Over 200,000 policies caught up in AMP ‘zombie deal’
Policyholders fear the sale of AMP Life to a Bermuda-based 'zombie fund guru' could leave them stranded because a legal gap means the FMA is powerless to protect them. Nikki Mandow investigates.
It’s the biggest financial deal in New Zealand in almost two decades. AMP’s proposed A$3 billion sale of its life insurance business here and in Australia to Bermuda-based Resolution Life affects about 200,000 NZ policyholders. Another 600,000 or so dependants would be reliant on a payout if their loved one died or got sick.
Yet these policyholders know very few details about the AMP-Resolution deal, due to be completed in the first half of this year, according to the company.
Policyholders say they have been given little information about Resolution Life or Clive Cowdery, the British financier behind it - although a search reveals he has in the past been called a “ruthless money grabber” and a “zombie fund guru”.
Meanwhile the Reserve Bank, which is looking at the AMP-Resolution deal and has the power to sanction or censure it, won’t tell policyholders - or Newsroom - anything, saying the details are confidential. The Financial Markets Authority isn’t even looking at it.
But questions are starting to be asked about the deal, including in Parliament this week. And the most critical one is: Who, if anyone, is looking after the AMP Life customers here?
It all started back in late 2018, when the Australasian financial services company AMP announced its intention to exit the life insurance business. As its financial performance plummeted in the wake of the misconduct scandals, AMP decided to stop selling new life policies and announced a deal to sell its life insurance business to Bermuda-based Resolution Life.
Enter the zombies.
“Zombie” is the name given to a closed, with-profits (pooled) fund which no longer accepts new business. You know, the ‘living dead’ of funds. When AMP Life stopped accepting new customers it became a zombie.
Resolution Life specialises in buying zombie funds. Its boss, UK-based Clive Cowdery has made millions over the past 15 years via three different zombie-buying companies all called (rather confusingly) Resolution Life.
No problem with that. In fact Cowdery was knighted back in 2015 for philanthropically giving some of his millions away.
The risk for NZ policyholders
But third parties making money from owning zombie funds comes with risks for existing policyholders in those funds - in theory at least. Any extra dollar Resolution Life gets in premiums from AMP customers, or avoids paying out in future claims to those same customers, could end up in the pockets of Resolution’s shareholders.
As outspoken Australian journalist and academic Michael West wrote after the deal was announced:
“There will be every incentive for Resolution to run the business down and get the loyal existing AMP policyholders off the books as quickly and as cheaply as possible. Who is going to police the conduct of Resolution to make sure it treats AMP policyholders fairly?” West asked.
Who is going to make sure the company pays claims on time, doesn’t use a “wait on the phone forever” overseas call centre strategy designed to frustrate legitimate complaints, and doesn’t hike premiums and cut bonuses?
Hard questions for the Reserve Bank
This week, the questions about the AMP-Resolution deal started coming from this side of the Tasman too. On Wednesday, National MP Andrew Bayly spoke up for AMP Life policyholders when he questioned Reserve Bank governor Adrian Orr and deputy Geoff Bascand about the Resolution Life deal at Parliament’s annual review of the bank.
“These types of organisations buy these closed policies, they wind down the costs, and they make the claims harder to obtain if something has happened,” he said.
“It’s standard practice around the world. Who is going to look after the interests of the policyholders?”
It’s a “massive deal”, Bayly told Newsroom afterwards. “If this was 10 policyholders, I wouldn’t mind. But this is 200,000.
“If Resolution was to use what is normal practice with other companies which buy these types of policies, a substantial proportion of the population could be impacted over the next few years.”
The trouble is many of the normal market-based checks and balances don’t apply with a zombie fund. Because Resolution Life is based overseas and the insurance book is closed, the company doesn’t necessarily need to worry about branding or reputational damage if customers get grumpy or vociferous about any perceived poor treatment.
And because of the long-term nature of life insurance policies, many customers can’t just up sticks and change providers if they don’t like what’s happening at AMP/Resolution.
They are stuck. Captured is the common phrase.
There are different types of life insurance, but many people with existing AMP policies will have had them for years - sometimes 30, 40, or 50 years. They took them out when they were young (or relatively young) and healthy. Their eligibility and likely their premiums were based on that youth, and health.
That’s all changed for many customers, Andrew Bayly says. They are old - or older. They may not be in such good health. Some of them have policies which include a savings or bonus element, built up over years with the same provider.
