Insurance Australia Group's FY21 cash earnings of $747m are 2% below Morgan Stanley and 4% below consensus.

Driven by a previously announced $90m impairment charge from the proposed AmGeneral sale, plus further $200m pre-tax top-up for customer and payroll refunds in second half FY21, reported net profit of -$427m is well below the broker's -$183m estimate.

While the large CAT budget increase helped improve earnings quality, the broker thinks they may be a headwind to margins.

On balance, the broker thinks below the line charges depleting capital optionality, and reserve top-ups that add to earnings uncertainty are negative developments.

The analyst's Equal-weight rating and target price of $4.85 are unchanged. Industry view: In-line.

Sector: Insurance.

Target price is $4.85.Current Price is $4.91. Difference: ($0.06) - (brackets indicate current price is over target). If IAG meets the Morgan Stanley target it will return approximately -1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

© 2021 Acquisdata Pty Ltd., source FN Arena