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AMP kicked in the Pearl's

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    This from today's Australian Financial Review. More bad news for AMP just when you thought things couldn't possibly get worse?

    AMP floored by Pearl shortfall
    Sep 19
    Robert Guy

    AMP sank to a record low yesterday after admitting that its UK-based Pearl operations are not meeting minimum capital requirements and will not until the end of the year.

    The stunning disclosure was made in the prospectus for the issue of $750 million of reset preferred securities and comes after repeated statements from embattled chief executive officer Paul Batchelor to assure investors that the capital position of the UK businesses was secure.

    "Subject to the implementation of a number of capital management initiatives and no material deterioration in investment markets from current levels, AMP Pearl is expected to meet minimum regulatory capital requirements by year end," the prospectus notes.

    AMP's share price fell 3.6 per cent yesterday to a record low of $12.83, adding to the pressure on Mr Batchelor and the managing director of UK Financial Services, Tom Fraser, to move more swiftly to restructure the ailing UK Financial Services division.

    "Clearly the situation remains quite tough," said one analyst who declined to be named.

    An AMP spokesman said that the company had £1.3 billion ($3.6 billion) in assets that were not admissible for regulatory capital purposes in the UK.

    "Our ability to meet minimum regulatory capital requirements is calculated formally and only once a year. The statement in the prospectus is simply saying that we expect to meet minimum regulatory capital requirements in the UK when we next formally do the calculation," the spokesman said.

    In late June, AMP injected $1billion into its UK Financial Services operations as declining UK equity markets and the move by investors into capital-intensive products placed constraints on the division's capital.

    In late July, credit ratings agency Standard & Poor's cut its rating on AMP UK's life operation to AA minus from AA.

    However, last week Standard & Poor's announced it was likely to lift AMP's credit rating back to AA from AA minus, assuming it can successfully place the $750 million reset preference securities issue.

    "This is a pretty strong capital instrument and adds new resources to the group, so from our perspective that is positive," said Kate Thomson, associate director, financial services with Standard & Poor's yesterday.

    Insurance analysts also stressed that investors should not confuse regulatory capital issues with issues about the solvency of the business, with AMP's strongly capitalised position affording it the opportunity to inject more capital into the business if required.

    On August 26, Mr Fraser attempted to allay investor concerns about UKFS during a strategy briefing highlighting the move to newer, less capital intensive products. He noted that shareholder capital would be released over time as Pearl and NPI books were run off, but the move towards new-generation products would have to be carried by shareholders to the tune of £250 million over five years.

    In July, the Australian Financial Review reported on a study undertaken by KPMG and Money Marketing Online which showed that AMP Pearl was the only UK life office that relied on future profits to meet minimum regulatory solvency requirements in 2001 with a free-assets ratio of minus 0.9 per cent if future profits were excluded.

    The free-asset ratio is a commonly used indicator of the financial condition of a company when assessing its ability to meet guaranteed benefits.
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