Aviva Share Discussion Threads

[p0pper] 14/12/2023 08:29

The world has gone fricking mad.

[kasamavic] 14/12/2023 08:27

Do non-white males require a final sign off?

[cwa1] 14/12/2023 08:06

White male recruits must get final sign off from me, says Aviva boss:-

[engelbert1969] 14/12/2023 07:07

Andyble, happy Christmas :)
I do write but little and not often. Very grateful for the wise insights I get here.

[cjac39] 14/12/2023 06:56

Depends on the wind direction andyble (and don’t let’s start discussing excess deaths and the idiots at the CMI) I still think the PJ view above is missing detail. Of course if you discount a set of cash flows at a lower rate they are magically worth more but these cash flows are themselves interest rate linked and therefore it’s more complicated. Anyway, enjoy the higher share price all!

[andyble] 14/12/2023 06:39

Is an actuarial background an asset or liability, I will reserve judgement.

It can be customary this time of year to invite a hello from the often surprising many who visit these boards but never write, you know who you are, give us a :-)

[pj84] 14/12/2023 01:35

I agree with andyble that whilst different parts of the business may be affected by interest rates in different ways, it does seem that in general, higher interest rates have pushed most solid insurance companies lower resulting in higher dividend yields possibly because of higher discount rates being applied to future income streams. That seems to have been reversing recently because unlike AB and the Bank of England who again seem to be behind the curve with "the higher for longer mantra" the markets are expecting rates to fall.

"Money markets are predicting the Bank of England will reduce interest rates by a whole percentage point to 4.25pc next year.

Traders are betting there will be four interest rate cuts in 2024 after official figures showed the economy shrank in October.

They now believe rates will drop from their 15-year highs of 5.25pc to 4.25pc before the end of next year.

Traders also predict that the Bank of England will begin reducing borrowing costs from their 15-year highs by May at the latest, having previously forecast it would start by June.

It comes as policymakers face pressure to boost the economy after the Office for National Statistics revealed the UK’s gross domestic product (GDP) shrank by 0.3pc in October.

Wall Street banks Goldman Sachs and JP Morgan have both lowered their growth forecasts for Britain in response to the data.

The Bank of England will announce its next decision on interest rates on Thursday."

[smurfy2001] 14/12/2023 00:33

Dow closes at record high after Fed signals it will cut interest rates in 2024

US central bank holds interest rates at 22-year high, but expects to cut rates three times next year as inflation continues to fade

[fenners66] 13/12/2023 23:28

But the £ gained 1.2c today so it has gained some wiggle room.

[careful] 13/12/2023 22:53

It will be interesting to see if Bailey of the BOE will send the same signals.

We have a public sector that is out of control, a total shambles who are entitled to bloated unfunded pensions.

Hard to be optimistic, the £ will collapse if interest rates fall too far, but a recession will have the same effect.

We are in a mess, no room for optimism here.

[whatsup32] 13/12/2023 22:24

We may be in for a good day tomorrow, states finished up nice. Fed signaled.75% drop in rates next year.

[cjac39] 13/12/2023 21:38

I agree with you ef but don’t overdo it. Restate eq will get smoked and particularly direct holdings but the debt providers at 40-60ltv should be fine

[eurofox] 13/12/2023 21:18

This will help stem contagion of stress in the property assets loan markets.

[pvi1] 13/12/2023 21:04

Record highs over the pond as FED signals rate cuts on the way.

[cjac39] 13/12/2023 20:43

Surely you’ve now outed yourself as an actuary andyble? You know way too much about this stuff

[andyble] 13/12/2023 20:40

Yes I agree about the cashflow effects, but also feel that the pv/ev effects can be much larger and opposite, and the share price in theory is more about the latter. I agree about MNG, that example pushes the other way. I think we are hitting the same conclusion as oft before on here about this, it is so difficult to tell. It also feels bizarre that my contentions draws a parallel for the market reaction to higher interest rates, and vice versa, which puts likes of AV. and LGEN in the same interest rate sensitivity category as Nasdaq growth stocks. What really matters is that lower interest rates are making something happen and this includes the insurers directly or in the slipstream perhaps even ahead of that. Next couple of days may be telling.

[fenners66] 13/12/2023 20:13

What about the pace of interest rate rises vs. the perception of slower future falls ?

