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Fair Oaks Income Limited2017
annual report
AMP Limited ABN 49 079 354 519
2017 highlights
Corporate sustainability
Contents
Chairman’s foreword
1
Five-year financial summary
2
3
2017 results at a glance
4 Who we are and what we do
5
6 Our strategy
8
10 Our board
13 Our management team
16 Corporate governance at AMP
20 Directors’ report
28 Remuneration report
53 Analysis of shareholder profit
54 Financial report
55
56
57
58
59
60
119 Directors’ declaration
120
126 Securityholder information
128 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 8 February 2018.
Our year
2017
We are pleased to have delivered a total 2017
dividend of 29 cents per share for shareholders,
with $837 million having been returned to
shareholders in the form of dividends and dividend
reinvestment plan (DRP) shares for the year.
Total
dividend
29cps
Profit attributable
to shareholders
$848m
Underlying
profit
$1,040m
Capital
surplus
$2.3b
Who we are
At AMP, we have been helping people own tomorrow
and achieve their financial goals for almost 170 years.
This strong sense of social purpose drives the AMP culture
and all that we do. Three core elements underpin our
culture – integrity, help and performance. Integrity ensures
we use our expertise to do the right thing; help is at the
core of how we support our customers, and we’re driving
our performance edge to deliver the best results we can
for shareholders and customers.
2017 performance
In 2017, your company delivered improved results for
shareholders and customers. Underlying profit was
$1,040 million, up 114% from $486 million for the full
year in 2016. Profit attributable to shareholders was
$848 million, up from the $344 million loss in 2016.
AMP Capital, our investment management business, and
AMP Bank continued their growth momentum, increasing
operating earnings by 8% and 17% respectively. In the Bank,
the residential home loan book continued to grow, and we’re
on track to double the value of the Bank by full year 2021.
The Australian wealth management business
(superannuation, retirement and financial advice) delivered
a resilient performance in a competitive market, and our
wealth protection business (insurance) stabilised following
the completion of comprehensive reinsurance programs and
the strengthening of the best estimate assumptions in 2016.
businesses – Australian wealth management, AMP Bank and
AMP Capital – and leveraging our core strengths to expand
internationally. We formed new partnerships with PCCP, a
US-based real estate investment manager, and United Capital,
one of the fastest growing and most innovative advice
businesses in the US. Our ongoing joint ventures with
China Life and MUFG: Trust Bank continued to develop.
At our full year 2017 results, we announced that we were
well progressed with a portfolio review of the manage for
value businesses (Australian wealth protection, New Zealand
and Mature), with all alternatives being considered. We
expect to be in a position to provide a further update at
or before the annual general meeting (AGM), which takes
place in May 2018.
Dividend and capital position
Your board is pleased to have delivered a total 2017 dividend
of 29 cents per share for shareholders, franked at 90%. This
represents a full year 2017 dividend payout ratio of 81% of
underlying profit. We returned $837 million to shareholders in
the form of dividends and dividend reinvestment plan shares
for the year, and over the last five years, gross dividends have
increased by 34%. In 2017, our underlying business remained
strong and we maintained a strong capital position of
$2.3 billion above minimum regulatory requirements.
Strategy
In 2017, we made strong progress in executing our strategy
to grow the business. We have been investing in our growth
Catherine Brenner
Chairman
1
AMP 2017 annual report Our financial performance
Five-year financial summary
Year ended 31 December
Consolidated income statement
Net premium, fee and other revenue
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
6,444
6,204
5,539
5,343
5,136
Investment gains
11,888
8,567
8,483
12,244
14,963
Profit before income tax from continuing operations
Income tax expense
Non-controlling interests
1,636
(763)
(25)
Profit (loss) after tax attributable to shareholders of AMP Limited
848
358
(166)
(536)
(344)
1,993
(280)
(741)
1,814
(843)
(87)
1,498
(782)
(44)
972
884
672
Consolidated statement of financial position
Cash and cash equivalents
Investment assets
Intangibles
Assets of disposal groups
Other assets
Total assets
Interest-bearing liabilities
Life insurance contract liabilities
Investment contract liabilities
Liabilities of disposal groups
Other liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity attributable to shareholders of AMP Limited
Non-controlling interests
Total equity
3,602
137,558
3,218
–
3,707
3,476
129,995
3,199
–
3,390
3,955
128,074
3,983
–
3,696
3,581
123,292
4,042
100
3,840
2,938
121,781
4,136
42
4,327
148,085
140,060
139,708
134,855
133,224
21,009
23,683
75,235
–
20,875
17,218
24,225
71,579
–
19,497
17,452
23,871
69,848
–
19,642
16,502
24,403
66,980
69
18,516
16,243
24,934
66,049
8
17,790
140,802
132,519
130,813
126,470
125,024
7,283
7,541
8,895
8,385
8,200
9,376
(2,010)
(164)
7,202
81
7,283
9,619
(1,972)
(185)
7,462
79
9,566
(1,866)
819
8,519
376
9,508
(1,888)
566
8,186
199
9,602
(1,973)
461
8,090
110
7,541
8,895
8,385
8,200
Year ended 31 December
2017
2016
2015
2014
2013
Other financial data
Basic earnings per ordinary share
Diluted earnings per ordinary share
Dividends per ordinary share
Number of ordinary shares
Assets under management
($ps)
($ps)
($ps)
(m)
($b)
$0.29
$0.29
$0.29
2,918
257
($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
2
AMP 2017 annual report
2017 results at a glance
Dividends
cents per share
Final dividend
Interim dividend
8
2
4
1
8
2
4
1
4
1
4
1
9
2
.
5
4
1
.
5
4
1
6
2
.
5
3
1
.
5
2
1
3
2
.
5
1
1
.
5
1
1
30
20
10
0
Profit attributable to shareholders
$ million
Underlying profit
$ million
1,250
1,000
750
500
250
0
m
2
7
9
$
m
4
8
8
$
m
8
4
8
$
m
2
7
6
$
2016
)
m
4
4
3
$
(
1,250
1,000
750
500
250
0
m
0
2
1
1
$
,
m
5
4
0
1
$
,
m
9
4
8
$
m
0
4
0
1
$
,
m
6
8
4
$
2013
2014
2015
2016
2017
2013
2014
2015
2017
2013
2014
2015
2016 2017
29cents per share
up 3.6%
Total dividend for 2017
The final dividend of 14.5 cents per
share is to be paid on 28 March 2018
and will be 90% franked.
$837m returned to shareholders in
the form of dividends and dividend
reinvestment plan shares for 2017.
$848m
up $1.2b
Profit attributable to shareholders
The main difference between profit
attributable to shareholders and
underlying profit comes from movements
in investment markets and one-off costs.
A reconciliation of profit attributable to
shareholders and underlying profit can
be found on page 64.
$1,040m
up 114%
Underlying profit
Underlying profit is the earnings base
on which the board determines the
dividend payment.
$931m
up 177%
Australian wealth management
net cashflows
Customers are investing more
money in our superannuation
and retirement products.
$949m
down 3%
Group controllable costs
(ex AMP Capital)
We reduced costs across the
company, while continuing to
invest in our growth businesses.
$5,477m
up from $967m in 2016
$257b
up 7%
AMP Capital external net cashflows
AMP Capital has seen an increase
in inflows from both domestic and
international clients.
Assets under management
We now manage more money for
our customers in Australia and
around the world.
$2.3b
Capital held above the minimum
regulatory requirement
AMP holds capital above the minimum
requirements to protect customers,
creditors and shareholders against
unexpected losses. This is an indication
of the strength of our business.
14.3%
increased from 5.6%
Underlying return on equity
Our increase in underlying profit means
we improved the return on the capital
invested on behalf of shareholders.
Figures compared to full year 2016 performance.
3
AMP 2017 annual report
Who we are and what we do
Our purpose is to help people own tomorrow, helping them take control of their money and achieve
their financial goals. We have a long history of helping customers to protect and grow their savings
and investments, and for almost 170 years we’ve dedicated ourselves to helping people achieve their
financial goals with quality solutions, services and expert advice.
750,000
shareholders
We helped
142,000
customers in Australia
live well in retirement
$1.1b
in Australian
insurance payments
helped our
customers
Australian wealth management
We help our customers to save for, and to live well in retirement
with our award-winning retail and corporate superannuation
products, self-managed superannuation funds (SMSFs) services,
as well as retirement income solutions and investments
for individuals.
Our network of financial advisers provide quality financial
advice, and our goals-based process enables customers to
identify, plan, track and realise their goals. Through AMP Advice
practices, customers have access to Goals 360, a unique goals-
based advice experience, which combines interactive technology
with personalised advice to help customers achieve their goals.
In 2017, we helped our customers retire right by paying
out $2.5 billion in Australian retirement payments including
Mature payments, and NZ$98.6 million in New Zealand
retirement payments. We also helped more customers achieve
their goals with 67 new practices joining AMP’s financial
advice network in Australia.
Australian wealth protection (life insurance)
We support our customers and their families during tough
times with life insurance, income protection and disability
insurance solutions. AMP is a leading life insurer and provides
policies that are held by individuals or are a part of their
superannuation fund.
In 2017, we paid $1.1 billion in Australian insurance claims
and NZ$54.6 million New Zealand insurance claims when
people needed us most.
AMP Bank
We help our customers manage their money and cashflow
and support them in financing property either for residential
or investment purposes. In addition, we provide financing to
AMP advice businesses. Aligned with AMP’s customer focus, our
mission is to help customers with their goals for life. Our products
and services provide greater coverage of customer goals enabling
AMP to be relevant over a wider set of financial goals, earlier in
the customers’ lifecycle and with a more interactive and engaged
product set. As a wealth management bank, we are conservative
in our risk settings. We distribute our solutions by leveraging
AMP’s network of financial advisers, third party distribution
(eg mortgage brokers) and directly through phone and digital.
In 2017, we helped over 100,000 Australians with their banking
needs, including providing close to 10,000 new home loans.
AMP Capital
We manage investments in equities, fixed income, diversified,
multi-manager and multi-asset funds on behalf of clients
around the world. AMP Capital also manages real estate and
infrastructure assets including shopping centres, airports, trains
and pipelines, with $14.8 billion in infrastructure investments
managed on behalf of our clients. In Asia, we have strong
partnerships with two of the leading financial services groups,
MUFG: Trust Bank of Japan and China Life. We also have a newly
formed partnership with PCCP, a US-based real estate investment
manager, demonstrating the progress we are making toward
meeting our growth ambitions overseas and in new markets.
At the close of 2017, AMP Capital managed $22 billion for
international investors, including $12 billion for 291 international
institutional clients.
New Zealand financial services
In New Zealand we provide customers with financial products
and services, directly and through one of the largest networks
of financial advisers in the country. In 2017, AMP was the
fourth-largest KiwiSaver Scheme provider with 11% of the
total KiwiSaver market and approximately 231,000 customers.
Mature
Through our Mature business, we manage closed insurance
and superannuation products that are no longer being sold. This
business is managed for yield and capital efficiency. It remains in
slow decline but is expected to remain profitable for many years.
4
AMP 2017 annual report 2017 highlights
In 2017, we made good progress on our strategic objectives, investing in our growth businesses,
expanding internationally, becoming more efficient and managing costs, as well as strengthening
our focus on delivering for our customers.
No 1
for superannuation
and advice1
Combined Net
Promoter Score
increased by
11pts
29
common goals
in our goals-based
operating system
Tilting investment to our high growth businesses
In 2017, we completed a comprehensive reinsurance program
in our wealth protection (life insurance) business that released
approximately $548 million in capital to AMP. This reduced the
risk and capital intensity of the insurance business, and also
provided capital to invest in AMP Bank, AMP Capital and in our
wealth management business, funding the purchase of advice
practice registers.
Completing the customer-centred transformation of our business
In our Australian wealth management business, we continued
to develop and deliver our new end-to-end, goals-based advice
system, Goals 360. We also focused on driving additional revenue
growth from our advice and SMSF (SuperConcepts) businesses.
That included looking for opportunities to take partial equity
stakes in advice practices and purchasing and retaining clients’
registers to provide new revenue streams.
We continued to develop services for our SMSF customers.
SuperConcepts launched a new online product marketplace
called Connected Services, which enables SMSF members to
access a range of products and services from third party providers
to help manage their fund in a convenient and paperless way.
We sustained investment in AMP Bank, which grew throughout
the year despite increasing regulation on lending. AMP also
maintained its conservative credit policy. The bank’s total home
loan book grew by $2.3 billion to $19.4 billion, representing an
increase of 14% from 2016.
Expanding internationally
In 2017, we further strengthened our strategic partnerships
with national champions, China Life in China, and MUFG: Trust
Bank in Japan. Our Chinese joint ventures continued to grow,
increasing both cashflows and market share, and we achieved
good traction in the Japanese institutional marketplace.
We formed a partnership with US advice business United
Capital. United Capital is one of the fastest growing financial
life management businesses in the US, with a goals-based advice
approach and philosophy similar to AMP. We also acquired
a minority stake in US real estate investment manager PCCP,
a real estate debt and equity manager which invests mainly
in mid-market real estate developments in the US.
Managing costs and driving efficiency
Throughout 2017 we continued to deliver cost efficiencies,
meeting our target to reduce controllable costs by 3% for the full
year (ex AMP Capital).
In our Australian wealth management business, we were
vigilant on controllable costs, containing them to an increase
of only 1%. In AMP Capital, controllable costs increased by 5%,
reflecting continued investment in real asset capabilities, growth
initiatives and international expansion. AMP Capital’s cost to
income ratio still fell within the target range.
1
Fund Market Overview Retail – Marketer, Strategic Insight (Plan For Life), September 2017.
Planner numbers, Money Management Top 100 Dealer Groups, 2017.
5
AMP 2017 annual report Our strategy
Our strategy is focused on delivering
for both our customers and shareholders.
We want to help all of our customers reach
their goals, and we have embedded a deep
customer focus within our business. We are
also focused on accelerating the growth of
our business, investing in areas where we
have a distinct competitive advantage.
Over
3.8m
customers in
Australia and
New Zealand
In 2018, our strategic objectives to
deliver growth remain focused on:
–
–
–
–
tilting our investment to the high
growth businesses in our portfolio
completing the customer-centred
transformation of our core
Australian businesses
expanding internationally
managing costs and driving
efficiency across the group.
We manage our portfolios in three ways:
–
–
managing for value and capital efficiency:
in those businesses with slower growth
or where we don’t have a distinctive
advantage (Australian wealth protection,
New Zealand, Mature)
investing to grow: where we do have
a distinctive competitive advantage
and where the market fundamentals
are attractive (Australian wealth
management, AMP Bank, AMP Capital)
–
leveraging our strengths into selective
new geographies and markets.
6
Helping people own tomorrow
Manage for value and capital efficiency
Wealth
Protection
New Zealand
Mature
Reinsurance to
release capital
Focus on pricing,
claims and lapse
management to
improve margins
Continue to
manage for
yield and cost
efficiency
Explore
reinsurance
opportunities
Continue to
manage for
yield and capital
efficiency
Focus on customer, cost, capital and culture
AMP 2017 annual report Helping people own tomorrow
We welcomed
135,727
new customers
to AMP
We helped
290,724
digitally engaged customers
to manage their finances on
MyAMP and our apps
67
new practices added
to AMP’s financial
advice network,
helping more
customers access
financial advice
Invest to grow
Goals-based advice
Leverage strengths to drive new growth
AMP Bank
Australian Wealth Management
AMP Capital
Global
Investment
Management
Global
Partnerships
Global O/S
& Advice
Advice strategy
Platforms & O/S
Organic growth
via integrated
goals-based
solutions
Become provider
of choice to
advisers and
brokers
Conservative
risk, funding and
capital settings
Greater
participation
in advice
value chain
Drive productivity
via technology
Drive
professionalism
and broaden offer
Strengthen
governance and
compliance
Invest to further
enhance platform
competitiveness
Goals-based O/S
Increase
channel choice
Price for volume
Grow revenue
from SMSF
Simplification
and efficiency
Extend MAG
capabilities
Create and
manufacture
innovative goals-
based funds
Grow domestic
real assets
footprint
Evolve and focus
public market
strategies
Accelerate
growth in Europe,
North America
and Asia
Partnership
with PCCP;
expansion into
real estate debt
Grow and extend
partnership with
China Life
Accelerate
completion
of O/S
Enhance MUFG:
Trust Bank
partnership
to drive
greater value
China Life O/S
opportunity
Partnering with
leading O/S
players; United
Capital in US
Explore options
to disrupt
overseas
O/S = operating system
7
AMP 2017 annual report Corporate sustainability
We are committed to building a sustainable future and creating long-term, shared value for our customers,
shareholders, employees, the community and the environment.
5%
reduction in scope 1
and 2 greenhouse gas
emissions year-on-year
$1m
in grants through
AMP’s Tomorrow
Fund
Women make up
40%
of the AMP Limited Board
Our first priority is to provide quality financial products and
services, however our duty extends beyond this, and our aim is
to help create tomorrow for everyone. Our customers trust us to
help them build financial security and be there for them when
they need us. It’s a responsibility we take seriously. Every day
we help millions of customers achieve their financial goals.
Taking the mystery out of managing money
We believe in making the complex simple and helping people
make informed financial decisions. We have the largest
network of financial advisers in Australia, and we provide
tools to help people gain a greater understanding about
achieving financial wellbeing, including budget planners,
debt reduction calculators and financial news.
We also share our expertise with our shareholders, holding
information sessions on financial topics prior to our annual
general meetings (AGMs). We are fortunate to have leading
financial experts working for us, and we want to share their
knowledge with the wider community. All shareholders are
invited to participate in person or online at the 2018 AGM
information session. You can find further details of the event
in the 2017 shareholder review or 2018 notice of meeting.
Responsible investing and good corporate governance
AMP Capital, our investment management arm, is a major
investor in companies and assets on behalf of our customers,
and is committed to improving the corporate responsibility
of the businesses in which it invests. A key part of AMP
Capital’s investment process is assessing the environmental,
social and governance (ESG) performance of each business
it invests in. We are a signatory to the UN-backed Principles
for Responsible Investment, and the most recent report card
on how we are progressing on our commitments is available
at ampcapital.com.au/esg.
We have a dedicated ESG team and sustainability specialists
who actively engage with the boards and management teams
of companies and assets 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.
In 2017, we further strengthened our commitment to responsible
investing by introducing a new investment screening framework,
where, in exceptional circumstances, companies or sectors can
be excluded from our investment portfolio on ethical grounds.
The framework has been incorporated into AMP Capital’s ESG
and Responsible Investment Philosophy, which is applied across
the business. Under the framework, AMP Capital considered all
sectors in which it invests and concluded that companies involved
in the manufacture of tobacco, cluster munitions, landmines,
biological and chemical weapons do not meet the minimum
ethical standards required and are excluded from all investment
portfolios managed by, or specifically for, AMP Capital.
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.
8
AMP 2017 annual report AMP’s four pillars of inclusion are:
Committed and inclusive leadership – leaders are supported
to create an inclusive culture.
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.
During 2017, gender equality remained at the forefront of
our inclusion and diversity work, along with an increased focus
on flexible work, including role modelling and storytelling by
senior executives.
2017 also saw the introduction of our domestic and family
violence support policy to support employees who are directly
or indirectly experiencing domestic or family violence. AMP is
committed to the safety and wellbeing of all employees and
we want to provide an environment where our people feel
comfortable to raise issues, and confident they’ll receive the
help and support they need.
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.
AMP was again named an Employer of Choice for Gender
Equality by the Australian Government’s Workplace Gender
Equality Agency for 2017.
Protecting our environment
We aim to minimise the impact of our operations on the
environment. We also actively assess the environmental risks
and opportunities across our business and the investments
that are managed by AMP Capital. In 2017, we continued to
make progress against our environmental priorities and targets,
remaining carbon neutral in our own operations and achieving
a 5% year-on-year reduction in scope one and two emissions.
We also announced a new suite of targets and priorities for
2017 – 2021, and started reviewing the recommendations of
the Financial Stability Board’s Task Force on Climate-related
Financial Disclosures, within the context of our existing
approach to climate risk.
Investing in the community
Through the AMP Foundation we help provide a better tomorrow
for everyone, especially people who face challenges accessing
education and employment opportunities. Since 1992, the AMP
Foundation has distributed over $91 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 organisations that give disadvantaged
Australians life-changing learning and work opportunities.
It also helps people to help others, 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 2017, the AMP Foundation distributed $5.7 million in the
community, including more than $1 million in grants through
AMP’s Tomorrow Fund to help 45 amazing Australians achieve
their goals. We also presented scholarships to 24 equally
extraordinary New Zealanders. While these recipients all have
very different interests, like AMP, they are all striving to give back.
You can find our sustainability report, as well as further
information on our environmental performance, corporate
governance work and AMP Foundation activities at
amp.com.au/corporatesustainability.
Representation of women at AMP
Roles
2020 target
2017 progress target
31 December 2017
31 December 2016
AMP Limited Board
Senior executives
Middle management
All employees
40%
47%
50%
n/a
40%
42%
44%
n/a
40%
38%
41%
51%
40%
40%
41%
52%
9
AMP 2017 annual report Our board
We have a diverse and highly skilled board with the right mix of skills and experience to help deliver
our strategy.
From the left, back row; Mike Wilkins AO, Vanessa Wallace, Geoff Roberts, Catherine Brenner, Craig Meller, Patricia (Patty) Akopiantz, Trevor Matthews.
Front row, Peter Varghese AO, Holly Kramer, Andrew Harmos.
Catherine Brenner
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 Meller
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 and a Director of The National Mutual Life Association
of Australasia Limited since March 2011.
Experience
Prior to becoming CEO, Craig was Managing Director (MD)
of AMP Financial Services from 2007–2013. 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 1999–2001.
Government and community involvement
– Member, Financial Sector Advisory Council
10
AMP 2017 annual report Patricia (Patty) Akopiantz
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
Andrew Harmos
Independent Director BCom, LLB (Hons)
Andrew was appointed to the AMP Limited Board in June
2017 and is a member of its Audit and Risk Committees.
Andrew was appointed a Director of AMP Life Limited and
The National Mutual Life Association of Australasia Limited
in August 2013. He has served as a member of the Audit
Committees of both life company boards since August 2013
and was appointed as a member of the Risk Committees of
both life company boards in November 2014. Andrew became
Chairman of the Audit Committees of both life company
boards in May 2016.
Experience
Andrew is one of the founding directors and shareholders of
Harmos Horton Lusk Limited, an Auckland-based specialist
corporate legal advisory firm. He specialises in corporate takeovers,
corporate structure and governance advice, company, business
and asset acquisitions and disposals, securities offerings, and
strategic and board corporate advice.
Andrew is also a director of Pascaro Investments Limited
(a farm investment company) and Elevation Capital Management
Limited, and was previously Chairman of NZX Limited and a
trustee of the Arts Foundation of New Zealand.
Listed directorships
–
Director of Scentre Group (appointed June 2014)
Government and community involvement
–
Member of the New Zealand Arts Foundation Finance
Committee
Holly Kramer
Independent Director BA (Hons), MBA
Holly was appointed to the AMP Limited Board in October
2015 and was appointed a member of the Audit Committee in
November 2015. In May 2017, she was appointed a Director of
AMP Bank Limited, Chairman of the AMP Bank Audit Committee
and a member of the AMP Bank Risk Committee. 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.
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
– Deputy Chair of Australia Post
– Director of Southern Phone Company Limited
– Director of The GO Foundation
–
Member of the Board of Trustees of Western Sydney
University
Trevor Matthews
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 (December 2013
to April 2017)
– Chairman of 1st Group Ltd (appointed February 2015)
Government and community involvement
– Chairman of the NSW State Insurance Regulatory Authority
11
AMP 2017 annual report Our board for the year ended 31 December 2017
Geoff Roberts
Independent Director BCom, MBA
Geoff was appointed to the AMP Limited Board and as Chairman
of the Audit Committee in July 2016. He became a member of the
Risk Committee in January 2018. 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 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.
