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Partners Group2016
annual report
AMP Limited ABN 49 079 354 519
Corporate sustainability
Chairman’s foreword
Five-year financial summary
2016 results at a glance
Contents
1
2
3
4 Who we are
5 Our strategy
6 What we do
8
10 Our board
13 Our management team
16 Corporate governance at AMP
20 Directors’ report
28 Remuneration report
51 Analysis of shareholder profit
52 Financial report
53
54
55
56
57
58
117 Directors’ declaration
118
123 Securityholder information
IBC Glossary
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Unless otherwise specified, all amounts are in Australian dollars.
Information in this report is current as at 9 February 2017.
Chairman’s foreword
Our year
2016 was a challenging year for AMP.
The net loss we reported was largely driven
by challenges in our insurance business and
the actions that were taken to rebase and
stabilise it going forwards.
Total
dividend
Loss attributable
to shareholders
Underlying
profit
On-market share
buy-back, up to
Capital
surplus
28cps
$344m
$486m
$500m
$2.2b
Without doubt our 2016 financial results were unsatisfactory.
A significant factor in this result was the underperformance
of our insurance business, driven by extremely challenging
operating conditions in the insurance sector. We have taken
action to rebase this business to provide greater earnings
stability at group level, protect our balance sheet and free up
capital. This included a reinsurance deal with Munich Re to
release up to $500 million in capital from the insurance business
and to help reduce future earnings volatility at a group level. We
also significantly strengthened our best estimate assumptions.
Notwithstanding these challenges, we delivered a good
performance in AMP Bank, in our New Zealand operations
and internationally through AMP Capital. Our Australian
superannuation and financial advice businesses delivered
largely steady results in low-growth market conditions,
and we made good progress to become a more customer
centred organisation.
Your board remains confident that AMP is well set up for future
success, and along with AMP’s management and employees
are united in our focus to rebalance short-term performance,
with a sharper focus on cashflows, costs and capital, for
long-term growth. Our strategy is to capitalise on large and
growing markets and on businesses where we have a distinct
competitive advantage thanks to our scale, brand, distribution
reach and investment expertise.
Our superannuation and financial advice business is in a very
strong position. We are the largest superannuation provider in
Australia, based on assets under management; and we plan to
grow in this market over the next five years by focusing on our
customers. We are listening and responding to our customers’
needs with technology and access to advice that helps them
reach their goals.
While superannuation and financial advice are important to our
customer focus, AMP Bank is a part of that story too. The bank
provides an important service in helping our customers achieve
their goals, and we continue to see growth in our residential
home loans and deposits as a result.
The business has continued to grow selectively in Asia and
internationally, primarily through AMP Capital. In Asia, our focus
is on high-growth potential markets, particularly China. Our
connection to China is strong; we have had a presence there for
almost 20 years and for the past decade we’ve had the privilege
of working with China Life, the world’s largest listed life insurance
group and a Fortune 500 company. Through our joint ventures
with China Life and also with our Japanese partner, Mitsubishi
UFJ Trust and Banking Corporation (MUTB), we have continued
to attract investments and build on development opportunities.
Dividend and capital position
Your board is pleased to have delivered a total 2016 dividend
of 28 cents per share for shareholders, franked at 90%. This
represents a full year 2016 dividend payout ratio of 85% of
underlying profit. We have returned $828 million to shareholders
in the form of dividends and dividend reinvestment plan (DRP)
shares for the year. Our underlying business has remained
strong and we have maintained a strong capital position. At
31 December 2016 we held $2.2 billion in capital above minimum
regulatory requirements. The strength of AMP’s capital position,
following the completion of a reinsurance deal in our insurance
business, has facilitated an on-market share buy-back of up
to $500 million.
Strengthening our board
Four new directors were appointed to our board in 2016.
Vanessa Wallace, who has over 30 years’ consulting experience
to the financial services sector, joined in March 2016 (and was
elected at the 2016 annual general meeting (AGM)), while
Geoff Roberts, who has wide-reaching financial management
experience, joined in July 2016. Insurance expert and experienced
investment manager Mike Wilkins joined in September 2016;
and Peter Varghese AO, who has extensive government and public
administration experience, joined in October 2016. Vanessa,
Geoff, Mike and Peter each bring broad skills and capabilities
that will prove invaluable to our business as we continue to
pursue our strategy.
Your board is confident that AMP is taking the right actions
and pursuing the best strategy to build a sustainable, growing
business and improve long-term returns to shareholders.
Catherine Brenner
Chairman
1
AMP 2016 annual report
Our results in summary
Our financial performance
Five-year financial summary
Year ended 31 December
Consolidated income statement
Net premium, fee and other revenue
2016
$m
2015
$m
2014
$m
2013
$m
Restated
2012
$m
6,204
5,539
5,343
5,136
5,166
Investment gains (losses)
8,567
8,483
12,244
14,963
12,258
Profit (loss) before income tax from continuing operations
Income tax (expense) credit
Non-controlling interests
Profit (loss) after tax attributable to shareholders of AMP Limited
358
(166)
(536)
(344)
1,993
(280)
(741)
1,814
(843)
(87)
1,498
(782)
(44)
1,387
(688)
(10)
972
884
672
689
Consolidated statement of financial position
Cash and cash equivalents
Investment assets
Intangibles
Assets of disposal groups
Other assets
Total assets
Interest-bearing liabilities
Life insurance contract liabilities
Investment contract liabilities
Liabilities of disposal groups
Other liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity attributable to shareholders of AMP Limited
Non-controlling interests
3,476
129,995
3,199
–
3,390
3,955
128,074
3,983
–
3,696
3,581
123,292
4,042
100
3,840
2,938
121,781
4,136
42
4,327
4,388
107,721
4,502
187
4,566
140,060
139,708
134,855
133,224
121,364
17,218
24,225
71,579
–
19,497
17,452
23,871
69,848
–
19,642
16,502
24,403
66,980
69
18,516
16,243
24,934
66,049
8
17,790
13,473
25,055
58,385
74
16,734
132,519
130,813
126,470
125,024
113,721
7,541
8,895
8,385
8,200
7,643
9,619
(1,972)
(185)
7,462
79
9,566
(1,866)
819
8,519
376
9,508
(1,888)
566
8,186
199
9,602
(1,973)
461
8,090
110
9,333
(2,157)
332
7,508
135
Total equity
7,541
8,895
8,385
8,200
7,643
Year ended 31 December
2016
2015
2014
2013
Other financial data
Basic earnings per ordinary share
Diluted earnings per ordinary share
Dividends per ordinary share
Number of ordinary shares
Assets under management
2
($ps)
($ps)
($ps)
(m)
($b)
($0.11)
($0.11)
$0.28
2,958
240
$0.33
$0.33
$0.28
2,958
226
$0.30
$0.30
$0.26
2,958
214
$0.23
$0.23
$0.23
2,958
197
Restated
2012
$0.24
$0.24
$0.25
2,930
173
AMP 2016 annual report
2016 results at a glance
Dividends
cents per share
Final dividend
Interim dividend
5
2
.
5
2
1
.
5
2
1
3
2
.
5
1
1
.
5
1
1
6
2
.
5
3
1
.
5
2
1
8
2
4
1
8
2
4
1
4
1
4
1
30
20
10
0
Profit (loss) attributable to shareholders
$ million
Underlying profit
$ million
1,200
1,000
750
500
250
0
m
2
7
9
$
m
4
8
8
$
m
9
8
6
$
m
2
7
6
$
1,200
1,000
750
500
250
0
m
0
2
1
1
$
,
m
5
4
0
1
$
,
m
0
5
9
$
m
9
4
8
$
m
6
8
4
$
2012
2013
2014
2015
2016
2016
)
m
4
4
3
$
(
2012
2013
2014
2015
2016
2012
2013
2014
2015
28cents per share
remained steady
Total dividend for 2016
$344m
net loss
Loss attributable to shareholders
$486m
down 56.6%
Underlying profit
The final dividend of 14 cents per share
is to be paid on 31 March 2017 and will
be 90% franked.
Underlying profit is AMP’s preferred measure of profitability as it best reflects the
underlying performance of the group. It is the earnings base on which the board
determines the dividend payment.
$828 million returned to shareholders
in the form of dividends and dividend
reinvestment plan shares for 2016.
The main difference between profit (loss) attributable to shareholders and underlying profit
comes from movements in investment markets and one-off costs. A reconciliation of profit
(loss) attributable to shareholders and underlying profit can be found on pages 21 and 63.
$1,778m
down 53%
Net cashflows on AMP platforms
Net cashflows reflect challenging
domestic market conditions.
63.7%
within target of 60%-65%
Cost to income ratio
Cost growth in line with guidance,
before impact of restructure costs
and lower variable remuneration.
$967m
down 78%
AMP Capital external net cashflows
Strong flows into infrastructure and
real estate asset classes were offset by
challenging domestic market conditions.
$240b
up 6%
Assets under management
We now manage more money for
our customers around the world.
$2.2b
down 13%
Regulatory capital funds held above
the minimum regulatory requirement
AMP holds capital above the minimum
requirement to protect customers,
creditors and shareholders against
unexpected losses. This is an indication
of the strength of our business.
5.6%
decreased 7.6 percentage points
Underlying return on equity
The decrease largely reflects the
impact of insurance claims experience
and capitalised losses.
3
AMP 2016 annual report
Our business, vision and strategy
Who we are
Our purpose is to help customers own their tomorrow, helping them
take control of their money and achieve their financial goals.
We are Australia and New Zealand’s leading specialist wealth management company. For 168 years, we have
dedicated ourselves to helping our customers achieve their financial goals with quality products and expert
advice. The world has changed immeasurably since our founding days; and while we have evolved and grown
to keep pace, our purpose has steadfastly remained to help people own a better tomorrow.
Through our offers, solutions and expert financial advice, we are helping our customers explore, plan, track and realise their goals
so they can own a better tomorrow. To support our customers, we are building on our current strengths, transforming our business
to place our customers at the centre of everything we do, and becoming more agile and efficient. We are capitalising on our strong
partnerships with international market leaders, particularly in China and Japan, to continue expanding our overseas growth with
retail and institutional investors.
More than
46,000
people have an AMP
Bank home loan
More than
3,500
financial advisers
in Australia and
New Zealand
Over
5,400
employees
$13.8b
returned to shareholders
since AMP demutualised
in 1998
Established in
1849
as a mutual life
insurance company
Over
4 million
customers
4
AMP 2016 annual report
Our strategy
Our purpose is to help people own a better tomorrow.
We are pursuing a clear strategy for long-term growth by tilting our investment to higher growth, less capital intensive businesses
within the portfolio group to focus on our core businesses where we have strong positions in growing markets. We are transforming
our core Australian businesses to help our customers own tomorrow, reducing costs to continue growing profitably in a margin-
compressed world, and expanding internationally through selected partnerships in China and Japan. We are also attracting strong
new investment flows into real assets in Australia and globally. These objectives are delivered through our business lines as follows:
Short
term
Medium
term
Superannuation,
retirement and
financial advice
Drive cashflows by:
– lifting productivity in
our adviser network
– activating unadvised
customers
– winning more
corporate super
mandates
– diversifying channels
Sustain business
efficiencies
Continue to invest in
digital to give customers
a greater choice of
channels, including
direct and robo advice
Scale up new goals-
based advice model
Invest to maintain
and enhance platform
competitiveness
Realise self-managed
superannuation funds
(SMSF) efficiencies
from scale and drive
organic growth
Invest to grow
Manage for value
and capital efficiency
Banking
Investments
Insurance
New Zealand
Continue tapping
global investor
appetite for
investment
expertise,
particularly in
real estate and
infrastructure
Stabilise earnings
and release capital
through reinsurance
Sustain business
efficiencies
Promote new
insurance offer
Drive earnings and
value from strong
market positions
and continued
efficiencies
Continue to activate
our adviser network
Improve
the customer
experience
Continue targeted
pricing activity
Continue to
grow through the
broker network
Invest to drive
step change in
operational capacity
to support growth
China: grow
and extend the
partnership with
China Life
Manage for
value and capital
efficiency
Tilt to capital-light
businesses
Maximise capital
efficiency
Japan: reframe and
drive value from
Mitsubishi UFJ
Trust and Banking
(MUTB) partnership
Drive further
international
growth in Asia,
Europe and
North America
Focus on customers, costs and capital
5
AMP 2016 annual report Our business, vision and strategy
What we do
Australians and New Zealanders know us best for superannuation, investments
and advice, but we are growing fast in retail banking in Australia, and internationally
with strong partnerships in China and Japan and investments around the globe.
We are proud to be Australia and New Zealand’s leading specialist
wealth management company.
Superannuation, retirement and advice
We help our customers save for and live well in retirement with
our range of award-winning superannuation products, including
self-managed superannuation funds (SMSFs). We are Australia’s
leading superannuation provider and operate in a rapidly growing
industry, with the Australian superannuation market expected to
double in size by 2026.1
AMP financial advisers provide quality financial advice to help
people take control of their finances and reach their goals. Our
advisers are supported with training, research and ongoing
development to ensure that they are equipped with the
knowledge, expertise and experience they need to help our
customers achieve their goals.
Our SMSF business, SuperConcepts, helps customers in Australia
establish SMSFs and provides them with administration,
compliance management support, software solutions and
technical education. It also provides access to a variety of
providers specialising in investment products, insurance, cash
hubs, term deposits and lending services. Our SMSF business
includes the brands AMP SMSF, Ascend, Cavendish, Desktop
Super, Multiport, Justsuper, SuperConcepts, SuperIQ, SuperMate
and yourSMSF.
–
–
–
–
–
–
In 2016, AMP Flexible Super won the CANSTAR Outstanding
Value award
We helped our customers thrive in retirement by paying
out $2.4 billion in Australian retirement payments in 2016
We provided superannuation services to close to 60,000
companies in Australia
Our advice network is the largest in Australia and New
Zealand, with more than 3,500 aligned and employed advisers
Across administration and software services, SuperConcepts
added around 15,500 funds during 2016 and now supports
53,570 funds, representing 9.2% of the SMSF market
AMP’s advice network spans multiple brands including
AMP Financial Planning, AMP Advice, Hillross, Charter,
Spicers, AdviceFirst, SMSF Advice and Jigsaw.
Banking
AMP Bank is a growing business. The bank helps Australians with
residential and investment property home loans, and deposit and
transaction accounts, along with self-managed superannuation
fund products. The bank also provides loans to AMP-aligned
financial adviser practices. Customers choose how they want to
access the bank’s products, which are available over the phone,
online, or through AMP financial advisers or mortgage brokers.
– We help close to 100,000 Australians with their banking needs
–
In 2016, we helped over 9,500 customers buy a home
–
We welcomed over 20,400 new customers to AMP Bank in 2016.
53,570
customers with
SMSF admin and
software services
$2.4b
in Australian
retirement
payments in 2016
$1,193m
in insurance
payments helped
our customers
6
AMP 2016 annual report
Investments
We help investors around the world invest in equities, fixed
income, infrastructure and real estate, and diversified, multi-
manager and multi-asset funds through AMP Capital. AMP
Capital also manages real estate and infrastructure assets
including shopping centres, airports, trains and pipelines. In Asia,
we have strong partnerships with national champions in China
and Japan, where the retirement market is rapidly growing.
–
–
–
AMP Capital is one of the largest direct real estate fund
managers in Asia Pacific, with $23 billion in assets under
management. On behalf of investors, AMP Capital managed
real estate funds and a portfolio of assets including Sydney’s
Macquarie Centre, Angel Place and 200 George Street;
Melbourne’s Bourke Place and 700 Bourke Street; and
Queensland’s Pacific Fair and Coronation Drive Office Park.
AMP Capital also managed diversified and sector-specific
portfolios of assets in Australia, New Zealand, Singapore and
the United States. In 2016, $1.3 billion of new equity was
raised, including $334 million in new equity from offshore
investors and a further $440 million secondary units traded
across the pooled fund platform.
AMP Capital is one of the largest infrastructure managers
in the world, managing $12 billion in assets including
Melbourne Airport, Powerco in New Zealand and Angel
Trains in the United Kingdom.
AMP Capital holds a 15% stake in China Life AMP Asset
Management Company Limited (CLAMP), which manages
over $23 billion for Chinese investors through mutual fund
products, including money market, fixed income, balanced
and equity funds.
Insurance
We support our customers and their families during tough
times with our award-winning insurance products, including life
insurance, income protection and disability insurance products.
AMP is a leading insurer and provides policies that are held by
individuals or included in a superannuation fund. In 2016 over
two million policies, protecting over 1.5 million customers,
were in-force.
–
–
–
In 2016, we were named Life Insurance Company of the Year
at the Australian and New Zealand Institute of Insurance and
Finance Insurance Industry Awards. We also won an award
for Excellence and Innovation in Return to Work from the
Australasian Life Underwriting and Claims Association and
Swiss Re, and we were a runner-up in the Best Claims Outcome
and Customer Experience category at the 14th Annual
Australian Insurance Awards
We helped our customers by paying out $1,193 million in
insurance claims in 2016
In 2016 we launched our new AMP MyLife offer, through our
AMP Advice practices.
Mature insurance and superannuation
Through our Australian mature business, we expertly manage
closed insurance and superannuation products that are no longer
sold by AMP. All products in Australian mature are closed to new
business with the exception of the Eligible Rollover Fund. The
Australian mature business is the largest closed life insurance
business in Australia and includes whole of life, endowment,
investment linked, investment account, Retirement Savings
Account, annuities, insurance bonds, personal superannuation
and guaranteed savings accounts.
–
Australian mature assets under management comprise capital
guaranteed products and market linked products. In 2016 this
represented over $1.7 million policies and $21 billion in funds
under management
–
We helped our customers by paying out $2.0 billion in claims
and maturities in 2016.
New Zealand financial services
In New Zealand we have leading positions in superannuation and
insurance and provide customers with tailored financial products
and services, directly and through one of the largest networks of
financial advisers in the country.
–
AMP is the fourth-largest KiwiSaver Scheme provider with
12% of the total KiwiSaver market and approximately
238,000 KiwiSaver customers
–
In 2016, operating earnings increased by $6 million (5%)
to $126 million.
1
Dynamics of the Australian Superannuation System, The Next 20 Years: 2015–2035, Deloitte, November 2015.
AMP 2016 annual report
7
Corporate sustainability
Corporate sustainability
We are one of Australia’s oldest companies, and since the beginning we
have been committed to improving the communities in which we operate.
We believe that our success is linked to the prosperity of our shareholders,
customers, advisers, employees and our communities.
We believe in managing our business sustainably for today
and for the long term; to build shared value and create a
better, more prosperous tomorrow for our communities.
Sharing our expertise
We believe in taking the mystery out of managing money,
to make the complex simple and help people make informed
financial decisions. When people have a better understanding
and greater control of their financial wellbeing, they feel
more secure and independent. We help by giving people
the know-how and tools to take control of their finances.
Through our Q& info centre website, people can use the
online tool to explore, prioritise and create a timeline to map
their goals. There are 13 common goals to choose from, ranging
from retire right, be debt free, and give my kids the best chance,
to simplify my finances, pursue a passion or buy a home.
After attributing a grade of importance to each goal, the goal
explorer provides a goals timeline and questions to think about
for achieving each goal.
Our website also features budget planners, debt-reduction
calculators and financial news.
financial and lifestyle decisions and to contribute to important
social and economic policy debate. In 2016, we published a
report on the financial implications associated with divorce,
called For Richer, For Poorer: Divorce in Australia.
In 2016, we invited shareholders to a free information session
at the annual general meeting (AGM) to hear from some of
our experts and benefit from their insights and expertise.
The session was well received and will be held again at this
year’s AGM in Sydney on 11 May 2017. All shareholders are
invited to participate in person or online. You can find further
details of the event in the 2016 shareholder review or 2017
notice of meeting.
Encouraging good corporate responsibility
through responsible investing
AMP Capital is a major investor in companies and assets on
behalf of our customers, and as such, is well placed to raise the
corporate responsibility bar and influence better outcomes for
investors. We have long recognised the strong link between an
organisation’s environmental and social impacts, the quality of
its corporate governance, and its long-term business success.
Since 2002, we have partnered with the National Centre for
Social and Economic Modelling (NATSEM) to produce a series
of reports that open windows on Australian society – the way
we live and work – and our financial and personal aspirations.
We publish these reports to help the community make informed
A key part of AMP Capital’s investment process is assessing
environmental, social and governance (ESG) factors. We are a
signatory to the UN Principles of Responsible Investment, and
the most recent report card on how we are progressing on
our commitments is available at ampcapital.com.au/esg.
Close to
$86m
donated to improve
the lives of Australians
and New Zealanders
since 1992
8
CO2
AMP has been carbon
neutral since 20131
$1m
given to 53 amazing
Australians through the
AMP Tomorrow Fund
AMP 2016 annual report
Through our dedicated ESG team, we actively engage with
the boards and management teams of companies on a range
of ESG issues to encourage sound decision making and risk
management, appropriate capital allocation, good board
composition, gender diversity, fair remuneration and open
and honest disclosure. We use our voting power to encourage
corporate behaviour that will deliver better results for investors,
shareholders and the community as a whole.
Inclusion and diversity
We believe in an inclusive culture where a rich and varied array
of thoughts, ideas and experiences drive better performance for
our customers and shareholders. By drawing on the strengths
and skills of our people and empowering them to be the best
they can be, we are better placed to help others own tomorrow.
AMP’s four pillars of inclusion remain unchanged.
–
–
–
–
Committed and inclusive leadership – leaders are supported
to create an inclusive culture that helps people play to their
strengths.
Merit-based policies and practices – we focus on equality
when we recruit, develop, promote and pay our people, as
well as when we recognise and reward their performance.
Decision-making and voice – we leverage the diverse thinking
across our business to better understand our customers and
meet their needs.
Measurement, accountability and rewards – we set
challenging diversity targets and believe that meeting
these targets will deliver better results for our business.
Gender equality is at the forefront of our inclusion and diversity
work, and we have made strong progress in increasing the
number of women in AMP’s most senior roles as a result. In
2016, we appointed four new women to AMP’s management
team and were proud to appoint Catherine Brenner as the first
female Chairman of the AMP Limited Board.
AMP has challenging gender diversity targets. By the end
of 2020, we want women to hold half of our middle-
management roles and 47% of senior executive roles. We are
also aiming for gender balance on our boards with a 40:40:20
target, whereby boards are made up of 40% women, 40% men
and 20% either women or men. AMP conducts an annual pay
equity review to identify, analyse and address potential areas
of gender inequity. This commitment is expressly outlined in
AMP’s remuneration policy.
In 2016, AMP was again named an Employer of Choice for
Gender Equality by the Australian Government’s Workplace
Gender Equality Agency.
Looking ahead, AMP will focus on flexible work as a key priority
across all employee demographics. Inclusion remains the
underlying foundation of our inclusion and diversity strategy.
Protecting our environment
Minimising our impact on the environment is as important
for our company as it is for the communities in which we
operate. We actively assess the environmental risks and
opportunities across our business and the investments
managed by AMP Capital. In 2016, we continued to make
progress against our environmental priorities and targets,
remaining carbon neutral in our own operations (tenanted
sites and air travel). From 2013 to 2016, we reduced our
greenhouse gas emissions by 25%.
The AMP Foundation
Through the AMP Foundation we help to provide a better
tomorrow for everyone, especially people who face challenges
accessing education and employment opportunities. Since
1992, the AMP Foundation has distributed close to $86 million
to help charities and individuals make a positive impact on
communities in Australia and New Zealand.
The AMP Foundation works in two ways. It helps people to help
themselves by supporting non-profit organisations that give
disadvantaged Australians life-changing learning and work
opportunities. It also helps people to help others by supporting
AMP employees and financial advisers to share their time,
skills and resources with people in need and through AMP’s
Tomorrow Fund grants.
In 2016, the AMP Foundation distributed $5.2 million to the
community, including more than $1 million in grants through
AMP’s Tomorrow Fund to help 53 amazing Australians achieve
their goals.
We also presented scholarships to 28 equally extraordinary
New Zealanders.
While these recipients all have very different interests, like
AMP, they are all striving to give back.
You can find further information on our environmental
performance, corporate governance work and AMP Foundation
activities at amp.com.au/corporatesustainability.
Representation of women at AMP
2020 target
2016 target
31 December 2016
31 December 2015
Roles
AMP Limited Board
Senior executives
Middle managers
All employees
40%
47%
50%
n/a
40%
40%
42%
n/a
40%
40%
41%
52%
1 AMP is carbon neutral in its own operations (tenanted sites and air travel).
33%
37%
39%
52%
9
AMP 2016 annual report AMP Limited Board and management team
as at 9 February 2017
Our board
We have a diverse and highly skilled board with the right mix of skills
and experience to help deliver our strategy.
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2
3
4
Catherine Brenner1
Independent Chairman BEc, LLB, MBA
Catherine was appointed to the AMP Limited Board in June 2010
and assumed the role of Chairman in June 2016. She became
Chairman of the Nomination and Governance Committee in May
2013 and a member of the People and Remuneration Committee
in June 2016. Catherine served as a Director of AMP Life Limited
from May 2009 and The National Mutual Life Association of
Australasia Limited from March 2011, serving both companies
until May 2016 and as Chairman for the last five years.
Experience
Catherine has extensive corporate finance and public company
experience and is a former senior investment banker and corporate
lawyer with a background in corporate advisory and equity
capital markets. She has served on public company boards in
the resources, property and biotech sectors for over a decade.
Catherine has also previously served as a member of the Takeovers
Panel and as a board member and trustee of not-for-profit and
government organisations, including the Sydney Opera House.
Listed directorships
– Director of Boral Limited (appointed September 2010)
– Director of Coca-Cola Amatil Limited (appointed April 2008)
Government and community involvement
– Director of SCEGGS Darlinghurst Limited
– Trustee, Art Gallery of NSW
Craig Meller2
Chief Executive Officer BSc (Hons)
Craig was appointed Chief Executive Officer (CEO) in January 2014.
He has been a Director of AMP Life Limited since October 2007,
a Director of The National Mutual Life Association of Australasia
Limited since March 2011 and a Director of AMP Capital Holdings
Limited since January 2014.
Experience
Prior to becoming CEO, Craig was Managing Director (MD) of AMP
Financial Services from 2007 to 2013. Craig started with the AMP
group’s United Kingdom (UK) business in 2001 before coming
to Australia in 2002 to take up the role of MD, AMP Banking. He
moved to the role of Director of Product Manufacturing in 2003.
Craig started his career at Lloyds TSB in the UK where he spent
more than 14 years working across the business in a number of
management roles. From 1998 he worked at Virgin Direct where
he was MD from 1999 to 2001.
Government and community involvement
– Member, Financial Sector Advisory Council
Patricia (Patty) Akopiantz3
Independent Director BA, MBA
Patty was appointed to the AMP Limited Board and the
People and Remuneration Committee in March 2011, becoming
Chairman of that committee in August 2014. She joined the
Nomination and Governance Committee in August 2015 and
the Risk Committee in February 2017. Patty was appointed a
Director of AMP Bank Limited in November 2011 and Chairman
in November 2015. She became a member of the AMP Bank
Audit Committee and the AMP Bank Risk Committee in
November 2014.
Experience
Patty has extensive experience in retail and consumer-facing
industries internationally, having spent over 25 years in senior
management and consultancy roles in Australia and overseas.
She has served as General Manager of Marketing at David
Jones, Vice President for a United States apparel manufacturer
and as a management consultant with McKinsey, advising
some of Australia’s leading companies on strategy and
organisational change.
Over the last 15 years, Patty has served on numerous boards
including AXA Asia Pacific Holdings and Coles Group. In 2003,
she was awarded a Centenary Medal for services to Australian
society in business leadership.
Listed directorships
– Director of Ramsay Health Care Limited (appointed April 2015)
Government and community involvement
– Director of Belvoir St Theatre
Holly Kramer4
Independent Director BA, MBA
Holly was appointed to the AMP Limited Board in October
2015 and was appointed a member of the Audit Committee
in November 2015. Holly served as a Director of AMP Life Limited
and The National Mutual Life Association of Australasia Limited
and as a member of their Audit Committees and Risk Committees
from May 2016 until February 2017.
Experience
Holly has considerable retail, marketing and digital experience
with more than 20 years spent in general management,
marketing and sales for customer-focused organisations.
Most recently, Holly was Chief Executive Officer of apparel retailer
Best & Less, where she transformed the business and returned it
to growth and profitability. Holly has also held senior executive
and marketing roles with Pacific Brands, Telstra, eCorp and the
Ford Motor Company.
10
AMP 2016 annual report
5
6
7
Listed directorships
– Director of Woolworths Limited (appointed February 2016)
–
Director of Nine Entertainment Co. Holdings Limited
(May 2015 to February 2017)
Government and community involvement
– Director of Australia Post
– Director of Southern Phone Company Limited
– Director of The GO Foundation
Trevor Matthews5
Independent Director MA
Trevor was appointed to the AMP Limited Board in March
2014, became a member of its Audit Committee in May 2014
and a member of the Risk Committee in November 2014.
Trevor joined the AMP Life Limited and The National Mutual Life
Association of Australasia Limited Boards in June 2014 and was
appointed Chairman of those boards in May 2016. He is also a
member of the Audit Committee and Risk Committee of each
of those boards.
Experience
Trevor, an actuary with more than 40 years’ experience in financial
services, has expertise in life insurance, general insurance, wealth
management, banking, investment management and risk. He has
held life and general insurance chief executive roles in Australia,
North America, Asia and Europe. He returned to Australia in
2013 after 15 years overseas and has assembled a portfolio of
non-executive directorships. His last overseas position was as an
executive director of Aviva plc, a leading global life and general
insurer. He was also chairman of its UK and French businesses.
Prior to that he was Group CEO of Friends Provident plc.
Listed directorships
–
Director of Cover-More Group Limited (appointed
December 2013)
– Chairman of 1st Group Limited (appointed February 2015)
Government and community involvement
– Chairman of the NSW State Insurance Regulatory Authority
Geoff Roberts6
Independent Director BCom, MBA
Geoff was appointed to the AMP Limited Board and as
Chairman of the Audit Committee in July 2016. He was a
Director of AMP Life Limited and The National Mutual Life
Association of Australasia Limited and a member of the
Audit Committee of each from July 2011 until March 2012.
Experience
Geoff has more than 30 years’ experience in financial services
across Australia, Asia and Europe, with a particular focus on
accounting, financial management and strategic advice. He was
appointed Group CFO of SEEK Limited in June 2015 and prior to
that held the positions of Managing Partner of Deloitte Victoria
and Director of Deloitte Australia, and Group CFO of AXA Asia
Pacific Holdings. Geoff is a Fellow of Chartered Accountants
Australia and New Zealand and has also served the not-for-profit
sector as Chairman of the Reach Foundation and a Director of
Vision Australia.
Professor Peter Shergold AC7
Independent Director BA (Hons), MA, PhD
Peter was appointed to the AMP Limited Board in May 2008,
as Chairman of its Risk Committee in November 2014 and as
a member of the Nomination and Governance Committee in
August 2016. Peter was appointed to the AMP Life Limited Board
in August 2008 and The National Mutual Life Association of
Australasia Limited Board in March 2011. He was also appointed
a Director of AMP Bank Limited in February 2016.
Experience
Peter has extensive public policy and senior government
affairs experience and previously served as Secretary of the
Department of the Prime Minister and Cabinet. Peter was also
CEO, Aboriginal and Torres Strait Islander Commission, Public
Service Commissioner, Secretary of the Department, Employment,
Workplace Relations and Small Business, Secretary of the
Department, Education, Science and Training, and CEO, Comcare,
the Federal Government agency responsible for workplace
safety, rehabilitation and compensation.
Peter is Chancellor and Chair of the board of trustees of
Western Sydney University and serves on a number of private
sector, government and not-for-profit boards, including as
Chairman of Opal Aged Care.
He was appointed a Member of the Order of Australia in
1996, awarded a Centenary Medal in 2003 and made a
Companion of the Order of Australia in 2007, each being for
public service.
Listed directorships
–
Director of Veda Group Limited (October 2013 to
February 2016)
Government and community involvement
–
Chairman of the National Centre for Vocational
Education Research
Chairman of the NSW Public Service Commission
Advisory Board
–
– NSW Coordinator-General for Refugee Resettlement
11
AMP 2016 annual report AMP Limited Board and management team
as at 9 February 2017
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10
Peter Varghese AO8
Independent Director BA (Hons)
Peter was appointed to the AMP Limited Board and as a member
of its Risk Committee in October 2016. Peter was also appointed
to the AMP Capital Holdings Limited Board and as a member of
its Audit and Risk Committee in October 2016.
Experience
Peter has extensive experience in public administration and
governmental and international affairs, which spans 38 years
and includes senior positions in foreign affairs, trade policy
and intelligence. Most recently, Peter was Secretary of the
Department of Foreign Affairs and Trade where he was CEO of
a complex global operation including 100 overseas posts. His
previous appointments include High Commissioner to India,
High Commissioner to Malaysia, Director-General of the Office
of National Assessments, and senior adviser (international)
to the Prime Minister of Australia. He also was a member of
the Australia-China High Level Dialogue and was the Minister
(Political) at the Australian Embassy in Japan. Peter is Chancellor
of the University of Queensland.
Peter was made an Officer of the Order of Australia in 2010
for distinguished service to public administration. He was
awarded an Honorary Doctorate of Letters from the University
of Queensland in recognition of his distinguished service to
diplomacy and Australian public service.
Vanessa Wallace9
Independent Director BCom, MBA
Vanessa was appointed to the AMP Limited Board and as
a member of the People and Remuneration Committee in
March 2016. She was appointed Chairman of the AMP Capital
Holdings Limited Board in August 2016, having joined the
board and its Audit and Risk Committee in May 2016.
Experience
Vanessa has wide-ranging experience in financial services
strategy, having spent over 30 years consulting to the financial
services sector across Asia Pacific. Most recently Vanessa was
Executive Chairman of Strategy& Japan Inc, which formed from
the merger of PwC and Booz & Company. Previously she was
Booz & Company’s financial services practice leader and held
multiple governance roles at the highest level within Booz’s
global partnership, including as a member of its board. She was
actively involved in the firm’s strategy and customer, channels
and markets activities which focused on areas such as customer
experience, offer design and channels to market across a number
of industries. Vanessa also has experience in mergers and
acquisitions and post-merger integration.
Listed directorships
– Director of Wesfarmers Limited (appointed July 2010)
Government and community involvement
– Member of the Chairman’s Council of the Australian
Chamber Orchestra Pty Ltd
– Member of the MS Research Australia Leadership Council
Mike Wilkins10
Independent Director BCom, MBA
Mike was appointed to the AMP Limited Board and as a member
of its Audit and Risk Committees in September 2016. He was also
appointed to the AMP Life Limited and The National Mutual Life
Association of Australasia Limited Boards in October 2016 and as
a member of their Audit and Risk Committees in November 2016,
becoming Chairman of those Risk Committees in February 2017.
Experience
Mike has more than 30 years’ experience in financial services
in Australia and Asia, including life insurance and investment
management. Mike has more than 20 years’ experience as CEO
for ASX100 companies. Most recently, he served as Managing
Director and CEO of Insurance Australia Group Limited (IAG).
He is the former Managing Director and CEO of Promina Group
Limited and Tyndall Australia Limited.
Mike has served as a director of Alinta Limited, Maple-Brown
Abbott Limited, The Geneva Association and the Australian
Business and Community Network. He was on the Business
Council of Australia for eight years and a member of the B20
Human Capital Taskforce in 2014. Mike is a Fellow of Chartered
Accountants Australia and New Zealand.
Listed directorships
– Director of QBE Insurance Group Limited (appointed
November 2016)
12
AMP 2016 annual report Our management team
In 2016, organisational changes were made to create clearer accountability
for short-term performance and for delivering long-term growth.
1
2
3
4
The new group structure delivers a sharper focus on performance
in the core Australian businesses, drives efficiency across the
group and provides increased emphasis on the growth drivers
in the portfolio.
Paul Sainsbury, formerly Chief Customer Officer, now leads
a new Wealth Solutions and Customer division, while Jack
Regan assumed management of AMP’s advice businesses in
his expanded role as Group Executive, Advice and New Zealand.
Sally Bruce joined the leadership team as Group Executive,
AMP Bank, while Megan Beer was appointed Group Executive,
Insurance. Craig Ryman, formerly Chief Information Officer, was
appointed Group Executive, Technology and Operations, and
Saskia Goedhart, Chief Risk Officer, joined the leadership team.
The new structure was effective 1 January 2017.
The changes resulted in three executives leaving at the end of
2016: Pauline Blight-Johnston, Group Executive, Insurance, Super
and Risk Management; Rob Caprioli, Group Executive, Advice
and Banking; and Wendy Thorpe, Group Executive Operations.
Craig Meller1
Chief Executive Officer BSc (Hons)
See page 10 for details of Craig’s roles, responsibilities
and experience.
Business Group Executives
Megan Beer2
Group Executive, Insurance EMBA, MEc, FIAA, MAICD, ANZIIF (CIP)
Megan joined AMP in February 2014 as Director, Insurance and
was appointed Group Executive, Insurance on 1 January 2017.
Megan is responsible for AMP’s insurance business, including
mature lines.
Experience
Megan has more than 20 years’ experience in the financial
services industry in a range of executive, finance, actuarial
and consulting roles. Prior to Megan’s appointment as Group
Executive, Insurance, Megan was Director of Insurance at AMP
since 2014. Prior to AMP, Megan led NAB’s wealth management
and insurance offer through the bank channel as General
Manager, Bancassurance and Direct. Megan was also General
Manager of Group Insurance and Head of Finance for Insurance,
both at MLC. She worked for Tower (now TAL) for six years as
Chief Actuary, Chief Risk Officer and Head of Claims, and has
been a Director with Tillinghast (Consulting Actuaries).
Other appointments
–
Managing Director of AMP Life and the National Mutual
Life Association of Australasia Limited
– Director of National Mutual Funds Management Limited
Director of Australian and New Zealand Institute of
–
Insurance and Finance
Sally Bruce3
Group Executive, AMP Bank BCom, MAppFin
Sally joined AMP in August 2015 as Managing Director,
AMP Bank and was appointed Group Executive, AMP Bank on
1 January 2017. Sally is responsible for AMP’s banking business.
Experience
Sally has more than 25 years’ experience in banking and financial
services. During her five years at NAB, Sally held a number of
senior executive positions including Chief Financial Officer,
Business and Personal Banking. Prior to this, she held a number
of senior leadership roles in a 20-year career at Macquarie Group.
Other appointments
– Director of AMP Bank Limited
– Director of Melbourne International Arts Festival
Jack Regan4
Group Executive, Advice and New Zealand BEd, GradDipMkt
Jack has been with AMP in Australia and New Zealand for 18 years
and was appointed Group Executive, Advice and New Zealand,
on 1 January 2017. He is responsible for AMP’s Advice and Direct
businesses in Australia and AMP’s operations in New Zealand.
Jack was Managing Director of AMP in New Zealand for 10 years.
Experience
Jack began his working life as a teacher and has since spent more
than 30 years in financial services. He worked in distribution,
marketing and operational roles at St.George Bank, IOOF and
GIO before joining AMP’s Hillross.
Other appointments
– Director of AMP Advice Holdings Pty Limited
–
Board member of ipac Securities Limited and ipac Group
Services Pty Limited
13
AMP 2016 annual report AMP Limited Board and management team
as at 9 February 2017
5
6
7
8
Function Group Executives
Saskia Goedhart7
Chief Risk Officer
Saskia joined AMP in July 2015 as Chief Risk Officer and was
appointed to the group leadership team on 1 January 2017.
Saskia is responsible for AMP’s risk management.
Experience
Saskia joined AMP from EY where she was the partner responsible
for risk management in the financial sector in Canada, and for
risk management in insurance in the US. Saskia has more than
20 years of experience as a risk management professional and
has worked in North America, Europe and Asia.
Prior roles include Chief Risk Officer (CRO) for the North American
region at Aviva plc and CRO for Munich Re Life, also in North
America. Saskia worked for 10 years at ING as Head of Economic
Capital and Asset Liability Management in the US, CRO of the
annuity business in the US, Chief Financial Officer, ING Life in
Japan, and other senior risk and financial management roles
throughout ING in Europe. Saskia also has more than 10 years
of experience as a corporate finance and risk management
consultant, having worked at EY, PwC and Van Den Boom Groep.
Gordon Lefevre8
Chief Financial Officer FCA
Gordon joined AMP in January 2014 and assumed the
Chief Financial Officer role from 1 March 2014.
Experience
Gordon has considerable financial services industry experience
including 13 years with the National Australia Bank Group. His
career at the bank included a range of both customer facing
and group support function roles domestically and overseas.
Immediately prior to leaving he was the Deputy Group Chief
Financial Officer. Before joining AMP he was Chief Financial
Officer of the Grocon Construction Group in Australia.
Other appointment
– Director of AMP Bank Limited
Paul Sainsbury5
Group Executive, Wealth Solutions and Customer
Paul was appointed Chief Customer Officer in April 2013
and was appointed Group Executive, Wealth Solutions and
Customer on 1 January 2017. In this role he is responsible
for AMP’s wealth management business and AMP’s strategic
focus on customers. Paul’s portfolio of responsibility includes
designing and orchestrating AMP’s customer experience
strategy, management of AMP’s superannuation, retirement
and investment platforms, business development, digital and
design, as well as AMP’s SMSF business, SuperConcepts, and
a dedicated business transformation team.
Experience
Paul has worked in the finance industry for over 30 years and
has held a number of leadership positions since joining AMP
in 2000. These include Director, Product Manufacturing; Chief
Operating Officer, AMP Financial Planning, Advice & Services;
Chief Operating Officer, Product Manufacturing; Director Mature
Products and Customer Service; and Operations Manager.
From 2010 to 2013, Paul was responsible for AMP’s merger
with the Australian and New Zealand businesses of AXA
Asia Pacific Holdings Limited.
Adam Tindall6
CEO, AMP Capital BE (Hons), GDipMan, GCertAppFinInv, FAICD
Adam was appointed to the role of Chief Executive Officer,
AMP Capital in October 2015. As CEO, Adam leads a market
leading specialist investment manager, which manages funds
on behalf of retail and institutional clients across a range of
asset classes including equities, fixed income, real estate and
infrastructure. AMP Capital has offices in Australia, China,
Hong Kong, India, Japan, Luxembourg, New Zealand, the United
Arab Emirates, the United Kingdom and the United States.
