AMP Investor Report - corporate-ir.net · Contents 1 AMP Investor Report 1H 10 Contents AMP 1H 10 performance summary 2 Financial summary 3 Key performance measures 5 Strategic overview

1H

10

AMP Investor ReportHalf year 2010

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Management and contact details

Executive management team

Craig Dunn Managing Director and Chief Executive Officer

Paul Leaming Chief Financial Officer

Craig Meller Managing Director, AMP Financial Services

Stephen Dunne Managing Director, AMP Capital Investors

Lee Barnett Chief Information Officer

Brian Salter General Counsel & Company Secretary

Jonathan Deane General Manager, Strategy

Matthew Percival General Manager, Public Affairs

Fiona Wardlaw General Manager, Human Resources

Investor relations and media enquiries

Howard Marks Director, Investor Relations

Telephone 61 2 9257 7109

Facsimile 61 2 9257 7445

Email [email protected]

Jane Anderson Director, Media and Community Relations

Telephone 61 2 9257 9870

Facsimile 61 2 9257 2002

Email [email protected]

Online reports

This investor report is available online at www.amp.com.au/shareholdercentre along with other

investor relations information.

AMP Limited ABN 49 079 354 519

146566 0810 NS1679A.indd 2 12/07/10 9:34 AM

1ContentsAMP Investor Report 1H 10

Contents

AMP 1H 10 performance summary 2

Financial summary 3

Key performance measures 5

Strategic overview 6

AMP Financial Services (AFS) AMP Financial Services financial summary 8

Australian contemporary wealth management 10

Australian contemporary wealth protection 12

Australian mature 14

New Zealand 16

Cashflows and assets under management (AUM) 18

Market share 21

Embedded value (EV) and value of new business (VNB) 22

EV and VNB sensitivities 25

EV assumptions 26

AMP Capital Investors (AMPCI) AMP Capital Investors financial summary 27

Cashflows and assets under management (AUM) 32

Investment performance 34

Capital structure Capital management 36

Debt overview 39

Additional information Group Office 40

Sensitivities – profit and capital 42

Glossary of terms and independent review Accounting treatment and definitions 44

Definitions of business units (BUs) and exchange rates 46

Five year summary 47

1H 10 financial results 48

Independent review statement 49

Information for shareholders 50

Important note

This Investor Report provides financial information reflecting 100% shareholder attributable after income tax results from an operational perspective. The principles of life insurance accounting are used in reporting the results of AFS. Information is provided on an operational basis (rather than statutory basis) to reflect a management view of the businesses and existing structures. Content is prepared using external market data and internal management information useful for investors. This Investor Report is not audited. In preparing the Investor Report, management has had its external auditor, Ernst & Young, prepare a review statement in relation to specific matters pertaining to the information presented herein for management’s purposes. This statement has been included in the document for the information of readers; however, it has been prepared solely for management and may not be relied upon by any party other than the management of AMP Limited.

All results have been prepared in accordance with Australian accounting standards.

Forward looking statements in this Investor Report are based on management’s current views and assumptions and involve known and unknown risks and uncertainties, many of which are beyond AMP’s control and could cause actual results, performance or events to differ materially from those expressed. These forward looking statements are not guarantees or representations of future performance.

This Investor Report is not an offer document and therefore has not been the subject of a full due diligence process typically used for an offer document. While AMP has sought to ensure that information in this Investor Report is accurate by undertaking a review process, it makes no representation or warranty as to the accuracy or completeness of any information or statement in this Investor Report. In particular, information and statements in this Investor Report do not constitute investment advice or a recommendation on any matter.

AMP also provides prescribed statutory reporting under the Corporations Act 2001. Those accounts will be available from AMP’s website www.amp.com.au and reflect policyholder and shareholder interests.

2 AMPAMP Investor Report 1H 10

1H 10 performance summary

Key performance measures Underlying return on equity remains high at 27.4%, with a 4.2% reduction from 31 December 2009 driven by AMP's

decision to hold higher capital in response to market volatility and until new regulatory standards become clearer

Underlying profit of A$383m, up 4% on 1H 09

Growth measures:

AFS net cashflows of A$584m, down from A$865m in 1H 09; AMPCI external net cashflows of A$1.9b, up from A$0.2b in 1H 09

Value of risk new business1 down A$2m to A$45m

64% of funds met or exceeded benchmark over the twelve months to 30 June 2010

Profit and profit driversUnderlying profit of A$383m, up 4% on 1H 09

Net profit attributable to shareholders of AMP Limited up 17% to A$425m

AFS contemporary wealth management operating earnings up 16%, AFS NZ up 39% and AMPCI up 2%

AFS contemporary wealth protection down 12% and mature operating earnings down 6%

Total investment income up A$18m due to improved investment markets and higher capital resources

Cashflows, AUM and revenue marginsGroup AUM down 1% to A$111b from FY 09, primarily due to lower investment markets2

AFS AUM decreased 2% to A$74b from FY 09, AMPCI AUM flat at A$95b2

AFS net cashflows down on 1H 09 to A$584m. Retail superannuation and pensions/annuities fell 39% to A$341m, corporate superannuation decreased 16% to A$407m (excluding mandate wins) and AFS NZ decreased 1% to A$87m

AMPCI external net cashflows increased to A$1.9b from A$0.2b in 1H 09 driven by strong inflows into Australian fixed interest and global REITs from Asian clients

AFS Australian individual risk API increased 9% to A$616m, group risk API decreased 3% to A$145m, AFS NZ individual risk API increased by 8% to A$120m from 1H 09

Contemporary wealth management investment related revenue to AUM decreased 4 bps from 2H 09 to 180 bps

Costs and cost ratiosTotal costs increased 3% to A$426m from 1H 09, cost to income ratio down 0.2 percentage points to 42.2%

AFS controllable costs fell 1% to A$261m, AMPCI costs increased 11% to A$136m

Capital management and dividend Excess capital over minimum regulatory requirements was A$1.4b at 1H 10, up from A$1.2b at FY 09

Interest cover (underlying) remains strong at 12.3 times

Gearing on an S&P basis is 15%

Interim dividend of 15 cps was declared for 1H 10

1 This is a combined value of new business measure for Australian contemporary wealth protection and New Zealand risk insurance.

2 Group AUM and AMPCI AUM restated. See page 32 for details.

3AMPAMP Investor Report 1H 10

Financial summary

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss

Australian contemporary wealth management 150 129 149 278 16.3

Australian contemporary wealth protection 73 83 81 164 (12.0)

Australian mature 68 72 79 151 (5.6)

New Zealand 32 23 31 54 39.1

AMP Financial Services 323 307 340 647 5.2

AMP Capital Investors 44 43 48 91 2.3

BU operating earnings 367 350 388 738 4.9

Group Office costs (20) (18) (19) (37) (11.1)

Total operating earnings 347 332 369 701 4.5

Underlying investment income 64 64 62 126 -

Interest expense on corporate debt (36) (37) (34) (71) 2.7

AMP Limited tax loss recognition 8 8 8 16 -

Underlying profit 383 367 405 772 4.4

Market adjustment – investment income (8) (26) 13 (13) 69.2

Other items1 (3) 53 (43) 10 n/a

Seed pool valuation adjustments2 - (35) 5 (30) n/a

Profit after income tax before timing differences 372 359 380 739 3.6

Market adjustment – annuity fair value3 5 (9) 29 20 n/a

Market adjustment – risk products3 10 (16) 2 (14) n/a

Loan hedge revaluations3 8 (4) (1) (5) n/a

Accounting mismatches3 30 32 (33) (1) (6.3)

Net profit attributable to shareholders of AMP Limited 425 362 377 739 17.4

1 2009 other items principally comprise the release of prior year tax provisions offset by one-off and non-recurring costs.

2 Seed pool valuation adjustments in 1H 09 represent the abnormal writedown of seed pool assets, being primarily Singapore industrial property and an Australian retirement village business.

3 Timing differences relate to accounting gains/losses that do not reflect the underlying profitability of the Group and should reverse over time. Refer to page 41 for more detail.

Movement in underlying profit 1H 09 to 1H 10

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A$m

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Financial summary cont’d

1H 10 1H 09 2H 09 FY 09

Earnings

EPS – underlying (cps) 18.6 18.3 20.0 38.3

EPS – actual (cps) 20.9 18.2 18.8 37.1

RoE – underlying 27.4% 31.6% 31.6% 31.6%

RoE – actual 30.4% 31.2% 29.4% 30.3%

Dividend

Dividend per share (cps) 15 14 16 30

Dividend payout ratio – underlying 81% 77% 80% 78%

Ordinary shares on issue (m)1 2,072 2,014 2,049 2,049

Weighted average number of shares on issue (m)1 – basic 2,059 2,008 2,029 2,016

– fully diluted 2,069 2,018 2,038 2,025

Market capitalisation – end period (A$m) 10,795 9,827 13,869 13,869

Capital management

AMP shareholder equity 2,891 2,357 2,706 2,706

Corporate debt (excluding AMP Bank debt) (A$m) 1,363 1,389 1,189 1,189

S&P gearing 15% 16% 13% 13%

Interest cover – underlying (times) 12.3 10.0 11.9 11.9

Interest cover – actual (times) 12.5 8.0 11.4 11.4

EV and VNB

Value of risk new business (3% dm) (A$m) 45 47 55 102

EV after transfers – AFS (3% dm) (A$m)2 7,666 7,472 7,909 7,909

Return on EV – AFS (3% dm) 3.3% 2.7% 8.6% 11.3%

Cashflows and AUM

AFS cash inflows (A$m) 6,374 5,935 6,556 12,491

AFS cash outflows (A$m) (5,790) (5,070) (5,760) (10,830)

AFS net cashflows (A$m) 584 865 796 1,661

AFS persistency 90.7% 90.3% 90.1% 90.1%

AFS AUM – AMPCI managed (A$b) 58 54 59 59

AFS AUM – externally managed (A$b) 16 14 17 17

AMPCI net cashflows – external (A$m) 1,855 192 (1,269) (1,077)

AMPCI net cashflows – internal (A$m)3 (679) (223) (690) (913)

AMPCI AUM (A$b)3 95 89 95 95

Total AUM (A$b)3 111 103 112 112

Investment performance – AMPCI

Percentage of funds meeting or exceeding benchmark – total AUM4 64% 32% 67% 67%

Controllable costs and cost ratios

Operating costs (A$m) 392 381 397 778

Project costs (A$m) 34 32 27 59

Total controllable costs (A$m) 426 413 424 837

Cost to income ratio 42.2% 42.4% 41.0% 41.7%

Controllable costs to AUM (bps) 76 81 77 79

1 Number of shares has not been adjusted to remove treasury shares.

2 1H 10 transfers of A$503m (FY 09: A$480m).

3 AMPCI AUM and total AUM restated. See page 32 for details.

4 Performance figures are on a 12 month rolling basis for total AMPCI AUM.


Key performance measures

%

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Target 75%

Return on equity (RoE) – underlying

Underlying profit Value of risk new business

Underlying RoE decreased to 27.4% in 1H 10 due to higher capital resources

Underlying profit was up 4% on 1H 09 to A$383m

Value of risk new business fell A$2m to A$45m (Australia up 2% offset by a decline in New Zealand)

Net cashflows Percentage of funds meeting or exceeding benchmark

Net cashflows for AFS down to A$584m; AMPCI (external) up to A$1,855m

64% of funds meeting or exceeding benchmark for the twelve months to 30 June 2010


Overview

AMP is a leading wealth management company operating in Australia and New Zealand, with selected investment management activities in Asia and a growing banking business in Australia. Its ambition is to become the region’s pre-eminent wealth manager and investment house.

The company is one of Australia’s largest superannuation providers and one of the country’s top investment managers with A$111b in assets under management. AMP’s financial planner network ranks amongst the largest in Australia and New Zealand.

AMP’s competitive advantage is its resilient business model, which is characterised by: a pre-eminent brand; a low cost and scalable manufacturing platform; a large aligned planner channel; a broad-based asset management and packaging business; and cost and capital efficiency.

AMP’s two core businesses are AMP Financial Services (AFS) and AMP Capital Investors (AMPCI).

Capital management

At 30 June 2010 the regulatory capital resources above MRR were A$1,413m (A$1,242m at 31 December 2009). Regulatory capital resources were 2.4 times MRR (2.2 times at 31 December 2009). The regulatory capital resources above MRR will vary throughout the year due to a range of factors including investment market movements, dividend payments and statutory profits (see page 37 for details).

AMP continues to take a prudent approach to capital management and has a bias towards holding more capital rather than less in light of continued market volatility and until APRA's new regulatory capital proposals become clearer (see page 36 for details).

AMP’s interim 2010 dividend is 15 cents per share franked to 60%. AMP’s dividend payout ratio for 1H 10 is 81% of underlying profit, with future dividends likely to be in the range of 75% to 85% of underlying profit.

AMP will offer a discount of 1.5% to DRP participants. The DRP will not be underwritten and new shares will be issued.

Strategy

AMP has reshaped its business for the future. Following two years of significant investment across its business operations, today's AMP has a:

reinvigorated product set with choices that meet different needs and budgets

repositioned advice business, with a transformed, more productive planner force

strengthened set of investment capabilities and improving investment performance

growing funds management presence in Asia, with A$7b in AUM.

To achieve this, the company committed to five key principles to guide decision making about its strategy at the onset of the financial crisis. These principles are: strengthening its financial base, lowering unit costs, moving ahead of the regulatory change curve, investing through the economic cycle and participating in selective mergers and acquisitions (M&A).

These principles continue to guide AMP’s strategy, which is to grow by:

renovating its core business to ensure continuing strength and relevance

expanding into adjacent markets and geographies

reshaping the business portfolio through targeted M&A.

Renovating the core business

In 1H 10, AMP made significant progress renovating its core operations, and is aggressively pursuing revenue and profit growth from these changes. AMP today is a competitive, contemporary wealth manager and investment house with:

No commissions on new superannuation, pension and investment business: AMP was the country’s first wealth manager to remove in-built commissions from new superannuation, investment and pensions business across all its product and advice businesses. This was achieved two years ahead of the deadline set by industry bodies.

Fee-for-service business models across its 1,760-strong Australian planner network: AMP’s change program to facilitate the transition to fee-for-service involved almost 1,300 hours of training programs and more than 5,200 hours of coaching sessions for planners.

A transformed planner network: The Horizons Academy is helping to change the face of financial planning, attracting a younger, more diverse and productive planner base. Planner productivity is on the rise as a result of increased usage of back-office services and new technology.

Strengthened investment capabilities: Selective recruitment and retention of investment talent, combined with market-leading operating systems and processes has enabled AMP to steadily improve its investment performance across a broad range of asset classes.

A growing presence in Asia: AMP now sources around 7% of its AUM from Asia and is generating encouraging cashflows from the region, particularly Japan.

Expanding to adjacent markets and geographies

AMP is also investing in selective new markets and new geographies to drive growth. Initial results from these medium and long-term investments are encouraging.

For example, in the high net worth (HNW) market, AFS’s boutique financial planning arm Private Wealth Management now has A$112m under advice. AFS is also attracting cashflows through its Separately Managed Account platform (Personalised Portfolio) for HNW investors. Personalised Portfolio now has A$166m under management.

The company is expanding to new geographic markets through AMPCI, where it is focusing on Japan, Singapore, India and China. A combination of organic growth and selective M&A and alliances is underpinning this expansion.

Strategic overview


Reshaping the business portfolio through targeted M&A

AMP pursues inorganic growth opportunities, like M&A, that are strategic, economic and within the company’s risk appetite.

During 1H 10, AMP focused on successfully bedding down a number of acquisitions and alliances formed in 2009, including its acquisitions of Gemini Advisors Securities in Japan and Rabo Financial Advisers in Australia; growing its global infrastructure capability by opening a New York office; its listed REIT in Singapore and its joint venture with Brookfield Investment Management in global listed real estate and infrastructure.

Regulatory environment

AMP has used the flexibility created by its disciplined cost control and strong capital base to respond quickly and pro-actively to a changing market environment. Changes to both the Australian and New Zealand businesses have been driven by shifting consumer preferences, evolving industry practices and regulatory reform.

AMP has initiated a number of significant changes to position the business to maximise the opportunities flowing from these changes.

In Australia, these include the removal of in-built commissions from new superannuation, pension and investment business (effective 1 July), a shift to fee-for-service across its planner network, and the development of a new superannuation and retirement offering that meets consumer needs and fits with the Federal Government’s proposals for MySuper.

AMP has been an active participant and driver of the debate around the future direction of Australia’s superannuation industry, and will continue to push for change that delivers better retirement outcomes for Australians.

AMP’s executive remuneration is aligned with its growth strategy

Remuneration includes both short and long-term incentives, which are aligned to the company’s performance and value growth for shareholders.

Short-term incentives are based on progress against AMP’s four key performance measures: underlying return on equity; underlying profit; growth measures including AFS and AMPCI net cashflows and the value of risk new business; and investment performance.

Long-term incentives are based on progress in generating total shareholder returns (TSR) in the top quartile of the market. AMP’s over-arching goal is to deliver first quartile TSR performance to shareholders. This means that AMP aims to be in the top 25% of the major 50 Australian industrial companies (on the S&P/ASX 100 Index) in terms of TSR. AMP is making changes to its remuneration framework to ensure that it is effective for the business, meets changing stakeholder expectations and reflects the requirements of the new APRA standard.

Strategic overview cont’d

8 AMP Financial ServicesAMP Investor Report 1H 10

Business overview

AMP Financial Services (AFS) is a wealth management business operating in Australia and New Zealand. It is one of Australia’s leading retail and corporate superannuation providers and is the third largest provider of retirement incomes (based on AUM market share). AFS also ranks as amongst the largest aligned planner force in Australia and New Zealand.

