For the second time in six months the RBNZ has shown it has plenty of teeth. It has already insisted that AMP provide an additional $400m to support the balance sheet of AMP Life, and has again insisted that it will not approve of Resolution Life’s application to buy AMP Life for AU$3 billion if the policyholders’ rights and obligations would not be protected. Click here to read more. This is solid evidence that media reports that alleging that the RB has inadequate tools to police the deal are wrong.
We have just distributed the latest product research database update (QPRV12_6). This version includes the following changes:
- AIA - Changed Credit Rating and Agency
- AMP - Changed Credit Rating
- MAS - New policy wording for Life, TPD and Trauma
- AMP Lifetrack - New policy wording changes
- Fidelity - New policy wording - no rating changes
- Add new Product Line Wellness to take AIA Vitality into account. This will appear on the Package score on QuoteMonster research if AIA Vitality is selected
The AFR has this lengthy piece placing the recent announcement of a cut in adviser business BOLR in the context of AMP's recent history. Including ASIC's investigation into the charging of fees for no service. It is worth a read - a subject I am bound to return to in the upcoming quarterly review in September. Along with the fee strategies of advisers and the recent boost to direct.
AMP's vision of the future appears to include fewer advisers and much more technology. The AFR reports on the strategic choices of the wealth manager in Australia. What this means for the wider advice sector it is hard to say - but connect this choice (half of which is being forced on the company by events - see this chart) with the fact that this closely follows wider market events in Australia and you begin to see technology as the solution to a number of big questions, such as:
- Can financial advice be both adequately personalised and reasonably priced?
- How can compliance requirements be met without making advice too expensive?
- How can advice be delivered to many people without adding substantially to the cost?
I like the idea of a channel that is built around great technology and great people.
William McInness writing at the Australian Financial Review, is reporting that AMP has just announced a new agreement with Resolution Life, as expected. Link. Key statement from the article:
The firm also announced a revised agreement to sell AMP Life to Resolution Life. The purchase price of $3 billion includes $2.5 billion cash and a $500 million equity interest in Resolution Life Australia.
AMP will further localise its New Zealand wealth management and explore options to divest.
AMP will also do an equity raise. More details in the article.
Chanticleer, at the AFR, (in this post, but you'll need a subscription) suggest that this is the case, using AMP's experience as the base, and generalising from that. I disagree. AMP's situation is fundamentally that of a wealth company sharpening its focus on that business, exiting the life sector. Meanwhile, some specialist insurance companies appear to be having a great time. It is true that for others it is more mixed, but the digital revolution is well underway, as is the shift towards living benefits. Riding those trends is probably the key to a successful future - for clients, advisers, and insurers.
Goodreturns piece on criticism of the RBNZ's decision not to extend AMP's exemption to Resolution Life contain some interesting quotes, some of which are hard to swallow.
The Australian Financial Review had accused RBNZ of making “a change in a 150-year-old regulatory practice for life insurance companies in New Zealand through an out-of-the-blue ASX announcement.”
The RBNZ contends that no law or regulation has changed, rather, what has changed is the nature of the business, which will be in run off. Again quoting from the story:
The bank [meaning the RBNZ] says exemptions like AMP’s “are granted on the basis that standards applicable to Australian incorporated insurers are broadly equivalent to New Zealand standards. In some circumstances, standards for Australian incorporated insurers favour Australian policyholders over New Zealand policyholders, including during ‘run-off,’” it says.
If you want to read the original AFR article (probably limited to subscribers, but I can't tell, as I am a subscriber) the link is here.
Release from AMP, 15 July 2019:
AMP Limited today advises that the transaction for the sale of AMP Life to Resolution Life is highly unlikely to proceed on the current terms.
This is due to the challenges in meeting the condition precedent for Reserve Bank of New Zealand (RBNZ) approval.
The failure to meet this condition precedent is exceptionally disappointing as the sale of AMP Life is a foundational element of AMP’s strategy.
Capital position and interim dividend expectations
While the 1H 19 accounts are yet to be finalised, AMP expects to report a Level 3 eligible capital surplus above minimum regulatory requirements and in line with Board limits for target capital surplus.
Given the uncertainty around the AMP Life transaction, the AMP Board expects to continue its prudent approach to capital management and anticipates that an interim dividend will not be paid for 1H 19.
Click here to read the full press release: Download 15 July - AMP Life sale and interim dividend update
The release is comprehensive and well worth a read. Probably AMP and Resolution made what was a reasonable assumption at the time that the exemptions AMP enjoyed would be extended to Resolution. The tougher line being held by RB is also logical, given the increased scrutiny being placed on the sector and recent events. I expect that some sort of accommodation, perhaps to share the costs of the requirements of the RB, can be struck with Resolution Life. The whole situation speaks loudly of regulators and being more prepared to exercise their supervisory powers.
Susan Edmunds story on this, at goodreturns.co.nz
Tamsyn Parker has a story on this too, at NZHerald.co.nz
AMP recently did a number of workshops around the country presenting product enhancements in the Wealth Protection product suite.
AMP are hosting special briefings around the country to discuss important details about upcoming changes to AMP that may affect advisers. The sessions will also include some life product enhancements and regulatory discussion.
Click here to register.