Some wouldn’t pass the medical if they tried to switch policies. Others would find themselves paying significantly increased premiums. They would lose bonuses or any savings-type payout.
“People would be surrendering lots of value if they tried to move away from AMP,” Bayly says. “You are talking about people that don’t have any choices here.”
One of those AMP policyholders seriously worried about the future of his life insurance cover if Resolution takes over AMP Life is Andrew Body. The investment banker took out a life insurance policy with AMP in 1992 and is concerned about the secrecy and his lack of options if Resolution takes an aggressive approach to managing its newly-acquired policies.
Body says he approached an insurance broker this week to ask about possible replacement options for his AMP Life policy.
"Based on the quote I received yesterday, the next cheapest policy is 73 percent more expensive. I am well and truly captured!"
This week he took the unusual step of presenting a petition to Parliament to try to get some action. In it he urges politicians to “urgently review the Insurance (Prudential Supervision) Act 2010 to ensure New Zealand life insurance policyholders (including AMP Life policyholders) are treated fairly and transparently in the sale and operation of life insurance businesses, through seamless supervision by the FMA and RBNZ.”
Body wants to get as many signatures for his petition as possible before it closes on March 24.
'Tell us more'
The timing of his petition is deliberately chosen, Body says, to close two days before public submissions finish on the Financial Markets (Conduct of Institutions) Amendment Bill.
The bill is designed to regulate the conduct of financial institutions. It comes “in response to recent reviews that have identified that certain institutions, particularly banks and life insurers, lack focus on good outcomes for customers and have ineffective systems and controls to identify, manage, and remedy conduct issues.”
Body is particularly worried about the lack of information given to AMP policyholders about the Resolution deal, either by AMP or by the Reserve Bank, which is deciding whether to allow the deal to go ahead.
As his petition says:
"The Insurance (Prudential Supervision) Act 2010 enables the purchase of AMP Life by Resolution Life without AMP’s 200,000 NZ policyholders receiving information or approving. The Act apparently mandates secrecy by RBNZ in prudential supervision of life insurance businesses. However the Act does not cause seamless supervision by FMA and RBNZ. I believe this is contrary to best practice. The Act needs urgent review to ensure reasonable protection of the interests of AMP and other policyholders.”
Body says the only communication he and other AMP life insurance customers have received is an October 2018 letter from the company’s New Zealand managing director Blair Vernon. The letter simply told them that AMP and Resolution had entered into an agreement, and assured them that terms and conditions of existing life insurance policies would be retained.
“There’s nothing you need to do,” the letter said. “We value you as a customer and remain committed to providing the best outcomes for you,” the letter said.
AMP’s history of poor conduct
The trouble for Body and the 200,000 other AMP Life policyholders is that the 2018 Hayne Royal Commission into misconduct in Australia's financial services sector is far from reassuring when it comes to AMP’s track record in providing the “best outcomes” for its customers.
AMP’s customer practices, which emerged in commission hearings, were described by Australian Financial Review investigative reporter Adele Ferguson as a “trainwreck”, and led to widespread criticism of the financial services firm.
“Few companies came out of the royal commission as badly as AMP,” Ferguson wrote. “It lost its chair, half the board, chief executive and a number of other senior executives. Most of all it lost its reputation and breached trust.”
It also lost money - big time - from compensation payouts to victims of misconduct, from wealth management customers withdrawing their funds from the company, and from being forced to dramatically cut fees.
Earlier this month AMP reported an almost A$2.5 billion loss.
To balance the books and placate shareholders AMP desperately needs the sale of its life insurance arm to Resolution go ahead.
Who is Resolution Life?
Resolution Life Group Holdings LP is a Bermuda-based company specialising in buying zombie insurance businesses and making money out of them. The head of Resolution Life, Cowdery - now Sir Clive - has 15 years in the business through the three separate Resolution Life companies.
The first was based in London, the second in Guernsey, the third in Bermuda.
Guernsey is ranked 15th in a 2019 list of the world’s worst corporate tax havens. “Worst” unless you are wanting to avoid paying tax, that is.
Bermuda, an isolated, seahorse-shaped island almost 3000km off the east coast of the US, gets the number two slot.
Not that being based in a notorious tax haven seems to have done him any harm.
Cowdery recently raised $US3 billion for his latest Resolution vehicle from investors including JPMorgan Chase and Nippon Life Insurance.
