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annual report
AMP Limited ABN 49 079 354 519
Contents
1 Message from the Chairman
3 Message from the CEO
4 Our financial performance
6 Our 2018 priorities
8 Who we are and what we do
10 Corporate sustainability
12 Our board
15 Our management team
18 Corporate governance at AMP
30 Directors’ report
37
Remuneration report
63 Analysis of shareholder profit
64 Financial report
65
66
67
68
69
70
139 Directors’ declaration
140 Independent auditor’s report
146 Securityholder information
IBC Glossary
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.
The directors’ report, financial report and independent auditor’s
report are dated and current as at 14 February 2019.
Message from the Chairman
Dear Shareholders
I accepted the role of Chairman in June 2018 because
I believe that AMP plays an important role in the financial
wellbeing of its customers. However, the business faced a
very difficult set of circumstances last year that undoubtedly
affected you, our shareholders, and your trust in AMP.
In joining AMP, the immediate issues to be addressed were
renewal of the board, appointment of a new Chief Executive
Officer, strengthening of the governance framework and to
commence oversight of the transformation of the business.
That change is very much underway and will continue
in 2019.
Transforming AMP
In 2018, AMP began a structural transformation that
will better position our business for the future and
improve performance for our shareholders.
This included a review of our wealth protection and
mature businesses, initiated in response to structural
changes in the industry that restricted our ability to
compete on a sustainable basis and deliver acceptable
returns to shareholders.
As a result, the board decided to sell our Australian and
New Zealand wealth protection and mature businesses to
Resolution Life, a UK-based international insurance group.
In doing so, we were acutely aware that this moves AMP
away from its historic core. However, we firmly believe
that this was the right outcome for our shareholders and
not detrimental to our customers. In Resolution Life, we
have a partner who has shown a strong commitment to
policyholders throughout its history.
with customers, shareholders and the community. The
recommendations establish a solid industry framework
and provide a basis for setting AMP’s future direction.
We will work constructively with the government, regulators,
advisers, trustees and other bodies to ensure that, as the
recommendations move into definitive legislative reform,
the outcomes are clear, simple and meet the best interests
of customers.
In 2018, AMP also accelerated our advice remediation
program to remediate clients of advisers who received
inappropriate advice, or who paid fees where there was no
evidence of services delivered. We are deeply disappointed
we let our customers down. This is a complex program
which requires regulatory consultation and may take three
years to complete, but we are committed to ensuring
affected customers are compensated.
The appointment of AMP’s new CEO was a priority in
reshaping our business. Our new CEO, Francesco De Ferrari,
has a strong track record in redesigning business models
to deliver turnaround and growth. The board and I are
confident that Francesco has the strategic acumen and
expertise to steer our organisation into the future.
The search for the right CEO to drive AMP’s recovery was
extensive. In appointing an international executive, standard
international remuneration arrangements were followed.
This is covered in detail in the remuneration report on
page 37.
In transforming AMP, the role of the board in setting
‘the tone from the top’ is fundamental to achieving an
effective culture of an organisation. This has been an
important consideration in board renewal.
The final report from the Royal Commission into
Misconduct in the Banking, Superannuation and Financial
Services Industry (Royal Commission) provided a turning
point for the financial services sector in rebuilding trust
John O’Sullivan joined the board as an independent
non-executive director in June 2018, bringing almost
40 years’ experience in financial services and the legal
profession in Australia.
1
AMP 2018 annual report Message from the Chairman continued
John Fraser joined the board as an independent
non-executive director in September 2018. John has
significant experience in leadership roles in economics,
public policy, capital markets and asset management
in Australia and overseas.
Andrea Slattery joined the board as an independent
non-executive director on 15 February 2019. Andrea
brings more than 26 years’ experience as a non-executive
director and senior executive in financial services,
retirement and superannuation, government relations,
infrastructure, professional services, academia
and innovation.
I encourage shareholders to read the remuneration
report and consider the board’s intentions, including our
response to concerns raised to the 2017 remuneration
report, remuneration consequences for risk and reputation
matters and the new CEO remuneration arrangements.
These intentions are anchored in the principle that
incentives should be aligned with the financial outcome
for our shareholders and must be accompanied by
consequence management for misconduct. In addressing
incentive remuneration, the board recognises there is
not one formula or scorecard that can outweigh the
exercise of judgement.
2018 performance and dividend
AMP’s 2018 financial performance reflects the challenges
we’ve faced during the period including: the imperative to
remediate customers in our advice business, a deterioration
in the performance of our wealth protection business
and the impact of the Royal Commission proceedings
on AMP’s reputation.
2019
2019 will be a year of transition as we position the
business for the future. Management will be primarily
focused on the separation of our wealth protection and
mature businesses to Resolution Life, progressing the
remediation program with urgency and strengthening
risk management, governance and controls.
Overall, we reported an underlying profit of $680 million
for the year to 31 December 2018 and profit attributable
to shareholders of $28 million.
The board took the difficult decision to declare a reduced
2018 final dividend of 4 cents per share, resulting in a total
dividend paid for 2018 of 14 cents per share. This took
account of the 2018 financial results, the related impact
on AMP’s capital position and the uncertainty in the
operating environment.
The dividend reflects the board’s view that as a
customer-centred business, we must maintain a strong
capital position. In 2018, we maintained this position
at year-end, holding $1.65 billion above minimum
regulatory requirements.
Remuneration
The board understands that many of our shareholders
are disappointed with AMP’s business and financial
performance in 2018. We recognise that many of our
shareholders voted against the 2017 remuneration
report in response to wider issues in the business, as well
as concerns about the remuneration framework itself.
Reflecting the circumstances of last year, the board
decided to award zero short-term incentives for AMP’s
group leadership team in 2018 (excluding AMP Capital).
It also applied appropriate consequence management
including forfeiture of long and short-term incentives
for a number of former executives and a reduction in
board director fees for 2018.
Beyond this, management will continue to drive
performance in our core operating businesses. This
will ensure that we are set up to progress a transformed
business encompassing wealth management, as well
as important businesses in banking and investment
management.
AMP has a strong, proud and important 170-year history
in Australia. We have made some important decisions in
2018 and our turnaround is in progress.
I am confident with our renewed board, the stewardship
of a new CEO, the commitment of our people and
our intention to build from outcomes from the Royal
Commission, we can restore confidence in our business
and deliver for customers and shareholders.
I look forward to providing a further update at the AGM
in May 2019.
David Murray AO
Chairman
2
AMP 2018 annual report
Message from the CEO
Dear Shareholders
I am honoured to have joined AMP in December 2018.
I appreciate that it has been a challenging time for you,
our shareholders. As CEO, my priority is to address the
issues and transform our business, so we can better
compete and deliver for shareholders into the future.
2018 was a difficult year for AMP, and the wider financial
services sector. The Royal Commission was a confronting,
but valuable experience and AMP embraced it as an
impetus for change. We took a series of decisive actions,
reflecting our acknowledgement of the gravity of the
issues facing the business.
2018 financial performance
Our core businesses reported resilient performances notably
in AMP Capital, our investment management business, and
AMP Bank. Our Australian wealth management business
faced a number of external challenges, leading to a renewed
focus on retaining our clients. In New Zealand, the wealth
management business delivered steady earnings through
disciplined cost management.
The operating earnings of the Australian and New Zealand
wealth protection and mature businesses were reduced by
negative experience that led AMP to strengthen our best
estimate assumptions for future claims and take substantial
capitalised losses in the second half of the year as a result.
2019
2019 will be a transitional year for AMP, where we focus on
repositioning our business for the future. Our first priority
is the separation of our wealth protection and mature
businesses, which will help simplify and create the basis
for a more agile AMP.
Our second priority is the delivery of our advice remediation
program to compensate impacted clients. We are focused
on doing this as quickly as possible.
Following the sale of the wealth protection and mature
businesses, we will have four core operating businesses –
wealth management in Australia and New Zealand,
AMP Bank and AMP Capital.
Our wealth management business in Australia has
foundational assets and strong market positions. However,
the business model is challenged and we need to reshape
it for the future. In New Zealand, our wealth management
business continues to deliver resilient earnings for the
group. Our opportunity is to become an advice-led wealth
management business. AMP Capital has a strong growth
trajectory, particularly internationally. AMP Bank has
performed well and can be further leveraged as part
of our wealth management offer.
Underlining all of this, the client must be at the centre of
everything we do. Our overarching focus will be on meeting
their needs and improving the value of the products and
services we provide.
AMP has been part of the social fabric and business
community of Australia for 170 years. We have a willingness
to change to ensure we meet the expectations of our clients
and the community. This commitment is evident across
our organisation, from our employees, to management
and the board.
It is going to take a concerted team effort to reshape our
business and deliver improved financial results over the
next few years. I am confident that we have a strong
business, with the right fundamentals in the markets
we operate in to drive AMP’s future success.
I joined AMP knowing that I can be proud of the work we do
each day for our clients and in turn, deliver for our shareholders.
Lastly, AMP is focused on getting our risk, governance and
control settings right. This includes placing ethics and risk
at the core of our culture.
Francesco De Ferrari
Chief Executive Officer
3
AMP 2018 annual report
Our financial performance
Five-year financial summary
Year ended 31 December
Consolidated income statement
Net premium, fee and other revenue
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
6,390
6,522
6,204
5,539
5,343
Investment gains
1,854
11,888
8,567
8,483
12,244
Profit (loss) before income tax from continuing operations
Income tax expense
Non-controlling interests
Profit (loss) after tax attributable to shareholders of AMP Limited
(366)
417
(23)
28
1,636
(763)
(25)
848
358
(166)
(536)
(344)
1,993
(280)
(741)
1,814
(843)
(87)
972
884
Consolidated statement of financial position
Cash and cash equivalents
Investment assets
Intangibles
Assets of disposal groups
Other assets
Total assets
Interest-bearing liabilities
Life insurance contract liabilities
Investment contract liabilities
Liabilities of disposal groups
Other liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity attributable to shareholders of AMP Limited
Non-controlling interests
Total equity
3,932
133,172
3,208
–
4,966
3,602
137,558
3,218
–
3,861
3,476
129,995
3,199
–
3,390
3,955
128,074
3,983
–
3,696
3,581
123,292
4,042
100
3,840
145,278
148,239
140,060
139,708
134,855
21,650
23,257
68,742
–
24,838
21,009
23,683
75,235
–
21,029
17,218
24,225
71,579
–
19,497
17,452
23,871
69,848
–
19,642
16,502
24,403
66,980
69
18,516
138,487
140,956
132,519
130,813
126,470
6,791
7,283
7,541
8,895
8,385
9,502
(1,931)
(886)
6,685
106
6,791
9,376
(2,010)
(164)
7,202
81
7,283
9,619
(1,972)
(185)
7,462
79
9,566
(1,866)
819
8,519
376
9,508
(1,888)
566
8,186
199
7,541
8,895
8,385
Year ended 31 December
2018
2017
2016
2015
2014
Other financial data
Basic earnings per ordinary share
Diluted earnings per ordinary share
Dividends per ordinary share
Number of ordinary shares
Assets under management
($ps)
($ps)
($ps)
(m)
($b)
$0.01
$0.01
$0.14
2,937
258
$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
4
AMP 2018 annual report
2018 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
4
1
4
0
1
30
20
10
0
Underlying profit
$ million
Profit attributable to shareholders
$ million
1,250
1,000
750
500
250
0
m
0
2
1
1
$
,
m
5
4
0
1
$
,
m
0
4
0
1
$
,
m
0
8
6
$
m
6
8
4
$
1,250
1,000
750
500
250
0
m
2
7
9
$
m
4
8
8
$
m
8
4
8
$
m
8
2
$
2017 2018
2016
)
m
4
4
3
$
(
2014
2015
2016
2017
2018
2014
2015
2016
2017 2018
2014
2015
14 cents per share
Total dividend for 2018
The final dividend of 4 cents per
share will be paid on 28 March
2019 and will be 90% franked.
$680m
Underlying profit
Underlying profit is our core
measure of performance.
$28m
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.
($3,968m)
Australian wealth management
net cash outflows
Down from net cash inflows of
$931m in FY17 reflecting a range of
factors including AMP’s appearance
at the Royal Commission and a
reduction in member contributions.
$913m
down from $949m
Group controllable costs
(ex AMP Capital)
Reduced costs across the company
driven by cost efficiency initiatives
and lower project costs.
$187.2b
down $0.5b
Assets under management
in AMP Capital
Through AMP Capital we manage
money for our customers and clients
in Australia and around the world.
$123.2b
down from $130.4b
Assets under management for
Australian wealth management
This is money we manage in our
Australian wealth management
business for customers.
$1.65b
down from $2.3b
Capital held above the minimum
regulatory requirement
AMP holds capital above the minimum
requirement to protect customers,
creditors and shareholders against
unexpected losses. This is an indication
of the strength of our business.
$19.46b
up from $18.87b
Residential mortgage book
Primarily driven by growth in
owner-occupied principal and
interest-only lending in AMP Bank.
Figures compared to full year 2017 performance.
5
AMP 2018 annual report
Our 2018 priorities
AMP faced significant challenges throughout 2018, as a result of issues
within our business as well as across the broader market environment.
The problems identified, including fees charged to our customers for services they didn’t receive from advisers, fell short of community
expectations and the standards we hold for ourselves.
AMP recognises the importance of addressing these matters to ensure we deliver value for our customers and shareholders well
into the future.
The company took decisive action in 2018 to address these issues and accelerate the business transformation. Following changes
to the AMP Limited Board and leadership, Mike Wilkins was appointed acting Chief Executive Officer on 20 April 2018. Mike and
AMP’s leadership team identified a set of priorities to stabilise the business, address customer challenges and set up the company’s
long-term recovery.
The appointment of David Murray as Chairman in June 2018 was an important step in demonstrating AMP’s firm commitment to
change. David brings deep and extensive knowledge of the financial services industry to the role, and a firm commitment to rebuild
AMP. He has made significant headway in the ongoing process of board renewal with the appointment of three new board members.
Half of the AMP Limited Board in place at the beginning of the Royal Commission has since changed. The process of board renewal
that commenced in 2018 is continuing, and is expected to be completed in 2019.
Important to the future strategy of AMP, the board appointed Francesco De Ferrari as the new CEO, who commenced in December
2018. The board has given Francesco a mandate to transform AMP and set a new strategy for the business.
Management is focused on delivering the long-term strategy, but in 2019 will focus on the separation of the wealth protection and
mature businesses to Resolution Life, progressing the remediation program, strengthening risk management, governance and
controls, as well as driving performance in the core operating businesses.
2018 priorities
1. Prioritise customers and restore confidence
Our first priority deliberately focused on our customers. AMP accelerated the advice remediation program in 2018.
The program underlines our commitment to acknowledge we have let our customers down and damaged the community’s
confidence in our business. The program is on track to meet its three-year timeframe, with additional resources and
increased investment announced.
We’re committed to improving value for our customers, including offering price competitive products. Helping to enhance
the competitiveness of AMP’s MySuper offering, we implemented fee reductions for around 600,000 customers.
We continue to work towards simplifying our product set and reducing operational complexity.
2. Transform advice
Financial advice plays an important role in the lives of Australians, helping them to plan and reach their life goals
and it remains a cornerstone of AMP. We have been transforming this business and will continue this in 2019.
A core component in transforming advice is the Advice Improvement Program, which was accelerated in 2018 to meet
changing regulatory and consumer expectations. This program has been focused on ensuring our advice business is
meeting contemporary standards, commercial best practice and giving advised clients confidence that their adviser
is providing advice in their best interests. The program covers both employed and aligned advisers.
We are working with ASIC to deliver its regulatory changes and throughout 2018, significant progress was made in
rolling out new standards in advice policies, processes and the monitoring of the implemented changes.
AMP is committed to achieving and exceeding high standards of professionalism and ethics in financial advice. In 2018
AMP launched Adviser Pathways, an adviser training and development program for those new to the industry to meet
the growing demand for high quality financial advisers.
AMP supports the objectives of the Financial Adviser Standards and Ethics Authority (FASEA) and provided seed funding
and made submissions on its new FASEA standards for advisers. In December 2018, AMP announced the appointment of
Alex Wade as Group Executive for Advice to design and implement a strategy for transforming our advice network to meet
consumer and regulatory expectations.
6
AMP 2018 annual report 3. Reprioritise portfolio review
In October 2018, AMP announced the completion of its portfolio review of the ‘manage for value’ businesses –
wealth protection (insurance), mature and New Zealand. This included the decision to sell our Australian and
New Zealand insurance and mature businesses to Resolution Life.
Resolution Life specialises in owning and managing large insurance businesses and is focused on existing customers.
Its approach to prioritising customers is closely aligned with AMP, which was a key factor in the decision-making process.
The portfolio review was initiated in response to structural changes in the insurance industry and regulation globally.
AMP’s ability to compete in life insurance on a sustainable basis is challenged by the scale and lower cost of capital of its
competitors in the market. The board believes Resolution Life was in a stronger position to manage the business, and as
part of the transaction AMP will maintain ongoing interests in Resolution Life’s business.
The sale is a significant step in setting up AMP for the future as well as, importantly, delivering strong outcomes for our
people, our customers and our shareholders.
4. Strengthen risk management, internal controls and governance
In July 2018, we announced the commitment to invest $50 million (pre-tax) per annum over the next two years
to strengthen AMP’s risk management, internal controls and governance.
This multi-year program has been established to further enhance risk governance. Major ongoing initiatives as part
of this program include:
–
–
–
–
improving the design and implementation of the three lines of defence model (business management, risk
management and internal audit) to enhance clarity and execution of risk responsibilities and accountabilities
further developing and embedding the frameworks, policies and procedures for the management of risk
and compliance
improving the systems and data management infrastructure to support risk management and decision making, and
strengthening processes and internal controls to improve operational risk management and compliance.
5. Maintain business momentum
In 2018, AMP also focused on maintaining momentum in a challenging environment.
AMP Capital maintained its growth momentum and continued to invest in international expansion. Notable transactions
included the acquisition of 49% of London Luton Airport and entering a 50/50 partnership with Invenergy Clean Power,
on behalf of investors in its global infrastructure equity series.
AMP Bank also continued to drive growth in a competitive market, whilst maintaining its conservative credit policy.
In China, our pensions joint venture, China Life Pension Company (CLPC), continued to grow and is a market leader
in trustee services.
AMP is also a market leader in advice and superannuation and our North Platform grew strongly. MyNorth maintained
momentum throughout the year, with approximately $38 billion in North AUM, up 8% from December 2017.
7
AMP 2018 annual report Who we are and what we do
AMP was founded in 1849 on a simple yet bold idea; that all individuals
should have the power and ability to control their money and achieve their
financial goals.
We have approximately
740,000
shareholders
We have a long history in helping our customers manage their finances
and achieve their goals. During the course of the past 170 years, our
business has evolved and will continue to do so into the future.
AMP is a wealth management company which offers solutions across
financial advice, investment management, banking, life insurance,
superannuation, self-managed superannuation funds, retirement
income and investing.
Australian wealth management
We help our customers to save for, and to live well in retirement,
with our retail and workplace superannuation products, self-managed
superannuation funds services, as well as retirement income solutions
and investments for individuals. Our superannuation business paid
out $2.5 billion in retirement payments (including mature payments)
in Australia in 2018.
In a period of rapid transformation for the industry, AMP is committed
to providing quality financial advice through our national network of
advisers, ensuring Australians continue to have access to advice. In 2018,
AMP launched Adviser Pathways, a rigorous training and development
program for new advisers, further strengthening its ongoing focus on
lifting professionalism and adviser standards.
AMP Bank
AMP Bank provides customers with residential and investment property
home loans, deposit and transaction accounts and SMSF products. We also
provide loans to AMP-aligned financial advice practices. We empower our
customers to access AMP Bank products via a variety of channels including
digital and online, phone, and through AMP financial advisers and home
loan brokers.
In 2018, we helped around 110,000 Australians with their banking needs,
including providing over 6,000 new home loans.
We have over
3.5 million
customers in Australia and
New Zealand
We helped around
110,000
Australians with their
banking needs
8
AMP 2018 annual report
AMP Capital managed
$187b
for clients globally
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 $20.3 billion in infrastructure investments
managed on behalf of funds and clients. In Asia, we have strong partnerships
with two of the leading financial services groups, MUFG: Trust Bank of Japan
and China Life. Our partnership with PCCP, a US-based real estate investment
manager, provides a strong opportunity towards meeting our growth ambitions
overseas and in new markets.
At the end of 2018, AMP Capital managed $29 billion for international investors,
including $17.3 billion for 302 direct international institutional clients.
We helped over
125,000
customers retire in
Australia
New Zealand wealth management
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 2018, AMP was the fourth-largest KiwiSaver Scheme provider with
10% of the total KiwiSaver market and approximately 225,000 customers.
$1.2b
paid in Australian
insurance claims
Sold businesses (wealth protection and mature)
In October 2018, AMP announced the decision to divest its Australian and
New Zealand wealth protection and mature businesses to Resolution Life.
This is a major step in reshaping AMP as a simpler, more focused group. The
transaction is expected to complete by the end of the third quarter in 2019.
Wealth protection (life insurance)
We support our customers and their families during tough times with life
insurance, income protection and disability insurance solutions. AMP provides
policies that are held by individuals or are a part of their superannuation fund.
In 2018, we paid $1.2 billion in Australian insurance claims and NZ$161 million
in New Zealand insurance claims when people needed us most.
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.
9
AMP 2018 annual report
Corporate sustainability
Our approach to sustainability is built around three core focus areas:
our customers, our people and our community.
In 2018, approximately
341,000
customers used our My AMP
digital program to manage
their finances
In 2018, more than
$1 million
in grants made through
AMP’s Tomorrow Fund
15%
reduction in Scope 1
and 2 (operational) emissions
in 2018 from 2017 levels
We are committed to rebuilding AMP to ensure a
sustainable future – one that has shared value for
customers, shareholders, employees, the community
and the environment.
We know there is a clear link between an organisation’s
long-term business success and its approach to sustainability,
including operating ethically and the quality of its corporate
governance. We recognise we have fallen short in recent
times, but we are genuinely committed to improving as
we reset AMP as an organisation for the future.
AMP has a proud history of engaging in sustainable
practices in the community. We are reducing our
environmental footprint, contributing to the community
through the AMP Foundation, and undertaking responsible
investment in AMP Capital.
Our customers
AMP aspires to be a customer centric organisation.
Following the challenges of recent years, highlighted in
the Royal Commission, we are committed to improving
our service and engagement with customers.
Following a review of advice delivered and fees
charged across our advice network, we accelerated our
remediation program to ensure all impacted customers
are appropriately compensated. In response to industry-
wide issues raised by ASIC and community expectations,
we have dedicated additional resources to this important
program in order to address these mistakes in a
comprehensive and timely manner.
AMP is committed to substantially simplifying its
superannuation business and offers, with a view to
reduce the number of AMP’s superannuation products
and investment options, providing simpler and more
competitive offers for members.
In 2018, we reduced fees for around 600,000 customers
of AMP’s MySuper products.
In 2018, we focused on listening to our customers. We
asked over 450,000 customers and business partners for
their feedback and made more than 120 changes in our
systems and processes in response.
Our belief in the importance of financial literacy led to
the launch of Welcome Journey. This unique engagement
process for new customers joining an AMP Superannuation
plan focuses on awareness and education.
Technology is making our offerings simpler for our
customers. During the 2018 year, we delivered a refined
mobile Money Manager tool and introduced a new micro-
budgeting element within our My AMP mobile application,
to make money management easier. In 2018, more than
341,000 customers used our My AMP digital program to
help manage their finances.
AMP Customer Advocate
In 2018, our AMP Customer Advocate worked with many
of our customers to resolve complaints. To reach a fair
and reasonable outcome, our AMP Customer Advocate
takes an independent view, and listens to our customers
to understand their concerns, in order to comprehensively
review their complaints.
10
AMP 2018 annual report Our people
Inclusion and diversity
AMP encourages a respectful, diverse and safe workplace
that supports the physical and psychological wellbeing
of our people. Valuing differences and encouraging a
flexible and inclusive environment where people feel they
can bring their whole self to work is critical if we are to
deliver outstanding results for customers, partners and
shareholders.
We worked with the Diversity Council of Australia in 2018 to
embed seven best-practice inclusion and diversity principles
for recruitment. Already in use in some areas, they will be
rolled out across AMP in 2019 to improve our ability to
attract diverse people and ultimately lift our performance.
In New Zealand, AMP received the Rainbow Tick certification
in recognition of our diverse and inclusive workplace for
people of different genders, sexualities, ethnicities, physical
abilities and cultures.
In 2018, the board recognised that significant change was
required to restore confidence in our business. Half of the
AMP Limited Board in place at the beginning of the Royal
Commission has since changed. The decision of a number
of female directors to step down regrettably eliminated the
then representation of women on the board. The process
of board renewal currently underway has, given the events
of 2018, made it more difficult to restore the previous
representation of female directors, for the time being.
AMP has gender diversity targets in place for management
positions, which require women to hold 47% of senior
executive roles and 50% of middle manager roles by the end
of 2020. In 2018, AMP maintained a sound representation
of women in management positions. As a result of changes
to AMP’s organisational structure in 2017, the business
did not meet its progress target. The representation of
women in senior executive roles increased (from 38%) to
39% at 31 December 2018, with women holding 41% of
middle manager roles. Overall, women make up 52% of our
workforce. We are working to increase the representation
of women at these levels by offering flexible work options,
refining our recruitment and appointment practices,
and focusing on female succession, talent, sponsorship
and advocacy.
Our community
Responsible investing
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 it invests in. A key part of AMP Capital’s
decision-making process is assessing the environmental,
social and governance (ESG) performance of its investments.
We were one of the first signatories globally to the
UN-backed Principles for Responsible Investment, and the
most recent assessment results on how we are progressing
on our commitments is available at ampcapital.com.au/esg.
We have dedicated ESG and sustainability specialists
who actively engage the boards and management teams
of companies and assets on a range of ESG issues. As
stewards of our clients’ investments, we encourage sound
decision making and risk management, appropriate capital
allocation, good board composition, gender diversity, fair
remuneration and open and honest disclosure. Through
proxy voting, we encourage corporate behaviour that will
deliver better long-term results for investors, shareholders
and the community.
In September 2018, AMP Capital fulfilled its commitments
in accordance with its ethical framework by completing
the divestment of tobacco, cluster munitions, landmines,
chemical and biological weapons securities from its
managed portfolios.
Protecting our environment
AMP assesses the environmental risks and opportunities
across our business, including the investments managed by
AMP Capital and the impact of our own operations. In 2018,
we continued to make progress against our environmental
priorities and targets, remaining carbon neutral in our own
operations.
We reduced our Scope 1 and 2 (operational) emissions in
2018 by 15% from 2017 levels. AMP also maintained an
A– Leadership score in our annual submission through the
Carbon Disclosure Project (CDP), which has aligned to the
Task Force on Climate-related Financial Disclosures (TCFD).
Our CDP disclosure demonstrates how we manage climate
risk across key business areas.
Investing in the community
Through the AMP Foundation we help provide a better
tomorrow for more people in the community, especially
people facing challenges accessing education and
employment opportunities. Since 1992, the AMP Foundation
has distributed close to $100 million to help charities and
individuals make a positive impact on communities in
Australia and New Zealand.
The AMP Foundation helps people to help themselves
by supporting organisations that give disadvantaged
Australians learning and work opportunities. The AMP
Foundation also helps people to help others, supporting our
employees and financial advisers to share their time, skills
and resources with the community.
In 2018, the AMP Foundation distributed close to $5 million
in the community, including more than $1 million in
grants through AMP’s Tomorrow Fund to help 43 amazing
Australians make a positive impact. AMP also presented
$170,000 in scholarships to 22 New Zealanders through
the AMP Scholarships program, which celebrated 20 years
in 2018.
You can find further information in our sustainability report
at amp.com.au/corporatesustainability.
11
AMP 2018 annual report Our board
1
2
3
David Murray AO1
Chairman BBus, MBA
David was appointed to the AMP Limited Board as Chairman
in June 2018. He is also Chairman of the Nomination and
Remuneration Committees and was appointed a member
of the Risk Committee in January 2019. In addition, on
15 February 2019, David was appointed Chairman of the
AMP Bank Limited Board and a member of its Risk Committee.
Experience
David has 40 years’ experience in financial services, with
expertise in banking and wealth management, as well as
the industry’s regulatory environment.
David served as Chief Executive Officer of the Commonwealth
Bank of Australia from 1992 to 2005 and as the inaugural
Chairman of the Australian Future Fund from 2006 to 2012
when his statutory term ended. He was also the inaugural
chair of the International Forum of Sovereign Wealth Funds.
David also chaired the Financial System Inquiry, which reported
to the Australian Government in December 2014 and has
previously served as a member of the Finance Sector Advisory
Council and the APEC Business Advisory Council.
David holds a Bachelor of Business from the NSW Institute
of Technology and a Master of Business Administration,
commenced at Macquarie University and completed at
the International Management Institute, Geneva. He holds
an honorary Doctor of Letters from Macquarie University.
Government and community involvement
–
–
Chairman of the Butterfly Foundation Limited
Ambassador of the Australian Indigenous
Education Foundation
Francesco De Ferrari
Chief Executive Officer
See page 15 for details of Francesco’s roles, responsibilities
and experience.
John Fraser2
Independent Director BEc (Hons)
John was appointed to the AMP Limited Board in September
2018 and was appointed a member of its Audit, Risk and
Remuneration Committees in January 2019. On 15 February
2019, John was appointed to the AMP Bank Limited Board and
as a member of its Audit and Risk Committees. He was also
appointed at the same time to the AMP Capital Holdings Limited
Board and as a member of its Audit and Risk Committee.
Most recently he was Secretary to the Treasury from 2015 to
July 2018. In this capacity, John was a member of the Board
of the Reserve Bank of Australia, a member of the Australian
Council of Financial Regulators and Chair of the G20 Global
Infrastructure Hub.
John came back to Treasury after an extensive career with
UBS, including more than a decade as Chairman and CEO of
UBS Global Asset Management based in London. During this
time, he was also a member of the UBS Group Executive Board
and Chairman of UBS Saudi Arabia, as well as Chairman of
various subsidiaries and joint ventures for UBS Global Asset
Management. John also served as an Australian Stock
Exchange Board director and as Chairman of Victorian
Funds Management Corporation.
Prior to joining UBS and its predecessor organisations in
1993, John held a number of senior positions with the
Australian Treasury over 20 years, including postings at the
International Monetary Fund and at the Australian Embassy
in the United States.
John graduated from Monash University, Melbourne, with
a first-class honours degree in economics. He received a
Centenary medal for service to Australian society through
business and economics in 2001 and was awarded an
honorary Doctorate of Laws from Monash University.
Government and community involvement
– Director of the Advance Board
– Director of the Future Fund
Andrew Harmos3
Independent Director BCom, LLB (Hons)
Andrew was appointed to the AMP Limited Board in June
2017. He is a member of its Audit and Risk Committees and
was appointed as Chairman of the Risk Committee in April
2018. He was also appointed a member of the Remuneration
Committee in January 2019.
Andrew was appointed to the AMP Life Limited and
The National Mutual Life Association of Australasia Limited
Boards in August 2013. He has served as a member of the Audit
Committees of both boards since August 2013 and was appointed
Chairman of these Committees in May 2016. He was appointed
as a member of the Risk Committees of both boards in November
2014 and Chairman in April 2018. In addition, on 15 February
2019, Andrew was appointed to the AMP Bank Limited Board,
as a member of its Audit Committee and as Chairman of its
Risk Committee.
Experience
John has more than 40 years’ experience in leadership
roles in economics, public policy, capital markets and asset
management in Australia and overseas.
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
12
AMP 2018 annual report 4
5
6
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)
Trevor Matthews4
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. He was
also appointed as a member of the Remuneration Committee
in May 2018. 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 and Risk
Committees of each of those boards. On 15 February 2019,
Trevor was appointed to the AMP Bank Limited Board and
as a member of its Audit and Risk Committees.
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 (ceased April 2017)
Chairman of 1st Group Ltd (appointed February 2015)
Government and community involvement
–
Chairman of the NSW State Insurance Regulatory Authority
Experience
John has over 40 years’ experience in the legal and financial
services sectors in Australia. He started his career at Freehill
Hollingdale & Page (Herbert Smith Freehills), later becoming
a partner at the firm where he was recognised as one of
Australia’s leading corporate and M&A lawyers.
From 2003 to 2008, John was General Counsel of the
Commonwealth Bank of Australia before spending 10 years
at Credit Suisse Australia where he was Executive Chairman,
Investment Banking and Capital Markets, Australia until February
2018. John is a member of the Takeovers Panel. He holds a
Bachelor of Laws and Bachelor of Arts from the University of
Sydney and a Master of Laws from the University of London.
Government and community involvement
–
Ambassador of the Australian Indigenous Education
Foundation
– Director of the WestConnex entities
Geoff Roberts6
Independent Director BCom, MBA
Geoff was appointed to the AMP Limited Board and as
Chairman of the Audit Committee in July 2016. He became a
member of the Risk Committee in January 2018 and a member
of the Remuneration Committee in January 2019. He was
appointed a Director of AMP Life Limited and The National
Mutual Life Association of Australasia Limited and a member of
their Audit and Risk Committees in May 2018. On 15 February
2019, Geoff was appointed to the AMP Bank Limited Board,
as a member of its Risk Committee and as Chairman of its
Audit Committee.
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.
John O’Sullivan5
Independent Director BA, LLB, LMM
John was appointed to the AMP Limited Board in June 2018.
He was appointed a member of the Audit, Risk and Remuneration
Committees in January 2019. On 15 February 2019, John was
appointed to the AMP Bank Limited Board and as a member
of its Audit and Risk Committees.
Andrea Slattery7
Independent Director
B Acc, M Comm
Andrea was appointed to the AMP Limited Board on 15 February
2019 and as a member of the Audit, Risk and Remuneration
Committees. At the same time she was appointed to the
AMP Bank Limited Board and its Audit and Risk Committees.
13
AMP 2018 annual report Our board continued
7
8
9
Experience
Andrea has substantial experience as a non-executive
director and senior executive in financial services, retirement
and superannuation, government relations, infrastructure,
professional services, academia and innovation, spanning
more than 26 years.
Andrea was the Managing Director and CEO of the SMSF
Association for 14 years from 2003 to 2017, which she
co-founded. Previously, she worked at the University of
South Australia; she was a financial adviser and she
founded her own consulting and advisory business.
Her previous Government Advisory Committee appointments
include the Federal Government’s Innovation Investment
Partnership, Stronger Super Peak Consultative Group,
Superannuation Advisory Group and the Future of Financial
Advice and the Shadow Ministry’s Infrastructure &
Innovation and Superannuation & Industry Partnerships.
Listed directorships
–
Director of Argo Global Listed Infrastructure Limited
(appointed April 2015)
Director of Centrepoint Alliance Limited
(ceased January 2019)
–
Government and community Involvement
–
Director of Clean Energy Finance Corporation
(appointed February 2018)
Director of South Australian Cricket Association
(appointed April 2010)
Vice Chairman of Woomera Prohibited Area
Advisory Board (from 1 July 2019)
–
–
Peter Varghese AO8
Independent Director BA (Hons)
Peter was appointed to the AMP Limited Board and as a member
of its Risk Committee in October 2016. He became a member of
the Nomination Committee in May 2017 and a member of the
Audit and Remuneration Committees in January 2019. Peter was
appointed to the AMP Capital Holdings Limited Board and as a
member of its Audit and Risk Committee in October 2016. He was
also appointed to the AMP Bank Limited Board in May 2018 and
as a member of its Audit and Risk Committees in February 2019.
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
14
of the Office of National Assessments, and Senior Adviser
(International) to the Prime Minister of Australia. He was also
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
–
Mike Wilkins AO9
Independent Director BCom, MBA
Mike was appointed to the AMP Limited Board in September
2016. On 20 April 2018, he was appointed acting Chief
Executive Officer and held that role until 30 November 2018.
He also assumed the role of interim Executive Chairman from
30 April 2018 until David Murray’s appointment as Chairman on
21 June 2018. From 1 December 2018, he resumed his role as a
non-executive director. Mike was also appointed a member of
the Audit, Risk, Remuneration and Nomination Committees in
January 2019.
Mike was appointed to the AMP Life Limited and The National
Mutual Life Association of Australasia Limited Boards in
October 2016. Mike is also a member of these boards’ Audit
and Risk Committees. On 15 February 2019, Mike was appointed
to the AMP Bank Limited Board and as a member of its Audit
and Risk Committees.
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 ASX 100 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 2018 annual report Our management team
1
2
3
4
Francesco De Ferrari1
Chief Executive Officer MBA, BS (Econ) (IntBus)
Francesco was appointed Chief Executive Officer of AMP
Limited by the AMP Limited Board, joining in December 2018.
As CEO, he is responsible for leading the AMP business and is
accountable for its performance. In January 2019, Francesco
was appointed to the AMP Limited Board, and on 15 February
2019 he was appointed to the AMP Bank Limited and AMP
Capital Holdings Limited Boards.
Experience
Francesco has more than 20 years’ experience in the wealth
management industry including private banking and
management consulting. He spent 17 years in executive roles
at Credit Suisse in Asia and Europe, leading businesses that
grew substantially under his leadership.
During almost seven years as Head of Credit Suisse’s Asia Pacific
private banking business, he overhauled the operating model,
increased assets under management and profitability, and
improved culture and controls within the business. As CEO of
South East Asia and Frontier Markets, Francesco was responsible
for Credit Suisse’s business in Investment Banking, Global
Markets, Private Banking in ASEAN and frontier markets across
the Asia Pacific.
Francesco was conferred the Institute of Banking and Finance (IBF)
Distinguished Fellow award in 2016 for excellence in professional
stature, integrity and achievement in the financial industry.
Megan Beer2
Chief Executive, AMP Life
EMBA, MEc, FIAA, MAICD, ANZIIF (CIP)
Megan joined AMP in February 2014 as Director, Insurance
and was appointed Group Executive, Insurance on 1 January
2017. Megan will lead AMP Life through the separation and
transfer to Resolution Life, which is expected in 2H 2019. On
completion, Megan will join Resolution as CEO AMP Life and
Head of Resolution’s Australasian region.
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
Chief 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.
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 Melbourne International Arts Festival
David Cullen4
Group General Counsel BCom, LLB, LLM
David joined AMP in September 2004 and was appointed Group
General Counsel in May 2018. David has group-wide responsibility
for AMP’s legal and governance functions.
