AMP Rises Most in Five Years After Net Income Beats Estimate

AMP Ltd., Australia’s largest life insurer and fund manager, rose the most in more than five years in Sydney trading after it reported a smaller-than-expected decline in full-year profit.

The shares rose 9.3 percent to A$4.92 at the close of trading, the largest increase since November 2008. Net income fell 2.5 percent to A$672 million ($605 million) in the year ended Dec. 31 from A$689 million a year earlier on higher life insurance claims and policy lapses, the Sydney-based company said in a statement today. The profit was above the A$663.8 million mean estimate of nine analysts surveyed by Bloomberg.

“The absence of another downgrade at the life insurance business is quite positive,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd., said by phone. “It appears they may have turned a corner with the business.”

AMP Chief Executive Officer Craig Meller, who took over on Jan. 1, is undertaking a review of the company’s operations as it battles a higher-than-expected number of insurance policies that are being canceled. The review, which spans all its business units, may result in job losses, spokeswoman Amanda Wallace said Jan. 17.

The company’s wealth protection unit, which includes the insurance business, reported an operating profit of A$64 million, down from A$190 million a year earlier. It is seeking to raise premiums as a growing number of income-protection policies are not being renewed, and has adopted new claims management rules to stem resulting losses.

Final Dividend

“Reassuringly, the second-half life insurance results have come out no worse than expectations,” Toby Langley, Sydney-based analyst at Nomura Holdings Inc., said by phone. “The management commentary is realistically downbeat about the turnaround prospects for the life business. It will likely be a number of years before AMP can deliver a result in that business that bears any resemblance to the 2012 performance.”

AMP announced a final dividend of 11.5 Australian cents per share, the same as the dividend paid for the first half of the year and representing a full-year payout ratio of 80 percent of underlying profits. Its surplus capital was A$2.1 billion, compared with A$1.7 billion as at June 30, it said.

The company’s cost-to-income ratio rose to 49.4 percent in 2013, from 47.3 percent in the prior year, as lower revenue offset cost controls, AMP said. Its underlying profit fell to A$849 million for the period from A$950 million, it said.

Operating earnings at the wealth management business climbed 16 percent on stronger net cash flows and improved markets, while its funds management unit, AMP Capital, reported unchanged operating earnings, the company said in today’s statement.

The company reiterated its expectations for pretax recurring cost savings of A$200 million by the end of 2016 and investment of A$320 million in the next three years to achieve the target, it said.