Peter Varghese AO
Independent Director BA (Hons)
Peter was appointed to the AMP Limited Board and as a member
of its Risk Committee in October 2016. He became a member
of the Nomination & Governance Committee in May 2017.
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 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.
Government and community involvement
– Chancellor, University of Queensland
–
Chairman, Queensland Health Export and Investment
Advisory Council
12
Vanessa Wallace
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 for global markets
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)
– Director of SEEK Limited (appointed March 2017)
Government and community involvement
–
Member of the Chairman’s Council of the Australian
Chamber Orchestra
– Member of the MS Research Australia Leadership Council
Mike Wilkins AO
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. In May
2017, he became Chairman of the Risk Committee. 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. Mike was made an
Officer of the Order of Australia in 2017 for distinguished service
to the insurance industry.
Listed directorships
–
Director of QBE Insurance Group Limited (appointed
November 2016)
– Director of Medibank Private Limited (appointed May 2017)
AMP 2017 annual report Our management team
1
2
3
4
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 in 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 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 Risk,
Planning and Analysis, 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 and Deputy President 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 in
January 2017. Sally is responsible for AMP’s banking business,
as well as contributing to the overall leadership and culture
of the organisation.
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,
in 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
– Chairman of AMP Financial Planning Pty Limited
– Chairman of Charter Financial Planning Limited
– Chairman of Hillross Financial Services Limited
– Chairman of Ipac Securities Limited
– Director of the Financial Services Council
13
AMP 2017 annual report Our management team for the year ended 31 December 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 in 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.
Paul Sainsbury5
Group Executive, Wealth Solutions and Chief Customer Officer
Paul was appointed Chief Customer Officer in April 2013 and
was appointed Group Executive, Wealth Solutions and Chief
Customer Officer in 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 AMP/AXA Integration, 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,
Ireland, 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 appointment
– Male Champion of Change
14
AMP 2017 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 in January 2017. Helen has
group-wide responsibility for AMP’s brand, reputation and
communications management, and 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 for the Group
in January 2017. Craig is responsible for the strategy and
management of technology and business operations for AMP.
Experience
Craig is a seasoned executive with more than 25 years of
technology, business and transformation experience. Prior
to his current role, Craig was AMP’s Chief Information Officer
and before that IT Director for AMP’s retail and financial
services businesses.
During his time at AMP, Craig has led the technology function
for a variety of different areas of the business. Craig has deep
experience in leading large transformation programs including a
technology operating model transformation of AMP Capital and
one of the largest platform consolidation programs in Australia.
Before joining AMP, Craig worked as a superannuation
consultant for William M Mercer in Australia and he holds a
Bachelor of Commerce from the Australian National University.
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 Chair of the General Counsel
100. He is a former Chairman and National Committee member
of the Australian Securitisation Forum. He is an executive director
of AMP’s two superannuation trustee companies that represent
the interests of almost four million AMP customers.
Other appointment
– 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 appointments
– Director of AMP Foundation Limited
– Director, Membership Committee, Chief Executive Women
15
AMP 2017 annual report Corporate governance at AMP
We are committed to excellence in corporate governance, which we believe is essential for the
long-term performance and sustainability of our company and the delivery of our strategy.
AMP’s promise is to help people own tomorrow. This strong
sense of purpose drives the AMP culture and all that we do.
Three core elements underpin AMP’s culture – integrity, help
and performance. Integrity ensures we use our expertise to
do the right thing. Help is at the core of how we support our
customers, and we’re driving our performance edge to deliver
the best results we can for shareholders and customers. We
view our governance framework as one of the foundations to
support our culture. Our governance framework is designed to
provide the right structure and review processes to deliver on
our promise for many years to come.
We believe the long-term performance and sustainability of
AMP goes beyond delivering long-term value to our shareholders.
It requires us to consider the interests of a broader set of
stakeholders, including our customers, our people and the wider
community. Our corporate governance practices are designed
to address all these interests.
Key information
During 2017, AMP continued to focus on enhancing its corporate
governance structure and practices, including in the following
key areas:
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 sound risk culture that drives the right
behaviours and supports AMP’s values of integrity, help and
performance. We are committed to helping our customers and
improving risk culture to keep pace with evolving regulatory,
customer and community expectations. In 2017, AMP continued
to implement initiatives designed to effectively integrate risk
awareness into employee decision-making. For example, we
further embedded the use of our risk appetite statement in
the evaluation of our strategic initiatives and in enhanced
periodic reporting to the board.
Inclusion and diversity – AMP continues to foster an inclusive
and diverse workplace, with gender diversity a clear priority.
We are committed to achieving our gender diversity targets,
which aim to have women hold 47% of senior executive roles
and 50% of middle manager roles by the end of 2020. Despite
strong overall representation of women by industry standards
– including women holding 40% of AMP Limited Board
positions – AMP did not meet its progress targets for 2017.
This was largely due to a realignment of AMP’s organisational
structure following changes to our operating model. The
AMP Group Leadership Team has renewed its approach to
increasing gender diversity through a focus on female talent
and advocacy, recruitment and appointment practices,
flexible work and targeted communication.
Life board governance – Following the transfer, in January 2017,
of the Australian and New Zealand life insurance business of AMP
subsidiary The National Mutual Life Association of Australasia
Limited (NMLA) to AMP Life Limited (AMP Life), we introduced
changes to improve the decision-making efficiency of the life
company boards and to better align their work with that of the
AMP Limited Board to reduce duplication, while maintaining
high standards of governance and regulatory compliance.
These changes included the convening of concurrent meetings
to discuss areas of common interest and responsibility, and a
change in board composition so that all AMP Life and NMLA non-
executive directors are also AMP Limited non-executive directors.
Corporate sustainability – At AMP, we understand that, for our
business to be truly sustainable and to be able to deliver on our
promise of helping people own tomorrow, we need to maintain
our focus on managing our environmental impact, responsible
investing, engaging our people, community investment and
corporate responsibility. In 2017, AMP continued to be carbon
neutral and the AMP Foundation, which celebrated 25 years
of supporting the community, distributed $5.7 million to the
community, including more than $1 million in grants through
AMP’s Tomorrow Fund, which supports Australians who are
doing great things in the community.
ESG reporting – We are expanding how we report on AMP’s
economic, environmental and social impact, delivering a more
complete ESG (environmental, social and governance) report
for 2017. This is a step towards creating a more comprehensive
report on sustainability for 2018.
AMP Customer Advocate – AMP has strengthened its support
for customers with the creation of a centralised AMP Customer
Advocate function, announced on 31 October 2017. The objective
of the AMP Customer Advocate is to help customers of the
Australian business who seek a review of their complaint to
ensure the outcome is fair and reasonable. A further objective
of the AMP Customer Advocate is to ensure AMP’s customer
complaint processes are accessible, robust and transparent.
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 2017, we had the third largest shareholder
base of any company in Australia with over 750,000 shareholders,
many of whom are also our customers.
Keeping our shareholders informed
AMP values direct, two-way communication with our
shareholders and focuses on providing 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 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 directly to their inbox.
16
AMP 2017 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, succession
planning and board governance
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
Shareholders can elect to receive their annual reports, notices of
meeting and dividend statements in print or online. Shareholders
who choose to receive their reporting information online 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 scheduled, 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
The AMP Limited Board welcomes the opportunity to meet with
AMP’s 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.
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 2018 AGM, at
9.30am on Thursday 10 May 2018 at the Grand Hyatt Melbourne.
All shareholders are invited to join the session in person or online.
2018 annual general meeting
AMP’s 2018 AGM will be held at 11am on Thursday 10 May 2018
at the Grand Hyatt Melbourne. 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 ask questions through
our webcast. Full details will be provided in the 2018 notice
of meeting.
Our board of directors
The AMP Limited Board oversees the management of our company
on behalf of shareholders.
The AMP Limited 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:
– reviewing and approving the strategic direction of the
company and overseeing its implementation
– overseeing and approving the company’s governance model
– promoting a sound and effective corporate culture designed
to meet stakeholder expectations
– approving the risk management framework (including
risk appetite, risk management strategy, and control and
compliance systems) and monitoring its effectiveness
(including risk culture)
– monitoring the performance of management and the business
– approving the appointment of the chief executive officer
(CEO) and chief financial officer (CFO) and the remuneration
arrangements for certain key executives
– overseeing succession planning for key executive roles
– approving diversity targets and overseeing progress against them
– approving material transactions and capital initiatives.
17
AMP 2017 annual report Corporate governance at AMP for the year ended 31 December 2017
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 the experience to oversee the delivery
of our strategy and manage the opportunities and risks we face.
In accordance with our corporate governance charter, the
AMP Limited Board is made up of a majority of independent
non-executive directors and will have no more than two
executive directors. The chairman of the board is 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. As at
the date of this report, the longest serving director has held
office for approximately seven and a half years. We value the
balance of fresh perspectives and corporate memory provided
by diverse tenure.
The AMP Limited Board is currently 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 biographical details of the directors of AMP Limited,
including details of their qualifications, tenure and experience,
on pages 10 to 12 and on our website.
Board committees
The AMP Limited Board is supported by four standing committees,
each of which focuses in detail on different areas of the board’s
responsibilities and contributes to a strong governance framework.
The AMP Limited Board has the following four standing
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, endorsing the appointment of
the Director of Internal Audit and the external auditor, 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, overseeing
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, endorsing AMP’s remuneration
policy, and reviewing or 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 and reviewing AMP’s risk culture, approving material
risk management and compliance policies, and endorsing AMP’s
risk management strategy, risk appetite statement and the
appointment of the group chief risk officer.
Each committee has its own annual program and meets at
least four times per year. Each program identifies items to be
considered by the relevant committee during the year.
Throughout 2017, all standing committee members were
independent directors.
You can find the terms of reference for each standing 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 support
achievement of strategic objectives. The board and management
consider effective risk management to be 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 AMP Limited 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 align achievement of strategic objectives
with AMP’s risk appetite and applicable laws and regulations.
The Risk Committee and board review the ERM framework at
least annually, including for 2017, to satisfy themselves that it
continues to be sound.
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. Business
unit teams are responsible for decision-making and the execution
of the day-to-day business, while managing risk and the resulting
profit and loss in line with the board’s risk appetite and strategy.
Line 2 – the ERM team, led by the group chief risk officer, 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.
The ‘three lines of defence’ approach is designed to provide
assurance to management and the board that risks are identified,
managed and reported effectively.
An outline of AMP’s key business challenges and material risks
can be found in the directors’ report on pages 23 to 24.
18
AMP 2017 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.
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.
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 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 Corporate Governance
Council’s Corporate Governance Principles and Recommendations
may differ materially from NZX’s corporate governance
rules and the principles of the NZX Corporate Governance
Code. You can find further information about the ASX
Corporate Governance Council’s Corporate Governance
Principles and Recommendations on the ASX website at
asx.com.au/regulation/corporate-governance-council.htm.
Acting ethically and responsibly
AMP believes that by acting ethically and responsibly we will be
best positioned to create a better tomorrow for our customers,
employees, business partners, communities and shareholders.
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.
Throughout 2017, we complied with the recommendations set
by the ASX Corporate Governance Council in the third edition
of its Corporate Governance Principles and Recommendations,
and we continually review our governance practices to seek to
ensure that we not only meet but exceed the expectations of
regulators and our stakeholders.
Our board-approved corporate governance statement,
dated 27 February 2018, is available on our website at
amp.com.au/corporategovernance.
19
AMP 2017 annual report
Directors’ report
for the year ended 31 December 2017
This directors’ report provides information on the structure and progress of our business, our
2017 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 2017.
Operating and financial review
Principal activities
AMP is Australia and New Zealand’s leading wealth management
company, with an expanding international investment
management business and a growing retail banking business
in Australia.
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 close to 3,300 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, 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 5,600 employees, around 750,000 shareholders
and manage and administer $257 billion in assets.
AMP Capital has a strategic alliance with leading Japanese bank,
Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank)
through which MUFG: Trust Bank 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, AMP Bank, Australian wealth
protection, New Zealand financial services and Australian mature.
The Australian wealth management business provides customers
with superannuation, retirement income, investment, SMSF
software and 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, multi-manager
and multi-asset funds.
AMP Bank is an Australian retail bank offering residential
mortgages, deposits, transaction banking, and SMSF products for
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.
Australian wealth protection comprises term life, disability and
income protection insurance products sold on an individual
and group basis. Insurance products can be bundled with a
superannuation product or held independently.
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.
Australian mature is the largest closed life insurance business
in Australia. Australian mature assets under management
comprises capital guaranteed products (76%) and market linked
products (24%). 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.
2017 performance
The profit attributable to shareholders of AMP Limited for the
year ended 31 December 2017 was $848 million (2016: loss of
$344 million).
Basic earnings per share for the year ended 31 December 2017
on a statutory basis were 29.3 cents per share (2016: loss of
11.7 cents per share). On an underlying basis, the earnings per
share were 35.5 cents per share (2016: 16.4 cents per share).
Key performance measures were as follows:
–
–
–
–
–
2017 underlying profit of $1,040 million increased
114% from $486 million in 2016, driven by the recovery
in Australian wealth protection earnings and strong
operating earnings growth from AMP Bank (+17%) and
AMP Capital (+8%).
Australian wealth protection earnings of $110 million
increased $525 million on 2016, reflective of the steps
taken to stabilise the business in the second half of 2016
and in 2017.
Australian wealth management earnings declined 2.5%
from 2016, largely due to margin compression from MySuper
transitions, increased variable remuneration and a reset of
the investment management agreement with AMP Capital.
Underlying investment income decreased $27 million to
$95 million from 2016, due to lower shareholder capital
resources and a 50 bp reduction in the assumed underlying
after-tax rate of return.
Australian wealth management net cashflows were
$931 million, up 177% from 2016. AMP’s retail and corporate
super platform net cashflows were positively impacted by
changes to superannuation contribution limits in 2017 and
large mandate wins.
20
AMP 2017 annual report –
–
AMP Capital external net cashflows were $5,477 million,
up from $967 million in 2016. Inflows were driven by strong
flows into fixed income and real asset (infrastructure and
real estate) asset classes.
Capital management and dividend
Equity and reserves of the AMP group attributable to shareholders
of AMP Limited decreased to $7.2 billion at 31 December 2017
from $7.5 billion at 31 December 2016.
Underlying return on equity rose 8.7 percentage points to
14.3% in 2017 from 2016, reflecting significantly improved
profitability and the impact of capital management programs.
AMP’s total assets under management (AUM) and administration
were $257 billion at 31 December 2017 (2016: $240 billion).
Operating results by business area
The operating results of each business area for 2017 were as
follows:
–
–
–
–
–
–
Australian wealth management – operating earnings
dropped by $10 million (2.5%) from 2016 to $391 million in
2017. The decline in operating earnings was largely due to
margin compression from MySuper transitions, increased
variable remuneration associated with improved group
performance plus a reset of the investment management
agreement with AMP Capital.
AMP Capital – AMP group’s 85% share of AMP Capital’s
2017 operating earnings was $156 million, up 8% from
$144 million in 2016. AMP Capital’s operating earnings
benefited from strong fee income growth of 7%, partially
offset by a 5% increase in controllable costs.
AMP Bank – Operating earnings increased $20 million (17%)
to $140 million in 2017 from 2016. Total revenue increased
17% in 2017 from 2016, primarily driven by growth in the
loan portfolio.
Australian wealth protection – Operating earnings
improved by $525 million to $110 million in 2017 from
2016, with improved experience more than offsetting
lower profit margins. Profit margins fell by $76 million
(43%) from 2016 to $99 million in 2017, largely due to the
strengthening of assumptions at 2016, the implementation
of a 50% quota share reinsurance arrangement with
Munich Reinsurance Company of Australasia (Munich Re)
on 1 November 2016 and the implementation of a second
tranche of reinsurance transactions on 1 November 2017
with General Reinsurance Life Australia Limited (Gen Re)
and Munich Re. Total reinsurance cover on AMP’s retail book
is now equivalent to 65% of individual risk API. The impact
of assumption changes and reinsurance arrangements
were partially offset by a reduction in controllable costs.
New Zealand financial services – In New Zealand dollar
terms, operating earnings increased by $1 million (1%) to
$135 million as a result of higher profit margins, partially
offset by lower experience profits. In Australian dollar terms,
operating earnings decreased by $1 million (1%) following
the depreciation of the New Zealand dollar relative to the
Australian dollar.
Australian mature – 2017 operating earnings of $150 million
decreased $1 million from 2016 due to the expected portfolio
run-off ($9 million decrease) offset by improved experience
($5 million increase), investment markets ($2 million
increase) and lower controllable costs ($1 million increase).
AMP remains well capitalised, with $2.3 billion in shareholder
regulatory capital resources, above minimum regulatory
requirements (MRR) at 31 December 2017 ($2.2 billion at
31 December 2016).
AMP’s final 2017 dividend is 14.5 cents per share, franked to
90%. This represents a full year 2017 dividend payout ratio of
81% of underlying profit. AMP will continue to offer the dividend
reinvestment plan (DRP) to eligible shareholders. For the 2017
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.
Strategy and prospects
AMP is positioned to take advantage of positive long-term
demographic and market trends, operating in large and growing
markets where competition is rational and where AMP has a
distinct competitive advantage. The company is pursuing a clear
strategy for long-term growth with four key priorities:
–
tilting investment to higher growth businesses with strong
market positions, while releasing and recycling capital from
lower growth businesses
transforming the core Australian business to focus on helping
customers achieve their goals
managing costs to continue growing profitably in a margin
compressed world, and
expanding internationally by leveraging AMP’s key strengths
into new markets, specifically Europe, North America, China
and Japan.
–
–
–
This strategy is expected to drive improved business performance
and growth with the expectation that AMP will meet its 15%
return on equity hurdle in 2018.
AMP is well progressed with a portfolio review of the manage
for value businesses with all alternatives being considered. As a
result, AMP is in discussions with a number of interested parties.
While the portfolio review is yet to be concluded, AMP expects
to be in a position to provide a further update at or before AMP’s
2018 AGM.
1. Tilt investment to higher growth businesses
AMP is focused on delivering growth across the portfolio by
focusing investment in its high growth businesses, including
Australian wealth management, AMP Bank and AMP Capital.
A key priority is to grow in the expanding $3.3 trillion1 Australian
wealth management market, where AMP holds the number one2
market share position in superannuation, advice, and SMSF and
the number two market share position in retirement incomes.
AMP is investing in Australian wealth management to grow its
distinctive competitive advantages. In 2018, AMP is targeting
additional revenue equivalent to 2% of AUM fees from its Advice
and SMSF businesses. This investment will also help Australians
get more advice, more often through our goals-based operating
system which will also improve productivity and drive new
revenue streams.
1
2
ABS Managed Funds Report, Managed Funds Industry, September 2017.
Fund Market Overview Retail – Marketer, Strategic Insight (Plan for Life), September 2017.
21
AMP 2017 annual report AMP Bank continues to grow strongly and represents a
significant opportunity for AMP by integrating debt and cashflow
management strategies into our goals-based offers, particularly
across its aligned advice network and broker proposition.
AMP Bank offers an opportunity for the group to engage with
customers earlier in their financial life cycle, with products and
services that provide higher levels of interaction. Delivering on
this strategy is expected to double the value of AMP Bank over
five years.
AMP Capital has demonstrated consistent and sustainable
earnings growth and is focused on growing domestically
while also extending its geographic reach and investment in
distribution capabilities across selected markets. By utilising
its strengths in the management of real assets, AMP Capital
has further opportunity to capture attractive revenues and is
targeting double-digit earnings growth through the cycle.
2. Transform
AMP is transforming its core Australian businesses to be more
customer centric, based on helping more people achieve their
life goals.
AMP is aiming to make its goals-based approach to financial
advice more relevant, accessible and affordable for its customers,
and at the same time, more efficient and profitable for AMP
and its strong network of aligned advisers. AMP is also giving
customers more ways to interact with the company by creating
an omni-channel experience with new digital and direct channels
that complement its existing multi-branded face-to-face
advice experience.
AMP is rolling out its technology-enabled, goals-based advice
platform to AMP Advice. In second half 2017, AMP formalised a
partnership with US advice business United Capital to collaborate
as AMP develops its new operating system. By the end of 2017,
26 practices with over 200 financial advisers were operating
under the new AMP Advice model. They will deliver a better and
more relevant customer outcome and experience, greater adviser
productivity and improved advice practice profitability.
3. Manage costs
AMP continues to deliver market-leading cost efficiency and
in 2017 operating model and organisational design changes
delivered efficiency gains which reduced controllable costs by 3%.
AMP (excluding AMP Capital) has an ambition to keep controllable
costs flat in the medium term. Run rate savings from initiatives
in 2017 and benefits from other strategic cost initiatives will help
deliver this outcome in 2018.
4. Expand internationally
AMP is expanding internationally, primarily through AMP Capital,
in high-growth regions where its expertise and capabilities are
in demand. AMP has built 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.
In the second half of 2017, AMP announced an agreement to
purchase a minority stake in US-based real estate investment
manager PCCP to provide commercial debt and equity capital
for middle market investments throughout the US.
AMP’s relationships with China Life continue to strengthen.
China Life Asset Management Company Limited (CLAMP) is the
fastest growing new asset management company in China while
China Life Pension Company (CLPC) ranks first in trustee services
with 31% market share and third in investment management
with 11% market share. CLPC is expected to benefit from the
implementation of new regulations for Occupational Pensions
in China in coming years. AMP is targeting earnings of around
$50 million per annum from the China businesses within
five years.
AMP Capital’s relationship with its Japanese strategic partner
MUFG: Trust Bank also remains strong with the alliance enhanced
and renewed during the first quarter of 2017.
Strategies and prospects by business area3
Australian wealth management
Australian wealth management’s key priorities are to:
–
–
–
–
–
–
build the goals-based advice model of the future and
improve the quality of the advice experience
maintain competitive platforms to access the retail and
corporate superannuation markets
increase revenues in Advice and SMSF while remaining
vigilant on cost control
increase channel choice and deliver an integrated customer
experience
use new capabilities to design customer centric offers
covering advice, product and service, and
develop a strong SMSF capability with a focus on building
scale, efficiency and profitable growth over the medium
term.
AMP Capital
Working as a trusted partner to clients, AMP Capital’s key
priorities are to deliver an outstanding investment experience
for clients and to generate revenue growth through:
–
delivering investment outcomes to clients specific to their
goals
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 via enhanced
distribution of real asset funds, and
building preferential distribution partnerships in select Asian
markets, particularly Japan and China.
–
–
–
–
AMP Bank
As the banking arm of a wealth manager, AMP Bank’s role is
to leverage and grow the group’s customer base and support
customer goals through providing banking solutions to both
advised and non-advised customers as well as providing
finance to AMP Advice businesses. In aligning with this strategic
imperative, AMP Bank’s priorities are to:
–
build a superior advice and broker support network and
proposition
deliver compelling customer-centric banking propositions
to AMP group target customer segments
make banking easier for customers by investing in
technology and service excellence
leverage AMP group investments to build out capabilities in
direct and digital
maintain a conservative risk appetite and continue to invest
in risk management capabilities
continue to optimise AMP Bank’s funding sources.
–
–
–
–
–
3
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.
22
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 Australian wealth protection
Australian wealth protection’s key priorities are to:
–
focus on pricing, claims and lapse management to improve
margins, and
provide a high-quality customer experience.
