AMP’s radical reinsurance move
AMP Limited has been forced to take radical action within its insurance business in the face of deteriorating results, announcing to the Australian Securities Exchange (ASX) today that it had implemented a ‘significant' reinsurance arrangement with MunichRe.
Announcing the move, AMP chief executive, Craig Meller, said it had been prompted against the background of a consistent deterioration in the insurance sector over the course of 2016.
The move would see AMP Life executing a binding quota share agreement with Munich Re to reinsure 50 per cent of $750 million of annual premium income of the AMP Life retail portfolio (including income protection and lump sum business) with the agreement commencing on 1 November.
The agreement would create the potential to release up to $500 million of capital from AMP Life subject to regulatory approval.
The company said the "initial tranche" of reinsurance would reduce the magnitude of earnings volatility from the Australian wealth protection business for the AMP group.
It said the estimated net impact from the agreement on the Australian wealth protection business profit margins was a $25 million reduction annually from next financial year.
It said the company intended to pursue further tranches of reinsurance when time and conditions suited.
On the broader outlook for the company, Meller said that cashflows had remained subdued during the third quarter, impacted by the ongoing uncertainty in superannuation legislation leading to lower consumer confidence in the system, advisers adjusting to the enhanced regulatory environment, and recent investment market volatility.
"However AMP is optimistic that the recent superannuation reforms will reverse this trend," he said.
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