AMP LIMITED - Interim / Quarterly Report 2019

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ASX Announcement
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13 February 2020

Manager ASX Market Announcements Australian Securities Exchange Level 4, 20 Bridge Street Sydney NSW 2000

Client and Market Services Team NZX Limited Level 1, NZX Centre, 11 Cable Street PO Box 2959 Wellington, New Zealand

AMP Limited (ASX/NZX: AMP)

Full Year Financial Results

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Part One: Appendix 4E Part Two: AMP reports FY 19 results Part Three: Investor presentation Part Four: Investor report

Marissa Bendyk Group Company Secretary

Public Affairs 02 9257 6127 [email protected] amp.com.au/media

AMP Limited ABN 49 079 354 519

AMP Limited ABN 49 079 354 519

Appendix 4E – Preliminary final report

Year ended 31 December 2019

Results for announcement to the market Commentary on the results Financial information as required by Appendix 4E

AMP Limited Appendix 4E – Preliminary final report Results for announcement to the market

for the year ended 31 December 2019

	31 Dec	31 Dec	%
	2019	2018	movement
Financial results	$m	$m
Revenue from ordinary activities1	23,720	8,286	186% increase
(Loss) profit from ordinary activities after tax attributable to members	(2,467)	28	8,911% decrease
Net(loss) profit for theperiod attributable to members	(2,467)	28	8,911% decrease
1 Revenue from ordinary activities includes amounts attributable to shareholders, policyholders and external unitholders. The amount is
the aggregate of life insurance contract related revenue including life insurance claims recovered from reinsurers of			$2,756m
(2018: $3,140m), fee revenue of $2,904m (2018: $3,083m), other revenue of $153m (2018: $167m), net investment gains and interest
income of $17,835m (2018: $1,854m gain) and share of profit or (loss) of associates accounted for		using the equity	method $72m
(2018: $42m).

		Amount
		per security	Franked amount per
Dividends		(cents)	security (cents)
- Final dividend (payable)		-	-
- Interim dividend (paid)		-	-
The record date to determine entitlements to the final dividend		n/a
The date the final dividend is payable		n/a
	31 Dec	31 Dec
	2019	2018
Net tangible assetsper ordinary share	$	$
Net tangible assets per ordinary share	1.17	1.19

This Appendix 4E - Preliminary final report has not been subject to audit and there is no audit report provided. However, a substantial part of the financial information within the preliminary final report has been extracted from the AMP 2019 financial report which has been audited by Ernst & Young, who have issued an unqualified audit report. The audit report forms part of the AMP 2019 annual report. The presentation of the AMP 2019 annual report will be finalised for lodgement with ASX on 23 March 2020.

AMP Limited Appendix 4E – Preliminary final report Commentary on the results for the year ended 31 December 2019

This commentary provides information on the structure and progress of our business, our 2019 financial performance, our strategies and prospects for the future and the key risks we face. It covers AMP Limited and the entities it controlled during the year ended 31 December 2019.

Operating and financial review

Principal activities

AMP is a wealth management company with a growing retail banking business and an expanding international investment management business.

We provide retail customers with financial advice and superannuation, retirement income, banking, investment products and life insurance. AMP also provides corporate superannuation products and services for workplace super and self-managed superannuation funds (SMSFs).

Through AMP Capital, we manage investments across major asset classes including equities, fixed income, infrastructure, real estate, diversified, multi-manager and multi-asset funds, for domestic and international customers. AMP Capital also provides commercial, industrial and retail real estate management services.

AMP Capital holds a 15% stake in China Life AMP Asset Management Company Limited, a funds management company which offers retail and institutional investors in China access to leading investment solutions. AMP also owns a 19.99% stake in China Life Pension Company. AMP Capital has a strategic alliance with leading Japanese bank, Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) through which MUFG: Trust Bank holds a 15% minority interest in AMP Capital Holdings Limited.

In November 2019, AMP brought together Australian wealth management and AMP Bank into AMP Australia, providing clear management accountability for delivery of AMP’s retail client offering.

For the purposes of this report, our business is divided into five areas: Australian wealth management, AMP Bank, AMP Capital, New Zealand wealth management and Australian and New Zealand wealth protection and mature.

The Australian wealth management (WM) business provides retail and corporate customers with superannuation, retirement income and investment products and services. WM includes AMP’s aligned and owned advice businesses and SuperConcepts.

AMP Bank is an Australian retail bank participating in residential mortgage lending and retail and platform deposits. AMP Bank’s mission is to help customers with their goals for life, providing them with targeted retail banking solutions focused on wealth creation. AMP Bank’s products and services enable AMP to be relevant over a wider set of financial goals, earlier in the customer’s life cycle and with higher customer interaction. AMP Bank distributes its solutions by leveraging AMP’s advice network, brokers and directly.

AMP Capital is a diversified investment manager, managing investments across major asset classes including equities, fixed interest, infrastructure, real estate, diversified, multi-manager and multi-asset funds.

The New Zealand wealth management business encompasses the wealth management, financial advice and distribution business in New Zealand. It provides customers with a variety of wealth management solutions including KiwiSaver, corporate superannuation, retail investments and a wrap investment management program.

Australian and New Zealand wealth protection and mature comprises Australian wealth protection, Australian mature and New Zealand wealth protection and mature. The Australian wealth protection business includes individual and group term, disability and income protection insurance products. Products can be held within superannuation or independently of superannuation. The Australian mature business comprises products which are largely closed to new business and are in run-off. The New Zealand wealth protection and mature business includes a risk insurance and mature book, which is also largely closed to new business and in run-off.

Sale of wealth protection and mature businesses

On 8 August 2019, AMP announced a revised agreement with Resolution Life Australia Pty Ltd (Resolution), with updated terms, for the sale of its Australian and New Zealand wealth protection and mature businesses.

The revised agreement delivers consideration of $3.0 billion comprising:

$2.5 billion cash; and

– $500 million equity interest (expected to be around 20%) in Resolution Life NOHC Pty Ltd (Resolution Life Australia), a new Australian-domiciled, Resolution controlled holding company that will become the owner of the Australian and New Zealand wealth protection and mature businesses.

Resolution will be on risk for all experience and lapse losses from 1 July 2018 until completion and is entitled to all net earnings of the Australian and New Zealand wealth protection and mature businesses during that period.

The sale is expected to complete by 30 June 2020. AMP will continue to report the results of the Australian and New Zealand wealth protection and mature businesses through to completion of the transaction.

AMP Limited Appendix 4E – Preliminary final report Commentary on the results for the year ended 31 December 2019

Client remediation

AMP remains on track to complete its client remediation program in 2021 with 80 per cent of the program expected to be complete by the end of 2020.

Client remediation comprises the following components:

Inappropriate advice: program is approximately 50 per cent complete.
Fee for no service:
Active advisers: program is approximately 20 per cent complete.
Inactive advisers: pilot program for inactive advisers has commenced.
Overall fee for no service refund rate expected of 17 per cent (29 per cent including interest) of total ongoing service fees charged.
Program costs are tracking to expectations.

Total program spend to date including program costs and money repaid to clients is $264 million with $190 million paid in 2H 19. Major policies now agreed with ASIC including active and inactive advisers. 2H 19 additional provision of $150 million primarily relates to finalisation of inactive adviser approach. Overall remediation costs remain broadly in line with original estimate provided in November 2018.

Impairment

As announced on 8 August 2019, AMP recognised a predominantly non-cash impairment of $2.35 billion (post-tax) in 1H 19 to write down goodwill in Australian wealth management and Australian and New Zealand wealth protection and mature, capitalised project costs and valuations of advice registers given changes to buyback terms and associated practice finance loans.

An additional $55 million was recognised in 2H 19 reflecting additional reductions in value of client registers and associated practice finance loan impairments. Total 2019 impairment is $2.4 billion (post-tax).

2019 performance

The loss attributable to shareholders of AMP Limited for the year ended 31 December 2019 was $2,467 million (2018: profit of $28 million).

Basic loss per share for the year ended 31 December 2019 on a statutory basis was 79.5 cents per share (2018: basic earnings per share of 1.0 cents per share), influenced principally by non-cash impairments and provision for client remediation. On an underlying basis, the earnings per share was 14.8 cents per share (2018: 23.3 cents per share).

Key performance measures were as follows:

2019 underlying profit of $464 million has reduced 32% from $680 million in 2018. This decrease largely reflects the impact of Australian and New Zealand wealth protection and mature and weaker Australian wealth management earnings (-50%), partly offset by growth in AMP Capital (+19%).
2019 loss attributable to shareholders of $2,467 million has been impacted by the write down of goodwill and capitalised costs, and reduction in the carrying value of advice registers held by AMP, including those currently in the buyback process.
Australian wealth management earnings of $182 million declined 50% from 2018, driven by the removal of $85 million of earnings to the benefit of Australian and New Zealand wealth protection and mature, lower investment related revenue arising from margin compression, including MySuper price changes in Q3 18, and higher controllable costs in part driven by higher regulatory and compliance project costs.
Australian wealth management net cash outflows were $6.3 billion in 2019, including $2.4 billion of pension payments, versus net cash outflows of $4.0 billion in 2018 reflecting a range of factors including the impact of AMP’s appearance at the Royal Commission in 2018 and an increasingly competitive environment.
AMP Bank’s total loan book increased 3% to $21 billion in 2019 from 2018, including residential mortgage growth of 4%, while deposits increased 8% to $14.4 billion from 2018.
AMP Capital external net cashflows were $2.5 billion, compared with $4.2 billion in 2018, with $7.5 billion of committed capital available for deployment following strong infrastructure fund-raising during the year.
Australian and New Zealand wealth protection and mature operating losses of $21 million increased from losses of $3 million in 2018 due to capitalised losses and other one-off experience items and the impact of best estimate assumptions post ‘Protecting Your Super’ legislative changes.
Underlying return on equity decreased 1.4 percentage points to 8.2% in 2019 from 2018 reflecting reduced operating earnings in Australian and New Zealand wealth protection and mature and Australian wealth management.

AMP’s total assets under management (AUM) and administration were $272 billion at 31 December 2019 (2018: $258 billion).

AMP Limited Appendix 4E – Preliminary final report Commentary on the results for the year ended 31 December 2019

Operating results by business area

The operating results of each business area for 2019 were as follows:

Australian wealth management – operating earnings fell from $363 million in 2018 to $182 million in 2019. The decline in operating earnings was largely due to:
the impact of the Resolution transaction due to the cessation of internal distribution arrangements between Advice and the Australian wealth protection and mature businesses in 2019 ($85 million post-tax);
higher controllable costs ($55 million pre-tax); and
o lower investment related revenue arising from margin compression, including MySuper price changes in Q3 18 ($38 million pre-tax).
AMP Bank – 2019 operating earnings of $141 million decreased by $7 million (5%) from 2018 largely due to the recognition of regulatory and compliance costs of $14 million. The result also reflects residential mortgage book growth of 3.8% in 2019, with largely stable margins and profit on sale of invested liquid assets, increased funding and deposit costs and the residual impact of conservative liquidity management actions taken in 2H 18.
AMP Capital – AMP group’s 85% share of AMP Capital’s 2019 operating earnings was $198 million, up 19% from $167 million in 2018. AMP Capital’s operating earnings benefited from strong fee income growth of 13%, seed and sponsor capital income of $17 million, partially offset by a 16% increase in controllable costs, largely reflecting investment in growth initiatives.
New Zealand wealth management – Excluding the impact of product revenues transferring with the sale of Australian and New Zealand wealth protection and mature ($12 million), 2019 operating earnings would have increased $3 million (7%) from 2018 and remain resilient despite the industry headwinds of regulation and increased competition. The ongoing performance of the wealth management business, responsible for the manufacturing and sourcing business lines, has supported the positive 2019 result.
Australian and New Zealand wealth protection and mature – operating earnings decreased by $18 million to a $21 million operating loss in 2019 reflecting ongoing challenges in wealth protection claims, low interest rates and the impact of regulatory change.

Capital management and dividend

Equity and reserves of the AMP group attributable to shareholders of AMP Limited decreased to $4.9 billion at 31 December 2019 from $6.7 billion at 31 December 2018.

AMP remains well-capitalised. Level 3 eligible capital above minimum regulatory requirements (MRR) is $2.5 billion at 31 December 2019, up from $1.65 billion at 31 December 2018. The increase reflects proceeds from the capital raising in 2H 19 and business unit earnings, offset by capital usage for business growth and below the line costs.

To maintain balance sheet strength and prudent capital management through a period of significant change, the AMP Limited Board has resolved not to declare a final dividend in 2019. This position will be reviewed after completion of the sale of the Australian and New Zealand wealth protection and mature businesses.

AMP anticipates that any capital in excess of target surplus post completion will first be used to fund delivery of the new AMP strategy. Beyond this, AMP will assess all capital management options with the intent of returning the excess above target surplus to shareholders, subject to unforeseen circumstances.

Strategy and prospects

On 8 August 2019, AMP announced its three-year strategic plan to transform the business into a simpler, client-focused business that is higher growth and higher return. AMP will seek to achieve this through transformation to a client-focused culture, improving execution and simplifying the business model.

Under the strategy, AMP intends to:

divest Australian and New Zealand wealth protection and mature to help fund the new strategy, simplify AMP and shift capital toward higher-growth businesses;
further localise New Zealand wealth management, exploring options to divest the business;
reinvent wealth management in Australia, helping clients realise their ambitions:
- grow contemporary solutions in Australian wealth management including a focus on direct-to-client channels and digital solutions;
- further integrate AMP Bank solutions with Australian wealth management, continuing strong growth and targeting doubledigit earnings growth over the medium term; and
- fix legacy issues in Australian wealth management including reshaping aligned advice (buy back changes; fewer, more productive advisers), simplifying super;
grow AMP Capital through differentiated capabilities in real assets and public markets:
- continue to expand global footprint in real assets, growing customised solutions;
- build on relationships in China, Japan, US;
- explore opportunities to expand global equity capabilities into international markets; and
- target double-digit earnings growth over the medium term; and
reinvigorate AMP’s culture to be client led, entrepreneurial, and accountable, with effective management of financial and non-financial risk.

AMP has provided a progress update on its strategic priorities to transform the business into a simpler, client-led, growth-oriented business.

Simplify portfolio

Sale of Australian and New Zealand wealth protection and mature
Legal separation and sale of Australian and New Zealand wealth protection and mature is on track for completion by 30 June 2020.
Approval from China Banking and Insurance Regulatory Commission (CBIRC) received. AMP continues to work with other regulators on achieving conditions precedent.
Divest New Zealand wealth management
Significant progress on simplification of business in 2019 including consolidation of product offerings and removal of a number of legacy products.

AMP Limited Appendix 4E – Preliminary final report Commentary on the results

for the year ended 31 December 2019

o Divestment process underway with mandate to maximise shareholder value. AMP is in discussions with a number of interested parties and expects to provide a further update at or before 1H 20 results.

Reinvent wealth management in Australia	Reinvent wealth management in Australia	Reinvent wealth management in Australia
–	Reshape	advice
	`o`	In 2019, action was taken to reshape the aligned adviser network to be compliant, professional and more productive.
	`o`	Approximately 440 advisers exited the network in 2019; consolidated operations in employed channel to major metropolitan
		locations.
	`o`	Improved adviser productivity with average AUM per adviser increasing to $52 million.
–	Build best-in-class retail super business
	`o`	Simplification of products, including reducing around 70 products to six, in parallel with completion of Australian and New
		Zealand wealth protection and mature transaction to deliver better client outcomes.
	`o`	Delivered fee reductions in MyNorth (May 2019) and super (February 2020) benefiting more than 585,000 clients and all
		new clients.
	`o`	Majority of grandfathered commissions to be removed in 1H 20 as part of the separation of the Australian and New Zealand
		wealth protection and mature businesses.
–	Grow successful platform business
	`o`	North cash inflows from external financial advisers increased 44 per cent to $1.2 billion in 2019 due in part to launch of new
		platform features.
	`o`	Strengthened managed portfolio and investment offers including ongoing platform enhancements.
–	Maintain	growth momentum in AMP Bank
	`o`	Development of ‘whole of wealth’ corporate super offering with integrated banking and superannuation propositions
		underway; objective to launch in 2020.
	`o`	Modernisation of the bank’s core system on track for completion in 2020, including automation of deposit portfolio, improving
		efficiency and client experience, and enabling scaled growth.
Maintain growth momentum in AMP Capital
–	Grow AMP Capital through differentiated capabilities
	`o`	Significant growth in infrastructure and real estate capabilities, including US$6.2 billion raised for fourth infrastructure debt
		strategy, US$3.4 billion for Global Infrastructure Fund II and further co-investment, and a $5 billion real estate development
		pipeline in Australia.
	`o`	Global equities delivered top percentile performance vs peers, returning 27.8 per cent annually since inception; top quartile
		performance for global listed real estate and global listed infrastructure strategies.
	`o`	International growth building momentum. Direct international institutional clients grew to 358 in 2019, with AMP Capital
		managing $20.4 billion on their behalf, up 18 per cent from $17.3 billion in 2018.

Key risks

Risk is inherent to our business and AMP takes measured risks to achieve our strategic objectives. We have a clear strategic plan to drive our business forward and an Enterprise Risk Management framework to identify, measure, control and report risks.

The Enterprise Risk Management (ERM) framework provides the foundation for how risks are managed across AMP. There are five key elements of the ERM framework including governance, strategy and appetite, people and culture, management information systems and the risk management process (encompassing how AMP identifies, measures, controls and reports risk).

The guiding principles assist with effective risk management practices and enables AMP to meet its legislative and regulatory requirements, codes and ethical standards, as well as internal policies and procedures.

AMP’s ERM framework includes a risk management strategy which establishes the principles, requirements, roles and responsibilities for management of risk across AMP. It supports AMP in achieving its business strategy by detailing how risks are to be managed to fulfil the obligations to key stakeholders, clients, shareholders, policyholders and regulators to achieve financial outcomes and non-financial outcomes.

AMP’s strategic objective is to be a client-led, simpler, growth-oriented business and the Risk Appetite Statement articulates the nature and level of risk the Board and management are willing to accept in the pursuit of delivering its strategic objectives. Alignment between AMP’s corporate strategy and the risk appetite of the AMP Limited Board seeks to ensure that decisions are consistent with the nature and level of risk the Board and management are willing to accept.

Further information can be found in AMP’s Enterprise Risk Management Policy, available on our website at: amp.com.au/corporategovernance.

AMP Limited Appendix 4E – Preliminary final report Commentary on the results for the year ended 31 December 2019

Key business challenges

Given the nature of our business environment, we continue to face challenges that could have an adverse impact on the delivery of our strategy. Significant business challenges (in alphabetical order) include but are not limited to the following. More information about our approach to these challenges can be found in the 2019 Sustainability Report.

Business, employee and business partner conduct

The conduct of financial institutions continues to be an area of significant focus for the financial services industry both globally and in Australia and New Zealand. AMP business practices, management, staff or business partner behaviours may not adequately meet the expectations of regulators and customers resulting in an adverse impact to our reputation and value proposition to customers.

Our code of conduct outlines AMP’s expectations in relation to minimum standards of behaviour and decision making, including how we treat our employees, customers, business partners and shareholders. We are committed to ensuring the right culture is embedded in our everyday practices. AMP has reviewed its internal policies on managing conduct with risk explicitly considered as part of the remuneration framework. Management is given an additional discretion to recommend adjustments to the bonus pool for significant failures in conduct or risk management.

AMP embraces a safe and respectful work environment that encourages our people to report issues or concerns in the workplace. Directors, employees (current and former), contractors, service providers or any relative or dependants of any of these people can utilise the Whistleblowing program to report conduct or unethical behaviours.

Climate change

AMP, its customers and its external suppliers may be adversely affected by the physical and transitional risks of climate change. These effects, whether acute or chronic in nature, may directly impact AMP and its customers through reputational damage, insurance risk and business disruption and may have an adverse impact on financial performance (including through an increase in defaults in credit exposures). Initiatives to mitigate or respond to adverse impacts of climate change may in turn impact market and asset prices, economic activity, and customer behaviour, particularly in geographic locations and industry sectors adversely affected by these changes

AMP’s corporate sustainability strategy includes a commitment to remain carbon neutral in its operations to address the direct impacts of our business activities. Management committees across the business consider climate related financial risks and opportunities in investment management activities, operations and impacts to clients. AMP will continue to work with industry and regulators to overcome data and measurement challenges to respond to climate-related financial risks.

Competitor and customer environment

The Financial services industry continues to increase its technological advancement as customer expectations are evolving, which is intensifying competition within wealth management. Failure of AMP group to adapt its capabilities and operating model in order to remain relevant to customers may impact new business and retention of existing business. This could have a material adverse impact on the financial performance and position of AMP.

In 2019, AMP released several significant announcements to reposition AMP as a simpler, client-led, higher growth and higher return business. The new strategy to reinvent AMP as a contemporary wealth manager is a three-year investment program to fund growth, reduce costs and fix legacy issues. The strategy builds on core strengths and market positions with whole-of-wealth solutions.

Cyber security threats

Cyber risk continues to be a threat in a rapidly changing technological environment as the magnitude of the costs of cybercrime vary depending on the nature of the attack. We are committed to enhancing our cyber security capability as we recognise the current environment of cybercrime activity has increased across the industry.

To counter the evolving threat of cybercrime, AMP continues to invest in enhancing cyber security capabilities to uplift cyber defences. AMP’s uplift in cyber security capability assesses and mitigates cybercrime and other internal and external vulnerabilities, and monitors for changes in its cyber threat profile that may impact the performance of business operations. AMP will continue to invest in a sustainable cyber security operating model that prevents, detects and responds to cyber incidents, in order to protect AMP's assets.

Operational risk environment

Operational risk exposures, relevant to the industry in which AMP operates, relate to losses resulting from inadequate or failed internal processes, people and systems or from external events. These include, but are not limited to, information technology, human resources, internal and external fraud, money laundering and counter-terrorism financing, bribery and corruption. High operational risks are driven by a complex operating environment associated with legacy products, systems and, in some cases, manual controls. This environment will be further stressed by the Key Business Challenges included in this section.

We continue to work towards remediating clients, simplifying our business, reducing operational complexity and strengthening risk management, internal controls and governance. A significant element of complexity will be addressed by the separation of the Australian and New Zealand wealth protection and mature businesses, reshaping of the Adviser network, and simplification of the Superannuation product and investment option set. The AMP operational risk profile reflects these exposures and the financial statements of AMP contain certain provisions and contingent liability disclosures for these risks in accordance with applicable accounting standards.

Organisational change

In 2019, AMP’s investor presentation set out a clear ambition to become a client-led, simpler, and growth-oriented business. AMP committed to shifting to a leaner and simpler corporate centre, with activities being devolved from the central functions to the respective businesses. We commenced this organisational transition in late 2019 and will implement further changes in 2020 to fully establish our target operating model and to achieve further operating cost savings. There is a risk that business momentum is lost due to leader focus on organisational changes, and that talent critical for implementation of our strategy and transformation initiatives are impacted negatively. These risks will be mitigated by maintaining leadership and performance focus on the business and ensuring retention plans are in place for key talent.

AMP Limited Appendix 4E – Preliminary final report

Commentary on the results for the year ended 31 December 2019

AMP continues to invest in adopting new ways of working to drive efficiency and improve our practices to increase accountability and build on core strengths. We recognise that failure to execute appropriately on the implementation of these changes can increase the risks to disruption to AMP’s business operations. To manage this, AMP has established a Transformation Office as part of the Transformation Program to ensure strategic alignment across the businesses and manage execution risk across multiple initiatives.

Regulatory environment

AMP operates in multiple jurisdictions across the globe, Australia and New Zealand, and each one of these jurisdictions has its own legislative and regulatory requirements. The financial services industry both globally and in Australia and New Zealand continues to face challenges with significant level of regulatory change impacting the business. AMP continues to respond and adjust its business model for these changes however, failure to adequately anticipate and respond to future regulatory changes could have material adverse impact on the performance of its businesses and achieving its strategic objectives.

AMP’s commitment to uplift its risk management practices, strengthen its control environment and compliance systems across the businesses, will address these legislative and regulatory requirements and embed effective risk management practices. AMP’s internal policies, frameworks and procedures seek to ensure any changes in our domestic and international regulatory obligations are complied with in each jurisdiction. Regulatory and compliance risk that results in breaches are reported to AMP management committees and regulators are managed in accordance with internal policies.

Regulatory consultations and interactions are reported and monitored as part of AMP’s internal risk and compliance reporting process. AMP actively participates in these interactions and co-operates with all regulators to resolve such matters.

The environment

In the normal course of its business operations, AMP is subject to a range of environmental regulations of which there have been no material breaches during the year. You can find further information about AMP’s environment policy and activities at amp.com.au/corporatesustainability.

Significant changes to the state of affairs

Apart from elsewhere disclosed in this report, there were no significant changes in the state of affairs during the year.

Events occurring after the reporting date

On 27 June 2018, ASIC brought civil penalty proceedings against AMP Financial Planning Pty Limited (AMPFP), a wholly owned subsidiary of AMP Limited, alleging contraventions of the Corporations Act 2001 by AMPFP relating to the alleged conduct of certain of its authorised financial advisers over the period of 2013 to 2015 in providing advice to clients in relation to the replacement of life insurance policies by cancellation and new application rather than by transfer.

On 5 February 2020, the Federal Court of Australia determined there were six contraventions and that a civil penalty of $5.175 million should be imposed, with formal orders to give effect to the penalty to follow in due course. AMP acknowledges the Federal Court’s decision and the penalty amount has been included as a provision within the preliminary final report.

As at the date of this report, the directors are not aware of any other matters or circumstances that have arisen since the reporting date that have significantly affected, or may significantly affect the entity’s operations; the results of those operations; or the entity’s state of affairs in future periods.

AMP Limited Appendix 4E – Preliminary final report Financial information for the year ended 31 December 2019

Main statements	• Consolidated income statement • Consolidated statement of comprehensive income • Consolidated statement of financial position • Consolidated statement of changes in equity • Consolidated statement of cash flows
About this report	• About this financial information • Basis of consolidation • Significant accounting policies • Critical judgements and estimates
Section 1: Results for the year	• 1.1 Segment performance • 1.2 Earnings per share • 1.3 Taxes • 1.4 Dividends
Section 2: Investments, intangibles and working capital	• 2.1 Investments in financial instruments • 2.2 Intangibles • 2.3 Receivables • 2.4 Payables • 2.5 Fair value information
Section 3: Capital structure and financial risk management	• 3.1 Contributed equity • 3.2 Interest-bearing liabilities • 3.3 Financial risk management • 3.4 Derivatives and hedge accounting • 3.5 Capital management
Section 4: Life insurance and investment contracts	• 4.1 Accounting for life insurance and investment contracts • 4.2 Life insurance contracts - premiums, claims, expenses and liabilities • 4.3 Life insurance contracts - assumptions and valuation methodology • 4.4 Life insurance contracts - risk • 4.5 Other disclosure - life insurance and investment contracts
Section 5: Employee disclosures	• 5.1 Defined benefit plans • 5.2 Share-based payments
Section 6: Group entities	• 6.1 Controlled entities • 6.2 Acquisitions and disposals of controlled entities • 6.3 Investments in associates • 6.4 Parent entity information
Section 7: Other disclosures	• 7.1 Notes to Consolidated statement of cash flows • 7.2 Commitments • 7.3 Provisions and contingent liabilities • 7.4 Auditors’ remuneration • 7.5 New accounting standards • 7.6 Events occurring after reporting date
Details of movements in controlled entities
Details of investments in associated entities and joint venture entities

AMP Limited Appendix 4E – Preliminary final report Consolidated income statement for the year ended 31 December 2019

		2019	2018
	Note	$m	$m
Income and expenses of shareholders, policyholders, external unitholders and
non-controlling interests1
Life insurance contract related revenue	4.2(a)	2,244	2,653
Life insurance claims recovered from reinsurers	4.2(b)	512	487
Fee revenue	1.1(b)	2,904	3,083
Other revenue		153	167
Interest income, dividends and distributions and net gains or losses on financial assets and
liabilities at fair value through profit or loss		16,980	955
Interest income earned using the effective interest method		855	899
Share of profit or loss of associates accounted for using the equity method	6.3	72	42
Life insurance contract claims expense	4.2(b)	(2,175)	(2,254)
Life insurance contract premium ceded to reinsurers	4.2(a)	(1,033)	(989)
Fees and commission expenses		(1,603)	(1,701)
Staff and related expenses		(1,323)	(1,136)
Impairment of goodw ill and other intangibles	2.2	(2,307)	(19)
Other operating expenses		(1,641)	(1,868)
Finance costs		(617)	(611)
Movement in external unitholder liabilities		(2,146)	(208)
Change in policyholder liabilities
- life insurance contracts	4.2(e)	(1,436)	79
- investment contracts		(11,133)	55
Income tax (expense) credit	1.3	(740)	417
(Loss) profit for theyear		(2,434)	51
(Loss) profit attributable to shareholders of AMP Limited		(2,467)	28
Profit attributable to non-controlling interests		33	23
(Loss) profit for the year		(2,434)	51
(Loss) earnings per share		cents	cents
Basic	1.2	(79.5)	1.0
Diluted	1.2	(79.5)	1.0

1 Income and expenses include amounts attributable to shareholders' interests, policyholders' interests in AMP Life's statutory funds and controlled entities of those statutory funds, external unitholders' interests and non-controlling interests.

