2019
Annual report
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.
AMP 2019 annual report
Contents
Remuneration report
2 Message from the Chairman
4 Message from the CEO
6 Who we are and what we do
8
Reinventing AMP
10 Corporate sustainability
12 Our board
16 Our management team
18 Five-year financial summary
19 Analysis of shareholder profit
20 Directors’ report
28
53 Financial report
54
55
56
57
58
59
130 Directors’ declaration
131 Independent Auditor’s Report
137 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
AMP Limited ABN 49 079 354 519
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 13 February 2020.
AMP 2019 annual report
1
Message from the Chairman
As I foreshadowed last year, 2019 was a year of transition
for AMP. As a board, and as a company, we have taken
the necessary action to begin to address our legacy
issues, in order to reinvent our 170-year-old business.
Our performance reflects the significant changes
underway as we execute our new strategy, reposition
the sale of AMP Life, address legacy issues, and navigate
an increasingly complex regulatory environment.
Sale of AMP Life
The sale of our Australian and New Zealand wealth
protection and mature businesses, now known as
AMP Life, to Resolution Life is critical to AMP’s longer-
term success. In August 2019, we announced a revised
agreement to sell AMP Life to Resolution Life for
$2.5 billion in cash, as well as a $500 million equity
interest in Resolution Life Australia, a new Australian-
based company controlled by Resolution Life.
This agreement replaces the original transaction
with Resolution Life, which could not progress due
to challenges in achieving regulatory approvals.
The board assessed a number of options but remains
convinced that the sale to Resolution Life will deliver
the best outcomes for our shareholders, policyholders
and business. We continue to progress the transaction,
which is expected to complete by 30 June 2020.
Client remediation
The company is dealing with a number of legacy issues
including the remediation of clients of advisers who
received inappropriate advice, or who paid fees where
there was no evidence of services delivered. The program
accelerated as we said it would in 2019. Total program
spend to date, including program costs and money
repaid to clients, is $264 million with $190 million paid
in the second half of the year. The program remains
on track for completion in 2021.
Board renewal
We commenced the program of board renewal in
2018 and were pleased to have the support of our
shareholders at the 2019 AGM for the new directors.
The new appointments to our board bring valuable
insights to AMP as the industry navigates increasing
regulatory, governance and risk obligations.
Turning to our more recently appointed directors,
Debra Hazelton joined the board as an independent
non-executive director in June 2019, bringing more than
30 years’ experience in global financial services, including
roles as the local Chief Executive of Mizuho Bank in
Australia and Commonwealth Bank (CBA) in Japan.
Rahoul Chowdry joined the board as a non-executive
director in January 2020. Rahoul has 35 years’ experience
2
AMP 2019 annual report
“In 2019, AMP announced a three-year transformational strategy to become
a client-led, simpler, growth-oriented business. There is still much work to do
to drive this turnaround but the foundations are now in place.”
in professional services, advising complex multinational
organisations including Minter Ellison and PwC in
Australia and overseas.
Michael Sammells joined the board as a non-executive
director in March 2020. Michael brings more than
two decades of experience as a CFO across private and
ASX-listed companies. He is currently a non-executive
director of Sigma Healthcare Limited.
We have also announced the retirement of three directors.
Firstly, I want to acknowledge Mike Wilkins AO, who
stepped down from the AMP Limited Board in February
2020. Mike has served AMP and its shareholders with
distinction throughout his time on the board, particularly
when he stepped into an executive capacity as interim
Chairman and CEO at a deeply challenging time for the
company in 2018. Mike will remain a non-executive
director on the board of AMP Life until the completion
of the sale of the business to Resolution Life.
Further, Peter Varghese AO and Andrew Harmos will
also retire as directors at the conclusion of the AGM in
May 2020. Andrew will remain a non-executive director
on the board of AMP Life until the completion of the
sale of the business to Resolution Life.
I would like to thank Mike, Peter and Andrew for their
significant contributions to AMP over the past few years
and wish them well for the future.
2019 performance and dividend
The business reported an underlying profit of $464 million
for the year. This was 32% lower than underlying profit
in 2018 and largely reflected the challenging conditions
faced by Australian wealth management. The net loss
attributable to shareholders for the year was $2.5 billion.
This is due to a predominantly non-cash impairment
of $2.35 billion (post-tax) taken in the first half to
reset the business and support the new strategy.
It is important to understand that this does not affect
the financial stability of our business.
To ensure we maintained our capital position, and to
enable management to begin implementing the new
strategy immediately, AMP undertook a capital raising in
2019 through an institutional placement and a retail share
purchase plan. We were pleased with the strong support
from new and existing retail and institutional shareholders.
AMP remains well capitalised. Level 3 eligible
capital above minimum regulatory requirements was
$2.5 billion at 31 December 2019, up from $1.65 billion
at 31 December 2018.
To maintain balance sheet strength and prudent capital
management through a period of significant change, the
board has resolved not to declare a final dividend in FY 19.
This position will be reviewed after completion of the
AMP Life sale.
AMP anticipates that any capital in excess of target surplus
post completion will first be used to fund delivery of the
new AMP strategy. Beyond this, AMP will assess all capital
management options with the intent of returning the
excess above target surplus to shareholders, subject to
unforeseen circumstances.
Reinventing AMP
In 2019, AMP announced a three-year transformational
strategy to become a client-led, simpler, growth-oriented
business. There is still much work to do to drive this
turnaround but the foundations are now in place.
David Murray AO
Chairman
AMP 2019 annual report
3
Message from the Chairman Message from the CEO
In my first year as CEO, we have set the foundations to
turn our business around.
2019 was a year of fundamental reset for our business as
we took bold but necessary action to address legacy issues
and position AMP for the future. This was a critical first
step in our transformational strategy to become a client-led,
simpler, growth-oriented company and rebuild a business
that you, our shareholders, can be proud of.
As a three-year strategy, there is still much to do, but
I’m confident we’re on the right course. We are driven
by our purpose and motivated by our shared desire to
serve our clients.
AMP was founded on a simple yet bold idea: that
financial security enables people to live with dignity.
Our commitment to improving financial literacy and
making advice affordable to all Australians will help our
clients live with the dignity that has been core to AMP’s
purpose for over 170 years.
AMP’s commitment to our clients and the community
remains as strong as it has ever been. The character of our
company was on full display in 2019. The AMP Foundation
continued to support the broader community, donating
its 100 millionth dollar to a deserving charity partner.
And following the devastating bushfires over the summer,
AMP answered the call. We partnered with advisers to
offer pro bono advice and other relief packages, while AMP
employees and the AMP Foundation contributed financially
to the Australian Red Cross Disaster Relief Appeal.
2019 financial performance
Our performance in 2019 reflects the ongoing challenges
we face as a business but was broadly in line with
our guidance.
Our underlying profit was $464 million, down from
$680 million in 2018, following a decline in earnings in
Australian wealth management. The net loss attributable
to shareholders for the year was $2.5 billion. This is due
to a predominantly non-cash impairment of $2.35 billion
(post-tax) taken in the first half of 2019 to reset the
business and support the new strategy.
AMP Capital had an outstanding year, particularly in
infrastructure and real estate investments. In 2019,
AMP Capital delivered two of the 10 largest infrastructure
fundraisings in the world. AMP Bank put in a resilient
performance in a competitive market, growing both
deposits and residential loans.
4
AMP 2019 annual report
“It will take a concerted team effort to build the new AMP and I know our
employees are ready for the challenge. With your ongoing support, I’m confident
we can harness this unique opportunity to reinvent our iconic business.”
Australian wealth management increased its assets under
management over the year but its earnings were lower as
we looked to improve competitiveness by reducing fees,
among other factors. We are working hard at reinventing
our wealth business – it will take time, but we have taken
some important steps in 2019, including the fundamental
reshape of our advice network.
In New Zealand wealth management we saw a resilient
underlying performance. Ongoing legislative change
impacted the performance of AMP Life, our life insurance
and mature business, which we have agreed to sell to
Resolution Life.
2019 priorities
In 2019, AMP made significant progress in delivering
three complex but fundamental priorities. These
priorities are critical to laying the foundation for our
new strategy.
We reached a revised agreement for the sale of AMP
Life to Resolution Life, expected to complete by 30 June
2020. We firmly believe the sale is in the best interests
of policyholders and the company over the long term.
Our client remediation program is on track for completion
in 2021 and we are doing everything we can to do this as
quickly as possible. Putting things right for our clients is
paramount – not only is it the right thing to do, it ensures
we can focus on building our future.
And AMP’s risk, governance and control settings have been
strengthened through a $100 million (pre-tax) investment
program, which will be complete by the end of 2020.
Strategy
In 2019, we announced a bold, three-year transformational
strategy that will put clients first, simplify the business and
drive growth and returns for shareholders.
AMP is in a unique position as a result of the disruption
in the market currently. There is a growing need for advice
amongst Australians – through face-to-face and digital
services enabled by leading technology. We are well placed
to develop whole-of-wealth offers encompassing advice,
wealth and banking services to better serve our clients.
To support our strategy, we are committed to transforming
our culture and improving our execution. In addition, we’ll
create a simpler and leaner business, through a multi-year
cost-out program.
2020
In 2020, our focus will be on execution; we will meet our
strategic priorities and implement a clear roadmap for
delivering our three-year strategy.
We will simplify our portfolio by completing the sale
of AMP Life, which will accelerate the simplification of
our superannuation business. The reshape of our advice
network will progress and we will capitalise on those
areas of our business, like AMP Capital, AMP Bank and
our platform business, that are performing strongly and
continue to drive further growth.
This has been a challenging period for our business and
I want to pay tribute to the resilience and professionalism
shown by our employees. We are all energised by our
mission. It will take a concerted team effort to build the
new AMP and I know our employees are ready for the
challenge. With your ongoing support, I’m confident
we can harness this unique opportunity to reinvent
our iconic business.
We have a clear motivation to get there – AMP is ambitious,
because we’re ambitious for our clients.
Francesco De Ferrari
Chief Executive Officer
AMP 2019 annual report
5
Message from the CEO 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.
Over the course of our 170-year history, our business
has evolved and it will continue to do so into the future.
AMP is a wealth management company with a
growing retail banking business and an expanding
international investment management business.
We provide retail clients with financial advice and
superannuation, retirement income, banking,
investment products and life insurance. AMP also
provides corporate superannuation products and
services for workplace super and self-managed
superannuation funds (SMSFs).
AMP Australia:
Australian wealth management
We help our clients to save for, and live well in,
retirement. We do this through our retail and
workplace superannuation products, and self-managed
superannuation funds services, as well as retirement
income solutions and investments for individuals.
Our superannuation business paid out $2.6 billion
in retirement payments (including mature payments)
in Australia in 2019.
As part of our three-year strategy, we are committed to
reinventing wealth management in Australia. Bringing
together our bank and wealth management teams in
Australia will drive a more integrated organisation to
better deliver whole-of-wealth services to clients.
AMP Australia: AMP Bank
AMP Bank provides clients with residential and investment
property home loans, deposit and transaction accounts
and SMSF products. We also provide loans to AMP-aligned
financial adviser practices. We empower our clients
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 2019, we helped around 110,000 Australians with
their banking needs, including providing over 5,600
new home loans.
We helped around
110,000 clients with
their banking needs
6
AMP 2019 annual report
We have
approximately
725,000 shareholders
AMP Life
In August 2019, AMP announced a revised agreement 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 revised transaction is expected to complete by
30 June 2020.
Wealth protection (life insurance)
We support our clients 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 funds.
In 2019, we paid $1.1 billion in Australian insurance claims
and NZ$54.6 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.
AMP Capital
AMP Capital is a global investment manager, which
services institutional and direct clients, including AMP.
The business continues to grow its global presence
through differentiated capabilities in real assets (real
estate and infrastructure) and public markets, investing
more than $203 billion for clients across the world. In real
assets, we manage real estate and infrastructure assets
including shopping centres, airports and trains on behalf
of funds and clients; while in public markets, we manage
investments in equities, fixed income, multi-asset and
diversified capabilities on behalf of clients around
the world.
In 2019, AMP Capital had 358 direct international
institutional clients and our ongoing relationships
with global partners such as China Life provide a strong
opportunity towards meeting our growth ambitions
overseas and in new markets.
New Zealand wealth management
In New Zealand we provide clients with financial
products and services, directly and through a large
network of financial advisers. This is a strong business,
that is now largely localised and running as a standalone
business. We’re in discussions with a number of interested
parties and will provide an update at or before half-year
results in August 2020.
In 2019, AMP maintained its position as New Zealand’s
leading non-bank retirement solutions provider with
approximately 9% of the total KiwiSaver market and
approximately 225,000 clients.
AMP Capital
invested more than
$203 billion for clients
across the world
We reduced fees for
approximately 585,000
existing clients1
1 Fee reductions include MyNorth fee reductions
in 2019 and super fee reductions in February 2020.
AMP 2019 annual report
7
Who we are and what we do Reinventing AMP
2019 was a year of fundamental reset for our company. The three-year strategy
we have outlined will transform AMP into a client-led, higher growth and higher
return business. The heart of our new strategy is the prioritisation of our clients.
Recognising the substantial disruption in the wealth
management industry, our new strategy aims to meet
the growing advice needs of Australians, on their own
terms. Our commitment to advice means AMP is uniquely
positioned to develop whole-of-wealth client offers,
encompassing wealth management, banking and advice.
In our investment management business AMP Capital,
we will continue to invest to expand our global footprint
through expertise in infrastructure and real estate
investments, as well as growing our solutions in public
markets. In our banking business, AMP Bank, the focus
will be on growing through a broader mix of channels
and seeking opportunities for closer integration of
banking and wealth offers.
We are also simplifying our portfolio of businesses. The sale
of AMP Life is progressing and expected to be complete by
30 June 2020. We are also exploring options to divest
our New Zealand wealth management business.
To ensure the success of this strategy, we are making
targeted investments. We’ve announced a program to
invest between $1 billion and $1.3 billion over the next
three years, focused on growth, cost improvement and
de-risking the business. This includes $350 million to
$450 million to create a leaner, simpler business, and
$300 million to $400 million to restructure our advice
network and simplify our superannuation business.
In moving to the implementation phase of our strategy,
in 2020 we will focus on key drivers of value: simplifying
our portfolio; reinventing wealth management in Australia;
continuing to grow our successful asset management
franchise; and creating a simpler, leaner business. We
have outlined 10 strategic priorities against these drivers.
Reinventing AMP:
client-led, simpler, growth-oriented
Australia
International
Australian Wealth Management
Simpler, client-led wealth manager
with tailored offering to meet the
needs of all Australians
AMP Bank
Technology enabled challenger
bank that integrates with clients’
wealth management needs
AMP Capital
Leading global investment
manager, growing through
differentiated active capabilities
strategic enablers
Transform culture to be more client-focused and entrepreneurial
Improve execution through end-to-end businesses with greater accountability for delivery
Simplify the business to improve cost and capital efficiency
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AMP 2019 annual report
2020 strategic priorities
Simplify portfolio
1. Sale of AMP Life
The sale of our insurance and mature
businesses (AMP Life) is progressing well
following a revised agreement reached in
2019. This is a complex transaction but
we’re on track to complete by 30 June 2020.
Reinvent wealth
management
in Australia
3. Reinvent advice
We believe there is a strong social need for
financial advice; however, it is not affordable
to everyone who would benefit from it. In the
second half of 2019 we embarked on significant
reshaping of our adviser network to be more
compliant, professional and productive. Our
absolute focus is on continuing to provide
high quality advice to our clients.
5. Grow successful platform business
Our key wealth platform business, North, is
highly rated by our clients and advisers – and
we will continue to invest in North’s features
and capability to drive its growth in 2020.
External financial advisers (EFAs), not just our
aligned advisers, are increasingly utilising the
North platform, with EFA inflows into North
increasing 44% in 2019.
Continue to grow
successful asset
management
franchise
7. Grow AMP Capital through
differentiated capabilities
Our asset management business AMP
Capital delivered a strong performance
in 2019 and in 2020 we will continue to
build on its success.
Create a simpler,
leaner business
8. Create simpler, leaner
operating model
In 2020, we’ll continue to simplify
our business model and create clear
accountabilities. We’ve set a target to deliver
gross cost savings of $300 million, excluding
AMP Capital, by full-year 2022 and we’ve
made good progress against this. We’re
targeting cumulative gross cost savings
of $140 million by 2020.
2. Divest New Zealand
New Zealand wealth management is a well
managed, cost efficient business, but we believe
the strongest value for shareholders will be
realised from it being a standalone, localised
business. We’re in discussions with a number of
interested parties and expect to provide an update
at or before our half-year results in August 2020.
4. Build best-in-class super business
In superannuation, our simplification program
has started and following the sale of AMP Life,
we expect to accelerate the change that will see
us reduce from six superannuation offerings to
one, and from around 70 super products to six.1
6. Maintain growth momentum in bank
AMP Bank will focus on improving its technology
and integrating with Australian wealth
management – our superannuation and advice
business. By investing to modernise the bank’s
platform, we’ll improve the client experience,
deliver efficiencies and help AMP to grow.
In 2019, our real assets businesses (real estate
and infrastructure) delivered two of the top 10
largest infrastructure fundraisings in the world.
And in public markets, we’ve continued to build
a strong track record for performance, including
top rankings for our global listed infrastructure
and global companies funds.
9. Strengthen risk management
AMP is in the second year of a $100 million
investment program to improve risk management,
controls and governance, including new technology
and systems, training, and a strengthened
whistleblowing program. This program is on
track to complete by the end of 2020.
10. Transform culture
Culture will play a major role in AMP’s
transformation. Creating a high-performance
culture is integral to delivering for our shareholders.
In 2019, we took the first steps to defining and
embedding our values; and in 2020, our focus
will be on execution and accountability.
1 Metrics are for AMP’s Mastertrust, mature
and wealth protection in super businesses.
AMP 2019 annual report
9
Reinventing AMP
Corporate sustainability
Our approach to sustainability is built around three areas of stakeholder
focus: our clients, our people and our community.
WearecommittedtorebuildingtrustinAMPtoensure
ithasasustainablefuture–onethathassharedvalue
forclients,shareholders,employees,thecommunity
andtheenvironment.
Inconsultationwithstakeholders,wehaveidentifiednine
materialsustainabilityissues,inourthreekeyfocusareas,
whichimpactourabilitytocreateandprotectvalueforour
stakeholdersintothefuture.Theseissuesareoutlinedbelow.
Our clients
AMPiscommittedtoreinventingourbusinesstodeliver
betteroutcomesforourclientsandmeetthefinancial
needsofAustralians.Weareinvestingtosimplifyour
businessandprocessesandtoimproveserviceand
valueforourclients.
Client experience
In2019,morethan85,000clientsbenefittedfromreduced
MyNorthfees,andreducedsuperfeesannouncedin
February2020willbenefitafurther500,000clients.
In2019,wecontinuedtolistentoclientfeedback,
askingmorethan570,000clientsforfeedbackthrough
NPSsurveysandenacting91changestosystemsand
processesasaresult.
Inaddition,theAMPCustomerAdvocateconductsimpartial
reviewsofclientcomplaintsusinga‘fairandreasonable’
framework.In2019,thenumberofclientcomplaint
reviewsincreased140%from2018,whiletheproportion
ofneworenhancedclientoutcomesremainedsteady.
Regulatory and legislative change
AMPoperateswithinasophisticatedlegalandregulatory
framework,setdownbythegovernmentandenforcedby
ourregulators.Thisframeworkcovershowweserveour
clients,designproductsandprovidefinancialservices.
In2019,wecontributedtomanyoftheimportant
governmentpolicydevelopmentsinthesectorsuchas
theconsultationprocessesrelatingtoproposed
legislationforaCompensationSchemeofLastResort
andthegovernment’sRetirementIncomeReview.During
theyear,AMPalsorespondedtotheFinalReportofthe
FinancialServicesRoyalCommissionandappearedbefore
theHouseofRepresentativesEconomicsCommittee.
During2019,wehavecontinuedtostrengthenour
incident,issue,breach,risksandcontrolsystemsto
enhanceprocessesforthemitigationandreportingof
breaches.WehavealsoupdatedourRegulatoryContact
Policy,tocentraliseourengagementwithregulators.
Digital and technology
Technologyanddigitaltransformationarecreating
newopportunitiesforclientstoengagewiththeir
wealth.In2019,weincreasedthefunctionalityof
ourplatformstohelpclientsbank,trackcashflow,
budgetandmodelforretirement.
Withgreatertechnologyadoption,theimportance
ofcybersecurityanddataprivacygrows.Wehave
strengthenedourinformationsecurityframeworkand
trainingtoenhanceourresiliencetocyber-attacks.
We reduced our Scope
1 and 2 emissions by
48% from 2013 levels
10
AMP2019annualreport
$100 million donated
by the AMP Foundation
since its inception
In2019,wenotifiedauthoritiesofthreedatabreaches
whichimpactedasmallnumberofclientsandemployees
andtookactionstoprotectindividualsfromharmand
preventfuturebreaches.
Our people
Ethical conduct and professional standards
AMPemploysmorethan6,500employeesandworkswith
manypartnersacrossourbusinesses,includingmorethan
2,100alignedadvisers.Wehavealwaysbelievedininvesting
inourpeopleandtheirdevelopment,whichiswhycreating
therightcultureisanintegralpartofournewstrategy.
AMPhascontinuedtomakeprogressonourclient
remediationprogram,whichispayingmoneybackto
clientsofadviserswhoreceivedinappropriateadviceor
whopaidfeeswheretherewasnoevidenceofservices
beingdelivered.Totalprogramspendtodate,including
programcostsandmoneyrepaidtoclients,is$264million
with$190millionpaidinthesecondhalfoftheyear.
Theprogramremainsontrackforcompletionin2021.
Weareactivelysupportingouremployedandaligned
adviserstransitiontobedegree-certifiedincompliance
withtheFinancialAdviserStandardsandEthicsAuthority
(FASEA).WehavepartneredwithGriffithUniversity
toprovideentrypathwaysandblendedlearningof
professionaldevelopmentandeducation.
Supporting and developing people
AMPencouragesarespectful,diverseandsafeworkplace
thatsupportsthephysicalandpsychologicalsafetyof
ourpeople.In2019,AMPdevelopedamentallyhealthy
workplacestrategytoprovideimprovedsupportto
employees.Thisincludedtrainingover90accredited
mentalhealthfirstaidofficersthroughoutourAustralian
offices,withafurther80tobetrainedin2020.
Wevaluedifferencesandencourageaflexibleand
inclusiveworkenvironmentwherepeoplecanbringtheir
wholeselvestowork.AMPhasgendertargetsinplace
formanagementpositions,including40%representation
ontheAMPLimitedBoard,47%representationforsenior
executivesand50%formiddlemanagement.
In2019,ourLGBTIQ+communityhosteditsinaugural
AMProudWeek,includingLGBTIQawarenesssessions
andfunctionstochampiondiversityofthoughtand
livedexperience.
Our community
Responsible investing
AkeyconsiderationofAMPCapital,ourinvestment
managementbusiness,isassessingtheenvironmental,
socialandgovernance(ESG)performanceofits
investments,throughdedicatedinvestmentspecialists.
In2019,AMPCapitalachievedA/A+ratingsfortheUnited
NationsPrinciplesforResponsibleInvestment(UNPRI)
acrossallassetclasses.Itachievedtopfiveglobalrankings
fortwoinfrastructurefundsandscored90%averageacross
sixrealestatefundsintheGlobalRealEstateSustainability
Benchmarking(GRESB)survey.
Climate change
AMPrecognisesthatclimatechangeisasignificantglobal
riskdriverthatpresentseconomicandenvironmental
challengestosociety.AMPhasmaintainedanA–score
inourannualsubmissionthroughtheCarbonDisclosure
Project(CDP).
AMPCapitalmanagesclimateriskaspartofitsESG
investmentphilosophy.Itconsidersclimate-relatedrisks
andopportunitiesininvestmentstrategiesandprovides
lowcarboninvestmentopportunitiestoinstitutional
andAMPsuperannuationclients.AMPCapitalhasalso
committeditsrealestateportfoliotobecarbonneutral
forScope1and2emissionsby2030.
Operations and supply chain
Asasymbolofourcommitmentonclimatechange,
AMPiscarbonneutralacrossourownoperations.
In2019,wereducedourScope1and2emissions
by48%from2013levels.
Wehavealsostrengthenedoursuppliermanagement
frameworkbyintroducinganewSupplierCodeofPractice
whichclearlyoutlinesAMPexpectationsfromsuppliers,
includingissuessuchasinformationsecurityand
modernslavery.
Community investment
TheAMPFoundationworkswithnon-profitenterprises
thatprovidesustainableemploymentopportunitiesfor
marginalisedAustralians.Since1992,theAMPFoundation
hasdistributedover$100milliontohelpcharitiesand
individualsmakeapositiveimpactintheircommunities.
In2019,theAMPFoundationdistributedover$5million
inthecommunity,including$1millioningrantsthrough
theAMPTomorrowFundtohelp37talentedAustralians
achievetheirdreams.Ouradvisershelped623clients
affectedbycancerwithprobonoadvicethroughour
partnershipwithCancerCouncilAustralia.
Youcanfindfurtherinformationinoursustainability
reportatamp.com.au/corporatesustainability
Corporate governance statement
AMP’sboard-approvedcorporategovernancestatement,
dated13February2020,isavailableonourwebsiteat
amp.com.au/corporategovernance
AMP2019annualreport
11
Corporate sustainability 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, in 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
(appointed August 2013)
Ambassador of the Australian Indigenous Education
Foundation (appointed 2008)
–
Francesco De Ferrari2
Chief Executive Officer MBA, BS (Econ) (IntBus) –
Bachelor of Science in Economics and International Business
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.
Also Francesco was appointed to the AMP Limited Board
in January 2019 and the boards of AMP Bank Limited and
AMP Capital Holdings Limited in February 2019.
12
AMP 2019 annual report
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, Mr De Ferrari 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.
Rahoul Chowdry3
Independent Director BCom and FCA
Rahoul was appointed to the AMP Limited Board as a Non-
Executive Director in January 2020 and is a member of the
Remuneration, Audit and Risk Committees. At the same time,
he was appointed to the AMP Bank Limited Board and is a
member of its Audit and Risk Committees.
Experience
Rahoul has 35 years’ experience in professional services,
advising complex multinational organisations in Australia
and overseas.
He is currently Partner and National Leader of Minter Ellison
Consulting’s financial services, risk and regulatory practice in
Australia. Prior to this, Rahoul was a Partner at PwC for almost
30 years, where he undertook a number of leadership roles,
delivering audit, assurance, and risk consulting services to
major financial institutions in Australia, Canada and the
United Kingdom.
Government and community involvement
–
Member, Reserve Bank of Australia Audit Committee
(appointed February 2018)
John Fraser4
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.
4
5
6
In February 2019, John was appointed to the AMP Bank
Limited Board and as a member of its Audit and Risk
Committees. At the same time, he was also appointed to
the AMP Capital Holdings Limited Board and as a member
of its Audit and Risk Committee. In February 2020, John
was subsequently appointed as Chairman of the AMP
Capital Holdings Limited Board.
Experience
John has more than 40 years’ experience in leadership
roles in economics, public policy, capital markets and asset
management in Australia and overseas.
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 (appointed
September 2018)
Director of the Future Fund (appointed November 2018)
–
Andrew Harmos5
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 as a Director of AMP Life Limited and
The National Mutual Life Association of Australasia Limited
in August 2013. He has served as a member of the Audit
Committees of both life company boards since August 2013
and was Chairman of those Audit Committees in May 2016.
He was appointed as a member of the Risk Committees of
both life company boards in November 2014 and as
Chairman in April 2018.
In addition, in 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
Andrew is one of the founding directors and shareholders of
Harmos Horton Lusk Limited, an Auckland-based specialist
corporate legal advisory firm. He specialises in corporate
takeovers, corporate structure and governance advice,
company, business and asset acquisitions and disposals,
securities offerings, and strategic and board corporate advice.
Andrew is also a director of Pascaro Investments Limited
(a farm investment company), and 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)
Andrew will retire from the AMP Limited Board on 8 May
2020. He remains on the AMP Life Boards until completion
of the life business sale.
Debra Hazelton6
Independent Director BA (Hons), MCom
Debra was appointed to the AMP Limited Board in June
2019 and is a member of the Remuneration, Audit and Risk
Committees. At the same time, she was appointed to the
AMP Bank Limited Board and is a member of its Audit and
Risk Committees.
In addition, Debra was appointed to the AMP Capital Holdings
Limited Board in June 2018 and is a member of its Audit and
Risk Committee.
Experience
Debra brings significant experience from more than 30 years in
global financial services, including as the local Chief Executive
of Mizuho Bank in Australia and Commonwealth Bank (CBA)
in Japan. She has expertise across fixed interest, treasury,
institutional banking, risk management and financial markets.
AMP 2019 annual report
13
Our board 7
8
9
Debra is also a non-executive director on the boards of Treasury
Corporation of Victoria, Persol Australia Holdings and the
Australia-Japan Foundation. Her previous board experience
includes Australian Financial Markets Association (AFMA), Asia
Society and Women in Banking and Finance. She has graduate
and post-graduate degrees in Japanese language, literature
and philosophy as well as economics and finance.
Government and community involvement
–
Director, Treasury Corporation of Victoria
(appointed August 2018)
Director, Australia-Japan Foundation
(appointed October 2015)
Advisory Committee Member (Japan)
(appointed May 2019)
Australian Chamber Orchestra (appointed May 2019)
–
–
–
Trevor Matthews7
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 its 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 Committee and Risk
Committee of each of those boards.
In 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)
14
AMP 2019 annual report
Government and community involvement
–
Chairman of the NSW State Insurance Regulatory
Authority (appointed November 2015)
John O’Sullivan8
Independent Director BA, LLB, LLM
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.
In February 2019, John was appointed to the AMP Bank Limited
Board and as a member of its Audit and Risk Committees.
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 (appointed 2008)
Director of the Westconnex entities (appointed May 2018)
–
Andrea Slattery9
Independent Director BAcc, MCom
Andrea was appointed to the AMP Limited Board in February
2019 and is 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. She
was appointed Chairman of the AMP Limited and AMP Bank
Limited Audit Committees in May 2019.
Andrea was appointed a Director of AMP Life Limited and
The National Mutual Life Association of Australasia Limited
in May 2019. She was also appointed a member of the Audit
Committee and Risk Committee of each of those boards in
December 2019.
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.
10
11
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 and
Innovation and Superannuation and Industry Partnerships.
