Wealth management group AMP’s future has taken a major hit with the news yesterday that it is “highly unlikely” to finalise a $3.3 billion deal to sell off its life insurance business because of opposition from New Zealand’s central bank, and it will not pay an interim dividend for the June 30 half year.
The news hit the shares hard and they fell sharply – losing more than 15.8% to close at $1.81, after falling to an intraday all-time low of $1.77. Monday’s close of $1.81 is an all-time record low close and values AMP at just $5.4 billion.
AMP said on Monday that the Reserve Bank of New Zealand (RBNZ) would probably not support the sale — which had been opposed by some of the company’s shareholders — to London-based Resolution Life unless it agrees to “ring-fenced” assets for New Zealand policyholders.
That would mean those assets would not be available to be used in any way by Resolution Life – for example by way of being used as security for loans or other debt.
The AMP said that meeting these restrictions from the RBNZ will underline the commercial returns from the sale, it said, meaning the deal would not go through in its current form.
“The failure to meet this condition precedent is exceptionally disappointing as the sale of AMP Life is a foundational element of AMP’s strategy,” the company said in a release to the ASX.
AMP said the transaction costs from unwinding the deal would not be large, but the long-term valuation effects would be “more significant” impact on future price negotiations over a deal.
The RBNZ’s stance has effectively slashed the value of the AMP Life business to be sold by hundreds of millions of dollars.
AMP said that since June 2018, its “best estimate” assumptions would have about a $400 million impact, and government legislation to stop people from paying for unnecessary life through their super would have a $300 million impact.
“Given the uncertainty around the AMP Life transaction, the AMP Board expects to continue its prudent approach to capital management and anticipates that an interim dividend will not be paid for 1H 19,” it said.
AMP says it is working with Resolution to try to salvage a deal, but if it cannot do so, it said it would manage its life insurance arm as a “mature business.”
“Mature business’ is insurance-speak for a slow runoff – ie the company owning the mature business cuts back on new business and slowly winds down the existing policies.