AMP Limited Appendix 4E – Preliminary final report

Consolidated statement of comprehensive income

for the year ended 31 December 2019

		2019	2018
	Note	$m	$m
(Loss) profit for theyear		(2,434)	51
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Fair value reserve
- net gain on fair value asset reserve		71	22
- tax effect on fair value asset reserve gain		(21)	(7)
- net amount transferred to profit or loss for the year		(9)	-
- tax effect on amount transferred toprofit or loss for theyear		3	-
		44	15
Cash flow hedges
- net loss on cash flow hedges		(67)	(37)
- tax effect on cash flow hedge loss		20	11
- net amount transferred to profit or loss for the year		7	11
- tax effect on amount transferred toprofit or loss for theyear		(2)	(3)
		(42)	(18)
Translation of foreign operations and revaluation of hedge of net investments		(4)	78
		(4)	78
Items that will not be reclassified subsequently to profit or loss
Fair value reserve - equityinstruments held byAMP Foundation		7	(4)
		7	(4)
Defined benefit plans
- actuarial (losses) gains	5.2(a)	(23)	(43)
- tax effect on actuarialgains or losses		7	12
		(16)	(31)
Other comprehensive (loss) income for the year		(11)	40
Total comprehensive (loss) income for the year		(2,445)	91
Total comprehensive (loss) income attributable to shareholders of AMP Limited		(2,478)	68
Total comprehensive income attributable to non-controllinginterests		33	23
Total comprehensive (loss) income for the year		(2,445)	91

AMP Limited Appendix 4E – Preliminary final report Consolidated statement of financial position as at 31 December 2019

		2019	2018
	Note	$m	$m
Assets
Cash and cash equivalents	7.1	4,539	3,932
Receivables	2.3	2,586	2,608
Current tax assets		465	213
Planner registers held for sale and prepayments		75	101
Investments in financial assets	2.1(a)	135,304	132,103
Investment properties		161	145
Investments in associates accounted for using the equity method	6.3	851	924
Property, plant and equipment		98	95
Right of use assets	7.5	245	-
Deferred tax assets	1.3	1,261	966
Reinsurance asset - ceded life insurance contracts	4.2(d)	1,222	1,073
Intangibles	2.2	877	3,208
Total assets of shareholders of AMP Limited, policyholders, external unitholders
and non-controlling interests		147,684	145,368
Liabilities
Payables	2.4	2,465	2,032
Current tax liabilities		123	73
Employee benefits		395	316
Other financial liabilities	2.1	1,050	1,389
Provisions	7.3	976	807
Interest-bearing liabilities	3.2	22,852	21,650
Lease liabilities	7.5	266	-
Deferred tax liabilities	1.3	2,492	1,723
External unitholder liabilities		15,295	17,059
Life insurance contract liabilities	4.2(d)	23,505	23,257
Investment contract liabilities	4.5(b)	71,671	68,742
Reinsurance liability - ceded life insurance contracts	4.2(d)	1,515	1,452
Defined benefitplan liabilities	5.2	101	77
Total liabilities of shareholders of AMP Limited, policyholders, external unitholders
and non-controlling interests		142,706	138,577

Net assets of shareholders of AMP Limited and non-controlling interests		4,978	6,791
Equity
Contributed equity	3.1	10,299	9,502
Reserves		(1,930)	(1,931)
Retained earnings		(3,509)	(886)
Total equity of shareholders of AMP Limited		4,860	6,685
Non-controllinginterests		118	106
Total equity of shareholders of AMP Limited and non-controlling interests		4,978	6,791

AMP Limited Appendix 4E – Preliminary final report

Consolidated statement of changes in equity

for the year ended 31 December 2019

for the year ended 31 December 2019
	Foreign currency Share- translation and based Capital Cash flow hedge of net T o tal N o n- C o ntributed Demerger payment profits hedge investments T o tal R etained shareho lder co ntro lling T o tal equity reserve1 reserve2 reserve3 reserve reserves reserves earnings equity interest equity $ m $m $m $m $m $m $m $ m $ m $ m $ m $ m Equity attributable to shareho lders o f A M P Limited Fair value reserve
2 0 19 Ba la nc e a t the be ginning of the ye a r Impact of adoption of new accountingstandards	9 ,5 0 2 (2 ,5 6 6 ) 10 5 3 2 9 2 1 8 17 2 (1,9 3 1) (8 8 6 ) 6 ,6 8 5 10 6 6 ,7 9 1 - - - - - - - - (7 ) (7 ) - (7 )
Balance at the beginning of the year - restated Loss Other comprehensive loss	9 ,5 0 2 (2 ,5 6 6 ) 10 5 3 2 9 2 1 8 17 2 (1,9 3 1) (8 9 3 ) 6 ,6 7 8 10 6 6 ,7 8 4 - - - - - - - - (2 ,4 6 7 ) (2 ,4 6 7 ) 3 3 (2 ,4 3 4 ) - - - - 5 1 (4 2) (4 ) 5 (16) (11) - (11)
Total comprehensive income Share- based payment expense Share purchases Net sale (purchase) of treasury shares Dividends paid4 Dividends paid on treasury shares4 New capital from shares issued during the year5 Sales and acquisitions of non- controlling interests	- - - - 5 1 (4 2 ) (4 ) 5 (2 ,4 8 3 ) (2 ,4 7 8 ) 3 3 (2 ,4 4 5 ) - - 2 8 - - - - 2 8 - 2 8 2 3 0 - - (2 4 ) - - - - (2 4 ) - (2 4 ) - (2 4 ) 5 - - - - - - - (17 ) (12 ) - (12 ) - - - - - - - - (117 ) (117 ) (2 1) (13 8 ) - - - - - - - - 1 1 - 1 7 9 2 - - - - - - - - 7 9 2 - 7 9 2 - - - (8 ) - - - (8 ) - (8 ) (2 ) (10)
Ba la nc e a t the e nd of theye a r	10,2 9 9 (2 ,5 6 6) 10 9 3 2 1 7 2 (3 4) 16 8 (1,9 3 0) (3 ,5 0 9) 4,8 6 0 118 4,9 7 8
2 0 18 Balance at the beginning of the year Impact of adoption of new accountingstandards	9,376 (2,566) 100 329 7 26 94 (2,010) (164) 7,202 81 7,283 - - - - 3 - - 3 (1) 2 - 2
Balance at the beginning of the year - restated Profit Othercomprehensiveincome	9,376 (2,566) 100 329 10 26 94 (2,007) (165) 7,204 81 7,285 - - - - - - - - 28 28 23 51 - - - - 11 (18) 78 71 (31) 40 - 40
Total comprehensive income Share- based payment expense Share purchases Net sale (purchase) of treasury shares Dividends paid4 Dividends paid on treasury shares4 New capital from shares issued under dividend reinvestment plan Sales and acquisitions of non- controlling interests	- - - - 11 (18) 78 71 (3) 68 23 91 - - 26 - - - - 26 - 26 1 27 - - (21) - - - - (21) - (21) (3) (24) 63 - - - - - - - (6) 57 - 57 - - - - - - - - (715) (715) - (715) - - - - - - - - 7 7 - 7 63 - - - - - - - - 63 - 63 - - - - - - - - (4) (4) 4 -
Balance at the end of theyear	9,502 (2,566) 105 329 21 8 172 (1,931) (886) 6,685 106 6,791

1 Reserve to recognise the additional loss and subsequent transfer from shareholders' retained earnings on the demerger of AMP’s UK operations in December 2003. The loss w as the difference betw een the pro-forma loss on demerger and the market-based fair value of the UK operations.

2 The Share-based payment reserve represents the cumulative expense recognised in relation to equity-settled share-based payments less the cost of shares purchased on market in respect of entitlements.
3 The Capital profits reserve represents gains and losses attributable to shareholders of AMP on the sale or acquisition of minority interests in controlled entities to or from entities outside the AMP group.
4 Dividends paid include dividends paid on treasury shares. Dividends paid on treasury shares are required to be excluded from the consolidated financial statements by adjusting retained earnings.
5 New capital raised under the institutional placement and share purchase plan is $771m, net of $13m directly attributable transaction costs (net of tax). Refer to note 3.1 for further details. Remaining $21m relates to shares issued under dividend reinvestment plan.

AMP Limited Appendix 4E – Preliminary final report Consolidated statement of cash flows for the year ended 31 December 2019

		2019	2018
	Note	$m	$m
Cash flows from operating activities1
Cash receipts in the course of operations		13,384	14,871
Interest received		1,906	2,140
Dividends and distributions received2		2,108	2,236
Cash payments in the course of operations		(25,424)	(22,100)
Finance costs paid		(627)	(613)
Income taxpaid		(456)	(515)
Cash flows used in operating activities	7.1	(9,109)	(3,981)
Cash flows from investing activities1
Net proceeds from sale of (payments to acquire):
- investments in financial assets3		8,104	4,355
- operating and intangible assets		(55)	(37)
- operatingcontrolled entities and investments in associates accounted for usingthe equitymethod		99	(113)
Cash flows from investing activities		8,148	4,205
Cash flows from financing activities
Net movement in deposits from customers		1,430	1,357
Proceeds from borrow ings - non-banking operations1		871	289
Repayment of borrow ings - non-banking operations1		(791)	(216)
Net movement in borrow ings - banking operations		(604)	(724)
Proceeds from issue of shares		766	-
Proceeds from issue of subordinated debt		271	250
Lease payments		(67)	-
Repayment of subordinated debt		-	(325)
Dividendspaid4		(117)	(708)
Cash flows from(used in) financing activities		1,759	(77)
Net increase in cash and cash equivalents		798	147
Cash and cash equivalents at the beginning of the year		7,382	7,222
Effect of exchange rate changes on cash and cash equivalents		2	13
Cash and cash equivalents at the end of theyear1	7.1	8,182	7,382

1 Cash flow s and cash and cash equivalents include amounts attributable to shareholders' interests, policyholders' interests in AMP Life's statutory funds and controlled entities of those statutory funds, external unitholders' interests and non-controlling interests. Cash equivalents for the purpose of the Consolidated statement of cash flow s includes short-term bills and notes.

2 Dividends and distributions received are amounts of cash received mainly from investments held by AMP life insurance entities' statutory funds and controlled entities of the statutory funds. Dividends and distributions reinvested have been treated as noncash items.

3 Net proceeds from sale of (payments to acquire) investments in financial assets also include loans and advances made (net of payments) and purchases of financial assets (net of maturities) during the period by AMP Bank.
4 The Dividends paid amount is presented net of dividends on treasury shares.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

About this financial information

This section outlines the structure of the AMP group, information useful to understanding the AMP group’s financial information and the basis on which the financial information has been prepared.

(a) Understanding the AMP financial information

The AMP group (AMP) is comprised of AMP Limited (the parent), a holding company incorporated and domiciled in Australia, and the entities it controls (subsidiaries or controlled entities). The consolidated financial statements of AMP Limited include the financial information of its controlled entities.

AMP business operations are carried out by a number of these controlled entities including AMP Life Limited - a registered life insurance entity and its related controlled entities, AMP Bank Limited (AMP Bank) and AMP Capital investment management companies (AMP Capital).

The business of AMP Life is conducted through statutory funds and relates to the provision of wealth management and life insurance products to investors, referred to as policyholders. The investment assets of the statutory funds represent the majority of the assets of the AMP group, a large proportion of which is held on behalf of policyholders. The corresponding liabilities to policyholders are classified as either life investment or life insurance contract liabilities. Under Australian Accounting Standards, some assets held on behalf of policyholders (and the related tax balances) are included in the financial statements at different values to those used in the calculation of the liability to policyholders in respect of the same assets. The impact of these differences flows through to shareholder profit and they are referred to as accounting mismatches in the segment disclosures in note 1.1(c).

AMP Capital operates a large number of registered managed investment schemes and other pooled investment vehicles. AMP Life makes significant policyholder investments into these vehicles. In many cases, this results in the vehicle being controlled and therefore consolidated in its entirety into the AMP group financial statements, including the portion that represents the shareholdings of external parties, disclosed as External unitholder liabilities on the Consolidated statement of financial position.

As a consequence, these consolidated financial statements include not only the assets and liabilities, income and expenses and cash flows attributable to AMP Limited’s shareholders but also the assets and liabilities, income and expenses and cash flows of the statutory funds attributable to policyholders and non-controlling interests.

Agreement to sell wealth protection and mature businesses

On 25 October 2018, AMP announced an agreement with Resolution Life Australia Pty Ltd (Resolution) to sell its Australian and New Zealand wealth protection (WP) and mature businesses. On 8 August 2019, AMP announced a revised agreement with updated terms for the sale of these businesses, subject to regulatory approvals, which is expected to complete in the first half of 2020.

Consideration for the sale payable on transaction completion comprises $2,500m cash and non-cash consideration of a $500m equity interest in Resolution Life NOHC Pty Ltd, a new Australian-domiciled Resolution controlled holding company that will become the owner of these businesses.

The fair value of the non-cash consideration will be determined by AMP on completion and, together with cash proceeds, will be treated as the accounting sale price. Under the terms of the agreement, Resolution assumes profit and loss from the WP and mature business from 1 July 2018. These profit impacts are transferred to Resolution as an adjustment to the purchase price upon completion. Adjustments to purchase price will affect the profit or loss recognised by AMP at completion.

The businesses subject to sale were controlled by the AMP group throughout the reporting period and as a result the income and expenses, assets and liabilities and cash flows of these businesses are consolidated within the preliminary final report, including the profits which will form part of the completion purchase price adjustment.

The sale is subject to a number of conditions, including the separation of AMP’s retained wealth management business from the WP and mature business being sold to Resolution. As the WP and mature businesses subject to the sale do not meet the AASB 5 Non-current Assets Held for Sale and Discontinued Operations criteria, the results of those businesses have not been presented separately in the preliminary final report.

The financial information:

is presented in Australian dollars with all values rounded to the nearest million dollars ($m), unless otherwise stated;
presents assets and liabilities on the face of the Consolidated statement of financial position in decreasing order of liquidity and therefore does not distinguish between current and non-current items; and
presents reclassified comparative information where required for consistency with the current year’s presentation within the financial information.

AMP Limited is a for-profit entity and is limited by shares.

(b) Basis of consolidation

Entities are fully consolidated from the date of acquisition, being the date on which the AMP group obtains control, and continue to be consolidated until the date that control ceases. Control exists where the AMP group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Income, expenses, assets, liabilities and cash flows of controlled entities are consolidated into the AMP group financial statements, along with those attributable to the shareholders of the parent entity. All inter-company transactions are eliminated in full, including unrealised profits arising from intra-group transactions.

When a controlled managed investment scheme is consolidated, the share of the unitholder liability attributable to the AMP group is eliminated but amounts due to external unitholders remain as liabilities in the Consolidated statement of financial position. The share of the net assets of controlled entities attributable to non-controlling interests is disclosed as a separate line item on the Consolidated statement of financial position.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

About this financial information

Materiality

Information has only been included in the preliminary final report to the extent that it has been considered material and relevant to the understanding of the financial statements. A disclosure is considered material and relevant if, for example:

the amount in question is significant because of its size or nature;
it is important for understanding the results of the AMP group;
it helps explain the impact of significant changes in the AMP group; and/or
it relates to an aspect of the AMP group’s operations that is important to its future performance.

(c) Significant accounting policies

The significant accounting policies adopted in the preparation of the preliminary final report are contained in the notes supporting the financial information to which they relate. All accounting policies have been consistently applied to the current year and comparative period, unless otherwise stated. Where an accounting policy relates to more than one note or where no note is provided, the accounting policies are set out below.

Interest, dividends and distributions income

Interest income is recognised when the AMP group obtains control of the right to receive the interest. Revenue from dividends and distribution is recognised when the AMP group’s right to receive payment is established.

Foreign currency transactions

Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars (the functional currency) using the following applicable exchange rates:

Foreign currency amount	Applicable exchange rate
Transactions	Date of transaction
Monetary assets and liabilities	Reporting date
Non-monetary assets and liabilities carried at fair value	Date fair value is determined

Foreign exchange gains and losses resulting from translation of foreign exchange transactions are recognised in the Consolidated income statement, except for qualifying cash flow hedges, which are deferred to equity.

On consolidation the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the following applicable exchange rates:

Foreign currency amount	Applicable exchange rate
Income and expenses	Average exchange rate
Assets and liabilities	Reporting date
Equity	Historical date
Reserves	Reporting date

Foreign exchange differences resulting from translation of foreign operations are initially recognised in the foreign currency translation reserve and subsequently transferred to the Consolidated income statement on disposal of the foreign operation.

(d) Critical judgements and estimates

Preparation of the financial statements requires management to make judgements, estimates and assumptions about future events. Information on critical judgements and estimates considered when applying the accounting policies can be found above and in the following notes:

Accounting judgements and estimates	Note		Page
Tax	1.3	Taxes	22
Fair value of financial assets	2.1	Investments in financial instruments	26
Impairment	2.1	Expected credit losses (ECLs)	27
Goodwill and acquired intangible assets	2.2	Intangibles	29
Life insurance and investment contract liabilities	4.1	Accounting for life insurance contracts and investment contracts	51
Consolidation	6.1	Controlled entities	83
Provisions and contingent liabilities	7.3	Provisions and contingent liabilities	88

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

This section provides insights into how the AMP group has performed in the current year and provides additional information about those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the AMP group.

Statutory measures of performance disclosed in this report are:

Statutory earnings per share (EPS) - basic and diluted
Annual dividend
Profit after tax attributable to the shareholders of AMP

Underlying profit is AMP’s key measure of business performance. This performance measure is disclosed by the AMP operating segment within Segment performance.

1.1 Segment performance
1.2 Earnings per share
1.3 Taxes
1.4 Dividends

1.1 Segment performance

The AMP group identifies its operating segments based on separate financial information that is regularly reviewed by the Chief Executive Officer and his immediate team in assessing performance and determining the allocation of resources. The operating segments are identified according to the nature of profit generated and services provided, and their performance is evaluated based on a post-tax operating earnings basis.

Reportable segment	Segment description
Australian wealth management (WM)	Financial advice services (through aligned and owned advice businesses), platform and software administration (including SMSF), unit linked superannuation, retirement income and managed investment products business in Australia. Superannuation products include personal and employer sponsored plans with insurance.
AMP Bank	Australian retail bank offering residential mortgages, deposits, transaction banking. It also has a portfolio of practice finance loans. AMP Bank distributes through AMP’s aligned distribution network as well as third party brokers, and direct to retail customers via phone and online.
AMP Capital	A diversified investment manager with a growing international presence providing investment services for domestic and international customers. AMP Capital manages investments across major asset classes including equities, fixed interest, real estate, infrastructure and multi-manager and multi-asset funds. AMP Capital also provides commercial, industrial and retail real estate management services. On 1 March 2012, AMP Capital and Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) formed a strategic business and capital alliance. As part of that alliance, MUFG: Trust Bank acquired a 15% ownership interest in AMP Capital. The initial five year agreement between AMP Capital and MUFG: Trust Bank was renewed in the first quarter of 2017. In November 2013, AMP Capital established a funds management company in China with China Life called China Life AMP Asset Management Company Limited (CLAMP). AMP Capital is a founding shareholder, holding a 15% stake, with the balance held by China Life Asset Management Company, a subsidiary of China Life.
New Zealand wealth management (NZ WM)	Encompasses the wealth management and financial advice and distribution business in New Zealand. Customers are provided with a variety of wealth management solutions including KiwiSaver, corporate superannuation, retail investments and a wrap investment management platform.
Australian and New Zealand wealth protection (WP) and mature	Australian WP includes individual and group term, disability and income protection insurance products. Products can be held within a superannuation product or held independently of superannuation. Australian mature is a business comprising products which are largely closed to new business and are in run-off. Products within Australian mature include whole of life, endowment, investment linked, investment account, Retirement Savings Account (RSA), Eligible Rollover Fund (ERF), annuities, insurance bonds, personal superannuation and guaranteed savings accounts (GSAs). New Zealand WP and mature includes risk insurance and mature book (traditional participating business).

Segment information is not reported for activities of the AMP group office companies as it is not the function of these departments to earn revenue and any revenues earned are incidental to the activities of the AMP group.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.1 Segment performance (continued)

(a) Segment profit

					AUS and NZ
		AMP	AMP		WP and
	WM	Bank	Capital1	NZ WM	mature4	Total
2019	$m	$m	$m	$m	$m	$m
Segmentprofit after income tax	182	141	198	44	(21)	544
External customer revenue	1,077	408	552	151	(21)	2,167
Intersegment revenue2	18	-	248	-	-	266
Segment revenue3	1,095	408	800	151	(21)	2,433
Other segment information
Income tax expense (credit)	74	60	59	18	(9)	202
Depreciation and amortisation	56	-	22	4	9	91
2018
Segmentprofit after income tax	363	148	167	53	(3)	728
External customer revenue	1,195	401	450	148	(3)	2,191
Intersegment revenue2	114	-	258	16	-	388
Segment revenue3	1,309	401	708	164	(3)	2,579
Other segment information
Income tax expense	153	63	59	21	-	296
Depreciation and amortisation	60	-	14	4	15	93

1 AMP Capital segment revenue is reported net of external investment manager fees. Segment profit after income tax is reported net of 15% minority interest attributable to MUFG: Trust Bank.
2 Intersegment revenue represents operating revenue betw een segments priced on a market related basis and is eliminated on consolidation.
3 Segment revenue and other segment information excludes revenue, expenses and tax relating to assets backing policyholder liabilities. Disaggregated revenue information is presented in note 1.1(b).
4 For segment reporting, revenue for AUS and NZ WP and mature is presented as the amount of operating earnings of the segment, w hich is also the segment profit after tax.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.1 Segment performance (continued)

(b) The following table allocates the disaggregated segment revenue from contracts with customers to the group's operating segments (see note 1.1(a)):

WM AMP Bank AMP Capital NZ WM AUS and NZ WP and mature1 Total 2019 $m $m $m $m $m $m	WM AMP Bank AMP Capital NZ WM AUS and NZ WP and mature1 Total 2019 $m $m $m $m $m $m
Investment related 1,070 - - 127 - 1,197 Management fees - - 716 - - 716 Performance and transaction fees - - 84 - - 84 Net interest income - 387 - - - 387 Other revenue 25 21 - 24 (21) 49
Total segment revenue per segment note 1,095 408 800 151 (21) 2,433
Presentation adjustments2 Total statutory revenue from contracts with customers 2018	609
	3,042
Investment related 1,213 - - 126 - 1,339 Management fees - - 639 - - 639 Performance and transaction fees - - 69 - - 69 Net interest income - 388 - - - 388 Other revenue 96 13 - 38 (3) 144
Total segment revenue per segment note 1,309 401 708 164 (3) 2,579
Presentation adjustments2 Total statutory revenue from contracts with customers	625
	3,204

	2019	2018
Statutory revenue from contracts with customers	$m	$m
Fee revenue
- Investment management and related fees	2,063	2,221
- Financial advisory fees3	841	862
	2,904	3,083
Other revenue	138	121
Total statutory revenue from contracts with customers	3,042	3,204

1 Disaggregated revenue information does not exist for Aus and NZ WP & mature as this business is managed on an operating earnings basis.

2 Presentation adjustments primarily reflect the difference betw een total segment revenue and statutory revenue from contracts w ith

customers, as required by AASB 15 Revenue from Contracts with Customers . These adjustments include revenue from sources other

than contracts w ith customers and expense items w hich are presented net in the segment results, but presented gross in the Consolidated income statement.

3 A substantial majority of the financial advisory fees received are paid to advisers. For statutory reporting, financial advisory fees are

presented gross of the related cost w hich is presented in Fees and commission expenses in the Consolidated income statement.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.1 Segment performance (continued)

(c) Reconciliations

Segment profit after income tax differs from (loss) profit attributable to shareholders of AMP Limited due to the exclusion of the following items:

	2019	2018
	$m	$m
Segment profit after income tax	544	728
Groupoffice costs	(128)	(76)
Total operating earnings	416	652
Underlying investment income1	113	96
Interest expense on corporate debt	(65)	(68)
Underlying profit	464	680
Client remediation and related costs	(153)	(469)
Royal Commission	-	(32)
Portfolio review	-	(29)
Separation costs	(183)	(19)
Risk management, governance and controls	(33)	(8)
Transformation	(28)	-
Other items2	22	(74)
Impairment charges	(2,407)	-
Amortisation of acquired intangible assets3	(96)	(79)
(Loss) profit before market adjustments and accounting mismatches	(2,414)	(30)
Market adjustment - investment income1	(47)	(28)
Market adjustment - annuity fair value4	(2)	12
Market adjustment - risk products5	(3)	24
Accountingmismatches6	(1)	50
(Loss) profit attributable to shareholders of AMP Limited	(2,467)	28
Profit attributable to non-controlling interests	33	23
(Loss) profit for theperiod	(2,434)	51

1 Underlying investment income consists of investment income on shareholder assets invested in income producing investment assets normalised by eliminating the impact of short-term market volatility on underlying performance. Underlying returns are set based on long-term expected returns for each asset class, except for a short-term return, equivalent to a one-year government bond, set annually for the implicit deferred acquisition costs (DAC) component of shareholder assets. Market adjustment - investment income is the excess (shortfall) betw een the underlying investment income and the actual return on shareholder assets invested in income producing investment assets.
2 Other items largely comprise the net of one-off and non-recurring revenues and costs.
3 Amortisation of acquired intangibles includes amortisation of intangibles acquired through business combinations and notional intangibles included w ithin the carrying value of equity accounted associates and acquired client registers.
4 Market adjustment - annuity fair value relates to the net impact of investment markets on AMP's annuity portfolio.
5 Market adjustment - risk products relates to the net impact of changes in market economic assumptions (bond yields and CPI) on the valuation of risk insurance liabilities.

6 Under Australian Accounting Standards, some assets held on behalf of the policyholders (and related tax balances) are recognised in the financial statements at different values to the values used in the calculation of the liability to policyholders in respect of the same assets. Therefore, movements in these policyholder assets result in accounting mismatches w hich impact profit attributable to shareholders. These differences have no impact on the operating earnings of the AMP group.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.1 Segment performance (continued)

Total segment revenue differs from total revenue as follows:

	2019	2018
	$m	$m
Total segment revenue	2,433	2,579
Add revenue excluded from segment revenue
- Investment gains and losses - shareholders and policyholders
(excluding AMP Bank interest revenue)	16,935	913
- Other revenue	153	167
Add back expenses netted against segment revenue
- Claims, expenses, movement in insurance contract liabilities and tax relating to
Australian w ealth protection, Australian mature and New Zealand financial services	2,626	2,979
- Interest expense related to AMP Bank	513	553
- External investment manager and adviser fees paid in respect of certain assets under
management	1,326	1,483
Remove intersegment revenue	(266)	(388)
Total revenue	23,720	8,286

(d) Segment assets

Asset segment information has not been disclosed because the balances are not provided to the Chief Executive Officer or his immediate team for the purpose of evaluating segment performance, or in allocating resources to segments.

Accounting policy – recognition and measurement Revenue from contracts with customers

For AMP, revenue from contracts with customers arises primarily from the provision of investment management and financial advisory services. Revenue is recognised when control of services is transferred to the customer at an amount that reflects the consideration which AMP is entitled to in exchange for the services provided. As the customer simultaneously receives and consumes the benefits as the service is provided, control is transferred over time. Accordingly, revenue is recognised over time.

Fee rebates provided to customers are recognised as a reduction in fee revenue.

Investment management and related fees

Fees are charged to customers in connection with the provision of investment management and other related services. These performance obligations are satisfied on an ongoing basis, usually daily, and revenue is recognised as the service is provided.

Financial advisory fees

Financial advisory fees consist of commissions and fee-for-service revenue and are earned for providing customers with financial advice and performing related advisory services. These performance obligations are satisfied over time. Accordingly, revenue is recognised over time.

A substantial majority of the financial advisory fees received are paid to advisers. Financial advisory fees are presented gross of the related cost which is presented in Fees and commission expenses in the Consolidated income statement.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.2 Earnings per share

Basic earnings per share

Basic earnings per share is calculated based on profit attributable to shareholders of AMP Limited (AMP) and the weighted average number of ordinary shares outstanding.

	2019	2018
(Loss) profit attributable to shareholders of AMP ($m)	(2,467)	28
Weighted average number of ordinary shares (millions)1	3,105	2,897
Basic(loss) earnings per share(centsper share)	(79.5)	1.0

Diluted earnings per share

Diluted earnings per share is based on profit attributable to shareholders of AMP Limited (AMP) and the weighted average number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares, such as options and performance rights.

	2019	2018
(Loss) profit attributable to shareholders of AMP ($m)	(2,467)	28
Weighted average number of ordinary shares (millions) – diluted:
- Weighted average number of ordinary shares1	3,105	2,897
- Add: potential ordinary shares considered dilutive	-	18
Weighted average number of ordinary shares used in the calculation of dilutive earnings per share	3,105	2,915
Diluted(loss) earnings per share(centsper share)	(79.5)	1.0

1 The w eighted average number of ordinary shares outstanding is calculated after deducting the w eighted average number of treasury shares held during the period.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.3 Taxes

Our taxes

This sub-section outlines the impact of income taxes on the results and financial position of AMP. In particular:

the impact of tax on the reported result;
amounts owed to/receivable from the tax authorities;
deferred tax balances that arise due to differences in the tax and accounting treatment of balances recorded in the preliminary final report; and
discussion of the impacts of life insurance policyholder tax.

These financial statements include the disclosures relating to tax required under accounting standards. Further information on AMP’s tax matters can be found in the AMP Tax Report at amp.com.au/shares.

(a) Income tax expense

The income tax expense amount reflects the impact of both income tax attributable to shareholders as well as income tax attributable to policyholders. In respect of income tax expense attributable to shareholders, the tax rate which applies is 30% in Australia and 28% in New Zealand.

Income tax attributable to policyholders is based on investment income allocated to policyholders less expenses deductible against that investment income. The impact of the tax is charged against policyholder liabilities. A number of different tax rate regimes apply to policyholders. In Australia, certain classes of policyholder life insurance income and superannuation earnings are taxed at 15%, and certain classes of income on some annuity business are tax-exempt. The rate applicable to New Zealand life insurance business is 28%.

The following table provides a reconciliation of differences between prima facie tax calculated as 30% of the profit or loss before income tax for the year and the income tax expense or credit recognised in the Consolidated income statement for the year.

	2019	2018
	$m	$m
Loss before income tax	(1,694)	(366)
Policyholder tax (expense) credit recognised as part of the change in policyholder liabilities in
determining profit before tax	(990)	399
(Loss) profit before income tax excluding tax charged topolicyholders	(2,684)	33
Tax at the Australian tax rate of 30% (2018: 30%)	805	(10)
Shareholder impact of life insurance tax treatment	(52)	(2)
Tax concessions including research and development and offshore banking unit	2	7
Non-deductible expenses	(35)	(23)
Non-taxable income	48	6
Other items	7	15
Goodw ill impairment	(590)	-
Over provided in previous years	9	8
Utilisation of previously unrecognised tax losses	45	8
Differences in overseas tax rates	11	9
Income tax credit attributable to shareholders and non-controlling interest	250	18
Income tax(expense)credit attributable topolicyholders	(990)	399
Income tax(expense) credit recorded in the Consolidated income statement	(740)	417

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.3 Taxes (continued)

(b) Analysis of income tax expense

	2019	2018
	$m	$m
Current tax expense	(266)	(330)
Increase in deferred tax assets	295	190
(Increase)decrease in deferred tax liabilities	(769)	557
Income tax(expense) credit	(740)	417
(c) Analysis of deferred tax balances
Expenses deductible and income recognisable in future years	1,015	792
Unrealised movements on borrow ings and derivatives	42	30
Unrealised investment losses	6	41
Losses available for offset against future taxable income	43	45
Other	155	58
Total deferred tax assets	1,261	966
Unrealised investment gains	1,995	1,174
Other	497	549
Total deferred tax liabilities	2,492	1,723
(d) Amounts recognised directly in equity
Deferred income tax credit related to items taken directlyto equityduringthe currentyear	13	13
(e) Unused tax losses and deductible temporary differences not recognised
	2019	2018
	$m	$m
Revenue losses	112	111
Capital losses	656	706

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.3 Taxes (continued)

Accounting policy – recognition and measurement

Income tax expense

Income tax expense is the tax payable on taxable income for the current period based on the income tax rate for each jurisdiction and adjusted for changes in deferred tax assets and liabilities. These changes are attributable to:

temporary differences between the tax bases of assets and liabilities and their Consolidated statement of financial position carrying amounts;
unused tax losses; and
the impact of changes in the amounts of deferred tax assets and liabilities arising from changes in tax rates or in the manner in which these balances are expected to be realised.

