Resolution Life’s Sir Clive Cowdery urges banks to take the long view

Central banks are overreacting to data and the threat of prolonged price increases, which are likely to be temporary, Resolution Life’s Sir Clive Cowdery warns.

Resolution Life’s Sir Clive Cowdery says there is a risk inflationary fears become self perpetuating. Picture: John Feder/The Australian

Central banks are overreacting to short-term data and the threat of prolonged price increases, which are likely to be temporary and due to “supply shocks”, Resolution Life’s Sir Clive Cowdery warns.

Sir Clive, founder and executive chairman of Resolution which acquired AMP’s life insurance unit, questioned aggressive rate rises and the swift removal of stimulus by some central banks globally as economies recovered from the pandemic.

“I’m concerned that we are going to decide to overreact to our fears of inflation, which are embedded in the memories of old people … that can remember the 1970s and ’80s,” he said in an interview with The Australian.

“If you’re baking in the belief that we’re going into a decade of this (inflation) then I fear that becomes self perpetuating.

“My reaction to the actions of central banks at the moment is scepticism that they may be overreacting to short-term data and deciding it’s long term.”

Sir Clive said economies were still grappling with “supply shocks” which were exacerbated by the war in Ukraine and Covid-19 lockdowns in China.

Central banks in New Zealand and Canada this month raised their official rates by 50 basis points, while the Bank of England upped its rate by 25 basis points in a second increase this year. The US Federal Reserve in March raised rates for the first time since 2018, seeking to cool surging prices across the economy.

Several market pundits – including Deutsche Bank economists – are concerned that a spate of rate rises in the US will tip the economy into recession next year.

Sir Clive, also a keen philanthropist, said a positive in the current climate was that employees were increasingly able to negotiate pay rises within tight labour markets.

In Australia, the Reserve Bank has retreated from its cautious stance on rate rises and is tipped to start raising rates as early as next month or in June.

Resolution – which has operations spanning London, Bermuda, the US, Australia and NZ – typically buys life insurance books in run-off, meaning it services existing customers or provides reinsurance rather than seeking any new business.

The group secured a large position in Australia when it acquired AMP’s life insurance division.

The re-cut transaction included a cash payment of $2.5bn to AMP and the wealth company taking a $500m equity interest in Resolution’s local entity. That residual stake was then sold to Resolution late last year.

An acquisition spree in recent years has Resolution managing about $US100bn ($135bn) in assets across its US and Australasian businesses and its Bermudan reinsurance base. The company has deployed $US17bn in equity since it was founded in 2003.

Sir Clive is confident Resolution will manage a further $US100bn in a decade’s time as it executes on its strategy globally and pushes further into Asia.

He highlighted the Australian business as a standout, despite noting risks of a rise in mental health claims linked to Covid-19 and a potential increase in claims in coming years due to undetected illnesses such as cancer during the pandemic.

“AMP (Life) was a jewel in our crown, there’s no question,” Sir Clive said, referring to the unit’s engagement with customers and knowledge of the life insurance sector.

But he cautioned that the wash-up from Covid from undetected health issues due to lockdowns needed to be closely monitored.

“Deaths are going to come up in Australia and that’s not because of the health impact of Covid but because of the public response to that,” he said.

On the deals front, Resolution agreed to acquire AIA’s Australian superannuation and investments business last year in a deal said to be worth hundreds of millions of dollars.

There are also several potential deals in the market. Suncorp is considering the sale of its NZ life insurance arm, after offloading its Australian division to Dai-ichi Life’s TAL in a deal that completed in 2019. ClearView Wealth formally started a strategic review last month, which includes assessing a potential change of control transaction.

Sir Clive would not comment on Resolution’s interest in those assets, but noted deals of that size were not “out of scope”.

“Our bread and butter is those smaller deals, you don’t get an AMP every day,” he said, noting that the company had a pipeline of about four deals that could come off in the next three years.

Resolution Life Australasia reported a statutory profit of $222m for calendar 2021, down from $234m the prior year.

Last month, the entity declared a dividend of $93m and a capital return of $148.2m, relating to its latter half, subject to regulatory approval. AMP’s life division posted an operating loss of $21m for calendar 2019. Terms of the Resolution deal meant the buyer was entitled to AMP’s life insurance earnings or losses and policy lapses from July 2018.

Resolution’s local boss, Megan Beer, said the separation from AMP was “well progressed” with completion to occur in the next few months.

Ms Beer also noted that the run-off of policies from the AMP businesses was within Resolution’s expectations. In the latest twist in AMP’s turbulent period of four years, the company on Tuesday confirmed negotiations with Dexus and other parties for a sale of its private markets unit, Collimate Capital.

Ms Beer would not comment further on Resolution’s mandates with Collimate, reiterating it was monitoring the process.

Sir Clive said Resolution would keep the option open for a partial listing of the Australian business in the future, but it was not on the near-term agenda.

Resolution this month announced a new representative ­office in Singapore as part of a broader growth plan in Asia.

Sir Clive said it would reflect a long-term strategy focused on mature markets, ahead of fast-growing ones.

“When we talk about important and core I think we are taking a 30-year view … we are about to announce our first Japanese transaction,” he said.

“It will be five years before we’re doing anything meaningful at scale (in mature Asian markets) and 25 before we are in some of these new countries.”