Losses across all categories within AMP’s life insurance division have pulled down the company's half-year profit by 10 per cent to $513 million.
Discussing the result yesterday, AMP chief executive Craig Meller said strong results from AMP Capital and AMP Bank had been “overshadowed by a disappointing performance in wealth protection”.
As a result of the poor wealth protection result, AMP’s underlying profit for the half-year was down to $513 million (from $570 million), Mr Meller said.
AMP’s return on equity also fell by 1.6 percentage points to 11.9 per cent, largely reflecting the decline in the company’s underlying profit.
The Australian wealth protection division posted a profit of $47 million for the first half of 2016, down 52.5 per cent from the prior corresponding period.
The result was affected by a $23 million loss due to income protection claims; a $13 million loss due to lump sum claims; a $5 million loss due to group claims; and losses attributable to lapses of $2 million.
According to Mr Meller, the $23 million loss in income protection was due to a higher level of claims, attributable to both volatility and a challenging market environment.
Additionally, a lower level of terminated claims and AMP's continued investment in staff and processes also affected the income protection loss.
On the lump sum side of the wealth protection business, increased claims were primarily to blame, Mr Meller said.
“Notwithstanding the strengthening of [lump sum] assumptions in the second half of last year, we’ve seen increased claims in all subcategories – death, trauma, TPD – in the first half,” he said.
“We believe the increase in claims in these areas reflects the broader market environment.”
The group insurance loss, meanwhile, was attributable to “losses largely driven by a single client plan”, Mr Meller said.
Describing the result as “clearly poor”, Mr Meller went on to describe AMP’s wealth management improvement plan, which he said has three aims.
“[We will] improve margins by fixing claims and lapses; reduce the capital intensity and volatility of the wealth protection business; and re-engineer our wealth protection products to drive profit growth in the future,” he said.
In order to address claims and lapses, AMP is restructuring the management of the wealth protection division – starting with the appointment of a new head of claims, Mr Meller said.
AMP has created a single claims team led by new head of claims Jen Mitchell, who joined the business in July, an AMP spokesperson told InvestorDaily.
“In the group [insurance] business we’re repricing for value over volume. That may result in the exit of unprofitable business in the next 12 months,” he said.
AMP will also launch a new insurance product via the relatively new division AMP Advice, Mr Meller said.
“In the third quarter of 2016 we’re launching a new insurance product aimed at better meeting the needs of today’s consumers,” he said.
“It will be simpler for customers to understand, and it moves away from medical definitions towards holistic cover – that is, you no longer have to choose between life, trauma and TPD.”
Mr Meller admitted the first half had been a bad one for AMP, driven by market issues, volatility and “some issues of our own making”.
“Three years ago we set a strategy for insurance to deliver a less capital-intensive, less volatile, more consumer-oriented business with better growth characteristics,” he said.