Net income fell 2.5 percent to A$672 million ($605 million) in the year ended Dec. 31 from A$689 million in the year earlier period 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 9 analysts surveyed by Bloomberg.

Shares in AMP rose as much as 9.8 percent and were 6.6 percent higher at A$4.80 at 11:04 a.m. in Sydney trading, on track for the largest increase since March 2009.

“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 Craig Meller, who took over Jan. 1, is undertaking a review of the company’s operations as it battles higher-than-expected insurance policy lapses. The review, which spans all its business units, may result in job losses, Sydney-based 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 amid a growing number of non-renewals of income-protection policies, 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 revenues offset cost controls, AMP said. Its underlying profit fell to A$849 million for the period from A$950 million, it said.

The wealth management business operating earnings climbed 16 percent on stronger net cashflows 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 pre-tax 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.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

http://www.bloomberg.com/news/2014-02-19/amp-net-income-falls-2-5-percent-on-higher-life-insurance-claims.html

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