AMP. Earnings and target price revision. No change. Price catalyst. Action and recommendation

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1 AUSTRALIA AU Price (at CLOSE#, 19 Mar 213) Underperform A$5.7 Volatility index Low 12-month target A$ month TSR % +3.6 Valuation - Sum of Parts A$ 4.68 GICS sector Insurance Market cap A$m 14,855 3-day avg turnover A$m 56.9 Number shares on issue m 2,93 Investment fundamentals Year end 31 Dec 212A 213E 214E 215E NEP m.... Underwriting Result m.... Investment Income m Reported profit m ,22.3 Net Op Income m ,42.8 1,95.9 EPS adj PER adj x PER rel x DPS Dividend yield % Franking % Total SH Funds m 7,531. 7, ,3.6 8,475.9 BV/S ROE % ROA % P/BV x AU vs ASX 1, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 213 (all figures in AUD unless noted) 19 March 213 Macquarie Securities (Australia) Limited Lapse undermines life support Event At the FY12 result stated that to improve retention and claims management [] is reviewing its [Australian life insurance] products, pricing and retention and claims processes. This broad review follows experience losses in 4 of the 6 half year results from 1H1. Impact Cyclical & structural factors are impacting Life profits. reduced FY13 planned Life profit margins by ~$3m (~13.7%) at the FY12 result. Better economic conditions would reduce the cyclical drag, and is focused on resolving structural issues (lapses and claims), via 1) reunderwriting, 2) pricing changes, 3) targeting underperforming advisors, 4) changed commission structures and 5) product exclusions. Despite s remedial action, structural weaknesses may prove difficult to rectify. Industry Structural Weaknesses #1 Pricing: Yearly Renewable Terms (unique to Australia, ~9% of Life premiums) see premiums increase as policyholders age. This encourages healthy older persons to move to cheaper policies with potentially better pricing and product structure. Less healthy policyholders are stuck in existing policies, with fixed terms and conditions, as they age. The result is that the residual policyholder pool becomes sicker (higher mortality, morbidity) as healthy people lapse/re-underwrite. IFAs have the added incentive of a second commission. Industry Structural Weaknesses #2 Product Structure: To remain attractive among IFA distribution channels, policies need to remain highly rated on value provided to policyholders by research groups such as Canstar. To achieve this, additional features and more attractive terms & conditions are introduced, including weaker clinical definitions for trauma payouts, and waiving of exclusions, which increase claims costs and, without increasing premium rates, reduce margins. Additional features and improved terms & conditions also encourage lapse among healthy policyholders. Financial sensitivity: The combination of high commissions and no lapse penalties makes Life valuations highly sensitive to lapse rates. The impact of a change in Wealth Protection discontinuance assumptions is $33m on Embedded Value (~11cps/~ one-off impact), $35m New Business Value (~1cps/~ ongoing earnings impact). Earnings and target price revision No change. Price catalyst 12-month price target: A$4.99 based on a Sum of Parts methodology. Catalyst: AGM and March 213 quarter cash flows released on 9 May. Action and recommendation Downgrade to Underperform. We believe improved economic conditions and inflows are reflected in the current share price, and that ongoing negative Life company experience poses a clear downside risk to expectations. Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website

2 1H5A 2H5A 1H6A 2H6A 1H7A 2H7A 1H8A 2H8A 1H9A 2H9A 1H1A 2H1A 1H11A 2H11A 1H12A 2H12A Macquarie Private Wealth Lapse experience drives poor life experience outcomes Figure 1 below illustrates the deterioration in the lapse rate experience since 25. The trend from FY11 includes the impact of the AXA Australia and New Zealand acquisition. Fig 1 Individual risk insurance lapse rates only prior to % % 9.9% 1. 1.% % 12.9% 14.8% 9% 8% 7% 6% Source: Company Data, Macquarie Research, March 213 Long term discontinuance rate rising but still below peak historical levels. Fig 2 Long term industry individual risk insurance lapse rates Industry Discontinuance Rate 18% 16% 1 1 8% 6% % Jun-9 Jun-92 Jun-94 Jun-96 Jun-98 Jun- Jun-2 Jun-4 Jun-6 Jun-8 Jun-1 Jun-12 Source: Plan for life, Macquarie Research, March March 213 2

