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Competition in the Australian insurance market remains tough, with Macquarie analysts having a slight preference for shares in Insurance Australia Group Ltd (ASX: IAG) over competitor Suncorp Group Ltd (ASX: SUN).
The broker has a neutral rating on both stocks but has valued IAG shares slightly higher than the $8.62 they are trading at, with a 12-month price target of $9.10.
For Suncorp, on the other hand, Macquarie has a price target of $20.06, which is lower than the current share price of $20.94.
Both stocks also pay dividends, with Macquarie forecasting a dividend yield of 3.7% for IAG and 3.9% for Suncorp.
Macquarie said the risks to IAG in the short term included "more frequent catastrophes, higher reinsurance costs and higher for longer claims inflation'' while for Suncorp it was "volatility in Hazard experience and claims inflation".
For both, increasing competition from challenger brands such as Youi was a longer-term threat.
"Any inability to compete successfully in its markets may harm the business,'' Macquarie said in relation to both businesses. "This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors."
Financial market conditions were also a factor.
The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices.
