Pressure is mounting on AMP, the Government and the Reserve Bank to make sure 200,000 life insurance customers and their families don’t get shafted by a planned sale of AMP Life policies to a Bermuda-based “zombie fund guru”
Last week, news broke of a legislative gap which could potentially leave policyholders millions of dollars out of pocket if an overseas buyer hiked premiums, failed to pay bonuses, or delayed claims. Since then hundreds of people have signed a policyholder petition, contacted AMP, or written to the Finance Minister Grant Robertson, the Reserve Bank, Financial Markets Authority or their MP about the secretive deal.
One policyholder organised a public meeting in Morrinsville, and National MP Andrew Bayly is continuing to press the Reserve Bank for information through the select committee process.
Newsroom has been contacted by dozens of concerned policyholders and financial advisors.
AMP is seeking go-ahead from RBNZ to sell its life insurance business for $A3 billion to Resolution Life, a Bermuda based company which specialises in buying up so-called “zombie” or “closed” life insurance books – ones where no new policies are sold.
If it goes ahead, it would be the biggest financial services deal since ANZ Bank bought the National Bank in 2003, yet policyholders have virtually no details about how the deal is structured nor any concrete evidence how their interests will be protected with an overseas owner. Around 200,000 policyholders and 400,000-600,000 of their family members could be affected.
AMP has told policyholders it won’t be releasing any more information “until after the sale is completed, which is expected to be by June 30”.
In a letter sent to policyholders after media reports, the company reassured customers, many of whom have held AMP policies for 40 or 50 years, that nothing will change.
But policyholders say there is little to stop a foreign-owned company with no face in New Zealand from increasing premiums, not paying bonuses, miring claims in delays, or refusing to pay out at all.
Take Graham, who didn’t want his last name used. He’s 85 and took out his first life insurance policy when he was a poorly-paid farm worker in 1952. He was 17 and his boss told advised him to get a whole of life policy. It was a good way for a young man to save a bit, he said.
Over the next 15 years Graham married, had three children, went to university to retrain as a farm adviser and valuer – and took out two more life insurance policies.
“That was 52 years ago and I was paying a total of just on $100 per year for $7000 life cover. It was enough to pay off all our debts if I had died then.”
At that time men weren’t expected to live much past 70, Graham says, and he didn’t have to pay further premiums once he turned 85.
In 2020 money, Graham’s $7000 payout isn’t going to provide much security to Graham’s wife, also in her 80s, if he dies.
It’s the bonuses that matter.
Bonuses are like loyalty payments. They were promised by AMP to customers who stuck with their life insurance company. Each year for the last few decades AMP has sent a letter telling Graham and his wife how much their bonuses are worth.
Almost 70 years after he paid $17.58 as his first life insurance premium, the bonuses on Graham’s three AMP life policies are now worth $34,000. That means his wife would get a total of $41,000.
That will come in very handy to cover all the short term expenses following his death, Graham says. Particularly since AMP has always had a reputation for paying out quickly.
He trusts the company, which has been selling life insurance in New Zealand since 1854, to do the right thing.
“AMP was the most well-regarded and honoured company you could deal with in New Zealand. I thought they were a wonderful organisation.”
Actually, AMP’s record providing good outcomes for its clients has been sullied in recent years, with Australia’s Royal Commission into misconduct in the financial services sector highlighting a large number of serious conduct issues at the insurer.
Still, as one policyholder told Newsroom, if you’ve got a problem with AMP you can always rock up at an office and eyeball a staff member or adviser.
Dealing with someone at Resolution Life could be quite another matter.
That company’s entrepreneurial founder Sir Clive Cowdery is on his fourth insurance-related venture in 15 years. He’s a dealmaker, an energetic, charismatic zombie fund guru. He’s made a name, and millions of dollars, buying up old life insurance policies big insurers don’t want – the so-called “zombie funds” – restructuring them, and often selling them on again for a profit.
Cowdery is based in the UK, but the latest iteration of Resolution Life was registered in 2018 in Bermuda, the second worst tax haven in the world according to the Tax Justice Network’s 2019 list.
Cowdery’s previous Resolution company was based out of Guernsey – number 15 on the tax haven list.
AMP Life has not so far agreed to speak to Newsroom, though its chief executive Megan Beer offered us an interview next week.
Meanwhile, AMP Life chair Trevor Matthews provided more information to policyholders this week.
“Resolution Life is an international insurance and reinsurance group whose management has a 16-year track record in providing quality service to in-force insurance customers,” Matthews said.
“AMP Life policyholders will benefit from Resolution Life’s deep expertise in managing in-force insurance policies and its commitment to customer service. Since 2003 various Resolution entities have acquired, reinsured, consolidated or managed 27 life insurance companies, serving the needs of over 10 million policyholders.
