AMP credit rating cut on back of Royal Commission

Standard & Poor’s downgrade AMP Life’s credit rating following revelations from the Royal Commission in Australia.

Friday, August 31st 2018, 9:44AM

Ratings agency S&P has cut its life insurance rating from A+ to AA and put it on negative outlook.

Dual-listed parent AMP kept its A credit rating, which S&P said reflected "the recent and prospective increasing importance of nonregulated cash flows to the group's operating income given that we expect reinsurance arrangements to further dampen life risk earnings going forward".

"Our outlooks on AMP group companies are negative," S&P said. "The lowering of the rating on AMP Life reflects a deterioration in the creditworthiness of the entire AMP group as a result of fallout from the Royal Commission revelations. We now consider the group credit profile to be 'A+' rather than 'AA-', which is in line with the stand-alone creditworthiness of AMP Life."

New Zealand managing director Blair Vernon said it was not unexpected.

"There’s no material impact on our business and products or services and we remain focused on continuing to support our customers.

"AMP New Zealand is a strong business and our customers are well protected. Life insurers operating in New Zealand, including AMP Life Ltd (the insurer for AMP’s wealth protection products in New Zealand), are overseen by the Reserve Bank of New Zealand, and must comply with capital and solvency requirements to ensure we can meet our obligations to policyholders including paying any claims – like the AMP New Zealand customers who in 2017 received $225 million in claims payments."

Russell Hutchinson, managing director of Chatswood Consulting, said the move was unlikely to worry advisers.

Other insurers also operated with an AA rating, such as OnePath, Asteron Life, Sothern Cross and Westpac. “They all do plenty of business with advisers.”

Industry commentator David Whyte, chairman of Lifetime and former head of AIA in New Zealand, agreed.

"Moving the life company's creditworthiness down a notch doesn't have a material impact on AMP's ability to pay claims. It does mean they may have to pay slightly more in interest if they borrow money, but it doesn't suggest an inability to meet policyholder obligations.

"Advisers may take a company's S&P or AM Best rating into account but I doubt if it determines a recommendation. Historically, the rating of Sovereign and Partners in start-up mode didn't present any material difficulty nor prevent many advisers from supporting both companies; and our research at the time when AIA had a AAA rating suggested only a marginal benefit from the adviser network."

He said the news from the Royal Commission was likely to be more influential than the rating.

The agency said more pressure could come if further penalties, fines, legal action, or remediation action took place.

Still, S&P said AMP has a strong business franchise and very strong capitalisation and AMP Life has a strong business profile and robust capital. It now sees AMP Life as a strategically important subsidiary of the group, rather than core, as management have said the life insurance risk business could be sold as part of a portfolio review.

Additional reporting: BusinessDesk

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