Thursday 5 March 2009

Aviva Derchi (or Die Hard 5)

One thing that interests me greatly in the current crisis in the domino effect. Seemingly unaffected parts of the economy are all of a sudden linked to the credit crisis and taken down with it.

Today is Aviva's turn. The insurance giant, recently having spent much money with bruce Willis to remove all traces of the Norwich Union name, has released its annual results. On one level they are a good set, operating profits up 10% year on year. As expected, in difficult time demand for insurance is likely to go up and not down.

Then the bad bit, its investment division, in charge of a huge chunk of UK private sector pensions, has been forced to write down its value by £1 billion odd. Much of this is due to the falls in value of the UK stock market, bond market and residential/commercial property markets.

As a result, investors are fleeing and Aviva is down 26% today to 211odd as I write. Aviva also committed to paying a huge dividend, matched only really by BP in the FTSE100. Yet still the market drops the share like a dog.

Legal and General has had the same treatment earlier this month.

Only a couple of months ago Insurance companies were the last darlings of the Financial Services sector; not anymore. Which sector, yet untouched, is next for the cliff face?


Demetrius said...

This assumes that the "insurance" companies are actually insuring and are not just financial vehicles designed to create an income stream to allow leverage in other sectors of the business, or on the other hand to defray losses. Some property management services have tied insurance companies, and are turning down claims in bulk. Where is the FSA?

Elby the Beserk said...


I think you will find that the FSA is currently try to extract its head from its rectum, and is therefore, to all intents and purposes, unavailable to comment. Or indeed, do anything useful.

There may come a time, its head so far pushed up its insides that it appears from its mouth, that it is able to talk again. In which case, it will be full of shit.

So. No change for the FSA

CityUnslicker said...

Demetrius - Aviva's losses are, sadly worse in a way, on its own book of commercial property and bond loans.

The whole CMBS issue has not even accoutned for the collapse in the share price thus far!

Anonymous said...

The Pru though, is tipped as a buy.

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