Experience
David has almost 25 years’ experience in the legal profession,
with extensive experience in the areas of M&A, corporate law
and corporate governance, having worked in law firms in Perth
and Sydney and with the ASX.
Prior to his appointment as Group General Counsel, David was
the Group Company Secretary and General Counsel, Governance
at AMP, which included acting as Company Secretary for AMP
Limited. David also worked full-time on AMP’s merger with
AXA APH.
David holds a Bachelor of Commerce and Bachelor of Laws from
the University of WA and a Master of Laws from the University
of Sydney. He is a Fellow of the Governance Institute of Australia.
15
AMP 2018 annual report Our management team continued
5
6
7
8
Jennifer (Jenny) Fagg5
Chief Risk Officer
Jenny joined AMP in January 2018. She has group-wide
responsibility for AMP’s risk management function.
Experience
Jenny joined AMP from CIBC, one of Canada’s big five banks,
where she was Executive Vice President of Products and
Payments. Before moving to Canada, Jenny was Chair of the
Real Time Payments Committee in Australia.
Previously Jenny was the Chief Executive Officer and Managing
Director of ANZ National Bank Limited, New Zealand’s largest
bank. She has also held senior leadership roles at Citibank and
was a director at KPMG.
Jenny holds a PhD in Management (Risk) and a Bachelor of
Economics (Honours in Organisational Psychology). She is
a member of AICD and Chief Executive Women in Australia.
Gordon Lefevre6
Chief Financial Officer FCA
Gordon joined AMP in January 2014 and assumed the
Chief Financial Officer role from 1 March 2014. Gordon
leads group finance, treasury, capital management and
mergers and acquisitions.
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.
Helen Livesey7
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 strategy, 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 Ryman8
Chief Operating Officer BCom
Craig joined AMP in 1997 and was appointed to the expanded
role of Chief Operating Officer in March 2019. Craig is responsible
for driving efficiency and improving AMP’s capability to execute
and deliver change.
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 Group Executive for Technology
and Operations and before that Chief Information Officer.
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.
16
AMP 2018 annual report 9
10
11
12
Alex Wade11
Chief Executive, Australian wealth management MBT
Alex joined AMP in January 2019 as Group Executive, Advice.
In March 2019, his portfolio expanded to bring together AMP’s
advice, wealth management, product and customer solutions
teams. Alex is responsible for AMP’s wealth management model,
with a focus on strengthening client outcomes and restoring
momentum in the new regulatory environment.
Experience
Alex has substantial experience in the wealth management and
banking industries in Australia, Singapore and Hong Kong. Most
recently, he served as the Head of Developed and Emerging Asia
for Credit Suisse Private Banking. He was with Credit Suisse for
12 years, during which time he held executive roles including
Chief of Staff for Asia Pacific and Deputy Market Area Head for
Developed Asia.
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 and credit card
businesses and leading the Australian human resources function.
Her background also includes executive human resources
experience in the resources and telecommunications sectors.
Other appointments
– Director of AMP Foundation Limited
– Director, Chief Executive Women
Adam Tindall9
Chief Executive, AMP Capital
BE (Hons), GDipMan, GcertAppFinInv, FAICD
Adam has been Chief Executive, AMP Capital since October
2015. Adam leads an increasingly pre-eminent global
investment manager, entrusted to manage funds and separate
accounts on behalf of clients across a range of asset classes
including equities, fixed income, real estate, infrastructure and
multi-asset capabilities. AMP Capital has client relationships
and assets around the world managed by teams based 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 investment management
and real estate. He joined AMP Capital Property in 2009 from
Macquarie Capital where he was Executive Director, Property and
Infrastructure, responsible for creating or enhancing a number
of major property investment funds. Prior to this, Adam spent
17 years with Lend Lease, ultimately working in various business
leadership roles including CEO, Asia Pacific for Bovis Lend Lease.
Other appointments
– Male Champion of Change
Blair Vernon10
Chief Executive, New Zealand wealth management
Blair joined AMP in 2009 and was appointed to Chief Executive,
New Zealand wealth management in March 2019. He is
responsible for leading AMP’s New Zealand advice and wealth
operations. He will continue to lead AMP’s New Zealand wealth
protection and mature operations for an interim period as they
transition into the AMP Life business under Megan Beer.
Experience
Blair has held a number of senior roles at AMP in New Zealand.
He was previously Managing Director, AMP New Zealand. Prior to
this role, Blair was AMP’s Director Retail Financial Services (NZ),
responsible for sales, customer service, marketing and supporting
AMP’s extensive Adviser business networks including Spicers and
AdviceFirst. Other roles at AMP include AMP’s Director of Advice
and Sales and General Manager Marketing and Distribution. Blair
has over 25 years’ experience across the Financial Services sector
in New Zealand and Australia.
17
AMP 2018 annual report Corporate governance at AMP
Objectives of this statement
This statement is intended to inform our shareholders of AMP’s governance framework, important developments in 2018,
and priorities for further development of our governance arrangements in 2019.
Following an initial summary, the statement is structured as follows:
1. Preamble
2. Corporate purpose
3. Separation of board and management
4. Composition, succession and evaluation
5. Reporting and disclosure
6. Risk, audit and internal control
7. Employment and remuneration
You can find further information on our corporate governance policies and practices on our website at
amp.com.au/corporategovernance.
This statement is current as at 26 February 2019 and has been approved by the AMP Limited Board.
Summary of 2018 developments and 2019 priorities
ASX Corporate Governance Principles
AMP Limited (AMP) complied with the recommendations set by the ASX Corporate Governance Council in the third edition of its
Corporate Governance Principles and Recommendations (the ASX Principles) during 2018 except from 30 April to 20 June, when
Mike Wilkins AO acted as our interim Executive Chairman and we briefly departed from some of these recommendations as
explained in the applicable sections of the statement.
2018 developments
This statement includes commentary on actions taken by the AMP Limited Board during (and since) 2018 to enhance the group’s
governance, including:
–
–
appointment of our new independent AMP Limited Chairman
continuing board renewal, including appointment of three highly experienced financial services leaders as non-executive
independent directors
commitment to invest approximately $50 million (pre-tax) per annum for two years to strengthen risk management, internal
controls and governance
appointment of a new Chief Executive Officer (CEO) and oversight of Group Leadership Team changes
resetting the group governance model to strengthen AMP Limited Board oversight of main subsidiaries and committees, and
approval of a refreshed code of conduct and initiation of reviews of some other key governance arrangements.
–
–
–
–
2019 priorities
The board’s governance priorities for 2019 include:
–
–
–
completing the process of board renewal commenced in 2018
overseeing the refinement of AMP’s strategy and business model, including in light of the findings of the Royal Commission
overseeing the legal separation and completion of the sale of our Australian and New Zealand wealth protection and mature
businesses
completing implementation of the Banking Executive Accountability Regime (BEAR) requirements
emphasising the separation between the board and management and assisting the CEO in developing and assessing an
effective organisational culture, and
improving the effectiveness of management reporting.
–
–
–
18
AMP 2018 annual report Corporate governance
1. Preamble
The ‘tone from the top’ established through our system of governance is fundamental to the accountabilities and behaviours needed
to maintain sound decision making and to create long term value for customers, shareholders and employees.
We believe that unless directors collectively have sufficient experience as leaders operating at the level of complexity of work of the
CEO, they will be less able to form judgements about the CEO, the progress of the company and the quality of leadership throughout
the organisation exhibited by its culture.
AMP’s systems of governance, together with its policies and procedures, are designed and reviewed to conform not only with the laws
and regulations of the countries in which we operate, but also to engender trust and confidence in the company so that our reputation
enhances the possibility of growth for our owners. The board intends that the implementation of these policies and procedures is
subject to, and in accordance with, applicable legal requirements and the board’s fiduciary obligations.
While our policies are designed to achieve these outcomes, we acknowledge that mistakes happen. Our systems of work and internal
controls are intended to identify and rectify such mistakes in a way that retains the trust of our clients, the community and regulators.
In doing so, we believe in the fair treatment of clients under the terms of their contracts.
2. Corporate purpose
AMP’s purpose is to help people have confidence about their financial wellbeing as encapsulated in our motto ‘helping people own
tomorrow’. We do this by helping our clients manage the risks and reduce the uncertainties of financial outcomes that are inherent
in the economies and investment markets within which we live and operate.
The assistance we provide our clients typically addresses such risks as adequacy of retirement income, likelihood that investment
strategies may not match their wealth accumulation expectations, potential illiquidity in investment portfolios, unexpected loss of
life or income and security of home ownership.
AMP manages these risks through its established business systems and the expertise of its people working within and alongside AMP,
with the intent of making an acceptable return for risk for our shareholders.
We believe that financial systems require the confidence and trust of the community and that our shareholder return objective can
only be fully realised by earning and retaining the trust of the people with whom we deal.
3. Separation of board and management
Our governance framework
The division of responsibilities between the board (and its committees) and management is illustrated in the diagram below.
AMP Limited Board
Oversees management of AMP for shareholders
Audit Committee
Oversees financial reporting
Nomination Committee
Oversees board and committee
membership and succession
planning
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 the AMP group
and the implementation of our strategic objectives
Group Leadership Team and People
Responsible, with the CEO, for executing our strategic objectives
and managing and conducting the AMP group’s operations
19
AMP 2018 annual report ability to act in the best interests of AMP and its shareholders.
On this basis, the board considers that Mike resumed his status
as an independent director from 1 December 2018. APRA has also
accepted that Mike can qualify as an independent non-executive
director of AMP, AMP Bank Limited and AMP’s life companies,
notwithstanding his previous role as acting CEO.
Directors regularly review their interests and each independent
non-executive director formally confirms their independence
annually.
Independence of the chairman
David Murray AO was appointed the independent, non-executive
AMP Limited Chairman effective 21 June 2018. Prior to that,
Catherine Brenner was the independent AMP Limited Chairman
until she stepped down from the board on 30 April 2018. In
the short, intervening period between Catherine Brenner’s
resignation and David Murray’s appointment, Mike Wilkins
acted as the interim Executive Chairman. AMP did not, therefore,
follow recommendation 2.5 of the ASX Principles during this
period. In these exceptional circumstances, the AMP Limited
Board considered it appropriate for Mike Wilkins to perform the
combined role of acting CEO and interim Chairman to lead AMP
during the transitional period until a permanent independent
chairman was appointed.
The chairman is responsible for providing leadership to the board.
The chairman’s other responsibilities are documented in AMP’s
corporate governance charter.
Responsibilities of the CEO and Group Leadership Team
The CEO is responsible for the development and subsequent
implementation of the company’s strategy and the overall
management and performance of the AMP group.
Francesco De Ferrari joined AMP as CEO on 1 December 2018.
Francesco brings outstanding leadership experience, strategic
acumen and a strong track record of transforming and driving
growth in businesses in Asia and Europe. Francesco succeeded
Mike Wilkins (who had served as acting CEO since Craig Meller’s
resignation as CEO in April 2018). Francesco has the mandate to
develop and deliver a refined strategy to transform AMP.
The CEO has delegated authority from the AMP Limited Board
to manage the day-to-day business of the AMP group, subject to
the responsibilities and reserved powers of the board. The CEO is
supported by members of the Group Leadership Team (GLT). AMP
has a delegations of authority framework from the CEO to the
GLT, with a system of authorities for employees at different levels.
Company secretaries
AMP Limited has two board-appointed company secretaries.
Their biographical details and qualifications are set out on
page 35 of this annual report.
The lead company secretary is directly accountable to the board,
through the chairman, on all matters to do with the proper
functioning of the board. This includes advising the board and its
committees on governance matters, coordinating board business
and providing a point of reference for dealings between the board
and management.
3. Separation of board and management (continued)
Responsibilities of the AMP Limited Board
The AMP Limited Board is responsible to AMP shareholders for
overseeing the overall strategy, performance, governance and
risk management of the AMP group.
In addition to periodically reviewing its own structure and
effectiveness, the responsibilities of the board include:
–
approving and adopting the strategic direction and
associated business development of the AMP group and
monitoring management’s implementation of the strategy
–
– appointing the chief executive officer (CEO)
promoting a sound and effective culture
–
overseeing and approving the AMP group’s governance
–
model
approving the risk management framework and monitoring
its effectiveness
monitoring the performance of management and the
business
approving the half and full year results and financial reports
for AMP and setting AMP’s dividend policy and dividends
approving the remuneration arrangements for the CEO, other
members of the Group Leadership Team and certain other
specified individuals
–
–
–
– overseeing succession planning for key executive roles, and
approving material transactions and capital initiatives
–
(above the CEO’s delegations).
Further details of the board’s responsibilities are outlined in
our corporate governance charter, which you can find online
at amp.com.au/corporategovernance.
Independence of directors
The board believes that independent directors perform a crucial
role in bringing an independent and objective judgement to
bear on issues brought before the board, providing constructive
challenge and strategic guidance to management, and holding
management to account.
All of the AMP Limited directors, except the CEO, are considered
by the board to be independent directors, having regard to the
criteria specified in the ASX Principles and by the Australian
Prudential Regulation Authority (APRA). Directors are considered
independent where they are independent of management and
free from any business or other relationship or interest that could
materially interfere with, or could be perceived to materially
interfere with, the exercise of their independent judgement and
ability to act in the best interests of AMP and its shareholders.
Materiality is assessed on a case-by-case basis having regard to
the particular circumstances.
Mike Wilkins AO held the position of acting CEO for seven
months before resuming his role as a non-executive director on
1 December 2018. Prior to his appointment as acting CEO, Mike
had been an independent non-executive director since September
2016. The board is satisfied that Mike’s performance of the
chief executive role on this short-term, interim basis did not
compromise his demonstrated capacity to bring an independent
and objective judgement to bear on issues brought before the
board and to constructively challenge management, nor his
20
AMP 2018 annual reportCorporate governance at AMP 4. Composition, succession and evaluation
Board composition
At the date of this statement, the AMP Limited Board consists of nine independent non-executive directors and the CEO.
The names, position and tenure of the current AMP Limited directors and the former directors who resigned during 2018 are outlined
below. You can find biographical details of the current directors, including details of their qualifications and experience, from page 12
of this annual report and on our website at amp.com.au/aboutamp.
Name
Position1
Tenure as a director2
Current directors
David Murray AO
Francesco De Ferrari3
John Fraser
Andrew Harmos
Trevor Mathews
John O’Sullivan
Geoff Roberts
Andrea Slattery4
Peter Varghese AO
Mike Wilkins AO5
Former directors
Catherine Brenner6
Craig Meller7
Patricia Akopiantz8
Holly Kramer9
Vanessa Wallace9
Independent Chairman
Chief Executive Officer and Managing Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Chairman
Chief Executive Officer and Managing Director
Independent Director
Independent Director
Independent Director
8 months
< 1 month
5 months
1 year and 8 months
4 years and 11 months
8 months
2 years and 7 months
< 1 month
2 years and 4 months
2 years and 5 months
7 years and 10 months
4 years and 3 months
7 years and 9 months
2 years and 6 months
2 years and 2 months
1
2
3
4
5
6
7
8
9
For current directors, the above reflects the position held at the date of this statement (26 February 2019).
The tenure information is provided as at the date of this statement (or on resignation in the case of former directors).
Francesco De Ferrari was appointed as CEO on 1 December 2018 and joined the AMP Limited Board (as Managing Director) on 31 January 2019.
The tenure shown above relates to his period of service as a director.
Andrea Slattery was appointed to the AMP Limited Board effective 15 February 2019.
From 20 April to 30 November 2018, Mike Wilkins was the acting CEO. As noted earlier, for a brief, transitional period from 30 April to 20 June 2018,
Mike also held the role of interim Executive Chairman.
Catherine Brenner stepped aside as the AMP Limited Chairman effective 30 April 2018.
Craig Meller resigned as the Chief Executive Officer and Managing Director effective 20 April 2018.
Patricia Akopiantz ceased to be a director on 31 December 2018, having previously announced (in May 2018) her intention to retire at the end of
the year.
Holly Kramer and Vanessa Wallace resigned as directors effective 8 May 2018.
Committee composition
The AMP Limited Board has four standing committees, each of which focuses in detail on different areas of the board’s responsibilities.
In November 2018, the board revised the membership of its Audit, Risk and Remuneration Committees, effective 1 January 2019,
so that most (and, in some cases, all) of the AMP Limited non-executive directors are now members of those committees. These
changes were made to strengthen AMP Limited Board oversight of the relevant committee’s area of responsibility and to ensure
that all non-executive directors are informed of the matters presented to these committees by management and advisers.
The current composition of the four standing committees is shown below.
Independent
non-executive directors
Audit
Committee
Risk
Committee
Remuneration
Committee1
David Murray AO (Chairman)
John Fraser
Andrew Harmos
Trevor Matthews
John O’Sullivan
Geoff Roberts
Andrea Slattery
Mike Wilkins AO
Peter Varghese AO
Member
Member
Member
Member
Chairman
Member
Member
Member
Member
Member
Chairman
Member
Member
Member
Member
Member
Member
Chairman3
Member
Member
Member
Member
Member
Member
Member and lead director3
Member
Nomination
Committee2
Chairman
Member
Member
1
2
3
Previously called the People and Remuneration Committee.
Previously called the Nomination and Governance Committee.
For details of this role, please refer to page 29 (in the Employment and Remuneration section).
21
AMP 2018 annual report
4. Composition, succession and evaluation
(continued)
Details of the number of meetings of each standing committee
held during 2018, and of each committee member’s attendance
at those meetings, are included on page 34 of this annual
report. During 2018, there were multiple changes to committee
memberships as a result of the changes to the board’s
composition outlined earlier. These changes are reflected
in the meeting attendance table.
Each committee operates in accordance with written
terms of reference, which can be found on our website
at amp.com.au/corporategovernance (in the Board
Committees section).
Subsidiary board composition
During 2018, one or more AMP Limited non-executive directors
were appointed to the boards of each of our main subsidiaries
(being AMP Bank Limited (AMP Bank), AMP Capital Holdings
Limited (AMP Capital Holdings) and our two life companies –
AMP Life Limited and The National Mutual Life Association of
Australasia Limited).
In the second half of 2018, the board initiated a review of the
governance model for main subsidiary boards and approved the
following changes to enhance AMP Limited Board oversight:
–
–
AMP Bank – Alignment of the composition of the boards of
AMP Limited and AMP Bank (and their respective Risk and
Audit Committees), effective 15 February 2019. As a result,
all directors of AMP Limited are now members of the AMP
Bank Board and all previous directors of AMP Bank, who were
not also AMP Limited directors, have stepped down from the
AMP Bank Board. The AMP Limited Chairman, David Murray,
has also been appointed as the chairman of AMP Bank. The
boards of AMP Limited and AMP Bank (and their respective
Risk and Audit Committees) will meet concurrently going
forward (where appropriate), with a view to improving
decision-making efficiency, reducing duplication and
streamlining management reporting.
AMP Capital Holdings – Appointment of two additional
AMP Limited directors, John Fraser and Francesco De Ferrari,
to the AMP Capital Holdings Board, effective 15 February
2019. These appointments increased the number of AMP
representatives on the AMP Capital Holdings Board to four
directors (out of a current board size of eight directors).
AMP’s representatives on this board consist of two AMP
Limited non-executive directors, the CEO and the chief
executive of AMP Capital.
Due to the agreement to sell our Australian and New Zealand
wealth protection and mature businesses to Resolution Life
Australia Pty Ltd, there were no changes to the boards (or risk and
audit committees) of our life companies resulting from the review
of our subsidiary governance model. However, as a consequence
of the terms of the sale agreement with Resolution Life, these
boards and committees ceased to meet concurrently with the
AMP Limited Board (and its Risk and Audit Committees), with
effect from late November 2018.
During 2019, the AMP Limited Board intends to continue
to review subsidiary board governance across the broader
AMP group.
Board succession
In 2018, the AMP Limited Board committed to and undertook
significant board renewal.
Five directors resigned during the year partly in acknowledgement
of collective board accountability for the issues in our advice
business raised in the Royal Commission and the impact of those
issues on AMP, and in recognition of the need for the board’s
membership to be refreshed.
In June 2018, David Murray AO joined the AMP Limited Board as
the new independent non-executive Chairman. David brings to
the board strong and experienced leadership, deep experience of
financial services (particularly banking and wealth management)
and the industry’s regulatory environment, a strong risk mindset,
and a clear appreciation of community expectations for AMP as
well as the wider financial services industry.
The AMP Limited Board was further renewed and strengthened in
2018 by the appointment of two new independent non-executive
directors:
–
–
John O’Sullivan was appointed to the board in June 2018.
He brings extensive experience in leadership and senior
executive roles in financial services and legal and regulatory
risk management, as well as deep M&A and capital markets
experience.
John Fraser was appointed to the board in September
2018. He has extensive experience in leadership and senior
executive roles in financial services, governance and public
policy and brings to the board an exceptional blend of public
and private sector strategic experience, in Australia and
internationally.
Following his appointment as CEO in December 2018, Francesco
De Ferrari joined the AMP Limited Board as Managing Director on
31 January 2019.
On 15 February 2019, Andrea Slattery joined the AMP Limited
Board as an independent non-executive director. Andrea has
considerable experience in financial services as a business leader,
non-executive director and an expert in change.
David Murray, John Fraser, John O’Sullivan and Andrea Slattery will
all stand for election by shareholders at our 2019 AGM. The AMP
Limited Board unanimously recommends (with each candidate
abstaining in respect of their own election) that shareholders vote
in favour of their election.
In 2019, the board expects to complete the process of board
renewal commenced in 2018. In conducting this process, the
board has been mindful of the benefit of retaining the corporate
memory of longer-serving directors for an appropriate period and
the need to support the stability of our company.
Nomination Committee
The Nomination Committee supports and advises the AMP
Limited Board on succession planning, composition, performance
evaluation and related policies and processes affecting the AMP
Limited Board and the boards of certain AMP group companies.
The board revised the Nomination Committee’s terms of
reference in November 2018.
22
AMP 2018 annual reportCorporate governance at AMP 4. Composition, succession and evaluation (continued)
Details of the Committee’s current composition are set out in the Committee composition table set out on page 21. It is the board’s
practice to appoint the AMP Limited Chairman as the chairman of the Nomination Committee. In 2018, this meant that the Committee
had an executive chairman, Mike Wilkins, during the brief, transitional period when Mike was interim Executive Chairman of AMP
Limited (from 30 April to 20 June 2018). As the committee did not have an independent chairman during this short period, the
committee’s composition did not follow recommendation 2.1 of the ASX Principles for the full year. David Murray became independent
chairman of the Nomination Committee upon his appointment as AMP Limited Chairman in June 2018. The Nomination Committee
had at least three members, of whom at least a majority were independent directors, throughout 2018.
In undertaking and reviewing board succession planning, the Nomination Committee’s role includes identifying and assessing suitable
candidates for appointment to the AMP Limited Board and the boards of certain subsidiaries. External consultants are engaged to assist
with the selection process where considered appropriate. In assessing potential candidates, the Nomination Committee has regard to
board size, time commitments and the needs of the particular board, as well as the current and desired mix of experience, expertise,
skills, attributes, independence and diversity for the relevant board.
AMP Limited Board skills matrix
The board has adopted a revised board skills matrix to help guide its assessment of the collective mix of skills and experience currently
represented on the board and which the board needs going forward to support the refinement of AMP’s strategy and transformation of
AMP. The board has simplified the skills matrix, while retaining the broad range of skills the board requires. The revised matrix includes
an emphasis on experience at the level of complexity of work of the CEO, highlights the importance of strategy development in the
context of the multi-faceted nature of technology, competition, industry structures and regulatory change, and has an increased focus
on risk management experience.
Directors must have sufficient time available to fulfil their roles, the absence of unmanageable conflicts of interest, and the skills,
experience, judgement and integrity to undertake the role of a non-executive director of a public listed company. These personal
attributes are a precondition for appointment, rather than forming part of the revised skills matrix.
The table below outlines the areas covered by the revised skills matrix and, for each area, shows the directors’ assessment of the extent
to which the relevant skill or experience is represented on the AMP Limited Board at the respective levels of ‘well-developed’ and
‘developed’. All areas in the skills matrix are currently well represented on the board as a whole.
Skill/experience
Board representation1
Well-developed
Developed
Leadership
Experience as a chief executive officer (or equivalent), ideally in the
industrial or financial sector, operating at least at the level of complexity of
work of the CEO of the AMP group, to be able to effectively supervise the CEO.
Business strategy
Experience and judgement to contribute to the development of strategy
(preferably including international markets) in response to changes in demography,
consumer need, technology, competition and industry structures, and regulation.
Financial services and systems
Experience in, and understanding of, the wealth management, superannuation,
banking, investment management or life insurance industry, in Australia or overseas.
Law, governance and risk management
Understanding of legal, governance and compliance issues and
regulatory, governance and risk management frameworks.
Finance and accounting
Ability to understand and analyse financial statements and financial performance,
and to contribute to the oversight of the integrity of financial reporting.
People management
Experience in, or understanding of, leadership and organisational design to contribute
to talent management, succession planning and judgements about culture.
Government policy and regulation
Understanding of the policy and regulatory environment in Australia, and
experience in working or interacting with government and regulatory bodies.
1
0
Number of directors as at 26 February 2019
2
5
4
3
6
7
8
9
10
1
This column shows the number of existing directors (out of a total of 10 directors at the date of this statement) who are considered to possess the
relevant skill or experience at the respective levels of ‘well-developed’ and ‘developed’. By definition, the CEO is excluded from the calculation of the
number of directors possessing the requisite leadership experience. Accordingly, the numbers shown for leadership are out of a total of nine directors.
23
AMP 2018 annual report 4. Composition, succession and evaluation
(continued)
Appointment and tenure of directors
Prior to the appointment of any new director, comprehensive
checks are conducted to determine if the candidate has the
capabilities needed and is fit and proper to undertake the
responsibilities of the role. These include extensive background
checks on character, education, career experience, criminal
history and bankruptcy.
Throughout their tenure, directors must continue to demonstrate
that they have the character, diligence, honesty, integrity,
judgement and skills required for the role. Relevant background
checks are repeated at least triennially during their tenure.
Each director provides an annual declaration confirming their
fitness and propriety to perform their duties.
On appointment, each director enters into a formal letter
of appointment outlining the main terms, conditions and
expectations of their appointment. Before accepting the
position, the candidate must confirm that they have sufficient
time to fulfil their obligations to AMP and provide details of
their other commitments.
All new non-executive directors must stand for election by
shareholders at the first AGM after their appointment and all
non-executive directors must then stand for re-election at the
third AGM after their first election or any subsequent re-election.
As the CEO is the managing director, the CEO is not required to
stand for election. This is consistent with the ASX Listing Rules.
AMP’s notice of meeting for the AGM provides all material
information known to AMP that is relevant to the election or
re-election of each director standing.
The maximum tenure of a non-executive director will normally
be until the ninth AGM occurring after they were first elected by
shareholders at an AGM. If a director is to continue to hold office
after their ninth AGM, they must be re-elected by shareholders
at that and each subsequent AGM.
Director induction, education and access to information
Once appointed, all new directors are provided with an
information pack including governance policies and business
information and are invited to participate in a comprehensive
induction program. This program includes meetings with the
chairman, other board members, the CEO, members of the
GLT and other senior executives (as appropriate).
Board members receive regular briefings from senior
management across the business and have the opportunity
to participate in site visits to AMP’s operations.
Directors also receive regular updates on industry, market,
regulatory, governance and accounting developments through
a range of channels, including through briefings at board
meetings, board workshops held outside of board meetings,
and meetings with regulators, customers and investors.
The board encourages, and provides an annual budget for,
directors to participate in appropriate opportunities for the
continuing enhancement of their knowledge and capabilities,
and of the performance of the board generally.
With the consent of the chairman, directors may seek
independent professional advice on AMP-related matters that
are connected with the delivery of their responsibilities, at AMP’s
expense and in accordance with AMP’s protocols. Directors must
ensure the costs are reasonable and any advice that is received
must be made available to the rest of the board unless otherwise
agreed by the chairman.
Board evaluation
Ordinarily, the performance of the AMP Limited Board, each of
its committees and each director of AMP Limited is reviewed
annually, either through an internal review process or using
an external consultant. The evaluation process adopted by the
board to date has included the completion of board performance
surveys by each director, GLT members and the group company
secretary and one-on-one discussions with those individuals,
based on questions linked to the performance, opportunities
and challenges for the board. The board as a whole has then
reviewed and discussed the results of this process and identified
ways to enhance board effectiveness.
In the context of the significant changes to the board’s
composition during 2018 and the continuing board renewal
process, the conduct of the usual, formal annual board
performance review process was deferred in 2018. This will allow:
a sufficient period for the current directors to function
–
collectively as a board to form the basis of a meaningful
performance assessment, and
Francesco De Ferrari to have performed his role as
CEO (from 1 December 2018) and Managing Director
(from 31 January 2019) before the full review takes place.
–
The board believes that this will facilitate a more effective,
informed and insightful review process.
The next full, formal review of the performance of the board,
its committees and individual directors is expected to be
completed in 2019. The process to be followed for the next
evaluation is under review, in light of the significant changes
to the board’s composition.
24
AMP 2018 annual reportCorporate governance at AMP 5. Reporting and disclosure
Market disclosure
AMP is committed to providing shareholders and the market
with equal and timely access to material information about
AMP in accordance with our continuous disclosure obligations
under the ASX listing rules and NZX listing rules. This
commitment is reflected in our market disclosure policy. This
policy sets out the processes we have in place to support
compliance with our continuous disclosure obligations, and
the roles and responsibilities of our employees, disclosure
officers, our Market Disclosure Committee (MDC) and the
AMP Limited Board in relation to continuous disclosure.
The MDC is a management committee, chaired by the group
general counsel, that assists the board and the CEO with the
discharge of AMP’s continuous disclosure responsibilities. The
MDC’s responsibilities include reviewing the form and content
of any proposed announcement in relation to price sensitive
matters and confirming that appropriate verification has been
undertaken regarding the factual accuracy and completeness
of such announcements.
A copy of our market disclosure policy is available online at
amp.com.au/corporategovernance.
Keeping our shareholders informed
We publish detailed information about our company, our board
and management, and our governance framework and policies on
our website. Our website includes a dedicated shareholder centre
where shareholders can readily access material announcements
released to the ASX, information about our full and half year
financial results, our annual reports and shareholder reviews,
and other information relevant to their AMP shareholdings.
You can find this website at amp.com.au/shares.
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.
We also provide an email alert system through our website
which enables shareholders and other interested parties to
receive notification when media releases and material ASX
announcements are released by AMP. You can subscribe for
these email alerts at corporate.amp.com.au/newsroom.
Communicating with our shareholders
AMP encourages direct, two-way communication with
our shareholders. Shareholders are able to communicate
electronically with our Investor Relations team (by email to
shares@amp.com.au) and with our share registry, Computershare
(by email to ampservices@computershare.com.au).
institutional investors and analysts. Where possible, our group
briefings are webcast and an archived copy of the webcast is
published on our website. Our dedicated shareholder website
(found at amp.com.au/shares) includes a calendar of scheduled,
upcoming announcements and presentations and allows users
to set up automatic diary reminders of these dates.
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 provide
an online facility for them to submit written questions during the
AGM. Shareholders are also able to lodge their proxy forms online
using a computer or mobile device.
Since 2015, we have held an information session for shareholders
immediately prior to the AGM. These sessions provide an
opportunity for shareholders to hear from our financial experts
and benefit from their insights and expertise. A similar session
will be held before the 2019 AGM, at 9.30am on Tuesday 2 May
2019 at The Concourse, Chatswood, NSW. All shareholders
are invited to join the session in person or online.
2019 annual general meeting
AMP’s 2019 AGM will be held at 11.00am on Thursday 2 May
2019 in the Concert Hall at The Concourse, Chatswood, NSW.
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 the meeting and ask questions through our webcast.
Full details will be provided in the 2019 notice of meeting.
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.
Our Investor Relations team coordinates an investor relations
program and conducts group and one-on-one briefings with our
We work closely with the Australian Taxation Office to ensure
that all our tax requirements are met.
25
AMP 2018 annual report 6. Risk, audit and internal control
Our enterprise risk management framework
We have an enterprise risk management framework which provides the foundation for how risks are managed across AMP.
There are five key elements of the risk management framework as shown below: governance, risk strategy and appetite, people
and culture, the management information system and the risk management process (encompassing how AMP identifies, measures,
controls and reports risk). The impacts of the material risks are assessed against four outcomes, being capital adequacy, earnings
stability, maintaining liquidity and protecting reputation.
Governance
Accountabilities of the Board and Committees,
Management Risk Committees and Three Lines of Defence
Risk Strategy and Appetite
Business Plan, Risk Management Strategy and Risk Appetite Statement
People and Culture
Risk Management Capability, Capacity, Performance
Risk Culture and Risk-Based Remuneration
Management Information System
Risk Systems and Data
Risk Management Process
Identify
Measure
Control
Report
Financial
Credit
Insurance
Market
Liquidity
Material Risk Types
Cross type
Strategic
Concentration
Risk Outcomes
Non-financial
Compliance
Operational
Capital Adequacy
Earnings Stability
Maintain Liquidity
Protect Reputation
Our enterprise risk management policy is available on our website at amp.com.au/corporate governance.
Risk governance
The AMP Limited Board is ultimately responsible for the risk management 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 pursuit of strategic objectives with AMP’s risk appetite and with applicable
laws and regulations.
The Risk Committee assists the board in overseeing the implementation and operation of AMP’s risk management framework.
The responsibilities of the Risk Committee include:
–
–
–
–
assisting the board with the monitoring and review of AMP’s material risks and risk culture
reviewing, and making recommendations to the board on, AMP’s risk management strategy and risk appetite statement
monitoring the effectiveness of AMP’s risk management framework, and
reviewing the appointment of the group chief risk officer.
Details of the committee’s current composition are set out in the table on page 21. Throughout 2018 (and since the end of the year):
–
–
–
the Risk Committee was chaired by an independent non-executive director who was not the chairman of the board
the Risk Committee had at least five members and all of its members were independent directors, and
the members of the Risk Committee, collectively, had the necessary technical knowledge and a sufficient understanding of the
financial services industry to enable the committee to discharge its responsibilities effectively.
Andrew Harmos has been the chairman of the Risk Committee since 20 April 2018, when Mike Wilkins stepped down as its chairman
(and a committee member) due to his appointment as acting CEO. Since resuming his role as an independent non-executive director,
Mike has been reappointed to the Risk Committee (from 1 January 2019).
AMP also has management committees to assist in overseeing risk management. The Group Risk and Compliance Committee guides
the implementation of risk management practices, processes and systems, and oversees all material risk exposures (ie financial, cross
type and non-financial risks) and risk decisions facing AMP. The Group Asset and Liability Committee oversees financial risks across
AMP in relation to capital and financing, and the risk appetite as it relates to financial risk and shareholder capital.
26
AMP 2018 annual reportCorporate governance at AMP
6. Risk, audit and internal control (continued)
Three lines of defence
We have a ‘three lines of defence’ approach to risk management
accountability:
Line 1 – management is responsible for identifying, measuring,
controlling and reporting material risks in the business. Business
unit teams are responsible for decision making and the execution
of day-to-day business, while managing risk and the resulting
impacts on capital adequacy, earnings stability, maintaining
liquidity and protecting reputation.
Line 2 – the Enterprise Risk Management 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 for providing advice
and oversight on material business decisions. The team also
provides objective advice and challenge to the first line’s
decisions and oversees the alignment of the risk profile
with the board’s expectations.
Line 3 – the Internal Audit team provides independent and
objective assurance to the board regarding 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.
Review of the risk management framework
The AMP Limited Board, assisted by both the Risk and Audit
Committees, reviews the soundness of the risk management
framework at least annually. The review in relation to the 2018
reporting period is underway and is expected to be completed
in the first half of 2019.
The Audit Committee assists the Board by providing an objective
non-executive review of the effectiveness of the risk management
framework.
In performing this annual review, the Board and Risk and Audit
Committees are supported by, and consider the outcomes of,
an annual review of the risk management framework conducted
by our Internal Audit function or, every three years, by an
operationally independent party. The independent review is an
institution-wide assessment of the risk management framework.
This comprehensive review assesses the appropriateness,
effectiveness and adequacy of the risk management framework.
The review also includes the annual risk management declaration
provided by the board to APRA, as required by APRA Prudential
Standard CPS 220 Risk Management.
Strengthening risk management, internal controls
and governance
A commitment has been made to invest approximately
$50 million (pre-tax) per annum over two years to strengthen
risk management, internal controls and governance. This multi-
year program has been established to enhance risk governance.
Major ongoing initiatives as part of this program include:
–
–
–
–
improving the design and implementation of the three
lines of defence model to enhance clarity and execution
of risk responsibilities and accountabilities
further developing and embedding the frameworks, policies
and procedures for the management of risk and compliance
improving the systems and data management infrastructure
to support risk management and consistent risk and return
decision making, and
strengthening processes and internal controls to improve
operational risk management and compliance.
The board is confident that successful execution of these
initiatives will strengthen the practices on governance,
culture and accountability at AMP.
Economic, environmental and social sustainability risks
We are committed to managing our business sustainably for
today and for the future, by creating long-term shared value for
our customers, our people and our communities. Our approach
to sustainability is built around three connected areas of focus
for AMP: our customers, our people and our communities. We
understand that responsible and ethical behaviour and activity
directed towards each of these important areas can positively
impact the sustainability of the business.
Economic, environmental and social sustainability risks are
identified and managed as part of the group’s overall risk
management framework. An overview of our key business
challenges identified through the risk management framework
can be found on pages 32 and 33 of this annual report. Further
information on the group’s exposure to material financial
risks and the way in which it manages those risks is set out in
note 3.3 to AMP’s consolidated financial statements for 2018
(which can be found on pages 92 to 98 of this annual report).
Details of our material environmental and social sustainability
issues, and our approach to managing these, are provided
in our annual sustainability report, which can be found at
amp.com.au/corporatesustainability. Additional information on
our approach to sustainability is also available on our website
at that address.
Audit Committee
The Audit Committee assists the AMP Limited Board with the
review and oversight of AMP’s financial reporting framework.
The main responsibilities of the Audit Committee include:
–
reviewing AMP’s financial reports and making
recommendations to the board on their approval
reviewing the adequacy and effectiveness of AMP’s
financial reporting systems and internal controls
making recommendations to the board in relation to 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.
