AMP Life’s losses continue to rise, with the insurer reporting a negative $44 million exposure in the three months to September 30.

This follows a $42 million loss for wealth protection in the first half of the 2016 financial year.

The quarterly result shows income protection insurance is the leading problem area, with an $18 million loss, followed by $12 million for group life. The retail lump sum loss was $8 million, and lapses totalled $6 million.

CEO Craig Meller says AMP’s life insurance business continues to decline.

“Despite the progress on claims transformation to date, it has significantly affected the performance of our wealth protection business. Having reviewed experience against long-term trends, AMP has come to the view the current trends are structural in nature.”

AMP is changing its best-estimate assumptions for AMP Life and National Mutual Life, including retail and group income protection, claims and lapses from the year end.

This will affect underlying profit, with capitalised losses and other one-off items resulting in a $500 million charge in the 2016 financial year.

A reduction in Australian wealth protection profit margins for the 2017 financial year will cost AMP Life’s bottom line about $65 million.

Mr Meller says these charges will reduce Australian wealth protection embedded value at the end of this financial year by about $1 billion, at a 5% discount margin.

Goodwill in the Australian wealth protection business is expected to be fully impaired by $668 million in the 2016 year-end financial statements.

“This reflects a decline in the potential recoverable amount for the Australian wealth protection business in line with reductions in embedded value,” Mr Meller said.

Under moves to restore profitability to AMP Life, a binding quota share agreement has been signed with Munich Re. This will reinsure 50% of $750 million of annual premium income in the AMP Life retail portfolio, starting this week. The agreement will release up to $500 million of capital from AMP Life, subject to regulatory approval.

Mr Meller says this initial tranche of reinsurance will reduce earnings volatility from the Australian wealth protection business.

The deal’s estimated net impact on Australian wealth protection business profit margins is a $25 million reduction annually from the 2017 financial year.

AMP expects further losses in the remaining months of the 2016 financial year, with losses expected to be about $75 million for the six months to December 31.

Profit margins for the Australian wealth protection business in the next financial year will be hit by strengthened assumptions ($65 million) and the reinsurance agreement ($25 million).

Life insurance business profit margins are expected to reduce by about $90 million in the 2017 financial year.