Adjustments to income tax expense are also made for any differences between the amounts paid, or expected to be paid, in relation to prior periods and the amounts provided for these periods at the start of the current period.

Any tax impact on income and expense items that are recognised directly in equity is also recognised directly in equity.

Income tax for investment contracts business and life insurance contracts business

The income tax expense recognised in the Consolidated income statement of the AMP group, which arises in respect of AMP Life, reflects tax imposed on shareholders as well as policyholders. Investment contracts liabilities and life insurance contracts liabilities are established in Australia net, and in New Zealand gross, of the policyholders’ share of any current tax payable and deferred tax balances of the AMP group. Arrangements made with some superannuation funds result in AMP Life making payments to the Australian Taxation Office in relation to contributions tax arising in those funds. The amounts paid are recognised as a decrease in investment contract liabilities and not included in income tax expense.

Deferred tax

Deferred tax assets and liabilities are recognised for temporary differences and are measured at the tax rates which are expected to apply when the assets are recovered or liabilities are settled, based on tax rates that have been enacted or substantively enacted for each jurisdiction at the reporting date. Deferred tax assets and liabilities, including amounts in respect of investment contracts and life insurance contracts, are not discounted to present value.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Tax consolidation

AMP Limited and its wholly-owned Australian controlled entities are part of a tax-consolidated group, with AMP Limited being the head entity (the company). A tax funding agreement has been entered into by the head entity and the controlled entities in the tax-consolidated group and requires entities to fully compensate the company for current tax liabilities and to be fully compensated by the company for any current or deferred tax assets in respect of tax losses arising from external transactions occurring after 30 June 2003, the implementation date of the tax-consolidated group.

Critical accounting estimates and judgements:

The AMP group is subject to taxes in Australia and other jurisdictions where it has operations. The application of tax law to the specific circumstances and transactions of the AMP group requires the exercise of judgement by management. The tax treatments adopted by management in preparing the financial statements may be impacted by changes in legislation and interpretations or be subject to challenge by tax authorities.

Judgement is also applied by management in determining the extent to which the recovery of carried forward tax losses is probable for the purpose of meeting the criteria for recognition as deferred tax assets.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 1: Results for the year

1.4 Dividends

Dividends paid and proposed during the year are shown in the table below:

	2019	2019	2018	2018
	Final	Interim	Final	Interim
Dividend per share (cents)	-	-	4.0	10.0
Franking percentage	-	-	90%	50%
Dividend amount ($m)	-	-	117	292
Payment date	-	-	28 March 28	September
			2019	2018
	2019		2018
	$m		$m
Dividends paid
Previous year final dividend on ordinary shares	117		423
Interim dividend on ordinaryshares	-		292
Total dividendspaid1	117		715

1 Total dividends paid includes dividends paid on Treasury shares $1m (2018: $7m).

Dividend franking credits

Franking credits available to shareholders are $175m (2018: $148m), based on a tax rate of 30%. This amount is calculated from the balance of the franking account as at the end of the reporting period, adjusted for franking credits that will arise from the settlement, after the end of the reporting date, of liabilities for income tax and receivables for dividends.

The company's ability to utilise the franking account credits depends on meeting Corporations Act 2001 requirements to declare dividends.

Franked dividends are franked at a tax rate of 30%.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

This section highlights the AMP group’s assets and working capital used to support the AMP group’s activities.

2.1 Investments in financial instruments
2.2 Intangibles
2.4 Payables
• 2.5 Fair value information
2.3 Receivables

2.1 Investments in financial instruments

(a) Investments in financial instruments

	2019	2018
	$m	$m
Financial assets measured at fair value through profit or loss1
Equity securities and listed managed investment schemes	57,698	55,894
Debt securities	29,820	32,577
Unlisted managed investment schemes	23,358	19,838
Derivative financial assets	1,699	1,059
Total financial assets measured at fair value through profit or loss	112,575	109,368
Financial assets measured at fair value through other comprehensive income
Debt securities2	1,960	2,355
Equitysecurities	63	60
Total financial assets measured at fair value through other comprehensive income	2,023	2,415
Financial assets measured at amortised cost3
Loans and advances	20,661	20,098
Debt securities	45	222
Total financial assets measured at amortised cost	20,706	20,320
Total financial assets	135,304	132,103
Other financial liabilities
Derivative financial liabilities	880	1,225
Collateral deposits held	170	164
Total other financial liabilities	1,050	1,389

1 Financial assets measured at fair value through profit or loss are mainly assets of the AMP Life insurance entities' statutory funds and their controlled entities.

2 Debt securities measured at fair value through other comprehensive income are assets of AMP Bank.

3 Financial assets measured at amortised cost are presented net of expected credit losses (ECLs) of $132m (2018: $38m). Included in this balance are loans to aligned advice practices of $373m (2018: $529m), net of ECLs of $105m (2018: $20m).

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.1 Investments in financial instruments (continued)

(b) The following table provides the changes to expected credit losses (ECLs) relating to loans and advances during the year:

2019	Stage 1 collective	Stage 2 collective	Stage 3	Total
	$m	$m	$m	$m
Balance at the beginning of the year	8	13	17	38
Transferred to 12-months ECL - collective provision	4	(3)	(1)	-
Transferred to Lifetime ECL credit impaired - collective provision	-	1	(1)	-
Transferred to Lifetime ECL credit impaired - specific provision	(2)	(5)	7	-
New and increased provisions during the year (net of collective
provision released)	1	3	5	9
Write-offs from specific provisions	-	-	(1)	(1)
Provision forpractice finance loans	-	-	86	86
Balance at the end of the year	11	9	112	132

2018	Stage 1 collective	Stage 2 collective	Stage 3	Total
	$m	$m	$m	$m
Balance at the beginning of the year	3	11	14	28
Transferred to 12-months ECL - collective provision	5	(3)	(2)	-
Transferred to Lifetime ECL credit impaired - collective provision	-	1	(1)	-
Transferred to Lifetime ECL credit impaired - specific provision	-	(2)	2	-
New and increased provisions during the year (net of collective
provision released)	-	6	6	12
Write-offs from specificprovisions	-	-	(2)	(2)
Balance at the end of the year	8	13	17	38

Accounting policy – recognition and measurement

Recognition and derecognition of financial assets and liabilities

Financial assets and financial liabilities are recognised at the date the AMP group becomes a party to the contractual provisions of the instrument. At initial recognition, financial assets are classified as subsequently measured at fair value through profit or loss, fair value through other comprehensive income (OCI), and amortised cost. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the group’s business model for managing them.

Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire, or are transferred. A transfer occurs when substantially all the risks and rewards of ownership of the financial asset are passed to an unrelated third party. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

Financial assets measured at fair value through profit or loss

Financial assets measured on initial recognition as financial assets measured at fair value through profit or loss are initially recognised at fair value, determined as the purchase cost of the asset, exclusive of any transaction costs. Transaction costs are expensed as incurred in profit or loss. Any realised and unrealised gains or losses arising from subsequent measurement at fair value are recognised in profit or loss in the period in which they arise.

Financial assets measured at fair value through OCI – debt securities

Debt securities are measured at fair value through OCI when both of the following conditions are met:

the instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets, and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Fair value through OCI instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value recognised in OCI. Interest income and foreign exchange gains and losses and impairment losses or reversals are recognised in profit or loss in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. The accumulated gains or losses recognised in OCI are recycled to profit and loss upon derecognition of the assets.

The group classifies debt securities held by AMP Bank under this category.

Financial assets measured at fair value through OCI – equity securities

Upon initial recognition, the group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under AASB 132 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.1 Investments in financial instruments (continued)

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

The group elected to classify equity investments held by AMP Foundation, a controlled entity of the AMP group, under this category.

Financial assets measured at amortised cost – loans and advances and debt securities

Loans and advances and debt securities are measured at amortised cost when both of the following conditions are met:

the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets measured at amortised cost are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial asset. These assets are subsequently recognised at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Loans and advances are financial assets with fixed or determinable payments that are not quoted in an active market. They arise when AMP Bank provides money directly to a customer, including loans and advances to advisers, and with no intention of trading the financial asset. Loans and advances are initially recognised at fair value including direct and incremental transaction costs relating to loan origination. They are subsequently measured at amortised cost using the effective interest method, less any provision for impairment.

Impairment of financial assets

An allowance for expected credit losses (ECLs) is recognised for financial assets not held at fair value through profit or loss. ECLs are probability weighted estimates of credit losses and are measured as the present value of all cash shortfalls discounted at the effective interest rate of the financial instrument. The key elements in the measurement of ECLs are as follows:

PD - The probability of default is an estimate of the likelihood of default over a given time horizon.
EAD - The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date.
LGD - Loss given default is an estimate of the loss arising in the case where default occurs at a given time. It is based on the difference between cash flows due to the group in accordance with the contract and the cash flows that the group expects to receive, including from the realisation of any collateral.

The group estimates these elements using appropriate credit risk models taking into consideration the internal and external credit ratings of the assets, nature and value of collaterals, forward-looking macro-economic scenarios, etc.

Other than ECL on trade receivables, where a simplified approach is taken, the group applies a three-stage approach to measure the ECLs as follows:

Stage 1 (12-month ECL)

The group collectively assesses and recognises a provision at an amount equal to 12-month ECL when financial assets are current and/or have had a good performance history and are of low credit risk. It includes financial assets where the credit risk has improved, and the financial assets have been reclassified from Stage 2 or even Stage 3 based on improved performance observed over a predefined period of time. A financial asset is considered to have low credit risk when its credit risk rating is equivalent to the globally understood definition of 'investment grade'.

Stage 2 (Lifetime ECL - not credit impaired)

The group collectively assesses and recognises a provision at an amount equal to lifetime ECL on financial assets where there has been a significant increase in credit risk since initial recognition but the financial assets are not credit impaired.

The quantitative criteria used to determine a significant increase in credit risk is a series of relative and absolute thresholds. Financial assets that were 30 days past due at least once over the last six months are deemed to have significant increase in credit risk since initial recognition. For loans and advances, other risk factors like hardship, loan to value ratio (LVR) and loan to income ratio (LTI) are also considered in order to determine a significant increase in credit risk.

Stage 3 (Lifetime ECL - credit impaired)

The group measures loss allowances at an amount equal to lifetime ECL on financial assets that are determined to be credit impaired based on objective evidence of impairment. Financial assets are classified as impaired when payment is 90 days past due or when there is no longer reasonable assurance that principal or interest will be collected in their entirety on a timely basis.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.1 Investments in financial instruments (continued)

Critical accounting estimates and judgements:

Financial assets measured at fair value

Where available, quoted market prices for the same or similar instruments are used to determine fair value. Where there is no market price available for an instrument, a valuation technique is used. Management applies judgement in selecting valuation techniques and setting valuation assumptions and inputs. Further detail on the determination of fair value of financial instruments is set out in note 2.5.

Impairment

The impairment provisions (individual and collective) are outputs of ECL models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting estimates and judgements include:

AMP group’s internal grading which assigns PDs to the individual grades;
AMP group’s estimates of LGDs arising in the event of default;
AMP group’s criteria for assessing if there has been a significant increase in credit risk;
Development of ECL models, including the various formulas, choice of inputs and assumptions; and
Determination of associations between macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models.

2.2 Intangibles

			Value of
		Capitalised	in-force	Distribution	Other
	Goodwill1	costs2	business	networks	intangibles	Total
	$m	$m	$m	$m	$m	$m
2019
Balance at the beginning of the year	2,130	505	420	138	15	3,208
Additions through acquisitions of controlled
entities	10	2	-	55	-	67
Additions through separate acquisitions	-	-	-	33	-	33
Additions through internal development	-	112	-	-	-	112
Reductions through disposal	-	-	-	(8)	-	(8)
Transferred from inventories	-	-	-	1	-	1
Amortisation expense	-	(94)	(79)	(55)	(1)	(229)
Impairment loss	(1,968)	(302)	-	(37)	-	(2,307)
Balance at the end of theyear	172	223	341	127	14	877
Cost	*2,916*	*1,760*	*1,191*	*474*	*110*	*6,451*
Accumulated amortisation and impairment	*(2,744)*	*(1,537)*	*(850)*	*(347)*	*(96)*	*(5,574)*
2018
Balance at the beginning of the year	2,123	434	498	147	16	3,218
Additions through acquisitions of controlled
entities	7	-	-	11	-	18
Additions through separate acquisitions	-	-	-	36	-	36
Additions through internal development	-	189	-	-	-	189
Reductions through disposal	-	-	-	(11)	-	(11)
Transferred to inventories	-	-	-	(3)	-	(3)
Amortisation expense	-	(118)	(78)	(23)	(1)	(220)
Impairment loss	-	-	-	(19)	-	(19)
Balance at the end of the year	2,130	505	420	138	15	3,208
Cost	2,906	1,646	1,191	393	110	6,246
Accumulated amortisation and impairment	(776)	(1,141)	(771)	(255)	(95)	(3,038)

1 Total goodw ill comprises amounts attributable to shareholders of $157m (2018: $2,115m) and amounts attributable to policyholders of $15m (2018: $15m).
2 AMP’s new strategy has resulted in a review of the expected future economic benefits and useful life of Capitalised costs. This has resulted in impairment during the year.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.2 Intangibles (continued)

Accounting policy – recognition and measurement

Goodwill

Goodwill acquired in a business combination is recognised at cost and subsequently measured at cost less any accumulated impairment losses. The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill includes balances attributable to shareholders and balances attributable to policyholders in investment entities controlled by the AMP Life statutory funds. Goodwill is not amortised.

Capitalised costs

Costs are capitalised when the costs relate to the creation of an asset with expected future economic benefits which are capable of reliable measurement. Capitalised costs are amortised on a straight-line basis over the estimated useful life of the asset, commencing at the time the asset is first put into use or held ready for use, whichever is the earlier.

Value of in-force business

The value of in-force business represents the fair value of future business arising from existing contractual arrangements of a business acquired as part of a business combination. The value of in-force business is initially measured at fair value and is subsequently measured at fair value less amortisation and any accumulated impairment losses.

Distribution networks

Distribution networks such as customer lists, financial planner client servicing rights or other distribution-related rights, either acquired separately or through a business combination, are initially measured at fair value and subsequently measured at cost less amortisation and any accumulated impairment losses.

Amortisation

Intangible assets with finite useful lives are amortised on a straight-line basis over the useful life of the intangible asset. The estimated useful lives are generally:

Item	Useful life
Capitalised costs	Up to 10 years
Value of in-force business–wealth management and distribution businesses	10 years
Value of in-force business–wealth protection and mature business	20 years
Distribution networks	2–15 years

The useful life of each intangible asset is reviewed at the end of the period and, where necessary, adjusted to reflect current assessments.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.2 Intangibles (continued)

Impairment testing

Goodwill and intangible assets that have indefinite useful lives are tested at least annually for impairment. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs). An impairment loss is recognised when the CGU’s carrying amount exceeds the CGU’s recoverable amount. When applicable, an impairment loss is first allocated to goodwill and any remainder is then allocated to the other assets on a pro-rata basis.

Goodwill attributable to shareholders

The goodwill attributable to shareholders of $157m (2018: $2,115m) primarily arose from the acquisition of AMP AAPH Limited group in 2011, a previous Life Act Part 9 transfer of life insurance business into the statutory funds of AMP Life as well as other business combinations where the AMP group was the acquirer.

The composition of the group’s CGUs has not changed since December 2018 and is consistent with the composition of the group’s operating segments as disclosed in note 1.1. Goodwill attributable to shareholders allocated to each CGU is presented in the table below.

	2019 $m	2018 $m
Australian wealth management (WM)	-	1,499
New Zealand wealth management (NZ WM)	70	70
Australian and New Zealand wealth protection (WP) and mature	-	459
AMP Capital	87	87
	157	2,115

The recoverable amounts for Australian wealth management and New Zealand wealth management have been determined by fair value less costs of disposal using a discounted cash flow (DCF) method. The DCF method is based on management’s forecast cash flows and reflects management’s long-term view of the business and market conditions. For Australian wealth management the forecast cashflows include the impact of significant strategic changes to the business including reshaping the aligned advice network. The forecast cashflows have been further risk adjusted to reflect likely adjustments a market participant would make. These cash flows are discounted to net present values to arrive at the recoverable amounts.

The key assumptions in determining the recoverable amounts for Australian wealth management and New Zealand wealth management are:

Risk adjusted discount rates of 14% and 12% have been applied to Australian wealth management and New Zealand wealth management respectively. This reflects a discount rate that is adjusted for risks specific to the CGUs.
Growth of funds under management (FUM) has been projected based on a long-term view of investment market returns at approximately 3% to 6% per annum, and takes into account the recent experience of FUM outflows.

The recoverable amount of Australian and New Zealand WP and mature has been determined by reference to the expected sale proceeds from Resolution, less an allowance for costs of disposal.

The recoverable amount of AMP Capital has been determined based on a multiple between 13 and 14 times adjusted current year annualised earnings (31 December 2018: 14 and 15 times), which approximates the fair value of the business, less an allowance for costs of disposal.

Goodwill attributable to policyholders

Policyholder cash-generating units were allocated $15m goodwill at 31 December 2019 (31 December 2018: $15m).

Impairment loss

Goodwill attributed to the Australian wealth management CGU has been fully impaired as at 31 December 2019 resulting in a non-cash impairment expense of $1,509m during the year, recognised in the Impairment of goodwill and other intangibles line in the Consolidated income statement. The impairment was the result of a number of factors including impacts from the new AMP strategy, challenging market conditions impacting margins and funds under management, regulatory and legislative changes such as Protecting Your Super (PYS) legislation, and continued migration to lower margin contemporary products.

Goodwill attributed to the Australian and New Zealand WP and mature CGU has been fully impaired resulting in a further non-cash impairment expense of $459m. This was caused primarily by changes in best estimate assumptions and impacts from Protecting Your Super (PYS) legislation.

For other CGUs, there are no reasonably possible alternative assumptions which would result in an impairment of any goodwill amounts.

Critical accounting estimates and judgements:

Management applies judgement in selecting valuation techniques and setting valuation assumptions to determine the:

acquisition date fair value and estimated useful life of acquired intangible assets;
allocation of goodwill to CGUs and determining the recoverable amount of the CGUs; and
assessment of whether there are any impairment indicators for acquired intangibles and, where required, in determining the recoverable amount.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.3 Receivables

2.3 Receivables
	2019	2018
	$m	$m
Investment related receivables	1,403	1,664
Life insurance contract premiums receivable	311	330
Reinsurance receivables	220	186
Trade debtors and other receivables	652	428
Total receivables1	2,586	2,608
Current	*2,580*	2,603
Non-current	6	5

1 Receivables are presented net of ECL of $5m (2018: $6m).

Accounting policy – recognition and measurement

Receivables

Investment related receivables and Life insurance contract premium receivables backing investment contract liabilities and life insurance contract liabilities are financial assets measured at fair value through profit or loss. Reinsurance receivables and Trade debtors and other receivables are measured at amortised cost, less any allowance for ECLs.

The group applies a simplified approach in calculating ECLs for receivables. Therefore, the group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

2.4 Payables

	2019	2018
	$m	$m
Investment related payables	1,108	762
Life insurance and investment contracts in process of settlement	341	302
Accrued expenses, trade creditors and other payables	977	965
Reinsurancepayables	39	3
Totalpayables	2,465	2,032
Current	*2,332*	1,908
Non-current	*133*	124

Accounting policy – recognition and measurement

Payables

Payables are measured at the nominal amount payable. Given the short-term nature of most payables, the nominal amount payable approximates fair value.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.5 Fair value information

The following table shows the carrying amount and estimated fair values of financial instruments and investment properties, including their levels in the fair value hierarchy. It does not include fair value information for financial instruments not measured at fair value if the carrying amount is a reasonable approximation of fair value.

amount is a reasonable approximation of fair value.
	Carrying				Total fair
	amount	Level 1	Level 2	Level 3	value
2019	$m	$m	$m	$m	$m
Financial assets measured at fair value
Equity securities and listed managed investment schemes	57,761	54,552	694	2,515	57,761
Debt securities	31,780	1,770	29,883	127	31,780
Unlisted managed investment schemes	23,358	-	20,687	2,671	23,358
Derivative financial assets	1,699	71	1,628	-	1,699
Investmentproperties	161	-	-	161	161
Total financial assets measured at fair value	114,759	56,393	52,892	5,474	114,759
Financial assets not measured at fair value
Loans and advances	20,661	-	-	20,664	20,664
Debt securities	45	-	45	-	45
Total financial assets not measured at fair value	20,706	-	45	20,664	20,709
Financial liabilities measured at fair value
Derivative financial liabilities	880	186	694	-	880
Collateral deposits held	170	-	170	-	170
Investment contract liabilities	71,671	-	1,484	70,187	71,671
Total financial liabilities measured at fair value	72,721	186	2,348	70,187	72,721
Financial liabilities not measured at fair value
AMP Bank
- Deposits	12,442	-	12,442	-	12,442
- Other	7,492	-	7,504	-	7,504
Corporate borrow ings	2,445	-	2,461	-	2,461
Borrow ings w ithin investment entities controlled by AMP Life's statutory
funds	473	-	473	-	473
Total financial liabilities not measured at fair value	22,852	-	22,880	-	22,880
2018
Financial assets measured at fair value
Equity securities and listed managed investment schemes	55,954	52,821	769	2,364	55,954
Debt securities	34,932	1,978	32,837	117	34,932
Unlisted managed investment schemes	19,838	-	17,940	1,898	19,838
Derivative financial assets	1,059	393	666	-	1,059
Investment properties	145	-	-	145	145
Other financial assets	-	-	-	-	-
Total financial assets measured at fair value	111,928	55,192	52,212	4,524	111,928
Financial assets not measured at fair value
Loans and advances	20,098	-	-	20,101	20,101
Debt securities	222	-	225	-	225
Total financial assets not measured at fair value	20,320	-	225	20,101	20,326
Financial liabilities measured at fair value
Derivative financial liabilities	1,225	225	1,000	-	1,225
Collateral deposits held	164	-	164	-	164
Investment contract liabilities	68,742	-	1,810	66,932	68,742
Total financial liabilities measured at fair value	70,131	225	2,974	66,932	70,131
Financial liabilities not measured at fair value
AMP Bank
- Deposits	11,012	-	11,012	-	11,012
- Other	8,103	-	8,062	-	8,062
Corporate borrow ings	2,154	-	2,177	-	2,177
Borrow ings w ithin investment entities controlled by AMP Life's statutory
funds	381	-	381	-	381
Total financial liabilities not measured at fair value	21,650	-	21,632	-	21,632

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.5 Fair value information (continued)

AMP’s methodology and assumptions used to estimate the fair value of financial instruments are described below:

Listed equity securities	The fair value of listed equity securities traded in an active market and listed managed investment
and listed managed	schemes reflects the quoted bid price at the reporting date. In the case of equity securities and listed
investment schemes	managed investment schemes where there is no active market, fair value is established using valuation
	techniques including the use of recent arm’s length transactions, references to other instruments that are
	substantially the same, discounted cash flow analysis and option pricing models.
Debt securities	The fair value of listed debt securities reflects the bid price at the reporting date. Listed debt securities
	that are not frequently traded are valued by discounting estimated recoverable amounts.
	The fair value of unlisted debt securities is estimated using interest rate yields obtainable on comparable
	listed investments. The fair value of loans is determined by discounting the estimated recoverable amount
	using prevailing interest rates.
Loans	The estimated fair value of loans represents the discounted amount of estimated future cash flows
	expected to be received, based on the maturity profile of the loans. As the loans are unlisted, the discount
	rates applied are based on the yield curve appropriate to the remaining term of the loans. The loans may
	be measured at an amount in excess of fair value due to fluctuations on fixed rate loans. As the
	fluctuations in fair value do not represent a permanent diminution and the carrying amounts of the loans
	are recorded at recoverable amounts after assessing impairment, it is not appropriate to restate their
	carrying amounts.
Unlisted managed	The fair value of investments in unlisted managed investment schemes is determined on the basis of
investment schemes	published redemption prices of those managed investment schemes at the reporting date.
Derivative financial	The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is
assets and liabilities	based on quoted market prices (current bid price or current offer price) at the reporting date. The fair
	value of financial instruments not traded in an active market (eg over-the-counter derivatives) is
	determined using valuation techniques. Valuation techniques include net present value techniques, option
	pricing models, discounted cash flow methods and comparison to quoted market prices or dealer quotes
	for similar instruments. The models use a number of inputs, including the credit quality of counterparties,
	foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis
	spreads between the respective currencies, interest rate curves and forward rate curves of the underlying
	instruments. Some derivatives contracts are significantly cash collateralised, thereby minimising both
	counterparty risk and the group’s own non-performance risk.
Corporate borrowings	Borrowings comprise commercial paper, drawn liquidity facilities, various floating-rate and medium-term
	notes and subordinated debt. The estimated fair value of borrowings is determined with reference to
	quoted market prices. For borrowings where quoted market prices are not available, a discounted cash
	flow model is used, based on a current yield curve appropriate for the remaining term to maturity. For
	short-term borrowings, the par value is considered a reasonable approximation of the fair value.
AMP Bank deposits and	The estimated fair value of deposits and other borrowings represents the discounted amount of estimated
other borrowings	future cash flows expected to be paid based on the residual maturity of these liabilities. The discount rate
	applied is based on a current yield curve appropriate for similar types of deposits and borrowings at the
	reporting date.
Investment properties	The fair value of investment properties is determined by independent valuers, having appropriate
	recognised professional qualifications and recent experience in the location and category of the
	properties being valued. The valuers apply ‘comparable sales analysis’ and the ‘capitalised income
	approach’ by reference to annual net market income, comparable capitalisation rates and other property-
	specific adjustments as well as ‘discounted cash flow analysis’, where the expected net cash flows are
	discounted to their present value using a market determined risk-adjusted discount rate.
Investment contract	See note 4.1.
liabilities

The financial assets and liabilities measured at fair value are categorised using the fair value hierarchy which reflects the significance of inputs into the determination of fair value as follows:

Level 1: the fair value is valued by reference to quoted prices and active markets for identical assets or liabilities;
Level 2: the fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.5 Fair value information (continued)

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

There have been no significant transfers between Level 1 and Level 2 during the 2019 financial year. Transfers to and from Level 3 are shown in the Reconciliation of Level 3 values table later in this note.

Level 3 fair values

For financial assets measured at fair value on a recurring basis and categorised within Level 3 of the fair value hierarchy, the valuation processes applied in valuing such assets is governed by the AMP Capital asset valuation policy. This policy outlines the asset valuation methodologies and processes applied to measure non-exchange traded assets which have no regular market price, including investment property, infrastructure, private equity, alternative assets and illiquid debt securities. All significant Level 3 assets are referred to the appropriate valuation committee who meet at least every six months, or more frequently if required.

The following table shows the valuation techniques used in measuring Level 3 fair values of financial assets measured at fair value on a recurring basis, as well as the significant unobservable inputs used.

Type	Valuation technique	Significant unobservable inputs
Equity securities and listed managed investment schemes	Discounted cash flow approach utilising cost of equity as the discount rate	Discount rate Terminal value growth rate Cash flow forecasts
Debt securities	Discounted cash flow approach	Discount rate Cash flow forecasts
Unlisted managed investment schemes	Published redemption prices	Judgement made in determining unit prices
Investment contract liabilities	Published unit prices and the fair value of backing assets	Fair value of financial instruments Cash flow forecasts Credit risk
Investment properties	Comparable sales analysis Capitalised income approach Discounted cash flow approach utilising market determined risk adjusted discount rate	Capitalisation rate Discount rate Cash flow forecasts

Sensitivity

Reasonably possible alternative assumptions could have been used in determining the fair values of financial instruments measured at fair value on a recurring basis and categorised as Level 3 in the fair value hierarchy. These include assumptions such as credit risk and discount rates for determining the valuation range on an individual investment. However, the impact to AMP of any reasonable possible alternative assumptions is not significant as any movement in the value of these financial assets is substantially offset by a corresponding increase or decrease in the value of investment contract liabilities.

AMP Limited is insignificantly exposed to impacts from potential changes in the fair value of Debt securities, Unlisted managed investment schemes and Investment properties which are categorised as Level 3 as these assets predominately back investment linked policy liabilities. There is an immaterial exposure to changes in the fair value of Equity securities and listed managed investment schemes categorised as Level 3. AMP’s sensitivity to changes in the fair value of these Level 3 assets is disclosed in the following table:

	(+) (-) (+) (-) $m $m $m $m 2019 2018
Financial assets Equity securities and listed managed investment schemes1,2 Financial liabilities Investment contract liabilities2 Net sensitivity	86 (86) 92 (91) 90 (90) 94 (92) (4) 4 (2) 1

1 The discount rates used to value the assets range from 7.10% to 17.2%. Sensitivities have been determined by up to +/- 100 basis point change in the discount rates.

2 Investments in equity securities and listed managed investment schemes are predominantly policyholder assets. Accordingly, any movements in the value of the assets are largely offset by a corresponding movement in investment contract liabilities.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 2: Investments, intangibles and working capital

2.5 Fair value information (continued)

Level 3 fair values (continued)

Reconciliation of Level 3 values

The following table shows movements in the fair values of financial instruments measured at fair value on a recurring basis and categorised as Level 3 in the fair value hierarchy:

								Total gains and
								losses on
	Balance at					Net	Balance at	assets and
	the beginning	FX gains	Total gains/	Purchases/	Sales/	transfers	the end of	liabilities held at
	of the period	or losses1	losses1	deposits	withdrawals	in/(out)2	the period	reporting date
	$m	$m	$m	$m	$m	$m	$m	$m
2019
Assets classified as Level 3
Equity securities and listed managed investment schemes	2,364	-	145	11	(5)	-	2,515	164
Debt securities	117	-	10	4	(2)	(2)	127	10
Unlisted managed investment schemes	1,898	-	61	567	(19)	164	2,671	95
Investment properties	145	-	16	-	-	-	161	16
Liabilities classified as Level 3
Investment contract liabilities	66,932	2	10,260	7,044	(14,051)	-	70,187	10,258
2018
Assets classified as Level 3
Equity securities and listed managed investment schemes	1,936	-	179	388	(150)	11	2,364	123
Debt securities	112	-	1	21	(15)	(2)	117	2
Unlisted managed investment schemes	1,434	-	55	623	(268)	54	1,898	99
Investment properties	134	-	11	-	-	-	145	11
Liabilities classified as Level 3
Investment contract liabilities	73,207	13	(1,172)	7,720	(12,836)	-	66,932	(1,172)

1 Gains and losses are classified in investment gains and losses or change in policyholder liabilities in the Consolidated income statement.

2 The AMP group recognises transfers as at the end of the reporting period during w hich the transfer has occurred. Transfers are recognised w hen there are changes in the observability of the pricing of the relevant securities or w here the AMP group ceases to consolidate a controlled entity.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

This section provides information relating to:

AMP group’s capital management and equity and debt structure; and
exposure to financial risks – how the risks affect financial position and performance and how the risks are managed, including the use of derivative financial instruments

The capital structure of the AMP group consists of equity and debt. AMP determines the appropriate capital structure in order to finance the current and future activities of the AMP group and satisfy the requirements of the regulator. The directors review the group’s capital structure and dividend policy regularly and do so in the context of the group’s ability to satisfy minimum and target capital requirements, and to protect and meet the needs of the policyholders.

