Impressively, the Insurance Australia Group Ltd (ASX: IAG) share price has risen more than 20% in the last year, as the chart below shows. After such a strong run, it's worth asking whether the IAG share price is still a good buy or not.
Currently, analysts largely think the business has run as far as it can in the short-term. According to a collation of opinions by Commsec, there are currently two buy ratings on the insurance giant and six hold ratings.
Let's look at some of the positives and negatives that could be influencing analysts and then I'll give my own view on the business.
Positives
I think there are three main positives to think about with the business.
Firstly, it has a very strong market position in the Australian and New Zealand markets. This gives the business excellent scale advantages compared to its smaller competitors. It owns a number of brands including NRMA Insurance, CGU, WFI, ROLLiN', Swann Insurance, AMI, State, and Lumley Insurance.
Secondly, the business still offers a decent dividend yield. The business is projected to pay an annual dividend per share of 35.9 cents in FY26. At the current IAG share price, that translates into a forward grossed-up dividend yield of 5.4%, including franking credits.
Thirdly, the business is still experiencing a strong level of growth of Australian insurance premiums, which is a strong tailwind for earnings. Broker Macquarie recently noted that the insurance giants are still seeing price rises. According to Macquarie, home insurance has seen an annual price rise of 5.7%, small and medium enterprise (SME) insurance saw a price rise of 7.8% and compulsory third party (CTP) pricing increased 4.2%.
Australian home insurance made up 21% of IAG's group gross written premium (GWP), Australian commercial lines accounted for 24% of IAG's GWP and CTP accounts for 5% of IAG's GWP.
Negatives on the IAG share price
Macquarie thinks the premium increases have peaked and this may "represent as good as it gets for insurers, prompting us to proceed with caution." This suggests premium increases may be lower in the foreseeable future, which could mean slower profit growth.
For plenty of businesses, RBA cash rate cuts are a positive for demand or asset valuations. However, I fear that rate cuts could hurt the company's ability to generate investment earnings from its cash and bonds, which would hurt the bottom line.
Finally, the business is now trading at a relatively expensive price/earnings (P/E) ratio. According to the forecast on Commsec, the company is trading at 16.6x FY26's estimated earnings.
I don't think this is the right time to invest at the current IAG share price, but there are positives to keep in mind.