–
–
–
Details of the Audit Committee’s current composition are set
out in the table on page 21. Throughout 2018 (and until the
date of this statement):
–
the Audit Committee was chaired by Geoff Roberts, an
independent non-executive director who was not the
chairman of the board
the Audit Committee had at least three members and
all of its members were independent directors, and
the members of the Audit Committee, collectively, had
the accounting and financial expertise and a sufficient
understanding of the financial services industry to enable
the committee to discharge its responsibilities effectively.
–
–
CEO and CFO assurance
Before the AMP Limited Board approves AMP’s financial
statements for each full and half financial year, the CEO and the
CFO are required to provide the board with a declaration of their
opinion as to whether:
–
the financial records for the relevant reporting period have
been properly maintained
the financial statements and notes for the relevant reporting
period comply with the appropriate accounting standards
and give a true and fair view of the financial position and
performance of the AMP group, and
their opinion has been formed on the basis of a sound
system of risk management and internal control which
is operating effectively.
–
–
27
AMP 2018 annual report 6. Risk, audit and internal control (continued)
Internal Audit
Our Internal Audit team provides the board and management
of AMP and its subsidiaries with independent assurance over
the management of key organisational risks and the effectiveness
of the associated control environment.
During 2018, the board initiated the repositioning and
strengthening of the Internal Audit function to deliver a refreshed
remit to respond to rapid changes – both within the financial
services industry and to AMP’s competitive positioning in the
industry. The responsibilities Internal Audit has to the AMP
Limited Board and Audit Committee are being discharged by the
Chief Financial Officer acting as interim Chief Audit Executive
(CAE), while a permanent appointment to the role is in progress.
The interim CAE is supported by the in-house Internal Audit
function, with supplementary resources provided through a
co-source partnership with PwC. This model provides a diverse
range of expertise to ensure appropriately skilled resources to
deliver audit activity.
External auditor
AMP has appointed Ernst & Young (EY) as the company’s external
auditor, with the lead audit partner rotating every five years
(unless special circumstances require this to be extended for
additional years). In 2018, at the conclusion of the 2017 audit,
Tony Johnson retired as EY’s lead audit partner for AMP, having
performed that role for the previous five years. EY appointed
Andrew Price as its new lead audit partner for AMP.
Our Audit Committee has adopted a charter of audit
independence, which sets out a framework to assist in
maintaining the independence of EY as a result of its business
dealings with AMP.
EY representatives attend each Audit Committee meeting and
meet with the committee without management present at each
meeting. Internal Audit team members may be invited to attend
EY’s private discussions with the committee from time to time.
EY’s lead audit partner for AMP attends each AGM and
shareholders are given the opportunity to ask him questions
relevant to the audit, the preparation and content of the auditor’s
report, the accounting policies adopted by AMP in relation to the
preparation of the financial statements, and the independence
of the auditor in relation to the conduct of the audit.
7. Employment and remuneration
Code of conduct
In August 2018, we released a refreshed code of conduct to
reinforce and deepen our people’s understanding of the standards
of behaviour expected of everyone who represents AMP. The
requirements of the refreshed code were communicated and
reinforced through a range of channels.
–
The code reflects the AMP Limited Board’s and GLT’s:
–
commitment to fostering a culture of acting lawfully,
ethically and responsibly, and
expectation that every individual who represents AMP
acts honestly, professionally and with integrity, and
always considers our customers’ best interests when
making decisions.
The code applies globally to anyone employed by, or who works
for, any entity within the AMP group, whether as a board member,
leader, employee, contractor or consultant.
The code recognises the important role played by our leaders
in role modelling the right behaviours and upholding the
expected standards of behaviour within their teams.
28
Our leaders are expected to recognise and reward those who
consistently represent AMP with professionalism, honesty and
integrity, and to take steps to hold those who don’t to account.
The code of conduct is complemented by a range of other
corporate policies, including policies on fraud, conflicts of
interest, business integrity, workplace health and safety,
and workplace respect.
You can find a copy of our code of conduct online at
amp.com.au/corporategovernance.
Whistleblowing policy
The AMP Limited Board and the GLT are committed to
encouraging, protecting and supporting responsible
reporting of illegal, unacceptable or undesirable conduct,
including conduct that is (or is suspected to be) dishonest,
unethical, fraudulent, corrupt or otherwise inconsistent with
our code of conduct, questionable accounting practices and
inappropriate workplace behaviour.
We have a whistleblowing policy, supported by an external
whistleblowing platform that our people can contact to report
suspected unethical, illegal or improper behaviour anonymously
and confidentially. Support is also provided for whistleblowers.
During 2018, we introduced mandatory training on our
whistleblowing policy to strengthen our people’s awareness
of the policy and the steps they should take to report any
suspected wrongdoing.
You can find a copy of our whistleblowing policy online at
amp.com.au/corporategovernance.
Trading policy
Our trading policy outlines rules for directors, senior executives,
other nominated employees, and their close associates for trading
in AMP securities. These nominated persons are only permitted
to trade in AMP securities during designated trading windows
and provided that they are not in possession of confidential
price-sensitive information (inside information) at that time.
The trading policy also reinforces insider trading law by
preventing all employees, contractors and their close associates
from trading in AMP securities at any time when they possess
inside information.
You can find a copy of our trading policy online at
amp.com.au/corporategovernance.
In addition, we have a hedging policy which provides that senior
executives and other specified employees who participate in
our equity incentive plans may not use any form of hedging
arrangement in relation to AMP shares, or rights to shares,
while they are held in an equity incentive plan (whether vested
or unvested). Non-executive directors do not participate in any
equity incentive plans.
Employment terms and remuneration
The CEO, GLT members and other senior executives have clearly
defined goals and accountabilities and employment contracts
setting out their terms of employment, duties, rights and
responsibilities, and entitlements on termination of employment.
Details of our policies and practices for the remuneration
of non-executive directors, the CEO and the members of the
GLT are disclosed in our 2018 remuneration report (on pages
37 to 62 of this annual report).
Remuneration Committee
The Remuneration Committee assists the AMP Limited Board (and
the boards of subsidiaries) in establishing and having oversight
of AMP’s remuneration policy and practices. The Remuneration
Committee’s terms of reference were revised in November 2018.
AMP 2018 annual reportCorporate governance at AMP 7. Employment and remuneration (continued)
Under the revised terms of reference, the Remuneration Committee’s responsibilities include:
–
–
–
reviewing and making recommendations to the AMP Limited Board on the remuneration of non-executive directors, the CEO,
the GLT members and other specified individuals
recommending to the board the performance goals and objectives relevant to the remuneration of the CEO, and the performance
of the CEO in light of these objectives
reviewing and making recommendations to the board on AMP’s remuneration policy, including an assessment of the policy’s
effectiveness and compliance with prudential standards
overseeing all incentive plans and reviewing and making recommendations to the board on incentive plans for specified individuals
reviewing and making recommendations to the board in relation to equity-based plans, and
overseeing general remuneration practices across AMP.
–
–
–
Details of the Remuneration Committee’s current composition are set out in the table on page 21.
During 2018, the Remuneration Committee had at least three members, at least a majority of whom were independent directors, at
all times except during a two-week period in May when its membership was reduced to two (the independent committee chairman
and interim executive AMP Limited Chairman) due to the third member’s resignation as a director. The committee’s composition
therefore departed from recommendation 8.1(a) of the ASX Principles during this period. No meetings were held, or decisions made,
by the committee during this two-week period prior to the third committee member’s replacement by another independent director.
The committee had an independent chairman throughout 2018.
Since 1 January 2019, the Remuneration Committee has been chaired by David Murray, the independent AMP Limited Chairman.
The committee has appointed Mike Wilkins to the role of lead director to deal with, and lead discussion (in the chairman’s absence)
when matters arise at a board or committee meeting in connection with, the AMP Limited Chairman’s fees. Where considered
appropriate, the lead director may also be asked to lead board and committee discussions relating to the CEO’s remuneration, and
to participate in discussions with investors and regulators in relation to the remuneration of the AMP Limited Chairman or CEO.
Performance evaluation
Performance objectives and performance appraisals for executives who are key management personnel (including the CEO and
nominated direct reports of the CEO) are reviewed annually by the Remuneration Committee and recommended to the AMP Limited
Board for its consideration. As our permanent CEO, Francesco De Ferrari, did not join AMP until December 2018, his first formal
performance evaluation will be undertaken for 2019. Further information on the evaluation of executive key management personnel
performance for 2018 is set out in the remuneration report (on pages 45 to 47).
Inclusion and diversity
AMP has an inclusion and diversity policy which is available on our website at amp.com.au/corporategovernance. This policy requires
the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and our progress in
achieving them.
The established target for the AMP Limited Board is for women to hold 40% of board positions, men to hold 40% of positions, and either
women or men to hold the remaining 20% of positions.
In 2018, the board recognised that significant change was required to restore confidence in our business. Half of the AMP Limited
Board in place at the beginning of the Royal Commission has since changed. The decision of a number of female directors to step down
regrettably eliminated the then representation of women on the board. The process of board renewal currently underway has, given
the events of 2018, made it more difficult to restore the previous representation of female directors, for the time being.
AMP also has gender diversity targets in place for management positions, which require women to hold 47% of senior executive roles
and 50% of middle manager roles by the end of 2020.
In 2018, AMP maintained a sound representation of women in management positions. As a result of changes to AMP’s organisational
structure in 2017, the business did not meet its progress target. The representation of women in senior executive roles increased (from
38%) to 39% at 31 December 2018, with women holding 41% of middle manager roles. Overall, women make up 52% of our workforce.
In 2018, AMP commenced implementation of inclusion and diversity best practice principles for recruitment, which complement the
diversity focus of our broader talent management practices.
We intend to continually review our employment systems to ensure that the signals we send by establishing these policies and targets
are not undermined by unfair work practices. Systems which do not adequately address favouritism and cronyism in the workplace can
lead to discriminatory outcomes, notwithstanding the intent of the policies.
Representation of women at AMP
Roles
AMP Limited Board
Senior executives1
Middle management2
All employees
2020 target
%
2018 progress target
%
31 December 2018
%
31 December 2017
%
40
47
50
n/a
40
41
45
n/a
11
39
41
52
40
38
41
51
1
2
Senior executives are generally one to four reporting layers below the CEO and represent the top 8% of the organisation. People in these roles
typically lead discrete functions and are responsible for making strategic decisions for those functions. They generally have the title Group
Executive, Director or Head of.
Middle managers are generally between three to six reporting layers below the CEO and represent the next 25% of the organisation. People in these
roles typically report to our senior executives and are involved in operational decision making, or have specialised and high value skills. They have a
wide range of titles including Senior Manager, Manager and Lead.
29
AMP 2018 annual report Directors’ report
for the year ended 31 December 2018
This directors’ report provides information on the structure and
progress of our business, our 2018 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 2018.
Operating and financial review
Principal activities
AMP is a wealth management company with an expanding
international investment management business and a
growing retail banking business.
We have over 6,100 employees, approximately 740,000
shareholders and manage and administer $258 billion in assets.
We provide retail customers with financial advice and
superannuation, retirement income, banking, investment
products and life insurance. These products and services are
delivered directly from AMP and through a network of over
2,500 aligned and employed financial advisers and extensive
relationships with independent financial advisers. AMP also
provides corporate superannuation products and services for
workplace super and self-managed superannuation funds
(SMSFs).
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.
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. 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.
On 25 October 2018, AMP announced an agreement with
Resolution Life Australia Pty Ltd (Resolution) to sell its Australian
and New Zealand wealth protection and mature businesses.
In this report, our business is divided into five areas: Australian
wealth management, AMP Capital, AMP Bank, New Zealand
wealth management and Australian and New Zealand wealth
protection and mature.
The Australian wealth management (WM) business provides
retail and corporate customers with superannuation, retirement
income and investment products and services. WM includes
AMP’s aligned and owned advice businesses and SuperConcepts.
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 participating in residential
mortgage lending and retail and platform deposits. AMP Bank’s
mission is to help customers with their goals for life, providing
them with targeted retail banking solutions focused on wealth
creation. AMP Bank also provides financing to AMP financial
planning businesses. AMP Bank’s products and services enable
AMP to be relevant over a wider set of financial goals, earlier in
the customer’s life cycle and with higher customer interaction.
AMP Bank distributes its solutions by leveraging AMP’s advice
network, brokers and directly.
The New Zealand wealth management business encompasses
the wealth management and financial advice and distribution
businesses in New Zealand. The company provides customers
with a variety of wealth management solutions including
KiwiSaver, corporate superannuation, retail investments and a
wrap investment management platform. These products and
other third party financial services products (such as the AMP
branded Vero general insurance products) are distributed through
and supported by an extensive distribution network including
AdviceFirst (a majority owned subsidiary focused on providing
advice to high net worth individuals and small to medium sized
businesses), employed financial advisers (to support our corporate
superannuation and enterprise offerings) and a network of
aligned and independent financial advisers.
Australian and New Zealand wealth protection and mature
comprises Australian wealth protection (WP), Australian
mature and New Zealand wealth protection and mature.
The WP business includes individual and group term, disability
and income protection insurance products. Products can be
held within a superannuation product or held independently
of superannuation. The Australian mature business comprises
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 (RSA), Eligible Rollover Fund (ERF), annuities,
insurance bonds, personal superannuation and guaranteed
savings accounts (GSAs). The New Zealand wealth protection
and mature business includes a risk insurance and mature book
(traditional participating business).
30
AMP 2018 annual report Resetting the business
On 27 July 2018, AMP outlined a series of actions being taken
to reset the business, prioritise customers and strengthen risk
management systems and controls.
These actions include:
–
–
–
Accelerating advice remediation – to ensure impacted advice
customers are appropriately compensated. 2018 results
include a provision of $430 million (post-tax) for potential
advice remediation, inclusive of program costs, in relation
to ASIC reports 499 and 515, which require an industry-
wide ‘look back’ of advice provided from 1 July 2008 and
1 January 2009, respectively.
Delivering improved value for approximately 600,000
super customers – through fee reductions to AMP’s
flagship MySuper products.
Investing to strengthen risk management systems
and controls – increasing investment to upgrade risk
management controls and strengthen compliance
systems across the business over the next two years.
Sale of wealth protection and mature businesses
On 25 October 2018, AMP announced the completion of its
portfolio review and has entered into a sale and purchase
agreement with Resolution for the sale of AMP Life Limited.
This effectively includes the Australian and New Zealand
wealth protection and mature business units.
Under the terms of the sale and purchase agreement, Resolution
assumes the risks and profit impacts from these businesses
from 1 July 2018, subject to risk sharing arrangements. AMP,
however, remains responsible for the operations, capital and
cost management of these businesses until the sale completes.
Upon completion, AMP will retain an economic interest in the
future earnings of the mature business sold to Resolution as
well as hold an interest in Resolution Life Group Holdings LP.
Reported results will continue to include earnings from these
businesses until the sale completes.
2018 performance
The profit attributable to shareholders of AMP Limited for the
year ended 31 December 2018 was $28 million (2017: profit of
$848 million).
Basic earnings per share for the year ended 31 December 2018
on a statutory basis were 1.0 cents per share (2017: 29.3 cents
per share), influenced principally by remediation provisions.
On an underlying basis, the earnings per share were 23.3 cents
per share (2017: 35.5 cents per share).
Key performance measures were as follows:
–
–
–
2018 underlying profit of $680 million is down $360 million
(–35%) from $1,040 million in 2017. This decrease largely
reflects the impact of businesses subject to sale, with the
operating earnings of retained businesses marginally weaker
than in 2017, driven by lower earnings for Australian wealth
management (–7%), offset by growth in AMP Capital (+7%)
and AMP Bank (+6%).
Australian wealth management earnings of $363 million
declined 7% from 2017, driven by higher margin compression
from MySuper repricing in Q4 2018, lower revenues from
weaker investment markets and impairments to the carrying
value of client registers in second half 2018.
Australian wealth management net cash outflows were
$3,968 million in 2018, down from net cashflows of
$931 million in 2017 reflecting a range of factors including
the impact of AMP’s appearance at the Royal Commission
into ‘Misconduct in the Banking, Superannuation and
Financial Services Industry’ (the Royal Commission) in 2018.
–
–
–
AMP Capital external net cashflows were $4,219 million,
down from $5,477 million in 2017. External net cashflows
were driven by strong flows into real asset classes
(infrastructure and real estate), in part offset by lower
cashflows from Asian based investors.
2018 operating loss of Australian and New Zealand wealth
protection and mature businesses was $3 million, driven by
capitalised losses and negative claims experience in second
half 2018.
Underlying return on equity decreased 4.7 percentage points
to 9.6% in 2018 from 2017 reflecting reduced operating
earnings in the Australian wealth protection business.
AMP’s total assets under management (AUM) and administration
were $258 billion at 31 December 2018 (2017: $257 billion).
Operating results by business area
The operating results of each business area for 2018 were as
follows:
–
Australian wealth management – operating earnings fell by
$28 million from 2017 to $363 million in 2018. The decrease
in operating earnings was largely due to lower investment
related revenue arising from margin compression, including
MySuper price changes and lower Other revenue impacts,
in part offset by lower controllable costs reflecting lower
variable remuneration and the full year impact of business
efficiency initiatives executed in 2017.
AMP Capital – AMP group’s 85% share of AMP Capital’s
2018 operating earnings was $167 million, up 7% from
$156 million in 2017. AMP Capital’s operating earnings
benefited from strong fee income growth of 7%, partially
offset by a 10% increase in controllable costs.
AMP Bank – operating earnings increased $8 million (6%)
to $148 million in 2018 from 2017. 2018 operating earnings
were driven by residential mortgage book growth, as well
as a reduction in investment platform deposit costs, partly
offset by increases in other funding costs, additional loan
provisions, as well as increased costs.
New Zealand wealth management – operating earnings
decreased by $1 million to $53 million in 2018 primarily
due to lower wealth management income predominantly
from a decline in AUM margins, partly offset by favourable
advice income largely driven by growth in general insurance
premiums.
Australian and New Zealand wealth protection and mature –
operating earnings decreased by $334 million to a $3 million
operating loss in 2018 largely from the combination of an
11% decrease in profit margins, experience losses largely due
to higher than expected claims, capitalised losses and other
one-off experience items.
–
–
–
–
Capital management and dividend
Equity and reserves of the AMP group attributable to shareholders
of AMP Limited decreased to $6.7 billion at 31 December 2018
from $7.2 billion at 31 December 2017.
AMP remains well capitalised, with $1.7 billion in shareholder
regulatory capital resources above minimum regulatory
requirements (MRR) at 31 December 2018 ($2.3 billion at
31 December 2017).
AMP’s final 2018 dividend is 4.0 cents per share, franked to 90%.
This represents a full year 2018 dividend payout ratio of 60%
of underlying profit. AMP will continue to offer the dividend
reinvestment plan (DRP) to eligible shareholders. For the 2018
final dividend, no discount will apply to the DRP allocation price.
AMP intends to issue new shares to participants in the DRP.
31
AMP 2018 annual report Strategy and prospects
AMP remains committed to making the changes that are required
to transform the business and reposition it to deliver significantly
better performance and value over the long term.
Priorities for 2019 include:
–
–
–
–
–
–
–
Separating Australian and New Zealand wealth protection
and mature: to drive transaction completion by the end of
Q3 2019.
Delivering advice remediation: to remediate clients as
quickly as possible.
Strengthening risk management, internal controls and
governance: to optimise investment in risk and compliance
systems, and to improve risk culture.
Transforming Australian wealth management: to reshape
the advice network and improve economics, streamlining
the operating model and product offering.
Driving growth in AMP Bank: to deliver solutions through
broker and advice channels; to grow retail deposit base.
Growing New Zealand wealth management: to focus on
separation and growth; to defer IPO consideration until
separation completion.
Maintaining growth momentum in AMP Capital:
to continue international expansion and leverage
strategic partnerships.
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, measure, control and report risks.
The Enterprise Risk Management (ERM) framework provides
the foundation for how risks are managed across AMP. There
are five key elements of the ERM framework including
governance, strategy and appetite, people and culture,
management information systems and the risk management
process (encompassing how AMP identifies, measures,
controls and reports risk).
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 seeks to ensure
that risks taken are consistent with the nature and level of risk
the board is willing to accept.
Further information can be found in AMP’s Enterprise
Risk Management Policy, available on our website at:
amp.com.au/corporategovernance.
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 alphabetical order) include, but are not limited to:
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.
Our code of conduct outlines AMP’s expectations in relation
to minimum standards of behaviour and decision making,
including 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 recommend
adjustments to the bonus pool for significant failures in
conduct or risk management.
Competitor and customer environment
The current environment of rapid technological advancement,
sustained regulatory pressure, ageing populations, rising
customer expectations and intensifying competition in the
wealth management and insurance industries presents both
threats and opportunities to AMP’s business.
Significant changes in the competitor and customer environment
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. We are
investing in digital technology and using behavioural insights
to understand our customers’ motivations and life experiences,
and help them realise their financial goals.
Cyber security threats
Cyber risk continues to be a threat in a rapidly changing
technological environment and the magnitude and costs of
cybercrime vary depending on the nature of the attack. While
we are committed to enhancing our cyber security network,
we recognise it is inevitable that cyber-attacks will occur.
32
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 AMP continues to invest in enhancing our cyber security
network and we have several detective, preventative and
responsive controls to protect our assets and networks. In
assessing and mitigating cybercrime, AMP regularly considers
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 our employees and business partners.
AMP has invested heavily in developing new approaches,
models and ways of working to drive efficiency and improve
our practices. 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 transition.
Regulatory environment
AMP operates in multiple jurisdictions across the globe. Each
one of these jurisdictions has its own legislative and regulatory
requirements. The financial services industry both globally and
in Australia and New Zealand continues to undergo a significant
level of regulatory change. The Australian federal government
has released the final report of the Royal Commission and while
the government has responded, indicating how it will act on the
recommendations, the process for these to become legislation
will take time. The extent or manner in which any legislation is
enacted may impact AMP’s future strategy.
AMP has established internal policies, frameworks and
procedures to seek to ensure our domestic and international
regulatory obligations, and changes in the obligations, are met
in each jurisdiction. 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. A number of investigations,
consultations and general interactions may be in progress with
our key regulators. We actively participate in these interactions,
and cooperate with regulators on such matters.
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
Apart from elsewhere disclosed in this report, there were no
significant changes in the state of affairs during the year.
Events occurring after the reporting date
In December 2017, the Australian Government established a Royal
Commission into ‘Misconduct in the Banking, Superannuation
and Financial Services Industry’ to investigate conduct, practices,
behaviour or business activities by financial services entities,
including AMP, that may amount to misconduct or that may have
fallen below community standards and expectations. During the
course of 2018, the Royal Commission has conducted a number of
public hearings and required the production of documents as part
of its inquiry.
The final report of the Royal Commission was publicly released on
4 February 2019 and made:
–
–
76 policy recommendations which may result in legislative
and regulatory change; and
a number of findings of actual or possible misconduct
(including breaches of law) or conduct which does or may fall
below community standards and expectations in relation to
participants in the financial services industry, including AMP.
AMP is considering the various matters raised in the
Commissioner’s final report.
Other than this matter, as at the date of this report, the directors
are not aware of any matters or circumstances that have arisen
since the reporting date that has significantly affected, or may
significantly affect the group’s operations; the results of those
operations; or the group’s state of affairs in future periods.
The AMP Limited board of directors
The management of AMP is overseen by a board of directors
who are elected by shareholders.
The directors of AMP Limited during the year ended
31 December 2018 and up to the date of this report are listed
below. Directors were in office for this entire period except
where stated otherwise:
–
–
David Murray AO (Chairman) (appointed 21 June 2018)
Catherine Brenner (former Chairman)
(resigned 30 April 2018)
Francesco De Ferrari (Chief Executive Officer and
Managing Director) (appointed 31 January 2019)
Craig Meller (former Chief Executive Officer and
Managing Director) (resigned 20 April 2018)
Patricia Akopiantz (resigned 31 December 2018)
John Fraser (appointed 20 September 2018)
Andrew Harmos
Holly Kramer (resigned 8 May 2018)
Trevor Matthews
John O’Sullivan (appointed 20 June 2018)
Geoff Roberts
Peter Varghese AO
Vanessa Wallace (resigned 8 May 2018)
Mike Wilkins AO
–
–
–
–
–
–
–
–
–
–
–
–
As announced on 31 January 2019, Andrea Slattery will become
a director of AMP Limited on 15 February 2019 (after the date of
this report).
Details of the current directors’ qualifications, experience, special
responsibilities and directorships of other listed companies are
given in the Our board section of our annual report.
33
AMP 2018 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 committees of which they were
members during the year ended 31 December 2018. The Chairman and directors also attended other meetings, including board
committee meetings, management meetings and meetings of subsidiary boards and committees of which they were not a director
or member during the year (those voluntary attendances are not included in the table below).
AMP Limited
Board Meetings1
Audit
Committee
Risk Committee
Nomination
Committee2
Remuneration
Committee3
Board/committee
Held/attended
David Murray AO
(appointed 21 June 2018)6
Catherine Brenner
(resigned 30 April 2018)7
A
13
B
13
8
8
Patricia Akopiantz (resigned
31 December 2018)8
26
26
John Fraser (appointed
20 September 2018)9
Andrew Harmos
Holly Kramer
(resigned 8 May 2018)10
Trevor Matthews
Craig Meller
(resigned 20 April 2018)11
7
7
26
9
26
6
25
8
25
6
John O’Sullivan
(appointed 20 June 2018)12
13
13
Geoff Roberts
Peter Varghese AO
Vanessa Wallace
(resigned 8 May 2018)13
26
26
9
26
24
9
Mike Wilkins AO14
26
25
A
–
–
–
–
4
1
4
–
–
4
–
–
1
B
–
–
–
–
3
1
4
–
–
4
–
–
1
A
–
–
4
–
4
–
4
–
–
4
4
–
1
B
–
–
4
–
3
–
4
–
–
4
4
–
1
A
2
1
3
–
–
–
–
–
–
–
3
–
–
B
2
1
3
–
–
–
–
–
–
–
3
–
–
A
2
3
6
–
–
–
3
–
–
–
–
3
1
B
2
3
6
–
–
–
3
–
–
–
–
3
1
Ad hoc
committees/
workshops4
A
10
B
10
8
8
Subsidiary
board and
committee
meetings/
workshops5
A
–
–
B
–
–
16
15
16
16
8
4
–
–
9
9
11
9
12
12
3
–
8
3
–
8
13
13
4
6
4
4
14
13
4
7
5
4
7
5
11
10
12
13
1
12
9
1
15
14
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
During the Royal Commission, directors attended frequent telephone briefings from senior management. These briefings were not board meetings
and are therefore not included in the table above.
Previously called the Nomination and Governance Committee.
Previously called the People and Remuneration Committee.
Ad hoc committees were convened during the year in relation to matters including major corporate transactions, advice remediation and
compliance, and financial results. The AMP Limited Board also held workshops in relation to various matters.
Subsidiary board and committee meetings refer to meetings of the boards and committees of the following key subsidiaries: AMP Life Limited
(AMP Life), The National Mutual Life Association of Australasia Limited (NMLA), AMP Bank Limited and AMP Capital Holdings Limited. Where
board and committee meetings of AMP Limited, AMP Life and 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.
David Murray was appointed as a director and AMP Limited Chairman effective 21 June 2018. David was also appointed Chairman of the
Nomination Committee and a member of the Remuneration Committee on that date.
Catherine Brenner resigned as AMP Limited Chairman and as a director effective 30 April 2018. Prior to her resignation, Catherine was Chairman
of the Nomination Committee and a member of the Remuneration Committee.
Patricia Akopiantz resigned as a director effective 31 December 2018. Throughout the year, Patricia was Chairman of the Remuneration Committee
and a member of the Risk Committee and Nomination Committee.
John Fraser was appointed as a director on 20 September 2018.
Holly Kramer resigned as a director effective 8 May 2018. Prior to her resignation, Holly was a member of the Audit Committee. She was also a
member of the Remuneration Committee from 30 April 2018 until her resignation – no meetings of that committee were held during this period.
Craig Meller resigned as Chief Executive Officer and Managing Director effective 20 April 2018.
John O’Sullivan was appointed as a director effective 20 June 2018.
Vanessa Wallace resigned as a director on 8 May 2018. Prior to her resignation, she was a member of the Remuneration Committee. She was
also a member of the Audit Committee from 20 April 2018, and of the Nomination Committee from 30 April 2018, until her resignation –
no meetings of those committees were held while she was a member.
Mike Wilkins held the role of acting Chief Executive Officer from 20 April to 30 November 2018 and was interim Executive Chairman from
30 April to 20 June 2018. Prior to his appointment as acting Chief Executive Officer, Mike was Chairman of the Risk Committee and a member
of the Audit Committee. Mike was Chairman of the Nomination Committee and a member of the Remuneration Committee from 30 April to
21 June 2018. No meetings of the Nomination Committee were held while he was a member.
2
3
4
5
6
7
8
9
10
11
12
13
14
34
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 Company secretaries’ details
Details of each company secretary of AMP Limited as at
the date of this report, including their qualifications and
experience, are set out below.
David Cullen
Group General Counsel
BCom, LLB, LLM, GradDipAppFin, PGCert Mgmt
David joined AMP in September 2004 and was appointed
Group General Counsel in May 2018. David has group-wide
responsibility for AMP’s legal and governance functions. David
has almost 25 years’ experience in the legal profession, with
extensive experience in the areas of M&A, corporate law and
corporate governance, having worked in law firms in Perth and
Sydney and with the ASX. Prior to his appointment as Group
General Counsel, David was the Group Company Secretary and
General Counsel, Governance at AMP, which included acting
as Company Secretary for AMP Limited. David also worked full-
time on AMP’s merger with AXA APH. David holds a Bachelor of
Commerce and Bachelor of Laws from the University of WA and
a Master of Laws from the University of Sydney. He is a Fellow
of the Governance Institute of Australia.
Vicki Vordis
Company Secretary
BEc, LLB (Hons), GradDipAppCorpGov, 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 the lead Company Secretary for
AMP Limited and secretary of a number of other AMP group
companies. Prior to 2000, Vicki worked as a lawyer focusing
on litigation in several Sydney private legal practices. She is a
Fellow of the Governance Institute of Australia.
Indemnification and insurance of directors
and officers
Under its 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 or on behalf
of the AMP Limited Board.
During, and since the end of, the financial year ended
31 December 2018, the company maintained, and paid
premiums for, directors’ and officers’ and company
reimbursement insurance for the benefit of all of the officers
of the AMP group (including each director, secretary and
senior manager of the company) against certain liabilities as
permitted by the Corporations Act 2001. The insurance policy
prohibits disclosure of the nature of the liabilities covered, the
amount of the premium payable and the limit of liability.
In addition, the company and each of the current and former
directors are parties to deeds of indemnity, insurance and access.
Those deeds provide that:
–
–
–
–
the directors will have access to board papers and specified
records of the company (and of certain other companies)
for their period of office and for at least ten (or, in some
cases, seven) years after they cease to hold office (subject
to certain conditions);
the company indemnifies the directors to the extent
permitted by law, and to the extent and for the amount
that the relevant director is not otherwise entitled to be,
and is not actually, indemnified by another person;
the indemnity covers liabilities (including legal costs)
incurred by the relevant director in their capacity as a current
or former director of the company, or director, officer or
specified representative of another AMP group company
or, in certain cases, an external company (where the person
holds the relevant external position at the AMP group’s
request); 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 at least ten years after they
cease to hold office.
During, and since the end of, the financial year ended
31 December 2018, in accordance with the deeds of indemnity,
insurance and access provided to the former directors named
below, the following legal costs were paid by the AMP group for
legal advice obtained by those former directors in connection
with matters relating to the conduct of the AMP group, during
their term of office, raised during the Royal Commission:
–
–
legal costs totalling $122,066.23 were paid for legal
advice obtained by former AMP Limited Chairman,
Catherine Brenner; and
legal costs totalling $194,637.38 were paid for legal advice
obtained by former Chief Executive Officer and Managing
Director, Craig Meller.
Indemnification of auditors
To the extent permitted by law, the company has agreed to
indemnify its auditor, Ernst & Young, as part of the terms of its
audit engagement agreement, against claims by third parties
arising from the audit, other than where the claim is determined
to have resulted from breach or any negligent, wrongful or wilful
act or omission by or of Ernst & Young. No payment has been
made to indemnify Ernst & Young during or since the financial
year ended 31 December 2018.
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.
35
AMP 2018 annual report 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 financial year ended
31 December 2018.
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
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 2018, 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
Andrew Price
Partner
Sydney, 14 February 2019
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 2018, by the company’s auditor, Ernst & Young.
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 14% (ie $2.4 million) of the total fees paid to the auditors, compared with
12% (ie $1.9 million) for the prior year, as disclosed in note 7.4 to the financial report.
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 2018.
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.
36
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 Remuneration report (audited)
for the year ended 31 December 2018
Overview of 2018
2018 was a very difficult year for AMP.
The Financial Services Royal Commission highlighted misconduct
across the financial services industry with significant ramifications
for AMP, not least of which was the damage to its reputation and
loss of value for our shareholders.
Following various revelations at the Royal Commission, the former
Chairman and three other non-executive directors left the board
and four new directors, including myself as the new Chairman, have
been appointed (with the fourth to commence on 15 February 2019).
Both the former CEO and the General Counsel left AMP in April 2018.
Our new CEO Francesco De Ferrari was appointed and began in
December 2018. Since then he has announced changes to the
senior leadership team.
2018 remuneration outcomes
Remuneration outcomes for 2018 are reflective of the difficult
circumstances of the year. Apart from the CEO of AMP Capital, there
were no allocations of incentives to the AMP executive leadership
team for 2018.
The board determined that the unvested allocations of equity that
were due to vest be forfeited for Mr Meller (former CEO) and Mr
Caprioli (formerly, the Group Executive, Advice and Banking who
left the business in December 2016). The total face value of the
unvested incentives for Mr Meller and Mr Caprioli is approximately
$10.8 million (based on the original award value). This reflects their
overall accountability for the ‘fee for no service’ issues that AMP
had previously disclosed to ASIC and which were addressed during
the Financial Advice hearing block of the Royal Commission. The
board also exercised discretion which resulted in the forfeiture of
incentive holdings for some other former executives and employees
in connection with the ‘fee for no service’ issues.
As announced on 30 April 2018, the AMP Limited Board reduced
directors’ fees by 25% for the remainder of the 2018 calendar year,
applicable to those who held office at that time. In addition,
further changes to board responsibilities and fees have been
implemented for 2019. With the aim of constraining the cost of
governance arrangements from 2020, after separation of the Life
and Mature businesses to Resolution Life, the Chairman’s fees will
be reduced in 2020.
Board review of remuneration model
At the May 2018 AGM, AMP received a first strike against its 2017
remuneration report. The board recognises this first strike was in
response to wider business issues as well as other concerns about
the remuneration framework.
Acknowledging the views of our shareholders, the first strike
against the 2017 remuneration report, ongoing regulatory
developments and the changes occurring within the AMP business,
the board has reviewed AMP’s remuneration arrangements.
There is no one ‘right’ remuneration model that can be applied as
suitable for all businesses across all situations, and we recognise
there are different views about remuneration practices. We
consider and attempt to balance the expectations or requirements
of our customers, employees, shareholders, proxy advisers and
regulators, which are increasingly less aligned.
Remuneration arrangements are one part of the framework
that drives behaviours and expected outcomes for customers,
shareholders and employees. Unless remuneration sits alongside
well-designed business and employment systems, a realistic
strategy and appropriate risk management and internal controls,
it will not be effective in delivering the desired outcomes. Most
importantly for AMP, the systems of remuneration must be
accompanied by consequences for unsatisfactory behaviours and
an acknowledgement that our reputation in the wider community
is fundamental to our future as a financial services business.
I would like to stress that your board has ensured there have
been consequences for people at AMP as a result of the
circumstances of 2018. I would also like to stress, however, that
any remuneration arrangements must be designed to attract and
retain the people needed at all levels of work to conduct AMP’s
business. Accordingly, the board has been mindful not to unduly
penalise the majority of employees who continue to do their jobs.
2019 remuneration approach
The board is very pleased to have welcomed Francesco De Ferrari
as CEO in December 2018. Mr De Ferrari will set a new strategy
for the business, and AMP’s remuneration framework for 2019
onwards will be considered within the context of this strategy.
At this stage, arrangements for 2019 are advanced but have not
been finalised. However, the Executive Performance Incentive
Plan (EPI Plan) introduced for 2018 will not continue. Instead
AMP will be adopting an approach more suited to the significant
change and transformation AMP will be undergoing. This will
include a greater emphasis on long-term incentives linked to
transformation objectives.
The board recognised that, given the circumstances of the Royal
Commission, at the time it was unlikely we could appoint an
executive from within Australia. In the appointment of finance
executives internationally, it is common to have to make significant
buy-out payments, requiring the board to consider the costs and
benefits of doing so. As part of attracting Mr De Ferrari to AMP, we
took account of his previous remuneration package. The recovery
and buy-out incentives awarded to Mr De Ferrari represent amounts
forgone at his previous employer as a result of his joining AMP and
reflect a higher equity component and some additional challenging
hurdles to meet before amounts will vest. These remuneration
arrangements are designed to drive the recovery of AMP and
recognise the degree of challenge in the task ahead. The incentives
were agreed and advised to the market in August 2018 and both
the AMP share price and the ASX 100 have declined in the period
from that time to Mr De Ferrari’s start date. No adjustments have
been made to reflect these market movements.
We have recently introduced the AMP Employee Share Plan,
which now gives all employees the opportunity to become owners
in AMP and share in the growth and success we are striving to
achieve. Because these shares are bought on market there is no
dilution to shareholders.
Remuneration Committee’s focus for 2019
Some of the priorities for 2019 include:
–
–
Responding to Royal Commission recommendations
Further reviewing AMP’s remuneration framework in response to
the Royal Commission, shareholder feedback and a new strategy
Revisiting the use of any remaining sales incentive plans
Together with the investment in strengthening risk
management, internal controls and governance, reviewing
the application of consequences for misconduct.
–
–
We appreciate the feedback we have received and the board
will continue to engage with our shareholders.
David Murray
Chairman
37
AMP 2018 annual report Remuneration report
This remuneration report details the remuneration arrangements for our key management personnel (KMP) in 2018.
This report has been prepared and audited against the disclosure requirements of the Corporations Act 2001.
New CEO remuneration arrangements
Francesco De Ferrari commenced as Chief Executive Officer effective 1 December 2018. His remuneration arrangements are
summarised in the sections below.
