AMP says $2.3bn life insurance business sale unlikely to proceed
Shares fall nearly 15% as deal failure strikes major blow at Australian insurer
AMP Limited warned on Monday that the A$3.3bn ($2.3bn) sale of its life insurance business to London-based Resolution Life is highly unlikely to proceed due to strict capital requirements set by New Zealand’s central bank.
A failure to complete the transaction would mark a major blow to the financial services company, which had negotiated the sale of its Australian and New Zealand life insurance businesses as the centrepiece of a major restructuring plan.
AMP shares fell as much as 14.7 per cent in afternoon trading in Sydney on Monday to a fresh record low, after the company also announced that it was unlikely to pay an interim dividend this year.
“I think this is a major headwind for AMP’s turnround,” said Chanaka Gunasekera, an analyst at Morningstar.
“The sale of the life business would make AMP a simpler, less capital-intensive business, which I suspect is part of the reason the new management was looking to sell this business,” he added. T”his part of the strategy is now obviously unlikely to occur.”
AMP said Resolution Life had informed it that the Reserve Bank of New Zealand would not sanction a change of control application for the New Zealand life insurance business unless it agreed to have separate, ringfenced assets, held in New Zealand.
As a result, Resolution Life does not expect RBNZ to approve the transaction under its current terms, said AMP.
AMP added that meeting the RBNZ requirements would have an adverse impact on the commercial return of the sale for both AMP and Resolution Life.
“The failure to meet [RBNZ capital requirements] is exceptionally disappointing as the sale of AMP Life is a foundational element of AMP’s strategy,” the company said.
“AMP is now working with Resolution Life to determine whether there is a solution that addresses policyholder interests, regulatory requirements and provides certainty of execution,” it added.
AMP, Australia’s largest wealth manager, has been hit by damaging revelations exposed by a public inquiry into misconduct in the financial sector, including that it charged fees to dead customers and lied to regulators. This led to the resignation of its chairman and chief executive last year and forced the new management to implement a major restructuring plan.
A collapse of AMP’s proposed sale of its life insurance business to Resolution Life would represent the first direct consequences of the RBNZ’s proposed new capital requirements policy.
The central bank wants to force banks and other financial services firms to hold more regulatory capital to enable them to withstand a once in every 200 years financial crisis.
Australia’s main banks have warned the higher capital requirements would dent profits and could lead them to substantially raise loan costs and even dispose of New Zealand subsidiaries.