Why did the IAG share price just hit a 5-year high?

Shareholders of this insurance giant are smiling on Tuesday. What's going on?

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The Insurance Australia Group Ltd (ASX: IAG) share price has been climbing again on Tuesday.

So much so, the insurance giant's shares have just hit a five-year high of $8.65.

Why is the IAG share price at a five-year high?

Investors have been buying the company's shares in recent days after it announced a major acquisition and then followed this up with an investor day update today.

In respect to the former, last week IAG revealed that it has agreed to pay $855 million for 90% of RACQ's existing insurance underwriting business.

In addition, the company has an option to acquire the remaining 10% in two years on consistent terms.

As part of the agreement, IAG and RACQ will enter a 25-year exclusive strategic alliance to provide RACQ general insurance products and services for RACQ members and Queenslanders.

IAG advised that the transaction will be funded from surplus capital and is expected to be earnings per share accretive in the first full year of ownership.

IAG's managing director and CEO, Nick Hawkins, was pleased with the deal. He said:

IAG has a well-established presence in Queensland through our trusted insurance brands, and we are excited to now help protect and serve RACQ's members. The transaction is a true partnership between IAG and RACQ. It builds on our proven track record of working collaboratively with leading member motoring organisations that share our values.

Investor day update

Boosting investor sentiment and the IAG share price further has been the release of an investor day update this morning.

At the event, IAG reaffirmed its gross written premium (GWP) growth in the mid-to-high single digit with a reported insurance profit of $1,400 million to $1,600 million, and a reported insurance margin of 13.5% to 15.5%

IAG's chief financial officer, William McDonnell, also outlined the company's ambition to reduce its administration expense (ex-levies) ratio by at least 100bps to under 11% in FY 2027.

Commenting on the company's outlook, Hawkins said:

We have some of the best consumer insurance brands in the world, and between our retail and commercial businesses we can serve customers through their channel of choice. IAG is well positioned to satisfy the insurance needs of more Australians and New Zealanders.

We've materially uplifted the risk capability across IAG and we're using reinsurance in innovative ways to reduce volatility. As we move into the next phase of growth, we are confident that IAG is a more streamlined and resilient business able to deliver strong returns to our shareholders.

Motley Fool contributor James Mickleboro 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.

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