Strategy

AFS is repositioning its business for the future. During the past two years, it has significantly invested in a series of major change and growth initiatives that respond to extensive industry reform, driven by new consumer attitudes and potential regulation.

By 30 June, it successfully completed its most significant change initiatives, launching a reshaped business model with:

no commissions on new superannuation, pension and investment business

fee-for-service business models across its Australian planner network

a competitive new product range designed to meet consumer and planner needs, and regulatory requirements

a broader range of distribution channels

a transformed planner network.

AFS’s strategy is to continue evolving through a series of ongoing growth initiatives that fall into two areas:

building greater distribution capacity

creating compelling customer offers.

Growth initiatives – building greater distribution capacity

Growing planner numbers: In the year to March 2010, AMPFP was ranked as the largest dealer group by adviser numbers1. Growth in planner numbers of the combined top 10 financial planning groups was 1.9%, well below that of both AMPFP and the total Australian aligned planner force growth of 5.6% and 3.8% respectively1.

AFS planner numbers in Australia fell by 7 from 2H 09 to 1,760 in 1H 10. There were 136 new recruits offset by withdrawals of 143. In New Zealand, planner numbers fell by 16 from 2H 09 to 345 in 1H 10.

Planner numbers were impacted by increased retirements due to changes in the regulatory environment. New Zealand planner numbers were impacted by the changing regulatory and challenging operating environment. The Horizons Academy continues to boost AMPFP planner numbers, with 24 new planners joining the network in 1H 10 and a further 32 graduating in July. The 2010 intake is expected to increase by 50% to 130 in response to ongoing demand. Total AMPFP practice numbers increased 18 to 713 while the number of Hillross practices fell 2 to 114.

More productive planners: Compared to the industry median, AFS planners are more productive2. In addition, Horizons Academy-trained planners are 50% more productive than AFS planners who join from other channels.

Ongoing initiatives continue to drive productivity across the network:

Paraplanning: volumes rose 77% on 1H 09 for central paraplanning services, while the number of practices using the service increased 44% on 1H 09; monthly paraplanner productivity (Statements of Advice written) increased 33%.

Coin planner software: fully operational, and end-to-end process efficiency gains of up to 60% have been achieved.

Tailored customer offers: planners utilising offers continue to generate more sales than non-participating planners.

Scoped advice: pilot program underway to help planners provide transactional advice.

Broader distribution: At the end of 1H 10, AFS had further expanded its distribution network to drive revenue:

Private Wealth Management: The financial planning business for high net worth investors has attracted 144 clients and funds under advice of A$112m.

AMP Bank: Increased deposits by A$354m.

IFA and alliances: Risk sales through these channels increased 17% in 1H 10.

In mid July, AFS launched an AMP branded walk-in financial planning centre based in Sydney’s Parramatta. The centre caters for 20 financial planners.

Growth initiatives – creating compelling customer offers

In 1H 10, AFS launched improved products and advice offers that respond to regulatory change, address consumer preferences and equip planners with a more contemporary, competitive product set. The product changes also deliver efficiencies across the business.

Superannuation and pensions: AFS has cut this product range from six to two products, introducing the new AMP Flexible Super and retaining SignatureSuper as the principle superannuation product for large employers.

AMP Flexible Super, which was launched in May 2010 and attracted A$91m in net cashflows in 1H 10, is an all-in-one superannuation and retirement product for the broad retail and small-to-medium enterprise markets. It is a modular, lifetime offer, allowing customers to change investment options and features as their needs change. The product’s Core option is one of the lowest priced in the industry.

AFS’s products for the HNW market continue to gain momentum, with AMP’s Personalised Portfolio increasing net cashflows by A$29m to A$51m in 1H 10. Flows increased following the relaunch of the product with improved functionality.

Risk insurance: AFS renovated its risk offer in 1H 10, introducing product and service improvements. Retail risk products have been added to the approved lists of two major Australian dealer groups. Australian individual risk API increased 9% on 1H 09.

AMP Financial Services financial summary

1 Money Management August 2010.

2 Comparator 2009 Annual Quantitative Report – investment and insurance sales per adviser.

9AMP Financial ServicesAMP Investor Report 1H 10

AMP Financial Services financial summary cont’d

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss

Profit margins 321 301 331 632 6.6

Experience profits 2 6 9 15 (66.6)

Operating earnings 323 307 340 647 5.2

Underlying investment income 39 36 35 71 8.3

Underlying operating profit after income tax 362 343 375 718 5.5

Controllable costs and cost ratios

Operating costs 235 237 242 479 (0.8)

Project costs 26 27 23 50 (3.7)

Total controllable costs 261 264 265 529 (1.1)

Cost to income ratio 33.6% 35.0% 33.0% 34.0% n/a

Controllable costs to AUM (bps) 69 79 73 76 n/a

Return on capital

RoBUE 32.5% 36.3% 35.7% 36.1% n/a

End period tangible capital resources – after transfers (A$m) 2,164 1,907 2,193 2,193 13.5

Cashflows, AUM and persistency

AFS cash inflows (A$m) 6,374 5,935 6,556 12,491 7.4

AFS cash outflows (A$m) (5,790) (5,070) (5,760) (10,830) (14.2)

AFS net cashflows (A$m) 584 865 796 1,661 (32.5)

AUM (pre-capital) (A$b) 72.4 66.4 73.9 73.9 9.0

Persistency 90.7% 90.3% 90.1% 90.1% n/a

VNB – risk insurance and risk annual premium in-force (API)

Value of risk new business (3% dm) (A$m) 45 47 55 102 (4.3)

Australian individual risk API (A$m) 616 563 607 607 9.4

New Zealand individual risk API (A$m) 120 111 117 117 8.1

Movement in operating earnings 1H 09 to 1H 10

A$m

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operatin

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307323

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Australian contemporary wealth management

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss1

Revenue

Investment related2 459 402 447 849 14.2

Bank related 70 75 74 149 (6.7)

Other3 37 42 49 91 (11.9)

Total revenue 566 519 570 1,089 9.1

Planner payments4 85 75 80 155 13.3

Investment management expense 80 61 74 135 31.1

Bank variable costs 20 27 27 54 (25.9)

Other variable costs 4 3 5 8 33.3

Total variable costs 189 166 186 352 13.9

Controllable costs 163 169 171 340 (3.6)

Tax expense 64 55 64 119 16.4




RoBUE 40.8% 42.0% 43.4% 42.9% n/a

End period tangible capital resources – after transfers (A$m) 746 655 775 775 13.9

Net cashflows (A$m) 855 1,131 1,058 2,189 (24.4)


Average AUM (including capital) (A$b)5 51.5 42.6 48.7 45.7 20.9

Persistency 90.7% 90.3% 90.1% 90.0% n/a


Investment related revenue to AUM (bps)2,5,8 180 190 184 186 n/a

Variable costs to AUM (bps)5,6,8 66 66 65 65 n/a

Controllable costs to AUM (bps)5,6,8 56 70 61 65 n/a

Operating earnings to AUM (bps)5,7,8 51 52 54 53 n/a

1 Contemporary wealth management business comprises: retail superannuation, corporate superannuation, retail investment, allocated pensions/annuities, external platforms, AMP Bank and Financial Planning, Advice and Services.

2 Investment related refers to revenue on superannuation and allocated pension and investment products.

3 Other revenue includes product and platform fees received by Financial Planning, Advice and Services from AFS contemporary wealth protection and movements in the value of client registers purchased from financial planners.

4 Planner payments represent payments by AMP customers to planners.

5 Based on monthly average AUM including capital.

6 Costs in this ratio exclude AMP Bank costs.

7 Operating earnings in this ratio exclude AMP Bank.

8 Ratio based on 181 days in 1H 10 and 1H 09.

9 Contemporary wealth management EV and VNB are detailed on page 22.


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Business overview

The contemporary wealth management (CWM) business is focused on optimising customer opportunities for financial planning services, superannuation, retirement income, managed investment and banking products.

CWM’s key priorities continue to be:

positioning AFS for a changing regulatory environment, including renovating its product offering

improving the quality of the advice experience and developing complementary advice channels

driving AUM and revenue growth while remaining vigilant on cost control and pursuing opportunities to lower unit costs

improving planner productivity and growing planner numbers.

In 1H 10, CWM increased operating earnings by 16%, with strong revenue growth, tight cost control and resilient cashflows.

Operating earnings

Operating earnings increased by A$21m (16%) to A$150m over 1H 09 due to higher investment related revenue from higher average AUM following the increase in investment markets in 2009, and lower controllable costs.

Investment related revenue to AUM

Investment related revenue to AUM fell 4 bps from 2H 09 to 180 bps in 1H 10. The reduction in basis points was due to lower corporate superannuation participating profits (SuperLeader product) from lower closing 30 June 2010 markets (2 bps) and lower member fees (1 bps).

Other revenue

Other revenue fell A$5m from 1H 09 to A$37m in 1H 10, driven mainly by negative valuation movements on purchased client registers from financial planners due to the decline in equity markets.

Variable costs to AUM

Variable costs to AUM increased 1 bps from 2H 09 to 66 bps in 1H 10, primarily due to higher investment management expenses offset by lower planner payments.

Net revenue margins

Net revenue margins (investment related revenue less variable cost to AUM ratio) fell 5 bps from 2H 09 to 114 bps in 1H 10, as a result of lower investment related revenue to AUM.

AMP Bank

AMP Bank is an important part of the AMP Group, focused on broadening the group’s customer base and channel access, offering a range of products and diversifying its revenue base. At the end of June 2010, AMP Bank had over 100,000 customers with a mortgage portfolio of A$9.8b and retail deposits of A$4.3b.

AMP Bank’s strategy is to:

provide competitively priced mortgage and deposit offers and other services as part of a complete financial offering to AMP customers

be a distributor focused direct bank, providing high quality service and operational excellence

provide home loans and deposits as introductory products that can lead to a deeper relationship with the AMP Group.

AMP Bank remains well positioned, with a capital adequacy ratio of 12.2% and a 90+ days loan arrears of 0.34% at 30 June 2010. Loan portfolio volumes were stable at A$9.8b, with growth constrained by lower growth in Australian new lending volumes, uncertainty in the securitisation market and increased cost of funding.

AMP Bank contributed A$21m to CWM operating earnings, up from A$18m in 1H 09. While revenue fell 7%, driven by higher funding costs and lower mortgage sales, variable costs fell at a faster rate of 26%. Lower variable costs were partly driven by upfront acquisition costs being amortised over a longer period to reflect the current profile of the mortgage book (A$3m). The return on capital increased to 14.3% in 1H 10 from 13.9% in 1H 09.

AMP Bank mortgages at 30 June 2010 were funded by a combination of on-balance sheet (61% being retail, superannuation and wholesale deposits) and off-balance sheet (39% being securitisation) funding.

Going forward, AMP Bank expects to manage its funding, liquidity and capital requirements through diversified funding sources including increased securitisation issues and bank warehousing facilities as these markets continue to recover. AMP Bank completed a A$1b securitisation in January 2010 and expects to complete further transactions later in the year. Assuming the securitisation market remains open, AMP Bank expects to be able to grow lending volumes during the remainder of 2010. For further details on AMP Bank funding, refer to page 39.

Controllable costs

Total controllable costs fell 4% (A$6m) from 1H 09 to A$163m in 1H 10. This includes AMP Bank’s controllable costs, which were A$20m in 1H 10.

Absolute cost reductions in parts of CWM, including lower employment costs, were partially offset by funding a number of distribution and product initiatives, including the development of AMP Flexible Super, the Horizons Academy and AFS’s change program, Advice 2010. These initiatives are expected to improve CWM’s growth profile over the medium-term.

The cost to income ratio decreased by 4.8 percentage points from 1H 09 to 41.7% in 1H 10 as a result of higher overall revenue and lower controllable costs. Controllable costs to AUM fell 14 bps to 56 bps in 1H 10 due to average AUM rising 21% and a fall of 4% in controllable costs.

Return on capital

RoBUE for 1H 10 was 40.8%, down from 42.0% in 1H 09, largely reflecting higher capital allocated to the capital guaranteed SuperLeader product and higher AUM.

Australian contemporary wealth management cont’d

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss1

Revenue

Investment related2 459 402 447 849 14.2

Bank related 70 75 74 149 (6.7)

Other3 37 42 49 91 (11.9)

Total revenue 566 519 570 1,089 9.1

Planner payments4 85 75 80 155 13.3

Investment management expense 80 61 74 135 31.1

Bank variable costs 20 27 27 54 (25.9)

Other variable costs 4 3 5 8 33.3

Total variable costs 189 166 186 352 13.9

Controllable costs 163 169 171 340 (3.6)

Tax expense 64 55 64 119 16.4




RoBUE 40.8% 42.0% 43.4% 42.9% n/a


Net cashflows (A$m) 855 1,131 1,058 2,189 (24.4)


Average AUM (including capital) (A$b)5 51.5 42.6 48.7 45.7 20.9

Persistency 90.7% 90.3% 90.1% 90.0% n/a


Investment related revenue to AUM (bps)2,5,8 180 190 184 186 n/a

Variable costs to AUM (bps)5,6,8 66 66 65 65 n/a

Controllable costs to AUM (bps)5,6,8 56 70 61 65 n/a

Operating earnings to AUM (bps)5,7,8 51 52 54 53 n/a

1 Contemporary wealth management business comprises: retail superannuation, corporate superannuation, retail investment, allocated pensions/annuities, external platforms, AMP Bank and Financial Planning, Advice and Services.

2 Investment related refers to revenue on superannuation and allocated pension and investment products.

3 Other revenue includes product and platform fees received by Financial Planning, Advice and Services from AFS contemporary wealth protection and movements in the value of client registers purchased from financial planners.

4 Planner payments represent payments by AMP customers to planners.


6 Costs in this ratio exclude AMP Bank costs.

7 Operating earnings in this ratio exclude AMP Bank.

8 Ratio based on 181 days in 1H 10 and 1H 09.

9 Contemporary wealth management EV and VNB are detailed on page 22.



Australian contemporary wealth protection

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss1

Profit margins 76 70 74 144 8.6

Experience profits (3) 13 7 20 n/a

Operating earnings 73 83 81 164 (12.0)

Underlying investment income 15 16 14 30 (6.3)

Underlying operating profit after income tax 88 99 95 194 (11.1)

RoBUE 24.7% 31.7% 28.5% 30.1% n/a


VNB (3% dm) (A$m) 42 41 59 100 2.4

EV – after transfers (3% dm) (A$m) 1,883 1,658 1,781 1,781 13.6

Return on EV (3% dm)2 9.5% 1.1% 11.7% 12.4% n/a

Individual risk API (A$m) 616 563 607 607 9.4

Group risk API (A$m) 145 150 165 165 (3.3)

Individual risk lapse rate 10.4% 10.1% 12.3% 11.1% n/a

Profit margins/annual premium3 19.6% 20.1% 19.5% 19.8% (2.5)

Operating earnings/annual premium3 18.9% 23.4% 21.6% 22.5% n/a

Controllable costs (A$m) 46 39 36 75 17.9


Controllable costs/annual premium3 12.0% 11.2% 9.5% 10.3% n/a

1 Contemporary wealth protection comprises individual risk and group risk.

2 Return on EV is not annualised for half year periods.

3 Based on average annual premium in-force.


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Australian contemporary wealth protection cont’d

Business overview

Contemporary wealth protection (CWP) comprises individual risk and group risk products. Holding a risk insurance product within a superannuation policy continues to be an attractive option for superannuation members. In the individual risk business, 51% of in-force and 70% of new business is written within a superannuation contract. Group risk is a key component of the corporate superannuation offer.

CWP’s key priorities are to:

grow market share while only writing profitable business

increase the proportion of superannuation customers who have adequate risk insurance coverage

ensure AMP product and service propositions remain competitive

improve ease and profitability of writing AMP risk for planners

grow distribution through independent financial advisers and alliance channels

improve operational leverage.

Operating earnings

Operating earnings fell 12% in 1H 10 to A$73m. CWP profit margins increased A$6m to A$76m due to higher API and improvements in mortality and morbidity assumptions (recognised in 2H 09), offset by higher controllable costs. Profit margins as a percentage of average API of 19.6% were in line with 2H 09. Experience profits fell A$16m to a loss of A$3m in 1H 10.

The experience loss was driven by a continuation of higher individual risk income protection claims, consistent with the current economic environment and experience losses on group risk salary continuance and stand alone group risk business. Individual risk lump sum and group risk packaged with superannuation continued to generate positive claims experience, albeit closer to long-term best estimate assumptions than in previous periods.

Annual premium in-force (API)

Individual risk API increased A$53m (9%) over 1H 09 and A$9m (1%) over 2H 09. 2H 09 includes the annual benefit from CPI and age premium increases on risk policies held within superannuation. The growth in 1H 10 was driven by:

increased planner activity as difficult investment market and economic conditions led to an increased demand for risk products

sales growth through the independent financial advisers and alliances channel (up 17%). AFS has continued to benefit from increased investment in its business development capability, strong brand and competitive product and service offering to win new business in this channel.

Group risk API fell A$5m (3%) over 1H 09 and A$20m (12%) over 2H 09. Increased competition in this segment of the market has intensified, with 1H 10 group risk API impacted by the loss of two corporate superannuation plans.

1H 10 individual risk API comprised lump sum insurance (78%) and disability, including income protection (22%). The composition of API was largely unchanged over the past year.

Lapse rates

Lapse rate management is a critical driver of individual risk profitability. AMP continues to have lapse rates that are among the lowest in the industry.

