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On Wednesday, Kepler Cheuvreux adjusted its stance on NN Group NV (AS:NN (NASDAQ:NNBR):NA) (OTC: NNGPF), downgrading the stock rating from Hold to Reduce. The research firm also revised its price target for the company, decreasing it to EUR40.60 from the previous EUR47.80. This change comes ahead of the anticipated full-year 2024 results set to be released on February 20.
The downgrade by Kepler Cheuvreux is attributed to a reassessment of NN Group 's solvency position. Analysts at the firm estimate that the Solvency II ratio for NN Group will stand at 182% at the end of 2024. This figure is lower than the initial estimates provided on December 3, which has prompted the firm to adjust its rating for the insurance company.
The revised solvency estimate takes into account mortgage rates that have approached normalized levels, around 106 basis points, by the end of 2024. Kepler Cheuvreux suggests that the Solvency II ratio is now expected to be below their earlier projections. This has raised concerns about a significant capital discrepancy compared to the preferred 200% at the group level.
Furthermore, the research firm has highlighted specific worries about NN Group's Dutch life insurance subsidiary. The subsidiary's Solvency II ratio is estimated to be between 166% and 169%, which indicates a capital shortfall of approximately EUR1.2 billion compared to the 190% threshold. This shortfall has been a key factor in the decision to lower the stock's rating and price target.
Kepler Cheuvreux's decision to downgrade NN Group's stock to Reduce reflects their anticipation of potential financial challenges for the company, particularly in relation to its solvency ratios and capital requirements. The firm's analysts have conveyed their expectations and concerns in the updated guidance to investors.
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