–
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
grow scale and capture margin in wealth management
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 continue to manage
Australian mature for yield and 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 5% per annum. However, in volatile investment
markets, this run-off rate can vary substantially. The run-off of
AUM is anticipated to have an average duration of approximately
13 years, but will be impacted by investment markets.
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. It also
includes a risk appetite statement which articulates the nature
and level of risk the board is willing to accept in the pursuit of
strategic objectives. Alignment between AMP’s corporate strategy
and the risk appetite of the AMP Limited Board ensures that risks
taken are consistent with the nature and level of risk the board is
willing to accept.
Key business challenges
Given the nature of our business environment we continue to
face challenges that could have an adverse impact on the delivery
of our strategy. The most significant business challenges (in no
particular order of importance) include, but are not limited to:
Competitor and customer 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 has programs in place aimed at anticipating and responding
to threats and opportunities that arise from changing customer
preferences and competitor strategies and capabilities.
Cyber security threats
Cyber risk continues to be a focus area across all industries. We
recognise that cyber risk will continue to be a threat in a rapidly
changing technological environment and that the magnitude and
costs of cybercrime vary depending on the nature of the attack.
AMP is committed to investing in enhancing our cyber security
network and we have several detective, preventative and
responsive controls to protect our assets and networks. While
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 ways to mitigate failures of people,
processes and technology.
Organisational change
AMP’s promise to help people ‘own tomorrow’ requires
continuous updating of products, services and customer
experiences. Managing continuous change can place significant
pressure on employees.
AMP has invested heavily into developing new approaches,
models and ways of working to drive efficiency. 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 establish change programs
and manage the transition.
Business, employee and business partner conduct
The conduct of financial institutions is an area of significant
focus. There is a risk that business practices and management,
staff or business partner behaviours may not deliver the
outcomes desired by AMP or meet the expectations of regulators
and customers. An actual or perceived shortcoming in conduct by
AMP or its business partners may undermine our reputation and
draw increased attention from regulators.
AMP is committed to establishing a culture of help, integrity
and performance. Our code of conduct outlines the minimum
standards of behaviour and decision making and our expectations
for how we treat our employees, customers, business partners
and shareholders.
AMP also works to provide a safe and respectful environment
that encourages all staff to be confident and speak out about any
potential conduct issues. All employees, contractors and third
parties can use the Your Call program to raise concerns including
regarding unethical behaviours as a whistleblower. The Group
Chief Risk Officer (CRO) is AMP’s designated Whistleblower
Protection Officer, and has direct access to the CEO and board.
Further to this, we are committed to ensuring the right culture
is embedded in our everyday practices, with risk explicitly
considered as part of the remuneration framework. The Group
CRO is also given an additional discretion to adjust the bonus
pool for significant failures in conduct or risk management.
Regulatory environment
AMP operates in multiple jurisdictions across the globe. Each one
of these jurisdictions has legislative and regulatory requirements
that AMP is committed to meeting. These requirements are also
subject to reform.
AMP has established internal policies, frameworks and procedures
to seek to ensure our domestic and international regulatory
obligations are met in each jurisdiction. Processes are also in place
to manage the implications of regulatory change on our business
performance. AMP has developed a curriculum of mandatory
compliance training that all employees must undertake to ensure
awareness of their general compliance obligations.
23
AMP 2017 annual report Regulatory and compliance risks, breaches, consultations and general interactions are reported as part of our internal risk and
compliance reporting process, and to the relevant regulators as and when required. At any point in time, a number of investigations,
consultations and general interactions may be in progress with our key regulators. We actively participate in these interactions and fully
cooperate with regulators on such matters.
The Australian financial services industry is currently responding to a Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry, established on 14 December 2017. The outcomes of this Royal Commission for AMP and the industry
are uncertain at this time. AMP has welcomed the opportunity to contribute to the Royal Commission and supports its intent to provide
certainty to the financial system and help restore the community’s trust and confidence in the industry.
Material risk types
AMP has categorised risk in seven material risk types which are monitored, assessed and reported to the board and relevant committees
to ensure that risk is managed appropriately. The risk types and definitions are noted below. The section should be read in conjunction
with the corporate governance statement relevant to risk management.
Risk type
Definition
Strategic risk
Risk of loss or forgone value associated with strategic decisions and competitive positioning of the business
and our ability to respond in a timely manner to changes in the regulatory, customer or competitive landscape.
Credit risk
The risk of loss or forgone value due to non-payment of a contractually required payment by a counterparty.
Market risk
Insurance risk
Liquidity risk
The risk of loss or forgone value due to adverse movements in market prices and investment values.
This may be due to economic changes or events that have an impact on large portions of the market.
The risk of loss due to adverse developments in morbidity/mortality rates, longevity, expense, and changes
to policyholder behaviour.
The risk of loss due to an inability to fund or trade liquidity risk at a given period to meet debt obligations
at a reasonable price.
Concentration risk
The risk of loss due to a series of exposures with the potential to produce large enough losses. It may arise
in the form of credit concentration, market correlation, cross risk types, pandemic, which may have been
accumulated over time.
Operational risk
Risk of loss resulting from inadequate or failed internal processes and systems or from external events.
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 8 February 2018 of:
–
a final dividend on ordinary shares of 14.5 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.
24
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 The AMP Limited board of directors
The management of AMP is overseen by a board of directors who are elected by shareholders.
Patricia Akopiantz
The directors of AMP Limited during the year ended 31 December 2017 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)
–
– Andrew Harmos (appointed 1 June 2017)
– Holly Kramer
–
– Geoff Roberts
Peter Shergold (retired 11 May 2017)
–
–
Peter Varghese
– Vanessa Wallace
– Mike Wilkins
Trevor Matthews
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 2017. The Chairman and directors also attended other meetings, including
management meetings and meetings of subsidiary boards or committees of which they were not a director or member during the
year (those voluntary attendances are not included in the table below).
Board/Committee
Held/attended
Catherine Brenner
Craig Meller
Patricia Akopiantz
Andrew Harmos
(appointed 1 June 2017)3
Holly Kramer
Trevor Matthews
Geoff Roberts
Peter Shergold
(retired 11 May 2017)4
Peter Varghese
Vanessa Wallace
Mike Wilkins
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
14
14
14
9
14
14
14
5
14
14
14
B
14
14
14
9
14
14
14
5
14
13
13
A
–
–
1
2
4
4
4
–
–
–
4
B
–
–
1
2
4
4
4
–
–
–
4
A
–
–
3
2
–
4
–
2
4
1
4
B
–
–
3
2
–
4
–
2
4
1
4
A
3
–
3
–
–
–
–
2
1
–
–
B
3
–
3
–
–
–
–
2
1
–
–
A
7
–
7
–
–
–
–
–
–
7
–
B
7
–
7
–
–
–
–
–
–
7
–
A
13
B
13
8
6
6
5
2
8
–
1
2
10
8
6
5
4
2
8
–
1
1
9
A
–
7
16
7
B
–
7
16
7
10
10
7
–
6
12
12
6
7
–
6
12
12
5
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, various compliance matters and certain
strategic initiatives.
Subsidiary board and committee meetings include AMP Life/The National Mutual Life Association of Australasia (NMLA), AMP Bank and AMP
Capital Holdings. Where board and committee meetings of AMP Limited and AMP Life/NMLA were held concurrently, only one meeting has been
recorded in the above table. Similarly, where concurrent meetings of AMP Life and NMLA were held, only one meeting has been recorded.
Andrew Harmos was appointed as a Director on 1 June 2017 and member of the Audit and Risk Committees in June 2017.
Peter Shergold retired as a Director on 11 May 2017.
2
3
4
25
AMP 2017 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 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 has held various legal
roles in the AMP group before moving into the Group Corporate
Governance team. She is Company Secretary for AMP Bank
Limited. Prior to 2000, Vicki worked as a lawyer focusing on
litigation in several Sydney private legal practices. She holds
a graduate diploma in Applied Corporate Governance and is
a Fellow of the Governance Institute of Australia.
26
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
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 2017.
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 2017, 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, 8 February 2018
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 2017, 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 CFO, or his nominated delegate, 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 12% (ie $1.9 million) of the total fees paid to the auditors, decreasing by
9% on the prior year.
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 2017.
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 2017 annual report Remuneration report
for the year ended 31 December 2017
There was no increase to NED fees in 2017. The board completed
a review of the governance structure of the key operating
subsidiary boards in 2017. This resulted in an annual saving
of $836,500 in Life board director fees.
2018 executive remuneration changes
We conducted a comprehensive review of our remuneration
strategy to determine how we could better deliver the group
strategy and bring a performance edge to AMP’s existing culture
of integrity and help. This included extensive discussions with
shareholders and other stakeholders.
While the existing incentive plans were meeting some of the
remuneration guiding principles, the board felt that there was
scope to improve the arrangements to ensure the remuneration
framework best supports the delivery of AMP’s new five-year
strategy. In particular, the board strongly believes that using
equity to create an ownership mentality is key to driving the
performance culture required to deliver the strategy to create
value for shareholders.
The new Executive Performance Incentive Plan (EPI Plan) is a
simple framework that is designed to create equity ownership if
performance objectives are met. A single allocation will be made
each year based on performance against a scorecard, partly paid
in cash with the majority deferred into equity for five years. The
final value to the executive of that equity grant will be directly
tied to the share price performance of AMP and hence will create
a strong alignment with shareholder interests. This holistic
incentive scheme will be effective from 1 January 2018 and
will replace the existing STI and LTI plans.
To create this ownership mentality more broadly across the
organisation, a similar remuneration approach will also be
implemented with executives at the next layer in the organisation
from 1 January 2018.
We acknowledge that there are many different views as to the
‘right’ remuneration approach. Your board considered many
factors including AMP’s overall remuneration objectives and
principles, emerging practice and research, changing regulatory
and market conditions, as well as stakeholder feedback, in arriving
at an approach which is ‘fit for purpose’ for AMP today. We believe
this is the best approach at this time to support the culture of
performance and deliver returns for our shareholders.
We have included a detailed overview of the new remuneration
arrangements in section 6 of this report.
We very much appreciate the feedback we have received from
our shareholders and the board will continue to engage with
our investors.
Patricia Akopiantz
Chairman, People and Remuneration Committee
On behalf of the board, I am pleased to present AMP’s 2017
remuneration report for your consideration.
Heading into 2017, the board and management were
determined to drive improved returns for shareholders.
To this end, early in the year we made a number of key changes
designed to turn around short-term performance and drive
longer term growth. We announced a clear five-year portfolio
strategy and introduced both a new organisational structure and
operating model. This resulted in a number of changes to the
AMP leadership team. In 2017 performance improved and we
made good progress on strategy, successfully delivering many
of the key strategic priorities.
Recognising that remuneration is a key lever in driving
performance, as foreshadowed in our 2016 report, we also
reviewed our executive remuneration arrangements to ensure
they support the new portfolio strategy and drive performance
within the appropriate risk management framework.
Our 2017 remuneration report details the link between the 2017
results and the remuneration outcomes for executives. The report
also provides shareholders with an overview and structure for
our 2018 executive remuneration arrangements, outlining the
philosophy and approach adopted to drive growth and improve
outcomes for shareholders.
2017 remuneration outcomes
2017 saw AMP deliver a strong recovery in underlying profit
($1,040m up from $486m in 2016) with solid operating
performances across the group. The results reflect the continued
growth in AMP’s core businesses, the stabilisation of the
insurance business and a sustained focus on cost management.
Underlying return on equity increased to 14.3% and the capital
position remained strong. As a result, shareholders will receive
a final dividend of 14.5 cents per share, bringing the 2017 total
dividend to 29 cents per share.
We also made good progress in delivering on our strategy. We
are well progressed with a portfolio review of the ‘manage for
value’ businesses (Insurance, New Zealand and Mature), with all
alternatives being considered. While the portfolio review is yet
to be concluded, we expect to be in a position to provide a further
update at or before AMP’s 2018 AGM. We continued investing
for growth in our core Australian businesses. Internationally,
to leverage and extend our strengths in advice and real asset
management, we made two strategic investments in United
Capital (a US-based advice business) and PCCP (a US-based
real estate investment manager).
The 2017 remuneration outcomes reflect the group’s improved
financial performance and delivery against strategic priorities.
However, despite delivering solid operating results, the board
determined that the overall STI outcomes were slightly ‘below
target’ at 90% of target (or 56% of maximum), resulting in a pool
of $75m. This decision reflects the rigour and discipline applied to
setting and measuring progress against targets and is consistent
with the approach taken in 2016 when a zero STI outcome was
applied to executives in reflection of poor financial performance.
Fixed remuneration increases were limited to where there was a
change in role as a result of the new organisation structure. The
CEO did not receive an increase in fixed remuneration in 2017.
28
AMP 2017 annual report Remuneration report (audited)
This remuneration report details the remuneration arrangements for our key management personnel (KMP) in 2017 in addition to
guidance regarding changes to the remuneration framework that will take effect from 2018.
Contents
1. Who is covered by this report
2. 2017 remuneration framework
3. Remuneration governance
4. 2017 remuneration outcomes
5. Executive shareholding
6. Executive remuneration changes for 2018
7. Non-executive director remuneration
8. Further detail on executive arrangements and statutory disclosures
1. Who is covered by this report
KMP are the individuals 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. 2017 KMP are detailed below. There are a number of new executives
in this report due to the restructure of the executive team effective 1 January 2017.
Current executives
Craig Meller
Megan Beer1
Sally Bruce1
Saskia Goedhart1
Gordon Lefevre
Helen Livesey1
Jack Regan1
Craig Ryman
Paul Sainsbury
Brian Salter
Adam Tindall
Fiona Wardlaw
Former executives
Pauline Blight-Johnston2
Robert Caprioli2
Matthew Percival3
Wendy Thorpe2
Current non-executive directors
Catherine Brenner
Patricia Akopiantz
Andrew Harmos4
Holly Kramer
Trevor Matthews
Geoff Roberts
Peter Varghese
Vanessa Wallace
Mike Wilkins
Former non-executive directors
Simon McKeon5
Brian Clark5
John Palmer6
Peter Shergold7
Chief Executive Officer and Managing Director
Group Executive, Insurance
Group Executive, AMP Bank
Chief Risk Officer
Chief Financial Officer
Group Executive, Public Affairs and Chief of Staff
Group Executive, Advice and New Zealand
Group Executive, Technology and Operations
Group Executive, Wealth Solutions and Customer
Group General Counsel
Chief Executive Officer, AMP Capital
Group Executive, People and Culture
Former Group Executive, Insurance and Superannuation
Former Group Executive, Advice and Banking
Former Group Executive, Public Affairs and Chief of Staff
Former Group Executive, Operations
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Term as
KMP in 2017
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
Seven months
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
–
–
–
Five months
1 Megan Beer, Sally Bruce, Saskia Goedhart, Helen Livesey and Jack Regan were appointed to their roles on 1 January 2017.
2
Pauline Blight-Johnston, Robert Caprioli and Wendy Thorpe’s roles were made redundant effective 31 December 2016.
3 Matthew Percival retired 31 December 2016.
4
5
6
Andrew Harmos was appointed to the AMP Limited Board on 1 June 2017.
Simon McKeon and Brian Clark retired from the AMP Limited Board following the annual general meeting (AGM) on 12 May 2016.
John Palmer held the position of AMP Limited Chairman for the period 12 May – 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.
Peter Shergold retired from the board on 11 May 2017.
7
29
AMP 2017 annual report
2. 2017 remuneration framework
The table below outlines the remuneration plan in place for 2017. A new remuneration model will be introduced in 2018 and is
described in section 6.
AMP’s promise – helping people own tomorrow1
Executive remuneration objective:
To incentivise and reward executives for delivering sustained business performance that leads to long-term value creation 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
Delivered through the following remuneration components:
2016 executive remuneration structure
Fixed
At risk
Fixed remuneration
Cash salary, superannuation and
any salary sacrificed benefits
Short-term incentive (STI)
60% delivered as cash
40% delivered as share rights
deferred for two years
Long-term incentive (LTI)
100% delivered as performance rights
subject to a total shareholder return
(TSR) performance hurdle with a
four-year performance period
Supported by the remuneration governance and risk management frameworks
– The scope of the role is taken into
account when setting fixed pay levels
– Roles are benchmarked against data
provided by the board’s remuneration
adviser for similar type roles in
companies of a similar size, publicly
available data for peer organisations
and published remuneration surveys
eg FIRG
– The Chief Risk Officer reports to the
– Vesting of LTI and deferred STI is
People and Remuneration Committee
on risk outcomes
– Risk is a key measure in the STI
pool’s scorecard
– The board may adjust the STI pool
down (to zero) if executives have
operated outside risk appetite levels
or for extraordinary events which
impact shareholder value
– Risk is a key consideration for
individual performance assessments
subject to a conduct and risk review
and the board has discretion to adjust
outcomes downwards with malus
and clawback provisions in certain
circumstances (eg misconduct,
participant acting fraudulently,
dishonestly or in a manner that brings
AMP into disrepute, protect financial
soundness of AMP)
– Hedging of AMP shares (including
unvested rights) is prohibited
1
Refer to the ‘Our strategy’ and ‘Who we are and what we do’ sections of the annual report for further detail.
30
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
2.1. Changes to executive remuneration in 2017
As outlined in the 2016 remuneration report, three key changes were made to our executive remuneration structure in 2017.
These changes were interim measures pending the transition to our new business strategy and the outcome of the more detailed
review of the executive remuneration framework. The changes for 2017 are detailed below:
–
–
–
LTI vesting period extended from three to four years
The 2017 grant will vest over four years instead of three. This change did not result in an increase in the LTI value awarded.
The vesting period was moved from March to 1 January 2017 to align with AMP’s financial year. These changes aligned the
performance period that determines vesting with the performance period of AMP, and directs management’s focus on value
creation over a longer term.
100% of LTI is subject to relative total shareholder return (TSR)
As an interim step, while reviewing our remuneration framework, 100% of the 2017 LTI grant is subject to a single relative
TSR measure.
Increased focus on financial goals for STI
In 2017, we increased the weighting of financial measures to 70% of the STI scorecard (from 65%). The remaining 30% focuses
on embedding our customer-centred culture, supported by a strong risk management environment.
Information about the executive remuneration changes for 2018 can be found in section 6.
2.2. Culture and risk management in remuneration
Culture and effective risk management practices are important considerations at AMP. AMP believes that culture is an enabler of
strategic execution over the long term. AMP has determined the behaviours that will support the strategy and is committed to a
culture that values integrity, help and performance. Employee beliefs about 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.
Effective risk management is embedded into the remuneration principles and framework (outlined in the diagram in section 2) and is
a key consideration in our performance assessment at a company and individual level. Conduct is also a key consideration in the design
of remuneration and evaluation of performance. Before remuneration is awarded or vests, risk and conduct are specifically considered.
Further detail on how risk is considered for each reward element is outlined in section 8.
2.3. Remuneration mix
The following illustration shows the remuneration mix for the executives in 2017 (excluding AMP Capital’s CEO who participates
in the AMP Capital enterprise profit share plan). Outcomes have been modelled based on the average of the executives’ maximum
opportunities. The LTI maximum value is the face value of the 2017 LTI award.
2017 remuneration mix based on maximum incentive opportunity
CEO
LTI
43%
STI deferral
15%
STI cash
23%
Fixed
19%
At risk
81%
Fixed
19%
Executives
LTI
36%
STI deferral
16%
STI cash
24%
Fixed
24%
At risk
76%
Fixed
24%
31
AMP 2017 annual report
3. Remuneration governance
Remuneration at AMP is governed through the Limited and subsidiary boards and the People and Remuneration Committee (PRC).
The PRC supports the boards to fulfil their remuneration obligations by overseeing AMP’s remuneration strategy and policy.
AMP’s remuneration policy provides a framework for the implementation, assessment and maintenance of remuneration
arrangements throughout AMP in line with the remuneration guiding principles adopted by the PRC.
The PRC is made up of non-executive directors (NEDs). More information on the role of the PRC can be found in the terms of reference
at amp.com.au/corporategovernance.
The board believes that to make good remuneration decisions it needs both a robust framework and the ability to exercise judgement.
Therefore, the board retains discretion to adjust remuneration outcomes in certain cases to ensure that awards are appropriate and
aligned to shareholder experience. We recognise that shareholders place a significant degree of trust in the board to exercise this
discretion. In 2016, the board exercised downward discretion, and in conjunction with the CEO, determined that the executives should
not receive any STI awards based on the performance of the wealth protection business for that period.
Where an external perspective is needed, the PRC seeks guidance from independent remuneration advisers. During the year, the PRC
engaged PricewaterhouseCoopers (PwC) and received updates on market trends, regulatory changes, shareholder concerns regarding
remuneration, and advice on remuneration given AMP’s strategy and goals. No specific remuneration recommendations were made
to the PRC by independent remuneration advisers in 2017.
The governance framework is illustrated in the chart below.
AMP Limited Board
AMP subsidiary boards
AMP Limited Risk Committee
People & Remuneration Committee (PRC)
Assists the board
with oversight of the
implementation and
operation of AMP’s risk
management framework.
Recommends the risk
multiplier for the STI
pool to the PRC.
Makes recommendations
on the performance of
risk related matters to
the PRC and endorses
recommendations to the
PRC on the vesting of
deferred remuneration.
Advises the AMP Limited Board and the boards of AMP subsidiaries on
the effectiveness, integrity and compliance of AMP’s remuneration policy
and practices and key people programs. Key responsibilities include:
– reviewing the remuneration arrangements, scorecard measures
and performance outcomes for senior executives
– reviewing the remuneration arrangements for non-executive
directors
– monitoring the effectiveness of AMP’s succession (executives
and enterprise critical roles), talent management and inclusion
and diversity strategies
– reviewing AMP’s remuneration policy and remuneration report
– reviewing or approving matters relating to AMP’s key incentive
and equity incentive plans including malus and clawback.
Independent
remuneration
advisers (PwC)
The PRC engages
remuneration
advisers when it
needs additional
information
to assist the
AMP Limited
Board in making
remuneration
decisions.
Management Remuneration Committee (MRC)
Management
Oversees the remuneration arrangements across AMP and provides
objective input and assurance to the PRC that remuneration practices,
including the remuneration policy and incentive plans, have been examined
from strategy, risk, finance, reward, market and governance perspectives.
Reviews and approves all business unit incentive plans
(without an equity component) on delegation from the PRC.
The CEO makes recommendations to the
PRC on the performance and remuneration
outcomes for his direct reports, the PRC then
seeks approval from the AMP Limited Board.
Management attend PRC meetings when
required to provide information and updates on
remuneration items and key people programs.
3.1 Regulatory change
The financial services industry continues to be subject to significant regulatory change. Remuneration has been one of the areas of
focus. The board endorses the spirit and sentiment of these regulatory changes and believes they support AMP’s desired culture of help,
integrity and performance.
As a diversified financial services organisation, different regulations around remuneration apply to different parts of the AMP group.
AMP aims to incorporate elements of these remuneration changes across the whole group.
AMP, through AMP Bank, is committed to implementing any changes required to support the Sedgwick Retail Banking Remuneration
Review recommendations.
32
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 4. 2017 remuneration outcomes
4.1. Summary of 2017 company performance
2017 saw AMP deliver a strong recovery in underlying profit ($1,040m up from $486m in 2016) with solid operating performances
across the group. The results reflect the continued growth in AMP’s core businesses, the stabilisation of the insurance business and
a sustained focus on cost management. Underlying return on equity increased to 14.3% and the capital position remained strong.
As a result, shareholders will receive a final dividend of 14.5 cents per share, bringing the 2017 total dividend to 29 cents per share.
