After yesterday’s announcement of RBNZ approving the sale of AMP Life to Resolution Life, some consumers raised concerns that the conditions of the sale won’t be enough to protect the interests of customers.
“There are fears the conditions the Reserve Bank (RBNZ) has put on the proposed sale of AMP Life to Bermuda-based private equity firm, Resolution Life, don’t go far enough to protect the interests of the insurer’s 200,000 New Zealand policyholders.”
One policyholder expressed his fears that the contract terms were general and that Resolution Life wouldn’t have an incentive to uphold goodwill if they don’t write new polices. As a result, claims and bonuses would be at risk of not being paid out.
“The RBNZ’s general manager of financial stability, Geoff Bascand, said: "Because AMP Life is a branch of an Australian business and intended to be in ‘run-off’ and not write new business, special arrangements were needed for the security of New Zealand policyholders."
However, an AMP Life policyholder with a background in investment banking, Andrew Body, was concerned that without writing new policies, Resolution Life wouldn’t be incentivised to maintain goodwill in the market. Accordingly, he worried any claims and bonuses owed to policyholders could be put at risk.
While Resolution Life will be required to honour existing policies, Body said contract terms were often “very general” and relied on “trust”.”
I do not think this is realistic. The requirement for a trust and Policyholder Advisory Committee will provide a level of additional protection for policyholders, and reflects the kinds of governance requirements around conduct soon to be implemented across the sector, when new conduct law is eventually passed. The problem for AMP policyholders is a mirror of the problem for AMP. Long-term contracts make it hard for both parties. For the insurer, the clients you end up with on your books after 20, 30, or 40 years can have quite different characteristics to those you underwrote all those years ago. The situation for policyholders is that AMP has decided it would prefer not to be in the life insurance business. Resolution Life wants to be. Even though Resolution Life will not be writing new business, their investment will fail if they experience very high levels of lapses - the substantial existing premium and the price they paid to own it are both substantial stakes in the future of the book.
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