S&P Lowers AMP Ratings, Assigns “Negative Outlook”

May 14, 2003

Standard & Poor’s Ratings Services announced that it has lowered the insurer financial strength and counterparty credit ratings on AMP Life Ltd. to ‘A+’ from ‘AA-‘, and has also lowered its ratings on AMP Group Holdings Ltd. and AMP Bank Ltd. to ‘BBB+’ from ‘A-‘. All the companies have been removed from S&P’s CreditWatch, and given a negative ratings outlook, due to the “uncertainty on the demerger and capital restructure, and the uncertain earnings outlook for the AMP group.”

Kate Thomson, S&P credit analyst, Financial Services Ratings, explained that the “The negative outlook on AMP Life, AMP Group Holdings, and AMP Bank reflects the inherent uncertainties surrounding the execution of AMP’s plans, and the prevailing difficult operating environment for life and funds management companies in Australia and internationally, which is likely to constrain earnings. The high proportion of hybrid equity makes the AMP group more sensitive to earnings downgrades. If these risks are ameliorated, the ratings outlook could revert to stable from negative.”

S&P also announced that “The insurer financial strength and counterparty credit ratings on AMP’s U.K. life entities — Pearl Assurance PLC (Pearl), National Provident Life Ltd. (NPL), and the NPI Ltd. (NPI) — were also lowered and removed from CreditWatch, with the three entities now on negative ratings outlook. The ratings on Pearl and NPL were lowered to ‘BBB’ from ‘BBB+’, and NPI was lowered to ‘BBB+’ from ‘A’.

“The downgrades follow an overall weakening in the AMP group’s financial strength, and encompasses AMP’s May 1 announcement of its intention to legally separate its Australian and U.K. business into two companies, raise capital of up to A$1.5 billion [U.S. $967 million] (proceeds now expected to be A$1.7 billion) [U.S. $1.095 billion], pay down debt, and sell equity investments held in its U.K. life operations.”

Thomson concluded, “Although AMP’s capital raising and equity sale initiatives will improve group capitalization, the positive impact of these initiatives only partially offsets the diminution in group capital strength up to AMP’s May 1 announcement. Furthermore, AMP group’s underlying earnings have been dampened by a difficult operating environment, and reported profitability marred by a material level of write-downs in the past six months.”

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