From Branch Office To Big Player: Amp Caught In Fast Lane
Sydney Morning Herald
Friday May 2, 2003
AMP has had a presence in the UK for 145 years, but it was largely a branch office providing executives aspiring to the top job the chance to hone their skills in a much bigger life insurance and pension scheme pool before heading back home to Sydney.
In 1989, pumped with surplus assets, AMP's expansion plans in the UK took on a more adventurous slant with the purchase of London Life, a boutique insurance company selling to a market positioned at the upper end of the income scale. But it lost money almost from the start and AMP pulled the plug on it in 1995 after its premium income plunged by 20 per cent in a year to $157 million.
Also in 1989, it snapped up Pearl Assurance group which was servicing clients at the lower end of the income scale for just $2.3 billion. But far from being the pot of gold AMP had hoped, 18 months later Pearl was providing headaches for senior management in Alfred Street.
Undeterred by these experiences, and obviously under the impression the UK pension market offered huge opportunities for growth and expanded wealth management, AMP unsuccess-fully bid $4.1 billion for the UK life insurer, Scottish Amicable.
Missing out on that target, it spent $640 million in 1991 buying a 50 per cent stake in the financial services arm of Richard Branson's Virgin Group, Virgin Direct, which sold financial services using telephone and direct marketing techniques. It then spent a further $640 million to fund expansion.
The demutualisation and subsequent $11 billion stockmarket listing in May 1998, after which AMP shares shares briefly traded at more than $40 before slipping back to around $22, gave AMP $6 billion to $7 billion in excess capital. A small portion of that capital found its way to its ambitious, talkative and expansionary American chief executive George Trumbull, who eventually left in 2000 with $14 million in his pocket.
Trumbull had wasted no time, launching a $920 million bid for UK fund manager Henderson plc in 1998. At the time, Henderson had $36 billion in funds under management. The plan was to merge it with AMP Asset Management plc, which had $53 billion in managed funds including the assets of AMP subsidiaries Pearl (which by then had absorbed London Life) and Virgin Direct.
The move lifted funds managed by AMP globally to $150 billion and AMP Asset Management adopted the Henderson name. Soon afterwards, AMP bought National Provident Institution (NPI) for $3.6 billion.
By this time, Pearl and London Life were in run-off mode, which means no new life insurance business is sold, but existing business continues to be administered and managed.
The acquisition of NPI gave AMP's UK operations the status of the seventh largest operator in the UK insurance and superannuation market.
While the equity markets were booming and investment earnings were strong, AMP had no difficulty maintaining the required reserves for these operations, consisting largely of traditional life insurance and superannuation products providing bonuses and capital guarantees.
But the slide in equity markets over the past two years has put massive pressure on AMP. Reserve levels underpinning the UK business flagged and needed support from head office. And faced with a strong currencies the euro and sterling, those top-ups required too many Australian dollars. Every ##1 worth of reserves requiring top-up meant $3 had to be sent to the UK. It was a situation that could not continue indefinitely.
© 2003 Sydney Morning Herald