IAG shares are now up 38% this year. What's next?

Insurance Australia Group Ltd (ASX: IAG) shares have been one of the best-performing ASX financial stocks this year.

At the time of writing, shares in the insurance giant are up 38%, finishing the session on Thursday at $7.83 apiece.

But as you'll see in the chart below, the ascent for IAG shares hasn't been linear (is it ever?). The stock pushed sideways from August through October before catching a strong bid leading into the US Presidential election.

Shares shot up from $7.39 at the close on Tuesday and are in range to take out 52-week highs of $7.92 if this trend continues.

What's next for IAG shares? Let's see what the experts think.

IAG shares now bounce higher

The wheels were set in motion for IAG shares to push higher last month. At the company's Annual General Meeting (AGM), IAG reiterated its FY25 guidance, which had been well-received by investors earlier in the year.

CEO Nick Hawkins confirmed that IAG is targeting an insurance margin between 13.5% and 15.5%. Natural perils are also budgeted to be roughly 18% over last year's allowance.

This outlook remains optimistic, particularly as the insurer reported lower natural peril costs in Q1 FY25.

Hawkins also reaffirmed IAG's medium-term return on equity (ROE) target of 14% to 15%. If hit, every dollar of shareholder equity would produce 14–15 cents in earnings.

Earlier in the year, financial stocks like IAG rallied on the backdrop of high interest rates and growth in gross written premium (GWP) value. IAG shares are sensitive to fluctuations in these numbers.

But the stock's 38% return so far this year is driven by share price gains from the company's fundamentals. Including dividends of 27 cents per share, the total shareholder return is 41%.

Additionally, IAG announced a further buyback of its own stock in August, committing up to $350 million. This is worth about 0.15% of the company's current market capitalisation.

What's in store?

Recent insights from Firetrail Investments suggest there's more room for IAG shares to extend further to the upside.

One major positive? The "declassification" of a class action related to COVID-19 business interruption claims.

This decision could potentially return a significant portion of IAG's $380 million provision to shareholders via dividends or buybacks.

Thanks to price increases across its insurance products, IAG's margins rose nearly 2% in FY24. Firetrail projects further margin expansion in FY25.

Brokers, meanwhile, are bullish on the stock on aggregate. According to CommSec, consensus rates IAG shares a buy.

Forecasts have IAG to grow earnings by 18% annually over the next two years.

Foolish takeaway

IAG shares have outperformed in 2024, and a handful of experts see them trading higher in FY25.

Over the past 12 months, it has climbed more than 36%, meaning most of the gains during that time were achieved in 2024.