ASX 200 insurance stock Insurance Australia Group Ltd (ASX: IAG) has rallied in 2024 and offered a significant advantage over the S&P/ASX 200 Index (ASX: XJO)'s modest 3.5% gain.
This performance is driven by several factors. The business has benefitted from elevated insurance premiums, as most insurance policies are indexed to higher inflation. It has also obtained stronger investment earnings from higher bond yields.
We can't forget how strong the stock market's been either. And – thankfully – we've had a relatively stable absence from natural peril events.
Each of these factors formed the rain that fell on the seeds of IAG shares back in December of 2023. Back then, the crop was sowed, and the shares have since punched up above the ground to trade more than 26% higher this year to date. You can see this in the chart below.
But times could be changing, with early signs of a broad equity market slowdown in recent days. Is IAG still in the buy zone? Here's what the experts think.
What's driving this ASX 200 insurance stock?
In June, IAG announced two five-year strategic agreements with global reinsurers to enhance its financial stability.
They were with subsidiaries of none other than Berkshire Hathaway, the conglomerate formed by Warren Buffett.
The agreements are set to provide greater certainty over natural perils costs for IAG's customers, offering up to $680 million of additional protection annually. This extends to $2.8 billion over the five years.
IAG's natural peril costs are consequently limited to $1.28 billion in FY25, a 17% increase from FY24. Meanwhile, it also purchased around $2.5 billion of cover for its long-tail reserves.
Investors may also have been bullish on the company after it confirmed its FY24 guidance for insurance profits. According to my colleague Tristan, management guides to a range of 1.2 billion to $1.45 billion for the full year, on an insurance margin of 13.5%–15.5%.
Whereas in its first-half FY24 results, IAG reported a 12.5% increase in gross written premium (GWP) to $7.9 billion and a near 75% rise in insurance profit to $614 million.
The company also declared a 10 cents per share interim dividend.
Investors received these updates well, pushing the ASX 200 insurance stock to 52-week closing highs of $7.17 on July 11.
Is IAG a good buy?
Analysts have mixed views on IAG. UBS suggests that the reinsurance deals IAG entered into could improve investor's confidence in the insurer's earnings.
The broker also believes IAG's insurance margin could increase to 16% in FY25 based on the business momentum it showed during FY24.
UBS has a price target of $7.10 on IAG shares, implying no significant capital growth over the next 12 months. It sees better value elsewhere.
Goldman Sachs also holds a neutral rating on IAG shares with a 12-month price target of $6.72, citing potential risks like volume loss due to rate increases and persistent claims inflation.
However, it also acknowledges IAG's strong performance in this current interest rate cycle.
The consensus of analyst estimates, meanwhile, currently rates the ASX 200 insurance stock as a 'moderate' buy. This recommendation consists of five buy ratings and seven hold ratings, respectively.
So, while the overall view is bullish on IAG, there is still mixed opinion. Only time will tell what this says for the future of its stock price.
Takeaway
This ASX 200 insurance stock has performed strongly this year, and its fundamentals support its return.
However, while some analysts are bullish, IAG's current share price may be slightly demanding compared to historical averages. The opinion is split.
Remember to always conduct your own due diligence before making any investment decisions.
