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[The Wrap] Regulators need to be wary of AMP Life deal

One of the biggest deals in New Zealand’s financial services industry is going on largely unnoticed at the moment; arguably because there is so much other change going on at present. It’s time the spotlight was put on the deal.

Friday, February 21st 2020, 6:01PM 5 Comments

by Philip Macalister

AMP’s proposal to sell its life business to Resolution Life is the largest transaction in financial services since ANZ bought the National Bank.

AMP has the second largest in-force life insurance book in New Zealand with around 200,000 policyholders.

To date these people have had next to no information about the deal. No doubt when communications start they will have a soothing theme to them.

However there are many unanswered questions, including whether the Reserve Bank will issue Resolution Life with a licence and whether it will approve the deal. More importantly it will be interesting to see what conditions the regulator puts on the deal if it is approved.

One thing is for sure. The Reserve Bank will not make it easy for this deal to get across the line. The last time something like this was tried, the Foundation Life deal, it failed. The bank is also likely to be very cautious after its poor handling of the CBL collapse.

In this age of conduct and culture and putting clients’ interests first it’s going to be a massive challenge to convince the regulator this is a good deal.

One of the biggest risks is that the “good lives” will get moved to other life insurance companies. While some people will call this churn, there is arguably a strong case to say it is in the clients’ best interests.

A key here is what approach the former AMP advisers take now they have been unshackled from the mothership.

If the so-called “good lives” are moved, then those remaining with AMP Life are likely to see their premiums increased.

If the deal does proceed the new company may try to buy out some existing policyholders. Overseas examples have shown the difficulty of working out things like revisionary bonuses. In all likelihood the winner in any deal here will be the life company.

New owners may try and reduce trail commissions to advisers to get costs down.

Perhaps the biggest question is how they will manage and pay claims.

Then there is the question about what Resolution’s future intentions are. A number of books it has purchased previously have ended up being resold again.

One of the ironies of this whole story was that the policyholders were the owners of the company until demutualisation in 1997.

Now shareholders own AMP the policyholders interests are largely secondary to shareholders. The Royal Commission in Australia made this point strongly.

Policyholders can rightly feel a bit miffed too. Until this deal started they were part of a functioning life insurance company with a long and proud history. Now they find they are in a “legacy” or even “zombie” company.

You could well understand why, because they value life insurance, they may well want to be with a company which cares about them.

Tags: AMP Life Life insurance Reserve Bank Resolution Life The Wrap

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Comments from our readers

On 22 February 2020 at 8:20 am Walter Wallcarpet said:
Great article and a very timely reminder. It does make you wonder where the regulator sits on this most important transaction.

Advisers have always been duty bound to consider all aspects of their recommended placement when it comes to insurance products and this change just has to be a major consideration at review time. Recent history shows that AMP as a whole has a culture of preferencing profit before client interests and it would be difficult to be anything other than cautious with this transaction looming.

The ‘churn’ word is thrown around far too easily. I am yet to find an insurer show any form of reluctance towards inward replacement business. There may be potential conflicts in the advice given but as long as any such perceived conflict such as remuneration is handled well and transparently then the test surely is whether the advice puts the clients interests above all others.

Good health permitting, term life clients can generally move to an alternative provider if that is deemed to be a better option. Alarm bells are however ringing on the conventional policy holders and Level Life policy holders. What future guarantees will they have for the promises made at inception.

There is another good read here but you will have to register
On 23 February 2020 at 10:14 am ray q said:
Good article and follow up from Walter.

The RBNZ is hot on conduct but their conduct on AMP Life will be interesting as to whether they focus on the poor customers.

It would appear AMP Life operates as a branch in NZ. What is unclear is whether there is preference given in any way to Aussie customers if AMP Life gets into trouble.

If RBNZ green light this deal and then Aussie policyholder preference means NZ customers lose out then RBNZ could be accused of failing to to do their job. After CBL this would not be good and Mr Orr would need to step down.

AMP has its issues but is still a large ASX listed well rated (by credit agencies) company so customers have a some degree of certainty with the current owner.

A change to a run off book run by Resolution out of Bermuda (check their website) with no credit rating I can see is a concern. If they get into trouble are people sure that in no way do NZ customers rank behind Aussie ones.
On 23 February 2020 at 10:26 am m shah said:
Great points and any adviser needs to take care if leaving customers with AMP Life both retail and group life.

A zombie book in run off will likely lose healthy lives who are able to move to more contemporary products (not sure AMP has done much since the quality AXA people left).

Those remaining will on average be sub standard and be subject to price increases but Resolution.

Any adviser may need to be wary of this and consider new providers for clients.

Being in run off there is a focus on cost reduction and service may be under pressure as the hook becomes sub scale.

The security of customers could also change from the parent being a listed ASX company which despite issues still has a good credit rating to the proposed new Bermudian owner.

RBNZ and FMA hold advisers to account for good customer outcomes.

It would be good if the industry could hold RBNZ to account for ensuring good customer outcomes when considering this deal.

What is the customer benefit of the deal?

On 23 February 2020 at 4:55 pm victoria s said:
Yeah sure the FMA will be asking advisers why they are keeping individual and group risk clients with a zombie fund where many healthly lives are leaving and the new shareholder (who seems sharp) is focused on profit.

Hope the FMA is writing to RBNZ asking them to document why such a deal helps good customer outcomes.

Maybe good returns should put an official information act request to RBNZ asking for the documents behind any approval - if it comes. Also an OIA request to FMA to see hold they intend to hold RBNZ and Resolute of Bermuda (or whatever they are called) to account.

On 26 February 2020 at 7:42 am JPHale said:
The very frank question is why would an adviser recommend a healthy client, subject to underwriting, stay with a company with over priced products that have inferior terms, lack of product development and a likely situation of increased premiums and tougher claims?

Not this one, and nor would any other adviser knowing what we know about this stuff with other providers legacy books.

Is it churn, no, some quite clear client advantages with that statement.

Sure those with poor health are going to get snookered with higher premiums and an inability to move, at the same time why should a healthy client stay to put themselves in that same position in the future knowing the above?

Again, subject to a clean bill of health, disclosure of the transfer risks, and possible terms offered.

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