Berenberg cuts Linea Directa to 'hold' as sees earnings, solvency risks
05/01/2023 07:56
** Berenberg cuts Linea Directa LDA.MC to "hold" from
"buy" citing earnings and solvency risks
** The broker says that motor insurance prices in Spain were
up only 2.1% in the first nine months of 2022, while inflation
is at about 10%, which is causing margins to contract
** It adds the company's performance in 2022 year to date
has been below the broker's expectations and the lack of pricing
adjustments in motor means that margins are likely to remain
under pressure
** In addition, the group's solvency is negatively exposed
to interest rates, meaning the solvency falls when interest
rates jump up, according to Berenberg
** It considers the company's dividend policy very
conservative as dividends will only be paid when solvency is
above 180%
** Linea Directa's solvency in September 2022 was 184% and
given interest rates are expected to rise further, the brokerage
says there is a risk the company will need to pause quarterly
dividends to raise solvency above this level
(Reporting by Matteo Allievi)
((Matteo.allievi@thomsonreuters.com))