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AMP has better experience with life insurance claims

AMP Financial Services has reported a strong half year profit which includes an turnaround in its experience profits. It also says the merger with AXA is nearly complete and the benefits are starting to show.

Monday, August 19th 2013, 2:37PM 3 Comments

AMP Financial Services New Zealand has reported operating earnings of $57 million for the half-year to June 30, an increase of 16% from the same time last year. The improvement is the result of strong growth in profit margins, while experience profits remained steady.
Profit margins for the half-year to 30 June 2013 were $56 million, up 17% primarily driven by higher revenues from growth in assets under management and life insurance premiums, as well as improved cost control.

Regan says 60% of the profit increase was attributable to taking costs out of the business. He says that the integration with AXA is nearly complete and this is showing benefits including better efficiencies.

While AMP had integrated the wealth management businesses of AMP and AXA, notably the merging of KiwiSaver schemes and a move to a multi-manager investment approach, it had decided not to keep the two insurance offerings.

He said it was originally intended that the two product sets would be combined into one, but has since decided against the move.

Part of this was to do with what advisers wanted, however AMP couldn’t find a compelling reason to make the change, he said.

The company noted that its investment business had performed well in New Zealand in the six month period, while its life business was flat.

However one of the big turnarounds in the results from the previous six month period was to life insurance experience profits. In the second half of the previous financial year AMP reported a loss of $11 million and that has turned around to a $1 million profit in this period.

“The experience profits over the period are mainly due to improved lump sum and income protection underwriting profits driven in part by effective claims management.”

Regan says insurance profits can be volatile and the earlier loss was attributed to higher mortality claims and also claims being on larger policies.

He also said some policies claimed on were below the reinsurance threshold which meant that AMP “had to wear more of the risk than it normally would.”

AMP in Australia has been having big issues with the profitability of its income protection products. Regan says the issue isn’t so big in New Zealand however the company was making sure it was learning from what happened in Australia.

Regan says key issues were getting people back to work, claims management and policy wordings.

He was quite critical of research houses and how their process had made life companies play rating games which resulted in more and more conditions been added to policies, yet these conditions rarely result in claims.

AMP’s total life insurance premiums increased 3% per cent to $340 million year-on-year. This continues an upward trend “despite subdued economic growth, the pressure on households given increased life and general insurance premiums and a competitive marketplace, which continues to experience aggressive selling behaviour.”

AMP’s lapse rates increased 1.7 percentage points from the corresponding half last year to 11.6%, but were a slight, 0.7% improvement from the second half of 2012. AMP says this is due to its targeted retention activities and product enhancements implemented over the past 12 months.

Regan says the company is committed to the ongoing renovation of its suite of insurance and investment products to provide customers with more flexibility, additional options and new tools.

Recently it launched a simple term life product, Quick Start Life, for customers who don’t want to go through a full underwriting process.

Regan says there are other product developments happening including in the income protection area. While it is too early to give details Regan said it would be more of a modular product where customers could acquire options.

AMP paid out $170 million in claims in 2012.

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Comments from our readers

On 19 August 2013 at 3:13 pm Amused said:
"He (Regan) was quite critical of research houses and how their process had made life companies play rating games which resulted in more and more conditions been added to policies, yet these conditions rarely result in claims"

It’s called updating your life products Jack to ensure that advisers actually recommend you as an insurer to their clients for cover in the first place.
On 19 August 2013 at 7:37 pm Editor said:
@Amused. That's probably a little unfair. To put Jack's comments into perspective he was being critical of how conditions are added and not claimed on. There is some interesting research from one of the reinsurers on this which we hope to be able to bring you.
Likewise Jack's comments and views are shared by many other CEOs and MDs in New Zealand.
David Lange's great comment about "poll-driven fruit cakes" comes to mind when this issue arises in the life insurance world.
On 20 August 2013 at 10:40 am Steve said:
Editor, your comment echoes the reason many old school advisers gave for not selling TPD..."it's never claimed on". AMP's archaic policy wordings, and Jack's attitude and endorsement will see AMP's eventual extinction unless they see the light and do something about their products, wording and pricing. He is fiddling whilst Rome burns...

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