By Madeleine Heffernan
Financial services company AMP has warned its fourth-quarter earnings could take a hit of up $65 million due to further troubles at its income protection business.
AMP early today said fixing the wealth protection arm - disability and income protection insurance products - was "one of its highest priorities" and it "continues to implement short and medium term actions to improve claims and lapse experience".
Fixing the wealth protection business is a top priority for AMP.Credit: Michael Clayton-Jones
AMP said a review of its life insurance book will prompt it to tip $15 million into its income protection book. A change in payout assumptions will also result in a capitalised loss in the range of $40 million to $50 million in the fourth quarter. This is expected to reduce AMP’s operating profit by the same amount, the company said.
It said the number of insurance policies in its income protection book had ‘‘continued to worsen’’ during the third quarter.
‘‘In total, these two adjustments are expected to result in a $55 million to $65 million reduction in AMP’s operating result for the (fourth quarter) of 2013,’’ AMP said.
It also said it would have to wait until the fourth quarter to assess what impact the moves could have on dividends.
AMP shares tanked on the news, falling 4.3 per cent to $4.73 by midday, the biggest drag on the benchmark S&P/ASX200 index.
AMP substantially bulked up its income protection business following its $4.1 billion purchase of AXA Asia Pacific's Australian operations.
Income protection products, which guarantee a portion of a policyholder's salary for a period of time if they are unable to work, have been causing headaches for life insurers as claims rise in line with job losses among white-collar workers.
A slowing economy has also prompted some people to opt out of life insurance products such as death and disability cover.Releasing its third quarter cashflow figures, AMP said net cash inflows came in at $194 million for the quarter. With some $567 million retail inflows offset by $233 million falling off the external wealth platforms.
The financial services group’s assets under management for its flagship fund management arm AMP Capital rose 4 per cent during the quarter to $135.9 billion.
Cash inflows for its total Australian wealth protection arm had edged up just $10 million year on year to $436 million.
At its results for the six months to June, earnings from its income protection business fell 52 per cent, or $70 million, to $64 million.
The latest update follows AMP earlier this month appointing Grocon chief financial officer Gordon Lefevre as its new chief financial officer.
AMP chief executive Craig Dunn will also be replaced next year by Craig Meller, head of AMP Financial Services, as the company embarks on a cost-cutting program.
AMP specialises in superannuation, financial planning, life insurance, banking and fund management. It is often viewed as a proxy for the country's enormous retail super industry.