Australian life insurers find it difficult to compete with overseas players because return expectations for the former are higher than those of their foreign rivals, says AMP Chief Executive Craig Meller.
"The challenge is that it's difficult to be an Australian-based scale player when you're competing against non-Australian based global scale players," The Australian Financial Review reported citing Mr Meller.
He added that in a "very live and active repricing environment", Australian insurers have two choices: ink reinsurance agreements with global players to pass on the risk, or divest the businesses.
AMP last week confirmed two new reinsurance deals to relieve the pressure on its life division. The extension of its relationship with Munich Re, and a new deal with Berkshire Hathaway's General Reinsurance Life Australia will release A$500 million (US$395 million) in capital from its life insurance arm by year-end.
"Clearly, we've been [pursuing] reinsurance. From what I read in the newspapers, I see that others are pursuing a different option," he said. Despite this Mr Meller said he remained "open-minded" about the possibilities for AMP's life businesses. The wealth management group has six divisions that span financial advice, superannuation, retirement income, insurance and investment products.
Last Wednesday, Australia's biggest bank, Commonwealth Bank, said it was in discussions with unnamed third parties about the potential sale of CommInsure as well as its New Zealand life insurance business, Sovereign. But the bank indicated that it too would consider reinsurance deals, or keep the business.
ANZ's life business is up for sale and Suncorp is still considering options for its life business, Asteron.