Experience
Before being appointed CEO, Adam held the role of Director and
Chief Investment Officer, Property at AMP Capital. Adam has 30
years of extensive experience in the property industry. He joined
AMP Capital Property in 2009 from Macquarie Capital where he
was Executive Director, Property and Infrastructure, responsible
for creating or enhancing a number of major property investment
funds. Prior to this, Adam spent 17 years with Lend Lease,
ultimately working in various business leadership roles including
CEO, Asia Pacific for Bovis Lend Lease.
Other appointments
–
Executive Member of the Australia Japan Business
Co-operation Executive Committee
– Male Champion of Change
14
AMP 2016 annual report 9
10
11
12
Helen Livesey9
Group Executive, Public Affairs and Chief of Staff Bsc (Hons)
Helen joined AMP in 1999 and was appointed Group Executive,
Public Affairs and Chief of Staff on 1 January 2017. Helen
has group-wide responsibility for brand, reputation and
communications management, managing AMP’s relationship
with key stakeholders.
Experience
Helen has held a number of senior roles at AMP, including Director
Brand and Marketing, Director Corporate Communications and
Director Public Affairs UK. Helen has over 20 years’ experience
in corporate affairs, marketing and brand management across a
range of industries in Australia and the UK in both consultancy
and in-house roles.
Craig Ryman10
Group Executive, Technology and Operations BCom
Craig joined AMP in 1997 and was appointed to the role
of Group Executive, Technology and Operations, effective
1 January 2017. Craig is responsible for AMP’s group-wide
information technology and operations.
Experience
Prior to his current role, Craig was AMP’s Chief Information
Officer and before that IT Director for AMP’s Advice and Banking
and Insurance and Superannuation business areas. During
his time at AMP, Craig has led the IT function for a variety of
different areas of the business and has also completed a range
of transformation programs including the integration of the
Australia and New Zealand businesses of AXA Asia Pacific
Holdings, platform consolidation projects and transformation
initiatives in Australia and the UK.
Before joining AMP, Craig worked as a superannuation consultant
for William M Mercer in Australia.
Brian Salter11
Group General Counsel BA, LLB (Hons), LLM (Hons)
Brian joined AMP in July 2008 as Group General Counsel.
Brian has group-wide responsibility for AMP’s legal and
governance functions.
Experience
Brian has over 35 years’ experience in the legal profession,
advising many of Australia’s leading financial and wealth
management companies. Before joining AMP, Brian was a
partner with a major Australian law firm for 19 years and a
member of its executive team for a number of years.
Brian is a former member of the Australian Government’s
Corporations and Markets Advisory Committee (CAMAC), which
was established to provide independent advice to the Australian
Government on issues that arise in corporations and financial
markets law and practice. Brian is also a member of the Legal
Committee of the Australian Institute of Company Directors and
the Corporations Committee of the Business Law Section of the
Law Council of Australia and is the Deputy Chair of the General
Counsel 100. He is a former Chairman and National Committee
member of the Australian Securitisation Forum.
Other appointments
– Executive Director of AMP Superannuation Limited
– Executive Director of N. M. Superannuation Proprietary Limited
– Chairman of SCECGS Redlands Limited
Fiona Wardlaw12
Group Executive, People and Culture BA(Psych) (Hons)
Fiona joined AMP in August 2008 and has responsibility for
AMP’s people and culture function.
Experience
Fiona joined AMP from ANZ Bank where, as head of Leadership
and Talent, she was responsible for recruitment strategy,
talent management, succession planning and senior executive
development. Prior to joining ANZ, Fiona worked in the Australian
banking operations at National Australia Bank, where her roles
included heading up the bank’s unsecured lending business and
leading the Australian human resources function.
Her background also includes executive human resources
experience in the resources and telecommunications sectors,
including Cable and Wireless’ cable TV start-up Optus Vision
and BHP.
Other appointment
– Director of AMP Foundation Limited
15
AMP 2016 annual report Corporate governance
Corporate governance at AMP
This section explains how AMP’s business is structured and managed
to deliver on our strategy and protect the interests of our shareholders,
customers, employees, business partners and communities.
Our promise is to help people own tomorrow. This is a
responsibility we take seriously, and our governance framework
is designed to provide the right structure and review processes
to deliver on our promise for many years to come.
Key information
During 2016, AMP continued to strengthen and enhance
its corporate governance practices, including in the following
key areas:
Succession planning – at AMP, ensuring that the AMP Limited
Board as a whole maintains the right combination of skills and
experience to drive our business forward is key to our success.
In 2016, the board’s skills and experience were enhanced with
the appointments of Vanessa Wallace, Geoff Roberts, Mike
Wilkins and Peter Varghese. These appointments underline the
integrity and strength of the board’s nomination and succession
planning processes. You can find the directors’ biographies,
including details of their qualifications, tenure and experience,
in this report and on our website.
Inclusion and diversity – AMP is committed to fostering an
inclusive and diverse workplace. Gender equality is a clear
priority, and at 31 December 2016, women held 40% of
AMP Limited Board and senior executive positions. Women
also held 41% of our middle manager roles, slightly behind
target (42%). We remain committed to increasing gender
representation at this level and to a range of broader inclusion
and diversity goals and initiatives, including an increased
focus on flexible work.
Risk culture – AMP values effective risk management as
fundamental to its long-term sustainability and reputation.
The board and management believe that effective risk
management requires a risk-aware culture amongst all
employees. In 2016, AMP continued to focus on initiatives
to further embed risk awareness into AMP’s broader culture
to ensure that risk is effectively integrated into decision making.
Corporate sustainability – at AMP, corporate sustainability
encompasses a broad range of matters including environmental
management, people and workplace, corporate responsibility
and community investment. In 2016, AMP continued to reduce
its greenhouse gas emissions, by 25% from our 2013 base
year, and the AMP Foundation distributed $5.2 million to
the community.
Board governance – during 2016, we comprehensively reviewed
the board’s governance model to provide enhanced clarity over
the roles and responsibilities of the board and its committees,
for greater governance efficiency and effectiveness.
Engaging with our shareholders
AMP encourages our individual and institutional shareholders
to actively engage with our business.
Our shareholders are the owners of our company and we value
their input. During 2016, we had the second-largest shareholder
base of any company in Australia with over 795,000 shareholders,
many of whom are also our customers.
Keeping our shareholders informed
AMP values direct, two-way communication with our
shareholders and we ensure that they receive clear, transparent
and timely information about our business. We communicate
with our shareholders on changes to our business and issues
that impact our industry.
We take our continuous disclosure obligations seriously. All
material price sensitive information that requires disclosure is
made available through the Australian Securities Exchange (ASX)
and New Zealand Stock Exchange (NZX). Shareholders can also
elect to receive emails directly from AMP on key announcements,
and we continue to encourage shareholders to provide their email
address so we can deliver timely updates direct to their inbox.
Shareholders can elect to receive their annual reports, notices of
meeting and dividend statements in print or online. Should they
choose to receive their reporting information online, they can
still opt to receive a copy of their dividend statement by post.
In addition, shareholders are able to communicate electronically
with our share registry, Computershare. Shareholders are also
able to lodge their proxy forms online using their computer or
mobile device.
Our Investor Relations team coordinates an investor relations
program and conducts group and one-on-one briefings with
our institutional investors and analysts. Where possible,
our group briefings are webcast. Our dedicated shareholder
website includes a calendar of upcoming announcements
and presentations and allows users to set up automatic
diary reminders of these dates. You can find this website at
amp.com.au/shares.
Annual shareholder meeting
Our board welcomes the opportunity to meet with our
shareholders and encourages them to join us for our annual
general meeting (AGM) each year either in person or via our
webcast. We encourage shareholders to provide us with any
questions about our business or the business of the AGM ahead
of each meeting, so that these can be addressed before or at the
meeting. For shareholders who are unable to attend the AGM,
we enable questions to be asked online during the meeting.
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AMP 2016 annual report
Our governance structure
Our shareholders
AMP Limited Board
Oversees management of AMP on behalf of shareholders
Audit Committee
Oversees financial reporting
Nomination and
Governance Committee
Oversees board and committee
membership and
succession planning
People and
Remuneration Committee
Oversees key remuneration and
people policies and practices
Risk Committee
Oversees current and future
risk management
Chief Executive Officer
Responsible for the day-to-day management of our company and the implementation of our strategic objectives
Group Leadership Team
Responsible for running our business and delivering on our strategic objectives
Our people
We are again offering an information session for shareholders to
hear from our financial experts and benefit from their insights
and expertise. This session will be held before the 2017 AGM, at
9.30am on Thursday 11 May 2017 at Sydney Town Hall, and all
shareholders are invited to join the session in person or online.
– overseeing succession planning for key executive roles
approving diversity targets and overseeing progress
–
against them
monitoring the performance of management and
the business.
–
2017 annual general meeting
AMP’s 2017 AGM will be held at 11am on Thursday 11 May 2017
at Sydney Town Hall. Shareholders who are unable to attend can
appoint a proxy to vote on their behalf, either online or by post or
fax, and can observe and contribute to the meeting through our
webcast. You can find full details in the 2017 notice of meeting.
Our board of directors
The AMP Limited Board oversees the management of our company
on behalf of shareholders.
The board is responsible for overseeing the management of AMP
on behalf of shareholders. In addition to the matters the board is
required to approve by law, its key responsibilities include:
approving the strategic direction of the company and
–
overseeing its implementation
– approving material transactions and capital initiatives
– overseeing and approving the company’s governance model
approving the risk management framework (including
–
risk appetite, risk management strategy, and control and
compliance systems) and monitoring its effectiveness
(including risk culture)
approving the appointment of the chief executive officer
(CEO) and chief financial officer (CFO) and the remuneration
arrangements for certain key executives
–
The responsibilities of the board are outlined in our
corporate governance charter, which you can find at
amp.com.au/corporategovernance.
Board composition
AMP’s non-executive directors have diverse backgrounds.
Each brings valuable skills and experience to help oversee
the delivery of our strategy and manage the opportunities
and risks we face.
Under our corporate governance charter, the board must
be made up of a majority of independent non-executive directors
and will have no more than two executive directors. The chairman
of the board will be non-executive and independent. The
maximum tenure of a non-executive director will normally
be until the AGM occurring in the ninth year after their first
election by shareholders at an AGM.
Our board is made up of nine independent non-executive
directors and the CEO. Our Chairman, Catherine Brenner, joined
the board in 2010 and was elected Chairman in June 2016.
She is responsible for providing leadership to the board and
the AMP group as a whole.
You can find biographies of the board of directors, including
details of their qualifications, tenure and experience, on pages
10 to 12 and on our website.
17
AMP 2016 annual report Corporate governance
Board committees
The AMP Limited Board is supported by four committees,
which focus in detail on different areas of the board’s
responsibilities and provide a strong governance framework.
The board has the following four committees to assist in the
execution of its responsibilities:
Audit Committee – responsible for overseeing the integrity of
the financial statements, reviewing the effectiveness of AMP’s
risk management framework and monitoring the performance,
adequacy and independence of the internal and external
audit functions
Nomination and Governance Committee – responsible for
reviewing the composition of AMP’s boards and succession
planning and planning for board, committee and director
performance reviews
People and Remuneration Committee – responsible for
reviewing and endorsing the remuneration arrangements for
certain executives and non-executive directors, monitoring the
effectiveness of AMP’s strategies for executive succession, talent
management and diversity and approving matters relating to
AMP’s key incentive plans
Risk Committee – responsible for overseeing the implementation
and operation of AMP’s enterprise risk management framework,
monitoring AMP’s risk culture and endorsing AMP’s risk
management strategy, risk appetite statement and the
appointment of the chief risk officer.
Each committee has its own annual program and meets at
least four times per year. Each program provides a high-level
overview of items to be considered by the relevant committee
during the year. Throughout 2016, all committee members
were independent directors.
You can find the terms of reference for each committee at
amp.com.au/corporategovernance.
Managing risks
Every day AMP monitors and manages risks to deliver sustainable
growth, protect our business and our stakeholders’ interests,
and meet our legal and regulatory obligations.
Risk is inherent in our business and industry. As such, we take
measured risks to achieve AMP’s vision of helping people own
tomorrow and deliver sustainable value to our shareholders.
Effective risk management supports informed decision making
and aids in capitalising on business opportunities to ensure that
strategic objectives are achieved. The board and management
value effective risk management as fundamental to AMP’s long-
term sustainability and reputation. In addition, the board and
management believe that effective risk management requires a
risk-aware culture amongst all employees, which in turn promotes
risk-informed decision making.
Governance
The board is ultimately responsible for the Enterprise Risk
Management (ERM) framework and oversight of its operation
by AMP’s management. In particular, the board is responsible
for setting AMP’s risk appetite, the strategic plan and risk
management strategy. It also monitors policies and business
practices to ensure that strategic objectives are achieved within
AMP’s risk appetite and to comply with applicable laws and
regulations. The Risk Committee and board review the ERM
framework at least annually, including for 2016, to satisfy
themselves that it continues to be sound.
The board and Risk Committee have been provided with
assurance that all of AMP’s material business risks have been
effectively managed for the year ended 31 December 2016.
We have a three lines of defence approach to risk management
accountability:
Line 1 – management is responsible for identifying, assessing,
monitoring and managing material risks in the business. These
teams are responsible for decision making and the execution of
the day-to-day business, whilst managing risk and the resulting
profit and loss to ensure it is in line with the board’s risk appetite
and strategy.
Line 2 – the ERM team is responsible for designing, implementing
and monitoring the practices and processes to identify, assess,
monitor and manage material risks and provide advice and
oversight on material business decisions. The team also provides
objective advice and challenge to the first line’s decisions and
provides assurance to the board that the risk profile is aligned
with the board’s expectations.
Line 3 – the Internal Audit team provides independent and
objective assurance to the board on the operational effectiveness
of risk management across the business and the effectiveness of
our control processes.
Management processes are complemented by the Internal
Audit team, which regularly reports to the leadership team and
the board on the management of risks within the organisation.
This team calls on support and advice from external experts
as required.
An outline of AMP’s key risks can be found in the directors’ report.
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AMP 2016 annual report
Our risk management framework
Governance
Board and Risk Committee
Management Risk Committee
Mandates / risk policy / procedures
Risk strategy and appetite
Risk strategy – describes how material risks are managed
Risk appetite statement – describes the amount and nature of risk acceptable in the pursuit of the corporate strategy
Identify and measure
Monitor and optimise
Risk identification
Risk measurement and analysis
Monitor and report
Optimise and mitigate
Systems and data
People and culture
Risk taxonomy
Strategic
Credit
Market
Insurance
Liquidity
Concentration
Operational
Our approach to tax
AMP is proud of the contribution we make to the public
finances of the countries in which we operate.
We take our tax obligations very seriously and are focused on
integrity in both compliance and reporting. The AMP Limited
Board does not sanction or support any activities which seek
to aggressively structure AMP’s tax affairs.
We publish details of the taxes we pay in the AMP tax report
on our shareholder centre website at amp.com.au/shares.
The report is consistent with the Board of Taxation’s voluntary
tax transparency code.
required to give to the ASX and to include a statement to
this effect in its annual report.
The ASX Listing Rules and the ASX Recommendations
may differ materially from NZX’s corporate governance
rules and the principles of the NZX Corporate Governance
Best Practice Code. You can find further information
about the ASX Recommendations on the ASX website:
asx.com.au/regulation/corporate-governance-council.htm.
Acting ethically and responsibly
AMP wants to create a better tomorrow for our customers,
employees, business partners, communities and shareholders.
The majority of our tax is paid in Australia and determined by the
nature of our business. For example, superannuation is subject
to different (lower) tax rates and we pay our taxes accordingly.
We have an annual compliance arrangement in relation to
both income tax and GST with the Australian Taxation Office,
and we work closely with it to ensure that we meet all our tax
requirements.
Everything we do, every decision we make, has an impact, not only
on the long-term success of our business but also on the lives of
our customers. We are committed to acting with professionalism,
honesty and integrity so all our stakeholders know they can trust
us to do the right thing. You can find information on the structure
of our business, our board and management teams and our
policies and practices at amp.com.au/aboutamp.
Comparison of NZX and ASX corporate
governance rules
As an NZX overseas listed issuer, AMP Limited is deemed to satisfy
and comply with all the NZX Listing Rules so long as it remains
listed on the ASX. The only NZX requirements applicable to
AMP are to give the NZX the same information and notices it is
Throughout 2016, we complied with the third edition of the ASX
Corporate Governance Principles and Recommendations, and we
continually review our governance practices to ensure that we
not only meet but exceed the expectations of the regulators and
all our stakeholders. Our board-approved corporate governance
statement, dated 8 February 2017, is available on our website at
amp.com.au/corporategovernance.
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AMP 2016 annual report
Directors’ report
This directors’ report provides information on the structure and progress
of our business, our 2016 financial performance, our strategies and prospects
for the future and the key risks we face. It covers AMP Limited and the entities
it controlled during the year ended 31 December 2016.
Operating and financial review
Principal activities
AMP is Australia and New Zealand’s leading independent
wealth management company, with an expanding international
investment management business and a growing retail
banking business.
We provide retail customers in Australia and New Zealand with
financial advice and superannuation, retirement income and
investment products. We also provide superannuation services for
businesses, administration, banking and investment services for
self-managed superannuation funds (SMSF), income protection,
disability and life insurance, and selected banking products.
These products and services are delivered directly from AMP and
through a network of over 3,500 aligned and employed financial
advisers in Australia and New Zealand and extensive relationships
with independent financial advisers.
Through AMP Capital, we manage investments across major
asset classes including equities, fixed income, infrastructure,
real estate, diversified funds, multi-manager and multi-asset
funds, for domestic and international customers. AMP Capital
also provides commercial, industrial and retail real estate
management services.
We have over 5,400 employees, around 795,000 shareholders
and manage and administer $240 billion in assets.
AMP Capital has a strategic alliance with leading Japanese bank,
Mitsubishi UFJ Trust and Banking Corporation (MUTB) through
which MUTB holds a 15% minority interest in AMP Capital
Holdings Limited. AMP Capital holds a 15% stake in China Life
AMP Asset Management Company Limited, a funds management
company which offers retail and institutional investors in China
access to leading investment solutions. AMP also owns a 19.99%
stake in China Life Pension Company.
In this report, our business is divided into six areas: Australian
wealth management, AMP Capital, Australian wealth protection,
AMP Bank, New Zealand financial services and Australian mature.
The Australian wealth management business provides customers
with superannuation, retirement income, investment, SMSF
administration and financial advice services (through aligned
and owned advice businesses).
AMP Capital is a diversified investment manager, managing
investments across major asset classes including equities,
fixed interest, infrastructure, real estate, diversified funds,
multi-manager and multi-asset funds.
Australian wealth protection comprises individual and group
term life, trauma, disability and income protection insurance
products. Products can be bundled with a superannuation
product or held independently.
AMP Bank is an Australian retail bank offering residential
mortgages, deposits, transactional banking, and SMSF products
with around 100,000 customers. It also has a small portfolio of
practice finance loans supporting AMP’s Adviser network. AMP
Bank distributes through brokers, AMP advisers and direct to
retail customers via phone and internet banking.
New Zealand financial services provides tailored financial
products and solutions to New Zealanders both directly and
through a network of financial advisers. New Zealand financial
services has a leading market position in both wealth protection
and wealth management, in addition to being the market leader
in advice and in providing support to advisers.
The Australian mature business is the largest closed life
insurance business in Australia. Australian mature assets under
management (AUM) comprises capital guaranteed products
(77%) and market linked products (23%). Australian mature
products include whole of life, endowment, investment linked,
investment account, retirement savings account, eligible rollover
fund, annuities, insurance bonds, personal superannuation and
guaranteed savings accounts.
2016 performance
The loss attributable to shareholders of AMP Limited for the
year ended 31 December 2016 was $344 million (2015: profit
of $972 million).
Basic losses per share for the year ended 31 December 2016
on a statutory basis were 11.7 cents per share (2015: earnings
of 33.3 cents per share). On an underlying basis, the earnings
per share were 16.4 cents per share (2015: 37.9 cents per share).
Key performance measures were as follows:
–
2016 underlying profit1 of $486 million fell from $1,120 million
in 2015 largely due to Australian wealth protection losses of
$415 million. 2016 underlying profit was also impacted by
challenging investment market conditions that resulted in
lower operating earnings in Australian wealth management
(-2%) and expected portfolio run-off which reduced the
earnings of Australian mature (-4%).
–
2016 Australian wealth protection operating losses were
driven by experience losses of $105 million and capitalised
losses and other one-off experience items of $485 million.
1
Underlying profit is our key measure of business profitability, as it normalises investment market volatility that stems from shareholder assets
invested in investment markets and aims to reflect the trends in the underlying business performance of the AMP group.
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AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 –
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Partial offsets to these falls in 2016 came from strong
operating earnings growth from AMP Bank (+15%), New
Zealand financial services (+5%) and AMP Capital (+4%).
2016 underlying investment income fell $3 million to
$122 million from 2015.
AMP group total controllable costs increased $64 million
(5%) on 2015 to $1,393 million. Underlying cost growth,
increased investment in growth initiatives and business
restructuring costs were only partly offset by business
efficiency program benefits.
Australian wealth management net cashflows were
$336 million in 2016, down from $2,213 million in 2015.
Net cashflows were impacted by ongoing market volatility,
superannuation legislative uncertainty and advisers
adjusting to an enhanced regulatory environment.
AMP Capital external net cashflows were $967 million in
2016, down from $4,434 million in 2015. Strong flows into
infrastructure and real estate asset classes were offset by
challenging domestic and Japanese retail market conditions.
Underlying return on equity decreased 7.6 percentage points
to 5.6% in 2016 from 2015, largely reflecting the impact of
Australian wealth protection experience and capitalised losses.
AMP’s total assets under management (AUM) and administration
were $240 billion at 31 December 2016 (2015: $226 billion).
Differences between underlying profit and statutory profit
The 31 December 2016 underlying profit of $486 million
excludes the impact (net of any tax effect) of:
– goodwill impairment of $668 million
– net loss from one-off and non-recurring items of $9 million
– business efficiency program costs of $19 million
– amortisation of AXA acquired intangible assets of $77 million
– market adjustment losses of $43 million
– accounting mismatch losses of $14 million.
A reconciliation between underlying profit and statutory profit
is provided in Note 1.1 of the financial report.
Under Australian Accounting Standards, some assets held on
behalf of policyholders (and related tax balances) are included
in the financial statements at different values to those used in
the calculation of the liability to policyholders in respect of the
same assets. These accounting valuation differences between
policyholder assets and liabilities flow through to shareholder
profit, but have no impact on the true economic profits and
losses of the AMP group.
Operating results by business area
The operating results of each business area for 2016 were
as follows:
Australian wealth management – operating earnings fell
by $9 million (2%) to $401 million in 2016 from $410 million
in 2015, largely due to the challenging investment market
conditions which impacted investor sentiment and earnings,
primarily in the first half of 2016. Operating earnings benefited
from strong cost control, including lower variable remuneration
in the second half of 2016.
AMP Capital – AMP group’s 85% share of AMP Capital’s 2016
operating earnings was $144 million, up 4% from $138 million
in 2015. Despite volatile equity markets in 2016, AMP Capital’s
operating earnings benefited from positive fee income growth
of 5%, assisted by strong performance fees in the first half of
2016. Fee income growth was partially offset by an 8% increase
in controllable costs.
Australian wealth protection – 2016 operating losses of
$415 million (2015: operating earnings of $185 million) were
impacted by experience losses of $105 million and capitalised
losses and other one off experience items of $485 million. Profit
margins fell by $21 million (11%) to $175 million in 2016, largely
due to the impact of strengthened assumptions adopted for lump
sum products in the second half of 2015 and the implementation
of a 50% quota share reinsurance arrangement of $750 million
of annual premium income of the AMP Life retail portfolio, with
Munich Reinsurance Company of Australasia Limited, effective
from 1 November.
AMP Bank – operating earnings increased $16 million (15%) to
$120 million in 2016 from $104 million in 2015. Total revenue
increased 11% in 2016 on 2015, driven by improved net interest
margin and growth in the loan portfolio.
New Zealand financial services – operating earnings increased
by $6 million (5%) to $126 million in 2016 from 2015 largely as
a result of higher profit margins, partially offset by the reduction
in transitional tax relief.
Australian mature – operating earnings fell $7 million to
$151 million in 2016 from $158 million in 2015. Operating
earnings were impacted by the expected portfolio run-off
($9 million decrease), investment markets ($1 million) and
other items ($1 million). These were partially offset by lower
controllable costs ($3 million) and experience profits ($1 million).
Capital management and dividend
Equity and reserves of the AMP group attributable to shareholders
of AMP Limited decreased to $7.5 billion at 31 December 2016
from $8.5 billion at 31 December 2015.
AMP remains well capitalised, with $2.2 billion in shareholder
regulatory capital resources, above minimum regulatory
requirements (MRR) at 31 December 2016 ($2.5 billion at
31 December 2015).
AMP’s final 2016 dividend is 14.0 cents per share, franked to 90%.
This represents a full year 2016 dividend payout ratio of 85%
of underlying profit2. AMP will continue to offer the dividend
reinvestment plan (DRP) to eligible shareholders. For the 2016
final dividend, no discount will apply to the DRP allocation price.
AMP intends to neutralise the impact of the DRP by acquiring
shares on-market to satisfy any entitlements under the DRP.
The strength of AMP’s capital position, following the execution
of the reinsurance deal and the life company merger, has
facilitated the announcement of an on-market buy-back of
up to $500 million to begin in the first quarter of 2017.
Strategy and prospects
Our vision is to be Australia and New Zealand’s favourite
financial services company.
AMP is well positioned to take advantage of positive long-term
demographic and market trends and mitigate potential threats
with a growth strategy that leverages its competitive advantages
in its chosen markets. The company is pursuing a clear strategy
for long-term growth with four key objectives:
2 The underlying payout ratio for 2016 is calculated based on underlying profit excluding capitalised losses and other one-off experience items.
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AMP 2016 annual report –
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tilting investment to higher growth, less capital intensive
businesses with strong positions in growing markets
transforming the core Australian business to centre on the
customer
reducing costs to continue growing profitably in a margin
compressed world, and
expanding selectively in Asia and internationally to capture
new growth opportunities.
In the second half of 2016, AMP realigned the business with
a new management structure to strengthen accountability
for driving short-term business performance while delivering
longer-term growth. This alignment across business units is
supportive of the four key objectives, with a sharpened focus
on effective cost and capital management to underpin
short-term performance.
1. Tilt investment to higher growth businesses
AMP is focused on delivering growth across the portfolio by
focusing investment on higher growth, less capital intensive
businesses to build on their market-leading positions.
The growth investment is being deliberately tilted towards
Australian wealth management, AMP Bank and AMP Capital,
the business lines with the greatest opportunities. Australian
wealth protection, New Zealand financial services and Mature
are being managed for value and efficiency.
A key priority is to grow in the expanding $2.8 trillion3 Australian
wealth management market, where it holds the number one4
market share position in superannuation.
AMP is investing in Australian wealth management to maintain
and enhance a sustainable and competitive advantage in
distribution and increase its channel capacity by activating new
digital and direct channels to complement our face-to-face advice
capabilities. AMP’s leading corporate superannuation business
is expected to assist in driving Australian wealth management
cashflows in the short and long term.
AMP Bank continues to grow strongly and represents a
significant opportunity for AMP, particularly across its aligned
advice network where debt and cashflow management strategies
can be embedded as a core part of AMP’s advice value proposition.
AMP Capital has demonstrated consistent and sustainable
earnings growth and is focused on growing domestically
while also extending its geographic reach and distribution
capabilities across selected markets. Utilising its strengths in the
management of real assets, AMP Capital has further opportunity
to capture attractive revenues.
2. Transform
AMP is transforming its core Australian businesses to help our
customers own tomorrow. While this transformation is being
driven from Australian wealth management, it also encompasses
AMP Bank, AMP Capital and Australian wealth protection, as AMP
packages the right solutions for its customers to help them meet
their goals.
Differentiate via integrated goals-based model
AMP has launched an experiential goals-based approach designed
to engage existing customers and activate AMP’s customer base
of more than 3.7 million, particularly unadvised customers.
Deliver goals-based advice model of the future
AMP is aiming to make financial advice more relevant, accessible
and affordable for consumers, and at the same time, more
efficient and profitable for AMP and its strong network of aligned
advisers. The company is rolling out its technology-enabled, goals-
based advice platform to both AMP Advice and its broader adviser
network. By the end of 2016, 24 practices were operating under
the new AMP Advice model and are expected to deliver greater
adviser productivity, increased share of customer wallet and
improved advice practice profitability.
Increase channel choice
AMP is giving consumers more ways to interact with the
company. It is creating an omni-channel experience with new
digital and direct channels that complement its existing multi-
branded face-to-face advice experience. New data and analytics
infrastructure is driving customer engagement and new business
across all channels.
Deliver a superior customer experience
Net promoter score (NPS) is now used across the company to
objectively measure and drive ongoing improvement of customer
experiences. 25% of variable employee remuneration is now
based on NPS.
3. Reduce costs
AMP completed its three-year business efficiency program at the
end of 2016 (delivering $200 million in pre-tax recurring run rate
cost savings). The company is sustaining its business efficiency
benefits by embedding more effective processes and project
management, process automation and activity-based working.
Operating model and organisational design changes will deliver
a further round of business efficiency gains in 2017, with the aim
of reducing controllable costs.
4. Expand internationally
AMP is expanding internationally, primarily through AMP
Capital, in high-growth potential regions where its expertise
and capabilities are in demand. It is doing this by building strong
partnerships with national champion companies in China and
Japan and is capitalising on demand for its infrastructure, real
estate and fixed income capabilities across Asia, Europe and
North America. AMP’s relationships with China Life are going from
strength to strength. China Life Asset Management Company
Limited is the fastest growing new asset management company
in China while China Life Pension Company (CLPC) ranks first in
trustee services with 29% market share and third in investment
management with 12% market share.
In 2017, CLPC is set to benefit from the implementation of
new regulations for Occupational Pensions (OP) in China. OP
represents a significant growth opportunity for CLPC, covering
around 40 million civil servant employees with 12% salary
contribution and annual contributions expected to reach up
to RMB200 billion. CLPC is currently competing to win this
OP business across each region of China.
AMP’s relationship with its Japanese partner MUTB is also
being strengthened.
Strategies and prospects by business area5
Australian wealth management
Australian wealth management’s key priorities are to:
3 ABS Managed Funds Report, Managed Funds Industry, September 2016.
4 Fund Market Overview Retail – Marketer, Strategic Insight (Plan For Life), September 2016.
5
Forward looking statements in the directors’ report are based on management’s current views and assumptions and involve known and unknown
risks and uncertainties, many of which are beyond AMP’s control and could cause actual results, performance or events to differ materially from
those expressed. These forward looking statements are not guarantees or representations of future performance, and should not be relied upon.
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AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 –
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build customer goals-oriented business whilst remaining
vigilant on cost control
build the goals-based advice model of the future and
improve the quality of the advice experience
increase channel choice
use new capabilities to design customer centric offers
covering advice, product and service
develop a strong SMSF capability with a focus on building
scale and efficiency.
AMP Capital
Working as a unified investment house, AMP Capital’s key
priorities are to generate revenue growth through:
– delivering outstanding investment outcomes to clients
–
building a differentiated client experience driving strong
client engagement
partnering effectively across the AMP group to deliver investment
solutions for retail, SMSF and corporate super customers
–
– expanding the global pension fund client base
–
building preferential distribution partnerships in select
Asian markets, particularly Japan and China.
Australian wealth protection
The key priorities for management are to:
– stabilise earnings and release capital via reinsurance
– sustain business efficiencies
– promote the new insurance offer.
AMP Bank
As the banking arm of a wealth manager, AMP Bank’s role is
to leverage and grow the group’s customer base to provide core
banking solutions to help meet the goals of customers. In aligning
with this strategic imperative, AMP Bank’s priorities are to:
–
deliver compelling customer-centric banking propositions
to AMP group target customer segments
make banking easier for customers by investing in technology
and service excellence
maintain focus and growth in both the aligned adviser and
mortgage broker channels
leverage AMP group investments to build out capabilities in
direct and digital
continue to optimise AMP Bank’s funding sources and invest
in operating capacity.
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New Zealand financial services
New Zealand financial services has the following key priorities
to grow shareholder value:
– deepen its customer relationships
–
–
re-engineer wealth protection to increase product attractiveness
maximise wealth management market opportunities created
by regulatory change
–
– evolve advice and distribution capability
–
leverage the KiwiSaver opportunity
– build on our general insurance partnership
– continue its focus on cost control.
Australian mature
Key priorities for management are to:
– maintain high persistency
– prudently manage asset and liability risk
– achieve greater cost efficiency
– maintain capital efficiency.
The Australian mature business remains in slow decline but is
expected to remain profitable for many years. It is expected to
run off at around 6% per annum. However, in volatile investment
markets, this run-off rate can vary substantially. The run-off of
AUM mirrors policy liabilities, although there is potential for profit
margins to be impacted differently. The run-off of Australian
mature AUM is anticipated to have an average duration of
approximately 12 years, but will be impacted by investment
markets and regulatory changes.
Key risks
Risk is inherent to our business and AMP takes measured risks to
achieve our strategic objectives. We have a clear strategic plan to
drive our business forward and an Enterprise Risk Management
framework to identify, understand and manage risks.
The Enterprise Risk Management (ERM) framework is designed
to enable AMP to identify, assess, respond, monitor and review
current and emerging risks that can affect our business. We
recognise that effective risk management is supported by
appropriate behaviour by our employees and we are committed
to driving a risk aware culture. AMP’s ERM framework includes
a risk management strategy which establishes the principles,
requirements, roles and responsibilities for the management of
risk across AMP and the risk appetite statement which articulates
the nature and level of risk the board is willing to accept in the
pursuit of strategic objectives.
AMP’s corporate strategy reflects the types of risks the board
is willing to accept. The strategic risks and their impacts are
identified as part of the strategic planning process.
Key risks which may impact AMP’s ability to achieve its strategic
objectives include:
Strategic risk
–
Changes to the business environment: Our strategy is set based
on existing and expected business environmental factors
including business cycle, technology, customer preferences
and competitive landscape. Significant changes in these
environmental factors may disrupt AMP’s business operations.
For example, a significant change in customer preferences
may impact sales volumes, revenue and customer satisfaction.
AMP focuses on implementing programs to better anticipate
and respond to threats and opportunities that arise from
changing customer preferences and competitor strategies
and capabilities.
Changes in the regulatory environment: The financial services
industry is going through a period of significant change. These
changes, combined with increased attention from the media
and public, have placed additional pressures on governments
to make changes to existing regulations. We recognise that
failure to effectively anticipate and respond to regulatory
changes could adversely impact AMP’s reputation and ability
to achieve its strategic objectives. We manage this risk by
having dedicated resources to implement required change
programs and actively engage with government, regulators
and industry bodies to effectively monitor and anticipate
regulatory changes. We also place significant focus on our
risk culture to ensure we are keeping our legal, regulatory
and social responsibilities front of mind in our daily activities.
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AMP 2016 annual report –
Sufficient investment in operating environment: AMP’s promise
to help people own tomorrow requires changes to products,
services and customer experiences. The promise has driven
new approaches, models and ways of working within our
business which require modification and capability uplift to
existing system infrastructure, processes and people skills
and capabilities. Inadequate investment into core functions
can limit our ability to achieve our strategic objectives to
meet customer expectations. To manage this, we continually
review, invest in and monitor the adequacy of core functions
of systems, processes and people to ensure that these are
sufficient to support the strategic objectives.
Market risk
–
Inadequate monitoring and management of exposure to
market volatility: Volatility in market factors such as interest
rates, equity markets or foreign exchange rates could have
a negative impact on the profitability of AMP. Uncertainty
in investment returns can impact on customer sentiment
and may result in a reduction in capital invested and
increased product switching by investors. Cash inflows to
wealth management products such as superannuation and
investment products may be impacted if customer appetite
for discretionary savings and investment products reduces.
We monitor market conditions and continually review our
product offerings to ensure they are appropriately balanced to
account for market volatility and changing customer needs.
Insurance risk
–
Greater than expected insurance claims and lapse rates:
Conditions in the Australian life insurance market have proven
challenging over the past few years. AMP has experienced
unfavourable insurance claims and lapse rates which impact
on earnings. This is driven by poor terminations, increasing
income protection claims, a higher volume of lump sum claims
and unfavourable group salary continuance claims. We are
managing the volatility in insurance claims and lapse rates
by redesigning insurance products and the claims processes,
reducing exposure through reinsuring part of the life insurance
business and strengthening our best estimate assumptions.
We are also looking to manage volatility across the group by
focusing on growing our business in areas where the industry
has invested heavily in developing methods to measure
and manage volatility such as wealth management, asset
management and the banking industry.
Operational risk
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Effective management and implementation of change:
AMP has invested heavily into developing new approaches,
models and ways of working within the business to drive
efficiency. This has resulted in significant modification or
uplift to existing system infrastructure, processes and people
role requirements. We recognise that failure to appropriately
manage the implementation of these changes can cause
disruption to AMP’s business operations. To manage this,
AMP has dedicated resources with appropriate skills and
expertise who work with the business to establish change
programs and manage the transition.
–
Cyber risk: Cyber risk continues to be a focus area across all
financial industries. We recognise that cyber risk will continue
to increase significantly in a rapidly changing technological
environment and that the magnitude and costs of a cyber-
crime vary depending on the nature of the attack. We are
committed to investing in enhancing our cyber security
network and we have a number of detective, preventative
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and responsive controls to protect our assets and networks.
Whilst we are committed to enhancing our cyber security
network, we recognise it is inevitable that cyber attacks will
occur. In assessing and mitigating cybercrime, we regularly
consider vulnerabilities and potential controls for failures
across people, processes and technology.
Outsourcing risk: AMP has outsourcing arrangements with
external service providers to support business functions.
We recognise that poor management of outsourced services
will directly impact AMP’s ability to service customers and
achieve strategic objectives. We are committed to ensuring
that outsourced arrangements are appropriately managed
and policies and processes are in place to ensure appropriate
governance, management and oversight of external service
providers. AMP has dedicated resources to monitor contracts,
service level agreements and performance targets to ensure
service deliverables are met.
Conduct risk: AMP is committed to establishing a culture of
help that reflects our values of professionalism, honesty and
integrity. We see conduct risk as the risk of inappropriate,
unethical or unlawful behaviour on the part of our employees.
Our code of conduct outlines the minimum standards for
behaviours, decision making and our expectations for how
we treat our employees, customers, business partners and
shareholders. We are committed to doing the right thing
and our code of conduct supports driving a strong risk-aware
culture. We recognise that culture drives the right behaviour
and conduct within AMP and influences outcomes and the
achievement of strategic objectives. AMP’s approach to
managing conduct risk is to educate and support staff to
recognise the risk implications of their decisions, and empower
our employees to speak out against instances of bad conduct.
These risks are constantly monitored, assessed and reported
to the relevant committees and the board to ensure that any
mitigating actions are taken appropriately.
The environment
In the normal course of its business operations, AMP is subject
to a range of environmental regulations of which there have
been no material breaches during the year. You can find further
information about AMP’s environment policy and activities at
amp.com.au/corporatesustainability.
Significant changes to the state of affairs
Details of changes in AMP’s strategic priorities are set out
earlier in this report.
Events occurring after the reporting date
As at the date of this report, the directors are not aware of any
matter or circumstance that has arisen since the reporting date
that has significantly affected or may significantly affect the
entity’s operations in future years; the results of those operations
in future years; or the entity’s state of affairs in future years which
is not already reflected in this report, other than the following
announcements made on 9 February 2017 of:
–
A final dividend on ordinary shares of 14.0 cents per share.
Details of the announced dividend and dividends paid and
declared during the year are disclosed in Note 1.4 of the
financial report; and
An on-market share buy-back of up to $500 million to begin
in the first quarter of 2017.
–
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 The AMP Limited board of directors
The management of AMP is overseen by a board of directors
who are elected by shareholders.
The directors of AMP Limited during the year ended
31 December 2016 and up to the date of this report are
listed below. Directors were in office for this entire period
(except where stated otherwise):
– Catherine Brenner (Chairman)
– Craig Meller (Chief Executive Officer and Managing Director)
– Patricia Akopiantz
– Brian Clark (retired 12 May 2016)
– Holly Kramer
– Trevor Matthews
– Simon McKeon (retired 12 May 2016)
– John Palmer (retired 23 June 2016)
– Geoff Roberts (appointed 1 July 2016)
– Peter Shergold
– Peter Varghese (appointed 1 October 2016)
– Vanessa Wallace (appointed 1 March 2016)
– Mike Wilkins (appointed 12 September 2016).
Details of each of the current director’s qualifications,
experience, special responsibilities, and directorships of other
listed companies are given in the Our board section of this
annual report.
Attendance at board and committee meetings
The table below shows details of attendance by directors of
AMP Limited at meetings of boards and the committees of
which they were members during the year ended 31 December
2016. The directors also attended other meetings, including
management meetings and meetings of subsidiary boards or
committees of which they were not a member during the year.
Board/Committee
Held/attended
Catherine Brenner
Craig Meller
Patricia Akopiantz
Brian Clark
(retired 12/05/16)3
Holly Kramer
Trevor Matthews
Simon McKeon
(retired 12/05/16)4
John Palmer
(retired 23/06/16)5
Geoff Roberts
(appointed 01/07/16)6
Peter Shergold
Peter Varghese
(appointed 01/10/16)7
Vanessa Wallace
(appointed 01/03/16)8
Mike Wilkins
(appointed 12/09/16)9
AMP Limited
Board meetings
Audit
Committee
Risk
Committee
Nomination
and Governance
Committee
People and
Remuneration
Committee
Ad hoc
committees/
workshops1
Subsidiary
and committee
meetings2
A
15
15
15
5
15
15
5
8
7
15
4
13
5
B
15
15
15
5
15
15
5
8
7
14
4
12
5
A
–
–
–
–
4
4
–
–
2
3
–
–
1
B
–
–
–
–
3
4
–
–
2
3
–
–
1
A
–
–
1
–
–
4
–
–
–
4
1
3
1
B
–
–
1
–
–
4
–
–
–
4
1
3
1
A
4
–
4
–
–
–
2
–
–
1
–
–
–
B
4
–
4
–
–
–
2
–
–
1
–
–
–
A
4
–
6
1
–
–
2
–
–
–
–
5
–
B
4
–
6
1
–
–
2
–
–
–
–
5
–
A
2
2
1
1
1
3
3
1
1
1
–
1
–
B
2
2
1
1
0
3
3
1
1
1
–
1
–
A
11
19
17
7
13
24
–
4
–
B
11
18
17
7
12
24
–
4
–
21
20
3
6
4
3
6
4
Column A – indicates the number of meetings held while the director was a member of the board/committee.
