AMP has joined the downgrade club, revealing that interim earnings for the six months to June 30 could fall by 13% or more, thanks to falling interest rates and the slide in stock markets since April.
As a result, AMP shares plunged 12.8%, or 64c, to $4.34 after the company said that it now expects first half underlying profit to come in between $415 million and $435 million, compared with the $491 million earned in the first half of 2012.
AMP YTD – Slowing economy, jobs hits AMP hard
The update also means that the result will also be lower than the $464 million earned in the six months to last December.
AMP said it was providing the guidance update for the first half of 2013 following poor claims and lapse experience in its Australian wealth protection business in the second quarter, particularly in May.
Experience losses were $32 million for the five months to May 31, comprising $26 million in insurance claims and around half the claims were related to income protection, it said in a statement.
Brokers said that it was clear from this statement that the weak market returns and higher policy related costs (which partly reflect rising job losses among policyholders) have outweighed savings from the takeover of AXA’s Australian operations.
AMP said it anticipated some strengthening of best estimate assumptions for income protection claims at the half year, although the financial effects should be largely offset by future premium rate increases.
"AMP continues to implement actions announced at FY12 financial results aimed at improving its claims experience over time. This includes new claims management policies, earlier intervention strategies and enhanced support to help customers return to work more quickly.
"Overall, the rest of AMP’s business is performing in line with market expectations.
"Stronger operating results in AMP’s bank, mature and New Zealand businesses in the five months to 31 May has offset a lower result in wealth management relative to market expectations," the company said.
The news of the downgrade follows a warning at February’s 2012 profit release from AMP about policy lapse rates which it said were at a 10 year high (because of the weak economy and jobs market)
AMP said that operating earnings in the wealth protection business had almost halved to $56 million in the December half. Those pressures haven’t stopped.
