AMP LIMITED — Capital/Financing Update 2018

Oct 30, 2018

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31 October 2018

AMP updates position on capital and costs following portfolio review

AMP Limited today provides the following update to its announcement of 3Q18 cashflows and the sale of its wealth protection and mature businesses on 25 October 2018.

The Board has given incoming Chief Executive Officer Francesco De Ferrari a mandate to transform AMP and establish a new strategic direction for the business. In setting this strategy, the Board and Mr De Ferrari are committed to:

• returning to shareholders the majority of the net cash proceeds received on settlement of the sale, subject to unforeseen circumstances;

• removing approximately A$40 million (after tax) per annum of stranded costs by the end of the first full year post-separation (FY 2020); and

• offsetting the financial impact of unwinding distribution arrangements in the Australian wealth management business through revenue replacement and/or cost management. The distribution arrangements account for approximately A$65 million of the previously announced A$80-90 million per annum after tax.

AMP is also providing additional background information on the sale to assist investors. A brief information pack is attached and includes the following:

• portfolio review strategic rationale – delivering a simplified, less capital intensive business;

• • underlying profits of sold businesses – price achieved represents P/E multiple of approximately 11 times earnings;

• alternatives considered in the portfolio review process;

• reconciliation of embedded value for sold businesses;

• underlying profits of continuing businesses; and

• implications of the sale on AMP’s capital and debt position.

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Media enquiries Lachlan Johnston Mobile: +61 466 026 702

Audrey Blackburn Mobile: +61 466 406 997

Investor enquiries Howard Marks Phone: +61 2 9257 7109 Mobile: +61 402 438 019

Michael Leonard Phone: +61 2 9257 5207 Mobile: +61 466 773 093

AMP Limited

Public Affairs

33 Alfred Street, Sydney, NSW, 2000 ABN 49 079 354 519

T 02 9257 6127

E media@amp.com.au W AMP.com.au/media AMP_AU

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AMP portfolio review Additional background information

31 October 2018

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Portfolio review – strate ic rationale g

Australian wealth protection - Australian wealth protection business permanently impacted by structural changes in life insurance industry globally and changing Australian regulatory environment - Increased competition from global competitors who benefit from lower cost of capital, greater scale and geographic diversification - Continuing and expected further deterioration in profitability of Australian life insurance industry - Systems supporting products create operating complexity; significant investment expected to meet future regulatory requirements (including IFRS 17) - These factors limit AMP’s ability to compete in sector on a sustainable and profitable basis and deliver acceptable returns on capital to shareholders	Australian wealth protection - Australian wealth protection business permanently impacted by structural changes in life insurance industry globally and changing Australian regulatory environment - Increased competition from global competitors who benefit from lower cost of capital, greater scale and geographic diversification - Continuing and expected further deterioration in profitability of Australian life insurance industry - Systems supporting products create operating complexity; significant investment expected to meet future regulatory requirements (including IFRS 17) - These factors limit AMP’s ability to compete in sector on a sustainable and profitable basis and deliver acceptable returns on capital to shareholders
Australian mature	- Largely comprises legacy insurance products and shares underlying infrastructure (including systems) with wealth protection business; significant investment expected to meet future regulatory requirements (including IFRS 17) - Closed book in run-off at approximately 5% per annum; but can vary in volatile investment markets
New Zealand wealth protection and mature	- Low growth profile; performance declining - Vulnerable to potential future deterioration in New Zealand life insurance market

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Underl in rofit of the sold businesses y g p

	Reported	Reported	Reported	Annualised
A$m	12 months to	12 months to	6 months to	6 months to
	31 Dec 2017	30 June 2018	30 June 2018	30 June 2018
Australian wealth protection	110	59	1	2
NZ wealth protection and mature	71	61	28	56
Australian mature	150	145	70	140
Operating earnings	331	265	99	198
Underlying investment income	54	49	21	42
Underlying profit	385	314	120	240
Other adjustments:
Unwinding of Australian wealth management internal distribution arrangements and adjustments for tax andproducts transferringwith sale				85
NZ wealth protection reinsurance impacts				(20)
Annualised underlying profit (after adjustments) for sold businesses				305
Implied price / earnings multiple				11x

• Underlying profit trend demonstrates ongoing decline in profitability of sold businesses

• As previously announced, Australian wealth protection reported a negative claims experience of A$22 million in Q3 18. Results for this business can be volatile from quarter to quarter and are impacted by best estimate assumption changes

• Wealth protection and mature economic benefits and risks (including potential best estimate assumption changes) are transferred to Resolution Life from 1 July 2018 subject to risk sharing arrangements for Australian wealth protection

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Portfolio review – alternatives considered

• Retain and grow wealth Significant additional capital required to achieve sustainable levels of new business growth (value of new business is protection negative) and update systems to meet future regulatory requirements (including IFRS 17)

  • Challenging outlook for industry; ongoing claims risks and earnings volatility evidenced by A$22 million deterioration in Q3 18 Australian wealth protection claims experience and previously advised loss of a number of large group plans

  • Remain exposed to earnings volatility, adverse claims and lapse experience and associated potential changes to best estimate assumptions and associated capital implications

  • Option not considered value maximising, particularly given expected future return on capital

• Further reinsurance of − Australian wealth protection: two reinsurance agreements cover effectively 65% of the retail portfolio and released in the Australia and New Zealand order of A$1 billion of capital to group; reducing profitability and embedded value (EV) −

• wealth protection New Zealand wealth protection: In October 2018 announced reinsurance agreement covering approximately 65% of the

