to tolerate premiums going much higher.
This will prompt them to start shopping around instead of rolling over their policies at the renewal date.
Rising premiums are a short-term tailwind for ASX insurance shares, the analyst says.
However, the broker warns that Suncorp and IAG are "exposed to losing market share to rivals".
Is it too late to buy ASX insurance shares?
The three big ASX insurance shares are now trading close to or beyond the 12-month price targets of two top brokers.
Goldman Sachs has a buy rating on Suncorp shares and a 12-month price target of $14.53. It has a neutral rating on IAG shares with a price target of $5.29.
Morgans also has a buy rating on Suncorp and a 12-month share price target of $14.44. It has an add rating on QBE shares and a price target of $16.10.
