Investing.com -- Deutsche Bank downgraded Chubb (NYSE:CB) to Hold from Buy on Tuesday, warning that the insurer’s recent outperformance may not continue amid signs of deteriorating fundamentals and softening market conditions.

“We believe that Chubb’s year-to-date outperformance versus the S&P 500 is unlikely to continue,” Deutsche Bank analysts wrote. “A calmer equity market shifts investor focus back to underlying fundamentals, where signs of deterioration are becoming more evident.”

Chubb, a major underwriter of large commercial risks, is seen as particularly exposed to the insurance pricing cycle, where rates are starting to fall.

“Margins in its flagship North American Commercial business are peaking,” Deutsche Bank said, adding that “growth is also likely to come under pressure.”

The bank also flagged valuation concerns, noting that Chubb is “trading above historical average,” which “does not provide sufficient margin of safety to compensate for the risk of owning the stock in the early stage of a softening cycle.”

Recent trends in insurance pricing have also undercut previous expectations, according to Deutsche Bank.

“In the last six months, pricing has diverged, with large accounts declining while small/mid-sized account pricing remained strong,” analysts wrote. “We had expected large accounts to lead the cycle...but that view has been challenged by recent data.”

Deutsche Bank now believes that pricing divergence between large and smaller accounts “could persist longer than initially expected,” creating a “near- to medium-term headwind for Chubb” given its heavy exposure to large commercial accounts.

The firm has a price target of $303 per share on the stock, implying just 3% upside from current levels.

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