Increased claims drag AMP results
A significant deterioration in claims experience throughout the year led to AMP posting a net loss of $344 million for the 2016 financial year, according to AMP.
Speaking at a media briefing yesterday, chief executive, Craig Meller, said the firm posted an operating loss of $415 million for 2016 in the wealth protection business despite taking actions to stabilise the business.
"The wealth protection result masked the strong performances in our portfolio, particularly AMP Capital, AMP Bank, and New Zealand," he said.
"This was clearly disappointing but this business is now on a more sustainable footing."
The firm consolidated its two life insurance books, AMP Life and NMLA Life, known as a ‘part 9 transaction', which released $145 million of capital.
"We're going about it in a measured process but we also needed to complete the merger of the two life companies before we could even consider the second tranche," Meller said.
The results were due to the impact of a significant increase in claims during 2016, which led to "what we call experience calls that were just over $100 million for the year", Meller said.
"The very significant capitalised losses and the write down of the good will were a function of our view of the change in the future margins in this industry going forward," he said.
Meller also attributed the poor results to the introduction of a number of international players, which had increased competition.
Meller said the firm identified structural problems in the department and "reset accordingly", adding he was confident the changes would reset the business. The firm had also reduced shareholder capital that was exposed to the business in order to de-risk it from a shareholder perspective.
AMP implemented a ‘significant' reinsurance arrangement with MunichRe last year in the wake of deteriorating results.
The AMP adviser network saw a drop in numbers, with the network shedding 570 advisers in 2016 from a total of 3,600 advisers at the end of 2015. This was as a result of the firm tightening the classification of authorised representatives to those who specifically provided advice, excluding accountants who provided audit and other services.
New professional standards and education requirements for financial advisers also had an impact on advisers' decisions to retire or exit the industry, with a significant number of retirements expected in 2017.
"There'll be an elevated number of retirements from the industry going through to the first half of this year," Meller said.
AMP said it was committed to a three per cent reduction in controllable costs in 2017, excluding AMP Capital. Chief financial officer, Gordon Lefevre confirmed this would occur through a reduced head count within the firm.
"So essentially it's around reduction of spans and layers to give rise to a more agile and efficient operating model and organisation design that follows that," he said.
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