3.1 Contributed equity
3.2 Interest-bearing liabilities
3.3 Financial risk management
3.4 Derivatives and hedge accounting
3.5 Capital management

3.1 Contributed equity

3.1 Contributed equity
	2019	2018
	$m	$m
Issued capital1,3
3,436,599,241 (2018: 2,937,428,336) ordinary shares fully paid	10,402	9,610
Treasury shares²
29,342,125(2018: 21,102,496)treasuryshares	(103)	(108)
Total contributed equity
3,407,257,116(2018: 2,916,325,840) ordinary shares fully paid	10,299	9,502
Issued capital
Balance at the beginning of the year	9,610	9,547
9,064,722 (2018: 18,959,199) shares issued under dividend reinvestment plan1	21	63
406,250,000 (2018:nil) shares issued under institutional placement4	638	-
83,856,183 (2018:nil) shares issued under share purchase plan4	133	-
Balance at the end of theyear	10,402	9,610
Treasury shares
Balance at the beginning of the year	(108)	(171)
Decrease due topurchases less sales duringtheyear	5	63
Balance at the end of theyear	(103)	(108)

Holders of ordinary shares have the right to receive dividends as declared and, in the event of the w inding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Fully paid ordinary shares carry the right to one vote per share. Ordinary shares have no par value.

1 Under the terms of the dividend reinvestment plan (DRP), shareholders may elect to have all or part of their dividend entitlements satisfied in shares rather than being paid cash. The DRP applied for the 2018 final dividend (paid in March 2019) at 4 cents per share. AMP settled the DRP for the 2018 final dividend by issuing shares at $2.33 per share.
2 Of the AMP Limited ordinary shares on issue 27,215,738 (2018: 18,976,109) are held by AMP Life on behalf
of policyholders. ASIC has granted relief from restrictions in the Corporations Act 2001 to allow AMP Life to hold and trade shares in AMP Limited as part of the policyholder funds' investment activities. The cost of the investment in these treasury shares is reflected as a deduction from total contributed equity. The remaining balance is held by AMP Foundation Limited as trustee for the AMP Foundation.
3 Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) has an option to require AMP Limited to purchase MUFG: Trust Bank's interest in AMP Capital Holdings Limited (AMPCH) in certain circumstances. As consideration for the acquisition of AMPCH shares, AMP w ould be required to issue ordinary shares in AMP Limited to MUFG: Trust Bank (or its nominee). AMP also has the option to acquire MUFG: Trust Bank's interest in AMPCH in certain circumstances w hich, if exercised, could require AMP to issue ordinary shares in AMP Limited to MUFG: Trust Bank (or its nominee).
4 Capital raising during the year comprises the follow ing:
(i) shares w ere issued on 13 August 2019 under institutional placement at a price of $1.60 per share. The amount recognised is net of directly attributable transaction costs of $12m (net of tax); and
(ii) shares w ere issued on 13 September 2019 to participating eligible shareholders under a share purchase plan at a price of
$1.60 per share. The amount recoginised is net of directly attributable transaction costs of $1m (net of tax).

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.1 Contributed equity (continued)

Accounting policy – recognition and measurement

Issued capital

Issued capital in respect of ordinary shares is recognised as the fair value of consideration received by the AMP Limited entity. Incremental costs directly attributable to the issue of certain new shares are recognised in equity as a deduction, net of tax, from the proceeds.

Treasury shares

The AMP group is not permitted to recognise Treasury shares in the Consolidated statement of financial position. These shares, plus any corresponding Consolidated income statement fair value movement on the shares and dividend income, are eliminated on consolidation. However, the corresponding investment contract and life insurance contract liabilities, and related Consolidated income statement change in the liabilities, remain on consolidation. At the AMP group consolidated level, the mismatch results in policyholder asset movements impacting the profit attributable to shareholders of AMP Limited.

AMP Foundation also holds AMP Limited shares. These shares, plus any corresponding Consolidated income statement fair value movement on the shares and any dividend income, are also eliminated on consolidation. As the net assets and profit of AMP Foundation are fully attributable to non-controlling interests, this has no impact on the net assets or profit attributable to the shareholders of AMP Limited.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.2 Interest-bearing liabilities

(a) Interest-bearing liabilities

	Current Non- current Total Current Non- current Total $m $m $m $m $m $m 2019 2018
Interest-bearing liabilities AMP Bank - Deposits1 - Other Corporate entity borrow ings2 - 6.875% GBP Subordinated Guaranteed Bonds (maturity 2022) - AMP Notes 3 (first call 2023, maturity 2028)3 - AMP Subordinated Notes3 - AMP Wholesale Capital Notes4 - AMP Capital Notes4 - AMP Capital Notes 24 - Syndicated loan facility - Commercial paper - USD Medium Term Notes5 - CHF Medium Term Notes5 - Other Borrow ings w ithin investment entities controlled by AMP Life's statutory funds	12,291 151 12,442 10,942 70 11,012 2,811 4,681 7,492 2,255 5,848 8,103 - 69 69 - 68 68 - 250 250 - 251 251 - 250 250 - 250 250 277 - 277 - 277 277 - 265 265 - 264 264 - 271 271 - - - - - - 488 - 488 - - - 259 - 259 - 437 437 - - - - 592 592 - 233 233 34 - 34 - 64 64 464 9 473 79 302 381
Total interest-bearing liabilities	15,877 6,975 22,852 14,023 7,627 21,650

Current
Non-
current
Total
Current
Non-
current
Total
$m
$m
$m
$m
$m
$m
2019
2018

Interest-bearing liabilities
AMP Bank
- Deposits1
- Other
Corporate entity borrow ings2
- 6.875% GBP Subordinated Guaranteed Bonds
(maturity 2022)
- AMP Notes 3 (first call 2023, maturity 2028)3
- AMP Subordinated Notes3
- AMP Wholesale Capital Notes4
- AMP Capital Notes4
- AMP Capital Notes 24
- Syndicated loan facility
- Commercial paper
- USD Medium Term Notes5
- CHF Medium Term Notes5
- Other
Borrow ings w ithin investment entities controlled by AMP
Life's statutory funds

12,291
151
12,442
10,942
70
11,012
2,811
4,681
7,492
2,255
5,848
8,103
-
69
69
-
68
68
-
250
250
-
251
251
-
250
250
-
250
250
277
-
277
-
277
277
-
265
265
-
264
264
-
271
271
-
-
-
-
-
-
488
-
488
-
-
-
259
-
259
-
437
437
-
-
-
-
592
592
-
233
233
34
-
34
-
64
64
464
9
473
79
302
381

Total interest-bearing liabilities

15,877
6,975
22,852
14,023
7,627
21,650

1 Deposits comprise at call customer deposits and customer term deposits at variable interest rates w ith the AMP Bank.
2 The current / non-current classification of corporate entity borrow ings is based on the maturity of the underlying debt instrument and related principal repayment obligations. The carrying value of corporate entity borrow ings includes interest payable of $13m (2018: $9m) w hich is expected to be settled w ithin the next 12 months.
3 AMP Note 3 and AMP Subordinated Notes are floating rate subordinated unsecured notes. These w ere issued 15 November 2018 and 1 September 2017 respectively, and mature 15 November 2028 and 1 December 2027 respectively. Subject to APRA approval, AMP has the right but not the obligation, to redeem all or some of the Notes 15 November 2023 and 1 December 2022 respectively, or, subject to certain conditions, at a later date. In certain circumstances, AMP may be required to convert some or all of the Notes into AMP ordinary shares.
4 AMP Wholesale Capital Notes, AMP Capital Notes (ASX: AMPPA) and AMP Capital Notes 2 (ASX:AMPPB) w ere issued 27 March 2015, 30 November 2015 and 23 December 2019 respectively. Subject to APRA approval, AMP has the right, but not the obligation, to redeem all or some of the notes 27 March 2020, 22 December 2021 and 16 December 2025 respectively, or, subject to certain conditions, at a later date. They are perpetual notes w ith no maturity date. In certain circumstances, AMP may be required to convert some or all of the Notes into AMP ordinary shares.
5 USD 300m 4 per cent Bond w as issued 14 March 2019 and matures 14 September 2021. CHF 110m Senior Unsecured Fixed Rate Bond w as issued 19 June 2018 and matures 19 December 2022. This Bond w as subsequently increased by CHF 50m on 19 September 2018. CHF 140m Senior Unsecured Fixed Rate Bonds w as issued 18 April 2019 and matures 18 July 2023. This Bond w as subsequently increased by CHF 100m on 3 December 2019.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.2 Interest-bearing liabilities (continued)

(b) Financing arrangements

Loan facilities and note programs

Loan facilities and note programs comprise facilities arranged through bond and note issues, as well as financing facilities provided through bank loans under normal commercial terms and conditions.

	2019	2018
	$m	$m
Available loan facilities1	2,265	3,014
Note program capacity	14,993	14,914
Used	(4,316)	(4,627)
Unused facilities and noteprograms at the end of theyear	12,942	13,301

1 Available loan facilities include bilateral facilities of $750m w hich mature on 31 December 2020.

(c) Changes in liabilities arising from financing activities

(c) Changes in liabilities arising from financing activities
	2019	2018
	$m	$m
1 January	21,650	21,009
Cashflow s	1,177	631
Other	25	10
31 December	22,852	21,650

Accounting policy – recognition and measurement

Interest-bearing liabilities, other than those held by controlled entities of the AMP Life statutory funds, are initially recognised at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest rate method.

Borrowings of certain controlled managed investment schemes of the AMP Life statutory funds are measured at amortised cost for the purpose of determining the unit price of those schemes. All other borrowings of the controlled entities of the AMP Life statutory funds are subsequently measured at fair value with movements recognised in the Consolidated income statement.

It is AMP’s policy to hedge currency and interest rate risk arising on issued bonds and subordinated debt. When fair value hedge accounting is applied, the carrying amounts of borrowings and subordinated debt are adjusted for changes in fair value related to the hedged risk for the period that the hedge relationship remains effective. Any changes in fair value for the period are recognised in the Consolidated income statement. In cash flow hedge relationships the borrowings are not revalued.

Finance costs include:

(i) borrowing costs:
interest on bank overdrafts, borrowings and subordinated debt;
amortisation of discounts or premiums related to borrowings;
(ii) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs; and
(iii) changes in the fair value of derivative hedges together with any change in the fair value of the hedged assets or liabilities that are designated and qualify as fair value hedges, foreign exchange gains and losses and other financing related amounts. Changes in fair value of derivatives in effective cash flow hedges are recognised in the cash flow hedge reserve. The accounting policy for derivatives is set out in note 3.4.

Borrowing costs are recognised as expenses when incurred.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management

The AMP Limited Board has overall responsibility for the risk management framework including the approval of AMP’s strategic plan, risk management strategy and risk appetite. Specifically, financial risk arises from the holding of financial instruments and financial risk management (FRM) is an integral part of the AMP group’s enterprise risk management framework.

This note discloses financial risk in accordance with the categories in AASB 7 Financial Instruments: Disclosures :

market risk;
liquidity and refinancing risk; and
credit risk.

These risks are managed in accordance with the board approved risk appetite statement and the individual policies for each risk category and business approved by the Chief Financial Officer (CFO) under delegation from the AMP Group Asset and Liability Committee (Group ALCO).

(a) Market risk

Market risk is the risk that the fair value of assets and liabilities, or future cash flows of a financial instrument will fluctuate due to movements in the financial markets including interest rates, foreign exchange rates, equity prices, property prices, credit spreads, commodity prices, market volatilities and other financial market variables.

The following table provides information on significant market risk exposures for the AMP group, which could lead to an impact on the AMP group’s profit after tax and equity, and the management of those exposures.

Market risk	Exposures Management of exposures and use of derivatives
Interest rate risk The risk of an impact on the AMP group’s profit after tax and equity arising from fluctuations in the fair value or future cash flows of financial instruments due to changes in market interest rates. Interest rate movements could result from changes in the absolute levels of interest rates, the shape of the yield curve, the margin between yield curves and the volatility of interest rates. Currency risk The risk of an impact on the AMP group’s profit after tax and equity arising from fluctuations of the fair value of a financial asset, liability or commitment due to changes in foreign exchange rates. Equity price risk The risk of an impact on the AMP ’	AMP group’s long-term borrowings and subordinated debt. Interest rate risk is managed by entering into interest rate swaps, which have the effect of converting borrowings from floating rate to fixed rate.
	Interest-bearing investment assets of the shareholder and statutory funds of AMP Life. AMP Life manages interest rate and other market risks pursuant to an asset and liability management policy and is also subject to the relevant regulatory requirements governed by the Life Act.
	AMP Bank interest rate risk from mismatches in the repricing terms of assets and liabilities (term risk) and variable rate short-term repricing bases (basis risk). AMP Bank uses natural offsets, interest rate swaps and basis swaps to hedge the mismatches within exposure limits. Group Treasury manages the exposure in AMP Bank by maintaining a net interest rate risk position within the limits delegated and approved by the AMP Bank Board.
	Foreign currency denominated assets and liabilities. Capital invested in overseas operations. Foreign exchange rate movements on specific cash flow transactions. The AMP group uses swaps to hedge the interest rate risk and foreign currency risk on foreign currency denominated borrowings but does not hedge the capital invested in overseas operations. The AMP group hedges material foreign currency risk originated by receipts and payments once the value and timing of the expected cash flow is known excluding the international equities portfolio attributable to shareholders within the AMP Life Statutory Fund No.1.
	Exposure for shareholders includes listed and unlisted shares and participation in equity unit trusts. Group Treasury may, with Group ALCO approval, use equity exposures or equity futures or options to hedge other enterprise-wide equity exposures.

The risk of an impact on the AMP group’s profit after tax and equity arising from fluctuations of the fair value or future cash flows of a financial instrument due to changes in equity prices.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

(a) Market risk (continued)

Sensitivity analysis

The table below includes sensitivity analysis showing how the profit after tax and equity would have been impacted by changes in market risk variables. The analysis:

shows the direct impact of a reasonably possible change in market rates and is not intended to illustrate a remote, worst case stress test scenario;
assumes that all underlying exposures and related hedges are included and the change in variable occurs at the reporting date; and
does not include the impact of any mitigating management actions over the period to the subsequent reporting date.

The categories of risks faced and methods used for deriving sensitivity information did not change from previous periods.


		Impact on	Impact on	Impact on	Impact on
		profit after tax	equity1	profit after tax	equity1
Sensitivity analysis	Change in variables	Increase (decrease)	Increase (decrease)	Increase (decrease)	Increase (decrease)
		$m	$m	$m	$m
Interest rate risk	- 100bp	(1)	7	(8)	2
Impact of a 100 basis point (bp) change in Australian and	+100bp	(15)	(26)	(4)	(18)
international interest rates.
Currency risk	10% depreciation	4	138	3	119
Impact of a 10% movement of	of AUD
exchange rates against the Australian dollar on currency	10% appreciation of AUD	(4)	(114)	(4)	(99)
sensitive monetary assets and
liabilities.
	10% increase in:
Equity price risk	Australian equities	8	8	8	8
Impact of a 10% movement in Australian and international equities.	International equities	7	7	6	6
Any potential impact on fees from the	10% decrease in:
AMP group’s investment linked
business in is not included.	Australian equities	(9)	(9)	(10)	(10)
	International equities	(8)	(8)	(8)	(8)

1 Included in the impact on equity is both the impact on profit after tax as well as the impact of amounts that would be taken directly to equity in respect of the portion of changes in the fair value of derivatives that qualify as cash flow hedges for hedge accounting.

(b) Liquidity and refinancing risk

Risk Exposures Management of exposures

Risk

Group Treasury maintains a defined surplus of cash to mitigate refinancing risk, satisfy regulatory requirements and protect against liquidity shocks in accordance with the liquidity risk management policy approved by the Group ALCO.

Liquidity risk

The risk that the AMP group is not able to meet its obligations as they fall due because of an inability to liquidate assets or obtain adequate funding when required.

AMP group corporate debt portfolio, AMP Bank and AMP Capital through various investment funds, entities or mandates that AMP manages or controls within the AMP group.

Financiers of loans lending to controlled entities of the life statutory funds do not have legal recourse beyond the operating subsidiary borrower and there is no direct effect on any other AMP group debt.

Refinancing risk

The risk that the AMP group is not able to refinance the full quantum of its ongoing debt requirements on appropriate terms and pricing.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

(b) Liquidity and refinancing risk (continued)

Maturity analysis

Below is a summary of the maturity profiles of AMP’s undiscounted financial liabilities and off-balance sheet items at the reporting date, based on contractual undiscounted repayment obligations. Repayments that are subject to notice are treated as if notice were to be given immediately.

	Up to 1
	year or	1-5	Over 5	Not
	no term	years	years	specified	Total
2019	$m	$m	$m	$m	$m
Non-derivative financial liabilities
Payables	2,332	133	-	-	2,465
Borrow ings1	15,554	4,761	1,151	-	21,466
Lease liabilities	58	165	87	-	310
Subordinated debt	72	345	1,643	-	2,060
Investment contract liabilities2	350	834	849	69,705	71,738
External unitholders' liabilities	-	-	-	15,295	15,295
Derivative financial instruments
Interest rate and cross currency sw aps	48	85	23	-	156
Off-balance sheet items
Credit-related commitments - AMP Bank3	3,522	-	-	-	3,522
Total undiscounted financial liabilities and off-
balance sheet items4	21,936	6,323	3,753	85,000	117,012
2018
Non-derivative financial liabilities
Payables	1,908	119	-	5	2,032
Borrow ings	13,915	6,018	980	-	20,913
Subordinated debt	67	346	1,425	-	1,838
Investment contract liabilities2	372	1,021	1,092	66,466	68,951
External unitholders' liabilities	-	-	-	17,059	17,059
Derivative financial instruments
Interest rate and cross currency sw aps	8	45	13	-	66
Foreign currency forw ard contract	10	-	-	-	10
Off-balance sheet items
Credit-related commitments - AMP Bank3	3,396	-	-	-	3,396
Total undiscounted financial liabilities and off-
balance sheet items4	19,676	7,549	3,510	83,530	114,265

1 Borrow ings include AMP Bank deposits.

2 Investment contract liabilities are liabilities to policyholders for investment linked business linked to the performance and value of assets that back those liabilities. If all these policyholders claimed their funds, there may be some delay in settling the liability as assets are liquidated; but the shareholder has no direct exposure to any liquidity risk. External unitholders' liabilities all relate to controlled entities of the AMP Life statutory funds and w ould only be paid w hen corresponding assets are realised.

3 Credit-related Loan commitments are off-balance sheet as they relate to unexercised commitments to lend to customers of AMP Bank.

4 Estimated net cash outflow profile of life insurance contract liabilities, disclosed in note 4.4(d), is excluded from the above table.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

(c) Credit risk

Credit risk management is decentralised in business units within AMP, with the exception of credit risk directly and indirectly impacting shareholder capital, which is measured and managed on an aggregate basis by Group Treasury at the AMP group level and reported to Group ALCO.

Risk	Exposures Management of exposures and use of derivatives
Credit risk Credit default risk is the risk of financial or reputational loss due to a counterparty failing to meet their contractual commitments in full and on time. Concentration of credit risk arises when a number of financial instruments or contracts are entered into with the same counterparty or where a number of counterparties are engaged in similar business activities that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.	Wholesale credit risk on the invested fixed income portfolios in the AMP Life statutory funds. Managed by the AMP Capital Risk and Compliance Committee and reported to the fund managers, within specified credit criteria in the mandate approved by the AMP Life Board.
	Wholesale credit risk, including portfolio construction, in the fixed income portfolios managed by AMP Capital. Responsibility of the individual investment teams. There is also a dedicated credit research team and a specific credit investment committee. The investment risk and performance team provides reports to the AMP Capital Investment Committee.
	Credit risk arising in AMP Bank as part of lending activities and management of liquidity. Managed as prescribed by AMP Bank’s Risk Appetite Statement and reported to AMP Bank ALCO monthly. Specific detail relating to credit risk management of the AMP Bank loan portfolio is outlined below.

The AMP Concentration and Credit Default Risk Policy sets out the assessment and determination of what constitutes credit concentration risk. The policy sets exposure limits based on each counterparty’s credit rating (unless special considerations are defined). Additional limits are set for the distribution of the total portfolio by credit rating bands. Compliance with this policy is monitored and exposures and breaches are reported to portfolio managers, senior management and the AMP Board Risk Committee through periodic financial risk management reports.

Group Treasury also might enter into credit default swaps to hedge the concentration risk exposure against a specific issuer, or aggregated at the parent entity, when material exposures are over the authorised limit.

The exposures on interest-bearing securities and cash equivalents which impact AMP’s capital position are managed by Group Treasury within limits set by the AMP Concentration and Credit Default Risk Policy.

Impairment assessment

Definition of default

AMP Bank considers a financial assets defaulted and hence Stage 3 impaired when payment is 90 days past due or when there is no longer reasonable assurance that principal or interest will be collected in their entirety on a timely basis.

AMP Bank’s internal risk grading and PD estimation process

AMP Bank’s credit risk management department runs expected credit loss models for the residential mortgage book as well as the practice finance loans.

The Bank’s residential mortgage book is a portfolio with a low default history so point-in-time (PIT) benchmark PDs are utilised across the portfolio by Loan to Value Ratio (LVR) band and time since origination.
The Bank is also in the process of developing its internal Generation 1 behavioural scorecards which will be used to replace the benchmark PDs in an endeavour to better risk rank order the portfolio by credit risk worthiness.

Internal risk grades for residential mortgage book are as follows:

Internal credit rating grade	Internal credit rating grade description
Performing	Not in arrears in thepast six months
Past due but not impaired	Accounts in arrears but have not been past 90 days in the last six months
Impaired	90 dayspast due over the last six months

For practice finance loans a Probability of Default risk grade model is applied that includes weighted risk factors such as Interest Coverage Ratio, revenue growth, licence compliance rating, experience in business and arrears levels. Practices on watch-list are also downgraded. Credit judgement may be applied to arrive at the final risk grade.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

(c) Credit risk (continued)

Internal risk grades for practice finance book are as follows:

Internal risk grade	Internal risk Grade description	Broadly corresponds with Standard & Poor ratings of
A to H	Sub-investment Grade	BB+ to CCC
I	Impaired	D

The Bank’s interbank and financial institutions exposures as well as exposures to interest-bearing securities are based on external credit rating of the counterparties as follows:

Internal risk grade description	Broadly corresponds with Standard & Poor ratings of
Senior Investment Grade	AAA to A-
Investment Grade	BBB+ to BBB-
Sub-investment Grade	BB+ up to but not including defaulted or impaired

Exposure at default (EAD)

EAD is modelled by applying assumptions in relation to the amortisation of the loans based on scheduled principal and interest repayments except for stage 3 loans.

Loss given default (LGD)

For the residential mortgage portfolio the key driver for the LGD calculation is the value of the underlying property, as in a foreclosure scenario the proceeds from the sale of a property are secured by the Bank to repay the loan. The value of the underlying residential property is captured via the LVR which factors both changes in loan balance and estimated value of the collateral using market data and indices. Both floor and haircuts are applied to provide for model risk.

For practice finance loans, the LGD is calculated via assumptions to the reduction in valuations of practices (being a multiple of their recurring cash flows) in the event of default, such as client run-off or deterioration in valuation due to compliance issues. In addition, haircuts are applied to cater for the volatility observed in the register values in the event of default but also general volatility in valuations over time.

Grouping of financial assets for expected credit losses (ECL) calculation

Asset classes where the bank calculates ECL on an individual basis include all Stage 3 assets, and interbank and debt securities at FVOCI.

For all other asset classes ECL is calculated on a collective basis taking into account risk factors for each loan and arriving at the ECL estimate and then aggregating the number for the relevant portfolio.

Forward looking information

The Bank’s ECL model incorporates a number of forward-looking macroeconomic factors (MEF) that are reviewed on a quarterly basis and approved by the Credit Risk Committee (CRC). The MEF include unemployment, property prices, ASX Index and Cash Rate.

At least three different scenarios with fixed weightings are used in the model. The weightings are reviewed on annual basis.

The ECL is calculated as the probability weighted average of the provision calculated for each economic scenario.

Management Overlay

Management overlay is required to mitigate model risk and any systemic risk that is not recognised by the model.

The management overlays are reviewed on an annual basis or more frequently if required and presented to the CRC and Board Audit Committee (BAC) for approval.

Write-offs

Financial assets are written off either partially or in their entirety only when there is no reasonable expectation of recovery. Recovery actions can cease if they are determined as being no longer cost effective or in some situations where the customers have filed for bankruptcy.

Credit risk of the loan portfolio in AMP Bank (the Bank)

The Bank is predominantly a lender for residential properties - both owner occupied and for investment. In every case the Bank completes a credit assessment, which includes cost of living allowance and requires valuation of the proposed security property. Approximately 20% of the Bank's residential loan portfolio is externally securitised and all loans in securitisation trusts are loans that have

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

LMI thereby further mitigating the risk. The Bank's CRC and Board risk Committee (BRC) oversee trends in lending exposures and compliance with the Risk

(c) Credit risk (continued)

Appetite Statement. The Bank secures its housing loans with mortgages over relevant properties and as a result manages credit risk on its loans with conservative lending policies and particular focus on the LVR. The LVR is calculated by dividing the total loan amount outstanding by the lower of the Bank’s approved valuation amount or the purchase price. Loans with LVR greater than 80% are fully mortgage insured. Mortgage insurance is provided by Genworth Mortgage Insurance Australia Ltd and QBE Lenders Mortgage Insurance Ltd who are both regulated by APRA. The Bank has strong relationships with both insurers and experienced minimal levels of historic claim rejections and reductions.

The average LVR at origination of AMP Bank’s loan portfolio for existing and new business is set out in the following table:

	Existing	New	Existing	New
	business	business	business	business
	2019	2019	2018	2018
LVR %	%	%	%	%
0 - 50	17	13	18	15
51 - 60	12	11	12	10
61 - 70	18	17	18	16
71 - 80	38	48	37	44
81 - 90	12	7	11	8
91 - 95	3	4	4	7
> 95	-	-	-	-

Renegotiated loans

Where possible, AMP Bank seeks to restructure loans for borrowers seeking hardship relief rather than take possession of collateral. This may involve capitalising interest repayments for a period and increasing the repayment arrangement for the remaining term of the loan. Once the terms have been renegotiated, the loan is no longer considered past due. AMP Bank assisted customers by renegotiating $214m (2018: $165m) worth of loans during the year, that otherwise would be past due or impaired.

Collateral and master netting or similar agreements

The AMP group obtains collateral and utilises netting agreements to mitigate credit risk exposures from certain counterparties.

(i) Derivative financial assets and liabilities

The credit risk of derivatives is managed in the context of the AMP group’s overall credit risk policies and includes the use of Credit Support Annexes to derivative agreements which facilitate the bilateral posting of collateral as well as the clearing of derivative positions on the London Clearing House.

Certain derivative assets and liabilities are subject to legally enforceable master netting arrangements, such as an International Swaps and Derivatives Association (ISDA) master netting agreement. In certain circumstances, for example when a credit event such as a default occurs, all outstanding transactions under an ISDA agreement are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions.

An ISDA agreement does not automatically meet the criteria for offsetting in the Consolidated statement of financial position. This is because the AMP group, in most cases, does not have any current legally enforceable right to offset recognised amounts.

If these netting arrangements were applied to the derivative portfolio, the derivative assets of $1,699m would be reduced by $192m to the net amount of $1,507m and derivative liabilities of $880m would be reduced by $192m to the net amount of $688m (2018: derivative assets of $1,059m would be reduced by $180m to the net amount of $879m and derivative liabilities of $1,225m would be reduced by $180m to the net amount of $1,045m).

(ii) Repurchase agreements

Included within debt securities are assets held to back the liability for collateral deposits held in respect of debt security repurchase arrangements entered into by the life entities’ statutory funds and controlled entities of the life entities’ statutory funds. As at 31 December 2019, if repurchase arrangements were netted, debt securities of $29,820m would be reduced by $nil to the net amount of $29,820m and collateral deposits held of $170m would be reduced by $nil to the net amount of $170m (2018: debt securities of $32,577m would be reduced by $9m to the net amount of $32,568m and collateral deposits held of $164m would be reduced by $9m to the net amount of $155m).

(iii) Other collateral

The AMP group has collateral arrangements in place with some counterparties in addition to collateral deposits held with respect to repurchase agreements. The amount and type of collateral required by AMP Bank on housing loans depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.3 Financial risk management (continued)

AMP Bank holds collateral against its loans and advances primarily in the form of mortgage interests over property, other registered securities over assets and guarantees.

Management monitors the market value of collateral and will request additional collateral in accordance with the underlying agreement. In the event of customer default, AMP Bank can enforce any security held as collateral against the outstanding claim. Any loan security is

(c) Credit risk (continued)

usually held as mortgagee in possession while AMP Bank seeks to realise its value through the sale of property. Therefore, AMP Bank does not hold any real estate or other assets acquired through the repossession of collateral.

Collateral generally consists of 11am loans and deposits and is exchanged between the counterparties to reduce the exposure from the net fair value of derivative assets and liabilities between the counterparties. As at 31 December 2019 there was $170m (2018: $164m) of collateral deposits (due to other counterparties) and $181m (2018: $78m) of collateral loans (due from other counterparties) relating to derivative assets and liabilities.

3.4 Derivatives and hedge accounting

The group is exposed to certain risks relating to its ongoing business operations. To mitigate the risks the group uses derivative financial instruments such as cross-currency swaps and interest rate swaps. When the group designates certain derivatives to be part of a hedging relationship, and they meet the criteria for hedge accounting, the hedges are classified as:

Cash flow hedges;
Fair value hedges; or
Net investment hedges.

Derivative financial instruments are held for risk and asset management purposes only and not for the purpose of speculation. Not all derivatives held are designated as hedging instruments. The group’s risk management strategy and how it is applied to manage risk is explained further in note 3.3.

a) Hedging Instruments

The following table sets out the notional amount of derivative instruments designated in a hedge relationship by relationship-type as well as the related carrying amounts.

		Notional	Fair value	Fair value
		amount	Assets	Liabilities
2019		$m	$m	$m
Hedge type	Hedging instrument
Cash flow	Interest rate sw aps	8,648	24	99
Fair value	Cross-currency sw aps	83	-	19
Fair value	Interest rate sw aps	67	7	-
Fair value and cash flow	Cross-currency interest rate sw aps	988	37	-
Net investment	Foreign currencyforw ard contract	366	9	2
Total		10,152	77	120
		Notional	Fair value	Fair value
		amount	Assets	Liabilities
2018		$m	$m	$m
Hedge type	Hedging instrument
Cash flow	Interest rate sw aps	8,200	5	19
Fair value	Cross-currency sw aps	83	-	22
Fair value	Interest rate sw aps	64	9	-
Fair value and cash flow	Cross-currency interest rate sw aps	218	14	-
Net investment	Foreign currencyforw ard contract	343	-	7
Total		8,908	28	48

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.4 Derivatives and hedge accounting (continued)

b) Hedged items

The following table sets out the carrying amount of hedged items in fair value hedge relationships, and the accumulated amount of fair value hedge adjustments in these carrying amounts. The group does not hedge its entire exposure to a class of financial instruments, therefore the carrying amounts below do not equal the total carrying amounts disclosed in other notes.