CEO incentives on appointment
On commencement, Mr De Ferrari received a one-off ‘Buy-out’ and ‘Recovery’ incentive package in consideration for incentives forgone
from his previous employer that he would have otherwise been entitled to receive. The package is structured with a higher proportion
of the overall award delivered in equity compared to the incentives forgone. This is designed to maximise the incentive to drive the
recovery of AMP and maintain alignment with the interests of shareholders.
A portion of the incentive package will be delivered in cash in February 2019. The remainder of the value to Mr De Ferrari is variable
with a significant portion at risk, to be earned over the next four years through deferred equity awards. The equity awards will vest
over time according to the schedules and conditions summarised in the tables below.
For the period 1 December to 31 December 2018, Mr De Ferrari did not participate in any AMP incentive plan.
Buy-out incentive
Remuneration type
Value
Grant date
Vesting schedule
Vesting conditions
Cash
$1.7m
To be paid on or around
21 February 2019
Must be in employment
at payment date
Continuous employment
Restricted shares
Share rights
1,453,488 AMP shares
with a face value of
approximately $5.0m
1,453,488 AMP share
rights with a face value
of approximately $5.0m
21 August 2018
21 August 2018
60% on 15 August 2019
20% on 15 August 2020
20% on 15 August 2021
50% on 15 February 2020
30% on 15 February 2021
20% on 15 February 2022
Continuous employment
Continuous employment
Recovery incentive
Remuneration type
Value
Grant date
Vesting schedule
Vesting conditions
Options
Performance rights
8,000,000 AMP options
with a fair value of
approximately $300,000
1,656,976 AMP share
rights with a face value
of approximately $5.7m
14 December 2018
Exercise price of $5.50
Continuous employment
21 August 2018
Vesting 15 February 2023
Expiration 31 March 2024
Tested by the board on
15 February of each of
2021, 2022 and 2023
Must be in employment
on relevant testing date.
On first testing date,
25% will vest if share
price is $4.50.
On second testing date,
50% or 75% (including any
that have vested already)
will vest if share price is
$4.75 or $5.00 (respectively).
On third testing date, the
balance will vest if share
price is $5.25. If share price
is between $4.50 and $5.25,
between 25% and 100%
(including any that have
vested already) will vest,
as determined on a
straight-line basis.
The tables above reflect Mr De Ferrari’s total holdings of rights and options over, and contractual entitlements to, AMP Limited shares
as at the date of this report. He does not otherwise hold any relevant interests in AMP Limited shares at the date of this report.
38
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 New CEO remuneration arrangements (continued)
CEO fixed remuneration
A number of factors were taken into consideration when setting the fixed remuneration for Mr De Ferrari including the former
CEO’s fixed remuneration, external market practice and common practice in a period of transformation. This resulted in a fixed
remuneration of $2,200,000 per annum.
CEO incentive arrangements for 2019
Mr De Ferrari will be eligible to participate in the following incentive arrangements for the performance year 1 January 2019 to
31 December 2019:
Short-term incentive (STI) – maximum STI opportunity of 120% of fixed remuneration with the same terms as other participants
in 2019.
Long-term incentive (LTI) – maximum LTI of 159% of fixed remuneration with the same terms as other participants.
The specific terms of the 2019 incentives are being finalised and will be outlined in the 2019 remuneration report.
The table below reflects an overall decrease in quantum of the total remuneration package for Mr De Ferrari compared with
that of Mr Meller in 2017.
Mr De Ferrari
Deferred
61%
Deferred incentive
61%
Mr Meller
Deferred
58%
Deferred incentive
58%
Cash
39%
Cash incentive
13%
Fixed remuneration
26%
Cash
42%
Cash incentive
23%
Fixed remuneration
19%
Incentive outcomes
No 2018 short-term incentive awards have been made to executives with the exception of Adam Tindall (CEO AMP Capital) who
participates in the AMP Capital Enterprise Profit Share (EPS) plan. These outcomes reflect the overall accountability of the executive
leadership team.
The following table shows the remuneration awarded to executives (excluding Mr De Ferrari who did not participate in an incentive
plan for 2018) based on the 2018 performance year.
This table differs from the statutory table in section 7.3.1 which is prepared according to Australian Accounting Standards.
Fixed
remuneration
$’000
Cash
incentive
awarded
$’000
Deferred
incentive
awarded
$’000
Total
remuneration
awarded for
2018
$’000
% of target
incentive
opportunity
awarded
% of target
incentive
opportunity
not awarded
Megan Beer
Sally Bruce
David Cullen
Jenny Fagg
Gordon Lefevre
Helen Livesey
Jack Regan
Craig Ryman
Paul Sainsbury
Adam Tindall1
Fiona Wardlaw
Total
900
750
700
900
965
700
900
800
965
950
800
9,330
–
–
–
–
–
–
–
–
–
785
–
785
–
–
–
–
–
–
–
–
–
1,178
–
900
750
700
900
965
700
900
800
965
2,913
800
1,178
11,293
0
0
0
0
0
0
0
0
0
n/a
0
1
The percentage of target incentive opportunity awarded for Adam Tindall is not applicable because his opportunity is uncapped under the
AMP Capital Enterprise Profit Share plan.
100
100
100
100
100
100
100
100
100
n/a
100
39
AMP 2018 annual report
Remuneration consequences for risk and reputation matters
In 2018 the board exercised discretion to apply remuneration consequences to executives reflecting their overall accountability for
the ‘fee for no service’ issues. The consequences determined by the board were:
–
Former CEO: the board will not make any incentive payments to Mr Meller for the 2018 financial year. The board also determined
that unvested allocations of equity that were made to Mr Meller under previous incentive awards that were due to vest through
to 2021 are forfeited.
Former Group Executive, Advice and Banking: the board determined that the unvested incentives of Mr Caprioli that were due
to vest in 2019 are forfeited.
Forfeit unvested incentives for other select former executives and employees in connection with the ‘fee for no service’ issues.
There were no 2018 short-term incentive allocations to the senior leadership team (excluding the CEO AMP Capital).
–
–
–
Executive exit arrangements
The table below outlines the exit arrangements for executives disclosed as key management personnel (KMP) during 2018.
Further detail is provided in the statutory disclosure table in section 7.3.1.
Executive
Exit arrangement
Craig Meller
(ceased as KMP
20 April 2018)
Saskia Goedhart
(ceased as KMP
9 February 2018)
Brian Salter
(ceased as KMP
30 April 2018)
– Employment formally ended on 31 December 2018
– Payment in lieu of balance of notice
– All unvested LTI and STI Deferral incentives lapsed or were forfeited
– Provision of other benefits required by law
– Employment formally ended on 24 February 2018
– All unvested STI Deferral incentives retained subject to the same vesting conditions
– All unvested LTI awards lapsed or were forfeited upon cessation of employment
– Provision of benefits required by law
– Employment formally ended on 30 April 2018
– Payment in lieu of 12-months’ notice period
– All unvested LTI and STI Deferral incentives lapsed or were forfeited upon cessation of employment
– Provision of other benefits required by law
Board response to concerns raised in relation to the 2017 remuneration report
Following feedback from shareholders with regards to the 2017 remuneration report, the board has undertaken a review of our
executive remuneration strategy and framework for 2019 and beyond to focus executives on AMP’s recovery.
The following table provides a summary of responses to comments and concerns raised at our 2018 annual general meeting:
Element
Concern raised
Response
Fixed
remuneration
Quantum of CEO pay
Incentives
Short-term focus of incentives
Incentives not aligned with
shareholders – consistent payouts
not reflective of share price
Uncapped incentives
Clawback/malus
NED
remuneration
Retirement benefits for NEDs
40
Remuneration for the CEO is regularly benchmarked against the
market to ensure it is not out of line with peers.
The remuneration for the new CEO was set taking into consideration
the fixed remuneration for the former CEO, external market practice
and common practice in a period of transformation.
The arrangements for 2019 have not been finalised but are
expected to reduce the short-term focus.
The CEO remuneration package for 2019 is heavily weighted to LTI.
The arrangements for 2019 have not been finalised but are
expected to create better alignment with shareholder experience.
The uncapped incentive opportunity is related to the Enterprise
Profit Share plan within AMP Capital. This is an appropriate
incentive plan for a global investment management business.
Adam Tindall is the only member of the AMP executive leadership
team who participates in this plan.
The clawback provisions have been strengthened in the Equity
Incentive Plan (EIP) to provide extra flexibility for the board to
determine that securities lapse or be forfeited.
AMP does not pay retirement benefits to non-executive directors
(NEDs). Details of all payments made to these NEDs are disclosed in
the NED remuneration table.
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 Remuneration report
Contents
1. Who is covered by this report
2. 2018 remuneration framework
3. Remuneration governance
4. 2018 remuneration outcomes
5. Executive shareholding
6. Non-executive director remuneration
7. 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. 2018 KMP are detailed below.
Current executives
Francesco De Ferrari1
Megan Beer
Sally Bruce
David Cullen2
Jenny Fagg3
Gordon Lefevre
Helen Livesey
Jack Regan
Craig Ryman
Paul Sainsbury
Adam Tindall
Fiona Wardlaw
Former executives
Craig Meller4
Saskia Goedhart5
Brian Salter6
Chief Executive Officer
Group Executive, Insurance
Group Executive, AMP Bank
Group General Counsel
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
Chief Executive Officer, AMP Capital
Group Executive, People and Culture
Chief Executive Officer and Managing Director
Chief Risk Officer
Group General Counsel
Current non-executive directors
David Murray7
Patricia Akopiantz8
John Fraser9
Andrew Harmos
Trevor Matthews
John O’Sullivan10
Geoff Roberts
Peter Varghese
Mike Wilkins11
Former non-executive directors
Catherine Brenner12
Holly Kramer13
Vanessa Wallace13
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
Term as KMP
in 2018
One month
Full Year
Full Year
Seven months
Eleven months
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Four months
One month
Four months
Six months
Full Year
Three months
Full Year
Full Year
Six months
Full Year
Full Year
Full Year
Four months
Four months
Four months
1
2
3
4
5
6
7
8
9
10
11
Francesco De Ferrari was appointed as Chief Executive Officer on 1 December 2018.
David Cullen was appointed as Group General Counsel on 24 May 2018. This is the date he became KMP.
Jenny Fagg was appointed as Chief Risk Officer on 9 February 2018.
Craig Meller stepped down from the role of Chief Executive Officer and Managing Director effective 20 April 2018.
Saskia Goedhart resigned from the role as Chief Risk Officer effective 9 February 2018.
Brian Salter ceased employment as Group General Counsel effective 30 April 2018.
David Murray was appointed as Chairman of the AMP Limited Board on 21 June 2018.
Patricia Akopiantz resigned from the AMP Limited Board on 31 December 2018.
John Fraser was appointed to the AMP Limited Board on 20 September 2018.
John O’Sullivan was appointed to the AMP Limited Board on 20 June 2018.
Mike Wilkins held the role of acting Chief Executive Officer for the period 20 April to 30 November 2018 and was interim Executive Chairman
from 30 April to 20 June 2018. Effective 1 December 2018 Mike returned to his role of non-executive director.
12 Catherine Brenner resigned as Chairman of the AMP Limited Board on 30 April 2018.
13 Holly Kramer and Vanessa Wallace resigned from the AMP Limited Board effective 8 May 2018.
41
AMP 2018 annual report
2. 2018 remuneration framework
The table below outlines the remuneration framework in place for the executives in 2018.
Executive remuneration objective:
To attract and retain the people required to achieve AMP’s corporate objectives through its chosen business model and associated strategy
– Differentiate – remuneration outcomes should differentiate for performance taking into account risk management and compliance
Remuneration arrangements at AMP should be informed by our guiding principles:
with our policies
– Behaviour – remuneration should drive behaviour that is legal, authorised, productive and reputable
– Clarity and consistency – employees should have clarity around remuneration and remuneration arrangements should be applied consistently
– Governance – remuneration arrangements should be supported by a proper system of internal controls, dealing with: separation of roles,
conflicts of interests, with appropriate checks and balances
– Judgement – the remuneration framework should allow directors to exercise independent judgement and discretion
– Reward – reward people for their work on terms consistent with the markets in which they are employed
Delivered through the following remuneration components:
2016 executive remuneration structure
Fixed
At risk
Fixed remuneration
Cash salary, superannuation and
any salary sacrificed benefits
Variable remuneration – Executive Performance Incentive (EPI) Plan
Annual incentive award where a minimum of 60% of the allocation
is deferred in restricted equity for five years
Supported by the remuneration governance, risk management and consequence 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 Remuneration Committee on risk outcomes
– Risk is a key consideration for individual performance assessments
– Risk is a key measure in the pool scorecard
– The board may adjust the pool down (to zero) if executives have operated outside
risk appetite levels or for extraordinary events which impact shareholder value
– Vesting of deferred incentives is 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
As outlined in the 2017 annual report, the Executive Performance Incentive (EPI) Plan was introduced for executives effective
1 January 2018.
The EPI Plan was designed to be delivered in two components:
–
–
EPI cash award (minimum 40% of the award), and
EPI equity award (minimum 60% of the award) granted as restricted equity subject to a five-year holding lock.
The award of restricted equity is made as rights to AMP shares which remain subject to dealing restrictions for the five-year period.
The board determined that there would be no allocations under the EPI Plan for executives. A portion of Adam Tindall’s 2018 allocation
under the Enterprise Profit Share plan will be deferred for five years and granted in AMP equity in line with the EPI Plan.
42
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 2. 2018 remuneration framework (continued)
2.1 Remuneration mix
The following illustration shows the remuneration mix for the executives in 2018 (excluding both the CEO AMP who did not participate
in any incentive plans during 2018 and the CEO AMP Capital who participates in the AMP Capital Enterprise Profit Share plan).
Outcomes have been modelled based on the average of the executives’ target opportunities.
2018 Remuneration mix based on target incentive opportunity
Executives
Deferred incentive
37%
Cash incentive
25%
At risk
62%
Fixed
38%
Fixed remuneration
38%
2.2 Changes to executive remuneration for 2019
Since the introduction of the EPI Plan, AMP has experienced a period of significant change, impacted by internal and external factors.
Following the review of the remuneration arrangements for 2019, the board is proposing a different approach to deriving a group
incentive pool. This will move away from a formulaic scorecard approach and instead will create an incentive pool for delivering upon
a set of agreed priorities and the 2019 financial plan. To the extent targets are exceeded and financial results are above plan, an
incremental amount will flow through to the group incentive pool.
The board will continue to exercise discretion when assessing performance to determine the final incentive pool result. The board may
choose to exercise this discretion to take into account other factors (such as those factors not fully reflected in the results) to ensure
that the outcome is appropriate and aligned to shareholder experience.
The CRO would continue to recommend risk related adjustments to the board. This would form part of the overall adjustment to the
pool considered by the board rather than a separate standalone adjustment.
The board has determined that the EPI Plan will not continue in 2019 and will be replaced by new arrangements. Development
of the new arrangements is well advanced but not yet finalised. The arrangements will have a much greater emphasis on equity
with a challenging LTI plan for driving and delivering the transformation agenda. We intend to consult with shareholders and their
representatives in coming months to ensure their feedback is considered.
2.3 Culture and risk management in remuneration
Culture, effective risk practices and consequence management are important considerations at AMP. AMP believes that culture is an
enabler of strategic execution over the long term. AMP 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.
During 2018, there have been continued enhancements to the remuneration framework to embed risk into multiple layers of goal
setting and performance assessment both for executives and the broader employee population.
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 both 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 7.
43
AMP 2018 annual report 3. Remuneration governance
There are a number of governance and oversight processes in place for remuneration at AMP, primarily through the AMP Limited Board,
subsidiary boards and the Remuneration Committee. The Remuneration Committee 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 Remuneration Committee.
The Remuneration Committee is made up of non-executive directors (NEDs). More information on the role of the Remuneration
Committee can be found in the terms of reference at corporate.amp.com.au/about-amp/corporate-governance.
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.
Where an external perspective is needed, the Remuneration Committee seeks guidance from independent remuneration advisers.
During the year, the Remuneration Committee engaged PricewaterhouseCoopers and received updates on market trends, regulatory
changes, shareholder concerns regarding remuneration and advice. No specific remuneration recommendations were made to the
Remuneration Committee by independent remuneration advisers in 2018.
The governance framework is illustrated in the chart below.
AMP Limited Board
AMP subsidiary boards
AMP Limited Risk Committee
Assists the board
with oversight of the
implementation and
operation of AMP’s risk
management framework.
Recommends the risk
adjustment factor for the
group incentive pool to the
Remuneration Committee.
Makes recommendations
to the Remuneration
Committee on risk related
matters and endorses
recommendations on
the vesting of deferred
remuneration.
Remuneration Committee
Advises the AMP Limited Board and the boards of AMP subsidiaries
in establishing and having oversight of AMP’s remuneration policy
and practices. Key responsibilities include:
– reviewing the remuneration arrangements, performance objectives,
measures and outcomes for executives and senior management
– reviewing the remuneration arrangements for non-executive directors
– reviewing AMP’s remuneration policy including effectiveness
and compliance with prudential standards
– reviewing AMP’s remuneration disclosures
– overseeing all incentive plans
– reviewing and making recommendations in relation to
equity-based plans including malus and clawback.
Independent
remuneration
advisers (PwC)
The
Remuneration
Committee
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 Remuneration Committee
that remuneration practices, including the remuneration policy
and incentive plans, have been examined from strategy, risk,
finance, reward, market and governance perspectives.
Reviews and recommends to the Remuneration Committee
all new incentive and equity plan designs or material changes
to the terms of existing plans.
The CEO makes recommendations
to the Remuneration Committee on the
performance and remuneration outcomes for his
direct reports; the Remuneration Committee then
seeks approval from the AMP Limited Board.
Management attend Remuneration Committee
meetings when required to provide information
and updates on remuneration items.
3.1 Regulatory change
Regulation of remuneration in the financial services industry continues to grow. In recent years there has been additional guidance
from APRA and the Financial Stability Board (FSB), Banking Executive Accountability Regime (BEAR), Sedgwick Review, Life Insurance
Framework, ASIC review into mortgage broking remuneration, New Zealand Financial Markets Authority as well as further changes
anticipated following the Royal Commission final report. The sentiment in the wider community around remuneration in financial
services is also changing the view on acceptable market practice.
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, however where possible, AMP has applied, and intends to apply, these remuneration changes
across the entire group.
44
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 3. Remuneration governance (continued)
Consistent with this intention, the AMP remuneration arrangements for all executives and senior management meet the requirements
of BEAR ahead of the required deadline.
Throughout 2018, AMP Bank has evaluated its practices in response to the Sedgwick Recommendations. Remuneration arrangements
for front-line sales roles in AMP Bank have been reviewed, and a new suite of performance measures were introduced to align with the
recommendations. Work will continue during 2019 and beyond to improve our performance measures, enhance governance and leader
communication, and monitor the impact of these changes to ensure our culture prioritises conduct and customer outcomes.
4. 2018 remuneration outcomes
4.1 Summary of 2018 company performance
The challenges faced during 2018 are reflected in the financial results of the company and the remuneration outcomes for executives
and employees overall. 2018 underlying profit of $680 million is down from $1,040 million in 2017. Underlying return on equity
decreased to 9.6% reflecting reduced operating earnings in the Australian wealth protection business.
The table below illustrates AMP’s performance over the last five years and the remuneration outcomes.
2014
2015
2016
2017
2018
Financial results
Profit (loss) after tax attributable to shareholders ($m)
Underlying profit ($m)
Cost to income ratio (%)
884
1,045
44.8
972
1,120
43.8
Shareholder outcomes
Total dividend (cents per share)
Share price at 31 December ($)
STI/Group incentive pool1
STI/Group incentive pool ($m)2
STI/Group incentive pool as % of underlying profit (%)
Average STI received as % of maximum opportunity for executives (%)
LTI performance
Relative TSR percentile3
Return on Equity (%)4
LTI vesting outcome (% of grant vested during the year)
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
28
680
55.8
14
2.45
33
4.8
0
8th
9.6
0
1
2
3
4
For 2018, the pool value is inclusive of the STI and EPI plans. For 2014, 2015, 2016 and 2017, the pool value reflects the amount available under
the STI plan.
The 2016, 2017 and 2018 STI/Group incentive 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 2014, 28 February 2015, 6 March 2016, 5 March 2017 and 4 March 2018 respectively. See section 4.3 Long-term
incentive outcomes and section 7.1 AMP Long-term incentive plan.
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.
The following sections detail how these outcomes were determined for 2018.
4.2 Incentive outcomes
The board engages in a rigorous and deliberate 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 the scorecard measures and provides specific detail on
how the board assessed performance.
4.2.1 Group incentive scorecard
The board believes that both financial and strategic measures are key to delivering our strategy and through this, shareholder value.
In 2018, 70% of the group incentive 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 Strategy execution (20% of scorecard) and the second is Net Promoter Score (NPS),
which is designed to drive customer advocacy (10% of scorecard). Strengthening our risk culture was previously a separate measure
in the scorecard in addition to the risk outcomes overlay. In 2018 the risk measure was removed from the scorecard and instead the
risk overlay was strengthened in order to remove duplication and provide clarity on the four key risk goals:
1. Strengthen Risk Culture
2. Operate within RAS (Risk Appetite Statement)
3.
4. Embed ERM Framework
Issues management in line with AMP’s culture and values
The four goals are used consistently in the executive scorecards and in the risk overlay applied to the group incentive scorecard.
If the four goals are not met satisfactorily, the risk overlay is used to reduce the group incentive pool. The risk overlay is recommended
by the Chief Risk Officer (CRO), reviewed by the AMP Limited Board Risk Committee, and approved by the AMP Limited Board.
45
AMP 2018 annual report
4. 2018 remuneration outcomes (continued)
4.2.2 Group incentive outcome
The board assessed AMP’s performance against the scorecard and then applied discretion including risk considerations, to determine
an incentive pool for 2018 of $32.9 million (compared to an incentive pool of $75 million in 2017). The 2018 group incentive pool again
excludes AMP Capital as this part of the business has separate remuneration arrangements.
Metrics
Underlying profit
less cost of capital
(50%)
Link to
strategy
Performance
outcome
Performance
commentary
Above threshold
but below target
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.
In 2018, the group delivered underlying profit of
$680 million, down from $1,040 million in 2017.
–
Australian wealth management earnings decline
of 7% was driven by elevated margin compression
from MySuper repricing, lower revenues from
weaker investment markets and impairments
to the carrying value of client registers.
AMP Capital and AMP Bank’s growth momentum
continued with operating earnings up 7% and
6% respectively.
New Zealand wealth management and advice
operating earnings decreased in 2018 primarily
due to favourable advice income largely driven
by growth in general insurance premiums,
offset by lower wealth management income
predominantly from a decline in AUM margins.
Operating loss of sold businesses was driven
by higher capitalised losses and negative
claims experience.
–
–
–
Controllable costs decreased 4% (excluding
AMP Capital) for the year. The cost to income
ratio was 55.8%.
AMP remains well capitalised at the end of
2018, with a surplus over minimum regulatory
requirements of $1.6 billion.
Underlying Return on Equity decreased to 9.6%,
reflecting reduced operating earnings in the
Australian wealth protection business.
Net cashflows were significantly down in wealth
management reflecting the impact of AMP’s
appearance at the Royal Commission in 2018.
Other income growth did not meet the threshold.
AMP Bank total loans increased but growth was
below threshold.
AMP Capital fee income increased 7% to
$708 million in 2018 from $659 million in 2017,
exceeding threshold but did not meet the target.
Strategic execution milestones were set at the
beginning of 2018 and were not adjusted during the
year, despite changing priorities. The board made a
holistic assessment against all strategic objectives
following input from the CEO and determined the
overall result was close to target with a score of
around 50% of maximum.
The 2018 NPS target required an increase of 10%
against the 2017 result. NPS declined sharply at the
end of the first quarter, coinciding with the second
round of Royal Commission hearings. The score
partially recovered throughout the remainder of the
year, finishing at approximately 55% of the target,
which is well below the minimum threshold.
One measure
below target
Three measures
below threshold
At target
Below threshold
We orient capital and
resources to grow our core
Australian businesses.
We consider metrics
specific to various
businesses including:
– Value of net cashflow
– Other income growth
– Value of net mortgage
growth
– Net revenue of AMP Capital
Strategic execution included
in the scorecard created focus
on key projects and milestones
linked to the strategy.
Measures related to finalising
the portfolio review, potential
separation and transition of
the insurance business.
Improved customer
experiences, through goals-
based experiences and
solutions will drive long-term
value and a sustainable
competitive advantage.
Growth measures
(20%)
Strategy execution
(20%)
Customer advocacy
Net Promoter
Score (NPS)
(10%)
46
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 4. 2018 remuneration outcomes (continued)
4.2.3 Executive outcomes
In 2018, executives had individual scorecards that incorporated the relevant measures from the group incentive scorecard based on
their contribution to the priorities and business unit specific measures along with their own personal objectives for the year. In 2018,
all financial measures were removed from the CRO scorecard to ensure independence.
Based on company and individual performance, the CEO recommends to the board for approval the executive incentive allocations.
In 2018, no incentives were awarded to executives (other than Adam Tindall).
4.2.4 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.
4.3 Long-term incentive outcomes
AMP did not operate an LTI plan for executives in 2018 due to the introduction of the EPI Plan.
The vesting outcomes that reflect 2017 and 2018 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
4 Jun 2015
4 Jun 2015
2 Jun 2016
1 Jan 2017
31 Dec 2017
5 Mar 2015
4 Mar 2018
1 Jan 2018
31 Dec 2018
Grants to be tested for vesting in the future
2 Jun 2016
3 Mar 2016
3 Mar 2019
19 May 2017
1 Jan 2017
31 Dec 2020
RoE
TSR
RoE
TSR
TSR
15.3%
17.2%
14.3%
50th percentile 75th percentile
8th percentile
15.9%
18.0%
9.6%
50th percentile 75th percentile
50th percentile 75th percentile
TBA
TBA
0%
0%
0%
TBA
TBA
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 controllable 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 2018 financial year.
2015 LTI award
The performance hurdles were not met and as a result 100% of both the RoE and TSR tranches lapsed.
2016 LTI award
RoE measured for the year ended 31 December 2018 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 2019, 100% of this tranche will also lapse.
Details of the 2016 LTI award are included to provide transparent disclosure on outcomes relating to 2018 performance, despite
the final TSR outcome not being confirmed at the time of publication. The final outcome of the 2016 LTI award will be included
in the 2019 report.
47
AMP 2018 annual report 5. Executive shareholding
5.1 Minimum shareholding
All executives are required to accumulate a minimum number of AMP Limited shares and/or 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, for example, through the STI Deferral plan
or EPI Plan.
Share rights that are allocated to executives through the STI Deferral plan or the EPI Plan are included to meet their minimum holding
requirement only where future vesting is not subject to any further performance condition (other than a continued service condition).
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 2018. 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 2018
Holding at 31 Dec 2018
Shares
Share
rights1
Total
number
of units at
1 Jan 2018
Share rights
granted
during
20182
Share rights
converted
to shares3
Share rights
forfeited
or lapsed
Other
market
transactions4
Shares
Total
number
of units at
31 Dec 2018
Share
rights
Francesco De Ferrari5
Megan Beer
Sally Bruce
David Cullen
Jenny Fagg6
Gordon Lefevre
Helen Livesey
Jack Regan
Craig Ryman
Paul Sainsbury
Adam Tindall7
Fiona Wardlaw
–
39,566
41,667
64,367
–
69,449
11,858
279,224
32,674
65,475
179,363
220,451
–
90,321
62,922
48,754
–
83,886
48,718
74,597
45,485
78,898
340,867
53,066
– 1,453,488
73,389
55,593
–
–
91,949
66,271
83,415
69,491
91,949
207,748
64,830
129,887
104,589
113,121
–
153,335
60,576
353,821
78,159
144,373
520,230
273,517
–
26,923
8,097
–
–
83,886
–
44,834
45,485
78,898
153,846
53,066
–
–
–
–
–
–
–
–
–
–
–
–
–
66,489
49,764
–
64,367
–
–
–
– 153,335
11,858
–
– 324,058
32,674
65,475
(175,802) 157,407
(96,813) 176,704
(45,485)
(78,898)
– 1,453,488 1,453,488
203,276
160,182
113,121
–
245,284
126,847
437,236
102,165
157,424
552,176
241,534
136,787
110,418
48,754
–
91,949
114,989
113,178
69,491
91,949
394,769
64,830
Shares
Share
rights1
Total
number
of units at
1 Jan 2018
Share rights
granted
during
20182
Share rights
converted
to shares3
Share rights
forfeited
or lapsed
Other
market
transactions4
Shares
Total number
of units on
date ceased
as KMP
Share
rights
Former executives
Craig Meller8
Saskia Goedhart9
Brian Salter
688,119
24,469
107,687
170,040
76,549
59,510
858,159
101,018
167,197
181,949
–
65,423
170,040
–
59,510
–
–
(65,423)
– 858,159
–
24,469
– 167,197
181,949 1,040,108
101,018
167,197
76,549
–
Share rights give the participant the right to acquire one fully paid ordinary share in AMP Limited after a specified service period. Rights are granted
at no cost to the participant and carry no dividend or voting rights until they vest. Rights may be settled through an equivalent cash payment at the
discretion of the board.
The number of share rights granted on 2 April 2018 under the STI Deferral plan was determined using the fair value price of $4.72 per share right.
Unless otherwise stated, the share rights converted during 2018 relate to the vesting of the 2015 STI Deferral grants.
Other market transactions are a result of executives or their related parties trading AMP Limited shares on the open market.
The grant of Francesco De Ferrari’s share rights relates to the buy-out incentive award to compensate for incentives forgone from the CEO’s previous
employer.
Jenny Fagg was appointed 9 February 2018. For the remainder of 2018, there has been no subsequent permitted opportunity under the AMP
Limited Trading Policy for executives to purchase shares on market.
The number of share rights granted on 2 April 2018 to Adam Tindall under the Enterprise Profit Share plan was determined using the fair value price
of $4.72 per share right for the first tranche (50% of award) and $4.46 for the second tranche (remaining 50% of the award).
Craig Meller’s 181,949 share rights under the 2017 STI Deferral award were subsequently lapsed on 9 May 2018.
Saskia Goedhart was awarded 20,000 share rights in April 2018 under the 2017 STI Deferral plan. The 2015 STI Deferral award (11,099 share rights)
vested in February 2018 after Saskia ceased to be a KMP and the share rights (total of 55,128) relating to the 2015 and 2016 LTI awards were lapsed.
1
2
3
4
5
6
7
8
9
48
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
6. Non-executive director remuneration
For NEDs other than the AMP Limited Chairman, their remuneration consists of three components:
– AMP Limited Board base fee
– AMP Limited committee fees
– AMP subsidiary board and committee fees.
As detailed below, the AMP Limited Chairman receives a base fee which covers all of the chairman’s responsibilities.
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.
With effect from 1 May 2018, the AMP Limited Board reduced the fees for all AMP Limited NEDs who held office at that time by 25% for
the remainder of the 2018 calendar year. This reduction was made in recognition of collective governance accountability for the issues
raised in the Royal Commission and their impact on AMP’s reputation. It applied to all components of the remuneration of the NEDs
who held office when the reduction took effect.
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.
During 2018, the AMP Limited Board initiated a review of the group’s governance model and approved certain changes to strengthen
AMP Limited Board oversight of AMP’s main subsidiaries. These changes, details of which are provided in section 6.3, mean streamlined
governance and strengthened oversight by the board whilst also reducing the overall cost of governance arrangements at AMP.
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 6.4).
6.1 Non-executive director fees
The Remuneration Committee is responsible for reviewing NED fees for AMP Limited and its main 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 main 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 Remuneration Committee commissions market data analysis and matching services from external remuneration advisers where
it considers necessary.
Non-executive director fees are recommended by the Remuneration Committee 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 boards and committees of AMP and its subsidiaries must not exceed this amount.
During 2018, the total remuneration paid to AMP Limited NEDs was $3,003,604 being 65% of the shareholder-approved fee pool.
6.1.1 Base fees
All NEDs receive a base fee as a director on the AMP Limited Board.
The fee payable to the AMP Limited Chairman is $850,000 per annum (inclusive of superannuation contributions). This fee covers all
responsibilities, including his appointment as the chairman of the Nomination and Remuneration Committees and as a member of the
Risk Committee. While not a member of the Audit Committee, he attends the meetings of this committee and is excluded as necessary.
From 15 February 2019, the chairman will be appointed as chairman of the AMP Bank Limited Board and no additional fees will be
payable to the chairman for his responsibilities associated with AMP Bank Limited.
AMP employees, including the CEO, do not receive fees for any directorships of AMP group companies.
6.1.2 Committee and subsidiary board and committee fees
AMP Limited NEDs generally also serve on the boards and committees of one or more of AMP’s main subsidiaries. NEDs, excluding
the AMP Limited Chairman, generally receive additional fees for their time and effort in serving as members of AMP Limited Board
committees, as directors of AMP’s main subsidiaries and members of committees of the boards of those subsidiaries, and as members
of other special purpose committees formed from time to time.
With effect from 1 January 2018, the fees paid for chairmanship and membership of the AMP Limited Audit, Risk and Remuneration
Committees were reviewed and aligned. In particular:
–
The fee for members of the AMP Limited Remuneration Committee was brought into line with the fees for members of the AMP
Limited Audit and Risk Committees (being $25,400 per annum). This represented a 7.2% increase in the fee paid to members of the
AMP Limited Remuneration Committee.
A common fee of $55,000 per annum was adopted for the chairmen of the three committees. This represented an 8.3% increase in
the fee for the chairmen of the AMP Limited Audit and Risk Committees and a 16% increase in the fee for the chairman of the AMP
Limited Remuneration Committee.
–
The fee increases outlined above were considered appropriate having regard to:
–
Increased workloads and additional time commitments of the chairmen of these committees and the members of the
Remuneration Committee
The fees paid to non-executive directors of other major ASX-listed financial services companies.
–
These were the first increases in AMP Limited Board committee fees since 2015.
Further changes have been made for 2019 as outlined in section 6.3.
49
AMP 2018 annual report 6. Non-executive director remuneration (continued)
6.2 2018 non-executive director remuneration
The following table shows the annual NED fees for the board and permanent committees of AMP Limited and its main subsidiaries
for 2018.
AMP Limited
Board
Audit Committee
Risk Committee
Nomination Committee2
Remuneration Committee3
AMP Bank
Board
Audit Committee
Risk Committee
AMP Capital Holdings
Board
Audit and Risk Committee
AMP Life Limited and NMLA
Board
Audit Committee
Risk Committee
Chairman base fee1
effective
1 January 2018
$
Chairman base fee1
effective
21 June 2018
$
Member base fee1
effective
1 January 2018
$
659,800
55,000
55,000
–
55,000
90,300
27,700
27,700
124,000
28,200
90,300
10,000
10,000
850,000
55,000
55,000
–
55,000
90,300
27,700
27,700
124,000
28,200
90,300
10,000
10,000
198,300
25,400
25,400
13,100
25,400
56,300
15,300
15,300
78,900
16,900
56,300
5,000
5,000
1
2
3
The total fees shown above are inclusive of superannuation contributions.
During 2018, no fee was payable to any chairman of the committee as each chairman was also the chairman of the AMP Limited Board at the time
and therefore did not receive any additional fee for this appointment. As noted earlier, effective 1 January 2019, no fee will be payable for
any director’s membership or chairmanship of the Nomination Committee.
No fee is currently payable to a member of the committee who is also chairman of the AMP Limited Board. During 2018, each chairman of the
AMP Limited Board was currently a member of the committee and therefore received no additional fee for this appointment. Effective 1 January
2019, the AMP Limited Chairman was appointed chairman of the Remuneration Committee and will receive no additional fee in this capacity.
The fees shown above are the total fees payable before the 25% fee reduction that applied to certain NEDs from 1 May to
31 December 2018. Refer to section 6 above.
For 2019, the board has approved a number of changes to the NED fees shown above. Details of these changes are provided in
section 6.3 below.
Additional fees are paid (on a per diem basis) for membership of certain special purpose committees formed from time to time.
50
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
6. Non-executive director remuneration (continued)
The following table shows the remuneration earned by AMP Limited NEDs for 2018. Please note that the 2018 total includes remuneration
for Mike Wilkins earned in his capacity as acting CEO. The total fees earned for NED duties for 2018 was lower than for 2017.
Short-term benefits
Post-
employment
benefits
AMP Limited
Board and
committee fees
$’000
Fees for other
group boards
$’000
Additional
board duties1
$’000
Other
short-term
benefits2
$’000
Non-
monetary
benefits3
$’000
Super-
annuation4
$’000
Total
$’000
Current NEDs
David Murray5
Chairman
Patricia Akopiantz6
Non-executive Director
John Fraser7
Non-executive Director
Andrew Harmos
Non-executive Director
Trevor Matthews
Non-executive Director
John O’Sullivan8
Non-executive Director
Geoff Roberts
Non-executive Director
Peter Varghese
Non-executive Director
Mike Wilkins9
Non-executive Director
Former NEDs
Catherine Brenner10
Former Chairman
Holly Kramer11
Former Non-executive Director
Vanessa Wallace11
Former Non-executive Director
Total for 201812
Total for 2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
438
–
223
261
50
–
203
134
199
229
101
–
212
229
177
204
156
245
213
640
70
204
71
205
2,113
2,351
–
–
101
121
–
–
62
42
105
119
–
–
32
–
107
96
38
104
–
–
37
81
57
141
539
704
–
–
25
11
–
–
16
14
–
–
–
–
11
14
8
–
27
24
–
–
19
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,276
–
–
–
–
–
–
–
–
–
3
–
–
–
–
2
–
–
–
–
–
–
–
1
–
–
4
–
2
–
2
–
11
–
20
20
6
–
20
12
20
20
11
–
20
20
20
28
19
20
7
20
8
20
9
20
106
74
1,276
–
11
3
171
180
449
–
372
413
56
–
301
204
324
368
112
–
275
263
312
329
1,516
393
224
660
136
316
139
366
4,216
3,312
1
2
3
4
5
6
7
8
9
Additional work for special committees and projects.
Fixed remuneration paid to Mike Wilkins in his capacity as acting Chief Executive Officer for the period 20 April to 30 November 2018.
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 base NED fees disclosed elsewhere in this report.
David Murray was appointed to the AMP Limited Board on 21 June 2018 and his remuneration reflects time in role.
Patricia Akopiantz resigned from the AMP Limited Board on 31 December 2018 and her remuneration reflects the full year in role.
John Fraser was appointed to the AMP Limited Board on 20 September 2018 and his remuneration reflects time in role.
John O’Sullivan was appointed to the AMP Limited Board on 20 June 2018 and his remuneration reflects time in role.
