Financial services firm AMP is exiting the life insurance sector with the sale of its AMP Life business to Resolution Life for total cash and non-cash consideration of AU$3.3 billion (US$2.3 billion); the transaction is expected to complete in the second half of 2019.
Concurrently, the company has announced a deal with Swiss Re that will provide reinsurance to its New Zealand retail wealth protection portfolio, releasing additional capital of up to AU$150 million to AMP.
The sale to Resolution will involve a AU$1.9 billion cash payment, AU$300 million in preference shares in AMP Life and a AU$1.1 billion non-cash component, including a stake in Resolution of roughly 20%.
“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,” said Mike Wilkins, AMP’s Acting Chief Executive Officer.
“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.”
“For employees, it provides certainty of outcome with a business that is culturally aligned with AMP. Our highly-experienced teams supporting insurance and mature customers are expected to largely transfer with the sold businesses, delivering continuity and stability for customers.”
Sir Clive Cowdery, Resolution Founder and Resolution Life Executive Chairman added, “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.”
“Over 15 years and the acquisition of 27 life insurance companies, Resolution has developed an operating model which puts delivering policyholder benefits to existing customers at the centre of our business.”
Interestingly, AMP’s shares have suffered a significant fall of 24% since announcing the deal, with the Sydney Morning Herald reporting that the sale price appeared to be about 20% below the market’s expectation.
Meanwhile, AMP’s binding reinsurance agreement with Swiss Re for the New Zealand retail wealth protection portfolio is expected to be effective from 31 December 2018, and will cover approximately 65% of new claims incurred from that date.
The agreement is expected to reduce New Zealand profit margins by AU$20 million on a full-year basis. The reinsurance outcomes are factored into the Resolution Life transaction.