"Ruthless money-grabber" or "charismatic visionary"?
Meanwhile Cowdery has a colourful history of dealings with AMP Life’s chair Trevor Matthews.
Back in 2009, the UK’s This is Money financial website reported on a deal between Resolution and Matthews’ then company Friends Provident.
“Just one month ago,” wrote journalist Lucy Farndon, “Friends Provident would have had us believe that Resolution boss Clive Cowdery was a ruthless money-grabber who would spirit away our life savings to his tax haven in Guernsey. He was little better than the spawn of the devil.
“Now, the language has become notably more conciliatory. FP agreed to a £1.9bn takeover last week by the very Cowdery who only a short while ago was so excoriated.
“Cowdery is 'energetic, charismatic and visionary', enthuses FP's chief executive Trevor Matthews.
“Oh, and 'very clever' too, he adds, pointing out the great deals that Cowdery has done with 'zombie' funds in the past before he turned his attention to life assurers like FP.”
Back in that interview more than a decade ago, Matthews told Farndon the deal with Cowdery was very much in the best interests of shareholders, although he said policyholders would be okay too.
“Nothing changes for policyholders. We can't say this is going to be fantastic for them. It is not going to significantly impact them either positively or negatively.
“It is certainly not going to impact them negatively - there is all sorts of legislation in place.”
A hole in the legislation
MP Andrew Bayly argues that “all sorts of legislation” to protect policyholders is exactly what’s missing in New Zealand.
And it seems like the regulators don’t totally disagree.
Answering Bayly’s questions at the Finance and Expenditure Committee meeting this week, RBNZ’s Geoff Bascand said the bank had a clear remit to make sure insurance companies, including Resolution, were financially sound, to the benefit of policyholders.
But whether the bank had a remit to ensure customers were kept informed and treated fairly wasn’t so easy to answer.
“It’s complex,” Bascand told the committee. “We have duties to ensure insurance companies run soundly and safely and abide by legal requirements. But to satisfy whether everyone is being looked after personally is a challenging question...
“I need to think further about it and examine it.”
'Be better behaved'
Meanwhile the Financial Markets Authority has been pushing for some time for powers to force insurance companies to behave well towards their policyholders.
“There are currently no overarching conduct duties for the fair treatment of customers on insurers,” the FMA’s Andrew Park told Newsroom. It’s a hole in our legislation which caused concern both in the FMA/RBNZ report on life insurer conduct and culture, released in early 2019, and in a 2017 report from the International Monetary Fund.
“In our recent reviews we signalled that we expect [life insurers] to have systems and processes in place to ensure they treat their customers fairly. This applies to the current situation between AMP and Resolution,” Park says. “However our reviews also identified that our role and mandate in this area is limited.”
In the Reserve Bank’s court
In June last year, the Reserve Bank turned down a previous version of the AMP-Resolution deal, saying: “The structure of the transaction presented to the RBNZ by Resolution did not meet the requirements of New Zealand’s insurance regulations,” but giving few details of why this was. “This failure occurred despite the RBNZ’s guidance and information provided as necessary throughout the transaction process,” the RBNZ said.
Newsroom’s requests for any information under the Official Information Act about the AMP-Resolution deal or any discussions the Reserve Bank have had over the sale of life insurance company closed books to private equity companies were all refused on the grounds of confidentiality.
Newsroom approached Thérèse Singleton, who heads up AMP Life’s New Zealand team and seems already to be the nearest thing to a representative of Resolution Life in this country. Sources in the life insurance industry told Newsroom that Singleton is well regarded.
Singleton didn’t respond to Newsroom’s request for information on the progress and detail of the AMP-Resolution deal.
However AMP Life’s Sydney-based head of corporate affairs Nathalie Kitchen sent a statement:
“The separation of AMP Life is on track for completion by June 30. We continue to work with regulators, including RBNZ, on receiving approval. We have received approval from China.
“For customers, there will be no change to their existing insurance policy terms or conditions. They will benefit from Resolution Life’s deep expertise in managing in-force insurance policies and its commitment to customer service.”
Kitchen said the AMP Life management and support teams would “transfer”, once the deal went through “to ensure consistency and a smooth transition for customers.
“Customers will receive communications from AMP once the deal is completed,” she says.
Are you an AMP Life customer? Newsroom is keen to hear from you. Email firstname.lastname@example.org
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