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Why IAG (ASX:IAG) and Suncorp (ASX:SUN) shares were in focus today

Shares in insurance companies Insurance Australia Group Limited (ASX: IAG) and Suncorp Group Limited (ASX: SUN) finished higher today after an update around its business interruption insurance.

For some context, both companies have had to put aside large sums of money to potentially payout for claims associated with COVID-19 business interruptions.

Late last year, IAG raised $865 million to recognise a provision for these claims. Suncorp put aside around $211 million for potential business interruption claims.

Business claims update

The update was in relation to the Federal Court of Australia’s decision on the Insurance Council of Australia’s (ICA) second industry test case.

The Federal Court found in favour of insurers on a number of policy wording questions, but for policyholders on others.

According to Suncorp’s update, the ruling found that insuring clauses were not triggered eight out of nine matters in the test case, meaning the policies do not respond to COVID-19 business interruption claims in the first instance.

But neither companies are quite out of the woods yet. The Federal Court planned for the decision to be appealed and time has been set aside in mid-November for the court to hear any appeal.

As such, Suncorp’s $211 million provision remains unchanged. While IAG didn’t comment on its own provision, I would assume it’s done the same.

My take

This seems like a step in the right direction for Suncorp and IAG, but investors will have to wait to see what happens regarding the potential appeal.

Insurance is a tough space, but it’s definitely not always a bad investment.

One of Warren Buffet’s best investments was insurance company Geico, which he invested over 65% of his net worth into by the time he was 21.

But a large part of his thesis was the company’s widening competitive advantage and large growth runway ahead.

Both Suncorp and IAG are dividend-paying companies. As I’m looking for higher growth picks, it’s going to be a no from me.

If you’re on the hunt for some ASX growth shares: 2 ASX small cap shares I’d buy in October.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.
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