IAG shares have slipped as investors price in new risks from today’s earthquake.
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The Insurance Australia Group Ltd (ASX: IAG) share price has slipped into the red during afternoon trade on Wednesday, in line with the broader insurance sector.
IAG’s decline has led to a fall in the broader ASX insurance sector, with the S&P/ASX 200 Insurance Index also sliding 1.3% across the day.
Conversely, the S&P/ASX 200 index (ASX: XJO) has climbed 0.7% into the green today.
What’s up with the IAG share price today?
IAG shares are on the move after the insurance giant braces for an influx of claims from the magnitude 6.0 earthquake that hit the southeast coast of Australia this morning.
The earthquake struck major metropolitan areas in Victoria, NSW, Tasmania and the ACT, and even reached regional areas in Victoria and NSW.
One resident from the regional town of Griffith, NSW said “to be honest, it (the earthquake) was a bit scary. My son didn’t feel it as he was on the massage chair”. Griffith is around 400km north of Melbourne, and 600km south-east of Sydney.
Now IAG is gearing up for a wave of insurance claims to flow in from these regions, as most insurance policies place a 2–7 day window on which a “damage from earthquake” claim can be lodged.
This is to prevent a lengthy tail of even potentially fraudulent claims to be made after the actual earthquake itself.
And it appears that earthquake-related repairs can rumble the bank accounts of insurance companies too.
According to a report from today’s The Australian, a previous earthquake in 1989 that rocked Newcastle and measured 5.8 in magnitude cost insurers $3.2 billion. In today’s values, that figure amounts to over $7 billion.
That kind of widespread damage would ultimately hit the pockets of Australian insurers, especially given the current inflation of manufacturing as well as raw materials’ pricing.
Most analysis points to a strong data backed conclusion that the damage could enter into the billions from today’s event.
Investors appear to be pricing this risk into the IAG share price today, as it sits in negative territory from yesterday’s close.
There will no doubt be more to come from this saga as more data about the extent of the damage is revealed.
IAG share price snapshot
The IAG share price has had an incredibly difficult year to date, marred by controversy and headwinds. It now trades 5% in the green since January 1.
Despite this, it is still up 11% over the past year but has lagged the broad index’s return of around 25% in this time.
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The author Zach Bristow has no positions 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.