AMP life business flat, but company on track

AMP’s goal of diversifying its business is showing signs of success with its wealth management business underpinning a strong performance in the 12 months to December 31.

Wednesday, February 25th 2015, 6:43AM

The company reported operating earnings for the year were up 4.6% to $120.2 million, with the result driven by growth in assets under management, cost control and improved experience profits on its risk business.

Overall managing director Jack Regan described the result as being “strong”. However, the risk business result was “flat” and the company was “being quite cautious in the market.”

Its caution comes from the “competitive pricing” from other players, the changes to the taxation of life insurance business and new solvency standards

The industry-held view is that around 80% of all business written at the moment is replacement business.

Life companies have been in a transitional tax environment which ends later this year. In the new environment companies will have to pay significantly more tax than they have in the past and this will impact premium levels.

AMP’s approach has been to make gradual premium increases and also provision for the changes in its accounts. In the 12 months to December 31 it has booked A$19 million as transitional tax relief.

Regan is comfortable with where the company sits with regards to the tax changes, but believes that the companies which have priced new business at different rates to existing business during this transitional stage may face some troubles.

“The folly of that approach is going to be exposed,” he says.

In the year AMP realised experience profits of $2.9 million compared to a loss of $1.1 million in the previous year. Regan says the turnaround reflects an improvement in claims management and strong success in helping customers return to work.

He says AMP is “making positive strides on the journey of achieving claims excellence” and it helped 2000 policyholders get back to work.

However, it is a different story with lapse rates which increased from 12.8% in the previous year to 13.7%.

AMP managed to reduce its controllable costs during the year, bringing its controllable cost/annual premium ration down from 30.1% to 27.7% during the year. Regan says much of this can be attributed to the use of technology which allowed customers to more easily do things with the company.

He said AMP Australia was spending A$300 million on digital development and the New Zealand company expected to benefit from this transformation process.

Key statistics
	FY 2014	FY 2013
Operating earnings	$110 mill	$97 mill
Individual Risk API	$298 mill	$301 mill
Group risk API	$43 mill	$39 mill
Lapse rate	13.7%	12.8%
Transitional tax relief	$19 mill	$19 mill