AMP has announced it will sell its Australian and New Zealand life insurance businesses to Resolution Life for $3.3 billion in a deal that is expected to be completed by the second half of 2019.
The decision to sell its life insurance arms comes at the conclusion of a long-running review which will also result in a binding agreement with Swiss Re to reinsure the New Zealand insurance business, and a planned move out of wealth management and advice businesses in NZ via initial public offering in 2019.
Under the terms of the sale agreement, AMP will receive $1.9 billion in cash, $600 million from future earnings of the Australia and NZ life businesses, a $515 million interest in Resolution Life, and $300 million in shares in AMP Life.
Resolution Life will also assume all risk and profits for the life insurance business from from 1 July 2018 and AMP stated that all existing terms and conditions will be retained, and AMP staff will transfer to Resolution Life on completion of the deal to maintain continuity of service.
…AMP stated that all existing terms and conditions will be retained…
The reinsurance agreement with Swiss Re for the New Zealand life insurance business is expected to release up to $150 million of capital for AMP and will be effective from 31 December 2018.
The arrangement will cover approximately 65 per cent of the New Zealand retail life insurance portfolio for new claims incurred from that date but are expected to reduce New Zealand profit margins by $20 million on a full-year basis.
AMP stated the exit from retail life insurance in Australian and New Zealand, which was first flagged in August 2018 (see: AMP Flags Possible Sale of Life Business) would simplify the company and enable it to focus on its Australian wealth management business, AMP Capital and AMP Bank.
AMP Acting Chief Executive, Mike Wilkins said AMP customers would see no change to their existing insurance policy terms or conditions and would benefit from Resolution Life’s expertise in managing in-force insurance policies.
“For shareholders, the agreement with Resolution Life and our exit from wealth protection and mature delivers important strategic benefits. It substantially simplifies our portfolio, delivers certainty and frees up capital,” he said.
“For employees, it provides certainty of outcome with a business that is culturally aligned with AMP. Our highly-experienced teams supporting insurance and mature customers are expected to largely transfer with the sold businesses, delivering continuity and stability for customers,” Wilkins added.
Resolution Life is an international insurance and reinsurance group that has ownership or involvement in 27 life insurance companies across the world with operations in London, Bermuda, and United States.
Resolution Life Executive Chair, Sir Clive Cowdery said, “The acquisition of AMP Life is consistent with our strategy to grow the business beyond our traditional markets in Europe and the United States and we see scope for further consolidation in the Australian life market.”
With the notable exception of one new local player, the lack of appetite for Life Insurance by the Australian financial services sector is stark. Can’t help but wonder about a potential fit with the not for profit super funds in the future??
This is a sad day, where one of longest standing financial institutions in Australia AMP Life will no longer be a part of AMP.
The company has helped generations of Australians.
This is like taking the bank out of the banks.
What’s happened with AMP Life is what has come before them in other long-time businesses which haven’t adapted to change. A company like Kodak, for example, had almost a monopoly on the photographic industry. Where are they now? Challenging market forces yes, but business survival means moving in the direction where customers are going.
This is another example of how a well established, long standing, large Company, lost the plot.
Life Insurance is a Business that makes nothing but a promise.
There is no massive infrastructure, or Capital required to buy land, build huge factories, fill them with expensive manufacturing equipment, produce, warehouse and transport their products.
That is the real world that many other Businesses operate under while still doing all the sales, compliance and regulatory stuff.
How can a Business that produces nothing, other than a promissory note, while charging thousands of dollars to their clients, not be a Cash cow?
The reason is always the same.
AMP forgot what Business they are in and instead have wasted countless millions of dollars on STUFF that had little bearing on what it was they were supposed to do.
The world has gone MAD.
Business has been hijacked by well wishers and vested interest groups who dwell either in the land of OZ, or those that have been able to hoodwink gullible management into making REACTIVE decisions that drain money like a funnel with a widening spout.
