AMP, one of Australiaâ€™s largest wealth management groups, has sold its life insurance arm at a discount to London-based Resolution Life and revealed its funds are continuing to suffer large outflows in the wake of revelations that it systematically overcharged clients.
Shares in the 170-year-old company fell by a quarter to A$2.50, which leaves them languishing at record lows as a new management team attempts to rescue the business.
â€śIt was a testing quarter, particularly in Australian wealth management and Australian wealth protection,â€ť said Mike Wilkins, AMP acting chief executive.
He said the sale of AMPâ€™s life insurance arm for A$3.3bn (US$2.3bn) â€” almost a fifth below its book value â€” to Resolution Life and a separate flotation of its New Zealand wealth management and advice business would reshape AMP into a simpler, more focused group.
The disposals would strengthen AMPâ€™s balance sheet and provide strategic flexibility as it focused on its core business, he said.
AMP revealed client withdrawals accelerated in the third quarter with net outflows worth A$1.5bn, compared with net outflows of A$243m in the same quarter a year earlier. Total funds under management increased A$579m to A$132.6bn, reflecting gains from positive investment markets.
Chanaka Gunasekera, a Morningstar analyst, said investors were concerned by the reputation damage suffered by AMP from revelations of misconduct at the company exposed by a public inquiry into the finance sector.
â€śThe outflows are accelerating, the deal with Resolution is complicated and investors fear a dividend cut is looming,â€ť he said.
AMP said in an exchange filing it would receive a total consideration of A$3.3bn from London-based Resolution Life, chaired by Sir Clive Cowdery, for its AMP Life unit â€” just 82 per cent of its value on June 30 excluding franking credits. But only A$1.9bn of that will come in the form of cash, with A$300m coming from shares in AMP Life and another $1.1bn in non-cash consideration including interest in future earnings and a A$515m interest in Resolution.
As part of a public inquiry into Australiaâ€™s financial sector the company was earlier this year forced to apologise for systematically charging customers fees when it provided no services, and for misleading the countryâ€™s corporate regulator.
The acquisition marks a return to large-scale dealmaking for Sir Clive, the insurance entrepreneur who has made his name buying up old books of life assurance business and consolidating them into his Resolution vehicles.
The AMP deal is Sir Cliveâ€™s largest acquisition since 2010. He is planning to float his latest vehicle, Resolution Life, in about five yearsâ€™ time.
Resolution Life is Sir Cliveâ€™s third consolidation vehicle, after the previous two were sold. The company announced its first deal â€” a reinsurance agreement with US-based Symetra â€” earlier this year. It is backed by capital from pension schemes, sovereign wealth funds and other institutional investors.
Sir Clive told the Financial Times that Resolution would look for more deals around the world as large insurance companies look to free up capital by offloading unwanted, and capital intensive, books of life insurance business.
â€śI wouldnâ€™t expect too many more to come from Asia-Pacific,â€ť he said. â€śThe immediate asset flow will come from the US and from Europe.â€ť