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MLC Life Insurance raises $650 million

The insurer received a $650 million capital injection just before Christmas, as its majority owner Nippon Life sees the risk of MLC Life's "stagnant" business performance continuing beyond 2021.

The raise includes $530 million in ordinary equity, priced at about 86 cents per MLC Life share; and $120 million in subordinated debt with a roughly 10-year maturity.

MLC Life's ownership structure remains the same; NAB bought 20% of the new equity and Nippon bought 80%, in line with their current ownership of the insurer. The $120 million debt was subscribed to by Nippon alone.

"The increase in claims payments of income protection products and others is an industry-wide challenge in Australia. As such, MLC Life has been working to raise premiums and promote efficiencies of its business operations based on their business plan..." Nippon said in a statement.

NAB sold 80% of MLC Life to Nippon Life in 2015 for $2.4 billion, which was followed by disagreements on terms of the transition. Nippon in its recent statement said it injected capital into MLC Life in December 2019 [$290 million] and June 2020 to ensure the business's soundness and support execution of their business plan.

"However, risk of MLC Life's stagnant business performance continuing beyond next year [2021] is of concern in light of the increased unemployment rate due to worsening economy impacted by COVID-19 and expected increase in claims payment and cancellations etc. relating to such developments," Nippon said.

MLC reported $113 million in net loss after tax for the financial year ending 31 December 2019, according to most recent institution-level data published by APRA. Life insurers, as a whole, reported $1.58 billion in net loss for the year ending September 2020.

MLC Life chief executive Rodney Cook said the December 24 announcement demonstrated the "emphatic support of our shareholders and their backing of our strategic direction".

"It sets us up to survive and thrive in the coming post-pandemic environment. It provides real security of policyholder benefits, meaning we will continue to deliver on the promises we make to our customers and business partners," Cook said in a statement.

"As a member of the Nippon Life Group of Companies, we benefit from its long-term view. This additional capital also supports our strategic goals. These include playing a larger role in the group insurance market, developing the industry's leading claims function, and making it more efficient for advisers and superannuation funds to provide insurance to their customers through the use of technology."

Read more: MLC LifeNippon LifeNABMLC Life InsuranceRodney Cook
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