Mike Wilkins was appointed Executive Chairman of the AMP Limited Board for the period 30 April to 20 June 2018. Chairman fees for this period
are included within the AMP Limited Board and committee fees above.
10 Catherine Brenner ceased to be a director of AMP Limited effective 30 April 2018 and her remuneration reflects time in role.
11 Holly Kramer and Vanessa Wallace ceased to be directors of AMP Limited effective 8 May 2018 and their remuneration reflects time in role.
12
Total fees paid to NEDs of $2.933 million in relation to board and committee memberships. This excludes fixed remuneration and superannuation
paid to Mike Wilkins in his capacity as acting CEO and is lower than the 2017 total.
51
AMP 2018 annual report
6. Non-executive director remuneration (continued)
6.3 Changes to non-executive director remuneration for 2019 and 2020
A new feature of AMP’s conglomerate-based governance model is the appointment of all AMP Limited NEDs to the board of each
of AMP’s main ongoing subsidiaries, with the exception of AMP Capital Holdings Limited (AMPCHL) where two AMP Limited NEDs
are appointed. The AMP Limited Board considers this enhances its oversight of the group and achieves both governance and cost
efficiencies in the operation of the boards, as the AMP Limited NEDs replace external directors at a lower cost to the AMP group.
The main ongoing subsidiary boards are AMP Bank Limited (AMP Bank) and AMPCHL. AMP Bank is APRA regulated. The boards of
AMP Bank and AMPCHL have significant regulatory and oversight responsibilities for the businesses of those subsidiaries.
6.3.1 AMP Limited Chairman fee
The AMP Limited Board has given in principle approval to reduce the fee payable to the AMP Limited Chairman with effect from
1 January 2020. The board made this decision in anticipation of:
–
The reduced size and complexity of the group following the expected completion, in the second half of 2019, of the sale of
AMP’s Australian and New Zealand wealth protection and mature businesses to Resolution Life,
The expected completion this year of the board renewal process commenced in 2018, and
–
– The refinement of our strategy in 2019.
The reduced fee (inclusive of superannuation) is expected to be in the order of $660,000 (currently $850,000) per annum.
The specific amount of the reduced fee will be determined by the board in the second half of 2019.
6.3.2 Other NED fees
(a) Nomination Committee fees
With effect from 1 January 2019, the board withdrew the fees previously payable to AMP Limited NEDs for membership of the
Nomination Committee ($13,100 per annum).
(b) AMP Capital Holdings Limited NED fees
The AMP Limited Board has also resolved to reduce the fees payable to AMP Limited NEDs for serving on the board of AMP Capital
Holdings Limited (from $78,900 to $56,300 per annum) and for membership of its Audit and Risk Committees (from $16,900 to
$10,000 per annum). These changes will have the effect of reducing by $29,500 per annum the total fees that would otherwise have
been payable to an AMP Limited NED who is also a member of the AMP Capital Holdings Board and Audit and Risk Committees.
The reduced fees are aligned with the fees currently payable to AMP Limited NEDs for membership of the boards of our life
companies (AMP Life and NMLA) and their Audit and Risk Committees. The reductions will apply from 15 February 2019.
(c) AMP Bank Limited NED fees
Effective 15 February 2019:
–
All directors of AMP Limited will be appointed to the AMP Bank Board and all previous directors of AMP Bank, who are not also
AMP Limited directors, will step down from the AMP Bank Board
The AMP Limited Chairman, David Murray, will become the chairman of AMP Bank
All AMP Limited NEDs will be appointed to the AMP Bank Risk Committee, and
All AMP Limited NEDs (other than the AMP Limited Chairman) will be appointed to the AMP Bank Audit Committee.
–
–
–
The boards of AMP Limited and AMP Bank (and their respective Audit and Risk Committees) will meet concurrently going forward (where
appropriate), with a view to improving decision-making efficiency, reducing duplication and streamlining management reporting.
As a consequence of the AMP Limited Chairman assuming the role of AMP Bank Chairman, the separate fee ($90,300 per annum)
previously paid for that role will no longer be payable. In conjunction with these changes, the board has also decided to withdraw
the separate fees (shown in section 6.2 above) previously payable to AMP Limited NEDs for their services as chairman or a member
of the AMP Bank Board and its Audit and Risk Committees (respectively).
Instead, in recognition of the increased workload and additional supervisory and regulatory responsibilities for AMP Limited NEDs
associated with membership of the AMP Bank Board and its Audit and Risk Committees, the AMP Limited NED base fee will be
increased from $198,300 to $240,000 (inclusive of superannuation) per annum, effective 15 February 2019.
Despite this increase, the total fees will reduce. These changes will have the net effect of reducing by $45,200 per annum the total
fees that would otherwise have been payable to an AMP Limited NED who is also a member of the AMP Bank Board and each of its
Audit and Risk Committees. For an AMP Limited NED who acted as chairman of one of these committees, this net effect would be a
$57,600 reduction in fees per annum.
6.4 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. As at the date
of this report, these minimum values are:
– AMP Limited Chairman: $850,000 – 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 ordinarily expected to achieve these levels within four years of appointment and are encouraged to increase their ownership
over their tenure.
At the beginning of 2018, all of the NEDs then in office held sufficient AMP shares to satisfy the minimum shareholding policy having
regard to their tenure on the board and the value of their holdings at that time. However, this value fell during the year due to the
decline in the AMP share price since April 2018. In some instances, this resulted in the value of directors’ holdings falling below the
level ordinarily expected under this policy. Since this decline in value occurred (and until the date of this report), there has been
no permitted opportunity under the AMP Limited Trading Policy for NEDs to purchase additional AMP shares on market. In these
exceptional circumstances, affected directors have been allowed additional time to increase their holdings. They are expected to
do so when appropriate and permitted in accordance with the AMP Limited Trading Policy.
52
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 6. Non-executive director remuneration (continued)
6.5 Non-executive director shareholdings and other interests
The following table shows the number of ordinary shares in AMP Limited held directly, indirectly or beneficially by AMP Limited NEDs
or their related parties as at 31 December 2018 and movements in those holdings during the year. For this purpose, a NED’s related
parties are their close family members (as defined in the applicable accounting standard) and any entities over which the NED
(or a close family member) has control, joint control or significant influence (whether direct or indirect).
Current NEDs
David Murray4,6
Patricia Akopiantz5,6
John Fraser7
Andrew Harmos8
Trevor Matthews
John O’Sullivan6,9
Geoff Roberts
Peter Varghese10
Mike Wilkins
Former NEDs
Catherine Brenner
Holly Kramer
Vanessa Wallace
Holding at
1 Jan 2018
Changes
during
the year
Holding at
31 Dec 20181,2
Value of
holding at
31 Dec 20182,3
$
–
65,009
–
2,000
63,763
–
42,540
28,100
31,500
139,463
56,112
70,000
2,000
(4,000)
2,500
5,064
–
2,000
–
2,000
–
2,000
61,009
2,500
7,064
63,763
2,000
42,540
30,100
31,500
–
–
–
139,463
56,112
70,000
4,900
149,472
6,125
17,307
156,219
4,900
104,223
73,745
77,175
563,431
230,620
287,700
1
2
3
4
5
6
7
8
As at the date of this report, each of the current NEDs held a ‘relevant interest’ (as defined in the Corporations Act 2001) in the number of
AMP shares disclosed above for that NED, except Peter Varghese.
–
Peter Varghese held a relevant interest in 27,500 shares as at the date of this report, with the balance of the holdings disclosed above held
directly and beneficially by a close family member.
Value as at 31 December using the closing price of AMP shares on the ASX of $2.45 (or, in the case of former directors, the closing price on the date
they ceased to be an AMP Limited director).
The closing balances for Catherine Brenner, Holly Kramer and Vanessa Wallace reflect the position on the date that each ceased to be a director
of AMP Limited, being 30 April 2018 for Catherine Brenner and 8 May 2018 for each of Holly Kramer and Vanessa Wallace.
David Murray was appointed to the AMP Limited Board as Chairman effective 21 June 2018.
Patricia Akopiantz resigned from the AMP Limited Board effective 31 December 2018.
During the year, Patricia Akopiantz sold 2,000 shares to each of David Murray and John O’Sullivan, (respectively), by way of an off-market transfer.
The purpose of the transfers was to facilitate the acquisition by those directors of their director’s share qualification in accordance with clause
53.4 of the AMP Limited Constitution.
John Fraser was appointed to the AMP Limited Board effective 20 September 2018.
Movements in Andrew Harmos’ relevant interests in AMP shares during the year resulted from his acquisition of a relevant interest in:
– 59 shares under our dividend reinvestment plan; and
–
5,005 shares by reason of the grant of probate in the estate of a close relative. Andrew’s relevant interest in those shares arose by reason of
him being a joint executor of the estate, and notwithstanding that he is not a beneficiary of the estate.
9
10
John O’Sullivan was appointed to the AMP Limited Board effective 20 June 2018.
A close family member of Peter Varghese purchased 2,000 AMP shares on market during the year. Peter Varghese does not hold a relevant interest
in those shares.
7. Further detail on 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.
7.1 Executive 2018 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 Remuneration Committee 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, and
the available budget for remuneration increases.
AMP’s incentive plans are designed to reward executives for achieving financial and strategic performance at both a business and
individual level.
During 2018, executives (with the exception of Mr De Ferrari and Mr Meller) participated in the EPI Plan. AMP Capital’s CEO participated
in the EPI Plan (with a reduced target of 56% to compensate for previous LTI participation) and the AMP Capital Enterprise Profit Share
plan, which is an appropriate incentive plan for the executives of AMP’s investment management business. No EPI allocations were
made to these executives for 2018.
53
AMP 2018 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
For 2019 Mr De Ferrari and the executives will participate in a combination of STI and LTI plans.
2018 AMP Executive Performance Incentive (EPI) Plan
Who
All executives, excluding the CEO AMP and CEO AMP Capital.
Format of reward
60% of the EPI allocation is delivered in rights to AMP Limited shares, deferred for five years.
The executive does not receive dividends and voting rights until the rights vest and have been converted
to shares. However, dividends that have accrued will be paid as additional shares after vesting.
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 incentive
pool is calculated
The board determines the size of the incentive pool, based on performance against the incentive scorecard
(see section 4.2.1), taking into account AMP’s financial results, business leadership and progress of AMP’s
strategic objectives.
The Chief Risk Officer reports to the Remuneration Committee annually on risk outcomes across AMP.
The board considers this report and as a result may adjust the incentive pool up or down if they believe
the management team has operated outside board-approved risk appetite levels, or if there have been
other extraordinary events which have a broader impact on shareholder value.
How the awards
are allocated
The CEO distributes the incentive pool between business areas based on their contribution to AMP’s
performance. The CEO recommends to the board for their approval incentive payments for his direct
reports based on their performance and the performance of the company against the incentive scorecard.
Incentive deferral
60% of the EPI award is paid in the form of rights to AMP Limited shares that have no exercise price and
no exercise period. The rights will be delivered as:
–
Share rights that will convert to AMP Limited shares (vest) after five years, subject to the available
trading window.
Vesting is subject to ongoing employment and compliance with AMP policies and is at the board’s discretion.
Upon vesting the executive receives one fully paid ordinary AMP Limited share for each right held.
It is AMP’s practice to buy the shares on market.
If the executive
leaves AMP
If an executive resigns from their employment during the first year of the five-year vesting period, any unvested
rights will lapse. If they resign after the first year any unvested rights may be retained and vesting will
continue subject to the same vesting conditions as would apply if they had remained in AMP employment.
If an executive is terminated from AMP for misconduct during the first year of the five-year vesting period,
any unvested rights will lapse. If they are terminated for misconduct during the rest of the vesting period,
any unvested rights will be forfeited.
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 they had remained in
AMP employment.
If there is a change
in control of AMP
If 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 Remuneration Committee (including any
misstatement of financial results), and/or
–
To ensure no unfair benefit to the participant.
54
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018 7. Further detail on executive arrangements and statutory disclosures (continued)
2018 arrangements for CEO AMP Capital
Format of reward
The total variable pay award is made up of an AMP Capital Enterprise Profit Share (EPS) award and a reduced
EPI eligibility (to compensate for previous LTI participation).
How individual
performance is
measured
How the incentive
pools are calculated
A minimum of 60% of any total variable pay award is deferred into a combination of rights to AMP Limited
shares deferred for five years, and cash notionally invested into a general portfolio of AMP Capital-managed
funds for four years.
For the rights to AMP Limited shares, no dividends are received and there are no voting rights until they vest
and have been converted to shares. However, dividends that have accrued will be allocated as additional
shares in AMP Limited post vesting.
Individual performance is measured against the performance of AMP Capital and performance against
personal objectives. Performance scorecards and objectives are agreed with the board at the start of each year.
EPS pool
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.
EPI pool
As above for the other executives.
How the awards
are allocated
EPS portion
Based on a recommendation from the CEO, the board approves any allocation to the CEO AMP Capital 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.
Incentive deferral
EPI portion
As above for the other executives.
A minimum of 60% of the total variable pay award is deferred into a combination of rights to AMP Limited
shares that have no exercise price and carry no dividend or voting rights, and a deferred cash component that
is notionally invested into a general portfolio of AMP Capital Funds. The deferred portion of the EPS allocation
is deferred equally between the AMP share rights and notional investment. Any EPI allocation is fully deferred
into AMP share rights.
Rights to AMP Limited shares (under EPI Plan terms)
Any entitlement to AMP Limited shares will be delivered as:
– Share rights that will convert to AMP Limited shares (vest) after five years, subject to AMP’s trading policy.
Vesting is subject to ongoing employment and compliance with AMP policies and is at the board’s discretion.
Upon vesting the executive receives one fully paid ordinary AMP Limited share in exchange for each right held.
It is AMP’s practice to buy the shares on market.
Notional investment
The deferred cash portion is notionally invested into a general portfolio of AMP Capital-managed funds.
This investment is described as ‘notional’ because the CEO AMP Capital does not directly hold securities in
relation to this investment. However, the value of the retained amount will vary as if these amounts were
directly invested in AMP Capital-managed funds, giving the CEO AMP Capital an effective economic exposure
to the performance of the securities over the four-year period.
Vesting is subject to ongoing employment and compliance with AMP policies and is at the board’s discretion.
Upon vesting the executive receives the cash amount adjusted for any notional return generated by the
portfolio of AMP Capital Funds.
Treatment if he
leaves AMP
If there is a change
in control of AMP
As above for the other executives.
As above for the other executives.
Board discretion
As above for the other executives.
55
AMP 2018 annual report 7. Further detail on executive arrangements and statutory disclosures (continued)
Prior to the introduction of the EPI Plan in 2018, executives participated in an LTI plan. The details of the 2017 LTI plan are outlined below.
2017 AMP long-term incentive plan
Who
All executives, including CEO AMP Capital.
Format of reward
How the awards
are allocated
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.
Annually, the Remuneration Committee 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
56
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
7. Further detail on executive arrangements and statutory disclosures (continued)
2017 AMP long-term incentive plan
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 AMP’s practice to buy the shares on market.
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
If 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 Remuneration Committee (including any
misstatement of financial results), and/or
To ensure no unfair benefit to the participant.
–
–
–
7.2 Executive employment contracts
Contract term
CEO
Length of contract
Open-ended
Executives
Open-ended
Notice period
6 months by AMP
6 months by Francesco De Ferrari
6 or 12 months by AMP
6 or 12 months by the executive
Entitlements
on termination
– Accrued fixed pay, superannuation and other statutory requirements
–
Executives eligible for incentives may be awarded on a pro-rata basis for the current period in the case of
death, disablement, redundancy, retirement or notice without cause, subject to the original performance
periods and hurdles
Unvested deferred incentive awards may continue in the case of death, disablement, redundancy,
retirement or notice without cause, subject to the original performance periods and hurdles
Vested deferred incentive awards will be retained except in the case of serious misconduct or breach of
contract, and
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
AMP will not make payments on termination that require shareholder approval or otherwise breach the
Corporations Act. Where this is not detailed in the contract, the same approach would be taken to ensure
compliance with the Corporations Act.
Post-employment
restraint
6-month or 12-month restraint on entering employment with a competitor and solicitation of AMP clients
and employees.
57
AMP 2018 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
7.3 Other executive remuneration disclosures
The following disclosures provide additional information and/or are required under the Corporations Act. This includes the 2018
executive remuneration that is prepared according to Australian Accounting Standards.
7.3.1 Statutory disclosure
The table below shows the remuneration that was received by executives in 2018 as well as any incentive rewards that have been
awarded but not yet received. This includes fixed remuneration and the value of current and previous incentive payments which
have not yet vested.
Short-term employee benefits
Post-employment
benefits
Share-based
payments5
Long-term benefits
Termination
payments
Cash
salary1
$’000
Cash
short-term
incentive2
$’000
Other
short-term
benefits3
$’000
Super-
annuation
benefits
$’000
Other post-
employ-
ment
benefits4
$’000
Rights
and
options
$’000
Restricted
shares
$’000
Deferred
incentive6
$’000
Other7
$’000
Cash
payments
$’000
Total
$’000
341
–
45
34
232
(2)
29
–
159
–
121
61
55
–
207
223
54
15
35
67
41
44
43
40
5
–
25
25
25
27
15
–
57
–
22
21
22
46
25
45
25
27
25
30
25
27
25
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
375
–
618
303
526
274
45
–
330
–
790
775
507
185
707
222
575
456
778
740
– 1,272
898
–
–
–
538
549
399
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
9
5
4
88
–
2
–
10
4
8
5
(32)
102
52
12
– 1,276
–
–
– 1,558
– 1,749
– 1,513
– 1,426
–
–
603
–
– 1,345
–
–
– 1,882
– 2,451
– 1,258
– 1,308
– 1,782
– 2,039
– 1,461
– 1,714
(26)
18
– 1,709
– 2,379
262
–
–
–
71
35
29
43
– 3,309
– 3,190
– 1,392
– 1,775
156
–
861
858
725
729
426
–
797
–
939
939
666
603
875
856
755
712
–
–
–
520
–
394
–
–
–
–
–
651
–
469
–
591
–
492
Current disclosed executives
Francesco De Ferrari
Chief Executive Officer
Megan Beer
Group Executive,
Insurance
Sally Bruce
Group Executive,
AMP Bank
David Cullen
Group General Counsel
Jenny Fagg
Chief Risk Officer
Gordon Lefevre
Chief Financial Officer
Helen Livesey
Group Executive,
Public Affairs and
Chief of Staff
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Jack Regan
2018
Group Executive, Advice 2017
and New Zealand
2018
2017
Craig Ryman
Group Executive,
Technology
and Operations
Paul Sainsbury
Group Executive,
Wealth Solutions
and Customer
2018
2017
897
873
–
651
Adam Tindall
Chief Executive Officer,
AMP Capital
Fiona Wardlaw
Group Executive,
People and Culture
2018
2017
853
756
785
1,430
2018
2017
757
659
–
459
58
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
7. Further detail on executive arrangements and statutory disclosures (continued)
Short-term employee benefits
Post-employment
benefits
Share-based
payments5
Long-term benefits
Termination
payments
Cash
salary1
$’000
Cash
short-term
incentive2
$’000
Other
short-term
benefits3
$’000
Super-
annuation
benefits
$’000
Other post-
employ-
ment
benefits4
$’000
Rights
and
options
$’000
Restricted
shares
$’000
Deferred
incentive6
$’000
Other7
$’000
Cash
payments
$’000
Total
$’000
Former disclosed executives
Craig Meller
Former Chief
Executive Officer and
Managing Director
2018
2017
573
1,862
–
1,288
101
24
91
679
261
740
–
142
–
463
5
32
53
56
Saskia Goedhart
2018
Former Chief Risk Officer 2017
2018
2017
Brian Salter
Former Group
General Counsel
2018 total
2017 total
33
25
5
21
10
31
– (2,417)
– 2,028
148
–
–
–
(339)
269
(692)
618
–
–
–
–
–
–
–
–
(126)
44
1,882
46
– 5,271
–
–
–
–
(5)
3
(5)
49
–
(95)
– 1,146
797
424
– 1,957
9,632
785
1,521
344
148
3,613
399
262
80
2,680 19,464
10,266
7,550
594
350
–
7,317
–
–
328
– 26,405
1
2
3
4
5
6
7
Includes base salary and short-term compensated absences.
No 2018 short-term incentive allocations were made to executives (excluding the CEO AMP Capital).
Other short-term benefits include non-monetary benefits and any related FBT, for example, relocation costs, short term allowances, taxation
arrangements and the net change in annual leave accrued. Amounts for 2017 have been restated to include the net change in annual leave accrued.
Other post-employment benefits relates to previously granted deferred equity awards that remain unvested following cessation of employment.
The amount reflects the expense for all future years brought forward and disclosed in total for the 2018 year.
Amounts reflect the accounting expense on a fair value basis for unvested equity awards. The minimum future value for these awards is nil and
the maximum amount expensed is the fair value at grant date. All awards made in any year are amortised over the vesting period and adjusted to
reflect the number of instruments expected to vest over the period. To determine the fair values, AMP engages external consultants to calculate
these as at the grant date.
The fair value of any share rights and restricted share awards is calculated using a discounted cash flow technique, where the share price is
discounted for dividends forgone. For any performance rights, the fair values are calculated using a Monte Carlo simulation for the TSR component
and a discounted cash flow methodology for the RoE component. These are discounted for dividends forgone and the risk of performance
conditions not being met. To determine the fair value of rights awards with share price targets, assumptions underlying the Black-Scholes
methodology are used to produce a Monte Carlo simulation model, allowing for the share price target hurdles to be incorporated. For options
awards, the fair value is determined using the Black-Scholes methodology and AMP’s actual historic data.
For Craig Meller, Saskia Goedhart and Brian Salter, negative amounts indicate previously recognised expenses reversed during the year on cessation
of employment.
Amount reflects the accounting expense for cash incentive notionally invested as part of deferred incentive arrangements in AMP Capital.
Other long-term benefits represents net change in long service leave accrued. 2017 amounts have been restated to reflect the same basis.
59
AMP 2018 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
7.3.2 Executive performance rights holdings
The following table shows the performance rights which were granted, exercised or lapsed during 2018.
Name
Grant
date
Performance
condition
Fair
value per
performance
right
$
Holding at
1 Jan 2018
Rights
granted in
20181
Rights
exercised
in 2018
Rights
forfeited
or lapsed
in 2018
Vested and
exercisable
at
31 Dec 2018
Holding at
31 Dec 2018
Francesco De Ferrari
21/08/18 Share Price
Targets
0.82
– 1,656,976
– 1,656,976
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
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
2.82
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
2.82
5.39
2.37
4.81
2.24
13,845
9,231
20,513
13,675
180,000
237,264
11,423
7,615
10,256
6,837
180,000
216,131
7,384
4,923
7,179
4,786
24,272
128,077
85,384
148,461
98,974
289,500
750,396
13,845
9,231
15,385
10,256
172,500
221,217
78,230
52,154
86,923
57,948
210,000
485,255
83,077
55,384
100,000
66,666
225,000
530,127
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
Megan Beer
Total
Sally Bruce
Total
David Cullen2
Total
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
Gordon Lefevre
04/06/15
02/06/16
19/05/17
Total
Helen Livesey
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
Total
Jack Regan
Total
Craig Ryman
Total
60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,656,976
– 1,656,976
(13,845)
(9,231)
–
–
–
–
–
20,513
13,675
180,000
(23,076)
214,188
(11,423)
(7,615)
–
–
–
–
–
10,256
6,837
180,000
(19,038)
197,093
(7,384)
(4,923)
–
–
–
–
7,179
4,786
(12,307)
11,965
(128,077)
(85,384)
–
–
–
–
–
148,461
98,974
289,500
–
(213,461)
536,935
–
–
–
–
–
–
–
–
–
–
–
(13,845)
(9,231)
–
–
–
–
–
15,385
10,256
172,500
(23,076)
198,141
(78,230)
(52,154)
–
–
–
–
–
86,923
57,948
210,000
–
(130,384)
354,871
–
–
–
–
–
(83,077)
(55,384)
–
–
–
–
–
100,000
66,666
225,000
–
(138,461)
391,666
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
7. Further detail on executive arrangements and statutory disclosures (continued)
Rights
granted in
20181
Rights
exercised
in 2018
Rights
forfeited
or lapsed
in 2018
Vested and
exercisable
at
31 Dec 2018
Holding at
31 Dec 2018
Name
Grant
date
Performance
condition
Paul Sainsbury
04/06/15
02/06/16
19/05/17
02/06/16
19/05/17
Total
Adam Tindall
Total
Fiona Wardlaw
04/06/15
Total
Former Executives
Craig Meller
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
Total
Saskia Goedhart
04/06/15
02/06/16
19/05/17
04/06/15
02/06/16
19/05/17
Total
Brian Salter
Total
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
TSR
RoE
TSR
RoE
TSR
Fair
value per
performance
right
$
2.82
5.39
2.37
4.81
2.24
Holding at
1 Jan 2018
120,461
80,308
133,846
89,230
289,500
713,345
2.37
4.81
2.24
123,076
82,051
240,000
2.82
5.39
2.37
4.81
2.24
445,127
96,923
64,615
107,692
71,794
210,000
551,024
2.82
5.39
2.37
4.81
2.24
363,461
242,308
438,462
292,307
855,000
2,191,538
2.82
5.39
2.37
4.81
2.24
2.82
5.39
2.37
4.81
2.24
20,769
13,846
12,307
8,205
180,000
235,127
108,692
72,461
120,769
80,512
235,500
617,934
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(120,461)
(80,308)
–
–
–
–
–
133,846
89,230
289,500
–
(200,769)
512,576
–
–
–
–
–
–
–
–
–
–
–
–
123,076
82,051
240,000
–
445,127
(96,923)
(64,615)
–
–
–
–
–
107,692
71,794
210,000
–
(161,538)
389,486
–
–
–
–
–
(363,461)
(242,308)
(438,462)
(292,307)
(855,000)
– (2,191,538)
–
–
–
–
–
(20,769)
(13,846)
(12,307)
(8,205)
(180,000)
–
(235,127)
–
–
–
–
–
(108,692)
(72,461)
(120,769)
(80,512)
(235,500)
–
(617,934)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
Performance rights give the participant the right to acquire one fully paid ordinary share in AMP Limited upon meeting specific performance
hurdles. Rights are granted at no cost to participants and carry no dividend or voting rights until they vest. Performance rights may be settled
through an equivalent cash payment at the discretion of the board.
The performance rights granted to David Cullen under the 2015 and 2016 LTI awards were made prior to his appointment as KMP.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61
AMP 2018 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
7.3.3 Executive options holdings
The following table shows the options that were granted, exercised or lapsed during 2018.
Name
Grant
date
Exercise price
$
Holding at
1 Jan 2018
Options
granted in
20181
Options
exercised in
2018
Options
forfeited or
lapsed in
2018
Holding at
31 Dec 2018
Vested and
exercisable at
31 Dec 2018
Francesco De Ferrari
14/12/18
5.50
–
8,000,000
Total
–
8,000,000
–
–
–
8,000,000
–
8,000,000
–
–
1
Options give the participant the right to acquire one fully paid ordinary share in AMP Limited at a predetermined price. Options are granted at no
cost to participants and carry no dividend or voting rights, however, are subject to an exercise price at the time the options are converted to shares.
Options may be settled through an equivalent cash payment at the discretion of the board.
7.3.4 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 offered to other employees and shareholders.
Balance at
1 Jan 2018
$’000
Written off
$’000
Net
advances
(repayments)
$’000
Balance at
31 Dec 2018
$’000
Interest
charged
$’000
Interest not
charged
$’000
Highest
indebtedness
during year
$’000
Number in
group
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
12,453
1,894
262
1,357
2,032
1,958
2,560
2,400
–
–
–
–
–
–
–
–
51
12,504
361
–
16,283
9
(45)
783
(11)
(92)
(55)
(348)
(200)
1,849
1,046
1,345
1,940
1,904
2,212
2,200
69
9
46
52
67
25
87
–
–
–
–
–
–
–
2,007
1,049
1,363
2,032
2,219
2,561
2,414
Other transactions
During 2018, 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
– The purchase of AMP insurance and investment products, and
–
Financial investment services.
Signed in accordance with a resolution of the directors.
David Murray
Chairman
Sydney, 14 February 2019
Francesco De Ferrari
Chief Executive Officer and Managing Director
62
AMP 2018 annual reportDirectors’ report for the year ended 31 December 2018
Analysis of shareholder profit
for the year ended 31 December 2018
All amounts are after income tax
Profit and loss
Australian wealth management1
AMP Capital2
AMP Bank
New Zealand wealth management1
Retained businesses’ operating earnings
Australian wealth protection
New Zealand wealth protection and mature
Australian mature
Sold businesses’ operating earnings3
Business unit operating earnings
Group Office costs
Total operating earnings
Underlying investment income2
Interest expense on corporate debt
Underlying profit
Advice remediation and related costs
Royal Commission
Portfolio review and related costs
Risk management, governance and controls
Other items
Amortisation of acquired intangible assets2
Profit (loss) before market adjustments and accounting mismatches
Market adjustment – investment income2
Market adjustment – annuity fair value
Market adjustment – risk products
Accounting mismatches
Profit (loss) attributable to shareholders of AMP Limited
2018
$m
363
167
148
53
731
(176)
39
134
(3)
728
(76)
652
96
(68)
680
(469)
(32)
(48)
(8)
(74)
(79)
(30)
(28)
12
24
50
28
2017
$m
391
156
140
54
741
110
71
150
331
1,072
(74)
998
95
(53)
1,040
–
–
(24)
–
(21)
(80)
915
(39)
4
(18)
(14)
848
1
2
3
The operating earnings of Australian wealth management and New Zealand wealth management businesses include internal distribution fees
and product revenues that are for the benefit of Resolution Life from 1 July 2018.
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.
AMP has entered into a sale and purchase agreement with Resolution Life for AMP Life. This includes the Australian and New Zealand wealth
protection and mature business units. Operating earnings for these sold businesses, adjusted for risk sharing arrangements and a retained economic
interest in the mature business, accrue to Resolution Life from 1 July 2018. AMP will continue to report these earnings until the sale completes.
63
AMP 2018 annual report
Financial report
for the year ended 31 December 2018
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
About this report
(a) Understanding the AMP financial report
(b) Basis of consolidation
(c) Significant accounting policies
(d) Critical judgements and estimates
Section 1: Results for the year
1.1 Segment performance
1.2 Earnings 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 Derivatives and hedge accounting
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 Commitments
7.3 Provisions and contingent liabilities
7.4 Auditors’ remuneration
7.5 New accounting standards
7.6 Events occurring after reporting date
Directors’ declaration
Independent auditor’s report
65
66
67
68
69
70
71
71
72
72
76
77
79
80
83
85
85
86
90
91
92
99
101
102
104
105
111
114
117
118
121
129
130
130
131
132
133
133
136
136
138
139
140
64
AMP 2018 annual report
Consolidated income statement
for the year ended 31 December 2018
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 or losses on financial assets
and liabilities at fair value through profit or loss
Interest income earned using the effective interest method
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
Other operating expenses
Finance costs
Movement in external unitholder liabilities
Change in policyholder liabilities
life insurance contracts
–
–
investment contracts
Income tax credit (expense)
Profit for the year
Profit attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
Profit for the year
Earnings per share
Basic
Diluted
Note
2018
$m
2017
$m
4.2(a)
4.2(b)
1.1(b)
6.3
4.2(b)
4.2(a)
4.2(e)
1.3
Note
1.2
1.2
2,653
487
3,083
167
955
899
42
(2,254)
(989)
(1,701)
(1,136)
(1,887)
(611)
(208)
79
55
417
51
28
23
51
2018
cents
1.0
1.0
2,997
234
3,115
176
11,069
819
29
(2,046)
(635)
(1,697)
(1,078)
(1,054)
(585)
(1,481)
(1,069)
(7,158)
(763)
873
848
25
873
2017
cents
29.3
29.1
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.
65
AMP 2018 annual report
Consolidated statement of comprehensive income
for the year ended 31 December 2018
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Fair value reserve1
– net gain (loss) on fair value asset reserve
–
tax effect on fair value asset reserve gain or loss
Cash flow hedges
– net (loss) gain on cash flow hedges
tax effect on cash flow hedge gain or loss
–
– amount transferred to profit for the year
–
tax effect on amount transferred to profit for the year
Translation of foreign operations and revaluation of hedge of net investments
Items that will not be reclassified subsequently to profit or loss
Fair value reserve – equity instruments held by AMP Foundation
Defined benefit plans
– actuarial (losses) gains
–
tax effect on actuarial gains or losses
Other comprehensive income (loss) for the year
Total comprehensive income for the year
Total comprehensive income attributable to shareholders of AMP Limited
Total comprehensive income attributable to non-controlling interests
Total comprehensive income for the year
Note
2018
$m
51
2017
$m
873
22
(7)
15
(37)
11
11
(3)
(18)
78
78
(4)
(4)
(43)
12
(31)
40
91
68
23
91
(1)
–
(1)
4
(1)
10
(3)
10
(54)
(54)
–
–
7
(2)
5
(40)
833
808
25
833
5.2
1
Following the adoption of AASB 9, debt securities held by AMP Bank, previously classified as held-to-maturity and measured at amortised cost, have
been classified as financial instruments measured at fair value through other comprehensive income.
66
AMP 2018 annual reportFinancial report for the year ended 31 December 2018
Consolidated statement of financial position
as at 31 December 2018
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
Employee benefits
Other financial liabilities
Provisions
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
2018
$m
2017
$m
7.1
2.3
2.1
6.3
1.3
4.2
2.2
2.4
2.1
7.3
3.2
1.3
4.2
4.5
4.2
5.2
3.1
3,932
2,608
213
101
132,103
145
924
95
876
1,073
3,208
3,602
2,151
7
138
136,675
134
749
75
686
804
3,218
145,278
148,239
2,032
73
316
1,389
807
21,650
1,633
17,059
23,257
68,742
1,452
77
1,752
71
325
591
153
21,009
2,190
14,468
23,683
75,235
1,450
29
138,487
140,956
6,791
7,283
9,502
(1,931)
(886)
6,685
106
9,376
(2,010)
(164)
7,202
81
Total equity of shareholders of AMP Limited and non-controlling interests
6,791
7,283
67
AMP 2018 annual report
Consolidated statement of changes in equity
for the year ended 31 December 2018
Equity attributable to shareholders of AMP Limited
Contributed
equity
$m
Demerger
reserve1
$m
Share-
based
payment
reserve2
$m
Capital
profits
reserve3
$m
Fair
value
reserve
$m
Foreign
currency
translation
and hedge
of net
investments
reserves
$m
Cash
flow
hedge
reserve
$m
Total
reserves
$m
Retained
earnings
$m
Total
shareholder
equity
$m
Non-
controlling
interest
$m
Total
equity
$m
2018
Balance at the beginning
of the year
Impact of adoption of new
accounting standards
Balance at the beginning
of the year – restated
Profit
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
New capital from shares issued
under dividend reinvestment plan
Sales and acquisitions of
non-controlling interests
9,376
(2,566) 100
329
–
–
–
–
9,376
(2,566) 100
329
–
–
–
–
–
63
–
–
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
(21)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
3
10
–
11
–
–
–
–
–
–
–
Balance at the end of the year
9,502
(2,566) 105
329
21
2017
Balance at the beginning
of the year
Profit
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
Sales and acquisitions of
non-controlling interests
9,619
(2,566)
93
329
–
–
–
–
(200)
(43)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27
(20)
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at the end of the year
9,376
(2,566) 100
329
8
–
(1)
(1)
–
–
–
–
–
–
7
26
–
(18)
11
(18)
26
94 (2,010)
(164) 7,202
81 7,283
–
–
3
(1)
2
–
2
94 (2,007)
(165) 7,204
81 7,285
23
–
23
1
(3)
51
40
91
27
(24)
–
–
–
57
(715)
7
28
(31)
(3)
–
–
28
40
68
26
(21)
(6)
57
(715)
(715)
7
7
–
–
78
78
–
–
–
–
–
–
–
–
71
71
26
(21)
–
–
–
–
–
63
–
63
(4)
(4)
4
–
172 (1,931)
(886) 6,685
106 6,791
148 (1,972)
(185) 7,462
79 7,541
–
–
848
(54)
(45)
5
(45)
27
(20)
853
–
–
848
(40)
808
27
25
873
–
(40)
25
833
1
28
(220)
(1)
(221)
–
–
–
–
(3)
(46)
–
(46)
(837)
(837)
(22)
(859)
8
–
8
–
–
8
(1)
(1)
(54)
–
–
–
–
–
–
–
–
–
–
–
–
–
8
16
–
10
10
–
–
–
–
–
–
26
94 (2,010)
(164) 7,202
81 7,283
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
68
AMP 2018 annual reportFinancial report for the year ended 31 December 2018
Consolidated statement of cash flows
for the year ended 31 December 2018
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
2018
$m
2017
$m
14,871
2,140
2,236
(22,100)
(613)
(515)
18,067
2,041
2,137
(22,605)
(519)
(519)
Cash flows from (used in) operating activities
7.1
(3,981)
(1,398)
Cash flows from investing activities1
Net proceeds from sale of (payments to acquire):
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 from (used in) investing activities
Cash flows from financing activities
Net movement in deposits from customers
Proceeds from borrowings – non-banking operations1
Repayment of borrowings – non-banking operations1
Net movement in borrowings – banking operations
On-market share buy-back
Proceeds from issue of subordinated debt
Repayment of subordinated debt
Dividends paid4
Cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes on cash and cash equivalents
4,355
(37)
(2,614)
(46)
(113)
(293)
4,205
(2,953)
1,357
289
(216)
(724)
–
250
(325)
(708)
1,003
391
–
2,305
(200)
250
(150)
(828)
(77)
2,771
147
7,222
13
(1,580)
8,810
(8)
Cash and cash equivalents at the end of the year1
7.1
7,382
7,222
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 insurance entities’ statutory funds
and controlled entities of the statutory funds. Dividends and distributions reinvested have been treated as non-cash items.
Net proceeds from sale of (payments to acquire) investments in financial assets also includes loans and advances made (net of payments) and
purchases of financial assets (net of maturities) during the period by AMP Bank.
The Dividends paid amount is presented net of dividends on treasury shares.
69
AMP 2018 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 (AMP Life) – a registered
life insurance entity and its 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(c).
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.
Agreement to sell wealth protection and mature businesses
On 25 October 2018, AMP announced an agreement with Resolution Life Australia Pty Ltd (Resolution) to sell its Australian and
New Zealand wealth protection (WP) and mature businesses. The sale is subject to regulatory approvals and is expected to complete
in the second half of 2019.