Listed directorships
–
Director of Argo Global Listed Infrastructure
(appointed April 2015)
Director Centrepoint Alliance Limited
(ceased January 2019)
–
Government and community involvement
–
Director of Clean Energy Finance Corporation
(appointed February 2018)
Deputy Chairman of Woomera Prohibited Area
Advisory Board (appointed July 2019)
–
Peter Varghese AO10
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 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 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 (appointed July 2016)
Member, Advisory Panel Australia India Institute
(appointed July 2016)
Director, North Queensland Airports (appointed
January 2019)
Director, CARE Australia (appointed July 2019)
–
–
Peter will retire from the AMP Limited Board on 8 May 2020.
Mike Wilkins AO11
Independent Director BCom, MBA
Mike was appointed to the AMP Limited Board in September
2016. 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.
In 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. 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)
–
Mike retired from the AMP Limited Board on 13 February 2020.
He remains on the AMP Life Boards until completion of the life
business sale.
AMP 2019 annual report
15
Our board Our management team
1
2
3
4
5
Francesco De Ferrari1
Chief Executive Officer
See page 12 for details of Francesco’s roles, responsibilities
and experience.
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.
Jennifer (Jenny) Fagg4
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.
Jenny will step down from her role on 3 April 2020. Phil Pakes
will be appointed Chief Risk Officer on 3 April 2020.
James Georgeson5
Chief Financial Officer BAcc, MCom and CA
James was appointed Chief Financial Officer in February 2020
after previously holding the position of Acting CFO from August
2019. Prior to this, he was Deputy Chief Financial Officer of AMP,
with responsibility for AMP’s group performance reporting,
strategic planning and forecasting, portfolio and capital
management and AMP’s mergers and acquisitions functions.
Experience
Since joining AMP in 2001, Mr Georgeson has held senior
finance positions across the group including: Chief Financial
Officer (AMP wealth management), Director of Group Finance,
Chief Financial Officer (AMP New Zealand), Chief Risk Officer
and Director of Strategy (AMP New Zealand).
James has 20 years’ experience in the finance industry.
James holds a Master of Commerce from Macquarie University,
a Bachelor of Accounting from University of Technology Sydney,
and is a Chartered Accountant with the Institute of Chartered
Accountants of Australia and New Zealand.
Megan Beer2
Chief Executive, AMP Life EMBA, MEc
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
will 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 Megan’s appointment as Group
Executive, Insurance, Megan was Director of Insurance at AMP
since 2014. Prior to AMP, Megan led NAB’s wealth management
and insurance offer through the bank channel as General
Manager, Bancassurance and Direct. Megan was also General
Manager of Group Insurance and Head of Finance for Insurance,
both at MLC. She worked for Tower (now TAL) for six years as
Chief Actuary, Chief Risk Officer and Head of Claims, and has
been a Director with Tillinghast (Consulting Actuaries).
Other appointments
–
Managing Director of AMP Life and the National
Mutual Life Association of Australasia Limited
– Director of National Mutual Funds Management Limited
Director of Australian and New Zealand Institute of
–
Insurance and Finance
David Cullen3
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.
16
AMP 2019 annual report
6
7
8
9
10
Helen Livesey6
Group Executive, People and Corporate Affairs BSc (Hons)
Helen joined AMP in 1999 and was appointed Group Executive,
People and Corporate Affairs in May 2019. Helen leads the
development of people systems, policies, processes and
workforce strategies. She also has group-wide responsibility
for brand, reputation, communications and managing the
business’ relationship with key stakeholders.
Experience
Helen has held a number of senior roles at AMP, including Group
Executive, Public Affairs and Chief of Staff, Director Brand and
Marketing and Director Corporate Communications. Helen has
over 20 years’ experience in corporate affairs, marketing and
brand management across a range of industries in Australia and
the United Kingdom in both consultancy and in-house roles.
Craig Ryman7
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.
Adam Tindall8
Chief Executive, AMP Capital
BE (Hons), GDipMan, GcertAppFinInv, FAICD
Adam has fulfilled the role of Chief Executive Officer, AMP
Capital since October 2015. As CEO, 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 Vernon9
Chief Executive, New Zealand wealth management
Blair joined AMP in 2009 and was appointed as Chief Executive,
New Zealand wealth management in March 2019. He is
responsible for leading AMP’s New Zealand advice and wealth
management 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.
Experience
Blair has held a number of senior roles at AMP. He was
previously AMP’s Director Retail Financial Services, 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.
Alex Wade10
Chief Executive, AMP Australia MBT
Alex joined AMP in January 2019. He is Chief Executive of
AMP Australia, AMP’s retail business in Australia, responsible
for AMP’s wealth management and banking divisions with a
focus on strengthening client-led outcomes.
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.
AMP 2019 annual report
17
Our management team Five-year financial summary
Year ended 31 December
Consolidated income statement
Net premium, fee and other revenue
2019
$m
2018
$m
2017
$m
2016
$m
2015
$m
5,813
6,390
6,522
6,204
Investment gains
17,835
1,854
11,888
8,567
Profit (loss) before income tax from continuing operations
Income tax expense
Non-controlling interests
(1,694)
(740)
(33)
(366)
417
(23)
1,636
(763)
(25)
Profit (loss) after tax attributable to shareholders of AMP Limited
(2,467)
28
848
358
(166)
(536)
(344)
5,539
8,483
1,993
(280)
(741)
972
Consolidated statement of financial position
Cash and cash equivalents
Investment assets
Intangibles
Assets of disposal groups
Other assets
Total assets
Interest-bearing liabilities
Life insurance contract liabilities
Investment contract liabilities
Liabilities of disposal groups
Other liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained earnings
Total equity attributable to shareholders of AMP Limited
Non-controlling interests
Total equity
4,539
136,316
877
–
5,952
3,932
133,172
3,208
–
5,056
3,602
137,558
3,218
–
3,861
3,476
129,995
3,199
–
3,390
3,955
128,074
3,983
–
3,696
147,684
145,368
148,239
140,060
139,708
22,852
23,505
71,671
–
24,678
21,650
23,257
68,742
–
24,928
21,009
23,683
75,235
–
21,029
17,218
24,225
71,579
–
19,497
17,452
23,871
69,848
–
19,642
142,706
138,577
140,956
132,519
130,813
4,978
6,791
7,283
7,541
8,895
10,299
(1,930)
(3,509)
4,860
118
4,978
9,502
(1,931)
(886)
6,685
106
6,791
9,376
(2,010)
(164)
7,202
81
7,283
9,619
(1,972)
(185)
7,462
79
9,566
(1,866)
819
8,519
376
7,541
8,895
Year ended 31 December
2019
2018
2017
2016
2015
Other financial data
Basic earnings per ordinary share
Diluted earnings per ordinary share
Dividends per ordinary share
Number of ordinary shares
Assets under management
($ps)
($ps)
($ps)
(m)
($b)
(0.795)
(0.795)
n/a
3,437
272
$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
18
AMP 2019 annual report
Five-year financial summary
Analysis of shareholder profit
for the year ended 31 December 2019
All amounts are after income tax
Profit and loss
Australian wealth management1
AMP Bank
AMP Capital2
New Zealand wealth management1
Retained businesses operating earnings
AMP Life operating earnings3
BU operating earnings
Group Office costs
Total operating earnings
Underlying investment income2
Interest expense on corporate debt
Underlying profit
Client remediation and related costs
Royal Commission
Portfolio review
Separation costs
Risk management, governance and controls
Transformation
Other items
Impairments
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
2019
$m
2018
$m
182
141
198
44
565
(21)
544
(128)
416
113
(65)
464
(153)
–
–
(183)
(33)
(28) –
22
(2,407) –
(96)
(2,414)
(47)
(2)
(3)
(1)
(2,467)
363
148
167
53
731
(3)
728
(76)
652
96
(68)
680
(469)
(32)
(29)
(19)
(8)
(74)
79
(30)
(28)
12
24
50
28
1
2
3
FY 19 operating earnings of Australian and New Zealand wealth management businesses do not 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 AMP Life accrue to Resolution Life from 1 July 2018. AMP will continue to report these
earnings until the sale completes.
AMP 2019 annual report
19
Analysis of shareholder profit
Directors’ report
for the year ended 31 December 2019
This directors’ report provides information on the structure
and progress of our business, our 2019 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 2019.
Operating and financial review
Principal activities
AMP is a wealth management company with a growing
retail banking business and an expanding international
investment management business.
We provide retail customers with financial advice and
superannuation, retirement income, banking, investment
products and life insurance. 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.
In November 2019, AMP brought together Australian wealth
management and AMP Bank into AMP Australia, providing
clear management accountability for delivery of AMP’s
retail client offering.
For the purposes of this report, our business is divided
into five areas: Australian wealth management, AMP
Bank, AMP Capital, 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 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’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.
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.
20
AMP 2019 annual report
The New Zealand wealth management business encompasses
the wealth management, financial advice and distribution
business in New Zealand. It provides customers with a
variety of wealth management solutions including KiwiSaver,
corporate superannuation, retail investments and a wrap
investment management program.
Australian and New Zealand wealth protection and mature
comprises Australian wealth protection, Australian mature
and New Zealand wealth protection and mature. The
Australian wealth protection business includes individual
and group term, disability and income protection insurance
products. Products can be held within superannuation or
independently of superannuation. The Australian mature
business comprises products which are largely closed to
new business and are in run-off. The New Zealand wealth
protection and mature business includes a risk insurance
and mature book, which is also largely closed to new business
and in run-off.
Sale of wealth protection and mature businesses
On 8 August 2019, AMP announced a revised agreement
with Resolution Life Australia Pty Ltd (Resolution), with
updated terms, for the sale of its Australian and New Zealand
wealth protection and mature businesses.
The revised agreement delivers consideration of $3.0 billion
comprising:
–
–
$2.5 billion cash; and
$500 million equity interest (expected to be around 20%)
in Resolution Life NOHC Pty Ltd (Resolution Life Australia),
a new Australian-domiciled, Resolution-controlled holding
company that will become the owner of the Australian and
New Zealand wealth protection and mature businesses.
Resolution will be on risk for all experience and lapse losses
from 1 July 2018 until completion and is entitled to all net
earnings of the Australian and New Zealand wealth protection
and mature businesses during that period.
The sale is expected to complete by 30 June 2020. AMP
will continue to report the results of the Australian and
New Zealand wealth protection and mature businesses
through to completion of the transaction.
Client remediation
AMP remains on track to complete its client remediation
program in 2021 with 80% of the program expected to
be complete by the end of 2020.
Client remediation comprises the following components:
–
–
Inappropriate advice: program is approximately
50% complete.
Fee for no service:
–
–
–
Active advisers: program is approximately
20% complete.
Inactive advisers: pilot program for inactive
advisers has commenced.
Overall fee for no service refund rate expected
of 17% (29% including interest) of total ongoing
service fees charged.
–
Program costs are tracking to expectations.
Total program spend to date including program costs and
money repaid to clients is $264 million with $190 million
paid in 2H 19. Major policies now agreed with ASIC including
active and inactive advisers. 2H 19 additional provision of
$150 million primarily relates to finalisation of inactive adviser
approach. Overall remediation costs remain broadly in
line with original estimate provided in November 2018.
Impairment
As announced on 8 August 2019, AMP recognised a
predominantly non-cash impairment of $2.35 billion
(post-tax) in 1H 19 to write down goodwill in Australian
wealth management and Australian and New Zealand
wealth protection and mature, capitalised project costs
and valuations of advice registers given changes to buy-back
terms and associated practice finance loans.
An additional $55 million was recognised in 2H 19 reflecting
additional reductions in value of client registers and associated
practice finance loan impairments. Total 2019 impairment
is $2.4 billion (post-tax).
2019 performance
The loss attributable to shareholders of AMP Limited for
the year ended 31 December 2019 was $2,467 million
(2018: profit of $28 million).
Basic loss per share for the year ended 31 December 2019
on a statutory basis was 79.5 cents per share (2018: basic
earnings per share of 1.0 cents per share), influenced principally
by non-cash impairments and provision for client remediation.
On an underlying basis, the earnings per share was 14.8 cents
per share (2018: 23.3 cents per share).
Key performance measures were as follows:
–
–
–
–
–
2019 underlying profit of $464 million has reduced 32%
from $680 million in 2018. This decrease largely reflects
the impact of Australian and New Zealand wealth
protection and mature and weaker Australian wealth
management earnings (–50%), partly offset by growth
in AMP Capital (+19%).
2019 loss attributable to shareholders of $2,467 million
has been impacted by the write-down of goodwill and
capitalised costs, and reduction in the carrying value of
advice registers held by AMP, including those currently
in the buy-back process.
Australian wealth management earnings of $182 million
declined 50% from 2018, driven by the removal of
$85 million of earnings to the benefit of Australian
and New Zealand wealth protection and mature,
lower investment-related revenue arising from margin
compression, including MySuper price changes in
Q3 18, and higher controllable costs in part driven
by higher regulatory and compliance project costs.
Australian wealth management net cash outflows
were $6.3 billion in 2019, including $2.4 billion of pension
payments, versus net cash outflows of $4.0 billion in
2018 reflecting a range of factors including the impact
of AMP’s appearance at the Royal Commission in 2018
and an increasingly competitive environment.
AMP Bank’s total loan book increased 3% to $21 billion
in 2019 from 2018, including residential mortgage
growth of 4%, while deposits increased 8% to
$14.4 billion from 2018.
–
–
–
AMP Capital external net cashflows were $2.5 billion,
compared with $4.2 billion in 2018, with $7.5 billion of
committed capital available for deployment following
strong infrastructure fund-raising during the year.
Australian and New Zealand wealth protection and
mature operating losses of $21 million increased from
losses of $3 million in 2018 due to capitalised losses
and other one-off experience items and the impact of
best estimate assumptions post ‘Protecting Your Super’
legislative changes.
Underlying return on equity decreased 1.4 percentage
points to 8.2% in 2019 from 2018 reflecting reduced
operating earnings in Australian and New Zealand
wealth protection and mature and Australian wealth
management.
AMP’s total assets under management (AUM) and
administration were $272 billion at 31 December 2019
(2018: $258 billion).
Operating results by business area
The operating results of each business area for 2019 were
as follows:
–
–
–
–
–
Australian wealth management – operating earnings
fell from $363 million in 2018 to $182 million in 2019.
The decline in operating earnings was largely due to:
the impact of the Resolution transaction due to
–
the cessation of internal distribution arrangements
between Advice and the Australian wealth protection
and mature businesses in 2019 ($85 million post-tax);
– higher controllable costs ($55 million pre-tax); and
–
lower investment-related revenue arising from margin
compression, including MySuper price changes in
Q3 18 ($38 million pre-tax).
AMP Bank – 2019 operating earnings of $141 million
decreased by $7 million (5%) from 2018 largely due to
the recognition of regulatory and compliance costs of
$14 million. The result also reflects residential mortgage
book growth of 3.8% in 2019, with largely stable margins
and profit on sale of invested liquid assets, increased
funding and deposit costs and the residual impact of
conservative liquidity management actions taken in 2H 18.
AMP Capital – the AMP group’s 85% share of AMP Capital’s
2019 operating earnings was $198 million, up 19% from
$167 million in 2018. AMP Capital’s operating earnings
benefited from strong fee income growth of 13%, and
seed and sponsor capital income of $17 million, partially
offset by a 16% increase in controllable costs, largely
reflecting investment in growth initiatives.
New Zealand wealth management – excluding the
impact of product revenues transferring with the sale
of Australian and New Zealand wealth protection and
mature ($12 million), 2019 operating earnings would
have increased $3 million (7%) from 2018 and remain
resilient despite the industry headwinds of regulation
and increased competition. The ongoing performance
of the wealth management business, responsible for
the manufacturing and sourcing business lines, has
supported the positive 2019 result.
Australian and New Zealand wealth protection and
mature – operating earnings decreased by $18 million
to a $21 million operating loss in 2019 reflecting ongoing
challenges in wealth protection claims, low interest
rates and the impact of regulatory change.
AMP 2019 annual report
21
Directors’ report
Operating and financial review (continued)
Capital management and dividend
Equity and reserves of the AMP group attributable to
shareholders of AMP Limited decreased to $4.9 billion at
31 December 2019 from $6.7 billion at 31 December 2018.
AMP remains well capitalised. Level 3 eligible capital above
minimum regulatory requirements (MRR) is $2.5 billion at
31 December 2019, up from $1.65 billion at 31 December 2018.
The increase reflects proceeds from the capital raising in 2H 19
and business unit earnings, offset by capital usage for business
growth and below the line costs.
To maintain balance sheet strength and prudent capital
management through a period of significant change, the
AMP Limited Board has resolved not to declare a final dividend
in 2019. This position will be reviewed after completion of
the sale of the Australian and New Zealand wealth protection
and mature businesses.
AMP anticipates that any capital in excess of target surplus
post completion will first be used to fund delivery of the
new AMP strategy. Beyond this, AMP will assess all capital
management options with the intent of returning the
excess above target surplus to shareholders, subject to
unforeseen circumstances.
Strategy and prospects
On 8 August 2019, AMP announced its three-year strategic plan
to transform the business into a simpler, client-focused business
that is higher growth and higher return. AMP will seek to
achieve this through transformation to a client-focused culture,
improving execution and simplifying the business model.
Under the strategy, AMP intends to:
–
–
–
–
divest Australian and New Zealand wealth protection
and mature to help fund the new strategy, simplify AMP
and shift capital toward higher-growth businesses;
further localise New Zealand wealth management,
exploring options to divest the business;
reinvent wealth management in Australia, helping clients
realise their ambitions:
–
grow contemporary solutions in Australian wealth
management including a focus on direct-to-client
channels and digital solutions;
further integrate AMP Bank solutions with Australian
wealth management, continuing strong growth and
targeting double-digit earnings growth over the
medium term; and
fix legacy issues in Australian wealth management
including reshaping aligned advice (buy-back changes;
fewer, more productive advisers), simplifying super;
–
–
grow AMP Capital through differentiated capabilities
in real assets and public markets:
–
continue to expand global footprint in real assets,
growing customised solutions;
build on relationships in China, Japan, US;
explore opportunities to expand global equity
capabilities into international markets; and
target double-digit earnings growth over the
medium term; and
–
–
–
–
reinvigorate AMP’s culture to be client-led, entrepreneurial,
and accountable, with effective management of financial
and non-financial risk.
AMP has provided a progress update on its strategic priorities
to transform the business into a simpler, client-led, growth-
oriented business.
22
AMP 2019 annual report
Simplify portfolio
–
Sale of Australian and New Zealand wealth protection
and mature:
–
Legal separation and sale of Australian and New
Zealand wealth protection and mature is on track
for completion by 30 June 2020.
Approval from China Banking and Insurance
Regulatory Commission (CBIRC) received. AMP
continues to work with other regulators on
achieving conditions precedent.
–
– Divest New Zealand wealth management:
–
–
Significant progress on simplification of business
in 2019 including consolidation of product offerings
and removal of a number of legacy products.
Divestment process underway with mandate to
maximise shareholder value. AMP is in discussions
with a number of interested parties and expects to
provide a further update at or before 1H 20 results.
Reinvent wealth management in Australia
–
Reshape advice:
–
In 2019, action was taken to reshape the aligned
adviser network to be compliant, professional and
more productive.
Approximately 440 advisers exited the network in
2019; consolidated operations in employed channel
to major metropolitan locations.
Improved adviser productivity with average AUM
per adviser increasing to $52 million.
–
–
– Build best-in-class retail super business:
–
–
–
Simplification of products, including reducing around
70 products to six, in parallel with completion of
Australian and New Zealand wealth protection and
mature transaction to deliver better client outcomes.
Delivered fee reductions in MyNorth (May 2019) and
super (February 2020) benefiting more than 585,000
clients and all new clients.
Majority of grandfathered commissions to be removed
in 1H 20 as part of the separation of the Australian
and New Zealand wealth protection and mature
businesses.
– Grow successful platform business:
–
–
North cash inflows from external financial advisers
increased 44% to $1.2 billion in 2019 due in part to
launch of new platform features.
Strengthened managed portfolio and investment
offers including ongoing platform enhancements.
– Maintain growth momentum in AMP Bank:
–
–
Development of ‘whole-of-wealth’ corporate super
offering with integrated banking and superannuation
propositions underway; objective to launch in 2020.
Modernisation of the bank’s core system on track for
completion in 2020, including automation of deposit
portfolio, improving efficiency and client experience,
and enabling scaled growth.
Maintain growth momentum in AMP Capital
– Grow AMP Capital through differentiated capabilities:
–
Significant growth in infrastructure and real estate
capabilities, including US$6.2 billion raised for fourth
infrastructure debt strategy, US$3.4 billion for Global
Infrastructure Fund II and further co-investment,
and a $5 billion real estate development pipeline
in Australia.
–
–
Global equities delivered top percentile performance
vs peers, returning 27.8% annually since inception;
top quartile performance for global listed real estate
and global listed infrastructure strategies.
International growth building momentum.
Direct international institutional clients grew to
358 in 2019, with AMP Capital managing $20.4 billion
on their behalf, up 18% from $17.3 billion in 2018.
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).
The guiding principles assist with effective risk management
practices and enable AMP to meet its legislative and regulatory
requirements, codes and ethical standards, as well as internal
policies and procedures.
AMP’s ERM framework includes a risk management strategy
which establishes the principles, requirements, roles and
responsibilities for management of risk across AMP. It supports
AMP in achieving its business strategy by detailing how risks
are to be managed to fulfil the obligations to key stakeholders,
clients, shareholders, policyholders and regulators to achieve
financial outcomes and non-financial outcomes.
AMP’s strategic objective is to be a client-led, simpler, growth-
oriented business and the Risk Appetite Statement articulates
the nature and level of risk the board and management are
willing to accept in the pursuit of delivering their strategic
objectives. Alignment between AMP’s corporate strategy and
the risk appetite of the AMP Limited Board seeks to ensure
that decisions are consistent with the nature and level of
risk the board and management are 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. Significant business challenges
(in alphabetical order) include but are not limited to the
following. More information about our approach to these
challenges can be found in the 2019 Sustainability Report.
Business, employee and business partner conduct
The conduct of financial institutions continues to be an area
of significant focus for the financial services industry both
globally and in Australia and New Zealand. AMP business
practices, management, staff or business partner behaviours
may not adequately meet the expectations of regulators and
customers resulting in an adverse impact to our reputation
and value proposition to customers.
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. We are committed to ensuring the
right culture is embedded in our everyday practices. AMP has
reviewed its internal policies on managing conduct with risk
explicitly considered as part of the remuneration framework.
Management is given an additional discretion to recommend
adjustments to the bonus pool for significant failures in
conduct or risk management.
AMP embraces a safe and respectful work environment
that encourages our people to report issues or concerns in
the workplace. Directors, employees (current and former),
contractors, service providers or any relative or dependants
of any of these people can utilise the Whistleblowing program
to report conduct or unethical behaviours.
Climate change
AMP, its customers and its external suppliers may be adversely
affected by the physical and transitional risks of climate
change. These effects, whether acute or chronic in nature, may
directly impact AMP and its customers through reputational
damage, insurance risk and business disruption and may
have an adverse impact on financial performance (including
through an increase in defaults in credit exposures). Initiatives
to mitigate or respond to adverse impacts of climate change
may in turn impact market and asset prices, economic activity,
and customer behaviour, particularly in geographic locations
and industry sectors adversely affected by these changes.
AMP’s corporate sustainability strategy includes a commitment
to remain carbon neutral in its operations to address the direct
impacts of our business activities. Management committees
across the business consider climate-related financial risks and
opportunities in investment management activities, operations
and impacts to clients. AMP will continue to work with industry
and regulators to overcome data and measurement challenges
to respond to climate-related financial risks.
Competitor and customer environment
The financial services industry continues to increase its
technological advancement as customer expectations are
evolving, which is intensifying competition within wealth
management. Failure of the AMP group to adapt its capabilities
and operating model in order to remain relevant to customers
may impact new business and retention of existing business.
This could have a material adverse impact on the financial
performance and position of AMP.
In 2019, AMP released several significant announcements
to reposition AMP as a simpler, client-led, higher growth and
higher return business. The new strategy to reinvent AMP as
a contemporary wealth manager is a three-year investment
program to fund growth, reduce costs and fix legacy issues.
The strategy builds on core strengths and market positions
with whole-of-wealth solutions.
Cyber security threats
Cyber risk continues to be a threat in a rapidly changing
technological environment as the magnitude of the costs
of cybercrime vary depending on the nature of the attack.
We are committed to enhancing our cyber security capability
as we recognise the current environment of cybercrime
activity has increased across the industry.
AMP 2019 annual report
23
Directors’ report
To counter the evolving threat of cybercrime, AMP continues
to invest in enhancing cyber security capabilities to uplift
cyber defences. AMP’s uplift in cyber security capability
assesses and mitigates cybercrime and other internal and
external vulnerabilities, and monitors for changes in its cyber
threat profile that may impact the performance of business
operations. AMP will continue to invest in a sustainable cyber
security operating model that prevents, detects and responds
to cyber incidents, in order to protect AMP’s assets.
Operational risk environment
Operational risk exposures, relevant to the industry in which
AMP operates, relate to losses resulting from inadequate or
failed internal processes, people and systems or from external
events. These include, but are not limited to, information
technology, human resources, internal and external fraud,
money laundering and counter-terrorism financing, bribery
and corruption. High operational risks are driven by a
complex operating environment associated with legacy
products, systems and, in some cases, manual controls.
This environment will be further stressed by the Key
Business Challenges included in this section.
We continue to work towards remediating clients,
simplifying our business, reducing operational complexity
and strengthening risk management, internal controls and
governance. A significant element of complexity will be
addressed by the separation of the Australian and New Zealand
wealth protection and mature businesses, reshaping of the
Adviser network, and simplification of the Superannuation
product and investment option set. The AMP operational risk
profile reflects these exposures and the financial statements
of AMP contain certain provisions and contingent liability
disclosures for these risks in accordance with applicable
accounting standards.
Organisational change
In 2019, AMP’s investor presentation set out a clear
ambition to become a client-led, simpler, and growth-
oriented business. AMP committed to shifting to a leaner
and simpler corporate centre, with activities being devolved
from the central functions to the respective businesses. We
commenced this organisational transition in late 2019 and
will implement further changes in 2020 to fully establish
our target operating model and to achieve further operating
cost savings. There is a risk that business momentum is
lost due to leader focus on organisational changes, and
that talent critical for implementation of our strategy and
transformation initiatives are impacted negatively. These
risks will be mitigated by maintaining leadership and
performance focus on the business and ensuring
retention plans are in place for key talent.
AMP continues to invest in adopting new ways of working
to drive efficiency and improve our practices to increase
accountability and build on core strengths. We recognise
that failure to execute appropriately on the implementation
of these changes can increase the risks of disruption to AMP’s
business operations. To manage this, AMP has established
a Transformation Office as part of the Transformation
Program to ensure strategic alignment across the businesses
and manage execution risk across multiple initiatives.
Regulatory environment
AMP operates in multiple jurisdictions across the globe,
including Australia and New Zealand, and 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 face challenges with
a significant level of regulatory change impacting the business.
AMP continues to respond and adjust its business model for
these changes; however, failure to adequately anticipate and
respond to future regulatory changes could have a material
adverse impact on the performance of its businesses and
achieving its strategic objectives.
AMP’s commitment to uplift its risk management practices,
and strengthen its control environment and compliance
systems across the businesses, will address these legislative
and regulatory requirements and embed effective risk
management practices. AMP’s internal policies, frameworks
and procedures seek to ensure any changes in our domestic
and international regulatory obligations are complied with in
each jurisdiction. Regulatory and compliance risk that results
in breaches is reported to AMP management committees and
regulators are managed in accordance with internal policies.
Regulatory consultations and interactions are reported and
monitored as part of AMP’s internal risk and compliance
reporting process. AMP actively participates in these interactions
and co-operates with all regulators to resolve 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 environmental 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
On 27 June 2018, ASIC brought civil penalty proceedings
against AMP Financial Planning Pty Limited (AMPFP),
a wholly-owned subsidiary of AMP Limited, alleging
contraventions of the Corporations Act 2001 by AMPFP relating
to the alleged conduct of certain of its authorised financial
advisers over the period of 2013 to 2015 in providing advice to
clients in relation to the replacement of life insurance policies
by cancellation and new application rather than by transfer.
On 5 February 2020, the Federal Court of Australia determined
there were six contraventions and that a civil penalty of
$5.175 million should be imposed, with formal orders to give
effect to the penalty to follow in due course. AMP acknowledges
the Federal Court’s decision and the penalty amount has been
included as a provision within the financial report.
As at the date of this report, the directors are not aware of
any other matters or circumstances that have arisen since
the reporting date that have significantly affected, or may
significantly affect, the entity’s operations; the results of those
operations; or the entity’s state of affairs in future periods.
24
AMP 2019 annual report
The AMP Limited board of directors
The directors of AMP Limited during the year ended 31 December 2019 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)
Francesco De Ferrari (Chief Executive Officer and Managing Director) (appointed 31 January 2019)
–
Rahoul Chowdry (appointed 1 January 2020)
–
–
John Fraser
– Andrew Harmos
– Debra Hazelton (appointed 15 June 2019)
–
–
– Geoff Roberts (retired 2 May 2019)
– Andrea Slattery (appointed 15 February 2019)
–
– Mike Wilkins AO
Trevor Matthews
John O’Sullivan
Peter Varghese AO
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.
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 2019. The Chairman and directors also attended other meetings, including
board committee 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 Meetings
Audit
Committee
Risk
Committee
Nomination
Committee
Remuneration
Committee
Ad hoc
committees1
Board/committee
Held/attended
David Murray AO
Francesco De Ferrari
(appointed 31 January 2019)3
John Fraser
Andrew Harmos
Debra Hazelton
(appointed 15 June 2019)4
Trevor Matthews
John O’Sullivan
Geoff Roberts
(retired on 2 May 2019)5
A
B
16
14
16
16
8
16
16
7
16
14
16
16
8
16
16
6
Andrea Slattery
(appointed 15 February 2019)6
11
11
Peter Varghese AO
Mike Wilkins AO
16
16
16
16
A
–
–
5
5
2
5
5
3
4
5
5
B
–
–
4
5
2
5
5
3
4
5
5
A
5
–
5
5
2
5
5
3
4
5
5
B
5
–
4
5
2
5
5
3
4
5
5
A
3
–
–
–
–
–
–
–
–
3
3
B
3
–
–
–
–
–
–
–
–
3
3
A
5
–
5
5
3
5
5
2
3
5
5
B
5
–
5
5
3
5
5
2
3
5
5
A
B
10
10
5
–
10
8
5
–
21
21
–
28
–
28
–
5
5
–
–
5
4
–
Subsidiary
board and
committee
meetings2
A
–
4
10
38
13
38
–
12
B
–
3
7
38
13
38
–
12
20
20
14
27
13
26
Column A – indicates the number of meetings held while the director was a member of the board/committee.