3 Sep-6 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Macquarie Private Wealth life company profit/(loss) experience vs peers Fig 3 2H12 experience losses were large ( of API), similar in magnitude to SUN, CBA and ANZ s first period of large negative experience, albeit several periods later. Experience (A$m) % Fig 4 SUN has seen two and a half years of negative experience, albeit reducing in severity Fig 5 As CBA experience losses have been relatively large in three of the past four halves Suncorp CBA % % Fig 6 While MLC has been relatively immune to date vs. peers Fig 7 and OnePath experience has been negative for 18 months NAB ANZ % % Source (for all above): Company Data, Macquarie Research, March March 213 3

4 Macquarie Private Wealth EV and net book value Figure 8 below tracks the EV and tangible book value per share back to 24. We also include a Stressed EV and discounted tangible capital per share from Dec 21. The Stressed EV applies a discount to the reported EV based on the EV sensitivities provided by and applies a discount to the tangible capital per share. Fig 8 Discount to EV and tangible book value per share now eroded $12 $11 Share Price EV+Tangible Capital per share Stressed EV + discounted tangible capital per share $1 $9 $8 $7 $6 $5 $4 $3 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Source: IRESS, Company Data, Macquarie Research, March 213 Wealth Protection overview: Risk products: individual and group term, disability and income protection. Distribution: Wealth Protection product is bundled with a superannuation product or distributed by aligned advisors and Independent Financial Advisors. In FY12 4 of in-force and 6 of new business was written within superannuation. Premium growth and product mix: Individual risk Annual Premium Income (API) increased $74m (6%) to $1.4b in FY12 and $61m () in 2H12 vs 1H12. 2H12 API included the annual benefit from Consumer Price Index (CPI) and age premium increases on risk policies held within superannuation in Life. FY12 individual risk API comprised lump sum insurance (7) and disability, including income protection (29%). Group risk API increased to $357m in FY12. Lapse Rates: lapse rates have deteriorated since the beginning of the financial crisis. 2H12 lapse rates were 14.8%, 1.pts higher than 2H11 and 1.9%pts higher than in 1H12. 2H lapse rates are typically higher than in the 1H as annual age and CPI premium increases that come into effect from 1 July each year for policies written within superannuation. Lapse Assumptions: At the Fy12 result Due to this current challenging environment for the Australian risk market, has strengthened lapse assumptions on the Life income protection and Life and NMLA lump sum books, and strengthened claims assumptions on the Life income protection book and Life and NMLA trauma books. Claims and Lapse assumptions: strengthened long term claims and lapse assumptions at the FY12 result and this is expected to reduce profit margins by around $3m in FY 13 with an offsetting impact on experience. Remedial action: has and will continue to take action to improve retention and claims management through product redesign, targeted pricing reviews, increased investment in retention programs at both the customer and planner level, early claims intervention and accelerating claims settlements. Cost performance: Wealth Protection controllable costs were $15m in 2H12, up from $92m in 2H11. 2H12 controllable costs increased partially due to higher claims handling costs. The cost to income ratio increased 11.pts to 41.8% in 2H12 due to the increase in experience losses. Profit margins: Wealth Protection as a percentage of average API were 12.7% in 2H12, down from 13. in 1H12 and 13. in 2H March 213 4