Consideration for the sale payable on transaction completion comprises cash, AT1 preference shares in AMP Life Limited and non-cash
consideration comprising an economic interest in the future earnings of the mature business sold to Resolution and an interest in
Resolution Life Group Holdings LP.
The interests received as non-cash consideration will be fair valued by AMP on completion and, together with cash proceeds, will be
treated as the accounting purchase price. Under the terms of the agreement, Resolution assumes profit and loss from the WP and
mature businesses from 1 July 2018, subject to specific risk sharing arrangements. These profit impacts are transferred to Resolution
as an adjustment to the purchase price upon completion. Adjustments to the purchase price will affect the profit or loss recognised
by AMP at completion.
The businesses subject to sale were controlled by the AMP group throughout the reporting period and as a result the income and
expenses, assets and liabilities and cash flows of these businesses are consolidated within the financial report, including the profits
which will form part of the completion purchase price adjustment.
The sale is subject to a number of conditions, including the separation of AMP’s retained wealth management business from the
WP and mature business being sold to Resolution. As the WP and mature businesses subject to the sale do not meet the AASB 5
Non-current Assets Held for Sale and Discontinued Operations criteria, the results of those businesses have not been presented
separately in the financial report.
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; and
–
–
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 2018 were authorised for issue on 14 February 2019 in accordance
with a resolution of the directors.
70
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
(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.
(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.
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 and
distribution 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
Income and expenses
Assets and liabilities
Equity
Reserves
Applicable exchange rate
Average exchange rate
Reporting date
Historical date
Reporting date
Foreign exchange differences resulting from translation of foreign operations are initially recognised in the foreign currency translation
reserve and subsequently transferred to the Consolidated income statement on disposal of the foreign operation.
71
AMP 2018 annual report (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 above and in the
following notes:
Accounting judgements and estimates
Note
Tax
Fair value of financial assets
Impairment
Goodwill and acquired intangible assets
Life insurance and investment contract liabilities
Consolidation
Provisions and contingent liabilities
Investments in financial instruments
1.3 Taxes
2.1
2.1 Expected credit losses (ECLs)
2.2 Intangibles
4.1 Accounting for life insurance and investment contracts
6.1 Controlled entities
7.3 Provisions and contingent liabilities
Page
77
80
80
83
102
129
133
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 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.
Following the completion of the group’s portfolio review, which resulted in the announced sale of the WP and mature businesses
to Resolution as well as the announced intention to divest the New Zealand wealth management business, the manner in which
management monitors the group’s operations and makes decisions about those operations has significantly changed. Consequently,
the composition of the group’s operating segments has changed.
Reportable segment
Segment description
Financial advice services (through aligned and owned advice businesses), platform and software
administration (including SMSF), unit linked superannuation, retirement income and managed
investment products business in Australia. Superannuation products include personal and employer
sponsored plans with insurance.
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.
On 1 March 2012, AMP Capital and Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank)
formed a strategic business and capital alliance. As part of that alliance, MUFG: Trust Bank acquired
a 15% ownership interest in AMP Capital. The initial five-year agreement between AMP Capital and
MUFG: Trust Bank was renewed in the first quarter of 2017.
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
management (WM)
AMP Capital
72
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 1.1 Segment performance (continued)
Reportable segment
Segment description
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 wealth
management (NZWM)
Encompasses the wealth management and financial advice and distribution business in New
Zealand. Customers are provided with a variety of wealth management solutions including KiwiSaver,
corporate superannuation, retail investments and a wrap investment management platform.
Australian and New Zealand
wealth protection (WP) and
mature
Australian 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.
Australian mature is 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 (RSA), Eligible Rollover Fund (ERF), annuities,
insurance bonds, personal superannuation and guaranteed savings accounts (GSAs).
New Zealand WP and mature includes risk insurance and mature book (traditional participating
business).
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.
(a) Segment profit
2018
Segment profit after income tax
External customer revenue
Intersegment revenue3
Segment revenue2
Other segment information
Income tax expense
Depreciation and amortisation
2017
Segment profit after income tax
External customer revenue
Intersegment revenue3
Segment revenue2
Other segment information
Income tax expense
Depreciation and amortisation
WM
$m
AMP
Capital1
$m
363
1,195
114
1,309
153
60
391
1,256
115
1,371
165
77
167
450
258
708
59
14
156
409
250
659
58
7
AMP
Bank
$m
148
401
–
401
63
–
140
365
–
365
60
–
AUS and
NZ WP and
mature
$m
NZ WM
$m
53
130
–
130
21
–
54
126
–
126
21
–
(3)
(3)
–
(3)
–
19
331
331
–
331
139
35
Total
$m
728
2,173
372
2,545
296
93
1,072
2,487
365
2,852
443
119
1
2
3
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 and other segment information excludes revenue, expenses and tax relating to assets backing policyholder liabilities.
Disaggregated revenue information is presented in note 1.1(b).
Intersegment revenue represents operating revenue between segments priced on a market related basis and is eliminated on consolidation.
73
AMP 2018 annual report 1.1 Segment performance (continued)
(b) The following table allocates the disaggregated segment revenue from contracts with customers to the group’s operating
segments (see note 1.1(a)):
2018
Investment related
Management fees
Performance and transaction fees
Net interest income
Other revenue
Total segment revenue per segment note
Presentation adjustments2
Total statutory revenue from contracts with customers
2017
Investment related
Management fees
Performance and transaction fees
Net interest income
Other revenue
Total segment revenue per segment note
Presentation adjustments2
Total statutory revenue from contracts with customers
Statutory revenue from contracts with customers
Fee revenue
–
– Financial advisory fees3
Investment management and related fees
Other revenue
Total statutory revenue from contracts with customers
WM
$m
AMP
Capital
$m
1,213
–
–
–
96
1,309
1,263
–
–
–
108
1,371
–
639
69
–
–
708
–
584
75
–
–
659
AMP
Bank
$m
–
–
–
388
13
401
–
–
–
355
10
365
AUS and
NZ WP and
mature1
$m
NZ WM
$m
130
–
–
–
–
130
126
–
–
–
–
126
–
–
–
–
(3)
(3)
–
–
–
–
331
331
Total
$m
1,343
639
69
388
106
2,545
659
3,204
1,389
584
75
355
449
2,852
376
3,228
2018
$m
2017
$m
2,221
862
3,083
121
2,284
831
3,115
113
3,204
3,228
1
2
3
Disaggregated revenue information does not exist for Aus and NZ WP and mature as this business is managed on an operating earnings basis.
Presentation adjustments primarily reflect the difference between total segment revenue and statutory revenue from contracts with customers,
as required by AASB 15. These adjustments include revenue from sources other than contracts with customers and expense items which are
presented net in the segment results, but presented gross in the Consolidated income statement.
A substantial majority of the financial advisory fees received are paid to advisers. For statutory reporting, financial advisory fees are presented gross
of the related cost which is presented in Fees and commission expenses in the Consolidated income statement.
74
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
1.1 Segment performance (continued)
(c) 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
Advice remediation and related costs
Royal Commission
Portfolio review and related costs
Risk management, governance and controls
Other items2
Amortisation of acquired intangible assets3
Profit (loss) before market adjustments and accounting mismatches
Market adjustment – investment income1
Market adjustment – annuity fair value4
Market adjustment – risk products5
Accounting mismatches6
Profit attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
Profit for the year
2018
$m
728
(76)
652
96
(68)
680
(469)
(32)
(48)
(8)
(74)
(79)
(30)
(28)
12
24
50
28
23
51
2017
$m
1,072
(74)
998
95
(53)
1,040
–
–
(24)
–
(21)
(80)
915
(39)
4
(18)
(14)
848
25
873
1
2
3
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.
Amortisation of acquired intangibles includes amortisation of intangibles acquired through business combinations and notional intangibles
included within the carrying value of equity accounted associates and acquired client registers.
4 Market adjustment – annuity fair value relates to the net impact of investment markets on AMP’s annuity portfolio.
5
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.
Under Australian Accounting Standards, some assets held on behalf of the policyholders (and related tax balances) are recognised in the financial
statements 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 profit attributable to shareholders. These differences
have no impact on the operating earnings of the AMP group.
6
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)
– 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
2018
$m
2017
$m
2,545
2,852
913
167
11,019
176
3,013
553
1,467
(372)
2,774
515
1,468
(365)
8,286
18,439
75
AMP 2018 annual report
1.1 Segment performance (continued)
(d) 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.
Accounting policy – recognition and measurement
Revenue from contracts with customers
For AMP, revenue from contracts with customers arises primarily from the provision of investment management and financial advisory
services. Revenue is recognised when control of services is transferred to the customer at an amount that reflects the consideration
which AMP is entitled to in exchange for the services provided. As the customer simultaneously receives and consumes the benefits
as the service is provided, control is transferred over time. Accordingly, revenue is recognised over time.
Fee rebates provided to customers are recognised as a reduction in fee revenue.
Investment management and related fees
Fees are charged to customers in connection with the provision of investment management and other related services. These
performance obligations are satisfied on an ongoing basis, usually daily, and revenue is recognised as the service is provided.
Financial advisory fees
Financial advisory fees consist of commissions and fee-for-service revenue and are earned for providing customers with financial
advice and performing related advisory services. These performance obligations are satisfied over time. Accordingly, revenue is
recognised over time.
A substantial majority of the financial advisory fees received are paid to advisers. Financial advisory fees are presented gross of
the related cost which is presented in Fees and commission expenses in the Consolidated income statement.
1.2 Earnings per share
Basic earnings per share
Basic earnings per share is calculated based on profit attributable to shareholders of AMP Limited (AMP) and the weighted average
number of ordinary shares outstanding.
Profit attributable to shareholders of AMP ($m)
Weighted average number of ordinary shares (millions)1
Basic earnings per share (cents per share)
2018
2017
28
2,897
1.0
848
2,896
29.3
Diluted earnings per share
Diluted earnings per share is based on profit 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 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 per share
Diluted earnings per share (cents per share)
2018
28
2,897
18
2,915
1.0
2017
848
2,896
22
2,918
29.1
1
2
The weighted average number of ordinary shares outstanding is calculated after deducting the weighted average number of treasury shares held
during the period.
Performance rights have been determined to be dilutive; however, if these instruments vest and are exercised, it is AMP’s policy to buy AMP shares
on market so there will be no dilutive effect on the value of AMP shares.
76
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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%.
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 (loss) before income tax
Policyholder tax credit (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% (2017: 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
Over provided in previous years
Utilisation of previously unrecognised tax losses
Differences in overseas tax rates
Income tax credit (expense) attributable to shareholders and non-controlling interest
Income tax credit (expense) attributable to policyholders
Income tax credit (expense) per Income statement
(b) Analysis of income tax expense
Current tax expense
Increase in deferred tax assets
Decrease (increase) in deferred tax liabilities
Over (under) provided in previous years including amounts attributable to policyholders
Income tax expense
2018
$m
2017
$m
(366)
1,636
399
33
(10)
(2)
7
(23)
6
15
8
8
9
18
399
417
(336)
190
557
6
417
(472)
1,164
(349)
(33)
8
(27)
16
24
3
53
14
(291)
(472)
(763)
(536)
23
(244)
(6)
(763)
77
AMP 2018 annual report
1.3 Taxes (continued)
(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
(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
2018
$m
2017
$m
702
30
41
45
58
876
470
32
40
87
57
686
1,174
459
1,736
454
1,633
2,190
13
(6)
111
706
108
117
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; and
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.
78
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
1.3 Taxes (continued)
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.
1.4 Dividends
Dividends paid and proposed during the year are shown in the table below:
2018
Final
2018
Interim
2017
Final
2017
Interim
Dividend per share (cents)
Franking percentage
Cost (in $m)
Payment date
4.0
90%
117
28 March 2019
10.0
50%
292
28 September 2018
14.5
90%
423
28 March 2018
14.5
90%
423
29 September 2017
Dividends paid
Previous year final dividend on ordinary shares
Interim dividend on ordinary shares
Total dividends paid1
2018
$m
423
292
715
2017
$m
414
423
837
1
Total dividends paid includes dividends paid on Treasury shares $7m (2017: $8m).
Dividend franking credits
Franking credits available to shareholders are $148m (2017: $275m), 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 $45m.
Franked dividends are franked at a tax rate of 30%.
79
AMP 2018 annual report
Section 2: Investments, intangibles and working capital
This section highlights the AMP group’s assets and working capital used to support the AMP group’s activities.
2.1 Investments in financial instruments
2.2 Intangibles
2.3 Receivables
2.4 Payables
2.5 Fair value information
2.1 Investments in financial instruments
(a) 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
Financial assets measured at fair value through other comprehensive income
Debt securities3
Equity securities
Total financial assets measured at fair value through other comprehensive income
Financial assets measured at amortised cost4
Loans and advances
Debt securities
Total financial assets measured at amortised cost
Total financial assets
Other financial liabilities
Derivative financial liabilities
Collateral deposits held2
Total other financial liabilities
2018
$m
2017
$m
55,894
32,577
19,838
1,059
–
58,538
32,457
22,398
1,092
5
109,368
114,490
2,355
60
2,415
–
68
68
20,098
222
19,554
2,563
20,320
22,117
132,103
136,675
1,225
164
1,389
489
102
591
1
2
3
4
Financial assets measured at fair value through profit or loss are mainly assets of the AMP life insurance entities’ statutory funds and their
controlled entities.
Included within debt securities are assets held to back the liability for collateral deposits.
Debt securities measured at fair value through other comprehensive income are assets of AMP Bank and were previously measured at amortised
cost. Refer to note 7.5 for details of the classification change resulting from the adoption of AASB 9 Financial Instruments.
Financial assets measured at amortised cost are presented net of expected credit losses (ECLs) of $38m.
80
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
2.1 Investments in financial instruments (continued)
(b) The following table provides the changes to expected credit losses (ECLs) provisions relating to loans and advances during the year:
ECL provisions at 1 January 20181
New loans originated during the year
Loans derecognised or repaid during the year
Transfer to Stage 1
Transfer to Stage 2
Transfer to Stage 3
Increase in provisions during the year
Loans written off during the year
ECL Provisions
Stage 1
collective
$m
Stage 2
collective
$m
Stage 3
$m
Total
$m
3
–
–
–
–
–
7
–
10
12
1
(1)
1
–
(2)
–
–
11
14
–
(3)
1
3
–
4
(2)
17
29
1
(4)
2
3
(2)
11
(2)
38
1
Includes $12m opening adjustment due to implementation of AASB 9.
Accounting policy – recognition and measurement
Recognition and derecognition 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. At initial recognition, financial assets are classified as subsequently measured at fair value through profit or loss, fair value
through other comprehensive income (OCI), and amortised cost. The classification of financial assets at initial recognition depends on
the financial asset’s contractual cash flow characteristics and the group’s business model for managing them.
Financial assets are derecognised 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 derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Financial assets measured at fair value through profit or loss
Financial assets measured 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 profit
or loss in the period in which they arise.
Financial assets measured at fair value through OCI – debt securities
Debt securities are measured at fair value through OCI when both of the following conditions are met:
–
the instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and
selling financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
–
Fair value through OCI instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value
recognised in OCI. Interest income and foreign exchange gains and losses and impairment losses or reversals are recognised in profit
or loss in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI.
The accumulated gains or losses recognised in OCI are recycled to profit and loss upon derecognition of the assets.
The group classifies debt securities held by AMP Bank under this category.
Financial assets measured at fair value through OCI – equity securities
Upon initial recognition, the group can elect to classify irrevocably its equity investments as equity instruments designated at fair value
through OCI when they meet the definition of equity under AASB 132 Financial Instruments: Presentation and are not held for trading.
The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement
of profit or loss when the right of payment has been established. Equity instruments designated at fair value through OCI are not
subject to impairment assessment.
The group elected to classify irrevocably equity investments held by AMP Foundation Limited, a controlled entity of the AMP group,
under this category.
81
AMP 2018 annual report
2.1 Investments in financial instruments (continued)
Financial assets measured at amortised cost – loans and advances and debt securities
Loans and advances and debt securities are measured at amortised cost when both of the following conditions are met:
–
the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual
cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
–
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. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
Loans and advances are financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when AMP Bank provides money directly to a customer, including loans and advances to advisers, and with no intention of trading
the financial asset. Loans and advances are initially recognised at fair value including direct and incremental transaction costs
relating to loan origination. They are subsequently measured at amortised cost using the effective interest method, less any
provision for impairment.
Impairment of financial assets
An allowance for expected credit losses (ECLs) is recognised for financial assets not held at fair value through profit or loss.
ECLs are probability weighted estimates of credit losses and are measured as the present value of all cash shortfalls discounted
at the effective interest rate of the financial instrument. The key elements in the measurement of ECLs are as follows:
–
–
PD – The probability of default is an estimate of the likelihood of default over a given time horizon.
EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes
in the exposure after the reporting date.
LGD – Loss given default is an estimate of the loss arising in the case where default occurs at a given time. It is based on the
difference between cash flows due to the group in accordance with the contract and the cash flows that the group expects
to receive, including from the realisation of any collateral.
–
The group estimates these elements using appropriate credit risk models taking into consideration the internal and external credit
ratings of the assets, nature and value of collaterals, forward-looking macro-economic scenarios, etc.
Other than ECL on trade receivables and debt securities, where a simplified approach is taken, the group applies a three-stage
approach to measure the ECLs as follows:
Stage 1 (12-month ECL)
The group collectively assesses and recognises a provision at an amount equal to 12-month ECL when financial assets are current
and/or have had a good performance history. It includes financial assets where the credit risk has improved, and the financial assets
have been reclassified from Stage 2 or even Stage 3 based on improved performance observed over a predefined period of time.
A financial asset is considered to have low credit risk when its credit risk rating is equivalent to the globally understood definition
of ‘investment grade’.
Stage 2 (Lifetime ECL – not credit impaired)
The group collectively assesses and recognises a provision at an amount equal to lifetime ECL on financial assets where there has been
a significant increase in credit risk since initial recognition but the financial assets are not credit impaired.
The quantitative criteria used to determine a significant increase in credit risk is a series of relative and absolute thresholds. Financial
assets that were 30 days past due at least once over the last six months are deemed to have significant increase in credit risk since
initial recognition. For loans and advances, other risk factors like hardship, loan to value ratio (LVR) and loan to income ratio (LTI) are
also considered in order to determine a significant increase in credit risk.
Stage 3 (Lifetime ECL – credit impaired)
The group measures loss allowances at an amount equal to lifetime ECL on financial assets that are determined to be credit impaired
based on objective evidence of impairment. Financial assets are classified as impaired when payment is 90 days past due or when there
is no longer reasonable assurance that principal or interest will be collected in their entirety on a timely basis.
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. Further detail on the determination of fair value of financial instruments is set out in note 2.5.
Impairment
The impairment provisions (individual and collective) are outputs of ECL models with a number of underlying assumptions regarding
the choice of variable inputs and their independencies. Elements of the ECL models that are considered accounting estimates and
judgements include:
– AMP group’s internal grading which assigns PDs to the individual grades
– AMP group’s criteria for assessing if there has been a significant increase in credit risk
– Development of ECL models, including the various formulas and choice of inputs; and
–
Determination of associations between macroeconomic scenarios and their probability weightings, to derive the economic inputs
into the ECL models.
82
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 2.2 Intangibles
Goodwill1
$m
Capitalised
costs
$m
Value of
in-force
business
$m
Distribution
networks
$m
Other
intangibles
$m
2018
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 to inventories
Amortisation expense
Impairment loss
Balance at the end of the year
Cost
Accumulated amortisation and impairment
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
2,123
7
–
–
–
–
–
–
2,130
2,906
(776)
2,117
6
–
–
–
–
–
–
2,123
2,899
(776)
434
–
–
189
–
–
(118)
–
505
498
–
–
–
–
–
(78)
–
420
1,646
(1,141)
1,191
(771)
382
–
–
191
–
–
(138)
(1)
434
600
–
–
–
–
–
(102)
–
498
1,457
(1,023)
1,191
(693)
147
11
36
–
(11)
(3)
(23)
(19)
138
393
(255)
99
24
26
–
(13)
46
(31)
(4)
147
360
(213)
Total
$m
3,218
18
36
189
(11)
(3)
(220)
(19)
3,208
16
–
–
–
–
–
(1)
–
15
110
(95)
6,246
(3,038)
1
–
15
–
–
–
–
–
16
3,199
30
41
191
(13)
46
(271)
(5)
3,218
110
(94)
6,017
(2,799)
1
Total goodwill comprises amounts attributable to shareholders of $2,115m (2017: $2,108m) and amounts attributable to policyholders of $15m
(2017: $15m).
Accounting policy – recognition and measurement
Goodwill
Goodwill acquired in a business combination is recognised at cost and subsequently measured at cost less any accumulated
impairment losses. The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets
acquired and liabilities assumed. Goodwill includes balances attributable to shareholders and balances attributable to policyholders
in investment entities controlled by the AMP Life 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.
83
AMP 2018 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 of in-force business – wealth management and distribution businesses
Value of in-force business – wealth protection and mature business
Distribution networks
Useful life
Up to 10 years
10 years
20 years
2 to 15 years
The useful life of each intangible asset is reviewed at the end of the period and, where necessary, adjusted to reflect current assessments.
Amortisation on the grandfathered commission component of distribution networks was adjusted to reflect a useful life which will
expire by 31 December 2020.
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 $2,115m (2017: $2,108m) 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.
Consistent with the changes to the group’s operating segments, as disclosed in note 1.1, the composition of the group’s CGUs has
changed. The revised CGUs as at 31 December 2018 and the goodwill attributable to shareholders allocated to each CGU are disclosed
in the table below. The comparative period has been re-presented to be consistent with current year presentation.
Australian wealth management (WM)
Australian and New Zealand wealth protection (WP) and mature
New Zealand wealth management
AMP Capital
2018
$m
1,499
459
70
87
2,115
2017
$m
1,494
459
68
87
2,108
The recoverable amount for WM 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 five 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:
–
–
–
cash flows estimated over the expected life of the in-force products;
discontinuance rates, franking credits, risk discount rates, investment returns and inflation rates;
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; and
risk discount rate based on an annualised 10-year government bond yield plus a discount margin of 5% (2017: 5%) for calculating
the value of in-force and new business.
–
The Australian Wealth Management (WM) estimated embedded value was impacted during the period by the unwinding of internal
distribution arrangements, adjustments for tax and product revenue transfers in anticipation of the sale of the Australian and
New Zealand wealth protection and mature businesses. The reduction in the WM estimated embedded value did not result in an
impairment to goodwill and no reasonably possible change to a key assumption used in the embedded value model would result in an
impairment at 31 December 2018. Nevertheless, given the uncertainties that exist in the current industry environment, including the
prospect of legislative change, there are reasonably possible future scenarios which could give rise to an impairment of the goodwill
allocated to the WM CGU.
84
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
2.2 Intangibles (continued)
The recoverable amount of Australian and New Zealand WP and mature has been determined by reference to the expected sale
proceeds from Resolution, less an allowance for costs of disposal.
The recoverable amount of New Zealand wealth management and AMP Capital CGUs has been determined based on multiple ranging
from 13–15 times adjusted current period earnings, which approximates the fair value of these businesses less an allowance for costs
of disposal.
Goodwill attributable to policyholders
Policyholder cash-generating units were allocated $15m goodwill at 31 December 2018 (31 December 2017: $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 receivables1
Current
Non-current
1
Receivables are presented net of ECL of $6m.
2018
$m
1,664
330
186
428
2017
$m
1,376
333
81
361
2,608
2,151
2,603
5
2,129
22
Accounting policy – recognition and measurement
Receivables
Investment related receivables and Life insurance contract premium receivables backing investment contract liabilities and life
insurance contract liabilities are financial assets measured at fair value through profit or loss. Reinsurance receivables and Trade debtors
and other receivables are measured at amortised cost, less any allowance for ECLs.
The group applies a simplified approach in calculating ECLs for receivables. Therefore, the group does not track changes in credit risk, but
instead recognises a loss allowance based on lifetime ECLs at each reporting date. The group has established a provision matrix that is
based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
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
2018
$m
762
302
965
3
2017
$m
746
311
695
–
2,032
1,752
1,908
124
1,635
117
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.
85
AMP 2018 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.
2018
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
Carrying
amount
$m
55,954
34,932
19,838
1,059
145
Level 1
$m
Level 2
$m
Level 3
$m
52,821
1,978
–
393
–
769
32,837
17,940
666
–
2,364
117
1,898
–
145
Total fair
value
$m
55,954
34,932
19,838
1,059
145
Total financial assets measured at fair value
111,928
55,192
52,212
4,524
111,928
Financial assets not measured at fair value
Loans and advances
Debt securities
Total financial assets not measured at fair value
Financial liabilities measured at fair value
Derivative financial liabilities
Collateral deposits held
Investment contract liabilities
Total financial liabilities measured at fair value
Financial liabilities not measured at fair value
AMP Bank
– Deposits
– Other
AMP Corporate entities – bonds and notes
Borrowings within investment entities
controlled by AMP Life statutory funds
Total financial liabilities not measured at 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
20,098
222
20,320
1,225
164
68,742
70,131
11,012
8,103
2,154
381
21,650
58,606
32,457
22,398
1,092
134
5
–
–
–
225
–
–
225
–
–
–
–
–
55,942
1
–
210
–
–
–
225
225
20,101
–
20,101
225
20,101
20,326
1,000
164
1,810
–
–
66,932
1,225
164
68,742
2,974
66,932
70,131
11,012
8,062
2,177
381
21,632
728
32,344
20,964
882
–
5
–
–
–
–
–
1,936
112
1,434
–
134
–
11,012
8,062
2,177
381
21,632
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 statutory funds
Total financial liabilities not measured at fair value
86
19,554
2,563
22,117
489
102
75,235
75,826
9,655
8,819
1,938
597
21,009
–
–
–
148
–
–
148
–
–
–
–
–
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
–
–
–
–
–
9,653
8,867
1,992
597
21,109
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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 amounts.
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
Corporate borrowings
AMP Bank deposits
and other borrowings
Investment properties
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. The models use a number of inputs, including the credit quality
of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies,
currency basis spreads between the respective currencies, interest rate curves and forward rate curves
of the underlying instruments. Some derivatives contracts are significantly cash collateralised, thereby
minimising both counterparty risk and the group’s own non-performance risk.
Borrowings comprise commercial paper, drawn liquidity facilities, various floating-rate and medium-
term notes and subordinated debt. The estimated fair value of borrowings is determined with reference
to quoted market prices. For borrowings where quoted market prices are not available, a discounted cash
flow model is used, based on a current yield curve appropriate for the remaining term to maturity. For
short-term borrowings, the par value is considered a reasonable approximation of the fair value.
The estimated fair value of deposits and other borrowings represents the discounted amount of
estimated future cash flows expected to be paid based on the residual maturity of these liabilities.
The discount rate applied is based on a current yield curve appropriate for similar types of deposits
and borrowings at the reporting date.
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); and
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
–
87
AMP 2018 annual report 2.5 Fair value information (continued)
There have been no significant transfers of financial assets or liabilities measured at fair value between Level 1 and Level 2 during the
2018 and 2017 financial years. Loans and advances, previously categorised as Level 2, has been transferred to Level 3 as the valuation
methodology has updated to include unobservable inputs. Transfers to/from Level 3 for financial assets measured at fair value on a
recurring basis are shown in the Reconciliation of Level 3 values table later in this note.
Level 3 fair values
For financial assets measured at fair value on a recurring basis and 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 of financial assets measured at fair value
on a recurring basis, 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
Reasonably possible alternative assumptions could have been used in determining the fair values of financial instruments measured
at fair value on a recurring basis and categorised as Level 3 in the fair value hierarchy. These include assumptions such as credit risk
and discount rates for determining the valuation range on an individual investment. However, the impact to AMP of any reasonable
possible alternative assumptions is not significant as any movement in the value of these financial assets is substantially offset by a
corresponding increase or decrease in the value of investment contract liabilities.
AMP Limited is not exposed to any impact from a potential change in the fair value of Debt securities, Investments in unlisted managed
investments schemes and Investment properties which are categorised as Level 3 as these assets solely back investment linked policy
liabilities. There is an insignificant exposure to changes in the fair value of Equity securities and listed managed investment schemes
categorised as Level 3. AMP’s sensitivity to changes in the fair value of these Level 3 assets is disclosed in the following table:
Financial assets
Equity securities and listed managed investment schemes1,2
Financial liabilities
Investment contract liabilities2
Net sensitivity
2018
(–)
$m
(91)
(92)
1
(+)
$m
92
94
(2)
2017
(+)
$m
(–)
$m
111
114
(3)
(103)
(105)
2
1
2
The discount rates used to value the assets range from 7.3% to 16.3%. Sensitivities have been determined by up to +/– 100 basis point change
in the discount rates.
Investments in equity securities and listed managed investment schemes are predominantly policyholder assets. Accordingly, any movements
in the value of the assets are largely offset by a corresponding movement in investment contract liabilities.
88
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
2.5 Fair value information (continued)
Reconciliation of Level 3 values
The following table shows movements in the fair values of financial instruments measured at fair value on a recurring basis and
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
2018
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
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
1,936
112
1,434
134
–
–
–
–
–
–
179
1
55
11
–
388
21
623
–
–
(150)
(15)
(268)
–
–
11
(2)
54
–
–
2,364
117
1,898
145
–
123
2
99
11
–
73,207
13
(1,172)
7,720
(12,836)
–
66,932
(1,172)
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
1
2
Gains and losses are classified in investment gains and losses or change in policyholder liabilities in the Consolidated income statement.
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.
89
AMP 2018 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 Derivatives and hedge accounting
3.5 Capital management
3.1 Contributed equity
Issued capital1,3
2,937,428,336 (2017: 2,918,469,137) ordinary shares fully paid
Treasury shares2
21,102,496 (2017: 32,887,493) treasury shares
Total contributed equity
2,916,325,840 (2017: 2,885,581,644) ordinary shares fully paid
Issued capital
Balance at the beginning of the year
18,959,199 (2017: Nil) shares issued under dividend reinvestment plan1
Nil (2017: 39,268,827) on-market share buy-back
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Decrease (increase) due to purchases less sales during the year
Balance at the end of the year
2018
$m
2017
$m
9,610
9,547
(108)
(171)
9,502
9,376
9,547
63
–
9,747
–
(200)
9,610
9,547
(171)
63
(108)
(128)
(43)
(171)
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 2017 final dividend (paid in March 2018) at 14.5 cents per share and 2018 interim
dividend (paid in September 2018) at 10.0 cents per share. AMP settled the DRP for the 2017 final dividend by acquiring shares on market and,
accordingly, no new shares were issued. AMP settled the DRP for the 2018 interim dividend by issuing shares at $3.35 per share.
Of the AMP Limited ordinary shares on issue 18,976,109 (2017: 30,761,106) 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: Trust Bank’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: Trust Bank (or its nominee).
90
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
3.1 Contributed equity (continued)
Accounting policy – recognition and measurement
Issued capital
Issued capital in respect of ordinary shares is recognised as the fair value of consideration received by the AMP Limited entity.
Incremental costs directly attributable to the issue of certain new shares are recognised in equity as a deduction, net of tax,
from the proceeds.
Treasury shares
The AMP group is not permitted to recognise Treasury shares in the Consolidated statement of financial position. These 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
(a) Interest-bearing liabilities
Interest-bearing liabilities
AMP Bank
– Deposits1
– Other
Corporate entity borrowings2
–
6.875% GBP Subordinated Guaranteed Bonds
(maturity 2022)
– AMP Notes 2 (first call 2018, maturity 2023)3
– AMP Notes 3 (first call 2023, maturity 2028)4
– AMP Wholesale Capital Notes5
– AMP Capital Notes – 20155
– AMP Subordinated Notes – 20176
– Syndicated loan facility7
– Commercial paper
– Medium Term Notes8
– Other
Borrowings within investment entities
controlled by AMP Life statutory funds
2018
2017
Current
$m
Non-current
$m
Total
$m
Current
$m
Non-current
$m
Total
$m
10,942
2,255
70
5,848
11,012
8,103
9,627
3,382
28
5,437
9,655
8,819
–
–
–
–
–
–
488
259
–
–
68
–
251
277
264
250
–
–
233
64
68
–
251
277
264
250
488
259
233
64
–
–
–
–
–
–
–
229
–
28
69
324
–
276
264
250
497
–
–
1
79
302
381
89
508
69
324
–
276
264
250
497
229
–
29
597
Total interest-bearing liabilities
14,023
7,627
21,650
13,355
7,654
21,009
1 Deposits comprise at call customer cash on deposit and customer term deposits at variable interest rates within the AMP Bank.
2
The current/non-current classification of corporate entity borrowings is based on the maturity of the underlying debt instrument. The carrying
value of corporate entity borrowings includes interest payable of $9m (2017: $8m) which is expected to be settled within the next 12 months.
AMP Notes 2 were issued on 18 December 2013 and are listed on the ASX. AMP elected to redeem all of its AMP Notes 2 on the first optional
redemption date on 18 December 2018.
Floating Rate Subordinated Unsecured Notes were issued on 15 November 2018 and mature 15 November 2028. AMP has the right, but not the
obligation, to redeem all or some of the Notes on 15 November 2023 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.
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, $300m and $300m, maturing 22 March 2020,
22 March 2022 and 22 March 2023 respectively. As at 31 December 2018, $500m was drawn. Subsequent to the year end, the outstanding balance
was repaid out of existing cash resources and the facility was cancelled. Accordingly, the liability has been classified as current in the table above.
CHF110m and CHF50m Senior Unsecured Fixed Rate Bonds were issued on 19 June 2018 and 19 September 2018 respectively and mature
19 December 2022.
3
4
5
6
7
8
91
AMP 2018 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 year1
2018
$m
2017
$m
17,928
(4,627)
16,495
(3,520)
13,301
12,975
1
Unused facilities at the end of the year includes the syndicated loan facility, which is comprised of three tranches of $300m ($900m total facility).
As at 31 December 2018, $500m was drawn and $400m remained available. Subsequent to the year end, the outstanding balance was repaid out
of existing cash resources and the facility was cancelled.
(c) Changes in liabilities arising from financing activities
1 January
Cashflows
Other
31 December
2018
$m
21,009
631
10
2017
$m
17,218
3,799
(8)
21,650
21,009
Accounting policy – recognition and measurement
Interest-bearing liabilities, other than those held by controlled entities of the AMP Life statutory funds, are initially recognised at fair
value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest rate method.
Borrowings of certain controlled managed investment schemes of the AMP Life statutory funds are measured at amortised cost for the
purpose of determining the unit price of those schemes. All other borrowings of the controlled entities of the AMP Life 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 fair value hedge
accounting is applied, the carrying amounts of borrowings and subordinated debt are adjusted for changes in fair value related to the
hedged risk for the period that the hedge relationship remains effective. Any changes in fair value for the period are recognised in the
Consolidated income statement. In cash flow hedge relationships the borrowings are not revalued.
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; and
(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. Changes
in fair value of derivatives in effective cash flow hedges are recognised in the cash flow hedge reserve. 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; and
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).
92
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
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 shareholders includes
listed and unlisted shares and
participation in equity unit trusts.
Management of exposures
and use of derivatives
Interest rate risk is managed by entering
into 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 is
also subject to the relevant regulatory
requirements governed by the Life Act.
AMP Bank uses natural offsets, interest
rate swaps and basis swaps to hedge
the mismatches within exposure limits.
Group Treasury manages the exposure
in AMP Bank by maintaining a net
interest rate risk position within the
limits delegated and approved by the
AMP Bank Board.
The AMP group uses swaps to hedge the
interest rate risk and foreign currency
risk on foreign currency denominated
borrowings but does not hedge the
capital invested in overseas operations.
The AMP group hedges material foreign
currency risk originated by receipts and
payments once the value and timing
of the expected cash flow is known
excluding the international equities
portfolio attributable to shareholders
within the AMP Life Limited Statutory
Fund No. 1.
Group Treasury executes foreign currency
forwards on behalf of AMP Capital to
hedge expected management fees
income and operation costs outflows
originated outside of Australia.
Group Treasury may, with Group ALCO
approval, use equity exposures or
equity futures or options to hedge other
enterprise-wide equity exposures.
93
AMP 2018 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
2018
2017
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
(8)
(4)
3
(4)
8
6
(10)
(8)
2
(18)
119
(99)
8
6
(10)
(8)
(3)
(15)
4
(5)
10
7
(10)
(9)
(33)
9
130
(107)
10
7
(10)
(9)
1
Included in the impact on equity is both the impact on profit after tax as well as the impact of amounts that would be taken directly to equity in
respect of the portion of changes in the fair value of derivatives that qualify as cash flow hedges for hedge accounting.
(b) Liquidity and refinancing risk
Risk
Exposures
Management of exposures
AMP group corporate debt portfolio,
AMP Bank and AMP Capital through
various investment funds, entities
or mandates that AMP manages or
controls within the AMP group.
Liquidity risk
The risk that the AMP group
is not able to meet its
obligations as they fall due
because of an inability to
liquidate assets or obtain
adequate funding when required.
Refinancing risk
The risk that the AMP group is
not able to refinance the full
quantum of its ongoing debt
requirements on appropriate
terms and pricing.
Group Treasury maintains a defined
surplus of cash to mitigate refinancing
risk, satisfy regulatory requirements
and protect against liquidity shocks
in accordance with the liquidity risk
management policy approved by the
Group ALCO.
Financiers of loans lending to controlled
entities of the life statutory funds do not
have legal recourse beyond the operating
subsidiary borrower and there is no direct
effect on any other AMP group debt.
94
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 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.
2018
Non-derivative financial liabilities
Payables
Borrowings
Subordinated debt
Investment contract liabilities1
External unitholders’ liabilities
Derivative financial instruments
Interest rate and cross currency swaps
Foreign currency forward contract
Off-balance sheet items
Credit-related commitments – AMP Bank2
Up to
1 year or
no term
$m
1,908
13,915
67
372
–
8
10
3,396
1 to 5
years
$m
Over
5 years
$m
Not
specified
$m
Total
$m
119
6,018
346
1,021
–
45
–
–
–
980
1,425
1,092
–
13
–
–
5
–
–
66,466
17,059
–
–
–
2,032
20,913
1,838
68,951
17,059
66
10
3,396
Total undiscounted financial liabilities and off-balance sheet items
19,676
7,549
3,510
83,530
114,265
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
1,635
14,380
65
743
–
7
3,606
4
5,011
255
703
–
26
–
15
1,141
1,162
1,289
–
22
–
98
–
–
72,691
14,468
–
–
1,752
20,532
1,482
75,426
14,468
55
3,606
Total undiscounted financial liabilities and off-balance sheet items3
20,436
5,999
3,629
87,257
117,321
1
2
3
Investment contract liabilities are liabilities to policyholders for investment linked business linked to the performance and value of assets that
back those liabilities. If all these policyholders claimed their funds, there may be some delay in settling the liability as assets are liquidated; but
the shareholder has no direct exposure to any liquidity risk. External unitholders’ liabilities all relate to controlled entities of the AMP Life 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.