Column B – indicates the number of those meetings attended.
1
Ad hoc committees/workshops of the board were organised during the year in relation to financial results, AMP group capital initiatives and
APRA CPS220.
Subsidiary board and committee meetings include AMP Life/The National Mutual Life Association of Australasia (NMLA), AMP Bank and
AMP Capital Holdings. Where meetings of AMP Life/NMLA were held concurrently, only one meeting has been recorded in the above table.
Brian Clark retired as a Director on 12 May 2016.
Simon McKeon retired as a Director on 12 May 2016.
John Palmer retired as a Director on 23 June 2016.
Geoff Roberts was appointed as a Director on 1 July 2016 and Chairman of the Audit Committee in July 2016.
Peter Varghese was appointed as a Director on 1 October 2016 and a member of the Risk Committee in October 2016.
Vanessa Wallace was appointed as a Director on 1 March 2016 and a member of the Risk and People and Remuneration Committees in March 2016.
Mike Wilkins was appointed as a Director on 12 September 2016 and a member of the Audit and Risk Committees in September 2016.
2
3
4
5
6
7
8
9
25
AMP 2016 annual report Indemnification and insurance of directors
and officers
Under our constitution, the company indemnifies, to the extent
permitted by law, all current and former officers of the company
(including the non-executive directors) against any liability
(including the costs and expenses of defending actions for an
actual or alleged liability) incurred in their capacity as an officer
of the company.
This indemnity is not extended to current or former employees
of the AMP group against liability incurred in their capacity
as an employee, unless approved by the AMP Limited Board.
No such indemnities have been provided during or since the
end of the financial year.
During the financial year, the company agreed to insure all
of the officers (including all directors) of the AMP group against
certain liabilities as permitted by the Corporations Act 2001.
The insurance policy prohibits disclosure of the nature of the
cover, the amount of the premium, the limit of liability and
other terms.
In addition, the company and each of the directors are parties
to deeds of indemnity and access, as approved by the board.
Those deeds of indemnity and access provide that:
–
the directors will have access to the books of the company
for their period of office and for 10 (or in certain cases,
seven) years after they cease to hold office (subject to
certain conditions)
the company indemnifies the directors to the extent
permitted by law
the indemnity covers liabilities incurred by the directors in
their capacity as officers of the company and of other AMP
group companies, and
the company will maintain directors’ and officers’ insurance
cover for the directors to the extent permitted by law for the
period of their office and for 10 years after they cease to
hold office.
–
–
–
Rounding
In accordance with the Australian Securities and Investments
Commission Corporations Instrument 2016/191, amounts in
this directors’ report and the accompanying financial report have
been rounded off to the nearest million Australian dollars, unless
stated otherwise.
Company secretaries’ details
Details of each company secretary of AMP Limited, including
their qualifications and experience, are set out below.
Brian Salter
Group General Counsel
BA, LLB (Hons), LLM (Hons)
Brian joined AMP in July 2008 as Group General Counsel. Brian
has over 35 years’ experience in the legal profession, advising
many of Australia’s leading financial and wealth management
companies. Before joining AMP, Brian was a partner with a
major Australian law firm for 19 years and a member of its
executive team for a number of years.
Brian is a former member of the Australian Government’s
Corporations and Markets Advisory Committee, which was
established to provide independent advice to the Australian
Government on issues that arise in corporations and financial
markets law and practice. Brian is also a member of the Legal
Committee of the Australian Institute of Company Directors and
the Corporations Committee of the Business Law Section of the
Law Council of Australia and is the Deputy Chair of the General
Counsel 100. He is a former Chairman and National Committee
member of the Australian Securitisation Forum. He is also
an Executive Director of AMP Superannuation Limited and
N. M. Superannuation Proprietary Limited and the Chairman
of SCECGS Redlands Limited.
David Cullen
Group Company Secretary and General Counsel, Governance
BCom, LLB, LLM, GradDipAppFin, PGCert Mgmt
David joined AMP in September 2004 and has held various
legal and governance roles across AMP Capital and the AMP
group, with a particular focus on mergers, acquisitions and
joint ventures. He was appointed Group Company Secretary
and General Counsel, Governance in July 2013 and is Company
Secretary for AMP Limited. Prior to joining AMP, David spent
eight years in private legal practice focusing on mergers and
acquisitions and equity capital markets in Perth and Sydney
and two years with the ASX. David is a director of various AMP
subsidiaries and a Fellow of the Governance Institute of Australia.
Vicki Vordis
Company Secretary
BEc, LLB (Hons), FGIA
Vicki joined AMP in December 2000 and held various legal roles
before moving into Group Secretariat. She is a Company Secretary
of AMP Bank Limited. Prior to 2000, Vicki worked as a lawyer in
several Sydney law practices. She holds a graduate diploma in
Applied Corporate Governance and is a Fellow of the Governance
Institute of Australia.
26
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 Auditor’s independence declaration to the directors of AMP Limited
The directors have obtained an independence declaration from the company’s auditor, Ernst & Young, for the full year ended
31 December 2016.
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of AMP Limited
As lead auditor for the audit of AMP Limited for the financial year ended 31 December 2016, I declare to the best of my knowledge
and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of AMP Limited and the entities it controlled during the financial year.
Ernst & Young
Tony Johnson
Partner
Sydney, 9 February 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Non-audit services
The Audit Committee has reviewed details of the amounts
paid or payable for non-audit services provided to the AMP
group during the year ended 31 December 2016, by the
company’s auditor, EY.
The directors are satisfied that the provision of those non-audit
services by the auditor is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001
and did not compromise the auditor independence requirements
of the Corporations Act 2001 for the following reasons:
–
all non-audit assignments were approved by the nominated
delegate to the chief financial officer or the chairman of the
Audit Committee
no non-audit assignments were carried out which
were specifically excluded by the AMP charter of audit
independence, and
the level of fees for non-audit services amounted to $2,089,000
or 13% of the total fees paid to the auditors (refer to Note 7.5 of
the financial report for further details).
–
–
Remuneration disclosures
The remuneration arrangements for AMP directors and senior
executives are outlined in the remuneration report which forms
part of the directors’ report for the year ended 31 December 2016.
Directors’ and senior executives’ interests in AMP Limited
shares, performance rights and options are also set out in the
remuneration report on the following pages.
27
AMP 2016 annual report Remuneration report
We believe that remuneration should be clearly aligned to the sustainable
growth of our company and long-term returns to shareholders.
Dear shareholders,
On behalf of the board I am pleased to present our 2016
remuneration report for which we seek your approval at the
annual general meeting on Thursday 11 May 2017.
The board understands that there is increasing shareholder
interest in the scale and structure of executive remuneration.
That is entirely appropriate. We, too, believe that remuneration
should be clearly aligned to the sustainable growth of our
company and long-term returns to shareholders. This is important
in a good year. It is even more critical in a challenging year.
2016 remuneration outcomes
The year saw strong results from AMP Capital, AMP Bank and
New Zealand, and a resilient performance from wealth
management despite challenging market conditions. However,
these results were overshadowed by a poor performance
in wealth protection. Nonetheless, our capital position and
underlying business remained strong and as a result shareholders
will receive a final dividend of 14 cents per share, bringing the
2016 total dividend to 28 cents per share, the same total
dividend payment as was delivered in 2015.
To ensure that remuneration outcomes are aligned with AMP’s
performance in 2016, the following decisions were approved
by your board:
–
No short-term incentive (STI) was paid to our CEO or KMP
executives for 2016 under the AMP Group STI plan. Adam
Tindall, AMP Capital’s CEO, is an exception as he participates
in a separate incentive plan that’s aligned with the profit
and performance of AMP Capital. AMP Group’s performance
against financial STI goals was below threshold in 2016 (except
for net revenue of AMP Capital). Progress against our strategic
transformation program to build a customer centred culture
continued at pace in 2016, and the related performance
against the strategic goals was above target. Given the
financial performance, the CEO and board agreed that
none of the STI pool be paid to the CEO or KMP executives.
–
No salary increase will be made for our CEO in 2017.
The only KMP executives who will receive an increase in
2017 are those executives whose roles significantly increased
in the restructure that was announced in November 2016.
These increases were effective from 1 January 2017. As a result
of the restructure, three KMP roles were made redundant and
their redundancy payments are disclosed in this report. These
amounts were calculated using the AMP policy which applies
to all employees.
In addition:
–
No portion of the long-term incentive (LTI) granted in 2014
is expected to vest. The return on equity (RoE) target was not
achieved and the current relative total shareholder return (TSR)
performance indicates that AMP will not outperform at least
50% of the peer group when this hurdle is tested in 2017
(not confirmed at the time of publication). Therefore we expect
the entire LTI grant made in 2014 to lapse at the vesting date
in 2017.
2015 remuneration outcomes
As shareholders will recall, AMP’s 2015 performance was strong
with a 7% increase in underlying profit. It was in the context of
this 2015 performance that the board reviewed the CEO’s salary
for 2016.
In February 2016, the People and Remuneration Committee
(PRC) benchmarked the CEO’s remuneration against companies
of similar size and other financial institutions. This data showed
that the CEO’s fixed remuneration was at the 25th percentile
of this peer group. As context, when the CEO was appointed to
the role, his salary was set at a lower level compared to his peers
and predecessor. It was to progressively increase as he gained
experience and delivered results. In keeping with this approach,
and considering 2015 performance, the board increased his
salary by 9% to $1.9 million in February 2016.
In February 2016, the board also reviewed the vesting of the
2013 LTI. The 2013 TSR hurdle was not met and this tranche did
not vest. The RoE performance hurdle was partially met and a
28
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 portion of this tranche did vest. The minimum RoE hurdle for the
2013 LTI grant was 13.4%. When the hurdles were set, the board
agreed that it would exercise discretion, in particular for strategic
decisions that were not foreseen at the time the performance
targets were set. The actual RoE result for 2015 was 13.2% but
the board exercised its discretion and adjusted the RoE outcome
up to 13.5% to take into account the impact of the investment
in the China Life Pension Company (CLPC) (0.3%) on the 2015
RoE result. The board was cognisant that this discretion was the
difference between vesting and not vesting and applied due
rigour. This decision was made to ensure that the board continues
to encourage management to pursue such growth opportunities
and not be disadvantaged for making decisions that benefit the
long-term value for shareholders. This decision was previously
disclosed to shareholders in May 2016.
Improving transparency
The board is aware of the need to improve transparency on
the link between remuneration and performance, without
undermining any competitive advantage with inappropriate
disclosure. In this report we have sought to improve that by:
providing a summary of key decisions to introduce the
–
remuneration report (this letter)
moving to disclose RoE targets for vested and unvested
LTI grants
expanding the explanation on strategic STI targets and their
link to long-term value creation
improving the user-friendliness of this document.
–
–
–
We trust that shareholders find this report easier to understand.
Changes in 2017
Finally, your board is engaged in a very active discussion about
how remuneration can support accelerated strategic delivery and
improve returns for shareholders. For 2017, three key changes
have been made to improve alignment.
1. Extend the LTI vesting period from three to four years. Starting
with the 2017 grant, LTI will vest over four years and the vesting
period will commence from 1 January 2017 to align with AMP’s
financial year. Previously the vesting period commenced in March
each year. This change will align the performance period that
determines vesting with the performance period of AMP, and will
direct management’s focus on value creation over a longer term.
This will not result in an increase in the LTI value awarded.
2. Remove the RoE performance hurdle so that 100% of LTI
vests subject to relative TSR. RoE was introduced as a performance
hurdle around the time of the AXA transaction to drive an
improvement in RoE. With an improved RoE achieved over the
last few years through capital efficiency activities across the
business, the use of a RoE measure is no longer considered
appropriate for LTI purposes. Capital management will continue
to be a key focus area for management. Our focus on underlying
profit after tax (UPAT) less cost of capital ensures a continued
focus on effective capital management and is a key consideration
when determining individual performance.
3. Increase focus on financial goals. In 2017 we will increase
the weighting of financial measures to 70% of the STI scorecard
(from 65%). The remaining 30% will focus on embedding our
customer centred culture supported by a strong risk management
environment throughout the organisation, which we believe is
critical to delivering our strategy.
In 2017, we will continue to review how we can better align
our remuneration strategy to drive performance and returns
for shareholders. Fundamentally, your board believes that
remuneration should drive the delivery of AMP’s business strategy
by achieving the right balance of motivation and challenge for
our KMP; encouraging them to both grow the business and
deliver sustainable shareholder returns.
Patricia Akopiantz
Chairman, People and Remuneration Committee
29
AMP 2016 annual report
Remuneration report (audited)
This remuneration report explains how we structure remuneration to incentivise and reward executives for delivering sustained
business performance that leads to positive value for shareholders. It also provides details of the remuneration arrangements for
our key management personnel (KMP) in 2016.
Contents
1. Who is covered by this report
2. Our executive remuneration structure
3. 2016 remuneration outcomes
4. Executive shareholding
5. How executive arrangements operate at AMP
6. Non-executive director remuneration
7. Other executive remuneration disclosures
1. Who is covered by this report
The following executives and non-executive directors were KMP between 1 January 2016 and 31 December 2016.
KMP are those people who have authority and responsibility for planning, directing and controlling the activities of AMP. This includes
the chief executive officer (CEO), nominated direct reports of the CEO and AMP’s non-executive directors (NEDs). In this report the term
executive means the CEO and the other executives who are KMP. 2016 KMP are detailed below.
Current executives
Craig Meller
Pauline Blight-Johnston
Robert Caprioli
Gordon Lefevre
Matthew Percival
Craig Ryman
Paul Sainsbury
Brian Salter
Wendy Thorpe
Adam Tindall1
Fiona Wardlaw
Former executives
Stephen Dunne2
Chief Executive Officer and Managing Director
Group Executive, Insurance and Superannuation
Group Executive, Advice and Banking
Chief Financial Officer
Group Executive, Public Affairs and Chief of Staff
Chief Information Officer
Chief Customer Officer
Group General Counsel
Group Executive, Operations
Chief Executive Officer, AMP Capital
Group Executive, People and Culture
Former Managing Director, AMP Capital – retired 9 October 2015
Current non-executive directors
Catherine Brenner
Patricia Akopiantz
Holly Kramer
Trevor Matthews
Geoff Roberts
Peter Shergold
Peter Varghese
Vanessa Wallace
Mike Wilkins
Former non-executive directors
Simon McKeon
Brian Clark
Paul Fegan
John Palmer3
Chairman – appointed Chairman 24 June 2016
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director – appointed 1 July 2016
Non-executive Director
Non-executive Director – appointed 1 October 2016
Non-executive Director – appointed 1 March 2016
Non-executive Director – appointed 12 September 2016
Chairman – retired 12 May 2016
Non-executive Director – retired 12 May 2016
Non-executive Director – retired 30 November 2015
Non-executive Director – retired 23 June 2016
Term as
KMP in 2016
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Six months
Full Year
Three months
Ten months
Four months
Five months
Five months
–
Six months
1
2
3
Adam Tindall was appointed Chief Executive Officer, AMP Capital (CEO, AMP Capital) on 12 October 2015 following the retirement of
Stephen Dunne. At this date Adam commenced as a KMP.
Stephen Dunne changed role from MD AMP Capital to Consultant on 9 October 2015. At this date Stephen ceased as a KMP. He remained
as a consultant with AMP until 29 February 2016.
John Palmer held the position of AMP Limited Chairman for the period 12 May to 23 June 2016 following the retirement of Simon McKeon until
the appointment of Catherine Brenner. He was paid the AMP Limited Chairman fee for this period.
30
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
2. Our executive remuneration structure
Our executive remuneration is structured so that each individual’s remuneration is linked to the performance of the company as a whole
and their individual performance, as long as company performance meets threshold performance levels.
Your board believes that remuneration should drive the delivery of AMP’s business strategy by achieving the right balance of motivation
and challenge for our executives; encouraging them to both grow the business and deliver sustainable shareholder returns. In addition,
the remuneration arrangements support the attraction and retention of talent within AMP. In 2016 the remuneration structure
includes fixed, STI and LTI components. Performance targets are set to support the delivery of AMP’s strategy, which in turn is designed
to deliver value to customers and shareholders.
2016 executive remuneration structure
Fixed
At risk
Fixed remuneration
Base salary, superannuation and
any salary sacrificed benefits
AMP generally positions fixed
remuneration at the median of the
market, compared to like roles in Australian
listed companies of comparable size both
within the financial services sector and
across the general market
Short-term incentive (STI)1
Reward for strong individual and
company performance during the year
through annual goals that are aligned to
delivery of our strategy and creation of
shareholder value
Long-term incentive (LTI)
Reward for long-term company
performance, measured against AMP’s
return on equity and total shareholder
return targets
Value determined by
Market value and criticality of role,
qualifications and experience
Performance of the individual and the
company during the year measured
65% against financial and 35% against
strategic goals
60% – relative total shareholder
return hurdle over three years
40% – return on equity
hurdle in three years
Delivered as
Cash and superannuation
60% cash
40% rights to AMP Limited shares –
deferred for two years2
Rights to AMP Limited shares subject to
three year performance targets
To attract and retain talent
Why it is paid
To focus executives’ efforts to deliver on
AMP’s strategic priorities during the year
Deferral of 40% of payment
encourages executives to focus on
sustainable outcomes beyond the
performance period
To focus executives’ efforts to create
long-term value for shareholders
To increase shareholding to support
alignment with shareholder interests
1
2
Executives participate in the AMP STI plan with the exception of AMP Capital’s CEO who participates in the AMP Capital enterprise profit share plan.
For the AMP Capital enterprise profit share plan, 50% vests after two years and remaining portion vests after three years.
AMP Capital operates under separate remuneration arrangements, which include the AMP Capital enterprise profit share plan,
which is in line with market practice in the investment management industry and supports AMP Capital’s talent management goal
of attracting, motivating and retaining investment management talent in all markets in which AMP Capital operates.
Adam Tindall (CEO, AMP Capital) participates in the AMP Capital enterprise profit share plan, which delivers a pool as a set proportion
of profit (adjusted for cost of capital). The AMP Limited Board approves the allocation of the profit share pool for a performance period
for AMP Capital’s CEO, based on a recommendation from the AMP Limited CEO.
31
AMP 2016 annual report 2.1. Remuneration mix
The following illustration shows the remuneration mix for the executives in 2016 (excluding AMP Capital’s CEO as he participates in
the AMP Capital enterprise profit share plan). It has been modelled based on the average of the executives’ maximum opportunity.
Having a majority of the executives’ remuneration package linked to the performance of the company is important for ensuring that
the interests of executives are closely tied to the interests of shareholders.
Remuneration that is performance-related and therefore considered to be ‘at-risk’ comprises 81% of the CEO’s total remuneration
and 77% of other executives’ total remuneration.
CEO
LTI
43%
STI deferral
15%
STI cash
23%
Fixed
19%
At risk
81%
Fixed
19%
Deferred
equity
58%
Cash
42%
At risk
77%
Fixed
23%
Executives
LTI
35%
STI deferral
17%
STI cash
25%
Fixed
23%
Deferred
equity
52%
Cash
48%
2.2. Changes in 2017
For 2017, three key changes have been made to our executive remuneration structure to better align with shareholder experience.
–
–
–
Extend the LTI vesting period from three to four years. Starting with the 2017 grant, LTI will vest over four years and the vesting
period will commence from 1 January 2017 to align with AMP’s financial year. This change will align the performance period that
determines vesting with the performance period of AMP, and will direct management’s focus on value creation over a longer term.
Previously, the vesting period commenced in March each year. This will not result in an increase in the LTI value awarded.
Remove the RoE performance hurdle so that 100% of LTI vests subject to relative TSR. RoE was introduced as a performance hurdle
around the time of the AXA transaction to drive an improvement in RoE. With an improved RoE achieved over the last few years
through capital efficiency activities across the business, the use of the RoE measure is no longer considered appropriate for LTI
purposes. Capital management will continue to be a key focus area for management and will continue to be a consideration
when determining individual performance.
Increase focus on financial goals for STI. In 2017 we will increase the weighting of financial measures to 70% of the STI scorecard
(from 65%). The remaining 30% will continue to focus on embedding our customer centred culture supported by a strong risk
management environment which we believe is critical to delivering our strategy.
3. 2016 remuneration outcomes
The remuneration each executive receives is based on the performance of AMP and their individual performance during the year.
In 2016, AMP delivered a loss attributable to shareholders of $344 million (compared to a profit of $972 million in 2015) and an
underlying profit of $486 million (from $1,120 million in 2015). The 2016 results were largely driven by actions that were taken to
stabilise our wealth protection business and reduce the earnings impact on the group. The loss includes some largely one-off, mainly
non-cash items. This overshadowed growth in AMP Bank, AMP Capital and the New Zealand operations, as well as low growth in
wealth management. We also made progress on our transformation to become a truly customer centred company.
Despite this result, our capital position remains strong and as a result shareholders will receive a final dividend of 14 cents per share,
bringing the 2016 total dividend to 28 cents per share, the same total dividend payment as was delivered in 2015.
3.1. Summary of 2016 CEO remuneration outcomes
The CEO will not receive any incentive outcomes based on AMP’s performance in 2016. His STI award is zero and none of the
performance rights that were granted in his 2014 LTI award will vest subject to AMP’s 2016 RoE performance (40% of the grant).
We do not anticipate any vesting of the 60% of the 2014 LTI grant that is subject to relative TSR performance, although this will not
be tested until March 2017.
In February 2016, the PRC benchmarked the CEO’s remuneration against companies of similar size and other financial institutions.
This data showed that the CEO’s fixed remuneration was at the 25th percentile of this peer group. As context, when the CEO was
appointed to the role, his salary was set at a lower level compared to his peers and predecessor. It was to progressively increase as he
gained experience and delivered results. In keeping with this approach, and considering 2015 performance, the board increased his
salary by 9% to $1.9 million in February 2016. The CEO will not receive a salary increase in 2017.
32
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 As a result of the above, the CEO will only receive his fixed remuneration and he will not receive any variable remuneration based
on 2016 performance. This represents a 100% drop in variable remuneration and a 56% drop in total remuneration compared to
remuneration received based on 2015 performance, as shown below. All executives will have a 100% drop in variable remuneration
reflecting AMP’s performance in 2016.
Performance year on which
remuneration received is based
2016
2015
Cash
Rights
Fixed
remuneration1
$’000
Cash
short-term
incentive
awarded
$’000
Deferred
short-term
incentive
awarded
$’000
Long-term
incentive
vested2
$’000
1,900
1,750
–
1,260
–
840
–
455
Total
$’000
1,900
4,305
1
2
Fixed remuneration as determined by the board in February, effective April each year.
For the 2014 LTI award, no vesting will occur for 2016 performance against the RoE hurdle and current performance indicates that no vesting will
occur against the TSR performance hurdle. The TSR hurdle will be tested in March 2017. For the 2015 performance year a portion of the RoE tranche
vested and the value is determined using the five-day VWAP on the exercise date.
This information differs from the statutory table in section 7.1.2 which is prepared according to Australian Accounting Standards.
The following sections detail how these outcomes were determined for the CEO and other executives for 2016. A summary of
remuneration awarded between 1 January and 31 December 2016 for all executives is in section 7.1.1.
3.2. Fixed remuneration
Fixed remuneration increases for executives (including AMP Capital’s CEO) were considered as part of the group-wide remuneration review
process in February 2016 and were effective April 2016. Fixed remuneration levels were held flat for the majority of the executives, with
increases only provided to those executives who were below our desired market position or for new executives. These decisions were
made in the context of 2015 performance. Fixed increases were awarded to the CEO (9%), Chief Information Officer (8%) and Chief
Financial Officer (4%) so that their fixed remuneration was comparable to their peers in the Australian market. No salary increases will
be made in 2017 except for those executives whose roles significantly increased in the restructure that was announced in November 2016.
3.3. Short-term performance and incentive outcomes
Based on AMP’s performance in 2016, neither the CEO nor executives (excluding Adam Tindall who operates under a different
remuneration structure) will receive an STI payment for 2016. This section describes the board’s philosophy around STI measures as
well as the detailed outcomes for 2016.
3.3.1. Approach to STI
The STI scorecard is a powerful mechanism for the board to signal to employees what the key priorities for delivery are in any given year.
The board believes that both financial and strategic goals, which are measured against stretch targets, are key to delivering our strategy
and through this, shareholder value.
In 2016, 65% of the STI scorecard was weighted to financial goals, and 35% to strategic goals. Our financial goals are focused on
driving profitability and growth. The strategic goals focus our people on building and strengthening critical capabilities to deliver
on AMP’s strategy. Of the three strategic measures, two are customer advocacy measures; Net Promoter System (NPS) score and
strengthening our customer centred culture. The third strategic measure is strengthening our risk culture. Due to the increased interest
in understanding how strategic measures drive company value, further information on these strategic measures is detailed below.
Customer advocacy measures
At AMP, we believe that improved customer experiences will deliver a sustained competitive advantage now and in the future, and will
drive superior outcomes for customers and shareholders. It is AMP’s goal to become Australia and New Zealand’s favourite financial
services provider, and our focus on the customer experience is paramount to delivering this strategy.
We monitor our progress against our strategy through various measures. We use NPS to evaluate our progress against our customer
goals. NPS is a business capability that is centred around frequently surveying customers with a simple set of questions (‘Listen’),
working to understand that feedback (‘Learn’) and then making improvements based on that feedback (‘Act’). Based on this feedback,
we put tools, training and infrastructure in place to continuously improve the customer experience. Both external research and our
analysis show a correlation between high NPS scores and improved economic value.
When the board first introduced a customer goal into the STI scorecard, a range of measures were used to determine how well our
people were building a customer centred culture and improved customer experiences. By 2016 our understanding of NPS had evolved
to a point where we were able to more confidently introduce the quantitative NPS metric (NPS score) alongside a specific set of
ambitious initiatives to strengthen our customer centred culture throughout the organisation (strengthening our customer centred
culture). These measures accounted for a quarter of the STI scorecard in 2016.
Strengthening our risk culture
AMP believes that culture is an enabler of strategic execution which can be deliberately and directionally developed, primarily through
leaders. AMP has determined the behaviours that will support our strategy and we are committed to a culture that values integrity,
help and performance. Employee beliefs about the risk-taking or risk-reducing behaviours that are valued and expected at AMP
(ie our risk culture) are important aspects of AMP’s overall culture.
Our inclusion of strategic goals in the STI scorecard has been a key means through which we have seen a change in the way our people
serve our customers. Our employee engagement survey results show a steady increase over recent years in our employees’ perception
of AMP’s customer-centricity and that we speak up, challenge and act when things aren’t right.
33
AMP 2016 annual report
3.3.2. STI outcomes
The board assessed AMP’s performance against the scorecard below and used this to determine the funding of the STI pool for 2016.
AMP’s financial performance was below threshold except for net revenue of AMP Capital. Performance against the strategic customer
and risk goals was determined by the board to be above target. Overall performance on financial and strategic measures generated a
25% of maximum opportunity STI pool for 2016. This compares to an STI pool of 51% of maximum opportunity in 2015. The STI pool in
2016 excludes AMP Capital as this part of the business has separate remuneration arrangements.
Description
(scorecard weighting)
Link to strategy
Outcome
Performance commentary
Underlying profit less
capital charge (45%)
Profitability of AMP delivers shareholders’
annual dividends and generates funds for
investing in our future.
Cost to income ratio (5%)
We focus on reducing costs by spending dollars
smartly, where it matters most to our customers,
and redirecting savings to enable us to invest in
better customer solutions.
Value creation (15%)
–
Value of net
cashflow (5%)
We orient capital and resources to grow
our core Australian businesses.
–
Value of risk new
business (5%)
–
Net revenue of
AMP Capital (5%)
Customer advocacy (25%)
–
Net Promoter System
(NPS) score (10%)
Improved customer experiences will drive a
sustainable competitive advantage.
–
Strengthening our
customer centred
culture (15%)
Strengthening our
risk culture (10%)
Conduct of our people is paramount to our
success. Strong risk management behaviours
support us to do the right thing by our
customers in every interaction. This in turn
will create customer loyalty and advocacy to
generate improved financial results and
value for shareholders.
Below
threshold
Below
threshold
Below
threshold
Below
threshold
Threshold
Above
target
Above
target
On target
The 2016 results were largely driven by
actions that were taken to stabilise our wealth
protection business and reduce the earnings
impact on the group. The loss includes some
largely one-off, mainly non-cash items. This
overshadowed growth in AMP Bank, AMP
Capital and the New Zealand operations, as
well as low growth in wealth management.
The cost to income ratio was impacted by
the challenges in the Australian wealth
protection business.
There has been a significant focus on driving
business efficiencies during the year. A
three-year business efficiency program is
now complete, with $200 million in pre-tax
recurring run rate cost benefits.
Maintaining a sharper focus on managing
our costs is a strategic priority for us to drive
short-term performance. Retaining a rigorous
focus on cost control ensures we remain
competitive and enables us to continue to
invest in long-term growth.
We experienced lower than expected external
cashflows in 2016. Investment market volatility
and uncertainty for retail customers following
changes to superannuation legislation
negatively impacted our performance and
hence the outcome was below threshold levels
for the STI scorecard.
New business volume across AMP businesses was
below threshold performance levels in 2016. The
best estimate assumptions had a negative impact
on the profitability of business written in 2016.
External net cashflows were impacted by
challenging market conditions in Australia and
Japan, partly offset by good institutional flows into
real estate and infrastructure asset classes.
The combined NPS result across our business was
above target and we saw improvement across all
categories surveyed. These are digital interactions,
contact centre interactions and end-to-end
customer experiences.
Overall we achieved strong momentum
against our plan towards embedding a
customer centred culture. NPS is now part of
operating routines in key areas of the business,
driving customer centred behaviour change
and improved customer solutions.
Embedding the enhanced risk management
framework is largely on track against
our ambitious plan with the majority of
activity tracking at target. This has resulted
in improvements in our approach to risk
management and risk behaviours to support
customer outcomes across AMP.
)
%
5
6
(
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
i
F
)
%
5
3
(
s
e
r
u
s
a
e
m
c
i
g
e
t
a
r
t
S
34
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
Reflective of AMP’s performance in 2016, no executive received an award under the Group STI plan for 2016. The STI awards were based
on the overall company financial results and individual executive performance was not taken into consideration as threshold financial
performance was not met. Reflecting performance against the strategic customer and risk goals, a reduced STI pool ($34.3 million) was
generated. This pool is significantly less than the STI pools that were available in previous years and it was used to reward outstanding
employees below the executives to recognise their contributions to our 2016 strategic goals and to support retention.
Current executives
Craig Meller
Pauline Blight-Johnston
Rob Caprioli
Gordon Lefevre
Matthew Percival
Craig Ryman
Paul Sainsbury
Brian Salter
Wendy Thorpe1
Adam Tindall2
Fiona Wardlaw
Average
Maximum
STI opportunity
(% of total fixed pay)
% of maximum
STI opportunity
awarded
% of maximum
STI opportunity
not awarded
200
175
175
200
175
175
200
175
204
–
175
0
0
0
0
0
0
0
0
0
–
0
0
100
100
100
100
100
100
100
100
100
–
100
100
Maximum
STI opportunity
value forgone
$
3,800,000
1,400,000
1,356,250
1,930,000
1,050,000
1,137,500
1,740,000
1,373,750
1,162,800
–
1,225,000
1,617,530
1
2
Wendy Thorpe’s fixed remuneration excludes the value of her participation in a defined benefit superannuation arrangement which delivers
a higher superannuation benefit over time. In 2016 AMP reviewed Wendy’s remuneration and determined that the resulting lower fixed
remuneration position resulted in understated STI and LTI opportunities given these are percentages of fixed remuneration. The board therefore
approved increased STI and LTI opportunities for Wendy for 2016 and made adjustments to her 2014 and 2015 STI and LTI awards to correct past
discrepancies.
Adam Tindall received $2,119,000 under the AMP Capital enterprise profit share plan. His opportunity is uncapped.
3.4. Long-term incentive outcomes
AMP operates a LTI plan to motivate executives to create long-term value for shareholders and to increase shareholding amongst
executives to support the alignment of interests. The board selected TSR and RoE as two measures that are linked to delivering
shareholder value. TSR directly aligns with benefits that are delivered to shareholders and RoE was chosen as it drives strong capital
discipline and it was introduced at a time when RoE was not at the desired level. The LTI grants may vest after the three-year vesting
period, subject to performance against RoE targets and our relative TSR performance. Full details of the LTI plan are described in section 5.2.
The vesting outcomes that reflect 2015 and 2016 performance are detailed below, along with the approved performance measures and
targets for all unvested LTI grants.
Grant date
Performance
period
start date
Performance
period
end date
Measure
Threshold
target
(50% vests)
Maximum
target
(100% vests)
Board
approved
performance
outcome
Vesting
outcome
(portion of
tranche vested)
Grants that were tested for vesting since 1 January 2016
6 Jun 2013
6 Jun 2013
5 Jun 2014
1 Jan 2015
31 Dec 2015
7 Mar 2013
6 Mar 2016
1 Jan 2016
31 Dec 2016
Grants to be tested for vesting in the future
5 Jun 2014
4 Jun 2015
4 Jun 2015
2 Jun 2016
2 Jun 2016
6 Mar 2014
5 Mar 2017
1 Jan 2017
31 Dec 2017
5 Mar 2015
4 Mar 2018
1 Jan 2018
31 Dec 2018
3 Mar 2016
3 Mar 2019
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
13.4%
14.5%
13.5%
50th percentile 75th percentile
31st percentile
13.7%
15.0%
5.8%
50th percentile 75th percentile
15.3%
17.2%
50th percentile 75th percentile
15.9%
18.0%
50th percentile 75th percentile
tba
tba
tba
tba
tba
55%
0%
0%
tba
tba
tba
tba
tba
35
AMP 2016 annual report
Under the LTI plan rules the board may exercise discretion when assessing performance to determine vesting of LTI awards.
Adjustments are considered at the sole discretion of the board when RoE outcomes are impacted by material items and strategic
matters that were not known or planned for when the performance targets were set, were not controllable by management and/or are
not in the ordinary course of business. There are items that are controlled by management that the board will not adjust for as they are
activities that occur in the ordinary course of business. The calculations for any adjustments made by the board are externally validated.
2013 LTI award
The RoE hurdle was partially met. The minimum RoE hurdle for the 2013 award was 13.4%. The actual RoE result for 2015 was 13.2%.
The board exercised its discretion and adjusted the RoE outcome up to 13.5% to take into account the impact of the investment in
the China Life Pension Company (CLPC) of 0.3% on the actual 2015 RoE result. The board was cognisant that this discretion was the
difference between vesting and not vesting and applied due rigour. Paramount to the decision was to ensure that the board continues
to encourage management to pursue growth opportunities like the investment in CLPC and not be disadvantaged for making decisions
that benefit the long-term value for shareholders. Consideration was also given to the broader senior executive population who are
eligible for LTI and to ensure the outcome was fair to all. This result was previously disclosed to shareholders in May 2016.
The TSR hurdle was not met and 100% of this tranche lapsed.
2014 LTI award
The 2016 RoE outcome was not sufficient to meet the required performance threshold and 100% of this tranche will lapse at the
vesting date. When the board deliberated on RoE performance to determine LTI vesting, consideration was given to exercising discretion
and adjusting for the impact of investment in CLPC, the reinsurance arrangement, wealth protection capitalised losses and the write-
down in goodwill on the RoE result. The board decided to alter the RoE outcome to account for the impact of our investment in CLPC
and the reinsurance arrangement only. No further adjustments were made to the RoE result for 2016. When assessing RoE performance
for LTI vesting in future years, the board will ensure that the vesting outcome is not inappropriately impacted by these items.
The current relative TSR performance indicates that AMP is not likely to outperform at least 50% of the peer group. If this is the case
when this hurdle is tested in March 2017, 100% of this tranche will lapse.
Details on the 2014 LTI award are included to provide transparent disclosure on outcomes relating to 2016 performance, despite the
final TSR outcome not being confirmed at time of publication. The final outcome of the 2014 LTI award will be included in the 2017 report.
3.5. AMP’s five-year performance
The table below illustrates AMP’s performance over the last five years and the impact this has had on STI awards and LTI vesting
outcomes, which shows that incentive awards vary with AMP’s performance.
Financial results
2012
2013
2014
2015
2016
Profit (loss) attributable to shareholders ($m)
Underlying profit ($m)
Cost to income ratio (%)
Shareholder outcomes
Total dividend (cents per share)
Share price at 31 December ($)
STI pool
STI pool ($m)1
STI pool as % of underlying profit (%)
Average STI received as % of maximum opportunity for executives (%)
LTI performance
Relative TSR percentile2
Return on equity (unadjusted %)
LTI vesting outcome (% of grant vested during the year)3
689
950
47.3
25
4.81
96
10.1
63
20th
12.8
0
672
849
49.4
23
4.39
83
9.8
43
21st
10.7
0
884
972
(344)
1,045
1,120
44.8
43.8
26
5.50
118
11.3
70
26th
12.7
0
28
5.83
105
9.4
54
50th
13.2
0
486
63.7
28
5.04
34
7.1
0
31st
5.6
22
1
2
3
The 2016 STI pool excludes AMP Capital as this part of the business has separate remuneration arrangements which were introduced in 2016.
TSR percentile ranking as at 31 July 2012, 2013 and 2014, 28 February 2015 and 6 March 2016 respectively.
LTI vesting reflects performance from the previous year. 22% of the 2013 LTI grant vested due to 2015 RoE performance being above threshold.
3.6. Termination payments
As a result of the restructure that was announced in November 2016, three KMP roles were made redundant, effective 31 December
2016. Although the redundancy payments for Pauline Blight-Johnston, Rob Caprioli and Wendy Thorpe are not payable until they cease
employment with AMP in 2017, the payments have been disclosed in the tables in section 7.1 as they relate to the termination of their
KMP roles.
Matthew Percival also left his role as KMP effective 31 December 2016. His retirement from AMP has not resulted in any termination
benefit and therefore there is no termination payment to be disclosed.
36
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
4. Executive shareholding
Executives are required to hold a significant number of AMP shares to ensure that their long-term interests are closely aligned with the
interests of shareholders.
4.1. Minimum shareholding
As part of AMP’s commitment to ensuring the long-term interests of executives are closely aligned with the long-term interests of
shareholders, all executives are required to hold a minimum number of AMP Limited shares and/or STI share rights within five years
of their appointment. The minimum numbers are:
–
–
CEO: 300,000
other executives: 60,000.
Using the 31 December closing share price of $5.04 the minimum requirement as a percentage of fixed remuneration for the CEO
is 80% and an average of 41% for other executives.
AMP includes the following equity holdings to determine whether an executive meets this requirement:
– AMP Limited shares: ordinary AMP Limited shares registered in the executive’s name or a related party
– AMP share rights: granted to executives through AMP’s employee share plans e.g. through the STI deferral program.
Share rights that are allocated to executives through the STI deferral plan are included to meet their minimum holding requirement
on the basis that future vesting is not subject to any performance condition. AMP Limited shares and/or share rights cannot be hedged.
All executives currently meet their minimum shareholding requirements.
4.2. Executive shares and share rights holding
The following table shows the number of shares, and share rights held by executives or their related parties during 2016.
A related party is typically a family member of the executive and/or is an entity in which the executive has direct or indirect control.
The definition of units includes AMP Limited shares and share rights which are not subject to any future performance conditions.
Holding at 1 Jan 2016
Holding at 31 Dec 2016
Shares
Share
rights
Total
number of
units at
1 Jan 2016
Share
rights
granted
during
20161
Share
rights
converted
to shares2
Other
market
transactions3
Total
number of
units at
31 Dec 2016
Share
rights
Shares
Total value of
units held at
31 Dec 2016
as percentage
of fixed
remuneration
(%)4
Craig Meller
362,246
243,831
606,077
170,040
76,887
82,042
521,175
336,984
858,159
228%
Pauline
Blight-Johnston
37,282
86,148
123,430
57,813
24,713
12,678
74,673
119,248
193,921
Rob Caprioli
62,918
80,547
143,465
56,007
27,459
19,257
109,634
109,095
218,729
Gordon Lefevre
–
69,449
69,449
83,886
–
–
–
153,335
153,335
Matthew Percival
30,000
83,766
113,766
43,360
39,359
(2,362)
66,997
87,767
154,764
Craig Ryman5
–
28,053
28,053
45,485
12,987
4,621
17,608
60,551
78,159
Paul Sainsbury
–
152,417
152,417
78,898
67,276
(1,801)
65,475
164,039
229,514
Brian Salter
132,255
112,434
244,689
59,510
54,004
(30,052)
156,207
117,940
274,147
Wendy Thorpe6
41,928
73,337
115,265
56,951
24,256
(4,614)
61,570
106,032
167,602
Adam Tindall
32,379
146,984
179,363
153,846
77,803
–
110,182
223,027
333,209
Fiona Wardlaw
81,730
96,813
178,543
53,066
44,393
41,908
168,031
105,486
273,517
122%
142%
80%
130%
61%
133%
176%
148%
210%
197%
1
2
3
4
5
6
The number of share rights granted on 28 April under the STI deferral plan was determined using the fair value price of $4.94 per share right.
Unless otherwise stated, the share rights converted to shares during 2016 relate to the vesting of the 2013 STI deferral grants.
Other market transactions are a result of the executives or their related parties trading AMP Limited shares on the open market.
Value as at 31 December using closing share price of $5.04.
Craig Ryman’s 12,987 share rights that converted to shares during 2016 were granted in June 2013 as part of the 2013 LTI award. Craig’s holding of
share rights as at 31 December 2016 is made up of 15,066 share rights granted in June 2014 under the LTI plan and 45,485 share rights granted in
2016 under the STI deferral plan.
