MELBOURNE, Australia--Australian wealth manager AMP Ltd. (AMP.AU) has moved to further reduce the capital intensity of its wealth-protection business in Australia with a series of reinsurance agreements it expects will release about 500 million Australian dollars (US$394.4 million) in capital from its AMP Life unit.
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It follows on from a reinsurance deal struck last year with Germany's Munich Re AG aimed at stabilizing the life unit, which had struggled with escalating losses and deteriorating industry conditions.
News of the arrangements came as AMP reported a 15% drop in first-half net profit to A$445 million from A$523 million a year earlier. Still, AMP said it would lift its interim dividend payout.
The new reinsurance agreements are set to begin in November and, combined with the earlier deal with Munich Re, effectively mean that 65% of AMP's retail life-insurance portfolio will be reinsured for claims, the company said.
The new arrangements include a quota-share agreement with General Reinsurance Life Australia Ltd., an extension of the agreement with Munich Re to cover 60% of AMP Life's retail portfolio from 50% earlier and a new surplus cover deal with General Reinsurance to help manage volatility in individual claims.
The steps will both free capital and reduce earnings volatility, Chief Executive Craig Meller said.
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Over the first half of the year, Mr. Meller said the company had continued to drive growth in its banking operations, seen international growth in AMP Capital and had effectively managed margin compression in wealth management.
"Overall, it's a solid performance underpinned by strong cost management," he said.
Underlying profit for the six months--a measure that seeks to normalize investment market volatility measure and is used by the company to determine dividend payments--was up 4% at A$533 million and revenue for the period was up 25% to A$7.61 billion from A$6.10 billion last year.
In late May, AMP said that in an effort to adapt to an increasingly competitive market and technology-driven disruption it would tilt investment toward higher growth and less capital-intensive businesses. It aims to remain a leader in Australian wealth management while also looking for opportunities internationally, including leveraging partnerships in Asia with China Life Pension Co. and Japan's Mitsubishi UFJ Trust & Banking Corp.
AMP's Australian wealth management division's operating earnings slipped 1% year-over-year to A$193 million. Operating earnings for the AMP Capital division were 11% higher at A$92 million, while AMP Bank recorded a 10% rise in earnings to A$65 million. In New Zealand, the company said its earnings were 4.8% higher at A$65 million.
The Australian wealth protection unit logged 11% growth in operating earnings to A$52 million.
AMP said it would pay an interim dividend of 14.5 Australian cents a share, up on the 14 cents payout last year.
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(END) Dow Jones Newswires
August 09, 2017 18:33 ET (22:33 GMT)