• Introduction
• Directors' report
• Remuneration report
• Corporate governance
• Full Financial Report
• Shareholder information
• Glossary of terms
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Glossary

Closed book

A book of business that is not open
to new customers.

Commutation

A settlement agreement reached
between two or more parties that
effectively terminates the obligation
under an insurance/reinsurance contract.

Contingent liabilities

A situation existing at balance date,
where a potential future claim may
occur, but the liability is not suffi ciently
probable or reliably measurable to
warrant recognition in the fi nancial
statements at balance date.

Controllable costs

Costs that AMP incurs in running its
business. Controllable costs include
operational and project costs, but exclude
variable distribution costs, investment
management fees and interest on group
debt.

Cost to income ratio

A measure of the proportion of earnings
used to pay AMP’s controllable costs.

Demerger

AMP’s demerger on 23 December 2003
created separate businesses; AMP
in Australasia and HHG (now called
Henderson Group) in the United Kingdom.

Earnings per share (EPS)

This represents the profit made by AMP,
divided by the number of shares on issue.

Embedded value (EV)

A calculation for the AFS business of the
value of the shareholder equity and the
future profits expected to emerge from
the business currently in-force. The value
is expressed in today’s dollars.

Franked dividends

Dividends paid which have franking
credits attached. The franking credits
represent the income tax paid by the
company paying the dividend, which
can be used as a tax credit by Australian
resident shareholders receiving
the dividend.

Investment performance

A measure of how well we manage
funds on behalf of our customers.
The percentage of Australian assets
managed by AMP which met or
exceeded their respective benchmarks
for the year.

Long-term incentive

A long-term incentive is an award
usually provided in the form of
equity, such as performance rights or
restricted shares, to align an executive’s
interest with long-term company
performance. Long-term incentives
at AMP are subject to a performance
hurdle and/or a service requirement.

Mismatch items

Under accounting standards,
accounting mismatches arise because
the recognition and measurement
rules for certain policyholder assets
differ from the recognition and
measurement rules for the actual
liability to policyholders in respect of
the same assets. Mismatch items have
no impact on the group’s underlying
profit, cash flow or value.

Operating earnings

Operating earnings are the profi ts
earned by AMP’s operating businesses.
Operating earnings exclude investment
income on funds held as capital within
AMP’s operating businesses.

Option

A right to acquire an AMP share at
a pre-determined price during an
exercise period, subject to meeting
performance hurdles. AMP has not
offered options under its Employee or
Executive Option Plans since 2002.

Performance right

This is a form of executive
remuneration designed to reward long-
term performance. Performance rights
are a contractual promise to deliver a
pre-set number of AMP shares at the
end of a three-year performance period,
as long as a specifi c performance
hurdle is met.

Restricted share

This is a form of remuneration
designed to reward long-term
performance. A restricted share
is an ordinary AMP share that
has a holding lock in place until
a three-year vesting period ends.

Return on invested capital (RoIC)

Is the return that shareholders have
earned on the capital invested in
our businesses.

Short-term incentive

A cash payment based on
performance during the year against
pre-defined business objectives
aligned to company strategy.

Underlying profit

Underlying profit (which smoothes
out the effect of investment market
volatility) is calculated by aggregating
operating earnings, corporate
costs, interest expense on group
debt, earnings from discontinued
businesses, recognition of tax losses
and underlying investment income.
Underlying investment income is
based on average long-term rates
of return. Actual investment income
can be higher or lower than the
long-term rate from year to year.

Underlying return on equity (RoE)

A measure of the return a company
makes on shareholder equity.
Calculated as underlying profi t
divided by average monthly
shareholder equity during the year.

Value of new business (VNB)

A measure for the AFS business
of the future profi ts (expressed
in today’s dollars) expected to
emerge from new business
written during the year.

Vesting

Remuneration term defi ning the
point at which any performance
hurdles have been met and a
fi nancial benefit may be realised
by the recipient.