			Accumulated amount of fair value	Accumulated amount of fair value
2019	Carrying amount of hedged items		adjustments on	the hedged items
	Assets	Liabilities	Assets	Liabilities
	$m	$m	$m	$m
6.875% GBP Subordinated Guaranteed Bonds (maturity 2022)	-	69	11	-
Medium Term Notes	-	951	-	35
			Accumulated amount of fair value
2018	Carrying amount of hedged items		adjustments on	the hedged items
	Assets	Liabilities	Assets	Liabilities
	$m	$m	$m	$m
6.875% GBP Subordinated Guaranteed Bonds (maturity 2022)	-	68	13	-
Medium Term Notes	-	157	-	17

Fair value hedge relationships resulted in the following changes in the values used to recognise hedge ineffectiveness for the year:

	2019	2018
	$m	$m
Gain on hedging instrument	37	19
Loss on hedged items attributable to the hedged risk	(35)	(17)
Hedge ineffectiveness recognised in the income statement	2	2

Derivative instruments accounted for as cash flow hedges

The group is exposed to variability in future interest cash flows on non-trading assets and liabilities which bear interest at fixed and variable rates. The group uses interest rate swaps to manage interest rate risks and many of the swaps are cash flow hedges for accounting purposes.

Methods used to test hedge effectiveness and establish the hedge ratio include regression analysis, and for some portfolio hedge relationships, a comparison to ensure the expected interest cash flows from the portfolio exceed those of the hedging instruments. The main potential source of hedge ineffectiveness from cash flow hedges is mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing of when interest rates are reset.

During the year the AMP group recognised $nil (2018: $nil) due to ineffectiveness on derivative instruments designated as cash flow hedges.

Derivative instruments accounted for as fair value hedges

Fair value hedges are used to protect against changes in the fair value of financial assets and financial liabilities due to movements in exchange rates and interest rates.

Hedge effectiveness is assessed by comparing the overall changes in the fair value of the hedging instrument against the changes in the fair value of the hedged items attributable to the hedged risks. The main potential source of ineffectiveness on fair value hedges is currency basis spread, which is included in the valuation of the hedging instrument, but excluded from the value of the hedged item.

Hedges of net investments in foreign operations

The group hedges its exposure to changes in exchange rates on the value of its foreign currency denominated seed pool investments. Hedge effectiveness is assessed based on the overall changes in the fair value of the forward contract, primarily using the cumulative dollar offset method.

The AMP group recognised $nil (2018: $nil) due to the ineffective portion of hedges relating to investments in seed pool foreign operations.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information

for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.4 Derivatives and hedge accounting (continued)

The following table sets out the maturity profile of derivative instruments in a hedge relationship.

	0 to 3 months	3 to 12 months	1 to 5 years	Over 5 years	Total
2019	$m	$m	$m	$m	$m
Interest rate sw aps	1,889	3,542	2,782	502	8,715
Cross-currency sw aps	-	-	83	-	83
Cross-currency interest rate sw aps	-	-	988	-	988
Foreign currencyforw ard contract	366	-	-	-	366
	0 to 3 months	3 to 12 months	1 to 5 years	Over 5 years	Total
2018	$m	$m	$m	$m	$m
Interest rate sw aps	2,278	3,106	1,924	956	8,264
Cross-currency sw aps	-	-	83	-	83
Cross-currency interest rate sw aps	-	-	218	-	218
Foreign currencyforw ard contract	327	16	-	-	343

Accounting policy – recognition and measurement

Derivative financial instruments

Derivative financial instruments are initially recognised at fair value exclusive of any transaction costs on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. All derivatives are recognised as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from the change in fair value of derivatives, except those that qualify as effective cash flow hedges, are immediately recognised in the Consolidated income statement.

Hedge accounting

AMP continues to apply the hedge accounting requirements under AASB 139 Financial instruments: Recognition and Measurement .

Cash flow hedges

The effective portion of changes in the fair value of cash flow hedges is recognised (including related tax impacts) in Other comprehensive income. The ineffective portion is recognised immediately in the Consolidated income statement. The balance of the Cash flow hedge reserve in relation to each particular hedge is transferred to the Consolidated income statement in the period when the hedged item affects profit or loss. Hedge accounting is discontinued when a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Consolidated income statement.

Fair value hedges

Changes in the fair value of fair value hedges are recognised in the Consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If a hedge no longer meets the criteria for hedge accounting, the cumulative gains and losses recognised on the hedged item will be amortised over the remaining life of the hedged item.

Net investment hedges

The effective portion of changes in the fair value of net investment hedges is recognised (including related tax impacts) in Other comprehensive income. Any ineffective portion is recognised immediately in the Consolidated income statement. The cumulative gain or loss existing in equity remains in equity until the foreign investment is disposed of.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 3: Capital structure and financial risk management

3.5 Capital management

AMP holds capital to protect customers, creditors and shareholders against unexpected losses. There are a number of ways AMP assesses the adequacy of its capital position. Primarily, AMP aims to:

maintain a sufficient surplus above minimum regulatory capital requirements (MRR) to reduce the risk of breaching MRR; and
maintain the AMP group’s credit rating.

These factors are balanced when forming AMP’s risk appetite as approved by the AMP Limited Board.

Calculation of capital resources

The AMP group’s capital resources include ordinary equity and interest-bearing liabilities. The AMP group excludes the interest-bearing liabilities of its banking subsidiary, AMP Bank Limited, and controlled investment subsidiaries and trusts from the AMP group capital resources.

In determining the capital resources, the AMP group needs to make adjustments to the statutory shareholder equity. Under Australian Accounting Standards, some assets held on behalf of the policyholders (and related tax balances) are recognised in the preliminary final report at different values to the values used in the calculation of the liability to policyholders in respect of the same assets. Therefore, movements in these policyholder assets result in accounting mismatches which impact the statutory equity attributable to shareholders of AMP Limited. Mismatches arise on the following items:

Treasury shares (AMP Limited shares held by the statutory funds on behalf of policyholders);
AMP Life Limited statutory funds’ investments in controlled entities; and
AMP Life Limited statutory funds’ superannuation products invested in AMP Bank Limited assets.

Adjustments are also made relating to cash flow hedge reserves and to exclude the net assets of the AMP Foundation.

The table below shows the AMP group’s capital resources at reporting date:

The table below shows the AMP group’s capital resources at reporting date:
	2019	2018
	$m	$m
AMP statutory equity attributable to shareholders of AMP Limited	4,860	6,685
Accounting mismatches, cash flow hedge resources and other adjustments	50	(2)
AMP shareholders’ equity	4,910	6,683
Subordinated debt1	1,151	876
Senior debt1	988	973
Total AMP capital resources	7,049	8,532

1 Amounts shown for subordinated debt and senior debt are the amounts to be repaid on maturity.

Capital requirements

A number of the operating entities within the AMP group of companies are regulated and are required to meet minimum regulatory capital requirements. In certain circumstances, APRA or other regulators may require AMP and other entities of the AMP group to hold a greater level of capital to support its business and and/or require those entities not to pay dividends on their shares or restrict the amount of dividends that can be paid by them. Any such adjustments would be incorporated into the minimum regulatory requirements and/or capital policies as required.

The main minimum regulatory capital requirements for AMP’s businesses are:

Operating entity	Minimum regulatory capital requirement
AMP Life Limited	Capital adequacy requirements as specified under the APRA Life Insurance Prudential Standards
AMP Bank Limited (AMP Bank)	Capital requirements as specified under the APRA ADI Prudential Standards
AMP Superannuation Limited and National Mutual Superannuation Pty Limited	Operational Risk Financial Requirements as specified under the APRA Superannuation Prudential Standards
AMP Capital Investors Limited and other ASIC regulated businesses	Capital requirements under AFSL requirements and for risks relatingto Northguarantees

AMP’s businesses and the AMP group maintain capital targets reflecting their material risks (including financial risk, product and insurance risk and operational risk) and AMP’s risk appetite. The target surplus is a management guide to the level of excess capital that the AMP group seeks to carry to reduce the risk of breaching MRR.

AMP Limited, AMP Life Limited and AMP Bank have board-approved minimum capital levels above APRA requirements, with additional capital targets held above these amounts. Within the life insurance business, the capital targets above board minimums have been set to a less than 10% probability of capital resources falling below the board minimum over a 12-month period. Capital targets are also set for AMP Capital to cover risk associated with seed and sponsor capital investments and operational risk. Other components of AMP group’s capital targets include amounts relating to Group Office investments, defined benefit funds and other operational risks.

All of the AMP group regulated entities have at all times during the current and prior financial year complied with the externally imposed capital requirements to which they are subject.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

This section explains how AMP’s liabilities in respect of life insurance and investment contracts are measured, including the methodologies and key assumptions that are applied. It also details the key components of the profits that are recognised in respect of life insurance contracts and the sensitivity of those profits to variations in assumptions.

4.1 Accounting for life insurance and investment contracts
4.2 Life insurance contracts - premiums, claims, expenses and liabilities
4.3 Life insurance contracts - assumptions and valuation methodology
4.4 Life insurance contracts - risk
4.5 Other disclosure - life insurance contracts and investment contracts

4.1 Accounting for life insurance and investment contracts

The AMP group’s life insurance related activities were conducted through two registered life insurance companies, AMP Life Limited and The National Mutual Life Association of Australasia Limited (NMLA), collectively, “AMP Life”.

The two major contract classifications are investment contracts and life insurance contracts.

For the purposes of this preliminary final report, holders of investment contracts or life insurance contracts are collectively and individually referred to as policyholders.

Investment contracts

The investment contracts of AMP Life relate to wealth management products such as savings, investment-linked and retirement income policies. The nature of this business is that AMP Life receive deposits from policyholders and those funds are invested on behalf of the policyholders. Fees and other charges are passed to the shareholder and reported as revenue.

The liability to policyholders, other than for fixed retirement income policies, is linked to the performance and value of the assets that back those liabilities. The fair value of such liabilities is therefore the same as the fair value of those assets. For fixed retirement income policies, the liability is linked to the fair value of the fixed retirement income payments and associated management services element.

The fair value of the fixed retirement income payments is calculated as their net present value using a fair value discount rate. The fair value of the associated management services element is the net present value, using a fair value discount rate, of all expenses associated with the provision of services and any profit margins thereon.

Life insurance contracts

AMP Life issues contracts that transfer significant insurance risk from the policyholder, covering death, disability or longevity of the insured. In addition, there are some policies known as discretionary participating contracts that are similar to investment contracts, but the timing of the vesting of the profit attributable to the policyholders is at the discretion of AMP Life. Such contracts are defined as life insurance contracts and accounted for using Margin on Services (MoS).

Under MoS, the excess of premium received over claims and expenses (the margin) is recognised over the life of the contract in a manner that reflects the pattern of risk accepted from the policyholder (the service). The planned release of this margin is included in the movement in life insurance contract liabilities recognised in the Income statement.

Life insurance contract liabilities are usually determined using a projection method, whereby estimates of policy cash flows (premiums, benefits, expenses, and profit margins to be released in future periods) are projected using best-estimate assumptions about the future. The liability is calculated as the net present value of these projected cash flows. When the benefits under a life insurance contract are linked to the assets backing it, the discount rate applied is based on the expected future investment earnings rate of those assets. Where the benefits are not linked to the performance of the backing assets, a risk-free discount rate is used. The risk-free discount rate is based on the zero-coupon government bond rate and a liquidity margin, which depend on the nature, structure and terms of the contract liabilities.

An accumulation method may be used if it produces results that are not materially different from those produced by a projection method. A modified accumulation method is used for some discretionary participating business, where the life insurance liability is the accumulation of amounts invested by policyholders, less fees specified in the policy, plus investment earnings and vested benefits, adjusted to allow for the fact that crediting rates are determined by reference to investment income over a period of greater than one year. The accumulation method may be adjusted to the extent that acquisition expenses are to be recovered from future margins between fees and expenses.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.1 Accounting for life insurance and investment contracts (continued)

Allocation of operating profit and unvested policyholder benefits

The operating profit arising from discretionary participating contracts is allocated between shareholders and participating policyholders by applying the MoS principles in accordance with the Life Insurance Act 1995 (Cth) (Life Act) and the Participating Business Management Framework.

Once profit is allocated to participating policyholders it can only be distributed to these policyholders.

Profit allocated to participating policyholders is recognised in the Income statement as an increase in policy liabilities. The policy liabilities include profit that has not yet been allocated to specific policyholders (i.e. unvested) and that which has been allocated to specific policyholders by way of bonus distributions (i.e. vested).

Bonus distributions to participating policyholders do not alter the amount of profit attributable to shareholders. They change the nature of the liability from unvested to vested.

The principles of allocation of the profit arising from discretionary participating business are as follows:

(i) Investment income (net of tax and investment expenses) on retained earnings in respect of discretionary participating business is allocated between policyholders and shareholders in proportion to the balances of policyholders’ and shareholders’ retained earnings. This proportion is, mostly, 80% to policyholders and 20% to shareholders;
(ii) Other MoS profits arising from discretionary participating business are allocated 80% to policyholders and 20% to shareholders, with the following exceptions:
the profit arising from New Zealand corporate superannuation business is apportioned such that shareholders are allocated 15% of the profit allocated to policyholders;
the profit arising in respect of preservation superannuation account business is allocated 92.5% to policyholders and 7.5% to shareholders;
the profits arising from discretionary participating investment account business where 100% of investment profit is allocated to policyholders and 100% of any other profit or loss is allocated to shareholders, with the over-riding provision being that at least 80% of any profit and not more than 80% of any loss be allocated to policyholders’ retained profits of the relevant statutory fund; and
the underwriting profit arising in respect of participating Business Super risk business is allocated 90% to policyholders and 10% to shareholders.

Allocation of expenses within the life insurance entity’s statutory funds

All operating expenses relating to the life insurance contract and investment contract activities are apportioned between acquisition, maintenance and investment management expenses. Expenses which are directly attributable to an individual life insurance contract or investment contract product are allocated directly to a particular expense category, fund, class of business and product line as appropriate.

Where expenses are not directly attributable, they are appropriately apportioned according to detailed expense analysis, with due regard to the activities to which that expense relates to. The apportionment basis has been made in accordance with Actuarial Standards and on an equitable basis to the different classes of business in accordance with the Life Act.

The costs apportioned to life insurance contracts are included in the determination of the margin described in section 4.1.

Investment management expenses of the life statutory funds are classified as operating expenses.

Reinsurance

Life insurance contract premium ceded to reinsurers is recognised as an expense and Life insurance contract claims recovered from reinsurers is recognised as income.

Upfront commission received on quota share reinsurance contracts is recognised as commission revenue and a corresponding reinsurance liability is recognised representing the obligation to pay future premiums to the reinsurer. The establishment of the reinsurance liability is reflected in Change in policyholder liabilities. The liability will be released in line with the release of the profit margin on the underlying insurance contracts.

The present value of AMP’s net contractual rights and obligations under reinsurance contracts is presented as reinsurance asset or a Reinsurance liability.

Changes in the reinsurance asset and the reinsurance liability during the period are recognised as Changes in policyholder liabilities. Ongoing commission from reinsurers is recognised as revenue at the time the commission is received or receivable.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.1 Accounting for life insurance and investment contracts (continued)

Critical accounting judgements and estimates

Life insurance contract liabilities

The measurement of insurance contract liabilities is determined using the MoS methodology. The determination of the liability amounts involves judgement in selecting the valuation methods, profit carriers and valuation assumptions for each type of business. The determination is subjective and relatively small changes in assumptions may have a significant impact on the reported profit. The Board of AMP Life is responsible for these judgements and assumptions, after taking advice from the Appointed Actuary.

Investment contract liabilities

Investment contract liabilities are measured at fair value. For the majority of contracts, the fair value is determined based on published unit prices and the fair value of backing assets, and does not generally require the exercise of judgement. For fixed income products and the North capital guarantee, fair value is determined using valuation models. Judgement is applied in selecting the valuation model and setting the valuation assumptions.

4.2 Life insurance contracts – premiums, claims, expenses and liabilities

	2019	2018
	$m	$m
(a) Analysis of life insurance contract related revenue - net of reinsurance
Total life insurance contract premiums received and receivable	2,351	2,549
Less: component recognised as a change in life insurance contract
liabilities	(369)	(367)
Life insurance contract premium revenue1	1,982	2,182
Commission received from reinsurers	262	471
Life insurance contract related revenue	2,244	2,653
Life insurance contractpremium ceded to reinsurers	(1,033)	(989)
Life insurance contract related revenue - net of reinsurance	1,211	1,664
(b) Analysis of life insurance contract claims expenses - net of reinsurance
Total life insurance contract claims paid and payable	(3,854)	(3,412)
Less: component recognised as a change in life insurance contract
liabilities	1,679	1,158
Life insurance contract claims expense	(2,175)	(2,254)
Life insurance claims recovered from reinsurers	512	487
Life insurance contract claims expenses - net of reinsurance	(1,663)	(1,767)
(c) Analysis of life insurance contract operating expenses
Life insurance contract acquisition expenses
- commission	(12)	(27)
- other expenses	(4)	(108)
Life insurance contract maintenance expenses
- commission	(164)	(172)
- other expenses	(350)	(416)
Investment management expenses	(52)	(53)

1 Life insurance contract premium revenue consists entirely of direct insurance premiums; there is no inw ard reinsurance component.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.2 Life insurance contracts - premiums, claims, expenses and liabilities (continued)

	2019		2018
	$m		$m
(d) Life insurance contract liabilities
Life insurance contract liabilities determined using projection method
Best estimate liability
- value of future life insurance contract benefits	14,401		14,469
- value of future expenses	3,785		4,377
- value of future premiums	(8,986)	(10,435)
Value of future profits
- life insurance contract holder bonuses	3,420		3,136
- shareholders’profit margins	1,479		1,565
Total life insurance contract liabilities determined using theprojection method1	14,099		13,112
Life insurance contract liabilities determined using accumulation method
Best estimate liability
- value of future life insurance contract benefits	7,029		7,951
- value of future acquisition expenses	(44)		(50)
Total life insurance contract liabilities determined using the accumulation method	6,985		7,901
Value of declared bonus	262		304
Unvestedpolicyholder benefits liabilities1	2,452		2,319
Total life insurance contract liabilities net of reinsurance	23,798		23,636
Reinsurance asset- ceded life insurance contracts	1,222		1,073
Reinsurance liability - ceded life insurance contracts2	(1,515)		(1,452)
Total life insurance contract liabilitiesgross of reinsurance	23,505		23,257
1 For participating business in the statutory funds, part of the assets in excess of the life insurance contract and other liabilities
calculated under Margin on Services (MoS) are attributed to policyholders. Under the Life Act, this is referred to as policyholder
retained profits. For the purpose of reporting under Accounting Standards, this amount is referred to as unvested		life
policyholder benefits liabilities and is included w ithin life insurance contract liabilities even though it	is yet to be vested
as specific policyholder entitlements.
2 Reinsurance liability - ceded life insurance contracts reflects the present value of the net obligation to transfer cashflow s
under the 60% quota share reinsurance arrangement w ith Gen Re, Munich Re and Sw iss Re, in return for upfront		commission
received. It also reflects the reinsurance position of the surplus reinsurance arrangement w ith Gen Re and Sw iss		Re.
	2019		2018
	$m		$m

	2019	2018
	$m	$m
(e) Reconciliation of changes in life insurance contract liabilities
Total life insurance contract liabilities at the beginning of the year	23,257	23,683
Change in life insurance contract liabilities recognised in the Consolidated income statement	1,436	(79)
Premiums recognised as an increase in life insurance contract liabilities	369	367
Claims recognised as a decrease in life insurance contract liabilities	(1,679)	(1,158)
Change in reinsurance asset - ceded life insurance contracts	149	269
Change in reinsurance liability - ceded life insurance contracts	(63)	(2)
Foreign exchange adjustment	36	177
Total life insurance contract liabilities at the end of theyear	23,505	23,257

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology

Life insurance contract liabilities, and hence the net profit from life insurance contracts, are calculated by applying the principles of MoS described in note 4.1. The key assumptions and methods used in the calculation of life insurance contract liabilities are outlined below.

The methods and profit carriers used to calculate life insurance contract liabilities for particular policy types are as follows:

		Profit carriers (for business valued
Business type	Method	using projection method)
Conventional	Projection	Bonuses
Investment account	Modified accumulation	n/a
Retail risk (lump sum)	Projection	Expected premiums
Retail risk (income protection)	Projection	Expected premiums
Group risk (lump sum)	Accumulation	n/a
Group risk (income benefits)	Accumulation	n/a
Participating allocated annuities	Modified accumulation	n/a
Life annuities	Projection	Annuity payments

(a) Risk-free discount rates

Except where benefits are contractually linked to the performance of the assets held, a risk-free discount rate based on current observable, objective rates that relate to the nature, structure and term of the future obligations is used. The rates are determined as shown in the following table:

			31 December 2019	31 December 2019	31 December 2018	31 December 2018
Business type		Basis1	Australia	New Zealand	Australia	New Zealand
			%	%	%	%
Retail risk (other than income		Zero coupon government bond yield	0.9 - 2.2	1.1 - 2.5	1.8 - 3.0	1.7 - 3.0
benefit open claims)1		curve
Retail risk and group risk		Zero coupon government bond yield	1.1 - 2.4	1.3 - 2.7	2.1 - 3.2	2.0 - 3.3
(income benefit open claims)1		curve (including liquidity premium)
Life annuities	Non-CPI	Zero coupon government bond yield	1.2 - 2.4	1.4 - 2.8	2.2 - 3.3	2.0 - 3.4
		curve (including liquidity premium)
Life annuities	CPI	Commonw ealth indexed bond yield	-0.2 - 0.6	0.4 - 1.4	0.8 - 1.3	1.1 - 2.3
		curve (including liquidity premium)

1 The discount rates vary by duration in the range show n above.

(b) Future maintenance and investment expenses

Unit maintenance costs are based on budgeted expenses in the year following the reporting date (including GST, as appropriate, and excluding one-off expenses). For future years, these are increased for inflation as described in (c) below. These expenses include fees charged to the life statutory funds by service companies in the AMP group. Unit costs vary by product line and class of business based on an apportionment that is supported by expense analyses.

Future investment expenses are based on the fees currently charged by the asset managers.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(c) Inflation and indexation

Benefits and premiums of many regular premium policies are automatically indexed by the published consumer price index (CPI). Assumed future take-up of these indexation options is based on AMP Life’s own experience. The annual future CPI rates are largely derived from the difference between long-term government bonds and indexed government bonds.

The expense inflation assumptions have been set based on the inflation rates, recent expense performance, AMP Life’s current plans and the terms of the relevant service company agreement, as appropriate. In addition, lower expense inflation has been assumed for Australia and New Zealand wealth protection portfolios compared to that assumed at 31 December 2018. The lower expense inflation assumptions reflect the implementation of new service company agreements, which extend fixed fee arrangements to a wider pool of business, increasing the proportion of costs that are fully variable and will run-off with policies following the closure to new business.

The assumed CPI and expense inflation rates at the valuation date are:

			Australia			New Zealand
			%			%
		CPI		Expense Inflation	CPI	Expense Inflation
31	December 2019	1.4		3.0	1.6	2.0
31	December 2018	1.6		3.0 - 8.0	1.7	2.0 - 6.0

(d) Bases of taxation

The bases of taxation (including deductibility of expenses) are assumed to continue in accordance with legislation current at the valuation date.

(e) Voluntary discontinuance

Assumptions for the incidence of withdrawals, paid ups and premium dormancy are primarily based on investigations of AMP Life’s own historical experience. These rates are based upon the assessed global rate for each of the individual products (or product groups) and then, where appropriate, further adjusted for factors like duration, premium structure, smoker status, age attained or short-term market and business effects etc. Given the variety of influences affecting discontinuance for different product groups, the range of voluntary discontinuance rates across AMP Life is extremely diverse.

The assumptions for future rates of discontinuance of the major classes of life insurance contracts have been reviewed. Discontinuance assumptions were changed from those assumed at 31 December 2018 for Australian retail risk and Flexible Lifetime Super, and New Zealand retail risk.

Note that the wealth protection discontinuance rate ranges are calculated based on current business mix and various assumption rating factors. Discontinuance rate for conventional products (Australia and New Zealand) are calculated based on average expected for the next five years.

next five years.
	31 December 2019		31 December 2018
Business type	Australia New Zealand		Australia New Zealand
	%	%	%	%
Conventional	2.2 - 7.4	1.1 - 2.2	2.3 - 9.3	1.5 - 2.7
Retail risk (lump sum)	13.7 - 20.5	4.7 - 16.1	13.1 - 18.0	4.9 - 15.2
Retail risk (income benefit)	7.8 - 22.0	8.7 - 15.5	7.5 - 20.1	5.0 - 14.7
Flexible Lifetime Super (FLS) risk business	17.5 - 19.3	n/a	14.4 - 16.6	n/a

(f) Surrender values

The surrender bases assumed for calculating surrender values are those current at the reporting date. There have been no changes to the bases during the year (or the prior year) that would materially affect the valuation results.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(g) Mortality and morbidity

Standard mortality and morbidity tables, based on national or industry wide data, are used.

The following assumptions have changed from those assumed at 31 December 2018:

An allowance for possible anti-selection on retained business for 12 months following 1 July 2019 due to the opt-in related to Protecting Your Super (“PYS”) legislation;
An allowance for additional historical claims resulting from increased member communications due to PYS;
Australian & New Zealand retail death rates;
Australian and New Zealand Income Protection termination rates; and
Australian TPD rates.

The assumptions are summarised in the following table.

	Conventional -	Conventional -
	% of IA95-97
Conventional	Male	Female
31 December 2019
Australia	60.8	60.8
New Zealand	73.0	73.0
31 December 2018
Australia	60.8	60.8
New Zealand	73.0	73.0
	Retail Lump Sum -
	% of table
Riskproducts	Male	Female
31 December 2019
Australia1	90 - 141	90 - 141
New Zealand	104 - 120	85 - 98
31 December 2018
Australia1	94 - 148	94 - 148
New Zealand	104 - 120	86 - 98
1 Base IA04-08 Death Without Riders table modified based on aggregated experience but w ith overall product specific adjustment
factors (estimated methodology used).
	Male -	Female -
	% of IML00*	% of IFL00*
Annuities
31 December 2019
Australia and New Zealand1	95.0	80.0
31 December 2018
Australia and New Zealand1	95.0	80.0
1 Annuities tables modified for future mortality improvements.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(g) Mortality and morbidity (continued)

Typical morbidity assumptions, in aggregate, are as follows:

		Termination rates
	Incidence rates	(ultimate)
Income protection	% of ADI 07-11	% of ADI 07-11
31 December 2019
Australia	45 - 179	53 - 89
New Zealand	83 - 149	69 - 144
31 December 2018
Australia	45 - 179	53 - 80
New Zealand	83 - 149	82 - 105
	Male	Female
Retail lump sum	% of IA04-08	% of IA04-08
31 December 2019
Australia TPD1	132 - 277	150 - 351
Australia Trauma2	102 - 193	102 - 193
New Zealand TPD1	120	120
New Zealand Trauma2	110 - 114	110 - 114
31 December 2018
Australia TPD1	132 - 241	150 - 305
Australia Trauma2	102 - 193	102 - 193
New Zealand TPD1	120	120
New Zealand Trauma2	110 - 114	110 - 114

1 Base IA04-08 TPD table modified based on our aggregated experience but w ith overall product specific adjustment factors (estimated methodology used).

2 Base IA04-08 Trauma table modified based on our aggregated experience but w ith overall product specific adjustment factors (estimated methodology used).

The actuarial tables used were as	follows:
IA95-97	A mortality table developed by the Institute of Actuaries of Australia based on Australian insured lives experience from 1995–1997. The table has been modified to allow for future mortality improvement.
IML00/IFL00	IML00 and IFL00 are mortality tables developed by the Institute and Faculty of Actuaries based on United Kingdom annuitant lives experience from 1999-2002. The tables refer to male and female lives respectively and incorporate factors that allow for mortality improvements since the date of the investigation. IML00 and IFL00 are these published tables amended for some specific AMP Life experience.
IA04-08 DTH	This was published by the Institute of Actuaries of Australia under the name A graduation of the 2004-2008 Lump Sum Investigation Data. The table has been modified based on aggregated experience with overall product specific adjustment factors.
IA04-08 TPD	This is the TPD graduation published in the same paper as above.
IA04-08 Trauma	This is the Trauma graduation published in the same paper as above.
ADI 07-11	A disability table developed by KPMG at the request of the Financial Services Council (FSC) based on Australian disability income experience for the period 2007-2011. This table has been adjusted for AMP Life with overall product specific adjustment factors.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(h) Other participating business assumptions

Where benefits are contractually linked to the performance of the assets held, as is the case for participating business, a discount rate based on the expected market return on backing assets is used. The assumed earning rates for backing assets for participating business are largely driven by long-term (e.g. 10-year) government bond yields. The 10-year government bond yields used at the relevant valuation dates are as shown in the following table.

Assumed earning rates for each asset sector are determined by adding to the bond yield various risk premiums which reflect the relative differences in expected future earning rates for different asset sectors. For products backed by mixed portfolio assets, the assumption varies with the proportion of each asset sector backing the product. The risk premiums applicable at the valuation date are shown in the table below.

% 10 year government bonds	Risk premiums
	Local equities International equities Property and Infrastructure Fixed interest Cash % % % % %
31 December 2019 Australia 1.4 New Zealand 1.7	4.5 3.5 2.5 0.5 (0.5) 4.5 3.5 2.5 0.4 (0.5)
31 December 2018 Australia 2.3 New Zealand 2.4	4.5 3.5 2.5 0.6 (0.5) 4.5 3.5 2.5 0.5 (0.5)

The risk premiums for local equities include allowance for imputation credits. The risk premiums for fixed interest reflect credit ratings of the portfolio held.

The averages of the asset mixes assumed for the purpose of setting future investment assumptions for participating business at the valuation date are as shown in the table below for each life company. These asset mixes are not necessarily the same as the actual asset mix at the valuation date as they reflect long-term assumptions.

Average asset mix1	Equities	Property and Infrastructure	Fixed interest	Cash
	%	%	%	%
31 December 2019
Australia	29	14	39	18
New Zealand	35	17	39	9
31 December 2018
Australia	28	14	39	19
New Zealand	35	17	38	10

1 The asset mix in the table above includes both conventional and investment account business for AMP Life. As described in note
4.1, 100% of investment profits on discretionary participating investment account business are allocated to policyholders.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(h) Other participating business assumptions (continued)

Where an assumption used is net of tax, the tax on investment income is allowed for at rates appropriate to the class of business and asset sector, including any allowance for imputation credits on equity income. For this purpose, the total return for each asset sector is split between income and capital gains. The actual split has varied at each valuation date as the total return has varied.