In 1H 10, lapse rates were 10.4%, 0.3 percentage points higher than 1H 09 but 1.9 percentage points lower than 2H 09. Lapse rates in the second half are typically higher than in the first half due to annual age and inflation (CPI) increases that come into effect on 1 July each year for policies held within superannuation. 1H 10 lapse rates increased over 1H 09 due to a higher number of customers transitioning to retirement and cancelling their insurance policy.

Controllable costs

Controllable costs increased A$7m to A$46m in 1H 10, primarily due to investment in product development and channel distribution and increased staff costs, predominantly in claims and underwriting.

The cost to income ratio increased 4.9 percentage points to 26.8% in 1H 10 as controllable costs increased and operating earnings declined, due to experience losses.

Controllable costs as a percentage of average API was 12.0% in 1H 10, up from 11.2% in 1H 09.

Return on capital

RoBUE for 1H 10 was 24.7%, down from 31.7% in 1H 09, reflecting the turnaround in experience profits.

The total amount of capital allocated to the CWP business increased due to capital allocated for new business growth.

Embedded value (EV) and value of new business (VNB)

EV increased 9.5% at the 3% discount margin in 1H 10 before transfers. The increase was driven by new business and the impact of investment markets and bond yields.

VNB increased 2.4% to A$42m in 1H 10 as a result of lower bond yields and premium increases, offset by higher unit costs.

For further details on EV and VNB, refer to pages 22 to 26.


Australian mature

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss

Profit margins 67 73 72 145 (8.2)

Experience profits/(losses) 1 (1) 7 6 n/a

Operating earnings 68 72 79 151 (5.6)


Underlying operating profit after income tax 78 81 88 169 (3.7)

RoBUE 35.5% 45.5% 41.2% 43.4% n/a


VNB (3% dm) (A$m) 10 15 6 21 (33.3)

EV – after transfers (3% dm) (A$m)1 1,524 1,575 1,715 1,715 (3.2)

Return on EV (3% dm) (1.7%) 6.5% 10.4% 17.1% n/a

Net cashflows (A$m) (588) (576) (625) (1,201) (2.1)

AUM (pre-capital) (A$b) 17.6 17.9 18.1 18.1 (1.7)

Profit margins to AUM (bps)2 73 77 78 78 n/a

Persistency 89.4% 89.5% 89.0% 89.5% n/a

Controllable costs (A$m) 28 29 31 60 (3.4)


Controllable costs to AUM (bps)2 31 31 33 32 n/a




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Australian mature cont’d

Business overview

AMP’s mature business remains one of the largest closed life insurance businesses in Australia, with AUM (pre-capital) of A$17.6b at 1H 10. AUM decreased 3% over the half year, largely as a result of the natural run-off of the business.

Key priorities for management are to:

maintain capital efficiency

improve persistency

achieve greater cost efficiency.

Persistency remained steady in 1H 10 at 89.4%.

Operating earnings

Operating earnings fell A$4m (6%) to A$68m in 1H 10, due to:

business run-off (-A$4m)

investment markets and bond yields (-A$2m), offset by

higher experience profits (A$2m).

2H 09 experience profits included improved annuity experience profits which did not repeat in 1H 10.

Controllable costs

Controllable costs fell A$1m to A$28m in 1H 10 primarily due to the natural run-off of the book. Controllable costs to AUM was unchanged from 1H 09 at 31 bps.

Return on capital

RoBUE fell to 35.5% in 1H 10 from 45.5% in 1H 09 as higher capital was allocated to capital guaranteed products in 2H 09. This was transferred out during 1H 10 and the capital held in the mature business has returned to more normal levels.

The capital position of this business remains strong. Refer to page 36 for regulatory capital resources above MRR.


EV fell 1.7% in 1H 10 (before transfers), driven by lower bond yields. VNB decreased 33% to A$10m due to lower cash inflows on open products.

Product characteristics and run-off profile

The RSA/ERF products have approximately 1.5 million customers and AUM of A$4.4b. The other mature products service around 525,000 customers and AUM of A$13.2b.

RSA was closed to new business from 1 July 2010.

The mature business remains in slow decline but will remain profitable for many years, running off between 4% and 6% per annum. In volatile investment markets, this rate of run-off can vary substantially.

The run-off of AUM mirrors policy liabilities, although there is potential for operating margins to be impacted differently.

The run-off of mature AUM is anticipated to have an average duration of approximately 15 years but will be impacted by investment markets.

Managing mature for investment market movements

Mature AUM supports capital guaranteed products (86%) and market linked products (14%). AMP’s capital guaranteed products are held within the AMP Life Statutory Fund No. 1 (SF1). Asset allocation for SF1 is struck prudently over the long-term and has a bias of income over growth assets. The long-term asset mix for the Australian participating business portion of SF1 is set out on page 26.

AMP actively manages its SF1 equity exposure, including the use of derivative strategies to provide protection from equity market declines. As at 30 June 2010, the equity exposure in SF1 was A$4.4b and comprised the following positions:

A long-term derivative strategy, using options and futures, that provides a variable level of protection depending on market conditions. This strategy provides market protection assuming a significant fall in markets.

A tactical equity strategy, comprised mainly of put options, protecting A$1.4b of equities against market falls in excess of 15%. These replaced the equity collars that were in place at 31 December 2009.

Within SF1, AMP also employs strategies designed to protect against changes in bond yields. The average duration of the SF1 bond portfolios remained around six and a half years throughout 1H 10.


New Zealand

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss

Profit margins 28 29 36 65 (3.4)

Experience profits/(losses) 4 (6) (5) (11) n/a




RoBUE 25.1% 20.5% 22.0% 20.0% n/a


VNB (3% dm) (A$m)1 8 11 5 16 (27.3)

EV – after transfers (3% dm) (A$m) 635 730 623 623 (13.0)

Return on EV (3% dm) (A$m)2,3 4.8% 0.8% (11.4%) (10.1%) n/a

Net cashflows (A$m) 87 88 147 235 (1.1)


Individual risk API (A$m) 120 111 117 117 8.1

Individual risk API (NZ$m) 148 139 145 145 6.5

Lapse rates 10.1% 11.0% 12.2% 11.6% n/a

Controllable costs (A$m) 24 27 27 54 (11.1)


Controllable costs/annual premium4 42.6% 48.4% 48.2% 48.3% n/a

1 In NZ dollar terms, VNB has decreased by 28.6% on 1H 09.

2 In NZ dollar terms, EV has increased by 4.2%.


4 Based on monthly individual risk API.


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New Zealand cont’d

Business overview

AFS NZ is principally a risk insurance business with growing wealth management operations. Its key priorities are to increase shareholder value by:

enhancing products and services to customers

building strong distribution relationships

proactively preparing for regulatory change

investing in its people, and

maximising cost efficiency.

Operating earnings

Operating earnings increased A$9m (39%) to A$32m in 1H 10 in a challenging business environment. The increase in earnings reflects better experience offset by lower planned margins.

Profit margins decreased A$1m to A$28m, driven by increases in lapse rate assumptions on risk products at FY 09 and lower margins on new business owing to life tax changes offset by lower controllable costs.

The improvement in experience profits of A$10m from 1H 09 largely reflects risk lapse experience being closer to best estimate assumptions, improved claims experience and the recognition of a reduction in deferred tax arising from the change in the New Zealand corporate tax rate from 30% to 28% (A$6m) announced in the May 2010 Budget.

Recent changes in the New Zealand tax regime have resulted in some volatility in period-on-period operating earnings comparisons.

Controllable costs

Controllable costs fell A$3m (11%) to A$24m for 1H 10. In NZ dollar terms, controllable costs declined 7%.

The reduction in controllable costs resulted from disciplined cost control across the NZ business, including lower employment costs and occupancy costs as a result of ongoing consolidation of the Wellington and Auckland offices.

The cost to income ratio fell 8.9 percentage points to 31.8% in 1H 10 due to the combination of higher operating earnings from higher experience profits and lower controllable costs.

Annual premium in-force (API)

Individual risk API grew A$9m (8%) over 1H 09 and A$3m (3%) over 2H 09. In NZ dollar terms, API increased by 6% to NZ$148m in 1H 10 over 1H 09.

Growth was driven by increased risk sales that primarily reflected activity in advance of the life tax changes that took effect from 1 July 2010. Higher sales were underpinned by improved processing and aligned intermediary support.

Lapse rates

1H 10 lapse rates fell 0.9 percentage points to 10.1%, as the impending life tax changes led to price increases from competitors, along with AFS NZ repricing initiatives in 2008 having a reduced impact.

AFS NZ’s lapse rates are 2.7 percentage points better than the New Zealand industry average.

Return on capital

RoBUE increased to 25.1% for 1H 10, reflecting higher operating earnings from higher experience profits.


EV increased 4.8% to A$653m (before transfers) primarily due to the expected return.

VNB decreased 27% to A$8m in 1H 10, driven by changes to persistency assumptions and NZ life tax changes recognised in 2H 09.

Advisers

In 1H 10, total aligned intermediaries in AFS NZ decreased by 16 to 345. The decrease was primarily due to the changing regulatory and challenging operating environment. Total aligned intermediaries included 24 mortgage and insurance advisers for Roost, operating from 15 franchises.

The New Zealand Financial Advisers Act aims to promote the sound and efficient delivery of financial advice and improve confidence in financial advisers. It is expected to be implemented from December 2010. AFS NZ’s program for implementation is well progressed.

KiwiSaver

AFS NZ is continuing to position itself to achieve scale in the KiwiSaver market through a number of customer-focused initiatives. The total KiwiSaver market size in New Zealand has grown strongly from NZ$2.3b in March 2009 to NZ$5.1b in March 2010. At 30 June 2010, AFS NZ had approximately 130,000 KiwiSaver members and was ranked third, with a 13% market share (based on AUM).


Cashflows and assets under management (AUM)

Cash inflows Cash outflows Net cashflows

Cashflows by product (A$m) 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H


Retail superannuation1 2,041 1,906 7.1 1,838 1,381 (33.1) 203 525 (61.3)

Allocated pensions/annuities 862 643 34.1 724 613 (18.1) 138 30 360.0

Total retail superannuation and pensions/annuities 2,903 2,549 13.9 2,562 1,994 (28.5) 341 555 (38.6)

Retail investment 157 140 12.1 169 176 4.0 (12) (36) 66.7

External platforms2 768 659 16.5 746 625 (19.4) 22 34 (35.3)

Total retail 3,828 3,348 14.3 3,477 2,795 (24.4) 351 553 (36.5)

Corporate superannuation and pensions/annuities 1,443 1,451 (0.6) 1,036 965 (7.4) 407 486 (16.3)

Corporate superannuation mandate wins3 97 92 5.4 - - - 97 92 5.4

Total Australian contemporary wealth management 5,368 4,891 9.8 4,513 3,760 (20.0) 855 1,131 (24.4)


Group risk 72 73 (1.4) 45 35 (28.6) 27 38 (28.9)

Individual risk 306 279 9.7 103 95 (8.4) 203 184 10.3

Total Australian contemporary wealth protection 378 352 7.4 148 130 (13.8) 230 222 3.6

Total Australian contemporary 5,746 5,243 9.6 4,661 3,890 (19.8) 1,085 1,353 (19.8)

Australian mature 332 368 (9.8) 920 944 2.5 (588) (576) (2.1)

Total Australia 6,078 5,611 8.3 5,581 4,834 (15.5) 497 777 (36.0)

New Zealand 296 324 (8.6) 209 236 11.4 87 88 (1.1)

Total AFS cashflows 6,374 5,935 7.4 5,790 5,070 (14.2) 584 865 (32.5)

AMP Bank – mortgages 763 988 (22.8) 753 811 7.1 10 177 (94.5)

AMP Bank – deposits 354 576 (38.6)

Cashflows by distribution channel

AMP Financial Planning 3,691 3,322 11.1 3,413 2,881 (18.5) 278 441 (37.0)

Hillross 804 773 4.0 791 659 (20.0) 13 114 (88.6)

Corporate superannuation – direct sales force 867 777 11.6 437 419 (4.3) 430 358 20.1

Centrally managed clients and other 366 344 6.4 496 455 (9.0) (130) (111) (17.1)

3rd party distributors 350 395 (11.4) 444 420 (5.7) (94) (25) (276.0)

Total Australia 6,078 5,611 8.3 5,581 4,834 (15.5) 497 777 (36.0)

New Zealand 296 324 (8.6) 209 236 11.4 87 88 (1.1)

Total AFS cashflows 6,374 5,935 7.4 5,790 5,070 (14.2) 584 865 (32.5)

Australian contemporary wealth management cash inflows (A$m)

Member contributions 580 600 (3.3)

Employer contributions 1,619 1,675 (3.3)

Total contributions 2,199 2,275 (3.3)

Transfers and rollovers in4 2,908 2,389 21.7

Other cash inflows 261 227 15.0

Total 5,368 4,891 9.8

1 Retail superannuation includes Flexible Lifetime – Super and AMP Flexible Super, a component of which is small corporate superannuation schemes.

2 Externally manufactured products that earn platform fees (superannuation, pensions and investments).

3 Cashflows from the transfer of accumulated member benefits as a result of SignatureSuper mandate wins.

4 Transfers and rollovers in include the transfer of accumulated member balances into AMP from both internal (eg retail superannuation to allocated pensions/annuities) and external products.


Cashflows and assets under management (AUM) cont’d

Overview

AFS net cashflows decreased 33% in 1H 10 from A$865m to A$584m. Cash inflows increased 7% or A$439m to A$6,374m, and outflows increased 14% or A$720m to A$5,790m. Internal flows across AMP products increased by A$436m (24%), driven by more transition to retirement activity and higher account balances at the time of transfer. Excluding the impact of internal flows, cash inflows increased by 1% and cash outflows increased by 9% consistent with higher markets driving up account balances.

The moderate growth in cash inflows was a result of:

higher new inflows due to higher account balances (transfers and rollovers in), offset by

lower CWM employer contributions, down A$56m (3%), reflecting lower salary sacrifice contributions, partially as a result of changes to the salary sacrifice contributions caps from 1 July 2009

lower CWM member contributions, down 3%. Discretionary cashflows continue to be adversely impacted by volatile investment markets and low investor confidence. The uncertain regulatory environment for superannuation is also impacting discretionary flows.

Cash outflows, net of internal flows, increased 9%, which was lower than the increase in AFS average AUM (up 13%). Higher investment markets lead to higher member account balances when withdrawing or transferring funds between providers.

Persistency

Excluding major internal product flows from the persistency calculations, total AFS persistency increased to 90.7% in 1H 10 from 90.3% in 1H 09.

Retail superannuation persistency decreased to 92.1% from 92.3% in 1H 10. Persistency decreased following higher member withdrawal balances and outflows to other superannuation providers.

For allocated pensions/annuities, persistency increased from 84.8% to 87.4% with pension payments remaining steady.

Corporate superannuation persistency increased to 94.3% from 94.0% in 1H 10 as outflows increased by only 7% (AUM up by 15% on 1H 09).

Retail superannuation and allocated pensions/annuities

As retail superannuation and allocated pension/annuity flows are significantly impacted by internal movements, it is more appropriate to consider a combined result for retail superannuation and allocated pensions/annuities products. Total retail superannuation and allocated pensions/annuities net cashflows fell 39% to A$341m.

Retail superannuation and allocated pensions/annuities cash inflows increased 14% to A$2.9b. Cash inflows benefited from higher investment markets, with superannuation rollovers-in (both internal and external) increasing.

Employer contributions were relatively stable, but member contributions fell A$58m. Salary sacrifice contributions (included in employer contributions) were impacted by changes in the contribution caps and discretionary member contributions by ongoing market volatility and low investor confidence.

Retail superannuation and allocated pensions/annuities cash outflows increased 29% to A$2.6b. Cash outflows increased due to higher account balances and incremental outflows back into other AMP products as members increased transition to retirement activities.

In 1H 10, 57% (1H 09: 55%) of retail superannuation and allocated pension/annuity cash outflows were retained in AMP products.

AMP’s new flexible all-in-one super and retirement product, AMP Flexible Super, which was launched in May 2010, recorded net cashflows of A$91m in 1H 10.

Retail investment

Retail investment represents AMP's Flexible Lifetime Investments product and AMP Personalised Portfolio, a separately managed account platform. Retail investment net cashflows increased by A$24m, due to both higher inflows and lower outflows. Following the relaunch of the AMP Personalised Portfolio in 1H 10, it contributed A$51m to retail investment net cashflows.

Corporate superannuation

Corporate superannuation net cashflows (excluding mandate wins) fell A$79m (16%) to A$407m in 1H 10, driven by higher outflows and lower inflows following a reduction in salary sacrifice contributions.

Employer contributions increased 8% to A$932m in 1H 10, reflecting the resilience of the product due to Superannuation Guarantee Contributions (SGC). Salary sacrifice contributions (included in employer contributions) decreased 28% to A$131m following changes to the contribution caps announced in the 2009 Federal Budget.

Cash outflows increased 7%, as higher investment markets resulted in higher member withdrawal balances. In corporate superannuation, 59% of outflows flowed back into AMP products, down from 62% in 1H 09.

Corporate superannuation mandate wins in 1H 10 were A$97m.

External platforms

External platforms represent superannuation, pension and investment products on the Asgard, Macquarie and BT platforms. External platform flows are largely driven by Hillross, which primarily targets more affluent clients.

External platform net cashflows decreased by A$12m in 1H 10 due to lower Asgard cashflows. Asgard recorded higher outflows on investment products.

Mature

Mature net cash outflows increased by A$12m (2%) in 1H 10. Cash inflows fell 10% due to lower inflows into the RSA/ERF products. Inflows into term annuities also fell, following the closure of this product in 1H 09. Cash outflows decreased by 3% due to a lower run-off of the term annuities book.



