Aviva Share Discussion Threads

[eurofox] 14/5/2020 10:26

annuity and life providers have much longer horizons

[waikenchan] 14/5/2020 10:24

Will I'm guessing most buy the standard 10 Yr gilts / treasuries.

[moontheloon] 14/5/2020 10:20

Thanks bt was on my short list too. Only in the spirit of diversity. If not id put more eggs in smds.

[eurofox] 14/5/2020 10:14

... As you know, govt gilts / treasuries have been yield at best 2% .... depends when you bought them - I took on TR28 at just over par years ago and its still paying 6%

[waikenchan] 14/5/2020 10:13

Personally I looking to deigeo as my next buy. Can't beat the vice stocks in a rescession

[waikenchan] 14/5/2020 10:11

Cjac

I hope you are correct, I'm no expert on insurance companies. I hold at 2.36.

My other issues that I wonder have they will get / had growth. I'm a sceptic.

Surely they must have taken a bunch of risk to get that fabled 7% on their investment returns. At least studying Geico - that is how buffet has profited from insurance by investing the float in productive assets.

As you know, govt gilts / treasuries have been yield at best 2%. That would have meant companies having taking on assets in the commercial paper / bond markets - probably a significant chunck of high yield. I suspect they would have had a portion invested equities at aswell. Surely they will have taken a loss on the equities. On the loans - I will be holding the bag on questionable high yielding assets. For these loans liquid risk is now a solvency risk now in my opinion.

Furthermore, having a read around the combined ratio is highest of the of insurers (this might down to the different forms of insurance), but none the less still quite high which needs to be addressed - through cost cut which I think the implemented, possible tighting up underwriting standards?, increased premiums, but makes less competitive in a low margin high competition business....

[eurofox] 14/5/2020 10:10

added at 228.6

[cjac39] 14/5/2020 10:01

the underwriting loss of $107bln has been knocking around for a few weeks as an estimate. I've also seen ranges of $80-100bln quoted. its obviously uncertain as losses haven't flowed through everywhere (another lock down?) and not sure how much reinsurance is being contested but seems like industry best guess.

what is more curious is the stated loss on bond portfolios. as you know better than i, P&C insurers are way more cautious than life insurers in their bond portfolios given the duration of their claims tend to be on average shorter and they need more liquidity. therefore on paper maybe you can get to this figure by taking total P&C of $1.5trln * spread movements on AA bonds on average * an average duration of 5 = $100bln if you assume spreads blow out 130bps but this looks toppy to me in terms of spreads and also duration. maybe if you throw in berkshires loss on their equity portfolio into this which i think is like $50bln then directionally that makes more sense.

BUT as ever, how many of these insurers have suffered actual losses rather than paper losses? eg how many claims have occurred in advance of expected that caused insurers to sell bonds at lower value. nowhere near $100bln i would hazard. so bit dramatic if you ask me.

[32campomar] 14/5/2020 09:51

Yep a retest of the lows if as expected the general market continues to fall. A slow churn to 200p in next few weeks.

[wba1] 14/5/2020 09:41

cjac39;
do you have any thoughts on this mornings RNS from Lloyds (of London - not the bank)? I found it confusing (to say the least), both in terms of what they are saying about virus related exposure and investment risk.

[hhhold2] 14/5/2020 09:29

All these charts look like a toilet with cheap toilet paper,

almost time for a punch through to new lows.

[cjac39] 14/5/2020 09:27

waikenchan

all fair points but unfortunately mostly wrong.

pensions payments from individuals not a massive driver for av or life insurers anymore. they have a platform (which isn't much good) and IFAs tend to be loyal and sticky to platforms but its a tough business with low margins and not meaningful to AV. people dont have old style pensions that much anymore. what matters to AV and the other insurers is annuities as that is where they make more money. bulk transfers from DB has a huge runway to go and AV has a market leading (along with LG, Rothesay, PIC) business here. so no this is irrelevant.

travel insurance has turned positive for AV as the initial claims have been overturned by now noone going on holiday and claiming so this is positive underwriting result.

similarly and well documented claims in car have declined and despite returning some premiums (which i think is to do with reinsurers returning premiums) this is positive underwriting result and non discretionary.

