EV and VNB Methodology

EV and VNB methodology
EV and VNB valuations are the outcomes of actuarial modelling based on a complex set of assumptions. They are not management
projections of the value of the company. Value measurement metrics are highly sensitive to the model’s underlying assumptions. Valuations
are modelled on cash flows (cash in, cash out, AUM at period end). Profit margins are assumed to be stable over time. The methodologies
are consistent with Australian Standards. The table below sets out the definitions and methods of calculating Value of
in-force business (VIF) for EV and VNB.
Embedded value (EV) Value of new businesses (VNB)

Definitions The EV is a measure of the economic value The VNB is a measure of the economic value
of the shareholder capital in the business of the profits expected to emerge from
and the profits expected to emerge from new business net of the cost of supporting
the business currently in force. capital. VNB is the increase in EV over the
The EV is made up of two items: period due to new business.
–– Value of in-force business (VIF) – the

discounted value of future profits and
movements/releases of regulatory
capital, and
–– Adjusted net assets – shareholder
assets in excess of the regulatory
capital requirements, at face value.
For this purpose regulatory capital is
allocated at a product-group level with
a minimum of zero. This may give a
different regulatory capital to the MRR
disclosed in the Investor Report, which is
calculated at an entity level.
Methods of calculating VIF Future profit margins, shareholder Calculated at point of sale using the same
franking credits arising from payment of methods as for VIF. The value at the point of
Australian tax and capital requirements are sale is rolled up at the risk discount rate to
projected on best estimate assumptions the valuation date.
(see the Investor Report for more details
on assumptions). VIF is calculated by
discounting these to a present value using
a range of risk discount rates, expressed as
margins above the
10 year bond yield.
Key elements of cashflow included in future projections
The tables below outline the key underlying assumptions for the embedded value (EV) and value of new business (VNB) calculations for the
main product groupings for the AMP Financial Services business.
AMP Financial Services business

AMP’s EV and VNB methodologies include an allowance for expected recurring contributions on all Corporate Superannuation (CS), Flexible
Lifetime – Superannuation (FLS), Flexible Super (FS), Retirement Savings Account (RSA), KiwiSaver (KS) and New Zealand Retirement Trust
(NZRT) contracts where future contributions can be reasonably anticipated.
Main product groupings Key elements of cashflow included in future projections1

Embedded value (EV) Value of new business (VNB)
Regular premium Future premiums, claims, investment Only new contracts and increases
Retail risk insurance, conventional, returns, taxes and expenses adjusted for (excluding those due to indexation and
investment account and investment linked best estimates of lapses/surrenders. age) commencing during the period for
contracts2 Future expenses are projected using unit consistency with EV approach.
costs related to number of policies, claims
payments, annual premiums or assets
under management, depending on the
underlying driver of the expenses. Unit
costs that are related to policies are indexed
annually at 3%.
Single premium As above but with no future premiums. Single premiums paid during the period are
Retail investment account, included - no future premiums assumed for
investment linked and eligible rollover consistency with EV approach.
contracts,external platforms contracts and
North Guarantee (Ordinary)4
AMP - Corporate superannuation3,AMP As above but with full allowance for All single premium and transfer values paid
flexible super (AMP FS), flexible lifetime expected future recurring contributions during the period (for both new and old
superannuation (FLS), retirement savings based on contractual policy terms and policies) are included along with expected
account (RSA) contracts. KiwiSaver and conditions and observed policyholder future recurring contributions for new
NZRT4 payment methods.2 contracts commencing in the period.2
NMLA - Business Superannuation contracts;
North Guarantee (Super)
Group risk contracts AMP - As above but assuming future Only new group contracts commencing
premiums for existing members only - ie during the period are included in VNB (new
assumes withdrawing members are not members replacing withdrawing members
replaced. only impact EV), Plus for NMLA those
NMLA - As above but assuming future contracts that had their pricing reviewed.
premiums until the next opportunity for
NMLA to review pricing. This is generally 3
or 5 years.
1. Only contracts which are in force at the valuation date are included in EV calculations.
2. Fees and rebates (including small account protection) are projected over the expected life of the contract based on current contractual terms. The projections of
rebates allow for the growth in AUM related to the contract.
3. For AMP corporate superannuation contracts, where member administration is at a group level, EV assumes that departing members from a continuing scheme are
replaced with new scheme members. However, no allowance is made for the potential transfers of accumulated benefits with the new member from their previous
superannuation scheme.
AMP FS, FLS and RSA contracts are administered as separate accounts for each member. EV assumes there will be no replacement when existing members withdraw,
and new members are included as new contracts in VNB. For AMP FS, FLS and RSA, employer sourced contributions (including salary sacrifice) are considered as
recurring contributions, but member direct contributions are considered as recurring contributions only if they are sourced from a periodic direct debit or a periodic
reminder notice payment facility. New business includes all new policies or schemes, all single premiums received and, in the case of retail business, any increases in
regular contributions. Note that the corporate superannuation single premiums include asset transfers for new members of existing schemes, consistent with the
exclusion of these transfers within the EV.
4. Includes expected rollovers of funds from AMP corporate superannuation contracts, from members leaving their current employment, into AMP FS, FLS or where
applicable, the personal part of the AMP Corporate Superannuation Plan.

EV and VNB Methodology

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EV and VNB methodology

Embedded value (EV) Value of new businesses (VNB)

–– Value of in-force business (VIF) – the

AMP Financial Services business

Main product groupings Key elements of cashflow included in future projections1

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