For participating business, the total value of future bonuses (and the associated shareholders’ profit margins) included in life insurance contract liabilities is the amount supported by the value of the supporting assets, after allowing for the assumed future experience. The pattern of bonuses and shareholders’ profit margins assumed to emerge in each future year depends on the assumed relationship between reversionary bonuses (or interest credits) and terminal bonuses. This relationship is set to reflect the philosophy underlying actual bonus declarations.

Actual bonus declarations are determined to reflect, over time, the investment returns of the particular fund and other factors in the emerging experience and management of the business. These factors include:

allowance for an appropriate degree of benefit smoothing;
reasonable expectations of policyholders;
equity between generations of policyholders applied across different classes and types of business; and
ongoing capital adequacy.

Given the many factors involved, the range of bonus structures and rates for participating business is extremely diverse.

Typical supportable bonus rates on major product lines are as follows for AMP Life (31 December 2018 in parentheses).

Reversionary bonus	Bonus on sum insured	Bonus on existing bonuses
	%	%
Australia	0.4 - 1.0(0.4 - 1.0)	0.8 - 1.5(0.8 - 1.5)
New Zealand	0.5 - 1.6(0.7 - 1.0)	0.5 - 1.6(0.7 - 1.1)

Terminal bonus

The terminal bonus scales are complex and vary by duration, product line, class of business and country for AMP Life.

Crediting rates (investment account)	%
Australia	1.8 - 3.3(0.6 - 3.3)
New Zealand	2.1 - 2.5(1.7 - 2.3)

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.3 Life insurance contracts - assumptions and valuation methodology (continued)

(i) Impact of changes in assumptions

Under MoS, for life insurance contracts valuations using the projection method, changes in assumptions are recognised by adjusting the value of future profit margins in life insurance contract liabilities. Future profit margins are released over future periods.

Changes in assumptions do not include market related changes in discount rates such as changes in benchmark market yields caused by changes in investment markets and economic conditions. These are reflected in both life insurance contract liabilities and asset values at the reporting date.

The impact on future profit margins of actual changes in assumptions from 31 December 2018 to 31 December 2019 in respect of life insurance contracts (excluding new business contracts which are measured using assumptions at reporting date) is as shown in the table below.

below.
Assumption change	Change in future profit margins	Change in life insurance contract liabilities2	Change in shareholders’ profit & equity3
	$m	$m	$m
Non-market related changes to discount rates	1	-	-
Mortality and morbidity	(15)	149	(104)
Discontinuance rates	(75)	59	(42)
Maintenance expenses	162	85	(36)
Other assumptions1	(53)	(35)	24

1 Other assumption changes include the impact of modelling, reinsurance, product and premium changes.
2 Change in life insurance contract liabilities is net of reinsurance, gross of tax.

3 Change in shareholders' profit and equity is net of reinsurance, net of tax.

In most cases, the overall amount of life insurance contract liabilities and the current period profit are not affected by changes in assumptions. However, where in the case of a particular non-participating related product group, the changes in assumptions at the end of a period eliminate any future profit margins for the related product group, and results in negative future profit margins, this negative balance for all forecasted future periods is recognised as a loss in the current period. If the changes in assumptions in a period are favourable for a product group currently in loss recognition, then the previously recognised losses are reversed in the period.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.4 Life insurance contracts - risk

(a) Life insurance risk

AMP Life issues contracts that transfer significant insurance risk from the policyholder, covering death, disability or longevity of the insured, often in conjunction with the provision of wealth management products.

The products carrying insurance risk are designed to ensure that policy wording and promotional materials are clear, unambiguous and do not leave AMP Life open to claims from causes that were not anticipated. The variability inherent in insurance risk, including concentration risk, is managed by having a large geographically diverse portfolio of individual risks, underwriting and the use of reinsurance.

Underwriting is managed through a dedicated underwriting department, with formal underwriting limits and appropriate training and development of underwriting staff. Individual policies carrying insurance risk are generally underwritten individually on their merits. Individual policies which are transferred from a group scheme are generally issued without underwriting. Group risk insurance policies meeting certain criteria are underwritten on the merits of the employee group as a whole.

Claims are managed through a dedicated claims management team, with formal claims acceptance limits and appropriate training and development of staff with an objective to ensure payment of all genuine claims. Claims experience is assessed regularly and appropriate actuarial reserves are established to reflect up-to-date experience and any anticipated future events. This includes reserves for claims incurred but not yet reported.

AMP Life reinsures (cedes) to reinsurance companies a proportion of its portfolio or certain types of insurance risk, including catastrophe. This serves primarily to:

reduce the net liability on large individual risks;
obtain greater diversification of insurance risks;
provide protection against large losses;
reduce overall exposure to risk; and
reduce the amount of capital required to support the business.

The reinsurance companies are regulated by the Australian Prudential Regulation Authority (APRA), or industry regulators in other jurisdictions, and have strong credit ratings from A+ to AA+.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.4 Life insurance contracts - risk (continued)

(b) Key terms and conditions of life insurance contracts

The nature of the terms of the life insurance contracts written by AMP Life is such that certain external variables can be identified on which related cash flows for claim payments depend. The following table provides an overview of the key variables upon which the timing and uncertainty of future cash flows of the various life insurance contracts issued by AMP Life depend.

			Key variables affecting
Type of contract	Detail of contract workings	Nature of compensation for claims	future cash flows
Non-participating	These policies provide guaranteed	Benefits are defined by the insurance	Mortality, morbidity,
life insurance	benefits, which are paid on death or	contract and are not directly affected by	lapses, expenses and
contracts with fixed	ill-health, that are fixed and not at the	the investment performance of any	investment market
and guaranteed	discretion of AMP Life. Premium rates	underlying assets.	earning rates on
terms (term life and	for yearly renewable business are not		assets backing the
disability)	guaranteed and may be changed at		liabilities.
	the discretion of AMP Life for the
	portfolio as a whole.
Life annuity	These policies provide a guaranteed	The amount of the guaranteed regular	Longevity, expenses,
contracts	regular income for the life of the	income is set at inception of the policy	inflation and
	insured in exchange for an initial	allowing for any indexation.	investment market
	single premium.		earning rates on
			assets backing the
			liabilities.
Conventional life	The policyholder pays a regular	Benefits arising from the discretionary	Investment market
insurance contracts	premium and receives the specified	bonuses are based on the performance of	earning rates on
with discretionary	sum insured plus any accruing	a specified pool of contracts and the	assets backing the
participating	bonuses on death or maturity. The	assets supporting these contracts.	liabilities, lapses,
benefits	sum insured is specified at inception		expenses and
(endowment and	and guaranteed. Bonuses are added		mortality.
whole of life)	annually, which once added are
	guaranteed. A further bonus may be
	added on surrender, death or
	maturity.
Investment account	The gross value of premiums received	Payment of the account balance is	Fees, lapses,
contracts with	is invested in the investment account	generally guaranteed, although it may be	expenses and
discretionary	with fees and premiums for any	subject to certain penalties on early	investment market
participating	associated insurance cover being	surrender or limited adjustment in adverse	earning rates on the
features	deducted from the account balance	investment markets. Operating profit	assets backing the
	when due. Interest is credited	arising from these contracts is allocated	liabilities.
	regularly.	between the policyholders and
		shareholders with not less than 80%
		allocated to policyholders. Distribution of
		policyholder profit is through an interest
		rate mechanism.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.4 Life insurance contracts - risk (continued)

(c) Insurance risk sensitivity analysis – life insurance contracts

For life insurance contracts that are accounted for under MoS, amounts of liabilities, income or expense recognised in the period are unlikely to be sensitive to changes in variables even if those changes may have an impact on future profit margins, unless the product is in or close to loss recognition.

This table shows information about the sensitivity of life insurance contract liabilities and current period shareholder profit after income tax and equity, to a number of possible changes in assumptions relating to insurance risk.

Variable
Change in variable

Change in life insurance
contract liabilities
Change in shareholder profit
after income tax and equity

Gross of
reinsurance
Net of
reinsurance
Gross of
reinsurance
Net of
reinsurance
$m
$m
$m
$m

Mortality
10% increase in mortality rates
Annuitant mortality
50% increase in the rate of
mortality improvement
Morbidity - lump sum
disablement
20% increase in lump sum
disablement rates
Morbidity - disability income
10% increase in incidence rates
Morbidity - disability income
10% decrease in termination rates
Discontinuance rates
10% increase in discontinuance
rates
Maintenance expenses
10% increase in maintenance
expenses

51
19
(37)
(13)
15
15
(11)
(11)
39
16
(28)
(11)
220
91
(154)
(64)
385
175
(270)
(122)
103
28
(74)
(20)
35
35
(25)
(25)

(d) Liquidity risk and future net cash outflows

The following table shows the estimated timing of future net cash outflows resulting from insurance contract liabilities. This includes estimated future surrenders, death/disability claims and maturity benefits, offset by expected future premiums or contributions and reinsurance recoveries. All values are discounted to the reporting date using the assumed future investment earning rate for each product.

	Up to 1 year	1-5 years	Over 5 years	Total
	$m	$m	$m	$m
2019	1,589	3,628	10,336	15,553
2018	1,264	3,039	8,243	12,546

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.5 Other disclosure - life insurance and investment contracts

(a) Analysis of life insurance and investment contract profit

	2019	2018
	$m	$m
Components of profit related to life insurance and investment contract liabilities:
- planned margins of revenues over expenses released	327	437
- Losses arising from difference betw een actual and assumed experience	(26)	(86)
- losses arising from changes in assumptions	(135)	(29)
- capitalised losses	(166)	(174)
Profit related to life insurance and investment contract liabilities	-	148
Attributable to:
-life insurance contracts	(87)	(31)
-investment contracts	87	179
Profit related to life insurance and investment contract liabilities	-	148
Investment earnings on assets in excess of life insurance and investment contract
liabilities	80	38

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.5 Other disclosure - life insurance and investment contracts (continued)

(b) Restrictions on assets in statutory funds

AMP Life conducts investment-linked and non-investment linked business. For investment-linked business, deposits are received from policyholders, the funds are invested on behalf of the policyholders and the resulting liability to policyholders is linked to the performance and value of the assets that back those liabilities.

AMP Life Limited has three statutory funds as set out below:

No. 1 fund	Australia	All non-investment linked business (whole of life, endowment, investment account, retail and group risk and immediate annuities) and North longevity guarantee.
	New Zealand	All business (whole of life, endowment, investment account, retail and group risk, investment-linked and immediate annuities).
No. 2 fund	Australia	Investment-linked superannuation business (retail and group investment-linked and deferred annuities).
No. 3 fund	Australia	Investment-linked ordinary business.

Investments held in the life statutory funds can only be used in accordance with the relevant regulatory restrictions imposed under the Life Act and associated rules and regulations. The main restrictions are that the assets in a life statutory fund can only be used to meet the liabilities and expenses of that life statutory fund, to acquire investments to further the business of the life statutory fund or as distributions provided solvency, capital adequacy and other regulatory requirements are met.

Further details about capital management are provided in note 3.5.

		2019			2018
	Non- investment linked	Investment- linked	Total life entities' statutory funds	Non- investment linked	Investment- linked	Total life entities' statutory funds
	$m	$m	$m	$m	$m	$m
Net assets of life entities' statutory
funds attributable to policyholders
and shareholders	27,240	69,977	97,217	27,324	66,659	93,983
Attributable to policyholders2
Life insurance contract liabilities	23,505	-	23,505	23,257	-	23,257
Investment contract liabilities1	1,845	69,705	71,550	2,173	66,454	68,627
	25,350	69,705	95,055	25,430	66,454	91,884
Attributable to shareholders	1,890	272	2,162	1,894	205	2,099

1 Investment contract liabilities in this table do not include $121m (2018: $115m) being the investment contract liability for the North capital guarantee w hich is held outside the life insurance entities.

2 Based on assumptions as to likely w ithdraw al patterns of the various product groups, it is estimated that approximately $12,336m (2018: $13,679m) of policy liabilities may be settled w ithin 12 months of the reporting date.

The net assets of life statutory funds attributable to shareholders represent the interests of shareholders including funds required to meet regulatory requirements as well as further amounts of shareholder funds in excess of regulatory requirements.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information

for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.5 Other disclosure - life insurance and investment contracts (continued)

(b) Restrictions on assets in statutory funds (continued)

The following table shows a summary of the consolidated balances of AMP Life insurance entities’ statutory funds and the entities controlled by AMP Life insurance entities’ statutory funds.

	Life entities'	statutory
	funds consolidated
	2019	2018
	$m	$m
Assets
Cash and cash equivalents	5,605	7,230
Investments in financial assets measured at fair value through profit or loss	111,973	109,364
Investment property	161	145
Other assets	2,189	1,580
Total assets of policyholders, shareholders and non-controlling interests	119,928	118,319
Liabilities
Life insurance contract liabilities	23,505	23,257
Investment contract liabilities	71,550	68,627
Other liabilities	7,484	7,084
External unitholders' liabilities	15,295	17,059
Total liabilities of policyholders, shareholders and non-controlling interests	117,834	116,027
Net assets	2,094	2,292

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 4: Life insurance and investment contracts

4.5 Other disclosure - life insurance and investment contracts (continued)

(c) Capital guarantees

(c) Capital guarantees
	2019	2018
	$m	$m
Life insurance contracts w ith a discretionary participating feature - amount of the liabilities that relate
to guarantees	13,327	14,152
Investment-linked contracts - amount of the liabilities subject to investment performance guarantees	762	847
Other life insurance contracts w ith aguaranteed termination value - current termination value	68	127

(d) Capital requirements

Registered life insurance entities are required to hold prudential reserves, over and above their life insurance contract and investment contract liabilities, as a buffer against adverse experience and poor investment returns. These reserving requirements are specified by the APRA prudential capital standards. The standards are intended to take account of the full range of risks to which a regulated institution is exposed and introduces the prescribed capital amount (PCA) requirement. The PCA is the minimum level of capital that the regulator deems must be held to meet policyholder obligations.

In addition to the regulatory capital requirements, AMP Life Limited and NMLA maintain a target surplus providing an additional capital buffer against adverse events. The Companies use internal capital models to determine target surplus, with the models reflecting the risks of the business, principally the risk of adverse asset movements relative to the liabilities and of worse than expected claims costs.

The Appointed Actuary of AMP Life Limited and NMLA has confirmed that the capital base of each life statutory fund and shareholders’ fund have exceeded PCA at all times during 2019 and 2018. The combined capital position of AMP Life Limited and NMLA is as follows:

	2019	2018
	$m	$m
Common Equity Tier 1 Capital	2,059	2,430
Adjustments to Common Equity Tier 1 Capital	34	(374)
Additional Tier 1 Capital	305	305
Adjustments to Additional Tier 1 Capital	-	-
Tier 2 Capital	200	250
Adjustments to Tier 2 Capital	-	-
Total capital base	2,598	2,611
Total Prescribed Capital Amount (PCA)	1,102	1,190
Capital adequacy amount	1,496	1,421
Capital adequacy multiple1	236%	219%

1 The capital adequacy multiples w ere 236% and 263% for AMP Life Limited and NMLA respectively (2018: 219% and 226%).

(e) Actuarial information

Mr Greg Bird, the Appointed Actuary of AMP Life Limited and NMLA, is satisfied as to the accuracy of the data used in the valuations in the preliminary final report and in the tables in note 4.2 to note 4.5.

The liabilities to policyholders (being the sum of the life insurance contract and investment contract liabilities, including any asset or liability arising in respect of the management services element of an investment contract), capital base and prescribed capital amounts have been determined at the reporting date in accordance with the Life Act.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

This section provides details on the various programs the AMP group uses to reward and recognise employees, including key management personnel.

5.1 Defined benefit plans
5.2 Share-based payments

5.1 Defined benefit plans

AMP contributes to defined benefit plans which provide benefits to employees, and their dependants, on resignation, retirement, disability or death of the employee. The benefits are based on years of service and an average salary calculation. All defined benefit plans are now closed to new members.

The characteristics and risks associated with each of the defined benefit plans are described below:

Plan details	Australia	New Zealand
Plan names	AMP Australia and AMP AAPH Australia defined benefit plans	AMP New Zealand and AMP AAPH New Zealand defined benefit plans
Entitlements of active members	A lump sum or pension on retirement. Pensions provided are lifetime indexed pensions with a reversionary spouse pension.	Accumulation benefits and a lump sum payment on retirement.
Governance of the plans	The trustees of the AMP Superannuation Savings Trust, of which the Australian plans are sub-funds – this includes administration of the plan, management and investment of the plan assets, and compliance with superannuation laws and other applicable regulations.	The plans’ trustees - this includes administration of the plan, management and investment of the plan assets, and looking after the interests of all beneficiaries.
Valuations required	Every year	Every three years
Key risks	The risk of actual outcomes being different to the actuarial assumptions used to estimate the defined benefit obligation, investment risk and legislative risk.
Date of valuation	31 March 2019	31 December 2017
Additional recommended contributions	10% - 15% of member’s salaries plus plan expenses.	No additional contributions are required until 30 June 2021, at which point the requirement will be reassessed.

(a) Defined benefit liability

	2019	2018
	$m	$m
Present value of w holly-funded defined benefit obligations	(919)	(833)
Less: Fair value ofplan assets	818	756
Defined benefit liability recognised in the Consolidated statement of financialposition	(101)	(77)
Movement in defined benefit liability
Deficit at the beginning of the year	(77)	(29)
Plus: Total expenses recognised in the Consolidated income statement	(2)	(7)
Plus: Employer contributions	1	2
Plus: Actuarial(losses) gains recognised in Other comprehensive income	(23)	(43)
Defined benefit liability recognised at the end of theyear	(101)	(77)

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.1 Defined benefit plans (continued)

(b) Reconciliation of the movement in the defined benefit liability

	Defined benefit	Defined benefit	Fair value of	Fair value of
	obligation		plan assets
	2019	2018	2019	2018
	$m	$m	$m	$m
Balance at the beginning of the year	(833)	(821)	756	792
Current service cost	(3)	(3)	-	-
Interest (cost) income	(19)	(18)	17	17
Net actuarial gains and losses	(118)	(38)	94	(5)
Employer contributions	-	-	1	2
Contributions by plan participants	-	-	-	-
Foreign currency exchange rate changes	2	(5)	2	2
Benefits paid	52	52	(52)	(52)
Balance at the end of theyear	(919)	(833)	818	756

(c) Analysis of defined benefit surplus (deficit) by plan

	Fair value of plan assets Present value of plan obligation Net recognised surplus(deficit) Actuarial gains / (losses)
	2019 2018 2019 2018 2019 2018 2019 2018 $m $m $m $m $m $m $m $m
AMP Australia AMP AAPH Australia AMP New Zealand AMP AAPH New Zealand	291 263 (339) (307) (48) (44) (3) (15) 415 388 (427) (378) (12) 10 (21) (20) 20 19 (25) (25) (5) (6) 1 (2) 92 86 (128) (123) (36) (37) - (6)
Total	818 756 (919) (833) (101) (77) (23) (43)

(d) Principal actuarial assumptions

The following table sets out the principal actuarial assumptions used as at the reporting date in measuring the defined benefit obligations of the Australian and New Zealand defined benefit funds:

						AMP AAPH	AMP AAPH
		Australia	New Zealand			Australia	New Zealand
	2019	2018	2019	2018	2019	2018	2019	2018
	%	%	%	%	%	%	%	%
Weighted average discount rate	2.8	4.0	1.5	2.3	3.0	4.1	2.2	2.7
Expected rate of salaryincreases	n/a	n/a	n/a	n/a	3.5	3.5	3.0	3.0

(e) Allocation of assets

The asset allocations of the defined benefit funds are shown in the following table:

		AMP				AMP AAPH
		Australia	New	Zealand		Australia	New Zealand
	2019	2018	2019	2018	2019	2018	2019	2018
	%	%	%	%	%	%	%	%
Equity	46	50	38	38	25	30	46	40
Fixed interest	38	34	38	38	57	51	34	39
Property	10	8	4	4	7	5	4	4
Cash	1	3	14	14	1	1	14	14
Other	5	5	6	6	10	13	2	3

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.2 Defined benefit plans (continued)

(f) Sensitivity analysis

The defined benefit obligation has been recalculated for each scenario by changing only the specified assumption as outlined below, whilst retaining all other assumptions as per the base case. The table below shows the increase (decrease) for each assumption change. Where an assumption is not material to the fund it has been marked as n/a.

						AMP	AAPH
2019	Australia		New	Zealand	Australia		New	Zealand
	(+)	(-)	(+)	(-)	(+)	(-)	(+)	(-)
Assumption	$m	$m	$m	$m	$m	$m	$m	$m
Discount rate (+/- 0.5%)1	(20)	22	n/a	2	(32)	35	n/a	16
Expected salary increase rate (0.5%)	n/a	n/a	n/a	n/a	1	n/a	n/a	n/a
Expected deferred benefit crediting rate (0.5%)	n/a	n/a	n/a	n/a	3	n/a	n/a	n/a
Pensioner indexation assumption (0.5%)2	22	(20)	1	n/a	30	(28)	13	n/a
Pensioner mortality assumption (0.5%)	n/a	13	n/a	n/a	n/a	12	n/a	n/a
Life expectancy (additional 1 year)	n/a	n/a	1	n/a	n/a	n/a	4	n/a

1 (-1%) discount rate applied to AMP New Zealand and AMP AAPH New Zealand.

2 1% indexation increase applied to AMP New Zealand and AMP AAPH New Zealand.

						AMP	AAPH
2018	Australia		New	Zealand	Australia		New	Zealand
	(+)	(-)	(+)	(-)	(+)	(-)	(+)	(-)
Assumption	$m	$m	$m	$m	$m	$m	$m	$m
Discount rate (+/- 0.5%)	(17)	19	n/a	2	(27)	30	n/a	24
Expected salary increase rate (0.5%)	n/a	n/a	n/a	n/a	1	n/a	n/a	n/a
Expected deferred benefit crediting rate (0.5%)	n/a	n/a	n/a	n/a	3	n/a	n/a	n/a
Pensioner indexation assumption (0.5%)	19	(18)	1	n/a	25	(23)	13	n/a
Pensioner mortality assumption (0.5%)	n/a	10	n/a	n/a	n/a	9	n/a	n/a
Life expectancy (additional 1 year)	n/a	n/a	1	n/a	n/a	n/a	4	n/a

(g) Expected contributions and maturity profile of the defined benefit obligation

		AMP	AMP AAPH	AMP AAPH
	Australia	New Zealand	Australia	New Zealand
	$m	$m	$m	$m
Expected employer contributions	-	-	1	-
Weighted average duration of the defined benefit obligation (years)	11	9	14	13

Accounting policy – recognition and measurements

Defined benefit plans

The AMP group recognises the net deficit or surplus position of each fund in the Consolidated statement of financial position. The deficit or surplus is measured as the difference between the fair value of the funds’ assets and the discounted defined benefit obligations of the funds, using discount rates determined with reference to market yields on high quality corporate bonds at the end of the reporting period.

After taking into account any contributions paid into the defined benefit funds during the period, movements in the net surplus or deficit of each fund, except actuarial gains and losses, are recognised in the Consolidated income statement. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions over the period and the returns on plan assets are recognised (net of tax) directly in retained earnings through Other comprehensive income.

Contributions paid into defined benefit funds are recognised as reductions in the deficit.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments

AMP has multiple employee share-based payment plans. Share-based payment plans help create alignment between employees participating in those plans (participants) and shareholders. Information on plans which AMP currently offers is provided below.

The following table shows the expense recorded for AMP share-based payment plans during the year:

	2019	2018
	$'000	$'000
Performance rights1	5,654	(2,946)
Share rights and restricted shares	24,742	30,227
Options	52	5
Total share-basedpayments expense	30,448	27,286
1 Non-market performance rights w hich w ere forfeited or w here the performance conditions w ere not met w ere reversed during 2018.

(a) Performance rights

The AMP Group Leadership Team, as well as selected senior executives, receive their long-term incentive (LTI) awards in the form of performance rights. This is intended to further align with the interests of those executives, who are able to most directly influence company performance, are appropriately aligned with the interests of shareholders.

Plan		LTI awards
Overview		Performance rights give the participant the right to acquire one fully paid ordinary share in AMP Limited upon meeting specific performance hurdles. They are granted at no cost to the participant and carry no dividend or voting rights until they vest. This award may be settled through an equivalent cash payment, at the discretion of the board.
Vesting conditions		2016 LTI award The performance hurdles for rights granted in 2016 are: • 60% subject to AMP’s total shareholder return (TSR) performance relative to that of the entities in the Comparator Group^ (being the top 50 industrial companies in the S&P/ASX 100 Index, based on market capitalisation rank at the start of the applicable performance period) over three years. • 40% subject to a Return on Equity (RoE) measure. 2017 LTI award The performance hurdles for rights granted in 2017 are: • 100% subject to AMP’s TSR performance relative to entities in the Comparator Group^ (being the top 50 industrial companies in the S&P/ASX 100 Index, based on market capitalisation rank at the start of the applicable performance period) over four years. 2018 LTI award No performance rights were granted under an LTI plan in 2018. 2019 LTI award (Transformation Incentive Award) The vesting of the performance rights is subject to two separate gateways: 1. Risk and Conduct Gateway - if a participant’s performance and conduct is not in line with AMP’s expectations, the board has discretion to amend the vesting outcome (including to zero). 2. Performance Gateway and Hurdle – a performance gateway is included so that no awards will vest if both the Compound Annual Growth Rate (CAGR) is negative and the CAGR is below the benchmark index. For risk and control roles i.e. Chief Risk Officer - the vesting outcome in relation to 25% of the award will be determined by the Remuneration Committee at its sole discretion. The other 75% of the award will be subject to the performance hurdle. ^ In determining the Comparator Group, all entities other than those in the global industry classification standard (GICS) energy sector and GICS metals and mining industry are classified as industrial companies. The benchmark index is constructed from an equal weighted index of ASX 100 financial services companies (excluding A-REITs).
Vesting period		• 2016 LTI award – 3 years for rights granted in 2016. • 2017 LTI award – 4 years for rights granted in 2017. • 2019 LTI award–3.5 years for rights granted in 2019.
Vested awards		Vested performance rights are automatically converted to shares on behalf of participants.
Unvested awards		Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for misconduct.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(a) Performance rights (continued)

CEO (Original) Recovery Incentive Rights Award

As part of the Chief Executive Officer’s (CEO) incentive package on appointment in 2018, the CEO was granted an award of rights with a performance condition. This award is to intended to align CEO interests with the long-term interests of shareholders. The board intends to seek shareholder approval to cancel the original Recovery Incentive at the next AGM in May 2020.

Plan	CEO (Original) Recovery Incentive Rights Award
Overview	The Recovery Incentive performance rights give the CEO the right to acquire one fully paid ordinary share in AMP Limited (per right) upon meeting specific performance hurdles, being the achievement of multiple share price targets. They were granted at no cost to the CEO and carry no dividend or voting rights until they vest. This award may be settled through an equivalent cash payment, at the discretion of the board.
Vesting conditions	The share price targets that will be tested on the specified dates: • First Testing Date - 25% of rights granted will vest if share price is $4.50 at the testing date. • Second Testing Date - 50% or 75% (including any that have vested already) will vest if share price is $4.75 or $5.00 respectively. • Third Testing Date - the balance will vest depending on the share price being higher than $4.50 and will vest on a straight-line basis with 100% vesting if the share price is $5.25.
Vesting period / Testing dates	The board will test the share price targets on or around the following testing dates: • 15 February 2021 (First Testing Date); • 15 February 2022 (Second Testing Date); and • 15 February 2023 (Third Testing Date). If the share price targets are met, the rights will vest and become exercisable.
Vested awards	Vested rights are automatically converted to shares on behalf of the CEO.
Unvested awards	Unvested awards areforfeitedifthe CEOvoluntarily ceases employment or is dismissedfor misconduct.

CEO Replacement Recovery Incentive Rights Award

In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure the CEO is appropriately incentivised and aligned with shareholders during the transformation of AMP. As part of this update, the CEO was granted a new award of rights with a performance condition. This award is intended to replace the original Recovery Incentive Award to better align the CEO with the long-term interests of the shareholders.

Plan	CEO Replacement Recovery Incentive Rights Award
Overview	The Recovery Incentive performance rights give the CEO the right to acquire one fully paid ordinary share in AMP Limited (per right) upon meeting specific performance hurdles, being the achievement of multiple share price targets. They were granted at no cost to the CEO and carry no dividend or voting rights until they vest. This award may be settled through an equivalent cash payment, at the discretion of the board.
Vesting conditions	The share price targets that will be tested on the specified dates: • First Testing Date - 50% of rights granted will vest if the share price is $2.45 at the testing date (adjusted for any significant capital initiatives). • Second Testing Date – if the first share price target of $2.45 is not met at the first testing date, it will be retested and 50% will vest if the $2.45 target is met. The remaining balance may also vest depending on the share price being higher than $2.45 and will vest on a straight-line basis with 100% vesting if the share price is $2.75 (adjusted for any significant capital initiatives).
Vesting period / Testing dates	The board will test the share price targets on or around the following testing dates: • 15 February 2022 (First Testing Date); and • 15 February 2023 (Second Testing Date). If the share price targets are met, the rights will vest and become exercisable.
Vested awards	Vested rights are automatically converted to shares on behalf of the CEO.
Unvested awards	Unvested awards are forfeited if the CEO voluntarilyceases employment or is dismissed for misconduct.

Valuation of performance rights

The values for performance rights are based on valuations prepared by an independent external consultant. The valuations are based on the 10-day volume weighted average share price over the 10-day trading period prior to the start of the award’s valuation period. Assumptions regarding the dividend yield and volatility have been estimated based on AMP’s dividend yield and volatility over an appropriate period.

In determining the share-based payments expense, the number of instruments expected to vest has been adjusted to reflect the number of employees expected to remain with AMP until the end of the performance period. This is revisited each reporting date.

For both of the CEO Recovery Incentive Rights Awards, the valuations are also prepared by an independent external consultant. The valuations are based on AMP’s closing share price at the valuation date. Assumptions regarding the dividend yield and volatility have been estimated based on AMP’s dividend yield and volatility over an appropriate period.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(a) Performance rights (continued)

The following table shows the factors considered in determining the value of the performance rights granted during the period:

					TSR	RoE	TSR	RoE
Grant date Share price	Contractual life (years)	Dividend yield	Volatility1	Risk-free rate1	performance hurdle	performance hurdle	performance rights fair	performance rights fair
					discount	discount2	value	value
02/06/2016 $5.54	3.0	4.7%	24%	1.6%	57%	0%	$2.37	$4.81
13/01/2017 $5.15	2.4	5.0%	23%	1.9%	71%	0%	$1.47	$4.57
19/05/2017 $5.08	4.0	5.2%	23%	1.8%	56%	N/A	$2.24	N/A
12/09/2019 $1.85	3.4	4.0%	33%	0.9%	35%	N/A	$1.21	N/A
1 Applies to performance rights subject		to a relative TSR performance hurdle only.			These factors do not apply to performance rights subject to a
RoE performance hurdle.
2 In accordance w ith the accounting standard AASB 2_Share-based Payment_, allow ance cannot be made for the impact of a non-market based
performance hurdle in determining fair		value.