Column B – indicates the number of those meetings attended.
1
Ad hoc committees were convened during the year in relation to matters including major corporate transactions, client remediation, compliance and
financial results.
Subsidiary board and committee meetings refer to meetings of the boards and committees of the following key operating 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 and AMP Bank Limited 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.
Francesco De Ferrari was appointed as a director of AMP Limited effective 31 January 2019.
Debra Hazelton was appointed as a director of AMP Limited effective 15 June 2019.
Geoff Roberts retired as a director of AMP Limited effective 2 May 2019.
Andrea Slattery was appointed as a director of AMP Limited effective 15 February 2019.
2
3
4
5
6
AMP 2019 annual report
25
Directors’ report Company secretary details
Details of the company secretary of AMP Limited as at the
date of this report, including her qualifications and experience,
are set out below.
Marissa Bendyk
General Counsel, Corporate and Governance
and Group Company Secretary
LLB (Hons), BCom (Accounting), GAICD
Marissa joined AMP in May 2019. She was appointed as the
Company Secretary for AMP Limited on 6 May 2019 and is
also secretary of a number of other AMP group companies.
Before joining AMP, Marissa worked at APA Group and
King & Wood Mallesons focusing on corporate governance,
mergers and acquisitions, and corporate and commercial law.
AMP notes that David Cullen resigned as company secretary
on 6 May 2019 and Vicki Vordis resigned as company secretary
on 30 August 2019.
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 2019, 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 10 (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
10 years after they cease to hold office.
During, and since the end of, the financial year ended
31 December 2019, in accordance with a deed of indemnity,
insurance and access provided by the company, the company
paid legal costs amounting to:
–
–
$68,165.70 on behalf of a former director of AMP; and
$40,147.92 on behalf of a former chief executive officer
of AMP,
in relation to matters arising as a result of the findings
of the Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry.
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 2019.
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.
26
AMP 2019 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 2019.
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s independence declaration to the directors of AMP Limited
As lead auditor for the audit of AMP Limited for the financial year ended 31 December 2019, 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, 13 February 2020
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 2019, 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 10% (ie $1.8 million) of the total fees paid to the auditors, compared with
–
13% (ie $2.3 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 2019.
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.
AMP 2019 annual report
27
Directors’ report Remuneration report (audited)
for the year ended 31 December 2019
Overview of 2019
In 2019, AMP committed to a significant transformation of
its business, setting out a new strategy as well as changes
to its operating model. The leaders and wider employee
base took on the challenge of reshaping the business,
including managing the complex separation of AMP’s life
insurance business and addressing the long-term legacy
issues in financial advice and superannuation. This had to
be conducted in an environment of rapid regulatory change.
Our CEO Francesco De Ferrari led the development of the
new strategy and implemented required changes in the
business in his first full year with the company. The CEO has
reshaped and streamlined his leadership team, articulated a
new corporate purpose, and established the new operating
model. The board has established systems of oversight to
track its progress of the strategy.
Following the challenges the company faced in 2018, and
associated loss of shareholder value, our senior executives
understood and accepted the board’s decision not to award
short-term incentive payments for that year.
For 2019, the board has been cognisant that the
renegotiation of the AMP Life sale, the new capital issuance
and ongoing complexity, again adversely affected the
company’s share price. Accordingly, in considering the 2019
short-term incentives the board has sought to balance the
need to exercise some restraint to reflect our shareholders’
experience, but at the same time be able to attract and
retain the right people to work through the complexities
in the business.
Conduct and culture
Improving the conduct and culture within the business
forms a core element of AMP’s transformation. The board
seeks to set the tone by requiring management to address
legacy issues by establishing robust processes around risk
management, governance, reporting and people systems.
Together, these systems are intended to build a culture which
reflects the company purpose and its underlying principles,
with its focus on meeting our customers’ needs and helping
them to realise their broader ambitions in life. Important
steps have also been taken in articulating expected
behaviours and embedding them within our performance
management, remuneration and employee recognition
systems. These behaviours are reinforced by our employee
conduct management policy and guidelines.
A major investment to enhance our risk management,
internal controls and governance was outlined to
shareholders in 2018. This has included putting in place
new mechanisms to identify risks, ensure they are properly
managed and reported and reinforce necessary practices
within the business.
The board has been deliberate in ensuring the conduct
and culture of the organisation, including risk outcomes,
are taken into account in remuneration outcomes. As
AMP continues its transformation, the board will continue
to exercise discretion to ensure there are remuneration
consequences applied where warranted.
28
AMP 2019 annual report
2019 performance and remuneration
AMP’s 2019 financial results are covered in detail elsewhere
in this report. The board’s role is to ensure remuneration
outcomes have appropriately considered financial returns
to shareholders while balancing longer-term financial and
non-financial measures such as delivery against strategic
priorities, risk management (including people risks),
customer outcomes, individual behaviours and culture.
The company’s remuneration approach recognises areas
of strong performance where teams and individuals have
delivered and outperformed against their targets. The board
is aware of the challenges implicit in the transformation
and delivery of the strategic plan and that this is dependent
on attracting and retaining skilled people.
The board awarded 2019 outcomes for the CEO and
executives taking into account the need to appropriately
motivate and retain executives while ensuring alignment
with stakeholder outcomes and exercising restraint. 2019
STI outcomes ranged between 0% and 63% of maximum
opportunity, illustrating differentiation for factors such as
business unit and individual performance including risk
management, conduct and behaviours.
Changes to the remuneration structure for 2019
For 2019, the Remuneration Committee refreshed the group
incentive structures to support the new strategy through:
–
the development of the 2019 group incentive pool based
on the achievement of financial outcomes and a set of
key priorities. This departure from the scorecard approach
used in prior years provides the board with flexibility and
discretion to react to rapidly shifting strategic priorities
as needed to deliver long-term shareholder value;
introduction of a new long-term incentive plan for
executives and senior leaders. The plan includes a Risk
and Conduct Gateway to ensure the board’s expectations
of an individual’s performance are met before vesting
can occur; and
senior leaders moving to an STI and LTI structure in support
of our objective to differentiate reward outcomes for our
best performers.
Committee priorities for 2020
The priorities for 2020 include:
–
responding to changes in the regulation of executive
remuneration;
embedding the new conduct management policy and
guidelines, which address inappropriate conduct and
recognise behaviours that are consistent with AMP
values; and
monitoring of the remuneration framework and its
consistency with AMP’s transformation.
The board appreciates the feedback we have received from
our shareholders and clients and will continue to engage as
the company delivers on its transformation strategy.
David Murray AO
Chairman, AMP Limited Board and
AMP Remuneration Committee
–
–
–
–
Remuneration report
This remuneration report details the remuneration arrangements for our key management personnel (KMP) in 2019.
This report has been prepared and audited against the disclosure requirements of the Corporations Act 2001.
CEO remuneration
In his remuneration package announced in August 2018, Mr De Ferrari was entitled under his contract to an LTI award with a face
value of $3.5 million, originally intended to be delivered in early 2019.
The board decided Mr De Ferrari would also receive a 2019 LTI Transformation Award with a face value of $3.5 million. This
reflects the board’s desire to ensure the CEO is appropriately motivated, aligned and retained to execute on the new strategy
and transformation of AMP for the benefit of all stakeholders.
These LTI awards were granted in September 2019, with vesting to be measured over a period of three-and-a-half years based on a
comparison of the compound annual growth rate in AMP’s total shareholder return (TSR) relative to a financial services comparator
group of companies. Further details of these awards are explained in section 7.1 Executive 2019 remuneration arrangements.
The board was pleased with the progress Mr De Ferrari made in 2019 against the agreed priorities in what was another challenging
year for AMP. Reflective of his strong performance in the current operating environment and current market conditions, the board
awarded Mr De Ferrari 75% of his target STI opportunity (63% of maximum opportunity), being $1,650,000.
Mr De Ferrari did not receive an increase to his fixed remuneration during 2019.
Adjustments to CEO incentives on appointment
As outlined in the announcement made in August 2019, the remuneration package of Mr De Ferrari agreed prior to his
appointment was adjusted to reflect the materially lower share price of the group immediately preceding his start date.
Adjustments made to the Buy-out and Recovery incentives received by Mr De Ferrari on commencement are summarised
in the tables below.
Buy-out incentive
Remuneration type
Value
Grant date
Vesting schedule
Vesting conditions
Restricted shares
Share rights
587,328 AMP shares
with a face value of
approximately $1.0m
587,328 AMP share
rights with a face value
of approximately $1.0m
13 August 2019
13 August 2019
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
Replacement Recovery incentive
Remuneration type
Value
Grant date
Vesting schedule
Vesting conditions
Performance rights
2,500,000 AMP share
rights with a face value
of approximately $4.4m
12 September 2019
Tested by the board in
15 February 2022 and
2023 (each a testing date)
Must be in employment on
relevant testing date. On
first testing date, 50% will
vest if share price is $2.451.
On the second testing date,
the balance of the award
will be eligible to vest. If
the share price is $2.451,
50% (including any awards
that have vested already)
would vest and 100% will
vest if the share price is
$2.751, with straight-line
vesting between these
share price hurdles.
1
Share price adjusted for any significant capital initiatives.
The replacement Recovery incentive award includes terms to enable the board to offset any value that may be achieved if the
original Recovery incentive did vest. The board intends to seek shareholder approval to cancel the original Recovery incentives
at the next AGM.
AMP 2019 annual report
29
Directors’ report Incentive outcomes
A revised incentive structure for the executive team was implemented in 2019, replacing the EPI Plan with a short-term incentive
(STI) and long-term incentive (LTI) structure.
The following table shows the STI awarded to executives based on the 2019 performance year. Individual STI awards varied based
on individual executive performance and the performance of the business unit for which they are responsible.
This table differs from the statutory table in section 7.3.1 which is prepared according to Australian Accounting Standards.
Francesco De Ferrari
Megan Beer
David Cullen
Jenny Fagg
James Georgeson
Helen Livesey
Craig Ryman
Adam Tindall1
Alex Wade
Sally Bruce
Gordon Lefevre
Paul Sainsbury
Fiona Wardlaw
Maximum STI
opportunity
value
$’000
% of
maximum STI
opportunity
awarded
% of
maximum STI
opportunity
not awarded
% of
target STI
opportunity
awarded
2,640
1,440
1,120
1,440
1,120
1,360
1,440
n/a
1,552
1,280
1,544
1,280
1,544
63%
26%
29%
17%
31%
26%
17%
n/a
32%
21%
16%
0%
0%
37%
74%
71%
83%
69%
74%
83%
n/a
68%
79%
84%
100%
100%
75%
42%
46%
28%
50%
41%
28%
n/a
52%
34%
26%
0%
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.
Conduct and reputation matters
In 2019, the board exercised discretion to apply remuneration consequences to executives for overall accountability for matters
arising in their business units with adverse customer and reputational impacts.
During 2019, there was a small number of matters involving conduct that resulted in formal consequences. Around 40% of these
resulted in termination of employment; of the remainder, consequences were applied as appropriate including warnings, additional
training, and/or adjustments to performance-based remuneration.
At the time of this report the annual remuneration review process is about to commence and this will be factored into any
remuneration decisions.
30
AMP 2019 annual report
Remuneration report
Contents
1. Who is covered by this report
2. Remuneration framework
3. Remuneration governance
4. 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. 2019 KMP are detailed below.
Current executives
Francesco De Ferrari
Megan Beer
David Cullen
Jenny Fagg
James Georgeson1
Helen Livesey
Craig Ryman
Adam Tindall
Alex Wade2
Former executives
Sally Bruce3
Gordon Lefevre4
Paul Sainsbury5
Fiona Wardlaw6
Chief Executive Officer
Chief Executive, AMP Life
Group General Counsel
Chief Risk Officer
Chief Financial Officer
Group Executive, People and Corporate Affairs
Chief Operating Officer
Chief Executive, AMP Capital
Chief Executive, AMP Australia
Chief Executive, AMP Bank
Chief Financial Officer
Group Executive, Wealth Solutions and Customer
Group Executive, People and Culture
Current non-executive directors
David Murray
John Fraser
Andrew Harmos
Debra Hazelton7
Trevor Matthews
John O’Sullivan
Andrea Slattery8
Peter Varghese
Mike Wilkins
Former non-executive directors
Geoff Roberts9
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
Non-executive Director
Term as KMP in 2019
Full Year
Full Year
Full Year
Full Year
Three months
Full Year
Full Year
Full Year
Full Year
Eleven months
Nine months
Three months
Five months
Full Year
Full Year
Full Year
Seven months
Full Year
Full Year
Eleven months
Full Year
Full Year
Five months
1
2
3
4
5
6
7
8
9
James Georgeson was appointed Acting Chief Financial Officer effective 21 September 2019 and subsequently permanently appointed on
3 February 2020.
Alex Wade was appointed Group Executive, Advice effective 7 January 2019.
Sally Bruce stepped down from the role as Chief Executive, AMP Bank effective 1 November 2019.
Gordon Lefevre stepped down from the role as Chief Financial Officer effective 20 September 2019.
Paul Sainsbury stepped down from the role as Group Executive, Wealth Solutions and Customer effective 4 March 2019.
Fiona Wardlaw stepped down as Group Executive, People and Culture effective 17 May 2019.
Debra Hazelton was appointed to the AMP Limited Board effective 15 June 2019.
Andrea Slattery was appointed to the AMP Limited Board effective 15 February 2019.
Geoff Roberts retired from the AMP Limited Board effective 2 May 2019.
AMP 2019 annual report
31
Directors’ report
2. Remuneration framework
The table below outlines the remuneration framework in place for the executives in 2019.
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 with
Remuneration arrangements at AMP should be informed by our guiding principles:
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 interest; with appropriate checks and balances.
– Judgement – the remuneration framework should allow executives 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.
Short-term incentive1
80% delivered as cash;
20% delivered as share rights
deferred for two years.
Long-term incentive
100% delivered as share rights subject to
a performance hurdle with a three-and-a-
half-year performance period (or four years
where required to comply with regulation).
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 consideration in the board’s determination of the incentive pool.
− 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.
1
The deferral rate applied to short-term incentives will be adjusted where required in order to comply with regulatory requirements.
The deferral rate for 2019 reflects a remuneration mix that has a high LTI component and low STI outcomes relative to maximum
opportunity. The proposed deferral rate for 2020 is 40% for a minimum of four years applied to total variable remuneration.
32
AMP 2019 annual report
2. Remuneration framework (continued)
2.1 Remuneration mix
The following illustration shows the remuneration mix for the executives in 2019 (excluding the Chief Executive, AMP Capital who
participates in the AMP Capital Enterprise Profit Share plan). Outcomes have been modelled based on the average of the executives’
target bonus opportunities and actual deferred awards.
2019 Remuneration mix based on target incentive opportunity
CEO
Executives
LTI 61%
LTI 70%
At risk
81%
Fixed
19%
Short-term deferred 5%
Short-term cash 15%
Fixed 19%
At risk
82%
Fixed
18%
Short-term deferred 2%
Short-term cash 10%
Fixed 18%
2.2 Changes to executive remuneration for 2019
Following the review of the remuneration arrangements for 2019, the board approved a different approach to deriving the
AMP group incentive pool. This is the incentive pool for AMP employees across the group, with the exception of the AMP Capital
business which has separate remuneration arrangements. The new approach moved away from a formulaic scorecard approach
and instead created 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 may 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 stakeholder experience.
The Chief Risk Officer will continue to recommend risk-related adjustments to the board. This forms part of the overall adjustment
to the pool considered by the board rather than a separate standalone adjustment.
The 2019 executive incentive arrangements are comprised of a short-term incentive (STI) plan and a challenging LTI plan for driving
and delivering the transformation agenda (‘Transformation Incentive’). Some executives were awarded a one-off Transition Incentive
to encourage greater alignment during the period before the Transformation Incentive was awarded.
Details of these plans are described in section 7.1: 2019 AMP Transformation Incentive Plan and 2019 AMP Transition Incentive Plan.
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, and has commenced a major program to drive a culture of high performance,
premised on putting clients first, taking accountability, and adopting the mindset of an owner. Risk behaviour can be clearly traced
through each of these cultural elements, and employee beliefs that such behaviours are valued and expected at AMP are a key
indicator of AMP’s overall culture in this regard.
Effective risk management is embedded into the remuneration principles and framework (outlined in the diagram in section 2).
During 2019, there have been continued enhancements to the remuneration framework to further embed risk management and
conduct into multiple layers of goal setting and performance assessment for executives and employees. Before remuneration is
awarded or vests, risk management and conduct are specifically considered. Further detail on how risk management is considered
for each reward element is outlined in section 7.
AMP 2019 annual report
33
Directors’ 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 stakeholder 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 did not engage any independent remuneration advisers.
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 risk-related
adjustments 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; and
– reviewing and making recommendations in relation to equity-based
plans including malus and clawback.
Independent
remuneration
advisers
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.
34
AMP 2019 annual report
3. Remuneration governance (continued)
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), proposed Financial
Accountability Regime (FAR), Sedgwick Review, Life Insurance Framework, ASIC review into mortgage broking remuneration, and
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.
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.
The remuneration arrangements for all executives and senior management who are subject to BEAR meet the regulatory
requirements.
Throughout 2019, AMP Bank has continued to develop its practices in response to the Sedgwick Recommendations, through
enhancements to performance management, governance and leader communication. Performance management now
specifically incorporates the demonstration of customer-focused behaviour into the assessment of performance.
4. Remuneration outcomes
4.1 Summary of 2019 company performance
The 2019 financial results are reflected in the remuneration outcomes for executives and employees overall. 2019 underlying
profit of $464 million has reduced 32% from $680 million in 2018. Underlying return on equity decreased to 8.2% reflecting
reduced operating earnings in AMP Life and the Australian wealth management business.
The table below illustrates AMP’s performance over the last five years and the remuneration outcomes.
Financial results
Profit (loss) after tax attributable to shareholders ($m)
Underlying profit ($m)
Cost to income ratio (%)
Shareholder outcomes
Total dividend (cents per share)
Share price at 31 December ($)
STI/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)
2015
2016
2017
2018
2019
972
1,120
43.8
(344)
486
63.7
848
1,040
46.2
28
5.83
105
9.4
54
41st
13.2
0
28
5.04
29
5.19
34
7.1
0
31st
5.6
22
75
7.2
58
27th
14.3
0
28
680
55.8
14
2.45
33
4.8
0
8th
9.6
0
(2,467)
464
67.5
0
1.91
40
8.5
23
0
8.2
0
1
2
3
4
For 2015, 2016, 2017 and 2019, the pool value reflects the amount available under the STI plan. For 2018, the pool value is inclusive of the STI and
EPI plans.
The 2016, 2017, 2018 and 2019 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 28 February 2015, 6 March 2016, 5 March 2017, 4 March 2018 and 3 March 2019 respectively. See section 4.3 Long-term
incentive outcomes.
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 2019.
AMP 2019 annual report
35
Directors’ report 4. Remuneration outcomes (continued)
4.2 Incentive outcomes
The board oversees a rigorous process in setting performance objectives and measures for each executive at the beginning of
the year. This section describes the board’s philosophy around the performance measures and provides specific detail on how the
board assessed performance.
4.2.1 Group incentive measures
The board believes that both financial and non-financial measures are key to delivering our strategy and through this, shareholder
value. In 2019, the board approved a new approach that created an incentive pool for delivering upon a set of agreed strategic
priorities and the 2019 financial plan. The strategic priorities set for 2019 include:
– Deliver on the 2019 financial plan
–
–
–
–
–
Separate AMP Life
Transform Australian wealth management
Prioritise client remediation
Strengthen risk and control environment
Reset the AMP strategy
To the extent targets are exceeded and financial results are above plan, an incremental amount may flow through to the group
incentive pool.
The board continues to exercise discretion when assessing performance to determine the final incentive pool. The board may also
choose to exercise this discretion to take into account factors not fully reflected in the financial results, to ensure outcomes are
appropriate and aligned to shareholder experience.
An overall assessment of risk management is recommended by the Chief Risk Officer, reviewed by the AMP Limited Board Risk
Committee and approved by the AMP Limited Board as an input into the board’s determination of the group incentive pool.
4.2.2 Group incentive outcome
The board assessed AMP’s performance against the 2019 financial plan and strategic priorities, including risk management
considerations, to determine an incentive pool for 2019 of $39.6 million (compared to an incentive pool of $32.9 million in 2018).
Despite delivering against many of the targets set, the board determined that the overall STI pool would reflect average STI
outcomes to employees of approximately 50% of target. This decision reflects the rigour and discipline applied to setting and
measuring progress against targets and incorporates the board’s desire to exercise restraint and balance stakeholder outcomes.
The 2019 group incentive pool again excludes AMP Capital as this part of the business has separate remuneration arrangements.
Measure
Performance and progress
Reset the AMP strategy
Launched the three-year transformation strategy to reinvent AMP as a simpler, client-led business
focused on higher growth and higher return. Ongoing focus on simplifying the portfolio, reinventing
wealth management, continuing to grow AMP Capital and creating a simpler, leaner business.
Deliver on the
2019 financial plan
Separate AMP Life
Transform Australian
wealth management
Achieved underlying profit of $464 million. Impact of AMP Life and weaker Australian
wealth management earnings partly offset by strong performance in AMP Capital.
Sale of AMP Life renegotiated in 2019. Program remains a key priority in 2020. AMP Life
operating as standalone business. Positive momentum in securing regulatory approvals.
On track for completion first half 2020.
Significant progress on reshaping AMP’s advice network with commercial terms reset.
Phase one of the product simplification program is due to complete first half 2020 delivering
significant reduction in number of funds, products and systems. Maintained growth momentum
in AMP Bank with platform modernisation on track and expected to complete by end 2020.
Prioritise client
remediation
Client remediation program accelerated to scale in 2019 with $150 million paid to clients.
Program expected to be 80% complete by end 2020 and fully complete in 2021.
Strengthen risk and
control environment
Uplifted risk management, governance and controls. New Governance, Risk and Compliance
system introduced, new conduct and accountability frameworks implemented, enhanced
whistleblower program and increased risk management training across the business.
36
AMP 2019 annual report
4. Remuneration outcomes (continued)
4.2.3 Executive outcomes
In 2019, executives’ individual performance objectives incorporated the relevant group performance measures based on business
unit specific priorities. Objectives for the Chief Risk Officer are overseen by the Board Risk Committee to ensure independence.
Based on company and individual performance, the CEO recommends to the board for approval the executive incentive allocations.
In 2019, short-term incentives were awarded to executives between 0% to 63% of maximum opportunity.
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 (Chief Executive, 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 the Chief Executive, AMP Capital, based on a recommendation from the
AMP Limited CEO.
4.3 Long-term incentive outcomes
The vesting outcomes determined in 2019 are detailed below, along with the approved performance measures and targets for
unvested LTI grants with a performance end date prior to 2022.
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
2 Jun 2016
2 Jun 2016
1 Jan 2018
31 Dec 2018
3 Mar 2016
3 Mar 2019
RoE
TSR
15.9%
18.0%
9.6%
50th percentile 75th percentile
0 percentile
0%
0%
Grants to be tested for vesting in the future
19 May 2017
1 Jan 2017
31 Dec 2020
TSR
50th percentile 75th percentile
TBA
TBA
Grant date
Performance
period
start date
Performance
period
end date
Measure
Threshold
target
(25% vests)
Maximum
target
(100% vests)
Board-
approved
performance
outcome
Vesting
outcome
(portion of
tranche vested)
12 Sep 2019
1 Aug 2019
15 Feb 2023 CAGR TSR
75% of index
110% of index
TBA
TBA
2016 LTI award
The performance hurdles were not met and as a result 100% of both the RoE and TSR tranches lapsed.
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.
Share rights that are allocated to executives 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.
AMP 2019 annual report
37
Directors’ report
5. Executive shareholding (continued)
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 2019.
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 2019
Holding at 31 Dec 2019
Total
number
of units at
1 Jan 2019
Share
rights
granted
during
20192
Shares
Share
rights1
Shares
granted
during
20193
Share
rights
converted
to shares4
Share
rights
forfeited
or lapsed
Other
market
trans-
actions5
Shares
Total
number
of units at
31 Dec 2019
Share
rights
Francesco De Ferrari6
Megan Beer
David Cullen
Jenny Fagg
James Georgeson7
Helen Livesey
Craig Ryman
Adam Tindall8
Alex Wade9
– 1,453,488 1,453,488
203,276
113,121
–
226,754
126,847
102,165
552,176
–
136,787
48,754
–
49,423
114,989
69,491
394,769
–
66,489
64,367
–
177,331
11,858
32,674
157,407
–
587,328 2,040,816
419
212,765
419
212,765
419
212,765
–
–
419
212,765
419
212,765
251,014
–
537,815
–
–
63,398
24,274
–
–
48,718
–
91,139
–
–
–
–
–
–
–
–
–
–
– 2,040,816 2,040,816 4,081,632
418,426
335,680
222,558
226,754
340,031
362,799
805,155
537,815
132,272
98,435
9,793
177,331
60,995
80,543
501,525
537,815
286,154
237,245
212,765
49,423
279,036
282,256
303,630
–
1,966
9,375
9,374
–
–
47,450
1,965
–
Total
number
of units at
1 Jan 2019
Share
rights
granted
during
20192
Shares
granted
during
20193
Share
rights
converted
to shares4
Share
rights
forfeited
or lapsed
Other
market
trans-
actions5
Total
number of
units on date
ceased as
KMP
Shares
Share
rights
Shares
Share
rights1
Former Executives
Sally Bruce
Gordon Lefevre
Paul Sainsbury
Fiona Wardlaw
49,764
153,335
65,475
176,704
110,418
91,949
91,949
64,830
160,182
245,284
157,424
241,534
212,765
212,765
212,765
212,765
419
419
419
419
54,825
–
–
–
–
–
–
–
–
(72,612)
–
–
105,008
81,142
65,894
177,123
268,358
304,714
304,714
277,595
373,366
385,856
370,608
454,718
1
2
3
4
5
6
7
8
9
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.
Unless otherwise stated, share rights were awarded on 10 May 2019 in relation to the Transition Incentive award. The number of share rights granted
was determined using the fair value price of $2.22 per share right.
Unless otherwise stated, 419 shares were awarded on 14 March 2019 as part of the employee’s participation in the AMP Employee Share Plan (ESP).
The number of shares granted was determined using the market price of $2.38 per share. These shares are restricted for three years from award date.
Unless otherwise stated, the share rights converted during 2019 relate to the vesting of the 2015 LTI, 2016 STI Deferral and 2016 LTI grants.
Other market transactions are a result of executives or their related parties trading AMP Limited shares on the open market (transactions may
include shares purchased as part of the employee’s participation in the AMP Share Purchase Plan (SPP) allotment at a market value of $1.60 per share,
transfers or sales).
For Francesco De Ferrari, 587,328 share rights were awarded on 13 August 2019 relating to the additional Buy-out incentive award. 50% of the share
rights granted was determined using the fair value price of $1.77, 30% of the share rights granted used a fair value price of $1.70 and 20% of the share
rights granted used a fair value price of $1.64.
Shares granted during 2019 relate to the Buy-out incentive awards and are subject to disposal restrictions. 1,453,488 shares were granted on
25 February 2019 at an average market price of $2.35 per share and 587,328 shares were granted on 13 August 2019 at the market price of $1.81 per
share. A total of 1,224,488 shares vested on 15 August 2019 and restrictions were lifted. The remaining balance of restricted shares vest in accordance
with the vesting schedule.
The beginning balances shown for James Georgeson are reflective of his holdings as at 21 September 2019, the date he became KMP.
For Adam Tindall, in addition to the 419 shares granted under the AMP ESP, 250,595 shares were awarded on 17 May 2019 in relation to the 2018
Enterprise Profit Share plan. Shares were granted at the market price of $2.20 per share. The share rights converted during 2019 relate to the 2016
Enterprise Profit Share grant.
For Alex Wade, 537,815 shares were awarded on 25 February 2019 in relation to a sign-on award and are subject to disposal restrictions. Shares were
granted at the market price of $2.38 per share and vest in accordance with the vesting schedule.
38
AMP 2019 annual report
6. Non-executive director remuneration
The remuneration for NEDs, other than the AMP Limited Chairman, consists of three components:
– AMP Limited Board base fee;
– AMP Limited committee fees; and
– AMP subsidiary board and committee fees.
As detailed below, the AMP Limited Chairman receives a base fee which covers all 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.
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.
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; and
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.
NED 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 2019, the total remuneration paid to AMP Limited NEDs was $3,799,060 being 82% 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 was $850,000 per annum (inclusive of superannuation contributions), covering 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. The Chairman
also acts as chair of the AMP Bank Limited Board, where he receives no additional fees for these responsibilities.
The board reviewed the Chairman’s fees in January 2019; it was determined (with the Chairman abstaining) that there would
be no change to this fee. The decision was made having regards to, amongst other matters:
–
–
–
–
the overall size and complexity of the company has not reduced;
the AMP Life transaction has not completed, and the ongoing work associated with this;
the board renewal process is ongoing with further work required in 2020; and
the refinement of AMP’s strategy is ongoing.
The Chairman’s fees will be reviewed again in April 2020 with the status of the above factors considered as part of that review.
In February 2019, the base fee for other AMP Limited NEDs was increased to $240,000 per annum (inclusive of superannuation
contributions). This change was in recognition of their increased workload associated with the streamlining of board operations,
whereby all NEDs serve on both the AMP Limited and the AMP Bank Limited Boards. This structure achieved greater operational
and cost efficiency, so that no additional fees are paid to NEDs for the AMP Bank Limited Board and its Audit and Risk Committees.
This structural change increased efficiency and reduced the aggregated NED fee spend.
In addition, as a further cost reduction measure, NEDs also agreed to waive any additional fees for membership of certain special
purpose committees such as the Due Diligence Committee and other ad hoc committees.
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, directors of AMP’s main subsidiaries, members of committees of the boards of those subsidiaries and as members of
other special purpose committees formed from time to time.
AMP 2019 annual report
39
Directors’ report 6. Non-executive director remuneration (continued)
6.2 2019 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 2019.