New Zealand

AFS New Zealand net cashflows fell A$1m to A$87m in 1H 10. Cash inflows fell by 9% to A$296m and were impacted by volatile market conditions. Cash outflows fell by 11% to A$209m as 1H 09 included outflows from the closure of a number of investment funds.

Kiwisaver net cashflows were A$86m, down A$8m on 1H 09 due to higher outflows.

AMP Bank

AMP Bank deposit balances increased by A$354m in 1H 10, down from the A$576m increase in 1H 09. Despite growth in deposit balances being lower than 1H 09, which benefited from higher AMP superannuation cash deposits, growth in 1H 10 represents a 9% growth in total deposits. Retail deposits increased 9% to A$2.5b and AMP superannuation cash deposits increased 9% to A$1.8b.

In 1H 10, mortgage growth slowed considerably, with growth restrained by lower growth in Australian new lending volumes, continued uncertainty in the securitisation market and increased funding costs. Despite AMP Bank completing a A$1b RMBS securitisation in

January 2010, the securitisation market remains dependent on participation by the Australian Office of Financial Management (AOFM). Mortgage growth is dependent on available funding and securitisation markets stabilising.

Channel flows

Both the AMP Financial Planning and Hillross planner channels recorded an increase in cash inflows; however, net cashflows fell by 37% and 89% respectively. Cash outflows for both AMP Financial Planning and Hillross increased as a result of higher investment markets, leading to higher member balances when withdrawing or transferring funds between products or providers.

Corporate superanuation - direct sales force net cashflows increased 20% as a result of higher mandate wins. All mandate wins in 1H 10 were through this channel, whereas in 1H 09 mandate wins were across a number of channels.

Net cashflows for the 3rd party distributors channel were lower in 1H 10, mainly due to lower salary sacrifice contributions, lower member contributions and higher outflows in retail superannuation.

AUM by product (A$b)FY 09 AUM

FY 09 share cap5

FY 09 total

Net cashflows Other6

1H 10 AUM

1H 10 share cap7

1H 10 total

1H 10 % change


Retail superannuation1 19.6 0.2 19.8 0.2 (0.9) 18.9 0.2 19.1 (3.5)

Allocated pensions/annuities 7.2 - 7.2 0.1 (0.2) 7.1 - 7.1 (1.4)

Retail investment 2.2 - 2.2 - (0.1) 2.1 - 2.1 (4.5)

External platforms2 7.0 0.1 7.1 0.1 (0.3) 6.8 0.1 6.9 (2.8)

Total retail 36.0 0.3 36.3 0.4 (1.5) 34.9 0.3 35.2 (3.0)

Corporate superannuation 15.1 0.2 15.3 0.5 (0.4) 15.2 0.2 15.4 0.7

Total Australian contemporary wealth management 51.1 0.5 51.6 0.9 (1.9) 50.1 0.5 50.6 (1.9)


Group risk3 - 0.1 0.1 - - - 0.1 0.1 -

Individual risk3 - 0.6 0.6 0.2 (0.2) - 0.6 0.6 -

Total Australian contemporary wealth protection - 0.7 0.7 0.2 (0.2) - 0.7 0.7 -

Total Australian contemporary 51.1 1.2 52.3 1.1 (2.1) 50.1 1.2 51.3 (1.9)

Australian mature 18.1 0.5 18.6 (0.6) 0.1 17.6 0.5 18.1 (2.7)

Total Australia 69.2 1.7 70.9 0.5 (2.0) 67.7 1.7 69.4 (2.1)

New Zealand 4.7 0.3 5.0 0.1 (0.1) 4.7 0.3 5.0 -

Total AFS 73.9 2.0 75.9 0.6 (2.1) 72.4 2.0 74.4 (2.0)

AMP Bank – mortgages 9.8 9.8 - 9.8 9.8 (0.1)

AMP Bank – deposits4 3.9 3.9 0.4 4.3 4.3 9.4

AUM by asset class FY 09 1H 10


Fixed interest 25.7% 27.9%

Australian equities 37.0% 35.8%

International equities 22.9% 22.9%

Property8 6.5% 6.7%

Other 7.9% 6.7%

Total 100.0% 100.0%

1 Retail superannuation includes Flexible Lifetime – Super and AMP Flexible Super, a component of which is small corporate superannuation schemes.

2 Externally manufactured products that earn platform fees.3 Individual and group risk are included in inflows and outflows but not in the

AUM balances.4 AMP Bank deposits include retail deposits and AMP Super Cash.

5 Share capital at 1 January 2010 contains A$50m of capital transfers declared at 31 December 2009.

6 Other includes product transfers, fees, investment returns, taxes, share capital movements and foreign currency movements on New Zealand AUM.

7 Share capital at 30 June 2010 includes A$175m of capital transfers declared at 30 June 2010 and excludes AMP Bank.

8 Includes both listed and unlisted property securities.


Market share

March 2010 March 2009

Market share – Australia

Total market size

A$b

Market position

(rank)

Market share

%

Total market size

A$b

Market position

(rank)

Market share

%

Assets under management1

Superannuation including rollovers2 243.5 2 17.4% 196.6 2 17.8%

Retirement income 105.6 3 11.2% 88.8 3 11.4%

Unit trusts (excluding cash management trusts) 137.5 7 3.9% 111.9 9 3.6%

Total retail managed funds (excluding cash management trusts)2 493.6 3 12.2% 403.9 3 12.3%

Total in-force annual premiums3

Individual risk 5.6 4 11.0% 5.0 4 11.2%

1 Source: Plan for Life 31 March 2010 – QDS Retail and Wholesale.

2 To allow better like for like comparison, AMP has also adjusted the March 2009 comparisons to allow for one provider commencing reporting additional superannuation AUM to Plan for Life for the first time in late 2009.

3 Source: Plan for Life 31 March 2010 – Detailed Risk Statistics and Plan for Life 31 March 2009 – Detailed Risk Statistics. In-force premiums individual risk excludes single premiums.

In superannuation including rollovers, AMP retained its number two ranking with a market share of 17.4%, which fell 0.4 percentage points over the year.

AMP was ranked second in corporate super with a market share of 20.4%.

On a total retail managed funds (excluding cash management trusts) basis, AMP maintained its number three position in the market with a market share of 12.2%, down 0.1 percentage points from March 2009.

Market share data is not available for the June 2010 quarter.

March 2010 March 2009

Market share – New Zealand

Total market size

NZ$b

Market position

(rank)

Market share

%

Total market size

NZ$b

Market position

(rank)

Market share

%

Assets under management

Retail superannuation1,4 5.1 4 17.9 4.7 4 18.2

Unit trusts1,4 7.0 10 3.1 5.9 9 3.4

Insurance bonds1 0.8 3 17.9 0.7 3 18.6

Total retail funds1,4 20.2 4 9.6 16.1 5 9.5

Corporate superannuation2 3.8 1 34.3 3.2 1 37.4

Conventional3 0.1 1 43.0 0.1 1 42.6

KiwiSaver1 5.1 3 12.9 2.3 3 14.4

Total in-force annual premiums

Individual risk 1.3 2 12.0 1.1 2 12.4

1 Measured by AUM: Source: Fund Source Research Limited March 2010.

2 Measured by AUM: Source: Eriksen’s Master Trust Survey March 2010.

3 Measured by in-force premium: Source: ISI Statistics March 2010.

4 Certain March 2009 comparatives have been restated by Fund Source Research Limited.

Competitor behaviour, particularly on pricing and commissions, increased in 1H 10 in the run-up to the life tax changes implemented from 1 July. This particularly impacted the life insurance market in which AFS NZ's market share fell 0.4 percentage points to 12.0%, while maintaining its market ranking, in the year to March 2010.

AMP NZ’s market share of total retail funds increased 0.1 percentage points to 9.6%, and its market ranking increased to fourth.

AMP NZ continues to dominate the conventional market, holding a market share of 43%, and maintained its number one ranking in corporate superannuation.

AMP NZ’s KiwiSaver business maintained its number three ranking after a sharp increase in the total market from NZ$2.3b to NZ$5.1b following some companies only recently commencing reporting Kiwisaver AUM. AMP’s KiwiSaver AUM doubled in the twelve months to March 2010.



AFS embedded value (A$m)1 3% dm 4% dm 5% dm

Embedded value as at FY 09 7,909 7,436 7,023

Expected return 330 346 360

Investment returns, bond yields and other (210) (214) (217)

VNB 140 123 108

Net transfers out (503) (503) (503)

Embedded value as at 1H 10 7,666 7,188 6,771

Return on embedded value as at 1H 102 3.3% 3.4% 3.6%

Embedded value comprises

Adjusted net assets3 648 648 648

Value of in-force business4 7,018 6,540 6,123

AFS embedded value (A$m) at the 3% dmWealth

ManagementWealth

Protection MatureNew

Zealand Total

Embedded value as at FY 09 3,790 1,781 1,715 623 7,909

Expected return 158 74 72 26 330

Investment returns, bond yields and other (148) 53 (111) (4) (210)

VNB 80 42 10 8 140

Net transfers out (256) (67) (162) (18) (503)

Embedded value as at 1H 10 3,624 1,883 1,524 635 7,666

Return on embedded value as at 1H 102 2.4% 9.5% (1.7%) 4.8% 3.3%

AFS embedded value (A$m) at the 4% dm




VNB 70 37 9 7 123




AFS embedded value (A$m) at the 5% dm




VNB 63 31 8 6 108




3% dm 4% dm 5% dm

AFS value of new business (A$m)1 1H 10 1H 09 1H 10 1H 09 1H 10 1H 09

Value of new business by business line

Wealth management 80 74 70 65 63 58

Wealth protection 42 41 37 36 31 31

Mature 10 15 9 14 8 12

New Zealand 8 11 7 9 6 8

Total 140 141 123 124 108 109

% change (0.7%) (0.8%) (0.9%)

1 AMP Bank is excluded.


3 Adjusted net assets are shareholder assets in excess of regulatory capital requirements (allocated at product level), at face value.

4 Value of in-force business discounts the value of shareholder net assets (A$1,237m at face value) to reflect expected time of release.


Embedded value (EV) and value of new business (VNB) cont’d

Embedded value for the six months to 30 June 2010 increased 3.3% before transfers at the 3% discount margin to A$8,169m. Excluding the impact of changes in investment markets and bond yields, EV would have increased 5.4% for the six months to 30 June 2010, which is equivalent to an annualised rate of 11.1%.

Net transfers at A$503m include capital and AFS profits, franking credits (at 70% of face value) and other value changes transferred to Group.

Product changes include the repricing of significant portions of the CWM book announced in May this year, offset by premium increases to the Australian risk book and the NZ stepped level term product.

Change in embedded value FY 09 to 1H 10 (at the 3% dm above bond rate)

Inve

stm

ent and

bond yield

s

4,500

5,500

6,000

6,500

7,500

A$m

FY 09 EV

1H 10 new

business

Expected re

turn

Unit co

st

reduct

ions

Other

1H 10 EV

(afte

r tra

nsfers)

1H 10 EV

(befo

re tr

ansfers)

Net tra

nsfers

out

5,000

8,0008,169

7,666

7,000

7,909

140330

(7)(169)

6

(2)

(503)

8,500

New Zealand ta

x change

Product

changes

(38)


Embedded value (EV) and value of new business (VNB) cont’d

VNB fell A$1m to A$140m in 1H 10, largely as a result of higher planned expenses in contemporary wealth protection, partially offset by higher new business volumes.

Product changes include the repricing of the CWM book announced in May this year, offset by premium increases to the Australian risk book and the NZ stepped level term product.

Change in value of new business 1H 09 to 1H 10 (at the 3% dm above bond rate)

A$m

1H 09 VNB

Futu

re eco

nomic/

inve

stm

ent ass

umptio

ns

Volum

e and mix

Unit co

sts

Persist

ency and

claim

assum

ptions

1H 10 VNB

Product

changes

0

50

100

150

200

141

22

(2)(3)

1

140

NZ exchange ra

tes/

tax

(1)


EV and VNB sensitivities

Key assumptions

The tables illustrate the sensitivity of the embedded and new business values to various economic and business variables. The sensitivities can at best be only indicative because:

they are not always linear or symmetrical, due to the asymmetric nature of risks facing insurance companies, including the scope for policyholders to exercise options against the company or to benefit from guarantees

they assume that the movement in a particular variable is independent of all others; for the change in discontinuance rates, unit costs are assumed unchanged; for the 5% increase in sales (all costs variable), unit costs are assumed unchanged; for the 5% increase in sales (controllable costs fixed), unit costs are assumed to reduce because of the increase in business volumes

they show the average movement for the risk discount margin range, ie 4%

they are based on the 1H 10 position, ie not “forward looking”, and make no allowance for events subsequent to 30 June 2010

they are based on the 1H 10 sales product mix.

The 1% increase in long-term government bond yields is assumed to be accompanied by a 0.5% increase in the Consumer Price Index (CPI) and other associated changes in economic assumptions, bonus rates, risk discount rates and bond values. For equities, the assumed future earning rate is assumed to increase by 1% (ie the equity risk premium is unchanged).

The 5% reduction in costs is based on AFS controllable costs only, ie it excludes planner payments and investment management fees.

The 10% reduction in discontinuance rates is based on a uniform reduction in lapses in all future years (eg a 15% lapse rate changes to 13.5%).

The 10% increase in Australian equities assumes all Australian shares increase in value by 10%.

Investment fees are defined as all ongoing fees (including member fees and rebates) on investment products with explicit fees. The investment fee sensitivity assumes no corresponding reduction in funds management costs or planner payments.

1H 10 change in embedded value (A$m)Wealth

ManagementWealth


Zealand Total

5% reduction in controllable costs 58 14 17 4 93

10% reduction in discontinuance rates 202 163 47 36 448

1% (100 bps) decrease in long-term bond yields 81 71 (51) 11 112

1% (100 bps) increase in long-term bond yields (74) (63) 38 (11) (110)

10% increase in Australian equities 56 - 49 - 105

10% increase in international equities 29 - 15 12 56

1% reduction in investment fees (54) - (2) (2) (58)

1H 10 change in value of new business (A$m)Wealth

ManagementWealth


Zealand Total

5% reduction in controllable costs 4 2 - - 6

10% reduction in discontinuance rates 8 8 1 1 18

1% (100 bps) decrease in long-term bond yields 3 4 (1) 1 7

1% (100 bps) increase in long-term bond yields (3) (4) 1 (1) (7)

5% increase in sales (all costs variable) 3 2 - - 5

5% increase in sales (controllable costs fixed) 5 3 1 1 10

1% reduction in investment fees (3) - - - (3)

No transition relief for NZ tax1 - - - (2) (2)

1 Business written prior to 1 July 2010, qualifies for transition relief in respect of New Zealand life risk tax changes.


EV assumptions

Economic assumptions

Risk discount rates are based on the yield on long-term government bonds plus a discount margin.

Annualised 10 year Government bond yields 1H 10 FY 09

Australia 5.2% 5.7%

New Zealand 5.4% 6.2%

Assumed investment returns gross of income tax (% pa) are set at risk premiums over long-term government bond rates:

Risk premiums 1H 10 FY 09

Local equities1 4.2% 4.1%

International equities 2.5% 2.5%

Property 2.0% 2.0%

Corporate bonds 0.5% 0.5%

Other fixed interest 0.0% 0.0%

Cash (where significant) (0.5%) (0.5%)

1 Includes allowance of approximately 1.2% (FY 09: 1.1%) for franking credits on equity income.

For the purpose of setting future investment assumptions, the broad asset mixes assumed for participating business (A$14b) in Australia are:

AMP Life (Australia) 1H 10 FY 09

Equities 30% 30%

Property 11% 11%

Fixed interest 40% 40%

Cash 19% 19%

These asset mixes are not necessarily the same as the actual asset mix at the valuation date, as they reflect long-term future assumptions. The mixes shown are the weighted average across all Australian participating business, which is mostly in the mature business.

Annual inflation rates assumed are:

Inflation rate 1H 10 FY 09

Australia – CPI 2.5% 2.8%

Australia – Expenses 3.0% 3.0%

New Zealand – CPI 2.9% 3.4%

New Zealand – Expenses 3.0% 3.0%

These inflation rates are used for indexation of premiums and benefits, where appropriate, and for expense inflation.

Operating assumptions

Future mortality and morbidity rates are based on an analysis of recent AFS experience, general industry experience and, in some cases, population experience. There have been no changes to mortality and morbidity assumptions since 31 December 2009.

Future discontinuance rates are largely based on an analysis of recent AFS experience. There have been no changes to discontinuance assumptions since 31 December 2009.

Maintenance unit costs are derived from 2010 budgets. Allowance is made for future inflation but potential cost improvements arising in and after 2010 are ignored. Future rates of bonus for participating business were set at levels that were supportable by the assets backing the respective product sub-funds as at 30 June 2010.

Acquisition costs for VNB are the actual costs incurred in 1H 10.

Franking credits are valued at 70% of face value.

Assumptions make no allowance for changes to the existing tax and regulatory framework:

Australian tax and superannuation reviews/inquiries (note: New Zealand life risk tax changes effective 1 July 2010 and New Zealand reduction in corporate tax rate effective 1 January 2011 have been reflected in EV), or

any other regulatory changes.

Further details

Assumptions are consistent with the best estimate assumptions used in calculating policy liabilities for AMP Life. A more detailed description of these assumptions and their 31 December 2009 values can be found in the notes to the 2009 AMP Limited Financial Report. As all relevant business is projected for the embedded value, the description of the assumptions in the notes applies even where that business is not valued by projection methods for profit reporting.

27AMP Capital InvestorsAMP Investor Report 1H 10

AMP Capital Investors financial summary

Business overview

AMP Capital Investors (AMPCI) is a leading diversified investment management business operating in Australia and New Zealand, with growing investment management activities in Asia. At 30 June 2010, AMPCI had A$95b in assets under management (AUM).

