Phoenix Share Discussion Threads

[schofip] 24/3/2020 10:31

My main concern for the future, once this is over and it makes sense to put my money back into the markets, the minute someone in China sneezes or coughs investors all over the world will be heading for the hills on mass, the sort of drop we have seen over the last month could literally happen over night on the slightest rumour. Every day would feel like a gun being held to your head. Rumours would rule.

[jonwig] 24/3/2020 06:59

I think the quotes from Stemis (#3822) provide some response to that article, and I wonder if the factors which affect AV and L&G really apply to PHNX.

Here's some more from the AR:

Phoenix operates a dynamic risk
management framework which seeks
to manage our exposure to each of the
risks that the Group faces within its risk
appetite. This is achieved through a
combination of asset liability management
and risk reduction actions like hedging
and reinsurance.
This approach to risk management results
in Phoenix being less sensitive to risk
events than the majority of its peers.
We articulate our risk appetite through
a target Shareholder Capital Coverage
Ratio range of 140% to 180%. The ratio
of 161% at 31 December 2019 is in
the middle of this range. p17.

A 100bps widening of credit spreads,
with all other variables held constant
and no change in assumed expected defaults,
would result in a decrease in the profit
after tax in respect of a full financial
year, and in equity, of £70 million. [p188]

Credit spreads are important because bonds at BBB and below carry more default risk.
What about a 200bps widening?

Incidentally the dividend costs £340m.

[minerve 2] 23/3/2020 21:44

Life insurers braced for hit as bond market buckles

[deadly] 23/3/2020 09:39

The normal death rate in the UK is 12000/week. The extra death rate due to COVID-19 is supposedly about 350/week, but some of those may have died anyway. So the extra rate is currently 3%, not a major factor for PHNX, though positive.

[stemis] 21/3/2020 13:39

Yes, the presentation is very interesting. Key things for me

As you will be aware, Phoenix has a low appetite to market risks and uses hedging to mitigate the majority of its exposure to equity, currency and interest rate risk. This translates into the low sensitivity to these risks we present today.

[It's interest rate exposure which had affected the likes of Aviva, for example]

You will notice that Phoenix’s sensitivity to a 20% fall in equities is actually positive. On 5 December 2019, we took out a £700 million equity hedge against the residual shareholder equity risk exposure of the ReAssure business. In the period prior to completion, this means we are effectively “over-hedged” on equities and therefore would see an increase in our cash generation should equity market falls.

[I guess this over hedging only last until mid 2020 when Re-assure transaction expected to complete]

Phoenix’s main exposure continues to be to longevity risk on its annuity business. Here we model the impact of every annuitant living six months longer and even in this unlikely scenario the Group will be able to service its debt obligations and continue to pay its dividend.

[So I guess this is likely to be a positive trend]

We are currently experiencing a period of market volatility generated by the uncertainty surrounding the potential impact of COVID-19. By the end of February we had observed a 13% fall in equity markets, a 17bps widening in credit spreads and a 40bps fall in interest rates. The sensitivities we disclose provide clear guidance on the impact that these changes will have on Group solvency. As a result, we estimate that this recent volatility has had a minimal impact on our solvency position.

[Early days in coronavirus market impact but reassuring nonetheless]

So first, insurers are choosing to sell closed books to take advantage of the opportunity to release trapped capital, and because they struggle with cost inefficiency, due to legacy systems and regulatory change. Business models are bifurcating, and, in my view, there’s plenty more to come. We have already indicated that there is around a £400 billion opportunity in the UK, with a further £200 billion in Germany and Ireland.

[A trend which is only going to be increased by the impact of market trends on insurers capital positions]

Pretty reassuring for the long term valuation of my holding here and (just as important) the continuation of the income stream on which I live...

[jonwig] 21/3/2020 12:43

RichardB - yes, M&S and Wethers have cancelled their divis. But these are companies keeping staff goodwill above all else, which is really excellent.

Phoenix has 4,400 employees. Many can work remotely and their jobs aren't threatened by Covi.

Lauders - Ruffer Investment Co (RICA) has a FTSE hedge which kicks in on a 20% fall. Their shares rose well in 2008-09 and have just recovered strength now. I think their hedge is point-for-point from now on. The hedge costs money though, and it underperforms in a rising market.

