Investment and insurance giant AMP is working hard to win back its safe and conservative image, and its chief executive officer Craig Dunn likes it that way.

PHILLIP LASKER, PRESENTER: Investment and insurance giant AMP is working hard to win back its safe and conservative image, and its chief executive officer Craig Dunn likes it that way.

There was a tiny exposure to the dreaded CDO and sub-prime debts, but the company is conservatively geared.

So careful is AMP these days, it's been accused of missing opportunities.

I spoke to chief executive Craig Dunn earlier today.

Craig Dunn, welcome to "Lateline Business".

CRAIG DUNN, CEO, AMP: My pleasure.

PHILLIP LASKER: If you can just outline, where has this financial crisis made its mark on your bottom line?

CRAIG DUNN: The tough investment climate did hit our investment return on shareholder's profit, and we saw that come through the result. And it had I suppose a bit of a depressing effect on the businesses that are most impacted by share market volatility, although their earnings held up.

So it has knocked around the result a bit. But I have been pretty pleased with the overall operating result from our businesses, which have delivered earnings growth in a pretty tough climate.

PHILLIP LASKER: Well what's happened to funds inflow and the wealth management arm?

CRAIG DUNN: Fund inflows have come off, we had a strong half in 2007, last year because of the superannuation changes and the taxation changes, which encouraged a lot of money coming into superannuation.

Obviously that hasn't repeated in the first half of this year, and we've got pretty subdued investor sentiment at the moment because of what we see in market.

So we have seen flows fall off, particularly discretionary contributions going into superannuation. We have seen that right across the market.

But having said that, we still delivered new net cash flows in our contemporary wealth management business of over $1 billion in the first half of the year, which I think is a pretty good result given the market in which we are operating.

PHILLIP LASKER: Is this a time to baton down the hatches. Do you see real opportunities for growth, particularly in Australia?

CRAIG DUNN: In a sense both apply. We have to be very prudent on our balance sheet and our capital management. That is what we are doing.

At the same time, we are very positive about the medium term of the Australian, medium term outlook, of the Australian wealth management industry and indeed AMP.

So we are using this opportunity to invest some of our competitors can't because they're not as in as strong financial position, so we are targeting our investment to grow the business over the medium term.

PHILLIP LASKER: At the same time though the Federal Government wants to see lower fees on superannuation funds, how is that going to affect the way you operate? How much of a threat is that to you?

CRAIG DUNN: We want to work closely with the Government to keep improving what is already by world standards a quality system. Prove the opportunities for growth to AMP and other players in the market and also improve outcomes for Australians.

Superannuation fees have been falling over the last few years, it is a very competitive market. Our expectation is they'll continue to fall over time.

In fact in the long term assumptions that we've set out for the market today, we've said that in our contemporary wealth management business, which is effectively our Australian superannuation business, that we expect them to keep falling over time because of the competition in the market.

PHILLIP LASKER: The industry would like to see compulsory super increased from 9 per cent. Do you accept that that's an unrealistic proposition at a time when financial markets are so volatile and share markets are seen as being so risky?

CRAIG DUNN: The 9 per cent requirement, the mandated superannuation, in the end that's a matter for the Government. And I would agree that to increase that you really need Government and the community to say, "That's the right thing to do".

PHILLIP LASKER: Do you agree that now wouldn't be the time to do it?

CRAIG DUNN: Well I think it's a challenging time now because of the things you've said. We have got tough markets. There's a lot of pressure on people's incomes, on businesses, so I think you have got to pick your time.

PHILLIP LASKER: Looking ahead, where do you see the major opportunities for growth and would reason acquisition be in the wind?

CRAIG DUNN: Our focus on growing is primarily organic. We do see a lot of opportunities in the market over the medium term, to grow our planner base, to improve our plan of productivity. To take AMP Capital into Asia and benefit from the strong growth in the Asian markets.

We see a lot of opportunities to grow our business organically. M&A is a valid part of executing a strategy, you have to do it very carefully, it has to be very strategic, and you have to buy well to make sure you're adding value to shareholders. So it is an option for us, but our primary growth strategy is organic.

PHILLIP LASKER: You are going to be raising some money, is that for acquisitions?

CRAIG DUNN: The aims of our capital strategy are threefold, firstly, we've already got a very strong balance sheet in a tough climate like we have got today, we'd like it to be even stronger, a very prudent approach to capital.

PHILLIP LASKER: It's not overkill, is it?

CRAIG DUNN: Well I think in a tough market like this. I mean we are a prudent financial institution, we are paid to be careful.

We are in fact investing other people's money, so it's not overkill. As we've said we'd rather prefer to have more capital than less in the current climate.

It does give us an option for greater growth, both organic and otherwise, and the third reason we're doing it is to improve the efficiency of our capital mix.

We've told the market today that we're likely to go out and raise tier two capital, which is effectively subordinated debt. We've got a very heavy reliance today on tier one capital, pure equity, which tends to be more expensive.

So it's about improving our flexibility to grow, it's strengthening an already strong balance sheet because of the tough climate, and it's making our balance sheet work harder and be more efficient.

PHILLIP LASKER: You've been criticised for not taking advantage of opportunities.You've handed back more than $2 billion to shareholders over the past four years when there may have been opportunities to spend that money perhaps on acquisitions. Some have said you've missed out on opportunities in Asia whilst your competitor AXA has built a good business there. Do you see that as the case?

CRAIG DUNN: We have had a very disciplined capital strategy in the past, we've been very disciplined. And we've basically said to the market "if we don't think we can use the money to the benefit of shareholders we'll give it back to you", and I think that's a good strategy.

PHILLIP LASKER: Craig Dunn, thanks for speaking to Lateline Business.

CRAIG DUNN: Thank, Phil.