Chairman base fee1
effective
1 January 2019
$
Member base fee1
effective
1 January 2019
$
Chairman base fee1,4
effective
15 February 2019
$
Member base fee1,4
effective
15 February 2019
$
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
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
–
25,400
56,300
15,300
15,300
78,900
16,900
56,300
5,000
5,000
850,000
55,000
55,000
–
55,000
–
–
–
124,000
28,200
90,300
10,000
10,000
240,000
25,400
25,400
–
25,400
–
–
–
78,900
16,900
56,300
5,000
5,000
1
2
3
4
The total fees shown above are inclusive of superannuation contributions.
No fee is payable to the chairman of the committee where the chairman is also the chairman of the AMP Limited Board. No fee is 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 2019, the chairman of the AMP
Limited Board was a member of the committee and therefore received no additional fee for this appointment.
The AMP Limited Board members are also members of AMP Bank Limited Board and Committees. The directors are not paid any additional fees for
their membership or chairmanship of AMP Bank Limited Board and Committees.
40
AMP 2019 annual report
6. Non-executive director remuneration (continued)
The following table shows the remuneration earned by AMP Limited NEDs for 2019.
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
Super-
annuation3
$’000
Current NEDs
David Murray
Chairman
John Fraser
Non-executive Director
Andrew Harmos
Non-executive Director
Debra Hazelton
Non-executive Director
Trevor Matthews
Non-executive Director
John O’Sullivan
Non-executive Director
Andrea Slattery
Non-executive Director
Peter Varghese
Non-executive Director
Mike Wilkins3
Non-executive Director
Former NEDs
Catherine Brenner
Former Chairman
Patricia Akopiantz
Former Non-executive Director
Holly Kramer
Former Non-executive Director
Geoff Roberts
Former Non-executive Director
Vanessa Wallace
Former Non-executive Director
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
831
438
287
50
316
203
153
–
287
199
287
101
274
–
287
177
289
156
–
213
–
223
–
70
103
212
–
71
–
–
58
–
76
62
79
–
140
105
–
–
38
–
77
107
66
38
–
–
–
101
–
37
22
32
–
57
–
–
–
–
–
16
–
–
–
–
–
–
–
–
–
8
–
27
–
–
–
25
–
19
–
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,276
–
–
–
–
–
–
–
–
–
–
19
11
24
6
24
20
19
–
24
20
24
11
22
–
24
20
22
19
–
7
–
20
–
8
9
20
–
9
Total
$’000
850
449
369
56
416
301
251
–
451
324
311
112
334
–
388
312
377
1,516
–
224
–
372
–
136
134
275
–
139
1
2
3
Additional work for special committees and projects.
Non-monetary benefits and the related fringe benefit tax (FBT) on each item.
Superannuation contributions have been disclosed separately in this table but are included in the base NED fees disclosed elsewhere in this report.
AMP 2019 annual report
41
Directors’ report
6. Non-executive director remuneration (continued)
6.3 Non-executive director minimum shareholding
Pursuant to a minimum shareholding policy adopted by the board, AMP Limited NEDs are required to hold a minimum value of
AMP Limited shares to ensure 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: $240,000 – the equivalent of the AMP Limited NED base fee.
NEDs are ordinarily expected to achieve these levels within four years of appointment. The policy expects NEDs to apply at least
25% of their AMP Limited base fee each year to the acquisition of AMP shares (when permitted to do so subject to the AMP
Trading Policy) until the requirement has been met and they are also encouraged to increase their ownership over their tenure.
The only director who has been on the board for at least four years is Trevor Matthews. The decline in AMP’s share price, since
April 2018, resulted in the value of Trevor Matthews’ holdings falling below the level expected under the minimum shareholding
policy. To manage this, Trevor Matthews actively purchased additional shares in AMP throughout 2019 (when permissible and in
accordance with the AMP Trading Policy) in order to attempt to meet the policy requirements.
6.4 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 2019 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 Murray
John Fraser
Andrew Harmos
Debra Hazelton5
Trevor Matthews
John O’Sullivan
Andrea Slattery6
Peter Varghese
Mike Wilkins
Former NEDs
Geoff Roberts
Holding at
1 Jan 2019
Changes
during
the year4
Holding at
31 Dec 20191,2
Value of
holding at
31 Dec 20192,3
$
2,000
2,500
7,064
–
63,763
2,000
5,600
30,100
31,500
289,375
19,375
29,754
102,877
36,237
52,086
52,875
55,475
77,025
291,375
21,875
36,818
102,877
100,000
54,086
58,475
85,575
108,525
557,983
41,891
70,506
197,009
191,500
103,575
111,980
163,876
207,825
42,540
–
42,540
95,715
1
2
3
4
5
6
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 for Peter Varghese. Peter Varghese held an interest in 80,075 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.
The value of the shareholding as at 31 December 2019 was calculated using the closing AMP share price on the ASX of $1.915 (or, in the case of former
directors, the closing price on the date they ceased to be an AMP Limited director).
The closing balance for Geoff Roberts reflects the position on the date that Geoff ceased to be a director of AMP Limited, being 2 May 2019.
Any movements in AMP shares during the year resulted from participation in the AMP Share Purchase Plan or the purchase of additional shares
on market.
Debra Hazelton was appointed to the AMP Limited Board effective 15 June 2019.
Andrea Slattery was appointed to the AMP Limited Board effective 15 February 2019.
42
AMP 2019 annual report
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 2019 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 2019, executives participated in AMP’s group incentive plan with the exception of the Chief Executive, AMP Capital.
The Chief Executive, AMP Capital participates in the AMP Capital Enterprise Profit Share plan, which is an appropriate incentive
plan for the executives of AMP’s investment management business.
The new LTI plan for 2019, the ‘Transformation Incentive’, was aligned to the new business strategy and awarded in August 2019.
Current executives participated in the Transformation Incentive in line with the strategic priorities for the business, with the
exception of the Chief Executive, AMP Life and the Chief Executive, AMP Capital.
A short-term deferred incentive was designed to bridge the interim period during the development of the strategy and the
implementation of the new LTI plan. This Transition Incentive was awarded in February 2019 to executives with appropriate
tenure in role at the time, with the exception of the Chief Executive, AMP Capital.
The following common terms apply to the incentive plans outlined below:
Format of award
Awards delivered in rights to AMP Limited shares have no exercise price and carry no dividend or voting
rights until the rights vest and have been converted to shares, subject to the available trading window.
However, dividends that have accrued will be paid as additional shares after vesting.
How rights are
converted to shares
At the end of the deferral period for each tranche, 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.
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
The board may apply its discretion in adjusting for malus and clawback. The board may 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 AMP, 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.
If the executive
leaves AMP
If any rights have not yet vested and an executive resigns from AMP or their employment is terminated
for misconduct any unvested rights will lapse.
If an executive leaves AMP due to retirement or redundancy any unvested rights may be retained, and
vesting will continue subject to the same vesting conditions as would apply if the person had remained
in AMP employment.
AMP 2019 annual report
43
Directors’ report 7. Further detail on executive arrangements and statutory disclosures (continued)
2019 AMP Group Incentive Plan
Who
All executives, excluding the Chief Executive, AMP Capital.
Format of award
The award is delivered 80% in cash and 20% in rights to AMP Limited shares deferred for two years.
For employees subject to regulatory deferral requirements, the deferral rate applied would be 40% for
four years, except where the employee has received an LTI award, in which case the deferral rate applied
would be 20% for two years.
How individual
performance is
measured
Individual performance is measured against the performance of each executive’s business area as well
as their personal objectives. Performance measures for the executives and business areas are agreed
with the board at the start of each year.
How the incentive
pool is calculated
The board determines the group incentive pool, based on performance against the group incentive pool
measures (refer to section 4.2.2), taking into account AMP’s financial results and the progress of AMP’s
strategic objectives.
How the awards
are allocated
The CEO AMP recommends to the board for its approval the executive incentive allocations based
on company and individual performance. Separately the board assesses the CEO AMP’s performance
against the overall company performance measures and objectives to determine an allocation.
STI deferral
100% of the award vests after two years or four years respectively, depending upon regulatory deferral
requirements. Vesting is subject to ongoing employment and compliance with AMP policies and is subject
to board discretion (as described above under ‘Board discretion’). It is AMP’s practice to buy on market the
shares to be delivered.
2019 arrangements for the Chief Executive, AMP Capital
Format of award
The total variable pay award is made up of an AMP Capital Enterprise Profit Share (EPS) award and
eligibility for LTI participation.
50% of any total variable pay award is deferred into a combination of rights to AMP Limited shares
deferred for two years and cash notionally invested into a general portfolio of AMP Capital-managed
funds for four years.
How performance
is measured
Performance of the Chief Executive, AMP Capital is measured against the performance of AMP Capital
and performance against personal objectives. Performance measures for the Chief Executive, AMP Capital
and the AMP Capital business are agreed with the board at the start of each year.
How the incentive
pools are calculated
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 and 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.
How the awards
are allocated
Based on a recommendation from the CEO AMP Limited, the board approves any allocation
to the Chief Executive, AMP Capital based on performance against the AMP Capital scorecard.
Following this allocation, the Chief Executive, AMP Capital allocates the remaining enterprise profit
share pool to participants on a discretionary basis subject to final approval by the CEO AMP Limited.
44
AMP 2019 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
Incentive deferral
2019 arrangements for the Chief Executive, AMP Capital (continued)
A minimum of 50% of the total variable pay award is deferred into a combination of rights to AMP Limited
shares 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 split equally between the AMP share rights and
notional investment.
Rights to AMP Limited shares
Any entitlement to AMP Limited shares will be delivered as share rights that will convert to AMP Limited
shares (vest) after one and two years, subject to AMP’s trading policy.
Vesting is subject to ongoing employment and compliance with AMP policies and is subject to board
discretion (as described above under ‘Board 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 on market
the shares to be delivered.
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 Chief Executive, AMP Capital does not directly hold
the underlying securities in this basket of managed funds. The value of the retained amount will vary as
if these amounts were directly invested in AMP Capital-managed funds, giving the Chief Executive, 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 subject to board
discretion (as described above under ‘Board discretion’). Upon vesting the executive receives the cash
amount adjusted upwards or downwards for any notional return generated by the portfolio of AMP
Capital Funds.
2019 AMP Transition Incentive Plan
Who
Select members of the KMP.
Format of award
100% of this award is delivered in rights to AMP Limited shares.
The award is split into two equal tranches, deferred for approximately 9 months and 21 months respectively.
How the awards
are allocated
All eligible executives received the same grant value, being $500,000 as a one-off award only.
This grant value is converted into a number of share rights.
The total number of rights allocated 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 commencing on the day after the ex-dividend
date (from 28 February 2019). The number of share rights is then rounded down to the nearest whole
number of rights. There is no adjustment for dividends foregone in this calculation.
The share rights are subject to board discretion and the executives meeting the time-based service
conditions.
Vesting conditions
100% of the rights will vest after their respective deferral period.
Vesting is subject to ongoing employment and compliance with AMP policies and is subject to board
discretion (as described above under ‘Board 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.
AMP 2019 annual report
45
Directors’ report
7. Further detail on executive arrangements and statutory disclosures (continued)
2019 AMP Transformation Incentive Plan
Who
All executives.
Format of award
100% of the award is delivered in performance rights to AMP Limited shares subject to a risk and conduct
gateway, performance hurdles and service conditions.
How the awards
are allocated
The total number of rights allocated is based on the following calculation:
Total number of rights allocated =
Transformation Incentive Award amount
Valuation Price
Where:
– Valuation Price is the face value of an AMP Share calculated as the volume-weighted average price
(VWAP) of AMP shares on the ASX during the 10-day trading period prior to 26 August 2019
(12 August to 23 August 2019) – being $1.81.
The Valuation Price is calculated by an independent consultant and the number of rights is rounded down
to the nearest whole number.
Performance period
Performance period start date: 1 August 2019
Performance period end date: 15 February 2023
An independent consultant will be engaged to measure and test the performance results at the
conclusion of the performance period.
Performance hurdles
and conditions
The performance condition is a comparison of the Compound Annual Growth Rate (CAGR) in
AMP Total Shareholder Return (TSR) relative to an index TSR for the performance period. The index
will be constructed from an equal weighted index of ASX 100 financial services excluding A-REIT.
The Award will not vest if both the CAGR of the Company’s TSR is negative and the CAGR is below
the index return (Performance Gateway Hurdle).
Provided the Performance Gateway Hurdle is met, vesting of the Award will occur based on the
following schedule:
Index return achieved
Percentage of the Award that will vest
Vesting conditions
and gateways
Below 75% of the index return
75% of the index return
90% of the index return
100% of the index return
110% of the index return or above
Nil
25%
50%
75%
100%
Straight-line vesting applies for performance between the thresholds above, although no vesting will
occur if below 75% of the index return is achieved.
An independent consultant will be used to construct the index and to test AMP’s return against the
index return.
The vesting of the award is subject to two separate gateways:
1. Risk and Conduct Gateway – if it is found that performance and conduct is not in line with
AMP’s expectations, the board has discretion to amend the vesting outcome (including to zero).
2. Performance Gateway and Hurdle – a performance gateway is included so that no awards will
vest if both the CAGR is negative and the CAGR is below the benchmark index.
There is a variation for risk and control roles ie Chief Risk Officer in that the vesting outcome in
relation to 25% of the award will be determined by the Remuneration Committee at its sole discretion.
The other 75% of the award will be subject to the performance hurdle.
Please see performance hurdles and conditions section for more details on the performance condition.
If required under any law or regulation (including under the Banking Executive Accountability Regime),
a portion of any shares received at vesting may be subject to a holding lock until approximately
15 September 2023.
46
AMP 2019 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
Dividend Equivalent
Amount (DEA)
2019 AMP Transformation Incentive Plan (continued)
– The executives will receive a dividend equivalent amount (DEA) on any rights that may vest.
–
–
–
The DEA for each vested right will be approximately equal to the gross cash value of dividends that
the executive would have received if they held shares.
This DEA will generally be made in the form of additional shares; however, the board retains discretion
to settle the DEA in cash.
The DEA entitlement is calculated from the grant date of the rights until the date on which shares
are released to the executive (allocation date) following vesting.
If the DEA is settled in shares, the number of additional shares will be calculated by dividing the DEA
amount by the 5-day VWAP preceding the relevant allocation date, rounded up to the nearest whole
share. Any additional shares would be allocated to the executive with no further trading restrictions.
If the executive
leaves AMP
Date range
Reason for notification of cessation of employment
Treatment of Rights
On or before
31 Dec 2019
From 1 Jan 2020
– Any reason
Automatic lapse of all Rights
– Summarily terminated or resign; or
– Give notice of resignation
Automatic lapse of all Rights
–
Cease employment in
any other circumstances
Retain a pro-rata1 portion of Rights
1
The pro-rata amount is calculated based on the portion of the performance period that has elapsed up to the date of
the executive’s cessation of employment.
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 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 breach the
Corporations Act.
Post-employment
restraint
6-month restraint on entering employment with a competitor and 12-month restraint on solicitation of
AMP clients and employees (with the exception of one executive for whom this restraint is also 6 months).
AMP 2019 annual report
47
Directors’ 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
2019 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 2019 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
payments4
Long-term benefits
Termination
payments
Cash
salary1
$’000
Cash
short-term
incentive
$’000
Other
short-term
benefits2
$’000
Super-
annuation
benefits
$’000
Other post-
employ-
ment
benefits3
$’000
Rights
and
options
$’000
Restricted
shares
$’000
Deferred
incentive5
$’000
Other6
$’000
Cash
payments
$’000
Total
$’000
Current disclosed executives
2019
Francesco De Ferrari
Chief Executive Officer 2018
2,177
156
1,320
–
1,711
341
Megan Beer
Chief Executive,
AMP Life
David Cullen
Group General
Counsel
Jenny Fagg
Chief Risk Officer
James Georgeson
Chief Financial Officer
Helen Livesey
Group Executive,
People and
Corporate Affairs
Craig Ryman
Chief Operating
Officer
Adam Tindall
Chief Executive,
AMP Capital
Alex Wade
Chief Executive,
AMP Australia
2019
2018
860
861
225
–
2019
2018
668
426
260
–
2019
2018
2019
2018
2019
2018
877
797
182
–
802
666
200
–
78
–
280
–
2019
2018
846
755
200
–
2019
2018
878
853
1,442
785
56
45
8
29
43
159
1
–
16
55
43
54
30
41
2019
2018
909
–
400
–
581
–
22
5
25
25
25
15
22
57
7
–
22
22
25
25
25
25
39
–
– 4,124
375
–
4,072
399
–
–
–
–
–
–
–
–
–
–
641
618
531
45
283
330
115
–
617
507
–
–
552
575
– 1,090
1,272
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
639
262
–
–
392
–
659
–
–
–
5
–
13
9
13
88
2
2
3
–
17
8
40
52
19
71
1
–
– 13,431
1,276
–
–
–
1,820
1,558
–
–
1,505
603
–
–
–
–
–
–
1,427
1,345
386
–
1,754
1,258
–
–
1,706
1,461
–
–
4,123
3,309
–
–
2,981
–
48
AMP 2019 annual report
7. Further detail on executive arrangements and statutory disclosures (continued)
Short-term employee benefits
Post-employment
benefits
Share-based
payments4
Long-term benefits
Termination
payments
Cash
salary1
$’000
Cash
short-term
incentive
$’000
Other
short-term
benefits2
$’000
Super-
annuation
benefits
$’000
Other post-
employ-
ment
benefits3
$’000
Rights
and
options
$’000
Restricted
shares
$’000
Deferred
incentive5
$’000
Other6
$’000
Cash
payments
$’000
Total
$’000
Former disclosed executives
Sally Bruce
Former Group
Executive, AMP Bank
Saskia Goedhart
Former Chief
Risk Officer
Gordon Lefevre
Former Chief
Financial Officer
Craig Meller
Former Chief
Executive Officer and
Managing Director
Jack Regan
Former Group
Executive, Advice
and New Zealand
2019
2018
–
573
2019
2018
–
875
Paul Sainsbury
Former Group
Executive, Wealth
Solutions and Customer
2019
2018
129
897
Brian Salter
Former Group
General Counsel
Fiona Wardlaw
Former Group
Executive, People
and Culture
2019
2018
–
261
2019
2018
298
757
2019
2018
655
725
165
–
222
232
23
25
–
–
623
526
2019
2018
–
91
–
–
–
5
–
5
–
148
–
(339)
2019
2018
684
939
150
–
70
121
22
22
–
33
–
–
582
790
–
–
– (2,417)
–
101
–
207
–
25
–
–
–
707
81
35
24
25
–
–
(80)
778
–
53
31
43
–
10
18
25
–
–
–
–
–
(692)
556
538
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11)
5
419
–
2,096
1,513
–
(5)
–
–
–
(95)
(26)
10
967
–
2,449
1,882
–
(126)
–
1,882
–
46
–
–
–
(32)
–
–
–
1,782
–
–
7
(26)
1,808
–
1,969
1,709
–
–
–
–
–
(5)
–
797
–
424
(4)
29
1,202
–
2,101
1,392
1
2
3
4
5
6
Includes base salary and short-term compensated absences.
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.
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 financial year.
Amounts reflect the accounting expense on a fair value basis for unvested equity awards including adjustments made on cessation of employment.
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.
Amount reflects the accounting expense for cash incentive notionally invested as part of deferred incentive arrangements in AMP Capital.
Other long-term benefits represents the net change in long service leave accrued.
AMP 2019 annual report
49
Directors’ 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 2019.
Fair
value per
performance
right
$
Holding at
1 Jan 2019
Rights
granted in
20191
Rights
exercised
in 2019
Rights
forfeited
or lapsed
in 2019
Vested and
exercisable
at
31 Dec 2019
Holding at
31 Dec 2019
Name
Grant
date
Performance
condition
Francesco De Ferrari
21/08/18 Share Price
Targets
12/09/19 Share Price
Targets
12/09/19 CAGR of TSR
Total
Megan Beer
02/06/16
19/05/17
0.82 1,656,976
–
0.62
1.21
–
2,500,000
–
3,867,402
1,656,976
6,367,402
TSR
RoE
TSR
2.37
4.81
2.24
20,513
13,675
180,000
214,188
–
–
–
–
Total
David Cullen
Total
02/06/16
TSR
RoE
12/09/19 CAGR of TSR
2.37
4.81
1.21
7,179
4,786
–
–
–
1,933,701
11,965
1,933,701
Jenny Fagg
12/09/19 CAGR of TSR
1.21
–
2,486,187
Total
James Georgeson2
Total
Helen Livesey
Total
Craig Ryman
–
2,486,187
02/06/16
TSR
RoE
12/09/19 CAGR of TSR
2.37
4.81
1.21
10,256
6,837
–
–
–
828,729
17,093
828,729
02/06/16
TSR
RoE
19/05/17
TSR
12/09/19 CAGR of TSR
2.37
4.81
2.24
1.21
15,385
10,256
172,500
–
–
–
–
2,348,066
198,141
2,348,066
02/06/16
TSR
RoE
19/05/17
TSR
12/09/19 CAGR of TSR
2.37
4.81
2.24
1.21
100,000
66,666
225,000
–
–
–
–
2,486,187
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,656,976
–
2,500,000
–
3,867,402
–
8,024,378
20,513
13,675
–
–
–
180,000
34,188
180,000
7,179
4,786
–
–
–
1,933,701
11,965
1,933,701
–
2,486,187
–
2,486,187
10,256
6,837
–
–
–
828,729
17,093
828,729
15,385
10,256
–
–
–
–
172,500
2,348,066
25,641
2,520,566
100,000
66,666
–
–
–
–
225,000
2,486,187
Total
391,666
2,486,187
–
166,666
2,711,187
Adam Tindall
02/06/16
19/05/17
Total
TSR
RoE
TSR
2.37
4.81
2.24
123,076
82,051
240,000
445,127
–
–
–
–
–
–
–
123,076
82,051
–
–
–
240,000
–
205,127
240,000
Alex Wade
12/09/19 CAGR of TSR
1.21
–
2,679,558
Total
–
2,679,558
–
–
–
2,679,558
–
2,679,558
50
AMP 2019 annual report
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7. Further detail on executive arrangements and statutory disclosures (continued)
Name
Grant
date
Performance
condition
Fair
value per
performance
right
$
Holding at
1 Jan 2019
Rights
granted in
20191
Rights
exercised
in 2019
Rights
forfeited
or lapsed
in 2019
Holding on
date ceased
as KMP
Vested and
exercisable
at
31 Dec 2019
Former Executives
Sally Bruce
02/06/16
19/05/17
Total
Gordon Lefevre
02/06/16
19/05/17
Total
Paul Sainsbury3
02/06/16
19/05/17
Total
Fiona Wardlaw3
02/06/16
19/05/17
Total
TSR
RoE
TSR
TSR
RoE
TSR
TSR
RoE
TSR
TSR
RoE
TSR
2.37
4.81
2.24
10,256
6,837
180,000
197,093
2.37
4.81
2.24
148,461
98,974
289,500
536,935
2.37
4.81
2.24
133,846
89,230
289,500
512,576
2.37
4.81
2.24
107,692
71,794
210,000
389,486
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,256
6,837
–
–
–
180,000
17,093
180,000
148,461
98,974
–
–
–
289,500
–
247,435
289,500
–
–
–
–
–
–
–
–
–
–
–
133,846
89,230
289,500
–
512,576
–
–
–
107,692
71,794
210,000
–
389,486
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
3
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.
Performance rights granted to James Georgeson under the 2016 LTI and 2019 LTI awards were made prior to his commencement as KMP.
Performance rights granted under the 2016 LTI award lapsed subsequent to cessation as KMP.
AMP 2019 annual report
51
Directors’ 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 2019.
Name
Grant
date
Exercise price
$
Holding at
1 Jan 2019
Options
granted in
20191
Options
exercised in
2019
Options
forfeited or
lapsed in
2019
Holding at
31 Dec 2019
Vested and
exercisable at
31 Dec 2019
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 exercised to acquire 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 on equivalent terms to those offered to other employees
and shareholders.
Total loans to KMP
KMP and their related parties
Loans to KMP exceeding $100,000
Sally Bruce
James Georgeson
Gordon Lefevre
Helen Livesey
Craig Ryman
Adam Tindall
Alex Wade
Fiona Wardlaw
Balance at
1 Jan 2019
$’000
Written off
$’000
Net
advances
(repayments)
$’000
Balance at
31 Dec 2019
$’000
Interest
charged
$’000
Interest not
charged
$’000
Highest
indebtedness
during year
$’000
Number in
group
11,666
–
1,792
13,458
368
–
14,682
9
1,046
1,020
1,345
1,940
1,904
2,212
–
2,200
–
–
–
–
–
–
–
–
293
(29)
(40)
(102)
99
–
2,169
(595)
1,338
991
1,305
1,838
2,002
2,212
2,169
1,605
39
26
40
42
69
23
55
73
–
–
–
–
–
–
–
–
1,496
1,020
1,347
1,940
2,045
2,212
2,200
2,308
Other transactions
During 2019, 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:
–
–
– financial investment services.
personal banking with AMP Bank;
the purchase of AMP insurance and investment products; and
Signed in accordance with a resolution of the directors.
David Murray
Chairman
Sydney, 13 February 2020
Francesco De Ferrari
Chief Executive Officer and Managing Director
52
AMP 2019 annual report
Financial report
for the year ended 31 December 2019
Table of 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
54
55
56
57
58
59
60
60
61
61
65
66
68
69
72
74
74
75
79
80
82
88
90
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
92
94
95
100 4.4 Life insurance contracts – risk
103 4.5 Other disclosure – life insurance and investment contracts
Section 5: Employee disclosures
106 5.1 Key management personnel
107 5.2 Defined benefit plans
110 5.3 Share-based payments
Section 6: Group entities
120 6.1 Controlled entities
121 6.2 Acquisitions and disposals of controlled entities
121 6.3 Investments in associates
122 6.4 Parent entity information
Section 7: Other disclosures
123 7.1 Notes to Consolidated statement of cash flows
124 7.2 Commitments
124 7.3 Provisions and contingent liabilities
127 7.4 Auditors’ remuneration
127 7.5 New accounting standards
129 7.6 Events occurring after reporting date
130 Directors’ declaration
131
Independent Auditor’s Report
Financial report
AMP 2019 annual report
53
Consolidated income statement
for the year ended 31 December 2019
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
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
Impairment of goodwill and other intangibles
Other operating expenses
Finance costs
Movement in external unitholder liabilities
Change in policyholder liabilities
life insurance contracts
–
–
investment contracts
Income tax (expense) credit
(Loss) profit for the year
(Loss) profit attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
(Loss) profit for the year
(Loss) earnings per share
Basic
Diluted
Note
2019
$m
2018
$m
4.2(a)
4.2(b)
1.1(b)
6.3
4.2(b)
4.2(a)
2.2
4.2(e)
1.3
2,244
512
2,904
153
16,980
855
72
(2,175)
(1,033)
(1,603)
(1,323)
(2,307)
(1,641)
(617)
(2,146)
(1,436)
(11,133)
(740)
(2,434)
(2,467)
33
(2,434)
2,653
487
3,083
167
955
899
42
(2,254)
(989)
(1,701)
(1,136)
(19)
(1,868)
(611)
(208)
79
55
417
51
28
23
51
Note
1.2
1.2
2019
cents
2018
cents
(79.5)
(79.5)
1.0
1.0
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.
54
AMP 2019 annual report
Consolidated statement of comprehensive income
for the year ended 31 December 2019
(Loss) profit for the year
Other comprehensive income
Note
2019
$m
(2,434)
2018
$m
51
Items that may be reclassified subsequently to profit or loss
Fair value reserve
– net gain on fair value asset reserve
–
– net amount transferred to profit or loss for the year
–
tax effect on fair value asset reserve gain
tax effect on amount transferred to profit or loss for the year
Cash flow hedges
– net loss on cash flow hedges
–
– net amount transferred to profit or loss for the year
–
tax effect on cash flow hedge loss
tax effect on amount transferred to profit or loss 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
5.2(a)
Other comprehensive (loss) income for the year
Total comprehensive (loss) income for the year
Total comprehensive (loss) income attributable to shareholders of AMP Limited
Total comprehensive income attributable to non-controlling interests
Total comprehensive (loss) income for the year
71
(21)
(9)
3
44
(67)
20
7
(2)
(42)
(4)
(4)
7
7
(23)
7
(16)
(11)
(2,445)
(2,478)
33
(2,445)
22
(7)
–
–
15
(37)
11
11
(3)
(18)
78
78
(4)
(4)
(43)
12
(31)
40
91
68
23
91
AMP 2019 annual report
55
Financial report
Consolidated statement of financial position
as at 31 December 2019
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
Right of use assets
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
Lease 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
7.1
2.3
2.1(a)
6.3
7.5
1.3
4.2(d)
2.2
2.4
2.1
7.3
3.2
7.5
1.3
4.2(d)
4.5(b)
4.2(d)
5.2
3.1
2019
$m
2018
$m
4,539
2,586
465
75
135,304
161
851
98
245
1,261
1,222
877
3,932
2,608
213
101
132,103
145
924
95
–
966
1,073
3,208
147,684
145,368
2,465
123
395
1,050
976
22,852
266
2,492
15,295
23,505
71,671
1,515
101
2,032
73
316
1,389
807
21,650
–
1,723
17,059
23,257
68,742
1,452
77
142,706
138,577
4,978
6,791
10,299
(1,930)
(3,509)
4,860
118
9,502
(1,931)
(886)
6,685
106
Total equity of shareholders of AMP Limited and non-controlling interests
4,978
6,791
56
AMP 2019 annual report
Consolidated statement of changes in equity
for the year ended 31 December 2019
2019
Balance at the beginning
of the year
Impact of adoption of new
accounting standards
Balance at the beginning
of the year – restated
Loss
Other comprehensive loss
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
9,502
(2,566) 105
329
21
8
172 (1,931)
(886) 6,685
106 6,791
–
–
–
–
–
–
–
–
(7)
(7)
–
(7)
9,502
–
–
(2,566) 105
–
–
–
–
329
–
–
172 (1,931)
(893) 6,678
(2,467)
(11)
– (2,467)
(16)
5
21
–
51
51
–
–
–
–
–
–
–
8
–
(42)
(42)
–
–
–
–
–
–
–
–
(4)
(4)
–
–
–
–
–
–
–
106 6,784
33 (2,434)
(11)
–
33 (2,445)
30
(24)
(12)
(138)
1
2
–
–
(21)
–
5 (2,483)
–
–
(17)
(117)
1
28
(24)
–
–
–
(2,478)
28
(24)
(12)
(117)
1
–
(8)
–
–
792
–
792
(8)
(2)
(10)
–
Total comprehensive income
–
Share-based payment expense
Share purchases
–
Net sale (purchase) of treasury shares 5
Dividends paid4
–
Dividends paid on treasury shares4
–
New capital from shares issued
during the year5
Sales and acquisitions of
non-controlling interests
792
–
–
–
–
–
–
–
–
–
–
28
(24)
–
–
–
–
–
–
–
–
–
–
–
–
(8)
Balance at the end of the year
10,299
(2,566) 109
321
72
(34)
168 (1,930) (3,509) 4,860
118 4,978
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
9,376
(2,566)
100
329
–
–
–
–
9,376
–
–
(2,566)
–
–
100
–
–
329
–
–
Total comprehensive income
–
Share-based payment expense
–
–
Share purchases
Net sale (purchase) of treasury shares 63
Dividends paid4
–
Dividends paid on treasury shares4
–
New capital from shares issued
under dividend reinvestment plan
Sales and acquisitions of
non-controlling interests
63
–
–
–
–
–
–
–
–
–
–
26
(21)
–
–
–
–
–
–
–
–
–
–
–
–
–
7
3
10
–
11
11
–
–
–
–
–
–
–
Balance at the end of the year
9,502
(2,566)
105
329
21
26
94 (2,010)
(164) 7,202
81 7,283
–
–
3
(1)
2
–
2
26
–
(18)
(18)
–
–
–
–
–
–
–
8
94 (2,007)
–
–
71
78
(165) 7,204
28
40
28
(31)
68
26
(21)
57
(715)
7
78
–
–
–
–
–
–
–
71
26
(21)
–
–
–
–
–
(3)
–
–
(6)
(715)
7
–
(4)
81 7,285
51
23
40
–
23
1
(3)
–
–
–
91
27
(24)
57
(715)
7
63
–
63
(4)
4
–
172 (1,931)
(886) 6,685
106 6,791
1
2
3
4
5
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 and losses attributable to shareholders of AMP on the sale or acquisition of minority interests in controlled
entities to or from 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.
