The Insurance Australia Group Ltd (ASX: IAG) share price has been a strong performer over the past year.
12 months ago you could have snapped up shares in the S&PASX 200 Index (ASX: XJO) insurance company for $4.44. Today, those shares are changing hands for $5.82 apiece, up 31.1%.
Over the year IAG also paid out 15 cents per share in partially franked dividends.
If we add that back in, the accumulated value of the IAG share price is up 34.5%.
Not bad!
Especially not when you consider this performance came during a year with some devastating weather impacts.
Among the inclement weather events, the year gone by saw extreme floods in eastern Australia and damaging rain storms and floods in Auckland, New Zealand.
As you'd expect, these, and other weather-related events, led to some outsized claims from IAG's customers.
The company reported $10.2 billion in total claims for the 2023 financial year, up 20% from the prior year.
Which brings us back to the Bureau of Meteorology (BOM) and El Nino.
Image source: Getty Images
Why El Nino could lift the IAG share price
The tragic, damaging floods of the past year were fuelled by El Nina, which has stuck around Australia for an unusually long stretch. El Nina tends to bring cooler and wetter weather to much of Australia and New Zealand.
El Nino, on the other hand, brings warmer dryer weather to the area.
While that brings an increased risk of bushfires, insurance claims from fires tend to be less than from major floods. That's because fires are less likely to impact heavily developed areas than floods.
And a significant reduction in claims in FY 2024 could see more outperformance from the IAG shares price.
Indeed, as we reported earlier this week, Jarden estimates that insurers' catastrophe costs in Australia and New Zealand during El Nino periods have been around half of what they've been during El Nina periods over the past 50 years.
But earlier this week the BOM was still unsure of whether El Nino would eventuate, giving it a 70% chance.
Now, the meteorologists have upped that to a sure thing.
An "El Nino and positive Indian Ocean Dipole are underway," the BOM states on its website.
According to the BOM:
[This] reinforces the Bureau's long-range rainfall and temperature forecasts, which continue to predict warmer and drier conditions for much of Australia over the next three months. The confirmation of an established El Nino increases the likelihood that the event will be sustained through the summer period.
Atop potential tailwinds from El Nino, the IAG share price is also benefiting from sizeable premium increases and the high interest rate environment.
With higher interest rates, the ASX 200 insurer gets higher returns from the premiums it invests.
