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10 August 2017
AMP reports 1H 17 results; announces new reinsurance agreements

     
  • Underlying profit1 A$533 million in 1H 17, up 4 per cent (1H 16: A$513  million), and net profit2of A$445 million (1H 16: A$523 million).  
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  • Completion  of reinsurance program delivers on strategy, with new arrangements to release approximately A$500 million of capital from AMP Life (subject to regulatory approval) further  reducing the capital intensity of the wealth protection business.  
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  • Strong continued growth momentum in AMP Bank and AMP Capital.
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  • Australian wealth management resilient amid elevated margin compression; net cashflows rose 76 per cent to A$1,023 million; growth in revenue from Advice and SMSF to accelerate from 2H 17.
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  • Australian wealth protection earnings increased 11 per cent to A$52 million (1H 16: A$47  million), reflecting steps taken to stabilise the business.  
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  • Sustained cost management on track to deliver 3 per cent reduction in controllable costs (ex AMP Capital) by FY 17.  
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  • Strong capital position with A$1.9 billion over minimum regulatory requirements. Interim dividend increased to 14.5 cents a share, franked to 90 per cent.  
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  • Underlying return on equity was 14.5  per cent in the half, up from 11.9 per cent at 1H 16.

Wealth protection:  reinsurance update  
AMP today announced a series of new reinsurance agreements,  delivering on its strategy to release capital from the Australian wealth protection business and reduce future earnings volatility. Releasing approximately A$500 million in capital from AMP Life  (subject to regulatory approval), the new reinsurance agreements include:

     
  • A new quota share agreement with General Reinsurance Life Australia Limited (Gen Re) to cover 60 per cent of the NMLA retail portfolio, which was merged with AMP Life on 1 January 2017.
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  • An extension to the existing agreement with Munich Reinsurance Company of  Australasia Limited (Munich Re) to cover 60 per cent (up from 50 per cent) of the  AMP Life retail portfolio.
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  • A new surplus cover agreement with Gen Re to assist in managing risk and volatility in individual retail claims.
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  • Recapture  of 35 existing reinsurance treaties, simplifying AMP's overall reinsurance  arrangements.

The  new reinsurance agreements will commence on 1 November 2017 and, when combined  with the first tranche of reinsurance completed in 2016, effectively means 65 per cent of AMP's retail life insurance portfolio will be reinsured for claims incurred from 1 November 2017.  
 
AMP Chief Executive Craig  Meller said:

In the first half, we've made  good progress on the delivery of our strategy.

 
In wealth protection, we've  completed a set of comprehensive reinsurance agreements, which will release  capital from AMP Life and reduce earnings volatility.
 
We've continued to drive  strong growth in the bank, growing above system while maintaining a  conservative lending approach.

In wealth management, we've  delivered a solid performance, managing margin compression effectively and showing our strength as the market leader for superannuation during a period of  heightened market activity due to MySuper transitions.

 
And we've driven international  growth with AMP Capital growing strongly and underlining its emerging reputation  as a global leader in real estate and infrastructure investments with strong flows  to these asset classes.  Our partnerships  in China are also performing well, growing both cashflows and assets under  management.
 
Overall, it's a solid  performance underpinned by strong cost management that steps us toward our strategy  of transitioning to a higher-growth, capital-light business with a more  internationally diverse revenue profile.

Business unit results

                                                                                                                                           

Operating    earnings (A$ million)

1H 17

1H 16

% change

Australian wealth management

193

195

(1.0)

AMP Capital

92

83

10.8

AMP Bank

65

59

10.2

Australian wealth protection

52

47

10.6

New Zealand financial services

65

62

4.8

Australian mature

75

69

8.7


Australian  wealth management      
Australian  wealth management operating earnings, down 1 per cent to A$193 million, were  resilient. The result demonstrates effective margin management during the final  transitions to low-cost MySuper funds and amid significant activity across the superannuation industry. MySuper transitions completed in 1H 17 with margin compression expected to continue to be around 5  per cent this year.

Net cashflows were significantly higher in 1H 17, with stronger inflows from  discretionary super contributions ahead of 1 July changes to non-concessional caps. The transition of corporate super  mandates also supported inflows, with one mandate bringing more than 3,700 new customers to AMP. During the period, AMP  paid A$1.3 billion in pensions to help customers through their retirement.

AMP's  flagship North platform performed well in 1H 17, with flows up 8 per cent and AUM up 13  per cent on FY 16.  North now has more than A$30 billion in assets under management.

