AMP Ltd., Australia’s largest life insurer and pension manager, expects fourth-quarter operating earnings to fall by as much as A$65 million ($62 million) on higher-than-expected insurance policy lapses.
AMP plans to raise loss assumptions for lapsed income-protection policies to A$40 million to A$50 million, and expects a loss of about A$15 million from an increase in insurance reserves, it said in a statement today. The company’s shares dropped as much as 5.5 percent, on track for the biggest fall in four months.
AMP is seeking to raise premiums amid increasing non-renewals of income-protection policies, and has adopted new claims management rules to stem resulting losses. Such lapses rose to the highest in a decade last year, AMP said in February, and were in August cited for a 10 percent drop in the company’s first-half underlying profit.
“While AMP is strengthening its lapse assumptions, the question remains, is this enough?” Andrew Adams, a Sydney-based analyst at Credit Suisse AG said in an e-mail. “AMP has to make the tough decision of walking away from this business, or risk the potential of further losses in coming years.”
Losses on lapses and claims amounted to A$24 million in the three months ended Sept. 30, AMP said. The company’s shares were 24 cents or 4.9 percent lower at A$4.70 at 11:12 a.m. in Sydney. They earlier fell as low as A$4.67.
“AMP regards improving the performance of the Wealth Protection business as one of its highest priorities and continues to implement short- and medium-term actions to improve claims and lapse experience,” the Sydney-based company said in today’s statement.
AMP, which has a dividend policy of paying out 70-80 percent of full-year underlying profits, will decide on the second-half dividend in February, it said in today’s statement. The assumption of policy losses was a non-cash item and wouldn’t reduce capital, it said.