The share rights awarded to Wendy Thorpe on 15 April 2016 were granted under the 2014 STI deferral plan. These were awarded as a result of the
review of Wendy’s remuneration arrangement which resulted in a top-up of the 2014 STI award. See footnote 1 in the table in section 3.3.2 for
further information.
37
AMP 2016 annual report 5. How executive arrangements operate at AMP
Our executive arrangements are structured to ensure that each individual’s remuneration is linked to both their performance and the
performance of the company as a whole.
5.1. Short-term incentives
AMP’s STI plans are designed to reward executives for achieving financial and strategic performance at both a business and individual
level. All executives participate in the STI plan, with the exception of AMP Capital’s CEO. AMP Capital’s CEO participates in the AMP Capital
enterprise profit share plan, which is a more appropriate incentive plan for the executives of AMP’s investment management business.
AMP short-term incentive plan
AMP Capital enterprise profit share plan
Who
All executives, excluding the CEO, AMP Capital
CEO, AMP Capital
Format of reward
60% cash, 40% rights to AMP Limited shares: deferred
How individual
performance is
measured
Individual performance is measured against the performance of each executive’s business area and their
performance against their personal objectives. Executive performance scorecards and objectives are agreed
with the board at the start of each year.
How the STI pool
is calculated
The board determines the size of the STI pool,
based on performance against the STI scorecard
(see section 3.3.2), taking into account AMP’s
financial results, business leadership and progress
of AMP’s strategic objectives.
A set percentage of AMP Capital pre-tax profit is
made available for the enterprise profit share plan.
The percentage is determined by the board at the
start of the performance year. It is not disclosed
because it is commercially sensitive.
The Chief Risk Officer reports to the PRC annually
on risk outcomes across AMP. The board considers
this report and as a result may adjust the STI pool up
or down if they believe the management team has
operated outside board-approved risk appetite levels,
or if there have been other extraordinary events
which have a broader impact on shareholder value.
The board may adjust the pool up or down at
its discretion to recognise non-profit-related
performance, including changes in market
conditions and broader financial factors or if
AMP Capital management operates outside
board-approved risk appetite levels.
The CEO distributes the STI pool between business
areas based on their contribution to AMP’s
performance. The CEO recommends to the board for
its approval STI payments for his direct reports based
on their performance and the performance of the
company against the STI scorecard. Separately the
board assesses the CEO’s performance taking into
consideration the group scorecard and objectives
and determines an appropriate STI payment.
Based on a recommendation from the CEO, the
board approves any allocation to the AMP Capital
CEO based on performance against the AMP Capital
scorecard. Following this allocation, AMP Capital’s
CEO allocates the remaining enterprise profit share
pool to participants on a discretionary basis subject
to final approval by the CEO, AMP Limited.
To ensure a focus on risk management and long-term sustainable performance, 40% of any STI payment or
profit share reward is paid in the form of rights to AMP Limited shares (share rights). The share rights have
no exercise price and no exercise period and convert to AMP Limited shares (vest), subject to the available
trading window:
– For the AMP STI Plan: 100% vests after two years
–
For the AMP Capital enterprise profit share plan: 50% vests after two years and the remaining portion
vests after three years.
Vesting is subject to ongoing employment and compliance with AMP policies, and is at the board’s discretion.
It is the board’s preference to buy the shares on market so the value of existing AMP shares is not affected.
How the awards
are allocated
STI deferral
38
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 5.2. Long-term incentives
AMP’s LTI plan is designed to link the remuneration of executives with the creation of long-term value for shareholders. It also provides
an avenue to increase shareholding amongst executives to support the alignment of executive interests with those of shareholders.
2016 AMP long-term incentive plan
Who
All executives, including AMP Capital’s CEO.
Format of reward
Rights to AMP Limited shares: the performance rights vest three years after they have been awarded if the
vesting conditions have been met. The performance rights have no exercise price and no exercise period.
Upon vesting the executive receives one fully paid ordinary AMP Limited share in exchange for each right
held. The executive does not receive dividends and voting rights until the rights vest and have been converted
to shares.
How the awards
are allocated
Annually, the PRC recommends to the board a total grant value, which is a percentage of the executive’s fixed
remuneration. This allocation of performance rights is provided to each executive annually based on the
executive’s contractual entitlements. Shareholders are asked to approve the CEO’s allocation each year at
the annual general meeting (AGM).
Once the total grant value is determined and approved, this total value is converted into a number of
performance rights.
The performance
hurdles
The total grant value is calculated as follows:
Total grant value
Face value of an AMP share
= Total number of rights to be allocated
The face value of an AMP share is the volume weighted average price of AMP shares on the Australian
Securities Exchange (ASX) during the 10-day trading period up to and including the valuation date of the
award (6 May 2016 for the 2016 awards).
The total number of rights is then allocated to each performance hurdle based on the weightings below.
Definitions are provided in the following performance hurdles section:
– 60% of the rights are subject to a relative total shareholder return (TSR) hurdle
– 40% of the rights are subject to a return on equity (RoE) hurdle.
Total shareholder return hurdle
Return on equity hurdle
TSR measures the benefit delivered to shareholders
over three years including dividend payments,
capital returns, and movement in the share price.
This hurdle was chosen because it requires AMP to
outperform major ASX-listed companies before the
plan generates any value.
To meet this hurdle, AMP needs to generate a TSR
greater than that achieved by 50% of a comparator
group of companies over three years. The more
companies AMP outperforms on this measure
the greater the percentage of rights that vest.
The comparator group is made up of the top 50
industrial companies in the S&P/ASX 100 Index
(based on market capitalisation).
RoE measures the profit generated by the money
invested by shareholders at the end of the third year.
RoE was introduced as a performance hurdle
around the time of the AXA transaction to drive an
improvement in RoE. To meet this hurdle AMP must
outperform a RoE measure pre-determined by the
board.
RoE for the 2016 LTI was calculated as follows and
then expressed as a percentage:
Underlying profit less dividends
paid on any preference shares
AMP shareholder equity
Where:
Underlying profit = underlying profit for the financial
year ending 31 December 2018.
AMP shareholder equity is calculated by adding
AMP shareholder equity as at 31 December 2017
and AMP shareholder equity at the end of each
month throughout 2018, but excluding any equity
attributable to any preference shareholders, and
dividing the result by 13 months.
39
AMP 2016 annual report
2016 AMP long-term incentive plan
How performance
is measured
At the end of the performance period the TSR and RoE allocations are tested against performance hurdles that
are set at the grant date (start of the vesting period). If either of the allocations pass the performance hurdle
the rights allocated to that hurdle will be converted into AMP ordinary shares according to the following
diagram. Performance rights which do not pass the performance test will lapse and will not be retested.
TSR
% of TSR
performance
rights that vest
RoE
% of RoE
performance
rights that vest
100%
100%
50%
50%
AMP’s TSR
ranking against
the comparator
group
RoE
performance
level
50th
percentile
75th
percentile
Threshold
Maximum
See section 3.4 for RoE targets.
How the rights are
converted to shares
At the end of the three-year period, any rights that have vested are converted into AMP Limited ordinary
shares on behalf of participants. Participants then become entitled to shareholder benefits, including
dividends and voting rights.
Source of the shares
It is the board’s preference to buy the shares on market so the value of existing AMP shares is not affected.
5.3. Treatment on exit for deferred STI and LTI awards
If the rights have not yet vested and an executive resigns from AMP, their rights will lapse.
If an executive leaves AMP due to retirement or redundancy, any unvested rights may be retained and vesting will continue subject
to the same vesting conditions as if the person had remained in AMP employment.
In the event AMP is subject to a takeover or change of control, the board will determine the treatment of any unvested rights.
It is not the board’s intention that awards will automatically vest upon change of control.
5.4. Executive employment contracts
Termination payments are capped at one year’s base salary and do not require shareholder approval.
Contract term
CEO
Length of contract
Open-ended
Executives
Open-ended
Notice period
12 months by AMP
6 months by Craig Meller
12 months by AMP
6 months by the executive
Entitlements
on termination
– Accrued fixed pay, superannuation and other statutory requirements
–
–
Pro-rata STI may be paid for the current period except in cases of misconduct or breach of contract.
The STI is calculated based on performance to the date of termination
Unvested LTI rights may continue in the case of death, disablement, redundancy, retirement or notice
without cause, subject to the original performance periods and hurdles
– Vested LTI rights will be retained except in the case of serious misconduct or breach of contract
–
In the case of redundancy, the AMP Redundancy, Redeployment and Retrenchment Policy in place
at the time will be applied. This is the same policy that applies to all employees at AMP.
Post-employment
restraint
Six-month restraint on entering employment with a competitor and solicitation of AMP clients
and employees and for some executives (specifically the CEO) 12-month restraint.
40
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
5.5. Remuneration governance
Role of the People and Remuneration Committee
The People and Remuneration Committee (PRC) supports the board to fulfil its remuneration obligations by overseeing AMP’s
remuneration strategy and policy. The PRC is made up of non-executive directors (NEDs) and recommends to the board the nature
and amount of remuneration for executives and NEDs.
Where an external perspective is needed, the PRC seeks guidance from independent remuneration advisers. During the year the
PRC engaged PricewaterhouseCoopers and received updates on market trends, regulatory changes, shareholder concerns regarding
remuneration and advice on remuneration given AMP’s strategy and goals. The PRC also received benchmarking data for CEO
remuneration. No specific remuneration recommendations were made to the PRC by independent remuneration advisers in 2016.
Remuneration at AMP is designed to clearly align the interests of employees with the creation of value for shareholders.
Under AMP’s guiding principles, remuneration arrangements should:
–
–
–
–
–
–
align and contribute to AMP’s key strategic objectives, business outcomes and desired performance culture
be simple and practical and support the attraction and retention of talent within AMP
support AMP’s risk management framework and protect the long-term financial soundness of AMP
align with the interests of shareholders, customers and employees
support the engagement of employees to achieve outstanding performance and bring value to AMP and its shareholders
be supported by a governance framework that manages conflicts of interest, defines clear accountabilities and ensures that
proper checks and balances are in place.
Exercising discretion
The board retains discretion to adjust remuneration outcomes up or down to ensure that awards are not provided where it would be
inappropriate or would provide unintended outcomes. The exercise of appropriate discretion may be used where a formulaic outcome
does not align with the overall shareholder experience. The board balances judgement on remuneration outcomes with consideration
to all stakeholders.
–
–
–
Considering risk and remuneration
AMP aims to integrate effective risk management into the remuneration framework throughout the organisation. Risk management
is a key feature of our reward elements such as:
–
a risk culture measure makes up 10% of the 2016 STI scorecard. The inclusion of risk culture signals to all AMP employees that
integrity, helping customers over time and achieving shareholder outcomes are all priorities and require vigilance, management
and tracking
the Chief Risk Officer reports to the PRC annually on risk outcomes across AMP
the board may adjust the STI pool down if it believes the management team has operated outside board-approved risk appetite
levels, or if there have been other extraordinary events which have a broader impact on shareholder value
in the case of deferred STI and LTI awards, vesting is at the board’s discretion with malus and clawback provisions. The provisions
allow the board to reduce or clawback awards in certain circumstances, such as:
–
–
the participant’s employment is terminated for misconduct
the participant acting fraudulently, dishonestly or in a manner which brings the AMP group into disrepute or being in material
breach of their obligations to the group
to protect the financial soundness or position of AMP
to respond to a material change in the circumstances of, or a significant unexpected or unintended consequence affecting
AMP that was not foreseen by the PRC (including any misstatement of financial results)
to ensure no unfair benefit to the participant.
–
–
–
41
AMP 2016 annual report
6. Non-executive director remuneration
AMP’s NED remuneration is designed to attract and retain high-calibre board members who are appropriately paid for their time and effort.
AMP’s remuneration is structured to ensure that AMP is able to attract and retain NEDs with the skills, experience and qualifications
necessary to oversee a group as complex and highly regulated as AMP and to remunerate them appropriately for their time, effort
and expertise.
NED remuneration consists of four components:
– AMP Limited Board base fee
– AMP Limited committee fees
– AMP subsidiary board and committee fees
–
superannuation.
NEDs receive fixed remuneration for completing their duties and do not receive any remuneration linked to their or AMP’s performance.
This supports the independence and impartiality of their roles in making decisions about the future direction of the company.
As detailed in section 6.1.2 below, a key feature of AMP’s conglomerate-based governance model is the appointment of two or more
AMP Limited NEDs to the board of each of AMP’s key subsidiaries. The board considers this enhances its operation and the operation
of the boards of those subsidiaries. The subsidiary boards are AMP Life Limited, The National Mutual Life Association of Australasia
Limited, AMP Bank Limited and AMP Capital Holdings Limited (AMPCHL). The first three boards are APRA regulated. The AMPCHL board
also has as a non-executive director a representative of The Mitsubishi Trust and Banking Corporation. The boards of those subsidiaries
operate as fully functioning independent boards – with significant regulatory and oversight responsibilities for the businesses of those
subsidiaries – and, accordingly, the AMP Limited NEDs appointed to those boards and their committees receive the same fees as other
NEDs appointed to them.
To align the interests of NEDs with the long-term interests of shareholders, all NEDs are required to hold a minimum number of AMP
shares, as outlined in section 6.3.
NED fee levels for AMP Limited and its key subsidiaries did not increase in 2016. However, as part of a program to simplify NED fee
structures and increase transparency, some changes have been approved:
–
from 1 April 2016, the $6,000 annual expense allowance paid to AMP Limited NEDs (other than the chairman) was consolidated
into the AMP Limited NED base fee
from 1 January 2017, the superannuation entitlements of AMP Limited and key subsidiary NEDs will be consolidated into their
board and committee fees.
–
These changes will not result in any change to the total remuneration received by the NEDs.
6.1. Non-executive director fees
The PRC is responsible for reviewing NED fees for AMP Limited and its key subsidiaries.
In reviewing these fees the committee has regard to a range of factors, including:
–
–
–
fees paid to board members of other Australian corporations of a similar size and complexity
the complexity of AMP’s operations and those of its key subsidiaries
the needs, responsibilities and workload requirements of each board and committee.
The PRC commissions market data analysis and matching services from external remuneration advisers where it considers necessary.
Non-executive director fees are recommended by the PRC to the AMP Limited Board for approval.
The aggregate annual remuneration received by AMP Limited NEDs must not exceed the maximum aggregate fee pool approved by
shareholders from time to time. The maximum aggregate fee pool is currently $4,620,000, which was approved by shareholders at
the 2015 AGM. The aggregate annual remuneration paid to AMP Limited NEDs for all services performed as directors and members
of board committees of AMP and its subsidiaries must not exceed this amount.
During 2016, the total remuneration paid to AMP Limited NEDs was $3,206,217 being 69% of the shareholder-approved fee pool.
NEDs do not receive performance rights or share rights as part of their remuneration. No retirement benefits are paid to NEDs.
42
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016 6.1.1. Base fees
All NEDs receive a base fee for their participation on the AMP Limited Board. For the AMP Limited Chairman, this fee covers all
responsibilities, including any appointment as the chairman or a member of a board committee, attendance as an observer at board
and committee meetings of key subsidiaries, and liaison with the chairmen and NEDs of those key subsidiaries. While the chairman
is not a member of all the committees or currently a director of any AMP subsidiaries, she regularly attends meetings of those AMP
Limited committees of which she is not a member and meetings of the board and committees of AMP’s key subsidiaries.
Although the CEO is a director of AMP Limited and certain key subsidiaries, he is not paid board fees in addition to his executive
remuneration, as his board responsibilities are part of his normal employment conditions.
6.1.2. Committee and subsidiary board and committee fees
NEDs, excluding the AMP Limited Chairman, receive additional fees for their time and effort in serving as members of AMP Limited
Board committees, directors of AMP’s key subsidiaries and members of committees of the boards of those subsidiaries, and members
of other special purpose committees formed from time to time. As a large, diversified financial services group, with significant, highly
regulated operating subsidiaries, AMP believes it is important for:
–
the AMP Limited NEDs to have knowledge, understanding and oversight of the strategic and operational issues and risks that are
specific to its key subsidiaries, and
any other directors of those subsidiaries to have the benefit of the group-level insights from AMP Limited NEDs.
–
For this reason, AMP Limited NEDs generally also serve on the boards and committees of one or more of AMP’s key subsidiaries.
6.2. 2016 non-executive director remuneration
The following table shows the NED fees for AMP Limited and its key subsidiaries for 2016.
Chairman base fee
$
Member base fee
$
AMP Limited
Board
Audit Committee
Risk Committee
Nomination and Governance Committee2
People and Remuneration Committee3
AMP Bank
Board
Audit Committee
Risk Committee
AMP Capital Holdings
Board
Audit and Risk Committee
AMP Life Limited and NMLA4
Board
Audit Committee
Risk Committee
602,600
46,400
46,400
24,000
43,300
82,500
25,300
25,300
113,300
25,800
162,800
28,900
28,900
1
2
3
4
Fee effective 1 April 2016, incorporating the previous annual expense allowance of $6,000. Refer to section 6 above.
No fee is currently payable when the chairman of the committee is the Chairman of the AMP Limited Board.
No fee is currently payable to a member of the committee who is also Chairman of the AMP Limited Board.
A single fee is paid for service on both boards or both committees of each board.
181,1001
23,200
23,200
12,000
21,700
51,500
14,000
14,000
72,100
15,500
101,000
16,000
16,000
43
AMP 2016 annual report
The following table shows the remuneration earned by AMP Limited NEDs for 2016.
Short-term benefits
Post-
employment
benefits
AMP Limited
Board and
committee fees
$’000
Fees for other
group boards
$’000
Other
short-term
benefits2
$’000
Additional
board duties3
$’000
Non-
monetary
benefits4
$’000
Super-
annuation
$’000
Total
$’000
529
433
385
399
317
45
457
436
125
–
430
383
77
–
285
–
101
–
232
622
142
367
–
356
191
292
–
–
–
–
–
–
–
–
–
–
1
1
1
–
–
–
–
–
4
5
6
–
–
–
6
–
46
38
33
35
27
4
40
38
11
–
37
33
7
–
25
–
9
–
8
19
12
32
–
31
16
25
18
6
271
3,271
255
3,333
Current NEDs
Catherine Brenner
Chairman1
Patricia Akopiantz
Non-executive Director
Holly Kramer
Non-executive Director
Trevor Matthews
Non-executive Director
Geoff Roberts
Non-executive Director
Peter Shergold
Non-executive Director
Peter Varghese
Non-executive Director
Vanessa Wallace
Non-executive Director
Mike Wilkins
Non-executive Director
Former NEDs
Simon McKeon
Former Chairman
Brian Clark
Former Non-executive Director
Paul Fegan
Former Non-executive Director
John Palmer
Former Non-executive Director
Total for 2016
Total for 2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
410
196
239
266
203
40
238
222
114
–
246
243
51
–
188
–
69
–
220
598
68
201
–
221
135
174
2,181
2,161
71
193
111
92
85
–
177
145
–
–
144
100
18
–
71
–
23
–
–
–
54
128
–
74
32
87
786
819
2
6
2
6
2
1
2
6
–
–
2
6
–
–
1
–
–
–
–
–
2
6
–
5
2
6
15
42
–
–
–
–
–
–
–
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25
–
–
–
50
1
2
3
4
Catherine Brenner was appointed Chairman 24 June 2016.
Annual expense allowance that was consolidated into the AMP Limited NED base fee from 1 April 2016.
Additional work performed for the AMP Limited 2015 Notes Offer.
Non-monetary benefits and the related FBT on each item.
44
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
6.3. Non-executive director minimum shareholding
Pursuant to a minimum shareholding policy adopted by the board, AMP Limited NEDs are required to hold a minimum value of AMP
Limited shares to ensure that their interests are closely aligned with the long-term interests of AMP shareholders. These minimum
values are:
– AMP Limited Chairman: $602,600 – the equivalent of the AMP Limited Chairman base fee
other AMP Limited NEDs: $181,100 – the equivalent of the AMP Limited NED base fee.
–
NEDs are expected to achieve these levels within four years of appointment and then maintain them as a minimum shareholding
throughout their tenure.
Based on the closing share price of $5.04 on 31 December 2016, all NEDs comply with the minimum shareholding policy having regard
to their tenure on the board.
6.4. Non-executive director shareholding
The following table shows the holdings of AMP Limited shares by AMP Limited NEDs and their related parties as at 31 December 2016
and movements in their holdings during the year.
Current NEDs
Catherine Brenner
Patricia Akopiantz
Holly Kramer
Trevor Matthews
Geoff Roberts
Peter Shergold
Peter Varghese
Vanessa Wallace
Mike Wilkins
Former NEDs
Simon McKeon
Brian Clark
John Palmer
Holding at
1 Jan 2016
Other market
transactions1
Holding at
31 Dec 20162
Value of
holding at
31 Dec 20163
$
84,463
56,239
4,400
63,763
–
63,348
–
20,000
–
175,000
75,813
96,252
55,000
8,770
41,831
–
42,540
–
7,500
50,000
31,500
139,463
65,009
46,231
63,763
42,540
63,348
7,500
70,000
31,500
702,894
327,645
233,004
321,366
214,402
319,274
37,800
352,800
158,760
–
–
–
175,000
75,813
96,252
882,000
382,098
485,110
1
2
3
Other market transactions are a result of the NEDs or their related parties trading AMP Limited shares on the open market.
The closing balance for Simon McKeon and Brian Clark is at 12 May 2016 and for John Palmer is at 23 June 2016, the dates they retired from the
AMP Limited Board.
Value as at 31 December using closing share price of $5.04.
45
AMP 2016 annual report
7. Other executive remuneration disclosures
The following disclosures provide additional information or are required under the Corporations Act, including 2016 executive
remuneration that is prepared according to Australian Accounting Standards.
7.1. Executive remuneration
7.1.1. Awarded remuneration for 2016
The following table shows the remuneration awarded to executives based on the 2016 performance year, or in the case of LTI, the
face value of the LTI awarded for 2016. The total STI awarded includes the 60% cash component and the 40% deferred into share rights.
The table in section 7.1.2 has been prepared according to Australian Accounting Standards and so differs from the table provided below.
Craig Meller
Pauline Blight-Johnston
Rob Caprioli
Gordon Lefevre
Matthew Percival
Craig Ryman
Paul Sainsbury
Brian Salter
Wendy Thorpe2
Adam Tindall
Fiona Wardlaw
Total
Fixed
remuneration
$’000
2016 total
STI awarded
$’000
2016 LTI face
value grant
$’000
Termination
payments1
$’000
1,900
800
775
965
600
650
870
785
570
800
700
–
–
–
–
–
–
–
–
–
2,119
–
4,275
1,200
1,162
1,447
900
975
1,305
1,177
1,292
1,200
1,050
–
291
436
–
–
–
–
–
1,000
–
–
Total
remuneration
earned
from 2016
$’000
6,175
2,291
2,373
2,412
1,500
1,625
2,175
1,962
2,862
4,119
1,750
9,415
2,119
15,983
1,727
29,244
1
2
Termination payments are the severance payments that will be made to Pauline Blight-Johnston, Rob Caprioli and Wendy Thorpe at the end of their
notice periods in 2017. They have been disclosed as they relate to the termination of their KMP roles.
Wendy Thorpe’s fixed remuneration excludes the value of her participation in a defined benefit superannuation arrangement which delivers a
higher superannuation benefit over time. A review of Wendy’s remuneration arrangement during 2016 resulted in a top-up of her 2014 and 2015
LTI awards, included in the 2016 LTI grant amount above. See footnote 1 in the table in section 3.3.2 for further information.
46
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
7.1.2. Statutory disclosure
The table below shows the remuneration that was received by executives in 2016 as well as STI and LTI rewards that have been awarded
but not yet received. This includes fixed remuneration as well as the cash portion of the 2016 STI reward and the value of current and
previous STI and LTI payments which have not yet vested.
Short-term employee benefits
Post-
employment
benefits
Share-
based
payments
Long-
term
benefits
Termination
payments5
Cash
short-term
incentive
$’000
Other
short-term
benefits1
$’000
Super-
annuation
benefits2
$’000
Cash salary
$’000
Rights3
$’000
Other4
$’000
Cash
payments
$’000
Share-
based
payment
$’000
Grand
total
$’000
4,796
5,279
2,003
1,912
2,083
1,818
2,056
2,453
1,321
1,607
1,055
1,151
2,035
2,601
1,788
2,175
2,595
1,482
2,738
583
1,547
1,887
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,674
Current executives
Craig Meller
Chief Executive Officer
and Managing Director
Pauline Blight-Johnston
Group Executive, Insurance
and Superannuation
Rob Caprioli
Group Executive,
Advice and Banking
Gordon Lefevre6
Chief Financial Officer
Matthew Percival
Group Executive, Public
Affairs and Chief of Staff
Craig Ryman
Chief Information Officer
Paul Sainsbury
Chief Customer Officer
Brian Salter7
General Counsel
Wendy Thorpe8
Group Executive, Operations
and Director, Melbourne
Adam Tindall9
Managing Director,
AMP Capital
Fiona Wardlaw
Group Executive,
People and Culture
Former disclosed executives
Stephen Dunne
Former Managing
Director, AMP Capital
2016 total
2015 total
2016
2015
1,828
1,678
–
1,260
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
769
751
752
734
931
885
525
489
599
565
745
736
741
748
648
515
–
428
–
415
–
622
–
321
–
337
–
585
–
441
–
305
740
171
1,271
285
615
624
–
393
34
16
26
33
11
–
67
366
7
12
11
10
73
59
46
19
8
8
41
6
60
50
25
25
21
21
23
23
21
21
40
43
29
25
34
36
31
34
56
56
22
7
25
25
2,838
2,164
71
136
892
674
848
631
1,035
555
710
678
405
192
1,139
1,096
940
907
871
545
643
98
820
769
4
5
13
15
2
4
39
64
11
22
44
89
30
26
12
53
21
16
27
26
2016
2015
–
1,044
–
1,458
–
256
–
21
–
1,787
–
108
–
–
291
–
436
–
–
–
–
–
–
–
–
–
–
–
1,000
–
–
–
–
–
–
–
8,893
1,271
384
327
11,141
274
1,728
–
24,018
8,940
6,850
835
337
10,096
564
–
–
27,622
Other short-term benefits include non-monetary benefits, for example, purchased annual leave, car benefits and any related FBT on each item.
1
2 Wendy Thorpe is in a defined benefit plan and the value represents the notional taxable contributions.
3
Includes performance rights and share rights. The minimum future value for these awards is nil and the maximum amount expensed by AMP
is the fair value at grant date. The fair value has been calculated as at the grant date by external consultants, using a Monte Carlo simulation for
the TSR performance rights and a discounted cash flow methodology for the RoE performance rights. The fair values have been discounted for
forgone dividends and for the TSR performance rights, the risk of performance conditions not being met. The value of the award made in any
year is amortised over the vesting period.
Other long-term benefits represent long service leave accrued, taken or paid during the year.
Termination payments are the severance payments that will be made to Pauline Blight-Johnston, Rob Caprioli and Wendy Thorpe at the end of their
notice periods in 2017. They have been disclosed as they relate to the termination of their KMP roles.
Gordon Lefevre received additional remuneration as commuting and relocation support.
Brian Salter received a cash payment to fund his life insurance cover.
Wendy Thorpe received an additional cash payment of $130,845 and additional STI deferral grants valued at $87,230 and LTI grants valued at
$294,496. These were due to a review of her remuneration arrangement which resulted in a top-up of her 2014 and 2015 awards. See footnote 1
in the table in section 3.3.2 for further information.
Adam Tindall received additional remuneration relating to the refund of his unused purchased annual leave.
4
5
6
7
8
9
47
AMP 2016 annual report
7.2. Executive performance rights holdings
The following table shows the LTI performance rights which were granted, lapsed or exercised during 2016. There were no changes
during the vesting period for each LTI grant.
Grant
date
Performance
condition
Fair
value per
performance
right
$
Holding at
1 Jan 2016
Rights
granted in
2016
Rights
exercised
in 2016
Rights
lapsed in
2016
Holding at
31 Dec 2016
Vested and
exercisable
at
31 Dec 2016
Name
Craig Meller
06/06/13
05/06/14
04/06/15
02/06/16
Total
Pauline Blight-Johnston
06/06/13
Total
Rob Caprioli
05/06/14
04/06/15
02/06/16
06/06/13
05/06/14
04/06/15
02/06/16
Total
Gordon Lefevre
05/06/14
04/06/15
02/06/16
Total
Matthew Percival
06/06/13
05/06/14
04/06/15
02/06/16
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
219,149
149,168
355,871
297,619
363,461
242,308
–
–
–
–
–
–
–
–
438,462
292,307
–
82,042
–
–
–
–
–
–
219,149
67,126
–
–
–
–
–
–
–
–
355,871
297,619
363,461
242,308
438,462
292,307
1,627,576
730,769
82,042
286,275
1,990,028
66,872
45,518
105,871
88,541
110,769
73,846
–
–
–
–
–
–
–
–
123,076
82,051
–
25,034
–
–
–
–
–
–
66,872
20,484
–
–
–
–
–
–
–
–
105,871
88,541
110,769
73,846
123,076
82,051
491,417
205,127
25,034
87,356
584,154
51,440
35,014
105,871
88,541
107,308
71,538
–
–
–
–
–
–
–
–
119,230
79,487
–
19,257
–
–
–
–
–
–
51,440
15,757
–
–
–
–
–
–
–
–
105,871
88,541
107,308
71,538
119,230
79,487
459,712
198,717
19,257
67,197
571,975
2.89
4.57
2.82
5.39
2.37
4.81
128,558
107,514
128,077
85,384
–
–
–
–
–
–
148,461
98,974
449,533
247,435
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
98,828
67,269
88,478
73,995
83,077
55,384
–
–
–
–
–
–
–
–
92,307
61,538
–
36,997
–
–
–
–
–
–
98,828
30,272
–
–
–
–
–
–
128,558
107,514
128,077
85,384
148,461
98,974
696,968
–
–
88,478
73,995
83,077
55,384
92,307
61,538
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
467,031
153,845
36,997
129,100
454,779
48
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
Grant
date
Performance
condition
Fair
value per
performance
right
$
Holding at
1 Jan 2016
Rights
granted in
2016
Rights
exercised
in 2016
Rights
lapsed in
2016
Holding at
31 Dec 2016
Vested and
exercisable
at
31 Dec 2016
Name
Craig Ryman
06/06/13
05/06/14
04/06/15
02/06/16
Total
Paul Sainsbury
06/06/13
Total
Brian Salter
Total
Wendy Thorpe1
05/06/14
04/06/15
02/06/16
06/06/13
05/06/14
04/06/15
02/06/16
06/06/13
05/06/14
04/06/15
02/06/16
15/04/16
15/04/16
Total
Adam Tindall
02/06/16
Total
Fiona Wardlaw
06/06/13
05/06/14
04/06/15
02/06/16
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
3.68
5.49
1.80
5.24
2.37
4.81
2.00
4.21
2.89
4.57
2.82
5.39
2.37
4.81
12,345
8,403
12,010
10,044
83,077
55,384
–
–
–
–
–
–
–
–
100,000
66,666
–
4,621
–
–
–
–
–
–
12,345
3,782
–
–
–
–
–
–
–
–
12,010
10,044
83,077
55,384
100,000
66,666
181,263
166,666
4,621
16,127
327,181
174,897
119,047
128,558
107,514
120,461
80,308
–
–
–
–
–
–
–
–
133,846
89,230
–
65,475
–
–
–
–
–
–
174,897
53,572
–
–
–
–
–
–
–
–
128,558
107,514
120,461
80,308
133,846
89,230
730,785
223,076
65,475
228,469
659,917
134,682
91,674
116,469
97,404
108,692
72,461
–
–
–
–
–
–
–
–
120,769
80,512
–
50,420
–
–
–
–
–
–
134,682
41,254
–
–
–
–
–
–
–
–
116,469
97,404
108,692
72,461
120,769
80,512
621,382
201,281
50,420
175,936
596,307
52,469
35,714
84,519
70,684
78,923
52,615
–
–
–
–
–
–
–
–
–
–
–
–
102,307
68,205
27,201
17,062
13,073
8,715
–
19,642
–
–
–
–
–
–
–
–
–
–
52,469
16,072
–
–
–
–
–
–
–
–
–
–
–
–
84,519
70,684
78,923
52,615
102,307
68,205
27,201
17,062
13,073
8,715
374,924
236,563
19,642
68,541
523,304
–
–
123,076
82,051
–
205,127
–
–
–
–
–
–
111,945
76,198
96,807
80,960
96,923
64,615
–
–
–
–
–
–
–
–
107,692
71,794
–
41,908
–
–
–
–
–
–
111,945
34,290
–
–
–
–
–
–
123,076
82,051
205,127
–
–
96,807
80,960
96,923
64,615
107,692
71,794
Total
527,448
179,486
41,908
146,235
518,791
1
The performance rights awarded to Wendy Thorpe on 15 April 2016 were granted under the 2014 and 2015 LTI award respectively. These
were awarded as a result of the review of Wendy’s remuneration arrangement which resulted in a top-up of her 2014 and 2015 LTI awards.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
49
AMP 2016 annual report
7.3. Loans and other transactions
AMP provides home loans to Australians to help them buy, build or renovate properties. This includes executives who are offered loans
in the ordinary course of business that are equivalent to those that prevail in arm’s length transactions on terms and conditions that
are the same as those given to other employees, including the term of the loan, security required and the interest rate.
Total loans to KMP
KMP and their related parties
Loans to KMP exceeding $100,000
Craig Meller
Pauline Blight-Johnston
Robert Caprioli
Gordon Lefevre
Craig Ryman
Paul Sainsbury
Adam Tindall
Fiona Wardlaw
Peter Shergold
Balance at
1 Jan 2016
$’000
Written off
$’000
Net
advances
(repayments)
$’000
Balance at
31 Dec 2016
$’000
Interest
charged
$’000
Interest not
charged
$’000
Highest
indebtedness
during year
$’000
Number in
group
13,592
–
3,756
17,348
495
–
18,979
10
2,044
4,109
1,958
–
2,017
636
2,746
–
–
–
–
–
–
–
–
–
–
–
(11)
(31)
(188)
1,397
(8)
(623)
(500)
2,384
1,350
2,033
4,077
1,771
1,397
2,009
13
2,246
2,384
1,350
82
134
70
42
77
1
64
15
7
–
–
–
–
–
–
–
–
–
2,185
4,109
1,981
1,440
2,045
636
2,751
2,400
1,350
Other transactions
During 2016, the executives and their related parties may have access to other AMP products. They are provided to executives within
normal employee terms and conditions. The products include:
– personal banking with AMP Bank
– the purchase of AMP insurance and investment products
– financial investment services.
Signed in accordance with a resolution of the directors.
Catherine Brenner
Chairman
Sydney, 9 February 2017
Craig Meller
Chief Executive Officer and Managing Director
50
AMP 2016 annual reportDirectors’ report for the year ended 31 December 2016
Analysis of shareholder profit
for the year ended 31 December 2016
Analysis of shareholder profit
This table shows an analysis of the source of profit after income tax attributable
to shareholders of AMP Limited.
All amounts are after income tax
Australian wealth management
AMP Capital
Australian wealth protection
AMP Bank
New Zealand financial services
Australian mature
Business unit operating earnings
Group Office costs
Total operating earnings
Underlying investment income
Interest expense on corporate debt
Underlying profit
Other items
Business efficiency program costs
Amortisation of AMP AAPH acquired intangibles
Goodwill impairment
Profit before market adjustments and accounting mismatches
Market adjustment – investment income
Market adjustment – annuity fair value
Market adjustment – risk products
Accounting mismatches
Profit attributable to shareholders of AMP Limited
2016
$m
401
144
(415)
120
126
151
527
(104)
423
122
(59)
486
(9)
(19)
(77)
(668)
(287)
(46)
(8)
11
(14)
(344)
2015
$m
410
138
185
104
120
158
1,115
(61)
1,054
125
(59)
1,120
(3)
(66)
(80)
–
971
9
34
2
(44)
972
51
AMP 2016 annual report
Financial report
Contents
Main statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
About this report
(a) What’s new in this report?
(b) Understanding the AMP financial report
(c) Basis of consolidation
(d) Significant accounting policies
(e) Critical judgements and estimates
Section 1: Results for the year
1.1 Segment performance
1.2 Earnings (loss) per share
1.3 Taxes
1.4 Dividends
Section 2: Investments, intangibles and working capital
2.1 Investments in financial instruments
2.2 Intangibles
2.3 Receivables
2.4 Payables
2.5 Fair value information
Section 3: Capital structure and financial risk management
3.1 Contributed equity
3.2 Interest-bearing liabilities
3.3 Financial risk management
3.4 Other derivative information
3.5 Capital management
Section 4: Life insurance and investment contracts
4.1 Accounting for life insurance contracts and investment contracts
4.2 Life insurance contracts – premiums, claims, expenses and liabilities
4.3 Life insurance contracts – assumptions and valuation methodology
4.4 Life insurance contracts – risk
4.5 Other disclosure – life insurance contracts and investment contracts
Section 5: Employee disclosures
5.1 Key management personnel
5.2 Defined benefit plans
5.3 Share-based payments
Section 6: Group entities
6.1 Controlled entities
6.2 Acquisitions and disposals of controlled entities
6.3 Investments in associates
6.4 Parent entity information
Section 7: Other disclosures
7.1 Notes to Consolidated statement of cash flows
7.2 Leases
7.3 Provisions
7.4 Contingent liabilities
7.5 Auditors’ remuneration
7.6 New accounting standards
7.7 Events occurring after reporting date
Directors’ declaration
Independent auditor’s report
53
54
55
56
57
58
58
59
59
60
61
64
64
67
68
70
72
72
73
77
78
79
85
86
87
89
90
96
99
102
103
106
110
111
112
113
114
114
115
115
116
116
116
117
118
52
AMP 2016 annual reportFinancial report for the year ended 31 December 2016
Consolidated income statement
for the year ended 31 December 2016
Income and expenses of shareholders, policyholders,
external unitholders and non-controlling interests1
Life insurance contract related revenue
Life insurance claims recovered from reinsurers
Fee revenue
Other revenue
Interest income, dividends and distributions and net gains on financial assets
and liabilities at fair value through profit or loss
Interest income on assets not at fair value through profit or loss
Share of profit or loss of associates accounted for using the equity method
Life insurance contract claims expense
Life insurance contract premium ceded to reinsurers
Fees and commission expenses
Staff and related expenses
Goodwill impairment
Other operating expenses
Finance costs
Movement in external unitholder liabilities
Change in policyholder liabilities
life insurance contracts
–
–
investment contracts
Income tax expense
Profit for the year
Profit (loss) attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
Profit for the year
Earnings (loss) per share
Basic
Diluted
Note
2016
$m
2015
$m
4.2
4.2
6.3
4.2
4.2
2.2
4.2
1.3
2,883
150
3,031
140
7,817
750
28
(2,038)
(243)
(1,671)
(1,047)
(668)
(1,165)
(551)
(979)
(1,471)
(4,608)
(166)
2,337
128
2,941
133
7,725
758
27
(1,988)
(176)
(1,563)
(1,018)
–
(1,110)
(732)
(855)
(240)
(4,374)
(280)
192
1,713
(344)
536
972
741
192
1,713
Note
1.2
1.2
2016
cents
(11.7)
(11.7)
2015
cents
33.3
33.1
1
Income and expenses include amounts attributable to shareholders’ interests, policyholders’ interests in the AMP life insurance entities’ statutory
funds, external unitholders’ interests and non-controlling interests. Amounts included in respect of the AMP life insurance entities’ statutory funds
have a substantial impact on most of the Consolidated income statement lines, especially Interest income, dividends and distributions and net
gains on financial assets and liabilities at fair value through profit or loss, Interest income on assets not at fair value through profit or loss, and
Income tax expense. In general, policyholders’ interests in the transactions for the period are included in the lines Change in policyholder liabilities.
