AMP has warned that its fourth-quarter earnings could take a hit of up $65 million due to further troubles at its income protection business.
The financial services group said fixing the wealth protection arm's disability and income protection insurance products was "one of its highest priorities" and it "continues to implement short and medium-term actions to improve claims and lapse experience".
AMP said a review of its life insurance book would prompt it to tip $15 million into its income protection book.
A change in payout assumptions would also result in a capitalised loss in the range of $40 million to $50 million in the fourth quarter. This was expected to reduce AMP's operating profit by the same amount, the company said.
It said the number of insurance policies in its income protection book had "continued to worsen" during the third quarter.
"In total, these two adjustments are expected to result in a $55 million to $65 million reduction in AMP's operating result for the [fourth quarter] of 2013."
It also said it would have to wait until the fourth quarter to assess what impact the moves could have on dividends.
AMP shares tanked on the news, but narrowed losses to close 14¢ lower at $4.80 in a flat market.
The company substantially bulked up its income protection business with the $4.1 billion purchase of AXA Asia Pacific's Australian operations.
Income protection products, which guarantee a portion of a policyholder's salary for a period of time if they are unable to work, have been causing headaches for life insurers as claims rise in line with job losses among white-collar workers.
A slowing economy has also prompted some people to opt out of life insurance products such as death and disability cover.
Releasing its third-quarter cashflow figures on Friday, AMP said net cash inflows came in at $194 million for the quarter, with some $567 million retail inflows offset by $233 million falling off the external wealth platforms.
"While AMP is strengthening its lapse assumptions, the question remains, is this enough?" Andrew Adams, a Credit Suisse analyst told Bloomberg. "AMP has to make the tough decision of walking away from this business, or risk the potential of further losses in coming years."
The latest update follows AMP earlier this month appointing Grocon chief financial officer Gordon Lefevre as its new CFO.
AMP chief executive Craig Dunn will also be replaced next year by Craig Meller, head of AMP Financial Services, as the company embarks on a cost-cutting program.