5 Macquarie Private Wealth Limited Source: Company data, Macquarie Research March 213 Price: Year Ending December 31 Consolidated P&L ($m) FY9A FY1A 1H11A 2H11A FY11A 1H12A 2H12A FY12A 1H13E 2H13E FY13E FY14E Operating Margins Financial Services - Wealth management Banking Wealth protection Mature New Zealand Capital investors (Net of minority) Business unit operating margins ,25 Corporate office costs Total operating earnings Underlying investment income Interest expense on corporate debt Limited tax loss recognition Normalised profit ,77 Investment income market adjustment Adjusted profit ,43 Other items AXA integration expenses VIF amortisation Timing differences Accounting mismatches Reported profit Divisional Results ($m) FY9A FY1A 1H11A 2H11A FY11A 1H12A 2H12A FY12A 1H13E 2H13E FY13E FY14E Financial Services ,27 Capital Investors Corporate office costs Limited tax loss recognition Mismatch items Non-recurring Consolidated items NPAT Investment Fundamentals FY9A FY1A 1H11A 2H11A FY11A 1H12A 2H12A FY12A 1H13E 2H13E FY13E FY14E Reported Profit Adjusted Profit ,43 Normalised Profit ,77 EPS (Adjusted) EPS (Underlying) EPS Growth % -17.% -7.8% % % PER (Adjusted) PER (Underlying) PER (Business profits) DPS ( ) Dividend yield % 4.6% 4.6% % 4.7% 5. Franking % Payout ratio (underlying) 79% % 76% 7 8% 78% 78% Ratio Analysis FY9A FY1A FY11A FY12A FY13E Headcount Issued shares Headcount (FTE) EFPOWA , Group Office Book Value ps , Capital P/BV , AFS NTA ps , P/NTA Embedded Value ps , 853 P/EV Value of new business , 1, Implied VnB multiple ROA.8%.9%.7%.6%.7% ROE % % $ ,844 3,746 3,573 3,551 Balance Sheets ($m) FY9A FY1A FY11A FY12A FY13E Valuation Summary ($m) Assets Wealth management 7,216 Cash 2,49 3,158 4,652 4,27 4,27 Banking 994 Investments 84,55 82,854 96,857 16, ,119 Wealth protection 2,42 Other assets 3,366 3,249 8,781 8,362 8,484 Mature 1,938 Total Assets 89,83 89,261 11,29 118, ,81 New Zealand 1,55 Capital Investors 1,268 Liabilities Group office (costs, capital and debt) -1,956 Policyholder liabilities 65,619 66,341 84,563 92,13 11,573 Limited tax loss recognition Operational debt 11,161 1,25 1,823 1,914 11,85 Total Group 13,43 Other liabilities 1,416 9,672 8,7 8,133 8,467 Shares on issue 2,87 Total Liabilities 87,196 86,263 13, , ,845 Value ps $ 4.68 Share price target $ 4.99 Net Assets 2,634 2,998 6,897 7,551 7,965 Capital Return -1.6% Dividend Yield 4.7% Minority interests Total Return 3. Total Shareholders' Equity 2,571 2,938 6,829 7,454 7,849 Recommendation Underperform 1,392 1,362 1,295 1,366 Dec 1 (pre AXA) Jun-11 Dec-11 Jun-12 Dec March 213 5

6 Macquarie Private Wealth Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+ Neutral expected return from to + Underperform expected return < Macquarie First South - South Africa Outperform expected return >+ Neutral expected return from to + Underperform expected return < Macquarie - Canada Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > below benchmark return Macquarie - USA Outperform (Buy) return > in excess of Russell 3 index return Neutral (Hold) return within of Russell 3 index return Underperform (Sell) return > below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 in a year. Low medium stock should be expected to move up or down at least 25 in a year. Low stock should be expected to move up or down at least 15 2 in a year. * Applicable to Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 212 AU/NZ Asia RSA USA CA EUR Outperform 47.87% 54.89% % 44.1 (for US coverage by MCUSA, 6. of stocks followed are investment banking clients) Neutral % 33.7% 27.7 (for US coverage by MCUSA, 4.9 of stocks followed are investment banking clients) Underperform 14.19% 18.7% (for US coverage by MCUSA, 3.3 of stocks followed are investment banking clients) Company Specific Disclosures: Macquarie Bank Limited makes a market in the securities in respect of Limited. Macquarie and its affiliates collectively and beneficially own or control or more of any class of Limited's equity securities. The responsible entities of the Diversified Utility and Energy Trusts (DUE:ASX), CI Macquarie Infrastructure Management No 1 Limited and CI Macquarie Infrastructure Management No 2 Limited, are owned by the Macquarie Group and by Capital Holdings Limited. The Macquarie Group is a substantial securities holder of DUE:ASX stapled securities. The DUE:ASX trusts hold all the ordinary units in POWERS Trust. Important disclosure information regarding the subject companies covered in this report is available at Analyst Certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. 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