Despite the shock implosion in AMP’s wealth protection business unveiled in June, Craig Dunn will end his six-year stint as the group's chief executive next January satisfied that he’s done a pretty good job in unusual and testing circumstances.
Dunn succeeded Andrew Mohl, who had brought AMP back from the brink, at the start of 2008 as the world headed into the global financial crisis and financial service businesses entered a period of extreme volatility. Dunn steered the group through the worst of that period calmly and ably.
The biggest contribution he has made to AMP, however, was to snatch (with the help of the Australian Competition and Consumer Commission) AMP’s arch rival, AXA’s Australian operations, once known as National Mutual, from the grasp of National Australia Bank in 2011.
That was an historic and transforming deal that is still generating benefit. In its interim results presentation today AMP said the integration with the AXA operations was almost complete and that it had met or exceeded its key objectives. So far AMP has extracted cumulative annual after-tax savings of about $139 million from the integration and expects to have increased that amount to $150 million by June next year.
It also announced another cost-reduction program today under which it will invest $320 million pre-tax to deliver a further $200 million a year of savings by the end of 2016, leveraging off the experience of the AXA integration.
Dunn might have preferred to hand over leadership of the group to Craig Meller, who like Dunn before he became chief executive has been heading AMP’s financial services business, blemish-free.
The more than halving of wealth protection earnings, from $134 million to $64 million, however, makes it unlikely that will occur.
AMP experienced a sudden and unforseen blowout in claims and lapse rates in the business in May, which it attributes to the economic environment and rising unemployment as well as structural issues relating to product design and its own processes. It’s tightening up its processes in the near term but concedes there is a medium to long-term task in dealing with the issues that have emerged, particularly in income protection.
The problems in wealth protection are a blemish on Dunn’s record, not a blight. AMP’s statutory earnings were up from $373 million to $393 million in the half and on an underlying basis the fall from $488 million to $440 million wasn’t as steep as the market anticipated. AMP shares were up 3.5 per cent as a consequence.
Particularly impressive was the increase in the Australian financial services wealth management earnings, from $164 million to $196 million, a result driven by strong cash flows and growth in assets under management. The North platform acquired with AXA (and the subject of much focus from the ACCC) nearly trebled its cash inflows from $636 million to $1.86 billion in the half.
AMP is solidly profitable, well-capitalised (with $1.7 billion of capital above the minimum regulatory requirements) well-managed and looking for another structural reduction in an already tightly-controlled cost base.
Meller, regarded as not dissimilar to Dunn in approach and in his understated style, will have to deal with the external and structural issues confronting traditional life insurance and income protection providers and the raft of new financial services regulation engulfing the sector. Given his existing role, however, he will be across the issues.
Meller was Dunn’s successor in that role, which covers the core of AMP’s operating businesses, and now follows Dunn into the top job. That’s a pretty good example of long-range succession planning leading to a smooth, low-key and low-risk transition that’s most unlikely to unsettle employees, shareholders or the market-at-large.