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AMP NZ Optimistic About Return To Double Digit Profit Growth

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, Feb 18 NZPA - AMP Financial Services (NZ) didn't make its goal of double digit profit growth last year but it is hopeful about this year, in part because fewer people are letting their life insurance policies lapse as the economy recovers.

The New Zealand arm of the Australian insurance giant reported 2 percent growth in operating earnings to $NZ68 million for the year ended December in New Zealand dollar terms, while in Australian dollar terms the earnings were down 4 percent.

The company tries to achieve double digit profit growth each year but a difficult trading environment and an unprecedented wave of regulatory changes have been challenges. Life insurance tax changes take effect from July 1 and a new adviser regime is expected to be effective by December 6.

Economic stress endured by both the business and personal customers resulted in policy cancellations, which reduced income and created a balance sheet provision known as an experience loss. The company had an experience loss of $A11m ($NZ14m) in 2009, up from $A6m the previous year. About half the experience loss was due to economic stress and half was due to customers not wanting to pay higher premiums introduced ahead of the tax changes.

"The goal remains double digit growth. Subject to normal market conditions and steady state economic growth then we would be confident about our prospects," managing director Jack Regan said.

The company was confident about an improving trend it was seeing in lapses recently.

"The trend is definitely improving. Late 2009 and early 2010 we are seeing less evidence of economic stress."

The change in life insurance tax in New Zealand was a very significant event and AMP had increased its life insurance product premiums in 2008 to prepare for the change. Term life insurance was previously taxed advantageously.

"We think that the other companies will eventually have to take that on or otherwise they are effectively going to be selling life insurance policies at a loss.

"We've moved ahead of the curve and it is now going to be a challenge for others to align their businesses with the new economic reality of a more significant taxation environment in this market. And, I might add, an appropriate taxation environment".

AMP had been preparing for adviser regulation for three years.

The company's number of mortgage and insurance advisers dropped by 15 to 361 in 2009. The company experienced lower levels of adviser recruitment because of less attractive market conditions.

"It is likely we will see less advisers, than more," Mr Regan said.

AMP Financial Services NZ will spend $2m this year preparing for adviser regulation and expects more than 90 percent of its advisers will be "regulation ready" when the regime took effect.

The final requirements of the regime were still not known, but AMP was happy with progress. AMP's plans to apply to become a qualifying financial entity were well advanced.

"It is likely that it (the regime) will have a positive effect in taking less competent, and less diligent and ethical advisers out, but I'm not sure it is going to take them all out. I think it will come down to the resources of the Financial Services Commission. It is one thing to set a standard, it is another thing to enforce it".

Net cash flows jumped 95 percent to $NZ292m, total life insurance sales increased 5 percent to $NZ31m, and controllable costs fell 11 percent.

The improvement in cash flows was driven by KiwiSaver but also reflected lower outflows due to AMP's customer retention campaigns and enhancements from the redesign of AMP's wealth management business.

Controllable costs fell 16 percent to $A54 million in the full year 2009. The cost to income ratio fell 3.5 percentage points to 37.9 percent for full year 2009.

AMP Financial Services NZ is mostly a life insurance and retail wealth management business.

The separate wholesale fund management business, AMP Capital Investors, reported operating earnings fell 33 percent to $A91 million. It did not provide a figure for New Zealand.

Australian parent company AMP Ltd lifted net profit 27 percent to $A739m.

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