Insurance Australia Group Ltd (ASX: IAG) shares ended in the green on Friday afternoon. At the close of the ASX, the shares finished up 1.03% to $6.87 a piece.
It's welcome news for investors after the insurance shares have dropped nearly 10% since the start of February. And the stock is now 11.92% lower than this time last year.
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What happened to IAG shares this month?
IAG started dropping on Monday last week. There was no price-sensitive news out of the company at the time, so it's possible that investors were taking gains off the table ahead of the company's first half FY26 results.
Extreme wet weather events, particularly in NSW and Queensland which would result in a surge of insurance claims and increased payouts, likely dented investor confidence too. A higher number of claims generally reduces profit margins for insurers like IAG.
Investors were right to be apprehensive. The company's half-year FY26 results, posted on Thursday, showed a significant drop in profit.
For the six months to 31st December 2025, IAG's revenue was up 23.3% but its net profit after tax dropped 35.1%.
Despite the decline, IAG maintains its FY26 profit guidance of between $1,550 million and $1,750 million.
Why I think the share price could jump higher
While IAG shares tumbled in February, I think there is potential for the stock to storm up to $10 per share this year. Here's why.
IAG is likely to hike its home and motor insurance premiums following high claims from several extreme weather events across the country over the past few months.
According to a report by The Australian, market analysts expect the combined impact of recent catastrophes and broader claims inflation to flow through to upcoming renewals as insurers work to manage loss ratios and capital requirements.
This means that if weather conditions normalise (or at least the number of extreme events reduces, even slightly) earnings could rebound fast. This translates through to better dividends for investors and possible share buybacks. It could also drum up more investor confidence (or interest) in IAG shares, which would in turn drive the price higher.
Analysts are very bullish on the outlook for IAG shares right now. Out of 11 analysts, 7 have a buy or strong buy rating. The maximum target price is $9.80, which implies a 42.65% upside at the time of writing. And I think, if the pieces of the puzzle fall into place, the shares could well break the $10 barrier this year.
