The Cayman Islands is the destination du jour for Australian hospitals and water profits but far more is bound for Bermuda. Michael West on tax haven risk for AMP Life policyholders and their $100 billion in assets.

Two weeks ago, when the buy-out merchants from Brookfield completed their takeover of Healthscope, control of 43 Australian hospitals passed to a company in the Cayman Islands whose directors are unknown. Two years ago a record $80 million payment of taxpayer money for Australian water rights went to the Caymans, to investors unknown, still.

Profits from Adani’s controversial coal mine, rail and port profits subsidised by Australian taxpayers, are destined for companies in the Caymans and the British Virgin Islands owned by the family of Indian billionaire Guatam Adani.

And now, in a few months, should regulators approve it, the AMP Life business will be owned by an entity in Bermuda, like the Caymans, a secrecy jurisdiction with a corporate tax rate of zero.

Schemozzle: AMP sells life insurance to asset acrobats from Bermuda

The chairman of AMP Life is the actuary Trevor Matthews. The chairman of Resolution Life, the Bermuda mob buying AMP Life, is British financier Clive Cowdery.

Ten years ago, when Trevor Matthews was at the helm of UK mutual Friends Provident, and Clive Cowdery was at the helm of the then Guernsey cashbox, Resolution Life, Trevor thought of Clive as a “ruthless money-grabber”.

According to the UK press at the time:

“Just one month ago, Friends Provident would have us believe that Resolution boss Clive Cowdery was a ruthless money-grabber who would spirit away our life savings to his tax haven in Guernsey. He was little better than the spawn of the devil”.

However when Clive, the “zombie fund guru”, bobbed along with a Stg1.9 billion takeover offer for Friends Mutual, Trevor described Clive as “energetic, charismatic and visionary”.

These things are not mutually exclusive. One may be a “ruthless money-grabber, little better than the spawn of the devil” at the same time as being “energetic, charismatic and visionary”. In fact, such traits are probably complementary.

It was also complementary that Clive’s plaything Resolution had Stg600 million in cash, and not much else, while the 177 year old Friends Provident had 2.5 million policy holders and 3,600 employees – complementary for Clive.

Clive is back

In Clive’s bid for AMP Life, AMP gets $1.9 billion in cash for $100 billion in policyholders’ assets. The other $1.415 billion of the $3.3 billion offer is satisfied by bits of Bermudan paper which don’t look too liquid: $300 million in preference shares in a Resolution entity, an “economic interest in future earnings from the mature business” and $515 million shares in Resolution itself.

The deal has to be sanctioned by APRA, the insurance regulator, and, as it is highly complex, the timeframe for completion has now been put back till the end of the third quarter. For APRA, the devil is in the detail.

The regulators needs to protect policyholders as the natural inclination for an offshore asset stripper would be to provision less in order to profit more, to skew the assets towards higher returns and therefore higher risk.

APRA needs to ensure that, in the event of a rash of claims, or another disaster, policy-holders are protected.

Challenge for Challenger

Things have been tough for life insurers in this record low interest rate environment; annuity sellers too. Look no further than the halving of Challenger’s share price. As it sought to ramp up its returns to back its annuities book, Challenger has made some heroic assumptions on Return on Equity.

Elsewhere, others are getting out of life insurance altogether, such as Commonwealth Bank, with fixed interest markets delivering pitiful returns.

Just as Clive has his work cut out to supercharge returns from boring, safe old AMP assets, APRA has its work cut out to de-risk the deal for policyholders.

The other aspect of this deal is national interest. It will need FIRB approval too. FIRB was easy touch with Healthscope and its 43 private hospitals now controlled in the Cayman Islands by tax avoiders Brookfield.

From the Northern Beaches of Sydney to the Northern Beaches of George Town, Cayman Islands

There has been some misapprehension about tax havens, driven by defenders of the Watergate transaction, that they are okay because even the industry funds have a lot of investments in tax havens.

There is a world of difference between inbound and outbound investment, between Australian funds investing in tax haven funds in order to avoid double tax, and those such as the Watergate crew, Brookfield and now Resolution who have been permitted to take Australian assets and plonk them in the Caribbean or the mid Atlantic.

Watergate: when two rights do make a wrong

Tax is one aspect, forgone tax, but secrecy and loss of control are equally threatening for Australia’s national interest. Who is there to claim against when something goes wrong?

Australia is being gutted of prime assets in favour of secretive entities controlled by financiers in little islands a long way away, and with no judicial recourse.

In the case of AMP Life, APRA must surely insist the $100 billion in policy-holder’s assets are housed in well provisioned Australian companies. A lot is at stake and there has been zero said in the financial press or elsewhere about the risks, let alone about the national interest.

Fifth Pillar crumbles: why AMP policy-holders’ losses are Resolution’s profits.