Wealth manager AMP has done a second reinsurance deal to try and release more capital from its underperforming wealth-protection business in Australia.
It follows on from a reinsurance deal struck last year with Germany’s Munich Re aimed at stabilising its life unit, which had struggled with escalating losses and deteriorating industry conditions.
Now it has done a deal with General Re, part of the Berkshire Hathaway group it expects will release about $500 million in capital from its AMP Life unit. The releases will total around $1 billion in all over time which will raise the possibility of capital management moves by the insurer.
News of the new arrangements (which have been tipped to occur by analysts now for the past month) came as AMP revealed a 15% drop in first-half net profit to $445 million from $523 million a year earlier.
Despite that weak result the AMP has lifted its interim dividend payout to 14.5 cents a share from 14 cents (which hardly seems worth it).
Despite the optimism AMP shares closed down 2.6% at $5.27.
The new reinsurance agreements start in November and, combined with the earlier deal with Munich Re, effectively mean that 65% of AMP’s retail life-insurance portfolio will be reinsured for claims, the company said.
The new arrangements include a quota-share agreement with General Reinsurance Life Australia, an extension of the agreement with Munich Re to cover 60% of AMP Life’s retail portfolio from 50% earlier and a new surplus cover deal with General Reinsurance to help manage volatility in individual claims.
The steps will both free capital and reduce earnings volatility, AMP CEO Craig Meller said in yesterday’s interim profit release.
Mr Meller said the company had continued to drive growth in its banking operations, seen international growth in AMP Capital and had effectively managed margin compression in wealth management.
And he said that “overall, it’s a solid performance underpinned by strong cost management.”
Underlying profit for the six months — a measure that seeks to normalise investment market volatility measure and is used by the company to determine dividend payments — was up 4% at $533 million and revenue for the period was up 25% to $7.61 billion from $6.10 billion last year.
In late May, AMP made a change in strategy, saying that in an effort to adapt to an increasingly competitive market and technology-driven disruption it would now favour investment in higher growth and less capital-intensive businesses.
It said it still wanted to be a leader in Australian wealth management but would now be looking at opportunities internationally, including leveraging partnerships in Asia with China Life Pension and Japan’s Mitsubishi UFJ Trust & Banking Corp.
AMP’s Australian wealth management division’s operating earnings slipped 1 per cent year-over-year to $193 million. Operating earnings for the AMP Capital division rose 11% to $92 million, while AMP Bank saw a 10% rise in earnings to $65 million. In New Zealand, the company said its earnings were $65 million, up nearly 5%.
The Australian wealth protection unit (its problem child) saw an 11% rise in operating earnings to $52 million.
