AMP’s first-half profit has dropped 15 per cent to $445 million but the financial services giant’s underlying performance has improved with earnings growth in its banking and investment divisions.
The company has also continued turnaround work in its problematic wealth protection business, striking reinsurance deals that will release $500 million in capital from its life insurance arm to reduce earnings volatility and raise the possibility of a capital return.
AMP’s underlying profit for the six months to June 30 was up four per cent on the previous first-half at $533 million, driven by strong operating earnings and beating the market expectation of $529 million.
Ordinary activities revenue also grew, up 25 per cent to $7.6 billion.
The wealth management division posted a one per cent drop in earnings to $193 million as margins were crimped by customers shifting to lower-cost superannuation funds.
Operating earnings were up 11 per cent in the AMP Capital investment business as fee income lifted and 10 per cent in AMP Bank.
Chief executive Craig Meller said AMP had continued to drive growth in its banking operations and international expansion, with AMP now managing $10 billion for 252 international clients, up from 199 clients at the end of 2015/16.
“Overall, it’s a solid performance underpinned by strong cost management that steps us toward our strategy of transitioning to a higher-growth, capital-light business with a more internationally diverse revenue profile,” he said.
In February, the wealth manager booked a full-year loss of $344 million – its worst result in 13 years – on the back of a restructure in its wealth protection arm undertaken to counter a downturn in the income protection business in 2016.
On Thursday AMP said work to stabilise wealth protection had lifted the division’s earnings by 11 per cent.
Mr Meller said new reinsurance agreements, which are set to roll out in November, will mean 65 per cent of AMP’s retail life insurance portfolio will be reinsured for claims.
“The earnings in the wealth protection business will be much less volatile following this new reinsurance program being implemented,” Mr Meller said.
“We have effectively insured ourselves against a large portion of potential claims.”
Mr Meller said the deals will axe $30 million off AMP’s 2018 profit, as well as $5 million in 2017.
He said part of the $500 million released would be reinvested “to deliver a return, to make up that shortfall”.
“If we can’t find opportunities to do that then the course of action would be to switch the share buy back on,” he said.
AMP shares were down 2.9 per cent to $5.255 at 1224 AEST.
AMP’S RESULTS AT A GLANCE:
* Net profit down 15pct to $445 million
* Underlying profit up 4pct to $533 million
* Revenue up 25pct to $7.6 billion
* Interim dividend up 4pct to 14.5 cents, partially franked.