We also made good progress in delivering on strategy. We announced that we were well progressed with a portfolio review of the
manage for value businesses (Australian wealth protection, New Zealand and Mature), with all alternatives being considered. We
continued investing for growth in our core Australian businesses. Internationally, to leverage and extend our strengths in advice and
real asset management, we made two strategic investments in United Capital (a US-based advice business) and PCCP (a US-based
real estate investment manager).
The table below illustrates AMP’s performance over the last five years and the remuneration outcomes.
Financial results
Profit (loss) after tax attributable to shareholders ($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 (%)3
LTI vesting outcome (% of grant vested during the year)
2013
2014
2015
2016
2017
672
849
49.4
23
4.39
83
9.8
43
21st
10.7
0
884
1,045
44.8
972
1,120
43.8
26
5.50
118
11.3
70
26th
12.7
0
28
5.83
105
9.4
54
41st
13.2
0
(344)
486
63.7
28
5.04
34
7.1
0
31st
5.6
22
848
1,040
46.2
29
5.19
75
7.2
58
27th
14.3
0
1
2
3
The 2016 and 2017 STI pool excludes AMP Capital as this part of the business has separate remuneration arrangements that were introduced in 2016.
TSR percentile ranking as at 31 July 2013 and 2014, 28 February 2015, 6 March 2016, and 5 March 2017 respectively.
The RoE outcomes are the unadjusted outcomes. For 2015, the adjusted outcome was 13.5% to take into account the impact of the investment in
the China Life Pension Company. This resulted in partial vesting of the RoE tranche as disclosed in the 2016 remuneration report.
33
AMP 2017 annual report
4.2. Summary of 2017 executive outcomes
The following table shows the remuneration awarded to executives based on the 2017 performance year, or in the case of LTI, the
face value of the LTI awarded for 2017. Reflective of AMP’s improved performance in 2017, executives received STI awards in 2017 in
contrast to receiving no allocations in 2016. Based on performance against scorecard, the board determined that 90% of target had
been achieved (or 56% of maximum opportunity). Individual STI payments varied based on individual executive performance and,
in cases where the executives were responsible for running a business unit, specific business unit performance.
This table differs from the statutory table in section 8.3.1 which is prepared according to Australian Accounting Standards.
Fixed
remuneration
$’000
Cash STI
$’000
Deferred STI
$’000
LTI face value
awarded
$’000
Total
remuneration
earned from
2017
$’000
% of
maximum STI
opportunity
awarded
% of
maximum STI
opportunity
not awarded
1,900
900
750
600
965
650
900
750
965
785
800
700
1,288
520
394
142
651
469
591
492
651
463
1,430
459
859
346
262
94
434
313
394
328
434
309
953
306
4,275
1,350
1,125
900
1,448
975
1,350
1,125
1,448
1,178
1,200
1,050
8,322
3,116
2,531
1,736
3,498
2,407
3,235
2,695
3,498
2,735
4,383
2,515
10,665
7,550
5,032
17,424
40,671
57
69
62
28
56
69
62
62
56
56
n/a
62
44
31
38
72
44
31
38
38
44
44
n/a
38
Craig Meller
Megan Beer
Sally Bruce
Saskia Goedhart1
Gordon Lefevre
Helen Livesey
Jack Regan
Craig Ryman
Paul Sainsbury
Brian Salter
Adam Tindall2
Fiona Wardlaw
Total
1
2
Saskia Goedhart resigned during 2017 and her STI allocation has been adjusted accordingly.
The percentage of maximum STI opportunity awarded for Adam Tindall is not applicable because his opportunity is uncapped under the AMP
Capital enterprise profit share plan.
The following sections detail how these outcomes were determined for 2017.
4.3. Fixed remuneration outcomes
Changes to the organisational structure were announced in November 2016. As a result, certain executive roles changed. The Chief
Information Officer and Chief Customer Officer roles were expanded to become Group Executive, Technology & Operations and Group
Executive, Wealth Solutions and Customer respectively. To reflect the increased responsibilities and workload associated with these
roles, the incumbents received fixed remuneration increases of 15% and 11% respectively, effective 1 January 2017.
In addition, effective 1 January 2017, several executives were appointed to new roles as direct reports to the CEO and became KMP.
Remuneration for these executives was determined using independent external benchmarks.
The CEO did not receive a fixed remuneration increase in 2017.
4.4 Short-term incentive outcomes
The board engages in a rigorous and deliberative process in setting scorecard measures and personal goals for each executive at the
beginning of the year. This section describes the board’s philosophy around STI scorecard measures and provides specific detail on how
the board assessed performance.
4.4.1. Group STI and CEO scorecard
The board believes that both financial and strategic measures are key to delivering our strategy and through this, shareholder value.
In 2017, 70% of the Group STI scorecard was weighted to financial measures and 30% to strategic measures. The financial measures
are focused on driving profitability and growth. The strategic measures are focused on building and strengthening critical capabilities
to deliver on AMP’s strategy.
The first strategic measure in the scorecard is Net Promoter Score (NPS), which is designed to drive customer advocacy (20% of
scorecard). We believe an improved customer experience will deliver a sustained competitive advantage and will drive superior
outcomes for customers and shareholders. This year we have used a single quantitative measure, customer NPS, to measure our
performance. Our analysis has shown a strong link between improved NPS and customer lifetime value.
The second strategic measure is strengthening our risk culture (10% of scorecard). Conduct of our people is paramount to our success.
Strong risk management behaviours support us to do the right thing by our customers and allow us to make better decisions. This year
the board again set stretch aspirations for the continued development and embedding of our risk management framework.
4.4.2. Group STI outcome
The board assessed AMP’s performance against the STI scorecard to determine the size of the STI pool for 2017. In 2017 AMP’s financial
performance was slightly below target. Performance against the strategic customer goals was determined by the board to be well
above target and performance on risk goals was determined by the board to be slightly below target.
Overall performance on financial and strategic measures generated an STI pool for 2017 of $75 million or 90% of target opportunity.
This compares to an STI pool of $34 million or 40% of target opportunity in 2016. The 2017 STI pool again excludes AMP Capital as this
part of the business has separate remuneration arrangements.
34
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
Metrics
Underlying profit
less cost of
capital charge
(50%)
Performance
outcome
On target
Link to
strategy
Underlying profit less
cost of capital assesses
management’s ability to
deliver real economic value to
shareholders by considering
how effectively capital is
deployed to generate profit.
The metric encourages
management to invest in
projects and grow business
lines that deliver returns
above the cost of capital,
and actively manage both the
cost and usage of capital.
Value of business
growth
(20%)
Significantly
below target
We orient capital and
resources to grow our core
Australian businesses.
We consider metrics specific
to various businesses
including:
– value of net cashflow
– value of risk new business
– net revenue of AMP Capital
Well above target
Slightly below target
Customer advocacy
Net Promoter
Score (NPS)
(20%)
Strengthening
our risk culture
(10%)
Improved customer
experiences, through
goals-based experiences
and solutions will drive
long-term value and a
sustainable competitive
advantage.
Conduct of our people is
paramount to our success.
Strong risk management
behaviours support us to
do the right thing by our
customers and make better
decisions. This in turn will
increase customer loyalty
and advocacy to generate
improved financial returns
and value for shareholders.
Performance
commentary
In 2017, the group delivered underlying profit of
$1,040 million, up from $486 million in 2016. The strong
business recovery reflects the stabilisation of wealth
protection (insurance) and solid operating performances
right across the group.
– Wealth management delivered a resilient performance
underpinned by strong platform cashflows, disciplined
management of margin compression, delivery of 10%
growth in other revenue from Advice and SMSF and tight
cost management.
– AMP Capital and AMP Bank’s growth momentum
continued with operating earnings up 8%.and 17%
respectively.
– The wealth protection business stabilised and completed
comprehensive reinsurance program releasing capital.
Disciplined management of costs delivered a 3% reduction
in controllable costs (excluding AMP Capital) for the year.
The cost to income ratio was 46.2%.
The capital position remains strong, further strengthening
through the year to finish 2017 with a surplus over
minimum regulatory requirements of $2.3 billion.
Underlying return on equity increased to 14.3%, moving
towards target of 15% in 2018.
Value of net cashflow – neither the value of net cash flow
or risk new business measures met threshold. Australian
wealth management net cashflows increased by $595m
to $931m from strong discretionary contributions ahead
of 1 July 2017 super changes, corporate super mandate
wins and strong cashflows on North which were up 14%
on 2016. However, strong inflows were offset by increased
market activity from superannuation consolidation and
MySuper transitions. AMP Bank delivered 14% growth
in residential lending in a competitive environment.
Considered collectively, the overall value of net cash
flow did not meet threshold targets.
Value of risk new business – Australian wealth protection
new business was also below threshold reflecting
competitive pressures.
Net revenue of AMP Capital – offsetting this was strong
performance from AMP Capital where net revenue was
significantly above target. There were strong external net
cashflows of $5,477 million, up from $967 million in 2016,
including good flows into real assets and fixed income.
As a result, the board assessed the overall performance
of value of business growth as significantly below target.
The combined NPS result across our business increased +11
which was well above the stretch target set. Importantly, we
saw a trend of consistent improvement throughout the year,
driven by our customer facing teams listening to and acting
on detractor feedback. In addition, our corporate functions
have been leading improvement programs focused on
systemic causes of customer detraction, which were not
within the control of our customer facing teams to resolve.
Embedding the enhanced risk management framework is on
track with two of three measures for 2017 achieved and one
mostly achieved. Two further stretch goals (over and above
targets set) were not achieved. Collectively, this has resulted
in improvements in our approach to risk management
and risk behaviours to support customer outcomes and
improved decision making across AMP.
35
AMP 2017 annual report 4.4.3 CEO outcome
At the end of the year, the board completes a thorough assessment of the CEO’s performance against the STI scorecard and the
individual goals, which were set for him at the beginning of the year. The CEO’s STI outcome is directly linked to the STI scorecard
outcomes. This is a deliberate choice by the board and reinforces that the CEO is accountable for the overall performance of the
business. While the scorecard is the primary determinant of the CEO’s STI reward, the board does overlay a broader set of measures
when assessing his performance. For 2017 the additional measures included key strategic priorities and people and culture measures.
Good progress was made against the key strategic priorities: earnings in wealth protection were stabilised through reinsurance;
AMP Bank continued to grow while maintaining a conservative lending approach; other revenue in wealth management grew by 10%
reflecting increased contribution from Advice and SMSF; AMP Capital’s international growth continued through targeted investment in
US-based investment manager PCCP and the ongoing success of its Asian distribution strategy; and a portfolio review of the ‘manage
for value’ businesses (Insurance, New Zealand and Mature) was initiated and is well progressed.
The people and culture measures against which the CEO was evaluated relate to the development of a customer-centric and
performance-oriented culture, employee engagement and diversity. Employee engagement has remained strong. This is a pleasing
result for the board and management given the significant regulatory changes and restructuring of the business which occurred during
2017. At 31 December 2017, women held 38% of AMP’s senior executive roles and 41% of middle manager roles. These outcomes,
whilst above industry averages, fall short of the year-by-year target set as part of the ambitious 2020 aim of 47% female representation
for senior executives and 50% for middle managers. Additional diversity initiatives have been endorsed by management to achieve
the targets.
Overall the board assessed the CEO’s performance as on target. Despite his performance being on target, consistent with the board
philosophy of linking the CEO STI outcome closely to the overall STI scorecard outcome, the CEO received an allocation of $2,147,000
which is 90% of his target opportunity.
4.4.4 Executive outcomes
To drive collective responsibility, all executives shared the same scorecard measures in 2017 as the CEO. In addition, executives have
individual targets associated with the performance of their own business unit. Based on individual performance, the CEO recommends
to the board for approval the executive STI allocations. In 2017, STI awarded to executives varied from 56% to 69% of opportunity.
4.4.5 AMP Capital enterprise profit share plan
AMP Capital operates under separate remuneration arrangements. AMP Capital’s enterprise profit share plan 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. This plan delivers a total bonus pool
calculated 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.
4.5. Long-term incentive outcomes
AMP operated a LTI plan in 2017. Full details of the LTI plan are described in section 8.1.
The vesting outcomes that reflect 2016 and 2017 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
5 Jun 2014
5 Jun 2014
4 Jun 2015
1 Jan 2016
31 Dec 2016
6 Mar 2014
5 Mar 2017
1 Jan 2017
31 Dec 2017
Grants to be tested for vesting in the future
4 Jun 2015
2 Jun 2016
2 Jun 2016
5 Mar 2015
4 Mar 2018
1 Jan 2018
31 Dec 2018
3 Mar 2016
3 Mar 2019
19 May 2017
1 Jan 2017
31 Dec 2020
RoE
TSR
RoE
TSR
RoE
TSR
TSR
13.7%
15.0%
5.8%
50th percentile 75th percentile 27th percentile
15.3%
17.2%
14.3%
50th percentile 75th percentile
15.9%
18.0%
50th percentile 75th percentile
50th percentile 75th percentile
TBA
TBA
TBA
TBA
0%
0%
0%
TBA
TBA
TBA
TBA
36
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 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 or were not controllable by management,
and/or are not in the ordinary course of business. The board will not adjust for items that are controlled by management and occur
in the ordinary course of business. The calculations for any adjustments made by the board are externally validated.
The board did not make any adjustments to any LTI awards that were tested and eligible for vesting during the 2017 financial year.
2014 LTI award
The performance hurdles were not met and as a result 100% of both the RoE and TSR tranches lapsed.
2015 LTI award
RoE measured for the year ended 31 December 2017 was not sufficient to meet the required performance threshold and 100% of
this tranche also lapsed at the performance end date.
The current relative TSR performance indicates that AMP is not likely to meet the performance target of outperforming at least
50% of the peer group. If this is the case when this hurdle is tested in March 2018, 100% of this tranche will also lapse.
Details on the 2015 LTI award are included to provide transparent disclosure on outcomes relating to 2017 performance, despite
the final TSR outcome not being confirmed at time of publication. The final outcome of the 2015 LTI award will be included in the
2018 report.
5. Executive shareholding
5.1. Minimum shareholding
All executives are required to accumulate 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
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, eg 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 further performance condition (other than a continued service condition).
Under the current STI deferral plan, share rights are deferred for two years and can be disposed of after the two-year vesting period.
AMP Limited shares and/or share rights cannot be hedged.
All executives currently meet their minimum shareholding requirements through a combination of shares and share rights.
5.2. 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 2017. 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 2017
Holding at 31 Dec 2017
Craig Meller
Megan Beer4
Sally Bruce5
Saskia Goedhart6
Gordon Lefevre
Helen Livesey7
Jack Regan
Craig Ryman8
Paul Sainsbury
Brian Salter
Adam Tindall
Fiona Wardlaw
Shares
521,175
–
41,666
8,156
–
–
234,149
17,608
65,475
156,207
110,182
168,031
Share
rights
Total number
of units at
1 Jan 2017
Share rights
granted
during
20171
Share rights
converted to
shares2
Other
market
transactions3
336,984
123,754
85,897
82,540
153,335
60,576
89,909
60,551
164,039
117,940
223,027
105,486
858,159
123,754
127,563
90,696
153,335
60,576
324,058
78,159
229,514
274,147
333,209
273,517
–
6,133
18,692
10,322
–
–
29,763
–
–
–
187,021
–
166,944
39,566
41,667
16,313
69,449
11,858
45,075
15,066
85,141
58,430
69,181
52,420
–
–
(41,666)
–
–
–
–
–
(85,141)
(106,950)
–
–
Shares
688,119
39,566
41,667
24,469
69,449
11,858
279,224
32,674
65,475
107,687
179,363
220,451
Share
rights
Total number
of units at
31 Dec 2017
170,040
90,321
62,922
76,549
83,886
48,718
74,597
45,485
78,898
59,510
340,867
53,066
858,159
129,887
104,589
101,018
153,335
60,576
353,821
78,159
144,373
167,197
520,230
273,517
The number of share rights granted on 27 April under the STI deferral plan was determined using the fair value price of $4.65 per share right.
1
Unless otherwise stated, the share rights converted to shares during 2017 relate to the vesting of the 2014 STI deferral grants.
2
3
Other market transactions are a result of the executives or their related parties trading AMP Limited shares on the open market.
4 Megan Beer’s 12,555 share rights that converted to shares during 2017 were granted in June 2014 as part of the 2014 LTI award.
Sally Bruce’s 41,667 share rights that were converted to shares during 2017 were granted in September 2015 as a sign-on bonus.
5
Saskia Goedhart’s 16,313 share rights that were converted to shares during 2017 were granted in September 2015 as a sign-on bonus.
6
Helen Livesey’s 11,858 share rights that converted to shares during 2017 were granted in June 2014 as part of the 2014 LTI award.
7
Craig Ryman’s 15,066 share rights that converted to shares during 2017 were granted in June 2014 as part of the 2014 LTI award.
8
37
AMP 2017 annual report 6. Executive remuneration changes for 2018
As indicated in last year’s remuneration report, during the course of 2017 we conducted a review of our remuneration model.
The review focused on strengthening the alignment of our remuneration strategy to performance and the delivery of long-term
sustainable returns for shareholders.
The starting point for the review was the new AMP group strategy which involves the fundamental transformation and reshaping of
our business portfolio. While the endpoint is clear, the timing and options to execute this type of portfolio transformation may differ
and requires a remuneration model that can be flexible and responsive.
The remuneration model also needs to support and help drive our culture. Based on our heritage, AMP’s culture has historically always
centred on integrity and help – with doing the right thing for our customers paramount. Last year, recognising the need to drive a
greater performance edge, we introduced a third aspect to the culture – performance. The new remuneration model is designed to
help drive this performance element without compromising the integrity and help components. The new model will help balance
needs of all stakeholders, ensuring we continue to conduct ourselves in the right way with customers while also delivering improved
returns for our shareholders.
The review also took into account many other factors including emerging practice and research and changing regulatory and market
conditions. The board sought and considered extensive stakeholder feedback and carefully evaluated several different approaches in
determining a plan that is ‘fit for purpose’ for AMP today.
From this work a set of guiding principles has emerged that formed the foundation for the new model. These are:
–
–
–
–
–
pay for performance
create significant share ownership
allow for strategic agility
be transparent and simple
balance short and long-term performance.
While the existing incentive plan was meeting some of the remuneration guiding principles, the board felt that it was not the best
model to support the delivery of AMP’s new five-year strategy.
In particular, the board strongly believes that using equity to create an ownership mentality amongst the most senior members of our
team is key to driving the performance culture required to deliver AMP’s strategy and create value for shareholders. Creating equity
ownership also ensures a focus on the long term and reinforces doing the right thing for our customers. The board has therefore
determined this to be a critical component of any new incentive arrangements.
The result is that:
–
AMP will introduce a new incentive plan for executives from 1 January 2018 – the Executive Performance Incentive Plan (EPI Plan)
where there is a significant emphasis on equity for the CEO and executive team;
a similar remuneration approach will be rolled out to the next layer of management at AMP from 1 January 2018, generally the
direct reports to the executives covered in this report; and
a review is underway into encouraging employee share ownership across AMP, with changes expected to be implemented over
the next 12 months.
–
–
The board strongly believes that this model will drive the performance culture required to deliver value for shareholders.
While full disclosure is not formally required until next year, the board believes that it is appropriate for shareholders to understand
the rationale for and structure of the new framework.
6.1 Executive Performance Incentive Plan
The EPI Plan is delivered in two components, an EPI cash award and an EPI equity award. The EPI cash award is largely equivalent to the
STI cash component in today’s model. The EPI equity award is a grant of restricted equity subject to a five-year holding lock. The award
of restricted equity will initially be made as rights to AMP shares (EPI share rights), and these rights will convert into restricted AMP
shares after one year and remain subject to dealing restrictions for a further four-year period (EPI shares).
The result is a simple plan which is illustrated below.
Executive Performance Incentive Plan
Illustrated to show relative proportions for the CEO’s on target performance in 2018.
Variable
(Executive
Performance
Incentive
Plan)
EPI
cash award
35%
EPI
share rights
65%
EPI shares
Eligible to receive dividends
Fixed
Base salary
plus super
Total five-year restriction period (subject to malus)
Final value subject to dividend and share price movement
Years
2018
(Performance year)
2019
2020
2021
2022
2023
38
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 Under the new EPI Plan, performance is assessed against an annual scorecard of at least 70% financial and at most 30% strategic
measures. Financial targets will be linked to earnings growth and dividends as these metrics drive long-term shareholder value and are
directly within the control of management. Strategic measures will be focused on the key strategic initiatives required to deliver the
five-year plan.
While an executive’s performance against these metrics will determine the size of the EPI allocation, the total value of the award will
depend on how AMP’s shares perform during the five-year restricted period as well as the value of the dividends received.
The board will review and potentially set new performance measures each year, depending on whether a change of focus is needed to
support and drive delivery of the company strategy. These metrics will be disclosed in the 2018 remuneration report and will include
detailed disclosure on performance against those metrics.
For 2018, 65% of the CEO’s overall variable award will be awarded in equity, with 35% awarded in cash. For other executives, 60% will be
in equity and 40% in cash. The board retains the right to vary the mix of equity and cash to ensure that the aim of increasing executive
share ownership is maximised. There is no change to the value of the executives’ remuneration at target. The intention of the model is
not to pay executives more or less, but to pay them differently, to align them more strongly with the shareholder experience. To arrive
at an equivalent value at target, extensive modelling was completed by a third party. Based on this, a discount of 40% to the current LTI
face value was applied to determine the EPI Plan target opportunity.
For the CEO, under the new plan the target opportunity is 210% of fixed remuneration. The maximum incentive opportunity for the
CEO is 336% of fixed remuneration, compared to 425% of fixed remuneration under the previous arrangements. The reduced overall
incentive opportunity for the CEO recognises the different risk profile of the new framework.
The delivery of the award, whereby the majority will be provided in restricted equity that vests after a five-year period, will tie
executives to long-term company and share price performance. Executives are also aligned with shareholders through the receipt of
dividends during years two to five of the restriction period. Ultimately, the final value to the executive is dependent on the movement
in share price and dividends over the restricted period, creating a strong incentive to create long-term value.
The chart below is a simple illustration of the share price component on the final value. For example, if an executive received an EPI
equity award of $100 and the share price increased 10% p.a. over the five-year restriction period, the final value of the EPI equity award
would be $161. Conversely, if the share price declined 4% p.a., the final value of the EPI equity award would be $82.
Executives are connected to share price value
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Share price grows 10% p.a.
Share price grows 4% p.a.
Share price falls 4% p.a.
Share price falls 10% p.a.
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
A key feature of the EPI Plan is that executives will generally remain entitled to EPI equity awards beyond cessation of employment in
most circumstances, including resignation if the executive ceases employment after the initial one-year restriction period. Under the
existing STI deferral and LTI arrangements, the default treatment is forfeiture of unvested awards upon resignation. This change results
from a shift from retention to reinforcing performance outcomes that remain aligned with the long-term interests of shareholders.
Risk and conduct will be reviewed at the time of the EPI allocation, at the end of the one-year initial restriction period and at the end of
the five-year restriction period. EPI equity awards will remain subject to forfeiture under the existing malus conditions. Extending the
period during which deferred awards can be forfeited helps manage risk and ensures executives do not receive inappropriate benefits.
39
AMP 2017 annual report The table below summarises some of the key features of the changes. Full details will be disclosed in the 2018 remuneration report.
Feature
Previous arrangements
New arrangements
Rationale for change
Remuneration
components
Fixed remuneration
Fixed remuneration
STI:
– 60% cash
– 40% deferred STI (DSTI)
LTI:
– Performance rights
Annual incentive (EPI allocation)
delivered as a EPI cash award
and EPI equity award
– CEO: 35% cash, 65% equity
– Group executives: 40% cash,
60% equity
Equity deferral
period
DSTI: Two years
LTI: Four years
Five-year restriction period
Malus
Unvested DSTI and LTI
subject to malus during the
relevant deferral period
EPI equity award subject
to malus during the five-year
restriction period
Delivering a significant portion
of the incentive as AMP restricted
equity creates an ownership
mentality and alignment to
shareholder interests through
share ownership.
