AMP Ltd., Australia’s largest life insurer and pension manager, fell the most in 10 years in Sydney trading after saying it expects first-half underlying profit to fall as much as 16 percent.
AMP shares closed down 13 percent at A$4.34, the biggest drop since May 2003 and the lowest close in nine months. The Sydney-based insurer said it expects underlying profit for the six months to June 30 of A$415 million ($384 million) to A$435 million, down from A$491 million a year earlier.
Insurance policy lapses rose to their highest level in a decade in the year ending Dec. 31, AMP said in February. It responded by increasing provisions for non-renewals and implemented a new claims management policy. It also plans to increase premiums, AMP said today.
“AMP’s challenges in life insurance have continued,” said James Coghill, Sydney-based analyst at UBS AG, which in February reduced its forecast earnings for AMP’s wealth protection unit by 21 percent for 2013. “There are no easy fixes for structural headwinds in this division.”
Wealth protection experience losses, which arise from higher-than-expected claims, were A$32 million in the five months to May 31, AMP said.
A weakening economy and stress leave taken by workers were among the reasons for higher income protection claims, said BBY Ltd. analyst Brett Le Mesurier, who cut his target price on AMP to A$4.00 from A$4.75.
Andrew Adams, an analyst at Credit Suisse Group AG in Sydney, said he would reduce AMP’s full-year earnings estimate by A$67 million following today’s announcement. He earlier expected AMP’s annual underlying profit to be A$1 billion.
“AMP continues to implement actions announced at FY 12 financial results aimed at improving its claims experience over time,” AMP said in a statement today. “This includes new claims management policies, earlier intervention strategies and enhanced support to help customers return to work more quickly.”
The rest of the businesses were performing “in line” with market expectations, it said. AMP is scheduled to report first half earnings on August 15.
AMP’s share price drop today, which compares to a 1.5 percent decline in the benchmark S&P/ASX 200 index, was the worst since a 36 percent slump in 2003 when it sold shares at a discount to reduce debt.