The Insurance Australia Group Ltd (ASX: IAG) share price is rangebound in afternoon trade and currently rests 0.93% in the green at $4.36.
Zooming out, and the share is up 2.5% this year to date after whipsawing in a sideways channel since January. This is seen in the chart below.
But what of the future? Let’s see what one expert has to say about the outlook for the IAG share price.
Analysts concerned over catastrophe risk
In a note on Thursday, analysts at Barrenjoey Markets had a downbeat tone on IAG. The broker weighed up all the contributing factors and evaluated the insurer’s outlook.
However, it was what “IAG was not able to say in its announcement” that prompted the broker to “remain cautious on the stock”.
The announcement was referring to IAG’s FY23 aggregate reinsurance cover and quota share arrangements.
IAG says the aggregate cover “has been placed to the extent of 67.5% to reflect IAGâs cumulative whole-of-account quota share arrangements”.
The combination of all catastrophe covers in force at 1 July 2022 gives IAG a maximum event retention of $135 million.
Further details are set to be provided at the company’s FY22 results announcement on 12 August.
Looking ahead, Barrenjoey noted IAG could be set for higher natural catastrophe costs and a series of natural catastrophe losses.
The broker projects an insurance margin of just 9% for IAG in FY23, roughly 300 basis points below IAG’s guidance.
It notes the insurer will likely face challenges from the accounting treatment of its perils and reinsurance cover.
Things get worse in Barrenjoey’s projections when applying further stress testing.
“Under a more severe scenario there is [more than] 20% cash net profit after tax (NPAT) risk,” the broker added.
Alas, it’s been a difficult past 12 months for the IAG share price. In that time it has slipped almost 12% into the red, and has fallen 20% off its former highs.
The post Here’s why one analyst is ‘cautious’ of the IAG share price appeared first on The Motley Fool Australia.
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More reading
- Why did the IAG share price surge 5% on Thursday?
- The ASX 200 share ready to bounce from 10-year lows: expert
- Why is the IAG share price smashing the ASX 200 today?
Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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