A single incentive plan
simplifies arrangements
and focuses executives on
executing on strategy.
An extended period where
executives hold significant
value in restricted AMP shares
ensures their focus is on
improving shareholder
returns over the long term.
No change proposed to malus
terms other than extending the
period during which deferred
awards can be clawed back to
align with the new five-year
restriction period. This helps
AMP manage risk and ensures
executives do not receive
inappropriate benefits.
Dividends
No dividends payable
Post-employment
conditions
DSTI and LTI:
– Forfeited upon resignation
or termination for cause
– Remains in the plan subject
to original conditions upon
redundancy or retirement
Risk and
conduct review
Risk and conduct reviewed
prior to DSTI and LTI vesting
Dividends payable through
the four-year restriction period
when the EPI award is held
as AMP shares
Receiving dividends
over the restriction period
ensures increased alignment
with shareholders.
EPI equity award:
– Retain for ‘good leavers’
(eg redundancy or separation
by mutual agreement)
– Retain on resignation
(after initial one-year
restriction period)
– Forfeited upon termination
for cause
Risk and conduct will be reviewed
at the date of grant, at the end
of the initial restriction period
and at the end of the five-year
restriction period.
Retaining an interest
through a material shareholding
post-employment helps to
influence an executive’s
decisions on the future
performance of AMP, even when
they are considering leaving.
To ensure pay for performance
and shareholder protection.
The arrangements apply in full from 1 January 2018. There are no transition arrangements.
40
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017 7. Non-executive director remuneration
AMP’s non-executive director (NED) remuneration is structured to ensure 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 three components:
– AMP Limited Board base fee
– AMP Limited committee fees
– AMP subsidiary board and committee fees.
As noted below, all board and committee fees are set and paid inclusive of superannuation, with NEDs able to elect the total amount
of superannuation they are paid each year subject to statutory minimum amounts.
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 group. No
retirement benefits are paid to NEDs.
As detailed in section 7.1.2, 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 AMP board considers this enhances its oversight of the group
and achieves efficiencies in the operation of the boards. The key subsidiary boards are AMP Life Limited, The National Mutual Life
Association of Australasia Limited (NMLA), 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, which is a minority shareholder in the AMP Capital business. 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 (if any)
appointed to them.
AMP is committed to continually evaluating the efficiency and effectiveness of its conglomerate-based governance model. Following
the successful transfer of NMLA’s Australian and New Zealand life insurance business to AMP Life on 1 January 2017, changes were
made to the composition of, and remuneration paid to, the AMP Life and NMLA boards. These changes resulted in a 78% reduction in
the aggregate annual remuneration paid to AMP Life and NMLA NEDs, with effect from 1 March 2017, saving an annualised amount of
$836,500.
Other NED fees for AMP Limited and its key subsidiaries did not change during 2017. However, from 1 January 2017, the
superannuation entitlements of AMP Limited and key subsidiary NEDs were consolidated into their board and committee fees, to
simplify NED fee structures and increase transparency. This change did not result in any change to the total remuneration received
by the NEDs.
To align the interests of NEDs with the long-term interests of shareholders, all NEDs are required to hold AMP shares and are
encouraged to increase their holding further over the course of their tenure (for details see section 7.3).
7.1. 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:
–
–
–
the complexity of AMP’s operations and those of its key subsidiaries
fees paid to board members of other Australian corporations of a similar size and complexity
the 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.
NED 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 annual general meeting (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 2017, the total remuneration paid to AMP Limited NEDs was $3,401,754 being 74% of the shareholder-approved fee pool.
7.1.1. 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.
AMP employees, including the CEO, do not receive fees for any directorships of AMP group companies.
41
AMP 2017 annual report 7.1.2. 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, as directors of AMP’s key subsidiaries and members of committees of the boards of those subsidiaries, and as
members of other special purpose committees formed from time to time.
As a large, diversified financial services group, operating through highly regulated subsidiaries AMP understands it is imperative 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.
7.2. 2017 non-executive director remuneration
The following table shows the NED fees for AMP Limited and its key subsidiaries for 2017.
Chairman base fee1
$
Member base fee1
$
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 & NMLA4
Board
Audit Committee
Risk Committee
659,800
50,800
50,800
–
47,400
90,300
27,700
27,700
124,000
28,200
90,300
10,000
10,000
198,300
25,400
25,400
13,100
23,700
56,300
15,300
15,300
78,900
16,900
56,300
5,000
5,000
1
2
3
4
Fees effective 1 January 2017, reflecting the inclusion of superannuation that was previously presented separately of base fees. Refer section 7 above.
No fee is currently payable when the chairman of the committee is the Chairman of the AMP Limited Board. The chairman of the committee is
currently the Chairman of the AMP Limited Board and so receives no additional fee for this appointment. If the Chairman of the Nomination and
Governance Committee is not the Chairman of the AMP Limited board then a fee of $26,200 will apply.
No fee is currently payable to a member of the committee who is also Chairman of the AMP Limited Board. The Chairman of the AMP Limited Board
is currently a member of the committee and so receives no additional fee for this appointment.
Fees effective 1 March 2017. A single fee is paid for service on both boards or both committees of each board.
42
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
The following table shows the remuneration earned by AMP Limited NEDs for 2017.
Short-term benefits
Post-
employment
benefits
AMP Limited
Board and
committee fees
$’000
Fees for other
group boards
$’000
Other
short-term
benefits1
$’000
Additional
board duties2
$’000
Non-
monetary
benefits3
$’000
Super-
annuation4
$’000
Current NEDs
Catherine Brenner
Chairman
Patricia Akopiantz
Non-executive Director
Andrew Harmos5
Non-executive Director
Holly Kramer
Non-executive Director
Trevor Matthews
Non-executive Director
Geoff Roberts
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
John Palmer
Former Non-executive Director
Peter Shergold
Former Non-executive Director
Total for 2017
Total for 2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
640
410
261
239
134
–
204
203
229
238
229
114
204
51
205
188
245
69
–
220
–
68
–
135
87
246
2,438
2,181
–
71
121
111
42
–
81
85
119
177
–
–
96
18
141
71
104
23
–
–
–
54
–
32
50
144
754
786
–
2
–
2
–
–
–
2
–
2
–
–
–
–
–
1
–
–
–
–
–
2
–
2
–
2
–
15
–
–
11
–
14
–
11
–
–
–
14
–
–
–
–
–
24
–
–
–
–
–
–
–
–
–
74
–
–
–
–
–
2
–
–
–
–
–
–
–
1
1
–
–
–
–
–
4
–
6
–
6
–
1
3
18
Total
$’000
660
529
413
385
204
–
316
317
368
457
263
125
329
77
366
285
393
101
–
232
–
142
–
191
145
430
20
46
20
33
12
–
20
27
20
40
20
11
28
7
20
25
20
9
–
8
–
12
–
16
8
37
188
271
3,457
3,271
1
2
3
4
5
Annual expense allowance that was consolidated into the AMP Limited NED base fee from 1 April 2016.
Additional work for special committees and projects.
Non-monetary benefits and the related fringe benefit tax (FBT) on each item.
Superannuation contributions have been disclosed separately in this table, but are included in the 2017 base fees disclosed elsewhere in this report.
Andrew Harmos was appointed to the AMP Limited Board on 1 June 2017.
7.3. 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 their interests are closely aligned with the long-term interests of AMP shareholders. These minimum values are:
– AMP Limited Chairman: $659,800 – the equivalent of the AMP Limited Chairman base fee
– other AMP Limited NEDs: $198,300 – the equivalent of the AMP Limited NED base fee.
NEDs are expected to achieve these levels within four years of appointment and are encouraged to increase their ownership over
their tenure.
Based on the closing share price of $5.19 on 31 December 2017, all NEDs comply with the terms of the minimum shareholding policy
having regard to their tenure on the board.
43
AMP 2017 annual report
7.4. 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 2017
and movements in their holdings during the year.
Current NEDs
Catherine Brenner
Patricia Akopiantz
Andrew Harmos4
Holly Kramer
Trevor Matthews
Geoff Roberts
Peter Varghese
Vanessa Wallace
Mike Wilkins
Former NEDs
Peter Shergold
Holding at
1 Jan 2017
Other market
transactions1
Holding at
31 Dec 20172
Value of
holding at
31 Dec 20173
$
139,463
65,009
–
46,231
63,763
42,540
7,500
70,000
31,500
–
–
2,000
9,881
–
–
20,000
–
–
139,463
65,009
2,000
56,112
63,763
42,540
27,500
70,000
31,500
723,813
337,397
10,380
291,221
330,930
220,783
142,725
363,300
163,485
63,348
(63,348)
–
–
1
2
3
4
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 Peter Shergold is at 11 May 2017, the date he retired from the AMP Limited Board.
Value as at 31 December using closing share price of $5.19.
Andrew Harmos was appointed to the AMP Limited Board on 1 June 2017.
8. Further detail on current executive arrangements and statutory disclosures
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.
8.1 Executive 2017 remuneration arrangements
Fixed remuneration includes cash 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.
Executive fixed remuneration is reviewed (but not necessarily increased) annually by the PRC and approved by the board, taking
into account:
–
–
–
external market remuneration ranges for the role
the individual’s experience and their criticality to the role
the available budget for remuneration increases.
AMP’s STI plans are designed to reward executives for achieving financial and strategic performance at both a business and individual level.
Going forward, the CEO and his direct reports will no longer participate in the STI, as from 1 January 2018 the STI has been replaced by
the EPI.
All executives participated 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.
44
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
2017 AMP short-term incentive plan
2017 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 for two years.
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
How the awards
are allocated
STI deferral
The board determines the size of the STI pool,
based on performance against the STI scorecard
(see section 4.4.1), taking into account AMP’s
financial results, business leadership and progress
of AMP’s strategic objectives.
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 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.
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.
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 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.
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.
40% of any STI payment or profit share rewards are 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 diluted by
the issuing of new shares.
If the executive
leaves AMP
If any rights have not yet vested and an executive resigns from AMP or their employment is terminated for
misconduct any unvested 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 would apply if the person had remained in
AMP employment.
If there is a change
in control of AMP
In the event AMP is subject to a takeover or change of control, the board will determine the treatment of
any unvested rights.
Board discretion
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.
45
AMP 2017 annual report AMP’s LTI plan is designed to link the remuneration of executives with the creation of long-term value for shareholders.
2017 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 four 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 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 preceding the valuation date of the award
(1 January 2017 for the 2017 awards).
100% of the rights are subject to a relative total shareholder return (TSR) hurdle.
The performance
hurdle
TSR measures the value delivered to shareholders over four 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 four 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).
How performance is
measured
At the end of the vesting period the rights are tested against the performance hurdle set at the start of the
performance period. If the rights pass the performance hurdle, they will be converted into AMP ordinary
shares according to the following diagram. If the rights do not pass the performance test they will lapse
and will not be retested.
% of TSR
performance
rights that vest
% 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
How the rights are
converted to shares
At the end of the four-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 diluted.
46
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
2017 AMP long-term incentive plan
If the executive
leaves AMP
If any rights have not yet vested and an executive resigns from AMP or their employment is terminated for
misconduct 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.
If there is a change
in control of AMP
In the event AMP is subject to a takeover or change of control, the board will determine the treatment of
any unvested rights.
Board discretion
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.
–
–
–
8.2. Executive employment contracts
Contract term
CEO
Length of contract
Open-ended
Executives
Open-ended
Notice period
12 months by AMP
6 months by Craig Meller
6 or 12 months by AMP
6 or 12 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.
Restrictions on
termination benefits
In most cases, the employment contract states that termination payments are capped at one year’s base
salary and do not require shareholder approval. Where this is not detailed in the contract, the same approach
would be taken to ensure compliance with the Corporations Act.
Post-employment
restraint
Six or 12-month restraint on entering employment with a competitor and solicitation of AMP clients
and employees.
47
AMP 2017 annual report
8.3. Other executive remuneration disclosures
The following disclosures provide additional information and/or are required under the Corporations Act. This includes the 2016
executive remuneration that is prepared according to Australian Accounting Standards.
8.3.1. Statutory disclosure
The table below shows the remuneration that was received by executives in 2017 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 2017 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
payments4
Cash
short-term
incentive
$’000
Other
short-term
benefits1
$’000
Super-
annuation
benefits
$’000
Cash salary
$’000
Rights2
$’000
Other3
$’000
Cash
payments
$’000
Share-
based
payment
$’000
Grand
total
$’000
Current disclosed executives
Craig Meller
Chief Executive Officer
and Managing Director
Gordon Lefevre
Chief Financial Officer
Craig Ryman
Group Executive,
Technology and Operations
Paul Sainsbury5
Group Executive, Wealth
Solutions and Customer
Brian Salter6
Group General Counsel
Adam Tindall7
Chief Executive Officer,
AMP Capital
Fiona Wardlaw7
Group Executive,
People and Culture
New executives
Megan Beer
Group Executive,
Insurance
Sally Bruce7
Group Executive,
AMP Bank
Saskia Goedhart8
Chief Risk Officer
Helen Livesey
Group Executive,
Public Affairs and
Chief of Staff
Jack Regan9
Group Executive,
Advice and New Zealand
2017
2016
1,862
1,828
1,288
–
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
939
931
712
599
873
745
740
741
756
740
659
615
858
–
729
–
679
–
603
–
651
–
492
–
651
–
463
–
1,430
1,271
459
–
520
–
394
–
142
–
469
–
38
34
54
67
11
11
67
73
51
46
41
41
42
60
15
–
6
–
38
–
–
–
25
25
21
21
27
29
30
34
31
31
27
22
25
25
25
–
27
–
21
–
46
–
2,028
996
775
474
456
250
740
370
618
274
898
643
549
303
303
–
274
–
269
–
185
–
44
71
4
2
12
11
39
44
49
30
35
21
43
27
9
–
4
–
3
–
5
–
2017
2016
856
–
591
–
165
–
45
–
222
–
102
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,285
2,954
2,444
1,495
1,710
900
2,400
1,266
1,952
1,122
3,187
2,738
1,777
1,030
1,730
–
1,434
–
1,152
–
1,308
–
–
–
1,981
–
48
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
Short-term employee benefits
Post-
employment
benefits
Share-
based
payments
Long-
term
benefits
Termination
payments4
Cash
short-term
incentive
$’000
Other
short-term
benefits1
$’000
Super-
annuation
benefits
$’000
Cash salary
$’000
Rights2
$’000
Other3
$’000
Cash
payments
$’000
Share-
based
payment
$’000
Grand
total
$’000
Former disclosed executives
Pauline Blight-Johnston
Former Group Executive,
Insurance and
Superannuation
Rob Caprioli
Former Group Executive,
Advice and Banking
Matthew Percival
Former Group Executive,
Public Affairs and
Chief of Staff
Wendy Thorpe
Former Group Executive,
Operations
2017 total
2016 total
2017
2016
–
769
2017
2016
2017
2016
–
752
–
525
2017
2016
–
648
–
–
–
–
–
–
–
–
–
26
–
11
–
7
–
8
–
21
–
342
–
4
–
291
–
–
–
1,453
–
23
–
40
–
321
–
208
–
13
–
39
–
436
–
–
–
–
–
–
–
1,556
–
819
–
56
–
380
–
12
–
1,000
–
–
–
2,104
10,266
7,550
528
350
7,317
349
–
–
26,360
8,893
1,271
384
327
4,561
274
1,728
–
17,438
1
2
3
4
5
6
7
8
9
Other short-term benefits include non-monetary benefits, for example, purchased annual leave, car benefits and any related FBT on each item.
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. The total 2016 share-based payment expense was incorrectly stated in the 2016 remuneration report by $6.58 million due
to a late update on vesting assumptions in 2016 with respect to RoE performance rights. 2016 balances have been restated for relevant KMP.
Other long-term benefits represent long service leave accrued, taken or paid during the year.
There were no termination payments made to executives in 2017. Termination payments for Pauline Blight-Johnston, Rob Caprioli and Wendy
Thorpe were disclosed in 2016 as they relate to the termination of their KMP roles.
Paul Sainsbury received additional remuneration relating to the refund relating to a novated car lease.
Brian Salter received a cash payment to fund his life insurance cover.
Sally Bruce, Adam Tindall and Fiona Wardlaw received additional remuneration relating to the refund of unused purchased annual leave.
Saskia Goedhart received additional remuneration relating to relocation support and the final instalment of a sign-on payment.
Jack Regan received additional remuneration in relation to his relocation back to Australia including accommodation, tax arrangements and relocation.
49
AMP 2017 annual report
8.3.2. Executive performance rights holdings
The following table shows the LTI performance rights which were granted, lapsed or exercised during 2017. There were no changes
during the vesting period for each LTI grant.
Name
Grant
date
Performance
condition
Fair
value per
performance
right
$
Holding at
1 Jan 2017
Rights
granted in
2017
Rights
exercised
in 2017
Rights
lapsed in
2017
Holding at
31 Dec 2017
Vested and
exercisable
at
31 Dec 2017
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.82
5.39
2.37
4.81
2.24
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
355,871
297,619
363,461
242,308
438,462
292,307
–
–
–
–
–
–
–
855,000
–
–
–
–
–
–
–
355,871
297,619
–
–
–
–
–
–
–
363,461
242,308
438,462
292,307
855,000
1,990,028
855,000
–
653,490
2,191,538
10,008
8,370
13,845
9,231
20,513
13,675
–
–
–
–
–
–
–
180,000
–
–
–
–
–
–
–
10,008
8,370
–
–
–
–
–
–
–
13,845
9,231
20,513
13,675
180,000
75,642
180,000
–
18,378
237,264
11,423
7,615
10,256
6,837
–
–
–
–
–
180,000
36,131
180,000
20,769
13,846
12,307
8,205
–
–
–
–
–
180,000
55,127
180,000
128,558
107,514
128,077
85,384
148,461
98,974
–
–
–
–
–
–
–
289,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
128,558
107,514
–
–
–
–
–
11,423
7,615
10,256
6,837
180,000
216,131
20,769
13,846
12,307
8,205
180,000
235,127
–
–
128,077
85,384
148,461
98,974
289,500
696,968
289,500
–
236,072
750,396
9,452
7,905
13,845
9,231
15,385
10,256
–
–
–
–
–
–
–
172,500
–
–
–
–
–
–
–
9,452
7,905
–
–
–
–
–
–
–
13,845
9,231
15,385
10,256
172,500
66,074
172,500
–
17,357
221,217
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Craig Meller
05/06/14
04/06/15
02/06/16
19/05/17
05/06/14
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
Total
Megan Beer
Total
Sally Bruce
Total
Saskia Goedhart
04/06/15
02/06/16
19/05/17
Total
Gordon Lefevre
05/06/14
04/06/15
02/06/16
19/05/17
Total
Helen Livesey
05/06/14
04/06/15
02/06/16
19/05/17
Total
50
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
Name
Grant
date
Performance
condition
Fair
value per
performance
right
$
Rights
granted in
2017
Rights
exercised
in 2017
Rights
lapsed in
2017
Holding at
31 Dec 2017
Vested and
exercisable
at
31 Dec 2017
Craig Ryman
05/06/14
04/06/15
02/06/16
19/05/17
Total
Paul Sainsbury
05/06/14
Total
Brian Salter
Total
Jack Regan
04/06/15
02/06/16
19/05/17
05/06/14
04/06/15
02/06/16
19/05/17
05/06/14
04/06/15
02/06/16
19/05/17
Total
Adam Tindall
02/06/16
19/05/17
Total
Fiona Wardlaw
05/06/14
04/06/15
02/06/16
19/05/17
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
2.89
4.57
2.82
5.39
2.37
4.81
2.24
Holding at
1 Jan 2017
12,010
10,044
83,077
55,384
100,000
66,666
–
–
–
–
–
–
–
225,000
–
–
–
–
–
–
–
12,010
10,044
–
–
–
–
–
–
–
83,077
55,384
100,000
66,666
225,000
327,181
225,000
–
22,054
530,127
128,558
107,514
120,461
80,308
133,846
89,230
–
–
–
–
–
–
–
289,500
–
–
–
–
–
–
–
128,558
107,514
–
–
–
–
–
–
–
120,461
80,308
133,846
89,230
289,500
659,917
289,500
–
236,072
713,345
116,469
97,404
108,692
72,461
120,769
80,512
–
–
–
–
–
–
–
235,500
–
–
–
–
–
–
–
116,469
97,404
–
–
–
–
–
–
–
108,692
72,461
120,769
80,512
235,500
596,307
235,500
–
213,873
617,934
36,691
30,685
78,230
52,154
86,923
57,948
–
–
–
–
–
–
–
210,000
–
–
–
–
–
–
–
36,691
30,685
–
–
–
–
–
–
–
78,230
52,154
86,923
57,948
210,000
342,631
210,000
–
67,376
485,255
2.37
4.81
2.24
123,076
82,051
–
–
–
240,000
205,127
240,000
2.89
4.57
2.82
5.39
2.37
4.81
2.24
96,807
80,960
96,923
64,615
107,692
71,794
–
–
–
–
–
–
–
210,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
96,807
80,960
–
–
–
–
–
123,076
82,051
240,000
445,127
–
–
96,923
64,615
107,692
71,794
210,000
Total
518,791
210,000
–
177,767
551,024
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51
AMP 2017 annual report
8.3.3. Loans and other transactions
AMP provides home loans to Australians to help them buy, build or renovate properties. The table below includes loans offered to
executives in the ordinary course of business. These loans are equivalent to those that prevail in arm’s length transactions, the terms
and conditions of these loans 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
Sally Bruce
Gordon Lefevre
Helen Livesey
Craig Ryman
Adam Tindall
Fiona Wardlaw
Peter Shergold
Balance at
1 Jan 2017
$’000
Written off
$’000
Net
advances
(repayments)
$’000
Balance at
31 Dec 2017
$’000
Interest
charged
$’000
Interest not
charged
$’000
Highest
indebtedness
during year
$’000
Number in
group
11,974
–
1,845
13,819
429
–
14,642
10
2,033
474
1,397
–
2,009
2,246
2,384
1,350
–
–
–
–
–
–
–
–
(139)
(211)
(40)
2,032
(50)
314
16
–
1,894
262
1,357
2,032
1,958
2,560
2,400
1,350
80
11
45
11
76
72
89
44
–
–
–
–
–
–
–
–
2,253
478
1,397
2,045
2,070
2,560
2,408
1,350
Other transactions
During 2017, the executives and their related parties may have access to other AMP products. Again, these products are provided to
executives within normal employee terms and conditions. The products may include:
– personal banking with AMP Bank
–
– financial investment services.
the purchase of AMP insurance and investment products
Signed in accordance with a resolution of the directors.
Catherine Brenner
Chairman
Sydney, 8 February 2018
Craig Meller
Chief Executive Officer and Managing Director
52
AMP 2017 annual reportDirectors’ report for the year ended 31 December 2017
Analysis of shareholder profit
for the year ended 31 December 2017
All amounts are after income tax
Profit and loss
Australian wealth management
AMP Capital1
AMP Bank
Australian wealth protection
New Zealand financial services
Australian mature
Business unit operating earnings
Group Office costs
Total operating earnings
Underlying investment income1
Interest expense on corporate debt
Underlying profit
Other items
Portfolio review and related costs
Business efficiency program costs
Amortisation of AXA acquired intangible assets1
Goodwill impairment
Profit before market adjustments and accounting mismatches
Market adjustment – investment income1
Market adjustment – annuity fair value
Market adjustment – risk products
Accounting mismatches
Profit attributable to shareholders of AMP Limited
2017
$m
2016
$m
391
156
140
110
125
150
1,072
(74)
998
95
(53)
1,040
(21)
(24) –
–
(80)
–
915
(39)
4
(18)
(14)
848
401
144
120
(415)
126
151
527
(104)
423
122
(59)
486
(9)
(19)
(77)
(668)
(287)
(46)
(8)
11
(14)
(344)
1
AMP Capital is 15% owned by Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank). The AMP Capital business unit results and any
other impacted line items are shown net of minority interests.
