AMP, the financial services giant, has posted a $344 million full-year loss, citing continuing strife in its life insurance business but claiming the poor performance had overshadowed an otherwise strong result.
The $344 million net loss followed a 2015 full year net profit of $972 million posted a year earlier. Underlying profit fell 61 per cent to $486 million - down from $1.2 billion - as a result of a $415 million loss in life insurance.
But, as analysts hoped for, Australia’s largest wealth manager announced a market share buyback of up to $500 million - beginning this quarter - as well as a targeted reduction in costs.
AMP’s life insurance arm has long struggled with rising losses as industry conditions worsened as a result of high claims payouts and lapsing policies.
"The wealth protection market deteriorated in 2016 and we took action to reset and stabilise our business,” AMP chief executive Craig Meller said in a statement. The wealth protection division includes life, disability and income protection products.
“While first half claims experience was poor, we continue to focus on improving the outcomes for customers and shareholders in our wealth protection business, with actions underway to improve capital efficiency and reduce volatility," he added.
Despite the disastrous loss, Meller pointed out that AMP was in a strong capital position with a $2.3 billion surplus from the consolidation of its life insurance interests.
He further pointed to strong results from AMP Capital, AMP Bank, New Zealand as well a resilient performance from wealth management despite challenging market conditions. Generally speaking, the bad result was no real shock to the market.
AMP had already flagged the full year loss in October when it warned its wealth-protection business would be hurt by $500 million due to capitalised losses and consequently wrote off $668 million of the division's value.
Moreover, Citi’s Nigel Pittaway said wealth protection looked to be a non-issue in this result with experience and capitalised losses less than was previously thought.
“The other two things we were looking for, namely a buyback and cost-outs were also delivered, while underlying profit was largely in line with consensus including a $42 million restructuring charge.”
Flows into its wealth management business plunged 85 per cent to $336 million mostly because of uncertainty over superannuation reforms. Market volatility and tighter controls on financial planners also slowed down flows.
Still, AMP said total assets under management rose 6 per cent to $240 billion by the end of the year.
AMP Bank, which accounts for just 10 per cent of group earnings, was the standout with profits rising 15 per cent to $120 million. Net interest margin jumped 18 basis points to 1.67 per cent.
The wealth manager said it would continue to cut shareholder exposure to life insurance, but ruled out a sale of the business in the short term.
On another positive note, AMP said it was continuing to expand in China, Europe and North America, with assets under management in its China Life business rising 55 per cent year on year.