These numbers bring back memories of 2016 when AMP’s wealth protection business lost $415 million and experience losses in AMP Life hit $105 million. At that time then CEO Craig Meller tightened all the assumptions underpinning the life book and recorded $485 million in capitalised losses.
The second half of 2018 was a horror period for the life insurance industry in Australia judging from the performance of CommInsure Life, which is being sold to AIA by Commonwealth Bank. In the six months to December, CommInsure Life’s experience losses were $100 million, double the previous six-month period.
De Ferrari has had to provide capital against the losses incurred by AMP Life in 2018 even though the business was sold to Resolution as of July 1 last year. However, AMP will get that capital back when the deal completes in September.
Capital is one of AMP’s competitive strengths. It has come through its least profitable year since 2003 with $1.5 billion in capital in excess of minimum regulatory requirements. When AMP Life is finally sold to Resolution it will free up about $1billion in capital.
De Ferrari can either return that excess capital to shareholders or invest it in the growth businesses. The clearestopportunity for growth is AMP Capital, which has $187 billion in assets under management. It was the best performing of all the AMP businesses in 2018, with underlying profit up 7.5 per cent to $172 million.
De Ferrari will want AMP Capital’s CEO Adam Tindall to focus the bulk of his attention on the most profitable and fastest growing parts of the funds management operation.
The numbers speak for themselves. AMP earned $309 million in management fees on average external funds under management of $66.9 billion and it earned $242 million in management fees on internal funds under management of $123 billion.
AMP is clearly recognised for its expertise in infrastructure as shown by the $3.5 billion in net positive cashflows into the infrastructure asset class managed on behalf of external clients. Anotherclear competitive advantage is the North wealth platform, which managed to lift assets under management by $3 billion in 2018 to $37.9 billion in a tough year.
De Ferrari has not revealed his plan for remaking the AMP advice business but it is clear from conversations he has had internally that he wants to make quality advice as accessible to as many Australians as possible.
Don’t be fooled into thinking he wants to replicate the private wealth business he used to run at global investment bank Credit Suisse. Instead of pitching to the elite, De Ferrari wants AMP’s 2560 advisers working for the average Australian.
If that is his objective it is almost certain AMP will have to make greater use of technology right across the spectrum of options for providing advice. Expect to see an AMP robo-advice offering and increased use of what AMP calls “scoped and scaled” advice using digital delivery.
Less face-to-face advice could have implications for the number of advisers working for AMP. The number has dropped by about 400 over the past two years.
AMP Bank, which was a star performer, was hit by the same headwinds which have cruelled the performance of Bendigo and Adelaide Bank, Suncorp’s Bank and Bank of Queensland. But it remains a growth business. It lifted deposits by 7 per cent to $13.3 billion and lifted residential mortgages by 3 per cent to $19.46 billion.
De Ferrari faces years of work to rebuild AMP. The latest results show he has something to build on.