AMPCI’s strategic intent is to be a high value-add diversified investment manager, focused on the Asia-Pacific region. Earnings growth is being targeted through development of AMPCI’s domestic and international distribution channels and a focus on higher margin products and investment capabilities. Expansion into Asia is an integral part of this strategy.

Strategy

AMPCI has made significant investments during the past two years to reposition its business for the future. In line with its strategy of becoming a high value-add Asia-Pacific investment manager, AMPCI today has:

increased AUM from external sources, now representing approximately 40% of total AUM

increased funds sourced from international clients, particularly Asia

a growing investment presence in Asia, with stronger relationships with existing Asian partners to source new opportunities for AMPCI's clients

market-leading operating systems and processes

stronger talent and development programs.

To drive growth, AMPCI is:

strengthening its core investment capabilities, including property, infrastructure and listed assets

moving into adjacent geographies, particularly Asia

using M&A and alliances selectively to accelerate delivery of the strategy.

Strengthening core capabilities

In 1H 10, AMPCI:

attracted 13 new investment professionals to its property, infrastructure and equities portfolios

successfully migrated A$55b in AUM to its contemporary operating platform for equities, fixed interest and Multi Asset Group (MAG) capabilities

sourced A$1.2b in new funds from international clients to further diversify its client base

developed a new Global Listed Infrastructure Fund in partnership with Brookfield Investments of Canada for launch later in 2010

completed the A$150m redevelopment of the Mt Ommaney Shopping Centre in Brisbane

launched a A$200m medium-term note issue for the AMP Shopping Centre Fund which was heavily oversubscribed

launched a cultural change program to drive a stronger client focus and better client outcomes.

Moving into adjacent geographies

AMPCI’s primary growth focus is to continue expanding its investment management and distribution activities in Asia.

For example, AMPCI is building a pan-Asian capability in equities and country-specific investment capabilities in infrastructure (China and India) and property (Japan and Singapore).

In 1H 10, AMPCI sourced 7% of its AUM from Asia and its two largest external clients were based in Japan.

Japan: AMPCI now manages over A$6b on behalf of its Japanese clients. Japan is a very attractive distribution market given the large savings pool and increasing desire for international investment exposure and stronger returns. AMPCI's AUM ranks in the top 10 when compared with foreign Toshin (Retail) fund managers in Japan.

In 1H 10, AMPCI attracted over A$1b in net cashflows from Japanese retail investors through its Australian bond and global REIT products.

China: Growth in China is also part of AMPCI’s medium-term strategy. During 1H 10, the China Securities Regulatory Commission extended AMPCI’s QFII licence indefinitely, enabling it to continue investing in China A shares listed on the Shanghai and Shenzhen stock exchanges.

AMPCI also continued working closely with the world’s largest listed life insurer, China Life Insurance Group, exploring areas for partnership in pensions and asset management, under its joint Memorandum of Understanding (MOU).

Other markets: AMPCI is currently marketing two infrastructure funds to global investors: the Asian Giants Infrastructure Fund (AGIF) and the Strategic Infrastructure Trust of Europe (SITE).

During 1H 10, AGIF secured its first UK pension fund investor, with total commitments now at US$155m. Over €70m of new commitments were also obtained for SITE, including Infrastructure's first Japanese and French Pension fund investors.

AMPCI is also growing its global infrastructure capability by opening a New York office. With clients increasingly seeking to award global mandates, the team will take advantage of significant private infrastructure investment expected in North America.

Selective use of M&A and alliances

AMPCI’s improving cashflows in Japan have been underpinned by the successful integration of Gemini Advisors Securities Investment Company Limited, which was acquired in 2H 09. This acquisition has particularly strengthened AMPCI’s sub-advisory business to Japanese Toshin fund managers distributing to the local retail market.

AMPCI’s global partnership with Brookfield Investments in listed property and listed infrastructure attracted A$149m of net cashflows during 1H 10 and won a number of investment awards.

In Singapore, AMPCI completed the disposal of four industrial properties, sold to the Singapore exchange listed AIMS AMP Capital Industrial REIT.

28 AMP Capital InvestorsAMP Investor Report 1H 10

AMP Capital Investors financial summary cont’d

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Profit and loss

Management fees – AUM based

Internal 73 66 66 132 10.6

External 76 75 77 152 1.3

Management fees – Non-AUM based 27 29 28 57 (6.9)

Total management fees 176 170 171 341 3.5

Performance fees 12 13 19 32 (7.7)

Transaction fees 7 2 4 6 250.0

Total performance and transaction fees 19 15 23 38 26.7

Fee income 195 185 194 379 5.4

Controllable costs (136) (123) (132) (255) (10.6)

Tax expense (15) (17) (14) (31) 11.8

Operating earnings before net seed pool income 44 45 48 93 (2.2)

Net seed pool income1 - (2) - (2) n/a


Underlying investment income 4 5 5 10 (20.0)

Underlying operating profit after income tax 48 48 53 101 -

Seed pool valuation adjustments2 - (35) 5 (30) n/a

Operating profit after income tax and seed pool valuation adjustments 48 13 58 71 269.2

Controllable costs

Employee related 70 70 76 146 -

Investment operations and other 58 48 52 100 20.8

Total operating costs 128 118 128 246 8.5

Project costs 8 5 4 9 60.0

Total controllable costs 136 123 132 255 10.6


Controllable costs to AUM (bps)3 28.5 27.7 28.2 28.0 n/a

AUM (A$b) 95.2 89.9 95.1 95.1 5.9

Average AUM (A$b) – internal 59.7 53.9 57.9 55.9 10.7

Average AUM (A$b) – external 35.8 34.8 35.5 35.2 2.9

AUM based management fees to AUM (bps) – internal3 24.5 24.3 22.9 23.6 n/a

AUM based management fees to AUM (bps) – external3 42.3 43.3 43.1 43.2 n/a

Performance and transaction fees to AUM (bps)3 4.0 3.4 5.0 4.2 n/a

RoBUE 50.4% 56.6% 65.5% 60.8% n/a

1 The net seed pool result excludes abnormal valuation adjustments.

2 Seed pool valuation adjustments in 1H 09 represent the abnormal writedown of seed pool assets, being Singapore industrial property and Australasian retirement village businesses. Refer to page 41 for more detail.

3 Based on average of monthly average AUM.



Operating earnings

AMPCI’s operating earnings increased A$1m (2%) to A$44m in 1H 10. Higher fee income, which was primarily a result of higher average AUM, was offset by higher controllable costs. Controllable costs increased by 11% as a result of ongoing investment in AMPCI’s operating platform, which will enhance efficiency and scalability, and costs associated with the continued investment in Asia.

Fee income

Fee income increased A$10m (5%) in 1H 10 to A$195m. Higher average AUM increased AUM based management fees by A$8m. Performance and transaction fees increased A$4m to A$19m while non-AUM based management fees fell A$2m.

Internal AUM based management fees increased 11% to A$73m in line with the increase in internal AUM, which was up 11% on 1H 09 due to growth in equities.

External AUM based management fees increased 1% to A$76m. External AUM base management fees to AUM fell 1.0 bps to 42.3 bps. This reduction was due to a change in asset mix, from a higher portion of higher fee property and infrastructure assets to equities and fixed interest assets.

Non-AUM based management fees include property asset management, property development, property leasing and bond lending fees. Non-AUM based management fees decreased by A$2m to A$27m due to lower property development fees and lower bond lending fees. Property development fees (down A$1m) fell due to lower development activity as a result of weaker economic conditions. Bond lending fees (down A$1m) fell following a decline in bond activity and margins.

Performance fees decreased by A$1m to A$12m in 1H 10. 1H 10 performance fees were principally derived from listed assets and infrastructure. Property performance fees remain depressed as they have rolling absolute return hurdles.

Performance fees are an intrinsic part of a diversified funds management business. Over the medium-term, performance fees are expected to improve as AMPCI’s investment performance improves and markets return to previous levels. For property and infrastructure, it may take a number of years for higher levels of performance fees to return, as their performance benchmarks are typically a bond yield plus a margin with prior period underperformance needing to be recovered.

Transaction fees primarily relate to alternative assets such as infrastructure, property and private debt. Transaction fees increased by A$5m to A$7m in 1H 10. Transaction fees are expected to be subdued, as there are limited opportunities to earn transaction fees under the existing fund structures.

Controllable costs

Controllable costs increased by A$13m (11%) to A$136m in 1H 10. Whilst employee costs were flat on 1H 09, investment operations and other costs increased by A$10m and project costs increased by A$3m.

The increase in investment operations and other costs and project costs was as a result of higher technology costs following the introduction of new business platforms and costs associated with the ongoing investment in Asia. Controllable cost increases include the amortisation of the investment in AMPCI’s operating platform, which will enhance efficiency and scalability. Technology costs are expected to increase into 2011 as AUM continues to be migrated to AMPCI’s new operating platform.

The cost to income ratio increased by 2.4 percentage points to 67.7% due to higher controllable costs. The cost to income ratio in 2H 10 is expected to remain at a similar level to 1H 10. This elevated level is expected to continue in the short-term due to continued expansion into Asia and investment in business platforms. Over the medium-term, AMPCI expects to have a cost to income ratio of between 55% and 60%; however, achieving this target in the short-term is unlikely, given current market levels.

Tax expense

The AMPCI effective tax rate in 1H 10 was 25.8%, which is lower than the Australian corporate tax rate (30%) due to tax concessions as a result of undertaking offshore activities and the receipt of joint venture (JV) income.

The 1H 10 effective tax rate was broadly in line with the FY 09 effective rate. However, as investment markets recover and Australian AUM based income increases, the effective rate is expected to rise. Over the longer term it is expected that AMPCI’s effective tax rate will be approximately 28%.

Return on capital

RoBUE decreased to 50.4% for 1H 10 due to higher capital.



AUM and cashflows

AUM remained flat at A$95.2b in 1H 10, reflecting negative investment returns partially offset by strong external net cashflows. The negative investment returns were a result of lower equity markets. Property, infrastructure and fixed income recorded positive investment returns during the half.

External AUM increased by A$1.9b (5%) to A$36.7b. The increase in external AUM was driven by strong net cashflows, particularly in fixed interest, infrastructure and property.

Internal AUM decreased by A$1.8b (3%) to A$58.4b. The movement in internal AUM comprised net cash outflows of A$679m and investment losses and other movements of A$1.2b. Internal net cashflows include AMP Group payments, such as dividend payments to shareholders, and inflows/outflows from AFS products, including products in run-off. Internal AUM has a higher weighting to equities, which increased the investment losses in 1H 10.

As a result of AMPCI’s operations in Asia, the business attracted A$1.1b in net external cashflows from the region. AMPCI continues to have success in distributing Australian bonds and global REITs in the Asian region. Asian flows and momentum are being driven by improved distribution. The product base remains narrow; however, the aim is to diversify AMPCI's product range in this market over the medium term.

AMPCI expects a higher level of redemption requests than usual in its Australian property business in 2H 10 and 1H 11.

Refer to the tables on page 32 for more detail on external and internal cashflows.

Net seed pool income

The seed pool is designed to assist business growth by funding the acquisition of assets to “seed” new funds or opportunities. Group Office lends AMPCI the funds at commercial interest rates. AMPCI aims to generate future revenues from the subsequent on-sale of these assets to clients through new or existing funds.

The net seed pool result comprises funding costs, trading results and normal valuation movements. In normal market conditions the seed pool is expected to break even. In 1H 10 the seed pool broke even.

At 30 June 2010, the seed pool held gross assets of A$219m.

Seed pool assets comprise:

One Singapore industrial property which is a high quality property located in the city’s key industrial area.

Joint venture (JV) in an Australian retirement business, the JV owns and operates retirement villages in three Australian states, combining development and management of these properties.

A 16.1% stake in Singapore Exchange listed AIMS AMP Capital Industrial REIT.

During 1H 10, AMPCI completed the disposal of the following seed pool assets:

Four Singapore industrial properties were sold to the Singapore Exchange-listed AIMS AMP Capital Industrial REIT. There was no gain or loss on disposal.

An investment in a New Zealand retirement village business. There was no gain or loss on disposal.



Average AUM and AUM based management fees (bps)


A$m

1H 09

operatin

g earnin

gs

Higher A

UM base

d

managem

ent fees

Higher p

erform

ance

and transa

ctio

n fees

Higher c

ontrolla

ble cost

s

Low

er tax expense

Higher n

et seed

pool inco

me

1H 10

operatin

g earnin

gs

20

30

10

0

43 44

8

(2) 22

4

(13)

50

40

Low

er non-A

UM base

d

managem

ent fees

Ave

rage

AU

M A

$b

2H 08 1H 09 2H 09 1H 10

Other =equities, fixedinterest anddirectinvestments

P&I = property andinfrastructure

Average external AUM

External AUM based management fees bps

Average internal AUM

Internal AUM based management fees bps

40

60

20

0

92%other

59.7

56%other

44% P&I

8% P&I

35.8

100

80

91%other

57.9

57%other

43% P&I

35.5

90%other

53.9

53%other

47% P&I

34.8

90%other

58.7

44.643.3 43.1 42.3

24.5

22.924.3

23.8

56%other

44% P&I

38.4

9% P&I10% P&I10% P&I


Cashflows and assets under management (AUM)Cash inflows1 Cash outflows1 Net cashflows1

Cashflows by asset class (A$m) 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H

ExternalAustralian equities 478 386 23.8 504 118 (327.1) (26) 268 n/aInternational equities 915 663 38.0 549 250 (119.6) 366 413 (11.4)Fixed interest 1,460 672 117.3 850 1,248 31.9 610 (576) n/aInfrastructure 451 161 180.1 25 10 (150.0) 426 151 182.2Direct investments 1 - n/a 2 3 33.0 (1) (3) 66.7Property 658 3 n/a 172 63 (173.0) 486 (60) n/aAlternative assets3 1 2 (50.0) 7 3 (133.3) (6) (1) (500.0)Total external 3,964 1,887 110.1 2,109 1,695 (24.4) 1,855 192 866.1InternalAustralian equities 800 1,017 (21.3) 1,415 686 (106.3) (615) 331 n/aInternational equities 819 817 0.2 762 171 (345.6) 57 646 (91.2)Fixed interest 2,707 2,145 26.2 2,480 3,219 23.0 227 (1,074) n/aInfrastructure 12 43 (72.1) 77 65 (18.5) (65) (22) (195.5)Direct investments 22 10 120.0 12 23 47.8 10 (13) n/aProperty 17 57 (70.2) 328 158 (107.6) (311) (101) (208.1)Alternative assets3 59 23 156.5 41 13 (215.4) 18 10 82.3Total internal 4,436 4,112 7.9 5,115 4,335 (18.0) (679) (223) (204.9)Total 8,400 5,999 40.0 7,224 6,030 (19.8) 1,176 (31) n/a

AUM by asset class (A$m) FY 09Net

cashflows Investment

returns and other5 1H 10 % FY

ExternalAustralian equities 4,419 13% (26) (424) 3,969 11% (10.2)International equities 6,342 18% 366 (230) 6,478 18% 2.1Fixed interest 8,916 26% 610 196 9,722 26% 9.0Infrastructure 3,510 10% 426 135 4,071 11% 16.0Direct investments 172 0% (1) (26) 145 0% (15.7)Property 11,454 33% 486 390 12,330 34% 7.6Alternative assets3 25 0% (6) 1 20 0% (20.0)Total external 34,838 100% 1,855 42 36,735 100% 5.4InternalAustralian equities 19,417 32% (615) (1,629) 17,173 30% (11.6)International equities 11,847 20% 57 (747) 11,157 19% (5.8)Fixed interest 22,190 37% 227 1,140 23,557 40% 6.2Infrastructure 1,322 2% (65) 11 1,268 2% (4.1)Direct investments 454 1% 10 (41) 423 1% (6.8)Property 3,786 6% (311) 99 3,574 6% (5.6)Alternative assets3 1,251 2% 18 2 1,271 2% 1.6Total internal 60,267 100% (679) (1,165) 58,423 100% (3.1)TotalAustralian equities 23,836 25% (641) (2,053) 21,142 22% (11.3)International equities 18,189 19% 423 (977) 17,635 18% (3.0)Fixed interest 31,106 33% 837 1,336 33,279 35% 7.0Infrastructure 4,832 5% 361 146 5,339 6% 10.5Direct investments 626 1% 9 (67) 568 1% (9.3)Property4 15,240 16% 175 489 15,904 17% 4.4Alternative assets3 1,276 1% 12 3 1,291 1% 1.2Total 95,105 100% 1,176 (1,123) 95,158 100% 0.1AUM by source of client (A$m)

Australia 79,544 8 (1,390) 78,162 (1.7)New Zealand 9,220 (15) (120) 9,085 (1.5)Asia (including Middle East) 5,297 1,116 456 6,869 29.7Rest of world 1,044 67 (69) 1,042 (0.2)Total 95,105 1,176 (1,123) 95,158 0.11 1H 09 cashflows have been restated due to the inclusion of alternative assets as a

new asset class, and the impact of the restatement referred to in note 2.2 FY 09 AUM has been restated, reducing FY 09 AUM by A$1.8b. NZ AUM which is

invested in Australian products, was previously included in both the NZ and Australian numbers, which were aggregated to form total AMPCI AUM.

3 Alternative assets refer to a range of investments that fall outside of the traditional asset classes and includes investments in commodities and absolute return funds.

4 Property AUM comprises Australian (A$13.2b) and NZ (A$2.7b) managed assets. Australian property AUM is invested in office (37%), retail (53%), industrial (7%) and other (3%).