53
AMP 2016 annual report
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges
–
–
–
–
losses in fair value of cash flow hedges
income tax credit
losses recognised in previous years transferred to profit for the year
transferred to profit for the year – income tax expense
Exchange gains on translation of foreign operations and revaluation of hedge of net investments
Items that will not be reclassified subsequently to profit or loss
Defined benefit plans
actuarial gains
–
income tax expense
–
5.2
Owner-occupied property revaluation
–
–
gains in valuation of owner-occupied property
income tax expense
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income (loss) attributable to shareholders of AMP Limited
Total comprehensive income attributable to non-controlling interests
Note
2016
$m
2015
$m
192
1,713
(13)
4
19
(6)
4
12
12
48
(14)
34
–
–
–
50
242
(294)
536
(10)
3
18
(5)
6
7
7
94
(29)
65
22
(2)
20
98
1,811
1,063
748
Total comprehensive income for the year
242
1,811
54
AMP 2016 annual reportFinancial report for the year ended 31 December 2016
Consolidated statement of financial position
as at 31 December 2016
Assets
Cash and cash equivalents
Receivables
Current tax assets
Planner registers held for sale and prepayments
Investments in financial assets
Investment properties
Investments in associates accounted for using the equity method
Property, plant and equipment
Deferred tax assets
Reinsurance asset – ceded life insurance contracts
Intangibles
Total assets of shareholders of AMP Limited, policyholders,
external unitholders and non-controlling interests
Liabilities
Payables
Current tax liabilities
Provisions
Employee benefits
Other financial liabilities
Interest-bearing liabilities
Deferred tax liabilities
External unitholder liabilities
Life insurance contract liabilities
Investment contract liabilities
Reinsurance liability – ceded life insurance contracts
Defined benefit plan liabilities
Total liabilities of shareholders of AMP Limited, policyholders,
external unitholders and non-controlling interests
Net assets of shareholders of AMP Limited and non-controlling interests
Equity
Contributed equity
Reserves
Retained earnings
Total equity of shareholders of AMP Limited
Non-controlling interests
Note
2016
$m
2015
$m
7.1
2.3
2.1
6.3
1.3
4.2
2.2
2.4
7.3
2.1
3.2
1.3
4.2
4.5
4.2
5.2
3.1
3,476
1,975
24
123
129,419
127
449
66
656
546
3,199
3,955
2,067
11
147
127,221
386
467
423
557
491
3,983
140,060
139,708
1,952
55
205
271
1,242
17,218
1,946
13,252
24,225
71,579
530
44
2,031
271
197
290
1,108
17,452
2,076
13,571
23,871
69,848
–
98
132,519
130,813
7,541
8,895
9,619
(1,972)
(185)
7,462
79
9,566
(1,866)
819
8,519
376
Total equity of shareholders of AMP Limited and non-controlling interests
7,541
8,895
55
AMP 2016 annual report
Consolidated statement of changes in equity
for the year ended 31 December 2016
Equity attributable to shareholders of AMP Limited
Contributed
equity
$m
Demerger
reserve1
$m
Share-
based
payment
reserve2
$m
Capital
profits
reserve3
$m
Available-
for-sale
financial
assets
reserve
$m
Cash
flow
hedge
reserve
$m
Foreign
currency
translation
and hedge
of net
investment
reserves
$m
Owner-
occupied
property
revaluation
reserve
$m
Total
reserves
$m
Retained
earnings
$m
Total
shareholder
equity
$m
Non-
controlling
interest
$m
Total
equity
$m
Net sale of treasury shares
53
2016
Balance at the
beginning of the year
Profit (loss)
Other comprehensive
income
Total comprehensive
income
Share-based
payment expense
Share purchases
Dividends paid4
Dividends paid on
treasury shares4
Sale of owner-
occupied property
Sales and acquisitions
of non-controlling
interests
Balance at the
end of the year
2015
Balance at the
beginning of the year
Profit (loss)
Other comprehensive
income
Total comprehensive
income
Share-based
payment expense
Share purchases
Dividends paid4
Dividends paid on
treasury shares4
Sales and acquisitions
of non-controlling
interests
Balance at the
end of the year
Net sale of treasury shares
58
9,566
(2,566)
93
329
136
122
(1,866)
819
8,519
376 8,895
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23
(23)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32
(36)
–
–
–
–
–
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
–
12
–
4
4
–
–
–
–
–
–
–
–
12
12
–
–
–
–
–
–
–
–
(344)
(344)
536
192
16
34
50
–
50
–
16
(310)
(294)
536
242
–
–
–
–
–
23
(23)
–
–
–
–
–
4
23
(23)
57
2
(2)
–
25
(25)
57
(828)
(828)
(514) (1,342)
8
8
–
–
–
8
–
–
(122)
(122)
122
–
–
–
–
–
(319)
(319)
8
–
–
–
–
–
–
–
–
–
6
–
6
6
–
–
–
–
–
–
136
102
(1,888)
566
8,186
199 8,385
–
–
–
–
–
–
–
–
–
–
–
972
972
741 1,713
20
26
65
91
7
98
20
26 1,037
1,063
748 1,811
–
–
–
–
–
–
32
(36)
–
–
–
–
–
–
16
32
(36)
74
2
(2)
–
34
(38)
74
(813)
(813)
(582) (1,395)
13
13
–
13
–
–
11
11
9,619
(2,566)
93
329
8
16
148
–
(1,972)
(185)
7,462
79 7,541
9,508
(2,566)
97
329
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,566
(2,566)
93
329
8
12
136
122
(1,866)
819
8,519
376 8,895
Reserve to recognise the additional loss and subsequent transfer from shareholders’ retained earnings on the demerger of AMP’s UK operations
in December 2003. The loss was the difference between the pro-forma loss on demerger and the market-based fair value of the UK operations.
The Share-based payment reserve represents the cumulative expense recognised in relation to equity-settled share-based payments less the cost
of shares purchased on market in respect of entitlements.
The Capital profits reserve represents gains attributable to shareholders of AMP on the sale of minority interests in controlled entities to entities
outside the AMP group.
Dividends paid include dividends paid on treasury shares. Dividends paid on treasury shares are required to be excluded from the consolidated
financial statements by adjusting retained earnings.
1
2
3
4
56
AMP 2016 annual reportFinancial report for the year ended 31 December 2016
Consolidated statement of cash flows
for the year ended 31 December 2016
Cash flows from operating activities1
Cash receipts in the course of operations
Interest and other items of a similar nature received
Dividends and distributions received2
Cash payments in the course of operations
Finance costs
Income tax paid
Note
2016
$m
2015
$m
19,072
2,123
2,319
(22,166)
(534)
(639)
19,773
2,287
2,130
(21,663)
(806)
(379)
Cash flows from (used in) operating activities
7.1
175
1,342
Cash flows from investing activities1
Net proceeds from sale of (payments to acquire):
–
–
–
(Payments to acquire) proceeds from disposal of operating controlled entities
and investments in associates accounted for using the equity method
investment property
investments in financial assets3
operating and intangible assets
Cash flows from (used in) investing activities
Cash flows from financing activities
Net movement in deposits from customers
Proceeds from borrowings – non-banking operations1
Repayment of borrowings – non-banking operations1
Net movement in borrowings – banking operations
Dividends paid4
Cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes on cash and cash equivalents
279
1,174
(11)
26
(5,622)
(198)
10
(348)
1,452
(6,142)
1,972
361
(653)
(282)
(821)
567
1,212
(250)
(562)
(800)
577
167
2,204
6,601
5
(4,633)
11,232
2
Cash and cash equivalents at the end of the year1
7.1
8,810
6,601
1
2
3
4
Cash flows and cash and cash equivalents include amounts attributable to shareholders’ interests, policyholders’ interests in AMP life insurance
entities’ statutory funds and controlled entities of those statutory funds, external unitholders’ interests and non-controlling interests. Amounts
included in respect of AMP life insurance entities’ statutory funds and controlled entities of those statutory funds have a substantial impact on
cash flows from operating activities and investing activities and proceeds from and repayments of borrowings – non-banking operations.
Dividends and distributions received are amounts of cash received mainly from investments held by AMP life insurance entities’ statutory funds
and controlled entities of the statutory funds. Dividends and distributions reinvested have been treated as non-cash items.
Net proceeds from sale of (payments to acquire) investments in financial assets also includes loans and advances made (net of payments) and
purchases of financial assets (net of maturities) during the period by AMP Bank.
The Dividends paid amount is presented net of dividends on treasury shares.
57
AMP 2016 annual report
About this report
This section outlines the structure of the AMP group, information useful to understanding the AMP group’s financial report and the
basis on which the financial report has been prepared.
(a) What’s new in this report?
We have reviewed the content and structure of the financial report and identified opportunities to reduce its complexity and to make
it more relevant to our shareholders and other stakeholders.
As part of this review we have made a number of changes to the financial report including:
–
Removing immaterial disclosures that may detract from the usefulness of the financial report by distracting from important
information;
Disaggregating balances (including prior year comparatives) to show amounts separately on the Income statement and Statement
of financial position;
–
– Disclosing parent entity information in a separate note; and
– Grouping the notes to the financial statements into seven sections:
1. Results for the year
2. Investments, intangibles and working capital
3. Capital structure and financial risk management
4. Life insurance and investment contracts
5. Employee disclosures
6. Group entities
7. Other disclosures.
These changes do not involve any changes to the measurement and recognition of amounts in the financial statements.
The purpose of these changes is to provide our shareholders and other stakeholders with a clearer understanding of how the
AMP group strategy, as outlined in the Directors’ report, is reflected in the financial performance and position of the AMP group.
Materiality
Information has only been included in the financial report to the extent that it has been considered material and relevant to the
understanding of the financial statements. A disclosure is considered material and relevant if, for example:
–
–
–
–
the amount in question is significant because of its size or nature;
it is important for understanding the results of the AMP group;
it helps explain the impact of significant changes in the AMP group; and/or
it relates to an aspect of the AMP group’s operations that is important to its future performance.
(b) Understanding the AMP financial report
The AMP group is comprised of AMP Limited (the parent), a holding company incorporated and domiciled in Australia, and the entities
it controls (subsidiaries). The consolidated financial statements of AMP Limited include the financial information of its controlled entities.
AMP business operations are carried out by a number of these controlled entities including, during 2016 and 2015, two registered life
insurance entities – AMP Life Limited (AMP Life) and The National Mutual Life Association of Australasia Limited (NMLA), AMP Bank and
AMP Capital investment management companies.
The business of AMP’s life insurance entities is conducted through statutory funds and relates to the provision of wealth management
and life insurance products to investors, referred to as policyholders. The investment assets of the statutory funds represent the
majority of the assets of the AMP group, a large proportion of which is held on behalf of policyholders. The corresponding liabilities to
policyholders are classified as either life investment or life insurance contract liabilities. Under Australian Accounting Standards, some
assets held on behalf of policyholders (and the related tax balances) are included in the financial statements at different values to those
used in the calculation of the liability to policyholders in respect of the same assets. The impact of these differences flows through to
shareholder profit and they are referred to as accounting mismatches in the segment disclosures in note 1.1(b).
AMP Capital operates a large number of registered managed investment schemes and other pooled investment vehicles. AMP’s
life insurance entities make significant policyholder investments into these vehicles. In many cases, this results in the vehicle being
controlled and therefore consolidated in its entirety into the AMP group financial statements, including the portion that represents the
shareholdings of external parties, known as non-controlling interests.
As a consequence, these consolidated financial statements include not only the assets and liabilities attributable to AMP Limited’s
shareholders but also the assets and liabilities of the statutory funds attributable to policyholders and the assets and liabilities
attributable to non-controlling interests.
58
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
(b) Understanding the AMP financial report (continued)
The financial report:
–
–
is a general purpose financial report;
has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AASBs)
including Australian Accounting Interpretations adopted by the Australian Accounting Standards Board (AASB) and International
Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board;
is presented in Australian Dollars with all values rounded to the nearest million dollars ($m), unless otherwise stated;
has been prepared on a going concern basis generally using an historical cost basis; however where permitted under accounting
standards a different basis may be used, including the fair value basis for:
−
− assets and liabilities associated with investment contracts
presents assets and liabilities on the face of the Statement of financial position in decreasing order of liquidity and does not
distinguish between current and non-current items;
presents reclassified comparative information where required for consistency with the current year’s presentation.
assets and liabilities associated with life insurance contracts
–
–
–
–
AMP Limited is a for-profit entity and is limited by shares.
The financial statements for the year ended 31 December 2016 were authorised for issue on 9 February 2017 in accordance with
a resolution of the directors.
(c) Basis of consolidation
Entities are fully consolidated from the date of acquisition, being the date on which the AMP group obtains control, and continue to
be consolidated until the date that control ceases. Control exists where the AMP group is exposed, or has rights, to variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Income, expenses, assets, liabilities and cash flows of controlled entities are consolidated into the AMP group financial statements,
along with those attributable to the shareholders of the parent entity. All inter-company transactions are eliminated in full, including
unrealised profits arising from intra-group transactions.
When a controlled managed investment scheme is consolidated, the share of the unitholder liability attributable to the AMP group is
eliminated but amounts due to external unitholders remain as liabilities in the Consolidated statement of financial position. The share
of the net assets of controlled entities attributable to non-controlling interests is disclosed as a separate line item on the Consolidated
statement of financial position.
(d) Significant accounting policies
The significant accounting policies adopted in the preparation of the financial report are contained in the notes to the financial
statements to which they relate. All accounting policies have been consistently applied to the current year and comparative period,
unless otherwise stated. Where an accounting policy relates to more than one note or where no note is provided, the accounting
policies are set out below.
Fee revenue
Fees are charged to customers in connection with investment contracts and other financial services contracts. Fee revenue is recognised
as services are provided either at inception of the contract or as they are performed over the life of the contract. For example, fees for
ongoing investment management services and other services provided are charged on a regular basis, usually daily, and are recognised
as the service is provided.
Interest, dividends and distributions income
Interest income is recognised when the AMP group obtains control of the right to receive the interest. Revenue from dividends is
recognised when the AMP group’s right to receive payment is established.
Foreign currency transactions
Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars (the functional currency)
at reporting date using the following applicable exchange rates:
Foreign currency amount
Applicable exchange rate
Transactions
Monetary assets and liabilities
Non-monetary assets and liabilities carried at fair value
Date of transaction
Reporting date
Date fair value is determined
Foreign exchange gains and losses resulting from translation of foreign exchange transactions are recognised in the Income statement,
except for qualifying cash flow hedges which are deferred to equity.
59
AMP 2016 annual report
(d) Significant accounting policies (continued)
On consolidation the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the
following applicable exchange rates:
Foreign currency amount
Income and expenses
Assets and liabilities
Equity
Reserves
Applicable exchange rate
Average exchange rate
Reporting date
Historical date
Reporting date
Foreign exchange differences resulting from translation of foreign operations are initially recognised in the foreign currency translation
reserve and subsequently transferred to the Income statement on disposal of the foreign operation.
(e) Critical judgements and estimates
Preparation of the financial statements requires management to make judgements, estimates and assumptions about future events.
Information on critical judgements and estimates considered when applying the accounting policies can be found in the following notes:
Accounting judgements and estimates
Note
Consolidation
Tax
Fair value of financial assets
Goodwill and acquired intangible assets
Life insurance and investment contract liabilities
About this report (c)
1.3
2.1
2.2
4.1
Consolidation
Provisions
6.1
7.3
Basis of consolidation
Taxes
Financial assets and other financial liabilities
Intangibles
Accounting for life insurance contracts
and investment contracts
Controlled entities
Provisions
Page
59
66
69
72
88
110
115
60
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
Section 1: Results for the year
This section provides insights into how the AMP group has performed in the current year and provides additional information about
those individual line items in the financial statements that the directors consider most relevant in the context of the operations of
the AMP group.
Statutory measures of performance disclosed in this report are:
–
Statutory earnings per share (EPS) – basic and diluted
– Annual dividend
–
Profit after tax attributable to the shareholders of AMP
Underlying profit is AMP’s key measure of business performance. This performance measure is disclosed by the AMP operating
segment within Segment performance.
1.1 Segment performance
1.2 Earnings (loss) per share
1.3 Taxes
1.4 Dividends
1.1 Segment performance
The AMP group identifies its operating segments based on separate financial information that is regularly reviewed by the chief
executive officer and his immediate team in assessing performance and determining the allocation of resources. The operating
segments are identified according to the nature of profit generated and services provided, and their performance is evaluated based
on a post-tax operating earnings basis.
Reportable segment
Segment description
Australian wealth
management (WM)
AMP Capital
Financial advice services (through aligned and owned advice businesses), platform administration
(including SMSF), unit-linked superannuation, retirement income and managed investment products
business. Superannuation products include personal and employer sponsored plans.
A diversified investment manager with a growing international presence, providing investment
services for domestic and international customers. AMP Capital manages investments across
major asset classes including equities, fixed interest, real estate, infrastructure and multi-manager
and multi-asset funds. AMP Capital also provides commercial, industrial and retail real estate
management services.
AMP Capital and Mitsubishi UFJ Trust and Banking Corporation (MUTB) have a strategic business
and capital alliance, with MUTB holding a 15% ownership interest in AMP Capital.
In November 2013, AMP Capital established a funds management company in China with China
Life called China Life AMP Asset Management Company Limited (CLAMP). AMP Capital is a founding
shareholder, holding a 15% stake, with the balance held by China Life Asset Management Company,
a subsidiary of China Life.
Australian wealth
protection (WP)
Includes individual and group term, disability and income protection insurance products.
Products can be bundled with a superannuation product or held independently of superannuation.
AMP Bank
Australian retail bank offering residential mortgages, deposits, transaction banking and SMSF
products. It also has a portfolio of practice finance loans. AMP Bank distributes through AMP’s aligned
distribution network as well as third party brokers, and direct to retail customers via phone and online.
New Zealand financial
services (NZFS)
Risk insurance, wealth management and mature book (traditional participating business), with
growth in wealth management driven by KiwiSaver.
Australian mature
(Mature)
A business comprising products which are largely closed to new business and are in run-off.
Products within Australian mature include whole of life, endowment, investment-linked, investment
account, Retirement Savings Account, Eligible Rollover Fund, annuities, insurance bonds, personal
superannuation and guaranteed savings accounts.
Segment information is not reported for activities of the AMP group office companies as it is not the function of these departments to
earn revenue and any revenues earned are only incidental to the activities of the AMP group.
61
AMP 2016 annual report External customer revenue
Intersegment revenue4
Segment revenue3
Other segment information3
Income tax expense
Depreciation and amortisation
2015
Segment profit after income tax
External customer revenue
Intersegment revenue4
Segment revenue3
Other segment information3
Income tax expense
Depreciation and amortisation
1.1 Segment performance (continued)
(a) Segment profit
WM
$m
AMP
Capital1
$m
WP2
$m
AMP
Bank
$m
NZFS2
$m
Mature2
$m
2016
Segment profit (loss) after income tax
401
144
(415)
120
Total
operating
segments
$m
527
2,059
335
2,394
215
130
126
126
–
126
49
6
151
151
–
151
65
9
1,499
109
1,608
168
78
387
226
613
59
11
(415)
–
(415)
(178)
26
311
–
311
52
–
410
138
185
104
120
158
1,115
1,396
120
1,516
173
68
322
254
576
61
11
185
–
185
79
20
281
–
281
44
–
120
–
120
47
7
158
–
2,462
374
158
2,836
68
6
472
112
1
2
3
4
AMP Capital segment revenue is reported net of external investment manager fees paid in respect of certain assets under management. Segment
profit is reported net of 15% attributable to MUTB. Other AMP Capital segment information is reported before deductions of minority interests.
For segment reporting, revenue for WP, NZFS and Mature is presented as the amount of operating earnings of those segments, which is also the
segment profit after tax. The differences between those amounts and total revenue for statutory reporting are included in the reconciliation of
segment revenue in note 1.1(b).
Segment revenue and other segment information excludes revenue, expenses and tax relating to assets backing policyholder liabilities.
Intersegment revenue represents operating revenue between segments priced on an arm’s-length basis and is eliminated on consolidation.
62
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
1.1 Segment performance (continued)
(b) Reconciliations
Segment profit after income tax differs from Profit attributable to shareholders of AMP Limited due to the exclusion of the
following items:
Segment profit after income tax
Group office costs
Total operating earnings
Underlying investment income1
Interest expense on corporate debt
Underlying profit
Other items
Business efficiency program costs
Amortisation of AMP AAPH acquired intangible assets
Goodwill impairment
Profit (loss) before market adjustments and accounting mismatches
Market adjustment – investment income1
Market adjustment – annuity fair value
Market adjustment – risk products
Accounting mismatches
Profit (loss) attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
2016
$m
527
(104)
423
122
(59)
486
(9)
(19)
(77)
(668)
(287)
(46)
(8)
11
(14)
(344)
536
2015
$m
1,115
(61)
1,054
125
(59)
1,120
(3)
(66)
(80)
–
971
9
34
2
(44)
972
741
Profit for the year
192
1,713
1
Underlying investment income consists of investment income on shareholder assets invested in income producing investment assets normalised in
order to bring greater clarity to the results by eliminating the impact of short-term market volatility on underlying performance. Underlying returns
are set based on long-term expected returns for each asset class, except for a short-term return, equivalent to a one-year government bond, set
annually for the implicit deferred acquisition costs (DAC) component of shareholder assets. Market adjustment – investment income is the excess
(shortfall) between the underlying investment income and the actual return on shareholder assets invested in income producing investment assets.
Total segment revenue differs from Total revenue as follows:
Total segment revenue
Add revenue excluded from segment revenue
–
–
Investment gains and losses – shareholders and policyholders
(excluding AMP Bank interest revenue)
Revenue of investment entities controlled by the life entities’
statutory funds which carry out business operations unrelated
to the core wealth management operations of the AMP group
– Other revenue
Add back expenses netted against segment revenue
–
Claims, expenses, movement in insurance contract liabilities and
tax relating to Australian wealth protection, Australian mature and
New Zealand financial services
Interest expense related to AMP Bank
External investment manager and adviser fees paid in respect
of certain assets under management
–
–
Remove intersegment revenue
Total revenue
2016
$m
2015
$m
2,394
2,836
7,775
7,733
19
121
35
52
3,171
490
1,164
(335)
2,002
525
1,240
(374)
14,799
14,049
(c) Segment assets
Asset segment information has not been disclosed because the balances are not provided to the chief executive officer or his immediate
team for the purpose of evaluating segment performance, or in allocating resources to segments.
63
AMP 2016 annual report
1.2 Earnings (loss) per share
Basic earnings (loss) per share
Basic earnings (loss) per share is calculated based on profit (loss) attributable to shareholders of AMP Limited (AMP) and the weighted
average number of ordinary shares outstanding.
Profit (loss) attributable to shareholders of AMP ($m)
Weighted average number of ordinary shares (millions)1
Basic earnings (loss) per share (cents per share)
2016
2015
(344)
2,929
(11.7)
972
2,918
33.3
Diluted earnings (loss) per share
Diluted earnings (loss) per share is based on profit (loss) attributable to shareholders of AMP Limited (AMP) and the weighted-average
number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares, such as options and
performance rights.
Profit (loss) attributable to shareholders of AMP ($m)
Weighted average number of ordinary shares (millions) – diluted:
– Weighted average number of ordinary shares1
– Add: potential ordinary shares considered dilutive2
Weighted average number of ordinary shares used in the calculation of dilutive earnings (loss) per share
Diluted earnings (loss) per share (cents per share)
2016
(344)
2,929
19
2,948
(11.7)
2015
972
2,918
20
2,938
33.1
1
2
The weighted average number of ordinary shares outstanding is calculated after deducting the weighted average number of treasury shares held
during the period.
Performance rights have been determined to be dilutive; however, if these instruments vest and are exercised, it is AMP’s policy to buy AMP shares
on market so there will be no dilutive effect on the value of AMP shares.
1.3 Taxes
This sub-section outlines the impact of income taxes on the results and financial position of AMP. In particular:
–
–
–
the impact of tax on the reported result;
amounts owed to/receivable from the tax authorities;
deferred tax balances that arise due to differences in the tax and accounting treatment of balances recorded in the financial
report; and
discussion of the impacts of life insurance policyholder tax.
–
These financial statements include the disclosures relating to tax required under accounting standards. Further information on AMP’s
tax matters can be found in the AMP Tax Report at www.amp.com.au.
(a) Income tax expense
The income tax expense amount reflects the impact of both income tax attributable to shareholders as well as income tax attributable
to policyholders. In respect of income tax expense attributable to shareholders, the tax rate which applies is 30% in Australia and 28%
in New Zealand.
Income tax attributable to policyholders is based on investment income allocated to policyholders less expenses deductible against
that investment income. The impact of the tax is charged against policyholder liabilities. A number of different tax rate regimes apply
to policyholders. In Australia, certain classes of policyholder life insurance income and superannuation earnings are taxed at 15%, and
certain classes of income on some annuity business are tax-exempt. The rate applicable to New Zealand life insurance business is 28%.
64
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
1.3 Taxes (continued)
The following table provides a reconciliation of differences between prima facie tax calculated as 30% of the profit before income tax
for the year and the income tax expense recognised in the Income statement for the year.
Profit before income tax
Policyholder tax (expense) credit recognised as part of the change
in policyholder liabilities in determining profit before tax
Profit before income tax excluding tax charged to policyholders
Tax at the Australian tax rate of 30% (2015: 30%)
Shareholder impact of life insurance tax treatment
Tax concessions including research and development and offshore banking unit
Non-deductible expenses
Non-taxable income
Other items
Non-controlling interests1
Goodwill impairment
Over provided in previous years after excluding amounts attributable to policyholders
Utilisation of previously unrecognised tax losses
Differences in overseas tax rates
Income tax expense attributable to shareholders and non-controlling interest
Income tax (expense) credit attributable to policyholders
Income tax expense per Income statement
2016
$m
2015
$m
358
1,993
(121)
48
237
2,041
(71)
(16)
5
(19)
5
5
154
(200)
14
69
9
(45)
(121)
(166)
(612)
(11)
11
(10)
14
(12)
217
–
25
43
7
(328)
48
(280)
1
$513m (2015: $723m) profit attributable to non-controlling interests in investment entities controlled by the AMP life insurance entities’ statutory
funds is not subject to tax.
(b) Analysis of income tax expense
Current tax expense
Increase (decrease) in deferred tax assets
Decrease in deferred tax liabilities
Over provided in previous years including amounts attributable to policyholders
Income tax expense
(c) Analysis of deferred tax balances
Analysis of deferred tax assets
Expenses deductible and income recognisable in future years
Unrealised movements on borrowings and derivatives
Unrealised investment losses
Losses available for offset against future taxable income
Other
Total deferred tax assets
Analysis of deferred tax liabilities
Unrealised investment gains
Unrealised movements on borrowings and derivatives
Other
Total deferred tax liabilities
(486)
163
142
15
(166)
491
40
27
49
49
656
(523)
(78)
280
41
(280)
234
24
29
175
95
557
1,498
1
447
1,596
17
463
1,946
2,076
65
AMP 2016 annual report
1.3 Taxes (continued)
(d) Amounts recognised directly in equity
Deferred income tax expense related to items taken directly to equity during the current year
(e) Unused tax losses and deductible temporary differences not recognised
Revenue losses
Capital losses
2016
$m
2015
$m
(16)
(28)
110
170
109
239
Accounting policy – recognition and measurement
Income tax expense
Income tax expense is the tax payable on taxable income for the current period based on the income tax rate for each jurisdiction and
adjusted for changes in deferred tax assets and liabilities. These changes are attributable to:
–
–
–
temporary differences between the tax bases of assets and liabilities and their Statement of financial position carrying amounts;
unused tax losses;
the impact of changes in the amounts of deferred tax assets and liabilities arising from changes in tax rates or in the manner in
which these balances are expected to be realised.
Adjustments to income tax expense are also made for any differences between the amounts paid, or expected to be paid, in relation
to prior periods and the amounts provided for these periods at the start of the current period.
Any tax impact on income and expense items that are recognised directly in equity is also recognised directly in equity.
Income tax for investment contracts business and life insurance contracts business
The income tax expense recognised in the Income statement of the AMP group, which arises in respect of the AMP life insurance
entities, reflects tax imposed on shareholders as well as policyholders. Investment contracts liabilities and life insurance contracts
liabilities are established in Australia net, and in New Zealand gross, of the policyholders’ share of any current tax payable and deferred
tax balances of the AMP group. Arrangements made with some superannuation funds result in the AMP life insurance entities making
payments to the Australian Taxation Office in relation to contributions tax arising in those funds. The amounts paid are recognised as
a decrease in investment contract liabilities and not included in income tax expense.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences and are measured at the tax rates which are expected to
apply when the assets are recovered or liabilities are settled, based on tax rates that have been enacted or substantively enacted for
each jurisdiction at the reporting date. Deferred tax assets and liabilities, including amounts in respect of investment contracts and life
insurance contracts, are not discounted to present value.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Tax consolidation
AMP Limited and its wholly-owned Australian controlled entities are part of a tax-consolidated group, with AMP Limited being the head
entity. A tax funding agreement has been entered into by the head entity and the controlled entities in the tax-consolidated group and
requires entities to fully compensate the company for current tax liabilities and to be fully compensated by the company for any current
or deferred tax assets in respect of tax losses arising from external transactions occurring after 30 June 2003, the implementation date
of the tax-consolidated group.
Critical accounting estimates and judgements:
The AMP group is subject to taxes in Australia and other jurisdictions where it has operations. The application of tax law to the specific
circumstances and transactions of the AMP group requires the exercise of judgement by management. The tax treatments adopted
by management in preparing the financial statements may be impacted by changes in legislation and interpretations or be subject to
challenge by tax authorities.
Judgement is also applied by management in determining the extent to which the recovery of carried forward tax losses is probable for
the purpose of meeting the criteria for recognition as deferred tax assets.
66
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
1.4 Dividends
Dividends paid and proposed during the year are shown in the table below:
Dividend per share (cents)
Franking percentage
Cost (in $m)
Payment date
Dividends paid
Previous year final dividend on ordinary shares
Interim dividend on ordinary shares
Total dividends paid1
2016
Final
14.0
90%
414
2016
Interim
14.0
90%
414
2015
Final
14.0
90%
414
2015
Interim
14.0
85%
414
31 March
2017
7 October
2016
8 April
2016
9 October
2015
2016
$m
414
414
828
2015
$m
399
414
813
1
Total dividends paid includes dividends paid on treasury shares $8m (2015: $13m).
Dividend franking credits
Franking credits available to shareholders are $342m (2015: $396m), based on a tax rate of 30%. This amount is calculated from the
balance of the franking account as at the end of the reporting period, adjusted for franking credits that will arise from the settlement,
after the end of the reporting date, of liabilities for income tax and receivables for dividends.
The company’s ability to utilise the franking account credits depends on meeting Corporations Act 2001 requirements to declare
dividends. The impact of the proposed dividend will be to reduce the balance of the franking credit account by $160m.
All dividends are franked at a tax rate of 30%.
67
AMP 2016 annual report
Section 2: Investments, intangibles and working capital
This section highlights the AMP group’s assets and working capital used to support the AMP group’s activities.
2.1 Investments in financial instruments
2.2 Intangibles
2.3 Receivables
2.4 Payables
2.5 Fair value information
2.1 Investments in financial instruments
Financial assets measured at fair value through profit or loss1
Equity securities and listed managed investment schemes
Debt securities2
Investments in unlisted managed investment schemes
Derivative financial assets
Other financial assets
Total financial assets measured at fair value through profit or loss
Available-for-sale financial assets
Equity securities and managed investment schemes
Total available-for-sale financial assets
Financial assets measured at amortised cost3
Loans and advances
Debt securities – held to maturity
Total financial assets measured at amortised cost
Total financial assets
Other financial liabilities
Derivative financial liabilities
Collateral deposits held2
Total other financial liabilities
2016
$m
2015
$m
53,520
34,512
21,359
1,195
5
53,173
35,743
19,421
1,790
8
110,591
110,135
67
67
66
66
17,204
1,557
15,281
1,739
18,761
17,020
129,419
127,221
1,150
92
883
225
1,242
1,108
1
2
3
Financial assets measured at fair value through profit or loss are mainly assets of the AMP life insurance entities’ statutory funds and their
controlled entities.
Included within debt securities are assets held to back the liability for collateral deposits for debt security repurchase arrangements entered into by
the AMP life insurance entities’ statutory funds and their controlled entities. Collateral deposits held are mostly in respect of the obligation to repay
collateral for the debt security repurchase arrangements.
Financial assets measured at amortised cost are mainly assets of AMP Bank.
68
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
2.1 Investments in financial instruments (continued)
Accounting policy – recognition and measurement
Financial assets measured at fair value through profit or loss
Financial assets designated on initial recognition as financial assets measured at fair value through profit or loss are initially recognised
at fair value determined as the purchase cost of the asset, exclusive of any transaction costs. Transaction costs are expensed as incurred
in profit or loss. Any realised and unrealised gains or losses arising from subsequent measurement at fair value are recognised in the
Income statement in the period in which they arise.
Available-for-sale financial assets
Financial assets which are neither designated as fair value through profit or loss nor measured at amortised cost are classified as
available-for-sale. Measurement is in accordance with financial assets measured at fair value through profit or loss but any unrealised
gains or losses arising from subsequent measurement at fair value are taken to other comprehensive income and only transferred to
profit and loss when they are realised.
Details on how the fair values for financial assets are determined following initial recognition are disclosed in note 2.5.
Financial assets measured at amortised cost
Loans, advances and other receivables which arise when AMP Bank provides money directly to a customer, including loans and
advances to advisers, with no intention of trading the financial assets, are measured at amortised cost. All other debt securities held
by AMP Bank are classified as held to maturity investments. Held to maturity investments are non-derivative assets with fixed or
determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity.
Financial assets measured at amortised cost are initially recognised at fair value plus transaction costs that are directly attributable to
the acquisition or issue of the financial asset. These assets are subsequently recognised at amortised cost using the effective interest
rate method.
Recognition and de-recognition of financial assets and liabilities
Financial assets and financial liabilities are recognised at the date the AMP group becomes a party to the contractual provisions of the
instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial assets expire, or are
transferred. A transfer occurs when substantially all the risks and rewards of ownership of the financial asset are passed to an unrelated
third party. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expires.
Impairment of financial assets
Assets measured at fair value, where changes in fair value are reflected in the Income statement, are not subject to impairment testing.
For financial assets measured at amortised cost, including loans, advances, held to maturity investments and other receivables,
impairment is recognised in the Income statement when there is objective evidence a loss has been incurred. It is measured as the
difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective
interest rate.
Critical accounting estimates and judgements:
Financial assets measured at fair value
Where available, quoted market prices for the same or similar instruments are used to determine fair value. Where there is no market price
available for an instrument, a valuation technique is used. Management applies judgement in selecting valuation techniques and setting
valuation assumptions and inputs.
69
AMP 2016 annual report 2.2 Intangibles
Goodwill1
$m
Capitalised
costs
$m
Value of
in-force
business
$m
Distribution
networks
$m
Other
intangibles
$m
2016
Balance at the beginning of the year
Additions through acquisitions of controlled entities
Additions through internal development
Transferred from inventories
Amortisation expense
Impairment loss
Balance at the end of the year
Cost
Accumulated amortisation and impairment
2015
Balance at the beginning of the year
Additions through acquisitions of controlled entities
Additions through separate acquisitions
Additions through internal development
Transferred from inventories
Amortisation expense
Impairment loss
Other movements
Balance at the end of the year
Cost
Accumulated amortisation and impairment
2,782
3
–
–
–
(668)
2,117
2,893
(776)
2,717
59
–
–
–
–
–
6
2,782
2,890
(108)
374
4
133
–
(129)
–
382
703
–
–
–
(103)
–
600
1,266
(884)
1,191
(591)
378
7
–
114
–
(117)
(8)
–
374
806
–
–
–
–
(103)
–
–
703
1,129
(755)
1,191
(488)
123
4
–
9
(37)
–
99
264
(165)
136
16
2
–
17
(37)
(10)
(1)
123
251
(128)
Total
$m
3,983
11
133
9
(269)
(668)
3,199
1
–
–
–
–
–
1
95
(94)
5,709
(2,510)
5
–
–
–
–
(4)
–
–
1
4,042
82
2
114
17
(261)
(18)
5
3,983
95
(94)
5,556
(1,573)
1
Total goodwill comprises amounts attributable to shareholders of $2,102m (2015: $2,767m) and amounts attributable to policyholders of $15m
(2015: $15m).
Accounting policy – recognition and measurement
Goodwill
Goodwill acquired in a business combination is recognised at cost and subsequently measured at cost less any accumulated
impairment losses. The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets
acquired and liabilities assumed. Goodwill includes balances attributable to shareholders and balances attributable to policyholders
in investment entities controlled by the AMP life insurance entities’ statutory funds.
Capitalised costs
Costs are capitalised when the costs relate to the creation of an asset with expected future economic benefits which are capable of
reliable measurement. Capitalised costs are amortised on a straight-line basis over the estimated useful life of the asset, commencing
at the time the asset is first put into use or held ready for use, whichever is the earlier.
Value of in-force business
The value of in-force business represents the fair value of future business arising from existing contractual arrangements of a business
acquired as part of a business combination. The value of in-force business is initially measured at fair value and is subsequently
measured at fair value less amortisation and any accumulated impairment losses.
Distribution networks
Distribution networks such as customer lists, financial planner client servicing rights or other distribution-related rights, either acquired
separately or through a business combination, are initially measured at fair value and subsequently measured at cost less amortisation
and any accumulated impairment losses.
70
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
2.2 Intangibles (continued)
Amortisation
Intangible assets with finite useful lives are amortised on a straight-line basis over the useful life of the intangible asset. The estimated
useful lives are generally:
Item
Capitalised costs
Value in-force business – wealth management and distribution businesses
Value in-force business – wealth protection and mature businesses
Distribution networks
Useful life
Up to 10 years
10 years
20 years
3 to 15 years
The useful life of each intangible asset is reviewed at the end of the period and, where necessary, adjusted to reflect current
assessments.
Impairment testing
Goodwill and intangible assets that have indefinite useful lives are tested at least annually for impairment. Other intangible assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units or CGUs). An impairment loss is recognised when the goodwill carrying amount exceeds the CGU’s
recoverable amount.
Goodwill attributable to shareholders
The goodwill attributable to shareholders of $2,102m (2015: $2,767m) primarily arose from the acquisition of AMP AAPH Limited
group in 2011, a previous Life Act Part 9 transfer of life insurance business into the statutory funds of AMP Life as well as other business
combinations where the AMP group was the acquirer.
Based on their activities, each of the acquired businesses has been allocated to a CGU for the purpose of assessing goodwill as follows:
Australian wealth management
Australian wealth protection
Australian mature
AMP Financial Services New Zealand
AMP Capital
2016
$m
1,488
–
350
177
87
2,102
2015
$m
1,485
668
350
177
87
2,767
The recoverable amount for each CGU (excluding AMP Capital) has been determined by the fair value less costs of disposal based on
the estimated embedded value plus the value of one year’s new business times a multiplier of 10 to 15.
The estimated embedded value is a calculation that represents the economic value of the shareholder capital in the business and the
future profits expected to emerge from the business currently in-force expressed in today’s dollars.
The estimated embedded value and value of one year’s new business has been calculated based on the following key assumptions
and estimates:
–
mortality, morbidity, discontinuance rates, maintenance unit costs, future rates of supportable bonus for participating business,
franking credits, risk discount rates, investment returns and inflation rates;
premium and claim amounts, estimated over the expected life of the in-force policies which varies depending on the nature
of the product;
future maintenance and investment expenses based on unit costs derived from budgeted amounts for the following year and
increased in future years for expected rates of inflation;
risk discount rate based on an annualised 10 year government bond yield plus a discount margin of 5% to 7% for Australia and
5% for New Zealand (2015: 4%): Australia 7.8% to 9.8% (2015: 6.9%), New Zealand 8.4% (2015: 7.6%), for calculating the value
of in-force and new business.
–
–
–
Assumptions applied in this valuation are consistent with the best estimate assumptions used in calculating the policy liabilities
of AMP’s life insurance entities (excluding the risk discount rate).
Note 4.3 provides further details of the assumptions, management’s approach to determining the values assigned to each key
assumption and their consistency with past experience and external sources of information.
The recoverable amount for the AMP Capital CGU has been determined by using the fair value less costs of disposal based on a multiple of
19 times current period earnings (2015: 19 times), which approximates the fair value of this business, less an allowance for disposal costs.
With the exception of the Australian Wealth Protection CGU, there are no reasonably possible alternative assumptions which would
result in an impairment of any goodwill amounts.
71
AMP 2016 annual report
2.2 Intangibles (continued)
Goodwill attributable to policyholders
Policyholder cash-generating units were allocated $15m goodwill at 31 December 2016 (31 December 2015: $15m).
Impairment loss
The conclusion from the goodwill impairment testing is that there has been no impairment to the amount of the goodwill recognised
for all CGUs, except for the Australian Wealth Protection CGU, which is fully impaired resulting in an expense of $668m in the period.
The impairment was caused by the strengthening of the best estimate assumptions for AMP Life and NMLA (including retail and group
income protection, claims and lapses).
Critical accounting estimates and judgements:
Management applies judgement in selecting valuation techniques and setting valuation assumptions to determine the:
–
–
–
acquisition date fair value and estimated useful life of acquired intangible assets;
allocation of goodwill to CGUs and determining the recoverable amount of goodwill;
assessment of whether there are any impairment indicators for acquired intangibles and, where required, in determining
the recoverable amount.
2.3 Receivables
Investment related receivables
Life insurance contract premiums receivable
Reinsurance receivables
Trade debtors and other receivables
Total receivables
Current
Non-current
2016
$m
1,163
345
70
397
2015
$m
1,290
363
37
377
1,975
2,067
1,857
118
2,061
6
Accounting policy – recognition and measurement
Receivables
Receivables that back investment contract liabilities and life insurance contract liabilities are designated as financial assets measured
at fair value through profit or loss. Reinsurance and other recoveries are discounted to present value. Receivables that do not back
investment contract and life insurance contract liabilities are measured at nominal amounts due, less any allowance for doubtful debts.
An allowance for doubtful debts is recognised when collection of the full amount is no longer probable. Bad debts are written off as
incurred. Given the short-term nature of most receivables, the recoverable amount approximates fair value.
2.4 Payables
Investment related payables
Life insurance and investment contracts in process of settlement
Accrued expenses, trade creditors and other payables
Reinsurance payables
Total payables
Current
Non-current
2016
$m
801
350
729
72
2015
$m
694
394
941
2
1,952
2,031
1,840
112
1,940
91
Accounting policy – recognition and measurement
Payables
Payables are measured at the nominal amount payable. Given the short-term nature of most payables, the nominal amount payable
approximates fair value.
72
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
2.5 Fair value information
The following table shows the carrying amount and estimated fair values of financial instruments and investment properties, including
their levels in the fair value hierarchy. It does not include fair value information for financial instruments not measured at fair value if
the carrying amount is a reasonable approximation of fair value.
