AMP is ramping up its reinsurance strategy in an effort to release $500 million in capital from its life insurance business and curb volatile earnings in a "challenging industry."
AMP chief executive Craig Meller today announced the company signed a new agreement with General Reinsurance Life Australia (Gen Re) to reinsure 60% of policies under the National Mutual Life retail portfolio.
The move builds on AMP entering in its first reinsurance agreement with Munich Reinsurance (Munich Re) in October 2016, which Meller said has now been extended from a 50% cover to 60% of the AMP Life retail book, which merged with National Mutual Life earlier this year.
Meller made the announcement in releasing the firm's financial results in the six months to June, stating the reinsurance program, which is expected to take effect on November 1, will reduce this year's earnings by $5 million; and slash profits by $30 million in 2018.
Meller said earnings in the wealth protection business will be "much less volatile" following the implementation of the new reinsurance program as "we've effectively insured ourselves against a large portion of potential claims."
The wealth protection business delivered operating earnings of $52 million, an increase of 11% on the prior corresponding period; profit margins however, dropped from $90 million to $49 million.
AMP's wealth management arm, which includes superannuation, investment platforms and advice, reported a steady bottom line of $193 million, down 1% year-on-year.
In terms of super, Meller noted "some margin compression" that was in line with expectations as a result of the July 1 changes to contribution limits taking effect, which saw customers transition to lower margin accounts and consolidating their super into a single account.
He expects the SMSF and advice business lines to perform strongly this year, increasing revenue by 10% on 2016, and further accelerate growth in 2018.
Meller also announced about $50 million will be invested in the advice business and client registers this year. Where AMP historically acted as a broker to advisers who retired and sold their business, the firm is now looking at opportunities to buy the practices.
"We'll take those businesses in and manage them as businesses of AMP rather than our more traditional self-employed model," he said.
Buying practices for $50 million will generate between $12 to $16 million in revenue, Meller said by way of example, adding it's a viable way to grow the wealth management business and earn a larger share of revenue.
The advice arm, which includes AMP Advice and AMP Financial Planning, reported a 99% retention rate on core licensee adviser practices in the first half, with an average AUM per adviser practice at $39 million.
Flagship platform North, recorded $2.9 billion in net cashflow, up 8% year-on-year.
AMP Capital meanwhile posted a 10.8% increase in operating profit of $92 million; average AUM reached $177 billion from $158 billion.
The group reported an underlying profit of $533 million, up 4%, and a statutory net profit of $445 million, down 14.9% on the prior corresponding period.