S&P Removes AMP from CreditWatch; Lowers Ratings of U.K. Units

February 12, 2003

Standard & Poor’s Ratings Services announced that Australia’s AMP Life Ltd. has been removed from CreditWatch and that its ‘AA-‘ ratings have been affirmed with a negative outlook. S&P also said it has removed the company’s U.K. subsidiaries from CreditWatch and has lowered its ratings on the operating companies, group holding company, and bank.

S&P lowered its insurer financial strength and counterparty credit ratings on NPI Ltd. to ‘A’ from ‘A+’ and the counterparty ratings on AMP Group Holdings Ltd. and AMP Bank Ltd. were lowered to ‘A-/A-2’ from ‘A/A-1’. All these ratings have negative outlooks. S&P also lowered the insurer financial strength and counterparty credit ratings on Pearl Assurance PLC to ‘BBB+’ from ‘A’, but assigned them a “stable” outlook.

Due to what it termed “unique circumstances,” the bulletin noted that “The ratings action by Standard & Poor’s represents a divergent approach to that previously taken for the AMP group.” It indicated that “The ratings on AMP Life, which is the main Australian operating company within the AMP group, have been decoupled from other ratings within the AMP group, as indicated by Standard & Poor’s affirmation of AMP Life and the downgrade of other AMP companies.”

“The affirmation of AMP Life reflects its superior financial strength compared with other companies within the AMP group,” stated Kate Thomson, associate director, Financial Services Ratings group. “The ratings on AMP Life are supported by AMP Life’s preeminent market position in its Australian home market, and its solid capital and earnings profile,” said the announcement.

“Standard & Poor’s believes that the AMP group is currently strategically committed to its U.K. businesses, but is less confident that more capital, if required, would be made available from the internal sources of the AMP group to support its U.K. businesses, quarantining AMP Life’s capital strength to some extent,” Thompson continued.

S&P indicated that AMP’s Australian life business would be insulated, “but only to a limited extent,” from an intensification of stresses affecting the group’s U.K. operations. “Current circumstances allow for a degree of differentiation between the ratings in the AMP group, but, should risks associated with the U.K. operations intensify further, all ratings could be affected,” Thomson added.

Pearl was treated separately reflecting its “stand-alone capital strength, AMP’s decision to close this entity to new business in the coming year, and Pearl’s subsequent corporate restructure.” The unit has been hard hit by the recent falls in global equity markets, but S&P said it “has been protected somewhat against further falls.” It warned, however, ” If this protection is removed, Pearl’s capitalization could reduce, further placing capital pressures on the wider AMP group. Pearl’s ratings are now based on its stand-alone credit strength, and the stable outlook indicates that Pearl may not be impacted by future rating actions affecting the group.”

The one notch downgrade affecting other AMP group companies, including NPI, AMP Group Holdings, and AMP Bank reflects S&P’s view of the reduced strength of the AMP group as a whole. “In particular, capitalization has been negatively impacted following a sustained deterioration of equity markets affecting AMP U.K. businesses,” Thomson indicated.

“The ratings outlook for AMP Life, AMP Group Holdings, AMP Bank, and NPI remains negative, reflecting the continued difficult operating environment in the U.K., and uncertainty over U.K. equity markets weighing on group strength. The AMP group has announced an expected loss of about A$900 million [U.S.$535 million] in the year to Dec. 31, 2002, and the ratings action is based on the assumption that actual results are not materially outside of previously communicated company expectations,” said the bulletin.

S&P announced that a teleconference will be held to discuss the ratings action, and gave details as follows:
Date: Thursday Feb. 13, 11.00 a.m. (Australian EST)
Telephone: Australia (61) 2-8214-9000
Passcode: AMP
Duration: One hour approximately (including Q&A)
Participants: Gavin Gunning – Director, Financial Services;
Kate Thomson – Associate Director, Financial Services

Callers should make contact at least five minutes before the conference is scheduled to begin in order to complete registration formalities. S&P said replays will be available two hours after the call is completed on Standard & Poor’s Web site at: www.standardandpoors.com.au. For more information contact Felicity Chamberlain, Melbourne (61) 3-9631-2143. Media should contact Sharon Beach, Melbourne (61) 3-9631-2152.

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