Simon Mawhinney, chief investment officer at fund manager Allan Gray, the seventh largest shareholder in AMP with a 3 per cent stake, signalled he was opposed to AMP slashing the price of the life business by $700 million in a bid to seal a deal with Resolution.
He said the company was more likely to maximise shareholder value by transferring the life assets to shareholders through an in-specie distribution, or by running down the life book.
“I don’t think today’s announcement is outrageously bad,” he said. “It would be bad if they decided to reduce their asking price by $700 million,” he said. “We want the outcome that maximises value for us,” he said.
Strategically, the news is a significant setback to AMP chief executive Francesco De Ferrari’s plan to release capital from the life business in order to invest elsewhere and return capital to shareholders.
AMP described the life insurance sale as a “foundational element” of the company’s strategy, and said the failure to complete the sale was “exceptionally disappointing”. AMP said it was working with Resolution to try to salvage a deal, but if it cannot do so, it would manage its life insurance arm as a “mature business.”
Resolution said it still had “strategic interest” in expanding its in-force life insurance business in Australia, and it was talking to AMP about restructuring the deal to meet the regulator’s concerns.
“Resolution Life views the acquisition of AMP Life as an excellent opportunity,” it said.
Regal Funds Management portfolio manager Mark Nathan said he thought AMP would be “very keen” to make sure the life insurance business was sold, but the terms of the deal would probably be less favourable to AMP.
“I can’t imagine there is anybody who is going to come over the top and offer something more attractive, so I think the base case is they try to revive the deal on other terms,” Mr Nathan said.
Morningstar analyst Chanaka Gunasekera said the likely failure of the deal in its current form would harm AMP’s plan to become a more “capital light” business, and return some of that capital to shareholders.
“It’s a major setback,” Mr Gunasekera said. “It’s going to really impact their strategy, and their strategy is really up in the air now.”
Shaw and Partners analyst Brett Le Mesurier said AMP’s strategy would become more “problematic” if the company was unable to sell the life insurance business, because owning a life business would use up capital that AMP had hoped to return to shareholders or invest elsewhere. “It puts more strain on capital,” Mr Le Mesurier said.
The deputy governor of the RBNZ, Geoff Bascand, said: “The contract between the AMP Life NZ and Resolution Life was agreed without consideration of the Reserve Bank’s requirements. The Reserve Bank continues to constructively engage with both parties, and will continue to have full regard for its responsibilities as regulator.”
Life insurance was the foundation of AMP, but profits in the sector have been hammered by higher costs from paying out a claims and rising capital and compliance costs, prompting AMP and most major banks to attempt to quit the sector in recent years.
Clancy Yeates is a business reporter.