Dumped life insurance costs AMP in NZ

Lower-than-expected profits from life insurance premiums has hit the New Zealand financial services arm of AMP in the pocket.

The company yesterday reported a 9 per cent drop in operating earnings to $29.3 million for the six months to June 30.

AMP Financial Services NZ managing director Jack Regan said the decrease was driven mainly by a fall in the profits the company had experienced versus that of what it had expected to make through its life insurance business. That business had been hit by people pulling out of their life insurance in the wake of the difficult economic climate and as a result of premium increases made in 2008.

A spokeswoman for AMP said although it had been a difficult decision to make, the premiums had been put up because there had been no increases since 2001. The number of policyholders who had stopped paying as a result of this had been less than expected.

Lower bond and cash rates had also added to the pressure on overall margins.

However, the business benefited strongly from KiwiSaver. Regan said net cashflows increased 63 per cent on last year to $109 million mainly driven by KiwiSaver.

AMP is one of the six government-selected default scheme providers of KiwiSaver and has more than 105,000 members making it the third largest provider.

Regan said AMP had maintained a 14 per cent share of KiwiSaver's total funds under management. The company had also benefited from cutting its expenses by 16 per cent to $33 million after the business consolidated more of its operations, moving them from Wellington to Auckland.

Regan said the first half results reflected a sustained period of economic recession and its impact on AMP's customers.

Parent company Sydney-based AMP Ltd, Australia's biggest superannuation provider, said net profit declined to A$362 million in the half year, from A$366 million in the previous corresponding half.

Underlying profit, AMP's preferred measure because it excluded the effects of market volatility, fell 16 per cent to A$367 million.

Chief executive Craig Dunn said that while the economic outlook looked more promising, the market was likely to be subject to volatility and subdued investor sentiment.

Dunn said the biggest challenge the company faced was a shift from commission to fee-based advice. The company would move to the new model in Australia by June but Dunn said the New Zealand market was very different and he gave no guarantees that New Zealand would also move to a fee-based model in the future.

AMP has 380 advisers in New Zealand.