Why experts have high hopes for the IAG (ASX:IAG) share price

Stocks for the $13 billion insurance behemoth have gone sideways the past 5 years. So what's different now?

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Shareholders of insurance giant Insurance Australia Group Ltd (ASX: IAG) haven't had much to cheer about the past few years.

The IAG share price is in the red in early trade on Tuesday after finishing 1.31% down Monday to close at $5.26. That's a 12.6% rise in the past 12 months, but a 3.8% descent in the past 5 years.

Hardly exciting for 'buy-and-hold' enthusiasts.

But while the COVID-19 Delta strain paralyses much of Australia, multiple experts are picking it as a bargain buy.

The Firetrail Australian High Conviction Fund last month revealed that it's one of the non-banking ASX finance shares that it's overweight on.

According to CMC Markets, 7 out of 11 analysts rate IAG shares as a "strong buy". One rates it as a "moderate buy".

And there are no analysts currently recommending to sell.

Despite doubling its final dividend, IAG's financial results last month underwhelmed the market.

So why are fund managers so bullish?

Aberdeen Standard Investments head of Australian equities Michelle Lopez hinted at some of the tailwinds that currently make insurance stocks attractive.

"Looking forward, the premium rate cycle momentum is expected to persist for longer and the competitive environment remains rational, allowing insurers to earn-through pricing increases and restore margins," she posted last week on Livewire.

"Furthermore, outsized provisions that were booked by insurers like IAG for COVID business interruption claims continue to look conservative given the modest actual claims experience observed to date, as well as the conservative levels of risk margin that have been incorporated into these estimates."

Depending on how some legal cases play out, Lopez reckoned investors might see a rainbow next year.

"Insurers like IAG may benefit from provision releases and capital surpluses in 2022."

This may have already started playing out, with IAG revealing its cash earnings jumped 170% in last month's financial report.

"Another positive during the year was its reported insurance profit of $1,007 million, which is an increase of 35.9% over FY 2020," reported The Motley Fool's James Mickleboro.

"This was due mainly to lower natural perils costs, positive credit spreads, and a first-half COVID-19 benefit largely from lower motor claims in Australia. This translated to an improved reported insurance margin."

Motley Fool contributor Tony Yoo 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 owns shares of 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 Bruce Jackson.

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