AMP says income protection policy lapses and higher incurred claim reserves in its Australian wealth protection business will hit annual operating profit.

The two issues are expected to drive a $55-65 million reduction in fourth-quarter operating results, the company says in a market update.

“AMP regards improving the performance of the wealth protection business as one of its highest priorities and continues to implement short and medium-term actions to improve claims and lapse experience.”

Axa income protection book lapses worsened in the third quarter, causing the company to raise its assumptions for the final three months, AMP says. The revised estimates are expected to result in a capitalised loss of $40-50 million in the December quarter.

An increase in reserves for incurred-but-not-reported claims will increase experience losses by about $15 million, the company says.

Wealth protection third-quarter experience losses were $24 million, compared with $37 million in the corresponding period last year.

Lapse experience losses were $12 million, group insurance claims experience losses were $6 million and retail lump sum claims losses were $8 million.

Income protection experience profits were $2 million.

AMP’s overall risk insurance annual premium income grew to $2.1 billion at September 30, up 6% on a year earlier.