Year-end numbers from Aviva were released on Thursday morning. They have gone down badly. Very very badly.
Shares in the insurance company fell 62p, or 22 per cent, to 222p mid-morning, with analysts and brokers muttering darkly about accounting smoke and balance sheet mirrors .
Some sticking points:
- Net asset value (IFRS basis) is 162p, significantly below expectations, which stood at a consensus 233p. This had left Aviva trading (pre-Thursday’s rout) on 1.6 times NAV, against a sector average of 1.35. A rival like Axa is on just 1 times.
- Aviva’s capital surplus was confirmed at £2bn. However, this looks to be pre final dividend, which will cost £500m. Adjusting for recent (downward) moves in the market, analysts reckon the capital surplus could be as low as £1.2bn.
- Meanwhile, the insurer has taken a £250m loan loss provision against its £10bn commercial real estate book. Yet 65% of this book apparently has a loan-to-value of more than 100%. Analysts feel it is fair to ask whether if £250m enough.
- The assumptions used to calculate Aviva’s embedded value look generous – 250-300bps above the risk free rate in the US and 150bps elsewhere.
- The dividend will absorb all cash earnings.
- As the results statement runs to 160 pages, further “discoveries” are likely.