New capital raised under the institutional placement and share purchase plan is $771m, net of $13m directly attributable transaction costs (net of
tax). Refer to note 3.1 for further details. Remaining $21m relates to shares issued under dividend reinvestment plan.
AMP 2019 annual report
57
Financial report
Consolidated statement of cash flows
for the year ended 31 December 2019
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 paid
Income tax paid
Cash flows used in operating activities
Cash flows from investing activities1
Net proceeds from sale of (payments to acquire):
investments in financial assets3
–
– operating and intangible assets
– operating controlled entities and investments in associates
accounted for using the equity method
Cash flows from investing activities
Cash flows from financing activities
Net movement in deposits from customers
Proceeds from borrowings – non-banking operations1
Repayment of borrowings – non-banking operations1
Net movement in borrowings – banking operations
Proceeds from issue of shares
Proceeds from issue of subordinated debt
Lease payments
Repayment of subordinated debt
Dividends paid4
Cash flows from (used in) financing activities
Net increase 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
Note
2019
$m
2018
$m
13,384
1,906
2,108
(25,424)
(627)
(456)
14,871
2,140
2,236
(22,100)
(613)
(515)
7.1
(9,109)
(3,981)
8,104
(55)
4,355
(37)
99
(113)
8,148
4,205
1,430
871
(791)
(604)
766
271
(67)
–
(117)
1,759
798
7,382
2
1,357
289
(216)
(724)
–
250
–
(325)
(708)
(77)
147
7,222
13
Cash and cash equivalents at the end of the year1
7.1
8,182
7,382
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 include 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.
58
AMP 2019 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 (AMP) is comprised of AMP Limited (the parent), a holding company incorporated and domiciled in Australia,
and the entities it controls (subsidiaries or controlled entities). 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 – a registered life
insurance entity and its related controlled entities, AMP Bank Limited (AMP Bank) and AMP Capital investment management
companies (AMP Capital).
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, disclosed as External unitholder liabilities on the Consolidated statement of financial position.
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. On 8 August 2019, AMP announced a revised agreement with updated
terms for the sale of these businesses, subject to regulatory approvals, which is expected to complete in the first half of 2020.
Consideration for the sale payable on transaction completion comprises $2,500m cash and non-cash consideration of a $500m
equity interest in Resolution Life NOHC Pty Ltd, a new Australian-domiciled Resolution controlled holding company that will
become the owner of these businesses.
The fair value of the non-cash consideration will be determined by AMP on completion and, together with cash proceeds, will
be treated as the accounting sale price. Under the terms of the agreement, Resolution assumes profit and loss from the WP and
mature business from 1 July 2018. These profit impacts are transferred to Resolution as an adjustment to the purchase price upon
completion. Adjustments to purchase price will affect the profit or loss recognised by AMP at completion.
The businesses subject to sale were controlled by the AMP group throughout the reporting period and as a result the income and
expenses, assets and liabilities and cash flows of these businesses are consolidated within the financial report, including the profits
which will form part of the completion purchase price adjustment.
The sale is subject to a number of conditions, including the separation of AMP’s retained wealth management business from the
WP and mature business being sold to Resolution. As the WP and mature businesses subject to the sale do not meet the AASB 5
Non-current Assets Held for Sale and Discontinued Operations criteria, the results of those businesses have not been presented
separately in the financial report.
The financial report:
–
–
is a general purpose financial report;
has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards
including Australian Accounting Interpretations adopted by the Australian Accounting Standards Board (AASB) and
International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board;
is presented in Australian dollars with all values rounded to the nearest million dollars ($m), unless otherwise stated;
has been prepared on a going concern basis generally using a historical cost basis; however where permitted under
accounting standards a different basis may be used, including the fair value basis for:
–
–
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.
assets and liabilities associated with life insurance contracts; and
assets and liabilities associated with investment contracts;
–
–
–
–
AMP Limited is a for-profit entity and is limited by shares.
The financial statements for the year ended 31 December 2019 were authorised for issue on 13 February 2020 in accordance
with a resolution of the directors.
AMP 2019 annual report
59
Notes to the financial statements
(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
Applicable exchange rate
Income and expenses
Assets and liabilities
Equity
Reserves
Average exchange rate
Reporting date
Historical date
Reporting date
Foreign exchange differences resulting from translation of foreign operations are initially recognised in the foreign currency
translation reserve and subsequently transferred to the Consolidated income statement on disposal of the foreign operation.
60
AMP 2019 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
Taxes
Investments in financial instruments
1.3
2.1
2.1(b) Expected credit losses (ECLs)
2.2
4.1
6.1
7.3
Intangibles
Accounting for life insurance and investment contracts
Controlled entities
Provisions and contingent liabilities
Page
66
69
71
72
92
120
124
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.
Reportable segment
Segment description
Australian wealth
management (WM)
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.
AMP Bank
AMP Capital
Australian retail bank offering residential mortgages, deposits, transaction banking. 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.
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.
AMP 2019 annual report
61
Notes to the financial statements 1.1 Segment performance (continued)
Reportable segment
Segment description
New Zealand wealth
management (NZ WM)
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 held within 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
2019
Segment profit after income tax
External customer revenue
Intersegment revenue2
Segment revenue3
Other segment information
Income tax expense (credit)
Depreciation and amortisation
2018
Segment profit after income tax
External customer revenue
Intersegment revenue2
Segment revenue3
Other segment information
Income tax expense
Depreciation and amortisation
WM
$m
182
1,077
18
1,095
74
56
363
1,195
114
1,309
153
60
AMP
Bank
$m
AMP
Capital1
$m
NZ WM
$m
AUS and
NZ WP and
mature4
$m
141
408
–
408
60
–
148
401
–
401
63
–
198
552
248
800
59
22
167
450
258
708
59
14
44
151
–
151
18
4
53
148
16
164
21
4
(21)
(21)
–
(21)
(9)
9
(3)
(3)
–
(3)
–
15
Total
$m
544
2,167
266
2,433
202
91
728
2,191
388
2,579
296
93
1
2
3
4
AMP Capital segment revenue is reported net of external investment manager fees. Segment profit after income tax is reported net of 15% minority
interest attributable to MUFG: Trust Bank.
Intersegment revenue represents operating revenue between segments priced on a market-related basis and is eliminated on consolidation.
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).
For segment reporting, revenue for AUS and NZ WP and mature is presented as the amount of operating earnings of the segment, which is also the
segment profit after tax.
62
AMP 2019 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)):
2019
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
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
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
1,070
–
–
–
25
1,095
1,213
–
–
–
96
1,309
AMP
Bank
$m
–
–
–
387
21
408
–
–
–
388
13
401
AMP
Capital
$m
NZ WM
$m
AUS and
NZ WP and
mature1
$m
–
716
84
–
–
800
–
639
69
–
–
708
127
–
–
–
24
151
126
–
–
–
38
164
–
–
–
–
(21)
(21)
–
–
–
–
(3)
(3)
Total
$m
1,197
716
84
387
49
2,433
609
3,042
1,339
639
69
388
144
2,579
625
3,204
2019
$m
2018
$m
2,063
841
2,904
138
2,221
862
3,083
121
3,042
3,204
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 Revenue from Contracts with Customers. 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.
AMP 2019 annual report
63
Notes to the financial statements
1.1 Segment performance (continued)
(c) Reconciliations
Segment profit after income tax differs from (loss) 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
Client remediation and related costs
Royal Commission
Portfolio review
Separation costs
Risk management, governance and controls
Transformation
Other items2
Impairment charges
Amortisation of acquired intangible assets3
(Loss) profit before market adjustments and accounting mismatches
Market adjustment – investment income1
Market adjustment – annuity fair value4
Market adjustment – risk products5
Accounting mismatches6
(Loss) profit attributable to shareholders of AMP Limited
Profit attributable to non-controlling interests
(Loss) profit for the period
2019
$m
544
(128)
416
113
(65)
464
(153)
–
–
(183)
(33)
(28)
22
(2,407)
(96)
(2,414)
(47)
(2)
(3)
(1)
(2,467)
33
(2,434)
2018
$m
728
(76)
652
96
(68)
680
(469)
(32)
(29)
(19)
(8)
–
(74)
–
(79)
(30)
(28)
12
24
50
28
23
51
1
2
3
4
5
6
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.
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.
Market adjustment – annuity fair value relates to the net impact of investment markets on AMP’s annuity portfolio.
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.
Total segment revenue differs from Total revenue as follows:
Investment gains and losses – shareholders and policyholders (excluding AMP Bank interest revenue)
Total segment revenue
Add revenue excluded from segment 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
64
AMP 2019 annual report
2019
$m
2018
$m
2,433
2,579
16,935
153
913
167
2,626
513
1,326
(266)
2,979
553
1,483
(388)
23,720
8,286
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.
(Loss) profit attributable to shareholders of AMP ($m)
Weighted average number of ordinary shares (millions)1
Basic (loss) earnings per share (cents per share)
2019
2018
(2,467)
3,105
(79.5)
28
2,897
1.0
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.
(Loss) 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 dilutive
Weighted average number of ordinary shares used in the calculation of diluted earnings per share (millions)
Diluted (loss) earnings per share (cents per share)
2019
2018
(2,467)
28
3,105
–
3,105
(79.5)
2,897
18
2,915
1.0
1
The weighted average number of ordinary shares outstanding is calculated after deducting the weighted average number of treasury shares held
during the period.
AMP 2019 annual report
65
Notes to the financial statements
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 or loss before
income tax for the year and the income tax expense or credit recognised in the Consolidated income statement for the year.
2019
$m
2018
$m
(1,694)
(366)
(990)
(2,684)
805
(52)
2
(35)
48
7
(590)
9
45
11
250
(990)
(740)
(266)
295
(769)
(740)
399
33
(10)
(2)
7
(23)
6
15
–
8
8
9
18
399
417
(330)
190
557
417
Loss before income tax
Policyholder tax (expense) credit recognised as part of the change
in policyholder liabilities in determining profit before tax
(Loss) profit before income tax excluding tax charged to policyholders
Tax at the Australian tax rate of 30% (2018: 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
Goodwill impairment
Over provided in previous years
Utilisation of previously unrecognised tax losses
Differences in overseas tax rates
Income tax credit attributable to shareholders and non-controlling interest
Income tax (expense) credit attributable to policyholders
Income tax (expense) credit recorded in the Consolidated income statement
(b) Analysis of income tax expense
Current tax expense
Increase in deferred tax assets
(Increase) decrease in deferred tax liabilities
Income tax (expense) credit
66
AMP 2019 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
Unrealised investment gains
Other
Total deferred tax liabilities
(d) Amounts recognised directly in equity
Deferred income tax credit 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
2019
$m
1,015
42
6
43
155
1,261
1,995
497
2018
$m
792
30
41
45
58
966
1,174
549
2,492
1,723
13
13
112
656
111
706
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 (the company). 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.
AMP 2019 annual report
67
Notes to the financial statements
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:
Dividend per share (cents)
Franking percentage
Dividend amount ($m)
Payment date
2019
Final
–
–
–
–
2019
Interim
2018
Final
2018
Interim
–
–
–
–
10.0
50%
292
28 March 2019 28 September 2018
4.0
90%
117
Dividends paid
Previous year final dividend on ordinary shares
Interim dividend on ordinary shares
Total dividends paid1
1
Total dividends paid includes dividends paid on Treasury shares $1m (2018: $7m).
2019
$m
117
–
117
2018
$m
423
292
715
Dividend franking credits
Franking credits available to shareholders are $175m (2018: $148m), 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.
Franked dividends are franked at a tax rate of 30%.
68
AMP 2019 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 securities
Unlisted managed investment schemes
Derivative financial assets
Total financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
Debt securities2
Equity securities
Total financial assets measured at fair value through other comprehensive income
Financial assets measured at amortised cost3
Loans and advances
Debt securities
Total financial assets measured at amortised cost
Total financial assets
Other financial liabilities
Derivative financial liabilities
Collateral deposits held
Total other financial liabilities
2019
$m
2018
$m
57,698
29,820
23,358
1,699
55,894
32,577
19,838
1,059
112,575
109,368
1,960
63
2,355
60
2,023
2,415
20,661
45
20,098
222
20,706
20,320
135,304
132,103
880
170
1,225
164
1,050
1,389
1
2
3
Financial assets measured at fair value through profit or loss are mainly assets of the AMP Life insurance entities’ statutory funds and their controlled
entities.
Debt securities measured at fair value through other comprehensive income are assets of AMP Bank.
Financial assets measured at amortised cost are presented net of expected credit losses (ECLs) of $132m (2018: $38m). Included in this balance are
loans to aligned advice practices of $373m (2018: $529m), net of ECLs of $105m (2018: $20m).
AMP 2019 annual report
69
Notes to the financial statements
2.1 Investments in financial instruments (continued)
(b) The following table provides the changes to expected credit losses (ECLs) relating to loans and advances during
the year:
Stage 1
collective
$m
Stage 2
collective
$m
Stage 3
$m
Total
$m
2019
Balance at the beginning of the year
Transferred to 12-months ECL – collective provision
Transferred to Lifetime ECL credit impaired – collective provision
Transferred to Lifetime ECL credit impaired – specific provision
New and increased provisions during the year (net of collective provision released)
Write-offs from specific provisions
Provision for practice finance loans
Balance at the end of the year
2018
Balance at the beginning of the year
Transferred to 12-months ECL – collective provision
Transferred to Lifetime ECL credit impaired – collective provision
Transferred to Lifetime ECL credit impaired – specific provision
New and increased provisions during the year (net of collective provision released)
Write-offs from specific provisions
Balance at the end of the year
8
4
–
(2)
1
–
–
11
3
5
–
–
–
–
8
13
(3)
1
(5)
3
–
–
9
11
(3)
1
(2)
6
–
13
17
(1)
(1)
7
5
(1)
86
38
–
–
–
9
(1)
86
112
132
14
(2)
(1)
2
6
(2)
17
28
–
–
–
12
(2)
38
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 equity investments held by AMP Foundation, a controlled entity of the AMP group, under this category.
70
AMP 2019 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, 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 and are of low credit risk. 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 interdependencies. Elements of the ECL models that are considered accounting estimates and
judgements include:
–
–
–
–
–
the AMP group’s internal grading which assigns PDs to the individual grades;
the AMP group’s estimates of LGDs arising in the event of default;
the AMP group’s criteria for assessing if there has been a significant increase in credit risk;
development of ECL models, including the various formulas, choice of inputs and assumptions; and
determination of associations between macroeconomic scenarios and their probability weightings, to derive the economic inputs
into the ECL models.
AMP 2019 annual report
71
Notes to the financial statements 2.2 Intangibles
Goodwill1
$m
Capitalised
costs2
$m
Value of
in-force
business
$m
Distribution
networks
$m
Other
intangibles
$m
2019
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
2,130
10
–
–
–
–
–
(1,968)
172
505
2
–
112
–
–
(94)
(302)
223
420
–
–
–
–
–
(79)
–
341
138
55
33
–
(8)
1
(55)
(37)
127
15
–
–
–
–
–
(1)
–
14
Cost
Accumulated amortisation and impairment
2,916
(2,744)
1,760
(1,537)
1,191
(850)
474
(347)
110
(96)
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
2,123
7
–
–
–
–
–
–
2,130
434
–
–
189
–
–
(118)
–
505
498
–
–
–
–
–
(78)
–
420
147
11
36
–
(11)
(3)
(23)
(19)
138
16
–
–
–
–
–
(1)
–
15
Total
$m
3,208
67
33
112
(8)
1
(229)
(2,307)
877
6,451
(5,574)
3,218
18
36
189
(11)
(3)
(220)
(19)
3,208
Cost
Accumulated amortisation and impairment
2,906
(776)
1,646
(1,141)
1,191
(771)
393
(255)
110
(95)
6,246
(3,038)
1
2
Total goodwill comprises amounts attributable to shareholders of $157m (2018: $2,115m) and amounts attributable to policyholders of $15m
(2018: $15m).
AMP’s new strategy has resulted in a review of the expected future economic benefits and useful life of Capitalised costs. This has resulted in
impairment during the year.
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. Goodwill is not amortised.
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.
72
AMP 2019 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.
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 CGU’s carrying amount exceeds the CGU’s
recoverable amount. When applicable, an impairment loss is first allocated to goodwill and any remainder is then allocated to the
other assets on a pro-rata basis.
Goodwill attributable to shareholders
The goodwill attributable to shareholders of $157m (2018: $2,115m) 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.
The composition of the group’s CGUs has not changed since December 2018 and is consistent with the composition of the group’s
operating segments as disclosed in note 1.1. Goodwill attributable to shareholders allocated to each CGU is presented in the
table below.
Australian wealth management (WM)
New Zealand wealth management (NZ WM)
Australian and New Zealand wealth protection (WP) and mature
AMP Capital
2019
$m
–
70
–
87
157
2018
$m
1,499
70
459
87
2,115
The recoverable amounts for Australian wealth management and New Zealand wealth management have been determined by
fair value less costs of disposal using a discounted cash flow (DCF) method. The DCF method is based on management’s forecast
cash flows and reflects management’s long-term view of the business and market conditions. For Australian wealth management
the forecast cash flows include the impact of significant strategic changes to the business including reshaping the aligned advice
network. The forecast cash flows have been further risk adjusted to reflect likely adjustments a market participant would make.
These cash flows are discounted to net present values to arrive at the recoverable amounts.
The key assumptions in determining the recoverable amounts for Australian wealth management and New Zealand wealth
management are:
–
Risk adjusted discount rates of 14% and 12% have been applied to Australian wealth management and New Zealand wealth
management respectively. This reflects a discount rate that is adjusted for risks specific to the CGUs.
Growth of funds under management (FUM) has been projected based on a long-term view of investment market returns at
approximately 3% to 6% per annum, and takes into account the recent experience of FUM outflows.
–
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 AMP Capital has been determined based on a multiple between 13 and 14 times adjusted current year
annualised earnings (31 December 2018: 14 and 15 times), which approximates the fair value of the business, less an allowance
for costs of disposal.
Goodwill attributable to policyholders
Policyholder cash-generating units were allocated $15m goodwill at 31 December 2019 (31 December 2018: $15m).
Impairment loss
Goodwill attributed to the Australian wealth management CGU has been fully impaired as at 31 December 2019 resulting in a
non-cash impairment expense of $1,509m during the year, recognised in the Impairment of goodwill and other intangibles line in
the Consolidated income statement. The impairment was the result of a number of factors including impacts from the new AMP
strategy, challenging market conditions impacting margins and funds under management, regulatory and legislative changes such
as Protecting Your Super (PYS) legislation, and continued migration to lower margin contemporary products.
AMP 2019 annual report
73
Notes to the financial statements
2.2 Intangibles (continued)
Goodwill attributed to the Australian and New Zealand WP and mature CGU has been fully impaired resulting in a further non-cash
impairment expense of $459m. This was caused primarily by changes in best estimate assumptions and impacts from Protecting
Your Super (PYS) legislation.
For other CGUs, there are no reasonably possible alternative assumptions which would result in an impairment of any goodwill
amounts.
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 the CGUs; 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 $5m (2018: $6m).
2019
$m
1,403
311
220
652
2018
$m
1,664
330
186
428
2,586
2,608
2,580
6
2,603
5
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
2019
$m
1,108
341
977
39
2018
$m
762
302
965
3
2,465
2,032
2,332
133
1,908
124
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.
74
AMP 2019 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.
2019
Financial assets measured at fair value
Equity securities and listed managed investment schemes
Debt securities
Unlisted managed investment schemes
Derivative financial assets
Investment properties
Carrying
amount
$m
57,761
31,780
23,358
1,699
161
Level 1
$m
Level 2
$m
Level 3
$m
54,552
1,770
–
71
–
694
29,883
20,687
1,628
–
2,515
127
2,671
–
161
Total fair
value
$m
57,761
31,780
23,358
1,699
161
Total financial assets measured at fair value
114,759
56,393
52,892
5,474
114,759
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
Corporate borrowings
Borrowings within investment entities
controlled by AMP Life’s statutory funds
Total financial liabilities not measured at fair value
2018
Financial assets measured at fair value
Equity securities and listed managed investment schemes
Debt securities
Unlisted managed investment schemes
Derivative financial assets
Investment properties
Other financial assets
20,661
45
20,706
880
170
71,671
72,721
12,442
7,492
2,445
473
22,852
55,954
34,932
19,838
1,059
145
–
–
–
–
186
–
–
186
–
–
–
–
–
52,821
1,978
–
393
–
–
–
45
45
20,664
–
20,664
45
20,664
20,709
694
170
1,484
–
–
70,187
880
170
71,671
2,348
70,187
72,721
12,442
7,504
2,461
473
22,880
769
32,837
17,940
666
–
–
–
–
–
–
–
2,364
117
1,898
–
145
–
12,442
7,504
2,461
473
22,880
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
Corporate borrowings
Borrowings within investment entities
controlled by AMP Life’s statutory funds
Total financial liabilities not measured at fair value
20,098
222
20,320
1,225
164
68,742
70,131
11,012
8,103
2,154
381
21,650
–
–
–
225
–
–
225
–
–
–
–
–
–
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
–
–
–
–
–
11,012
8,062
2,177
381
21,632
AMP 2019 annual report
75
Notes to the financial statements
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
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.
Corporate borrowings
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.
AMP Bank deposits and
other borrowings
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.
Investment properties
The fair value of investment properties is determined by independent valuers, having appropriate
recognised professional qualifications and recent experience in the location and category of the
properties being valued. The valuers apply ‘comparable sales analysis’ and the ‘capitalised income
approach’ by reference to annual net market income, comparable capitalisation rates and other
property-specific adjustments as well as ‘discounted cash flow analysis’, where the expected net cash
flows are discounted to their present value using a market determined risk-adjusted discount rate.
Investment contract
liabilities
See note 4.1.
The financial assets and liabilities measured at fair value are categorised using the fair value hierarchy which reflects the
significance of inputs into the determination of fair value as follows:
–
–
Level 1: the fair value is valued by reference to quoted prices and active markets for identical assets or liabilities;
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.
–
76
AMP 2019 annual report
2.5 Fair value information (continued)
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of each reporting period.
There have been no significant transfers between Level 1 and Level 2 during the 2019 financial year. Transfers to and from Level 3
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
Debt securities
Discounted cash flow approach
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
Terminal value growth rate
Cash flow forecasts
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 insignificantly exposed to impacts from potential changes in the fair value of Debt securities, Unlisted
managed investment schemes and Investment properties which are categorised as Level 3 as these assets predominately back
investment-linked policy liabilities. There is an immaterial 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
2019
2018
(+)
$m
86
90
(4)
(–)
$m
(86)
(90)
4
(+)
$m
92
94
(2)
(–)
$m
(91)
(92)
1
1
2
The discount rates used to value the assets range from 7.10% to 17.2%. 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.
AMP 2019 annual report
77
Notes to the financial statements
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
2019
Assets classified as Level 3
Equity securities and listed
managed investment schemes
Debt securities
Unlisted managed
investment schemes
Investment properties
Liabilities classified as Level 3
Investment contract liabilities
2018
Assets classified as Level 3
Equity securities and listed
managed investment schemes
Debt securities
Unlisted managed
investment schemes
Investment properties
Liabilities classified as Level 3
Investment contract liabilities
2,364
117
1,898
145
–
–
–
–
145
10
61
16
11
4
567
–
(5)
(2)
(19)
–
–
(2)
164
–
2,515
127
2,671
161
164
10
95
16
66,932
2
10,260
7,044
(14,051)
–
70,187
10,258
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)
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.
78
AMP 2019 annual report
Section 3: Capital structure and financial risk management
This section provides information relating to:
–
–
the 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
3,436,599,241 (2018: 2,937,428,336) ordinary shares fully paid
Treasury shares2
29,342,125 (2018: 21,102,496) treasury shares
Total contributed equity
3,407,257,116 (2018: 2,916,325,840) ordinary shares fully paid
Issued capital
Balance at the beginning of the year
9,064,722 (2018: 18,959,199) shares issued under dividend reinvestment plan1
406,250,000 (2018: nil) shares issued under institutional placement4
83,856,183 (2018: nil) shares issued under share purchase plan4
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Decrease due to purchases less sales during the year
Balance at the end of the year
2019
$m
2018
$m
10,402
9,610
(103)
(108)
10,299
9,502
9,610
21
638
133
9,547
63
–
–
10,402
9,610
(108)
5
(103)
(171)
63
(108)
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
4
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 2018 final dividend (paid in March 2019) at 4 cents per share. AMP settled the DRP for the 2018
final dividend by issuing shares at $2.33 per share.
Of the AMP Limited ordinary shares on issue 27,215,738 (2018: 18,976,109) 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). AMP also has the option to acquire MUFG: Trust Bank’s interest in AMPCH
in certain circumstances which, if exercised, could require AMP to issue ordinary shares in AMP Limited to MUFG: Trust Bank (or its nominee).
Capital raising during the year comprises the following: (i) shares were issued on 13 August 2019 under institutional placement at a price of $1.60 per
share. The amount recognised is net of directly attributable transaction costs of $12m (net of tax); and (ii) shares were issued on 13 September 2019
to participating eligible shareholders under a share purchase plan at a price of $1.60 per share. The amount recognised is net of directly attributable
transaction costs of $1m (net of tax).
AMP 2019 annual report
79
Notes to the financial statements
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.
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 AMP
Foundation 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 3 (first call 2023, maturity 2028)3
– AMP Subordinated Notes3
– AMP Wholesale Capital Notes4
– AMP Capital Notes4
– AMP Capital Notes 24
– Syndicated loan facility
– Commercial paper
– USD Medium Term Notes5
– CHF Medium Term Notes5
– Other
Borrowings within investment entities
controlled by AMP Life’s statutory funds
2019
2018
Current
$m
Non-current
$m
Total
$m
Current
$m
Non-current
$m
Total
$m
12,291
2,811
151
4,681
12,442
7,492
10,942
2,255
70
5,848
11,012
8,103
–
–
–
277
–
–
–
–
–
–
34
464
69
250
250
–
265
271
–
–
437
592
–
9
69
250
250
277
265
271
–
–
437
592
34
473
–
–
–
–
–
–
488
259
–
–
–
79
68
251
250
277
264
–
–
–
–
233
64
302
68
251
250
277
264
–
488
259
–
233
64
381
Total interest-bearing liabilities
15,877
6,975
22,852
14,023
7,627
21,650
1 Deposits comprise at call customer deposits and customer term deposits at variable interest rates with AMP Bank.
2
The current/non-current classification of corporate entity borrowings is based on the maturity of the underlying debt instrument and related
principal repayment obligations. The carrying value of corporate entity borrowings includes interest payable of $13m (2018: $9m) which is expected
to be settled within the next 12 months.
AMP Notes 3 and AMP Subordinated Notes are floating rate subordinated unsecured notes. These were issued 15 November 2018 and 1 September
2017 respectively, and mature 15 November 2028 and 1 December 2027 respectively. Subject to APRA approval, AMP has the right, but not the
obligation, to redeem all or some of the Notes 15 November 2023 and 1 December 2022 respectively, 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, AMP Capital Notes (ASX: AMPPA) and AMP Capital Notes 2 (ASX: AMPPB) were issued 27 March 2015, 30 November
2015 and 23 December 2019 respectively. Subject to APRA approval, AMP has the right, but not the obligation, to redeem all or some of the Notes
27 March 2020, 22 December 2021 and 16 December 2025 respectively, or, subject to certain conditions, at a later date. 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.
USD 300m 4 per cent Bond was issued 14 March 2019 and matures 14 September 2021. CHF 110m Senior Unsecured Fixed Rate Bond was issued
19 June 2018 and matures 19 December 2022. This Bond was subsequently increased by CHF 50m on 19 September 2018. CHF 140m Senior Unsecured
Fixed Rate Bond was issued 18 April 2019 and matures 18 July 2023. This Bond was subsequently increased by CHF 100m on 3 December 2019.
3
4
5
80
AMP 2019 annual report
3.2 Interest-bearing liabilities (continued)
(b) Financing arrangements
Loan facilities and note programs
Loan facilities and note programs comprise facilities arranged through bond and note issues, as well as financing facilities provided
through bank loans under normal commercial terms and conditions.
Available loan facilities1
Note program capacity
Used
Unused facilities and note programs at the end of the year
1 Available loan facilities include bilateral facilities of $750m which mature on 31 December 2020.
(c) Changes in liabilities arising from financing activities
1 January
Cash flows
Other
31 December
2019
$m
2018
$m
2,265
14,993
(4,316)
3,014
14,914
(4,627)
12,942
13,301
2019
$m
2018
$m
21,650
1,177
25
21,009
631
10
22,852
21,650
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 the 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.
