Moody's upgrades AMP Group's ratings; outlook stable
Sydney, November 08, 2006 -- Moody's Investors Service has today upgraded the ratings of the AMP Group.
The rating for senior debt guaranteed by AMP Group Holdings has been raised
to A2 from A3, while the insurance financial strength rating for
AMP Life Ltd has been upgraded to Aa2 from Aa3.
A complete ratings list appears at the end of this release. All
ratings carry a stable outlook. This concludes the review initiated
on September 22, 2006.
"The upgrade incorporates AMP Group's preservation of its strong
position in the Australian insurance and superannuation markets over the
last 3 years, including its ability to maintain its flow of new
business," says Jeffrey Liew, a Moody's VP/Senior
"It has also continued to improve profitability against a backdrop
of intense competition and captured about 20% of the superannuation
industry's net cash flows for the 12 months to March 2006,"
"It reported a 24% increase in underlying contributions to
A$801 million for calendar 2005, reflecting strong growth
in business volumes, further reductions in operating costs and good
market conditions," Liew says, adding, "Moreover,
during 1H2006, underlying profit continued to improve, showing
a 7% rise from a year ago to A$420 million, while
underlying return on equity accordingly strengthened to 26.6%
"Additionally, Moody's considers that AMP Life -- the
key operating entity for AMP Group -- enjoys various strong advantages
which will further underpin its profitability and capitalization going
forward. These include its very strong franchise name in Australia's
growing superannuation market, well-established wealth management
business, solid financial fundamentals and experienced management
team," says Liew.
Furthermore, AMP Life has achieved a unique position - including
Australia's largest number of financial planners and a comprehensive
fund administrative platform - which helps it to compete effectively
with its peers.
In general, its financial planners are also more experienced and
show a turnover rate lower than the market average. Their productivity
levels, measured in terms of funds under management per planner,
are comparable to those of its major competitors. Moody's
views such features as its strongest competitive advantages and believes
that they will continue to support profitable growth.
AMP Life's strengths are tempered somewhat by its moderate capitalization
level. This is consistent with most of its businesses being not
so capital intensive and its internal capital adequacy measure (target
surplus) also indicates a similar direction. However, Moody's
cautions the potential risk associated with business operations is taking
on greater importance.
These operational risks are common to major wealth management companies
in Australia and include maintaining tight control on pricing errors and
timely compliance with increasingly complex consumer protection issues
in relation to advice from financial planners. However, in
the long term, Moody's believes such measures enhance overall
service quality, especially given the growth potential expected
in the superannuation industry.
The stable outlook reflects Moody's expectation that AMP Group & AMP
Life will maintain their strong operating franchise and financial fundamentals.
Moody's would view as positive for both their ratings the ability of AMP
Life to increase its net flow of funds, while also preserving its
leadership position in wealth management.
Other positives for the ratings would include ROE of AMP Life (since the
de-merger of its UK operations) sustained at 15% or above;
an improvement in financial leverage to less than 20% for AMP Group;
and achievement of a capital adequacy ratio of AMP Life above 12%
(measured at capital as a percentage of total assets).
On the other hand, negative ratings pressure could emerge if financial
leverage at AMP Group surpasses 40%, or a significant drop
occurs in ROE for AMP Life (since de-merger) to below 12%.
Other negative factors for the ratings would include the emergence of
strong competitive pressures, which result in serious reductions
in net fund flows and a deterioration in capital adequacy of AMP Life
to well below 4%.
Prior to today, Moody's last rating action with respect to AMP Group
& AMP Life was taken on September 22, 2006, when the ratings
of various AMP entities were placed on review for possible upgrade.
AMP Group, headquartered in Sydney, had total assets of A$85
billion as at end-2005.
The following ratings were upgraded with a stable outlook:
AMP Life Ltd -- Insurance financial strength Aa2 from Aa3
AMP Group Holdings Ltd -- Senior debt A2 from A3
AMP Group Finance Services Ltd -- Senior debt A2 from A3;
Subordinated debt A3 from Baa1; Commercial paper P-1 from
AMP Bank Ltd -- Long-term deposits A2 from A3;
Short-term deposit Prime-1 from Prime-2;
Long-term issuer A2 from A3;
Senior unsecured debt A2 from A3;
Subordinated debt A3 from Baa1
The following rating was not affected and retains a stable outlook:
AMP Bank Ltd - The bank financial strength rating of D
The following rating was withdrawn:
AMP (UK) Finance Services Plc -- Senior debt A3 ; Commercial
Jeffrey S. Liew
Vice President - Senior Analyst
Financial Institutions Group
Moody's Asia Pacific Ltd.
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Senior Vice President
Financial Institutions Group
Moody's Investors Service Pty Ltd
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