IAG: Little reassurance

After making a total return of 18% since the initial purchase, Nathan Bell explains why he’s downgrading IAG and selling it from the income portfolio.

For years we recommended selling Insurance Australia Group (IAG). To justify its premium valuation, insurance losses had to remain low, investment returns had to remain high and the company’s UK expansion under then chief executive Michael Hawkins needed to produce strong growth.

As Chart 1 shows, it didn’t happen. The global financial crisis crushed investment returns, 2011 was the insurance industry’s worst ever year for claims and IAG lost over a billion dollars in the highly competitive UK market.

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