AMP 2019 annual report
81
Notes to the financial statements
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).
(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 in 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.
The 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.
Exposure for shareholders includes
listed and unlisted shares and
participation in equity unit trusts.
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.
82
AMP 2019 annual report
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
Statutory Fund No. 1.
Group Treasury may, with Group
ALCO approval, use equity exposures
or equity futures or options to
hedge other enterprise-wide equity
exposures.
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 rates 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 rate.
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
2019
2018
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
(1)
(15)
4
(4)
8
7
(9)
(8)
7
(26)
138
(114)
8
7
(9)
(8)
(8)
(4)
3
(4)
8
6
(10)
(8)
2
(18)
119
(99)
8
6
(10)
(8)
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
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.
The 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.
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.
AMP 2019 annual report
83
Notes to the financial statements 3.3 Financial risk management (continued)
Maturity analysis
Below is a summary of the maturity profiles of AMP’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.
2019
Non-derivative financial liabilities
Payables
Borrowings1
Lease liabilities
Subordinated debt
Investment contract liabilities2
External unitholders’ liabilities
Derivative financial instruments
Interest rate and cross-currency swaps
Off-balance sheet items
Credit-related commitments – AMP Bank3
Up to
1 year or
no term
$m
2,332
15,554
58
72
350
–
48
3,522
1 to 5
years
$m
Over
5 years
$m
Not
specified
$m
Total
$m
133
4,761
165
345
834
–
85
–
–
1,151
87
1,643
849
–
23
–
–
–
–
–
69,705
15,295
–
–
2,465
21,466
310
2,060
71,738
15,295
156
3,522
Total undiscounted financial liabilities and off-balance sheet items4 21,936
6,323
3,753
85,000
117,012
2018
Non-derivative financial liabilities
Payables
Borrowings1
Subordinated debt
Investment contract liabilities2
External unitholders’ liabilities
Derivative financial instruments
Interest rate and cross-currency swaps
Foreign currency forward contract
Off-balance sheet items
Credit-related commitments – AMP Bank3
1,908
13,915
67
372
–
8
10
3,396
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 items4 19,676
7,549
3,510
83,530
114,265
1
2
3
4
Borrowings include AMP Bank deposits.
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.
Credit-related 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.
84
AMP 2019 annual report
3.3 Financial risk management (continued)
(c) Credit risk
Credit risk management is decentralised in business units within AMP, 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 the AMP Life
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 AMP’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 asset 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.
The Bank is also in the process of developing its internal Generation 1 behavioural scorecards which will be used to replace the
benchmark PDs in an endeavour to better risk rank order the portfolio by credit risk worthiness.
–
Internal risk grades for residential mortgage book are as follows:
Internal credit rating grade
Internal credit rating grade description
Performing
Past due but not impaired
Impaired
Not in arrears in the past six months
Accounts in arrears but have not been past 90 days in the last six months
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 on
watch-list are also downgraded. Credit judgement may be applied to arrive at the final risk grade.
AMP 2019 annual report
85
Notes to the financial statements 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
Broadly corresponds with Standard & Poors ratings of
Senior Investment Grade
Investment Grade
Sub-investment Grade
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 except for Stage 3 loans.
Loss given default (LGD)
For the residential mortgage portfolio the key driver for the LGD calculation is the value of the underlying property, as in a
foreclosure scenario the proceeds from the sale of a property are secured by the Bank to repay the loan. The value of the underlying
residential property is captured via the LVR which factors both changes in loan 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.
In addition, haircuts are applied to cater for the volatility observed in the register values in the event of default but also general
volatility in valuations over time.
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 factors (MEF) that are reviewed on a quarterly
basis and approved by the Credit Risk Committee (CRC). The MEF 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.
Management overlay
Management overlay is required to mitigate model risk and any systemic risk that is not recognised by the model.
The management overlays are reviewed on an annual basis or more frequently if required and presented to the CRC and Board
Audit Committee (BAC) for approval.
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 Board Risk Committee (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.
86
AMP 2019 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
2019
%
New
business
2019
%
Existing
business
2018
%
New
business
2018
%
17
12
18
38
12
3
–
13
11
17
48
7
4 4
–
18
12
18
37
11
7
–
15
10
16
44
8
–
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 $214m (2018: $165m) 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 bilateral 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 $1,699m would be reduced by
$192m to the net amount of $1,507m and derivative liabilities of $880m would be reduced by $192m to the net amount of
$688m (2018: 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).
(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 2019, if repurchase arrangements were netted, debt securities of $29,820m would be reduced by $nil to the net
amount of $29,820m and collateral deposits held of $170m would be reduced by $nil to the net amount of $170m (2018: 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).
(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 2019 there was $170m
(2018: $164m) of collateral deposits (due to other counterparties) and $181m (2018: $78m) of collateral loans (due from other
counterparties) relating to derivative assets and liabilities.
AMP 2019 annual report
87
Notes to the financial statements
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.
(a) Hedging Instruments
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.
2019
Hedge type
Cash flow
Fair value
Fair value
Fair value and cash flow Cross-currency interest rate swaps
Foreign currency forward contract
Net investment
Hedging instrument
Interest rate swaps
Cross-currency swaps
Interest rate swaps
Total
2018
Hedge type
Cash flow
Fair value
Fair value
Fair value and cash flow Cross-currency interest rate swaps
Foreign currency forward contract
Net investment
Hedging instrument
Interest rate swaps
Cross-currency swaps
Interest rate swaps
Total
Notional
amount
$m
Fair value
Assets
$m
Fair value
Liabilities
$m
8,648
83
67
988
366
10,152
8,200
83
64
218
343
8,908
24
–
7
37
9
77
5
–
9
14
–
28
99
19
–
–
2
120
19
22
–
–
7
48
(b) Hedged items
The following table sets out the carrying amount of hedged items in fair value hedge relationships, and the accumulated amount
of fair value hedge adjustments in these carrying amounts. The group does not hedge its entire exposure to a class of financial
instruments, therefore the carrying amounts below do not equal the total carrying amounts disclosed in other notes.
2019
6.875% GBP Subordinated Guaranteed Bonds (maturity 2022)
Medium Term Notes
2018
6.875% GBP Subordinated Guaranteed Bonds (maturity 2022)
Medium Term Notes
Carrying amount
of hedged items
Assets
$m
Liabilities
$m
Accumulated amount
of fair value adjustments
on the hedged items
Assets
$m
Liabilities
$m
–
–
–
–
69
951
68
157
11
–
13
–
–
35
–
17
88
AMP 2019 annual report
3.4 Derivatives and hedge accounting (continued)
Fair value hedge relationships resulted in the following changes in the values used to recognise hedge ineffectiveness for the year:
Gain on hedging instrument
Loss on hedged items attributable to the hedged risk
Hedge ineffectiveness recognised in the income statement
2019
$m
37
(35)
2
2018
$m
19
(17)
2
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 (2018: $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.
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 $nil (2018: $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.
2019
Interest rate swaps
Cross-currency swaps
Cross-currency interest rate swaps
Foreign currency forward contract
2018
Interest rate swaps
Cross-currency swaps
Cross-currency interest rate 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
1,889
–
–
366
2,278
–
–
327
3,542
–
–
–
3,106
–
–
16
2,782
83
988
–
1,924
83
218
–
502
–
–
–
956
–
–
–
8,715
83
988
366
8,264
83
218
343
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.
AMP 2019 annual report
89
Notes to the financial statements
3.4 Derivatives and hedge accounting (continued)
Hedge accounting
AMP continues to apply the hedge accounting requirements under AASB 139 Financial instruments: Recognition and Measurement.
Cash flow hedges
The effective portion of changes in the fair value of cash flow hedges is recognised (including related tax impacts) in Other
comprehensive income. 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) in Other
comprehensive income. 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 of.
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; 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:
–
– AMP Life Limited statutory funds’ investments in controlled entities; and
– AMP Life Limited statutory funds’ superannuation products invested in AMP Bank Limited assets.
Treasury shares (AMP Limited shares held by the statutory funds on behalf of policyholders);
Adjustments are also made relating to cash flow hedge reserves and to exclude the net assets of the AMP Foundation.
The table below shows the AMP group’s capital resources at reporting date:
AMP statutory equity attributable to shareholders of AMP Limited
Accounting mismatches, cash flow hedge resources and other adjustments
AMP shareholders’ equity
Subordinated debt1
Senior debt1
Total AMP capital resources
1
Amounts shown for subordinated debt and senior debt are the amounts to be repaid on maturity.
2019
$m
4,860
50
4,910
1,151
988
7,049
2018
$m
6,685
(2)
6,683
876
973
8,532
90
AMP 2019 annual report
3.5 Capital management (continued)
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. In certain circumstances, APRA or other regulators may require AMP and other entities of the
AMP group to hold a greater level of capital to support its business and/or require those entities not to pay dividends on their
shares or restrict the amount of dividends that can be paid by them. Any such adjustments would be incorporated into the
minimum regulatory requirements and/or capital policies as required.
The main minimum regulatory capital requirements for AMP’s businesses are:
Operating entity
Minimum regulatory capital requirement
AMP Life Limited
Capital adequacy requirements as specified under
the APRA Life Insurance Prudential Standards
AMP Bank Limited (AMP Bank)
Capital requirements as specified under the APRA ADI Prudential Standards
AMP Superannuation Limited and
National Mutual Superannuation Pty Limited
Operational Risk Financial Requirements as specified
under the APRA Superannuation Prudential Standards
AMP Capital Investors Limited
and other ASIC-regulated businesses
Capital requirements under AFSL requirements
and for risks relating to North 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 Limited 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.
AMP 2019 annual report
91
Notes to the financial statements 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
The AMP group’s life insurance related activities were conducted through two registered life insurance companies, AMP Life Limited
and The National Mutual Life Association of Australasia Limited (NMLA), collectively, ‘AMP Life’.
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 Income statement.
Life insurance contract liabilities are usually determined using a projection method, whereby estimates of policy cash flows
(premiums, benefits, expenses, and profit margins to be released in future periods) are projected using best-estimate assumptions
about the future. The liability is calculated as the net present value of these projected cash flows. When the benefits under a life
insurance contract are linked to the assets backing it, the discount rate applied is based on the expected future investment earnings
rate of those assets. Where the benefits are not linked to the performance of the backing assets, a risk-free discount rate is used.
The risk-free discount rate is based on the zero-coupon government bond rate and a liquidity margin, which depend on the nature,
structure and terms of the contract liabilities.
An accumulation method may be used if it produces results that are not materially different from those produced by a projection
method. A modified accumulation method is used for some discretionary participating business, where the life insurance liability
is the accumulation of amounts invested by policyholders, less fees specified in the policy, plus investment earnings and vested
benefits, adjusted to allow for the fact that crediting rates are determined by reference to investment income over a period of
greater than one year. The accumulation method may be adjusted to the extent that acquisition expenses are to be recovered from
future margins between fees and expenses.
Allocation of operating profit and unvested policyholder benefits
The operating profit arising from discretionary participating contracts is allocated between shareholders and participating
policyholders by applying the MoS principles in accordance with the Life Insurance Act 1995 (Cth) (Life Act) and the Participating
Business Management Framework.
Once profit is allocated to participating policyholders it can only be distributed to these policyholders.
Profit allocated to participating policyholders is recognised in the Income statement as an increase in policy liabilities. The policy
liabilities include profit that has not yet been allocated to specific policyholders (ie unvested) and that which has been allocated
to specific policyholders by way of bonus distributions (ie vested).
Bonus distributions to participating policyholders do not alter the amount of profit attributable to shareholders. They change the
nature of the liability from unvested to vested.
92
AMP 2019 annual report
4.1 Accounting for life insurance and investment contracts (continued)
The principles of allocation of the profit arising from discretionary participating business are as follows:
(i)
Investment income (net of tax and investment expenses) on retained earnings in respect of discretionary participating
business is allocated between policyholders and shareholders in proportion to the balances of policyholders’ and shareholders’
retained earnings. This proportion is, mostly, 80% to policyholders and 20% to shareholders;
(ii)
Other MoS profits arising from discretionary participating business are allocated 80% to policyholders and 20% to shareholders,
with the following exceptions:
–
–
–
–
the profit arising from New Zealand corporate superannuation business is apportioned such that shareholders are
allocated 15% of the profit allocated to policyholders;
the profit arising in respect of preservation superannuation account business is allocated 92.5% to policyholders and
7.5% to shareholders;
the profits arising from 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 product are allocated directly to a particular expense category, fund, class of business
and product line as appropriate.
Where expenses are not directly attributable, they are appropriately apportioned according to detailed expense analysis, with due
regard to the activities to which that expense relates to. The apportionment basis has been made in accordance with Actuarial
Standards and on an equitable basis to the different classes of business in accordance with the Life Act.
The costs apportioned to life insurance contracts are included in the determination of the margin described in section 4.1.
Investment management expenses of the life statutory funds are classified as operating expenses.
Reinsurance
Life insurance contract premium ceded to reinsurers is recognised as an expense and Life insurance contract claims recovered
from reinsurers is recognised as income.
Upfront commission received on quota share reinsurance contracts is recognised as commission revenue and a corresponding
reinsurance liability is recognised representing the obligation to pay future premiums to the reinsurer. The establishment of the
reinsurance liability is reflected in Change in policyholder liabilities. The liability will be released in line with the release of the
profit margin on the underlying insurance contracts.
The present value of AMP’s net contractual rights and obligations under reinsurance contracts is presented as a Reinsurance asset
or a Reinsurance liability.
Changes in the reinsurance asset and the reinsurance liability during the period are recognised as Changes in policyholder liabilities.
On-going commission from reinsurers is recognised as revenue at the time the commission is received or receivable.
Critical accounting estimates and judgements:
Life insurance contract liabilities
The measurement of insurance contract liabilities is determined using the MoS methodology. The determination of the liability
amounts involves judgement in selecting the valuation methods, profit carriers and valuation assumptions for each type of business.
The determination is subjective and relatively small changes in assumptions may have a significant impact on the reported profit.
The Board of 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.
AMP 2019 annual report
93
Notes to the financial statements
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
2019
$m
2018
$m
2,351
(369)
1,982
262
2,244
(1,033)
2,549
(367)
2,182
471
2,653
(989)
Life insurance contract related revenue – net of reinsurance
1,211
1,664
(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 life insurance contract benefits
– value of future expenses
– value of future premiums
Value of future profits
–
–
life insurance contract holder bonuses
shareholders’ profit margins
Total life insurance contract liabilities determined using the projection method2
Life insurance contract liabilities determined using the 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
(3,854)
1,679
(2,175)
512
(3,412)
1,158
(2,254)
487
(1,663)
(1,767)
(12)
(4)
(164)
(350)
(52)
(27)
(108)
(172)
(416)
(53)
14,401
3,785
(8,986)
3,420
1,479
14,469
4,377
(10,435)
3,136
1,565
14,099
13,112
7,029
(44)
6,985
262
2,452
7,951
(50)
7,901
304
2,319
23,798
1,222
(1,515)
23,636
1,073
(1,452)
23,505
23,257
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 Margin
on Services (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 life 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.
94
AMP 2019 annual report
4.2 Life insurance contracts – premiums, claims, expenses and liabilities (continued)
(e) Reconciliation of changes in life insurance contract liabilities
Total life insurance contract liabilities at the beginning of the year
Change in life insurance contract liabilities recognised in the 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
2019
$m
2018
$m
23,257
1,436
369
(1,679)
149
(63)
36
23,683
(79)
367
(1,158)
269
(2)
177
23,505
23,257
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 2019
31 December 2018
Australia
%
New Zealand
%
Australia
%
New Zealand
%
Retail risk (other than income
benefit open claims)1
Zero coupon government bond
yield curve
0.9–2.2
1.1–2.5
1.8–3.0
1.7–3.0
Retail risk and group risk
(income benefit open claims)1
Zero coupon government bond yield
curve (including liquidity premium)
1.1–2.4
1.3–2.7
2.1–3.2
2.0–3.3
Life annuities
Non-CPI
Zero coupon government bond yield
curve (including liquidity premium)
1.2–2.4
1.4–2.8
2.2–3.3
2.0–3.4
CPI
Commonwealth indexed bond yield
curve (including liquidity premium)
–0.2–0.6
0.4–1.4
0.8–1.3
1.1–2.3
1
The discount rates vary by duration in the range shown above.
AMP 2019 annual report
95
Notes to the financial statements
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.
(c) Inflation and indexation
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, lower expense inflation has been
assumed for Australia and New Zealand wealth protection portfolios compared to that assumed at 31 December 2018. The
lower expense inflation assumptions reflect the implementation of new service company agreements, which extend fixed fee
arrangements to a wider pool of business, increasing the proportion of costs that are fully variable and will run-off with policies
following the closure to new business.
The assumed CPI and expense inflation rates at the valuation date are:
31 December 2019
31 December 2018
Australia %
New Zealand %
CPI
1.4
1.6
Expense
Inflation
3.0
3.0–8.0
CPI
1.6
1.7
Expense
Inflation
2.0
2.0–6.0
(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 2018 for Australian retail risk and Flexible
Lifetime Super, and New Zealand retail risk.
Note that the wealth protection discontinuance rate ranges are calculated based on current business mix and various assumption
rating factors. Discontinuance rates for conventional products (Australia and New Zealand) are calculated based on average
expected for the next five years.
Business type
Conventional
Retail risk (lump sum)
Retail risk (income benefit)
Flexible Lifetime Super (FLS) risk business
31 December 2019
31 December 2018
Australia
%
New Zealand
%
Australia
%
New Zealand
%
2.2–7.4
13.7–20.5
7.8–22.0
17.5–19.3
1.1–2.2
4.7–16.1
8.7–15.5
n/a
2.3–9.3
13.1–18.0
7.5–20.1
14.4–16.6
1.5–2.7
4.9–15.2
5.0–14.7
n/a
96
AMP 2019 annual report
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 2018:
–
an allowance for possible anti-selection on retained business for 12 months following 1 July 2019 due to the opt-in related to
Protecting Your Super (‘PYS’) legislation;
an allowance for additional historical claims resulting from increased member communications due to PYS;
–
– Australian and New Zealand retail death rates;
– Australian and New Zealand Income Protection termination rates; and
– Australian TPD rates.
The assumptions are summarised in the following table.
Conventional
31 December 2019
Australia
New Zealand
31 December 2018
Australia
New Zealand
Risk products
31 December 2019
Australia1
New Zealand
31 December 2018
Australia1
New Zealand
Conventional
% of IA95-97
Male
Female
60.8
73.0
60.8
73.0
60.8
73.0
60.8
73.0
Retail Lump Sum
% of table
Male
Female
90–141
104–120
90–141
85–98
94–148
104–120
94–148
86–98
1
Base IA04-08 Death Without Riders table modified based on aggregated experience but with overall product-specific adjustment factors.
Annuities
31 December 2019
Australia and New Zealand1
31 December 2018
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
AMP 2019 annual report
97
Notes to the financial statements
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Typical morbidity assumptions, in aggregate, are as follows:
Income protection
31 December 2019
Australia
New Zealand
31 December 2018
Australia
New Zealand
Retail lump sum
31 December 2019
Australia TPD1
Australia Trauma2
New Zealand TPD1
New Zealand Trauma2
31 December 2018
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
83–149
45–179
83–149
53–89
69–144
53–80
82–105
Male
% of IA04-08
Female
% of IA04-08
132–277
102–193
120
110–114
132–241
102–193
120
110–114
150–351
102–193
120
110–114
150–305
102–193
120
110–114
1
2
Base IA04-08 TPD table modified based on our aggregated experience but with overall product-specific adjustment factors (estimated methodology
used).
Base IA04-08 Trauma table modified based on our aggregated experience but with overall product-specific adjustment factors (estimated methodology
used).
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 to 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 to 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 to 2011. This table has been adjusted for
AMP Life with overall product-specific adjustment factors.
98
AMP 2019 annual report
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
(h) Other participating business assumptions
Where benefits are contractually linked to the performance of the assets held, as is the case for participating 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.
31 December 2019
Australia
New Zealand
31 December 2018
Australia
New Zealand
10-year
government
bonds
%
Local
equities
%
International
equities
%
Property and
infrastructure
%
Fixed
interest
%
Risk premiums
1.4
1.7
2.3
2.4
4.5
4.5
4.5
4.5
3.5
3.5
3.5
3.5
2.5
2.5
2.5
2.5
0.5
0.4
0.6
0.5
Cash
%
(0.5)
(0.5)
(0.5)
(0.5)
The risk premiums for local equities include allowance for imputation credits. The risk premiums for fixed interest reflect credit
ratings of the portfolio held.
The averages of the asset mixes assumed for the purpose of setting future investment assumptions for participating 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 2019
Australia
New Zealand
31 December 2018
Australia
New Zealand
Equities
%
Property and
infrastructure
%
Fixed
interest
%
29
35
28
35
14
17
14
17
39
39
39
38
Cash
%
18
9
19
10
1
The asset mix in the table above includes both conventional and investment account business for AMP Life. As described in note 4.1, 100% of
investment profits on discretionary participating investment account business are allocated to policyholders.
Where an assumption used is net of tax, the tax on investment income is allowed for at rates appropriate to the class of business
and asset sector, including any allowance for imputation credits on equity income. For this purpose, the total return for each asset
sector is split between income and capital gains. The actual split has varied at each valuation date as the total return has varied.
For participating business, the total value of future bonuses (and the associated shareholders’ profit margins) included in life
insurance contract liabilities is the amount supported by the value of the supporting assets, after allowing for the assumed future
experience. The pattern of bonuses and shareholders’ profit margins assumed to emerge in each future year depends on the
assumed relationship between reversionary bonuses (or interest credits) and terminal bonuses. This relationship is set to reflect
the philosophy underlying actual bonus declarations.
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.
AMP 2019 annual report
99
Notes to the financial statements
4.3 Life insurance contracts – assumptions and valuation methodology (continued)
Typical supportable bonus rates on major product lines are as follows for AMP Life (31 December 2018 in parentheses).
Reversionary bonus
Australia
New Zealand
Bonus on sum insured
%
Bonus on existing bonuses
%
0.4–1.0 (0.4–1.0)
0.5–1.6 (0.7–1.0)
0.8–1.5 (0.8–1.5)
0.5–1.6 (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
%
1.8–3.3 (0.6–3.3)
2.1–2.5 (1.7–2.3)
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 2018 to 31 December 2019 in respect
of life insurance contracts (excluding new business contracts which are measured using assumptions at reporting date) is as shown
in the table below.
Assumption change
Non-market related changes to discount rates
Mortality and morbidity
Discontinuance rates
Maintenance expenses
Other assumptions1
Change in
future profit
margins
$m
Change in
life insurance
contract
liabilities2
$m
Change in
shareholders’
profit and
equity3
$m
1
(15)
(75)
162
(53)
–
149
59
85
(35)
–
(104)
(42)
(36)
24
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 non-participating 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.
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.
100
AMP 2019 annual report
4.4 Life insurance contracts – risk (continued)
Claims are managed through a dedicated claims management team, with formal claims acceptance limits and appropriate training
and development of staff with an objective to ensure payment of all genuine claims. Claims experience is assessed regularly and
appropriate actuarial reserves are established to reflect up-to-date experience and any anticipated future events. This includes
reserves for claims incurred but not yet reported.
AMP Life reinsures (cedes) to reinsurance companies a proportion of its 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+.
(b) Key terms and conditions of life insurance contracts
The nature of the terms of the life insurance contracts written by AMP Life is such that certain external variables can be identified
on which related cash flows for claim payments depend. The following table provides an overview of the key variables upon which
the timing and uncertainty of future cash flows of the various life insurance contracts issued by AMP Life depend.
Type of contract
Detail of contract workings
Nature of compensation for claims
Non-participating
life insurance
contracts with fixed
and guaranteed
terms (term life
and disability)
These policies provide guaranteed
benefits, which are paid on death or
ill-health, that are fixed and not at the
discretion of 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.
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)
Investment account
contracts with
discretionary
participating
features
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.
The gross value of premiums
received is invested in the
investment account with fees
and premiums for any associated
insurance cover being deducted
from the account balance when
due. Interest is credited regularly.
Benefits arising from the
discretionary bonuses are based
on the performance of a specified
pool of contracts and the assets
supporting these contracts.
Payment of the account balance
is generally guaranteed, although
it may be subject to certain
penalties on early surrender or
limited adjustment in adverse
investment markets. Operating
profit arising from these contracts
is allocated between the
policyholders and shareholders
with not less than 80% allocated
to policyholders. Distribution of
policyholder profit is through
an interest rate mechanism.
Key variables affecting
future cash flows
Mortality, morbidity,
lapses, expenses and
investment market
earning rates on assets
backing the liabilities.
Longevity, expenses,
inflation and
investment market
earning rates on assets
backing the liabilities.
Investment market
earning rates on assets
backing the liabilities,
lapses, expenses
and mortality.
Fees, lapses, expenses
and investment
market earning rates
on the assets backing
the liabilities.
AMP 2019 annual report
101
Notes to the financial statements 4.4 Life insurance contracts – risk (continued)
(c) Insurance risk sensitivity analysis – life insurance contracts
For life insurance contracts that are accounted for under MoS, amounts of liabilities, income or expense recognised in the period
are unlikely to be sensitive to changes in variables even if those changes may have an impact on future profit margins, unless the
product is in or close to loss recognition.
This table shows information about the sensitivity of life insurance contract liabilities and current period shareholder profit after
income tax and equity, to a number of possible changes in assumptions relating to insurance risk.
Change in life insurance
contract liabilities
Change in shareholder profit
after income tax and equity
Gross of
reinsurance
$m
Net of
reinsurance
$m
Gross of
reinsurance
$m
Net of
reinsurance
$m
Variable
Mortality
Annuitant mortality
Change in variable
10% increase in mortality rates
50% increase in the rate of
mortality improvement
51
15
Morbidity – lump sum disablement 20% increase in lump sum disablement rates 39
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
220
385
103
35
19
15
16
91
175
28
35
(37)
(11)
(28)
(154)
(270)
(74)
(25)
(13)
(11)
(11)
(64)
(122)
(20)
(25)
(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.
2019
2018
Up to 1 year
$m
1 to 5 years
$m
Over 5 years
$m
Total
$m
1,589
1,264
3,628
3,039
10,336
8,243
15,553
12,546
102
AMP 2019 annual report
4.5 Other disclosure – life insurance and investment contracts
(a) Analysis of life insurance and investment contract profit
Components of profit 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
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
2019
$m
2018
$m
327
(26)
(135)
(166)
–
(87)
87
–
80
437
(86)
(29)
(174)
148
(31)
179
148
38
(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 Limited has three statutory funds as set out below:
No. 1 fund
Australia
All non-investment-linked 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.
AMP 2019 annual report
103
Notes to the financial statements
4.5 Other disclosure – life insurance and investment contracts (continued)
Net assets of life entities’
statutory funds attributable to
policyholders and shareholders
Attributable to policyholders2
Life insurance contract liabilities
Investment contract liabilities1
2019
2018
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
27,240
69,977
97,217
27,324
66,659
93,983
23,505
1,845
–
69,705
23,505
71,550
23,257
2,173
–
66,454
23,257
68,627
25,350
69,705
95,055
25,430
66,454
91,884
Attributable to shareholders
1,890
272
2,162
1,894
205
2,099
1
2
Investment contract liabilities in this table do not include $121m (2018: $115m) 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 $12,336m (2018: $13,679m)
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.
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
2019
$m
2018
$m
5,605
111,973
161
2,189
7,230
109,364
145
1,580
119,928
118,319
23,505
71,550
7,484
15,295
23,257
68,627
7,084
17,059
117,834
116,027
2,094
2,292
104
AMP 2019 annual report
4.5 Other disclosure – life insurance and investment contracts (continued)
(c) Capital guarantees
2019
$m
2018
$m
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
13,327
762
68
14,152
847
127
(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 introduce 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 Limited and NMLA maintain a target surplus providing an additional
capital buffer against adverse events. The companies use internal capital models to determine target surplus, with the models
reflecting the risks of the business, principally the risk of adverse asset movements relative to the liabilities and of worse than
expected claims costs.
The Appointed Actuary of AMP Life Limited and NMLA has confirmed that the capital base of each life statutory fund and
shareholders’ fund have exceeded PCA at all times during 2019 and 2018. The combined capital position of AMP Life Limited and
NMLA is as follows:
Common Equity Tier 1 Capital
Adjustments to Common Equity Tier 1 Capital
Additional Tier 1 Capital
Adjustments to Additional Tier 1 Capital
Tier 2 Capital
Adjustments to Tier 2 Capital
Total capital base
Total Prescribed Capital Amount (PCA)
Capital adequacy amount
Capital adequacy multiple1
2019
$m
2,059
34
305
–
200
–
2018
$m
2,430
(374)
305
–
250
–
2,598
2,611
1,102
1,190
1,496
1,421
236%
219%
1
The capital adequacy multiples were 236% and 263% for AMP Life Limited and NMLA respectively (2018: 219% and 226%).
(e) Actuarial information
Mr Greg Bird, the Appointed Actuary of AMP Life Limited and NMLA, is satisfied as to the accuracy of the data used in the valuations
in the financial report and in the tables in note 4.2 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.
AMP 2019 annual report
105
Notes to the financial statements
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
2019
$’000
2018
$’000
21,248
510
14,757
718
4,396
15,983
663
4,012
342
2,680
41,629
23,680
(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
2019
$’000
2018
$’000
11,666
1,792
12,453
51
13,458
12,504
368
361
(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 the 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.
106
AMP 2019 annual report
5.2 Defined benefit plans
AMP contributes 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.
Accumulation benefits and a lump sum payment
on retirement.
The trustees of the AMP Superannuation
Savings Trust, of which the Australian
plans are sub-funds – this includes
administration of the plan, management
and investment of the plan assets, and
compliance with superannuation laws
and other applicable regulations.
The plans’ 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 2019.
