$3.3bn sale, IPO as AMP reshuffles wealth, insurance and life

Under-pressure wealth manager AMP is selling some of its income protection and life business and floating its NZ wealth outfit.

AMP.

Under-pressure wealth manager AMP will sell some of its income protection and mature life business to Resolution Life for $3.3 billion.

At the same time the company outlined plans to sell its New Zealand wealth management and advice businesses through an initial public offering in the 2019 calendar year, subject to market conditions.

The financial services major, which was hit with a top level management and board implosion in the wake of damning evidence at the financial services royal commission, said it will also release up to $150 million in capital through an alliance with Swiss Re over AMP’s wealth protection business.

The string of transactions will deliver total proceeds of $3.45 billion, excluding any potential New Zealand IPO proceeds.

However the transaction with the London and Bermuda-based Resolution is made up of $1.9 billion in cash, $300 million in preference shares in AMP Life and $1.1 billion in non-cash consideration comprising an economic interest in the mature life business and interest in Resolution Life.

Resolution Life will also assume earnings or losses for Australian and New Zealand wealth protection and mature businesses from 1 July 2018, subject to risk-sharing arrangements, reducing AMP’s earnings volatility.

AMP’s acting chief executive Mike Wilkins said the move finalises the review of AMP’s portfolio.

“(This) review marks a major step forward in reshaping AMP as a simpler, more focused group, that is well positioned to compete in our core markets,” Mr Wilkins said.

“It substantially simplifies our portfolio, delivers certainty and frees up capital”.

“Delivering the right outcome for customers, shareholders and employees has been our focus throughout the portfolio review”.

This means AMP will continue to focus on its higher growth businesses of Australian wealth management, AMP Capital and AMP Bank.

Mr Wilkins said for AMP customers, there will be no change to their existing insurance policy terms or conditions, adding they will benefit from Resolution Life’s expertise in managing in-force insurance policies and its commitment to customer service.

Resolution Life executive chairman Sir Clive Cowdery said the acquisition of AMP Life “is consistent with our strategy to grow the business beyond our traditional markets in Europe and the United States”.

“We see scope for further consolidation in the Australian life market,” he added.

Australia’s major banks including Commonwealth Bank, ANZ and National Australia Bank have this year outlined plans to dramatically scale back their wealth businesses. Many of the businesses come under intense scrutiny from the financial services royal commission for wrongdoing including charging customers fees for not delivering services or having too onerous conditions for customer payouts.

For AMP, the simplification and separation costs related to the Resolution Life sale transaction are expected to be in the order of $320 million post-tax.

Following the sale, operating earnings in AMP’s Australian wealth management business are forecast to be reduced by $80 million to $90 million a year.

And after the stock market listing of the New Zealand wealth protection and mature businesses, the remaining New Zealand wealth management and advice business’s operating earnings are expected to be approximately $40 million annually.

On Thursday morning AMP said it continued to target a total financial 2018 dividend payout within, but towards the lower end of, its dividend guidance range of between 70-90 per cent of underlying profit.

AMP shares last traded at $3.31, but have so far lost more than 36 per cent this calendar year.

More to come