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Life insurance tax changes taxing industry

Llife insurance sales are facing many threats at the moment which are limiting API growth. AMP managing director Jack Regan discusses the threats and what the company is doing to mitigate them.

Thursday, February 21st 2013, 6:52PM 3 Comments

AMP says annual premium income in the second half of last year was up 4% to $298 million compared to the corresponding period last year, but the sector faces some key challenges

One of the key factors is price increases brought on by changes to life company tax rules. These started in 2010 and the sector is half way through a five-year transition period.

AMP managing director Jack Regan says the company is sticking it is plan to make gradual premium increases throughout the transition period and to treat new and existing customers equally.

He says companies which take a different approach may find some “serious issues” when the transition period ends.

While he wouldn’t say how far through the price increase process the company is he made it clear it was his view that the strategy was correct.

The process wasn’t just about making periodic increases, he said, rather the company had to use some “business judgment” about when and by how much it could increase premiums.

Regan says all life companies are facing issues dealing with the tax changes. AMP’s four-pronged approach to dealing with the issue include:

  • Progressively growing its revenue base by increasing premiums
  • Reducing the overall costs by leveraging its scale
  • Reducing the capital impacts of distributing life insurance (no this is not a cut in commission levels)
  • Growing its wealth management business.

Another factor hindering API growth was a competitive market place “which continues to experience aggressive selling behaviour”.

AMP said that it had greater-than-expected insurance claims during the year which resulted in experience losses of $10 million compared with experience gains of $10 million in the previous year, and net positive claims experience over the past few years.

Regan says claims were up due to greater terminal illness benefits and a higher mortality rate than in previous years. However, he says these are nothing to be worried about as claim levels do fluctuate and are only a small portion of its overall insurance book.

AMP‘s insurance policy lapse rates increased 1% to 11, which the company said reflected the impact of its premium price increases ahead of changes to the life insurance company tax rate in 2015.

Overall the company paid out $130 million in claims during the year.

AMP annual results key facts

  • The company has reported an underlying operating profit after tax of $119 million for the year ending December 31 2012, compared with $120 million for the previous year.
  • Underlying business trends are strong despite a flat headline profit result that was affected by a spike in insurance claims.
  • Profit margins in the second half increased 10% to $55 million, compared with $50 million in the second half of 2011. .
  • AMP NZ will stop using the AXA after March 31.
« Partners Life launches new productsAIA's parent reports bumper profit »

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Comments from our readers

On 25 February 2013 at 8:33 am Amused said:
So Regan thinks one of AMP's biggest challenges to it writing new API business is changes to life company tax rules?? Does the captain have any idea that his ship is actually foundering due to an outdated product suite born of his company's well known and earned reputation for been both ignorant and arrogant to what competitors are doing? So much for adopting the best bits of AXA.....Is anyone the least bit surprised though?
On 25 February 2013 at 7:38 pm Amused Too said:
Jack might take off his office-tinted specs and talk to some of the old hands and he'd learn some unpleasant realities.

Like: Lifetrack being, especially in its IP definitions, a dog! Anecdotal evidence suggests that the AXA New Business team saw a measurable increase in IP applications from AMP tied agents after the "merger" was announced.

Like: Suggestions from long-time AXA (National Mutual) advisers who have not placed anything like previous levels of business with AXA since the "merger" was announced.

And so on...

Jack, your biggest challenge is to actually talk to some advisers who are not tucked into your AMP cocoon, to find out what is really happening out there. AMP tried several times to do business with "brokers" but couldn't ever get it right. AXA tried several times but only got it right about 10 years ago when the Underwriting Manager, Chris Baguley, actually went out to brokers' meetings and spoke and listened! Sadly, AXA couldn't keep him - he represented a too much of a threat to the fishheads in Melbourne.
On 1 March 2013 at 2:37 pm vicky m said:
Says it all really. AMP are at least honest - their rhetoric is all about the shareholder and profit - little said about the customer or having quality products which are fit for purpose. At least AXA had a go at having products which earnt the right for new business.

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