53
AMP 2017 annual report
Financial report
for the year ended 31 December 2017
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
Understanding the AMP financial report
Basis of consolidation
Significant accounting policies
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 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 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
55
56
57
58
59
60
60
61
61
62
65
65
68
69
71
73
73
74
78
79
80
86
87
88
90
91
97
100
103
104
107
112
113
113
114
115
115
116
116
117
117
118
119
120
54
AMP 2017 annual report
Consolidated income statement
for the year ended 31 December 2017
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
2017
$m
2016
$m
4.2
4.2
6.3
4.2
4.2
2.2
4.2
1.3
Note
1.2
1.2
2,997
234
3,125
88
11,074
814
29
(2,046)
(635)
(1,697)
(1,045)
–
(1,009)
(585)
(1,481)
(1,069)
(7,158)
(763)
873
848
25
873
2017
cents
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)
192
(344)
536
192
2016
cents
29.3
29.1
(11.7)
(11.7)
1
Income and expenses include amounts attributable to shareholders’ interests, policyholders’ interests in AMP Life’s statutory funds and controlled
entities of those statutory funds, external unitholders’ interests and non-controlling interests.
55
AMP 2017 annual report
Note
2017
$m
873
2016
$m
192
(1)
–
(1)
4
(1)
10
(3)
10
(54)
(54)
7
(2)
5
(40)
833
808
25
833
–
–
–
(13)
4
19
(6)
4
12
12
48
(14)
34
50
242
(294)
536
242
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Available-for-sale financial assets
–
–
losses in fair value of available-for-sale financial assets
income tax credit
Cash flow hedges
– gains (losses) in fair value of cash flow hedges
–
–
–
income tax (expense) credit
losses recognised in previous years transferred to profit for the year
transferred to profit for the year – income tax expense
Exchange (losses) and 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
Other comprehensive (loss) 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
Total comprehensive income for the year
56
AMP 2017 annual reportFinancial report for the year ended 31 December 2017
Consolidated statement of financial position
as at 31 December 2017
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
2017
$m
2016
$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
3,602
2,151
7
138
136,675
134
749
75
686
650
3,218
3,476
1,975
24
123
129,419
127
449
66
656
546
3,199
148,085
140,060
1,752
71
153
325
591
21,009
2,190
14,468
23,683
75,235
1,296
29
1,852
55
205
271
1,342
17,218
1,946
13,252
24,225
71,579
530
44
140,802
132,519
7,283
7,541
9,376
(2,010)
(164)
7,202
81
9,619
(1,972)
(185)
7,462
79
Total equity of shareholders of AMP Limited and non-controlling interests
7,283
7,541
57
AMP 2017 annual report
Consolidated statement of changes in equity
for the year ended 31 December 2017
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
Share purchases
(200)
2017
Balance at the
beginning of the year
Profit
Other comprehensive
income
Total comprehensive
income
Share-based
payment expense
Net sale/(purchase)
of treasury shares
Dividends paid4
Dividends paid on
treasury shares4
Sales and acquisitions
of non-controlling
interests
Balance at the
end of the year
2016
Balance at the
beginning of the year
Profit (loss)
Other comprehensive
income
Total comprehensive
income
Share-based
payment expense
Share purchases
Net sale/(purchase)
of treasury shares
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
9,619
(2,566)
–
–
–
–
(43)
–
–
93
–
–
–
27
(20)
–
–
–
329
–
–
–
–
–
–
–
–
8
–
16
–
148
–
–
(1,972)
(185)
7,462
79 7,541
–
–
848
848
25
873
(1)
10
(54)
–
(45)
5
(40)
–
(40)
(1)
10
(54)
–
(45)
853
808
25
833
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27
(20)
–
–
27
(220)
1
28
(1)
(221)
–
–
–
(3)
(46)
–
(46)
(837)
(837)
(22)
(859)
8
8
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(1)
9,376
(2,566)
100
329
7
26
94
–
(2,010)
(164)
7,202
81 7,283
9,566
(2,566)
–
–
–
–
–
53
–
–
–
–
–
–
–
–
–
–
–
–
93
–
–
–
23
(23)
–
–
–
–
329
–
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
12
–
4
4
–
–
–
–
–
–
136
122
(1,866)
819
8,519
376 8,895
–
12
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(344)
(344)
536
192
16
34
50
–
50
16
(310)
(294)
536
242
23
(23)
–
–
–
–
–
4
23
(23)
2
(2)
25
(25)
57
–
57
(828)
(828)
(514) (1,342)
8
8
–
–
–
8
–
–
(122)
(122)
122
–
–
–
–
–
–
–
–
–
–
–
(319)
(319)
9,619
(2,566)
93
329
8
16
148
–
(1,972)
(185)
7,462
79 7,541
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
58
AMP 2017 annual reportFinancial report for the year ended 31 December 2017
Consolidated statement of cash flows
for the year ended 31 December 2017
Cash flows from operating activities1
Cash receipts in the course of operations
Interest received
Dividends and distributions received2
Cash payments in the course of operations
Finance costs
Income tax paid
Note
2017
$m
2016
$m
18,067
2,041
2,137
(22,605)
(519)
(519)
19,072
2,123
2,319
(22,166)
(534)
(639)
Cash flows (used in) from operating activities
7.1
(1,398)
175
Cash flows from investing activities1
Net proceeds from sale of (payments to acquire):
investment property
–
investments in financial assets3
–
– operating and intangible assets
(Payments to acquire) proceeds from disposal of operating controlled entities
and investments in associates accounted for using the equity method
Cash flows (used in) from 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
On market share buy-back
Proceeds from issue of subordinated debt
Repayment of subordinated debt
Dividends paid4
Cash flows from 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
–
(2,614)
(46)
279
1,174
(11)
(293)
10
(2,953)
1,452
1,003
391
–
2,305
(200)
250
(150)
(828)
2,771
(1,580)
8,810
(8)
1,972
361
(653)
(282)
–
–
–
(821)
577
2,204
6,601
5
Cash and cash equivalents at the end of the year1
7.1
7,222
8,810
1
2
3
4
Cash flows and Cash and cash equivalents include amounts attributable to shareholders’ interests, policyholders’ interests in AMP Life’s statutory
funds and controlled entities of those statutory funds, external unitholders’ interests and non-controlling interests. Cash equivalents for the
purpose of the Consolidated statement of cash flows includes short-term bills and notes.
Dividends and distributions received are amounts of cash received mainly from investments held by AMP Life’s 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.
59
AMP 2017 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) 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 AMP Life Limited and National Mutual Life
Association of Australasia Limited, collectively ‘AMP Life’ – both registered life insurance entities and their related controlled entities,
AMP Bank Limited (AMP Bank) and AMP Capital investment management companies.
The business of AMP Life 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 Life
makes 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, income and expenses and
cash flows attributable to AMP Limited’s shareholders but also the assets and liabilities, income and expenses and cash flows of the
statutory funds attributable to policyholders and non-controlling interests.
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 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 life insurance contracts
– assets and liabilities associated with investment contracts
presents assets and liabilities on the face of the Consolidated statement of financial position in decreasing order of liquidity
and therefore does not distinguish between current and non-current items; and
presents reclassified comparative information where required for consistency with the current year’s presentation within the
annual report.
–
–
–
–
AMP Limited is a for-profit entity and is limited by shares.
The financial statements for the year ended 31 December 2017 were authorised for issue on 9 February 2018 in accordance with
a resolution of the directors.
(b) 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.
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.
60
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
(c) 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)
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 Consolidated
income statement, except for qualifying cash flow hedges, which are deferred to equity.
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
Applicable exchange rate
Income and expenses
Assets and liabilities
Equity
Reserves
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 Consolidated income statement on disposal of the foreign operation.
(d) 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
Tax
Fair value of financial assets
Goodwill and acquired intangible assets
Life insurance and investment contract liabilities
Consolidation
Provisions
Investments in financial instruments
Intangibles
1.3 Taxes
2.1
2.2
4.1 Accounting for life insurance and investment contracts
6.1 Controlled entities
7.3 Provisions
Page
65
69
71
88
112
116
61
AMP 2017 annual report
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 (MUFG: Trust Bank) have a
strategic business and capital alliance, with MUFG: Trust Bank 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 incidental to the activities of the AMP group.
62
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
1.1 Segment performance (continued)
(a) Segment profit
2017
Segment profit after income tax
External customer revenue
Intersegment revenue4
Segment revenue3
Other segment information
Income tax expense
Depreciation and amortisation
WM
$m
AMP
Capital1
$m
391
1,488
115
1,603
165
77
156
408
250
658
60
7
WP2
$m
110
110
–
110
47
19
AMP
Bank
$m
140
364
–
364
60
–
NZFS2
$m
Mature2
$m
Total
operating
segments
$m
125
125
–
125
49
8
150
1,072
150
–
150
64
8
2,645
365
3,010
445
119
2016
Segment profit (loss) after income tax
401
144
(415)
120
126
151
527
External customer revenue
Intersegment revenue4
Segment revenue3
Other segment information
Income tax expense
Depreciation and amortisation
1,499
109
1,608
168
78
387
226
613
59
11
(415)
–
(415)
(178)
26
311
–
311
52
–
126
–
126
49
6
151
–
2,059
335
151
2,394
65
9
215
130
1
2
3
4
AMP Capital segment revenue is reported net of external investment manager fees. Segment profit after income tax is reported net of 15%
minority interest attributable to MUFG: Trust Bank.
Segment revenue is reported as Segment profit after income tax for WP, NZFS and Mature. This represents gross revenue less claims, expenses,
movement in insurance contract liabilities and tax.
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.
63
AMP 2017 annual report
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 items2
Portfolio review and related costs
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 value3
Market adjustment – risk products4
Accounting mismatches
Profit (loss) attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
Profit for the year
2017
$m
1,072
(74)
998
95
(53)
1,040
(21)
(24)
–
(80)
–
915
(39)
4
(18)
(14)
848
25
873
2016
$m
527
(104)
423
122
(59)
486
(9)
–
(19)
(77)
(668)
(287)
(46)
(8)
11
(14)
(344)
536
192
1
2
Underlying investment income consists of investment income on shareholder assets invested in income producing investment assets normalised 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.
Other items largely comprise the net of one-off and non-recurring revenues and costs, including the cost of implementing significant regulatory
changes.
3 Market adjustment – annuity fair value relates to the net impact of investment markets on AMP’s annuity portfolio.
4
Market adjustment – risk products relates to the net impact of changes in market economic assumptions (bond yields and CPI) on the valuation
of risk insurance liabilities.
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 AMP Life’s 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
2017
$m
2016
$m
3,010
2,394
11,019
7,775
–
88
19
121
2,846
515
1,248
(365)
3,171
490
1,164
(335)
18,361
14,799
(c) Segment assets
Asset segment information has not been disclosed because the balances are not provided to the Chief Executive Officer or his immediate
team for the purpose of evaluating segment performance, or in allocating resources to segments.
64
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
1.2 Earnings (loss) per share
Basic earnings (loss) per share
Basic earnings (loss) per share is calculated based on profit (loss) attributable to shareholders of AMP Limited (AMP) and the weighted
average number of ordinary shares outstanding.
Profit (loss) attributable to shareholders of AMP ($m)
Weighted average number of ordinary shares (millions)1
Basic earnings (loss) per share (cents per share)
2017
2016
848
2,896
29.3
(344)
2,929
(11.7)
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)
2017
2016
848
(344)
2,896
22
2,918
29.1
2,929
19
2,948
(11.7)
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
Our 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 amp.com.au/shares.
(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%.
65
AMP 2017 annual report
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 Consolidated income statement for the year.
Profit before income tax
Policyholder tax expense 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% (2016: 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 attributable to policyholders
Income tax expense per Income statement
2017
$m
1,636
(472)
1,164
(349)
(33)
8
(27)
16
24
–
–
3
53
14
(291)
(472)
(763)
2016
$m
358
(121)
237
(71)
(16)
5
(19)
5
5
154
(200)
14
69
9
(45)
(121)
(166)
1
$Nil (2016: $513m) profit attributable to non-controlling interests in investment entities controlled by AMP Life’s statutory funds is not subject to tax.
(b) Analysis of income tax expense
Current tax expense
Increase in deferred tax assets
(Increase) decrease in deferred tax liabilities
(Under) over provided in previous years including amounts attributable to policyholders
Income tax expense
(c) Analysis of deferred tax balances
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
Other
Total deferred tax liabilities
(536)
23
(244)
(6)
(763)
470
32
40
87
57
686
(486)
163
142
15
(166)
491
40
27
49
49
656
1,736
454
1,498
448
2,190
1,946
66
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
2017
$m
2016
$m
(6)
(16)
108
117
110
170
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 Consolidated 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 Consolidated income statement of the AMP group, which arises in respect of AMP Life,
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 AMP Life 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.
67
AMP 2017 annual report
1.4 Dividends
Dividends paid and proposed during the year are shown in the table below:
2017
Final
2017
Interim
2016
Final
2016
Interim
Dividend per share (cents)
Franking percentage
Cost (in $m)
Payment date
14.5
90%
423
28 March 2018
14.5
90%
423
29 September 2017
14.0
90%
414
31 March 2017
14.0
90%
414
7 October 2016
Dividends paid
Previous year final dividend on ordinary shares
Interim dividend on ordinary shares
Total dividends paid1
2017
$m
414
423
837
2016
$m
414
414
828
1
Total dividends paid includes dividends paid on treasury shares $8m (2016: $8m).
Dividend franking credits
Franking credits available to shareholders are $275m (2016: $342m), 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 $163m.
Franked dividends are franked at a tax rate of 30%.
68
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
2017
$m
2016
$m
58,538
32,457
22,398
1,092
5
53,520
34,512
21,359
1,195
5
114,490
110,591
68
68
67
67
19,554
2,563
17,204
1,557
22,117
18,761
136,675
129,419
489
102
591
1,150
192
1,342
1
2
3
Financial assets measured at fair value through profit or loss are mainly assets of AMP Life’s 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 AMP Life’s 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.
69
AMP 2017 annual report
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
Consolidated 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 Consolidated 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 Consolidated 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.
70
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
2.2 Intangibles
Goodwill1
$m
Capitalised
costs
$m
Value of
in-force
business
$m
Distribution
networks
$m
Other
intangibles
$m
2017
Balance at the beginning of the year
Additions through acquisitions of controlled entities
Additions through separate acquisitions
Additions through internal development
Reductions through disposal
Transferred from inventories
Amortisation expense
Impairment loss
Balance at the end of the year
Cost
Accumulated amortisation and impairment
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
2,117
6
–
–
–
–
–
–
2,123
2,899
(776)
2,782
3
–
–
–
(668)
2,117
2,893
(776)
382
–
–
191
–
–
(138)
(1)
434
600
–
–
–
–
–
(102)
–
498
1,457
(1,023)
1,191
(693)
374
4
133
–
(129)
–
382
703
–
–
–
(103)
–
600
1,266
(884)
1,191
(591)
99
24
26
–
(13)
46
(31)
(4)
147
360
(213)
123
4
–
9
(37)
–
99
264
(165)
Total
$m
3,199
30
41
191
(13)
46
(271)
(5)
3,218
1
–
15
–
–
–
–
–
16
110
(94)
6,017
(2,799)
1
–
–
–
–
–
1
3,983
11
133
9
(269)
(668)
3,199
95
(94)
5,709
(2,510)
1
Total goodwill comprises amounts attributable to shareholders of $2,108m (2016: $2,102m) and amounts attributable to policyholders of $15m
(2016: $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 AMP Life’s 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.
71
AMP 2017 annual report
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 business
Distribution networks
Useful life
Up to 10 years
10 years
20 years
3–15 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 $2,108m (2016: $2,102m) 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 mature
AMP Financial Services New Zealand
AMP Capital
2017
$m
1,494
350
177
87
2,108
2016
$m
1,488
350
177
87
2,102
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% (2016: 5%–7%) for Australia
and 5% for New Zealand (2016: 5%): Australia 7.6% (2016: 7.8%–9.8%), New Zealand 7.8% (2016: 8.4%), 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 for
AMP Life (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 17 times current period earnings (2016: 19 times), which approximates the fair value of this business, less an allowance
for disposal costs.
There are no reasonably possible alternative assumptions which would result in an impairment of any goodwill amounts.
72
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
2.2 Intangibles (continued)
Goodwill attributable to policyholders
Policyholder cash-generating units were allocated $15m goodwill at 31 December 2017 (31 December 2016: $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 for the year.
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; and
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
2017
$m
1,376
333
81
361
2016
$m
1,163
345
70
397
2,151
1,975
2,103
48
1,857
118
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
2017
$m
746
311
695
–
2016
$m
701
350
729
72
1,752
1,852
1,635
117
1,740
112
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.
73
AMP 2017 annual report
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.
2017
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
58,606
32,457
22,398
1,092
134
5
Level 1
$m
Level 2
$m
Level 3
$m
55,942
1
–
210
–
–
728
32,344
20,964
882
–
5
1,936
112
1,434
–
134
–
Total fair
value
$m
58,606
32,457
22,398
1,092
134
5
Total financial assets measured at fair value
114,692
56,153
54,923
3,616
114,692
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
Corporate entity borrowings
Borrowings within investment entities
controlled by AMP Life’s statutory funds
Total financial liabilities not measured at 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
19,554
2,563
22,117
489
102
75,235
75,826
9,655
8,819
1,938
597
21,009
53,587
34,512
21,359
1,195
127
5
–
–
–
148
–
–
148
–
–
–
–
–
51,066
68
–
219
–
–
19,549
2,567
22,116
–
–
–
341
102
2,028
–
–
73,207
19,549
2,567
22,116
489
102
75,235
2,471
73,207
75,826
9,653
8,867
1,992
597
21,109
22
34,425
20,417
976
–
–
–
–
–
–
–
2,499
19
942
–
127
5
9,653
8,867
1,992
597
21,109
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
Corporate entity borrowings
Borrowings within investment entities
controlled by AMP Life’s statutory funds
17,204
1,557
18,761
1,150
192
71,579
72,921
8,652
6,661
1,552
353
–
–
–
97
–
–
97
–
–
618
–
17,205
1,560
18,765
–
–
–
1,053
192
2,252
–
–
69,327
17,205
1,560
18,765
1,150
192
71,579
3,497
69,327
72,921
8,683
6,676
977
353
–
–
–
–
–
8,683
6,676
1,595
353
17,307
Total financial liabilities not measured at fair value
17,218
618
16,689
74
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 curve 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.
Borrowings
The fair value of borrowings is determined with reference to quoted market prices where possible.
For borrowings where quoted market prices are not available, a discounted cash flow model is used,
based on current yield curve appropriate for the remaining term to maturity.
Investment properties
The fair value of investment properties is determined by independent valuers, having appropriate
recognised professional qualifications and recent experience in the location and category of the
properties being valued. The valuers apply ‘comparable sales analysis’ and the ‘capitalised income
approach’ by reference to annual net market income, comparable capitalisation rates and other
property-specific adjustments as well as ‘discounted cash flow analysis’, where the expected net cash
flows are discounted to their present value using a market-determined risk adjusted discount rate.
Investment contract
liabilities
See note 4.1.
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 of financial assets or liabilities measured at fair value between Level 1 and Level 2 during the
2017 and 2016 financial years. Transfers to/from Level 3 are shown in the Reconciliation of Level 3 values table later in this note.
75
AMP 2017 annual report 2.5 Fair value information (continued)
Level 3 fair values
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.
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.
Discount rate.
Terminal value growth rate.
Cash flow forecasts.
Debt securities
Discounted cash flow approach.
Investments in unlisted
managed investment schemes
Investment contract liabilities
Investment properties
Published redemption prices.
Published unit prices and the
fair value of backing assets.
Comparable sales analysis.
Capitalised income approach.
Discounted cash flow approach
utilising market determined risk
adjusted discount rate.
Discount rate.
Cash flow forecasts.
Judgement made in
determining unit prices.
Fair value of financial instruments.
Cash flow forecasts.
Credit risk.
Capitalisation rate.
Discount rate.
Cash flow forecasts.
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
2017
(+)
$m
(–)
$m
2016
(+)
$m
(–)
$m
111
(103)
146
(153)
4
(3)
6
(5)
76
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
2017
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
2,499
19
942
127
5
–
–
–
–
–
268
(20)
(159)
–
(1)
439
174
(1,088)
(50)
1,392
7
(1)
(955)
–
–
(182)
(11)
214
–
(3)
1,936
112
1,434
134
–
271
(20)
(163)
–
(1)
69,327
(17)
6,010
10,150
(12,263)
–
73,207
6,006
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
3,410
1,534
1,130
386
8
67,484
–
–
3
–
–
7
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
1 Gains and losses are classified in investment gains and losses or change in policyholder liabilities in the Consolidated 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.
77
AMP 2017 annual report
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 capital1,3
2,918,469,137 (2016: 2,957,737,964) ordinary shares fully paid
Treasury shares2
32,887,493 (2016: 23,539,463) treasury shares
Total contributed equity
2,885,581,644 (2016: 2,934,198,501) ordinary shares fully paid
Issued capital
Balance at the beginning of the year
39,268,827 (2016: nil) on-market share buy-back
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
(Increase) decrease due to purchases less sales during the year
Balance at the end of the year
2017
$m
2016
$m
9,547
9,747
(171)
(128)
9,376
9,619
9,747
(200)
9,747
–
9,547
9,747
(128)
(43)
(171)
(181)
53
(128)
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 2016 final dividend (paid in March 2017) at 14.0 cents per share and 2017 interim
dividend (paid in September 2017) at 14.5 cents per share. AMP settled the DRP for the 2016 final dividend and 2017 interim dividend by acquiring
shares on market and, accordingly, no new shares were issued.
Of the AMP Limited ordinary shares on issue 30,761,106 (2016: 21,413,076) are held by AMP Life on behalf of policyholders. ASIC has granted
relief from restrictions in the Corporations Act 2001 to allow AMP Life 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 (MUFG: Trust Bank) has an option to require AMP Limited to purchase MUFG’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 MUFG (or its nominee).
78
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 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 shares, plus
any corresponding Consolidated income statement fair value movement on the shares and dividend income, are eliminated on
consolidation. However, the corresponding investment contract and life insurance contract liabilities, and related Consolidated 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 shares, plus any corresponding Consolidated income statement fair value
movement on the shares 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
Interest-bearing liabilities
(a)
Interest-bearing liabilities
AMP Bank
– Deposits1
– Other
Corporate entity borrowings
– 6.875% GBP Subordinated Guaranteed Bonds
(maturity 2022)
– AMP Subordinated Notes 2
(first call 2018, maturity 2023)2
– AMP Wholesale Capital Notes3
– AMP Capital Notes – 20153
– AMP Capital Notes – 20174
– Syndicated loan facility5
– Commercial paper
– Other
Borrowings within investment entities
controlled by AMP Life’s statutory funds
2017
2016
Current
$m
Non-current
$m
Total
$m
Current
$m
Non-current
$m
Total
$m
9,627
3,382
28
5,437
9,655
8,819
8,614
3,145
38
3,516
8,652
6,661
–
–
–
–
–
–
229
28
69
324
276
264
250
497
–
1
69
324
276
264
250
497
229
29
–
–
–
–
–
–
114
6
71
322
276
263
–
500
–
–
89
508
597
98
255
71
322
276
263
–
500
114
6
353
Total interest-bearing liabilities
13,355
7,654
21,009
11,977
5,241
17,218
1 Deposits comprise at call retail cash on deposit and retail term deposits at variable interest rates within the AMP Bank.
