Acquisitive Resolution to use AMP as vehicle for rationalisation in life insurance sector

Resolution Life will use its newly acquired AMP life insurance unit to drive further rationalisation in the Australian sector.

Megan Beer, head of resolution life Australia and AMP life. Picture: John Feder.

Resolution Life will use its newly acquired AMP life insurance unit to drive further rationalisation in the Australian sector and invest in improved technology, adamant that COVID-19 has highlighted the value of life insurance.

Resolution Life Australasia and AMP Life chief Megan Beer told The Australian there were “other opportunities here to grow and to consolidate”, although she wouldn’t comment specifically on interest in buying Westpac’s life insurance portfolio.

“We do have a large number of players for a very small market,” she said. “It’s too early to talk about specific opportunities.”

Sir Clive Cowdery’s Resolution last week completed a $3bn transaction to buy AMP’s life insurance division, which includes more than 1.5 million policyholders and about 1200 employees.

The re-cut transaction included a cash payment of $2.5bn to AMP and the wealth company taking a $500m equity interest in Resolution Life Australia.

ASX-listed Equity Trustees has been appointed the superannuation trustee of the Resolution-owned local unit, a move away from AMP’s N M Superannuation.

Resolution — which has operations spanning London, Bermuda, the US, Australia and New Zealand — typically buys life insurance books in run-off, meaning it services existing customers rather than seeking any new business. Since 2003, Resolution and its prior entities have deployed $US16bn of equity in the acquisition, reinsurance, consolidation and management of 28 life insurance companies.

“The in-force model has played a very important role in enabling companies to be able to pass the promises they’ve made to existing customers,” Ms Beer said.

“We are well positioned at Resolution Life in Australia and New Zealand to grow by purchasing other closed books of business and integrating them into our new business model, and enabling others in the market to then focus in on addressing some of the product features.”

Sir Clive has previously called out life insurance markets including Australia and Japan as ripe for further consolidation, but Ms Beer said it was “too early” to discuss whether the domestic entity may be used as a vehicle to pursue regional deals.

AMP chief executive Francesco De Ferrari last week noted the wealth group’s residual 20 per cent stake in Resolution’s local entity would see it participate in further consolidation of the under-pressure life insurance sector.

“For Australia it’s also great because it brings in a specialised player in a troubled industry who has done 28 or 29 of these deals before and brings in billions of fresh capital,” he said at the time.

In the statement last week Sir Clive said: “The strategic need for life insurance groups to release trapped capital and resources continues to grow globally.”

AMP will continue to provide technology and administrative services to AMP Life for two years under a services agreement. The company will re-brand Resolution in “due course” but remain AMP Life in the short term, Ms Beer said.

AMP’s life insurance division posted an operating loss of $21m for calendar 2019. Terms of the Resolution deal saw the buyer entitled to AMP’s life insurance earnings or losses and policy lapses from July 2018.

Westpac is the last of the major banks to conduct a strategic review and consider a sale of its life insurance business, with the other three having already divested their divisions. National Australia Bank continues to own 20 per cent of its former life unit, after selling the bulk of it to Nippon Life in 2015.

The Australian revealed that JPMorgan was working with Westpac to sound out interest in its life insurance business.

The local life insurance sector has been grappling with higher capital intensity, poor policy trends and lapse rates and tougher ­regulations following the Hayne royal commission.

After the AMP life insurance deal completed, S&P Global Ratings said it expected AMP Life to maintain its “solid creditworthiness” under Resolution’s ownership.

But while S&P affirmed A- ratings on AMP Life and an A- financial strength rating on the NZ entity, it cautioned that weaker economic conditions due to COVID-19 could lead to higher claims and reserve requirements.

“The negative outlook on AMP Life reflects the potential for downward ratings pressure if worsened economic conditions lead to weakened profitability and capital buffers ... there remains investment market pressures and risk that higher reserves may be required due to heightened claims experience and yield curve impacts,” the report said.

S&P added that it could lower the ratings on AMP Life over the next two years if its standalone credit profile deteriorated.

Locally, Resolution has more than $30bn of investments in its portfolio and the acquisition involved the shifting of about $55bn of client funds via several successor fund transfers to the buyer.

Ms Beer remains optimistic of consumers hanging on to their policies, particularly given concerns around the pandemic.

“Customers have been and are seeing the value of insurance more than they possibly had because of this circumstance, so I think it’s too early to form a view on what might happen to lapses going forward, because the pandemic does have a little way to play out,” she said.

“We are committed to helping our existing customers, and so advisers who have relationships with these existing customers ... We have paid some (COVID-19) claims for customers’ family members that are beneficiaries of some policyholders.”

Ms Beer also highlighted that the acquired business would become more data-driven, harnessing analytics and artificial intelligence.

Resolution’s cornerstone investors include JPMorgan, KKR & Co, Nippon and Temasek.

Ms Beer was an executive at AMP before transferring to Resolution. She wouldn’t comment on the group’s culture given the promotion of Boe Pahari to run AMP Capital. Mr Pahari was the subject of a sexual harassment claim that was settled by AMP.