AMP and National Mutual were once the two pillars of Australia's life insurance industry. AMP was headquartered in Sydney and National Mutual was one of the Melbourne business community's great stalwarts, one of the institutions that made Collins Street Australia's financial hub. Then it all came unstuck.
My mother warned me about life insurance policies long ago. She said the payments on the policy had to be made for a very long time and when the policy matured, the value had been inflated away. If you surrendered the policy early, you were likely to retrieve very little of the premiums you had paid. That was all true. But for someone with a professional level job, the calls from insurance agents, which commenced at the same time you began your first real job, became almost impossible to resist. In fact, for many professional people, taking out a life policy went along with getting the key to the door and owning a decent car as a marker of adulthood.
Many people thought like my mother. The life offices offer two types of policies. The first is term insurance. The policy is paid out on the death of the policy holder. Term insurance was invented by two bibulous Scottish clergymen who wished to prevent the impoverishment of clergymen's widows. Apart from inventing life insurance, they were also the world's first actuaries. The firm they founded, Scottish Widows, still exists.
Actuaries are mathematicians who work out risks such as life expectancy, death rates and so on for insurance companies. Life offices couldn't stay in business if they didn't know what they were paying out on, and when.
Whole of life is the second main form of life policy. Term policy holders became resentful that they derived no benefit from the premiums they paid for their entire life. Whole of life is similar to an investment policy which usually pays out at a certain date.
When AXA, the French insurance giant took over National Mutual, National Mutual was almost broke. AXA wanted National Mutual's Asian business, the company's crown jewel. National Mutual was a mutual company -- that is, it was in theory at least, owned by the policy holders. I say 'in theory' because it was almost impossible to extract information from the company. Policy holders were not even given an annual report and even requesting an annual report was a battle. The annual report, when received, revealed that National Mutual was governed by a rogue's gallery of Melbourne businessmen, such as John Elliott and other fallen angels.
National Mutual had a problem. It was the number two life office behind AMP and it wanted to be number one. The way to do this was to write more policies. But there is a catch. Writing a policy is quite an expensive undertaking. The agent gets a commission, the insured's life has to be assessed and a medical examination undertaken, statutory requirements have to be fulfilled and so on. The life office does not start making a profit on the policy for about eight years, and the life policy will have a negative surrender value for quite a while. National Mutual might have been writing more policies, but it was in danger of going broke.
When ASIC eventually let AXA France and AMP carve up the remains of National Mutual, both sides got what they wanted. AXA never wanted the Australian business, only the booming Asian network, and AMP had had its fingers burned with foreign adventures. AMP wanted to be too big to be taken over and it wanted the National Mutual agent network. This is not what happened. AMP agents are company employees.while former National Mutual agents own their own business and needed little encouragement to head off for sunnier climes. Also, AMP has a reputation for stinginess, as evidenced by cutting out the free fruit for company employees. What AMP did get was the North platform, an investment program regarded with almost religious veneration within the funds management industry.
As a policy holder, I received the grand sum of around $300 in stock when National Mutual demutualised, which was better than nothing -- easily the case if AXA, lured by the Asian business, hadn't ridden to the rescue.
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