Financial Drivers and Reporting Michael Cameron

Chief Financial Officer, Wealth Management9 April 2001

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Corporate Structure

Components of Profit

Key Value and Profit Drivers

Revaluation Profits

Financial Drivers and Reporting

3

Wealth Management Structure - Simplified

Cost Environment Service companies UK & NZ businesses National Australia Trustees

Mark to Market Environment Businesses carried at

valuation (including Asian businesses)

NAB

NWMS

MLCGroup

NAFM

NWMH

NAG (Europe)BNZ (NZ)

MLC Mgt

NAT

Provision of services

4

Components of the Corporate Structure

Life Company - NAFM Statutory FundsShareholders’ Fund

Policyholder liabilities and Shareholders’ assets

covering reserves

Distribution

and Advice

Platform & Servicing

Principal Investment Advisory

AssetManagement

Custody/ Trading

ApogeeMLC Limited

Mar

k to

Mar

ket B

asis

National Corporate Investment Services

Plum

National Asset Management

MLC (Hong Kong)

MLC Lifetime

FlexiPlan

MLC Investments

John A Nolan

Godfrey Pembroke

MLC FP/Garvan

YPL

ThreeSixty

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Components of Wealth Management Operating Profit

Margin on Services (MoS) - Statutory Funds

+Revaluation

Profit =Total Operating

ProfitOperating Profit

from Subsidiaries

MoS profit is: The release of future profit margins over the life of the policies

Revaluation profit is: The movement in the Net Market Value (NMV) of a subsidiary of a life company over its net assets

Operating ProfitBefore Revaluations

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MoS profit - The Matching Concept

Cashflows and MoS profit

(250)

(200)

(150)

(100)

(50)

0

50

100

1 2 3 4 5 6 7

Year

Fees less expenses MoS profit

MoS more accurately reflects the matching of revenue with

expenses

7

Key Value Drivers Behind Operating Profit

PROFIT

TOTAL

OPERATING

PROFIT

REVALUATIONPROFIT

VALUE OF

NEW BUSINESS

VALUE OF INFORCE BUSINESS

FEES

EXPENSES

ACQUISITION

MAINTENANCE

FUM/A

NET FUNDS FLOW

INVESTMENT EARNINGS

FUM/A

EXPENSES

LAPSES

MARGIN DISCOUNT RATE

SALES

MARGIN

SELLING EXPENSES

MULTIPLIER

PREMIUMS/DEPOSITS

CLAIMS/REDEMPTIONS

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Drivers of Profit - Insurance Business

Net Income sources Premiums received exceeding

claims paid and acquisition expenses

Key profit generators Premium rates Claim rates Quality of underwriting Minimising Traditional redemptions Management of expenses

Nature of business Protection/risk Traditional Agent for general insurance

Key Products MLC Personal Protection Portfolio National Protection Portfolio National General insurance

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Drivers of Profit - Funds Management Business

Income sources Initial fee income Ongoing fee income

Key profit generators: Volume of funds

net funds flow investment earnings

Fee levels Expense management

Nature of business Investment linked Policyowner bears investment risks and

rewards Shareholder receives fee income

Some products include: MLC Masterkey (we choose) (FUM) FlexiPlan (you choose) (FUA) Masterkey Business Super (FUM) National Corporate Investment Trust

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Volatility in Investment Earnings

-15

-10

-5

0

5

10

MSCI World Net ($A) All Ordinaries Accumulation Index / S&P ASX 200

%

11

10%

90%

Inv estment Earnings on Retained Profits & Capital

Operating Profit from operations

Impact of Investment Market Volatility

Wealth Management business activities are primarily investment linked which allows capital efficiency.

Leads to lower risks associated with investment market volatility.

Note : Estimates Only

Earnings on Retained Profits and Capital

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Impact of Investment Market Volatility

Fee IncomeChange in policyowner liabilities(Example numbers only – Investment Linked Product)

Strong Mkts(20%) $m

Weak Mkts(5%) $m

Value of policyowner liabilities (beginning) 5,000 5,000Investment Earnings 1,000 250Fees (54) (51)Tax on net investment earnings (1) (142) (30)DAC (new) (50) (50)DAC (amortisation) 30 30Change in policy liabilities 784 149Value of policyowner liabilities (end) 5,784 5,149

Shareholder profits Shareholder ViewStrong Mkts

(20%) $mWeak Mkts

(5%) $mFee revenue 54 51Expenses (20) (19)Pre tax profit 34 32Tax on profit (2) (12) (11)Profit After Tax 22 21

1. Assumes superannuation environment tax rate at 15% 2. Example ignores transitional relief to shareholder under business tax reform, tax rate at 34%.

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Approximate Split of Funds Under Management

1. ‘Retail’ includes FlexiPlan 2. ‘Insurance’ comprises funds under management on traditional life products3. ‘Other’ primarily comprises funds under trusteeship

XX XX

60%

10%

5%

5%

20%

Retail (1) Wholesale Insurance(2)

International Other(3)

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Format of Profit and Loss - Funds Management

(1) Net of tax

Statement of Financial Performance (example) Example Yr$m

Net Premium Income and other revenue 150.0Investment Revenue 320.0Net increase in net policy liabilities (270.0)Claims, administration and other expenses (115.0)Operating profit before revaluation profit and income tax 85.0Income tax expense (58.0)Operating profits before revaluation profit and after income tax 27.0Revaluation profit (1) 23.0Net operating profit from Wealth Management 50.0

15 (1) Net of tax

Format of Profit and Loss - Insurance

Statement of Financial Performance (example) Example Yr$m

Net Premium Income and other revenue 100.0Investment Revenue 5.0Net decrease in net policy liabilities 20.0Claims, administration and other expenses (100.0)Operating profit before revaluation profit and income tax 25.0Income tax expense (8.5)Operating profits before revaluation profit and after income tax 16.5Revaluation profit (1) 15.0Net operating profit from Wealth Management 31.5

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Revaluation Profit

All assets and liabilities of a life insurer must be recorded at Net Market Value (NMV) (including subsidiaries)

Any movements in NMV during the year must be recognised in the P&L as an unrealised gain / loss

Margin on Services (MoS) - Statutory Funds

+Revaluation

Profit =Total Operating

ProfitOperating Profit

from Subsidiaries

Revaluation profit is: The movement in the Net Market Value (NMV) of a subsidiary of a life company over its net assets

Operating ProfitBefore Revaluations

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Aspects of Revaluation Profit

Controlled subsidiaries valued by independent experts

Dependent upon type of business

Influenced by both internal and external assumptions

Revaluation movements are tax effected

Profits are not distributable

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Revaluation Profit Example

Calculation of revaluation profit$m Opening

ValueClosingValue

Value of subsidiary (a) 200 300

Operating profit after tax 0 30

Net assets (b) 60 90

Excess of Net Market Value [(a) – (b)] 140 210

70

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Summary

Significant components of the Wealth Management business operate in the mark to market environment

Total operating profit made up of MoS, operating profit from subsidiaries and revaluation profit

Key drivers of value are understood

Low reliance on investment returns improves stability of operating profits

Profit growth in core business driven by growth in funds and insurance premiums

Quality mix of funds

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