AMP Ltd has crashed after lowering its expectations for first-half earnings, saying poor claims and losses in its Australian wealth protection business in the second quarter were likely to impact the result.
The stock tumbled by as much as 10% to $4.55 in morning trade – its biggest decline since october 2008 – after the company said it was expecting underlying profit for the first half to be within the range of $415 million and $435 million.
Analysts were anticipating an underlying net profit of $477.5 million, down 2.7% from AMP's previous half-year net profit of $491 million.
The group said it had experienced losses for Australian wealth protection of $32 million for the five months to May 31, comprising $26 million in insurance claims, $8 million in lapses, and offset by $2 million of other positive experience.
"Of the claims experience losses, around 50 per cent were income protection," the group said.
"This reflects the ongoing volatile nature of experience across AMP’s insurance portfolio, which has in-force premiums of more than $1.7 billion.
"The industry is experiencing increased pressure on insurance claims and policy lapses."
AMP said it anticipated some strengthening of best estimate assumptions for income protection claims at the half year, although the financial effects should be largely offset by future premium rate increases.
"AMP continues to implement actions announced at FY 12 financial results aimed at improving its claims experience over time. This includes new claims management policies, earlier intervention strategies and enhanced support to help customers return to work more quickly," the group said.
"Overall, the rest of AMP's business is performing in line with market expectations. Stronger operating results in AMP's bank, mature and New Zealand businesses in the five months to 31 May has offset a lower result in wealth management relative to market expectations."