31 December 2017.
Additional
recommended
contributions
10% to 15% 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 the Consolidated income statement
Plus: Employer contributions
Plus: Actuarial (losses) gains recognised in Other comprehensive income
Defined benefit liability recognised at the end of the year
2019
$m
(919)
818
(101)
(77)
(2)
1
(23)
(101)
2018
$m
(833)
756
(77)
(29)
(7)
2
(43)
(77)
AMP 2019 annual report
107
Notes to the financial statements
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
Fair value of
plan assets
Present value of
plan obligation
AMP Australia
AMP AAPH Australia
AMP New Zealand
AMP AAPH New Zealand
Total
2019
$m
291
415
20
92
818
2018
$m
263
388
19
86
756
2019
$m
(339)
(427)
(25)
(128)
2018
$m
(307)
(378)
(25)
(123)
Defined benefit
obligation
Fair value of
plan assets
2019
$m
(833)
(3)
(19)
(118)
–
–
2
52
2018
$m
(821)
(3)
(18)
(38)
–
–
(5)
52
(919)
(833)
2019
$m
756
–
17
94
1
–
2
(52)
818
2018
$m
792
–
17
(5)
2
–
2
(52)
756
Net recognised
surplus (deficit)
2019
$m
2018
$m
Actuarial
gains/(losses)
2019
$m
2018
$m
(48)
(12)
(5)
(36)
(44)
10
(6)
(37)
(77)
(3)
(21)
1
–
(23)
(15)
(20)
(2)
(6)
(43)
(919)
(833)
(101)
(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
2019
%
2.8
n/a
2018
%
4.0
n/a
2019
%
1.5
n/a
2018
%
2.3
n/a
2019
%
3.0
3.5
2018
%
4.1
3.5
2019
%
2.2
3.0
2018
%
2.7
3.0
(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
2019
%
2018
%
2019
%
2018
%
2019
%
2018
%
2019
%
2018
%
46
38
10
1
5
50
34
8
3
5
38
38
4
14
6
38
38
4
14
6
25
57
7
1
10
30
51
5
1
13
46
34
4 4
14
2 3
40
39
14
108
AMP 2019 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
(–)
$m
2019
Assumption
Discount rate (+/– 0.5%)1
(20)
Expected salary increase rate (0.5%)
n/a
Expected deferred benefit crediting rate (0.5%) n/a
Pensioner indexation assumption (0.5%)2
22
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
2018
Assumption
(17)
Discount rate (+/– 0.5%)
Expected salary increase rate (0.5%)
n/a
Expected deferred benefit crediting rate (0.5%) n/a
19
Pensioner indexation assumption (0.5%)
n/a
Pensioner mortality assumption (0.5%)
n/a
Life expectancy (additional 1 year)
22
n/a
n/a
(20)
13
n/a
19
n/a
n/a
(18)
10
n/a
n/a
n/a
n/a
1
n/a
1
n/a
n/a
n/a
1
n/a
1
2
n/a
n/a
n/a
n/a
n/a
2
n/a
n/a
n/a
n/a
n/a
(32)
1
3
30
n/a
n/a
(27)
1
3
25
n/a
n/a
35
n/a
n/a
(28)
12
n/a
30
n/a
n/a
(23)
9
n/a
n/a
n/a
n/a
13
n/a
4
n/a
n/a
n/a
13
n/a
4
16
n/a
n/a
n/a
n/a
n/a
24
n/a
n/a
n/a
n/a
n/a
1
2
(–1%) discount rate applied to AMP New Zealand and AMP AAPH New Zealand.
1% indexation increase applied to AMP New Zealand and AMP AAPH New Zealand.
(g) Expected contributions and maturity profile of the defined benefit obligation
Expected employer contributions ($m)
Weighted average duration of the defined benefit obligation (years)
AMP
AMP AAPH
Australia
New
Zealand
Australia
New
Zealand
–
11
–
9
1
14
–
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.
AMP 2019 annual report
109
Notes to the financial statements
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 and restricted shares
Options
Total share-based payments expense
2019
$’000
2018
$’000
5,654
24,742
52
(2,946)
30,227
5
30,448
27,286
1
Non-market performance rights which were forfeited or where the performance conditions were not met were reversed during 2018.
(a) Performance rights
The AMP Group Leadership Team, as well as selected senior executives, receive their long-term incentive (LTI) awards in the form
of performance rights. This is intended to align the interests of those executives, who are able to most directly influence company
performance, with the interests of shareholders.
Plan
LTI awards
Overview
Vesting conditions
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.
2016 LTI award
The performance hurdles for rights granted in 2016 are:
–
60% subject to AMP’s total shareholder return (TSR) performance relative to that of the entities in
the Comparator Group1 (being the top 50 industrial companies in the S&P/ASX 100 Index, based
on market capitalisation rank at the start of the applicable performance period) over three years.
40% subject to a Return on Equity (RoE) measure.
–
2017 LTI award
The performance hurdles for rights granted in 2017 are:
–
100% subject to AMP’s TSR performance relative to entities in the Comparator Group1 (being the
top 50 industrial companies in the S&P/ASX 100 Index, based on market capitalisation rank at the
start of the applicable performance period) over four years.
2018 LTI award
No performance rights were granted under an LTI plan in 2018.
2019 LTI award (Transformation Incentive Award)
The vesting of the performance rights is subject to two separate gateways:
(a)
Risk and Conduct Gateway – if a participant’s performance and conduct is not in line with AMP’s
expectations, the board has discretion to amend the vesting outcome (including to zero).
Performance Gateway and Hurdle – a performance gateway is included so that no awards will
vest if both the Compound Annual Growth Rate (CAGR) is negative and the CAGR is below the
benchmark index2. For risk and control roles ie Chief Risk Officer – the vesting outcome in relation
to 25% of the award will be determined by the Remuneration Committee at its sole discretion.
The other 75% of the award will be subject to the performance hurdle.
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.
The benchmark index is constructed from an equal weighted index of ASX 100 financial services companies
(excluding A-REITs).
2016 LTI award – 3 years for rights granted in 2016.
2017 LTI award – 4 years for rights granted in 2017.
2019 LTI award – 3.5 years for rights granted in 2019.
(b)
1
2
–
–
–
Vesting period
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.
110
AMP 2019 annual report
5.3 Share-based payments (continued)
CEO (Original) Recovery Incentive Rights Award
As part of the Chief Executive Officer’s (CEO) incentive package on appointment in 2018, the CEO was granted an award of rights
with a performance condition. This award is to intended to align CEO interests with the long-term interests of shareholders.
The board intends to seek shareholder approval to cancel the original Recovery Incentive at the next AGM in May 2020.
Plan
CEO (Original) Recovery Incentive Rights Award
Overview
Vesting conditions
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.
–
Vesting period/
Testing dates
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.
CEO Replacement Recovery Incentive Rights Award
In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure the CEO is appropriately incentivised and aligned
with shareholders during the transformation of AMP. As part of this update, the CEO was granted a new award of rights with a
performance condition. This award is intended to replace the original Recovery Incentive Award to better align the CEO with the
long-term interests of the shareholders.
Plan
CEO Replacement Recovery Incentive Rights Award
Overview
Vesting conditions
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 – 50% of rights granted will vest if the share price is $2.45 at the testing date
(adjusted for any significant capital initiatives).
Second Testing Date – if the first share price target of $2.45 is not met at the first testing date,
it will be retested and 50% will vest if the $2.45 target is met. The remaining balance may also
vest depending on the share price being higher than $2.45 and will vest on a straight-line basis
with 100% vesting if the share price is $2.75 (adjusted for any significant capital initiatives).
–
Vesting period/
Testing dates
The board will test the share price targets on or around the following testing dates:
–
–
15 February 2022 (First Testing Date); and
15 February 2023 (Second 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.
AMP 2019 annual report
111
Notes to the financial statements 5.3 Share-based payments (continued)
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 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. This is revisited each reporting date.
For both of the CEO Recovery Incentive Rights Awards, 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 dividend yield and volatility over an appropriate period.
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
02/06/2016
13/01/2017
19/05/2017
12/09/2019
$5.54
$5.15
$5.08
$1.85
3.0
2.4
4.0
3.4
4.7%
5.0%
5.2%
4.0%
24%
23%
23%
33%
1.6%
1.9%
1.8%
0.9%
57%
71%
56%
35%
0%
0%
n/a
n/a
$2.37
$1.47
$2.24
$1.21
$4.81
$4.57
n/a
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 Awards with a
share price target granted during the period:
Grant date
21/08/2018
12/09/2019
Share
price
$3.45
$1.85
Contractual
life (years)
4.5
3.4
Dividend
yield
5.3%
4.0%
Volatility
22%
33%
Risk-free
rate
Share rights
fair value
2.2%
0.9%
$0.82
$0.62
The following table shows the movement in number of performance rights outstanding during the period:
Exercise
price
Balance at
1 Jan 2019
Exercised
during
the year
Granted
during
the year
Lapsed
during
the year
Nil
Nil
Nil
Nil
Nil
Nil
2,441,062
12,820
1,996,500
1,656,976
–
–
6,107,358
–
–
–
–
–
–
–
–
–
–
2,500,000
35,828,711
2,441,062
12,820
115,800
–
–
–
Balance at
31 Dec 2019
–
–
1,880,700
1,656,976
2,500,000
35,828,711
38,328,711
2,569,682
41,866,387
Grant date
02/06/2016
13/01/2017
19/05/2017
21/08/2018
12/09/2019
12/09/2019
Total
112
AMP 2019 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.
Short-term Incentive Deferral participants are nominated executives and selected senior leaders who have the ability to impact
AMP’s financial soundness. This requires a portion of the participant’s annual short-term incentive outcome to be deferred and
awarded as share rights.
Short-term Incentive Match Plan participants were high potential employees at a senior leader level who were eligible for
participation in the plan. This plan provided an award of share rights to the value of 50% of the individual’s short-term
incentive outcome (the plan ceased in 2017).
Transition Incentive award was made to select participants of AMP’s Group Leadership Team in the form of share rights
as a transitionary award between remuneration arrangements and the finalisation of strategy.
Enterprise Profit Share Plan supports AMP Capital’s remuneration framework by aligning its strategic intent and rewarding
behaviour that leads to sustainably increased profit and shareholder value. The participants are the AMP Capital Group
Leadership Team whereby a portion of their annual profit share outcome is deferred into share rights.
Deferred Bonus Equity Plan applies to selected AMP Capital participants whereby a portion of their annual short-term
incentive outcome (above a specified threshold) is deferred into share rights.
–
–
–
–
Plan
Long-term Incentive Plan
Short-term Incentive Deferral Plan,
Short-term Incentive Match Plan and
Transition Incentive award
Enterprise Profit Share Plan and
Deferred Bonus Equity Plan
Overview
Vesting
conditions/period
Share rights give the participant the right to acquire one fully paid ordinary share in AMP Limited after
a specified service period. They are granted at no cost to the participant and carry no dividend or voting
rights until they vest. This award may be settled through an equivalent cash payment at the discretion
of the board.
AMP Group participants
Continued service for three
years for the 2016 grant and
four years for the 2017 grant.
No LTI grant was made in 2018.
AMP Capital participants
Continued service for three
years.
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.
All awards are also subject
to ongoing employment,
compliance with AMP policies
and the board’s discretion.
Short-term Incentive
Deferral/Short-term
Incentive Match Plan
Continued service for two
years and subject to ongoing
employment, compliance with
AMP policies and the board’s
discretion.
Transition Incentive award
This 2019 grant is split into two
tranches with continued service
for approximately one and
two years respectively. These
are also subject to ongoing
employment, compliance with
AMP policies and the board’s
discretion.
Enterprise Profit Share Plan
For awards relating to the
2016 and 2017 performance
year, 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.
For awards relating to the
2018 performance year, share
rights were granted to select
participants. The award was
subject to a one-year service
condition, ongoing compliance
with AMP policies and the
board’s discretion. After this
period, an additional three-year
non-vesting holding period
is applicable to participants
except for the AMP Capital
Chief Executive Officer where
the non-vesting holding period
is a further four years.
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.
AMP 2019 annual report
113
Notes to the financial statements 5.3 Share-based payments (continued)
CEO Buy-out Incentive Rights Award
As part of the CEO’s incentive package on appointment in 2018, 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.
In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure the CEO is appropriately incentivised and aligned
with shareholders during the transformation of AMP. As part of this update, the CEO was granted an additional award of share
rights with a service (employment) condition. All other terms of the additional share rights award are consistent with the original
Buy-out Incentive Rights Award.
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.
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 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’s share rights awards, 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 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
01/04/2019
01/04/2019
01/04/2019
08/03/2019
25/03/2019
10/05/2019
10/05/2019
17/05/2019
17/05/2019
17/05/2019
17/05/2019
24/05/2019
13/08/2019
13/08/2019
13/08/2019
19/07/2019
19/07/2019
19/07/2019
29/07/2019
20/09/2019
20/09/2019
114
AMP 2019 annual report
Share price
Contractual
life (years)
Dividend
yield
Dividend
discount
Fair value
$2.14
$2.14
$2.14
$2.31
$2.15
$2.22
$2.22
$2.20
$2.20
$2.20
$2.20
$2.17
$1.81
$1.81
$1.81
$1.80
$1.80
$1.80
$1.83
$1.86
$1.86
2.0
2.0
3.0
1.0
1.0
1.0
2.0
1.0
1.0
4.0
5.0
1.0
1.0
2.0
3.0
1.0
2.0
3.0
1.0
1.0
2.0
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.2%
4.0%
4.0%
4.0%
4.2%
4.2%
4.2%
4.2%
4.0%
4.0%
11%
7%
11%
3%
4%
0%
0%
0%
0%
0%
0%
3%
2%
6%
9%
2%
6%
10%
1%
4%
7%
$1.91
$1.98
$1.90
$2.24
$2.06
$2.22
$2.22
$2.20
$2.20
$2.19
$2.19
$2.10
$1.77
$1.70
$1.64
$1.75
$1.68
$1.61
$1.82
$1.79
$1.72
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 2019
Exercised
during the year
Granted
during the year
Lapsed
during the year
Balance at
31 Dec 2019
04/06/2015
18/09/2015
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
02/04/2019
02/04/2018
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
08/03/2019
25/03/2019
01/04/2019
01/04/2019
01/04/2019
10/05/2019
10/05/2019
17/05/2019
17/05/2019
24/05/2019
19/07/2019
19/07/2019
19/07/2019
29/07/2019
13/08/2019
13/08/2019
13/08/2019
20/09/2019
20/09/2019
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
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
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
805,657
901,333
953,876
115,451
122,181
40,650
40,650
39,895
53,191
53,191
53,191
726,744
436,046
290,698
142,856
142,857
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
107,454
19,038
1,540,646
12,821
8,818
189,633
307,007
920,201
–
70,538
–
–
–
–
–
–
–
–
–
–
40,650
40,650
39,895
53,191
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23,166
24,261
1,896,149
237,447
248,029
957,438
957,447
250,595
523,402
33,039
53,140
53,140
38,647
22,012
293,664
176,198
117,466
13,812
8,287
–
–
38,118
–
–
–
3,010
–
–
5,241
8,907
30,000
103,600
9,671
43,182
91,949
–
–
11,621
12,298
–
–
–
–
–
–
–
–
–
–
–
–
–
63,558
2,488
2,599
–
–
–
–
–
–
–
–
22,012
–
–
–
–
–
–
–
–
–
–
–
1,774
–
968,086
–
70,818
531,000
1,039,713
–
609,364
713,708
901,333
953,876
103,830
109,883
–
–
–
–
53,191
53,191
726,744
436,046
290,698
142,856
142,857
23,166
24,261
1,832,591
234,959
245,430
957,438
957,447
250,595
523,402
33,039
53,140
53,140
38,647
–
293,664
176,198
117,466
13,812
8,287
11,557,107
3,350,542
5,927,339
448,254
13,685,650
AMP 2019 annual report
115
Notes to the financial statements
5.3 Share-based payments (continued)
(c) Options
CEO Recovery Incentive Options Award
As part of the CEO’s incentive package on appointment in 2018, 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. No similar options award was granted in 2019.
Plan
CEO Recovery Incentive Options 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 they 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.
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 average exercise prices (WAEP) of, and movements in, options issued:
Grant date
Exercise price
Balance at
1 Jan 2019
Exercised
during the year
Granted
during the year
Lapsed
during the year
Balance at
31 Dec 2019
14/12/2018
Total
$5.50
8,000,000
8,000,000
–
–
–
–
–
–
8,000,000
8,000,000
(ii)
The weighted average remaining contractual life for the options outstanding as at 31 December 2019 was 4.3 years
(2018: 5.3 years).
(iii) There were no options granted during the year. The weighted average fair value of options granted during 2018 was $0.03.
(iv) The following table shows the factors considered in determining the fair value of the options on the date of grant:
Weighted average fair values at the measurement date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of share options (years)
Weighted average share price ($)
Model used
2018
$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.
116
AMP 2019 annual report
5.3 Share-based payments (continued)
(d) Restricted shares
CEO Buy-out Incentive Shares Award
As part of the CEO’s incentive package on appointment in 2018, the CEO was awarded restricted shares with a service (employment)
condition to compensate for incentives forgone from the CEO’s previous employer.
In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure he is appropriately incentivised and aligned with
shareholders during the transformation of AMP. As part of this update the CEO was granted an additional award of restricted shares
with a service (employment) condition. All other terms of the additional restricted shares award are consistent with the original award.
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 are released 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.
AMP Capital Enterprise Profit Share Plan
The AMP Capital Group Leadership Team is comprised of a select group of senior executives who are eligible to participate in the
Enterprise Profit Share Plan. This plan was designed to support AMP Capital’s remuneration framework by aligning its strategic
intent and rewarding behaviour that leads to sustainably increased profit and shareholder value. It is required that 40% of the
participants’ profit share outcomes be deferred. From 2018, 50% of the deferred component is awarded in the form of restricted
shares for participants who reside in Australia with the exception of the AMP Capital Chief Executive Officer. The objective of this
was to create greater alignment with our shareholders. The equity component of this plan was granted in 2019.
Plan
AMP Capital Enterprise Profit Share Plan
Overview
The deferred component of the 2018 Enterprise Profit Share award was granted in the form of restricted
shares. Restricted shares are fully paid ordinary shares in AMP Limited that are held in the AMP Employee
Share Trust on behalf of the participant until the specified service/holding period has been met. They
were granted at no cost to participants 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 after one year and continue to be subject to a disposal restriction for
an additional three-year period. Prior to each of the vesting date and the release date, the board will
undertake a conduct/risk review to confirm that vesting and release of the award aligns with the
conduct and risk outcomes of the AMP group.
Vested awards
On the relevant release dates, the restriction on the shares is released.
Unvested awards
Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed
for misconduct.
AMP 2019 annual report
117
Notes to the financial statements 5.3 Share-based payments (continued)
AMP Executive Performance Incentive Plan
The Executive Performance Incentive (EPI) Plan was newly introduced for the 2018 performance year and takes a combined
incentive approach, whereby a portion of the participant’s annual EPI outcome is paid out in cash and the other part deferred into
restricted shares. The objective of this plan is to create equity ownership across a select group of senior executives if performance
objectives are met. The equity component of this plan was granted in 2019.
Plan
AMP Executive Performance Incentive Plan
Overview
The deferred component of the Executive Performance Incentive Plan was granted in the form of
restricted shares. Restricted shares are fully paid ordinary shares in AMP Limited that are held in the
AMP Employee Share Trust on behalf of the participant until the specified service/holding period has
been met. They were granted at no cost to participants 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 after one year and continue to be subject to a disposal restriction for
an additional three-year period. Prior to each of the vesting date and the release date, the board will
undertake a conduct/risk review to confirm that vesting and release of the award aligns with the
conduct and risk outcomes of the AMP group.
Vested awards
On the relevant release dates, the restriction on the shares is released. Some shares may be released
early for participants who ceased employment to assist participants in managing their tax liability.
Unvested awards
Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed
for misconduct.
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 were offered a $1,000 gift of shares subject to employment
on the allocation date in March 2019. These shares are subject to a restriction on sale and transfer for up to three years from the
date they are allocated. Any shares acquired as a gift will be released to the participant at the end of the three-year period or when
they leave employment with AMP (whichever is earlier).
For the period 1 April 2020, eligible participants may acquire $1,000 fully paid ordinary shares in AMP by sacrificing $1,000 of their
2019 short-term incentive award.
AMP Employee Share Plan – $5,000 Salary Sacrifice Plan
AMP has given permanent employees the opportunity to become shareholders in AMP through the launch of the AMP Salary
Sacrifice Share Plan (SSP). All permanent employees in Australia were offered the opportunity to salary sacrifice between $2,500
to $5,000 over a 12-month period to acquire shares in AMP. AMP offered a matching contribution on a 1:5 basis, meaning that
employees who opted to salary sacrifice $5,000 would receive an upfront matched allocation of $1,000 in AMP shares. The salary
sacrifice and matching shares are both held in an employee share plan trust on behalf of the employees and are subject to a
restriction on sale and transfer for up to three years from the date they are allocated.
Any purchased and matching shares acquired during 2019 will be released to the participant at the end of the three-year period.
Any purchased shares acquired during 2020 will be released at the end of the three-year period and matching shares will be
released at the end of the two-year period or when they leave employment with AMP (whichever is earlier). Matching shares are
forfeited if a participant voluntarily ceases employment before the end of the three-year holding period.
Valuation of restricted shares and AMP Employee Share Plan
The restricted share awards 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 dividend yield and volatility over an
appropriate period.
For the AMP Employee Share Plan $1,000 Share Plan and $5,000 Salary Sacrifice Plan, the fair value of the shares was 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.
118
AMP 2019 annual report
5.3 Share-based payments (continued)
Grant date
25/02/2019
25/02/2019
25/02/2019
17/05/2019
17/05/2019
13/08/2019
13/08/2019
13/08/2019
Share price
Contractual life
(years)
Vesting date
Dividend yield
Fair value
$2.38
$2.38
$2.38
$2.20
$2.20
$1.81
$1.81
$1.81
1.0
2.0
3.0
0.8
1.0
0.0
1.0
2.0
15/02/2020
15/02/2021
15/02/2022
15/02/2020
15/05/2020
15/08/2019
15/08/2020
15/08/2021
n/a
n/a
n/a
4.2%
4.2%
4.0%
4.0%
4.0%
$2.38
$2.38
$2.38
$2.20
$2.20
$1.81
$1.81
$1.81
The following table shows the movement in restricted shares outstanding for the period:
Grant date
Exercise price
Balance at
1 Jan 2019
Granted during
the year
Released during
the year
Lapsed during
the year
Balance at
31 Dec 2019
25/02/2019
14/03/2019
26/04/2019
17/05/2019
13/08/2019
Total
Nil
Nil
Nil
Nil
Nil
–
–
–
–
–
–
1,991,303
2,350,031
403,228
1,621,593
587,328
872,092
301,076
10,886
7,013
352,396
–
–
33,524
27,233
–
1,119,211
2,048,955
358,818
1,587,347
234,932
6,953,483
1,543,463
60,757
5,349,263
(e) Employee share acquisition plan
The employee share acquisition plan was suspended mid-way through 2009 in Australia but continued to operate in New Zealand
until September 2019. This legacy share plan was subsequently closed in September 2019 after all participation ceased and no
further tax deferrals were available to employees.
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 award lapses.
AMP 2019 annual report
119
Notes to the financial statements
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
AMP Life Services Pty Ltd
AMP Wealth Management Holdings Pty Ltd
NM Superannuation Pty Ltd
National Mutual Funds Management (Global) Limited
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
Australia
Australia
Australia
Australia
Share type
2019
2018
% 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
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
100
100
100
100
85
85
85
85
85
85
100
100
100
100
100
100
100
100
100
100
n/a
n/a
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.
120
AMP 2019 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) Acquisitions 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
China Life Pension Company2
Pension company
Place of
business
China
2019
%
2018
%
19.99
19.99
AIMS AMP Capital Industrial REIT3
Industrial property trust
Singapore
China Life AMP Asset
Management Company Ltd
Global Infrastructure
Fund Sponsor4
Global Infrastructure Fund II4
PCCP LLC2
Other (individually
immaterial associates)
–
15
5
5
10
15
5
5
Investment management
China
Fund
Fund
Cayman Islands
Cayman Islands
Investment management
United States
24.9
24.9
n/a
n/a
Total investments in associates accounted for using the equity method
2019
$m
325
–
53
101
124
144
104
851
2018
$m
305
101
49
98
81
145
145
924
1
2
3
4
The carrying amount is after recognising $72m (2018: $42m) share of current period profit or loss of associates accounted for using the equity method.
The AMP group has significant influence through representation on the entity’s board.
This has been disposed during the year and all proceeds were received.
Entities within the AMP group have been appointed investment manager, therefore the group is considered to have significant influence.
(b) Investments in significant associates held by the life entities’ statutory funds measured at fair value through
profit or loss
The life insurance statutory funds hold investments in various investment vehicles/funds on behalf of policyholders. These
investments are not part of the core wealth management business of AMP and do not have a material impact on the financial
performance or net financial position of the AMP group.
Accounting policy – recognition and measurement
Investments in associates
Investments in associates accounted for using the equity method
Investments in entities, other than those backing investment contract liabilities and life insurance contract liabilities, over which
the AMP group has the ability to exercise significant influence, but not control, are accounted for using the equity method of
accounting. The investment is measured at cost plus post-acquisition changes in the AMP group’s share of the associates’ net
assets, less any impairment in value. The AMP group’s share of profit or loss of associates is included in the Consolidated income
statement. Any dividend or distribution received from associates is accounted for as a reduction in carrying value of the associate.
Any impairment is recognised in the 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 the 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.
AMP 2019 annual report
121
Notes to the financial statements
6.4 Parent entity information
(a) Statement of comprehensive income – AMP Limited entity
Dividends and interest from controlled entities
Service fee revenue
Other income
Operating expenses
Impairment of investments in controlled entities
Finance costs
Income tax credit1
Loss for the year
Total comprehensive loss 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
Loans and advances to subsidiaries
Deferred tax assets3
Total assets
Current liabilities
Payables2
Provisions
Subordinated debt4
Non-current liabilities
Subordinated debt4
Total liabilities
Net assets
Equity – AMP Limited entity
Contributed equity
Share-based payment reserve
Retained earnings5
Total equity
2019
$m
2018
$m
153
17
–
(20)
(3,173)
(44)
58
545
4
1
(3)
(2,489)
(55)
17
(3,009)
(1,980)
(3,009)
(1,980)
9
325
392
253
6,838
1,558
51
8
57
130
–
9,911
1,007
47
9,426
11,160
565
2
277
239
1
–
1,036
1,043
1,880
1,283
7,546
9,877
10,402
24
(2,880)
9,610
21
246
7,546
9,877
1
2
3
4
5
Dividend income from controlled entities $128m (2018: $514m) is not assessable for tax purposes. Income tax credit includes $45m (2018: $8m)
utilisation of previously unrecognised tax losses.
Receivables and payables include tax-related amounts receivable from subsidiaries $125m (2018: $53m) and payable to subsidiaries $533m
(2018: $207m).
Deferred tax assets include amounts recognised for losses available for offset against future taxable income $43m (2018: $45m).
The AMP Limited entity is the issuer of: AMP Wholesale Capital Notes; AMP Capital Notes, AMP Capital Notes 2, AMP Subordinated Notes and
AMP Notes 3. Further information on these is provided in note 3.2.
Changes in retained earnings comprise $3,009m loss (2018: $1,980m loss) for the year less dividends paid of $117m (2018: $715m).
(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 remote.
122
AMP 2019 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 (loss) 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
Increase (decrease) in net policy liabilities
Increase (decrease) in income tax balances
(Decrease) increase 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
2019
$m
2018
$m
(2,434)
74
2,546
(7,472)
(4,180)
4
(567)
3,315
279
(674)
51
22
239
8,258
(5,502)
5
(569)
(6,769)
(937)
1,221
(9,109)
(3,981)
4,539
3,643
3,932
3,450
8,182
7,382
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 include 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.
AMP 2019 annual report
123
Notes to the financial statements
7.2 Commitments
(a) Commitments for leases not yet commenced
The future lease payments for which the group is committed but the leases have not yet commenced as at 31 December 2019
are $748m (2018: $819m). Lease commitments do not include non-lease components per AMP’s accounting policy based on
AASB 16 Leases.
(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 $235m (2018: $163m), $228m 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 2019, $98m was paid for executed buy-back arrangements.
Where a notice of intention to invoke the buy-back arrangement has been received as at 31 December 2019 and AMP has concluded
that the purchase price of the register exceeds the value of the client register to AMP, or where on-going service arrangements
would be unable to be serviced or sold, a provision has been raised for the difference. Refer to note 7.3 for further details.
(c) Investment commitment
At 31 December 2019 AMP Capital Finance Limited, a controlled entity of AMP Limited, had uncalled investment commitments
of $417m (2018: $265m) in relation to certain funds managed by AMP Capital. Subsequent to the reporting date, $103m of this
committed capital was invested by AMP Capital Finance Limited into AMP Capital managed funds.
7.3 Provisions and contingent liabilities
2019
$m
2018
$m
(a) Provisions
Restructuring1
Client remediation
Buy-back arrangements
Other2
Total provisions
27
652
116
181
976
(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
Restructuring1
$m
Client
remediation
$m
Buy-back
arrangements
$m
Other2
$m
19
19
(11)
27
656
217
(221)
652
–
145
(29)
116
132
139
(90)
181
19
656
–
132
807
Total
$m
807
520
(351)
976
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. $24m (2018: $28m) is expected to be settled more than 12 months from the
reporting date.
Accounting policy – recognition and measurement
Provisions
Provisions are recognised when:
–
–
–
the AMP group has a present obligation (legal or constructive) as a result of a past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the reporting date. For provisions other than employee entitlements, the discount rate used to determine the present
value reflects current market assessments of the time value of money and the risks specific to the liability.
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.
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AMP 2019 annual report
7.3 Provisions and contingent liabilities (continued)
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 for.
From time to time, the AMP group may incur obligations or suffer financial loss arising from litigation or contracts entered into in
the normal course of business, including guarantees issued by the parent for performance obligations of controlled entities in the
AMP group. Legal proceedings threatened against AMP may also, if filed, result in AMP incurring obligations or suffering financial
loss. 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 clients, 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 clients 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.
Client remediation
AMP is progressing with its customer review and remediation programs which are seeking to identify and compensate clients
who have suffered loss or detriment as a result of either:
–
–
inappropriate advice from their adviser; or
where clients have been charged an advice service fee without the provision of financial advice services (or insufficient
evidence of the provision of financial services).
Provisions have been raised for both of these items, inclusive of the costs to perform the review and implement the remediation
process. The measurement of provisions is based on assumptions used to estimate the customer remediation payments, including
evidence failure rates and compensation amounts, which require significant judgement. As the review progresses, additional
information may arise or further issues may be identified, which could have a significant impact on the final compensation
and the costs of the programs. Consequently, the total costs associated with this matter remain uncertain.
Provisions for client remediation do not include amounts for potential recoveries from advisers and insurers.