The following table shows the factors considered in determining the value of the CEO Recovery Incentive Rights Awards with a share price target granted during the period:

Grant date Share price	Grant date Share price	Contractual life(years)	Dividend yield	Volatility	Risk-free rate	Share rights fair value
21/08/2018	$3.45	4.5	5.3%	22%	2.2%	$0.82
12/09/2019	$1.85	3.4	4.0%	33%	0.9%	$0.62

The following table shows the movement in number of performance rights outstanding during the period:

			Exercised
	Exercise	Balance at	during	Granted during	Lapsed during	Balance at
Grant date	price	1 Jan 2019	theyear	theyear	theyear	31 Dec 2019
02/06/2016	Nil	2,441,062	-	-	2,441,062	-
13/01/2017	Nil	12,820	-	-	12,820	-
19/05/2017	Nil	1,996,500	-	-	115,800	1,880,700
21/08/2018	Nil	1,656,976	-	-	-	1,656,976
12/09/2019	Nil	-	-	2,500,000	-	2,500,000
12/09/2019	Nil	-	-	35,828,711	-	35,828,711
Total		6,107,358		38,328,711	2,569,682	41,866,387

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(b) Share rights

LTI participants below the AMP Group Leadership Team may be awarded share rights as part of their overall LTI award.
• Short-term Incentive Deferral participants are nominated executives and selected senior leaders who have the ability to impact AMP’s financial soundness. This requires a portion of the participant’s annual short-term incentive outcome to be deferred and awarded as share rights.
Short-term Incentive Match Plan participants were high potential employees at a senior leader level who were eligible for participation in the plan. This plan provided an award of share rights to the value of 50% of the individual’s short-term incentive outcome (the plan ceased in 2017).
Transition Incentive award was made to select participants of AMP’s Group Leadership Team in the form of share rights as a transitionary award between remuneration arrangements and the finalisation of strategy.
Enterprise Profit Share Plan supports AMP Capital’s remuneration framework by aligning its strategic intent and rewarding behaviour that leads to sustainably increased profit and shareholder value. The participants are the AMP Capital Group Leadership Team whereby a portion of their annual profit share outcome is deferred into share rights.
Deferred Bonus Equity Plan applies to selected AMP Capital participants whereby a portion of their annual short-term incentive outcome (above a specified threshold) is deferred into share rights.

Plan	Long-term Incentive Plan	Short-term incentive Deferral Plan, Short-term Incentive Match Plan and Transition Incentive award	Enterprise Profit Share Plan and Deferred Bonus Equity Plan
Overview	Share rights give the participant the right to acquire one fully paid ordinary share in AMP Limited after a specified service period. They are granted at no cost to the participant and carry no dividend or voting rights until they vest. This award may be settled through an equivalent cash payment at the discretion of the board.
Vesting conditions/ period	AMP Group participants Continued service for three years for the 2016 grant and four years for the 2017 grant. No LTI grant was made in 2018. AMP Capital participants Continued service for three years. Some awards may also vary where the share rights are awarded as a sign-on equity award or to retain an employee for a critical period. All awards are also subject to ongoing employment, compliance with AMP policies and the board’s discretion.	Short-term Incentive Deferral / Short-term Incentive Match Plan– Continued service for two years and subject to ongoing employment, compliance with AMP policies and the board’s discretion. Transition Incentive award– This 2019 grant is split into two tranches with continued service for approximately one and two years respectively. These are also subject to ongoing employment, compliance with AMP policies and the board’s discretion.	Enterprise Profit Share Plan For awards relating to the 2016 and 2017 performance year, the grant is split into two tranches with continued service for two and three years respectively. These are also subject to ongoing employment, compliance with AMP policies and the board’s discretion. For awards relating to the 2018 performance year, share rights were granted to select participants. The award was subject to a one year service condition, ongoing compliance with AMP policies and the board’s discretion. After this period, an additional three year non-vesting holding period is applicable to participants except for the AMP Capital Chief Executive Officer where the non-vesting holding period is a further four years. Deferred Bonus Equity PlanThe grant is split into two tranches with continued service for two and three years respectively. These are also subject to ongoing employment, compliance with AMP policies and the board’s discretion.
Vested awards	Vested share rights are automatically converted to shares on behalf of participants.
Unvested awards	Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for misconduct.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(b) Share rights (continued)

CEO Buy-out Incentive Rights Award

As part of the CEO’s incentive package on appointment in 2018, the CEO was granted an award of share rights with a service (employment) condition to compensate for incentives forgone from the CEO’s previous employer.

In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure the CEO is appropriately incentivised and aligned with shareholders during the transformation of AMP. As part of this update, the CEO was granted an additional award of share rights with a service (employment) condition. All other terms of the additional share rights award are consistent with the original Buy-out Incentive Rights Award.

Plan	CEO Buy-out Incentive Rights Award
Overview	The Buy-out Incentive share rights give the CEO the right to acquire one fully paid ordinary share in AMP Limited (per right) after a specified service period. They were granted at no cost to the CEO and carry no dividend or voting rights until they vest. This award may be settled through an equivalent cash payment at the discretion of the board.
Vesting conditions / period	The rights will vest in accordance with the vesting schedule set out below: • 50% on 15 February 2020 • 30% on 15 February 2021 • 20% on 15 February 2022 Vesting is subject to continued service and in compliance with AMP policies and the board’s discretion.
Vested awards	Vested share rights are automatically converted to shares on behalf of the CEO.
Unvested awards	Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.

Valuation of share rights

The fair value of share rights has been calculated as at the grant date, by external consultants using a ‘discounted cash flow’ methodology. Fair value has been discounted for the present value of dividends expected to be paid during the vesting period to which the participant is not entitled. For the purposes of the valuation it is assumed share rights are exercised as soon as they have vested. Assumptions regarding the dividend yield have been estimated based on AMP’s dividend yield over an appropriate period.

For the CEO’s share rights awards, the valuations are also prepared by an independent external consultant. The valuations are based on AMP’s closing share price at the valuation date. Assumptions regarding the dividend yield and volatility have been estimated based on AMP’s dividend yield and volatility over an appropriate period.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(b) Share rights (continued)

The following table shows the factors which were considered in determining the independent fair value of the share rights granted during the period:

Grant date	Share price	Contractual life(years)	Dividend yield	Dividend discount	Fair value
01/04/2019	$2.14	2.0	4.2%	11%	$1.91
01/04/2019	$2.14	2.0	4.2%	7%	$1.98
01/04/2019	$2.14	3.0	4.2%	11%	$1.90
08/03/2019	$2.31	1.0	4.2%	3%	$2.24
25/03/2019	$2.15	1.0	4.2%	4%	$2.06
10/05/2019	$2.22	1.0	4.2%	0%	$2.22
10/05/2019	$2.22	2.0	4.2%	0%	$2.22
17/05/2019	$2.20	1.0	4.2%	0%	$2.20
17/05/2019	$2.20	1.0	4.2%	0%	$2.20
17/05/2019	$2.20	4.0	4.2%	0%	$2.19
17/05/2019	$2.20	5.0	4.2%	0%	$2.19
24/05/2019	$2.17	1.0	4.2%	3%	$2.10
13/08/2019	$1.81	1.0	4.0%	2%	$1.77
13/08/2019	$1.81	2.0	4.0%	6%	$1.70
13/08/2019	$1.81	3.0	4.0%	9%	$1.64
19/07/2019	$1.80	1.0	4.2%	2%	$1.75
19/07/2019	$1.80	2.0	4.2%	6%	$1.68
19/07/2019	$1.80	3.0	4.2%	10%	$1.61
29/07/2019	$1.83	1.0	4.2%	1%	$1.82
20/09/2019	$1.86	1.0	4.0%	4%	$1.79
20/09/2019	$1.86	2.0	4.0%	7%	$1.72

==> picture [376 x 158] intentionally omitted <==

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(b) Share rights (continued)

The following table shows the movement in share rights outstanding during the period:

Grant date	Exercise price	Balance at 1 Jan 2019	Exercised during theyear	Granted during theyear	Lapsed during theyear	Balance at 31 Dec 2019
04/06/2015	Nil	107,454	107,454	-	-	-
18/09/2015	Nil	19,038	19,038	-	-	-
02/06/2016	Nil	1,578,764	1,540,646	-	38,118	-
13/01/2017	Nil	12,821	12,821	-	-	-
13/01/2017	Nil	8,818	8,818	-	-	-
27/04/2017	Nil	189,633	189,633	-	-	-
27/04/2017	Nil	311,791	307,007	-	3,010	1,774
27/04/2017	Nil	920,201	920,201	-	-	-
27/04/2017	Nil	968,086	-	-	-	968,086
27/04/2017	Nil	75,779	70,538	-	5,241	-
27/04/2017	Nil	79,725			8,907	70,818
19/05/2017	Nil	561,000	-	-	30,000	531,000
19/05/2017	Nil	1,143,313	-	-	103,600	1,039,713
03/07/2017	Nil	9,671	-	-	9,671	-
02/04/2018	Nil	652,546			43,182	609,364
02/04/2019	Nil	805,657			91,949	713,708
02/04/2018	Nil	901,333	-	-	-	901,333
02/04/2018	Nil	953,876				953,876
02/04/2018	Nil	115,451	-	-	11,621	103,830
02/04/2018	Nil	122,181	-	-	12,298	109,883
16/07/2018	Nil	40,650	40,650	-	-	-
16/07/2018	Nil	40,650	40,650	-	-	-
13/08/2018	Nil	39,895	39,895	-		-
13/08/2018	Nil	53,191	53,191	-		-
13/08/2018	Nil	53,191	-	-	-	53,191
13/08/2018	Nil	53,191				53,191
21/08/2018	Nil	726,744	-	-	-	726,744
21/08/2018	Nil	436,046	-	-	-	436,046
21/08/2018	Nil	290,698	-	-	-	290,698
03/12/2018	Nil	142,856	-	-	-	142,856
03/12/2018	Nil	142,857	-	-	-	142,857
08/03/2019	Nil	-	-	23,166	-	23,166
25/03/2019	Nil	-	-	24,261	-	24,261
01/04/2019	Nil	-	-	1,896,149	63,558	1,832,591
01/04/2019	Nil	-	-	237,447	2,488	234,959
01/04/2019	Nil	-	-	248,029	2,599	245,430
10/05/2019	Nil	-	-	957,438	-	957,438
10/05/2019	Nil	-	-	957,447	-	957,447
17/05/2019	Nil	-	-	250,595	-	250,595
17/05/2019	Nil	-	-	523,402	-	523,402
24/05/2019	Nil	-	-	33,039	-	33,039
19/07/2019	Nil	-	-	53,140	-	53,140
19/07/2019	Nil	-	-	53,140	-	53,140
19/07/2019	Nil	-	-	38,647	-	38,647
29/07/2019	Nil	-	-	22,012	22,012	-
13/08/2019	Nil	-	-	293,664	-	293,664
13/08/2019	Nil	-	-	176,198	-	176,198
13/08/2019	Nil	-	-	117,466	-	117,466
20/09/2019	Nil	-	-	13,812	-	13,812
20/09/2019	Nil	-	-	8,287	-	8,287
Total		11,557,107	3,350,542	5,927,339	448,254	13,685,650

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(c) Options

CEO Recovery Incentive Options Award

As part of the CEO’s incentive package on appointment in 2018, the CEO was granted an award of options. This award is to ensure that the CEO is aligned with the long-term interests of shareholders. No similar options award was granted in 2019.

Plan	CEO Recovery Incentive Option Award
Overview	The Recovery Incentive options give the CEO the right to acquire one fully paid ordinary share in AMP Limited (per option) at a predetermined price. Options do not carry any dividend or voting rights and are granted at no cost, however they are subject to an exercise price at the time the options are converted to shares.
Vesting conditions	The options award has an exercise price of $5.50 per option. The CEO will be allocated one share or a cash equivalent for each vested option that is exercised and for which the exercise price has been paid by the CEO, subject to continued employment.
Vesting period	The options award will vest and become exercisable on or around 15 February 2023. Vested options will automatically lapse on 31 March 2024 if they have not been exercised before that date.
Vested awards	Vested options may only be exercised by the CEO in accordance with AMP’s trading policy and subject to all applicable laws.
Unvested awards	Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.

Valuation of options

The fair value of the options has been calculated by an independent external consultant using AMP’s closing share price at the valuation date being 14 December 2018.

(i) The following table shows the number and weighted average exercise prices (WAEP) of, and movements in, options issued:

Grant date	Exercise price	Balance at 1 Jan 2019	Exercised during theyear	Granted during theyear	Lapsed during theyear	Balance at 31 Dec 2019
14/12/2018	$5.50	8,000,000	-	-	-	8,000,000
Total		8,000,000	-	-	-	8,000,000
Weighted average exercise price	$5.50

(ii) The weighted average remaining contractual life for the options outstanding as at 31 December 2019 was 4.3 years (2018: 5.3 years).

(iii) There were no options granted during the year. The weighted average fair value of options granted during 2018 was $0.03.

(iv) The following table shows the factors considered in determining the fair value of the options on the date of grant:

	2018
Weighted average fair values at the measur	$0.03
Dividend yield (%)	5.3%
Expected volatility (%)	26%
Risk-free interest rate (%)	2.1%
Expected life of share options (years)	5.3
Weighted average share price ($)	$2.33
Model used	Black-Scholes

The volatility assumption is based on the actual volatility of AMP’s daily closing share price over the three-year period to the valuation date.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(d) Restricted shares

CEO Buy-out Incentive Shares Award

As part of the CEO’s incentive package on appointment in 2018, the CEO was awarded restricted shares with a service (employment) condition to compensate for incentives forgone from the CEO’s previous employer.

In 2019, the CEO’s remuneration package was reviewed and adjusted to ensure he is appropriately incentivised and aligned with shareholders during the transformation of AMP. As part of this update the CEO was granted an additional award of restricted shares with a service (employment) condition. All other terms of the additional restricted shares award are consistent with the original award.

Plan	CEO Buy-out Incentive Shares Award
Overview	The Buy-out Incentive restricted shares are fully paid ordinary shares in AMP Limited that are held in the AMP Employee Share Trust on behalf of the CEO until the specified service period has been met. They were granted at no cost to the CEO and carry the same dividend or voting rights as other fully paid ordinary shares. Any dividends paid on shares are received in the ordinary course on the dividend payment date(s).
Vesting conditions / period	The restricted shares are released in accordance with the vesting schedule set out below: • 60% on 15 August 2019 • 20% on 15 August 2020 • 20% on 15 August 2021 Vesting is subject to continued service and in compliance with AMP policies and the board’s discretion.
Vested awards	On the relevant vesting dates, the restriction on the shares is released.
Unvested awards	Unvested awards are forfeited if the CEO voluntarily ceases employment or is dismissed for misconduct.

AMP Capital Enterprise Profit Share Plan

The AMP Capital Group Leadership Team is comprised of a select group of senior executives who are eligible to participate in the Enterprise Profit Share Plan. This plan was designed to support AMP Capital’s remuneration framework by aligning its strategic intent and rewarding behaviour that leads to sustainably increased profit and shareholder value. It is required that 40% of the participants’ profit share outcomes be deferred. From 2018, 50% of the deferred component is awarded in the form of restricted shares for participants who reside in Australia with the exception of the AMP Capital Chief Executive Officer. The objective of this was to create greater alignment with our shareholders. The equity component of this plan was granted in 2019.

Plan	Enterprise Profit Share Plan
Overview	The deferred component of the 2018 Enterprise Profit Share award was granted in the form of restricted shares. Restricted shares are fully paid ordinary shares in AMP Limited that are held in the AMP Employee Share Trust on behalf of the participant until the specified service/holding period has been met. They were granted at no cost to participants and carry the same dividend or voting rights as other fully paid ordinary shares. Any dividends paid on shares are received in the ordinary course on the dividend payment date(s).
Vesting conditions / period	The restricted shares will vest after one year and continue to be subject to a disposal restriction for an additional three year period. Prior to each of the vesting date and the release date, the board will undertake a conduct/risk review to confirm that vesting and release of the award aligns with the conduct and risk outcomes of the Group.
Vested awards	On the relevant release dates, the restriction on the shares is released.
Unvested awards	Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for misconduct.

AMP Executive Performance Incentive Plan

The Executive Performance Incentive (EPI) Plan was newly introduced for the 2018 performance year and takes a combined incentive approach, whereby a portion of the participant’s annual EPI outcome is paid out in cash and the other part deferred into restricted shares. The objective of this plan is to create equity ownership across a select group of senior executives if performance objectives are met. The equity component of this plan was granted in 2019.

Plan	Executive Performance Incentive Plan
Overview	The deferred component of the Executive Performance Incentive Plan was granted in the form of restricted shares. Restricted shares are fully paid ordinary shares in AMP Limited that are held in the AMP Employee Share Trust on behalf of the participant until the specified service/holding period has been met. They were granted at no cost to participants and carry the same dividend or voting rights as other fully paid ordinary shares. Any dividends paid on shares are received in the ordinary course on the dividend payment date(s).
Vesting conditions / period	The restricted shares will vest after one year and continue to be subject to a disposal restriction for an additional three year period. Prior to each of the vesting date and the release date, the board will undertake a conduct/risk review to confirm that vesting and release of the award aligns with the conduct and risk outcomes of the Group.
Vested awards	On the relevant release dates, the restriction on the shares is released. Some shares may be released early for participants who ceased employment to assist participants in managing their tax liability.
Unvested awards	Unvested awards are forfeited if the participant voluntarily ceases employment or is dismissed for misconduct.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

(d) Restricted shares (continued)

AMP Employee Share Plan – $1,000 Share Plan

AMP has given permanent employees the opportunity to become shareholders in AMP through the launch of the AMP Employee Share Plan (AESP). All permanent employee’s as at 12 December 2018 were offered a $1,000 gift of shares subject to employment on the allocation date in March 2019. These shares are subject to a restriction on sale and transfer for up to three years from the date they are allocated. Any shares acquired as a gift will be released to the participant at the end of the three year period or when they leave employment with AMP (whichever is earlier).

For the period 1 April 2020, eligible participants may acquire $1,000 fully paid ordinary shares in AMP by sacrificing $1,000 of their 2019 short-term incentive award .

AMP Employee Share Plan - $5,000 Salary Sacrifice Plan

AMP has given permanent employees the opportunity to become shareholders in AMP through the launch of the AMP Salary Sacrifice Share Plan (SSP). All permanent employees in Australia were offered the opportunity to salary sacrifice between $2,500 - $5,000 over a 12-month period to acquire shares in AMP. AMP offered a matching contribution on a 1:5 basis, meaning that employees who opted to salary sacrifice $5,000 would receive an upfront matched allocation of $1,000 in AMP shares. The salary sacrifice and matching shares are both held in an employee share plan trust on behalf of the employees and are subject to a restriction on sale and transfer for up to three years from the date they are allocated.

Any purchased and matching shares acquired during 2019 will be released to the participant at the end of the three year period. Any purchased shares acquired during 2020 will be released at the end of the three year period and matching shares will be released at the end of the two-year period or when they leave employment with AMP (whichever is earlier). Matching shares are forfeited if a participant voluntarily ceases employment before the end of the three year holding period.

Valuation of restricted shares and AMP Employee Share Plan

The restricted share awards are based on valuations prepared by an independent external consultant. The valuations are based on the 10-day volume weighted average share price over the 10-day trading period prior to the start of the award’s valuation period. Assumptions regarding the dividend yield and volatility have been estimated based on AMP’s dividend yield and volatility over an appropriate period.

For the AMP Employee Share Plan $1,000 Share Plan and $5,000 Salary Sacrifice Plan, the fair value of the shares was determined as the market price of AMP ordinary shares on the grant date. As employees holding restricted shares are entitled to dividend payments, no adjustment has been made to the fair value in respect of future dividend payments.

In determining the share-based payments expense for the period, the number of instruments expected to vest has been adjusted to reflect the number of employees expected to remain with AMP until the end of the vesting period.

Grant date	Share price	Contractual life (years)	Vesting Date	Dividend yield	Fair value
25/02/2019	$2.38	1.0	15/02/2020	N/A	$2.38
25/02/2019	$2.38	2.0	15/02/2021	N/A	$2.38
25/02/2019	$2.38	3.0	15/02/2022	N/A	$2.38
17/05/2019	$2.20	0.8	15/02/2020	4.2%	$2.20
17/05/2019	$2.20	1.0	15/05/2020	4.2%	$2.20
13/08/2019	$1.81	0.0	15/08/2019	4.0%	$1.81
13/08/2019	$1.81	1.0	15/08/2020	4.0%	$1.81
13/08/2019	$1.81	2.0	15/08/2021	4.0%	$1.81

The following table shows the movement in restricted shares outstanding for the period:

Grant date	Exercise price	Balance at 1 Jan 2019	Granted during theyear	Released during theyear	Lapsed during theyear	Balance at 31 Dec 2019
25/02/2019	Nil	-	1,991,303	872,092	-	1,119,211
14/03/2019	Nil	-	2,350,031	301,076	-	2,048,955
26/04/2019	Nil	-	403,228	10,886	33,524	358,818
17/05/2019	Nil	-	1,621,593	7,013	27,233	1,587,347
13/08/2019	Nil	-	587,328	352,396	-	234,932
Total		-	6,953,483	1,543,463	60,757	5,349,263

(e) Employee share acquisition plan

The employee share acquisition plan was suspended mid-way through 2009 in Australia but continued to operate in New Zealand until September 2019. This legacy share plan was subsequently closed in September 2019 after all participation ceased and no further tax deferrals were available to employees.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 5: Employee disclosures

5.3 Share-based payments (continued)

Accounting policy – recognition and measurement

Equity-settled share-based payments

The cost of equity-settled share-based payments is measured using their fair value at the date on which they are granted. The fair value calculation takes into consideration a number of factors, including the likelihood of achieving market-based vesting conditions such as total shareholder return (market conditions).

The cost of equity-settled share-based payments is recognised in the Income statement, together with a corresponding increase in the share-based payment reserve (SBP reserve) in equity, over the vesting period of the instrument. At each reporting date, the AMP group reviews its estimates of the number of instruments that are expected to vest and any changes to the cost are recognised in the Income statement and the SBP reserve, over the remaining vesting period.

Where the terms of an equity-settled share-based payment are modified and the expense increases as a result of the modification, the increase is recognised over the remaining vesting period. When a modification reduces the expense, there is no adjustment and the pre-modification cost continues to be recognised.

Where an equity-settled award does not ultimately vest, expenses are not reversed; except for awards where vesting is conditional upon a non-market condition, in which case all expenses are reversed in the period in which the award lapses.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 6: Group entities

This section explains significant aspects of the AMP group structure, including significant investments in controlled operating entities and entities controlled by AMP Life’s statutory funds, and investments in associates. It also provides information on business acquisitions and disposals made during the year.

6.1 Controlled entities
6.2 Acquisitions and disposals of controlled entities
6.3 Investments in associates
6.4 Parent entity information

6.1 Controlled entities

6.1 Controlled entities	6.1 Controlled entities
(a) Significant investments in controlled operating entities are as follows:
Operating entities	Country of		%holdings
Name of entity	registration	Share type	2019	2018
AMP AAPH Limited	Australia	Ord	100	100
AMP Advice Holdings Pty Ltd	Australia	Ord	100	100
AMP Bank Limited	Australia	Ord	100	100
AMP Capital Funds Management Limited	Australia	Ord	85	85
AMP Capital Holdings Limited	Australia	Ord	85	85
AMP Capital Investors (New Zealand) Limited	New Zealand	Ord	85	85
AMP Capital Investors Limited	Australia	Ord	85	85
AMP Capital Office and Industrial Pty Limited	Australia	Ord	85	85
AMP Capital Shopping Centres Pty Limited	Australia	Ord	85	85
AMP Financial Planning Pty Limited	Australia	Ord	100	100
AMP Group Finance Services Limited	Australia	Ord	100	100
AMP Group Holdings Limited	Australia	Ord A	100	100
AMP Life Limited	Australia	Ord	100	100
AMP Services (NZ) Limited	New Zealand	Ord	100	100
AMP Services Limited	Australia	Ord A	100	100
AMP Superannuation Limited	Australia	Ord	100	100
AMP Wealth Management New Zealand Limited	New Zealand	Ord	100	100
Hillross Financial Services Limited	Australia	Ord	100	100
ipac Group Services Pty Ltd	Australia	Ord	100	100
AMP Life Services Pty Ltd	Australia	Ord	100	n/a
AMP Wealth Management Holdings Pty Ltd	Australia	Ord	100	n/a
NM Superannuation Pty Ltd	Australia	Ord	100	100
National Mutual Funds Management (Global) Limited	Australia	Ord	100	100
National Mutual Funds Management Ltd	Australia	Ord	100	100
National Mutual Life Nominees Pty Limited	Australia	Ord	100	100
NMMT Limited	Australia	Ord	100	100
The National Mutual Life Association of Australasia Limited	Australia	Ord	100	100

Investments in investment entities controlled by the AMP Life statutory funds

The life insurance statutory funds hold investments in various investment vehicles/funds backing policyholder liabilities as well as shareholder attributable assets in the life insurance statutory funds. The policyholder attributable investments are not part of the core wealth management business of AMP and do not have a material impact on the financial performance or net financial position of the company. The investments are measured at fair value through profit and loss reflecting the fair value movements in these investments in the financial statements.

Critical accounting estimates and judgements:

Judgement is applied in determining the relevant activities of each entity, whether AMP Limited has power over these activities and whether control exists. This involves assessing the purpose and design of the entity and identifying the activities which significantly affect that entity’s returns and how decisions are made about those activities. In assessing how decisions are made, management considers voting and veto rights, contractual arrangements with the entity or other parties, and any rights or ability to appoint, remove or direct key management personnel or entities that have the ability to direct the relevant activities of the entity. Management also considers the practical ability of other parties to exercise their rights.

Judgement is also applied in identifying the variable returns of each entity and assessing AMP Limited’s exposure to these returns. Variable returns include distributions, exposure to gains or losses and fees that may vary with the performance of an entity.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 6: Group entities

6.2 Acquisitions and disposals of controlled entities

(a) Acquisitions and disposals of controlled operating entities

There were no individually or collectively significant acquisitions or disposals of controlled operating entities during the year.

(b) Acquisition and disposals of controlled entities of AMP Life statutory funds

In the course of normal operating investment activities, the AMP Life statutory funds acquire equity interests in entities which, in some cases, result in AMP holding a controlling interest in the investee entity.

Most acquisitions and disposals of controlled entities are in relation to managed investment schemes with underlying net assets typically comprising investment assets including cash. The consideration for acquisitions or disposals reflects the fair value of the investment assets at the date of the transactions after taking into account minority interests.

Certain controlled entities of the life entity’s statutory funds are operating companies which carry out business operations unrelated to the core wealth management operations of the AMP group.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 6: Group entities

6.3 Investments in associates

(a) Investments in associates accounted for using the equity method

			Ownership	interest	Carrying	amount1
		Place of	2019	2018	2019	2018
Associate	Principal activity	business	%	%	$m	$m
China Life Pension Company2	Pension company	China	19.99	19.99	325	305
AIMS AMP Capital Industrial REIT3	Industrial property trust	Singapore	-	10	-	101
China Life AMP Asset Management Company Ltd	Investment management	China	15	15	53	49
Global Infrastructure Fund Sponsor4	Fund	Cayman Island	5	5	101	98
Global Infrastructure Fund II4	Fund	Cayman Island	5	5	124	81
PCCP LLC2	Investment management	United States	24.9	24.9	144	145
Other (individually immaterial associates)			n/a	n/a	104	145
Total investments in associates accounted for using the equity method					851	924

1 The carrying amount is after recognising $72m (2018: $42m) share of current period profit or loss of associates accounted for using the equity method.
2 The AMP group has significant influence through representation on the entity's Board.
3 This has been disposed during the year and all proceeds w ere received.
4 Entities w ithin the AMP group have been appointed investment manager, therefore the group is considered to have significant influence.

(b) Investments in significant associates held by the life entities’ statutory funds measured at fair value through profit or loss

The life insurance statutory funds hold investments in various investment vehicles/funds on behalf of policyholders. These investments are not part of the core wealth management business of AMP and do not have a material impact on the financial performance or net financial position of the AMP group.

Accounting Policy – recognition and measurement

Investments in associates

Investments in associates accounted for using the equity method

Investments in entities, other than those backing investment contract liabilities and life insurance contract liabilities, over which the AMP group has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. The investment is measured at cost plus post-acquisition changes in the AMP group’s share of the associates’ net assets, less any impairment in value. The AMP group’s share of profit or loss of associates is included in the Consolidated income statement. Any dividend or distribution received from associates is accounted for as a reduction in carrying value of the associate.

Any impairment is recognised in the Consolidated income statement when there is objective evidence a loss has been incurred. It is measured as the amount by which the carrying amount of the investment in entities exceeds their recoverable amount.

Investments in associates measured at fair value through profit or loss

Investments in entities held to back investment contract liabilities and life insurance contract liabilities are exempt from the requirement to apply equity accounting and have been designated on initial recognition as financial assets measured at fair value through profit or loss.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 6: Group entities

6.4 Parent entity information

6.4 Parent entity information
	2019	2018
	$m	$m
(a) Statement of comprehensive income - AMP Limited entity
Dividends and interest from controlled entities	153	545
Service fee revenue	17	4
Other income	-	1
Operating expenses	(20)	(3)
Impairment of investments in controlled entities	(3,173)	(2,489)
Finance costs	(44)	(55)
Income tax credit1	58	17
Loss for theyear	(3,009)	(1,980)
Total comprehensive loss for theyear	(3,009)	(1,980)
(b) Statement of financial position - AMP Limited entity
Current assets
Cash and cash equivalents	9	8
Receivables and prepayments2	325	57
Current tax assets	392	130
Loans and advances to subsidiaries	253	-
Non-current assets
Investments in controlled entities	6,838	9,911
Loans and advances to subsidiaries	1,558	1,007
Deferred tax assets3	51	47
Total assets	9,426	11,160
Current liabilities
Payables2	565	239
Provisions	2	1
Subordinated debt4	277	-
Non-current liabilities
Subordinated debt4	1,036	1,043
Total liabilities	1,880	1,283

Net assets	7,546	9,877
Equity - AMP Limited entity
Contributed equity	10,402	9,610
Share-based payment reserve	24	21
Retained earnings5	(2,880)	246
Total equity	7,546	9,877
1 Dividend income from controlled entities $128m (2018: $514m) is not assessable for tax purposes. Income tax credit includes
$45m (2018: $8m) utilisation of previously unrecognised tax losses.
2 Receivables and payables include tax-related amounts receivable from subsidiaries $125m (2018: $53m) and payable to
subsidiaries $533m (2018: $207m).
3 Deferred tax assets include amounts recognised for losses available for offset against future taxable income $43m (2018: $45m).
4 The AMP Limited entity is the issuer of: AMP Wholesale Capital Notes; AMP Capital Notes, AMP Capital Notes 2, AMP Subordinated
Notes and AMP Notes 3. Further information on these is provided in note 3.2.
5 Changes in retained earnings comprise $3,009m loss (2018: $1,980m loss) for the year less dividends paid of $117m
(2018: $715m).
(c) Contingent liabilities of the AMP Limited entity
The AMP Limited entity has entered into deeds to provide capital maintenance and liquidity support to AMP Bank Limited. At the
reporting date, the likelihood of any outflow in settlement of these obligations is considered remote.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

This section includes disclosures other than those covered in the previous sections, required for the AMP group to comply with the accounting standards and pronouncements.