5 Other includes distributions, taxes and foreign exchange movements.



A$b

AUM at 3

1/12/0

9

Austra

lian

run-o

ff busin

ess

AMP G

roup

Asian

distrib

ution ch

annels

Rest of t

he world

Austra

lian co

ntem

porary

NZ mark

et flo

ws

NZ mark

et flo

ws

0.1

(0.8)

1.10.7

95.1

70

80

90

(1.1)

0.0 0.1 0.0 0.0

95.2

Inve

stm

ent

retu

rns a

nd other

AUM at 3

0/06/1

0

100

Austra

lian

mark

et flo

ws

95

85

75External Internal

Movement in AUM by channel FY 09 to 1H 10

External AUM by asset class (A$37b AUM)

Internal AUM by asset class (A$58b AUM)

Property 34%

(1H 09: 35%)

Australian equities 11%

(1H 09: 11%)

International equities 18%

(1H 09: 18%)

Fixed interest 26%

(1H 09: 24%)

Alternative assets 0% (1H 09: 0%)

Direct investments 0% (1H 09: 1%)

Infrastructure 11%

(1H 09: 10%)

Australian equities 30%

(1H 09: 29%)

Fixed interest 40%

(1H 09: 39%)

Direct investments 1%

(1H 09: 1%)

Infrastructure 2%

(1H 09: 3%)

Property 6%

(1H 09: 7%)

International equities 19%

(1H 09: 19%)

Alternative assets 2%

(1H 09: 2%)


70% of AUM met or exceeded benchmark over the five years to 30 June 2010. Investment performance has remained solid, with 64% of AUM meeting or exceeding benchmark for the twelve months to 30 June 2010. The target for the business is 75% of AUM meeting or exceeding benchmark.

The competitive rankings of AMPCI's main funds remain strong over the five year period to 30 June 2010, with first quartile rankings for the Corporate Bond Fund, Wholesale Australian Bond Fund and Global Listed Property Trust, along with second quartile rankings for AMPCI Balanced Growth and Direct Property funds.

The twelve months to 30 June 2010 have continued to be challenging for the property and infrastructure sectors due to illiquidity, difficult credit conditions and tough economic conditions.

Towards the end of 2009 and the beginning of 2010, there were improving signs, with the valuation cycle appearing to have bottomed.

Many of the property and infrastructure benchmarks are set against a bond yield plus margin benchmark, which were challenging to exceed given market conditions over the past 24 months.

Of the Australasian direct property AUM, the AMP Wholesale Office Fund and the AMP Shopping Centre Fund recorded first quartile rankings over the twelve months to 30 June 2010. Around 70% of AMPCI property fund benchmarks related to the government bond yield plus a margin (eg 3%).

90% of Australasian fixed interest met or exceeded benchmark for the twelve months to 30 June 2010 and 89% over the five years to 30 June 2010. Investment performance has continued to benefit from credit markets stabilising. The Corporate Bond Fund ranked in the first quartile according to the Mercer Sector Survey for one and five years.

60% of Australasian equities met or exceeded benchmarks for the twelve months to 30 June 2010. Over five years, 100% of AUM met or exceeded benchmark. The Value, Capital, Quant and Enhanced Index Fund all added value over one, three and five year periods against their passive benchmark.

Over five years, the Capital, Quant, Value and SRI investment styles have beaten their benchmarks by 2.0%, 1.8%, 1.3% and 0.4% respectively, along with a Q2 competitor ranking for Capital and Quant, according to the Mercer Sector Survey.

Performance across international multi-manager funds has been strong for the twelve months to 30 June 2010.

International bond portfolios benefited from stabilised credit spreads and liquidity, resulting in all funds outperforming for the twelve months to 30 June 2010.

85% of International equities met or exceeded benchmark for the twelve months to 30 June 2010.

AMPCI’s investment capability was endorsed in 1H 10 with the following awards and ratings:

The AMP Capital Global Property Securities Fund won the Money Management/Lonsec Fund Manager of the Year Awards for global property securities.

Fund Manager of the Year for Listed Property for 2009 at the annual Morningstar Fund Manager of the Year Awards.

Morningstar Fund Manager of the Year (New Zealand) 2009 and Morningstar Fixed Interest Fund Manager of the Year (New Zealand) 2009.

Investment performance

Investment performance - period end 30 June

Percentage of funds meeting or exceeding benchmark (%) 1 year 3 years 5 years

AMPCI managed

Australasian equities 60% 75% 100%

Australasian fixed interest 90% 80% 89%

Infrastructure and direct investments 57% 29% 45%

Australasian property – direct 6% 9% 43%

Global property – listed 0% 91% 100%

Total AMPCI managed 47% 53% 74%

Multi-manager and Multi Assets Group

Australasian equities 93% 85% 95%

Australasian fixed interest 100% 100% 100%

International equities 85% 31% 77%

International fixed interest 100% 8% 49%

Diversified 65% 43% 62%

Total multi-manager and Multi Assets Group 75% 40% 67%

Total AMPCI 64% 45% 70%


Investment performance cont’d

A summary of investment performance for the one, three and five years to 30 June 2010 across the various funds/styles is shown in the table below. In instances where there is more than one fund for an investment style, investment performance of the flagship fund has been quoted.

Investment performance across funds/styles 1 Year 3 Years 5 Years

Equities

Absolute return1

(%)

Excess return

(%)

Competitor quartile

r anking2

Absolute return1

(%)

Excess return

(%)

Competitor quartile

ranking2

Absolute return1

(%)

Excess return

(%)

Competitor quartile

ranking2

Fund/style name

Sustainable Future (SRI) 12.7 (0.4) Q3 (9.2) (1.3) Q4 4.9 0.4 Q3

Capital 14.5 1.3 Q2 (4.9) 2.9 Q2 6.5 2.0 Q2

Active Quant 13.9 0.8 Q2 (6.1) 1.8 Q3 6.3 1.8 Q2

Value 14.1 0.9 Q2 (5.3) 2.6 Q2 5.8 1.3 Q3

Enhanced Index 13.4 0.3 Q1 (7.4) 0.5 Q1 4.7 0.2 Q3

New Zealand Equities 6.8 (0.7) n/a (7.2) 2.6 n/a 2.9 3.1 n/a

Fixed interest

Fund/style name

Wholesale Australian Bond Fund3 10.7 2.8 Q2 8.4 0.8 Q2 6.7 0.6 Q1

Structured High Yield 1.3 (2.6) Q4 7.7 2.1 Q1 9.0 3.2 Q1

Enhanced Yield 6.0 2.3 Q4 5.4 0.5 Q2 7.0 2.1 Q2

Corporate Bond 14.5 6.6 Q1 7.4 (0.3) Q2 6.3 0.3 Q1

New Zealand Fixed Interest 9.4 1.2 n/a 11.5 2.5 n/a 8.4 1.6 n/a

International funds (multi-manager)

Fund/style name

International Equities 6.6 1.4 Q3 (12.7) (1.2) Q4 (2.0) 0.2 Q3

International Fixed Interest 22.0 10.5 Q1 6.7 (3.1) Q2 5.8 (1.4) Q2

Property (direct and listed)

Fund/style name

Australian Core Property Portfolio 5.2 (3.3) Q2 2.6 (6.0) Q2 8.5 (0.0) Q2

AMP Wholesale Office Fund 6.1 (2.9) Q1 0.3 (8.8) Q2 7.1 (2.0) Q3

AMP Shopping Centre Fund 5.9 (3.1) Q1 2.3 (6.8) Q2 9.6 0.6 Q1

Property Income Fund 3.1 (1.0) Q2 3.0 1.5 Q1 7.4 (0.4) Q2

New Zealand Direct Property (21.5) n/a n/a (9.7) n/a n/a 2.8 n/a n/a

Australian Listed Property Trusts4 19.9 (0.5) Q3 (24.0) (0.3) Q2 (7.7) 0.3 Q2

Global Listed Property Trusts4 37.9 (1.2) Q2 (12.8) 2.3 Q1 0.2 2.8 Q1

Infrastructure

Fund/style name

Infrastructure Equity Fund 6.2 (3.8) Q2 (3.2) (13.2) Q4 3.6 (6.5) Q4

Strategic Infrastructure Trust of Europe (GBP) 8.7 0.3 n/a 7.2 (1.6) n/a 9.2 0.3 n/a

Australia Pacific Airports Fund 18.5 6.5 n/a 16.2 4.2 n/a 18.6 6.6 n/a

Private equity

Fund/style name

Business Development Fund 2 7.4 (11.3) n/a (0.8) 2.4 n/a 41.6 31.8 n/a

Private Equity Fund 3 (27.3) n/a n/a (29.7) n/a n/a 2.6 n/a n/a

1 Absolute returns are annualised for periods greater than one year. Absolute return for private equity represents internal rate of return.

2 Competitor quartile ranking determined using relevant Mercer Sector Surveys.

3 For the Wholesale Australian Bond Fund competitor quartile ranking, a composite return was used.

4 For the Australian and global listed property trusts competitor quartile ranking, a composite return was used.

36 Capital structureAMP Investor Report 1H 10

Capital management

At 30 June 2010 the regulatory capital resources above MRR were A$1,413m (A$1,242m at 31 December 2009). Regulatory capital resources were 2.4 times MRR (2.2 times at 31 December 2009). The regulatory capital resources above MRR will vary throughout the year due to a range of factors including investment market movements, dividend payments and statutory profits.

AMP continues to take a prudent approach to capital management and has a bias towards holding more capital rather than less in light of continued market volatility and until APRA's new regulatory capital proposals become clearer.

AMP’s interim 2010 dividend is 15 cents per share franked to 60%. AMP’s dividend payout ratio for 1H 10 is 81% of underlying profit, with future dividends likely to be in the range of 75% to 85% of underlying profit.

AMP will offer a discount of 1.5% to DRP participants. The DRP will not be underwritten and new shares will be issued.

MRR

The shareholder minimum regulatory capital requirement (MRR) is the amount of shareholder capital required by each of AMP’s regulated businesses to meet their capital requirements as set by the appropriate regulator. These requirements are:

AMP Life – solvency, capital adequacy and management capital requirements as specified under the APRA Life Insurance Prudential Standards

AMP Bank – capital requirements as specified under the APRA Banking Prudential Standards

AMPCI – capital requirements under its Australian Financial Services Licence (AFSL).

During 1H 10, APRA issued two capital discussion papers:

Supervision of conglomerate groups. APRA released a discussion paper in March 2010 describing its proposed approach to the supervision of conglomerate groups that include APRA regulated entities.

Review of capital standards for life insurers and general insurers. APRA released a discussion paper in May 2010 outlining its proposals to update the capital standards for both life and general insurers. APRA also released two technical papers in July 2010 providing further detail on its proposed life and general insurance capital standards.

Capital management

30 June 2010

A$m Total AMP

AMP Life Statutory

FundsAMP Life

other3 AMP

Bank4 Total AFS AMPCIGroup Office

Total capital resources 4,254 1,779 558 304 2,641 365 1,248

Intangibles1 (735) - (452) (25) (477) (134) (124)

Tangible capital resources 3,519 1,779 106 279 2,164 231 1,124

Senior debt2 (1,084) (1,084)

Regulatory capital resources 2,435 1,779 106 279 2,164 231 40

Shareholder minimum regulatory capital requirements (MRR) 1,022 740 29 209 978 44 -

Regulatory capital resources above MRR 1,413 1,039 77 70 1,186 187 40

31 December 2009

A$m Total AMP

AMP Life Statutory

FundsAMP Life

other3 AMP

Bank4 Total AFS AMPCIGroup Office

Total capital resources 3,895 1,844 544 282 2,670 303 922

Intangibles1 (720) - (453) (24) (477) (125) (118)

Tangible capital resources 3,175 1,844 91 258 2,193 178 804

Senior debt2 (910) (910)

Regulatory capital resources 2,265 1,844 91 258 2,193 178 (106)

Shareholder minimum regulatory capital requirements (MRR) 1,023 719 23 216 958 65 -

Regulatory capital resources above MRR 1,242 1,125 68 42 1,235 113 (106)

1 Refer to page 44 for definition. Intangibles include capitalised costs.

2 Refer to debt overview page 39.

3 Includes AFS accountable component of the AMP Life shareholders fund and AFS subsidiaries (eg AMPFP, Hillross).

4 The AMP Bank capital resources eliminates the impact of IFRS cashflow hedge fair value movements.

37Capital structureAMP Investor Report 1H 10

Capital management cont’d

Both of the proposals are in the early stages of industry consultation which will include quantitative impact studies. APRA expects to finalise both the conglomerates and life and general insurance capital standards in 2011, with implementation planned for 2012.

APRA has stated that:

in relation to the conglomerates proposal, for the majority of affected groups the impact on capital is likely to be relatively small

in relation to the life and general insurance proposal, it has not set out to achieve any material change in overall industry capital levels.

At this stage, it is too early to assess the potential impacts of these proposals on AMP.

Target surplus

AMP’s regulated businesses each target a level of capital equal to MRR plus a target surplus.

The AMP Life Statutory Funds’ target surplus is set by reference to a probability of breaching regulatory capital requirements. This is a two tiered test where the target surplus is set as the greater of the amount required for a:

0.5% probability of breaching solvency over one year

10% probability of breaching capital adequacy over one year.

AMP Life’s capital position remained above its target level at 30 June 2010. The target surplus is a management guide to the level of excess capital that AMP Life seeks to carry. It is not a point estimate which requires automatic management action. AMP Life’s capital position relative to its target surplus can vary significantly throughout the year.

AMP Bank’s target surplus reflects an additional 0.75% of risk weighted assets above the APRA minimum requirements. AMP Capital Investors’ target surplus is set to cover the seed pool investment risk and operational risks.

Movement in 1H 10 regulatory capital resources above MRR

Regulatory capital resources (A$m) 30 June 2010 31 December 2009

AMP shareholder equity 2,891 2,706

Allowable hybrid Tier 1 instruments - -

Less: goodwill and other intangibles (735) (720)

Tier 1 2,156 1,986

Allowable upper Tier 2 instruments - -

Allowable lower Tier 2 instruments 279 279

Tier 2 279 279

Total regulatory capital (Tier 1 + Tier 2) 2,435 2,265

2,000

A$m

Regulatory

capita

l reso

urces

above M

RR as at F

Y 09

Net pro

fit attr

ibuta

ble to

share

holders

of AM

P Lim

ited

Dividends (

net of D

RP)

Regulatory

capita

l

reso

urces a

bove M

RR

before

move

ment i

n MRR

Move

ment i

n inta

ngibles

Defined benefit

fund

Mism

atched it

ems

Reserv

es and oth

er move

ments

1,600

800

400

0

1,2001,242

1,412

425

(15) (25)(30)

4

1,413

1(189)

Move

ment i

n MRR

Regulatory

capita

l reso

urces

above M

RR as at 1

H 10

38 Capital structureAMP Investor Report 1H 10

Nominal versus effective exposure

The asset allocations above reflect the effective exposure of shareholder funds after consideration of the effects of derivative positions.

Management of market risks in the shareholders funds

Total shareholder funds (A$3,038m) comprise direct shareholder funds (A$2,706m) where the shareholder can determine the asset mix and co-mingled shareholder funds (A$332m) that are invested in the same asset mix as policyholder funds in AMP Life Statutory Fund 1.

The investment of the direct shareholder funds provides management with a lever for managing the overall market risk within the AMP Group. Changes are made to the asset mix of the direct shareholder funds to achieve the desired level of overall market risk exposure across the AMP Group. As at 30 June 2010, this has resulted in a substantial allocation to cash. Subsequent to 30 June 2010, approximately A$190m of international fixed interest assets were reallocated to Australian fixed interest.

The majority of the international equity exposures are not hedged for currency. Property exposures relate primarily to a 65% interest in AMP’s head office at 33 Alfred Street Sydney.

The shareholder fixed interest portfolio is split approximately 45% in sovereign exposures and 55% in corporate exposures.

Corporate exposures are invested in AAA (20%), AA (31%), A (24%), BBB (18%) and sub-investment grade and unrated (7%).

Underlying investment income

AMP calculates the underlying investment income that is allocated to the business units (BUs) and Group Office, for management reporting purposes, by applying an underlying rate of return to BU and Group Office shareholder assets invested in income producing investment assets (as opposed to operating assets). The underlying after tax rate of return used for 1H 10 is 4.25% pa (1H 09: 4.25% pa) based on the long-term target asset mix.

Underlying investment income is calculated on shareholder funds invested in income producing assets. Shareholder funds invested in income producing assets may be higher or lower than business unit capital due to the working capital requirements of the business unit.

Australian contemporary wealth management underlying investment income

In the Australian contemporary wealth management business, AMP Bank income producing assets are excluded from the calculation of underlying investment income. The return on AMP Bank income producing assets is included in operating earnings.

Capital management cont’d

Total capital resources by equity class (A$m) 30 June 2010 31 December 2009

Contributed equity 4,955 4,814

Equity contribution reserve 1,019 1,019

Other reserves 11 3

Retained earnings1 398 320

Demerger loss reserve (3,585) (3,585)

Total AMP statutory equity attributable to shareholders 2,798 2,571

Accounting mismatches and cashflow hedge reserve 93 135

Total AMP shareholder equity 2,891 2,706

Corporate debt 1,363 1,189

Total capital resources 4,254 3,895

1 The movement in retained earnings (A$78m) is comprised of profit after mismatch items (A$425m) less dividends (A$328m) and adjusted for IFRS (A$19m), eg reversal of dividends related to treasury shares.

Total capital resources by asset class (A$m) 30 June 2010 31 December 20093

International equities 70 70

Australian equities 65 71

Property 252 254

International fixed interest 313 333

Australian fixed interest 319 243

Cash1 2,020 1,732

Total shareholder funds 3,038 2,711

Other2 481 464

Tangible capital resources 3,519 3,175

Intangibles 735 720


1 Cash includes cash balances held as bank deposits, short-term fixed interest securities and floating rate securities.

2 Other includes A$108m (FY 09: A$127m) of cash held backing liabilities, seed pool assets of A$167m (FY 09: A$222m) and A$206m (FY 09: A$115m) of other assets and liabilities.

