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S&P reports on merged AMP group

Standard and Poor's has reviewed AMP's credit ratings following the AXA acquisition.

Tuesday, May 17th 2011, 5:00AM

Standard & Poor's has affirmed its 'AA-' counterparty credit and insurer financial strength ratings on AMP's (not rated) principal life insurance subsidiary AMP Life.

We also affirmed the ‘A/A-1' counterparty credit ratings on intermediate holding company AMP Group Holdings (AMPGH).

The affirmations follow its review of the business and financial implications of AMP acquisition of the Australian and New Zealand operations of AXA Asia Pacific Holdings.

At the same time, S&P elevated the group status of acquired life insurance subsidiary The National Mutual Life Association of Australasia Ltd. (NMLA) to core status, and raised its rating to 'AA-' from 'A+'. The outlook on all entities is stable.

The very strong 'AA-' ratings on Australia-based AMP Life reflect the insurer's very strong business and financial position as well as that of the wider AMP Ltd. group of businesses, which include investment management, banking, and the newly acquired and merged AXA operations.

"The Australian and New Zealand operations of AXA are, in our view, a complementary business fit for AMP, and funded under very strong capital, leverage, and interest cover metrics," Standard & Poor's credit analyst Michael Vine says.

AMP group's competitive position has improved, with current leadership positions in most key markets, including individual risk and retail superannuation. The iconic branding and aligned distribution of AMP group have been supplemented by AXA's established relationships with independent financial advisers.

"In our view, the scale and likely synergies of the acquired business have boosted AMP group's continued organic growth strategy around distribution, capability, and market segmentation. The resultant scale and reach of distribution also place AMP group well in the face of ongoing industry consolidation and industry and regulatory reviews."

 

The A$4.2 billion acquisition was financially conservatively structured, in our view, with funding via a A$3.7 billion share issue and A$600 million raising of tier II subordinated debt to meet the cash payment of A$455 million and fund some acquisition costs. As a result, we expect that AMP Life's very strong capital metrics and coverage of regulatory solvency will be maintained. Earnings for year ended Dec. 31, 2010 were supportive for both AMP Life and NMLA, taking into account some softening in investment market conditions.

 

The stable outlook reflects our expectation of AMP Life's sustained very strong earnings as well as maintenance of its leadership business position. We acknowledge that synergy benefits from the acquisition may take some time. Upside ratings movement could occur with evidence of continued market leadership and momentum from synergies or market advantages. While less likely, downside pressure could arise from material integration issues that erode market confidence in the group, significant damage to the AMP franchise or erosion of the distribution network, or substantial reduction in the group's capital adequacy.

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