Saturday, November 18, 2017

Australian insurers quitting life business

Australia’s life insurance industry has been having a tough time of it recently.

The regulator scolded the sector in October and imposed tougher standards on advisers after finding “significant shortcomings” in a number of areas of life insurance claims handling. The scrutiny came in response to a public backlash against the industry’s aggressive tactics in denying claims.

As a result, insurers are now facing higher claims, their public image has taken a beating, customers are cancelling policies and the new code of practice may soon add to costs as regulators want to cap upfront commissions and require financial planners to have higher qualifications.

So it came as no great surprise this week when Suncorp said it was considering quitting the business. ANZ also wants to sell its life insurance and wealth division, while AMP reported a A$344 million loss this week after writing down A$415 million in its wealth protection division.

National Australia Bank sold 80% of its life insurance division last year to Nippon Life for A$2.4 billion.

Suncorp chief executive Michael Cameron said its options for the life business include reinsurance deals, partnerships or a sale. “It is too early to give detailed guidance on what might be the benefits of the alternatives,” he said.

Earnings for Suncorp’s life unit fell 52% during the past six months.

“Australian life insurance was impacted by an industry deterioration in lapse and claims trends, however Suncorp’s conservative approach to setting assumptions has resulted in minimal impacts to experience,” the company said.

AMP has sought to shore up its business by consolidating units and reinsuring half of its life portfolio, which it said freed up regulatory capital and will allow it to buy back A$500 million of its own shares — an action it described as “returning capital to shareholders” (although its dividend remains unchanged).

“The wealth protection market deteriorated in 2016 and we took action to re-set and stabilise our business,” said AMP chief executive Craig Meller. “These actions reflect our strong capital position and positive outlook for the business.”

He added that a second tranche of reinsurance is underway. “Our strategy is focused on directing capital to areas of our portfolio that will deliver the strongest growth.”

Meanwhile, AMP’s earnings release described the problems caused by the tighter standards on advisers, saying that “a higher-than-usual number of advisers also decided to retire or leave the industry in the face of challenging industry conditions and increasing education and professional requirements”.

One avenue of opportunity for Australia’s beleaguered life insurers is to seek growth elsewhere in the region, which Meller says will be a focus for AMP.

“International expansion is gaining momentum, particularly in China,” he said. “AMP’s partnerships with China Life … are stronger than ever. Together we are well placed to support the rapidly-evolving investment and pension needs of this growing market.”

AMP claims its joint venture with China Life is the fastest-growing investment manager in China, with assets under management rising 55% year on year.

As the industry re-groups and adapts to the new conditions at home, it remains to be seen how profits will recover during 2017.

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