AMP just posted a big miss

Photo by Cameron Spencer/Getty Images

AMP, the financial services giant, today reported a 10% drop to $513 million in underlying profits for the half year, about $12 million below analyst expectations.

The result was pulled down by higher claims in the wealth protection insurance business, a volatile investment market and uncertainty brought about by the federal government’s changes to superannuation.

A short time ago, AMP shares were down 5% to $5.49.

Australian wealth management cash flows were down more than 60% to $582 million, a big drop from the $1.152 billion of a year ago.

And wealth protection profits fell 52% to $47 million. The wealth management business also suffered with profits falling 5.8% to $195 million.

The major drag on underlying profit was wealth protection, as this chart shows:

AMP says retail and corporate super cash flows dropped to $1.225 billion from $1.926 billion because of investment market volatility and weaker investor confidence over uncertainty around changes to superannuation.

At the May budget, the federal government flagged cutting the concessional pre-tax amount which can be poured into super to $25,000 a year, restricting the total after tax contribution to a lifetime $500,000 and limiting the size of pension phase funds to $1.6 million.

Costs at AMP were up. The group cost-to-income ratio of 45.5% increased by 2.4 percentage points.

And the underlying return on equity fell 1.6 percentage points to 11.9% mostly because of that decline in underlying profit.

The company declared an interim dividend of 14 cents a share, in line with the 2015 interim dividend. This represents a payout ratio of 81% of underlying profit.

AMP’s results in detail:

CEO Craig Meller says AMP Capital, AMP Bank and the New Zealand business performed strongly.

“AMP has made substantial progress on the implementation of our growth strategy, which will release the long-term potential of our business, deliver better outcomes for our customers while improving overall financial performance for shareholders,” he says.

“To address performance in the insurance business AMP is strengthening income protection assumptions, repricing, continuing the transformation of claims management and accelerating our capital management initiatives.”

A business efficiency program is forecast to contribute $200 million in pre-tax savings by the end of 2016.

AMP has $226 billion in assets under management, up from $222 billion the year before.

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