“The management team and employees supporting AMP Life customers will be the same under Resolution Life ownership, including the chief executive officer, Megan Beer, and the executive general manager of New Zealand, Therese Singleton,” Matthews said.
A great deal for shareholders
This isn’t the first deal Matthews has done with Cowdery. In 2009, Matthews was CEO of Friends Provident, a UK-based pension group when it received a purchase offer from Clive Cowdery.
At first, Friends Provident wasn’t impressed, according to UK media at the time.
“Just one month ago, Friends Provident would have us believe that Resolution boss Clive Cowdery was a ruthless money-grabber who would spirit away our life savings to his tax haven in Guernsey,” wrote financial journalist Lucy Fardon at the time. “He was little better than the spawn of the devil.”
But Matthews had a different viewpoint of Cowdery once the Friends Provident-Resolution deal went ahead.
“[Cowdery] is now on this campaign to act as a catalyst for consolidation in this industry and I think that makes an awful lot of sense,” Fardon reported Matthews as saying. “’I think he’s been impactful with shareholders, he’s been impactful with chief executives, he’s been impactful with commentators.”
That’s a statement that doesn’t reassure AMP’s policyholders. Although before the company demutualised in 1997, shareholders and policyholders were the same people and their interests were pretty similar, that is no longer the case. Quite the reverse.
Financial trouble at AMP
AMP shareholders see the sale of the life insurance arm as a way to get the company out of a deep financial hole. The Australasian financial services group has been hit by the triple whammy of compensation payouts to victims of misconduct, wealth management customers withdrawing their funds from the company, and being forced to dramatically cut fees.
In February, AMP reported a loss of almost A$2.5 billion.
AMP shareholders need the Resolution Life deal to go ahead. And they are worried about further delays after the Reserve Bank blocked an earlier proposal last year.
But policyholders worry that the same deal that will be in the best interest of AMP and Resolution Life shareholders might see them lose out – possibly significantly.
The impact on customers
Life insurance is complicated and over the last 50 years the type of policies being sold has changed. Newsroom wanted to understand the potential impact on AMP policyholders, so we asked an expert to help us out. We’ll call him David Brown (not his real name) because he doesn’t want to be identified. But he’s a former AMP adviser, with 30 years’ experience.
Until recently, Brown was one of AMP’s biggest fans. He has his own AMP life policies, and so do his children. He’s sold thousands of AMP Life policies worth many millions of dollars.
He says it makes him proud when he goes to the funeral of one of his former clients, knowing his or her family have received a payout that will make their lives easier at a tough time.
I feel I have a moral responsibility to everyone I’ve sold a policy to to shake this, to make sure the Reserve Bank has all the information it needs in its decision making.
But he’s seriously worried about the possible impact of the Resolution Life deal on his family and on his clients and their families. Worried enough that he went against advice and decided to talk to Newsroom.
“I feel I have a moral responsibility to everyone I’ve sold a policy to to shake this, to make sure the Reserve Bank has all the information it needs in its decision making.”
Brown says New Zealand is at a ‘fence at the top of the cliff’ moment in terms of protecting life insurance policyholders – and their finances – from any harm that could come from their policies being sold overseas.
“I want to have total confidence going forward that the institution that holds the policies I sold to my clients and to my family has money to pay out and is easy to deal with and easily contactable.”
It’s not just AMP policyholders potentially at risk, he says. If this deal goes through, there’s the possibility other life insurance companies will do the same thing – sell their closed books overseas. With the same potential risks for customers.
Secrecy and opaqueness
Hence the need to fight the AMP-Resolution deal. Or at least make sure somebody is looking at it closely, with the best interests of policyholders at heart.
One of the main things Brown and others are concerned about is what they see as an almost total lack of transparency. AMP and Resolution Life have released virtually no details of the deal, and Newsroom’s requests for information from the company and from the Reserve Bank, including using the Official Information Act, have all been turned down.
We have a $A3bn transaction and it’s structured in such a way that it’s closed; it’s not subject to scrutiny.
National MP Andrew Bayly raised concerns about the secrecy with Reserve Bank Governor Adrian Orr and deputy Geoff Bascand in Parliament at a recent meeting of the Finance and Expenditure select committee.
“I’ve done lots of public transactions and IPOs and you spend a fortune preparing the information on the acquirer and what they’re going to do,” he says. “But here we have a A$3bn transaction and it’s structured in such a way that it’s closed; it’s not subject to scrutiny.
“You have a private equity firm based in Bermuda buying a New Zealand company and there has literally been one letter sent to policyholders, and that was back in 2018,” Bayly said at the select committee hearing. “That’s the only piece of information provided to them.”
