AMP Limited Lower than estimated third quarter of 2016 performance coupled with weak guidance

Lower than estimated third quarter of 2016 performance coupled with weak guidance: AMP Limited (ASX: AMP) stock fell over 9.13% on October 28, 2016 as the group reported a lower than expected third quarter of 2016. The group witnessed a poor claims experience impacted by the challenging market conditions. IP claims experience performance was affected by lower than forecasted terminations and ongoing investment in claims transformation. Lump sum experience was also weaker affected by the rising incidence of TPD claims. The group’s Lapse experience was affected by the business mix and seasonality. Going forward the guidance is also weak. If the ongoing trends continue for the group’s Claims & lapse experience, experience losses for the Australian wealth protection business is forecasted to be $75 million for the second half of 2016. Capitalized losses and other one-off experience is forecasted to be (A$500 million) during the second half of 2016 while embedded value for Australian wealth protection is forecasted to decline by over A$1.0b (@5% discount margin) at FY 16 to recognize impacts from the expected best estimate assumption changes. AMP Profit margins are forecasted to reduce by A$90m during fiscal year of 2017 on the back of the assumption changes at 31 December 2016 and the signed reinsurance treaty. Management forecasts a reduction of profit margins of about A$5m in the second half of FY16.

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