UK insurance consolidator Resolution Life is buying AMP’s Australian and New Zealand life and related “wealth protection” advice businesses for a combined A$3.3bn (£1.81bn, US$2.34bn, €2.05bn.)
Shares in AMP, Australia’s biggest insurance company lost nearly a quarter of their value in trading on Thursday, falling 24.47% to around A$2.50 a share after the deal was announced and the firm revealed it has lost A$1.5bn from its Australian wealth management business in the third quarter.
The sale comes in the wake of a Royal Commission investigation which saw harsh criticism of AMP’s business model and approach including earning fees for no service, charging dead customers and providing misleading reports to the Australian Securities and Investment Commission.
AMP has also signed a smaller, binding agreement with Swiss Re to reinsure the New Zealand retail wealth protection business raising additional capital of up to A$150m. The total raised is therefore A$3.45 billion.
The sale comes as part of what AMP is describing as a ‘portfolio review’ of its businesses which will see AMP more focused on its general insurance business.
AMP’s will also seek to divest from what it describes as its “wealth management and advice” business in New Zealand via an initial public offering in 2019 subject to market conditions and regulatory approvals.
AMP’s acting chief executive Mike Wilkins said: “The completion of our portfolio review marks a major step forward in reshaping AMP as a simpler, more focused group, that is well positioned to compete in our core markets.
“Delivering the right outcome for customers, shareholders and employees has been our focus throughout the portfolio review. For customers, there will be no change to their existing insurance policy terms or conditions.
“They will benefit from Resolution Life’s deep expertise in managing in-force insurance policies and its commitment to customer service. For shareholders, the agreement with Resolution Life and our exit from wealth protection and mature delivers important strategic benefits. It substantially simplifies our portfolio, delivers certainty and frees up capital.”
Clive Cowdery, Resolution founder and Resolution Life executive chairman said: “Resolution Life is delighted to be partnering with AMP on this transaction. We have great respect for the long and proud history of AMP’s life insurance business in Australia and New Zealand.
“The acquisition of AMP Life is consistent with our strategy to grow the business beyond our traditional markets in Europe and the United States and we see scope for further consolidation in the Australian life market.”
The deal with Resolution Life includes A$1.9 billion in cash, with A$300 million in AT1 preference shares in AMP Life to be issued on completion of the transaction with A$1.1 billion in non-cash considerations.
AMP will retain an economic interest in future earnings from the mature business, equivalent to A$600 million which is expected to provide steady ongoing earnings to AMP of approximately A$50 million after tax per annum assuming an annual run-off of five per cent.
AMP receives an A$515 million interest in Resolution Life, focused on the acquisition and management of in-force life insurance books globally.
AMP says it expects to monetise all non-cash consideration over time.
A new relationship agreement has been established with Resolution Life and AMP Capital will continue to manage wealth protection and mature assets under management. AMP Capital will also join Resolution Life’s global panel of preferred asset managers.
