The Insurance Australia Group Ltd (ASX: IAG) share price is soaring 1.78% higher at the time of writing after hitting a new 52-week high of $7.49. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is up 1% today.
As the chart below shows, the insurance giant has had an exceptional past 12 months, with the IAG share price lifting 27% over the period.
The company's most recent rally over the last 10 days comes ahead of its upcoming FY24 result.
IAG will release its full-year earnings result next Wednesday, 21 August. Let's consider what the company is expected to report.
FY24 forecasts
In late June, the insurance business updated the market, saying it expected IAG's FY24 reported insurance profit to be around the upper end of the $1.2 billion to $1.45 billion guidance range (up from $803 million in FY23). Broker UBS has an estimate for FY24 of $1.42 billion.
The company also expects the FY24 reported insurance margin to be "around the upper end of the 13.5% to 15.5% guidance range". This accounts for the additional adverse development cover (ADC) cost and assumes net natural perils costs for June were in line with seasonal expectations.
The FY24 underlying insurance margin, which includes the additional ADC cost and removes the impact of natural perils experience, is expected to be around the mid-point of the 13.5% to 15.5% range.
The FY24 gross written premium (GWP) is expected to be consistent with the guidance of "low double-digit".
UBS expects IAG to generate a net profit after tax (NPAT) of $999 million, representing 20% year-over-year growth. In earnings per share (EPS) terms, the broker expects IAG to generate 39 cents of EPS.
The broker predicts that IAG will pay an annual dividend per share of 26 cents, representing a 73% increase year over year. This would translate into a fully franked dividend yield of 3.5% and a grossed-up dividend yield of 5%.
Why is the market excited about IAG shares?
UBS is seeing "margin momentum" across the industry, and IAG's new reinsurance deals are "likely to improve investor perceptions of earnings quality".
The broker thinks the market underestimates the peak margins that IAG can achieve, and is "modelling a margin overshoot over the next 12-18 months, relative to mid-cycle guidance."
UBS thinks the new reinsurance provides "greater certainty" and that the company is "engineering annuity-style earnings".