[cjac39] 13/12/2023 19:21

i know what you are saying but thats a pv or ev effect not a cashflow effect. i was trying to suggest that the expected cashflows of an insurer will increase with higher rates rather than the pv of future cashflows like a bond. ie lower rates per se do not generate value.

and conversely, when you have something like the PVST asset of MNG its quite clear that higher rates enormously increase the value of that as the asset share growth and profit thereon increases as risk free rates grow notwithstanding they are discounted at higher rates (there are convexity and gtee effects).

[yf23_1] 13/12/2023 19:19

hmm, think I'll just stick to technical analysis, it's easier.

[huncher] 13/12/2023 18:35

It varies by Line, It used to be the case that the average PI liability claim took 7 years and PD 3 and when interest rates were high you could write above 100%. Obviously
not in the last ten years. Will long tail lines cycle turn and see greater competition.

[andyble] 13/12/2023 17:56

yes ... get that rates up do increase profits and also increases some new business yet this is in the context of a new slice of in force ... the effect of interest rate rises on the many other previous slices making up the in force to date will be much more dramatic for a life insurer less so GI ... I am suggesting that the interest rate effect on the in force will be the dominant issue and not just an offsetting negative (or positive) but an overwhelming one in the context ... flip this upside down to consider interest rate falls and the shareholders value in the balance sheet leaps ... this is how I have been explaining to myself the trends in recent times ... kinda makes sense and gives me confidence watching the insurers trending up ... enjoy.

[cjac39] 13/12/2023 17:23

hmm.... im not sure ins cycles work as perfectly as that, ie rates up does increase profits way before any competitive rate softening decreases underwriting profits.

maybe i'll pose a related question: as rates increase (or decrease) what effect does this have on cash generation for an insurer? ie set aside any pv, ev consideration.

- new biz will increase on life products i think? certainly in annuities
- reinvestment rates / cash returns increase so shorter dated bond income increases
- capital gets relieved from being tied up against the bs and cost of capital declines

what offsetting negatives?

[andyble] 13/12/2023 12:36

hi cjac39

for GI - yes an unpriced rise in reinvestment rates will kick up profits less any surprise inflation, but these higher rates will quickly work into pricing with all else, and although there may be some rounding up for risk there is probably no lasting preference for high or low rates as long as everything plays out as hoped for in the pricing.

for annuities - yes there are many second order effects but I might contend that the heavy lifting in this debate is that higher interest rates can thump down the present value of the in force book, yes the balance sheet shrinks and so does the discounted value of future profits, and this is what the quant funds may be seeing, just like seeing the value of a medium gilt portfolio fall and proportionately with the same scale by mean term, ie big shrink in true shareholders balance sheet, ouch.

but, - yes I see the simplistic model as being surpringly relevant because this is how the relevant investors probably do their sums. Higher rates may mean higher implied profits on an embedded value basis but this is from a lower balance sheet base, and that is a fair value hit to take on the shareprice if the market worked to this. Switch all this around and lower interest rates through the curve will revalue/rerate the value of the business as it stands on the books, so yes I think that re divis/ profits/cash flow "discount them at lower levels and hey presto its worth more".

[cjac39] 13/12/2023 11:42

lets break it down a bit andyble as i think its interesting.

for GI its pretty clear that higher reinvestment rates are good. takes pressure off the underwriting profits if you can make 5% on your cash/bonds vs 0% to state the obvious. however, rates are high from inflation and as weve seen with car pricing or house insurance, inflation feeds immediately into repair costs or labour costs on claims. a shorter term effect as you invest for 2-3years but can annually reprice for inflation. ie mostly good but not all one way.

for annuities and other life based surpluses, higher rates are certainly good. you can sell more ins products with higher rates. and your balance sh shrinks with higher rates, so less risk (in weird actuary land) and therefore you can accelerate your capital releases. also, where you have with profits style things or unit linked things, you assume assets grow at risk free so higher rates means higher growth so less guarantee costs etc.

but, your future profits are lower as you are discounting them with higher rates. ie cap release today but less jam tomorrow where you have known future cashflows not dependent on rates. and this i think is the effect you reference with divis / profits. assume they are independent of rates and discount them at lower levels and hey presto its worth more!

[whatsup32] 13/12/2023 11:24

We haven't had the catastrophic floods of previous years . Hopefully it will be reflected in profits .
Also car insurance has as we know risen sharply due mainly to electric car claims. It is now reported that sales of electric cars are dissipating . This may also get reflected on profits of ar insurance.