What's the outlook for IAG shares in 2024?

Could 2024 be as good as this year?

| More on:
A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Insurance Australia Group Ltd (ASX: IAG) shares have done very well – in 2023 they have gone up 27% to date, as we can see on the chart below. With positivity building, what is the outlook for IAG shares in 2024?

As a reminder, the company operates a number of brands including NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance, WFI and Lumley Insurance.

Helpful factors

The business is seeing inflation of premium prices, which is a tailwind for gross written premiums (GWP), revenue and potentially insurance profit if margins stay the same or improve.

IAG is benefiting from a higher interest rate environment because a large portion of its investment portfolio is invested in assets that pay interest. With higher interest rates, it's making much bigger returns for this part of the portfolio.

Its profit could also benefit from a shift to the weather pattern of El Nino because that may mean less damaging floods and storms, which obviously hurt profitability when they happen.

In FY24, the business is guiding GWP growth to be in the "low double-digits". The reported insurance margin guidance is between 13.5% to 15.5% and IAG is expecting to deliver an insurance profit of between approximately $1.2 billion to $1.45 billion.

Possible negatives for IAG shares

The broker UBS suggests that while premium repricing "continues to track ahead of claims inflation in most segments and is setting up well for FY25", this is "well anticipated by [the] market, with potential for disappointment if 1H24 does not step up sharply."

UBS also notes the "incremental headwinds in FY24 of perils allowance and reinsurance costs (3 percentage points)".

The broker points out premium prices are increasing significantly but GWP is increasing at a slower rate, which suggests the company has lost volume, "likely due to customers electing higher excesses" as it understands that the retention rate is between 90% to 95%.

IAG share price valuation

UBS currently has a sell rating on the business with a price target of $5.10. That implies it could fall by over 10% over the next year.

Based on the UBS projection for FY24, the IAG share price could be valued at 19 times FY24's estimated earnings with a possible grossed-up dividend yield of 4%.

Should you invest $1,000 in Insurance Australia Group Limited right now?

Before you buy Insurance Australia Group Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Insurance Australia Group Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Motley Fool contributor Tristan Harrison 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.

More on Financial Shares

Woman and man calculating a dividend yield.
Dividend Investing

Here's why IAG shares are in the red on Tuesday

Why is this ASX insurance juggernaut in the red?

Read more »

Excited couple celebrating success while looking at smartphone.
Earnings Results

2 ASX 200 financial shares going gangbusters on earnings updates

These shares are surging after impressing with their strong half year results.

Read more »

Frustrated and shocked business woman reading bad news online from phone.
Earnings Results

$4.2 billion ASX 200 financial stock sinks 7% on half year results

Let's see how this blue chip performed during the first half of FY 2025.

Read more »

A man looking at his laptop and thinking.
Financial Shares

IAG shares are down 15% in a week. Is now the time to buy the dip?

Are IAG shares a natural buy or a natural peril right now?

Read more »

A businesswoman on the phone is shocked as she looks at her watch, she's running out of time.
Financial Shares

Hoping to bag the next dividend on IAG shares? Better hurry…

The insurance giant has announced a 20% higher interim dividend of 12 cents per share.

Read more »

Woman and man calculating a dividend yield.
Earnings Results

Why did the AMP share price just crash more than 13%?

AMP shares are taking a beating on Friday. But why?

Read more »

Frustrated and shocked business woman reading bad news online from phone.
Earnings Results

IAG share price crashes 8% despite first-half profit surge

This insurance giant has delivered a big increase in profits for the first half. But investors aren't celebrating it.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Earnings Results

Suncorp share price jumps on strong result and $4.1b return to shareholders

This insurance giant is returning significant funds to shareholders after the sale of its banking operations.

Read more »