Why the IAG share price outperformed the ASX 200 in March

The Insurance Australia Group Ltd (ASX: IAG) share price managed to outpace the S&P/ASX 200 Index (ASX: XJO) in March.

Shares in the ASX 200 insurance stock closed out February trading for $4.65 each. At the closing bell on 31 March, shares were changing hands for $4.69 apiece.

That put the IAG share price up 0.9% in a month that saw the benchmark index fall 1.1%.

Here’s what ASX 200 investors have been considering.

What’s influencing ASX 200 investor decisions?

The only price-sensitive news from the Aussie insurance giant was released on 31 March.

That related to the company redeeming all $220.2 million of IAG Capital Notes, which were issued on 22 December 2016. The IAG share price edged 0.2% lower on the day.

With no other price-sensitive news out since the insurer reported its half-year results on 13 February, IAG’s relative outperformance in March may be linked to the defensive nature of the stock in the face of stubbornly high inflation.

As The Motley Fool reported on 15 March, Wilsons equity strategist Rob Crookston advised seeking out stocks that are able to withstand the margin-eroding powers of inflation.

“The best defence against cost inflation is pricing power,” Crookston said.

“High quality companies with resilient customer demand through the cycle and dominant market positions operating in attractive industry structures are best placed to protect their margins by raising prices.”

Crookston named five stocks that fit the bill, including IAG.

“Number 1 general insurer in Australia, which has been [raising] premium rates strongly to offset rising perils costs (albeit there is a timing lag to margins),” he said. “Even with higher premiums, customer retention rates remain high.”

Indeed, at its half-year results, IAG reported adding more than 100,000 direct customers across Australia and New Zealand over the six-month reporting period. Retention levels for its motor insurance were 91% while home insurance retention rates were 95%.

Net profit after tax (NPAT) for the six months surged 171% year on year to $468 million.

March also saw IAG pay out its six cents per share interim dividend, 30% franked.

IAG share price snapshot

As you can see in the chart below, the IAG share price has been a strong performer over the past 12 months, up 13%.

The post Why the IAG share price outperformed the ASX 200 in March appeared first on The Motley Fool Australia.

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More reading

• Is IAG stock a good defensive ASX 200 buy right now?
• Insurance companies are raking it in, so should you buy ASX 200 shares like IAG right now?
• The IAG dividend is being paid today. Here’s the latest
• 5 ASX 200 shares that inflation can’t touch: expert
• Warren Buffett is invested in IAG shares, should you be?

Motley Fool contributor Bernd Struben 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 no position in any of the stocks mentioned. 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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