Epidemic puts AMP life insurance sale in the spotlight

27/04/2018: Generic picture of AMP building, Sydney. Hollie Adams/The Australian

Financial giant AMP remains one of the companies in the financial services space under the spotlight during the COVID-19 disruptions, as market watchers continue to question whether the $4.4bn wealth manager will complete the sale of its life insurance business to Resolution Life.

Resolution Life has not yet received regulatory approval from the Australian or New Zealand governments for it to proceed with its $2.5bn deal and could easily walk away.

Gaining blessing for the sale to proceed from across the Tasman was always seen as the major challenge, while securing Australian regulatory approval was expected to be a given and Chinese approval has already been granted.

And should a sale now not go ahead, it may not be a catastrophe for AMP.

Some always viewed the terms that the financial group was offloading the business for as less than attractive, and with the shrinking economy, AMP may no longer need the funds from a sale to deploy in its business elsewhere.

If the economy slips into a recession, as expected, and AMP Capital does not raise any more money for a new fund for some time, it may not have anywhere to redeploy its proceeds.

And in a downturn, lower returns can be expected.

However, one problem is that life insurance claims could increase in the coronavirus crisis aftermath.

When the crisis started to take hold late last month, sources told this column that all plans for corporate activity by AMP were off the agenda for now.

This included any move to sell down part of AMP Capital or a divestment of its New Zealand wealth operations.

The logical party to buy part of AMP Capital was Japan’s Mitsubishi UFJ Trust, given it already owns 15 per cent and has first right of refusal.

But amid the downturn, it is thought that there would be few parties with an appetite for an acquisition.

One thought is that AMP would only sell AMP Capital if it was unable to lock in a deal to offload its life insurance business to Resolution Life, a global life insurance business with its head office in London.

Initially, AMP agreed to sell its life insurance business to Resolution Life for $3.3bn.

But following regulatory resistance from New Zealand, AMP agreed to new terms, with Resolution Life paying $2.5bn in cash and AMP taking a $500m stake or 20 per cent interest in Resolution Life Australia.

AMP has several joint ventures, including one with insurance and annuities giant China Life Pension Company.

In 2015, AMP took a 19.99 per cent stake in China Life Pension.

AMP posted a $2.47bn loss in 2019. Its shares have fallen from a 2020 high of $2.08 to $1.31, for a $4.4bn market value.