2016
Financial assets measured at fair value
Equity securities and listed managed investment schemes
Debt securities
Investments in unlisted managed investment schemes
Derivative financial assets
Investment properties
Other financial assets
Carrying
amount
$m
53,587
34,512
21,359
1,195
127
5
Level 1
$m
Level 2
$m
Level 3
$m
51,066
68
–
219
–
–
22
34,425
20,417
976
–
–
2,499
19
942
–
127
5
Total fair
value
$m
53,587
34,512
21,359
1,195
127
5
Total financial assets measured at fair value
110,785
51,353
55,840
3,592
110,785
Financial assets not measured at fair value
Loans and advances
Debt securities – held to maturity
Total financial assets not measured at fair value
Financial liabilities measured at fair value
Derivative financial liabilities
Collateral deposits held
Investment contract liabilities
Total financial liabilities measured at fair value
Financial liabilities not measured at fair value
AMP Bank
– Deposits
– Other
AMP Corporate entities
AMP’s life insurance entities and investment entities controlled
by AMP life insurance entities’ statutory funds
17,204
1,557
18,761
1,150
92
71,579
72,821
8,652
6,661
1,552
353
–
–
–
97
–
–
97
–
–
618
–
Total financial liabilities not measured at fair value
17,218
618
16,645
2015
Financial assets measured at fair value
Equity securities and listed managed investment schemes
Debt securities
Investments in unlisted managed investment schemes
Derivative financial assets
Investment properties
Other financial assets
53,239
35,743
19,421
1,790
386
8
49,811
–
–
161
–
–
18
34,209
18,291
1,629
–
–
3,410
1,534
1,130
–
386
8
Total financial assets measured at fair value
110,587
49,972
54,147
6,468
110,587
Financial assets not measured at fair value
Loans and advances
Debt securities – held to maturity
Total financial assets not measured at fair value
Financial liabilities measured at fair value
Derivative financial liabilities
Collateral deposits held
Investment contract liabilities
Total financial liabilities measured at fair value
Financial liabilities not measured at fair value
AMP Bank
– Deposits
– Other
AMP Corporate entities
AMP’s life insurance entities and investment entities controlled
by AMP life insurance entities’ statutory funds
15,281
1,739
17,020
883
225
69,848
70,956
6,678
6,924
1,813
2,037
–
–
–
117
136
–
253
–
–
609
–
Total financial liabilities not measured at fair value
17,452
609
16,885
17,104
1,560
18,664
–
–
–
1,053
92
2,252
–
–
69,327
17,104
1,560
18,664
1,150
92
71,579
3,397
69,327
72,821
8,639
6,676
977
353
–
–
–
–
–
8,639
6,676
1,595
353
17,263
53,239
35,743
19,421
1,790
386
8
15,281
1,745
17,026
–
–
–
766
89
2,364
–
–
67,484
15,281
1,745
17,026
883
225
69,848
3,219
67,484
70,956
6,798
6,824
1,226
2,037
–
–
–
–
–
6,798
6,824
1,835
2,037
17,494
73
AMP 2016 annual report
2.5 Fair value information (continued)
AMP’s methodology and assumptions used to estimate the fair value of financial instruments are described below:
Listed equity securities
and listed managed
investment schemes
The fair value of listed equity securities traded in an active market and listed managed investment
schemes reflects the quoted bid price at the reporting date. In the case of equity securities and listed
managed investment schemes where there is no active market, fair value is established using valuation
techniques including the use of recent arm’s length transactions, references to other instruments that
are substantially the same, discounted cash flow analysis and option pricing models.
Debt securities
The fair value of listed debt securities reflects the bid price at the reporting date. Listed debt securities
that are not frequently traded are valued by discounting estimated recoverable amounts.
Loans
The fair value of unlisted debt securities is estimated using interest rate yields obtainable on comparable
listed investments. The fair value of loans is determined by discounting the estimated recoverable
amount using prevailing interest rates.
The estimated fair value of loans represents the discounted amount of estimated future cash flows
expected to be received, based on the maturity profile of the loans. As the loans are unlisted, the
discount rates applied are based on the yield curves appropriate to the remaining term of the loans.
The loans may be measured at an amount in excess of fair value due to fluctuations on fixed rate loans.
As the fluctuations in fair value do not represent a permanent diminution and the carrying amounts
of the loans are recorded at recoverable amounts after assessing impairment, it is not appropriate to
restate their carrying amount.
Unlisted managed
investment schemes
The fair value of investments in unlisted managed investment schemes is determined on the basis of
published redemption prices of those managed investment schemes at the reporting date.
Derivative financial
assets and liabilities
The fair value of financial instruments traded in active markets (such as publicly traded derivatives)
is based on quoted market prices (current bid price or current offer price) at the reporting date. The
fair value of financial instruments not traded in an active market (eg over-the-counter derivatives) is
determined using valuation techniques. Valuation techniques include net present value techniques,
option pricing models, discounted cash flow methods and comparison to quoted market prices or
dealer quotes for similar instruments.
Subordinated debt
The fair value of subordinated debt is determined with reference to quoted market prices at the
reporting date.
The financial assets and liabilities measured at fair value are categorised using the fair value hierarchy which reflects the significance
of inputs into the determination of fair value as follows:
–
–
Level 1: the fair value is valued by reference to quoted prices and active markets for identical assets
Level 2: the fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (as prices) or indirectly (derived from prices)
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
–
There have been no significant transfers between Level 1 and Level 2 during the 2016 and 2015 financial years. Transfers to/from
Level 3 are shown in the Reconciliation of Level 3 values table later in this note.
74
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016 2.5 Fair value information (continued)
Level 3 fair values
The following table shows the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable
inputs used.
Type
Valuation technique
Significant unobservable inputs
Equity securities and listed
managed investment schemes
Discounted cash flow approach utilising
cost of equity as the discount rate.
Debt securities
Discounted cash flow approach.
Investments in unlisted
managed investment schemes
Investment contract liabilities
Published redemption prices.
Discount rate.
Terminal value growth rate.
Cash flow forecasts.
Discount rate.
Cash flow forecasts.
Judgement made in
determining unit prices.
Valuation model based on published unit
prices and the fair value of backing assets.
Fixed retirement income policies –
discounted cash flow.
Fair value of financial instruments.
Cash flow forecasts.
Credit risk.
Sensitivity analysis
Reasonably possible alternative assumptions could have been used in determining the fair values of financial instruments categorised
as Level 3. The following table shows the sensitivity to changes in key assumptions, calculated by changing one or more of the
significant unobservable inputs for individual assets. This included assumptions such as credit risk and discount rates for determining
the valuation range on an individual estimate.
Financial assets
Equity securities and listed managed investment schemes
Financial liabilities
Investment contract liabilities
2016
(+)
$m
(–)
$m
2015
(+)
$m
(–)
$m
146
(153)
206
(206)
6
(5)
8
(7)
Financial assets valuation process
For financial assets categorised within Level 3 of the fair value hierarchy, the valuation processes applied in valuing such assets is
governed by the AMP Capital asset valuation policy. This policy outlines the asset valuation methodologies and processes applied to
measure non-exchange traded assets which have no regular market price, including investment property, infrastructure, private equity,
alternative assets and illiquid debt securities. All significant Level 3 assets are referred to the appropriate valuation committee who
meet at least every six months, or more frequently if required.
75
AMP 2016 annual report
2.5 Fair value information (continued)
Reconciliation of Level 3 values
The following table shows movements in the fair values of financial instruments categorised as Level 3 in the fair value hierarchy:
Balance
at the
beginning of
the period
$m
FX gains
or losses1
$m
Total
gains/
losses1
$m
Purchases/
deposits
$m
Sales/
withdrawals
$m
Net
transfers
in/(out)2
$m
Balance at
the end of
the period
$m
Total gains
and losses on
assets and
liabilities
held at
reporting
date
$m
2016
Assets classified as Level 3
Equity securities and listed
managed investment schemes
Debt securities
Investments in unlisted managed
investment schemes
Investment properties
Other financial assets
Liabilities classified as Level 3
Investment contract liabilities
2015
Assets classified as Level 3
Equity securities and listed
managed investment schemes
Debt securities
Investments in unlisted managed
investment schemes
Investment properties
Other financial assets
Liabilities classified as Level 3
Investment contract liabilities
3,410
1,534
1,130
386
8
67,484
2,354
599
850
340
9
–
–
3
–
–
7
48
55
–
–
–
191
(3)
10
105
(1)
271
2
96
6
–
(1,580)
(1,329)
(25)
(370)
(2)
207
(185)
(272)
–
–
2,499
19
942
127
5
190
(2)
8
105
(1)
3,413
10,785
(12,362)
–
69,327
3,333
378
210
44
71
–
942
764
383
1
–
(435)
(93)
(21)
(26)
(1)
123
(1)
(127)
–
–
3,410
1,534
1,130
386
8
379
209
52
71
–
64,448
(5)
3,100
11,743
(11,802)
–
67,484
2,755
1 Gains and losses are classified in investment gains and losses or change in policyholder liabilities in the Income statement.
2
The AMP group recognises transfers as at the end of the reporting period during which the transfer has occurred. Transfers are recognised when
there are changes in the observability of the pricing of the relevant securities or where the AMP group ceases to consolidate a controlled entity.
76
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
Section 3: Capital structure and financial risk management
This section provides information relating to:
– AMP group’s capital management and equity and debt structure; and
–
exposure to financial risks – how the risks affect financial position and performance and how the risks are managed,
including the use of derivative financial instruments.
The capital structure of the AMP group consists of equity and debt. AMP determines the appropriate capital structure in order
to finance the current and future activities of the AMP group and satisfy the requirements of the regulator. The directors review
the group’s capital structure and dividend policy regularly and do so in the context of the group’s ability to satisfy minimum and
target capital requirements, and to protect and meet the needs of the policyholders.
3.1 Contributed equity
3.2 Interest-bearing liabilities
3.3 Financial risk management
3.4 Other derivative information
3.5 Capital management
3.1 Contributed equity
Issued capital1
2,957,737,964 (2015: 2,957,737,964) ordinary shares fully paid
Treasury shares2
23,539,463 (2015: 33,390,553) treasury shares
Total contributed equity
2,934,198,501 (2015: 2,924,347,411) ordinary shares fully paid
Issued capital
Balance at the beginning of the year
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Decrease due to purchases less sales during the year
Balance at the end of the year
2016
$m
2015
$m
9,747
9,747
(128)
(181)
9,619
9,566
9,747
9,747
9,747
9,747
(181)
53
(128)
(239)
58
(181)
Holders of ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the company, to
participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.
Fully paid ordinary shares carry the right to one vote per share. Ordinary shares have no par value.
1
2
3
Under the terms of the dividend reinvestment plan (DRP), shareholders may elect to have all or part of their dividend entitlements satisfied in
shares rather than being paid cash. The DRP applied for the 2015 final dividend (paid in April 2016) at 14.0 cents per share and 2016 interim
dividend (paid in October 2016) at 14.0 cents per share. AMP settled the DRP for the 2015 final dividend and 2016 interim dividend by acquiring
shares on market and, accordingly, no new shares were issued.
Of the AMP Limited ordinary shares on issue 21,413,076 (2015: 31,264,166) are held by AMP’s life insurance entities on behalf of policyholders.
ASIC has granted relief from restrictions in the Corporations Act 2001 to allow AMP’s life insurance entities to hold and trade shares in AMP Limited
as part of the policyholder funds’ investment activities. The cost of the investment in these treasury shares is reflected as a deduction from total
contributed equity. The remaining balance is held by AMP Foundation Limited as trustee for the AMP Foundation.
Mitsubishi UFJ Trust and Banking Corporation (MUTB) has an option to require AMP Limited to purchase MUTB’s interest in AMP Capital Holdings
Limited (AMPCH) in certain circumstances. As consideration for the acquisition of AMPCH shares, AMP would be required to issue ordinary shares
in AMP Limited to MUTB (or its nominee).
77
AMP 2016 annual report
3.1 Contributed equity (continued)
Accounting policy – recognition and measurement
Issued capital
Issued capital in respect of ordinary shares is recognised as the fair value of consideration received by the AMP Limited entity. Incremental
costs directly attributable to the issue of certain new shares are recognised in equity as a deduction, net of tax, from the proceeds.
Treasury shares
The AMP group is not permitted to recognise treasury shares in the Consolidated statement of financial position. These assets, plus any
corresponding Income statement fair value movement on the assets and dividend income, are eliminated on consolidation. However,
the corresponding investment contract and life insurance contract liabilities, and related Income statement change in the liabilities,
remain on consolidation. At the AMP group consolidated level, the mismatch results in policyholder asset movements impacting the
profit attributable to shareholders of AMP Limited.
The AMP Foundation also holds AMP Limited shares. These assets, plus any corresponding Income statement fair value amount on the
assets and any dividend income, are also eliminated on consolidation. As the net assets and profit of the AMP Foundation Trust are fully
attributable to non-controlling interests, this has no impact on the net assets or profit attributable to the shareholders of AMP Limited.
3.2 Interest-bearing liabilities
(a) Interest-bearing liabilities
Interest-bearing liabilities
AMP Bank
– Deposits1
– Other2
AMP Corporate entities
–
–
6.875% GBP Subordinated Guaranteed Bonds
(maturity 2022)
Floating Rate Subordinated Unsecured Notes
(first call date 2016, maturity 2021)
AMP Subordinated Notes 2
(first call 2018, maturity 2023)3
– AMP Wholesale Capital Notes4
– AMP Capital Notes4
– Other
–
2016
2015
Current
$m
Non-current
$m
Total
$m
Current
$m
Non-current
$m
Total
$m
8,614
3,145
38
3,516
8,652
6,661
6,499
3,123
179
3,801
6,678
6,924
–
–
–
–
–
120
71
–
322
276
263
500
71
–
322
276
263
620
–
601
–
–
–
–
82
–
321
276
262
271
82
601
321
276
262
271
AMP’s life insurance entities and investment
entities controlled by AMP life insurance entities’
statutory funds
98
255
353
565
1,472
2,037
Total interest-bearing liabilities
11,977
5,241
17,218
10,788
6,664
17,452
1 Deposits comprise at call retail cash on deposit and retail term deposits at variable interest rates within the AMP Bank.
2
Includes $150m (2015: $150m) Floating Rate Subordinated Unsecured Notes to fund AMP Bank’s capital requirements (first call date 2017,
maturity 2022).
Issued on 18 December 2013 and are listed on the ASX. In certain circumstances, AMP may be required to convert some or all of AMP Subordinated
Notes 2 into AMP ordinary shares.
AMP Wholesale Capital Notes and AMP Capital Notes were issued on 27 March and 30 November 2015, respectively. They are perpetual notes
with no maturity date. In certain circumstances, AMP may be required to convert some or all of the Notes into AMP Subordinated ordinary shares.
3
4
78
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
3.2 Interest-bearing liabilities (continued)
(b) Financing arrangements
Loan facilities and note programs
In addition to the facilities arranged through bond and note issues, financing facilities are provided through bank loans under normal
commercial terms and conditions.
Available
Used
Unused facilities at the end of the year
2016
$m
2015
$m
13,529
(2,579)
15,256
(4,316)
10,950
10,940
Overdraft facility
The AMP group has access to a bank overdraft facility to help manage short-term cash flow needs. At year-end the available facility
was $838m (2015: $779m).
Accounting policy – recognition and measurement
Interest-bearing liabilities, other than those held by controlled entities of the AMP life insurance entities’ statutory funds, are initially
recognised at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest
rate method.
Borrowings of certain controlled managed investment schemes of the AMP life insurance entities’ statutory funds are measured
at amortised cost for the purpose of determining the unit price of those schemes. All other borrowings of the controlled entities of
the AMP life entities’ statutory funds are subsequently measured at fair value with movements recognised in the Income statement.
It is AMP’s policy to hedge currency and interest rate risk arising on issued bonds and subordinated debt. When hedge accounting
is applied, the carrying amounts of borrowings and subordinated debt are adjusted for changes in fair value for the period that the
hedge relationship remains effective. Any changes in fair value for the period are recognised in the Income statement.
Finance costs include:
(i) borrowing costs:
interest on bank overdrafts, borrowings and subordinated debt;
–
– amortisation of discounts or premiums related to borrowings;
exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to
interest costs;
(ii)
(iii) changes in the fair value of derivative hedges together with any change in the fair value of the hedged assets or liabilities
that are designated and qualify as fair value hedges, foreign exchange gains and losses and other financing related amounts.
The accounting policy for derivatives is set out in note 3.4.
Borrowing costs are recognised as expenses when incurred.
3.3 Financial risk management
The AMP Limited Board has overall responsibility for the risk management framework including the approval of AMP’s strategic plan,
risk management strategy and risk appetite. Specifically, financial risk arises from the holding of financial instruments and financial
risk management (FRM) is an integral part of the AMP group’s enterprise risk management framework.
This note discloses financial risk in accordance with the categories in AASB 7 Financial Instruments: Disclosures:
– market risk;
–
–
liquidity and refinancing risk;
credit risk.
These risks are managed in accordance with the board approved risk appetite statement and the individual policies for each risk
category and business approved by the chief financial officer (CFO) under delegation from the AMP Group Asset and Liability
Committee (Group ALCO).
79
AMP 2016 annual report
3.3 Financial risk management (continued)
(a) Market risk
Market risk is the risk that the fair value of assets and liabilities, or future cash flows of a financial instrument will fluctuate due to
movements in the financial markets including interest rates, foreign exchange rates, equity prices, property prices, credit spreads,
commodity prices, market volatilities and other financial market variables.
The following table provides information on significant market risk exposures for the AMP group, which could lead to an impact on
the AMP group’s profit after tax and equity, and the management of those exposures.
Market risk
Exposures
Management of exposures and use of derivatives
Interest rate risk is managed by
entering into floating-to-fixed interest
rate swaps, which have the effect of
converting borrowings from floating
rate to fixed rate.
AMP Life and NMLA manage interest
rate and other market risks pursuant
to an asset and liability management
policy and are also subject to the
relevant regulatory requirements
governed by the Life Act.
AMP Bank uses natural offsets, interest
rate swaps and basis swaps to hedge
the mismatches within exposure limits.
Group Treasury manages the exposure
in AMP Bank by maintaining a net
interest rate risk position within the
limits delegated and approved by the
AMP Bank Board.
The AMP group uses swaps to hedge the
interest rate risk and foreign currency
risk on foreign currency denominated
borrowings but does not hedge the
capital invested in overseas operations.
The AMP group hedges material foreign
currency risk originated by receipts and
payments once the value and timing
of the expected cash flow is known
excluding the international equities
portfolio attributable to shareholders
within the AMP Life Statutory No. 1 Fund.
Group Treasury executes foreign currency
forwards on behalf of AMP Capital to
hedge expected management fees
income and operation costs outflows
originated outside of Australia.
Group Treasury may, with Group ALCO
approval, use equity exposures or
equity futures or options to hedge other
enterprise-wide equity exposures.
Interest rate risk
The risk of an impact on the AMP group’s
profit after tax and equity arising from
fluctuations of the fair value or future
cash flows of financial instruments due
to changes in market interest rates.
Interest rate movements could result
from changes in the absolute levels of
interest rates, the shape of the yield
curve, the margin between yield curves
and the volatility of interest rates.
AMP group’s long-term borrowings
and subordinated debt.
Interest bearing investment assets of the
shareholder and statutory funds of AMP
Life and NMLA.
AMP Bank interest rate risk from
mismatches in the repricing terms of assets
and liabilities (term risk) and variable rate
short-term repricing bases (basis risk).
Currency risk
The risk of an impact on the AMP group’s
profit after tax and equity arising from
fluctuations of the fair value of a financial
asset, liability or commitment due to
changes in foreign exchange rates.
Foreign currency denominated assets
and liabilities.
Capital invested in overseas operations.
Foreign exchange rate movements on
specific cash flow transactions.
Equity price risk
The risk of an impact on the AMP group’s
profit after tax and equity arising from
fluctuations of the fair value or future
cash flows of a financial instrument
due to changes in equity prices.
Exposure for shareholders includes
listed and unlisted shares and participation
in equity unit trusts.
80
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016 3.3 Financial risk management (continued)
Sensitivity analysis
The table below includes sensitivity analysis showing how the profit after tax and equity would have been impacted by changes in
market risk variables. The analysis:
–
shows the direct impact of a reasonably possible change in market rate and is not intended to illustrate a remote, worst case stress
test scenario;
assumes that all underlying exposures and related hedges are included and the change in variable occurs at the reporting date;
does not include the impact of any mitigating management actions over the period to the subsequent reporting date.
–
–
The categories of risks faced and methods used for deriving sensitivity information did not change from previous periods.
Sensitivity analysis
Change in variables
Interest rate risk
Impact of a 100 basis point
(bp) change in Australian and
international interest rates
Currency risk
Impact of a 10% movement
of exchange rates against the
Australian dollar on currency
sensitive monetary assets
and liabilities
Equity price risk
Impact of a 10% movement
in Australian and international
equities. Any potential impact
on fees from the AMP group’s
investment linked business
is not included
–100bp
+100bp
10% depreciation of AUD
10% appreciation of AUD
10% increase in:
Australian equities
International equities
10% decrease in:
Australian equities
International equities
2016
2015
Impact on
profit after tax
increase (decrease)
$m
Impact
on equity1
increase (decrease)
$m
Impact on
profit after tax
increase (decrease)
$m
Impact
on equity1
increase (decrease)
$m
82
(65)
5
(6)
12
4
(11)
(6)
83
(66)
37
(32)
12
4
(11)
(6)
47
(49)
6
(7)
10
10
(11)
(11)
32
(34)
38
(33)
10
10
(11)
(11)
1
Included in the impact on equity are both the impact on profit after tax as well as the impact of amounts that would be taken directly to equity in
respect of the portion of changes in the fair value of derivatives that qualify as cash flow hedges for hedge accounting.
(b) Liquidity and refinancing risk
Risk
Exposures
Management of exposures
AMP group corporate debt portfolio,
AMP Bank and AMP Capital through
various investment funds, entities
or mandates that AMP manages or
controls within the AMP group.
Liquidity risk
The risk that the AMP group is
not able to meet its obligations
as they fall due because of an
inability to liquidate assets or
obtain adequate funding
when required.
Refinancing risk
The risk that the AMP group is not
able to refinance the full quantum
of its ongoing debt requirements
on appropriate terms and pricing.
Group Treasury maintains a defined
surplus of cash to mitigate refinancing
risk, satisfy regulatory requirements
and protect against liquidity shocks
in accordance with the liquidity risk
management policy approved by the
Group ALCO.
Financiers of loans lending to controlled
entities of the life statutory funds do not
have legal recourse beyond the operating
subsidiary borrower and there is no direct
effect on any other AMP group debt.
81
AMP 2016 annual report 3.3 Financial risk management (continued)
Maturity analysis
Below is a summary of the maturity profiles of the AMP group’s undiscounted financial liabilities and off-balance sheet items at the
reporting date, based on contractual undiscounted repayment obligations. Repayments that are subject to notice are treated as if
notice were to be given immediately.
2016
Non-derivative financial liabilities
Payables
Borrowings
Subordinated debt
Investment contract liabilities1
External unitholders’ liabilities
Derivative financial instruments
Interest rate swaps
Off-balance sheet items
Credit-related commitments – AMP Bank3
Total undiscounted financial liabilities
and off-balance sheet items2
2015
Non-derivative financial liabilities
Payables
Borrowings
Subordinated debt
Investment contract liabilities1
External unitholders’ liabilities
Derivative financial instruments
Interest rate swaps
Off-balance sheet items
Credit-related commitments – AMP Bank3
Total undiscounted financial liabilities
and off-balance sheet items2
Up to 1
year or
no term
$m
1,840
12,124
210
880
–
16
3,653
1-5 years
$m
Over 5 years
$m
Other2
$m
Total
$m
112
4,413
1,006
802
–
12
–
–
21
63
1,434
–
–
–
–
–
–
68,858
13,252
–
–
1,952
16,558
1,279
71,974
13,252
28
3,653
18,723
6,345
1,518
82,110
108,696
1,940
10,454
675
927
–
27
2,897
91
4,470
953
905
–
89
–
–
1,689
370
1,473
–
–
–
–
–
–
66,952
13,571
–
–
2,031
16,613
1,998
70,257
13,571
116
2,897
16,920
6,508
3,532
80,523
107,483
1
2
3
Investment contract liabilities are liabilities to policyholders for investment-linked business linked to the performance and value of assets that
back those liabilities. If all these policyholders claimed their funds, there may be some delay in settling the liability as assets are liquidated, but the
shareholder has no direct exposure to any liquidity risk. External unitholders’ liabilities all relate to controlled entities of the life entities’ statutory
funds and would only be paid when corresponding assets are realised.
Estimated net cash outflow profile of life insurance contract liabilities, disclosed in note 4.4(d), is excluded from the above table.
Loan commitments are off-balance sheet as they relate to unexercised commitments to lend to customers of AMP Bank.
82
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
3.3 Financial risk management (continued)
(c) Credit risk
Credit risk management is decentralised in business units within the AMP group, with the exception of credit risk directly and indirectly
impacting shareholder capital, which is measured and managed on an aggregate basis by Group Treasury at the AMP group level and
reported to Group ALCO.
Risk
Exposures
Management of exposures and use of derivatives
Credit risk
Credit default risk is the risk of financial
or reputational loss due to a counterparty
failing to meet their contractual
commitments in full and on time.
Concentration of credit risk arises when
a number of financial instruments or
contracts are entered into with the
same counterparty or where a number
of counterparties are engaged in similar
business activities that would cause their
ability to meet contractual obligations
to be similarly affected by changes in
economic or other conditions.
Wholesale credit risk on the invested
fixed income portfolios in the AMP Life
and NMLA statutory funds.
Wholesale credit risk, including portfolio
construction, in the fixed income portfolios
managed by AMP Capital.
Managed by the AMP Capital Risk and
Compliance Committee and reported
to the fund managers, within specified
credit criteria in the mandate approved
by the AMP Life and NMLA boards.
Responsibility of the individual
investment teams. There is also a
dedicated credit research team and a
specific credit investment committee.
The investment risk and performance
team provides reports to the AMP
Capital Investment Committee.
Credit risk arising in AMP Bank as
part of lending activities and
management of liquidity.
Managed as prescribed by AMP Bank’s
Risk Management Systems Description
and reported to AMP Bank ALCO monthly.
Specific detail relating to credit risk
management of the AMP Bank loan
portfolio is outlined below.
The AMP Concentration and Credit Default Risk Policy sets out the assessment and determination of what constitutes credit
concentration risk. The policy sets exposure limits based on each counterparty’s credit rating (unless special considerations are defined).
Additional limits are set for the distribution of the total portfolio by credit rating bands. Compliance with this policy is monitored and
exposures and breaches are reported to portfolio managers, senior management and the AMP Limited Board Risk Committee through
periodic financial risk management reports.
Group Treasury also might enter into credit default swaps to hedge the concentration risk exposure against a specific issuer, or
aggregated at the parent entity, when material exposures are over the authorised limit.
The exposures on interest bearing securities and cash equivalents which impact the AMP group’s capital position are managed by
Group Treasury within limits set by the AMP Concentration and Credit Default Risk Policy.
Credit risk of the loan portfolio in AMP Bank
AMP Bank is predominantly a lender for residential properties, both owner occupied and for investment. In every case, AMP Bank
completes a credit assessment, which includes cost of living allowance and requires valuation of the proposed security property.
AMP Bank’s Credit Committee and Board oversee trends in lending exposures and compliance with concentration limits. AMP Bank
secures its loan with first registered mortgages over relevant properties and as a result manages credit risk on its loan with conservative
lending policies and particular focus on the loan to value ratio (LVR). The LVR is calculated by dividing the total loan amount outstanding
by the lower of AMP Bank’s approved valuation amount or the purchase price. Loans with LVR greater than 80% are fully mortgage
insured. Mortgage insurance is provided by Genworth Mortgage Insurance Australia Ltd and QBE Lenders Mortgage Insurance Ltd who
are both regulated by APRA. The potential credit exposure to the loan mortgage insurers has been assessed to be low due to the stable
historical relationship with the bank and minimal level of historic claims rejections and reductions.
The average LVR at origination of AMP Bank’s loan portfolio for existing and new business is set out in the following table:
LVR
0–50
51–60
61–70
71–80
81–90
91–95
> 95
Existing
business
2016
%
New
business
2016
%
Existing
business
2015
%
New
business
2015
%
17
11
17
38
13
4
–
9
9
16
50
8
8
–
16
10
15
40
14
5
–
8
7
12
50
11
12
–
83
AMP 2016 annual report
3.3 Financial risk management (continued)
Past due but not impaired financial assets
Ageing of past due but not impaired financial assets is used by the AMP group to measure and manage emerging credit risks.
The following table provides an ageing analysis of debt securities that are past due as at reporting date but not impaired.
Past due but not impaired
Not past due
nor impaired
$m
Less than
31 days
$m
31-60 days
$m
61-90 days
$m
More than
91 days
$m
Total
$m
2016
Debt securities – loans and advances
2015
Debt securities – loans and advances
16,668
373
66
25
72
17,204
14,818
341
46
18
58
15,281
AMP Bank maintains individual provisions and collective loan impairment provisions against impaired loans.
Collateral and master netting or similar agreements
The AMP group obtains collateral and utilises netting agreements to mitigate credit risk exposures from certain counterparties.
(i) Derivative financial assets and liabilities
The credit risk of derivatives is managed in the context of the AMP group’s overall credit risk policies and includes the use of Credit
Support Annexes to derivative agreements which facilitate the bi-lateral posting of collateral.
Certain derivative assets and liabilities are subject to legally enforceable master netting arrangements, such as an International
Swaps and Derivatives Association (ISDA) master netting agreement. In certain circumstances, for example, when a credit event such
as a default occurs, all outstanding transactions under an ISDA agreement are terminated, the termination value is assessed and only
a single net amount is payable in settlement of all transactions.
An ISDA agreement does not automatically meet the criteria for offsetting in the Statement of financial position. This is because the
AMP group, in most cases, does not have any current legally enforceable right to offset recognised amounts.
If these netting arrangements were applied to the derivative portfolio, the derivative assets of $1,195m would be reduced by
$86m to the net amount of $1,109m and derivative liabilities of $1,150m would be reduced by $86m to the net amount of
$1,064m (2015: derivative assets of $1,790m would be reduced by $285m to the net amount of $1,505m and derivative liabilities
of $883m would be reduced by $285m to the net amount of $598m).
(ii) Repurchase agreements
Included within debt securities are assets held to back the liability for collateral deposits held in respect of debt security repurchase
arrangements entered into by the life entities’ statutory funds and controlled entities of the life entities’ statutory funds. As at
31 December 2016, if repurchase arrangements were netted, debt securities of $34,512m would be reduced by $25m to the net
amount of $34,487m and collateral deposits held of $92m would be reduced by $25m to the net amount of $67m (2015: debt
securities of $35,743m would be reduced by $162m to the net amount of $35,581m and collateral deposits held of $225m would
be reduced by $162m to the net amount of $63m).
(iii) Other collateral
The AMP group has collateral arrangements in place with some counterparties in addition to collateral deposits held with respect
to repurchase agreements. The amount and type of collateral required by AMP Bank on housing loans depends on an assessment
of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.
AMP Bank holds collateral against its loans and advances primarily in the form of mortgage interests over property, other registered
securities over assets and guarantees.
Management monitors the market value of collateral and will request additional collateral in accordance with the underlying
agreement. In the event of customer default, AMP Bank can enforce any security held as collateral against the outstanding claim.
Any loan security is usually held as mortgagee in possession while AMP Bank seeks to realise its value through the sale of property.
Therefore, AMP Bank does not hold any real estate or other assets acquired through the repossession of collateral.
Collateral generally consists of 11am loans and deposits and is exchanged between the counterparties to reduce the exposure from
the net fair value of derivative assets and liabilities between the counterparties. As at 31 December 2016 there was $2m of collateral
deposits due to other financial institutions (2015: $63m).
84
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
3.4 Other derivative information
Derivatives which are hedge accounted
Derivative instruments accounted for as fair value hedges
Fair value hedges are used to protect against changes in the fair value of financial assets and financial liabilities due to movements
in exchange rates and interest rates. During the year the AMP group recognised a net loss of $1m (2015: $4m gain) on derivative
instruments designated as fair value hedges. The net gain on the hedged interest-bearing liabilities amounted to $1m (2015: $4m loss).
Derivative instruments accounted for as cash flow hedges
The AMP group is exposed to variability in future cash flows on interest-bearing liabilities which can be at fixed and variable interest
rates. The AMP group uses interest rate swaps designated as a cash flow hedge to manage these risks.
The following schedule shows, as at reporting date, the periods when the hedged cash flows are expected to occur and when they are
expected to affect profit and loss. During the year nil (2015: nil) was recognised in the Income statement due to hedge ineffectiveness
from cash flow hedges.
2016
Cash inflows
Cash outflows
Net cash inflow (outflow)
2015
Cash inflows
Cash outflows
Net cash inflow (outflow)
0-1 year
$m
1-2 years
$m
2-3 years
$m
3-4 years
$m
4-5 years
$m
98
(104)
(6)
155
(179)
(24)
40
(38)
2
58
(43)
15
15
(14)
1
27
(16)
11
6
(8)
(2)
13
(5)
8
3
(4)
(1)
4
(1)
3
Hedges of net investments in foreign operations
The AMP group hedges its exposure to changes in exchange rates on the value of its foreign currency denominated seed pool
investments. Gains or losses on effective seed pool hedges are transferred to equity to offset any gains or losses on translation of the
net investment in foreign operations.
The AMP group recognised a profit of nil (2015: nil) due to the ineffective portion of hedges relating to investments in seed pool
foreign operations.
Accounting policy – recognition and measurement
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value exclusive of any transaction costs on the date a derivative contract
is entered into and are subsequently remeasured to their fair value at each reporting date. All derivatives are recognised as assets when
their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from the change in fair value of
derivatives, except those that qualify as effective cash flow hedges, are immediately recognised in the Income statement.
Hedge accounting
When the AMP group designates certain derivatives to be part of a hedging relationship, and they meet the criteria for hedge
accounting, the hedges are classified as:
Fair value hedges
Changes in the fair value of fair value hedges are recognised in the Income statement, together with any changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk. If a hedge no longer meets the criteria for hedge accounting, the
cumulative gains and losses recognised on the hedged item will be amortised over the remaining life of the hedged item.
Cash flow hedges
The effective portion of changes in the fair value of cash flow hedges is recognised (including related tax impacts) through Other
comprehensive income in the Cash flow hedge reserve in equity. The ineffective portion is recognised immediately in the Income
statement. The balance of the Cash flow hedge reserve in relation to each particular hedge is transferred to the Income statement in
the period when the hedged item affects profit or loss. Hedge accounting is discontinued when a hedging instrument expires or is sold
or terminated, or when a hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss existing in equity at
that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income statement. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred
to the Income statement.
85
AMP 2016 annual report
3.5 Capital management
AMP holds capital to protect customers, creditors and shareholders against unexpected losses. There are a number of ways AMP
assesses the adequacy of its capital position. Primarily, AMP aims to:
– maintain a sufficient surplus above minimum regulatory capital requirements (MRR) to reduce the risk of breaching MRR;
–
– maintain the AMP group’s credit rating.
hold sufficient liquidity to ensure that AMP has sufficient access to liquid funds, even under stress situations;
Calculation of capital resources
The AMP group’s capital resources include ordinary equity and interest-bearing liabilities. The AMP group excludes the interest-
bearing liabilities of its banking subsidiary, AMP Bank Limited, and controlled investment subsidiaries and trusts, from the AMP
group capital resources.
In determining the capital resources the AMP group needs to make adjustments to the statutory shareholder equity. Under
Australian Accounting Standards, some assets held on behalf of the policyholders (and related tax balances) are recognised in the
financial report at different values to the values used in the calculation of the liability to policyholders in respect of the same assets.
Therefore, movements in these policyholder assets result in accounting mismatches which impact the statutory equity attributable
to shareholders of AMP Limited. Mismatches arise on the following items:
–
– AMP Life Limited statutory funds’ investments in controlled entities;
– AMP Life Limited statutory funds’ superannuation products invested in AMP Bank Limited assets.
treasury shares (AMP Limited shares held by the statutory funds on behalf of policyholders);
Adjustments are also made relating to cash flow hedge reserves and to exclude the net assets of the AMP Foundation.
The table below shows the AMP group’s capital resources at reporting date:
AMP statutory equity attributable to shareholders of AMP Limited
Accounting mismatch, cash flow hedge resources and other adjustments
AMP shareholder equity
Subordinated debt1
Senior debt1
Total AMP capital resources
2016
$m
7,462
27
7,489
951
611
2015
$m
8,519
104
8,623
1,551
250
9,051
10,424
1
Amounts shown for subordinated debt and senior debt are the amounts to be repaid on maturity.
Capital requirements
A number of the operating entities within the AMP group of companies are regulated and are required to meet minimum regulatory
capital requirements (MRR). The main minimum regulatory capital requirements for AMP’s businesses are:
Operating entity
Minimum regulatory capital requirement
AMP Life Limited (AMP Life) and The National Mutual
Life Association of Australasia Limited (NMLA)
Capital adequacy requirements as specified under
the APRA Life Insurance Prudential Standards
AMP Bank Limited (AMP Bank)
Capital requirements as specified under the
APRA ADI Prudential Standards
AMP Superannuation Limited and National
Mutual Superannuation Pty Limited
Operational Risk Financial Requirements as specified
under the APRA Superannuation Prudential Standards
AMP Capital Investors Limited and other
ASIC regulated businesses
Capital requirements under AFSL requirements
and for risks relating to North
AMP’s businesses and the AMP group maintain capital targets reflecting their material risks (including financial risk, product and
insurance risk and operational risk) and AMP’s risk appetite. The target surplus is a management guide to the level of excess capital
that the AMP group seeks to carry to reduce the risk of breaching MRR.
AMP Limited, AMP Life, NMLA and AMP Bank have board approved minimum capital levels above APRA requirements, with additional
capital targets held above these amounts. Within the life insurance businesses, the capital targets above board minimums have been
set to a less than 10% probability of capital resources falling below the board minimum over a 12-month period. Capital targets are
also set for AMP Capital to cover risk associated with seed and sponsor capital investments and operational risk. Other components of
AMP group’s capital targets include amounts relating to Group Office investments, defined benefit funds and other operational risks.
All of the AMP group regulated entities have at all times during the current and prior financial year complied with the externally
imposed capital requirements to which they are subject.
86
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
Section 4: Life insurance and investment contracts
This section explains how AMP’s liabilities in respect of life insurance contracts and investment contracts are measured, including
the methodologies and key assumptions that are applied. It also details the key components of the profits that are recognised in
respect of life insurance contracts and the sensitivity of those profits to variations in assumptions.
4.1 Accounting for life insurance contracts and investment contracts
4.2 Life insurance contracts – premiums, claims, expenses and liabilities
4.3 Life insurance contracts – assumptions and valuation methodology
4.4 Life insurance contracts – risk
4.5 Other disclosure – life insurance contracts and investment contracts
4.1 Accounting for life insurance contracts and investment contracts
The AMP group’s life insurance related activities were conducted through two registered life insurance companies, AMP Life Limited
(AMP Life) and The National Mutual Life Association of Australasia Limited (NMLA), collectively ‘the AMP life insurance entities’.
The two major contract classifications are investment contracts and life insurance contracts.
For the purposes of this financial report, holders of investment contracts or life insurance contracts are collectively and individually
referred to as policyholders.
Investment contracts
The investment contracts of the AMP life insurance entities relate to wealth management products such as savings, investment-linked
and retirement income policies. The nature of this business is that the AMP life insurance entities receive deposits from policyholders
and those funds are invested on behalf of the policyholders. Fees and other charges are passed to the shareholder and reported as revenue.
The liability to policyholders, other than for fixed retirement income policies, is linked to the performance and value of the assets that
back those liabilities. The fair value of such liabilities is therefore the same as the fair value of those assets. For fixed retirement income
policies, the liability is linked to the fair value of the fixed retirement income payments and associated management services.
The fair value of the fixed retirement income payments is calculated as their net present value using a fair value discount rate.
The fair value of the associated management services element is the net present value, using a fair value discount rate, of all expenses
associated with the provision of services and any profit margins thereon.
Life insurance contracts
The AMP life insurance entities issue contracts that transfer significant insurance risk from the policyholder, covering death,
disability or longevity of the insured. In addition, there are some policies known as discretionary participating contracts that are
similar to investment contracts, but the timing of the vesting of the profit attributable to the policyholders is at the discretion of the
AMP life insurance entities. Such contracts are defined as life insurance contracts and accounted for using Margin on Services (MoS).
Under MoS, the excess of premium received over claims and expenses (the margin) is recognised over the life of the contract in a
manner that reflects the pattern of risk accepted from the policyholder (the service). The planned release of this margin is included
in the movement in life insurance contract liabilities recognised in the Income statement.
Life insurance contract liabilities are usually determined using a projection method, whereby estimates of policy cash flows (premiums,
benefits, expenses and profit margins to be released in future periods) are projected using best-estimate assumptions about the future.
The liability is calculated as the net present value of these projected cash flows. When the benefits under a life insurance contract
are linked to the assets backing it, the discount rate applied is based on the expected future investment earnings rate of those assets.
Where the benefits are not linked to the performance of the backing assets, a risk-free discount rate is used. The risk-free discount rate
is based on the zero coupon government bond rate and a liquidity margin, which depend on the nature, structure and terms of the
contract liabilities.
An accumulation method may be used if it produces results that are not materially different from those produced by a projection
method. A modified accumulation method is used for some discretionary participating business, where the life insurance liability is
the accumulation of amounts invested by policyholders, less fees specified in the policy, plus investment earnings and vested benefits,
adjusted to allow for the fact that crediting rates are determined by reference to investment income over a period of greater than
one year. The accumulation method may be adjusted to the extent that acquisition expenses are to be recovered from future margins
between fees and expenses.
Allocation of operating profit and unvested policyholder benefits
The operating profit arising from discretionary participating contracts is allocated between shareholders and participating
policyholders by applying the MoS principles in accordance with the Life Insurance Act 1995 (Cth) (Life Act) and the Participating
Business Management Framework applying to NMLA.
Once profit is allocated to participating policyholders it can only be distributed to these policyholders.
Profit allocated to participating policyholders is recognised in the Income statement as an increase in policy liabilities. The policy
liabilities include profit that has not yet been allocated to specific policyholders (ie unvested) and that which has been allocated
to specific policyholders by way of bonus distributions (ie vested).
Bonus distributions to participating policyholders do not alter the amount of profit attributable to shareholders. There are merely
changes to the nature of the liability from unvested to vested.
87
AMP 2016 annual report (ii)
4.1 Accounting for life insurance contracts and investment contracts (continued)
The principles of allocation of the profit arising from discretionary participating business are as follows:
(i)
investment income (net of tax and investment expenses) on retained earnings in respect of discretionary participating business
is allocated between policyholders and shareholders in proportion to the balances of policyholders’ and shareholders’ retained
earnings. This proportion is, mostly, 80% to policyholders and 20% to shareholders;
other MoS profits arising from discretionary participating business are allocated 80% to policyholders and 20% to shareholders,
with the following exceptions:
–
the profit arising from New Zealand corporate superannuation business is apportioned such that shareholders are allocated
15% of the profit allocated to policyholders;
the profit arising in respect of preservation superannuation account business is allocated 92.5% to policyholders and 7.5%
to shareholders;
the profits arising from NMLA’s discretionary participating investment account business where 100% of investment profit is
allocated to policyholders and 100% of any other profit or loss is allocated to shareholders, with the over-riding provision being
that at least 80% of any profit and not more than 80% of any loss be allocated to policyholders’ retained profits of the relevant
statutory fund;
the underwriting profit arising in respect of NMLA’s participating super risk business is allocated 90% to policyholders and
10% to shareholders.
