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AMP unveils big loss as insurance takes toll

Nicki Bourlioufas  |  09 Feb 2017Text size  Decrease  Increase  |  

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Financial services giant AMP Limited (ASX: AMP) has posted a big full-year loss of $344 million for the 2016 financial year, compared to a $972-million profit a year earlier, dragged down by its life insurance business and a decline in wealth management earnings.

AMP's underlying profit dived to $486 million, down from a $1.1 billion profit a year earlier. A $415-million loss in its insurance business, Australian Wealth Protection, weighed on its results, down from a $185-million profit a year earlier.

AMP also announced a $668-million goodwill write-down for its insurance business, with the company's older customer base, escalating life insurance claims and lapsing policies dragging down the value of the division.

The company also announced a $500-million share buyback to start in the first quarter of this year, and has maintained final dividend at 14 cents a share, franked at 90 per cent.

AMP chief executive Craig Meller said: "The wealth protection market deteriorated in 2016 and we took action to re-set and stabilise our business."

"Our strategy is focused on directing capital to areas of our portfolio that will deliver the strongest growth including Australian Wealth Management, AMP Capital and AMP Bank. International expansion is gaining momentum, particularly in China as well as in Europe and North America, where we are exporting our home-grown investment and pension expertise."

Earnings in AMP's Australian Wealth Management division fell by 2.2 per cent to $401 million, though assets under management (AUM) were up 5 per cent to $121 billion following a strong end to the year.

Total net cash flows plunged to $336 million from $2.2 billion a year earlier, "consistent with an industry-wide slowdown amid market and regulatory uncertainty," AMP said, despite describing Wealth Management as one of its strongest growth areas.

AMP Bank reported good growth, with earnings up 15.4 per cent to $120 million. Growth in residential mortgages and expansion in net interest margins contributed to 15 per cent growth in operating profit.

"The bank is investing in operational capacity to support continued growth, with retail mortgage sales via the aligned adviser channel up 24 per cent on 2015. The bank's cost-to-income ratio fell to 29 per cent as the bank benefitted from increased scale," AMP said.

AMP's New Zealand financial services earnings rose 5 per cent to $126 million.

To help return to profitability, AMP said it is "committed to a 3 per cent reduction in controllable costs in 2017, excluding AMP Capital and allowing for continued investment in growth businesses and channel experiences".

To get costs down, the company has allowed financial adviser numbers to fall.

As at 4 February 2017, 14 analysts surveyed by Thomson Reuters offering 12-month price targets for AMP had a median target of $5.10, with a high estimate of $6.20 and a low estimate of $4.00.

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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