AMP Limited (ASX: AMP) saw its share price smashed down 8.7% to $4.70 in lunchtime trading after the diversified financial group wrote down the value of its wealth protection (aka insurance) business by $668 million.

amp-share-price-oct-2016

Source: Yahoo Finance

 

The company also says it expects to see capitals losses and one-off items of around $500 million in the 2016 financial year results (FY2016), as well as a $65 million impact on lower Australian wealth protection profit margins in FY2017.

The company downplayed the impact on its financials by also announcing a significant reinsurance arrangement with Munich Reinsurance. AMP says, “the agreement creates the potential to release up to $500 million of capital from AMP Life subject to regulatory approval.

A tough life insurance sector has also meant that AMP expects to see a loss of $44 million in the third quarter of FY2016. If trends continue, AMP expects to see losses of $75 million for the second half of FY2016.

Investors who own shares in AMP might want to consider selling out, despite today’s fall. The company has a wide variety of financial service businesses including banking, insurance and wealth management. Over the past decade, the company has delivered an average annual return of -0.4%, confirming that it is not investment grade. There are plenty of better financial services companies to own a part of, including Insurance Australia Group Ltd (ASX: IAG) and Challenger Ltd (ASX: CGF).

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.