AMP reduces risks on its life insurance business to reduce earnings volatility

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This was published 6 years ago

AMP reduces risks on its life insurance business to reduce earnings volatility

By John Collett
Updated

Financial services major AMP will complete a reinsurance program by year-end that will release $1 billion in capital, protect it from spikes in claims and reduce earnings volatility.

In releasing AMP's first-half results on Thursday, chief executive Craig Meller said life insurance was a "challenging industry".

Chief executive Craig Meller said life insurance was a "challenging industry".

Chief executive Craig Meller said life insurance was a "challenging industry".Credit: Daniel Munoz

AMP was "open minded" on a sale but the "focus is absolutely on driving the [life insurance] business effectively", Mr Meller said.

He said the life insurance business fell into the "manage-for-value component" of AMP's portfolio of businesses.

The company was putting in place reinsurance arrangements over the retail segment of its life insurance business, which would, by November, release $1 billion in capital, Mr Meller said.

AMP's reinsurance program comes as other financial institutions have sold their life insurance businesses or are considering sales.

Commonwealth Bank on Wednesday confirmed it was looking at selling its life insurance business in Australia and New Zealand, which could net the bank up to $5 billion.

Suncorp and ANZ are trying to sell their life insurance businesses and NAB sold a majority share in its life insurance business.

AMP reported a net profit in the six months to June 30 of $445 million, a fall of about 15 per cent on earnings of $523 million in the previous corresponding period.

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However, AMP's underlying profit was $533 million for the half year; 4 per cent higher than the earlier corresponding period's $513 million and better than the $528 million expected by analysts.

"This is likely to be welcomed by investors, though is not a complete surprise," Citi analysts said in a note.

"We would not be surprised to see a little near-term strength in the stock."

Underlying profit in Australian Wealth Protection, which includes life insurance, and for AMP Capital and AMP Bank, each grew more than 10 per cent on the earlier corresponding period.

Australian Wealth Management, which includes the financial planning businesses - AMP's biggest division - reported underlying profit of $193 million, down from $195 million from the earlier corresponding period.

AMP will pay a 14.5¢ a share dividend for the half, with a franking level of 90 per cent.

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