GIO largely to blame for AMP's huge turnaround

By Brian Fallow

WELLINGTON - New subsidiary GIO has drenched AMP's first-half result in red ink.

The financial services group yesterday reported a loss of $A398 million ($493 million) for the six months to June 20, a $A1 billion turnaround from the same period last year.

Most of the difference was $A808 million in abnormal losses, but there was also a $A222 million drop in net investment income on AMP's own shareholder capital, reflecting weaker investment markets and a strategy of acquisitions.

The new chief executive, Paul Batchelor, said the abnormal losses masked a strong performance in the group's core earnings, on the strength of which the dividend had been increased by 2c to 20c.

The largest abnormal charge was $A554 million write-down of AMP's 57 per cent stake in the Australian general insurer GIO, acquired last January in a hostile bid. This month GIO announced a $A743 million shortfall, reflecting haemorrhagic losses in its reinsurance arm.

Mr Batchelor said GIO's attractiveness to AMP - its general insurance and finance services operations - had lost none of their lustre. But the reinsurance business had clearly been poorly managed for some time.

Asked about remedies, he said AMP was examining its options.

"We have lots of lawyers."

The other main abnormals related to AMP's British operations: $A117 million in extra reserves for the annuity business reflecting the fact that annuitants are living longer, and $A120 million for pension "mis-selling" settlements. New British legislation requires recompense for people who lost money in opting out of employer-sponsored into personal pension plans in the 1980s.

AMP's operating margins, at $A192 million, were up 23 per cent on a year ago. Excluding GIO, they were up 56 per cent. Operating margins are after-tax earnings before net investment income on shareholders' capital and before corporate office expenses.

"AMP intends to further increase the proportional importance of operating margins within total profits, to reduce dependence on the volatile returns on investment in capital markets," Mr Batchelor said.

"Building up our operational activities requires the use of shareholder capital, which means we temporarily forsake lower-quality immediate investment income to build up higher and more stable operating returns in the future."

When AMP listed on the stock exchange last year it said it had about $A4.3 billion in surplus capital.

The company remained very strongly capitalised and able to take the impact of the GIO losses on the chin, said Mr Batchelor.

AMP shares closed up 19c at $NZ19.30.