–
–
–
Allocation of expenses within the life insurance entities’ statutory funds
All operating expenses relating to the life insurance contract and investment contract activities are apportioned between acquisition,
maintenance and investment management expenses. Expenses which are directly attributable to an individual life insurance contract
or investment contract or product are allocated directly to a particular expense category, fund, class of business and product line
as appropriate.
Where expenses are not directly attributable, they are appropriately apportioned, according to detailed expense analysis, with due
regard to the activities to which that expense relates. The apportionment basis has been made in accordance with Actuarial Standards
and on an equitable basis to the different classes of business in accordance with the Life Act.
The costs apportioned to life insurance contracts are included in the determination of the margin described in note 4.1.
Investment management expenses of the life statutory funds are classified as operating expenses.
Reinsurance
Life insurance contract premium ceded to reinsurers is recognised as an expense and Life insurance contract claims recovered
from reinsurers is recognised as income.
Upfront commission received on quota share reinsurance contracts is recognised as commission revenue and a corresponding
reinsurance liability is recognised representing the obligation to pay future premiums to the reinsurer. The establishment of the
reinsurance liability is reflected in Change in policyholder liabilities. The liability will be released in line with the release of the profit
margin on the underlying insurance contracts.
The present value of AMP’s net contractual rights and obligations under reinsurance contracts is presented as a reinsurance asset
or a reinsurance liability.
Changes in the reinsurance asset and the reinsurance liability during the period are recognised as Changes in policyholder liabilities.
On-going commission from reinsurers is recognised as revenue at the time the commission is received or receivable.
Critical accounting estimates and judgements:
Life insurance contract liabilities
The measurement of insurance contract liabilities is determined using the MoS methodology. The determination of the liability
amounts involves judgement in selecting the valuation methods, profit carriers and valuation assumptions for each type of business.
The determination is subjective and relatively small changes in assumptions may have a significant impact on the reported profit.
The board of each of the life entities is responsible for these judgements and assumptions, after taking advice from the Appointed Actuary.
Investment contract liabilities
Investment contract liabilities are measured at fair value. For the majority of contracts, the fair value is determined based on published
unit prices and the fair value of backing assets, and does not generally require the exercise of judgement. For fixed income products and
the North capital guarantee, fair value is determined using valuation models. Judgement is applied in selecting the valuation model and
setting the valuation assumptions.
88
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.2 Life insurance contracts – premiums, claims, expenses and liabilities
(a) Analysis of life insurance contract related revenue – net of reinsurance
Life insurance contract premium revenue1
Commission received from reinsurers
Life insurance contract related revenue
Life insurance contract premium ceded to reinsurers
Life insurance contract related revenue – net of reinsurance
(b) Analysis of life insurance contract claims expenses – net of reinsurance
Life insurance contract claims expense
Life insurance claims recovered from reinsurers
Life insurance contract claims expenses – net of reinsurance
(c) Analysis of life insurance contract operating expenses
Life insurance contract acquisition expenses
–
commission
– other expenses
Life insurance contract maintenance expenses
–
commission
– other expenses
Investment management expenses
2016
$m
2015
$m
2,333
550
2,883
(243)
2,337
–
2,337
(176)
2,640
2,161
(2,038)
150
(1,988)
128
(1,888)
(1,860)
(52)
(141)
(191)
(389)
(51)
(58)
(150)
(192)
(386)
(53)
1
Life insurance contract premium revenue consists entirely of direct insurance premiums; there is no inward reinsurance component.
(d) Life insurance contract liabilities
Life insurance contract liabilities determined using projection method
Best estimate liability
–
–
–
Value of future profits
–
–
value of future life insurance contract benefits
value of future expenses
value of future premiums
life insurance contract holder bonuses
shareholders’ profit margins
Total life insurance contract liabilities determined using the projection method1
Life insurance contract liabilities determined using accumulation method
Best estimate liability
–
–
value of future life insurance contract benefits
value of future acquisition expenses
Total life insurance contract liabilities determined using the accumulation method
Value of declared bonus
Unvested policyholder benefits liabilities1
Total life insurance contract liabilities net of reinsurance
Reinsurance asset – ceded life insurance contracts
Reinsurance liability – ceded life insurance contracts2
Total life insurance contract liabilities gross of reinsurance
18,120
4,789
(16,209)
19,333
4,964
(19,447)
3,188
2,606
3,129
3,338
12,494
11,317
9,181
(65)
9,549
(87)
9,116
9,462
351
2,248
384
2,217
24,209
23,380
546
(530)
491
–
24,225
23,871
1
2
For participating businesses in the statutory funds, part of the assets in excess of the life insurance contract and other liabilities calculated
under MoS is attributed to policyholders. Under the Life Act, this is referred to as policyholder retained profits. For the purpose of reporting under
accounting standards, this amount is referred to as unvested policyholder benefits liabilities and is included within life insurance contract liabilities
even though it is yet to be vested as specific policyholder entitlements.
Reinsurance liability – ceded life insurance contracts reflects the present value of the net obligation to transfer cash flows under the new 50% quota
share reinsurance arrangement effective from 1 November 2016 in return for the upfront commission received.
89
AMP 2016 annual report
4.2 Life insurance contracts – premiums, claims, expenses and liabilities (continued)
(e) Reconciliation of changes in life insurance contract liabilities
Total life insurance contract liabilities at the beginning of the year
Change in life insurance contract liabilities recognised in the Income statement
Premiums recognised as an increase in life insurance contract liabilities
Claims recognised as a decrease in life insurance contract liabilities
Change in reinsurance asset – ceded life insurance contracts
Change in reinsurance liability – ceded life insurance contracts
Foreign exchange adjustment
Total life insurance contract liabilities at the end of the year
2016
$m
2015
$m
23,871
1,471
415
(1,140)
55
(530)
83
24,403
240
467
(1,153)
(38)
–
(48)
24,225
23,871
4.3 Life insurance contracts – assumptions and valuation methodology
Life insurance contract liabilities, and hence the net profits from life insurance contracts, are calculated by applying the principles of
margin on services (MoS) described in note 4.1. The key assumptions and methods used in the calculation of life insurance contract
liabilities are outlined below.
The methods and profit carriers used to calculate life insurance contract liabilities for particular policy types are as follows:
Business type
Method
Conventional
Investment account
Retail risk (lump sum)
Retail risk (income protection)
Group risk (lump sum)
Group risk (income benefits)
Participating allocated annuities (AMP Life only)
Life annuities
Projection
Modified accumulation
Projection
Projection
Accumulation
Accumulation
Modified accumulation
Projection
Profit carriers (for business
valued using projection method)
Bonuses
n/a
Expected premiums
Expected premiums
n/a
n/a
n/a
Annuity payments
(a) Risk-free discount rates
Except where benefits are contractually linked to the performance of the assets held, a risk-free discount rate based on current
observable, objective rates that relate to the nature, structure and term of the future obligations is used. The rates are determined as
shown in the following table:
Business type
Basis1
Retail risk (other than
income benefit open claims)1
Zero coupon government bond
yield curve
31 December 2016
31 December 2015
Australia
%
New Zealand
%
Australia
%
New Zealand
%
1.7–4.1
1.9–4.8
2.0–3.7
2.7–4.5
Retail risk and group risk
(income benefit open claims)1
Zero coupon government bond yield
curve (including liquidity premium)
2.1–4.4
2.2–5.1
2.5–4.2
3.1–5.0
Life annuities2
Non-
CPI
CPI
Zero coupon government bond yield
curve (including liquidity premium)
Commonwealth indexed bond yield
curve (including liquidity premium)
2.2–4.5
2.3–5.2
2.6–4.3
3.3–5.1
0.7–1.6
0.9–3.4
0.8–1.8
2.0–3.5
1
2
The discount rates vary by duration in the range shown above.
Australian non-CPI annuities and all CPI annuities are AMP Life only.
90
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(b) Future maintenance and investment expenses
Unit maintenance costs are based on budgeted expenses in the year following the reporting date (including GST, as appropriate, and
excluding one-off expenses). For future years, these are increased for inflation as described in (c) below. These expenses include fees
charged to the life statutory funds by service companies in the AMP group. Unit costs vary by product line and class of business based
on an apportionment that is supported by expense analyses.
Future investment expenses are based on the fees currently charged by the asset managers.
Inflation and indexation
(c)
Benefits and premiums of many regular premium policies are automatically indexed by the published consumer price index (CPI).
Assumed future take-up of these indexation options is based on AMP Life’s and NMLA’s own experience. The annual future CPI rates
are derived from the difference between long-term government bonds and indexed government bonds.
The expense inflation assumptions have been set based on the inflation rates, recent expense performance, AMP Life’s and NMLA’s
current plans and the terms of the relevant service company agreements, as appropriate.
The assumed CPI and expense inflation rates at the valuation date are:
Australia
%
New Zealand
%
31 December 2016
31 December 2015
AMP Life and NMLA
AMP Life and NMLA
2.0 CPI, 3.0 expenses
2.2 CPI, 3.0 expenses
1.5 CPI, 2.0 expenses
2.5 CPI, 3.0 expenses
(d) Bases of taxation
The bases of taxation (including deductibility of expenses) are assumed to continue in accordance with legislation current at the
valuation date.
(e) Voluntary discontinuance
Assumptions for the incidence of withdrawals, paid ups and premium dormancy are primarily based on investigations of AMP
Life’s and NMLA’s own historical experience. These rates are based upon the assessed global rate for each of the individual products
(or product groups) and then, where appropriate, further adjusted for duration, premium structure, smoker status, age attained or
short-term market and business effects. Given the variety of influences affecting discontinuance for different product groups, the
range of voluntary discontinuance rates across AMP Life and NMLA is extremely diverse.
The assumptions for future rates of discontinuance for the major classes of life insurance contracts have been reviewed and
strengthened for some business lines from those assumed at 31 December 2015, as shown in the following table.
Business type
Conventional
Retail risk (lump sum)
Retail risk (income benefit)
Life company
AMP Life
NMLA
AMP Life
NMLA
AMP Life
NMLA
Flexible Lifetime Super (FLS) risk business
AMP Life
Investment account
AMP Life
NMLA
31 December 2016
31 December 2015
Australia
%
New Zealand
%
Australia
%
New Zealand
%
1.7–4.1
2.0–9.4
1.1–1.6
1.9–2.5
1.7–4.1
2.1–9.4
14.2–18.3
12.7–13.5
11.2–19.1
8.0–13.5
13.3–16.5
n/a
n/a
12.0
11.6
11.4
9.5
n/a
n/a
n/a
12.1–16.4
13.3–15.1
9.1–19.1
12.0–13.3
10.2–18.9
n/a
n/a
1.1–1.7
1.9–2.5
12.0–13.0
11.6
11.4
9.5
n/a
n/a
n/a
(f) Surrender values
The surrender bases assumed for calculating surrender values are those current at the reporting date. There have been no changes to
the bases during the year (or the prior year) that would materially affect the valuation results.
91
AMP 2016 annual report
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(g) Mortality and morbidity
Standard mortality tables, based on national or industry-wide data, are used.
Rates of mortality assumed at 31 December 2016 for AMP Life and NMLA are as follows:
–
Retail risk mortality rates for AMP Life Australia and NMLA Australia have been reviewed and strengthened for some business
lines from those assumed at 31 December 2015, as indicated in the tables below. Retail risk mortality rates for AMP Life and
NMLA New Zealand are unchanged from those assumed at 31 December 2015. The rates are based on the Industry standard
IA04-08 Death Without Riders;
Conventional business mortality rates are unchanged from those assumed at 31 December 2015;
–
– Annuitant mortality rates are unchanged from those assumed at 31 December 2015.
For Australian income protection business, the assumptions have been updated and based on the recently released ADI07-11 standard
table modified for AMP Life and NMLA with overall product specific adjustment factors. For New Zealand income protection business, the
assumptions are unchanged from those assumed at 31 December 2015. These assumptions are based on the IAD89-93 standard table.
For Australian TPD and Trauma business, the AMP Life and NMLA retail risk products assumptions have been strengthened for some
business lines from those assumed at 31 December 2015. For New Zealand TPD and Trauma business, the retail risk products assumptions
are unchanged from those assumed at 31 December 2015. These assumptions are based on the latest industry table IA04-08.
The assumptions are summarised in the following table.
Conventional
31 December 2016
Australia
New Zealand
31 December 2015
Australia
New Zealand
Risk products
31 December 2016
Australia1
New Zealand
31 December 2015
Australia1
New Zealand
Conventional –
% of IA95-97 (AMP Life)
Conventional –
% of IA95-97 (NMLA)
Male
Female
Male
Female
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
Retail Lump Sum –
% of table (AMP Life)
Retail Lump Sum –
% of table (NMLA)
Male
Female
Male
Female
94–148
100
94–148
82
100–106
120
100–106
98
86–118
100
86–118
82
88–104
120
88–104
98
1
Base IA04-08 Death Without Riders table modified based on aggregated experience but with overall product-specific adjustment factors.
Annuities
31 December 2016
Australia and New Zealand1
31 December 2015
Australia and New Zealand1
1
Annuities tables modified for future mortality improvements.
AMP Life
NMLA
Male –
% of IML00*
Female –
% of IFL00*
Male –
% of IML00*
Female –
% of IFL00*
95.0
80.0
95.0
80.0
95.0
80.0
95.0
80.0
92
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Typical morbidity assumptions, in aggregate, are as follows:
Income protection
31 December 2016
Australia
31 December 2015
Australia
Income protection
31 December 2016
New Zealand
31 December 2015
New Zealand
Retail lump sum
31 December 2016
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
31 December 2015
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
Incidence rates
2016 – % of ADI 07-11
2015 – % of IAD 89-93
(AMP Life)
Incidence rates
2016 – % of ADI 07-11
2015 – % of IAD 89-93
(NMLA)
Termination rates
(ultimate)
2016 – % of ADI 07-11
2015 – % of IAD 89-93
(AMP Life)
Termination rates
(ultimate)
2016 – % of ADI 07-11
2015 – % of IAD 89-93
(NMLA)
45–143
70–146
86–99
70–95
49–138
60–125
44–75
41–72
Incidence rates
% of IAD 89-93
(AMP Life)
Incidence rates
% of IAD 89-93
(NMLA)
Termination rates
(ultimate)
% of IAD 89-93
(AMP Life)
Termination rates
(ultimate)
% of IAD 89-93
(NMLA)
45–67
53–80
57–78
41–57
45–67
53–80
57–78
41–57
Male
% of IA04-08
(AMP Life)
Male
% of IA04-08
(NMLA)
Female
% of IA04-08
(AMP Life)
Female
% of IA04-08
(NMLA)
150–173
102–168
150
114
140–155
105–110
150
114
132–143
120–134
194
101
125–138
96–116
194
101
170–196
102–168
190
114
177–196
105–121
190
114
150–162
120–134
194
101
158–175
96–111
194
101
1
2
Base IA04-08 TPD table modified based on our aggregated experience but with overall product-specific adjustment factors.
Base IA04-08 Trauma table modified based on our aggregated experience but with overall product-specific adjustment factors.
The actuarial tables used were as follows:
IA95-97
A mortality table developed by the Institute of Actuaries of Australia based on Australian insured lives experience
from 1995–1997. The table has been modified to allow for future mortality improvement.
IML00*/IFL00*
IML00 and IFL00 are mortality tables developed by the Institute and Faculty of Actuaries based on United Kingdom
annuitant lives experience from 1999–2002. The tables refer to male and female lives respectively and incorporate
factors that allow for mortality improvements since the date of the investigation. IML00* and IFL00* are these
published tables amended for some specific AMP Life and NMLA experience.
IA04-08 DTH
This was published by the Institute of Actuaries of Australia under the name A graduation of the 2004-2008
Lump Sum Investigation Data. The table has been modified based on aggregated experience with overall product
specific adjustment factors.
IA04-08 TPD
This is the TPD graduation published in the same paper as above.
IA04-08 Trauma This is the Trauma graduation published in the same paper as above.
IAD 89-93
ADI 07-11
A disability table developed by the Institute of Actuaries of Australia based on Australian disability income experience
for the period 1989–1993. The table has been adjusted to take account of AMP Life’s and NMLA’s own experience.
A disability table developed by KPMG at the request of the Financial Services Council (FSC) based on Australian
disability income experience for the period 2007–2011. This table has been modified for AMP Life and NMLA with
overall product-specific adjustment factors.
93
AMP 2016 annual report
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(h) Other participating business assumptions
Where benefits are contractually linked to the performance of the assets held, as is the case for participating businesses, a discount
rate based on the expected market return on backing assets is used. The assumed earning rates for backing assets for participating
businesses are largely driven by long-term (eg 10 year) government bond yields. The 10 year government bond yields used at the
relevant valuation dates are as shown in the following table.
Assumed earning rates for each asset sector are determined by adding to the bond yield various risk premiums which reflect the
relative differences in expected future earning rates for different asset sectors. For products backed by mixed portfolio assets, the
assumption varies with the proportion of each asset sector backing the product. The risk premiums applicable at the valuation date
are shown in the table below.
31 December 2016
Australia
New Zealand
31 December 2015
Australia
New Zealand
10 year
government
bonds
%
Local
equities
%
International
equities
%
Property and
Infrastructure
%
Fixed
interest
%
Risk premiums
2.8
3.4
2.9
3.6
4.5
4.5
4.5
4.5
3.5
3.5
3.5
3.5
2.5 AMP Life: 0.6
NMLA: 0.7
2.5 AMP Life: 0.6
NMLA: 0.1
2.5 AMP Life: 0.7
NMLA: 0.8
2.5 AMP Life: 0.7
NMLA: 0.0
Cash
%
(0.5)
(0.5)
(0.5)
(0.5)
The risk premiums for local equities include allowance for imputation credits. The risk premiums for fixed interest reflect credit ratings
of the portfolio held.
The averages of the asset mixes assumed for the purpose of setting future investment assumptions for participating businesses at
the valuation date are as shown in the table below for each life company. These asset mixes are not necessarily the same as the actual
asset mix at the valuation date as they reflect long-term assumptions.
Average asset mix1
31 December 2016
Australia
New Zealand
31 December 2015
Australia
New Zealand
Equities
%
Property and
Infrastructure
%
Fixed
interest
%
AMP Life
NMLA
AMP Life
NMLA
AMP Life
NMLA
AMP Life
NMLA
26
36
34
38
26
36
34
38
13
18
17
19
13
18
17
19
39
32
41
34
39
32
42
34
Cash
%
22
14
8
9
22
14
7
9
1
The asset mix in the table above includes both conventional and investment account business for AMP Life, but only conventional business for
NMLA. As described in note 4.1, 100% of investment profits on NMLA’s investment account business are allocated to policyholders.
Where an assumption used is net of tax, the tax on investment income is allowed for at rates appropriate to the class of business and
asset sector, including any allowance for imputation credits on equity income. For this purpose, the total return for each asset sector is
split between income and capital gains. The actual split has varied at each valuation date as the total return has varied.
For participating business, the total value of future bonuses (and the associated shareholders’ profit margins) included in life insurance
contract liabilities is the amount supported by the value of the supporting assets, after allowing for the assumed future experience.
The pattern of bonuses and shareholders’ profit margins assumed to emerge in each future year depends on the assumed relationship
between reversionary bonuses (or interest credits) and terminal bonuses. This relationship is set to reflect the philosophy underlying
actual bonus declarations.
94
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Actual bonus declarations are determined to reflect, over time, the investment returns of the particular fund and other factors in the
emerging experience and management of the business. These factors include:
–
–
–
–
allowance for an appropriate degree of benefit smoothing;
reasonable expectations of policyholders;
equity between generations of policyholders applied across different classes and types of business;
ongoing capital adequacy.
Given the many factors involved, the range of bonus structures and rates for participating business is extremely diverse.
Typical supportable bonus rates on major product lines are as follows for AMP Life and NMLA (31 December 2015 in parentheses).
Reversionary bonus
Australia
New Zealand
AMP Life
NMLA
AMP Life
NMLA
Bonus on sum insured
%
Bonus on existing bonuses
%
0.8–1.0 (0.9–1.0)
0.4–1.0 (0.5–1.0)
0.7–1.0 (0.8–1.2)
0.8 (0.8)
1.0–1.5 (1.0–1.6)
0.8–1.5 (0.9–1.4)
0.7–1.0 (0.8–1.2)
1.1 (1.1)
Terminal bonus
The terminal bonus scales are complex and vary by duration, product line, class of business and country for AMP Life and NMLA.
Crediting rates (investment account)
Australia
New Zealand
AMP Life
NMLA
AMP Life
NMLA
%
1.3–3.7 (0.3–5.5)
2.2–5.2 (3.1–7.9)
2.0–3.3 (3.1–7.1)
5.4–6.4 (5.9–7.4)
Impact of changes in assumptions
(i)
Under MoS, for life insurance contracts valuations using the projection method, changes in assumptions are recognised by adjusting
the value of future profit margins in life insurance contract liabilities. Future profit margins are released over future periods.
Changes in assumptions do not include market-related changes in discount rates such as changes in benchmark market yields caused
by changes in investment markets and economic conditions. These are reflected in both life insurance contract liabilities and asset
values at the reporting date.
The impact on future profit margins of actual changes in assumptions from 31 December 2015 to 31 December 2016 in respect of life
insurance contracts (excluding new business contracts which are measured using assumptions at reporting date) is as shown in the
table below for the two life companies.
Assumption change
AMP Life
Change in
life insurance
contract
liabilities2
$m
Change in
future profit
margins
$m
Change in
shareholders’
profit and
equity3
$m
Change in
future profit
margins
$m
NMLA
Change in
life insurance
contract
liabilities2
$m
Change in
shareholders’
profit and
equity3
$m
Non-market-related changes to discount rates
Mortality and morbidity
Discontinuance rates
Maintenance expenses
Other assumptions1
(8)
(247)
(85)
138
(209)
–
212
23
88
(48)
–
(149)
(16)
(62)
33
11
(66)
(121)
(55)
44
2
240
19
157
(84)
(1)
(168)
(13)
(110)
59
1 Other assumption changes include the impact of modelling, reinsurance, product and premium changes.
2
3
Change in life insurance contract liabilities is net of reinsurance, gross of tax.
Change in shareholders’ profit and equity is net of reinsurance, net of tax.
In most cases, the overall amount of life insurance contract liabilities and the current period profit are not affected by changes in
assumptions. However, where in the case of a particular related product group, the changes in assumptions at the end of a period
eliminate any future profit margins for the related product group, and result in negative future profit margins, this negative balance
for all forecasted future periods is recognised as a loss in the current period. If the changes in assumptions in a period are favourable
for a product group currently in loss recognition, then the previously recognised losses are reversed in the period.
95
AMP 2016 annual report
4.4 Life insurance contracts – risk
(a) Life insurance risk
AMP Life and NMLA life insurance entities issue contracts that transfer significant insurance risk from the policyholder, covering
death, disability or longevity of the insured, often in conjunction with the provision of wealth management products.
The products carrying insurance risk are designed to ensure that policy wording and promotional materials are clear, unambiguous
and do not leave AMP Life and NMLA open to claims from causes that were not anticipated. The variability inherent in insurance risk,
including concentration risk, is managed by having a large geographically diverse portfolio of individual risks, underwriting and the
use of reinsurance.
Underwriting is managed through a dedicated underwriting department, with formal underwriting limits and appropriate training
and development of underwriting staff. Individual policies carrying insurance risk are generally underwritten individually on their
merits. Individual policies which are transferred from a group scheme are generally issued without underwriting. Group risk insurance
policies meeting certain criteria are underwritten on the merits of the employee group as a whole.
Claims are managed through a dedicated claims management team, with formal claims acceptance limits and appropriate training
and development of staff with an objective to ensure payment of all genuine claims. Claims experience is assessed regularly and
appropriate actuarial reserves are established to reflect up-to-date experience and any anticipated future events. This includes reserves
for claims incurred but not yet reported.
AMP Life and NMLA reinsure (cede) to reinsurance companies a proportion of their portfolio or certain types of insurance risk, including
catastrophe. This serves primarily to:
–
–
–
–
–
reduce the net liability on large individual risks;
obtain greater diversification of insurance risks;
provide protection against large losses;
reduce overall exposure to risk;
reduce the amount of capital required to support the business.
The reinsurance companies are regulated by the Australian Prudential Regulation Authority (APRA), or industry regulators in other
jurisdictions and have strong credit ratings from A+ to AA+.
96
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016 4.4 Life insurance contracts – risk (continued)
(b) Key terms and conditions of life insurance contracts
The nature of the terms of the life insurance contracts written by AMP Life and NMLA is such that certain external variables can be
identified on which related cash flows for claim payments depend. The following table provides an overview of the key variables upon
which the timing and uncertainty of future cash flows of the various life insurance contracts issued by AMP Life and NMLA depend.
Type of contract
Detail of contract workings
Nature of compensation for claims
Non-participating
life insurance
contracts with fixed
and guaranteed
terms (term life
and disability)
These policies provide guaranteed
benefits, which are paid on death or
ill-health, that are fixed and not at
the discretion of the Life Companies.
Premium rates for yearly renewable
business are not guaranteed and may
be changed at the discretion of the Life
Companies for the portfolio as a whole.
Benefits are defined by the insurance
contract and are not directly affected
by the investment performance of
any underlying assets.
Life annuity
contracts
These policies provide a guaranteed
regular income for the life of the
insured in exchange for an initial
single premium.
The amount of the guaranteed
regular income is set at inception
of the policy allowing for any
indexation.
Conventional life
insurance contracts
with discretionary
participating
benefits
(endowment and
whole of life)
The policyholder pays a regular premium
and receives the specified sum insured
plus any accruing bonuses on death or
maturity. The sum insured is specified
at inception and guaranteed. Bonuses
are added annually, which once added
are guaranteed. A further bonus may be
added on surrender, death or maturity.
Investment account
contracts with
discretionary
participating
features
The gross value of premiums received is
invested in the investment account with
fees and premiums for any associated
insurance cover being deducted from
the account balance when due. Interest
is credited regularly.
Benefits arising from the
discretionary bonuses are based
on the performance of a specified
pool of contracts and the assets
supporting these contracts.
Payment of the account balance is
generally guaranteed, although it
may be subject to certain penalties
on early surrender or limited
adjustment in adverse investment
markets. Operating profit arising
from these contracts is allocated
between the policyholders and
shareholders with not less than
80% allocated to policyholders.
Distribution of policyholder profit is
through an interest rate mechanism.
Key variables affecting
future cash flows
Mortality, morbidity,
lapses, expenses and
investment market
earning rates on assets
backing the liabilities.
Longevity, expenses,
inflation and
investment market
earning rates on assets
backing the liabilities.
Investment market
earning rates on
assets backing the
liabilities, lapses,
expenses and mortality.
Fees, lapses, expenses
and investment
market earning rates
on the assets backing
the liabilities.
97
AMP 2016 annual report 4.4 Life insurance contracts – risk (continued)
(c) Insurance risk sensitivity analysis – life insurance contracts
For life insurance contracts that are accounted for under MoS, amounts of liabilities, income or expense recognised in the period are
unlikely to be sensitive to changes in variables even if those changes may have an impact on future profit margins, unless the product
is in or close to loss recognition.
This table shows information about the sensitivity of life insurance contract liabilities and current period shareholder profit after
income tax and equity, to a number of possible changes in assumptions relating to insurance risk.
Variable
Change in variable
Change in life insurance
contract liabilities
Change in shareholder profit
after income tax and equity
Gross of
reinsurance
$m
Net of
reinsurance
$m
Gross of
reinsurance
$m
Net of
reinsurance
$m
AMP Life
Mortality
Annuitant mortality
10% increase in mortality rates
50% increase in the rate of
mortality improvement
Morbidity – lump sum disablement 20% increase in lump sum disablement rates
Morbidity – disability income
Morbidity – disability income
Discontinuance rates
Maintenance expenses
10% increase in incidence rates
10% decrease in recovery rates
10% increase in discontinuance rates
10% increase in maintenance expenses
NMLA
Mortality1
Annuitant mortality
10% increase in mortality rates
50% increase in the rate of
mortality improvement
Morbidity – lump sum disablement 20% increase in lump sum disablement rates
Morbidity – disability income
Morbidity – disability income
Discontinuance rates
Maintenance expenses
10% increase in incidence rates
10% decrease in recovery rates
10% increase in discontinuance rates
10% increase in maintenance expenses
(1)
1
–
80
123
19
6
11
–
77
118
224
23
5
1
This includes the impact on death benefits that are payable on some disability income products.
(1)
1
–
43
73
14
6
8
–
63
97
178
20
5
1
(1)
–
(56)
(86)
(14)
(4)
(8)
–
(54)
(83)
(157)
(16)
(3)
1
(1)
–
(30)
(51)
(10)
(4)
(6)
–
(44)
(68)
(125)
(14)
(3)
(d) Liquidity risk and future net cash outflows
The following table shows the estimated timing of future net cash outflows resulting from insurance contract liabilities. This includes
estimated future surrenders, death/disability claims and maturity benefits, offset by expected future premiums or contributions and
reinsurance recoveries. All values are discounted to the reporting date using the assumed future investment earning rate for each product.
Up to 1 year
$m
1-5 years
$m
Over 5 years
$m
Total
$m
1,479
1,116
3,270
2,769
8,958
8,342
13,707
12,227
2016
2015
98
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.5 Other disclosure – life insurance contracts and investment contracts
(a) Analysis of life insurance and investment contract profit
Components of profit (loss) related to life insurance and investment contract liabilities:
–
–
–
–
planned margins of revenues over expenses released
profits (losses) arising from difference between actual and assumed experience
profits (losses) arising from changes in assumptions
capitalised (losses) reversals
Profit (loss) related to life insurance and investment contract liabilities
Attributable to:
–
–
life insurance contracts
investment contracts
Profit (loss) related to life insurance and investment contract liabilities
Investment earnings on assets in excess of life insurance and investment contract liabilities
2016
$m
2015
$m
580
(137)
(49)
(426)
(32)
(250)
218
(32)
157
559
71
29
–
659
437
222
659
115
(b) Restrictions on assets in statutory funds
AMP Life and NMLA conduct investment-linked and non-investment linked business. For investment-linked business, deposits are
received from policyholders, the funds are invested on behalf of the policyholders and the resulting liability to policyholders is linked
to the performance and value of the assets that back those liabilities.
AMP Life has three statutory funds as set out below:
No. 1 fund
Australia
Capital guaranteed business (whole of life, endowment, investment account,
retail and group risk and immediate annuities)
New Zealand
All business (whole of life, endowment, investment account, retail and group risk,
investment-linked and immediate annuities)
No. 2 fund
Australia
Investment-linked superannuation business (retail and group investment-linked
and deferred annuities)
No. 3 fund
Australia
Investment-linked ordinary business
NMLA has six statutory funds as set out below:
No. 1 fund
Australia
Capital guaranteed ordinary business (whole of life, endowment, investment account
and retail and group risk)
New Zealand
All business (whole of life, endowment, investment account, retail and group risk,
retail investment-linked and immediate annuities)
No. 2 fund
Australia
Investment-linked superannuation business (retail and group investment-linked
and deferred annuities)
No. 3 fund
Taiwan
All business (individual whole of life, endowment and term and group life)
No. 4 fund
Australia
Capital guaranteed superannuation business (whole of life, endowment,
investment account and retail (lump sum only) and group risk)
No. 5 fund
No. 6 fund
Australia
Australia
Investment-linked ordinary business
North longevity guarantee
Investments held in the life statutory funds can only be used in accordance with the relevant regulatory restrictions imposed under the
Life Act and associated rules and regulations. The main restrictions are that the assets in a life statutory fund can only be used to meet
the liabilities and expenses of that life statutory fund, to acquire investments to further the business of the life statutory fund or as
distributions provided solvency, capital adequacy and other regulatory requirements are met.
Further details about capital management are provided in note 3.5.
99
AMP 2016 annual report
4.5 Other disclosure – life insurance contracts and investment contracts (continued)
Net assets of life entities’ statutory
funds attributable to policyholders
and shareholders
Attributable to policyholders2
Life insurance contract liabilities
Investment contract liabilities1
2016
AMP Life and NMLA
2015
AMP Life and NMLA
Non-
investment
linked
$m
Investment-
linked
$m
Total life
entities’
statutory
funds
$m
Non-
investment
linked
$m
Investment-
linked
$m
Total life
entities’
statutory
funds
$m
29,747
68,956
98,703
30,254
67,096
97,350
24,225
2,739
–
68,760
24,225
71,499
23,871
2,912
–
66,849
23,871
69,761
26,964
68,760
95,724
26,783
66,849
93,632
Attributable to shareholders
2,783
196
2,979
3,471
247
3,718
1
2
Investment contract liabilities in this table do not include $80m (2015: $87m) being the investment contract liability for the North capital
guarantee which is held outside the life insurance entities.
Based on assumptions as to likely withdrawal patterns of the various product groups, it is estimated that approximately $14,268m
(2015: $13,740m) of policy liabilities may be settled within 12 months of the reporting date.
The net assets of life statutory funds attributable to shareholders represent the interests of shareholders including funds required
to meet regulatory requirements as well as further amounts of shareholder funds in excess of regulatory requirements.
The following table shows a summary of the consolidated balances of AMP life insurance entities’ statutory funds and the entities
controlled by AMP life insurance entities’ statutory funds.
Income statement
Insurance related revenue – net of reinsurance
Fee revenue
Other revenue
Investment gains and losses
Insurance contract claims expenses – net of reinsurance
Operating expenses including finance costs
Movement in external unitholder liabilities
Change in life insurance contract liabilities
Change in investment contract liabilities
Income tax expense
Profit for the year
Assets
Cash and cash equivalents
Investments in financial assets measured at fair value through profit or loss
Investment property
Other assets
Total assets of policyholders, shareholders and non-controlling interests
Liabilities
Life insurance contract liabilities
Investment contract liabilities
Other liabilities
External unitholder liabilities
Total liabilities of policyholders, shareholders and non-controlling interests
Net assets
100
Life entities’ statutory
funds consolidated
2016
$m
2015
$m
3,032
1,485
5
8,214
(2,280)
(2,339)
(1,263)
(1,471)
(4,614)
(154)
2,465
1,592
38
8,016
(2,164)
(2,596)
(1,006)
(240)
(4,384)
(249)
615
1,472
7,086
100,681
127
11,550
7,755
107,061
746
4,546
119,444
120,108
24,225
71,499
6,682
14,056
23,871
69,761
8,551
13,893
116,462
116,076
2,982
4,032
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
4.5 Other disclosure – life insurance contracts and investment contracts (continued)
(c) Capital guarantees
Life insurance contracts with a discretionary participating feature –
amount of the liabilities that relate to guarantees
Investment-linked contracts – amount of the liabilities subject to investment performance guarantees
Other life insurance contracts with a guaranteed termination value – current termination value
2016
$m
2015
$m
15,440
15,991
925
169
973
178
(d) Capital requirements
Registered life insurance entities are required to hold prudential reserves, over and above their life insurance contract and investment
contract liabilities, as a buffer against adverse experience and poor investment returns. These reserving requirements are specified
by the APRA prudential capital standards. The standards are intended to take account of the full range of risks to which a regulated
institution is exposed and introduces the prescribed capital amount (PCA) requirement. The PCA is the minimum level of capital that
the regulator deems must be held to meet policyholder obligations.
In addition to the regulatory capital requirements, the AMP life insurance entities maintain a target surplus providing an additional
capital buffer against adverse events. The AMP life insurance entities use internal capital models to determine target surplus, with the
models reflecting the risks of the business, principally the risk of adverse asset movements relative to the liabilities and of worse than
expected claims costs.
The Appointed Actuary of AMP Life and NMLA has confirmed that the capital base of each life statutory fund and shareholders’ fund
have exceeded PCA at all times during 2016 and 2015.
Common Equity Tier 1 Capital
Adjustments to Common Equity Tier 1 Capital
Additional Tier 1 Capital
Adjustments to Additional Tier 1 Capital
Tier 2 Capital
Adjustments to Tier 2 Capital
Total capital base
Total Prescribed Capital Amount (PCA)
Capital adequacy amount
Capital adequacy multiple
2016
2015
AMP Life
$m
NMLA
$m
AMP Life
$m
2,810
(854)
205
–
215
–
2,376
825
1,551
1,344
(530)
100
–
85
–
999
498
501
3,091
(1,424)
205
–
215
–
2,087
860
1,227
NMLA
$m
1,450
(713)
100
–
85
–
922
424
498
288%
201%
243%
217%
(e) Actuarial information
Mr Anton Kapel, the Appointed Actuary of AMP Life and NMLA, is satisfied as to the accuracy of the data used in the valuations in the
financial report and in the tables in note 4.2 and note 4.5.
The liabilities to policyholders (being the sum of the life insurance contract and investment contract liabilities, including any asset or
liability arising in respect of the management services element of an investment contract), capital base and prescribed capital amounts
have been determined at the reporting date in accordance with the Life Act.
101
AMP 2016 annual report
Section 5: Employee disclosures
This section provides details on the various programs the AMP group uses to reward and recognise employees, including key
management personnel.
5.1 Key management personnel
5.2 Defined benefit plans
5.3 Share-based payments
5.1 Key management personnel
(a) Compensation of key management personnel
Short-term benefits
Post-employment benefits
Share-based payments
Other long-term benefits
Termination benefits
Total
2016
$’000
2015
$’000
13,548
598
11,141
274
1,728
19,703
592
10,096
564
–
27,289
30,955
(b) Loans to key management personnel
Loans to key management personnel and their related parties are provided by AMP Bank and are on similar terms and conditions
generally available to other employees within the group. No guarantees are given or received in relation to these loans. Loans have
currently been made to 10 key management personnel and their related parties. Details of these loans are:
Balance as at the beginning of the year
Net advances
Balance as at the end of the year
Interest charged
2016
$’000
13,592
3,756
17,348
495
(c) Key management personnel access to AMP’s products
During the year, key management personnel and their personally related entities may also have had access to the following AMP
products. They are provided to key management personnel within normal employee terms and conditions. The products include,
personal banking with AMP Bank Limited, the purchase of AMP insurance and investment products and financial investment services.
Information about such transactions does not have the potential to adversely affect its decisions about the allocation of scarce
resources made by users of this financial report, or the discharge of accountability by the specified executives or specified directors.
Accounting policy – recognition and measurement
Short-term benefits – Liabilities arising in respect of salaries and wages and any other employee entitlements expected to be settled
within 12 months of the reporting date are measured at their nominal amounts.
Post-employment benefits – Defined contribution funds – The contributions paid and payable by AMP group to defined contributions
funds are recognised in the Income statement as an operating expense when they fall due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in the future payments is available.
Other long-term benefits – Other employee entitlements are measured at the present value of the estimated future cash outflows to be
made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows,
discount rates are determined with reference to market yields at the end of the reporting period on high quality corporate bonds or,
in countries where there is no deep market in such bonds, by using market yields at the end of the period on government bonds.
102
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
5.2 Defined benefit plans
AMP contributed to defined benefit plans which provide benefits to employees, and their dependants, on resignation, retirement,
disability or death of the employee. The benefits are based on years of service and an average salary calculation. All defined benefit
plans are now closed to new members.
The characteristics and risks associated with each of the defined benefit plans are described below:
Plan details
Australia
New Zealand
Plan names
Entitlements of
active members
Governance of the plans
AMP Australia and AMP AAPH Australia
defined benefit plans
AMP New Zealand and AMP AAPH New Zealand
defined benefit plans
A lump sum or pension on retirement.
Pensions provided are lifetime indexed
pensions with a reversionary spouse pension.
The trustees of the AMP Superannuation
Savings Trust, of which the Australian plans are
sub-funds – this includes administration of the
plan, management and investment of the plan
assets, and compliance with superannuation
laws and other applicable regulations.
Accumulation benefits and a lump sum payment
on retirement.
The plan’s trustees – this includes administration
of the plan, management and investment of the
plan assets, and looking after the interests of all
beneficiaries.
Valuations required
Every year
Every three years
Key risks
The risk of actual outcomes being different to the actuarial assumptions used to estimate the defined
benefit obligation, investment risk and legislative risk.
Date of last valuation
31 March 2016
31 December 2014
Additional contributions
required
Additional contributions of $7m per annum
until 31 March 2019.
Additional contributions of $6m per annum
until 31 December 2017.
(a) Defined benefit liability
Present value of wholly funded defined benefit obligations
Less: Fair value of plan assets
Defined benefit liability recognised in the Statement of financial position
Movement in defined benefit liability
Deficit at the beginning of the year
Plus: Total expenses recognised in income
Plus: Employer contributions
Plus: Actuarial gains recognised in Other comprehensive income1
Defined benefit liability recognised at the end of the year
2016
$m
(804)
760
(44)
(98)
(3)
9
48
(44)
2015
$m
(860)
762
(98)
(190)
(8)
6
94
(98)
1
The cumulative net actuarial gains and losses recognised in the Statement of comprehensive income is a $152m gain (2015: $104m gain).