95
AMP 2018 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
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.
Credit risk arising in AMP Bank
as part of lending activities and
management of liquidity.
Management of exposures
and use of derivatives
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.
Managed as prescribed by AMP Bank’s
Risk Appetite Statement and reported
to AMP Bank ALCO monthly.
Specific detail relating to credit risk
management of the AMP Bank loan
portfolio is outlined below.
The AMP Concentration and Credit Default Risk Policy sets out the assessment and determination of what constitutes credit
concentration risk. The policy sets exposure limits based on each counterparty’s credit rating (unless special considerations are defined).
Additional limits are set for the distribution of the total portfolio by credit rating bands. Compliance with this policy is monitored and
exposures and breaches are reported to portfolio managers, senior management and the AMP Board Risk Committee through periodic
financial risk management reports.
Group Treasury also might enter into credit default swaps to hedge the concentration risk exposure against a specific issuer, or
aggregated at the parent entity, when material exposures are over the authorised limit.
The exposures on interest-bearing securities and cash equivalents which impact the AMP group’s capital position are managed by
Group Treasury within limits set by the AMP Concentration and Credit Default Risk Policy.
Impairment assessment
Definition of default
AMP Bank considers a financial assets defaulted and hence Stage 3 impaired when payment is 90 days past due or when there is no
longer reasonable assurance that principal or interest will be collected in their entirety on a timely basis.
AMP Bank’s internal risk grading and PD estimation process
AMP Bank’s credit risk management department runs expected credit loss models for the residential mortgage book as well as the
practice finance loans.
–
The Bank’s residential mortgage book is a portfolio with a low default history so point-in-time (PIT) benchmark PDs are utilised
across the portfolio by Loan to Value Ratio (LVR) band and time since origination.
Internal risk grades for residential Mortgage book are as follows:
Internal credit rating grade
Internal credit rating grade description
Performing
Not in arrears in the past six months
Past due but not impaired
Accounts in arrears but have not been past 90 days in the last six months
Impaired
90 days past due over the last six months
–
For practice finance loans a Probability of Default risk grade model is applied that includes weighted risk factors such as Interest
Coverage Ratio, Revenue growth, Licence Compliance Rating, Experience in business and Arrears levels. Practices with outstanding
annual reviews are also downgraded. Credit judgement may be applied to arrive at the final risk grade.
96
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 3.3 Financial risk management (continued)
Internal risk grades for practice finance book are as follows:
Internal risk grade
Internal risk grade description
Broadly corresponds with Standard & Poors ratings of
A to H
I
Sub-investment Grade
BB+ to CCC
Impaired
D
The Bank’s interbank and financial institutions exposures as well as exposures to interest-bearing securities are based on external
credit rating of the counterparties as follows:
Internal risk grade description
Senior Investment Grade
Investment Grade
Sub-investment Grade
Broadly corresponds with Standard & Poors ratings of
AAA to A–
BBB+ to BBB–
BB+ up to but not including defaulted or impaired
Exposure at default (EAD)
EAD is modelled by applying assumptions in relation to the amortisation of the loans based on scheduled principal and interest
repayments.
Loss given default (LGD)
For the residential mortgage portfolio the key driver for the LGD calculation is the value of the underlying property given in a foreclosure
scenario the proceeds from the sale of a property are secured by the Bank to repay the loan in the event of default. The value of the
underlying residential property is captured via the LVR which factors both changes in balance and estimated value of the collateral
using market data and indices. Both floor and haircuts are applied to provide for model risk.
For practice finance loans, the LGD is calculated via assumptions to the reduction in valuations of practices (being a multiple of their
recurring cash flows) in the event of default, such as client run-off or deterioration in valuation due to compliance issues.
Grouping of financial assets for expected credit losses (ECL) calculation
Asset classes where the bank calculates ECL on an individual basis include all Stage 3 assets, and interbank and debt securities at FVOCI.
For all other asset classes ECL is calculated on a collective basis taking into account risk factors for each loan and arriving at the ECL
estimate and then aggregating the number for the relevant portfolio.
Forward-looking information
The Bank’s ECL model incorporates a number of forward-looking Macroeconomic scenarios (MEF) that are reviewed on a quarterly
basis and approved by the Credit Risk Committee (CRC). The MEF factors include unemployment, property prices, ASX Index and
Cash Rate.
At least three different scenarios with fixed weightings are used in the model. The weightings are reviewed on annual basis.
The ECL is calculated as the probability weighted average of the provision calculated for each economic scenario.
Write-offs
Financial assets are written off either partially or in their entirety only when there is no reasonable expectation of recovery.
Recovery actions can cease if they are determined as being no longer cost effective or in some situations where the customers
have filed for bankruptcy.
Credit risk of the loan portfolio in AMP Bank (the Bank)
The Bank is predominantly a lender for residential properties – both owner occupied and for investment. In every case the Bank
completes a credit assessment, which includes cost of living allowance and requires valuation of the proposed security property.
Approximately 20% of the Bank’s residential loan portfolio is externally securitised and all loans in securitisation trusts are loans that
have LMI thereby further mitigating the risk. The Bank’s CRC and BRC oversee trends in lending exposures and compliance with the
Risk Appetite Statement. The Bank secures its housing loans with mortgages over relevant properties and as a result manages credit
risk on its loans with conservative lending policies and particular focus on the LVR. The LVR is calculated by dividing the total loan
amount outstanding by the lower of the 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 Bank has strong relationships with both insurers and experienced minimal levels
of historic claim rejections and reductions.
97
AMP 2018 annual report 3.3 Financial risk management (continued)
The average LVR at origination of AMP Bank’s loan portfolio for existing and new business is set out in the following table:
LVR
0–50
51–60
61–70
71–80
81–90
91–95
> 95
Existing
business
2018
%
New
business
2018
%
Existing
business
2017
%
New
business
2017
%
18
12
18
37
11
4
–
15
10
16
44
8
7
–
18
12
18
36
12
4
–
12
12
17
47
6
6
–
Renegotiated loans
Where possible, AMP Bank seeks to restructure loans for borrowers seeking hardship relief rather than take possession of collateral.
This may involve capitalising interest repayments for a period and increasing the repayment arrangement for the remaining term
of the loan. Once the terms have been renegotiated, the loan is no longer considered past due. AMP Bank assisted customers by
renegotiating $165m (2017: $88m) worth of loans during the year, that otherwise would be past due or impaired.
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 as well as the clearing of derivative
positions on the London Clearing House.
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 $1,059m would be reduced by
$180m to the net amount of $879m and derivative liabilities of $1,225m would be reduced by $180m to the net amount of
$1,045m (2017: 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).
(ii) Repurchase agreements
Included within debt securities are assets held to back the liability for collateral deposits held in respect of debt security repurchase
arrangements entered into by the life entities’ statutory funds and controlled entities of the life entities’ statutory funds. As at
31 December 2018, if repurchase arrangements were netted, debt securities of $32,577m would be reduced by $9m to the net amount
of $32,568m and collateral deposits held of $164m would be reduced by $9m to the net amount of $155m (2017: 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).
(iii) Other collateral
The AMP group has collateral arrangements in place with some counterparties in addition to collateral deposits held with respect
to repurchase agreements. The amount and type of collateral required by AMP Bank on housing loans depends on an assessment
of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.
AMP Bank holds collateral against its loans and advances primarily in the form of mortgage interests over property, other registered
securities over assets and guarantees.
Management monitors the market value of collateral and will request additional collateral in accordance with the underlying
agreement. In the event of customer default, AMP Bank can enforce any security held as collateral against the outstanding claim.
Any loan security is usually held as mortgagee in possession while AMP Bank seeks to realise its value through the sale of property.
Therefore, AMP Bank does not hold any real estate or other assets acquired through the repossession of collateral.
Collateral generally consists of 11am loans and deposits and is exchanged between the counterparties to reduce the exposure
from the net fair value of derivative assets and liabilities between the counterparties. As at 31 December 2018 there was $165m
(2017: $94m) of collateral deposits (due to other counterparties) and $78m (2017: $41m) of collateral loans (due from other
counterparties) relating to derivative assets and liabilities.
98
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
3.4 Derivatives and hedge accounting
The group is exposed to certain risks relating to its ongoing business operations. To mitigate the risks the group uses derivative
financial instruments such as cross-currency swaps and interest rate swaps. When the group designates certain derivatives to be
part of a hedging relationship, and they meet the criteria for hedge accounting, the hedges are classified as:
–
–
–
Cash flow hedges;
Fair value hedges; or
Net investment hedges.
Derivative financial instruments are held for risk and asset management purposes only and not for the purpose of speculation.
Not all derivatives held are designated as hedging instruments. The group’s risk management strategy and how it is applied to
manage risk is explained further in note 3.3.
The following table sets out the notional amount of derivative instruments designated in a hedge relationship by relationship type
as well as the related carrying amounts.
2018
Hedge type
Cash flow
Fair value
Fair value
Fair value and cash flow
Net investment
Total
2017
Hedge type
Cash flow
Fair value
Fair value
Fair value and cash flow
Net investment
Total
Hedging instrument
Interest rate swaps
Cross-currency swaps
Interest rate swaps
Cross-currency swaps
Foreign currency forward contract
Hedging instrument
Interest rate swaps
Cross-currency swaps
Interest rate swaps
Cross-currency swaps
Foreign currency forward contract
Notional
amount
$m
Fair value
Assets
$m
Fair value
Liabilities
$m
8,467
147
127
305
343
5
–
9
3
–
9,389
17
8,862
145
123
–
376
9,506
18
–
11
–
4
33
19
22
–
–
7
48
11
25
–
–
1
37
Derivative instruments accounted for as cash flow hedges
The group is exposed to variability in future interest cash flows on non-trading assets and liabilities which bear interest at fixed
and variable rates. The group uses interest rate swaps to manage interest rate risks and many of the swaps are cash flow hedges
for accounting purposes.
Methods used to test hedge effectiveness and establish the hedge ratio include regression analysis, and for some portfolio hedge
relationships, a comparison to ensure the expected interest cash flows from the portfolio exceed those of the hedging instruments.
The main potential source of hedge ineffectiveness from cash flow hedges is mismatches in the terms of hedged items and hedging
instruments, for example the frequency and timing of when interest rates are reset.
During the year the AMP group recognised $nil (2017: $nil) due to ineffectiveness on derivative instruments designated as cash flow
hedges.
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.
Hedge effectiveness is assessed by comparing the overall changes in the fair value of the hedging instrument against the changes
in the fair value of the hedged items attributable to the hedged risks. The main potential source of ineffectiveness on fair value hedges
is currency basis spread, which is included in the valuation of the hedging instrument, but excluded from the value of the hedged item.
During the year the AMP group recognised net gains of $7m (2017: $1m) due to ineffectiveness on derivative instruments designated
as fair value hedges.
99
AMP 2018 annual report
3.4 Derivatives and hedge accounting (continued)
Hedges of net investments in foreign operations
The group hedges its exposure to changes in exchange rates on the value of its foreign currency denominated seed pool investments.
Hedge effectiveness is assessed based on the overall changes in the fair value of the forward contract, primarily using the cumulative
dollar offset method.
The AMP group recognised a profit of $nil (2017: $nil) due to the ineffective portion of hedges relating to investments in seed pool
foreign operations.
The following table sets out the maturity profile of derivative instruments in a hedge relationship.
2018
Interest rate swaps
Cross-currency swaps
Foreign currency forward contract
2017
Interest rate swaps
Cross-currency swaps
Foreign currency forward contract
0 to 3 months
$m
3 to 12 months
$m
1 to 5 years
$m
Over 5 years
$m
Total
$m
2,812
–
327
1,967
–
358
3,106
–
16
3,889
–
18
1,720
452
–
2,649
145
–
956
–
–
480
–
–
8,594
452
343
8,985
145
376
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
Cash flow hedges
The effective portion of changes in the fair value of cash flow hedges is recognised (including related tax impacts) through Other
comprehensive income in the Cash flow hedge reserve in equity. The ineffective portion is recognised immediately in the 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.
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.
Net investment hedges
The effective portion of changes in the fair value of net investment hedges is recognised (including related tax impacts) through
Other comprehensive income in the Hedge of net investment reserve in equity. Any ineffective portion is recognised immediately
in the Consolidated income statement. The cumulative gain or loss existing in equity remains in equity until the foreign investment
is disposed.
100
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 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;
hold sufficient liquidity to ensure that AMP has sufficient access to liquid funds, even under stress situations; and
maintain the AMP group’s credit rating.
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:
–
–
–
treasury shares (AMP Limited shares held by the statutory funds on behalf of policyholders);
AMP Life Limited statutory funds’ investments in controlled entities; and
AMP Life Limited statutory funds’ superannuation products invested in AMP Bank Limited assets.
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 mismatches, cash flow hedge resources and other adjustments
AMP shareholder equity
Subordinated debt1
Senior debt1
Total AMP capital resources
2018
$m
2017
$m
6,685
(2)
6,683
876
973
8,532
7,202
74
7,276
951
730
8,957
1
Amounts shown for subordinated debt and senior debt are the amounts to be repaid on maturity.
Capital requirements
A number of the operating entities within the AMP group of companies are regulated and are required to meet minimum regulatory
capital requirements (MRR). The main minimum regulatory capital requirements for AMP’s businesses are:
Operating entity
Minimum regulatory capital requirement
AMP Life Limited (AMP Life)
AMP Bank Limited (AMP Bank)
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.
101
AMP 2018 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 (AMP Life) and the National Mutual Life Association of Australasia Limited (NMLA), collectively,
‘the AMP life insurance entities’. On 1 January 2017, the Australian and New Zealand life insurance business of NMLA was transferred
to AMP Life, both wholly-owned controlled entities of the AMP group, pursuant to a scheme under part 9 of the Life Insurance Act 1995.
This represents the substantial majority of operations of NMLA up to 31 December 2016. Because NMLA and AMP Life 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.
102
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 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 Insurance Act 1995 (Cth) (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. They change 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/or product line as
appropriate.
Where expenses are not directly attributable, they are appropriately apportioned, according to detailed expense analysis, with due
regard to the activities to which that expense relates. The apportionment basis has been made in accordance with Actuarial Standards
and on an equitable basis to the different classes of business in accordance with the Life Act.
The costs apportioned to life insurance contracts are included in the determination of the margin described in note 4.1.
Investment management expenses of the life statutory funds are classified as operating expenses.
Reinsurance
Life insurance contract premium ceded to reinsurers is recognised as an expense and Life insurance contract claims recovered from
reinsurers is recognised as income.
Upfront commission received on quota share reinsurance contracts is recognised as commission revenue and a corresponding
reinsurance liability is recognised representing the obligation to pay future premiums to the reinsurer. The establishment of the
reinsurance liability is reflected in Change in policyholder liabilities. The liability will be released in line with the release of the profit
margin on the underlying insurance contracts.
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.
103
AMP 2018 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
(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 method2
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 liabilities2
Total life insurance contract liabilities net of reinsurance
Reinsurance asset – ceded life insurance contracts
Reinsurance liability – ceded life insurance contracts3
Total life insurance contract liabilities gross of reinsurance
2018
$m
2017
$m
2,549
(367)
2,182
471
2,653
(989)
2,696
(402)
2,294
703
2,997
(635)
1,664
2,362
(3,412)
1,158
(2,254)
487
(3,192)
1,146
(2,046)
234
(1,767)
(1,812)
(27)
(115)
(172)
(408)
(53)
(41)
(130)
(178)
(404)
(55)
14,469
4,377
(10,435)
15,007
4,616
(12,078)
3,136
1,565
3,354
2,183
13,112
13,082
7,951
(50)
8,703
(58)
7,901
8,645
304
2,319
23,636
1,073
(1,452)
290
2,312
24,329
804
(1,450)
23,257
23,683
1
2
3
Life insurance contract premium revenue consists entirely of direct insurance premiums; there is no inward reinsurance component.
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 with Gen Re, Munich Re and Swiss Re, in return for upfront commission received. It also reflects the reinsurance
position of the surplus reinsurance arrangement with Gen Re and Swiss Re.
104
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
2018
$m
2017
$m
23,683
(79)
367
(1,158)
269
(2)
177
24,225
1,069
402
(1,146)
258
(920)
(205)
23,257
23,683
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
31 December 2018
31 December 2017
Australia
%
New Zealand
%
Australia
%
New Zealand
%
Retail risk (other than
income benefit open claims)1
Zero coupon government bond
yield curve
1.8–3.0
1.7–3.0
1.8–3.6
1.8–3.6
Retail risk and group risk
(income benefit open claims)1
Zero coupon government bond yield
curve (including liquidity premium)
2.1–3.2
2.0–3.3
2.0–3.7
2.0–3.8
Life annuities
Non-CPI
Zero coupon government bond yield
curve (including liquidity premium)
2.2–3.3
2.0–3.4
2.1–3.8
2.0–3.9
CPI
Commonwealth indexed bond yield
curve (including liquidity premium)
0.8–1.3
1.1–2.3
0.5–1.2
0.7–2.4
1
The discount rates vary by duration in the range shown above.
105
AMP 2018 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 largely
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. In addition, higher expense inflation has been assumed for
Australia and New Zealand wealth protection portfolios compared to that assumed at 31 December 2017. The higher expense inflation
assumption adopted due to the announcement of the transition to in-force specialist life insurer reflects an expectation that costs are
not fully variable and will decrease more slowly than the run-off of policies.
The assumed CPI and expense inflation rates at the valuation date are:
31 December 2018
31 December 2017
Australia %
New Zealand %
CPI
1.6
1.9
Expense
Inflation
3.0–8.0
3.0
CPI
1.7
1.7
Expense
Inflation
2.0–6.0
2.0
(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 changed from those assumed at 31 December 2017 for Australian and New Zealand retail risk and conventional
portfolios, 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.
Business type
Conventional
Retail risk (lump sum)
Retail risk (income benefit)
Flexible Lifetime Super (FLS) risk business
Investment account
31 December 2018
31 December 2017
Australia
%
New Zealand
%
Australia
%
New Zealand
%
2.3–9.3
13.1–18.0
7.5–20.1
14.4–16.6
n/a
1.5–2.7
4.9–15.2
5.0–14.7
n/a
n/a
2.4–8.4
12.8–16.9
8.1–18.8
14.0–16.4
n/a
1.5–2.8
11.6–12.0
9.5–11.4
n/a
n/a
106
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(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.
(g) Mortality and morbidity
Standard mortality and morbidity tables, based on national or industry-wide data, are used.
The following assumptions have changed from those assumed at 31 December 2017:
–
–
–
–
Australian retail income protection incidence and termination rates;
Australian and New Zealand retail trauma and TPD;
New Zealand mortality; and
Australian conventional.
Some refinements were made to the current methodology for retail income protection and TPD to include additional product factors.
The 2017 rates were revised to reflect this change.
The assumptions are summarised in the following table.
Conventional
31 December 2018
Australia
New Zealand
31 December 2017
Australia
New Zealand
Risk products
31 December 2018
Australia1
New Zealand
31 December 2017
Australia1
New Zealand
Conventional –
% of IA95-97
Male
Female
60.8
73.0
67.5
73.0
60.8
73.0
67.5
73.0
Retail Lump Sum –
% of table
Male
Female
94–148
104–120
94–148
86–98
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 2018
Australia and New Zealand1
31 December 2017
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
107
AMP 2018 annual report
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Typical morbidity assumptions, in aggregate, are as follows:
Income protection
31 December 2018
Australia
31 December 2017
Australia
31 December 2018
New Zealand
31 December 2017
New Zealand
Retail lump sum
31 December 2018
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
31 December 2017
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
Incidence rates
% of ADI 07-11
Termination rates
(ultimate)
% of ADI 07-11
45–179
53–80
45–179
65–93
83–149
82–105
83–149
82–105
Male
% of IA04-08
Female
% of IA04-08
132–241
102–193
120
110–114
132–185
102–168
150–194
101–114
150–305
102–193
120
110–114
150–235
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
IML00*/IFL00*
IA04-08 DTH
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 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.
This was published by the Institute of Actuaries of Australia under the name A graduation of the 2004–2008
Lump Sum Investigation Data. The table has been modified based on aggregated experience with overall product
specific adjustment factors.
IA04-08 TPD
This is the TPD graduation published in the same paper as above.
IA04-08 Trauma
This is the Trauma graduation published in the same paper as above.
ADI 07-11
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.
108
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
2.3
2.4
2.6
2.8
4.5
4.5
4.5
4.5
3.5
3.5
3.5
3.5
2.5
2.5
2.5
2.5
0.6
0.5
0.5
0.4
Cash
%
(0.5)
(0.5)
(0.5)
(0.5)
31 December 2018
Australia
New Zealand
31 December 2017
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 2018
Australia
New Zealand
31 December 2017
Australia
New Zealand
Equities
%
Property and
infrastructure
%
Fixed
interest
%
28
35
26
34
14
17
13
17
39
38
39
41
Cash
%
19
10
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 is 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.
109
AMP 2018 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 2017 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
%
0.6–3.3 (0.8–4.5)
1.7–2.3 (2.7–5.8)
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 2017 to 31 December 2018 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
3
(122)
(170)
(75)
(116)
–
169
22
26
(3)
–
(118)
(15)
(18)
2
1 Other assumption changes include the impact of modelling, reinsurance, product and premium changes.
2
3
Change in life insurance contract liabilities is net of reinsurance, gross of tax.
Change in shareholders’ profit and equity is net of reinsurance, net of tax.
In most cases, the overall amount of life insurance contract liabilities and the current period profit are not affected by changes in
assumptions. However, where in the case of a particular related product group the changes in assumptions at the end of a period
eliminate any future profit margins for the related product group, and result in negative future profit margins, this negative balance
for all forecasted future periods is recognised as a loss in the current period. If the changes in assumptions in a period are favourable
for a product group currently in loss recognition, then the previously recognised losses are reversed in the period.
110
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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 reinsure (cede) to reinsurance companies a proportion of their portfolio or certain types of insurance risk, including
catastrophe. This serves primarily to:
–
–
–
–
–
reduce the net liability on large individual risks;
obtain greater diversification of insurance risks;
provide protection against large losses;
reduce overall exposure to risk; 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+.
111
AMP 2018 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
Key variables affecting
future cash flows
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 AMP Life. Premium rates
for yearly renewable business are not
guaranteed and may be changed at
the discretion of AMP Life 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.
Mortality, morbidity,
lapses, expenses and
investment market
earning rates on assets
backing the liabilities.
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.
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.
112
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 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 variable
Change in life insurance
contract liabilities
Change in shareholder profit
after income tax and equity
Gross of
reinsurance
$m
Net of
reinsurance
$m
Gross of
reinsurance
$m
Net of
reinsurance
$m
Variable
Mortality
Annuitant mortality
10% increase in mortality rates
50% increase in the rate of
mortality improvement
130
5
Morbidity – lump sum disablement 20% increase in lump sum disablement rates 234
Morbidity – disability income
10% increase in incidence rates
Morbidity – disability income
10% decrease in termination rates
Discontinuance rates
10% increase in discontinuance rates
Maintenance expenses
10% increase in maintenance expenses
215
373
186
40
51
5
93
88
169
67
40
(92)
(4)
(164)
(151)
(261)
(132)
(28)
(36)
(4)
(66)
(62)
(118)
(48)
(28)
(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.
2018
2017
Up to 1 year
$m
1 to 5 years
$m
Over 5 years
$m
Total
$m
1,264
1,463
3,039
3,456
8,243
8,796
12,546
13,715
113
AMP 2018 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
–
–
–
losses arising from difference between actual and assumed experience
losses arising from changes in assumptions
capitalised (losses) reversals
Profit related to life insurance and investment contract liabilities
Attributable to:
–
–
life insurance contracts
investment contracts
Profit related to life insurance and investment contract liabilities
Investment earnings on assets in excess of life insurance and investment contract liabilities
2018
$m
2017
$m
437
(86)
(29)
(174)
148
(31)
179
148
38
478
(13)
(70)
12
407
217
190
407
107
(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.
114
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
4.5 Other disclosure – life insurance and investment contracts (continued)
2018
2017
Non-
investment
linked
$m
Investment-
linked
$m
Total life
entities’
statutory
funds
$m
Non-
investment
linked
$m
Investment-
linked
$m
Total life
entities’
statutory
funds
$m
Net assets of life entities’ statutory funds
attributable to policyholders and shareholders 27,324
66,659
93,983
28,133
72,884
101,017
Attributable to policyholders2
Life insurance contract liabilities
Investment contract liabilities1
23,257
2,173
–
66,454
23,257
68,627
23,683
2,464
–
72,690
23,683
75,154
25,430
66,454
91,884
26,147
72,690
98,837
Attributable to shareholders
1,894
205
2,099
1,986
194
2,180
1
2
Investment contract liabilities in this table do not include $115m (2017: $81m) 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 $13,679m
(2017: $14,266m) of policy liabilities may be settled within 12 months of the reporting date.
The net assets of life statutory funds attributable to shareholders represent the interests of shareholders including funds required
to meet regulatory requirements as well as further amounts of shareholder funds in excess of regulatory requirements.
The following table shows a summary of the consolidated balances of AMP Life insurance entities’ statutory funds and the entities
controlled by AMP Life insurance entities’ statutory funds.
Income statement
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 policy holder 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
Life entities’ statutory
funds consolidated
2018
$m
2017
$m
1,664
1,030
4
1,067
(1,767)
(1,941)
(360)
79
89
323
188
2,362
1,087
8
11,277
(1,812)
(1,904)
(1,615)
(1,069)
(7,159)
(666)
509
7,218
102,929
145
8,027
6,206
110,540
134
5,682
118,319
122,562
23,257
68,627
6,306
17,837
23,683
75,154
6,624
14,911
116,027
120,372
2,292
2,190
115
AMP 2018 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
2018
$m
2017
$m
14,152
847
127
14,759
878
152
(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 2018 and 2017. The combined capital position of AMP Life 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
2018
$m
2,430
(374)
305
–
250
–
2017
$m
3,529
(803)
305
–
300
–
2,611
3,331
1,190
1,228
1,421
2,103
219%
271%
1
The capital adequacy multiples were 219% and 226% for AMP Life and NMLA respectively (2017: 272% and 218%).
(e) Actuarial information
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.
116
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
2018
$’000
2017
$’000
15,983
663
4,012
342
2,680
21,542
530
7,317
328
–
23,680
29,717
(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 nine 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
2018
$’000
2017
$’000
12,453
51
11,974
1,845
12,504
13,819
361
429
(c) Key management personnel access to AMP’s products
During the year, key management personnel and their personally related entities may also have had access to the following AMP
products. They are provided to key management personnel within normal employee terms and conditions. The products include
personal banking with AMP Bank Limited, the purchase of AMP insurance and investment products and financial investment services.
Information about such transactions does not have the potential to adversely affect 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.
(d) Transactions with related parties
Some of the non-executive directors hold directorships or positions in other companies or organisations. From time to time, AMP may
provide or receive services from these companies or organisations on arm’s length terms. None of the non-executive directors were,
or are, involved in any procurement or board decision making regarding the companies or organisations with which they have an
association.
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.
Share-based payments – refer to note 5.3.
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.
117
AMP 2018 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
Entitlements of
active members
Governance
of the plans
AMP Australia and AMP AAPH Australia defined
benefit plans
AMP New Zealand and AMP AAPH New Zealand
defined benefit plans
A lump sum or pension on retirement. Pensions
provided are lifetime indexed pensions with a
reversionary spouse pension.
The trustees of the AMP Superannuation Savings
Trust, of which the Australian plans are sub-
funds – this includes administration of the plan,
management and investment of the plan assets,
and compliance with superannuation laws
and other applicable regulations.
Accumulation benefits and a lump sum payment
on retirement.
The plan’s trustees – this includes administration
of the plan, management and investment of the
plan assets, and looking after the interests of
all beneficiaries.
Valuations required
Every year
Every three years
Key risks
The risk of actual outcomes being different to the actuarial assumptions used to estimate the defined
benefit obligation, investment risk and legislative risk.
Date of valuation
31 March 2018
31 December 2017
Additional
recommended
contributions
Approximately 13.2% of members’ salaries plus
plan expenses.
No additional contributions are required until
30 June 2021, at which point the requirement
will be reassessed.
(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 (losses) gains recognised in Other comprehensive income1
Defined benefit liability recognised at the end of the year
2018
$m
(833)
756
(77)
(29)
(7)
2
(43)
(77)
2017
$m
(821)
792
(29)
(44)
(2)
10
7
(29)
1
The cumulative net actuarial gains and losses recognised in the Statement of comprehensive income is a $116m gain (2017: $159m gain).
118
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
2018
$m
2017
$m
Fair value of
plan assets
2018
$m
2017
$m
(821)
(3)
(18)
(38)
–
–
(5)
52
(804)
(3)
(18)
(55)
–
(1)
8
52
(833)
(821)
792
–
17
(5)
2
–
2
(52)
756
760
–
18
62
10
1
(7)
(52)
792
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 (losses)
2018
$m
263
388
19
86
756
2017
$m
279
403
20
90
792
2018
$m
2017
$m
2018
$m
2017
$m
2018
$m
2017
$m
(307)
(378)
(25)
(123)
(307)
(373)
(24)
(117)
(833)
(821)
(44)
10
(6)
(37)
(77)
(28)
30
(4)
(27)
(29)
(15)
(20)
(2)
(6)
(43)
8
2
–
(3)
7
(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
2018
%
4.1
n/a
2017
%
4.5
n/a
2018
%
2.3
n/a
2017
%
2.8
n/a
2018
%
4.2
3.5
2017
%
4.6
3.5
2018
%
2.7
3.0
2017
%
3.3
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
2018
%
2017
%
2018
%
2017
%
2018
%
2017
%
2018
%
2017
%
50
34
8
5
3
51
31
10
4
4
38
38
4
14
6
38
38
4
14
6
30
51
5
13
1
31
42
5
14
8
40
39
4
14
3
40
39
4
14
3
119
AMP 2018 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
(–)
$m
2018
Assumption
(17)
Discount rate (+/– 0.5%)
Expected salary increase rate (0.5%)
n/a
Expected deferred benefit crediting rate (0.5%) n/a
19
Pensioner indexation assumption (0.5%)
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
2017
Assumption
Discount rate (+/– 0.5%)
Expected salary increase rate (0.5%)
Expected deferred benefit crediting rate (0.5%)
Pensioner indexation assumption (0.5%)
Pensioner mortality assumption (0.5%)
Life expectancy (additional 1 year)
(17)
n/a
n/a
19
n/a
n/a
19
n/a
n/a
(18)
10
n/a
19
n/a
n/a
(18)
10
n/a
n/a
n/a
n/a
n/a
n/a
1
n/a
n/a
n/a
n/a
n/a
2
2
n/a
n/a
n/a
n/a
n/a
2
n/a
n/a
n/a
n/a
n/a
(27)
1
3
25
n/a
n/a
(27)
1
3
25
n/a
n/a
30
n/a
n/a
(23)
9
n/a
30
n/a
n/a
(23)
9
n/a
n/a
n/a
n/a
13
n/a
4
n/a
n/a
n/a
14
n/a
4
24
n/a
n/a
n/a
n/a
n/a
17
n/a
n/a
n/a
n/a
n/a
(g) Expected contributions and maturity profile of the defined benefit obligation
Expected employer contributions ($m)
Weighted average duration of the defined benefit obligation (years)
AMP
AMP AAPH
Australia
New
Zealand
Australia
New
Zealand
–
11
–
8
1
13
–
13
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.
120
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
5.3 Share-based payments
AMP has multiple employee share-based payment plans. Share-based payment plans help create alignment between employees
participating in those plans (participants) and 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 rights1
Share rights
Restricted shares
Options
Total share-based payments expense
2018
$’000
2017
$’000
(2,946)
23,972
6,255
5
6,297
21,878
–
–
27,286
28,175
1
Non-market performance rights which were forfeited or where the performance conditions were not met were reversed during the year.
(a) Performance rights
The AMP Group Leadership Team, as well as selected senior executives, are required to take their long-term incentive (LTI) awards in the
form of performance rights. This was 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. This award may be settled through an equivalent cash payment,
at the discretion of the board.
The performance hurdles for rights granted in 2015 and 2016 are:
–
60% subject to AMP’s total shareholder return (TSR) performance relative to that of the entities in
the Comparator Group^ (being the top 50 industrial companies in the S&P/ASX 100 Index, based on
market capitalisation rank on the start of the applicable performance period) over three years.
40% subject to a Return on Equity (RoE) measure.
–
The performance hurdles for rights granted in 2017 are:
–
100% subject to AMP’s TSR performance relative to entities in the Comparator Group^ (being the top
50 industrial companies in the S&P/ASX 100 Index, based on market capitalisation rank on the start
of the applicable performance period) over four years.
No performance rights awards were granted under an LTI plan in 2018.
^ In determining the Comparator Group, all entities other than those in the global industry classification
standard (GICS) energy sector and GICS metals and mining industry are classified as industrial companies.
Vesting period
–
–
Three years for rights granted in 2015 and 2016.
Four 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.
121
AMP 2018 annual report
5.3 Share-based payments (continued)
(a) Performance rights (continued)
CEO Recovery Incentive Rights Award
As part of the Chief Executive Offer’s (CEO) incentive package on appointment, the CEO was granted an award of rights with a
performance condition. This award is to ensure that the CEO is aligned with the long-term interests of shareholders.
Plan
Overview
Vesting conditions
Vesting period/
Testing dates
CEO Recovery Incentive Rights Award
The Recovery Incentive performance rights give the CEO the right to acquire one fully paid ordinary
share in AMP Limited (per right) upon meeting specific performance hurdles, being the achievement of
multiple share price targets. They were granted at no cost to the CEO and carry no dividend or voting
rights until they vest. This award may be settled through an equivalent cash payment, at the discretion
of the board.
The share price targets that will be tested on the specified dates:
–
–
First Testing Date – 25% of rights granted will vest if share price is $4.50 at the testing date.
Second Testing Date – 50% or 75% (including any that have vested already) will vest if share price
is $4.75 or $5.00 (respectively).
Third Testing Date – the balance will vest depending on the share price being higher than $4.50
and will vest on a straight-line basis with 100% vesting if the share price is $5.25.
–
The board will test the share price targets on or around the following testing dates:
–
–
–
15 February 2021 (First Testing Date);
15 February 2022 (Second Testing Date); and
15 February 2023 (Third Testing Date).
If the share price targets are met, the rights will vest and become exercisable.
Vested awards
Vested rights are automatically converted to shares on behalf of the CEO.
Unvested awards
Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.
Valuation of performance rights
The 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 prior to the start of the award’s valuation 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 and this is revisited each reporting date.
For the CEO Recovery Incentive Rights Award, the valuations are also prepared by an independent external consultant. The valuations
are based on AMP’s closing share price at the valuation date. Assumptions regarding the dividend yield and volatility have been
estimated based on AMP’s actual historic dividend yield and volatility over an appropriate period.
122
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 5.3 Share-based payments (continued)
(a) Performance rights (continued)
The following table shows the factors considered in determining the 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
04/06/2015
18/09/2015
15/04/2016
15/04/2016
02/06/2016
13/01/2017
19/05/2017
$6.20
$5.79
$5.79
$5.79
$5.54
$5.15
$5.08
3.0
2.7
1.1
2.1
3.0
2.4
4.0
4.7%
4.6%
4.7%
4.7%
4.7%
5.0%
5.2%
23%
23%
25%
23%
24%
23%
23%
2.1%
1.9%
2.0%
2.0%
1.6%
1.9%
1.8%
55%
58%
36%
69%
57%
71%
56%
0%
0%
0%
0%
0%
0%
n/a
$2.82
$2.43
$3.68
$1.80
$2.37
$1.47
$2.24
$5.39
$5.11
$5.49
$5.24
$4.81
$4.57
n/a
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 factors considered in determining the value of the CEO Recovery Incentive Rights Award with a share
price target granted during the period:
Grant date
21/08/2018
Share
price
$3.45
Contractual
life (years)
Dividend
yield
Volatility
Risk-free
rate
Share rights
fair value
4.5
5.3%
22%
2.2%
$0.82
The following table shows the movement in number of performance rights outstanding during the period:
Grant date
04/06/2015
18/09/2015
15/04/2016
02/06/2016
13/01/2017
19/05/2017
21/08/2018
Total
Exercise
price
Balance at
1 Jan 2018
Exercised
during
the year
Granted
during
the year
Lapsed
during
the year
Nil
Nil
Nil
Nil
Nil
Nil
Nil
3,416,046
61,038
21,788
3,688,422
12,820
3,267,000
–
10,467,114
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,656,976
3,416,046
61,038
21,788
1,247,360
–
1,270,500
–
1,656,976
6,016,732
6,107,358
Balance at
31 Dec 2018
–
–
–
2,441,062
12,820
1,996,500
1,656,976
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.
123
AMP 2018 annual report
5.3 Share-based payments (continued)
(b) Share rights
–
–
LTI participants below the AMP Group Leadership Team 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 Deferral Plan and Enterprise Profit Share Plan. These plans require that 40% of the participants’ annual
short-term incentive/profit share outcome be awarded as share rights.
Selected AMP Capital employees participate in the Deferred Bonus Equity Plan whereby a portion of their annual short-term
incentive outcome (above a specified threshold) is deferred into share rights.
Prior to 2017, high potential employees at a senior leader level were eligible for nomination to participate in the Short-Term
Incentive Match Plan, which provided an award of share rights to the value of 50% of the individual’s short-term incentive outcome
(the plan ceased in 2017).
–
–
Plan
Overview
Long-term Incentive Plan
Short-term Incentive Deferral Plan,
Enterprise Profit Share Plan and
Deferred Bonus Equity Plan
Short-term Incentive Match Plan
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. This award may be settled through an equivalent cash payment at the discretion of
the board.
Vesting conditions/
period
AMP Group employees –
continued service for three years
(2015 and 2016 grants) and four
years for the 2017 grant. No LTI
grant was made in 2018.
Continued service for two
years and subject to ongoing
employment, compliance with
AMP policies and the board’s
discretion.
