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Hastings and Direct Line top insurance picks as Berenberg says firms could provide effective hedge against second coronavirus wave

The broker said they expected profitability in the insurance market to “remain strong over the medium term as pricing is currently sufficient given the extended period of lower claims frequency” caused by the pandemic

Hastings Group Holdings PLC - Hastings and Direct Line top insurance picks as Berenberg says firms could provide effective hedge against second coronavirus wave

Hastings Group Holdings PLC (LON:HSTG) and Direct Line Insurance Group PLC (LON:DLG) have been selected as preferred picks in the insurance sector by analysts at Berenberg, who said a number of companies in the industry were “likely to provide an effective hedge against a second wave of [coronavirus]”.

In a note on Thursday, the German broker said they expected profitability in the insurance market to “remain strong over the medium term as pricing is currently sufficient given the extended period of lower claims frequency” caused by the pandemic, adding that the lower number of claims also provided an opportunity for motor insurers to “build reserves to protect medium-term profitability”.

READ: Hastings down to ‘hold’ as Peel Hunt predicts pandemic hit to new business

Berenberg also said that motor vehicle use was gradually returning to normal as the UK’s lockdown was eased and that the four major market-listed players, which include Hastings, Direct Line, Admiral Group PLC (LON:ADM) and Sabre Insurance Group PLC (LON:SBRE), were “agile and able to react quickly to changes in pricing”.

“We conclude that while share prices for all four of these companies are only marginally down [year to date], there should be greater confidence in this very defensive sector in which medium-term profitability is likely to be good, and may act as an effective hedge against a second wave”, the broker said.

Direct Line and Hastings are both rated at ‘buy’ with target prices of 341p and 248p respectively, while Admiral and Sabre are rated at ‘hold’ with respective targets of 2,566p and 284p.

Shares in Hastings rose 0.1% to 174p in late-morning trading, while Direct Line slipped 0.1% to 293.1p, Admiral was 0.1% lower at 2,346p and Sabre moved up 0.4% to 262.5p.

Quick facts: Hastings Group Holdings PLC

Price: 252.4 GBX

LSE:HSTG
Market: LSE
Market Cap: £1.67 billion
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