[richardbroughton] 21/3/2020 11:44

"with dividends to come"

let's hope so, read y'day a lot of companies are delaying/stopping them.

[lauders] 21/3/2020 09:41

Good to see that the webcast of the last annual results is now available on the website:

Slides 20 & 26 cover the equity drops and although 20% is quoted and they state that it would be positive for the group rather than negative I am wondering what the drop of greater than 20% means. Probably not much of a concern to PHNX in the grand scheme of things.

Slide 22 gives a shareholder value of 845p per share so we are some way under that at the moment with dividends to come.

In the Q&A session it was mentioned that PHNX does not have exposure to airlines or oil and gas and ReAssure hasn't any exposure to airlines but has under 1% to oil and gas. Andy and Rakesh seems to be very capable and we therefore seem to be in good hands as we navigate through the choppy COVID-19 waters currently hindering our journey.

[ianood] 20/3/2020 19:59

STeMIS - Thank you

[panshanger1] 20/3/2020 17:03

Good day for CSN today but I've always felt this was the better long term option

[jonwig] 20/3/2020 16:16

Seems to have been overlooked here.
March director/PDMR buys:

19/03 606 20,000
19/03 475. 1,200
19/03 515. 2,896
17/03 549 31,662
12/03 663. 2,995
11/03 643. 3,096

[aleman] 20/3/2020 16:00

It's not utterly meaningless. It suggests peak infection (not peak hospital admissions, which comes later) could be between this weekend and 3 or 4 weeks from now.

[tournesol] 20/3/2020 14:52

"between a quarter of a million and 19 million" translates as anything between 0.4% and 29% of the population (66 million)

That is such a large range that it really is utterly meaningless. Much better to say "we don't know". Why are people so incapable of admitting that there are things we just don't know?

[edmundshaw] 20/3/2020 14:28

No way are 19 million people in the UK infected. We are around two weeks behind Italy, and they have thousands of deaths now. Even a million is a big stretch. But give it a couple of weeks and it will not be :(

[essentialinvestor] 20/3/2020 13:30

Mortality rate may be well under 1%, which is at least some good news.

[minerve 2] 20/3/2020 13:23

UK: Between 250,000 and 19 million people could already be infected

More on the advice underpinning the UK response from Sarah Knapton:

Modelling by the London School of Hygiene and Tropical Medicine found that each time a single death occurs, hundreds to thousands of cases are likely to be present in the population.

The team ran 25,000 epidemic simulations for different scenario of infection and fatality rates.

For a scenario where each infected person infects three more, they found that one death means an average of 1,733 people are infected - but it could be as many as 138,624.

With the current number of deaths at 144, it means that between 250,000 and 19 million people could already be infected in Britain.

[edmundshaw] 20/3/2020 12:47

I know they used to own a quantity of govt bonds, including Italian and Spanish, but they were keeping that exposure low as they were aware of the risks.

Quite a lot of their assets and liabilities cross hedge each other - so for example I'd expect the gains and losses on an unexpected shift in mortality to pretty well cancel out. Also, I don't think their assets are managed by particularly young bucks. This is not an institution for day traders...

[jonwig] 20/3/2020 11:42

@ Williamc - yes, any hedge has a counterparty, and a lot of the indiscriminate selling this week can likely be put at failure of these to function correctly.

But the big positive is that these derivatives are cleared through LCH where there's a mutualisation of risk. And this is, a big reason why the eurozone needs the City: it just doesn't have clearing mechanisms large and liquid enough to cope.

[rcturner2] 20/3/2020 11:27

If you read the results you can see how they have stress tested various scenarios. A 20% fall in equities results in a roughly 1% fall in AuA.

Other movements (such as interest rates) may well be positive as will the increased mortality rates.

[rcturner2] 20/3/2020 11:02

I would be willing to bet that the total value of their assets has changed very little on balance.

[solarno lopez] 20/3/2020 10:58

They certainly do we used to call them young bucks ….bright but no life experience

[williamcooper104] 20/3/2020 10:47

Complicated mixes of assets and hedges put together by very bright people have a long history of blowing up in market crashes

[davebowler] 20/3/2020 10:28

I wonder if there is a mention in the latest accounts of stress testing a 33% fall in the markets??

[stemis] 20/3/2020 09:51

They claim (and I don't know how they get this) that a 20% fall in equity markets will add £0.1bn to their 5 year cashflow and solvency II surplus...