The Insurance Australia Group Ltd (ASX: IAG) share price slumped this week, after the company released its natural perils and financial guidance update on Tuesday morning.
The ASX 200 insurer estimates that its FY 2025 natural perils costs will be approximately $1.08 billion, which is $200 million less than its FY25 allowance.
The company increased its profit guidance range to $1.6 billion to $1.8 billion, up from $1.4 billion to $1.6 billion previously, but reported weaker-than-anticipated growth of 4% to 4.5%.
Shares in the insurance company closed 3% lower on Thursday at $8.58 a piece. The share price opened 0.82% higher this morning, changing hands at $8.65.
The shares have dropped 4.98% since Monday but have still gained 22.87% over the year.
For some context, the S&P/ASX 200 Index (ASX: XJO) has risen 0.52% this week.
Here's what Macquarie Group Ltd (ASX: MQG) have to say about the stock.
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Outlook for IAG in FY26
Macquarie maintains its neutral rating on IAG shares, but has increased the target price to $9.20, up from $8.70. The new target price represents a potential 6.35% upside from this morning's trading value.
In a note to investors, the broker said that IAG currently trades at a 12.9% premium to global peers with similar reinsurance structures.
The company has provided guidance that FY25 reported margins will be "towards the top end of the 15.5% to 17.5% range". IAG achieved 19.4% in 1H25. Macquarie forecasts 17.3% in FY25, or 15.3% in 2H25.
Macquarie also forecasts IAG's growth will be around 4.3% for the financial year.
IAG has not provided guidance on reported margins for FY26, but the company previously mentioned it targets 15% through the cycle. Macquarie anticipates that IAG will provide a 13.5-15.5% reported margin guidance for the coming financial year, and forecasts the reported margin will fall to around 14.5%.
The broker also expects IAG to provide double-digit GWP growth guidance for FY26, incorporating RACQ from Sept 2025. It forecasts 9.7%.
The broker also notes that more frequent catastrophes, higher reinsurance costs, and higher for longer claims inflation could affect its investment thesis on IAG shares in the short term. Over the long term, company competition and general market risks such as changes in the interest rate or exchange rates could also affect the company's outlook.