2
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 ordinary shares.
Floating Rate Subordinated Unsecured Notes were issued on 1 September 2017 and mature 1 December 2027. AMP has the right, but not the
obligation, to redeem all or some of the notes on 1 December 2022 or, subject to certain conditions, at a later date. In certain circumstances,
AMP may be required to convert some or all of the Notes into AMP ordinary shares.
The facility was renegotiated effective 14 December 2017 and includes tranches of $300m and $200m, maturing 22 March 2020 and 22 March 2022
respectively.
3
4
5
79
AMP 2017 annual report
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
2017
$m
2016
$m
15,595
(3,020)
13,529
(2,579)
12,575
10,950
Overdraft facilities
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 $487m (2016: $838m).
(c) Changes in liabilities arising from financing activities
1 January 2017
Cash flows
Other
31 December 2017
Interest
bearing
liabilities
$m
17,218
3,799
(8)
21,009
Accounting policy – recognition and measurement
Interest-bearing liabilities, other than those held by controlled entities of AMP Life’s 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 AMP Life’s 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 AMP Life’s statutory funds
are subsequently measured at fair value with movements recognised in the Consolidated 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 Consolidated 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).
80
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
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.
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 shareholder includes
listed and unlisted shares and
participation in equity unit trusts.
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 manages 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.
Bank 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 Limited Statutory
Fund No. 1.
Bank Treasury executes foreign currency
forwards on behalf of AMP Capital to
hedge expected management fees
income and operation costs outflows
originated outside of Australia.
Bank Treasury may, with Group ALCO
approval, use equity exposures or
equity futures or options to hedge other
enterprise-wide equity exposures.
81
AMP 2017 annual report 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; and
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
2017
2016
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
(3)
(15)
4
(5)
10
7
(10)
(9)
(33)
9
130
(107)
10
7
(10)
(9)
82
(65)
5
(6)
12
4
(11)
(6)
83
(66)
141
(117)
12
4
(11)
(6)
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.
Bank 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.
82
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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.
2017
Non-derivative financial liabilities
Payables
Borrowings
Subordinated debt
Investment contract liabilities1
External unitholders’ liabilities
Derivative financial instruments
Interest rate and cross currency swaps
Off-balance sheet items
Credit-related commitments – AMP Bank2
Total undiscounted financial liabilities
and off-balance sheet items3
2016
Non-derivative financial liabilities
Payables
Borrowings
Subordinated debt
Investment contract liabilities1
External unitholders’ liabilities
Derivative financial instruments
Interest rate and cross currency swaps
Off-balance sheet items
Credit-related commitments – AMP Bank2
Total undiscounted financial liabilities
and off-balance sheet items3
Up to
1 year or
no term
$m
1,635
14,380
62
743
–
7
3,606
1–5
years
$m
Over
5 years
$m
Not
specified
$m
Total
$m
4
5,011
570
703
–
26
–
15
1,141
918
1,289
–
22
–
98
–
–
72,691
14,468
–
–
1,752
20,532
1,550
75,426
14,468
55
3,606
20,433
6,314
3,385
87,257
117,389
1,740
12,124
210
880
–
18
3,653
112
4,413
210
802
–
20
–
–
21
1,000
1,434
–
1
–
–
–
–
68,858
13,252
–
–
1,852
16,558
1,420
71,974
13,252
39
3,653
18,625
5,557
2,456
82,110
108,748
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 AMP Life’s statutory funds
and would only be paid when corresponding assets are realised.
Loan commitments are off-balance sheet as they relate to unexercised commitments to lend to customers of AMP Bank.
Estimated net cash outflow profile of life insurance contract liabilities, disclosed in note 4.4(d), is excluded from the above table.
83
AMP 2017 annual report
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 AMP Life’s 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 Board.
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 & 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 Board Risk Committee through periodic
financial risk management reports.
Bank 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
Bank Treasury within limits set by the AMP Concentration & 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
84
Existing
business
2017
%
New
business
2017
%
Existing
business
2016
%
New
business
2016
%
18
12
18
36
12
4
–
12
12
17
47
6
6
–
17
11
17
38
13
4
–
9
9
16
50
8
8
–
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 loans and advances that are past due as at reporting date but not impaired.
2017
Loans and advances
2016
Loans and advances
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
19,029
343
16,668
373
71
66
20
25
91
19,554
72
17,204
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 Consolidated 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 $1,092m would be reduced by
$154m to the net amount of $938m and derivative liabilities of $489m would be reduced by $154m to the net amount of
$335m (2016: 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).
(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 AMP Life’s statutory funds and their controlled entities. As at 31 December 2017, if repurchase
arrangements were netted, debt securities of $32,457m would be reduced by $8m to the net amount of $32,449m and collateral
deposits held of $8m would be reduced by $8m to the net amount of $nil (2016: debt securities of $34,512m would be reduced by
$25m to the net amount of $34,487m and collateral deposits held of $27m would be reduced by $25m to the net amount of $2m).
(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 11m 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 2017 there was $94m (2016: $165m)
of collateral deposits (due to other counterparties) and $41m (2016: $23m) of collateral loans (due from other counterparties) relating
to derivative assets and liabilities.
85
AMP 2017 annual report 3.4 Other derivative information
(a) 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 $nil (2016: $1m loss) on derivative instruments
designated as fair value hedges. The net gain on the hedged interest-bearing liabilities amounted to $nil (2016: $1m gain).
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 (2016: $nil) was recognised in the Consolidated income statement due to hedge
ineffectiveness from cash flow hedges.
2017
Cash inflows
Cash outflows
Net cash inflow/(outflow)
2016
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
(99)
(1)
98
(104)
(6)
43
(43)
–
40
(38)
2
32
(31)
1
15
(14)
1
29
(26)
3
6
(8)
(2)
20
(20)
–
3
(4)
(1)
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 (2016: $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 Consolidated 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 Consolidated 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 are 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 Consolidated
income statement. The balance of the Cash flow hedge reserve in relation to each particular hedge is transferred to the Consolidated
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 Consolidated 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 Consolidated income statement.
86
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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;
These factors are balanced when forming AMP’s risk appetite as approved by the AMP Limited Board.
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
2017
$m
7,202
74
7,276
951
730
8,957
2016
$m
7,462
27
7,489
951
611
9,051
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
AMP Life Limited
AMP Bank Limited
Minimum regulatory capital requirement
Capital adequacy requirements as specified under
the APRA Life Insurance Prudential Standards
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 guarantees
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 and AMP Bank have board approved minimum capital levels above APRA requirements, with additional capital
targets held above these amounts. Within the life insurance business, 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.
87
AMP 2017 annual report
Section 4: Life insurance and investment contracts
This section explains how AMP’s liabilities in respect of life insurance 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 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 and investment contracts
4.1 Accounting for life insurance and investment contracts
Prior to 1 January 2017, the AMP group’s life insurance related activities were conducted through two registered life insurance
companies, AMP Life Limited and National Mutual Life Association of Australasia Limited (NMLA). On 1 January 2017, the Australian
and New Zealand life insurance business of NMLA was transferred to AMP Life Limited, both wholly owned controlled entities of the
AMP group, pursuant to a scheme under part 9 of the Life Insurance Act 1995 (Cth) (Life Act). This represents the substantial majority
of operations of NMLA up to 31 December 2016. Because NMLA and AMP Life Limited are both wholly owned subsidiaries within the
AMP group, there was no impact on profit and loss from the transfer transaction.
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 AMP Life relate to wealth management products such as savings, investment-linked and retirement
income policies. The nature of this business is that AMP Life receives 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 element.
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
AMP Life issues 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 AMP Life. 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 Consolidated 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.
88
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017 4.1 Accounting for life insurance and investment contracts (continued)
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 Act and the Participating Business Management Framework.
Once profit is allocated to participating policyholders it can only be distributed to these policyholders.
Profit allocated to participating policyholders is recognised in the Consolidated 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 the nature of the liability from unvested to vested.
(ii)
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 Australian preservation superannuation account business is allocated 92.5% to policyholders
and 7.5% to shareholders;
the profits arising from 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; and
the underwriting profit arising in respect of participating Business Super risk business is allocated 90% to policyholders and
10% to shareholders.
–
–
–
Allocation of expenses within the life insurance entity’s 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 to. 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.
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 judgements and estimates
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 AMP Life 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.
89
AMP 2017 annual report
4.2 Life insurance contracts – premiums, claims, expenses and liabilities
(a) Analysis of life insurance contract related revenue – net of reinsurance
Total life insurance contract premiums received and receivable
Less: component recognised as a change in life insurance contract liabilities
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
Total life insurance contract claims paid and payable
Less: component recognised as a change in life insurance contract liabilities
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
2017
$m
2016
$m
2,696
(402)
2,294
703
2,997
(635)
2,748
(415)
2,333
550
2,883
(243)
2,362
2,640
(3,192)
1,146
(2,046)
234
(3,178)
1,140
(2,038)
150
(1,812)
(1,888)
(41)
(130)
(178)
(404)
(55)
(52)
(141)
(191)
(389)
(51)
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
15,007
4,616
(12,078)
3,354
2,183
18,120
4,789
(16,209)
3,188
2,606
13,082
12,494
8,703
(58)
8,645
290
2,312
24,329
650
(1,296)
9,181
(65)
9,116
351
2,248
24,209
546
(530)
Total life insurance contract liabilities gross of reinsurance
23,683
24,225
1
2
For participating business in the statutory funds, part of the assets in excess of the life insurance contract and other liabilities calculated under MoS
are 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 60% quota
share reinsurance arrangement (Gen Re), effective 1 November 2017, and increase to 60% quota share reinsurance arrangement (Munich Re),
in return for upfront commission received.
90
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 Consolidated 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
2017
$m
2016
$m
24,225
1,069
402
(1,146)
104
(766)
(205)
23,871
1,471
415
(1,140)
55
(530)
83
23,683
24,225
4.3 Life insurance contracts – assumptions and valuation methodology
Life insurance contract liabilities, and hence the net profit from life insurance contracts, are calculated by applying the principles of 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
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 2017
31 December 2016
Australia
%
New Zealand
%
Australia
%
New Zealand
%
1.8–3.6
1.8–3.6
1.7–4.1
1.9–4.8
Retail risk and group risk
(income benefit open claims)1
Zero coupon government bond yield
curve (including liquidity premium)
2.0–3.7
2.0–3.9
2.1–4.4
2.2–5.1
Life annuities
Non-
CPI
CPI
Zero coupon government bond yield
curve (including liquidity premium)
Commonwealth indexed bond yield
curve (including liquidity premium)
2.1–3.8
1.8–3.6
2.2–4.5
2.3–5.2
0.5–1.2
0.5–2.2
0.7–1.6
0.9–3.4
1
The discount rates vary by duration in the range shown above.
91
AMP 2017 annual report
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 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 current plans
and the terms of the relevant service company agreement, as appropriate.
The assumed CPI and expense inflation rates at the valuation date are:
31 December 2017
31 December 2016
Australia
%
New Zealand
%
1.9 CPI, 3.0 expenses
2.0 CPI, 3.0 expenses
1.7 CPI, 2.0 expenses
1.5 CPI, 2.0 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
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 factors like duration, premium structure, smoker status, age attained or short-term
market and business effects etc. Given the variety of influences affecting discontinuance for different product groups, the range of
voluntary discontinuance rates across AMP Life is extremely diverse.
The assumptions for future rates of discontinuance of the major classes of life insurance contracts have been reviewed. Discontinuance
assumptions were strengthened for the legacy-NMLA Australian retail lump sum business from those assumed at 31 December 2016,
as shown in the following table.
Note that the wealth protection discontinuance rate ranges are calculated based on current business mix and various assumption
rating factors. Discontinuance rate ranges for conventional products (Australia and New Zealand) are calculated based on average
expected lapse rates for the next five years. The 2016 reported discontinuance rates were calculated with average expected lapse
rates for the next 10 years and have been revised to reflect the current methodology.
Business type
Conventional
Retail risk (lump sum)
Retail risk (income benefit)
Flexible Lifetime Super (FLS) risk business
Investment account
31 December 2017
31 December 2016
Australia
%
New Zealand
%
Australia
%
New Zealand
%
2.4–8.4
12.8–16.9
8.1–18.8
14.0–16.4
n/a
1.5–2.8
11.6–12
9.5–11.4
n/a
n/a
2.4–8.6
12.7–18.3
8–19.1
13.3–16.5
n/a
1.5–2.8
11.6–12
9.5–11.4
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.
92
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(g) Mortality and morbidity
Standard mortality and morbidity tables, based on national or industry wide data, are used.
The following assumptions remain unchanged from those assumed at 31 December 2016:
– Mortality rates for the retail risk, conventional and annuity business.
–
– Australian income protection business incidence and termination rates.
Trauma rates for the retail risk business.
TPD assumptions have been strengthened for the legacy-AMPL Australian lump sum business from those assumed at 31 December 2016.
For New Zealand income protection business, the assumptions have been updated and based on the recently released ADI 07-11
standard table modified for AMP Life with overall product specific adjustment factors.
The assumptions are summarised in the following table.
Conventional
31 December 2017
Australia
New Zealand
31 December 2016
Australia
New Zealand
Risk products
31 December 2017
Australia1
New Zealand
31 December 2016
Australia1
New Zealand
Conventional –
% of IA95-97
Male
Female
67.5
73.0
67.5
73.0
67.5
73.0
67.5
73.0
Retail Lump Sum
% of table
Male
Female
94–148
100–120
94–148
82–98
94–148
100–120
94–148
82–98
1
Base IA04-08 Death Without Riders table modified based on aggregated experience but with overall product specific adjustment factors.
Annuities
31 December 2017
Australia and New Zealand1
31 December 2016
Australia and New Zealand1
1
Annuities tables modified for future mortality improvements.
Male
% of IML00*
Female
% of IFL00*
95.0
80.0
95.0
80.0
93
AMP 2017 annual report
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Typical morbidity assumptions, in aggregate, are as follows:
Income protection
31 December 2017
Australia
31 December 2016
Australia
Income protection
31 December 2017
New Zealand
31 December 2016
New Zealand
Retail lump sum
31 December 2017
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
31 December 2016
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
Incidence rates
% of ADI 07-11
Termination rates
(ultimate)
% of ADI 07-11
45–146
70–99
45–146
70–99
Incidence rates
2017 – % of ADI 07-11
2016 – % of IAD 89-93
Termination rates
(ultimate)
2017 – % of ADI 07-11
2016 – % of IAD 89-93
83–149
82–105
45–80
41–78
Male
% of IA04-08
Female
% of IA04-08
150–185
102–168
150–194
101–114
150–173
102–168
150–194
101–114
150–210
102–168
190–194
101–114
150–196
102–168
190–194
101–114
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 experience.
IA04-08 DTH
This was published by the Institute of Actuaries of Australia under the name 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 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 with overall
product specific adjustment factors.
94
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 business, a discount rate
based on the expected market return on backing assets is used. The assumed earning rates for backing assets for participating business
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.
10 year
government
bonds
%
Local
equities
%
International
equities
%
Property and
infrastructure
%
Fixed
interest
%
Risk premiums
2.6
2.8
2.8
3.4
4.5
4.5
4.5
4.5
3.5
3.5
3.5
3.5
2.4
2.5
2.5
2.5
0.5
0.4
0.6
0.6
Cash
%
(0.5)
(0.5)
(0.5)
(0.5)
31 December 2017
Australia
New Zealand
31 December 2016
Australia
New Zealand
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 business 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 2017
Australia
New Zealand
31 December 2016
Australia
New Zealand
Equities
%
Property and
infrastructure
%
Fixed
interest
%
26
34
26
34
13
17
13
17
39
41
39
41
Cash
%
22
8
22
8
1
The asset mix includes both conventional and investment account business. As described in note 4.1, 100% of investment profits on discretionary
participating 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.
95
AMP 2017 annual report
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; and
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 (31 December 2016 in parentheses).
Reversionary bonus
Australia
New Zealand
Bonus on sum insured
%
Bonus on existing bonuses
%
0.4–1.0 (0.4–1.0)
0.7–1.0 (0.7–1.0)
0.8–1.5 (0.8–1.5)
0.7–1.1 (0.7–1.1)
Terminal bonus
The terminal bonus scales are complex and vary by duration, product line, class of business and country for AMP Life.
Crediting rates (investment account)
Australia
New Zealand
%
0.8–4.5 (1.3–5.2)
2.7–5.8 (2.0–6.4)
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 2016 to 31 December 2017 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.
Assumption change
Non-market related changes to discount rates
Mortality and morbidity
Discontinuance rates
Maintenance expenses
Other assumptions1
Change in
future profit
margins
$m
Change in
life insurance
contract
liabilities2
$m
Change in
shareholders’
profit and
equity3
$m
1
(35)
(14)
(202)
(81)
–
–
–
(252)
217
–
–
–
177
(152)
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 results 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.
96
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
4.4 Life insurance contracts – risk
(a) Life insurance risk
AMP Life issues 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 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 reinsures (cedes) 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; and
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+.
97
AMP 2017 annual report 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 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 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.
98
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017 Insurance risk sensitivity analysis – life insurance contracts
4.4 Life insurance contracts – risk (continued)
(c)
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.
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
Variable
Mortality
Annuitant mortality
Change in variable
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
10% increase in incidence rates
Morbidity – disability income
10% decrease in recovery rates
Discontinuance rates
Maintenance expenses
10% increase in discontinuance rates
10% increase in maintenance expenses
18
1
49
203
356
65
13
6
1
15
86
172
24
13
(13)
(1)
(34)
(142)
(249)
(46)
(9)
(4)
(1)
(10)
(60)
(120)
(17)
(9)
(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.
2017
2016
Up to 1 year
$m
1-5 years
$m
Over 5 years
$m
Total
$m
1,463
1,479
3,456
3,270
8,796
8,958
13,715
13,707
99
AMP 2017 annual report
4.5 Other disclosure – life insurance 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
–
–
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
2017
$m
2016
$m
432
34
(71)
12
407
217
190
407
107
580
(137)
(49)
(426)
(32)
(250)
218
(32)
157
(b) Restrictions on assets in statutory funds
AMP Life conducts 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
All business (whole of life, endowment, investment account, retail and group risk
and immediate annuities) and North longevity guarantee
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
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.
100
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
4.5 Other disclosure – life insurance and investment contracts (continued)
Non-
investment
linked
$m
2017
Investment-
linked
$m
Total
statutory
funds
$m
Non-
investment
linked
$m
2016
Investment-
linked
$m
Total
statutory
funds
$m
Net assets of statutory funds attributable
to policyholders and shareholders
Attributable to policyholders2
Life insurance contract liabilities
Investment contract liabilities1
28,133
72,884
101,017
29,747
68,956
98,703
23,683
2,464
–
72,690
23,683
75,154
24,225
2,739
–
68,760
24,225
71,499
26,147
72,690
98,837
26,964
68,760
95,724
Attributable to shareholders
1,986
194
2,180
2,783
196
2,979
1
2
Investment contract liabilities in this table do not include $81m (2016: $80m) 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 $14,266m
(2016: $14,268m) 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’s statutory funds and the entities controlled by
AMP Life’s statutory funds.
Life insurance contract related revenue – net of reinsurance
Fee revenue
Other revenue
Investment gains and losses
Life insurance contract claims expenses – net of reinsurance
Operating expenses including finance costs
Movement in external unitholders’ liabilities
Change in policyholder liabilities
–
–
Income tax expense
Life insurance contract liabilities
Investment contract liabilities
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 unitholders’ liabilities
Total liabilities of policyholders, shareholders and non-controlling interests
Net assets
2017
$m
2016
$m
2,362
1,087
8
11,277
(1,812)
(1,904)
(1,615)
(1,069)
(7,159)
(666)
2,640
1,485
5
8,214
(1,888)
(2,339)
(1,263)
(1,471)
(4,614)
(154)
509
615
6,206
110,540
134
5,682
7,086
100,681
127
11,550
122,562
119,444
23,683
75,154
6,624
14,911
24,225
71,499
6,682
14,056
120,372
116,462
2,190
2,982
101
AMP 2017 annual report
4.5 Other disclosure – life insurance 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
2017
$m
2016
$m
14,759
15,440
878
152
925
169
(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, AMP Life maintains a target surplus providing an additional capital buffer against
adverse events. AMP Life uses 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 has confirmed that the capital base of each life statutory fund and shareholders’ fund have
exceeded PCA at all times during 2017 and 2016. The combined capital position of AMP Life Limited and NMLA is as follows:
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 multiple1
2017
$m
2016
$m
3,529
(803)
305
–
300
–
4,154
(1,384)
305
–
300
–
3,331
3,375
1,228
1,323
2,103
2,052
271%
255%
1
The capital adequacy multiples were 272% and 218% for AMP Life Limited and NMLA respectively (2016: 288% and 201%).
Actuarial information
(e)
Mr Greg Bird, the Appointed Actuary of AMP Life, 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 to 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.
102
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
2017
$’000
2016
$’000
21,613
538
7,317
349
–
13,548
598
4,561
274
1,728
29,817
20,709
(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
2017
$’000
2016
$’000
11,974
1,845
13,592
3,756
13,819
17,348
429
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 affect adversely 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 Consolidated 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.
103
AMP 2017 annual report
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
AMP Australia and AMP AAPH Australia defined
benefit plans
AMP New Zealand and AMP AAPH New Zealand
defined benefit plans
Entitlements of active
members
A lump sum or pension on retirement. Pensions
provided are lifetime indexed pensions with a
reversionary spouse pension.
Accumulation benefits and a lump sum payment
on retirement.
Governance of the plans
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.
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 valuation
31 March 2017
31 December 2017
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 Consolidated 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
2017
$m
(821)
792
(29)
(44)
(2)
10
7
(29)
2016
$m
(804)
760
(44)
(98)
(3)
9
48
(44)
1
The cumulative net actuarial gains and losses recognised in the Statement of comprehensive income is a $159m gain (2016: $152m gain).
