AUS
NZ
UK
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Highlights
- IAG Hits New High: Shares of Insurance Australia Group hit a multi-year high of AU$8.74 on Tuesday, marking a 0.81% increase.
- Morgan Stanley’s Positive Outlook: Analyst Andrei Stadnik forecasts continued, though reduced, profit growth and capital returns for major ASX insurers, including IAG.
- Capital Returns and Acquisitions: IAG is expected to restart its buyback program, while also focusing on acquisitions such as its recent AU$855 million deal with RACQ’s insurance business.
Shares of Insurance Australia Group Ltd (ASX:IAG) soared to a new multi-year high on Tuesday, reaching AU$8.74 per share, before slightly pulling back to AU$8.72 at the time of writing, reflecting a 0.81% increase. The surge in IAG’s share price has come amid a positive update from top broker Morgan Stanley, which is projecting continued profit growth for IAG and its peers in the ASX insurance sector, despite a moderation in the pace of growth.
IAG is one of the largest general insurers in Australia and New Zealand, with well-known brands like NRMA Insurance, CGU, WFI, and AMI. The insurer delivered strong capital returns and dividend income for investors in 2024, buoyed by solid growth in its insurance business.
IAG's Strong Performance in 2024
IAG shares were among the top 10 performers in the ASX 200 last year, rising by an impressive 49.5%, compared to a modest 7.49% increase in the benchmark S&P/ASX 200 Index. A major contributor to this strong performance was a 79% growth in its insurance business over the FY24 period, allowing IAG to significantly increase its dividend payments. The insurer more than doubled its dividend in 2024, paying 27 cents per share, up from 15 cents per share in 2023.
The rise in premiums due to inflation has worked in favor of Australian insurers like IAG. Customers, facing inflationary pressures, have been willing to pay higher premiums for what they perceive as essential insurance coverage.
Future Outlook and Predictions
Looking ahead, Morgan Stanley’s analyst Andrei Stadnik forecasts a 12% underlying insurance profit growth for IAG in FY25, down from the 27% growth recorded in FY24. The reduced profit growth is expected to be a result of the upfront costs associated with IAG’s new multi-year reinsurance deal.
Stadnik also predicts double-digit growth for insurance profit at other key players in the sector, including Suncorp Group Ltd (ASX:SUN), with 20% growth, and QBE Insurance Group Ltd (ASX:QBE), with 15% growth.
Capital Returns and Acquisitions
Stadnik highlighted that capital returns from these major insurance companies are imminent. IAG, for instance, had paused its share buyback program ahead of its FY25 half-year results, set to be announced on 13 February. The buyback is expected to restart post-earnings season, contributing to positive shareholder returns.
Additionally, IAG has used some of its surplus cash for acquisitions. In November 2024, the company announced it would acquire 90% of RACQ’s insurance underwriting business for AU$855 million, with the option to acquire the remaining 10% in two years. This acquisition is expected to add AU$1.3 billion to IAG's gross written premiums (GWP).
Stadnik also expects Suncorp to return more than AU$7 billion to its shareholders over the next several years, partly funded by proceeds from the sale of its banking division to ANZ Group Holdings Ltd (ASX:ANZ). Additionally, QBE is set to initiate a AU$485 million share buyback program.
