AMP stays mum on life insurance deal

Resolution boss Sir Clive Cowdery. Cartoon: Johannes Leak.

AMP is walking a fine line between its disclosure obligations to the market and an apparent desire to drop its deal to sell its life business to Resolution Life for $3.3 billion.

On July 15, it released a statement saying the deal was “unlikely to proceed” in its current form due to strict capital requirements imposed by New Zealand’s central bank.

AMP regards the New Zealand demands for ring-fenced capital as a problem for Resolution to solve.

No approval means the conditions precedent for a deal would not be met.

In its statement unveiling the deal on October 25, AMP said it would be completed in the second half of this year.

Resolution’s boss Sir Clive Cowdery is in Australia this week meeting potential investors and staying in touch with life ­insurance company owners with the idea of doing deals down the track. In an interview with The Australian, Sir Clive flatly refused to talk about AMP.

AMP also refuses to talk about Resolution Life even though Sir Clive met with AMP chairman David Murray in Sydney on Friday, along with AMP chief Francesco De Ferrari.

He plans to make three visits to Australia each year, seeing it as a market perfectly positioned for his business.

Some investors would welcome the end of the deal that they regard as being a low-ball exit at a time when much of the rest of AMP was being crucified by the banking royal commission.

Its mature book would, on Merlon Capital’s reckoning, yield $200 million a year, which is good money.

AMP could presumably manage the book as well as Sir Clive but its problem is it has agreed to invest $515m with Sir Clive as part of the transaction.

If investors would cheer the formal end of the deal, it beggars belief that AMP won’t say something and, thus, one can only assume Sir Clive is still holding a gun to its head.

Either way, AMP should tell the market what is happening.

It is due to release its results next week, so maybe that is when it will talk.

When the deal was unveiled it was called a partnership that would see AMP collect $1.9 billion in cash plus $300m in preference shares, $1.1bn in future earnings and, crucially, AMP would invest $515m in Resolution Life’s fund to buy up other insurance assets.

Sir Clive is sitting on $US3bn ($4.35bn) to invest in insurance companies being sold by their owners looking to free up capital.

It has about 100 head office staff, including, as first disclosed by Field Research, chief actuary Jonathon Moss, who filled the same role for AMP back in 2001 before becoming chief of its then UK-based Peal division.

The AMP money then is a big chunk of Sir Clive’s present kitty although he says he has other Australian investors.

Sir Clive, a former European boss of GE’s former insurance business, set up Resolution in 2003 to invest in precisely the assets AMP wants to sell to free up capital.

Since then he has invested some $US13bn in $US20bn of acquisitions managing more than $US300bn of assets.

His business is based on the fact life insurance markets peaked in the early 2000s and as the mainly foreign-owned vehicles that managed the assets wanted to get out, in walked Sir Clive. In recent years three of the big four banks have sold their life businesses and Westpac, which was the last into the market, has also flagged its intention to exit.

His deals include those with Royal Sun Alliance, Santander, Friends Provident, AXA and All State. He looks after customer needs then turns the proceeds into yielding assets.

The most important letters for Sir Clive are ROE and when returns are down you reduce the earnings a bit to lift the returns side of the equation.

The previous owners’ lack of return becomes Sir Clive’s high yielding assets, which in the present market is like gold.

That’s what the AMP deal was all about and, crucially, Sir Clive is a long-term investor so he makes his pitch and moves in when the vendor is ready to depart which could take a few years.

That is the problem for AMP because he is not likely to walk away from this deal empty-handed.

Land tax backed

Westpac’s Brian Hartzer is one of the first business leaders to publicly back the Productivity Commission’s push for a land tax to replace stamp duty to help boost the housing market.

The pitch is a good one, given the concept of replacing an inefficient tax with an efficient one.

Stamp duty is a one-off payment that impedes new homeowners whereas a land tax is based on value, so the rich would pay more but it also delivers each year — not just when a property is sold.

The PC noted the tax could be phased in over say 15 years while the stamp duty was cut substantially from year one, especially if the Feds agreed to help fund any revenue shortfall.

This is one of the many productivity improvements suggested by the PC’s 2017 Shifting the Dial report that is waiting to get into Treasurer Josh Frydenberg’s inbox.

Hartzer also used yesterday’s trans-Tasman address to warn against too big a regulatory impost which makes sense but, given the banks’ reluctance to obey the law in years past and treating customers appallingly, there is a sense of hypocrisy involved.

Hartzer said he didn’t mind a level playing field and rules but objected to being told where to stand on the field: “The unintended consequences of the current legal and regulatory approach pose a danger for our economy.”

Why? “Because highly prescriptive, micro-prudential regulation reduces lenders’ ability.”

Gregg to appeal

Former Leighton chief executive Peter Gregg will appeal last year’s guilty verdict against him for allegedly falsifying company records.

The long-time Qantas CFO and former Primary Healthcare boss maintains his innocence.

District Court judge Paul Lakatos sentenced Gregg to home detention as part of an “intensive correctional order” yesterday and noted he had no direct financial benefit from the act and his many years in business.

ASIC was pleased with last year’s guilty verdict noting that alone would help deter others.

Telstra wants more

When Telstra chief Andy Penn fronts the National Press Club today to make the sound pitch for regulation encouraging the industry it is worth keeping a couple of figures in mind.

Last year NBN earned $2bn in revenues from the industry and paid Telstra $2.3bn in subsidies as part of the government deal to pay Telstra for access to its copper network. Telstra is arguably the only incumbent telco in the world to have the government pay it to replace redundant technology.

Malcolm Turnbull made life more complicated for NBN with his technology mix but the Telstra subsidies just keep on coming.