Conditions imposed by the RBNZ on the sale of AMP Life do not allay the worries of policyholders, writes Nikki Mandow
The Reserve Bank has approved the sale of AMP Life to a tax haven-based company specialising in buying so-called ‘zombie funds’. But the bank has imposed new conditions it says will protect the 200,000 policyholders and their families.
The conditions do not reassure policyholder Andrew Body, who organised a petition to Parliament to protest the sale. Body is concerned there is still far too little information available about the deal or the purchaser, Bermuda-based Resolution Life.
And he says the conditions don’t address concerns about whether policyholders would be powerless to stop the new owners lifting premiums, delaying or refusing claims, or failing to pay bonuses. (See Newsroom’s original story “Over 200,000 policies caught up in AMP ‘zombie deal’”)
The RBNZ decision to approve the $3 billion deal – a lifeline for the struggling Australia-based AMP group – involves the financial services company agreeing to establish a new, locally-incorporated insurer Resolution Life NZ, “with a majority of NZ-resident independent directors”.
There would also be a NZ policyholder advisory committee, and a trust would be set up to hold the $5 billion of assets that support Resolution’s obligations to New Zealand policyholders, the Reserve Bank says.
“Resolution Life NZ will act as Trustee to the Trust and will effectively manage the assets held in the Trust,” the Reserve Bank says.
But Body, who got almost 750 signatures on his petition for an urgent review of the Insurance (Prudential Supervision) Act in the light of the AMP Life sale, says the Reserve Bank is looking only at AMP Life’s solvency – whether it has enough money.
That isn’t the main worry of policyholders, he says. Instead, they are more worried about the possible future actions of an overseas life insurance owner which has no particular reason to court good public opinion in New Zealand, because AMP Life is no longer selling policies here.
Resolution Life is owned by British financier Clive Cowdery. Overseas news articles have described him variously as a “ruthless money grabber” and a “zombie fund guru”.
“Zombie” is the name given to a closed, with-profits (pooled) fund which no longer accepts new business. When AMP Life stopped accepting new customers it became a zombie.
Cowdery’s Bermuda-based company has made significant amounts of money buying zombie funds.
“Policyholders still don’t know who Resolution is and what its plans are,” Body told Newsroom. “Why is AMP Life Limited worth more to Resolution than it is to AMP Limited?”
“Policyholders are being compelled to participate in the Resolution transaction that they know nothing about.
In addition, because the policy contracts are open-ended, their effectiveness depends on the insurer behaving in the best interests of the policyholder.
“It is disappointing that the RBNZ is not acknowledging these problems and has not consulted with the policyholders on the transaction.”
Andrew Body is also calling on the Minister of Finance to make a change to a clause of the regulations of the Insurance (Prudential Supervision) Act 2010 to shift the split in profits between policyholders and shareholders more in favour in policyholders. The new split would reflect the increased risk for policyholders from the types of private equity transactions involved in the AMP-Resolution Life deal.
‘Fixes many years away’
Body says the RBNZ’s proposed timetable for its review of the act could mean the serious flaws in the current legislation are likely not remedied for six or seven years.
The Reserve Bank has been looking at the AMP Life-Resolution Life deal for 18 months and has turned it down in the past.
Deputy Governor and general manager for financial stability Geoff Bascand says “because AMP Life is a branch of an Australian business and intended to be in ‘run-off’ and not write new business, special arrangements were needed for the security of New Zealand policyholders.”
“A bespoke trust model has been established that ensures supervisory objectives are better met, future industry dynamics are generally more positive, and there is additional protection in the event of insolvency – one of the key risk considerations that we have been seeking to mitigate.
“The Trust is required to hold capital and assets in New Zealand that help provide long-term security for policyholder benefits or investments, where relevant. The Trust will be under the management and scrutiny of relevant officers in New Zealand, who have appropriate influence and authority in respect of the New Zealand operations, for the purpose of securing equity across all policyholders.”
AMP’s financial troubles started when the 2018 Australian Royal Commission into financial services uncovered serious misconduct towards some customers.
Things haven’t got much better since. In April, an AMP market update revealed it was still bleeding customers – at least A$19.4 billion had been pulled out of the company in the first three months of 2020.
The company was hoping to sell its New Zealand wealth management business, but that fell through in May. AMP blamed “economic and financial markets disruption caused by the Covid-19 pandemic”.
Which left it in a dire financial position if the Resolution Life deal also failed. The Australian Financial Review recently quoted analysts at Credit Suisse predicting AMP might be forced to undertake a capital raising of up to $500 million if the life company sale did not proceed.