Life insurance was confirmed as the Achilles heel of an otherwise strong first-half profit result for AMP Limited, with the company's wealth management division performing particularly strongly.
The company's half-year results, released on the Australian Securities Exchange (ASX) today, revealed a 5.4 per cent increase in net profit to $393 million, albeit that underlying profit was down 10 per cent to $440 million — something that was impacted by the company's life insurance issues.
The result saw the board declare an interim dividend of 11.5 cents per share.
Despite the strong result, the company said it would be embarking on a new business efficiency program aimed at delivering $200 million pre-tax by the end of 2016.
Explaining the move, AMP chief executive Craig Dunn said that with the AXA integration almost complete, the company was aiming to create a leaner, more efficient business, increasing the scale and pace of change in the core business "using our expertise and Australia's largest adviser footprint".
The strength of AMP in the wealth management market was underlined by the fact that its wealth division increased operating earnings by 20 per cent to $196 million, which it said was owed to stronger net cashflows and improved investment markets "leading to a 12 per cent growth in average assets under management".
Dunn said that the combined earnings from all businesses, excluding the wealth protection business, were up 17 per cent, "as net cashflows increased significantly in our wealth management business, investments continued to improve and we drove down costs".
However he noted that in wealth protection, operating earnings were down 52 per cent when compared to the same period last year, reflecting a higher level of claims and insurance policy lapses than expected.
"The life insurance sector is facing both structural and cyclical change, and a range of initiatives are in train to address these factors," Dunn's statement said. "These include improved customer retention campaigns, additional resources to handle customer claims more effectively, and helping income protection customers get back to work more quickly after illness or injury."
The statement pointed to a likely slow recovery with respect to insurance, referencing only a "sustained improvement over the medium term with potentially uneven progress given the inherent volatility in an insurance book of this size".