103
AMP 2016 annual report
5.2 Defined benefit plans (continued)
(b) Reconciliation of the movement in the defined benefit liability
Balance at the beginning of the year
Current service cost
Interest (cost) income
Net actuarial gains and losses
Employer contributions
Foreign currency exchange rate changes
Benefits paid
Balance at the end of the year
(c) Analysis of defined benefit surplus (deficit) by plan
Defined benefit
obligation
Fair value of
plan assets
2016
$m
(860)
(4)
(23)
37
–
(3)
49
(804)
2015
$m
(962)
(6)
(22)
82
–
3
45
(860)
2016
$m
762
–
24
11
9
3
(49)
760
2015
$m
772
–
18
12
6
(1)
(45)
762
AMP Australian
AMP AAPH Australian
AMP New Zealand
AMP AAPH New Zealand
Total
Fair value of
plan assets
Present value of
plan obligation
Net recognised
surplus (deficit)
Actuarial
gains
2016
$m
265
384
22
89
760
2015
$m
274
380
23
85
762
2016
$m
2015
$m
2016
$m
2015
$m
2016
$m
2015
$m
(302)
(359)
(26)
(117)
(324)
(389)
(27)
(120)
(804)
(860)
(37)
25
(4)
(28)
(44)
(50)
(9)
(4)
(35)
(98)
14
29
–
5
48
33
54
–
7
94
(d) Principal actuarial assumptions
The following table sets out the principal actuarial assumptions used as at the reporting date in measuring the defined benefit
obligations of the Australian and New Zealand defined benefit funds:
Weighted average discount rate
Expected rate of salary increases
AMP
AMP AAPH
Australia
New Zealand
Australia
New Zealand
2016
%
4.5
n/a
2015
%
4.5
3.5
2016
%
3.3
4.0
2015
%
3.5
4.0
2016
%
4.6
3.5
2015
%
4.6
3.5
2016
%
4.1
4.0
2015
%
4.1
4.0
104
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
5.2 Defined benefit plans (continued)
(e) Allocation of assets
The asset allocations of the defined benefit funds are shown in the following table:
Equity
Fixed interest
Property
Cash
Other
AMP
AMP AAPH
Australia
New Zealand
Australia
New Zealand
2016
%
2015
%
2016
%
2015
%
2016
%
2015
%
2016
%
2015
%
46
32
9
6
7
39
36
9
6
10
34
36
7
14
10
35
35
10
14
6
29
45
5
7
14
28
41
4
16
11
38
36
6
14
6
34
36
6
14
10
(f) Sensitivity analysis
The defined benefit obligation has been recalculated for each scenario by changing only the specified assumption as outlined below,
whilst retaining all other assumptions as per the base case. The table below shows the increase (decrease) for each assumption change.
Where an assumption is not material to the fund it has been marked as n/a.
AMP
AMP AAPH
Australia
New Zealand
Australia
New Zealand
(+)
$m
(–)
$m
(+)
$m
(–)
$m
(+)
$m
(–)
$m
(+)
$m
Assumption
(17)
Discount rate (0.5%)
n/a
Expected salary increase rate (0.5%)
Expected deferred benefit crediting rate (0.5%) n/a
19
Pensioner indexation assumption (0.5%)
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
18
n/a
n/a
(17)
(10)
n/a
n/a
n/a
n/a
n/a
n/a
1
1
n/a
n/a
n/a
n/a
n/a
(26)
1
–
23
n/a
n/a
29
n/a
n/a
(21)
(4)
n/a
n/a
n/a
n/a
6
n/a
3
(–)
$m
7
n/a
n/a
n/a
n/a
n/a
(g) Expected contributions and maturity profile of the defined benefit obligation
Expected employer contributions ($m)
Weighted average duration of the defined benefit obligation (years)
AMP
AMP AAPH
Australia
New
Zealand
Australia
New
Zealand
1
11
–
8
4
13
4
13
Accounting policy – recognition and measurement
Defined benefit plans
The AMP group recognises the net deficit or surplus position of each fund in the Statement of financial position. The deficit or surplus
is measured as the difference between the fair value of the funds’ assets and the discounted defined benefit obligations of the funds,
using discount rates determined with reference to market yields on high quality corporate bonds at the end of the reporting period.
After taking into account any contributions paid into the defined benefit funds during the period, movements in the net surplus or
deficit of each fund, except actuarial gains and losses, are recognised in the Income statement. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions over the period are recognised (net of tax) directly in retained earnings
through Other comprehensive income.
Contributions paid into defined benefit funds are recognised as reductions in the deficit.
105
AMP 2016 annual report
5.3 Share-based payments
AMP has a number of employee share-based payment plans. Share-based payments place employees participating in those plans
(participants) in the position of the shareholder, and in doing so, reward employees for the generation of value for shareholders.
Information on plans which AMP currently offers is provided below.
The following table shows the expense recorded for AMP share-based payment plans during the year:
Performance rights
Share rights
Restricted shares
Employee share acquisition plan – matching shares
Total share-based payments expense
2016
$’000
2015
$’000
12,377
24,109
–
–
11,433
22,596
16
1
36,486
34,046
(a) Performance rights
The CEO and his direct reports, as well as selected senior executives, are required to take their long-term incentive (LTI) awards in the
form of performance rights. This is to ensure that the interests of those executives, who are most directly able to influence company
performance, are appropriately aligned with the interests of shareholders.
Plan
Overview
Vesting conditions
LTI award plan
Performance rights give the participant the right to acquire one fully paid ordinary share in AMP Limited
upon meeting specific performance hurdles. They are granted at no cost to the participant and carry no
dividend or voting rights until they vest. Performance rights may be settled through a cash payment in
lieu of shares, at the discretion of the board.
The performance hurdles for rights granted in 2014 and 2013 are:
–
50% subject to AMP’s total shareholder return (TSR) performance relative to the top industrial
companies in the S&P/ASX 100 Index over a three-year performance period;
50% subject to a return on equity (RoE) measure.
–
The performance hurdles for rights granted in 2016 and 2015 are:
–
60% subject to AMP’s TSR performance relative to the top industrial companies in the
S&P/ASX 100 Index over a three-year performance period;
40% subject to a RoE measure.
–
Vesting period
Three years.
Vested awards
Vested performance rights are automatically converted to shares on behalf of participants.
Unvested awards
Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for
misconduct or poor performance.
Valuation of performance rights
The allocation values for performance rights are based on valuations prepared by an independent external consultant. The valuations
are based on the 10-day volume weighted average share price over the 10-day trading period after the release of AMP results and ending
prior to the start of the performance period. Assumptions regarding the dividend yield and volatility have been estimated based on
AMP’s actual historic dividend yield and volatility over an appropriate period.
In determining the share-based payments expense, the number of instruments expected to vest has been adjusted to reflect the
number of employees expected to remain with AMP until the end of the performance period.
106
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
5.3 Share-based payments (continued)
The following table shows the factors considered in determining the allocation value of the performance rights granted during the period:
Grant date
Share price
Contractual
life (years)
Dividend
yield
Volatility1
Risk-free
rate1
TSR
performance
hurdle
discount
RoE
performance
hurdle
discount2
TSR
performance
rights fair
value
RoE
performance
rights fair
value
02/06/2016
15/04/2016
15/04/2016
18/09/2015
04/06/2015
13/04/2015
05/06/2014
06/06/2013
$5.54
$5.79
$5.79
$5.79
$6.20
$6.69
$5.28
$4.97
3.0
2.1
1.1
2.7
3.0
2.1
3.0
3.0
4.7%
4.7%
4.7%
4.6%
4.7%
4.8%
4.8%
5.6%
24%
23%
25%
23%
23%
23%
25%
23%
1.6%
2.0%
2.0%
1.9%
2.1%
1.8%
2.9%
2.5%
57%
69%
36%
58%
55%
34%
45%
60%
0%
0%
0%
0%
0%
0%
0%
0%
$2.37
$1.80
$3.68
$2.43
$2.82
$4.44
$2.89
$2.00
$4.81
$5.24
$5.49
$5.11
$5.39
$6.05
$4.57
$4.21
1
2
Applies to performance rights subject to a relative TSR performance hurdle only. These factors do not apply to performance rights subject to
a RoE performance hurdle.
In accordance with the accounting standard AASB 2 Share-based Payment, allowance cannot be made for the impact of a non-market-based
performance hurdle in determining fair value.
The following table shows the movement in performance rights outstanding during the period:
Grant date
06/06/2013
05/06/2014
13/04/2015
04/06/2015
18/09/2015
15/04/2016
15/04/2016
02/06/2016
Total
Exercise
period1
Exercise
price
Balance at
1 Jan 2016
Exercised during
the year
Granted during
the year
Lapsed during
the year
Balance at
31 Dec 2016
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
nil
nil
nil
nil
nil
nil
nil
nil
4,646,382
3,902,891
8,004
3,449,078
61,038
–
–
–
1,034,932
–
–
–
–
–
–
–
–
–
–
–
–
44,263
21,788
3,749,418
3,611,450
10,291
–
7,269
–
–
–
17,251
–
3,892,600
8,004
3,441,809
61,038
44,263
21,788
3,732,167
12,067,393
1,034,932
3,815,469
3,646,261
11,201,669
1
Performance rights have no exercise period; they are exercised in the first trading window following the approval of the vesting by the board.
From the end of the financial year and up to the date of this report, 12,820 performance rights have been issued, no performance rights
have been exercised, and no performance rights have lapsed. Of the performance rights outstanding at the end of the period, none
have vested or become exercisable.
107
AMP 2016 annual report
5.3 Share-based payments (continued)
(b) Share rights
The LTI participants below the CEO and his direct reports may be awarded share rights as part of their overall LTI award.
Nominated executives, and selected other senior leaders who have the ability to impact AMP’s financial soundness, participate in the
short-term incentive (STI) deferral plan; this plan requires that 40% of the participants’ STI be awarded as share rights. Additionally each
year high potential employees at a senior leader level are eligible for nomination to participate in the STI match plan, which provides an
award of share rights to the value of 50% of the individual’s STI.
Plan
LTI award plan
STI deferral plan
STI match plan
Overview
Vesting conditions/
period
Share rights give the participant the right to acquire one fully paid ordinary share in AMP Limited after
a specified service period. They are granted at no cost to the participant and carry no dividend or voting
rights until they vest.
Continued service for three
years, but may vary where
the share rights are awarded
to retain an employee for a
critical period.
Continued service for two
years and subject to ongoing
employment, compliance
with AMP policies and the
board’s discretion.
Continued service for two
years and subject to ongoing
employment, compliance
with AMP policies and the
board’s discretion.
Vested awards
Vested share rights are automatically converted to shares on behalf of participants.
Unvested awards
Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for
misconduct or poor performance.
Plan valuation
The fair value of share rights has been calculated as at the grant date, by external consultants using a ‘discounted cash flow’ methodology.
Fair value has been discounted for the present value of dividends expected to be paid during the vesting period to which the participant
is not entitled. For the purposes of the valuation it is assumed share rights are exercised as soon they have vested. Assumptions
regarding the dividend yield have been estimated based on AMP’s actual historic dividend yield over an appropriate period.
In determining the share-based payments expense, the number of instruments expected to vest has been adjusted to reflect the
number of employees expected to remain with AMP until the end of the performance period.
The following table shows the factors which were considered in determining the independent fair value of the share rights granted
during 2016 and the comparative period (2015):
Share price
Contractual
life (years)
Dividend
yield
Dividend
discount
Fair value
$5.54
$5.84
$5.79
$5.32
$5.54
$5.54
$5.54
$5.54
$5.54
$5.79
$5.79
$5.79
$6.20
$6.66
$6.66
$6.44
$6.69
$5.28
$5.07
$4.92
$4.92
3.0
1.8
0.9
1.1
1.5
0.5
2.6
1.6
0.6
2.7
1.8
2.0
3.0
0.8
1.8
1.8
2.1
3.0
1.8
1.0
2.0
4.7%
4.7%
4.7%
4.7%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.7%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
13%
8%
4%
5%
7%
2%
11%
7%
3%
12%
7%
6%
13%
4%
8%
8%
10%
13%
8%
4%
9%
$4.81
$5.36
$5.56
$5.06
$5.17
$5.41
$4.91
$5.15
$5.39
$5.11
$5.41
$5.42
$5.39
$6.41
$6.11
$5.90
$6.05
$4.57
$4.64
$4.70
$4.48
Grant date
02/06/2016
28/04/2016
15/04/2016
29/02/2016
22/02/2016
22/02/2016
22/02/2016
22/02/2016
22/02/2016
18/09/2015
18/09/2015
18/09/2015
04/06/2015
29/05/2015
29/05/2015
30/04/2015
13/04/2015
05/06/2014
29/04/2014
14/03/2014
14/03/2014
108
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016 5.3 Share-based payments (continued)
The following table shows the movement in share rights outstanding during the period:
Grant date
Exercise period1
Exercise price
Balance at
1 Jan 2016
Exercised
during the year
Granted
during the year
Lapsed during
the year
Balance at
31 Dec 2016
06/06/2013
09/09/2013
14/03/2014
29/04/2014
29/04/2014
05/06/2014
13/04/2015
30/04/2015
30/04/2015
30/04/2015
30/04/2015
29/05/2015
29/05/2015
04/06/2015
18/09/2015
18/09/2015
18/09/2015
22/02/2016
22/02/2016
22/02/2016
22/02/2016
22/02/2016
29/02/2016
15/04/2016
28/04/2016
02/06/2016
Total
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
1,430,780
35,726
37,500
654,982
2,492,491
1,441,351
5,468
852,176
1,357,234
714,837
166,944
11,848
12,437
1,587,055
61,037
24,469
83,333
–
–
–
–
–
–
–
–
–
1,374,504
35,726
37,500
644,077
2,492,491
–
–
–
–
–
–
11,848
–
–
–
8,156
41,666
16,100
–
–
27,522
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,100
10,733
10,733
27,522
27,522
52,739
8,932
3,625,934
1,792,604
56,276
–
–
10,905
–
62,831
–
–
–
67,518
–
–
–
54,180
–
–
–
–
–
–
–
–
–
–
45,341
26,655
–
–
–
–
–
1,378,520
5,468
852,176
1,357,234
647,319
166,944
–
12,437
1,532,875
61,037
16,313
41,667
–
10,733
10,733
–
27,522
52,739
8,932
3,580,593
1,765,949
10,969,668
4,689,590
5,572,819
323,706
11,529,191
1
The share rights granted have no exercise period; they are exercised in the first trading window following the approval of the vesting by the board.
From the end of the financial year and up to the date of this report, 30,457 share rights have been issued, no share rights have been
exercised, and no share rights have lapsed due to resignation. Of the share rights outstanding at the end of the period, none have
vested or become exercisable.
(c) Restricted shares
No restricted shares were granted during 2016 or 2015.
(d) Employee share acquisition plan
The employee share acquisition plan was suspended mid-way through 2009 in Australia but continues to operate in New Zealand.
Accounting policy – recognition and measurement
Equity-settled share-based payments
The cost of equity-settled share-based payments is measured using their fair value at the date at which they are granted. The fair value
calculation takes into consideration a number of factors, including the likelihood of achieving market-based vesting conditions such as
total shareholder return (market conditions).
The cost of equity-settled share-based payments is recognised, together with a corresponding increase in the share-based payment
reserve in equity, over the vesting period of the instrument. At each reporting date, the AMP group reviews its estimates of the number
of instruments that are expected to vest and any changes to the cost are recognised in the Income statement and the share-based
payment reserve, over the remaining vesting period.
Where the terms of an equity-settled share-based payment are modified and the expense increases as a result of the modification,
the increase is recognised over the remaining vesting period. When a modification reduces the expense, there is no adjustment and
the pre-modification cost continues to be recognised.
Where an equity-settled award does not ultimately vest, expenses are not reversed, except for awards where vesting is conditional
upon a non-market condition, in which case all expenses are reversed in the period in which the instrument lapses.
109
AMP 2016 annual report
Section 6: Group entities
This section explains significant aspects of the AMP group structure, including significant investments in controlled operating entities
and entities controlled by the AMP life insurance entities’ statutory funds, and investments in associates. It also provides information
on business acquisitions and disposals made during the year.
6.1 Controlled entities
6.2 Acquisitions and disposals of controlled entities
6.3 Investments in associates
6.4 Parent entity information
6.1 Controlled entities
(a) Significant investments in controlled operating entities are as follows:
Operating entities
Name of entity
AMP AAPH Limited
AMP Advice Holdings Pty Ltd
AMP Bank Limited
AMP Capital Funds Management Limited
AMP Capital Holdings Limited
AMP Capital Investors (New Zealand) Limited
AMP Capital Investors Limited
AMP Capital Office and Industrial Pty Limited
AMP Capital Shopping Centres Pty Limited
AMP Financial Planning Pty Limited
AMP Group Finance Services Limited
AMP Group Holdings Limited
AMP Life Limited
AMP Services (NZ) Limited
AMP Services Limited
AMP Superannuation Limited
AMP Wealth Management New Zealand Limited
Hillross Financial Services Limited
ipac Group Services Pty Ltd
National Mutual Funds Management Ltd
National Mutual Life Nominees Pty Limited
NMMT Limited
The National Mutual Life Association of Australasia Limited
Country of
registration
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Share type
2016
2015
% holdings
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord A
Ord
Ord
Ord A
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
100
100
100
85
85
85
85
85
85
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
85
85
85
85
85
85
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Investments in investment entities controlled by the AMP life insurance entities’ statutory funds
(b)
The life insurance statutory funds hold investments in various investment vehicles/funds backing policyholder liabilities as well as
shareholder attributable assets in the life insurance statutory funds. The policyholder attributable investments are not part of the core
wealth management business of AMP and do not have a material impact on the financial performance or net financial position of the
company. The investments are measured at fair value through profit and loss reflecting the fair value movements in these investments
in the financial statements.
Critical accounting estimates and judgements:
Judgement is applied in determining the relevant activities of each entity, whether AMP Limited has power over these activities and
whether control exists. This involves assessing the purpose and design of the entity and identifying the activities which significantly affect
that entity’s returns and how decisions are made about those activities. In assessing how decisions are made, management considers
voting and veto rights, contractual arrangements with the entity or other parties, and any rights or ability to appoint, remove or direct
key management personnel or entities that have the ability to direct the relevant activities of the entity. Management also considers the
practical ability of other parties to exercise their rights.
Judgement is also applied in identifying the variable returns of each entity and assessing AMP Limited’s exposure to these returns.
Variable returns include distributions, exposure to gains or losses and fees that may vary with the performance of an entity.
110
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016 6.2 Acquisitions and disposals of controlled entities
(a) Acquisitions and disposals of controlled operating entities
During the year ended 31 December 2016, AMP acquired (disposed of) its control in the following entities:
– Money Brilliant Pty Ltd (acquired)
– Hillross Alliances Pty Ltd (disposed)
During the year ended 31 December 2015, AMP acquired all the issued share capital of the following entities:
–
–
–
– Wealth Vision Financial Services Pty Ltd
Justsuper Pty Ltd
Supercorp Pty Ltd
SuperIQ Pty Ltd
The net impact of these acquisitions and disposals is as follows:
Assets
Cash and cash equivalents
Investments in associates accounted for using the equity method
Intangible assets
Other assets
Total assets
Liabilities
Payables and provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Impact in
2016
$m
Impact in
2015
$m
4
(1)
3
(9)
(3)
–
2
(1)
1
(34)
(16)
82
(8)
24
(11)
(8)
(5)
(24)
(b) Acquisition and disposals of controlled entities of AMP life insurance entities’ statutory funds
In the course of normal operating investment activities, the AMP life insurance entities’ statutory funds acquire equity interests in
entities which, in some cases, result in AMP holding a controlling interest in the investee entity.
Most acquisitions and disposals of controlled entities are in relation to managed investment schemes with underlying net assets
typically comprising investment assets including cash. The consideration for acquisitions or disposals reflects the fair value of the
investment assets at the date of the transactions after taking into account minority interests.
Certain controlled entities of the life entities’ statutory funds are operating companies which carry out business operations unrelated
to the core wealth management operations of the AMP group.
111
AMP 2016 annual report
6.3 Investments in associates
(a) Investments in associates accounted for using the equity method
Ownership interest
Carrying amount1
Associate
Principal activity
Place of
business
2016
%
2015
%
2016
$m
China Life Pension Company
Pension company
China
19.99
19.99
283
AIMS AMP Capital Industrial REIT
Industrial property trust
Singapore
Infrashore Group
China Life AMP Asset
Management Company Ltd
Global Infrastructure Fund
AMP Capital Infrastructure
Debt Fund III USD LP
Other (individually
immaterial associates)
Community health
service provider
Australia
Investment management
China
Fund
Fund
Cayman Islands
Cayman Islands
5
–
15
5
8
5
29
15
5
–
49
–
21
38
11
47
2015
$m
282
49
45
20
19
–
52
Total investments in associates accounted for using the equity method
449
467
1
The carrying amount is after recognising $28m (2015: $27m) share of current period profit or loss of associates accounted for using the equity method.
(b) Investments in significant associates held by the life entities’ statutory funds measured at fair value through profit or loss
The life insurance statutory funds hold investments in various investment vehicles/funds on behalf of policyholders. These investments
are not part of the core wealth management business of AMP and do not have a material impact on the financial performance or net
financial position of the AMP group.
Accounting Policy – recognition and measurement
Investments in associates
Investments in associates accounted for using the equity method
Investments in entities, other than those backing investment contract liabilities and life insurance contract liabilities, over which the
AMP group has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting.
The investment is measured at cost plus post-acquisition changes in the AMP group’s share of the associates’ net assets, less any
impairment in value. The AMP group’s share of profit or loss of associates is included in the Consolidated income statement.
Any dividend or distribution received from associates is accounted for as a reduction in carrying value of the associate.
Any impairment is recognised in the Income statement when there is objective evidence a loss has been incurred. It is measured
as the amount by which the carrying amount of the investment in entities exceeds its recoverable amount.
Investments in associates measured at fair value through profit or loss
Investments in entities held to back investment contract liabilities and life insurance contract liabilities are exempt from the
requirement to apply equity accounting and have been designated on initial recognition as financial assets measured at fair
value through profit or loss.
112
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
6.4 Parent entity information
(a) Statement of comprehensive income – AMP Limited entity
Dividends and interest from controlled entities
Interest revenue – other entities
Service fee revenue
Operating expenses
Finance costs
Income tax credit1
Profit for the year
Total comprehensive income for the year
(b) Statement of financial position – AMP Limited entity
Current assets
Cash and cash equivalents
Receivables and prepayments2
Loans and advances to subsidiaries
Non-current assets
Investments in controlled entities
Deferred tax assets3
Total assets
Current liabilities
Payables2
Current tax liabilities
Provisions
Non-current liabilities
Subordinated debt4
Total liabilities
Net assets
Equity
Contributed equity
Share-based payment reserve
Retained earnings5
Total equity
2016
$m
2015
$m
634
1
11
(8)
(44)
52
646
646
892
1
11
(11)
(28)
48
913
913
32
107
2,078
21
293
2,247
11,355
53
11,355
54
13,625
13,970
77
29
3
864
973
44
222
5
864
1,135
12,652
12,835
9,747
21
2,884
9,747
22
3,066
12,652
12,835
1
2
3
4
5
Dividend income from controlled entities $611m (2015: $876m) is not assessable for tax purposes. Income tax credit includes $65m
(2015: $43m) utilisation of previously unrecognised tax losses.
Receivables and payables include tax-related amounts receivable from subsidiaries $99m (2015: $287m) and payable to subsidiaries $42m
(2015: $42m).
Deferred tax assets include amounts recognised for losses available for offset against future taxable income $49m (2015: $50m).
AMP Limited entity is the issuer of: AMP Subordinated Notes $326m (2015: $326m); AMP Wholesale Capital Notes $276m (2015: $276m)
and AMP Capital Notes $262m (2015: $262m). Further information on these is provided in note 3.2.
Changes in retained earnings comprise $646m (2015: $913m) profit for the year less dividends paid of $828m (2015: $813m).
(c) Contingent liabilities of AMP Limited entity
AMP Limited entity has entered into deeds to provide capital maintenance and liquidity support to AMP Bank Limited.
At the reporting date, the likelihood of any outflow in settlement of these obligations is considered to be remote.
113
AMP 2016 annual report
Section 7: Other disclosures
This section includes disclosures other than those covered in the previous sections, required for the AMP group to comply
with the accounting standards and pronouncements.
7.1 Notes to Consolidated statement of cash flows
7.2 Leases
7.3 Provisions
7.4 Contingent liabilities
7.5 Auditors’ remuneration
7.6 New accounting standards
7.7 Events occurring after reporting date
7.1 Notes to Consolidated statement of cash flows
(a) Reconciliation of cash flow from operating activities
Net profit after income tax
Depreciation of operating assets
Amortisation and impairment of intangibles
Investment gains and losses and movements in external unitholder liabilities
Dividend and distribution income reinvested
Share-based payments
Decrease (increase) in receivables, intangibles and other assets
(Decrease) increase in net policy liabilities
(Decrease) increase in income tax balances
(Decrease) increase in other payables and provisions
2016
$m
2015
$m
192
18
937
506
(3,515)
–
83
2,615
(473)
(188)
1,713
23
279
788
(4,041)
(4)
36
2,336
(100)
312
Cash flows from (used in) operating activities
175
1,342
(b) Reconciliation of cash
Comprises:
Cash and cash equivalents
Short-term bills and notes (included in Debt securities)
Cash and cash equivalents for the purpose of the Consolidated statement of cash flows
3,476
5,334
3,955
2,646
8,810
6,601
Accounting policy – recognition and measurement
Cash and cash equivalents
Cash and cash equivalents comprise cash-on-hand that is available on demand and deposits that are held at call with financial
institutions. Cash and cash equivalents are measured at fair value, being the principal amount. For the purpose of the Statement of
cash flows, Cash and cash equivalents also includes other highly liquid investments not subject to significant risk of change in value,
with short periods to maturity, net of outstanding bank overdrafts. Bank overdrafts are shown within Interest-bearing liabilities in the
Statement of financial position.
7.2 Leases
Due within one year
Due within one year to five years
Due later than five years
Total operating lease commitments
2016
$m
89
222
16
327
2015
$m
87
279
13
379
Non-cancellable operating leases are in relation to the AMP group’s offices in various locations. AMP generally pays rent on a period
basis at rates agreed at the inception of the lease.
At 31 December 2016, the total of future minimum sublease payments expected to be received under non-cancellable subleases was
$37m (2015: $37m).
114
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
7.2 Leases (continued)
Accounting policy – recognition and measurement
Operating lease payments
Operating lease payments are recognised as an expense in the Income statement on a straight-line basis over the lease term or other
systematic basis representative of the patterns of the benefits obtained. Operating incentives are recognised as a liability when
received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.
7.3 Provisions
(a) Provisions
Restructuring1
Other2
Total provisions
(b) Movements in provisions
Balance at the beginning of the year
Additional provisions made during the year
Provisions used during the year
Balance at the end of the year
2016
$m
67
138
205
Restructuring1
$m
Other2
$m
8
69
(10)
67
189
94
(145)
138
2015
$m
8
189
197
Total
$m
197
163
(155)
205
1
2
Restructuring provisions are recognised in respect of programs that materially change the scope of the business or the manner in which the
business is conducted.
Other provisions are in respect of probable outgoings on client remediation projects and various other operational provisions. $17m (2015: $17m)
is expected to be settled more than 12 months from the reporting date.
Accounting policy – recognition and measurement
Provisions
Provisions are recognised when:
–
–
–
the AMP group has a present obligation (legal or constructive) as a result of a past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the reporting date. For provisions other than employee entitlements, the discount rate used to determine the present
value reflects current market assessments of the time value of money and the risks specific to the liability.
Critical accounting estimates and judgements:
The group recognises a provision where a legal or constructive obligation exists at the balance sheet date and a reliable estimate can be
made of the likely outcome. Although provisions are reviewed on a regular basis and adjusted for management’s best current estimates,
the judgemental nature of these items means that future amounts settled may be different from those provided.
7.4 Contingent liabilities
From time to time the AMP group may incur obligations arising from litigation or various types of contracts entered into in the normal
course of business, including guarantees issued by the parent for performance obligations to controlled entities in the AMP group.
Where it is determined that the disclosure of information in relation to a contingent liability can be expected to seriously prejudice the
position of the AMP group (or its insurers) in a dispute, accounting standards allow the AMP group not to disclose such information and
it is the AMP group’s policy that such information is not to be disclosed in this note.
At the reporting date there were no other material contingent liabilities where the probability of any outflow in settlement was greater
than remote.
115
AMP 2016 annual report
7.5 Auditors’ remuneration
Audit services for AMP Limited and any other entity in the consolidated group
–
– Other audit services1
Audit or review of the financial statements
Total audit service fees
Non-audit services
In relation to other taxation, compliance and project advice, and other non-audit services
Total non-audit services2
Total auditors’ remuneration
2016
$’000
2015
$’000
12,130
1,527
10,762
1,422
13,657
12,184
2,089
3,421
2,089
3,421
15,746
15,605
1
2
Includes fees paid to EY affiliates overseas.
When the AMP group gains control of an entity whose incumbent auditor is not EY, immaterial audit fees are paid to the non-EY audit firm
for the audit of the controlled entity. The non-EY audit firm is also independently contracted to provide services unrelated to its audit work.
7.6 New accounting standards
(a) New and amended accounting standards adopted by the AMP group
A number of new accounting standards and amendments have been adopted effective 1 January 2016. These have not had a material
effect on the financial position or performance of the AMP group.
(b) New accounting standards issued but not yet effective
A number of new accounting standards and amendments have been issued but are not yet effective, none of which have been early
adopted by the AMP group in this financial report. These new standards and amendments, when applied in future periods, are not
expected to have a material impact on the financial position or performance of the AMP group, other than as set out below.
AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers (AASB 15) is effective for periods beginning on 1 January 2018. AASB 15 defines
principles for recognising revenue and introduces new disclosure requirements. From an AMP group perspective, AASB 15 will primarily
apply to fee revenue as life insurance contract related revenue will continue to fall outside the scope of AASB 15 and will be accounted
for under other applicable standards.
Under AASB 15, revenue will be recognised at an amount that reflects the consideration which an entity expects to be entitled to in
exchange for transferring goods or services to a customer. The AMP group is currently undertaking an assessment of the potential
impact of this standard, and is not considering early adopting AASB 15.
AASB 9 Financial Instruments
AASB 9 Financial Instruments (AASB 9) is effective for periods beginning on 1 January 2018. AASB 9 makes changes to the classification
and measurement of financial instruments, introduces a new expected loss model when recognising expected credit losses on financial
assets, and also introduces new general hedge accounting requirements.
The AMP group is currently undertaking an assessment of the potential impact of this standard. The potential impact to the AMP group
is unlikely to be material and the AMP group is not considering early adopting AASB 9.
AASB 16 Leases
AASB 16 Leases (AASB 16) is effective for periods beginning on 1 January 2019. AASB 16 requires lessees to recognise most leases on
balance sheets as lease liabilities, with the corresponding right-of-use assets. Lessees must apply a single model for all recognised
leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets.
The AMP group is currently undertaking an assessment of the potential impact of this standard. The potential impact to the AMP group
is unlikely to be material and the AMP group is not considering early adopting AASB 16.
7.7 Events occurring after reporting date
On 9 February 2017, the Board announced an on-market share buy-back of up to $500m to begin in the first quarter of 2017.
Other than this matter, as at the date of this report, the directors are not aware of any matters or circumstances that have arisen since
the end of the financial year that have significantly affected, or may significantly affect:
–
–
–
the AMP group’s operations in future years;
the results of those operations in future years; or
the AMP group’s state of affairs in future financial years.
116
AMP 2016 annual reportNotes to the financial statements for the year ended 31 December 2016
Financial report
for the year ended 31 December 2016
Directors’ declaration
for the year ended 31 December 2016
In accordance with a resolution of the directors of AMP Limited, for the purposes of section 295(4) of the Corporations Act 2001,
the directors declare that:
(a)
(b)
in the opinion of the directors there are reasonable grounds to believe that AMP Limited will be able to pay its debts as and
when they become due and payable;
in the opinion of the directors the financial statements and the notes of AMP Limited and the consolidated entity for the financial
year ended 31 December 2016 are in accordance with the Corporations Act 2001, including section 296 (compliance with
accounting standards) and section 297 (true and fair view);
(c)
the notes to the financial statements of AMP Limited and the consolidated entity for the financial year ended 31 December 2016
include an explicit and unreserved statement of compliance with the International Financial Reporting Standards;
(d) the declarations required by section 295A of the Corporations Act 2001 have been given to the directors.
Catherine Brenner
Chairman
Sydney, 9 February 2017
Craig Meller
Chief Executive Officer and Managing Director
117
AMP 2016 annual report 200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent Auditor’s Report
To the Shareholders of AMP Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of AMP Limited (the Company), including its subsidiaries (the Group), which comprises the
statements of financial position as at 31 December 2016, the income statements, the statements of comprehensive income,
the statements of changes in equity and the statements of cash flows for the year then ended, notes comprising a summary of
significant accounting policies and other explanatory information and the Directors’ Declaration of the Company and Group.
In our opinion the accompanying financial report of AMP Limited is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Company and Group’s financial position as at 31 December 2016 and of their financial
(i)
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report
of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to
our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.
118
AMP 2016 annual reportFinancial report for the year ended 31 December 2016 Independent Auditor’s Report (continued)
Key audit matter
How our audit addressed the matter
Valuation of life insurance policy liabilities
31 December 2016 Financial report reference: Section 4: Life insurance and investment contracts
Life insurance policy liabilities total $24,255 million and represent
18% of total liabilities.
The valuation of the provisions for the settlement of future claims
involves complex and subjective judgements about future events,
both internal and external to the business. Small changes in
assumptions can have a material impact on the valuation of
these liabilities.
Key assumptions involved in the valuation of the policy
liabilities include:
– Discount rates
–
–
Inflation and indexation
Forecast lapse rates, particularly for the wealth protection
book of business
– Future maintenance and investment expenses
– Taxation
– Surrender values
– Mortality and morbidity
Valuation of investment contract liabilities
31 December 2016 Financial report reference: Section 4: Life insurance and investment contracts
Investment contract liabilities total $71,579 million and represent
54% of total liabilities. They consist of a financial instrument and
an investment management services element, both of which are
measured at fair value. With the exception of fixed retirement
income policies, the resulting liability to policy holders is closely
linked to the performance and value of the assets (after tax) that
support those liabilities. For the majority of contracts, the fair value
is determined based on external third party published unit prices
and the fair value of backing assets, and does not generally require
the exercise of judgement. The valuation of investment contract
liabilities is considered a key audit matter given the materiality of
this account to the overall financial statements.
–
–
–
–
–
–
–
–
–
–
–
–
In obtaining sufficient audit evidence:
–
We assessed the design and operating effectiveness of controls
over the new business, maintenance and claims processes.
We assessed the process and tested the key reconciliations on
the validity, accuracy and completeness of the data used for the
policy liability valuation.
As part of our work we used the work of AMP’s Appointed
Actuary who is a management expert under auditing standards.
This included assessing the competence and objectivity of the
Appointed Actuary as well as performing tests on the accuracy
of the actuarial reports.
We evaluated the key IT systems and the design and operating
effectiveness of IT system controls.
Our actuarial specialists assessed the reasonableness of the
valuation methodology, key assumptions, including the impact
of the reinsurance transaction entered into during the course
of the year, and the interpretation of accounting and prudential
standards that affect the policy liability valuation.
Where manual adjustments were made to the valuation model
outputs outside the standard processes, our actuarial specialists
performed testing necessary, on a sample basis, to validate the
nature and accuracy of the adjustments.
Our specialists independently developed expectations regarding
the valuation results based on their understanding of the
business, external industry trends and experience and AMP’s
historic business activity. These expectations were compared to
the policy liability valuation results and significant differences
were subject to further testing.
We assessed the adequacy and completeness of policy
liability disclosures included in the financial report against the
requirements of Australian Accounting Standard – AASB 1038
Life Insurance Contract Liabilities.
In obtaining sufficient audit evidence:
–
We assessed the design and operating effectiveness of controls
over the new business, maintenance and claims processes.
We evaluated the key IT systems and the design and operating
effectiveness of IT system controls.
We identified and tested key controls over daily investment,
including where appropriate application driven controls.
We examined the unit pricing process, which included assessing
the design of the process, and the role played by BNP as
custodian of the pricing.
We evaluated the process and tested the key controls performed
by AMP that support the valuation of investment contract
liabilities. We received and reviewed an unqualified assurance
report from an audit firm covering the controls at the custodian.
For the investment linked policies, we recalculated the total
investment contract liability via system extractions of units
held per product, and the prices as at 31 December 2016. We
performed testing over this extraction process and the system
holding this data. We reconciled the investment contract liability
to the fair value of underlying assets.
119
AMP 2016 annual report Independent Auditor’s Report (continued)
Key audit matter
How our audit addressed the matter
Valuation of complex and illiquid financial investments
31 December 2016 Financial report reference: Section 2.5 Fair value information
The Group has total investments in financial assets of
$129,419 million, representing 92% of total assets. As explained
in section 2.5, the portfolio of investments is categorised in
accordance with the fair value hierarchy, as required by accounting
standards. The complex and illiquid investments are typically
classified as Level 3 investments, where there is a lack of observable
market transactions and available market data. For AMP these
total $3,592 million, or 3% of total assets. The Group is required
to make judgements to arrive at their best estimates of fair value
of these assets. There is complexity in this process, as well as risk
associated with the valuation and modelling methodologies and
the assumptions adopted.
Infrastructure assets
The risk is not uniform for all investment types and is greatest
for the following where the investments are hard to value:
–
– Unlisted indirect property holdings
– Unlisted equities
– Unlisted unit trusts
Goodwill and intangible assets
31 December 2016 Financial report reference: Section 2.2 Intangibles
Goodwill has been recognised as a result of AMP Limited’s historical
acquisitions, representing the excess of the purchase consideration
over the fair value of assets acquired. On acquisition this goodwill
has been allocated to the applicable Cash Generating Units (CGUs).
At 31 December 2016, AMP has recorded goodwill of $2,117 million
as described in section 2.2.
An impairment assessment is performed at each reporting period,
comparing the carrying value of the CGU with its recoverable
amount. The recoverable amount of each CGU is determined by
calculating the CGU’s fair value. This is calculated as the embedded
value plus the value of new business. The calculation of embedded
value is dependent on the assumptions that drive the valuation of
life insurance policy liabilities.
Intangible assets for in-force contracts and distribution networks
were acquired during historical acquisitions. These intangible assets
are amortised and are assessed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable.
120
–
–
–
–
–
–
–
–
–
–
For those complex and illiquid financial investments we assessed
both the methodology and assumptions used by the Group in the
calculation of the year end value as well as tested the operating
effectiveness of governance controls that the Group has in place
to monitor these investments.
Further, in obtaining sufficient audit evidence:
–
We involved our valuation and business modelling specialists to
assess the valuation and modelling methodologies and the key
assumptions used for the year end valuations.
We involved our property specialists to assess the independence
and competency of the external valuation specialists as well
as to assess the models, methodologies and assumptions,
including discount rate, year on year changes in valuation
movements, and operating cash flow changes employed in
the year end valuations.
For assets recorded within controlled unit trusts where there
are no specific local reporting requirements, we assessed the
valuations of investments as provided by external investment
managers, including an assessment of the reliability of the
information provided by the investment manager, such as
key assumptions, multiples and discounts applied.
For offshore assets, we involved audit teams in those locations
to perform procedures. This approach ensured that local market
conditions were considered as part of the valuation procedures.
Our audit of the impairment assessment of each CGU and
intangible asset required valuation and actuarial expertise to assist
in the testing of the recoverable amount models and assumptions.
Accordingly, we involved our EY actuarial specialists who:
–
Assessed whether the methodology used by the Group
for impairment assessment purposes was in line with the
requirements of Australian Accounting Standards – AASB 136
Impairment of Assets, including an assessment of the adequacy
of the embedded value model for goodwill impairment
assessment purposes.
Assessed the underlying assumptions for consistency with
those used in the valuation of the life insurance policy liabilities.
Assessed the methodology and assumptions used in the
calculation of the discount rate, including comparison of the
rate to market benchmarks.
Performed sensitivity analysis on key assumptions, including
components of the discount rate.
Assessed the value of one year’s new business and the multiple
applied to calculate the value of the new business.
Assessed the Group’s determination of the CGUs to which
goodwill is allocated and the adequacy of the disclosures in
the financial statements for compliance with applicable
accounting standards.
Assessed the mathematical accuracy of the impairment
assessment performed by the Group.
For amortising intangible assets, we assessed the methodology
used by the Group for impairment assessment purposes to
evaluate whether events or changes in circumstances indicated
that the carrying amount may not be recoverable.
AMP 2016 annual reportFinancial report for the year ended 31 December 2016 Independent Auditor’s Report (continued)
Key audit matter
How our audit addressed the matter
Information technology (IT) environment
31 December 2016 Financial report reference: None
The operations of AMP Limited are heavily dependent on
information technology systems and their associated IT controls.
We involved our IT specialists to assess the design and operating
effectiveness of critical operational and financial reporting systems.
A fundamental component of these processes is ensuring
appropriate user access management protocols exist, and
are being adhered to.
Where deficiencies were identified, we performed additional
procedures to determine whether we could rely on the data
and reporting produced from affected systems.
These procedures included:
–
Identifying whether there had been unauthorised or
inappropriate changes made to critical IT systems and
databases.
Assessing the design and operating effectiveness of
compensating controls.
–
Where required, we performed substantive procedures to validate
the integrity and reliability of associated data and reporting.
Information Other than the Financial Statements and Auditor’s Report
The Directors of the Company are responsible for the other information. The other information comprises the information in
the Company’s Annual Report for the year ended 31 December 2016, but does not include the financial report and the auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.
Other information consists of the information included in the Company’s 2016 Annual Report other than the financial statements and
our auditor’s report thereon. We obtained the directors’ report (including the remuneration report) prior to the date of our auditor’s
report. We expect to obtain the Chairman’s report, financial summary information, information about AMP including its business and
strategy, information about the board and management team, the corporate governance statement, the analysis of shareholder profit
and security holder information after the date of our auditor’s report. Management is responsible for the other information.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of the auditor’s report, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities
The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance
with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is
necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.
121
AMP 2016 annual report Independent Auditor’s Report (continued)
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional
scepticism throughout the audit. We also:
–
–
–
–
–
–
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in the preparation of the financial
report. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events and
conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in the financial report about the
material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial report. However, future events
or conditions may cause an entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We are also required to provide the Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the
financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors’ Report for the year ended 31 December 2016.
In our opinion, the Remuneration Report of AMP Limited for the year ended 31 December 2016, complies with section 300A of the
Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Ernst & Young
Tony Johnson
Engagement Partner
Sydney
9 February 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
122
AMP 2016 annual reportFinancial report for the year ended 31 December 2016
Securityholder information
as at 9 February 2017
Securityholder information
Distribution of AMP capital notes holdings
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of holders
Notes held
% of issued capital
4,256
248
17
22
2
4,545
1,148,790
534,885
124,262
571,822
295,241
2,675,000
42.95
20.00
4.65
21.37
11.03
100.00
Twenty largest AMP capital notes holdings
Rank
Name
Notes held
% of issued capital
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Navigator Australia Ltd
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