With technology, there should be improvements in efficiencies.
The real truth, is that Management are playing catch up with every thing they do.
They are like children in a lolly shop and have forgotten that LIFE is NOT a box of chocolates where everyone has unlimited choices.
Life Insurance always was and always will be, about selling the need for protecting ourselves if the unfortunate occasion arises where we cannot work and pay bills.
IT IS THAT SIMPLE.
Instead what we have is a Regulatory and Legal Mine field that is destroying the fabric of the Life Insurance Industry and the BLAME lies squarely with the Boffins who run the Life Companies.
They are surrounded by Lawyers and experts on everything, except what it is they actually are supposed to do, which is to sell their Life Insurance products, maintain those products and build long term relationships with the people who give them the money.
The day a Company forgets those BASIC principles, is the day that Company starts down the long road to oblivion.
The Life Insurance Industry is the EASIEST BUSINESS MODEL IN THE WORLD, yet very few Life Companies understand the Business they are in.
The Life Insurers were given ample time to fix the issues that kept cropping up, which they did not.
Then they were incapable of explaining to the Government, Regulators and all the consequent investigations, in plain English, the truth and instead came up with excuses that were based on mis-truths.
AMP took their eyes off the ball and surprise, surprise, now we lose another Company.
Politicians do not understand the concept of running a life office. Neither do unions, public servants, cardboard magnates or bankers. Life insurance is one of the few businesses which MUST HAVE A LONG TERM FOCUS – todays 25 year old wants the insurer to be here in 40 years to pay the promise. That’s why the Treasurers on both sides, who allowed big banks to buy insurers, while ignoring the culture clash of the short-termism of the banks, should be strung up!!
To top it off, we have regulators who the RC revealed have been asleep at the wheel. ASIC has spent 14 years since 2004 ignoring the institutionalized bad practices WE knew were going on at the banks AFSLs( “after all, they are one of us “), while pursing a few little fish in the IFA market, and at the same time ignoring the evil of GENERAL ADVICE sales. APRA have apparently decided they were not a conduct regulator, and they have ignored the dangers of a life insurers with dangerous exposure to Group risk, while failing to supervise super funds.
I agree with many of your points, but just to note that your comment of no need for much capital is not right. I think you’ll find running a life insurance to be incredibly capital intensive. Life Companies must hold enough capital such that they can pay out claims under some very extreme scenarios without going broke.
Another one from me. AMP Life might be lost to us, but we now have Integrity Life and Neos Life entering the Australian retail life insurance market and Met Life re-entering it. So the balance hasn’t completely swung in one direction. Interesting and heady days ahead for life-risk insurance seems probable.
AMP had exposure to industry fund super. I wonder if Resolution Life will stay in Group ! Cheap cover for those funds might just blow-up – hello David Whitely.
Next question – has Brexit pushed Resolution Life to explore the Great Southern Land opportunities.(HMS Resolution was after all Capt Cook’s last ship)
Finally, the UK has GUARANTEED Level Premium life cover – no Stepped premiums. Lets have that here !
Completely agree with the Guaranteed argument. I remember being at a presentation a few years ago when the Australian host asked his UK guest speaker for an opinion on ‘Stepped’ premiums. I don’t exaggerate when I tell you his answer was “What is a stepped premium” .. Nothing has changed since then and we are still encouraged to sell a deceptively cheaper product with nasty surprises down the track!
Fascinating! The banks come along and effectively ‘destroy’ the life insurance industry for us ‘oldies’ and then bail out once the ‘good times’ are over. Now AMP bails when the going gets too hard and will effectively concentrate on banking! Agree big time with my fellow ‘Old Risky’ that stability is one of the biggest issues. Our industry has been hurled from pillar to post ever since 11 March 2004 [FSRA] and everything after that. We need stability and that’s the one thing we ain’t getting! Will the final knife in the back come from a change in government or the massive loss of experienced Riskies from Jan 2021 onwards>
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