AMP says life insurance sale proceeds to first fund turnaround

AMP says $3bn from the sale of its life insurance arm will first go towards its turnaround, but some may also go to shareholders.

AMP chief executive Francesco De Ferrari. Picture: Britta Campion

AMP’s board is cognisant of the “rough time” endured by shareholders as it weighs up returning capital, after first deploying proceeds from its $3bn life insurance division sale to help fund a turnaround strategy.

The wealth group’s chief executive Francesco De Ferrari told The Australian AMP was focused on balancing growth plans against the COVID-19 environment and the banking regulator’s cautious stance on capital.

“We are really going to come back to you at the half (year results in August) because we also need to overlay that (potential capital return) with COVID and with some of the strong indications we are getting from our regulators,” he said.

“The board is very aware that shareholders have had a rough time.”

AMP on Wednesday said final cash proceeds from the life division sale to Sir Clive Cowdery’s Resolution Life were expected to boost its capital surplus by $1.1bn. That is after the funnelling some of the proceeds to items including repaying debt and separation costs.

“AMP anticipates that any capital in excess of target surplus post completion will first be used to fund delivery of the new AMP strategy,” a statement said. “Beyond this, AMP will assess all capital management options with the intent of returning the excess above target surplus to shareholders, subject to unforeseen circumstances and current economic and business conditions.”

The wealth group aims to provide an update on its capital framework and strategy at its interim results on August 13.

AMP’s shares climbed 1.6 per cent to $1.885 on Wednesday, as some investors were buoyed by the divestment and potential capital return.

But one shareholder urgently called for more transparency from AMP on the prospect of a capital return.

“After nearly two years since announcement of this deal, it would have been reasonable for shareholders to expect greater clarity around capital management plans,” said Merlon Capital Partners’ principal Hamish Carlisle.

“Given the history, it is also reasonable to expect that the board acknowledge that neither capital allocation nor corporate governance are core competencies at AMP.

“Shareholders should expect and demand the immediate return of the $1.1bn in advertised surplus capital and a dramatic downward reassessment of what the company term the ‘target surplus’.”

AMP last paid dividends in 2018 when the company was rocked by revelations at the Hayne royal commission of providing poor financial advice and that it may have misled regulators.

Mr De Ferrari highlighted the AMP life insurance divestment aligned with a simplification strategy and involved 1000 employees, almost 200 legal entities, and approval by three regulators.

“The sale is a major milestone for AMP demonstrating our ability to execute complex projects including through the difficulties of COVID-19,” he said.

“It is also a historic moment as AMP ceases to be a life insurer after 170 years.”

Last week, New Zealand’s central bank approved the revised $3bn AMP life insurance division sale to Resolution.

The Reserve Bank of New Zealand was the final regulator to sign off on the deal, after it initially blocked a higher $3.3bn deal to sell AMP’s life unit because the transaction didn’t protect and ring-fence policy holders.

The internal separation of AMP’s life division included the transfer of about $55bn of client funds via several successor fund transfers to Resolution. AMP said collectively those transfers represented “one of the largest fund transfers of this kind” and enabled it to focus on simplification of its wealth management platforms and products.

In a separate statement, Resolution welcomed the completion of the deal and said its Australian board would be chaired by former Investec Australia boss David Clarke, while in New Zealand the entity’s board would be led by chairman of the NZ Government Superannuation Fund Authority Anne Blackburn.

Sir Clive said of the transaction: “It is a great example of Resolution Life’s ability to help insurers restructure via complex global transactions.”

Megan Beer, chief of Resolution Life Australasia and AMP Life, said policyholders would benefit from “continuity of local management and the experience and financial backing of a successful global manager”.

A re-cut transaction included a cash payment of $2.5bn to AMP and the wealth company taking a $500m — or 20 per cent — ­equity interest in Resolution Life Australia.

In addition to its residual 20 per cent holding in Resolution Life Australia, AMP will continue to provide technology and administrative services to AMP Life for two years under a services agreement.

Mr De Ferrari said the 20 per cent stake would see AMP participate alongside Resolution in further consolidation of the troubled life insurance sector.

Separately, commenting on reports that newly promoted AMP Capital boss Boe Pahari was the subject of an AMP investigation and subsequent 2018 financial settlement, with a woman who brought forward a sexual harassment claim against him, Mr De Ferrari said:

“The board and I really examined this matter at length when considering his appointment.

“Clearly his comments made at the time were not acceptable, there was a thorough investigation done, but he’s shown genuine remorse and he has accepted consequences... There was due process.”

On Tuesday, while appearing in front of parliamentary committee Mr De Ferrari admitted AMP had so far paid out less than a third of the $778m it has set aside to compensate customers. That remediation reflects advisers under AMP’s licence providing dodgy advice and charging fees where no services were provided.