3 31 December 2009 shareholder funds assets has been restated for changes in the allocation of co-mingled assets.

39Capital structureAMP Investor Report 1H 10

Debt overview

Total corporate debt increased by A$174m in 1H 10 to A$1,363m, as a result of the repayment of a A$200m loan from Group Office by AMP Bank, partially offset by a net reduction in commercial paper issuance of A$26m. Currently, the interest expense on total corporate debt is effectively split approximately 60/40 between fixed and floating rate. At 30 June 2010, AMP had access to significant liquidity through a liquidity portfolio of approximately A$750m and undrawn bank facilities of A$700m.

AMP Bank debt

Historically, the securitisation of residential mortgage backed securities (RMBS) has been a significant source of funding and capital relief for AMP Bank. Securitisation funding is non-recourse to AMP Bank and AMP Group.

AMP Bank completed an A$1b RMBS securitisation in January 2010. It is expected that securitisation markets will continue to recover in 2H 10. Going forward it is expected that securitisation will provide a significant source of funding and capital relief for AMP Bank.

AMP Bank reduced senior debt through a combination of reduced NCDs and RMBS repos and repaying a A$200m loan to Group Office during 1H 10. AMP Group continues to provide a guarantee covering AMP Bank's liabilities.

Debt in entities controlled by AMP Life policyholder funds

This represents debt raised in various funds managed by AMPCI where AMP Life policyholders’ funds have a controlling interest.

As the lenders in relation to this debt have limited recourse to the assets of the borrowing entity or fund and no recourse to AMP, the debt does not form part of the AMP corporate debt and is not included in S&P’s definition of debt from an AMP Group perspective.

Reconciliation of total borrowings per AMP Limited half year financial statements (A$m)

Total corporate and AMP Bank debt at 30 June 2010 8,073

Plus limited recourse debt in entities controlled by AMP Life policyholder funds 2,190

Plus deposits with AMP Life 138

Plus limited recourse debt in investment entities controlled by AMP Capital Investors 35

Less policyholder deposits with AMP Bank1 (2,032)

Value of cross currency interest rate swaps, fair value adjustments on borrowings and net discounts and transaction costs (71)

Subtotal 8,333

Plus AMP Bank securitisation brought back on balance sheet as a result of IFRS 3,881

Total borrowings and subordinated debt as per AMP Limited Financial Report for the half year ended 30 June 2010 12,214

1 Includes AMP superannuation cash deposits (A$1.8b) and other AMP Life policyholder deposits (A$0.3b).

30 June 2010 31 December 2009

A$m Corporate AMP Bank Total Corporate AMP Bank Total

Subordinated bonds/notes 83 - 83 83 - 83 AMP Notes1 296 - 296 296 - 296 Subordinated loan from Group Office to AMP Bank (100) 100 - (100) 100 - Total subordinated debt (Tier 2) 279 100 379 279 100 379 Domestic commercial paper, NCDs and repos 106 989 1,095 132 1,443 1,575 Euro medium-term notes 628 - 628 628 - 628 Domestic medium-term notes 350 1,070 1,420 350 1,090 1,440 Loan from Group Office to AMP Bank - - - (200) 200 - Total senior debt 1,084 2,059 3,143 910 2,733 3,643 Deposits2 - 4,551 4,551 - 4,265 4,265 Total debt 1,363 6,710 8,073 1,189 7,098 8,287 Corporate gearing ratiosS&P gearing 15% 13%Interest cover – underlying (times) 12.3 11.9Interest cover – actual (times) 12.5 11.4

Corporate debt by year of repayment

A$m 0 – 1 year3 1 – 2 years 2 – 5 years 5 – 10 years 10+ years Total

Corporate debt at 30 June 2010 686 398 296 - 83 1,463Loan from Group Office to AMP Bank - (100) - - (100)Total corporate debt at 30 June 2010 686 398 196 - 83 1,363Total corporate debt at 31 December 2009 162 350 594 - 83 1,189

1 The AMP Notes 10 year subordinated debt, with a call date in five years, has been structured to qualify as Lower Tier 2 capital for APRA purposes.

2 Deposits include AMP Bank retail deposits (A$2.5b), AMP superannuation cash deposits (A$1.8b) and other AMP Life policyholder deposits (A$0.3b).

3 1H 10 corporate debt repayable in 0 – 1 year is A$230m of Euro medium-term notes maturing in November 2010, A$350m of domestic medium-term notes maturing in May 2011 and A$106m of domestic commercial paper.

40 Additional informationAMP Investor Report 1H 10

Group Office

Underlying investment income on Group Office capital decreased from A$23m in 1H 09 to A$21m in 1H 10. Underlying investment income was lower due to lower Group Office investment assets.

The weighted average cost of corporate debt in 1H 10 was 7.76%, compared to 6.78% in 1H 09. Interest expense was A$1m lower in 1H 10 as the impact of lower corporate debt was offset by a higher weighted average cost of corporate debt.

AMP Limited tax loss recognition

AMP Limited tax loss recognition relates to the gradual recoupment of carried forward tax losses. Recognition of the tax benefit is linked to overall AMP Group taxable earnings (both ordinary policyholder and shareholder) and the amount recognised is expected to move in line with the growth in taxable earnings.

The amount recognised in 1H 10 was A$8m. AMP expects to recognise a benefit from recouping these tax benefits over a number of years. At 30 June 2010, the amount of carried forward tax losses to be recouped (in line with the growth in taxable earnings) is approximately A$134m.

Market adjustment – investment income

Market adjustment – investment income represents the excess (or shortfall) between the underlying investment income and actual return on shareholder assets invested in income producing assets. The investment income market adjustment was -A$8m in 1H 10 and was impacted by the cash rate being lower than AMP’s assumed long-term cash rate.

Other items

1H 10 other items principally comprise the benefit from the retrospective impact of changes in tax legislation offset by one-off and non-recurring costs.

A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H

Group Office costs not recovered from business units (20) (18) (19) (37) (11.1)

Underlying investment income on Group Office capital 21 23 22 45 (8.7)

Interest expense on corporate debt (36) (37) (34) (71) 2.7

AMP Limited tax loss recognition 8 8 8 16 -

Market adjustment – investment income (8) (26) 13 (13) 69.2

Other items (3) 53 (43) 10 n/a

Seed pool valuation adjustments - (35) 5 (30) n/a

Timing differences

Market adjustment – annuity fair value 5 (9) 29 20 n/a

Market adjustment – risk products 10 (16) 2 (14) n/a

Loan hedge revaluations 8 (4) (1) (5) n/a

Accounting mismatches 30 32 (33) (1) (6.3)

Interest expense summary

Average volume of corporate debt 1,381 1,602 1,244 1,423

Weighted average cost of corporate debt1 7.76% 6.78% 7.90% 7.27%

Tax rate 30% 30% 30% 30%

Interest expense on corporate debt 36 37 34 71

Franking credits

AMP dividend franking credits at face value at end of period2 112 86

1 Weighted average cost of corporate debt as at 30 June 2010 is 8.02% pa (post tax 5.61%).

2 Balance of franking account adjusted for franking credits which will arise from the payment of income tax provided for in the financial statements. After franking the interim dividend (60%), the balance of franking credits will be A$32m.

41Additional information AMP Investor Report 1H 10

Group Office cont’d

Seed pool valuation adjustment

The seed pool assists with AMPCI business growth by funding the acquisition of assets to “seed” new funds or opportunities. The disclosure of the net seed pool result is discussed in the AMPCI section (see page 30 for details). As a result of the investment market and economic conditions in FY 08 and FY 09, there were large, abnormal writedowns in the value of seed pool assets during FY 09. There were no abnormal writedowns in 1H 10.

Timing differences

Market adjustment – annuity fair value

The market adjustment on annuities relates to the net impact of investment markets on AMP’s annuity portfolio. AMP’s annuity portfolio comprises fixed term and lifetime annuity products, with Australian fixed term liabilities of A$0.6b and Australian lifetime annuity liabilities of A$1.5b. The Australian annuity portfolio is managed on a matched basis, with fixed interest assets matched to expected annuity cash outflows. Equities are not used by AMP to match its Australian annuity book.

The assets that support AMP’s Australian annuity book comprise a mixture of government bonds, semi-government bonds and corporate bonds. These assets are principally exposed to Australian credit markets. This mix is required to achieve the matching of assets to expected cash annuity outflows. Ultimately, the matching should remove any interest rate or reinvestment risk, but credit risk remains.

Accounting standards require fixed term liabilities and the assets that back them both to be valued consistently on a fair value basis.

For lifetime annuities, accounting standards require the liabilities to be valued based on the risk-free rate of return and the assets valued on a fair value basis. Therefore, changes in credit spreads and the deterioration in the quality of individual assets can lead to timing differences.

As the assets are held to maturity, gains/losses due to changes in credit spreads or credit deterioration should reverse over time, to the extent that there are no asset defaults or restructurings.

Losses can also occur from defaults on individual assets. There were no asset defaults in 1H 10.

The assets that support AMP’s annuity book comprise a mixture of government bonds and cash (1%), semi-government bonds (34%) and corporate bonds (65%). The average duration of the portfolio is five years. Corporate bond exposures are invested in AAA (31%), AA (34%), A (25%), BBB (8%) and BB (2%).

Market adjustment – risk products

The market adjustment – risk products relates to the net impact of changes in market economic variables (bond yields and CPI) on the valuation of risk insurance liabilities.

Under Australian accounting standards, life insurance business is accounted for using Margin on Services (MoS). Under MoS, the profits that are expected to be earned on life insurance contracts emerge over the life of the business as services are provided and income received. MoS involves projecting future cashflows (premiums, benefits and costs after allowing for inflation), and discounting future cashflows to their present value using the appropriate risk-free discount rate. Changes to market related economic assumptions affect policy liabilities and current year profit. For information on changes in market economic variables in 1H 10, refer to page 26 and for MoS, refer to the Life Insurance Accounting note on AMP's website.

Loan hedge revaluations

A portion of AMP’s corporate debt is denominated in foreign currency, predominantly Euro and Sterling. After taking into account hedging, AMP maintains a policy of holding 100% of its corporate debt as AUD denominated and between 40% and 60% at floating interest rates. AMP uses cross currency swaps and interest rate swaps to maintain these policy guidelines.

Under IFRS, AMP is required to recognise the movements in fair value of debt, to the extent it is an effective fair value hedge relationship, and associated derivatives. This gives rise to an accounting gain or loss which will reverse over time.

Accounting mismatches

Under IFRS, some assets held on behalf of the policyholders (and related tax balances) are included in the accounts at different values to the value used in the calculation of policy liabilities in respect of the same asset. Movements in these policyholder assets flow through to shareholder profit. These differences have no impact on the true operational profits and losses of the Group.

Mismatch items that may impact the profit and loss account arise from policyholder interests in the following:

treasury shares (AMP Limited shares held by the statutory funds on behalf of policyholders)

owner-occupied properties

life company statutory funds’ investments in controlled entities

AMP Life statutory funds’ superannuation products invested with AMP Bank.

42 Additional informationAMP Investor Report 1H 10

Sensitivities – profit and capital

The profit and capital sensitivities are only indicative, because:

they are not always linear or symmetrical, because of the asymmetric nature of risks facing insurance companies, including the scope for policyholders to exercise options against the company or to benefit from guarantees

they assume that the particular variable moves independently of all others

they are based on the 1H 10 position, ie not “forward looking”, and make no allowances for events subsequent to 30 June 2010

in general, for profit sensitivities, they assume the movement occurs evenly over the year; for capital sensitivities, they assume the movement occurs at 30 June 2010.

Other assumptions include:

parent company shareholders’ equity is fully invested and there are no adjustments for investments which are outside index weightings

currency movements in investments in self-sustaining operations do not impact profit

sales sensitivity assumes the same product mix as that in underlying sales during 1H 10

investment income sensitivity is based on the amount of investments held as at 30 June 2010

all profit sensitivities shown are a full year impact

property sensitivities relate to unlisted property; listed property trusts are included in equities

bond yield sensitivities relate to both government and corporate bond yields for both Australian and international bonds

profit sensitivities exclude the impact of movements in credit spreads in corporate and semi-government debt.

Important considerations when using these sensitivities

Profit sensitivities

The sensitivities set out above apply to annualised FY 10 operating earnings (post tax) and investment income, assuming the changes in a range of hypothetical economic or business variables.

Operating earnings – investment linked business

For investment linked business, fee income is largely based on the level of AUM, which in turn is directly impacted by investment markets.

For changes in economic variables which impact AUM levels, it is assumed that the change in the variable occurs evenly across the entire year. That is, the analysis is point to point, assuming the movement from one point (eg beginning of the year equity markets) to another point (eg end of the year equity markets) occurs evenly over the year. It is similar to assuming a one-off movement in the variable half way through the year. For large movements that do not occur half way through the year, the profit sensitivities need to be extrapolated. For example, a 10% increase/decrease in equity markets at the start of the year would have double the impact on annualised FY 10 operating earnings than set out in the table above.

The sensitivities are based on the 1H 10 position and are not forward looking. If using the sensitivities as forward looking (eg applying 1H 10 profit sensitivities for FY 10 or FY 11), an allowance for changes in AUM levels should be made.

See page 10 (CWM) and page 28 (AMPCI) for average AUM levels that applied in 1H 10.

The AMPCI operating earning sensitivities assume no change to performance and transaction fees.

FY 10 profit sensitivities (A$m)

Operating earnings

CWM CWP Mature NZ Total AFS

AMPCI Group Office

Total Investment income

Total

Investment market variables

10% increase in Australian equities 7 - 4 - 11 2 13 5 18

10% decrease in Australian equities (7) - (4) - (11) (2) (13) (5) (18)

10% increase in international equities 4 - 1 2 7 1 8 6 14

10% decrease in international equities (4) - (1) (2) (7) (1) (8) (6) (14)

10% increase in property 2 - 2 - 4 (2) 2 18 20

10% decrease in property (2) - (2) - (4) 2 (2) (18) (20)

1% (100 bps) increase in bond yields - - 4 1 5 (1) 4 (19) (15)

1% (100 bps) decrease in bond yields - - (4) (1) (5) 1 (4) 19 15

1% increase in cash rate 1 - - - 1 - 1 7 8

1% decrease in cash rate (1) - - - (1) - (1) (7) (8)

Business variables

AMP Financial Services

5% increase in AUM 9 - 3 2 14

5% increase in sales volumes 2 3 - 1 6

1% increase in persistency 1 3 - - 4

AMP Capital Investors

5% increase in average external AUM 3

5% increase in average internal AUM 3

AMP Limited

5% reduction in controllable costs 12 2 3 2 19 10 2 31

43Additional information AMP Investor Report 1H 10

Sensitivities – profit and capital cont’d

AMP capital sensitivities – regulatory capital resources above MRR

The analysis is a point in time view of the capital impact of movements in equity markets, bond yields and property values on the 30 June 2010 capital position. The regulatory capital resources above MRR based on 30 June 2010 equity markets, bond yields and property values correspond to the disclosure in the capital management section (refer to page 36).

Regulatory capital requirements are met by a combination of both policyholder and shareholder assets.

Sensitivities include the profit/loss impact from changes in investment market variables on total shareholder funds. Changes in BU operating earnings are not reflected.

The capital sensitivities for AMP Life relate to the business within the AMP Life Statutory Funds. This includes guaranteed products (the majority of which are contained within the AFS mature business), risk insurance products and unit linked products.

The property sensitivities relate to unlisted property. The impacts from movements in the value of listed property trusts is included in the equity sensitivities.

AMP actively manages both the asset mix and the associated capital. Market movements and trends are carefully monitored and adjustments made accordingly.

AMP’s capital management framework includes market related trigger points at which management will take action to reduce the impact of market movements on AMP’s capital position. The sensitivities contained in the table above do not make any allowance for these management actions, which can have a significant impact on MRR.

Operating earnings – risk insurance and annuity business

For risk insurance and annuity business, movements in economic variables (bond yields, CPI) impact to the extent that the valuation of assets and liabilities are mismatched. These impacts are included in timing differences and have no effect on BU operating earnings but are included in EV sensitivities.

Operating earnings – participating business

For participating business, profit margins are dependent on the level of future bonuses supported by both the value of available assets and the assumed future investment earnings (largely driven by prevailing bond yields). As the effect of movements in investment markets is absorbed by bonuses over a number of years, only a portion of the impact is recognised in the current reporting period and is allocated between policyholders and shareholders.

Investment income

The analysis is based on a point in time and indicates the impact a change in the variable would have on AMP’s annualised FY 10 total investment income (ie underlying investment income plus investment income market adjustment).

The cash rate sensitivities show the impact of changes in the cash rate on annualised FY 10 total investment income. The impact assumes the change in the cash rate occurs evenly over the year.

The investment income sensitivities do not include any allowance for investment gains/losses on assets that back AMP’s annuity book (refer to page 41 for details) or the impact of changes in economic variables (bond yields, CPI) on the valuation of risk insurance liabilities.

