AMP in Reinsurance Deal with Munich Re

   By Robb M. Stewart

MELBOURNE, Australia--AMP (AMP.AU) has moved to sharply reduce the capital intensity of its wealth-protection business in Australia through a deal with Germany's Munich Re AG to reinsure half of the 750 million Australian dollars (US$574 million) in annual premium income of its AMP Life retail portfolio.

Further tranches of reinsurance would be sought when time and conditions allowed, the financial services company said.

AMP Chief executive Craig Meller said Friday there had been a consistent deterioration in the insurance sector over 2016, which has significantly impacted the company's wealth protection business. The reinsurance deal and a strengthening of best-estimate assumptions were designed to "reset" the business, he said.

"They will improve the group's earnings stability, free up capital and help bring into focus the growth potential of AMP," Mr. Meller said.

The company's AMP Life division had signed a binding quota sharing agreement with Munich Re that, subject to regulatory approval, is set to begin on Nov. 1.

The deal has the potential to release up to A$500 million of capital from the division, although will result in a A$25 million reduction in wealth-protection profit margins annually from the 2017 financial year, AMP said.

The company said the challenges facing its Australian wealth-protection operation over the last three years continued into the third quarter of this year, with the operation experiencing a loss of A$44 million.

With the trends viewed as structural, AMP said it expected capitalized losses and other one-time items of about A$500 million this financial year and a reduction in Australian wealth-protection profit margins of about A$65 million in the next year. The assumptions reduce the embedded value of the wealth-protection business by about A$1 billion, and goodwill attributable to the business is expected to be fully impaired by A$668 million for fiscal 2016, it said.

The impairment charges won't impact underlying profit for the year, it said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

October 27, 2016 17:54 ET (21:54 GMT)

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