Continued service for two
years and subject to ongoing
employment, compliance with
AMP policies and the board’s
discretion.
AMP Capital employees – the
2017 and 2018 LTI grants made
to eligible employees have a
three-year service period.
Some awards may also vary
where the share rights are
awarded as a sign-on equity
award or to retain an employee
for a critical period.
For AMP Capital employees
participating in the Enterprise
Profit Share Plan or 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.
CEO Buy-out Incentive Rights Award
As part of the CEO’s incentive package on appointment, the CEO was granted an award of share rights with a service (employment)
condition to compensate for incentives forgone from the CEO’s previous employer.
Plan
CEO Buy-out Incentive Rights Award
Overview
The Buy-out Incentive share rights give the CEO the right to acquire one fully paid ordinary share in AMP
Limited (per right) after a specified service period. They were granted at no cost to the CEO and carry no
dividend or voting rights until they vest. This award may be settled through an equivalent cash payment
at the discretion of the board.
Vesting conditions/
period
The rights will vest in accordance with the vesting schedule set out below:
–
–
–
50% on 15 February 2020
30% on 15 February 2021
20% on 15 February 2022
Vesting is subject to continued service and in compliance with AMP policies and the board’s discretion.
Vested awards
Vested share rights are automatically converted to shares on behalf of the CEO.
Unvested awards
Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed
for misconduct.
124
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 5.3 Share-based payments (continued)
Valuation of share rights
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 as 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.
For the CEO Buy-out Incentive Rights Award, the valuations are also prepared by an independent external consultant. The valuations are
based on AMP’s closing share price at the valuation date. Assumptions regarding the dividend yield and volatility have been estimated
based on AMP’s actual historic dividend yield and volatility over an appropriate period.
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
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
02/04/2018
02/04/2018
02/04/2018
16/07/2018
16/07/2018
13/08/2018
13/08/2018
13/08/2018
13/08/2018
21/08/2018
21/08/2018
21/08/2018
03/12/2018
03/12/2018
Share price
Contractual
life (years)
Dividend
yield
Dividend
discount
Fair value
$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
$4.99
$4.99
$4.99
$3.60
$3.60
$3.39
$3.39
$3.39
$3.39
$3.45
$3.45
$3.45
$2.49
$2.49
3.0
2.7
1.8
2.0
1.5
2.6
1.6
1.1
0.9
1.8
3.0
2.4
1.6
0.6
2.8
1.8
3.0
4.0
2.0
3.0
1.9
2.9
0.4
1.1
0.5
1.0
2.0
3.0
1.5
2.5
3.5
1.2
2.2
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%
5.7%
5.7%
5.7%
6.0%
6.0%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
5.3%
13%
12%
7%
6%
7%
11%
7%
5%
4%
8%
13%
11%
8%
3%
14%
9%
13%
17%
10%
14%
10%
15%
2%
6%
3%
5%
10%
15%
8%
12%
17%
6%
11%
$5.39
$5.11
$5.41
$5.42
$5.17
$4.91
$5.15
$5.06
$5.56
$5.36
$4.81
$4.57
$4.75
$5.00
$4.42
$4.65
$4.43
$4.21
$4.68
$4.27
$4.49
$4.25
$3.52
$3.38
$3.30
$3.21
$3.05
$2.89
$3.19
$3.02
$2.87
$2.34
$2.22
125
AMP 2018 annual report 5.3 Share-based payments (continued)
The following table shows the movement in share rights outstanding during the period:
Grant date
Exercise price
Balance at
1 Jan 2018
Exercised
during the year
Granted
during the year
Lapsed during
the year
Balance at
31 Dec 2018
04/06/2015
18/09/2015
28/04/2016
02/06/2016
13/01/2017
13/01/2017
27/04/2017
27/04/2017
27/04/2017
27/04/2017
27/04/2017
27/04/2017
19/05/2017
19/05/2017
03/07/2017
02/04/2018
02/04/2018
02/04/2018
16/07/2018
16/07/2018
13/08/2018
13/08/2018
13/08/2018
13/08/2018
21/08/2018
21/08/2018
21/08/2018
03/12/2018
03/12/2018
Total
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1,501,849
61,037
3,575,250
1,700,835
12,821
8,818
211,137
331,951
956,760
1,006,547
75,779
79,725
566,000
1,341,447
9,671
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,309,234
7,384
3,490,823
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
655,425
2,107,948
1,116,415
40,650
40,650
39,895
53,191
53,191
53,191
726,744
436,046
290,698
142,856
142,857
85,161
34,615
84,427
122,071
–
–
21,504
20,160
36,559
38,461
–
–
5,000
198,134
–
2,879
285,507
40,358
–
–
–
–
–
–
–
–
–
–
–
107,454
19,038
–
1,578,764
12,821
8,818
189,633
311,791
920,201
968,086
75,779
79,725
561,000
1,143,313
9,671
652,546
1,822,441
1,076,057
40,650
40,650
39,895
53,191
53,191
53,191
726,744
436,046
290,698
142,856
142,857
11,439,627
4,807,441
5,899,757
974,836
11,557,107
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 110,195 share rights have lapsed due to resignation. Of the share rights outstanding at the end of the period, none
have vested or become exercisable.
(c) Options
CEO Recovery Incentive Options Award
As part of the CEO’s incentive package on appointment, the CEO was granted an award of options. This award is to ensure that the
CEO is aligned with the long-term interests of shareholders.
Plan
CEO Recovery Incentive Option Award
Overview
The Recovery Incentive options give the CEO the right to acquire one fully paid ordinary share in AMP
Limited (per option) at a predetermined price. Options do not carry any dividend or voting rights and are
granted at no cost, however are subject to an exercise price at the time the options are converted to shares.
Vesting conditions
The options award has an exercise price of $5.50 per option. The CEO will be allocated one share or a cash
equivalent for each vested option that is exercised and for which the exercise price has been paid by the
CEO, subject to continued employment.
Vesting period
Vested awards
The options award will vest and become exercisable on or around 15 February 2023. Vested options
will automatically lapse on 31 March 2024 if they have not been exercised before that date.
Vested options may only be exercised by the CEO in accordance with AMP’s trading policy and subject to
all applicable laws.
Unvested awards
Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.
126
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
5.3 Share-based payments (continued)
Valuation of options
The fair value of the options has been calculated by an independent external consultant using AMP’s closing share price at the
valuation date being 14 December 2018.
(i)
The following table shows the number and weighted exercise prices (WAEP) of, and movements in, options issued during the period:
Grant date
Exercise price
Balance at
1 Jan 2018
Exercised
during the year
Granted
during the year
Lapsed during
the year
Balance at
31 Dec 2018
14/12/2018
Total
Weighted average exercise price
$5.50
–
–
–
–
–
–
8,000,000
8,000,000
$5.50
–
–
–
8,000,000
8,000,000
$5.50
(ii) The weighted average remaining contractual life for the options outstanding as at 31 December 2018 was 5.3 years (2017: nil).
(iii) The weighted average fair value of options granted during the year was $0.03 (2017: nil).
(iv) The following table shows the factors considered in determining the fair value of the options on the date of grant:
Weighted average fair values at the measurement date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of share options (years)
Weighted average share price ($)
Model used
2018
2017
$0.03
5.3%
26%
2.1%
5.3
$2.33
Black-Scholes
–
–
–
–
–
–
–
The volatility assumption is based on the actual volatility of AMP’s daily closing share price over the three-year period to the valuation date.
(d) Restricted shares
CEO Buy-out Incentive Shares Award
As part of the CEO’s incentive package on appointment, the CEO was awarded restricted shares with a service (employment) condition
to compensate for incentives forgone from the CEO’s previous employer.
Plan
CEO Buy-out Incentive Shares Award
Overview
The Buy-out Incentive restricted shares are fully paid ordinary shares in AMP Limited that are held in
the AMP Employee Share Trust on behalf of the CEO until the specified service period has been met.
They were granted at no cost to the CEO and carry the same dividend or voting rights as other fully
paid ordinary shares. Any dividends paid on shares are received in the ordinary course on the dividend
payment date(s).
Vesting conditions/
period
The restricted shares will vest in accordance with the vesting schedule set out below:
–
–
–
60% on 15 August 2019
20% on 15 August 2020
20% on 15 August 2021
Vesting is subject to continued service and in compliance with AMP policies and the board’s discretion.
Vested awards
On the relevant vesting dates, the restriction on the shares is released.
Unvested awards
Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.
127
AMP 2018 annual report
5.3 Share-based payments (continued)
AMP Employee Share Plan – $1,000 Share Plan
AMP has given permanent employees the opportunity to become shareholders in AMP through the launch of the AMP Employee Share
Plan (AESP). All permanent employees as at 12 December 2018 will be offered a $1,000 award of shares subject to employment on
the allocation date in March 2019. These shares will be subject to a restriction on sale and transfer for up to three years from the date
they are allocated. Any shares so acquired will be released to the participant at the end of the three-year period or when they leave
employment with AMP (whichever is earlier).
Valuation of restricted shares and AMP Employee Share Plan
The CEO’s award of restricted shares is 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 prior to the start of the award’s valuation 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.
For the AESP, the fair value of the shares will be determined as the market price of AMP ordinary shares on the grant date. As employees
holding restricted shares are entitled to dividend payments, no adjustment has been made to the fair value in respect of future
dividend payments.
In determining the share-based payments expense for the period, 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 vesting period.
(e) 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 on 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 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 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.
128
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 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
2018
2017
% holdings
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord A
Ord
Ord
Ord A
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
100
100
100
85
85
85
85
85
85
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
85
85
85
85
85
85
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Investments in investment entities controlled by the AMP Life statutory funds
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.
129
AMP 2018 annual report 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 statutory funds
In the course of normal operating investment activities, the AMP Life statutory funds acquire equity interests in entities which,
in some cases, result in AMP holding a controlling interest in the investee entity.
Most acquisitions and disposals of controlled entities are in relation to managed investment schemes with underlying net assets
typically comprising investment assets including cash. The consideration for acquisitions or disposals reflects the fair value of the
investment assets at the date of the transactions after taking into account minority interests.
Certain controlled entities of the life entity’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
2018
%
2017
%
China Life Pension Company3
Pension company
China
19.99
19.99
AIMS AMP Capital Industrial REIT2
Industrial property trust
Singapore
China Life AMP Asset
Management Company Ltd
Global Infrastructure
Fund Sponsor2
Global Infrastructure Fund II2
PCCP LLC3
Other (individually
immaterial associates)
Total investments in associates
accounted for using the equity method
10
15
5
5
5
15
8
–
Investment management
China
Fund
Fund
Cayman Island
Cayman Island
Investment management
United States
24.9
24.9
n/a
n/a
2018
$m
305
101
49
98
81
145
145
2017
$m
281
47
23
151
–
127
120
924
749
1
2
3
The carrying amount is after recognising $42m (2017: $29m) share of current period profit or loss of associates accounted for using the equity method.
Entities within the AMP group have been appointed investment manager, therefore the group is considered to have significant influence.
The AMP group has significant influence through representation on the entity’s Board.
(b) Investments in significant associates held by the life entities’ statutory funds measured at fair value through profit or loss
The life insurance statutory funds hold investments in various investment vehicles/funds on behalf of policyholders. These investments
are not part of the core wealth management business of AMP and do not have a material impact on the financial performance or net
financial position of the AMP group.
Accounting Policy – recognition and measurement
Investments in associates 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.
130
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
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
Other income
Operating expenses
Impairment
Finance costs
Income tax credit1
Profit (loss) for the year
Total comprehensive (loss) income for the year
(b) Statement of financial position – AMP Limited entity
Current assets
Cash and cash equivalents
Receivables and prepayments2
Current tax assets
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
2018
$m
2017
$m
545
–
4
1
(3)
(2,489)
(55)
17
(1,980)
(1,980)
8
57
130
1,007
9,911
47
890
–
8
–
(8)
–
(45)
49
894
894
3
99
–
1,191
12,400
91
11,160
13,784
239
–
1
106
47
5
1,043
1,116
1,283
1,274
9,877
12,510
9,610
21
246
9,547
22
2,941
9,877
12,510
1
2
3
4
5
Dividend income from controlled entities $514m (2017: $866m) is not assessable for tax purposes. Income tax credit includes $8m (2017: $53m)
utilisation of previously unrecognised tax losses.
Receivables and payables include tax-related amounts receivable from subsidiaries $53m (2017: $52m) and payable to subsidiaries $207m
(2017: $75m).
Deferred tax assets include amounts recognised for losses available for offset against future taxable income $45m (2017: $87m).
The AMP Limited entity is the issuer of: AMP Wholesale Capital Notes; AMP Capital Notes – 2015, AMP Subordinated Notes – 2017 and
AMP Notes 3. Further information on these is provided in note 3.2.
Changes in retained earnings comprise $1,980m loss (2017: $894m profit) for the year less dividends paid of $715m (2017: $837m).
(c) Contingent liabilities of the AMP Limited entity
The 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.
131
AMP 2018 annual report
Section 7: Other disclosures
This section includes disclosures other than those covered in the previous sections, required for the AMP group to comply with the
accounting standards and pronouncements.
7.1 Notes to Consolidated statement of cash flows
7.2 Commitments
7.3 Provisions and contingent liabilities
7.4 Auditors’ remuneration
7.5 New accounting standards
7.6 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) in receivables, intangibles and other assets
(Decrease) increase in net policy liabilities
(Decrease) increase in income tax balances
Increase (decrease) in other payables and provisions
Cash flows used in operating activities
(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
2018
$m
2017
$m
51
22
239
8,258
(5,502)
5
(569)
(6,769)
(937)
1,221
873
17
276
(1,495)
(4,686)
7
(152)
3,769
244
(251)
(3,981)
(1,398)
3,932
3,450
3,602
3,620
7,382
7,222
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.
132
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
7.2 Commitments
(a) Operating lease commitments
Due within one year
Due within one year to five years1
Due later than five years1
Total operating lease commitments
2018
$m
76
319
846
2017
$m
81
279
951
1,241
1,311
1 Operating lease commitments includes commitments to enter leases which have not yet commenced.
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 2018, the total of future minimum sublease payments expected to be received under non-cancellable subleases
was $5m (2017: $15m).
(b) Buy-back arrangements
AMP has contractual arrangements with financial advice businesses in the AMP advice network to purchase their client registers at
agreed values subject to certain conditions being met. These buy-back arrangements include arrangements known as Buyer of Last
Resort (BOLR). Advice businesses must register their intention to invoke buy-back arrangements, which have six to 18 month lead
times and are subject to audit prior to finalising the purchase price. The pipeline of buy-back arrangements where an intention to
invoke has been registered is $163m (2017: $86m), $141m of which relates to arrangements expected to settle in the next 12 months.
The commitment value has been disclosed as the unaudited value as advised by the advice businesses. AMP’s experience is that the
ultimate purchase price after audit is typically less than the initially advised value and not all of the buy-backs progress to completion.
Over the 12 months ended 31 December 2018, $33m was paid for executed buy-back arrangements.
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.
7.3 Provisions and contingent liabilities
(a) Provisions
Restructuring1
Customer remediation
Other2
Total provisions
(b) Movements in provisions
Balance at the beginning of the year
Additional provisions made during the year
Provisions used during the year
Balance at the end of the year
2018
$m
19
656
132
807
Restructuring1
$m
Customer
remediation
$m
Other2
$m
22
19
(22)
19
51
615
(10)
656
80
124
(72)
132
2017
$m
22
51
80
153
Total
$m
153
758
(104)
807
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 various other operational provisions. $28m (2017: $25m) is expected to be settled more than 12 months from the
reporting date.
133
AMP 2018 annual report
7.3 Provisions and contingent liabilities (continued)
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.
A contingent liability is disclosed where a legal or constructive obligation is possible, but not probable; or where the obligation is
probable, but the financial impact of the event is unable to be reliably estimated.
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.
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. Legal
proceedings threatened against AMP may also, if filed, result in AMP incurring obligations. A contingent liability exists in relation to
actual and likely potential legal proceedings.
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.
It is the AMP group’s policy that such information is not 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, although other government agencies may have jurisdiction depending on the circumstances. The reviews and
investigations conducted by regulators may be industry-wide or specific to AMP and the outcomes of those reviews and investigations
can vary and may lead, for example, to the imposition of penalties, variations or restrictions to licences, the compensation of customers,
enforceable undertakings or recommendations and directions for AMP to enhance its control framework, governance and systems.
AMP is undertaking additional 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 where the results of our reviews have
reached the point that customer compensation is likely and can be reliably estimated then a provision has been raised.
The Royal Commission
In December 2017, the Australian Government established a Royal Commission into ‘Misconduct in the Banking, Superannuation and
Financial Services Industry’ (the Royal Commission) to investigate conduct, practices, behaviour or business activities by financial services
entities, including AMP, that may amount to misconduct or that may have fallen below community standards and expectations.
During the course of 2018, the Royal Commission conducted a number of public hearings and required the production of documents
as part of its inquiry. AMP responded by preparing submissions, attending hearings and providing documents as requested.
The final report of the Royal Commission was publicly released on 4 February 2019 and made:
– 76 policy recommendations which may result in legislative and regulatory change; and
–
a number of findings of actual or possible misconduct (including breaches of law) or conduct which does or may fall below
community standards and expectations, in relation to participants in the financial services industry, including AMP.
AMP is considering the various matters raised in the Commissioner’s final report. The findings of the Royal Commission may result in
litigation, fines, penalties, revocation, suspension or variation of conditions of relevant regulatory licences or other regulatory action.
The policy recommendations include recommendations relating to financial advice, superannuation, banking, insurance and regulators.
For certain policy recommendations, an existing provision is held or impairments on the carrying value of assets are reflected in this
financial report; however the aggregate potential impact of these recommendations to AMP cannot be accurately assessed at the date
of this financial report and a contingent liability exists.
Customer remediation
AMP is progressing with its customer review and remediation programs which are seeking to identify and compensate customers
who have suffered loss or detriment as a result of either:
–
– where customers have been charged an advice service fee without the provision of service.
inappropriate advice from their adviser; or
During the year, provisions have been raised for both of these items, inclusive of program costs. The actual compensation to customers
and related program costs could vary significantly from the amounts provided. In particular, the application of the program and
remediation principles (following the final agreement with ASIC) and the pattern and timing of individual customer compensation
could have a significant impact on the final compensation and the costs of the programs.
Provisions for advice remediation do not include amounts for potential recoveries from advisers and insurers.
134
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018 7.3 Provisions and contingent liabilities (continued)
Inappropriate advice
AMP continues to progress with the identification and compensation of customers who have suffered loss or detriment as a result
of receiving inappropriate advice from their adviser. The scope of the review includes the period from 1 January 2009 to 30 June 2015
specified by ASIC in Report 515 Financial advice: Review of how large institutions oversee their advisers and extended to 30 June 2017,
as well as including any instances of inappropriate advice identified through ongoing supervision and monitoring activities.
In some instances compensation has been paid and a provision exists for further compensation payable as the review progresses
and client reviews are completed. AMP has adjusted its provision estimate for future compensation based on the actual experience
of remediating clients and the future costs of operating the program and this has resulted in an increase in the provision as at
31 December 2018. The provision includes a component for advisers for which a remediation review has not yet commenced
and the determination of compensation for any given client is not known with certainty until immediately prior to payment.
Advice service fee (fees for no service)
AMP has established a program to focus on the identification and compensation of customers of advisers who have been charged an
ongoing service fee without the provision of service. This involves a large-scale review of fee arrangements from 1 July 2008 as specified
by ASIC in Report 499 Financial advice: Fees for no service. Sampling of customer files has been conducted across AMP licensees and
has identified instances in the review period where customers have paid fees and there is insufficient evidence to support that the
associated service had been performed.
AMP is developing a process for customer review and remediation within a reasonable timeframe, which on current estimates is
three years finishing mid 2021. AMP has been engaging with ASIC on this process and whilst progress has been made, discussions
on principles to be applied when remediating customers are yet to be concluded at the date of this report.
A provision for advice service fee customer compensation and the future costs of executing the program has been raised during the
year ended 31 December 2018. This provision is judgemental and has been estimated using multiple assumptions derived from the
sampling conducted to date. Assumptions used include evidence failure rates, average fees to be refunded and compensation for
lost earnings.
Other matters
In addition to the above items, other reviews in relation to fees charged to customers are being undertaken, including corporate plan
service fees, fees charged to orphan customers and deceased estates; and where required, customers will be remediated. The reviews
have not progressed sufficiently to be able to reliably estimate any impact as at 31 December 2018 and a contingent liability exists for
the financial impact of customer remediation.
Buy-back arrangements
AMP has contractual arrangements with financial advice businesses in the AMP advice network to purchase their client registers at
agreed multiples to recurring revenues subject to certain conditions being met. These buy-back arrangements include arrangements
known as Buyer of Last Resort (BOLR). Advice businesses must register their intention to invoke buy-back arrangements, which have
six to 18 month lead times, and are subject to audit prior to finalising the purchase price. Client registers are either acquired outright
by AMP or AMP facilitates a sale to an existing business within the AMP advice network.
AMP is currently assessing options in relation to how grandfathered commissions are valued for the purpose of buy-back arrangements,
recognising that the findings of the Royal Commission make specific reference to grandfathered commissions. Consultation with AMP’s
advice network has commenced and dependent upon the implementation approach, which has not yet been settled, a contingent
liability exists in relation to these arrangements.
Litigation
Shareholder class actions
During May and June 2018, AMP Limited was served with five competing shareholder class actions, one filed in the Supreme Court
of NSW and the others filed in the Federal Court of Australia. The actions follow the financial advice hearing block in the Royal
Commission in April 2018 and allege breaches by AMP Limited of its continuous disclosure obligations. Each action is on behalf of
shareholders who acquired an interest in AMP Limited shares over a specified time period, the longest of which is between 10 May
2012 and 17 April 2018. The claims are yet to be quantified and participation has not been determined. AMP Limited has filed its
defence in the action initially brought in the Supreme Court of NSW. The various other competing proceedings have subsequently
been transferred to the Supreme Court of NSW. AMP is awaiting the Court’s decision on which of the five class actions is to continue.
Currently it is not possible to determine the ultimate impact of these claims, if any, upon AMP. AMP Limited intends to vigorously
defend these actions.
ASIC civil penalty proceedings
AMP Financial Planning Pty Limited (AMPFP), a wholly-owned subsidiary of AMP Limited, is the subject of proceedings brought by ASIC
on 27 June 2018. The proceedings allege contraventions of the Corporations Act 2001 (Cth) by AMPFP relating to the alleged conduct
of certain of its authorised financial advisers in providing advice to customers in relation to the replacement of life insurance policies
by cancellation and new application rather than by transfer. ASIC’s claim is in respect of six advisers and 40 instances of advice. ASIC is
seeking declarations that AMPFP contravened various sections of the Corporations Act and orders that AMPFP pay pecuniary penalties
of an unspecified amount. AMPFP filed its defence in September 2018. AMPFP has made certain admissions in respect of the conduct of
a single adviser terminated by AMPFP and banned by ASIC several years ago. However, AMPFP is vigorously defending ASIC’s allegation
that this conduct constitutes a broader, systemic issue.
135
AMP 2018 annual report 7.4 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
2018
$’000
2017
$’000
6,107
1,286
5,536
1,395
7,393
6,931
766
1,082
743
856
1,848
1,599
9,241
8,530
6,474
371
6,977
303
6,845
7,280
274
280
554
305
–
305
Total auditors’ remuneration for managed investment schemes and superannuation funds
7,399
7,585
Total auditors’ remuneration
16,640
16,115
1 Other audit services include 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 primarily related to transaction related advice.
7.5 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 2018. These have not had a material
effect on the financial position or performance of the AMP group.
AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers (AASB 15) became effective for periods beginning on 1 January 2018. AASB 15 defines
principles for recognising revenue and introduces new disclosure requirements. Under AASB 15, revenue is 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.
Revenue from contracts with customers, as defined by AASB 15, is disclosed as Fee revenue and Other revenue on the Consolidated
income statement.
AMP has applied the ‘cumulative effect’ method in adopting AASB 15 which requires an adjustment to the retained earnings at
1 January 2018 for contracts that remained open as at that date. The cumulative effect at 1 January 2018 was less than $1m as the
primary impact on the AMP group was the change in presentation of some revenue from gross to net or vice versa which did not have
any profit impact. AASB 15 also changes the timing of the recognition of performance fees for certain closed end funds, the impact of
which will emerge in future years.
Revenue from contracts with customers is disclosed in note 1.1(b).
136
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
7.5 New accounting standards (continued)
AASB 9 Financial Instruments
AASB 9 Financial Instruments (AASB 9) became 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.
AMP has applied AASB 9 retrospectively without restating the comparative information for 2017 as permitted by the transitional
provisions of the standard. The difference between the previous carrying amount of financial instruments and the carrying amount
of those instruments at 1 January 2018 measured in accordance with AASB 9 has been recorded as an adjustment to retained
earnings at 1 January 2018. 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.
The key changes in the group’s accounting policies resulting from the adoption of AASB 9 are summarised below:
Classification and measurement
Under AASB 9, the group determines the classification of financial assets based on the business model it uses to manage the financial
assets and the contractual characteristics of the financial assets. We note the following classification changes as a result of the
adoption of AASB 9:
–
–
Financial instruments which were previously classified as loans and receivables are now classified as amortised cost.
Equity instruments which were previously classified as available-for-sale are now classified as fair value through other
comprehensive income (FVOCI). Consistent with the treatment of available-for-sale equity instruments, movements in the value
of equity instruments classified as FVOCI are recognised in the fair value reserve within the Consolidated statement of changes
in equity. However, unlike the treatment for available-for-sale instruments, gains and losses on equity securities measured at
FVOCI are not subsequently reclassified to profit or loss.
Debt securities held by AMP Bank were previously classified as held-to-maturity and measured at amortised cost. AMP has
reclassified these financial instruments as FVOCI as the debt instruments meet the contractual cash flow characteristics and will
be held both to collect cash flows and to manage liquidity needs. This has resulted in a $4m increase in value at 1 January 2018.
This increase in value has been recorded as an adjustment to the Fair value reserve at 1 January 2018.
–
The accounting for the group’s financial liabilities remains the same as it was under AASB 139.
The adoption of AASB 9 has changed the group’s accounting for impairment losses for financial assets by replacing AASB 139’s incurred
loss approach with a forward-looking expected credit loss (ECL) approach. The ECL model, further described in note 2.1, applies to
all the group’s financial assets measured at amortised cost, debt securities measured at FVOCI, loan commitments and financial
guarantee contracts not measured at fair value through the Income statement.
The group’s syndicated loan facility was renegotiated effective 14 December 2017. On adoption of AASB 9, a gain on modification of
$15m was recognised as an adjustment to retained earnings, as a result of the change in terms. This gain was also recognised as an
offset to the carrying value of the facility and will amortise over its life. The amortisation of the gain is recognised as an increase to
Finance costs on the Income statement.
The following table identifies the impacts of the adoption of AASB 9 on the reserves and retained earnings balances at 1 January 2018:
Retained
earnings
$m
Fair value
reserve
$m
Balance at 31 December 2017
Expected credit losses – loans and advances
Expected credit losses – trade receivables
Gain on modification of syndicated loan
Reclassification of debt securities from amortised cost to FVOCI
Tax impact
Balance at 1 January 2018
(164)
(12)
(5)
15
–
1
(165)
Total
equity
$m
7,283
(12)
(5)
15
4
–
7
–
–
–
4
(1)
10
7,285
137
AMP 2018 annual report 7.5 New accounting standards (continued)
(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 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 corresponding right-of-use (ROU) assets. Lessees have the option to not recognise short-term
leases and leases of low-value assets.
AMP group has materially completed the impact assessment of AASB 16 adoption as at 1 January 2019. The estimated impact for the
group as a lessee is in the order of $200m to $220m which will be recognised as an increase in lease liabilities with a corresponding
ROU asset. The actual impact of adoption could be different as new accounting policies are subject to change until the group presents
its first financial statements that include the date of initial application.
As a result of adoption of AASB 16, the nature of expenses relating to leases will change. Operating lease expenses were previously
recognised on a straight-line basis. However, under AASB 16 the group will recognise depreciation expense for ROU assets and interest
expense for lease liabilities.
AMP expects to adopt AASB 16 using the modified retrospective approach. Under this approach the cumulative effect of adoption will
be recognised as an adjustment to opening retained earnings at 1 January 2019, with no restatement of comparative information.
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 continuing to develop
its implementation plan for the adoption of AASB 17.
AASB Interpretation 23 ‘Uncertainty over Income Tax Treatments’ effective for periods beginning on 1 January 2019
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is
uncertainty over income tax treatments. The Interpretation specifically addresses whether an entity considers uncertain tax treatments
separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity
determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and how an entity considers changes
in facts and circumstances.
7.6 Events occurring after reporting date
In December 2017, the Australian Government established a Royal Commission into ‘Misconduct in the Banking, Superannuation
and Financial Services Industry’ (the Royal Commission) to investigate conduct, practices, behaviour or business activities by
financial services entities, including AMP, that may amount to misconduct or that may have fallen below community standards
and expectations. During the course of 2018, the Royal Commission has conducted a number of public hearings and required the
production of documents as part of its inquiry.
The final report of the Royal Commission was publicly released on 4 February 2019 and made:
– 76 policy recommendations which may result in legislative and regulatory change; and
–
a number of findings of actual or possible misconduct (including breaches of law) or conduct which does or may fall below
community standards and expectations in relation to participants in the financial services industry, including AMP.
AMP is considering the various matters raised in the Commissioner’s final report.
As at the date of this report, the directors are not aware of any other 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 operation in future years;
the results of those operations in future years; or
the AMP group’s state of affairs in future financial years.
138
AMP 2018 annual reportNotes to the financial statements for the year ended 31 December 2018
Financial report for the year ended 31 December 2018
Directors’ declaration
for the year ended 31 December 2018
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 2018 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 2018
include an explicit and unreserved statement of compliance with the International Financial Reporting Standards; and
(d) the declarations required by section 295A of the Corporations Act 2001 have been given to the directors.
David Murray
Chairman
Sydney, 14 February 2019
Francesco De Ferrari
Chief Executive Officer and Managing Director
139
AMP 2018 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 or AMP), which
comprises the consolidated statement of financial position as at 31 December 2018, 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 2018 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 judgment, 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.
140
AMP 2018 annual report Report on the Audit of the Financial Report (continued)
Sale of the AMP Life Wealth Protection & Mature Portfolios
31 December 2018 Financial report reference: ‘Understanding AMP financial report’ section (b)
Why significant
How our audit addressed the matter
– On 25 October 2018, the Group announced the completion
of its portfolio review, resulting in the sale of the wealth
protection and mature portfolios to Resolution Life and the
intended listing of the remaining New Zealand business on
the New Zealand stock exchange.
– The complexity of the transaction and timing in relation to
the year end involved the following key areas of judgement:
– Assessment of control as at balance date; and
– The classification of the related assets and liabilities as
Our audit procedures included the following:
– We considered the Group’s assessment of control as at
31 December 2018 for the businesses affected based on
the transaction terms.
– We assessed the Group’s conclusion to not recognise the
assets and liabilities as discontinued operations based on
the steps needed to ready the business for sale and the
criteria contained in Australian Accounting Standards.
– We assessed the adequacy of related financial report
ther continuing or discontinued operations.
disclosures.
Customer remediation provisions
31 December 2018 Financial report reference: Section 7.3: Provisions and contingent liabilities
Why significant
How our audit addressed the matter
– AMP has recorded provisions in relation to customer
remediation programs amounting to $656 million at
31 December 2018 as disclosed in Section 7.3.
– Significant judgement was involved in assessing customer
remediation matters and in determining a reliable
measurement of the provision.
Key areas of judgement included:
– Whether sufficient information existed to allow a provision
to be reliably measured
– The setting of model assumptions including remediation
rates, average compensation amounts, resources required
and time to complete the program; and
– Timing of probable remediation payments
Our audit procedures included the following:
– We evaluated evidence of potential obligations through an
assessment of customer complaints, regulatory and breach
notifications, claims and litigation.
– We gained an understanding of the status of the various
customer remediation programs including the results of
management investigations, engagement with regulators
and key decisions made by the Group regarding the
program approach through discussions with management
and directors, and review of Board minutes and papers.
– We assessed key modelling assumptions used to calculate
provisioned amounts.
– For those matters where the Group determined that a
sufficiently reliable estimate of the obligation could not be
made, we assessed this conclusion and the adequacy of
related disclosures against the requirements of Australian
Accounting Standards.
– We assessed the adequacy of related contingent liability
disclosures against the requirements of Australian
Accounting Standards.
141
AMP 2018 annual report Report on the Audit of the Financial Report (continued)
Impairment of advice related assets
31 December 2018 Financial report reference: Section 7.3: Provisions and contingent liabilities
Why significant
How our audit addressed the matter
– As disclosed in Section 7.3 the Group has Buyer of Last Resort
arrangements (BOLR) in place which can require them to buy
planner registers. When acquired, these assets are recorded as
inventory and intangible assets depending on their intended
use. As explained in Section 7.3 there are uncertainties as
to the consequences of the final Royal Commission report
and future legislative changes that could have an impact on
the underlying assumptions supporting the valuation of the
planner registers related assets.
– The Group has practice finance loans as at 31 December 2018
for which provisions are required to be booked in accordance
with Australian Accounting Standards where loans are
impaired or are expected to be impaired in the future.
Key areas of judgement include:
– Impairment model assumptions in respect of inventory,
intangible assets and practice finance loans
– Whether the BOLR terms represent an onerous contract
and requires a provision to be recorded
– Whether new information from the Royal Commission
report represents a material subsequent event.
Our audit procedures included the following:
– We assessed management’s analysis of the impact of the
possible removal of grandfathered commissions and the
reassessment of other key assumptions in impairment
models, to assess the reasonableness of carrying values
and impairment outcomes.
– We assessed and tested key impairment modelling
assumptions used to calculate impairment amounts.
– We assessed the disclosures of the assumptions,
uncertainties and associated judgments in relation
to the provision and potential contingencies.
– We considered management’s assessment of market
and internal factors in determining the loan impairment
recognised against the practice finance loan book.
– We reviewed and assessed the appropriateness of
contingent liability and subsequent event disclosures
against requirements of Australian Accounting Standards.
Valuation of life insurance policy liabilities
31 December 2018 Financial report reference: Section 4.1: Accounting for life insurance and investment contracts
Why significant
How our audit addressed the matter
– Life insurance policy liabilities total $23,257 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 areas of judgement included:
– Discount rates
– Inflation and indexation
– Forecast lapse rates, particularly for the wealth protection
book of business
– Forecast rates of mortality and morbidity for the wealth
protection and mature books of business
– Future maintenance and investment expenses
To assess the assumptions used to determine the value of
policyholder liability, we have performed the following in
procedures in conjunction with our actuarial specialists.
– We conducted an examination of the policyholder liability,
regulatory capital balances and related disclosures
included within the financial reports against the Life
Prudential Standards and Australian Accounting Standards.
– 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 qualifications, 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.
– We assessed the adequacy of policy liability disclosures
included in the financial report against the requirements
of Australian Accounting Standards.
142
AMP 2018 annual reportIndependent Auditor’s Report to the Shareholders of AMP Limited Report on the Audit of the Financial Report (continued)
Goodwill and Intangible Assets
31 December 2018 Financial report reference: Section 2.2: Intangibles
Why significant
How our audit addressed the matter
– Goodwill has been recognised as a result of AMP’s historical
acquisitions, representing the excess of the purchase
consideration over the fair value of assets acquired. At
acquisition date this goodwill was allocated to the applicable
Cash Generating Units (CGUs). At 31 December 2018, AMP
has recorded goodwill of $2,130 million as described in
section ‘2.2 Intangibles’.
– An impairment assessment was performed, 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. As explained in section
‘Goodwill attributable to shareholders’, as required by
Australian Accounting Standards, the Group amended its
CGUs and updated the impairment assessment methodology
in line with how the business is now managed.
– 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.
Key areas of judgement included the:
– Identification of CGUs and allocation of goodwill to CGUs
– Price/Earnings multiples used to calculate recoverable
amounts
– Assumptions used to estimate the appraisal value of the
wealth management CGU, including risk discount rates,
rates of future inflation and forecasts of expected future
lapse and forecast new business growth rates.
Our audit procedures included the following:
– Assessed whether the reallocation of Goodwill to the
amended CGUs was in line with the requirements of
Australian Accounting Standards.
– Assessed whether the methodology used by the Group
for impairment assessment purposes was in line with the
requirements of Australian Accounting Standards.
– Assessed the key assumptions in the impairment models
such as risk discount rates, rates of future inflation and
forecasts of expected future lapse and forecast new
business growth rates.
– Performed sensitivity analysis on the impact of changes
in those assumptions.
– Where required, we involved our actuarial specialists to
test arithmetic accuracy of the impairment model and key
assumptions such as risk discount rates, rates of future
inflation and forecasts of expected future lapse and
forecast new business growth rates.
– 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.
143
AMP 2018 annual report Report on the Audit of the Financial Report (continued)
Information technology (IT) environment
31 December 2018 Financial report reference: None
Why significant
How our audit addressed the matter
– The operations of Group 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 controls in place over access to the
Group’s IT systems and data, as well as system changes
relevant to financial reporting. We tailored our audit
approach based on the financial significance of the system
and whether there were automated processes supported
by that system.
– We assessed controls over the approval and creation
of user access and maintenance of appropriate access
rights to relevant applications.
– We assessed controls in place to address the risk of
unauthorised or erroneous changes being made to
systems and program data.
– 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 procedures 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
2018 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 preparation of the financial report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters 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.
144
AMP 2018 annual reportIndependent Auditor’s Report to the Shareholders of AMP Limited 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.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment 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 2018.
In our opinion, the Remuneration Report of AMP Limited for the year ended 31 December 2018, 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
Andrew Price
Partner
Sydney
14 February 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
145
AMP 2018 annual report Securityholder information
Distribution of AMP capital notes holdings as at 14 February 2019
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 notes
3,881
246
16
21
2
4,166
1,019,029
539,177
106,721
644,588
365,485
2,675,000
38.09
20.16
3.99
24.10
13.66
100.00
Twenty largest AMP capital notes holdings as at 14 February 2019
Rank
Name
Notes held
% of issued notes
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
228,265
HSBC Custody Nominees (Australia) Limited
137,220
Citicorp Nominees Pty Limited
77,454
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP
67,189
Mutual Trust Pty Ltd
66,412
Navigator Australia Ltd
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