Why IAG has risen 48% this year

Insurance group handily outperforming the market

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 8, 2012 3:02 pm AEDT

Insurance Australia Group (ASX: IAG) has risen 48% since the start of the year, making it one of the best performing stocks in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). By comparison, the index has risen 10.4% since the beginning of January.

IAG is one of Australia's largest general insurers, with operations in New Zealand and the UK and recently expanded into Asia in a big way. It has $720 million invested in operations in five Asian countries, including $500m in established businesses in Thailand and Malaysia and $220m building its presence in India, China and Vietnam. The company is also looking to enter Indonesia, but is happy to bide its time. This is all part of IAG's plan to generate 10% or more of its gross written premium from Asia by 2016.

During February, IAG reported its six monthly results with net profit falling 11% to $144 million, mainly due to falling equity markets, which resulted in less investment income.

In April, it announced further expansion of its business in Malaysia through the acquisition of Kurnia Insurans (Malaysia) Berhad, and entry into the Vietnamese insurance market, when it acquired 30% of Vietnam-based AAA Assurance Corporation.

During August, the company announced a 26% increase in insurance profit to $832 million, which resulted in net profit of $207 million, affected by a writedown of all of its UK business operations by $297 million. A full year dividend of 17 cents was declared. IAG also announced that it was undertaking a strategic review of its UK business and was exploring a potential sale of all or part of the business. For 2013, the company is forecasting performance to improve in the 2013 financial year, with gross written premium expected to grow by 9-11%.

IAG's next half-year results are due to be released around the end of February 2013.

IAG is currently trading on a prospective P/E ratio of 12.3, compared to competitors QBE Insurance Group (ASX: QBE) on 11.1, and AMP Limited (ASX: AMP) on 12.8. Analyst forecasts are pointing to a potential dividend yield of around 5.2%, likely to be fully-franked.

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Motley Fool writer/analyst Mike King owns shares in QBE. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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