AMP defends life insurance sale

AMP has backed the sale of its life insurance and mature products businesses amid reports of a shareholder backlash.

AMP is facing a backlash from shareholders. Pic: Hollie Adams

AMP has been forced to defend the sale of its life insurance and mature products businesses to London-based Resolution Life amid reports of a shareholder backlash against the deal.

Figures released this morning highlighted declining returns from the wealth protection business in Australia and New Zealand, as well as the significant capital investment required to fund alternatives to the sale.

AMP (AMP) said the other options - including continuing the business, closing it to new business or demerging the business - would not release capital to AMP shareholders and could require significant further injections of capital.

AMP’s board is facing a backlash from shareholders after it sold the life insurance and mature business for a headline $3.3 billion, or 82 per cent of the embedded value.

But analysts and shareholders have argued the true valuation is 60 per cent of the embedded value, and are concerned that just $1.1 billion of the proceeds will be in cash available to shareholders.

AMP is retaining shares in both the buyer and the life insurance business that it is selling as well as an economic interest of 40 per cent of the mature business.

Shares in AMP have collapsed in value by almost a third since the deal was announced on Friday. They rose 9c in early trade to be at $2.40 following today’s AMP statement.

Keeping the business would not maximise value because expected future returns on capital would be lower, according to points in a presentation released to the market.

AMP would need to invest in new systems to meet regulatory requirements and provide additional capital to fund the cost of continuing to write new policies because the value of new business was negative.

A spin-off of the business would require a capital injection to fund separation costs, the loss of synergies and necessary debt reduction.

Retaining the operation but closing it to new business and running down the existing book would also expose AMP to the risk of policies lapsing, as well as the continuing deterioration of the life industry in Australia.