Aviva: Middle East and Asia - Pacific exposure

Aviva @ 433.9, +2.3
- down 34p (-7.1%) against the recent 52 week high 477.9p achieved on the 9th March.
- 23rd March ex-dividend could account for 16p of the fall.


Noticed that one of the search criteria that a viewer had used to come through to this blog was a question about Aviva's exposure to the Middle East. 
I personally hadn't considered that being more concerned about its exposure to Japan, but the relevance is the same and it is a very valid question.


During times and events like these it is important to understand exposure and whether things have fundamentally changed to a company's prospects over a longer horizon.

I am purposely trying to avoid putting too much emphasis on short term events but that does not mean that it isn't unsettling when the tide of the markets appears to be going against you. It is only a myth but remember that the lemmings drown.

On the other hand by understanding exposure and assessing short term impacts as just that, then opportunities can arise in quality companies that you may have been watching for sometime but might have seemed too expensive.


Back to Aviva then and, as I said, I had already become concerned about insurers falling and wanted to get some feel of Aviva's business in Japan. 

In recent weeks, Aviva had been advancing quite promisingly but had juddered into reverse along with other insurers and re-insurers, and the wider markets!
I had initially started looking at the published geographical spread by turnover but this isn't easily extracted from the preliminary results (insurers do seem to like to complicate things!).
The 2010 Annual Report published yesterday seems to be clearer though.


On the face of it Aviva has no published exposure to the Middle East; and in the Asia - Pacific regions is focussed on India and China as the drivers for growth.


Headline statements:
- 2010 sales of £47.1bn with just 5% currently in the Asia - Pacific regions
- 2010 operating profit of £2.55bn with just 3% coming from the Asia - Pacific regions.


So only a small proportion of sales and profits currently. Of course, this is sales and profits and not exposure through potential liabilities.
But, barring one reference to "general insurance" in a statement on page 7 of the annual report:
"We operate across Asia Pacific through joint ventures and wholly-owned operations and provide more than 8 million customers with life, general and health insurance products."


...it appears that the majority of their business is in life and pensions and certainly that appears to be the company's focus for growth with the expanding wealth and populations in India and China.
Page 37 clarifies things further stating that in the Asia - Pacific regions Aviva, having exited Australia has operations in 9 countries: China; India; South Korea; Singapore; Hong Kong; Malaysia; Sri Lanka; Indonesia; and Taiwan (with Taiwan also due to be exited). 
So no direct Japanese exposure!


I assume that there could be some convoluted path of business transactions that might see some exposure to Japan and the Middle East through other regions (think Lloyds of London) but it is not immediately obvious.


Also, it may not the best thing to hear as a consumer but the natural outcome of any "insurance event" is generally a raising of premiums in the post period to start to re-capitalise the business.


So on one or both points: 
- if Aviva has little or no exposure to recent events then the current 7% discount (or 3.8% excl. div.) to recently achieved highs is a general oversold situation directed at the sector but not the company, or:
- if it does have exposure then one can expect that the company (and the insurance sector) will take steps to re-capitalise the situation post settlement of liabilities. 


Aviva is a current holding of the portfolio which I continue to comfortable with and expect it to continue its recovery.


Related links:
- http://www.aviva.com: Aviva 2010 Annual Report


Previous posts:
- Arriba Aviva!