(Updates with closing price in second paragraph.)
Aug. 21 (Bloomberg) -- AMP Ltd., Australia’s largest life insurer, reported a 3 percent drop in half-year profit as investment losses and cost-cutting expenses more than offset gains from business units.
Net income for the six months ended June 30 fell to A$382 million ($355 million) from A$393 million a year earlier, the Sydney-based company said in a statement today. Underlying profit, which excludes investment market volatility, rose 16 percent from a year earlier to A$510 million, AMP said. Shares climbed 4.2 percent in Sydney to close at A$5.75, the highest since April 2011.
Chief Executive Officer Craig Meller, who took over on Jan. 1, is focused on reducing costs. AMP began a three-year cost reduction program in 2013 with a target of A$200 million in pretax savings by the end of 2016. The plan includes technology investment and outsourcing of back office processes.
“All business segments are contributing to profits and costs are well controlled,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. “The turnaround in the wealth protection business after three disappointing halves is a strong sign that problems in that unit are under control.”
Higher-than-expected insurance claims and non-renewal of polices were largely to blame for AMP reporting a 2.5 percent decline in profit for the year-ended Dec. 31.
It’s wealth management unit reported a 16 percent rise in first-half profit to A$183 million, while its bank earnings climbed 11 percent and its insurance arm had a 42 percent increase. The fund management business, AMP Capital, which managed A$144 billion as of June 30, posted a 12 percent increase, the company said in today’s filing.
The difference between AMP’s net income and underlying income stems mostly from cost-reduction program expenses of A$49 million and accounting mismatches of A$31 million, it said. Under Australian accounting requirements, some assets held on behalf of policy holders are reported at values different from the calculation of policy liabilities and have no impact on economic profits, the company said.
The cost-to-income ratio improved 3.4 percentage points to 45 percent in the first half, AMP said. The insurer declared an interim dividend of 12.5 cents, matching the Bloomberg dividend forecast. The company held A$1.9 billion in surplus capital as of June 30.