Insurance Australia Group Ltd (ASX: IAG) shares hit a new multi-year high of $8.74 per share on Tuesday morning.
The IAG share price has pulled back slightly to $8.72 at the time of writing, up 0.81%.
Meantime, top broker Morgan Stanley has issued a new note on the ASX insurance sector.
Analyst Andrei Stadnik is tipping capital returns for shareholders and continued but reduced profit growth for IAG, Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE).
Let's find out more.
IAG shares hit new price high
IAG is one of the largest general insurers in Australia and New Zealand. Its brands include NRMA Insurance, CGU, WFI, ROLLiN', Swann Insurance, AMI, State, and NZI.
The insurer delivered exceptional capital growth and dividend income for investors in 2024.
IAG shares were among the 10 best-performing ASX 200 large-caps for share price growth last year, rising by 49.5% compared to a modest 7.49% lift for the benchmark S&P/ASX 200 Index (ASX: XJO).
IAG more than doubled its annual dividend payment last year. IAG shares paid 27 cents per share in 2024, up from 15 cents per share in 2023.
One of the reasons IAG shares could pay such a big increase in dividends last year was 79% growth in its insurance business over FY24.
Inflation a tailwind
ASX insurance stocks are among the few that have directly benefitted from high inflation in recent years.
The insurers raised their premiums significantly, and most customers were willing to pay more for what they deemed to be essential items.
Looking ahead, Stadnik predicts a moderation in gross written premiums (GWP) but double-digit underlying insurance profit growth for all three companies.
As reported in The Australian, Stadnik predicts underlying insurance profit growth of 12% for IAG in FY25, down from 27% in FY24.
The decreased growth would be largely due to the up-front costs of IAG's new multi-year reinsurance deal.
For Suncorp, Stadnik predicts a 20% increase in underlying insurance profit growth and 15% for QBE.
Capital returns are 'imminent'
Stadnik says capital returns from the big three ASX insurance shares were "imminent". He noted that IAG had paused its share buyback ahead of its FY25 half-year results on 13 February.
The company will restart the buyback after earnings season.
Stadnik expects Suncorp to return more than $7 billion to its shareholders over several years. Part of this will be funded by proceeds from the sale of its banking division to ANZ Group Holdings Ltd (ASX: ANZ).
He also expects QBE to commence a $485 million share buyback.
IAG has also used some surplus cash for acquisitions.
In November, IAG announced it will spend $855 million on the acquisition of 90% of RACQ's insurance underwriting business, with the option to buy the remaining 10% in two years' time on the same terms.
IAG said the acquisition would add $1.3 billion to its GWP.
