AMP in Reinsurance Deal with Munich Re
October 27 2016 - 5:09PM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia--AMP (AMP.AU) has moved to sharply reduce
the capital intensity of its wealth-protection business in
Australia through a deal with Germany's Munich Re AG to reinsure
half of the 750 million Australian dollars (US$574 million) in
annual premium income of its AMP Life retail portfolio.
Further tranches of reinsurance would be sought when time and
conditions allowed, the financial services company said.
AMP Chief executive Craig Meller said Friday there had been a
consistent deterioration in the insurance sector over 2016, which
has significantly impacted the company's wealth protection
business. The reinsurance deal and a strengthening of best-estimate
assumptions were designed to "reset" the business, he said.
"They will improve the group's earnings stability, free up
capital and help bring into focus the growth potential of AMP," Mr.
Meller said.
The company's AMP Life division had signed a binding quota
sharing agreement with Munich Re that, subject to regulatory
approval, is set to begin on Nov. 1.
The deal has the potential to release up to A$500 million of
capital from the division, although will result in a A$25 million
reduction in wealth-protection profit margins annually from the
2017 financial year, AMP said.
The company said the challenges facing its Australian
wealth-protection operation over the last three years continued
into the third quarter of this year, with the operation
experiencing a loss of A$44 million.
With the trends viewed as structural, AMP said it expected
capitalized losses and other one-time items of about A$500 million
this financial year and a reduction in Australian wealth-protection
profit margins of about A$65 million in the next year. The
assumptions reduce the embedded value of the wealth-protection
business by about A$1 billion, and goodwill attributable to the
business is expected to be fully impaired by A$668 million for
fiscal 2016, it said.
The impairment charges won't impact underlying profit for the
year, it said.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
October 27, 2016 17:54 ET (21:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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