To offset the impact of margin compression, AMP is targeting additional revenue growth from its Advice and SMSF businesses, which is reported in the Other revenue line. AMP expects Other revenue to increase by 10 per cent in FY 17, with growth in Advice and SMSF revenues emerging in 2H 17 and accelerating into  2018. This will support the delivery of  AMP's target of 5 per cent overall revenue growth in Australian wealth management through the cycle.

AMP Capital
AMP Capital delivered strong growth in operating earnings, up 11 per cent to  A$92 million, benefiting from good growth in fee income. External assets under management fees rose by  6 per cent to A$132 million and non-AUM based management fees also increased, benefiting from growth in real estate development fee revenue.

External  net cashflows increased to A$2.4 billion, with significant cash inflows into  fixed income and higher-margin real assets. Real assets proved popular with investors wanting exposure to leading  infrastructure and real estate investments.
 
Delivering on its strategy to expand internationally, AMP Capital grew its number of  direct international institutional clients from 199 at FY 16 to 252 in 1H 17 and now manages A$10 billion in assets on their behalf. In China, AMP Capital's asset management joint venture, China Life AMP Asset Management (CLAMP), continues to grow rapidly  with AUM increasing 22 per cent to  RMB 141 billion (A$27.1 billion) in 1H 17. Total  AUM for China Life Pension Company, the pensions joint venture in which AMP owns a 19.99 per cent stake, grew 8 per cent to RMB 408.2 billion (A$78.5  billion) in 1H 17.

At 30  June 2017, AMP Capital had A$3.5 billion of committed funds available for investment including funds raised in its Infrastructure Debt Fund III (IDFIII), which has attracted strong international interest.    

AMP Bank
Strong  growth momentum continued in AMP Bank, with operating earnings up 10 per cent  to  A$65  million, driven by 17 per cent growth in lending to A$18.8 billion. The bank maintained a conservative credit policy and asset quality remains high. Mortgage sales through AMP's aligned adviser channel increased 49 per cent on 1H 16.  Net interest margin declined 4 basis  points from 1H 16 but improved 4 basis points on 2H 16.

The cost to income ratio rose slightly to 29 per cent, with controllable costs  increasing by A$4 million reflecting ongoing investment to support growth. Lending growth in the bank is expected to moderate in the second half as the market adjusts to new regulatory  requirements.

Australian wealth protection
Actions undertaken in 2016 to stabilise and reset the business are working and have delivered an improved result. Operating earnings rose 11 per cent, with improved experience offsetting lower profit margins.    

The announcement  of further reinsurance agreements, completing the strategic reinsurance program,  lessens exposure to retail claims volatility and will further stabilise wealth  protection earnings. AMP continued to support customers during their time of need, paying A$575 million in claims during the six months to 30 June.
 
New  Zealand financial services
Operating earnings, up 5 per cent to A$65 million, reflect higher experience  profits.  AUM increased 6.9 per cent to A$15.5 billion on positive markets.

A strong focus on cost management supported a reduction in controllable costs by 3 per cent to  A$38 million and improved the cost to income ratio by 1.4 percentage points to 27.2 per cent.
 
Australian mature
Operating earnings are up A$6 million from 1H 16 to A$75 million due to strong markets, lower controllable costs and improved experience.  

Capital and dividend
AMP's capital position remains strong, with level 3 eligible capital resources A$1,887  million above minimum regulatory requirements at 30 June 2017, down from A$2,195  million at 31 December 2016.  The  reduction largely reflects capital returned to shareholders through an on-market share buy back and investment in business growth during the period. The new reinsurance agreements are expected to release up to an additional A$500 million from AMP Life (subject to  regulatory approval).

The interim dividend has been increased to 14.5 cents per share,  franked at 90 per cent. The 1H 17 dividend payout is within AMP's stated target  range of 70 to 90 per cent of underlying profit.   More detailed information on the 1H 17 result is available in the 1H 17 investor report and presentation, both accessible at shareholdercentre.amp.com.au.
 
Media teleconference
A conference call for media with Craig Meller (CEO) and Gordon  Lefevre (CFO) will be held at  9.15am (AEST) today, 10 August 2017.  Dial  in details: 
 
Australia: Toll free 1800 838 758
New Zealand: Toll free 0800 447 258

 

1 Underlying  profit is the basis on which the AMP Board determines the dividend payment and  reflects the business performance of AMP. It is AMP's key measure of business profitability as it normalises investment market volatility stemming from shareholder assets invested in investment markets and aims to reflect the  trends in the underlying business performance of the AMP group.
 
   

2 AMP's profit  measures exclude MUFG: Trust Bank's (formerly MUTB) 15 per cent share of AMP Capital's earnings.