104
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
Contributions by plan participants
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
2017
$m
2016
$m
Fair value of
plan assets
2017
$m
2016
$m
(804)
(3)
(18)
(55)
–
(1)
8
52
(860)
(4)
(23)
37
–
–
(3)
49
(821)
(804)
760
–
18
62
10
1
(7)
(52)
792
762
–
24
11
9
–
3
(49)
760
AMP Australia
AMP AAPH Australia
AMP New Zealand
AMP AAPH New Zealand
Total
Fair value of
plan assets
Present value of
plan obligation
Net recognised
surplus (deficit)
Actuarial
gains
2017
$m
279
403
20
90
792
2016
$m
265
384
22
89
760
2017
$m
2016
$m
2017
$m
2016
$m
2017
$m
2016
$m
(307)
(373)
(24)
(117)
(302)
(359)
(26)
(117)
(821)
(804)
(28)
30
(4)
(27)
(29)
(37)
25
(4)
(28)
(44)
8
2
–
(3)
7
14
29
–
5
48
(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
2017
%
4.5
n/a
2016
%
4.5
n/a
2017
%
2.8
n/a
2016
%
3.3
4.0
2017
%
4.6
3.5
2016
%
4.6
3.5
2017
%
3.3
4.0
2016
%
4.1
4.0
(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
2017
%
2016
%
2017
%
2016
%
2017
%
2016
%
2017
%
2016
%
51
31
10
4
4
46
32
9
6
7
38
38
4
14
6
34
36
7
14
10
31
42
5
14
8
29
45
5
7
14
40
39
4
14
4
38
36
6
14
6
105
AMP 2017 annual report
5.2 Defined benefit plans (continued)
(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
(–)
$m
2017
Assumption
(17)
Discount rate (+/- 0.5%)
Expected salary increase rate (0.5%)
n/a
Expected deferred benefit crediting rate (0.5%) n/a
19
Pensioner indexation assumption (0.5%)
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
2016
Assumption
(17)
Discount rate (+/- 0.5%)
Expected salary increase rate (0.5%)
n/a
Expected deferred benefit crediting rate (0.5%) n/a
19
Pensioner indexation assumption (0.5%)
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
19
n/a
n/a
(18)
10
n/a
18
n/a
n/a
(17)
(10)
n/a
n/a
n/a
n/a
n/a
n/a
2
n/a
n/a
n/a
n/a
n/a
1
2
n/a
n/a
n/a
n/a
n/a
1
n/a
n/a
n/a
n/a
n/a
(27)
1
3
25
n/a
n/a
(26)
1
–
23
n/a
n/a
30
n/a
n/a
(23)
9
n/a
29
n/a
n/a
(21)
(4)
n/a
n/a
n/a
n/a
14
n/a
4
n/a
n/a
n/a
6
n/a
3
17
n/a
n/a
n/a
n/a
n/a
7
n/a
n/a
n/a
n/a
n/a
(g) Expected contributions and maturity profile of the defined benefit obligation
Expected employer contributions ($m)
Weighted average duration of the defined benefit obligation (years)
AMP
AMP AAPH
Australia
New
Zealand
Australia
New
Zealand
–
11
–
8
2
13
4
14
Accounting policy – recognition and measurement
Defined benefit plans
The AMP group recognises the net deficit or surplus position of each fund in the Consolidated 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 Consolidated income statement. Actuarial gains
and losses arising from experience adjustments and changes in actuarial assumptions over the period and the returns on plan
assets 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.
106
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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
Total share-based payments expense
2017
$’000
2016
$’000
6,297
21,878
1,220
24,109
28,175
25,329
(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 are:
–
50% subject to AMP’s total shareholder return (TSR) performance relative to the top 50 industrial
companies in the S&P/ASX 100 Index excluding those companies in the GICS Energy Sector and
GICS Metals and Mining industry groups over a three-year performance period.
50% subject to a return on equity (RoE) measure.
–
The performance hurdles for rights granted in 2015 and 2016 are:
–
60% subject to AMP’s TSR performance relative to the top 50 industrial companies in the
S&P/ASX 100 Index excluding those companies in the GICS Energy Sector and GICS Metals
and Mining industry groups over a three-year performance period.
40% subject to a RoE measure.
–
The performance hurdles for rights granted in 2017 are:
–
100% subject to AMP’s TSR performance relative to the top 50 industrial companies in the
S&P/ASX 100 Index excluding those companies in the GICS Energy Sector and GICS Metals
and Mining industry groups over a four-year performance period.
Vesting period
–
–
3 years for rights granted in 2014, 2015 and 2016.
4 years for rights granted in 2017.
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.
107
AMP 2017 annual report
5.3 Share-based payments (continued)
(a) Performance rights (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
19/05/2017
13/01/2017
02/06/2016
15/04/2016
15/04/2016
18/09/2015
04/06/2015
13/04/2015
05/06/2014
$5.08
$5.15
$5.54
$5.79
$5.79
$5.79
$6.20
$6.69
$5.28
4.0
2.4
3.0
2.1
1.1
2.7
3.0
2.1
3.0
5.2%
5.0%
4.7%
4.7%
4.7%
4.6%
4.7%
4.8%
4.8%
23%
23%
24%
23%
25%
23%
23%
23%
25%
1.8%
1.9%
1.6%
2.0%
2.0%
1.9%
2.1%
1.8%
2.9%
56%
71%
57%
69%
36%
58%
55%
34%
45%
n/a
0%
0%
0%
0%
0%
0%
0%
0%
$2.24
$1.47
$2.37
$1.80
$3.68
$2.43
$2.82
$4.44
$2.89
n/a
$4.57
$4.81
$5.24
$5.49
$5.11
$5.39
$6.05
$4.57
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:
Movements during the period of all performance rights
Grant date
05/06/2014
13/04/2015
04/06/2015
18/09/2015
15/04/2016
15/04/2016
02/06/2016
13/01/2017
19/05/2017
Total
Exercise
price
Balance at
1 Jan 2017
Exercised during
the year
Granted during
the year
Lapsed during
the year
Balance at
31 Dec 2017
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
3,892,600
8,004
3,441,809
61,038
44,263
21,788
3,732,167
–
–
11,201,669
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,820
3,267,000
3,892,600
8,004
25,763
–
44,263
–
43,745
–
–
–
–
3,416,046
61,038
–
21,788
3,688,422
12,820
3,267,000
3,279,820
4,014,375
10,467,114
From the end of the financial year and up to the date of this report, no 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.
108
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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, up until 2017, high potential employees at a senior leader level were eligible for nomination to participate in the STI match
plan, which provided an award of share rights to the value of 50% of the individual’s STI (plan ceased in 2017).
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 two
years and subject to ongoing
employment, compliance
with AMP policies and the
board’s discretion.
Continued service for three
years (2014, 2015 and 2016
grants) and four years for
the 2017 grant made to
AMP group employees.
The 2017 LTI grant made to
AMP Capital employees has
a three-year service period.
These may also 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.
For AMP Capital employees
participating in the Enterprise
Profit Share scheme and the
Deferred Bonus Equity Plan,
the grant is split into two
tranches with continued
service for two and three
years respectively. These
are also 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.
109
AMP 2017 annual report 5.3 Share-based payments (continued)
The following table shows the factors which were considered in determining the independent fair value of the share rights granted
during the period:
Grant date
05/06/2014
13/04/2015
30/04/2015
29/05/2015
04/06/2015
18/09/2015
18/09/2015
18/09/2015
22/02/2016
22/02/2016
22/02/2016
29/02/2016
15/04/2016
28/04/2016
02/06/2016
13/01/2017
13/01/2017
13/01/2017
27/04/2017
27/04/2017
19/05/2017
19/05/2017
03/07/2017
Share price
Contractual
life (years)
Dividend
yield
Dividend
discount
Fair value
$5.28
$6.69
$6.44
$6.66
$6.20
$5.79
$5.79
$5.79
$5.54
$5.54
$5.54
$5.32
$5.79
$5.84
$5.54
$5.15
$5.15
$5.15
$5.12
$5.12
$5.08
$5.08
$5.19
3.0
2.1
1.8
1.8
3.0
2.0
1.8
2.7
1.6
2.6
1.5
1.1
0.9
1.8
3.0
0.6
1.6
2.4
1.8
2.8
4.0
3.0
2.0
4.8%
4.8%
4.8%
4.8%
4.7%
4.6%
4.6%
4.6%
4.6%
4.6%
4.6%
4.7%
4.7%
4.7%
4.7%
5.0%
5.0%
5.0%
5.2%
5.2%
5.2%
5.2%
5.2%
13%
10%
8%
8%
13%
6%
7%
12%
7%
11%
7%
5%
4%
8%
13%
3%
8%
11%
9%
14%
17%
13%
10%
$4.57
$6.05
$5.90
$6.11
$5.39
$5.42
$5.41
$5.11
$5.15
$4.91
$5.17
$5.06
$5.56
$5.36
$4.81
$5.00
$4.75
$4.57
$4.65
$4.42
$4.21
$4.43
$4.68
The following table shows the movement in share rights outstanding during the period:
Grant date
Exercise price
Balance at
1 Jan 2017
Exercised
during the year
Granted
during the year
Lapsed during
the year
Balance at
31 Dec 2017
05/06/2014
13/04/2015
30/04/2015
29/05/2015
04/06/2015
18/09/2015
18/09/2015
18/09/2015
22/02/2016
22/02/2016
22/02/2016
29/02/2016
15/04/2016
28/04/2016
02/06/2016
13/01/2017
13/01/2017
13/01/2017
27/04/2017
27/04/2017
19/05/2017
19/05/2017
03/07/2017
Total
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1,378,520
5,468
3,023,673
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
–
–
–
–
–
–
–
–
1,371,824
5,468
3,023,673
12,437
–
–
16,313
41,667
–
–
27,522
52,739
8,932
–
–
–
8,818
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,821
8,818
8,818
1,583,883
1,086,272
566,000
1,423,777
9,671
6,696
–
–
–
31,026
–
–
–
10,733
10,733
–
–
–
5,343
65,114
–
–
–
8,256
–
–
82,330
–
–
–
–
–
1,501,849
61,037
–
–
–
–
–
–
–
3,575,250
1,700,835
12,821
–
8,818
1,575,627
1,086,272
566,000
1,341,447
9,671
11,529,191
4,569,393
4,700,060
220,231
11,439,627
From the end of the financial year and up to the date of this report, no share rights have been issued, no share rights have been
exercised, and 5,686 share rights have lapsed due to resignation. Of the share rights outstanding at the end of the period, none have
vested or become exercisable.
110
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
5.3 Share-based payments (continued)
(c) Restricted shares
No restricted shares were granted during 2016 and 2017.
(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 in the Consolidated income statement, together with a corresponding
increase in the share-based payment reserve (SBP 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 Consolidated income statement and the SBP 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.
111
AMP 2017 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 AMP Life’s 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
2017
2016
% 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 AMP Life’s 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.
112
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017 6.2 Acquisitions and disposals of controlled entities
(a) Acquisitions and disposals of controlled operating entities
There were no individually or collectively significant acquisitions or disposals of controlled operating entities during the year.
(b) Acquisition and disposals of controlled entities of AMP Life’s statutory funds
In the course of normal operating investment activities, AMP Life’s 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 AMP Life’s statutory funds are operating companies which carry out business operations unrelated
to the core wealth management operations of the AMP group.
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
2017
%
2016
%
China Life Pension Company2
Pension company
China
19.99
19.99
AIMS AMP Capital Industrial REIT3
Industrial property trust
Singapore
China Life AMP Asset
Management Company Ltd2
Investment management
China
Global Infrastructure Fund3
Fund
Cayman Island
5
15
8
PCCP LLC2
Investment management
United States
24.9
5
15
5
–
Other (individually
immaterial associates)
n/a
n/a
Total investments in associates accounted for using the equity method
2017
$m
281
47
23
151
127
120
749
2016
$m
283
49
21
38
–
58
449
1
2
3
The carrying amount is after recognising $29m (2016: $28m) share of current period profit or loss of associates accounted for using the equity method.
The AMP group has significant influence through representation on the entity’s board.
Entities within the AMP group have been appointed investment manager, therefore the group is considered to have significant influence.
(b) Investments in significant associates held by AMP Life’s 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 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 Consolidated 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.
113
AMP 2017 annual report
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 – AMP Limited entity
Contributed equity
Share based-payment reserve
Retained earnings5
Total equity
2017
$m
2016
$m
890
–
8
(8)
(45)
49
894
894
634
1
11
(8)
(44)
52
646
646
3
99
1,191
32
107
2,078
12,400
91
11,355
53
13,784
13,625
106
47
5
1,116
1,274
77
29
3
864
973
12,510
12,652
9,547
22
2,941
9,747
21
2,884
12,510
12,652
1
2
Dividend income from controlled entities $866m (2016: $611m) is not assessable for tax purposes. Income tax credit includes $53m (2016: $65m)
utilisation of previously unrecognised tax losses.
Receivables and payables include tax-related amounts receivable from subsidiaries $52m (2016: $99m) and payable to subsidiaries $75m
(2016: $42m).
3 Deferred tax assets include amounts recognised for losses available for offset against future taxable income $87m (2016: $49m).
4
AMP Limited entity is the issuer of: AMP Subordinated Notes; AMP Wholesale Capital Notes; AMP Capital Notes – 2015 and AMP Capital Notes – 2017.
Further information on these are provided in note 3.2.
Changes in retained earnings comprise $894m (2016: $646m) profit for the year less dividends paid of $837m (2016: $828m).
5
(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.
114
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
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 unitholders liabilities
Dividend and distribution income reinvested
Share-based payments
(Increase) decrease in receivables, intangibles and other assets
Increase in net policy liabilities
Increase (decrease) in income tax balances
(Decrease) in other payables and provisions
2017
$m
2016
$m
873
17
276
(1,495)
(4,686)
7
(152)
3,769
244
(251)
192
18
937
506
(3,515)
–
83
2,615
(473)
(188)
Cash flows from (used in) operating activities
(1,398)
175
(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 Statement of cash flows
3,602
3,620
7,222
3,476
5,334
8,810
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 Consolidated
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 Consolidated 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
2017
$m
81
279
951
1,311
2016
$m
89
222
16
327
Non-cancellable operating leases are in relation to the AMP group’s offices in various locations. AMP generally pays rent on a periodic
basis at rates agreed at the inception of the lease.
At 31 December 2017, the total of future minimum sublease payments expected to be received under non-cancellable subleases was
$15m (2016: $37m).
Accounting policy – recognition and measurement
Operating lease payments
Operating lease payments are recognised as an expense in the Consolidated 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.
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AMP 2017 annual report
7.3 Provisions
(a) Provisions
Restructuring1
Other2
Total provisions
(b) Movements in provisions – consolidated
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
Consolidated
2017
$m
22
131
153
Restructuring1
$m
Other2
$m
67
15
(60)
22
138
71
(78)
131
2016
$m
67
138
205
Total
$m
205
86
(138)
153
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. $25m (2016: $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.
Industry and regulatory compliance investigations
AMP is subject to review from time to time by regulators, both in Australia and offshore. In Australia, AMP’s principal regulators are
APRA, ASIC and AUSTRAC, though, other government agencies may have jurisdiction depending on the circumstances. The reviews
conducted by regulators may be industry wide or specific to AMP and the outcomes of those reviews can vary and may lead, for
example, to the imposition of penalties, the compensation of customers, enforceable undertakings or recommendations and
directions for AMP to enhance its control framework, governance and systems.
There are currently a number of investigations being undertaken by ASIC, some of which are industry wide. These cover a range of
matters, including adviser conduct, customer fees, the quality of advice and the monitoring and supervision by AMP of its advisers.
These investigations have not been completed and the associated outcomes and costs are uncertain.
AMP is also undertaking reviews concurrently with these regulatory investigations to determine, amongst other things, where
customers may have been disadvantaged. In some instances compensation has been paid and, as these reviews are ongoing, further
compensation may be required to be paid to customers. Where the results of our reviews have reached the point that customer
compensation is likely, specific provisions have been raised, however, a contingency remains in relation to the regulatory investigations.
More recently, the Australian financial services industry is responding to a Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry, established on 14 December 2017. The outcomes of this Royal Commission for AMP
and the industry are uncertain at this time. AMP has welcomed the opportunity to contribute to the Royal Commission and supports
its intent to provide certainty to the financial system and help restore the community’s trust and confidence in the industry.
116
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017
7.5 Auditors’ remuneration
AMP Limited and other corporate entities in the consolidated group
Audit services
Audit or review of financial statements
Other audit services1
Total audit service fees
Non-audit services
Taxation services
Other services2
Total non-audit services fees
Total auditors’ remuneration for AMP Limited and other corporate entities
Managed Investment Schemes and Superannuation Funds
Audit services
Audit or review of financial statements
Other audit services1
Total audit service fees
Non-audit services
Taxation services
Other services3
Total non-audit services fees
2017
$’000
2016
$’000
5,536
1,395
5,377
1,239
6,931
6,616
743
856
681
1,012
1,599
1,693
8,530
8,309
6,977
303
6,753
288
7,280
7,041
305
–
305
277
119
396
Total auditors’ remuneration for managed investment schemes and superannuation funds
7,585
7,437
Total auditors’ remuneration
16,115
15,746
1 Other audit services includes regulatory compliance and reviews of controls and procedures.
2 Other non-audit services for AMP Limited and other corporate entities relate to compliance related review.
3 Other non-audit services for managed investment schemes and superannuation funds are comprised primarily with transaction related advice.
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 2017. 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. 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.
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. Based on the impact assessment
undertaken by the AMP group, there is no material impact to the group upon adoption of 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 (ECL) on
financial assets, and also introduces new general hedge accounting requirements.
Based on the impact assessment undertaken by the AMP group, there is no material impact to the group upon adoption of AASB 9
classification and measurement, and ECL requirements. As permitted by AASB 9 the group has chosen to continue to apply the hedge
accounting requirements of AASB 139 Financial Instruments: Recognition and Measurement.
117
AMP 2017 annual report
7.6 New accounting standards (continued)
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 sheet as lease liabilities, with the corresponding right-of-use assets. Lessees have the option not to recognise ‘short-term’
leases and leases of ‘low-value’ assets.
Impact assessment for the adoption of AASB 16 is ongoing. The AMP group is not considering early adopting AASB 16.
AASB 17 Insurance Contracts
AASB 17 Insurance Contracts (AASB 17) is effective for periods beginning on 1 January 2021. The new standard will introduce significant
change to the accounting for life insurance contracts and the reporting and disclosures in relation to those contracts.
The new standard, of itself, does not change the underlying economics or cash flows of the life insurance business. However, it is
anticipated that there will be an impact on profit emergence profiles from life insurance contracts. Subject to any changes to regulation
or legislation which may be made in response to the new standard, there may also be an impact on the determination of capital
requirements and income tax.
The detailed requirements of the standard are complex and, in some cases, the final impact of these requirements will not be
determined until interpretations and regulatory responses to the new standard are developed. The AMP group is currently undertaking
an assessment of the potential impact of this standard.
7.7 Events occurring after reporting date
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
–
– AMP group’s state of affairs in future financial years.
118
AMP 2017 annual reportNotes to the financial statements for the year ended 31 December 2017 Financial report for the year ended 31 December 2017
Directors’ declaration
for the year ended 31 December 2017
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 2017 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 2017
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, 8 February 2018
Craig Meller
Chief Executive Officer and Managing Director
119
AMP 2017 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) and its subsidiaries (collectively the Group), which comprises the
consolidated statement of financial position as at 31 December 2017, the consolidated income statement, the consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then
ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 31 December 2017 and of its consolidated
financial performance for the year ended on that date; and
b) 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 Financial Report section of our report. We are independent of the Group in
accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit
of the financial report in Australia. We have also 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 report. 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.
120
AMP 2017 annual report Independent Auditor’s Report (continued)
Valuation of life insurance policy liabilities
Why significant
How our audit addressed the key audit matter
Life insurance contract liabilities total $23,683 million and
represent 17% 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
Our audit procedures included the following:
–
–
–
–
–
–
–
–
We assessed the Group’s controls over the recording
of new business, policy administration and claims
processes.
We assessed the policy liability valuation process
including the key reconciliations supporting the data
used in the valuation process.
We evaluated the associated IT systems and the design
and operating effectiveness of IT system controls relating
to the policy valuations.
We assessed the competence and objectivity of the AMP
life entities’ Appointed Actuary.
Our actuarial specialists assessed the reasonableness of
the valuation methodology, key assumptions, including
the impact of the recent reinsurance transactions, and
the interpretation of prudential standards that affect the
policy liability valuation.
Where 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 actuarial specialists independently developed
expectations regarding the valuation results based on
their understanding of the business, external industry
trends and experience and AMP life entities’ 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
Standards.
121
AMP 2017 annual report Independent Auditor’s Report (continued)
Valuation of investment contract liabilities
Why significant
How our audit addressed the key audit matter
Investment contract liabilities total $75,235 million and
represent 53% 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 investment 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 was considered a key
audit matter given the significance of this account to the
overall financial statements.
Our audit procedures included the following:
–
–
–
–
–
–
We assessed the Group’s controls over the recording
of new business, renewals and benefits processes.
We evaluated the associated IT systems and the design
and operating effectiveness of IT system controls relating
to investment contract liabilities valuation.
We examined the unit pricing process, which included
assessing the design and testing controls associated
with the process.
We considered the unqualified assurance report from
an audit firm addressing the controls at the custodian.
We evaluated the process and tested controls of
the Group that support the valuation of investment
contract liabilities.
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 2017. We performed testing over
this extraction process, reconciled the investment
contract liabilities to the fair value of underlying
assets and evaluated the reasonableness of
reconciliation differences.
Valuation of complex and illiquid financial investments
Why significant
How our audit addressed the key audit matter
Investments in financial assets total $136,675 million
and represent 92% of total assets.
As set out in Note 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.
The Group exercised judgement 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.
Our audit procedures included the following:
–
–
–
We assessed the Group’s controls over the valuation
of illiquid financial investments.
For all level 3 investments, where relevant, our
valuation specialists assessed the valuation and
modelling methodologies and the key assumptions
used, including the prevailing local market conditions
for offshore assets, for 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 on a sample
basis as provided by external investment managers,
including an assessment of the reliability of the
information provided by the investment managers.
122
AMP 2017 annual reportIndependent Auditor’s Report to the Shareholders of AMP Limited Independent Auditor’s Report (continued)
Recoverability of Goodwill and intangible assets
Why significant
How our audit addressed the key audit matter
Goodwill and intangible assets total $3,218 million and
represent 2% of total assets.
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).
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
contract 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.
The determination of the recoverable amounts of these assets
are complex and typically requires a high level of judgement.
The most significant judgements arise over the assumptions
applied in the embedded value calculation.
Our audit procedures included the following:
–
–
–
–
–
–
–
–
Assessed whether the methodology used by the
Group for impairment assessment purposes was in
line with the requirements of Australian Accounting
Standards, 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
contract 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.
Tested 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.
Our consideration of the impairment assessment
undertaken by the Group required valuation and
actuarial expertise to assist in the testing of the
recoverable amount models and assumptions.
Accordingly, we involved our specialists where
necessary in conducting these procedures.
123
AMP 2017 annual report Independent Auditor’s Report (continued)
Information technology (IT) environment
Why significant
How our audit addressed the key audit matter
The operations of AMP Limited are heavily dependent
on information technology systems and their associated
IT controls.
A fundamental component of IT controls is ensuring
appropriate user access management, program change
management and IT operational protocols exist and are
being adhered to.
Our audit procedures included the following:
–
–
–
–
–
We assessed the Group’s overall IT environment and
the controls in place over access to systems and data, as
well as system changes. We tailored our audit approach
based on the financial significance of the system and
whether there were automated procedures supported
by that system.
The procedures performed included testing the
Group’s controls over appropriate access rights for
the relevant applications.
We assessed the Group’s controls relating to system
development and program changes to establish that
system changes were appropriately authorised.
Where deficiencies were identified, we performed
additional procedures to test the information 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 testing to validate the
integrity and reliability of the specific information.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information included in the Company’s
2017 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report (including the
remuneration report) that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the
remaining sections of the Annual Report after the date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance
conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report 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 this 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.
Responsibilities of the Directors for the Financial Report
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 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 relating to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to 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 the 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.
124
AMP 2017 annual reportIndependent Auditor’s Report to the Shareholders of AMP Limited
Independent Auditor’s Report (continued)
As part of an audit in accordance with the 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 Group’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 and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group 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 financial
report represents 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 also 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 Audit of 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 2017.
In our opinion, the Remuneration Report of AMP Limited for the year ended 31 December 2017, 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
Partner
Sydney
8 February 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
125
AMP 2017 annual report Securityholder information
as at 8 February 2018
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
4,197
251
16
21
2
4,487
1,130,629
547,187
101,047
622,024
274,113
2,675,000
42.27
20.46
3.78
23.25
10.25
100.00
Twenty largest AMP capital notes holdings
Rank
Name
Notes held
% of issued capital
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Navigator Australia Ltd
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