AMP said in a statement the agreement will have Munich Re reinsuring 50 per cent of $750 million of annual premium income of its AMP Life retail portfolio.
The deal will reduce the magnitude of earnings volatility from the Australian wealth protection business for the AMP group, and creates the potential to release up to $500 million of capital from AMP Life subject to regulatory approval, AMP said.
The agreement is expected to commence on 1 November.
AMP’s wealth protection business recorded losses of $44 million for Q3 2016, reflecting retail income protection experience losses of $18 million, retail lump sum experience losses of $8 million, group insurance claims experience losses of $12 million and lapse experience losses of $6 million.
AMP chief executive Craig Meller said, “We’ve seen consistent deterioration in the insurance sector over the course of 2016 and, despite the progress on claims transformation to date, it has significantly impacted the performance of our wealth protection business.
“Today’s actions are designed to re-set the wealth protection business.
“They will improve the group’s earnings stability, free-up capital and help bring into focus the growth potential of AMP.”
AMP said it intends to pursue further tranches of reinsurance when time and conditions suit.
If you think those losses are bad, wait until you have less and less advisers writing business post-LIF