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(Corrects underlying earnings percentage fall in headline, paragraph 1)
SYDNEY, Feb 9 (Reuters) - Australia's biggest wealth manager, AMP Ltd, on Thursday posted a 57 percent fall in full-year underlying earnings, missing expectations as it works to turn around its struggling life insurance division.
Despite that, it kept its dividend steady and said it would return A$500 million ($382 million)to investors through an on-market share buyback after a reinsurance deal released regulatory capital.
AMP reported underlying earnings of A$486 million for the 12 months ended Dec. 31, down from A$1.12 billion a year earlier, including a A$415 million operating loss in its life insurance business.
The underlying result was below an average estimate of a 41 percent decline in underlying profit to A$633 million from 15 analysts surveyed by Thomson Reuters I/B/E/S.
On a statutory basis, which includes one-off items, the company swung to a A$344 million bottom-line loss - its first loss since 2003 - due to writedowns in its life insurance business announced to the market in October.
"The year saw strong results from AMP Capital, AMP Bank, New Zealand and a resilient performance from wealth management despite challenging market conditions," AMP Chief Executive Craig Meller said in a statement. "However, these results were overshadowed by a poor performance in (life insurance)."
Australia's life insurers have seen rising claims rates and more policy cancellations since Australian media in March last year revealed the use of discredited methods to refuse legitimate claims for insurance payouts.
While analysts say the sector's long-term outlook is bright thanks to an ageing population and Australia's compulsory pension savings scheme, the AMP result underscores medium-term risks associated with the life insurance business.
Meller is under pressure from the board to revive the life insurance division and reverse a slide in market share.
He announced a shake-up of senior management in November as part of that effort, and last month AMP closed its fledgling venture capital arm to focus more on its core business.
Despite these concerns, AMP shares have risen 10 percent since the election of U.S. President Donald Trump in November, on the expectation that rising bond yields will boost profitability. ($1 = 1.3096 Australian dollars) (Reporting by Jamie Freed; Editing by Kevin Liffey)