Deutsche Bank cuts Esure after shares slump post earnings

Deutsche Bank has downgraded its rating on Esure to 'hold' from 'buy' after the UK insurer reported annual results in which it painted a bleak outlook. Pre-tax profits for 2014 fell 12.8% to £103.3m at the insurer, leading to its combined operating ratio of premiums to increase by 2.2 percentage points to 91.9%.The poor performance led investment banking giant Deutsche Bank to cut to its recommendation on esure and the target price to 255p from 275p.Deutsche said that although the full year results were in line with consensus and the dividend was better than expected, the outlook appeared weaker than the bank had envisaged in terms of both investment income and underwriting."Though management puts forward arguments as to why the pricing cycle should turn, it also states that pricing in 1Q15 has actually given up some of the gains of the 4Q," the German bank said.As such, analysts have reduced their earnings per share forecasts by 14% for 2015-2016, stating that although the group retains its 2% return target, the actual return in the second half of 2014 looks closer to 1.3% - with yields having fallen further since."The remainder derives from lower top-line growth than we had previously assumed and management's guidance that the cost of revenue trend in 2014 will continue into 2015, largely reflecting on-going claims inflation," said Deutsche. "Management also states that motor pricing year-to-date has slightly weakened from the 4Q."