AMP: Fees, flows and Life in the spotlight

All eyes will be on AMP's result next week as the wealth management group hopefully provides more evidence that it has stemmed deterioration in its insurance business, stitched up a life reinsurance deal and achieved stronger flows due to super changes.

As the country’s biggest wealth manager recovers from a horror 2016, it is due to report a first half underlying profit of about $532 million on August 10, up from $513 million for the year ago same period and a $27 million loss in the immediately preceding half.

This is good news for the $15 billion financial services giant which last year revealed a full-year net loss of $344 million — compared with a net profit of nearly $1billion a year earlier - after a tumultuous year of blowouts in life insurance claims and a drop in superannuation contributions after shock government reforms scared savers from adding to their accounts.

Despite a tough market, Morgan Stanley analyst Daniel Toohey said given the first quarter outflows, low expectations could see a second quarter flows surprise. 

The drama in the super sector saw AMP’s inflows increase by 11 per cent year-on-year for the three months through March, to $6.4 billion. The problem was there was a 19 per cent increase in outflows during the period, resulting in AMP booking net outflows of $199 million for the quarter.

Credit Suisse insurance analyst Andrew Adams also believes the results should be favourable in the half, ahead of the super changes, and the Life business should be relatively benign.

Mixed retail flows

Adams is forecasting an underlying net profit of $537 million for the half. 

“We expect Wealth Management to benefit from strong one-off flows in the June quarter due to the superannuation regulation changes, however, the focus will remain on the gross and net margin of this business,” he said in a note to clients.

Regarding the AMP’s beleaguered Life business, the insurance analyst highlighted the premium rate increases that have been implemented in the June quarter. 

“So an update on claims and lapses will be of interest, with the potential for additional reinsurance. While the focus is Life, how mature fits into the picture will also likely be of interest, with the potential that this business is also rolled up in a sale process.”

Adams also noted the AMP is targeting a 3 per cent per cent reduction in controllable costs (ex-AMP Capital) in 2017, and at its strategy day in May outlined some areas of future savings and also investment. “An update on cost-out potential, in both 2017 and outer years remains a key topic of interest for AMP.”

Writing about the wealth sector generally, Toohey listed the challenges which included super account consolidation and fee compression. 

“Also, the ‘best interests’ duties are driving a bias to lower fee product and open architecture.”

In his view, platform capability, advice solutions and price positioning are key. "Those with scale, leading advice capabilities and engaged customers will be winners." 

Despite the transition to the new concessional framework providing opportunity for 65 year olds to contribute $540,000 into their super by 30 June, to date, he went on to say, retail sector flows have been mixed.

“However, we expect modest tailwinds in the seasonally stronger second quarter flows. But, flows may come at the expense of fees with planners favouring lower fee product under client best interests,” he added.

This view jibes with James Coghill at UBS who is also  expecting  a better half for platform operators with net fund flows across AMP to benefit from the one-off  boost to super flows ahead of July 1 changes.

From where he sits, management’s  margin  outlooks  will  be  topical  with  MySuper  transitions  now  complete.   


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