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May 24, 2012 at 12:27 PM
After the much ballyhooed delivery of Facebook to the public, it appears that “Mr. Market” is still the wisest investor on the planet. Warren Buffett defines Mr. Market as;
“Mr. Market quotes a price at which he is willing to either buy your interest or sell you his. Mr. Market is emotionally unstable. Some days, Mr. Market is cheerful and can only see brighter days ahead. On these days, he quotes a very high price for shares in your business. At other times, Mr. Market is discouraged and seeing nothing but trouble ahead, and quotes a very low price for your shares in the business.”
Thus far, Mr. Market has not been a friend to Facebook. And Mr. Market has not been a “fan” of share prices for Genworth, Prudential, MetLife and other insurance companies; share prices have nose dived the past year. And in the midst of this melee, Aviva looks to unload its USA division. Talk about classic, anti-smart “buy high-sell low.”
As reported in the Washington Post and Bloomberg back when Aviva made the acquisition of “the second choice” deal with Amerus for $2.9 billion (previously Aviva attempted to purchase Prudential Plc); British analysts felt Aviva over paid. Turns out that paying New York City type prices for a Topeka, Kan.-based company apparently was not the best business idea.
But as the saying goes; “if you liked it at $2.9 billion, you gotta love it at $1 billion.” With both 10- and 30-year treasury rates unbelievably low, profit margins on fixed product are comparatively nil. Why would Aviva want to bail out on America now? For starters, smart money knows that share prices are largely based upon anticipated “expected” future income streams. Share prices do not move on facts, but upon perception and expectations. And the outlook for greater revenues and net profits is not great for fixed and indexed business.
Many carriers have drastically cut the “bonuses” paid in products to investors and cut the commissions comp paid to the agent. Cap rates along with participation rates are paltry at best. There just isn’t much wiggle room for investors or IMOs and reps to earn the returns of the previous 10 years. And so, it appears that Aviva may have to kick out the redheaded stepchild (aka their USA Division) to keep their own boat afloat. And, just like Zuckerburg and Facebook, owners of Amerus sold at the pinnacle market peak for annuities to Aviva. Maybe those slower talking Midwestern business folks are a whole lot smarter than Wall Street thought?