Since the publicity, including the Newsroom article, following Bayly’s questions and policyholder Andrew Body’s petition, life customers have received another letter from AMP, but this letter also contains no detail about the structure of the deal and any safeguards for policyholders.
Bayly isn’t saying that Resolution Life won’t act in the best interests of the former AMP Life customers, but he says the risk is there that it won’t.
“Overseas it can happen and does happen. There’s an acquisition, and then the company that bought the zombie funds wants to cut costs, so tightens up on claims, refuses claims, cuts bonuses, to the detriment of policyholders.
“It’s standard practice around the world, and these companies make a lot of money.”
A Reserve Bank spokesman told Newsroom it is due to give its response to Parliament’s Finance and Expenditure Committee by noon on Friday.
So what are the risks?
First, there are the general risks that Bayly talks about, that the insurance company might delay or refuse a claim. There are plenty of possible tactics, like having long wait times or unhelpful overseas call centre staff that make it as difficult as possible to make a claim.
That could happen with any insurance policy, but the risks are heightened if the company is overseas and isn’t taking any new business. Why worry about your reputation as a fair and honourable player if you don’t need future customers?
It’s very difficult to fly to Bermuda and eyeball someone across the desk.
“One of my best selling points for AMP policies was the strength of those three letters – A-M-P,” Brown told Newsroom. “It was New Zealand’s biggest insurance company; it had an incredible reputation.”
But if the policies were held by Resolution Life? That’s more difficult.
“It’s easy to go to Auckland or Wellington if you’ve got a problem. It’s very difficult to fly to Bermuda and eyeball someone across the desk.”
Then there are other risks depending on what type of policy you have, Brown says. There are two main types of life insurance policy, and several potential pitfalls.
Whole of life bonuses
Many of the policyholders who contacted Newsroom, signed the petition, or attended the meeting in Morrinsville bought what are called “whole of life” or endowment policies. These pretty much aren’t sold any more – insurance companies can no longer make money off them – but they were very popular until the 1990s.
Whole of life policies are much closer to a savings product, or even a mortgage, in that people built up a cash equity value over time. The longer you pay into your life insurance, the more you get at the end of the term, or when you die. This is because insurance companies don’t just pay out a set sum, they give you bonuses.
Some of these bonuses are guaranteed under the terms of the insurance contract, but some of them – called “terminal bonuses” – aren’t. They are at the discretion of the insurance company.
AMP Life has always paid these terminal bonuses to its clients, Brown says – it’s part of the trust the company has with its policyholders
But almost no one Newsroom talked to believed Resolution Life would honour these termination bonuses. Why should they when under the contract they don’t have to?
This matters. These terminal bonuses can be a big percentage of the overall payout – 25 percent or even 30 percent.
In Graham’s case above, for example, $12,000 of the $41,000 his wife will get when he dies is from terminal bonuses. That’s almost 30 percent.
Term life insurance policies.
Term, or temporary, life insurance policies are different – more like your average ‘home and contents’ or travel insurance policy. People pay every year and the company pays out if the policyholder dies, is injured or gets really sick.
If you don’t want your life insurance policy any more – like if you are worried about the provider’s reputation – in theory you just stop paying your premiums and switch to another provider.
Unlike whole of life policies, there’s no residual value to your policy and no bonuses that tie you to a single provider. If you are young – or youngish – and healthy, you might even get a better deal on your premium with a different company.
But it’s not as simple as that.
There are two types of term life policies.
The first is known as “yearly renewable” – policies where you pay an annual premium relative to your age. It’s cheaper when you are young, and goes up each year. As you get older, yearly renewable policies can get expensive, but at least if you get sick your company can’t refuse to cover you. However another insurance company might. It’s what in the life insurance trade is known as being “captured” – being unable to leave your current provider.
Imagine you took out your policy in your 20s or 30s. You probably ticked all the right health boxes for your insurance company – young, good height-to-weight ratio, no pre-existing conditions.
But 30 or 40 years on, things could well be different. If you aren’t as fit and healthy as you were then, you won’t come through the medical questions for a new policy with the same flying colours. You might not be eligible for life insurance at all; certainly your premiums will be higher.
Brown says the ramifications for “captured” AMP Life policyholders could be serious if an overseas buyer started hiking premiums or refusing or delaying claims. They can’t simply go and find another insurance company.
He estimates 40 percent of AMP life policyholders could be captured, lacking the opportunity to get “anywhere near the cover they’ve got at the price they are paying, because of age, health or the type of contract they have.”
Brown sees another potential problem too. Many term policyholders have taken out what’s known as “guaranteed future insurability” option with their policy. This gives them the option to increase their level of cover at various times in the future without having to provide any more evidence of their health status.
Which can be great for a customer if they unexpectedly get sick.
