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AMP's credit rating cut

Wednesday 14th May 2003

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Standard & Poor's has lowered the insurer financial strength and counterparty credit ratings on AMP Life from AA- to A+ and
removed the ratings from CreditWatch.

At the same time, the counterparty credit ratings on AMP Group Holdings and AMP Bank were lowered to BBB+ from A- and removed from CreditWatch.

The ratings outlook on AMP Life, AMP Group Holdings, and AMP Bank is negative, given uncertainty on the demerger and capital restructure, and the uncertain earnings outlook for the AMP group, Financial Services Ratings credit analyst Kate Thomson says.

"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," she says.

The insurer financial strength and counterparty credit ratings on AMP's UK 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 UK business into two companies, raise capital of up to A$1.5 billion (proceeds now expected to be A$1.7 billion), pay down debt, and sell equity investments held in its UK life operations.

"Although AMP's capital raising and equity sale initiatives will improve group capitalisation, 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," Thomson says.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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