30 June 2010 capital sensitivities – regulatory capital resources above MRR (A$m)1AMP Life Statutory

Funds AMP Group2

Actual 30 June 2010 (ASX 200 @ 4,302; Australian bond yields @ 5.2%) 1,039 1,413

Equity sensitivity – ASX 200 @ 5,000 220 240

– ASX 200 @ 4,500 70 80

– ASX 200 @ 4,000 (100) (110)

– ASX 200 @ 3,500 (250) (270)

Bond yields sensitivity – Australian bond yields @ 6.0% 60 80

– Australian bond yields @ 5.5% 20 30

– Australian bond yields @ 5.0% (30) (30)

– Australian bond yields @ 4.5% (120) (130)

Property sensitivity – 10% increase in unlisted property values 120 140

– 10% decrease in unlisted property values (130) (150)

1 These sensitivities are a point in time view and do not make any allowance for management actions.

2 AMP Group sensitivities are AMP Life statutory funds sensitivities plus the movement in Group shareholder capital held outside of the life statutory funds. This includes the effect on capital from AMP’s defined benefit fund and investment gains/losses on shareholder funds and seed pool assets.

44 Glossary of terms and independent reviewAMP Investor Report 1H 10

Accounting treatment and definitions

Accounting mismatches – Refer to page 41.

Controllable costs – Include operational and project costs and exclude variable costs, provision for bad and doubtful debts and interest on corporate debt.

Controllable costs to AUM – Calculated as controllable costs divided by average of monthly average AUM.

Corporate debt – Borrowings used to fund shareholder activities of the AMP Group including the impact of any cross-currency swaps entered into to convert the debt into A$, but excluding limited recourse debt in investment entities controlled by AMPCI and debt used to fund AMP Bank activities. Refer to page 39 for more detail.

Cost to income ratio – Calculated as controllable costs divided by gross margin. Gross margin is calculated as total operating earnings and underlying investment income before income tax plus controllable costs. An income tax rate of 30% has been used to gross up the AFS numbers.

Discontinuance rates – The assumed future rates for voluntary discontinuance (lapse) of contracts for the purposes of determining the embedded value. These rates vary by individual product or product groups and, where appropriate, by other factors such as duration in-force or age attained.

Dividend payout ratio – Calculated as dividend per share divided by EPS (underlying).

Embedded value – A calculation of the economic value of the shareholder capital in the business and the profits expected to emerge from the business in-force.

Employee defined benefit scheme – A scheme that provides a retirement benefit, usually based on salary and/or a pre determined formula for calculating that benefit. Unlike an accumulation scheme, the retirement benefit and method of calculation is known to the member at all times.

EPS (actual) – Calculated as net profit attributable to shareholders of AMP Limited divided by the basic weighted average number of ordinary shares. The weighted average number of ordinary shares has been adjusted to remove treasury shares.

EPS (underlying) – Calculated as underlying profit divided by the basic weighted average number of ordinary shares.

External AUM (AMPCI) – Assets managed by AMPCI, sourced from institutional clients (including corporate, public sector and industry superannuation funds, and large non-superannuation funds), non-AMP dealer groups, private clients and international clients and partnerships.

Full-time equivalent (FTE) – A measure of the total level of staff resources used. The FTE of a full-time staff member is equal to 1.0. The calculation of FTE for part-time staff is based on the proportion of time worked compared to that worked by full-time staff.

Group risk API – Contractual annual premium payable on all in-force group risk policies.

Individual risk API – Contractual annual premium payable on all in-force individual risk policies.

Individual risk lapse rate – Calculated as annualised voluntary cancellations as a percentage of average annual premium in-force prior to cancellations. Policies expiring due to maturities, death or disablement are excluded from the calculation.

Intangibles – Represents acquired goodwill, acquired asset management mandates and capitalised costs.

Interest cover (actual) – Calculated on a rolling 12 month after tax basis as net profit attributable to shareholders of AMP Limited before interest expense on corporate debt for the year divided by interest expense on corporate debt for the same period.

Interest cover (underlying) – Calculated on a rolling 12 month after tax basis as underlying profit before interest expense on corporate debt for the year divided by interest expense on corporate debt for the same period.

Internal AUM (AMPCI) – Assets managed by AMPCI sourced from AFS and Group Office.

Investment performance – The percentage of AUM meeting or exceeding their benchmarks.

Loan hedge revaluations – Refer to page 41.

Market adjustment – annuity fair value – Refer to page 41.

Market adjustment – investment income – The excess (or shortfall) between the underlying investment income and actual return on shareholder assets invested in income producing investment assets (as opposed to income producing operating assets).

Market adjustment – risk products – Refer to page 41.

Net seed pool income (AMPCI) – Income on seed pool assets, including normal valuation movements and net profit/loss on sales, offset by funding costs.

Operating earnings – Represent shareholder attributable profits or losses that relate to the performance of the BU. The principles of life insurance accounting are used in reporting the results of AFS. Operating earnings exclude investment earnings on shareholder capital and one-off items.

Persistency – Calculated as opening AUM less outflows during the period divided by opening AUM. AFS AUM numbers are adjusted to exclude shareholder amounts so as to reflect product AUM levels. AFS and CWM outflows are adjusted to exclude major internal flows so as to reflect external outflows only.

Return on embedded value – Calculated as the increase in embedded value in the period before transfers, divided by embedded value at the beginning of the period.

RoBUE – Return on BU equity is calculated as BU underlying operating profit after income tax (including underlying investment income) over the BU’s average monthly tangible capital resources. No allowance is made for the benefit of gearing, which occurs at Group level.

RoE (actual) – Calculated as annualised net profit attributable to shareholders of AMP Limited divided by average of monthly average shareholder equity for the period.

RoE (underlying) – Calculated as annualised underlying profit divided by average of monthly average shareholder equity for the period.

Shareholder minimum regulatory capital requirements – Refer to page 36.

45Glossary of terms and independent reviewAMP Investor Report 1H 10

Accounting treatment and definitions cont’d

S&P gearing – Senior debt plus non-allowable hybrids divided by Economic Capital Available plus hybrids plus senior debt. Economic Capital Available is as defined by Standard & Poor’s and includes AMP shareholders’ equity (including goodwill but excluding acquired assets management mandates and capitalised costs) and 100% of future AMP Life shareholder profits.

Tier 1 capital – Comprises the highest quality components of capital that fully satisfy all of the following essential characteristics:

(a) provide a permanent and unrestricted commitment of funds

(b) are freely available to absorb losses

(c) do not impose any unavoidable servicing charge against earnings, and

(d) rank behind the claims of depositors, policyholders and other creditors in the event of winding-up.

Tier 2 capital – Includes other components of capital that, to varying degrees, fall short of the quality of Tier 1 capital but nonetheless contribute to the overall strength of an entity as a going concern.

It is divided into:

(a) Upper Tier 2 capital – Comprising components of capital that are essentially permanent in nature, including some forms of hybrid capital instrument, and

(b) Lower Tier 2 capital – Comprising components of capital that are not permanent, ie dated or limited life instruments.

Total capital resources – Total capital invested in BUs and Group Office including both tangible and intangible capital.

Underlying investment income – The investment income on shareholder assets invested in income producing investment assets (as opposed to income producing operating assets) attributed to the BUs (including Group Office) has been normalised in order to bring greater clarity to the results by eliminating the impact of short-term market volatility on underlying performance. The excess (or shortfall) between the underlying return and the actual return is disclosed separately as market adjustment – investment income. Underlying returns are set based on long-term expected returns for each asset class. The return on AMP Bank income producing investment assets is included in contemporary wealth management operating earnings.

Underlying profit – AMP’s key measure of business profitability, as it smooths investment market volatility stemming from shareholder assets 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 3.

Value of new business – A calculation of the economic value of the profits expected to emerge from the new business written over a particular period, net of the cost of providing supporting capital.

Value of risk new business – Value of new business for contemporary wealth protection and AFS New Zealand risk business.

Variable costs – Include costs that vary directly with the level of related business (eg planner fees, investment management fees and banking securitisation and commissions).


Definitions of business units (BUs) and exchange rates

AMP

AMP Financial Services, AMP Capital Investors and Group Office.

AMP Financial Services

AMP Financial Services provides a range of products and services to customers in Australia and New Zealand. These products and services are primarily distributed through self-employed financial planners and advisers aligned with AMP Financial Services.

AMP Financial Services is reported as four separate divisions:

Contemporary wealth management (CWM) – Unit linked superannuation, retirement income and managed investment products business. Superannuation products include personal and employer sponsored plans. Financial planning and advice services are disclosed within CWM.

CWM includes AMP Bank, which is a direct Australian bank offering residential mortgages, deposits, transactional banking and white-labelled credit cards.

Contemporary wealth protection (CWP) – Includes personal and group term, disability and income protection insurance products. Products can be bundled with a superannuation product or held independently of a superannuation contract.

Mature – A closed business comprising over 40 closed products which are in run-off and one open product (ERF). Closed products include whole of life, endowment, investment linked, investment account, RSA and annuities.

New Zealand – A risk insurance business and mature book with a growing unit linked superannuation and investment business.

AMP Capital Investors

AMP Capital Investors is AMP’s wholly-owned diversified investment manager. It manages investments across all the major asset classes including equities, fixed interest, infrastructure, property, diversified funds and multi-manager funds. AMP Capital Investors also provides commercial, industrial and retail property management services. It provides its investment management services through in-house investment professionals and a carefully selected global network of investment partners.

In addition to its well established reputation in Australia and New Zealand, AMP Capital Investors has a strong and growing international presence with offices in Beijing, London, Mumbai, Singapore, Tokyo and New York, allowing it to source competitive offshore opportunities.

Group Office

Group Office comprises:

Group Office operations.

Corporate debt.

Exchange rates AUD/NZD

2010 1H 10 – closing 1.2283

– average 1.2601

2009 FY 09 – closing 1.2360

– average 1.2467

2H 09 – closing 1.2360

– average 1.2465

1H 09 – closing 1.2480

– average 1.2471


Five year summary

1H 10 1H 09 1H 08 1H 07 1H 06

Earnings

Total operating earnings (A$m) 347 332 394 382 327

Underlying investment income as a percentage of underlying profit 17% 17% 17% 17% 24%

Underlying profit (A$m) 383 367 437 446 395

Net profit attributable to shareholders of AMP Limited (A$m) 425 362 366 470 347

EPS – underlying (cps) 18.6 18.3 23.3 27.9 22.4

EPS – actual (cps) 20.9 18.2 14.8 30.0 22.6

RoE – underlying 27.4% 31.6% 40.5% 38.0% 26.6%

RoE – actual1 30.4% 31.2% 29.4% 40.1% 26.7%

Dividend

Dividend per share (cps) 15 14 22 22 19

Dividend per share – sale of Cobalt/Gordian business (cps) 2

Dividend payout ratio – underlying 81% 77% 94% 79% 85%

Capital returns per share (cps) - - - 40 40

Ordinary shares on issue (m)1 2,072 2,014 1,875 1,875 1,875

Weighted average number of shares on issue (m)2 – basic 2,059 2,008 1,875 1,875 1,873

– fully diluted 2,069 2,018 1,883 1,882 1,877

Share price for the period (A$) – low2 5.21 3.59 6.49 9.48 7.08

– high2 6.77 5.66 9.98 10.56 9.08

EV and VNB

VNB – AFS (3% dm) (A$m) 140 141 167 203 165

VNB – risk insurance (3% dm) (A$m) 45 47 44 39 33

Return on EV – AFS (3% dm) 3.3% 2.7% 0.8% 12.3% 11.2%

Financial position

AMP shareholder equity (A$m) 2,891 2,357 2,037 2,173 2,507

Corporate debt (excluding AMP Bank debt) (A$m) 1,363 1,389 1,443 1,061 1,291

S&P gearing 15% 16% 13% 8% 20%

Interest cover – underlying (times) 12.3 10.0 13.5 19.1 14.6

Interest cover – actual (times) 12.5 8.0 11.6 20.1 15.4

Cashflows and AUM

AMPCI net cashflows – external (A$m) 1,855 192 369 1,414 1,144

AFS net cashflows (A$m) 584 865 760 2,413 2,843

Persistency – AFS3 90.7% 90.3% 90.0% 89.4% 84.7%

AUM – AMPCI managed (A$b)4 95 89 100 111 96

AUM – externally managed (A$b)4 16 14 16 18 14

Total AUM (A$b) 111 103 116 129 110

Investment performance – AMPCI

Percentage of funds meeting or exceeding benchmark – Australian AUM5 84%

Percentage of funds meeting or exceeding benchmark – total AUM5 64% 32% 57% 76%

Costs and cost ratios

Controllable costs – AMP (A$m) 426 413 442 421 393

Cost to income ratio – AMP 42.2% 42.4% 39.9% 38.5% 39.2%

Controllable costs to AUM (bps) 76 81 72 67 73

Staff numbers

AFS6 1,891 1,840 2,233 2,042 2,343

AMPCI7 919 954 984 798 753

Group Office 867 876 949 915 380

Total staff numbers8 3,677 3,670 4,166 3,755 3,476

1 The number of shares has not been adjusted to remove treasury shares.

2 In each of June 06 and 07, A$0.40 per share was returned to shareholders. High and low share price has been adjusted accordingly.

3 1H 06 persistency does not exclude major internal flows.

4 AMPCI AUM and total AUM restated. See page 32 for details.

5 Performance figures are on a 12 month rolling basis.

6 Excludes planners.

7 1H 10 includes 244 shopping centre FTEs (261 in 1H 09); however, the costs of these FTEs are recharged to shopping centres.

8 Total staff numbers exclude Cobalt/Gordian.


1H 10 financial results

Analysis of operating results (A$m)AMP Financial

ServicesAMP Capital

Investors Group Office Total

BU operating earnings 323 44 - 367

Group Office costs not recovered from business units - - (20) (20)

Total operating earnings 323 44 (20) 347

Underlying investment income 39 4 21 64

Interest expense on corporate debt - - (36) (36)

AMP Limited tax loss recognition - - 8 8

Underlying profit 362 48 (27) 383

Market adjustment – investment income - - (8) (8)

Other items - - (3) (3)

Seed pool valuation adjustments - - - -

Profit after income tax before timing differences 362 48 (38) 372

Market adjustment – annuity fair value - - 5 5

Market adjustment – risk products - - 10 10

Loan hedge revaluations - - 8 8

Accounting mismatches - - 30 30

Net profit attributable to shareholders of AMP Limited 362 48 15 425

Total capital resources by equity class (A$m) 30 June 2010 31 December 2009

Contributed equity 4,955 4,814

Equity contribution reserve 1,019 1,019

Other reserves 11 3

Retained earnings 398 320

Demerger loss reserve (3,585) (3,585)

Total AMP statutory equity attributable to shareholders 2,798 2,571

Accounting mismatches and cashflow hedge reserve 93 135

Total AMP shareholder equity 2,891 2,706

Corporate debt 1,363 1,189



Independent review statement

Independent review report of selected information contained in the AMP Limited Investor Report for the half year ended 30 June 2010

To management of AMP Limited

The Investor Report and management’s responsibility

The management of AMP Limited is responsible for the Investor Report including pages 26 and 48.

Embedded value

Scope

We have conducted an independent review of the embedded value assumptions set out on page 26 of the Investor Report of AMP Limited (“the Investor Report”) for the half year ended 30 June 2010 in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the embedded value assumptions as stated on page 26 are not reasonable for their intended purpose.

We disclaim any assumption of responsibility for any reliance on this review report to any person other than management of AMP Limited.

Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. Our review was limited primarily to review of AMP Limited’s documentation to support the embedded value assumptions, inquiries of AMP Limited’s personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Statement

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the embedded value assumptions as stated on page 26 of the Investor Report for the half year ended 30 June 2010 are not reasonable for their intended purpose.

Analysis of operating results

Scope

We have conducted an independent review of the results (“financial information”) set out on page 48 of the Investor Report of AMP Limited for the half year ended 30 June 2010. We have performed the review of the financial information set out on page 48 of the Investor Report in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the financial results on page 48 of the Investor Report are not materially consistent with the definitions of operating earnings, underlying investment income and total capital resources set out on pages 44 and 45. We disclaim any assumption of responsibility for any reliance on this review report to any person other than management of AMP Limited.

Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. Our review was limited primarily to review of the reconciliation of financial information to the Financial Report of AMP Limited, review of the determination of the operating earnings, underlying investment income and total capital resources in accordance with the definitions set out on pages 44 and 45, inquiries of AMP Limited’s personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Statement

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the financial results set out on page 48 of the Investor Report for the half year ended 30 June 2010 are not materially consistent with the definitions of operating earnings, underlying investment income and total capital resources as set out on pages 44 and 45.

Independence

We are independent of the company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Ernst & Young

Sydney

19 August 2010


Information for shareholders

6 September 2010 Ex-dividend date for interim 2010 dividend (Australia)

10 September 2010 Record date for interim 2010 dividend

13 September 2010 Ex-dividend date for interim 2010 dividend (New Zealand)

20 – 24 September 2010 Pricing period for DRP

15 October 2010 2010 interim dividend payment date

28 October 2010 Third quarter 2010 cashflow release

17 February 2011 FY 2010 results announced

28 February 2011 Ex-dividend date for final 2010 dividend (Australia)

2 March 2011 Ex-dividend date for final 2010 dividend (New Zealand)

4 March 2011 Record date for final 2010 dividend

8 April 2011 2010 final dividend payment date

12 May 2011 Annual General Meeting

Website

For additional 2010 half year results information, visit AMP’s website at

www.amp.com.au/shareholdercentre

You will find:

– Background information on AMP, business units, management and policies.

– Statutory reporting at the AMP Limited level (incorporating shareholder, policyholder and unattributed interests).

– Archived webcasts of presentations to investors and analysts.

– Archived ASX announcements and historical information.

– Definitions, details of assumptions and calculations of key ratios.

1H

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Registered Office Level 24 33 Alfred St SYDNEY NSW 2000Australia

www.amp.com.au NS1679A 08/10

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Documents

AMP Investor Report - corporate-ir.net · Contents 1 AMP Investor Report 1H 10 Contents AMP 1H 10 performance summary 2 Financial summary 3 Key performance measures 5 Strategic overview