Inappropriate advice
AMP continues to progress with the identification and compensation of clients 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. AMP has extended its
review to 30 June 2017. The provision also includes any instances of inappropriate advice identified through ongoing monitoring
and supervision activities.
Compensation has been and continues to be 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 expected future costs of operating the program. The provision includes a component for advisers for
whom 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 progressed on the identification and compensation of clients of advisers who have been charged an ongoing service
fee without the provision of financial advice services (or where there is insufficient evidence of the provision of financial advice
services). 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 clients have paid fees and there is insufficient evidence to support that the associated service had been performed.
In such instances, clients have been remediated.
AMP has developed a process for client review and remediation, which on current estimates is expected to finish mid-2021.
AMP has made significant progress in the execution of the remediation program, including agreeing major policies with ASIC.
Throughout the program AMP continues to engage with ASIC on its progress and approach.
The provision for advice service fee client compensation and the future costs of executing the remediation program 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.
AMP 2019 annual report
125
Notes to the financial statements 7.3 Provisions and contingent liabilities (continued)
Other matters
In addition to the above items, other reviews in relation to fees charged to clients have been performed during the year, including
corporate plan service fees, fees charged to clients without an active adviser and deceased estates. Those reviews are largely
complete. Where the reviews have identified instances of clients having suffered loss or detriment, compensation has been paid.
As at 31 December 2019, provisions of $22m have been raised for the estimated remaining compensation due to clients, including
lost earnings, for these matters. The provisions are judgemental and the actual compensation to clients could vary from the
amounts provided.
Buy-back arrangements
AMP has contractual arrangements with financial advice businesses in the aligned AMP advice network to purchase their
client registers at agreed multiples to 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 aligned AMP advice
network. The BOLR Master Terms and other buy-back arrangements were modified on 8 August 2019.
Where a notice of intention to invoke the buy-back arrangement has been received as at 31 December 2019 and AMP has
concluded that the purchase price of the register exceeds the value of the client register to AMP, or where on-going service
arrangements would be unable to be serviced or sold, a provision has been raised for the difference. The provision is
judgemental and the actual loss incurred upon settlement of the arrangement may vary significantly from the provision.
A contingent liability exists in relation to buy-back arrangements where a notice of intention could occur in future periods.
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 claims are yet to be quantified
and participation has not been determined. Subsequently, the four proceedings commenced in the Federal Court of Australia were
transferred to the Supreme Court of NSW. The Supreme Court of NSW determined that a consolidated class action (of two of the
class actions) should continue, and the other three proceedings were permanently stayed. An appeal against that decision was
filed by one of the unsuccessful plaintiffs, and that appeal was subsequently dismissed (a further application for leave to appeal
has been filed in the High Court of Australia). AMP Limited has filed its defence to the proceedings. Currently it is not possible
to determine the ultimate impact of these claims, if any, upon AMP. AMP Limited is vigorously defending these actions.
Superannuation class actions
During May and June 2019, certain subsidiaries of AMP Limited were served with two class actions in the Federal Court of Australia.
The first of those class actions relates to the fees charged to members of certain of AMP superannuation funds. The second of
those actions relates to the fees charged to members, and interest rates received and fees charged on cash-only fund options.
The two proceedings were brought on behalf of certain superannuation clients and their beneficiaries. Subsequently, the Federal
Court ordered that the two proceedings be consolidated into one class action, a consolidated claim was filed and defences were
filed on behalf of the respondent AMP Limited-subsidiaries. The claims are yet to be quantified and participation has not been
determined. Currently, it is not possible to determine the ultimate impact of these claims, if any, upon AMP. The proceedings are
being vigorously defended.
126
AMP 2019 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
2019
$’000
2018
$’000
6,731
1,596
6,107
1,340
8,327
7,447
499
1,063
766
1,028
1,562
1,794
9,889
9,241
8,005
452
7,696
371
8,457
8,067
45
173
218
274
280
554
Total auditors’ remuneration for managed investment schemes and superannuation funds
8,675
8,621
Total auditors’ remuneration
18,564
17,862
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 2019. These have not had a
material effect on the financial position or performance of the AMP group other than as described below.
AASB 16 Leases
AASB 16 Leases (AASB 16) became 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 assets being recognised. Lessees have the option not
to recognise certain type of leases such as ‘short-term’ leases.
AMP has applied the ‘modified retrospective’ method in adopting AASB 16 without restating the comparative information for
2018 as permitted by the transitional provisions of the standard. The adoption of the modified retrospective approach resulted
in recognition of the cumulative effect of the initial adjustment to retained earnings, for certain leases, as at 1 January 2019.
AMP 2019 annual report
127
Notes to the financial statements
7.5 New accounting standards (continued)
The following table identifies the impacts of the adoption of AASB 16 on the Consolidated statement of financial position and
equity balances as at 1 January 2019:
Balance at 31 December 2018
Adoption of AASB 16
Balance at 1 January 2019
Right of
use assets
$m
Lease
liabilities1
$m
–
199
199
–
(209)
(209)
Retained
earnings
(net of tax)
$m
(886)
(7)
Total
equity
$m
6,791
(7)
(893)
6,784
1
These do not include commitments to enter leases which have not yet commenced.
Opening balance reconciliation:
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:
Lease commitments at 31 December 2018 (undiscounted)
Lease commitments not commenced at 1 January 2019
Short-term leases
Discounting impact
Non-lease components and other items1
Opening lease liabilities at 1 January 2019
$m
1,241
(966)
(13)
(27)
(26)
209
1 Non-lease components are incorporated within the opening lease commitments but are excluded from lease liabilities.
Accounting policy – recognition and measurement
At inception, the AMP group assesses whether a contract is or contains a lease. Such assessment involves the application of
judgement as to whether:
–
–
–
the contract involves the use of an identified asset;
the group obtains substantially all the economic benefits from the asset; and
the group has the right to direct the use of the asset.
It is AMP’s policy to separate non-lease components when recognising the lease liability.
The group recognises a right of use (ROU) asset and a lease liability at the lease commencement date. The ROU asset is initially
measured as the present value of future lease payments, plus initial direct costs and restoration costs of the underlying asset, less
any lease incentives received. The ROU asset is depreciated over the shorter of the lease term and the useful life of the underlying
asset. The ROU asset is tested for impairment if there is an indicator, and is adjusted for certain remeasurements of the lease liability.
A lease liability is initially measured at the present value of future lease payments discounted using the group’s incremental
borrowing rate. Lease payments generally include fixed payments and variable payments that depend on an index, eg CPI.
A lease liability is remeasured when there is a change in future lease payments from a change in an index, or if the group’s
assessment of whether an option will be exercised changes.
Interest expense on lease liabilities is recognised within finance costs in the Consolidated income statement.
The group has elected not to recognise ROU assets and lease liabilities for leases where the lease term is less than or equal to
12 months. Payments for such leases are recognised as an expense on a straight-line basis over the lease term.
Right of use assets:
The main type of ROU asset recognised by the group is buildings. The following table details the carrying amount of the ROU assets
at 31 December 2019 and the movements during the year.
Upon adoption of AASB 16 at 1 January 2019
Net additions during the year
Depreciation expense
Closing balance at 31 December 2019
128
AMP 2019 annual report
Buildings
$m
199
96
(50)
245
Total
$m
199
96
(50)
245
7.5 New accounting standards (continued)
Lease liabilities:
The following table details the carrying amount of lease liabilities at 1 January 2019 and the movements during the year.
Upon adoption of AASB 16 at 1 January 2019
Net additions during the year
Interest expense
Payments made
Closing balance at 31 December 2019
$m
209
100
10
(53)
266
The AMP group paid an amount of $13m in relation to short-term leases and $1m in relation to variable lease payments. The total
cash outflow for leases in 2019 was $67m.
AASB Interpretation 23 Uncertainty over Income Tax Treatments
AASB Interpretation 23 Uncertainty over Income Tax Treatments 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.
The group adopted the interpretation on 1 January 2019. Upon adoption, the group assessed whether it has any uncertain tax
positions. The adoption of this interpretation did not have a material impact on the group.
(b) New accounting standards issued but not yet effective
A number of new accounting standards and amendments have been issued but are not yet effective, none of which have been early
adopted by the AMP group in this financial report. These new standards and amendments, when applied in future periods, are not
expected to have a material impact on the financial position or performance of the AMP group, other than as set out below.
AASB 17 Insurance Contracts
AASB 17 Insurance Contracts (AASB 17) introduces significant changes to accounting for life insurance contracts and the reporting
and disclosures in relation to those contracts. AASB 17 does not change the underlying economics or cash flows of the life insurance
business; however, there will be significant changes to the measurement of insurance contract liabilities including the amount of
deferred acquisition costs and the profit emergence profiles from life insurance contracts.
Since the standard was issued, various implementation matters have been raised by stakeholders and the International Accounting
Standards Board (IASB) is currently considering certain targeted amendments to the standard. The IASB proposes to announce
resolution of any amendments later in 2020.
As it currently stands, the mandatory adoption date is 1 January 2021. However, one of the proposed changes being considered by
the IASB is the deferral of the effective date for adoption of the new standard. Subject to the outcome of the IASB’s process, the new
effective date is proposed for financial reporting periods beginning on 1 January 2022.
In addition to the financial reporting impacts, regulators are considering their response to the new standard which may lead to
changes in the determination of capital requirements, income tax and prudential reporting.
Due to the complexities of the requirements, evolving interpretations and the potential changes to the original standard, it is not
yet practicable to quantify the financial impact on the AMP group’s life insurance business. In some cases, the final impact of the
new requirements will not be determined until any amendments, interpretations and regulatory responses to the new standard are
determined. The AMP group is continuing to develop its implementation plans for the adoption of AASB 17.
7.6 Events occurring after reporting date
On 27 June 2018, ASIC brought civil penalty proceedings against AMP Financial Planning Pty Limited (AMPFP), a wholly-owned
subsidiary of AMP Limited, alleging contraventions of the Corporations Act 2001 by AMPFP relating to the alleged conduct of certain
of its authorised financial advisers over the period of 2013 to 2015 in providing advice to clients in relation to the replacement of
life insurance policies by cancellation and new application rather than by transfer.
On 5 February 2020, the Federal Court of Australia determined there were six contraventions and that a civil penalty of
$5.175 million should be imposed, with formal orders to give effect to the penalty to follow in due course. AMP acknowledges
the Federal Court’s decision and the penalty amount has been included as a provision within the financial statements.
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 operations in future years;
the results of those operations in future years; or
the AMP group’s state of affairs in future financial years.
AMP 2019 annual report
129
Notes to the financial statements
Financial report
Directors’ declaration
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 2019 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
2019 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, 13 February 2020
Francesco De Ferrari
Chief Executive Officer and Managing Director
130
AMP 2019 annual report
Independent Auditor’s Report
to the Shareholders of AMP Limited
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Report on the Financial Report for the Year Ended 31 December 2019
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 2019, 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 2019 and of its consolidated
financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
b)
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of
the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements
of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that
are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond
to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.
AMP 2019 annual report
131
Independent Auditor’s Report
Report on the Financial Report (continued)
Provisions – Customer Remediation
31 December 2019 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 $652 million, and
disclosed related contingent liabilities, at 31 December 2019
as set out in Section 7.3. The remediation provision has
arisen due to obligations to compensate clients as a result
of either:
–
inappropriate advice from their adviser; or
–
where clients have been charged an advice fee without
the provision of financial advice services (or insufficient
evidence of provision of financial services).
–
–
Provisions for remediation can only be raised when
it is possible to reliably estimate the quantum of the
remediation cost and if this is not possible, they are
disclosed as a contingent liability.
Significant judgement was involved in assessing customer
remediation matters and in determining a reliable
measurement of the required provisions. Accordingly,
we considered this to be a key audit matter.
–
Key areas of judgement included:
–
–
whether sufficient information existed to allow
provisions 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 considered 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.
We involved modelling specialists to test arithmetic
accuracy of the financial model.
We assessed the manner in which remediation
costs have been accounted for and whether this is in
accordance with Australian Accounting Standards.
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 related
contingent liability disclosures required by Australian
Accounting Standards.
132
AMP 2019 annual report
Report on the Financial Report (continued)
Impairment of Advice Related Assets and Buyer of Last Resort Obligations
31 December 2019 Financial report reference: See references below
Why significant
How our audit addressed the matter
Our audit procedures included the following:
–
–
–
–
We assessed the Group’s analysis of the impact of
the 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 considered the Group’s assessment of market and
contractual factors in determining whether an onerous
contract exists at 31 December 2019 in relation to BOLR
arrangements. We considered the Group’s assessment of
market and contractual factors in determining the loan
impairment recognised against the practice finance loan
book. We considered whether the discounts applied are
within an appropriate range and provision coverage
was reasonable.
We assessed the disclosures of the assumptions,
uncertainties and associated judgements in relation
to these matters.
We assessed the appropriateness of contingent
liability disclosures against requirements of Australian
Accounting Standards.
The Group has exercised significant judgement in recording
provisions for the following matters:
–
As disclosed in section 7.3 of the financial report, the
Group has significant exposure in relation to the Buyer
of Last Resort (BOLR) arrangements arising from:
–
–
–
historic purchases of planner registers which remain
on balance sheet;
the contingent right and obligation to purchase future
registers; and
registers held as collateral supporting practice finance
loans.
–
–
As disclosed in section 2.2 of the financial report, AMP has
acquired advice registers which are recorded as inventory
or intangibles depending on their nature. The assumptions
used in the impairment model for intangible assets
valuation provisioning reflect the removal of recurring
revenues related to grandfathered commissions with
effect from 31 January 2020.
As disclosed in section 3.3 of the financial report, AMP
Bank also has practice finance loans to AMP Advisers as
at 31 December 2019, for which provisions for expected
credit losses are required to be booked in accordance with
Australian Accounting Standards.
Key areas of judgement include:
– assumptions within the impairment model on the valuation
of the planner registers such as: recurring revenue multiple,
projected revenue life and the discount rates used on the
impairment model;
–
–
–
classification of leased registers on the balance sheet
between inventory and intangibles;
practice finance loans facilities with the practice registers
as collateral. Assumptions used in assessing expected credit
losses include the historical data of practice revenue and
collateral discount applied to consider volatility in register
valuations; and
whether the BOLR terms represent an onerous contract
and require a provision to be recorded. Due the high level
of judgement required in determining these amounts,
we considered this to be a key audit matter.
AMP 2019 annual report
133
Independent Auditor’s Report Report on the Financial Report (continued)
Valuation of Life Insurance Policy Liabilities
31 December 2019 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 $23,505 million and
represent 16.5% of total liabilities at 31 December 2019
as set out in note 4.2.
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. Accordingly, they were
considered to be a key audit matter.
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; and
–
future maintenance and investment expenses.
To assess the assumptions used to determine the value
of policyholder liability, we have performed the following
audit procedures, amongst others, in conjunction with our
actuarial specialists.
–
–
–
–
–
–
–
We reassessed 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 policy liability valuation process
including the inputs into the calculation.
We evaluated the design and operating effectiveness
of associated information technology 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, and
the interpretation of prudential standards that affect
the policy liability valuation.
Our actuarial specialists assessed, on a sample
basis, adjustments that were made to the valuation
model outputs.
We assessed the adequacy of policy liability disclosures
included in the financial report against the requirements
of Australian Accounting Standards.
134
AMP 2019 annual report
Report on the Financial Report (continued)
Goodwill and Intangible Assets
31 December 2019 Financial report reference: Section 2.2: Intangibles
Why significant
How our audit addressed the matter
–
–
–
–
Goodwill has arisen from AMP’s historical acquisitions,
representing the excess of the purchase consideration
over the fair value of net assets acquired.
Following a $1,968 million impairment charge of Australian
wealth management and Australian and New Zealand
wealth protection and mature cash-generating units
(CGUs) at 30 June 2019, AMP has $172 million of goodwill
as described in section 2.2 Intangibles of the financial
report as at 31 December 2019.
An impairment assessment of goodwill was performed,
comparing the carrying value of each relevant CGU with
its recoverable amount. The recoverable amount of each
CGU was determined by calculating the CGU’s fair value
less cost of disposal.
Intangible assets for in-force contracts, distribution
networks and capitalised costs total $691 million as at
31 December 2019 as described in section 2.2 Intangibles
of the financial report. 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. An impairment charge
was recorded against capitalised costs during the year.
Key areas of judgement included the following assumptions
used to calculate recoverable amounts, which differ by CGU
and level of risk and judgement:
–
–
–
–
Australian Wealth Management – Discounted Cash Flow
(DCF) using assumption on Advice business reshaping,
projected market returns, product margins and cost savings.
Australian and New Zealand wealth protection and
mature – Adjusts the expected sale proceeds for the sale
of AMP Life to Resolution Life for the recoverable amount.
AMP Capital is based on an average market ‘consensus
multiple’ from a group of analysts.
New Zealand wealth management uses a discounted
cash flow analysis with assumptions and input aligned
to the prevailing strategic plan.
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 2019 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.
Our audit procedures included the following:
–
–
–
–
–
Assessed whether the methodology used by the
Group for impairment assessment purposes was
in accordance with the requirements of Australian
Accounting Standards.
Assessed the key assumptions in the fair value
calculations such as transaction values resulting from
sale and purchase arrangements, risk discount rates,
and forecast new business growth rates and cost bases.
Performed sensitivity analysis on the impact of changes
in those assumptions.
Where required, we involved valuation specialists to
test the arithmetic accuracy of the impairment model
and assess key assumptions such as risk discount rates,
forecast new business growth rates and cost bases
and reasonableness of price/earnings multiples.
For amortising intangible assets such as in-force,
distribution networks and capitalised costs, 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.
–
We assessed the adequacy of impairment disclosures
included in the financial report against the requirements
of Australian Accounting Standards.
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.
AMP 2019 annual report
135
Independent Auditor’s Report Responsibilities of the Directors for the
Financial Report
The directors of the Group 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.
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 judgement and maintain
professional scepticism throughout the audit. We also:
–
–
–
–
Identify and assess the risks of material misstatement
of the financial report, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control.
Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or,
if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to
continue as a going concern.
136
AMP 2019 annual report
–
–
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 2019.
In our opinion, the Remuneration Report of AMP for the year
ended 31 December 2019 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
13 February 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under
Professional Standards Legislation
Securityholder information
Distribution of AMP Capital Notes 2 holdings as at 13 February 2020
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
3,409
252
22
17
3
3,703
988,401
520,170
152,881
440,527
573,021
2,675,000
36.95
19.45
5.72
16.47
21.42
100.00
Twenty largest AMP Capital Notes 2 holdings as at 13 February 2020
Rank
Name
Notes held
% of issued Notes
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Mutual Trust Pty Ltd
Navigator Australia Ltd
Australian Executor Trustees Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP
National Nominees Limited
Trustees of Church Property for the Diocese of Newcastle
Netwealth Investments Limited
Filbury P/L
Nulis Nominees (Australia) Limited
Australian Executor Trustees Limited
HSBC Custody Nominees (Australia) Limited – A/C 2
Netwealth Investments Limited
J P Morgan Nominees Australia Pty Limited
T G B Holdings Pty Ltd
Brownbuilt Pty Limited
Invia Custodian Pty Limited
Mr James Vincent Chester Guest
Lightningedge Pty Ltd
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
285,749
163,931
123,341
60,132
56,014
42,089
36,775
31,960
28,120
25,800
25,045
24,923
22,011
15,481
15,028
14,100
11,285
10,907
10,657
10,200
10.68
6.13
4.61
2.25
2.09
1.57
1.37
1.19
1.05
0.96
0.94
0.93
0.82
0.58
0.56
0.53
0.42
0.41
0.40
0.38
1,013,548
37.89
AMP 2019 annual report
137
Securityholder information
Securityholder information (continued)
Distribution of AMP Capital Notes 3 holdings as at 13 February 2020
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
3,149
279
17
14
2
3,461
937,985
590,239
128,882
514,688
578,206
2,750,000
34.11
21.46
4.69
18.72
21.03
100.00
Twenty largest AMP Capital Notes 3 holdings as at 13 February 2020
Rank
Name
Notes held
% of issued Notes
HSBC Custody Nominees (Australia) Limited
Sargon CT Pty Ltd
J P Morgan Nominees Australia Pty Limited
UBS Nominees Pty Ltd
Netwealth Investments Limited
Nora Goodridge Investments Pty Limited
John E Gill Trading Pty Ltd
Netwealth Investments Limited
Elmore Super Pty Ltd
National Nominees Limited
Harmanis Holdings Pty Ltd
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP
Mutual Trust Pty Ltd
Nulis Nominees (Australia) Limited
Invia Custodian Pty Limited
Invia Custodian Pty Limited
G C F Investments Pty Ltd
MF Investments No 1 Pty Ltd
South Brisbane Hotel Pty Ltd
Specialist Nominees Pty Limited
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
17
17
20
Total
Distribution of AMP Wholesale Capital Notes holdings as at 13 February 2020
460,006
118,200
90,198
62,380
59,529
50,000
47,395
40,526
30,000
27,261
25,000
21,344
19,860
15,795
13,990
11,410
10,000
10,000
10,000
9,750
1,132,644
16.73
4.30
3.28
2.27
2.16
1.82
1.72
1.47
1.09
0.99
0.91
0.78
0.72
0.57
0.51
0.41
0.36
0.36
0.36
0.35
41.19
Range
1–1,000
1,001–5,000
5,001–10,000
Total
Number of holders
Notes held
% of issued Notes
8
4
2
14
2,983
10,472
14,045
27,500
10.85
38.08
51.07
100.00
138
AMP 2019 annual report
Securityholder information (continued)
AMP Notes voting rights
AMP Wholesale Capital Notes and AMP Capital Notes confer no right to attend or vote at any general meeting of the shareholders
of AMP Limited. If a holder’s Notes convert into AMP Limited ordinary shares in accordance with the terms of the Notes, those
shares will have the voting rights described on page 140.
Substantial holders as at 31 January 2020
The names of substantial holders in AMP Limited, and the number of ordinary shares which each substantial holder and the
substantial holder’s associates have a relevant interest in, as disclosed in substantial holding notices received by AMP Limited before
13 February 2020, are set out below. For details of the related bodies corporate of the substantial holders who also hold relevant
interests in AMP Limited ordinary shares, refer to the substantial holding notices lodged with ASX, under the company code AMP.
Shareholder
Number of ordinary shares
Voting power %
Lazard Asset Management Pacific Co
Harris Associates Investment Trust
Allan Gray Investment Management
The Vanguard Group Inc.
235,114,471
224,258,692
201,256,600
195,531,341
6.84
6.53
5.86
5.69
Distribution of AMP Limited shareholdings as at 13 February 2020
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of holders
Ordinary shares held
% of issued shares
489,183
196,084
21,375
16,173
572
723,387
213,855,162
398,995,206
152,543,039
362,619,306
2,308,586,528
3,436,599,241
6.22
11.61
4.44
10.55
67.18
100.00
As at 13 February 2020, the total number of shareholders holding less than a marketable parcel of 276 shares is 162,363.
Twenty largest AMP Limited shareholdings as at 13 February 2020
Rank
Name
Ordinary shares held
% of issued capital
1
2
3
4
5
6
7
8
9
10
11
12
13
13
15
16
17
18
19
20
Total
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited – GSCO ECA
National Nominees Limited
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP
Argo Investments Limited
BNP Paribas Noms Pty Ltd
Mr Kenneth Joseph Hall
AMP Life Limited
Netwealth Investments Limited
Aigle Royal Superannuation Pty Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited – A/C 2
Gwynvill Trading Pty Limited
1,034,483,867
450,798,679
284,324,060
75,500,119
71,044,702
59,586,605
46,158,144
19,590,576
19,324,908
15,622,404
10,748,724
10,381,674
10,000,000
10,000,000
8,194,320
6,378,410
5,500,000
3,960,000
3,281,770
3,054,000
2,147,932,962
30.10
13.12
8.27
2.20
2.07
1.73
1.34
0.57
0.56
0.45
0.31
0.30
0.29
0.29
0.24
0.19
0.16
0.12
0.10
0.09
62.50
AMP 2019 annual report
139
Securityholder information
Securityholder information (continued)
AMP Limited shares voting rights
The voting rights attached to AMP Limited ordinary shares are that each registered holder of shares present in person (or by proxy,
attorney or representative) at a meeting of shareholders has one vote on a vote taken by a show of hands, and one vote for each
fully paid share held on a vote taken by a poll.
Options and rights granted under the Equity Incentive Plan
As at 13 February 2020, AMP Limited had the following unquoted options and rights on issue under its Equity Incentive Plan:
–
–
13,650,783 share rights, of which the number of holders was 199.
41,866,387 performance rights, of which the number of holders was 52.
Options, share rights and performance rights do not give the holder an entitlement to be issued AMP Limited shares. AMP
Limited generally has the discretion to satisfy vested options and rights by way of the issue, on market purchase or transfer
of shares (or by an equivalent cash payment). Options, share rights and performance rights do not confer any voting rights on
the holder unless and until they vest and are converted into shares. For further details of options and rights on issue, refer to
pages 110 to 117 (note 5.3 Share-based payments) and the remuneration report.
Number of Share Rights on issue as at 13 February 2020
Size of holding
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of Performance Rights on issue as at 13 February 2020
Size of holding
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of holders
Share rights
–
10
6
150
33
199
–
36,226
49,699
4,403,669
9,161,189
13,650,783
Number of holders
Performance rights
–
–
–
–
52
52
–
–
–
–
41,866,387
41,866,387
On market acquisitions for employee incentive schemes during the financial year ended 31 December 2019
10,980,931 AMP Limited ordinary shares were purchased on market to satisfy entitlements under AMP’s employee incentive
schemes at an average price per share of $2.26.
Stock exchange listings
AMP Limited’s ordinary shares are quoted on the Australian Securities Exchange and on the New Zealand Stock Exchange.
AMP capital notes are quoted on the Australian Securities Exchange.
Restricted securities
There are no restricted securities on issue.
Buy-back
There is no current on market buy-back.
140
AMP 2019 annual report
Glossary
Contingent liabilities
A situation existing at reporting date,
where past events have led to a possible
obligation, the outcome of which
depends on uncertain future events,
or an obligation where the outcome
is not sufficiently probable or reliably
measurable to warrant recognising
the liability at this reporting date.
Controllable costs
Costs that AMP incurs in running its
business. Controllable costs include
operational and project costs and
exclude variable costs, provision for
bad and doubtful debts and interest
on corporate debt.
Earnings per share (EPS)
Each earnings per share (EPS) calculation
represents the profit amount divided by
the weighted average number of shares
on issue during the year.
Franking rate
The amount of tax AMP has already
paid on a dividend payment. This
can be used as a tax credit by Australian
resident shareholders. The franking
rate is determined by AMP’s taxable
income. AMP’s policy is to always frank
dividends at the highest possible rate.
Investment performance
A measure of how well we manage
funds on behalf of our customers.
The percentage of assets managed
by AMP which met or exceeded their
respective client goals.
Key management personnel (KMP)
The chief executive officer (CEO),
nominated direct reports of the CEO
and the non-executive directors, who
have authority and responsibility for
planning, directing and controlling
the activities of AMP.
Long-term incentive (LTI)
An executive reward for helping AMP
achieve specific long-term performance
targets. It is awarded in the form of
share rights and/or performance rights
to motivate executives to create long-
term value for shareholders. A right
is an entitlement to receive one AMP
Limited share per right subject to
meeting the vesting conditions.
Non-executive directors (NEDs)
Board directors who are not employees
of AMP (they are independent).
Operating earnings
Total operating earnings are the
shareholder profits that relate to
the performance of AMP. Operating
earnings exclude investment
earnings on shareholder capital
and one-off items.
Performance right
A form of executive remuneration
designed to reward long-term
performance. Selected executives
are granted performance rights.
Each performance right is a right
to acquire one AMP share after a
performance period, if a specific
performance hurdle is met.
Return on equity (RoE)
Return on equity (RoE) is a measure
previously used in the AMP long-term
incentive plan. It is a percentage that
shows how effective AMP has been
in growing the value of the money
invested by our shareholders.
The percentage is determined by
dividing AMP’s underlying profit
by AMP shareholder equity.
Share right
A share right is an entitlement to
acquire one AMP share at the end
of a vesting period, as long as the
service conditions are met.
Short-term incentive (STI)
An executive reward for helping
AMP achieve specific short-term
performance targets and objectives.
It is paid in the form of cash and
share rights to motivate executives
and drive performance during
the year.
Group incentive pool
The money used for the payment
of STI rewards. The pool size varies
each year depending on AMP’s
performance against financial
and non-financial measures.
Total shareholder return (TSR)
A measure of the value returned to
shareholders over a period of time.
It takes into account the changes
in market value of AMP shares,
plus the value of any dividends paid
and capital returns on the shares.
Underlying investment income
Underlying investment income is
based on long-term expected rates
of return. Actual investment income
can be higher or lower than the
long-term rate from year to year.
Underlying profit
AMP’s key measure of business
profitability, as it smooths investment
market volatility that stems from
shareholder assets that are invested
in investment markets and aims to
reflect the trends in the underlying
business performance of the AMP
group. The components of underlying
profit are listed on page 64.
Vesting
Remuneration term defining the point
at which the required performance
hurdles and/or service requirements
have been met, and a financial benefit
may be realised by the recipient.
AMP is committed to actively reducing its impact on the environment and has printed this
document on PEFC certified paper from sustainably managed forest and controlled sources.
Contact us
Registered office
of AMP Limited
33 Alfred Street
Sydney NSW 2000
Australia
T +612 9257 5000
F +612 9257 7178
W amp.com.au
Company Secretary:
Marissa Bendyk
AMP share registry
Australia
AMP share registry
Reply Paid 2980
Melbourne VIC 8060
T 1300 654 442
F 1300 301 721
AMP Investor Relations
Level 21, 33 Alfred Street
Sydney NSW 2000
Australia
T 1800 245 500 (Aus)
T +612 9257 9009 (Int)
E shares@amp.com.au
W amp.com.au/shares
Head of shareholder services:
Marnie Reid
AMP products and policies
Australia
T 131 267
E askamp@amp.com.au
New Zealand
T 0800 808 267
E service@amp.co.nz
International
T +612 8048 8162
New Zealand
AMP share registry
PO Box 91543
Victoria Street West
Auckland 1142
T 0800 448 062
F +649 488 8787
Other countries
AMP share registry
GPO Box 2980
Melbourne VIC 3001
Australia
T +613 9415 4051
F +613 9473 2555
E ampservices@computershare.com.au
AMP is incorporated and
domiciled in Australia
facebook.com/AMPaustralia
@AMP_AU
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