credit. well yes and this is why market and insurers have fallen away in recent days. no they dont have much lev loans (they are horrible under solvency 2) or more esoteric credit like in US because they follow s2 and matching adjustment portfolios can only have fixed repayment credit profiles and need external or internal rating and that needs to be above inv grade else its not worth it. so by construction matching adjustment portfolios are very conservative and the sweet spot for insurers is long dated AA/A bonds becuase the risk return trade off under S2 is maximised there. unlike in 08 when they owned 20-30% of their portfolios in then bust bank sub debt they now hold 0% in bank sub debt because its callable and therefore ineligible to the MA portfolio.

if you dont believe me read Just Retirements statement out today. despite 15% downgrades in their credit portfolio and house prices going down (albeit only 1%) their capital in current crisis has moved from 142% to 138%. bear in mind that's capital for a 1 in 200 year melt down crises and they still have nigh on 40% on top of that.

so yes credit downgrades and defaults (but not spreads) hurt insurers but unless you think we are moving to live in tents they are bullet proof and time and again the market misunderstands this basic fact as it thinks they are just leveraged bets on MTM movements in assets which could not be further from truth.

[milliethedog] 14/5/2020 08:54

Hoping for another 'bounce' off support of 230
In @ 230.90.....

[pete160] 14/5/2020 06:37

I wonder if that's with or without (forced?) payouts on business interruption policies?I imagine that could make quite a difference to the overall cost?

[jomac2412] 14/5/2020 06:26

Zurich CFO on CNBC this morning , claims from pandemic to be around the same as 2017 hurricanes .

[paulof2] 14/5/2020 00:08

Think the last thing people will want to be doing is ride sharing after this waik!

Let’s also not forget that realistically as long as you’ve got a car even if you’re very rarely driving it you still need insurance unless you’re happy taking the risk of it getting stolen and having nothing to show for it.

[cjac39] 13/5/2020 21:27

Very good challenges. I’ll answer them tomorrow when I’m at a pc

[waikenchan] 13/5/2020 21:15

I'm struggling to see the bullcase for insurers. They did perform poorly during the last financial crisis.

Pensions - less AUM as less working people paying in to pensions.

Travel insurance - probably taking a big loss, the future look for travelling looks pretty uncertain (although I imagine people might be more likely to get insurance)

Car insurance - short term probably give a boost as less claims, long term I think will suffer as people decide to to buy cars weather that's because of recession or increased use of rides haring.

Credit risk from assets - a reason that insurance companies got pummpled as because of quitionable assets - think mortgage backed securities. I feel that insurers are probably holding some securities at risk of default - possible leveraged loans / commercial property backed securities.

All in all I think we could be heading a balance sheet shock as the liabilities are still there through pension, claims are still there but I think the incomes producing assets have dimished in quality and future revenues /margins will be put under pressure. In addition ROIC have never been that great for insurances companies I would future compounded growth would be limited.

[cjac39] 13/5/2020 20:55

ok no worries!

i still think, and i would given i own the shares, that Aviva is a great business. I've been involved in companies that compete with Aviva and they have for sure market leading businesses in life and general. they have clever people and are rock solid capital wise. the main complaint i think is valid is they are stodgy and internally promote and have a very old school civil servant style insurance culture. however my personal view is that value and moreover cashflow cannot be ignored for large companies so once we return to a divi of 25p or so and stabilised results this will revert to better share price and if not who cares as we have long term cashflow return of 8-10% vs their bonds trading at 7% with rock solid balance sheet and eventual break up prospects. not a traders shares really. more a boring pension fund share.

[whatsup32] 13/5/2020 20:25

cjac.

I just own Aviva , I wrote the others just for comparison:)

I bought Aviva about a year ago , maybe a little longer as I wanted a safe defensive share with income.

Now down 50% in capital but as I don’t need to cash it in not too worried.

[cjac39] 13/5/2020 20:17

Wow you’ve picked some beauties there whatsup!

I stick with insurers and their bonds rather than step out of sector as I know it best.

What’s reassuring to me as an ex practitioner of insurance, as also wba shows, it’s comforting when you read the nonsense that some so called experts put out including analysts and market experts.

I know quite a few fund managers that own av or l and g for the divis (long term) but would also admit they don’t understand solvency 2 or ibnr outcomes in general for eg

[whatsup32] 13/5/2020 19:41

I’m trying to find solace as most shares are going down in tandem with Aviva in-fact quite a few are going down a heck of a lot faster . Aston Martin, Metro , Airlines , Property , Retail , Oil ,

At least not loosing any sleep as I’m reasonably confident Aviva is a safe investment for the long term.