Shares of Insurance Australia Group Ltd (ASX: IAG) traced lower today and finished trading down 0.44% at $4.51 apiece.
The loss eclipses a 9% downfall for the insurance giant in the last 12 months, amid a difficult two years for the insurance industry across 2020/21.
How might IAG hold up in another catastrophe?
Analysts at Goldman Sachs forecast that ‘catastrophe risks’ are likely to worsen before normalising back to positive trends in a recent note.
Whilst IAG is investing substantial amounts in mitigating climate change and catastrophe risks, “an issue of this magnitude is difficult to manage,” Goldman says.
Ultimately, the broker says, insurers like IAG will need to reflect this risk premium in their price setting and to factor in inflation.
Meanwhile, analysts at Morgan Stanley see the ‘volatility’ of catastrophe risk to be a going concern for IAG.
The investment bank quotes research from Swiss insurance and reinsurance firm Swiss Re, which now sees natural catastrophes growing at a long-term rate of 5-7%.
On this basis, Morgan Stanley reckons that Australian insurers like IAG will have to absorb more catastrophe risk in their earnings profile, which could ultimately impact its share price.
So to answer the question, judging by the analysis of these brokers, is that another catastrophe is certain to have some kind of impact on insurers like IAG.
Just what that impact might be, remains to be seen.
IAG share price snapshot
According to Bloomberg data, 58% of analysts covering IAG rate it a buy right now, whereas 25% have it as a hold. The remaining coverage – around 17% – says to sell IAG shares.
This year to date IAG shares have snaked around 6% into the green following another positive month of trade.
The post How might the IAG share price fare with another ‘catastrophe’? appeared first on The Motley Fool Australia.
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More reading
- The IAG share price has tumbled 27% in 5 years. Have the dividends been worth it?
- How does the IAG share price stack up against analyst ratings?
- Top brokers name 3 ASX shares to sell today
- What is the dividend yield on IAG shares in May?
- The IAG share price has gained 6% in a month. Is this just the beginning?
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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