May 30, 2018 / 7:04 AM / a year ago

UPDATE 1-Moody's cuts credit rating of AMP's life insurance arm

* AMP Life’s insurance financial credit rating cut to Aa3 from Aa2

* Cites competitive challenges, reputational damage amid inquiry

* Moody’s affirms holding company debt ratings of AMP Group (Adds Moody’s comments, background)

May 30 (Reuters) - Moody’s Investors Service lowered its credit rating for AMP Ltd’s life insurance unit, citing growing competitive challenges and damage to reputation arising from revelations of board-level misconduct at the Australian wealth manager.

Competition will continue to intensify with the entrance and growth of new overseas firms, many of whom may have a lower cost of capital than AMP Life, Moody’s said as it downgraded the company’s insurance financial credit rating to Aa3 from Aa2.

It also said that the rating outlook was negative given the uncertainty of what more may be revealed by the powerful inquiry into Australia’s financial sector.

The inquiry, or the Royal Commission, has so far revealed that AMP lied to the corporate regulator for a decade, prompting an exodus of top management from the firm.

Pressure on the AMP brand due to allegations raised at the inquiry “may result in lower net cash inflows into the group’s wealth management products and platforms, providing further pressure on earnings and profitability”, Moody’s said.

“As such, we have revised downwards our views of AMP Life’s business profile and profitability,” it added.

Earlier this month, Moody’s had indicated that governance failures at AMP as revealed by the Royal Commission were creating additional pressure on its rating.

However, the credit rating agency said that despite the challenges, “AMP Life maintains very strong capital adequacy and its regulatory capital resources were 2.72 times the prescribed capital amount as at 31 December 2017”.

Moody’s affirmed its debt ratings for AMP Group Holdings, AMP Group Finance Services and AMP Bank, but cautioned that the rating outlooks remained negative as they were directly linked to the rating outlook for AMP Life. (Reporting by Susan Mathew in Bengaluru; Editing by Himani Sarkar)

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