AMP says the sale of its life insurance business is "highly unlikely to proceed" due to challenges in meeting conditions for approval by New Zealand insurance regulator the Reserve Bank of New Zealand.
The financial services firm announced plans in October 2018 to sell its Australian and New Zealand life insurance business to Resolution Life for A$3.3 billion while splitting off its New Zealand wealth and advice arms into a separate business.
But today the company said Resolution Life had notified it on Saturday that the Reserve Bank would not consider Resolution's change of control application unless it agreed to have separate, ringfenced assets held in New Zealand for the benefit of New Zealand policyholders.
"As a result, Resolution Life does not expect RBNZ to approve an application that would satisfy the condition precedent."
In a statement, AMP said the failure to meet this condition precedent was "exceptionally disappointing" as the sale of its life business was key to its strategy.
"Recognising that the transaction is unlikely to proceed in its current form AMP is now working with Resolution Life to determine whether there is a solution that addresses policyholder interests, regulatory requirements and provides certainty of execution.
"This will require negotiation of new terms and is not certain."
AMP said the interests of policyholders, both in New Zealand and Australia, have been and would continue to be paramount.
"The AMP Limited Board will review any revised transaction to determine if it is in the best
interests of policyholders, the company and its shareholders.
"If a revised transaction cannot be achieved on acceptable terms, and receive regulatory approval, AMP will retain AMP Life and manage it as a specialist life insurance and mature business with a focus on policyholder outcomes, cost and capital efficiency."
The Reserve Bank says it remains "constructively engaged" with both AMP and the Bermuda-based Resolution Life and has "maintained a clear focus on the interests of policyholders while observing regulatory requirements."
Deputy governor and general manager of financial stability Geoff Bascand says that RBNZ's supervisory responsibilities set out under the Insurance Prudential Supervision Act haven't changed since AMP and Resolution signed their contract in 2018.
"The reality is, the commercial terms of the contract can't be met satisfactorily" and that contract's terms were agreed "without consideration of the Reserve Bank's requirements."
The sale was among the sweeping restructuring changes AMP announced last October which had also included the proposed float on NZX of the New Zealand wealth management business. AMP has previously said that float would be delayed until the completion of the sale of the life businesses to Resolution Life.
The decision to shake up the business followed damning revelations emanating from Australia's royal commission into financial services, including charging dead people and others for services never delivered and that the company had misled its regulator, which led to a string of board and senior management departures.
AMP shares, which are listed on both ASX and NZX, have fallen more than 50 percent since those revelations began to emerge in March last year.
ASX trading has yet to open but the shares have fallen 1 cent to NZ$2.22 on NZX on negligible volume.
A report by the two New Zealand life insurance industry regulators, the Financial Markets Authority and RBNZ, released in January this year made a number of damning conclusions about the sector, including that it is vulnerable to misconduct, is ignoring whether its products are suitable for customers and is slow to make changes.
In particular, the regulators note that about 25 percent of the $2.57 billion New Zealanders pay in annual premiums goes on agents' commissions, far more than in other countries – Mexico and Hungary are the next highest at about 15 percent with Australia at about 12 percent and the United States about 9 percent.
AMP ceased selling new life insurance policies from January 1 this year ahead of the sale of that business.
AMP said given the uncertainty around the AMP Life transaction it would also not be paying an interim dividend for the first half of its financial year in 2019.
-additional reporting BusinessDesk.