Conditions imposed on AMP life insurance sale to Resolution

NZ’s central bank has acted to ‘protect policyholders’ while approving the sale of AMP’s life insurance division to Resolution.

Conditions have been imposed on AMP’s sale of its life insurance division to Resolution. Picture: Hollie Adams

AMP investors were dealt renewed optimism on the potential for dividends to resume or a capital return, after New Zealand’s central bank on Tuesday approved a revised $2.5bn life insurance division sale to Sir Clive Cowdery’s Resolution Life.

The Reserve Bank of New Zealand said it was green lighting the transaction, albeit alongside conditions “to protect policyholders”.

AMP’s shares surged in Tuesday’s trading to finish the session 7.9 per cent to $1.905, the stock’s biggest one-day gain since April.

The approval is the last remaining sign-off required for the AMP divestment after regulators in China, the Foreign Investment Review Board and the Australian Prudential Regulation Authority cleared the deal.

Prior to the COVID-19 crisis, battered AMP investors were confident a completed life insurance sale would lead to a notable capital return by the wealth group, but APRA has urged financial companies to tread cautiously on capital and the paying of dividends during the pandemic.

Allan Gray’s managing director Simon Mawhinney remains confident an AMP capital return could occur over coming months.

“They had all but committed to returning excess capital to shareholders. COVID shouldn’t change that I wouldn’t have thought,” he said.

Morgan Stanley analyst Andrei Stadnik said AMP would use the sale proceeds to repay debt, fund separation and other costs, and help to fund a turnaround strategy.

He also noted that funds from the deal could act as “a safety buffer” for AMP’s client remediation program or see the company resume paying a dividend.

Shaw and Partners analyst Brett Le Mesurier said the life insurance sale price achieved was “an extraordinary effort” during the COVID-19 crisis, but underlying issues remained in AMP’s wealth division.

Deputy RBNZ governor Geoff Bascand said the central bank had been reviewing the proposed AMP transaction and consulting with the parties involved over 18 months to ensure the deal met its requirements.

“Because AMP Life is a branch of an Australian business and intended to be in ‘run-off’ and not write new business, special arrangements were needed for the security of New Zealand policyholders,” he added.

“A bespoke trust model has been established that ensures supervisory objectives are better met, future industry dynamics are generally more positive, and there is additional protection in the event of insolvency – one of the key risk considerations that we have been seeking to mitigate.”

An initial $3.3bn deal to sell AMP’s life unit was blocked by the RBNZ last year because the transaction didn’t protect and ring-fence policy holders across the Tasman.

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 an ASX statement on Tuesday, AMP said it had received all necessary regulatory approvals for the sale of the life division to Resolution, confirming it expects the deal to complete after the market close on June 30.

“AMP will provide an update to the market on July 1, 2020,” the company said.

AMP chief executive Francesco De Ferrari is implementing a three-year turnaround plan which includes the life insurance divestment, a restructure of the financial advice business and simplification of the superannuation unit.

The trust structure required by the RBNZ will hold capital and assets in NZ to provide “long-term security for policyholder benefits or investments, where relevant”, the RBNZ’s statement said.

In addition, the model will see the establishment of a locally-incorporated insurer Resolution Life New Zealand, whose board will have a majority of NZ-resident, independent directors.

The RBNZ also linked the deal approval to AMP Life establishing a NZ Policyholder Advisory Committee.

“The committee is a subcommittee of the AMP Life Board, and will include RLNZ’s independent directors. Its purpose is to provide advice to the AMP Life Board,” the statement said.

AMP reports first-half earnings in August. The company has set aside $778m for its customer remediation program, including costs.