  • New Zealand wealth protection: In October 2018 announced reinsurance agreement covering approximately 65% of the retail portfolio; expected to release up to A$150 million of capital to group (subject to regulatory approvals), prior to sale to Resolution Life

  • 65% reinsurance considered to be maximum acceptable level of cover to ensure interests remain aligned with reinsurers; additional reinsurance would further reduce profitability and EV of the wealth protection businesses

• Retain wealth protection and Risk of increased lapses and associated potential requirement to further adjust best estimate assumptions with implications close to new business for both financial results and capital − Significant additional capital likely to be required to meet future regulatory requirements (including IFRS 17)

• − Triggers similar impacts to sale (creation of stranded costs and cessation of internal distribution arrangements) without releasing capital

• −

• Demerger of wealth Requires significant up-front capital injection to fund separation costs, capital dis-synergies, necessary debt reduction and protection, mature and New ensure standalone entity well capitalised Zealand − Requires additional operating costs to run as standalone business − No release of capital to the group

• Sale of Australia and New − Sale represents preferred alternative considering costs, future capital requirements and potential risks −

• Zealand wealth protection and Enables capital release and certainty of proceeds mature businesses − Combined sale of wealth protection and mature businesses reflects shared infrastructure and avoids further capital dissynergies, separation costs and capital expenditure needed to meet future regulatory requirements (including IFRS 17) if either business were retained

• Provides significant opportunity for simplification of AMP

• ~~− Fully tested market for buyers domestically and internationally and considered interests of shareholders, customers and~~

• 4 employees; Resolution Life proposal in the long-term interests of all stakeholders

Reconciliation of embedded values for sold businesses

A$m	Wealth protection	Mature	NZ	Total
1H 18 Investor Report EV at 30 June 2018	1,270	1,794	1,431	4,495
Retained NZ business and impact of reinsurance				(420)
EV previously reported in Australian wealth management (reflecting unwind of internal distribution arrangements, tax and product adjustments)				885
Additional cost of capital retained in sold businesses (net of expense offsets)				(215)
1H 18 Pro forma EV (5% dm; including franking)				4,745
Franking credits – wealth protection				(300)
Franking credits – mature				(405)
1H 18 Pro forma EV (5% dm; excluding franking)				4,040
Implied acquisition price for 100% (A$m)				3,300
Multiple of pro forma EV (5% dm; inc. franking)				0.70x
Multiple of pro forma EV (5% dm; ex. franking)				0.82x

• Table outlines reconciliation of pro forma sale embedded value (EV) of Australian wealth protection, Australian mature and New Zealand businesses to EVs as published in AMP’s Investor Report

• Adjustments reflect refinements for the purpose of a sale, the scope of businesses and earnings being sold

• The assumptions and sensitivity analysis set out in the AMP 1H 18 Investor Report should be referenced in understanding and interpreting these EV figures

• AT1 preference shares in AMP Life and retained economic interest in mature business provide ongoing access to franking credits

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Underl in rofit of retained businesses y g p

	Reported	Reported	Announced	Pro forma
A$m	12 months to	12 months to	pro forma	12 months to
	31 Dec 2017	30 June 2018	adjustments	30 June 2018
Australian wealth management	391	402	(85)	317
AMP Capital1	156	158	-	158
AMP Bank	140	153	-	153
NZ wealth management and advice	54	55	(15)	40
Operating earnings	741	768	(100)	668
Group office costs	(74)	(70)	(40)	(110)
Underlying investment income2	41	48	110	158
Interest expense on corporate debt	(53)	(58)	23	(35)
Underlying profit	655	688	(7)	681

• MySuper fee reductions expected to reduce Australian wealth management investment related revenue by A$12 million in 2H18 and by an annualised A$50 million from FY19 (numbers are pre-tax)

• AMP has committed to offsetting financial impact of unwinding distribution arrangements in the Australian wealth management business (A$65 million of the previously announced A$80-A$90 million post-tax adjustments) through revenue replacement and/or cost management

• AMP has committed to removing approximately A$40 million (after tax) of group office stranded costs in the first full year post separation (FY 2020)

• 1AMP Capital is 15% owned by MUFG: Trust Bank. AMP Capital figures are reported net of minority interests

2Before investment income on net cash proceeds

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Portfolio review – im lications for AMP’s ca ital osition p p p

A$m	30 June 2018 Reported	Pro forma (incl. net cash post completion)
Level 3 eligible capital	3,238	2,550
Minimum regulatory capital requirements (MRR)	1,428	750
Level 3 eligible capital above MRR	1,810	1,800
Capital in excess of target surplus on settlement	n/a	755
AT1 preference shares	n/a	300
Net cash and cash equivalents on settlement	n/a	1,055

• Post-sale the capital requirements (represented by MRR) of the group will be reduced and capital in excess of target surplus will increase to approximately A$755 million

• In addition, A$1.1 billion income generating equity investments can be monetised over time, and will accrue as additional capital in excess of target surplus

• Proceeds from potential New Zealand wealth management and advice IPO will further increase capital in excess of target surplus

• Corporate debt position reduces from A$2.0 billion as at 30 June 2018 to approximately A$1.2 billion post completion

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Im ortant disclaimer p

Forward-looking statements in this presentation are based on AMP’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 or implied. These forward-looking statements are not guarantees or representations of future performance, and should not be relied upon as such.

AMP undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this presentation, subject to disclosure requirements applicable to AMP.

Information and statements in this presentation do not constitute investment advice or a recommendation in relation to AMP or any product or service offered by AMP or any of its subsidiaries and should not be relied upon for this purpose. Prior to making a decision in relation to AMP’s securities, products or services, investors or potential investors should consider their own investment objectives, financial situation and needs and obtain professional advice.

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