AMP Limited today announces a revised agreement with Resolution Life, with updated terms, for the sale of AMP Life (the Australian and New Zealand wealth protection and mature businesses).
Revised agreement key terms
The revised agreement delivers a consideration of A$3.0 billion comprising:
- A$2.5 billion cash; and
- A$500 million equity interest (expected to be around 20 per cent) in Resolution Life Australia1, a new Australian-domiciled, Resolution Life-controlled holding company that will become the owner of AMP Life.
Resolution Life will be on risk for all experience and lapse losses from 1 July 2018 until completion and is entitled to all AMP Life net earnings during that period.
The sale is now expected to complete in 1H 20. AMP will continue to report the results of AMP Life through to completion of the transaction.
AMP and Resolution Life relationship
Resolution Life Australia represents a platform for continued growth and consolidation in the Australian and New Zealand in-force life insurance market. From completion, AMP's 20 per cent interest will provide an ongoing entitlement to an equivalent share of the new company’s earnings and distributions (including franking credits as appropriate). AMP has the right, but not the obligation, to subscribe additional capital in future to maintain its 20 per cent holding.
Resolution Life Australia will benefit from AMP’s history and experience in the Australian and New Zealand life insurance market.
Policyholder interests have been paramount throughout the transaction. All customers terms and conditions will remain unchanged.
The agreement remains subject to regulatory approvals in Australia, New Zealand and China.
AMP and Resolution Life are engaging constructively with regulators in New Zealand and Australia and are continuing to work productively with the Reserve Bank of New Zealand to address their requirements for change in control.
Given the strategic importance of AMP’s partnership with China Life, AMP is seeking to transfer its holding in China Life Pension Company from AMP Life to AMP Limited. AMP will continue to work with China Life to achieve the necessary regulatory approvals for this transfer within the timeframes required by the sale agreement.
Assessment of alternative options
The AMP Limited Board assessed the revised transaction terms from Resolution Life against a range of alternative options including: retention, demerger of AMP Life and the separation and sale of individual AMP Life business units.
The Board considers that the sale of AMP Life delivers the best outcome for policyholders, the company and its shareholders. The Board believes the agreement represents a fair valuation, given the significant impact of the Protecting Your Super legislation, the impact of best estimate assumptions since 1 July 2018 and the current legislative and regulatory environment. The sale also delivers a significantly higher cash consideration.
The ASX has reconfirmed that shareholder approval is not required for the transaction (see Annexure A).
Financial and capital implications to AMP Limited
The cash proceeds of A$2.5 billion from the sale will be used to fund separation costs (which remain unchanged at A$320 million post tax), repay debt (A$800 million) and fund capital dis-synergies (A$160 million).
Following these actions, and the expected reduction in capital requirements that flow from the sale of a regulated life insurance company, AMP’s proforma capital in excess of target surplus on completion will be approximately A$1.15 billion.
As a result of this transaction, AMP anticipates that the excess above target surplus will first be used to fund delivery of the new AMP strategy. Beyond this, AMP will assess all capital management options with the intent to return capital above target to shareholders, subject to unforeseen circumstances.
AMP reaffirms its commitment to remove stranded costs of A$40 million per annum and fully offset the financial impact of the unwinding of distribution arrangements of A$65 million per annum through actions from its new strategy.
Further details of the transaction are provided in the Investor Pack (Section two: AMP Life Update: pages 18 – 25).
1 Resolution Life NOHC Pty Ltd