AMP's New Zealand financial services division noted an increase in income protection claims in the first six months of 2018 and a growing number of policy lapses, which weighed on earnings in the period.
The local unit of the Australian financial services firm reported a 13 percent decline in operating earnings to $60.4 million in the six months ended June 30, citing skinnier profit margins from its wealth protection and mature life insurance products, and an increased number of claims on income protection products and a number of policy lapses in the period.
"This was mainly driven by a reduction in experience profits reflecting an increase in the number of claims AMP New Zealand paid to support its customers who were unable to work due to an illness or injury," it said in a statement. "AMP customers received $103 million in claims payments to provide them with dignity and to protect their families in their time of need."
The calls on income protection come at a time when New Zealand is experiencing low unemployment at 4.5 percent, a strong participation rate, and a sticky under-utilisation rate. That has also coincided with a number of white-collar employers restructuring their businesses to adapt to changing work environment where technology improvements have paved the way for greater automation in jobs previously done by people.
New health and safety regulations have become a major focus for employers in recent years, and Worksafe New Zealand has become more active, undertaking 1,378 assessments in June compared to 1,198 in the same month a year earlier and recording 262 non-fatal injuries or illnesses that same month compared to 225 a year earlier.
Meantime, State-owned workplace insurer Accident Compensation Corp's insurance expenses, which include its spending on claims, were $4.5 billion in the 11 months ended May 31, $202 million more than forecast and up from $4.2 billion a year earlier.
The Australian group's underlying earnings fell 7.2 percent to A$503 million during a period of change for the financial services group. AMP's previous chair and chief executive left the firm after the Australian Royal Commission into financial services unearthed a pattern of dubious behaviour, denting its reputation.
Acting chief executive Mike Wilkins today said the group has responded to stabilise the business but continues to face headwinds.
"We’re driving change right across the business and are dedicated to delivering the services that are critical to our customers and the Australian economy, helping to earn back trust in AMP," he said.
AMP will pay an interim dividend of 10 Australian cents per share on Sept. 28, and is targeting an annual return at the lower end of its guidance range.
Its New Zealand unit cut costs by 5 percent to A$36 million in the half, which it said included a business reorganisation and process simplification.
Assets under management swelled 7 percent to $17.5 billion, of which $5.2 billion was from KiwiSaver funds. AMP holds 11 percent of the KiwiSaver market with 228,000 members. Its biggest KiwiSaver fund, with $1.39 billion under management, is its default fund, which has generated an annual return of 4.8 percent in the 10 years ended June 30, making it the worst performer among the 10 conservative KiwiSaver funds that have operated for at least a decade and compiled by Morningstar.
AMP's dual-listed shares last traded at $3.67 on the NZX and have dropped 35 percent so far this year.