AMP’s shareholders and policy holders want an owner vote over the sale of AMP Life, due by late 2019.
The Australian Shareholders Association had a chance to have their contrarian say in a pow wow late last year with David Murray, and continue to air their disquiet. At the December meeting the AMP chair listened and did little to encourage the idea the board will put the sale to a vote.
AMP's life business is in the process of being acquired by VC-backed Resolution Life (Australia) Pty Limited, with the deal expected to be completed during the third quarter of calendar year 2019.
In October, AMP’s short-lived interim CEO Mike Wilkins announced the life insurance sale as the end point of a “portfolio review”, an exercise defined in part by the institution’s embarrassment at the hands of Ken Hayne’s royal commission last year.
AMP said it had agreed to sell its Australian and New Zealand “wealth protection and mature businesses” – meaning AMP Life - to Resolution Life for “a total consideration” of A$3.3 billion.” As a first tranche, this comprises $1.9 billion in cash along with $300 million in AT1 preference shares in AMP Life’s successor entity in Australia.
Post-sale, the AMP group will no longer retain a licensed life insurance company, and with it will go a large chunk of cash.
A second tranche owing helps ensure the vendor keeps skin in the game, with AMP looking to reap any wider benefits from the buyer’s business model via “A$1.1 billion in non-cash consideration”.
This also breaks into two, with the first part “an economic interest in future earnings from the mature business, equivalent to A$600 million,” a sum premised on modelling (cited five months ago) that found the former life division will “provide steady ongoing earnings to AMP of approximately A$50 million after tax per annum, assuming an annual run-off at 5 per cent”.
The final kicker will be “a A$515 million AMP interest in Resolution and Phoenix, focused on the acquisition and management of in-force life insurance books globally”.
Megan Beer has the job of managing the transition.
The Resolution life group is an Energizer bunny of insurance set up in 2004 in the UK by Clive Cowdery. He remains executive chair, now working alongside managing partner Jon Hack (who was Lazard’s head of the European financial institutions group at the time Cowdrey first set out on his aggressive vision).
A survivor of the great recession, since 2008 Phoenix Group Holdings plc (with its HQ in London) is the overseer of Cowdery’s Resolution rollup play, a hodge podge of dozens of lacklustre and unwanted back books of old-style life offices.
As with many insurers, the direct parent of Resolution Life (Australia) considers Bermuda home.
At an under-informative website, the firm summarises its busy history this way: “Since 2003, various Resolution entities have committed US$13.6 billion of equity in the acquisition, reinsurance, consolidation and management of 27 life insurance companies.
“Together, these companies have managed over US$300 billion of assets whilst serving the needs of 10 million policyholders.”
Beer and Cowdrey may plan to repeat and improve AMP’s own sharp trade-offs between stakeholder interests.
In recent years AMP has upstreamed capital from AMP Life Limited to the group, a controversial practice.
“Large dividend payments … have significantly reduced AMP Life's excess capital resources,” Moody’s investors Service said in a sharp assessment in late February.
Three weeks ago Moody's downgraded the insurance financial strength rating of AMP Life to A2 from Aa3. The outlook remains negative.
S&P Global Ratings went further a week later, when it lowered its ratings on AMP Limited to A- from A. In tandem with the downgrade at the group level, the ratings of AMP Life and AMP Bank were cut one notch.
“The life division reported an operating loss of A$176 million for financial year 2018, compared with an operating profit of A$110 million in financial year 2017,” Moody’s said.
“The performance of wealth protection was significantly impacted by A$209 million of capitalised losses (and other one off experience items) and A$63 million of experience losses.”
These losses followed from an increase in income protection and total and permanent disability claims, an entrenched theme in Australian insurance.
S&P, writing on March 1, cautioned investors and others that “some downward pressure on the ratings on AMP Life and the rated entities in the AMP group remain, independent of the divestment.”
This pressure was, S&P said, “the residual impact of misconduct investigations and ongoing remediation activities,” and not much has changed. ASIC chastised AMP this week for insufficient progress on sorting out the fees-for-no-service mess.
“While we view that brand and reputational pressure is subsiding, asset management flows are likely to continue to be affected during 2019 and risks are still associated with the core aligned advisor network,” S&P said a week or so back.
Fleeing a degraded, low-return industry segment may make sense, with AMP betting its future on money management and (maybe) banking.
The board have to pull themselves into line with tradition. David Murray, the still newish chair of AMP, must ensure that shareholders are invited to vote on a proposal that cannot be passed off as technocratic.
"When such a fundamental and unexpected change to a business is made, shareholder approval should be sought."
A 14-year record as custodians of the legacy books of once well-known insurance brands is short by the standards of a sector still trading on the goodwill from the days when the industry was built on principles of self-help and mutuality. AMP, founded in Sydney in 1859 is a typical Phoenix target.
It swallowed the iconic UK name Friends and it's many life brands, just an example. NAB’s National Australia Life – sold back in 1995, pre MLC - is another, if small, legacy portfolio under Resolution’s wing.
Uneasy clients of AMP Life will look to the presumed good offices of a management bench that learned their trade at GE Insurance, Swiss Re, Sun Life Financial and AXA (in the case of the CEO, CFO and heads of US and Europe respectively of Resolution).
The Bermuda Monetary Authority will be the lead regulator of the legacy book of AMP Life when and if a change of control occurs.
Policyholders of AMP’s life insurance division are yet to make their voices known, and the company has no mechanism to consult them underway. Communications with policy holders over a proposal of the utmost importance to their livelihoods so far are slight.
In short, nothing defines AMP’s history and reputation like life.
AMP will be truly lifeless if shareholders don’t get a vote and policy holders don’t get a say.
Disclosure: the author is a policy holder with AMP.