Esure Group PLC Dives Due To Pricing Pressures

Newly listed Esure Group PLC (LON:ESUR) see profits rise 15% and pays its first dividend, but highlights increasing price competitiveness.

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Shares of Esure Group (LSE: ESUR) slipped 5% to 295p in early trading this morning after the motor and home insurer warned it was seeing increasing price competitiveness.

This news blemished what otherwise seemed to be a pretty good set of maiden results from the company. Highlights included a 7% increase in gross written premiums, and a 6% rise in policy numbers to 1.85 million.

Esure’s combined operating ratio fell nearly five percentage points to 89.6%. This is a key measure insurers publish that effectively shows expenses divided by income — so the lower the percentage, the better.

This greater operational efficiency helped Esure increase its profits by 15% to £57m in the first six months of 2013. The insurer is also paying its first dividend, totalling 2.5p per share.  Going forward, Esure hopes to pay around 70% of its earnings to its shareholders.

Esure also appears to have taken a couple of recent regulation changes in its stride. As Stuart Vann, chief executive officer, commented:

“Our retention of Sheilas’ Wheels customers following the ECJ gender-neutral pricing changes in December 2012 is yielding the predicted benefits.  The Government’s civil justice reforms earlier this year are starting to show promising trends in the efforts to reduce gratuitous personal injury claims; however, it’s still early days.”

However, management statements about Esure’s current prospects were slightly less encouraging:

“The UK personal lines motor market has seen an increase in price competitiveness as demonstrated in the recently published indices which show significant rate reductions.  This has been most noticeable during the latter part of quarter two and into quarter three… In light of market conditions, the Group now expects full year premium growth to be lower than that achieved in the first half of the year. However, the positive factors outlined above should serve substantially to mitigate any earnings impact from the lower premium growth.”

This news was hardly a surprise, as it has also been commented upon by other insurance firms recently, but it still seemed to be enough to drive down Esure’s shares today. At 295p, they are just 5p above the price at which the company joined the market in March of this year.

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> Stuart does not own any share mentioned in this article.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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