But Brown says it’s not in the best interests of an insurance company when a sick policyholder chooses to take out more cover. Brown worries that Resolution Life might refuse to allow some policyholders to take up their guaranteed future insurability options in the future.
Level premium term policies
The problem of capture could be even worse for AMP customers with what’s known as “level premium” term life policies. That’s where customers pay a higher annual premium for the first years of their life policy, but the premium stays the same for the whole term. By the time a policyholder gets into their 50s or 60s, they will often be paying significantly lower premiums than someone of the same age with a simple yearly renewal policy.
This means if they want to switch insurance companies, they can’t, Brown says. They are almost certainly not going to get the same great deal from another provider – why would they?
“I sold a huge number of these level premium contracts,” Brown says. They are a great deal for customers under AMP, he says.
Under Resolution Life, he can’t be sure it would be the same.
Bayly worries that the Reserve Bank isn’t taking the problem of captured customers as seriously as it should.
At the select committee hearing RBNZ Governor Adrian Orr talked about consumer choice being one safeguard against bad conduct.
“Consumers have the right to make their decisions around whether they stay with any particular product or company,” he said.
Captured customers don’t have the option of making a decision, Bayly says.
What can be done?
Stephen Lindsay is a 71-year-old retired chartered accountant from Morrinsville, with two life insurance policies, one which has been going for 51 years, the other 49. Including bonuses, these policies will pay out over $220,000 to his wife when he dies.
After getting worried about the Resolution Life deal, Lindsay put an advert in the Morrinsville News inviting people to a community meeting. He expected a dozen or so people to come – in the end there were more than 30.
“I sat down with a cup of coffee and I thought ‘This is very serious. I wonder how many others out there are in the same situation as me’, he told Newsroom.
“I’ve never done anything like this before, but then I’ve never seen any need to do anything like this before.”
Most of the people at the meeting were in the same situation as him, Lindsay says – holding whole of life policies with a small face value but big bonuses attached
“People are worried when their sum insured is $6000 and maybe that’s all the company would have to pay out – maybe bonuses won’t count. But over 50 years, it’s the bonuses of a policy which make up to 70 percent of the total sum of your pay-out.”
He says people at the meeting were worried about the fact Resolution Life is based outside New Zealand and in a country not known for its transparency.
“Here you have a zombie outfit based in Bermuda. There’s a risk that if you have a life policy they could ignore your calls, ignore your emails, put you on hold for 60 minutes. If a law firm is administering the estate, you could get charged thousands of dollars just because of the time involved.”
Lindsay says he’s encouraging other AMP Life holders to be proactive.
“They should sign [Andrew Body’s] petition to Parliament, write to the Minister of Finance [Grant Robertson], and send a copy of that letter to your local MP.”
He says the revelations of AMP’s bad behaviour towards its Australian customers that emerged from the Royal Commission into financial misconduct left him unconvinced that AMP Life in New Zealand would necessarily put the interests of its policyholders before the interests of its shareholders.
“I want the Reserve Bank to ensure watertight procedures are put in place to ensure AMP policyholders are protected.”
A legislative hole
MP Andrew Bayly says a key problem is that no regulatory body in New Zealand appears to have a remit to look after the interests of AMP Life policyholders from a fairness and good conduct perspective.
The Financial Markets Authority, which can make sure financial advisers and KiwiSaver fund managers behave well, has no jurisdiction over insurance companies in terms of conduct in a purchase situation. And the Reserve Bank has the mandate to look at the deal only from “a wider prudential context”, Bayly says.
That is, it has to make sure Resolution Life is financially sound and isn’t going to collapse and leave policyholders with nothing. But it won’t necessarily look at whether the Bermuda company might take advantage of captured customers to make money.
“That is the legislative hole,” Bayly says. “Who has the legal requirement to review the offer to assess whether it is in the best interests of the policyholders?”
Although the Reserve Bank’s answers at the select committee hearing last month appeared to back up Bayly’s view that its mandate is more around prudential requirements than conduct, RBNZ deputy governor Geoff Bascand says the bank will make sure customers’ interests are protected.
“It is subject to our approval, we have to approve it, we have to satisfy ourselves that it meets the tests in the legislation and one of those tests is meeting New Zealand policyholders’ interests.”
AMP Life chair Trevor Matthews also says policyholders have no need to worry.
“Your interests have been paramount throughout the process followed by AMP Limited in making its decision to sell AMP Life to Resolution Life,” he said in a letter to policyholders this week. “AMP Life is also ensuring your interests are at the forefront of our considerations as we prepare for this transition to a new owner.
But on the question whether AMP is going to provide more information for policyholders?
Definitely not, Matthews told customers in his letter this week.
“You will next hear from us once the sale is completed, which is expected to be by June 30 2020.”
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