Insurance Australia Group Ltd (ASX: IAG) shares had a mixed affair in FY 2024. For one, the stock has climbed more than 24% over the past year. But most of that return stemmed from investors buying IAG over the last six months.
From July to December 2023, the IAG shares traded between $5.50 and $6.00 apiece. But in January this year, the stock rebounded and now trades at around $7.08 apiece, as we can see in the chart below. That's a more than 26% return.
While we can expect the insurer's full-year results in the coming weeks, here's a review of IAG shares in FY 2024 and what to expect for the coming 12 months of business.
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Recent developments drive IAG shares higher
In FY 2024, investors increased the company's valuation alongside the price appreciation of its stock.
After hitting a price-to-earnings ratio (P/E) low of 16 times in October last year, IAG now trades at a P/E of 23 times, an increase of 43.7%.
A large chunk of this growth occurred in the last month of trade.
IAG shares rallied to 52-week highs last week after it announced a $2.5 billion, five-year agreement with two of Berkshire Hathaway Inc (NYSE: BRK)'s subsidiaries for reinsurance protection.
Berkshire Hathaway is the investment vehicle of all-time investing great, Warren Buffett.
The five-year deal provides IAG with up to $680 million in additional protection per annum starting in FY 2025. It aims to cap IAG's natural perils costs at $1.28 billion this financial year.
Management projects that this and other moves will contribute to an improved return on equity (ROE) target of 14%-15% per annum.
Dividends and buybacks – the two features of H1 FY 2024
In its results for the first half of FY24 in February, IAG advised its gross written premium (GWP) – a key metric in the industry – increased by 12.5% to $7.9 billion.
Insurance profit tallied $614 million, up from $350 million at the same time last year. The reported insurance margin improved by five percentage points to 13.7%.
Still, net profit after tax (NPAT) decreased to $407 million from $468 million.
Despite this, the company declared an interim dividend of 10 cents per share and announced an on-market share buyback of up to $200 million, equal to around 1.2% of the company's market capitalisation at the time of writing.
Investors sold IAG shares heavily following its first-half results, pushing the insurer's stock price below its 20-day moving average – a sign of short-term weakness – before it recovered to previous highs in March.
Regardless, IAG's CEO expressed confidence in the company's performance going forward, noting:
We are well-positioned to continue playing our critical role as an economic shock absorber for consumers and businesses in Australia and New Zealand.
FY 2025 outlook for IAG shares
Brokers currently have mixed views on IAG shares. Goldman Sachs has a neutral rating with a 12-month price target of $6.30, citing potential risks such as volume loss due to rate increases, persistent claims inflation, and competition.
However, it also acknowledges IAG's strong rate cycle and capital flexibility. And, it increased its valuation on the company to 4.8 times net tangible assets (NTA), from the previous 4.5 times NTA.
Citi is more optimistic about the company, favouring IAG over Suncorp due to its cost-cutting opportunities and earnings growth. Meanwhile, CommSec data shows a moderate buy rating on IAG shares, with 2 buys against 5 hold ratings.
For FY25, IAG management expected "low double digits" GWP growth and a reported insurance margin of 13.5% to 15.5%.
The company's performance in FY 2024 sets high expectations for the upcoming year, but time will tell if it hits these watermarks.
Foolish takeaway
IAG shares had a good finish to FY 2024. However, the experts remain mixed on the outlook for this year – even though management is positive. Past performance is also no guarantee of future results, so always remember to conduct your own due diligence.
In the last 12 months, IAG shares have outperformed the S&P/ASX 200 index (ASX: XJO) by around 17%.
