A quarter of its value wiped in a week, litigation funders circling and its chairman and chief executive under under the gun. The woebegone AMP has flogged its once mighty life insurance business, tipping a million life insurance policyholders into the warm embrace of some bust-up merchants from Bermuda. We can’t expect too much in the way of exertion from our corporate regulators but ASIC and APRA must surely take a long, cold look at this deal. Michael West reports on the history of the incredible shrinking AMP.
No, he’s not dead, he’s restin’
AMP boss Mike Wilkins billed it “a major step forward in reshaping AMP as a simpler, more focussed group”. There is nothing much simple though about the sale of Australia’s most ancient life insurance business to the Bermuda-based Resolution Life, an outfit renowned for juggling assets.
Billed as a $3.3 billion deal, AMP gets only $1.9 billion of that in cash. The other $1.415 billion is satisfied by bits of Bermudan paper which don’t look terribly liquid: $300 million of preference shares in a Resolution entity, an “economic interest in future earnings from the mature business” – whatever that is – and $515 million shares in Resolution itself.
It’s a bit like saying, “I’ll buy your car. Here’s half the cash upfront, an IOU and some shares in my company in Bermuda. If it goes okay, you’ll get the rest later for sure”.
This latest “restructure” of AMP has been sold to the sharemarket as a fait accompli but the sharemarket is hardly thrilled. In AMP’s defence, it has been a shocking week for sharemarkets globally. Still, AMP shares closed an eye-watering 27 per cent lower. Jobs-on-the-line material.
Reaction in the press has been the usual ponderous stuff.
“Resolution Global co-founder Sir Clive Cowdery told AFR Weekend on Friday that acting AMP chief executive Mike Wilkins had driven a hard bargain for the life assets and ultimately forced Resolution Group to pay the highest price for a life book since he began buying them 15 years ago,” said the AFR.
Sir Clive appears to be buttering up the AMP crew as tough negotiators just in case they wake up and realise they are half nude and Sir Clive is in possession of their shirts.
“Sir Clive Cowdery, the mastermind behind Resolution Capital, is one of Britain’s most generous philanthropists and was knighted by Prince Phillip …” said The Australian, the news organisation which corporate PR types approach when they want the most snivelingly flattering puff pieces for their big business clients that an “exclusive interview” can buy.
Entranced by “deal porn”, charmed by investment bankers, the commentariat seems to have glossed over the small matter of one million Australian life insurance policies being merrily transferred to an island in the mid-Atlantic Ocean best known for its zero tax rate, sub-tropical climate, yachting culture and the triangle thing.
While it is true that Australia does have some connections with Bermuda – tennis champs Pat Rafter and Lleyton Hewitt spring to mind – they might not be enough to assuage AMP Life policy holders. Are they to be expected henceforth to file their affidavits with the Supreme Court of Bermuda in the event of a contested life insurance payout?
What sort of capital reserves will Resolution hold against these Australian life insurance policies? Do APRA’s capital adequacy tenets pertain to entities in Bermuda? What about policyholders’ bonuses? What came of the UK regulator’s, the Financial Services Authority (FSA), investigation into Resolution during the global financial crisis?
AMP needs FIRB (Foreign Investment Review Board) approval as well as the green light from APRA, and since FIRB is still dithering over the APA deal – a deal most definitely not in Australia’s interests – all bets are off.
Cabinet Papers shed light on demutualisation
What happened to the AMP? This used to be the most azure of blue chips. With the possible exception of Commonwealth Bank, AMP has been most tarnished by the Royal Commission into the banks and its revelations of systemic corruption and mismanagement.
Last month, the NSW State Archives released the 1988 Cabinet Papers, and among the decisions taken that year was one to reduce regulatory controls on AMP, which at that point was governed by NSW legislation.
Among the key decisions in 1988, AMP lobbied the government of then premier Barry Unsworth government to remove what they saw as restrictive and inflexible regulation in order to enable the company to grow. The Attorney General agreed, describing AMP as a “pillar of the financial community”. How things have changed.
It all went south from here, beginning in 1989 with AMP’s disastrous acquisitions of UK life insurance companies (which lost them billions) and its costly attempt to buy GIO in the 1990s.
In the context of the 2018 Banking Royal Commission’s examination of Australia’s major financial institutions, an interesting decision was Cabinet’s approval on March 9, 1988 of a change in AMP’s corporate status to a company limited by guarantee.
The Attorney General’s cabinet minute argued that the change was necessary as the act under which AMP operated – the AMP Society’s Act 1910-1941 – was restrictive, inflexible and not consistent with the new environment of financial deregulation in Australia. He added that AMP was a “pillar of the Australian financial community” and that the change in AMP’s corporate structure would help it to continue playing “a strong role in the development of New South Wales”.
The minute also indicated that Cabinet approval “would fulfil a commitment made by the Attorney General when he recently met with representatives of the AMP “.
While Labor’s proposed legislation did not pass before the election, the cabinet of premier Nick Griener approved the changes to AMP’s corporate structure on August 9. The Cabinet minutes reveal a disagreement between the Attorney-General and the Minister for Consumer Affairs and Small Business about whether AMP Society should be required to add ‘Limited’ to its name to make the public aware they were dealing with a company with limited liability.
The Attorney-General argued that AMP Society should not be required to do so due to its “strength as one of Australia’s leading financial institutions” and the fact that it had been known by its current name for 130 years. However, the Minister for Consumer Affairs and Small Business successfully argued that it was essential for the public to be alerted to the actual status of AMP and to ensure a level playing field with competitors.
AMP was formed in 1849. It has been this country’s leading life insurance institution for more than a century, only conceding that mantel a few years ago. That core, life insurance, it’s heart if you like, is now heading for Bermuda. Demutualisation failed. The peak of the company’s financial fortunes came on the day it floated on the sharemarket. The stock fell from there and AMP has been a poor investment performer ever since.
Management has come and gone, loaded up with rich performance incentives. Executives have failed to right the ship yet walked away in droves with their multi-million-dollar bonuses, KPIs, ticked off by consultants and a long retinue of richly-rewarded directors, their lavish fees in inverse proportion to the beggarly gains of their shareholders and customers.
For customers, performance has been mediocre, conflicted by product commissions and poor culture. And now, the Bermuda initiative has put their policies at risk.
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