By John Collett
Shareholders have given AMP the thumbs-up after the life insurer and wealth manager reported a bumper profit of $1.04 billion for 2017 on the back of strong performances in its banking and funds management divisions.
That was more than double last year's $486 million - beating analysts' expectations of about $1 billion.
'We remain on track to double the value of the bank by full-year 2021,' says AMP chief executive Craig Meller: Credit: Brook Mitchell
AMP shares were up 3.28 per cent to $5.20 from $5.04 in mid-afternoon trading on Thursday and closed at $5.21.
Its struggling life insurance business also improved but chief executive Craig Meller said on Thursday that AMP was "reviewing" the division and would update shareholders "at or around the time" of the company's annual general meeting in May.
David Ellis, head of Australian banking research at Morningstar, said it was a solid result and the outcome of the review could be good for shareholders.
"If sales of the businesses were to occur that would release more capital and the company would be looking at capital returns or special dividends," he said.
"That's a positive, and I think the market likes that," Mr Ellis said.
"The company is on the right track for growth."
The profit result reflects a turnaround in its life insurance business and strong performances in its banking and funds management divisions.
AMP Bank's earnings rose 16.7 per cent to $156 million and the earnings of AMP Capital, the funds management arm, rose by 8.3 per cent to $140 million.
"We've driven double-digit growth in AMP Bank's operating earnings while responding to tightening market regulation. We remain on track to double the value of the bank by full-year 2021," Mr Meller said.
He said AMP had met its targets on reducing costs in its life insurance business, Australian Wealth Protection, whose earnings were $110 million from a loss of $415 million in 2016, reflecting steps taken to stabilise the business.
"As always with AMP, the results are mixed bag," said Hugh Dive, the chief investment officer at Atlas Funds Management.
Mr Dive said the good performance of its life insurance division was a "fairly easy gain" given the massive write-downs for the division during 2016.
In October 2016, AMP announced a $668 million write-down of its life insurance business.
Financial services companies like NAB, Suncorp and ANZ have either sold, part-sold or looking to sell their life insurance businesses as the companies struggle to achieve the same rates of return on insurance that they achieve on their banking businesses.
Last year, AMP implemented a reinsurance program for its life insurance division, which allows AMP to pass on most of the risks of a spike in claims.
There are costs for AMP, as it has to pay the reinsurers to cover those risks, but it also frees-up capital, which was to fund a $500 million share buyback.
However, most of the buyback was suspended indefinitely in August last year. Mr Dive said he was disappointed there was no update of what was happening with the buyback.
"We would like to know what they intend to do with money," he said.
"Lots of questions at the presentation on where AMP is taking the business were defected," Mr Dive said.
Mr Meller said it was too early to give any guidance on what the outcome of the life insurance might be - whether a sale or a continuation of the reinsurance strategy. He said there was interest from foreign buyers in Australian life insurance businesses.
Though operating earnings for its Australian Wealth Management division were 2.5 per cent lower, at $391 million, there was strong growth in net cashflows and 10 per cent growth in other revenue from advice and its SMSF business which, Mr Meller said, demonstrated the "underlying growth trajectory" of the business.
There was a spike in superannuation contributions in the lead-up to the lowering of non-concessional contribution caps that took effect mid-last year, and stronger inflows into AMP's corporate super platforms, Mr Meller said.
However, the division was hit with lower margins due to regulatory changes, such as MySuper, for example, under which financial advisers can no longer earn commissions.
AMP will pay a final dividend 14.5 cents a share, franked at 90 per cent to take the dividend for 2017 to 29 cents; 1 cent higher than 2016.