7.1 Notes to Consolidated statement of cash flows • 7.4 Auditors’ remuneration
7.2 Commitments
7.3 Provisions and contingent liabilities
7.5 New accounting standards
7.6 Events occurring after reporting date

7.1 Notes to Consolidated statement of cash flows

(a) Reconciliation of cash flow from operating activities

	2019	2018
	$m	$m
Net (loss) profit after income tax	(2,434)	51
Depreciation of operating assets	74	22
Amortisation and impairment of intangibles	2,546	239
Investment gains and losses and movements in external unitholders' liabilities	(7,472)	8,258
Dividend and distribution income reinvested	(4,180)	(5,502)
Share-based payments	4	5
(Increase) in receivables, intangibles and other assets	(567)	(569)
Increase (decrease) in net policy liabilities	3,315	(6,769)
Increase (decrease) in income tax balances	279	(937)
(Decrease)increase in otherpayables andprovisions	(674)	1,221
Cash flows used in operating activities	(9,109)	(3,981)

(b) Reconciliation of cash

	2019	2018
	$m	$m
Comprises:
Cash and cash equivalents	4,539	3,932
Short-term bills and notes(included in Debt securities)	3,643	3,450
Cash and cash equivalents for thepurpose of the Statement of cash flows	8,182	7,382

Accounting policy – recognition and measurement

Cash and cash equivalents

Cash and cash equivalents comprise cash-on-hand that is available on demand and deposits that are held at call with financial institutions. Cash and cash equivalents are measured at fair value, being the principal amount. For the purpose of the Consolidated statement of cash flows, Cash and cash equivalents also include other highly liquid investments not subject to significant risk of change in value, with short periods to maturity, net of outstanding bank overdrafts. Bank overdrafts are shown within Interest-bearing liabilities in the Consolidated statement of financial position.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.2 Commitments

(a) Commitments for leases not commenced yet

The future lease payments for which the group is committed but the leases have not yet commenced as at 31 December 2019 are $748m (2018: $819m). Lease commitments do not include non-lease components per AMP's accounting policy based on AASB 16 Leases .

(b) Buy-back arrangements

AMP has contractual arrangements with financial advice businesses in the AMP advice network to purchase their client registers at agreed values subject to certain conditions being met. These buy-back arrangements include arrangements known as Buyer of Last Resort (BOLR). Advice businesses must register their intention to invoke buy-back arrangements, which have six to 18-month lead times and are subject to audit prior to finalising the purchase price. The pipeline of buy-back arrangements where an intention to invoke has been registered is $235m (2018: $163m), $228m of which relates to arrangements expected to settle in the next 12 months. The commitment value has been disclosed as the unaudited value as advised by the advice businesses. AMP’s experience is that the ultimate purchase price after audit is typically less than the initially advised value and not all of the buy-backs progress to completion. Over the 12 months ended 31 December 2019, $98m was paid for executed buy-back arrangements.

Where a notice of intention to invoke the buy-back arrangement has been received as at 31 December 2019 and AMP has concluded that the purchase price of the register exceeds the value of the client register to AMP, or where ongoing service arrangements would be unable to be serviced or sold a provision has been raised for the difference. Refer to note 7.3 for further details.

(c) Investment commitment

At 31 December 2019 AMP Capital Finance Limited, a controlled entity of AMP Limited, had uncalled investment commitments of $417m (2018: $265m) in relation to certain funds managed by AMP Capital. Subsequent to the reporting date, $103m of this committed capital was invested by AMP Capital Finance Limited into AMP Capital managed funds.

7.3 Provisions and contingent liabilities

				2019	2018
				$m	$m
(a) Provisions
Restructuring1				27	19
Client remediation				652	656
Buy-back arrangements				116	-
Other2				181	132
Totalprovisions				976	807
		Client	Buy-back
	Restructuring1	remediation	arrangements	Other2	Total
	$m	$m	$m	$m	$m
(b) Movements in provisions
Balance at the beginning of the year	19	656	-	132	807
Additional provisions made during the year	19	217	145	139	520
Provisions used duringtheyear	(11)	(221)	(29)	(90)	(351)
Balance at the end of theyear	27	652	116	181	976

1 Restructuring provisions are recognised in respect of programs that materially change the scope of the business or the manner in w hich the business is conducted.
2 Other provisions are in respect of various other operational provisions. $24m (2018:$28m) is expected to be settled more than 12 months from the reporting date.

Accounting policy – recognition and measurement

Provisions

Provisions are recognised when:

the AMP group has a present obligation (legal or constructive) as a result of a past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. For provisions other than employee entitlements, the discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.

A contingent liability is disclosed where a legal or constructive obligation is possible, but not probable; or where the obligation is probable, but the financial impact of the event is unable to be reliably estimated.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.3 Provisions and contingent liabilities (continued)

Critical accounting estimates and judgements:

The group recognises a provision where a legal or constructive obligation exists at the balance sheet date and a reliable estimate can be made of the likely outcome. Although provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the judgemental nature of these items means that future amounts settled may be different from those provided for.

From time to time, the AMP group may incur obligations or suffer financial loss arising from litigation or contracts entered into in the normal course of business, including guarantees issued by the parent for performance obligations of controlled entities in the AMP group. Legal proceedings threatened against AMP may also, if filed, result in AMP incurring obligations or suffering financial loss. A contingent liability exists in relation to actual and likely potential legal proceedings.

Where it is determined that the disclosure of information in relation to a contingent liability can be expected to seriously prejudice the position of the AMP group (or its insurers) in a dispute, accounting standards allow the AMP group not to disclose such information. It is the AMP group’s policy that such information is not disclosed in this note.

Industry and regulatory compliance investigations

AMP is subject to review from time to time by regulators, both in Australia and offshore. In Australia, AMP’s principal regulators are APRA, ASIC and AUSTRAC, although other government agencies may have jurisdiction depending on the circumstances. The reviews and investigations conducted by regulators may be industry-wide or specific to AMP and the outcomes of those reviews and investigations can vary and may lead, for example, to the imposition of penalties, variations or restrictions to licences, the compensation of clients, enforceable undertakings or recommendations and directions for AMP to enhance its control framework, governance and systems.

AMP is undertaking additional reviews concurrently with these regulatory investigations to determine, amongst other things, where clients may have been disadvantaged. In some instances, compensation has been paid and where the results of our reviews have reached the point that customer compensation is likely and can be reliably estimated then a provision has been raised.

Client remediation

AMP is progressing with its customer review and remediation programs which are seeking to identify and compensate clients who have suffered loss or detriment as a result of either:

inappropriate advice from their adviser; or
where clients have been charged an advice service fee without the provision of financial advice services (or insufficient evidence of the provision of financial services).

Provisions have been raised for both of these items, inclusive of the costs to perform the review and implement the remediation process. The measurement of provisions is based on assumptions used to estimate the customer remediation payments, including evidence failure rates and compensation amounts, which require significant judgement. As the review progresses, additional information may arise or further issues may be identified, which could have a significant impact on the final compensation and the costs of the programs. Consequently, the total costs associated with this matter remain uncertain.

Provisions for client remediation do not include amounts for potential recoveries from advisers and insurers.

Inappropriate advice

AMP continues to progress with the identification and compensation of clients who have suffered loss or detriment as a result of receiving inappropriate advice from their adviser. The scope of the review includes the period from 1 January 2009 to 30 June 2015 specified by ASIC in Report 515 Financial advice: Review of how large institutions oversee their advisers. AMP has extended its review to 30 June 2017. The provision also includes any instances of inappropriate advice identified through ongoing monitoring and supervision activities.

Compensation has been and continues to be paid and a provision exists for further compensation payable as the review progresses and client reviews are completed. AMP has adjusted its provision estimate for future compensation based on the actual experience of remediating clients and the expected future costs of operating the program. The provision includes a component for advisers for whom a remediation review has not yet commenced and the determination of compensation for any given client is not known with certainty until immediately prior to payment.

Advice service fee (fees for no service)

AMP has progressed on the identification and compensation of clients of advisers who have been charged an ongoing service fee without the provision of financial advice services (or where there is insufficient evidence of the provision of financial advice services). This involves a large-scale review of fee arrangements from 1 July 2008 as specified by ASIC in Report 499 Financial advice: Fees for no service. Sampling of customer files has been conducted across AMP licensees and has identified instances in the review period where clients have paid fees and there is insufficient evidence to support that the associated service had been performed. In such instances, clients have been remediated.

AMP has developed a process for client review and remediation, which on current estimates is expected to finish mid-2021. AMP has made significant progress in the execution of the remediation program, including agreeing major policies with ASIC. Throughout the program AMP continues to engage with ASIC on its progress and approach.

The provision for advice service fee client compensation and the future costs of executing the remediation program is judgemental and has been estimated using multiple assumptions derived from the sampling conducted to date. Assumptions used include evidence failure rates, average fees to be refunded and compensation for lost earnings.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.3 Provisions and contingent liabilities (continued)

Other matters

In addition to the above items, other reviews in relation to fees charged to clients have been performed during the year, including corporate plan service fees, fees charged to clients without an active adviser and deceased estates. Those reviews are largely complete. Where the reviews have identified instances of clients having suffered loss or detriment, compensation has been paid. As at 31 December 2019, provisions of $22m have been raised for the estimated remaining compensation due to clients, including lost earnings, for these matters. The provisions are judgemental and the actual compensation to clients could vary from the amounts provided.

Buy-back arrangements

AMP has contractual arrangements with financial advice businesses in the aligned AMP advice network to purchase their client registers at agreed multiples to revenues subject to certain conditions being met. These buy-back arrangements include arrangements known as Buyer of Last Resort (BOLR). Advice businesses must register their intention to invoke buy-back arrangements, which have six to 18month lead times and are subject to audit prior to finalising the purchase price. Client registers are either acquired outright by AMP or AMP facilitates a sale to an existing business within the aligned AMP advice network. The BOLR Master Terms and other buyback arrangements were modified on 8 August 2019.

A contingent liability exists in relation to buy-back arrangements where a notice of intention could occur in future periods.

Litigation

Shareholder class actions

During May and June 2018, AMP Limited was served with five competing shareholder class actions, one filed in the Supreme Court of NSW and the others filed in the Federal Court of Australia. The actions follow the financial advice hearing block in the Royal Commission in April 2018 and allege breaches by AMP Limited of its continuous disclosure obligations. Each action is on behalf of shareholders who acquired an interest in AMP Limited shares over a specified time period. The claims are yet to be quantified and participation has not been determined. Subsequently, the four proceedings commenced in the Federal Court of Australia were transferred to the Supreme Court of NSW. The Supreme Court of NSW determined that a consolidated class action (of two of the class actions) should continue, and the other three proceedings were permanently stayed. An appeal against that decision was filed by one of the unsuccessful plaintiffs, and that appeal was subsequently dismissed (a further application for leave to appeal has been filed in the High Court of Australia). AMP Limited has filed its defence to the proceedings. Currently it is not possible to determine the ultimate impact of these claims, if any, upon AMP. AMP Limited is vigorously defending these actions.

Superannuation class actions

During May and June 2019, certain subsidiaries of AMP Limited were served with two class actions in the Federal Court of Australia. The first of those class actions relates to the fees charged to members of certain of AMP superannuation funds. The second of those actions relate to the fees charged to members, and interest rates received and fees charged on cash-only fund options. The two proceedings were brought on behalf of certain superannuation clients and their beneficiaries. Subsequently, the Federal Court ordered that the two proceedings be consolidated into one class action, a consolidated claim was filed and defences were filed on behalf of the respondent AMP Limited-subsidiaries. The claims are yet to be quantified and participation has not been determined. Currently, it is not possible to determine the ultimate impact of these claims, if any, upon AMP. The proceedings are being vigorously defended.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.4 Auditors’ remuneration

7.4 Auditors’ remuneration
	2019	2018
	$'000	$'000
AMP Limited and other corporate entities in the consolidated group
Audit services
Audit or review of financial statements	6,731	6,107
Other audit services1	1,596	1,340
Total audit service fees	8,327	7,447
Non-audit services
Taxation services	499	766
Other services2	1,063	1,028
Total non-audit services fees	1,562	1,794
Total auditors' remuneration for AMP Limited and other corporate entities	9,889	9,241
Managed Investment Schemes and Superannuation Funds
Audit services
Audit or review of financial statements	8,005	7,696
Other audit services1	452	371
Total audit service fees	8,457	8,067
Non-audit services
Taxation services	45	274
Other services3	173	280
Total non-audit services fees	218	554
Total auditors' remuneration for managed investment schemes and superannuation	8,675	8,621

Total auditors' remuneration	18,564	17,862

1 Other audit services include regulatory compliance and review s of controls and procedures.

2 Other non-audit services for AMP Limited and other corporate entities relate to compliance related review .

3 Other non-audit services for managed investment schemes and superannuation funds are primarily related to transaction related advice.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.5 New accounting standards

a) New and amended accounting standards adopted by the AMP group

A number of new accounting standards and amendments have been adopted effective 1 January 2019. These have not had a material effect on the financial position or performance of the AMP group other than as described below.

AASB 16 Leases

AASB 16 Leases (AASB 16) became effective for periods beginning on 1 January 2019. AASB 16 requires lessees to recognise most leases on balance sheet as lease liabilities, with corresponding right of use assets being recognised. Lessees have the option not to recognise certain type of leases such as ‘short-term’ leases.

AMP has applied the ‘modified retrospective’ method in adopting AASB 16 without restating the comparative information for 2018 as permitted by the transitional provisions of the standard. The adoption of the modified retrospective approach resulted in recognition of the cumulative effect of the initial adjustment to retained earnings, for certain leases, as at 1 January 2019.

The following table identifies the impacts of the adoption of AASB 16 on the Consolidated statement of financial position and equity balances as at 1 January 2019:

balances as at 1 January 2019:
			Retained
	Right of use	Lease	earnings
	assets	liabilities1	(net of tax)	Total equity
	$m	$m	$m	$m
Balance at 31 December 2018	-	-	(886)	6,791
Adoption of AASB 16	199	(209)	(7)	(7)
Balance at 1 January 2019	199	(209)	(893)	6,784

1 These do not include commitments to enter leases which have not commenced yet.

Opening balance reconciliation:

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:

	$m
Lease commitments at 31 December 2018 (undiscounted)	1,241
Lease commitments not commenced at 1 January 2019	(966)
Short-term leases	(13)
Discounting impact	(27)
Non-lease components and other items1	(26)
Opening lease liabilities at 1 January 2019	209

1 Non-lease components are incorporated within the opening lease commitments but are excluded from lease liabilities.

Accounting policy – recognition and measurement

At inception, AMP group assesses whether a contract is or contains a lease. Such assessment involves the application of judgement as to whether:

the contract involves the use of an identified asset;
the group obtains substantially all the economic benefits from the asset; and
the group has the right to direct the use of the asset.

It is AMP's policy to separate non-lease components when recognising the lease liability.

The group recognises a right of use (ROU) asset and a lease liability at the lease commencement date. The ROU asset is initially measured as the present value of future lease payments, plus initial direct costs and restoration costs of the underlying asset, less any lease incentives received. The ROU asset is depreciated over the shorter of the lease term and the useful life of the underlying asset. The ROU asset is tested for impairment if there is an indicator, and is adjusted for certain remeasurements of the lease liability.

A lease liability is initially measured at the present value of future lease payments discounted using the group’s incremental borrowing rate. Lease payments generally include fixed payments and variable payments that depend on an index, e.g. CPI. A lease liability is remeasured when there is a change in future lease payments from a change in an index, or if the group’s assessment of whether an option will be exercised changes.

Interest expense on lease liabilities is recognised within finance costs in the Consolidated income statement.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.5 New accounting standards (continued)

The group has elected not to recognise ROU assets and lease liabilities for leases where the lease term is less than or equal to 12 months. Payments for such leases are recognised as an expense on a straight-line basis over the lease term.

Right of Use assets:

The main type of ROU asset recognised by the group is buildings. The following table details the carrying amount of the ROU assets at 31 December 2019 and the movements during the year.

	Buildings	Total
	$m	$m
Upon adoption of AASB 16 at 1 January 2019	199	199
Net additions during the year	96	96
Depreciation expense	(50)	(50)
Closing balance at 31 December 2019	245	245

Lease liabilities:

The following table details the carrying amount of lease liabilities at 1 January 2019 and the movements during the year.

	$m
Upon adoption of AASB 16 at 1 January 2019	209
Net additions during the year	100
Interest expense	10
Payments made	(53)
Closing balance at 31 December 2019	266

The AMP group paid an amount of $13m in relation to short-term leases and $1m in relation to variable lease payments. The total cash outflow for leases in 2019 was $67m.

AASB Interpretation 23 Uncertainty over Income Tax Treatments

AASB Interpretation 23 Uncertainty over Income Tax Treatments clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and how an entity considers changes in facts and circumstances.

The group adopted the interpretation on 1 January 2019. Upon adoption, the group assessed whether it has any uncertain tax positions. The adoption of this interpretation did not have a material impact on the group.

b) New accounting standards issued but not yet effective

A number of new accounting standards and amendments have been issued but are not yet effective, none of which have been early adopted by the AMP group in this preliminary final report. These new standards and amendments, when applied in future periods, are not expected to have a material impact on the financial position or performance of the AMP group, other than as set out below.

AASB 17 Insurance Contracts

AASB 17 Insurance Contracts (AASB 17) introduces significant changes to accounting for life insurance contracts and the reporting and disclosures in relation to those contracts. AASB 17 does not change the underlying economics or cash flows of the life insurance business, however, there will be significant changes to the measurement of insurance contract liabilities including the amount of deferred acquisition costs and the profit emergence profiles from life insurance contracts.

Since the standard was issued, various implementation matters have been raised by stakeholders and the International Accounting Standards Board (IASB) is currently considering certain targeted amendments to the standard. The IASB propose to announce resolution of any amendments later in 2020.

As it currently stands, the mandatory adoption date is 1 January 2021. However, one of the proposed changes being considered by the IASB is the deferral of the effective date for adoption of the new standard. Subject to the outcome of the IASB’s process, the new effective date is proposed for financial reporting periods beginning on 1 January 2022.

In addition to the financial reporting impacts, regulators are considering their response to the new standard which may lead to changes in the determination of capital requirements, income tax and prudential reporting.

Due to the complexities of the requirements, evolving interpretations and the potential changes to the original standard, it is not yet practicable to quantify the financial impact on AMP group’s life insurance business. In some cases, the final impact of the new requirements will not be determined until any amendments, interpretations and regulatory responses to the new standard are determined. AMP group is continuing to develop its implementation plans for the adoption of AASB 17.

AMP Limited Appendix 4E – Preliminary final report Notes supporting the financial information for the year ended 31 December 2019

Section 7: Other disclosures

7.6 Events occurring after reporting date

On 27 June 2018, ASIC brought civil penalty proceedings against AMP Financial Planning Pty Limited (AMPFP), a wholly owned subsidiary of AMP Limited, alleging contraventions of the Corporations Act 2001 by AMPFP relating to the alleged conduct of certain of its authorised financial advisers over the period of 2013 to 2015 in providing advice to clients in relation to the replacement of life insurance policies by cancellation and new application rather than by transfer.

As at the date of this report, the directors are not aware of any other matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect:

the AMP group’s operation in future years;
the results of those operations in future years; or
AMP group’s state of affairs in future financial years.

AMP Limited Appendix 4E – Preliminary final report Details of movements in controlled entities for the year ended 31 December 2019

Changes in controlled entities comprise entities acquired and disposed through (a) activities in respect of investment entities controlled by the AMP life insurance entities' statutory funds and (b) purchase, sale, formation, and deregistration of minor operating controlled entities.

Changes in controlled entities during the full year ended 31 December 2019	Date control	Date control
Name of the entity	gained over entity	lost over entity
Advisory Group Pty Limited	17-Jun-19
AMP Advice South Perth Pty Ltd	30-Jul-19
AMP Capital Equity Volatility Premium Fund	2-Sep-19
AMP Capital Macro Quant Fund	2-Sep-19
AMP Capital NZ Shares Fund	3-Dec-19
AMP Capital Real Assets Equity Fund	2-Sep-19
AMP Heritage Holdings Pty Ltd	26-Apr-19
AMP Life International Equities Fund	1-Mar-19
AMP Life Services NZ Limited	7-Feb-19
AMP Life Services Pty Ltd	1-Feb-19
AMP Wealth Management Holdings Pty Ltd	26-Apr-19
AMPCI (SG) Pte. Limited	4-Sep-19
AWOF I Finance Company Pty Ltd	23-May-19
Evergen Pty Limited	26-Feb-19
Future Directions Emerging Markets Share Fund	1-Jun-19
PSK Financial Services Group Pty Ltd	7-Jun-19
T.I.M.E. Partners Pty Limited	6-Jun-19
Wainscott Financial Planning And Advice Pty Ltd	16-May-19
18 College Street (Finance) Pty Ltd		20-Oct-19
18 College Street Pty Ltd		20-Oct-19
47 Hill Rd Pty Ltd		16-Oct-19
AMP Australian Fixed Interest Index Fund		1-Jun-19
AMP Capital AA REIT Investments (Australia) Pty Limited		21-May-19
AMP Capital Absolute Return Grow th Fund		2-Sep-19
AMP Capital Asia Ex-Japan Fund		2-Jan-19
AMP Capital Asian Equity Grow th Fund		2-Jan-19
AMP Capital Australian Emerging Companies Fund		2-Sep-19
AMP Capital Australian Shares Fund		1-Apr-19
AMP Capital Future Cash Flow 6 Fund, Series 1		1-Apr-19
AMP Capital Global Property Securities Fund		2-Sep-19
AMP Capital Global Property Securities Fund		1-Apr-19
AMP Capital Hedged Global Fixed Interest Fund		1-Jun-19
AMP Capital Investments No. 14 Limited		11-Oct-19
AMP Capital Investments No. 8 Limited		17-Jul-19
AMP Capital Investors (Hong Kong) Limited		18-Apr-19
AMP Capital Outstanding Claims Fund		3-Dec-19
AMP Capital Specialist International Share Fund		2-Sep-19
AMP Global Listed Infrastructure Market Index Fund Hedged		1-Apr-19
AMP International Equity Index Fund		1-Apr-19
AMP Life Australian Small Companies Fund		1-Jun-19
AMP Property Investments (Qld) Pty. Ltd.		4-Dec-19
AMP UK ShoppingCentre Fund		3-Dec-19

AMP Limited Appendix 4E – Preliminary final report Details of movements in controlled entities (continued) for the year ended 31 December 2019

Changes in controlled entities during the full year ended 31 December 2019

Date control

Name of the entity	gained over entity	lost over entity
Booragoon Trust		3-Dec-19
EFM Fixed Interest Fund 6		1-Apr-19
EFM Fixed Interest Fund 8		1-Apr-19
EFM International Share Fund 9		1-Apr-19
H230 Pty Ltd		23-Oct-19
Honeysuckle 231 Pty Limited		20-Oct-19
Kent Street Investment Trust		3-Dec-19
Quay Mining (No. 2) Limited		4-Dec-19
Quay Mining Pty Limited		29-Nov-19
RDSS Pty Ltd		14-Jul-19
Smartsuper Pty Limited		23-Jan-19
Spinnaker Sound Joint Venture Pty Ltd		16-Oct-19
SPP (College Street) Pty Ltd		16-Oct-19
SPP No 2 (Donnybrook) Pty Ltd (Formerly: SPP No.2 (Villaw ood) Pty Limited)		16-Oct-19
SPP No 2 (Inverloch) Pty Ltd		16-Oct-19
SPP No 2 (Millers Road) Pty Ltd		16-Oct-19
SPP No 2 (Mulgrave) Pty Ltd		16-Oct-19
SPP No. 3A Investments Pty Limited		27-Oct-19
SPP No.1 (Mornington) Pty Limited		16-Oct-19
SPP No.1 (Mt Waverley Financing) Pty Limited		16-Oct-19
SPP No.1 (Mt Waverley) Pty Limited		16-Oct-19
SPP No.1 (New castle) Pty Limited		16-Oct-19
SPP No.1 (Pakenham) Pty Limited		16-Oct-19
SPP No.1 (Rosebery) Pty Limited		16-Oct-19
SPP No.1 Holdings Pty Limited		27-Oct-19
SPP No.2 (Caroline Springs Lot 32) Pty Limited		16-Oct-19
SPP No.2 (Caroline Springs Lot 37) Pty Limited		16-Oct-19
SPP No.2 (Clifton Hill) Pty Limited		16-Oct-19
SPP No.2 (Doreen) Pty Limited		16-Oct-19
SPP No.2 (New castle) Pty Limited		16-Oct-19
SPP No.2 (Salmon Street) Pty Limited		16-Oct-19
SPP No.2 (Spinnaker) Pty Ltd		16-Oct-19
SPP No.2 (Tw in Creeks) Pty Ltd		16-Oct-19
SPP No.2 (Wacol) Pty Ltd		16-Oct-19
SPP No.3 (50 Park Street) Pty Ltd		20-Oct-19
SPP No.3 (A) Pty Ltd		20-Oct-19
SPP No.3 (College Street Financing) Pty Ltd		20-Oct-19
SPP No.3 (Elizabeth Street) Pty Ltd		20-Oct-19
SPP No.3 (Esplanade) Pty Ltd		16-Oct-19
SPP No.3 (Mary Street) Pty Ltd		16-Oct-19
SPP No.3 (Park Street) Pty Ltd		20-Oct-19
SPP No.3 (Rozelle) Pty Ltd		20-Oct-19
SPP No.3 (Surfers Paradise) Pty Limited		20-Oct-19
SPP No.3 (Wentw orth Point) Pty Ltd		20-Oct-19
SPP No.3 Holdings Pty Ltd		27-Oct-19
Sydney Cove Trust		2-Sep-19
TOA Pty Ltd		11-Dec-19
Waterfront Place (No. 2) Pty. Ltd.		4-Dec-19
Waterfront Place (No. 3) Pty. Ltd.		4-Dec-19
Wholesale Global Equity - Index Fund Hedged		3-Dec-19
Wholesale Global Equity- Index Fund Unhedged		3-Dec-19

AMP Limited Appendix 4E – Preliminary final report Details of investments in associated entities and joint venture entities for the year ended 31 December 2019

The majority of investment assets held by AMP are in the Australian life insurance statutory funds and measured at fair value through profit or loss. At any one time, the life insurance statutory funds hold investments in various vehicles, including associated entities, on behalf of policyholders. These investments are not part of the core wealth management business of AMP and did not have a material impact on the financial performance of the group. Investments in other associated entities which are accounted for using the equity method comprise a number of minor operating entities.

	Ownership	interest
	31-Dec	31-Dec
	2019	2018
Significant associates and joint ventures of the Group as at 31 December 2019	%	%
AIMS AMP Capital Industrial REIT	-	10
AMP Australian Fixed Interest Index Fund	42	-
AMP Capital Dynamic Markets Fund	31	27
AMP Capital Multi-Asset Fund	20	-
AMP Capital NZ Shares Fund	-	38
AMP International Equity Index Fund	35	-
Australian Corporate Bond Fund	-	22
China Life AMP Asset Management Ltd	15	15
China Life Pension Company	19.99	19.99
EFM Fixed Interest Fund 6	33	-
EFM Fixed Interest Fund 8	42	-
EFM International Share Fund 9	39	44
Global Infrastructure Fund II	5	5
Global Infrastructure Fund sponsor	5	5
Gove Aluminium Finance Limited	38	30
K2 Australian Absolute Return Fund	-	50
Legg Mason Martin Currie Real Income Fund	-	20
PCCP LLC	24.9	24.9
PSK Financial Services Group Pty Ltd	-	42
Responsible Investment Leaders Balanced Fund	21	22
United Capital Financial Advisers, LLC	-	6.8
Wholesale Unit Trust MSCI Global Index Share Fund	-	37

AI assistant

AMP LIMITED — Interim / Quarterly Report 2019

64379_rns_2020-02-12_5dd8ddf0-6909-46ff-b357-388842ca5af9.pdf

Full Year Financial Results

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Appendix 4E – Preliminary final report

Year ended 31 December 2019

Contents

Operating and financial review

Principal activities

Sale of wealth protection and mature businesses

Client remediation

Impairment

2019 performance

Operating results by business area

Capital management and dividend

Strategy and prospects

Simplify portfolio

Key risks

Key business challenges

Business, employee and business partner conduct

Climate change

Competitor and customer environment

Cyber security threats

Operational risk environment

Organisational change

Regulatory environment

The environment

Significant changes to the state of affairs

Events occurring after the reporting date

TABLE OF CONTENTS

Consolidated statement of comprehensive income

AMP Limited Appendix 4E – Preliminary final report

Consolidated statement of changes in equity

About this financial information

(a) Understanding the AMP financial information

Agreement to sell wealth protection and mature businesses

The financial information:

(b) Basis of consolidation

About this financial information

Materiality

(c) Significant accounting policies

Interest, dividends and distributions income

Foreign currency transactions

(d) Critical judgements and estimates

Section 1: Results for the year

1.1 Segment performance

Section 1: Results for the year

1.1 Segment performance (continued)

(a) Segment profit

Section 1: Results for the year

1.1 Segment performance (continued)

Section 1: Results for the year

1.1 Segment performance (continued)

(c) Reconciliations

Section 1: Results for the year

1.1 Segment performance (continued)

(d) Segment assets

Accounting policy – recognition and measurement Revenue from contracts with customers

Investment management and related fees

Financial advisory fees

Section 1: Results for the year

1.2 Earnings per share

Basic earnings per share

Diluted earnings per share

Section 1: Results for the year

1.3 Taxes

Our taxes

(a) Income tax expense

Section 1: Results for the year

1.3 Taxes (continued)

(b) Analysis of income tax expense

Section 1: Results for the year

1.3 Taxes (continued)

Accounting policy – recognition and measurement

Income tax expense

Income tax for investment contracts business and life insurance contracts business

Deferred tax

Tax consolidation

Critical accounting estimates and judgements:

AMP LIMITED Interim / Quarterly Report 2019