AMP sale finalised, and more daily news

The sale of AMP Life to Resolution Life has been finalised. The sale amounted to A$3 billion (NZ$3.19 billion), with A$2.5 billion being paid in cash and the remaining A$500 million being paid in equity interest in Resolution Life Australia. 

“The total sale proceeds are A$3 billion, comprising A$2.5 billion cash and A$500 million equity interest in Resolution Life Australia, a new Australian-domiciled, Resolution Life-controlled holding company that is now the owner of AMP Life.”

As a result of the sale, AMP will transfer an estimated A$55 billion in client funds as part of the company’s internal separation process. And although AMP will sell AMP Life, the company will be providing technology and administrative services to AMP Life for the next two years as part of a transitional services agreement.

“The separation of AMP Life will significantly simplify AMP’s group structure. The internal separation process included the transfer of approximately A$55 billion of client funds via several successor fund transfers.

 

Collectively these transfers represented one of the largest fund transfers of this kind and enables AMP to focus on its strategic simplification of its wealth management platforms and products.

 

In addition to its residual 20% holding in Resolution Life Australia, AMP will continue to provide technology and administrative services to AMP Life for a two-year period under a transitional services agreement. All customers’ terms and conditions will remain unchanged through the separation.” Click here to read more

Therese Singleton has been appointed CEO of the Resolution Life New Zealand Limited which has an A- financial stability rating from Standard and Poor's. 

 

In other news:

Kepa: Kepa are planning to hold two-day workshops for compliance support people in mid-sized to large adviser businesses in August, September and October

Fidelity Life: Fidelity Life launched Live in the Green, their July Sharecare challenge

nib: nibAPPLY offer extended until end of September

RBNZ: Monetary Policy dates for 2021

 


AMP makes new agreement with Resolution Life

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

 


Criticism of RBNZ decision on AMP by the AFR

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

 

 


AMP Life sale hits issues - updated

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 - what it all means

AMP's decision to sell their life insurance businesses, and run an IPO for the New Zealand wealth business, has generated a great deal of news. Here is a quick round-up plus some of my commentary at the bottom of this post.

  • Goodreturns post focuses on the impact on AMP advisers - a valuable perspective, link.
  • Interest.co.nz has a post by Jenée Tibshraeny that focuses more on Resolution Life and the IPO of the wealth business, a good read: link.
  • The AFR's piece focuses on the benefits for an Australian business free from the distractions of running a life business and NZ. Link.
  • Stuff talks about the brand disappearing from New Zealand. Link.

How big a deal you think this is depends on your point of view. On the one hand, this is a huge deal: AMP has been a major force in insurance for more than 150 years, so the fact that they will leave that market is very significant. On the other hand, recently, AMP has been much more of a wealth management business, and has not written much new business in recent years, as shown in the release by Blair Vernon at the time of the FMA review of QFEs.

This is different to the trend of Australian Banks selling their life insurance operations. With an IPO of all that remains, AMP may effectively leave New Zealand - it will be interesting to see. AMP’s ability to extract value from the transaction depends somewhat on the performance of the business sold to Resolution Life, so some issues such as pricing of the business, and rules governing replacement business, will continue to be important issues, with the impacts varying depending on product line (whole of life versus term insurance).

I am not sure how much this was driven by compliance concerns. AMP’s situation is not the same as, say, Australian Banks divesting themselves of advice businesses. I think this is more about AMP’s business performance. AMP’s process of considering the best way forward for these businesses commenced well before the recent Australian Royal Commission.

I am not expert in wealth management businesses, so may not be best placed to comment on the prospects for an IPO. There is much to interest a wide range of participants in the IPO, the recent growth in wealth business, the KiwiSaver default status, and more. I shall follow the progress with interest.

I note that AMP's share price is down about 10% today.