Insurance
Such is Life
Although we believe AMP's business enjoys considerable scale advantages, AXA
should benefit in the longer term from exposure to the faster-growing Asian
markets. With both stocks trading in line with historical PE averages of 15x we
retain our Hold recommendations, but with a slight preference for AMP over AXA.
Key recommendations & forecasts
Reuters Year end Recom Price Target
price
Upside/
downside
EPS
1fcst
P/E
1fcst
AMP Ltd¹ AMP.AX Dec 2009 Hold A$5.25 A$4.85 -8% 0.33 15.7
AXA Asia Pacific¹ AXA.AX Dec 2009 Hold A$4.38 A$4.28 -2% 0.30 14.8
Priced at close of business 8 May 2009.
1. Normalised EPS - pre non-recurring items and post preference dividends
Source: Company data, RBS forecasts
Australian operations – considerable scale advantages for AMP
With AMP’s focus almost entirely on the Australian market, it is perhaps unsurprising that
AMP has considerable scale advantages in the local market, with margins almost double
those of AXA. AMP’s favourable position should be a clear positive over the next year and
should help withstand earnings erosion stemming from declining average FUM/FUA levels
and relatively fixed cost bases. However, regulatory clouds loom further out in the form of
reduced margins, even if mandated superannuation underpins steady volume growth.
Overseas operations – advantage AXA
S&P recently warned that the operating environment in Hong Kong is likely to be difficult in
the near term, which could hurt AXA’s FY09 earnings. However, AXA’s better geographic
diversification should deliver the benefit of higher growth in the long run, with the IMF
forecasting that the Asian region should grow c4% faster pa than the average for OECD
countries over the next three years. Provided profitability can be achieved within a
reasonable timeframe in China and India, AXA’s nascent South East Asian operations should
provide excellent long-term uplift.
Investment view – maintain Hold recommendation on AMP
We view AMP as an excellent diversified life/wealth business due to: 1) a strong balance
sheet; 2) good economies of scale in both wealth and financial protection; and 3) excellent
positioning in mandated superannuation. Our new target price of A$4.85 (from A$6.05)
reflects downgrades to our forecasts given recent newsflow. The stock is also trading broadly
in line with its average historical PE of c15x, and hence we retain our Hold rating.
Investment view – maintain Hold recommendation on AXA
For AXA we maintain our Hold call with a sum-of-the parts valuation of A$5.04 (previously
A$4.83) and target price of A$4.28 (previously A$4.35). The slight downgrade to our target
price is a result of recent weak fund flows and the 15% discount from the valuation to our
target price reflects ongoing macroeconomic concerns. The current volatility in equity
markets and difficult economic environment in Hong Kong in particular are likely to put
pressure on earnings over the next year, in our view. With the stock trading on c15x our
FY09F cash EPS, slightly above its long-run average, we retain our Hold recommendation.

Contents
Such is Life 3
Although we believe AMP’s business enjoys considerable scale advantages, AXA
benefits from exposure to the faster-growing Asian markets. With both stocks
trading in line with historical forward PE averages of 15x, we retain our Hold
recommendations.3
AMP vs AXA – an operational comparison 6
AMP benefits from economies of scale in virtually all competing divisions, with
margins often double those of AXA. However, AXA benefits from greater
geographic diversification and exposure to the fast-growing SE Asian region.6
Operational overview 6
Australian Wealth Management 9
Australian Protection 13
Australian Mature 15
Funds management 16
New Zealand 18
Hong Kong and South East Asia 19
Costs 22
Industry trends 23
Industry trends are favourable, with a strong long-term growth profile underpinned
by bipartisan support for the superannuation guarantee, general under-insurance in
Australia and favourable demographic trends.23
Growth potential 23
Regulatory issues 28
Valuation analysis 30
Comparing AMP and AXA, we find that neither represents particular value at the
moment and both could trade lower given their current relative PEs versus those in
the last bear market. However, we prefer AMP over AXA.30
Sensitivity analysis 30
Capital management 32
Valuation metrics analysis 37
Share price performance 40
Insurance in a recession 41
Valuation and forecasts 42
Appendices 47
Appendix I: AMP SWOT and numbers summary 47
Appendix II: AXA SWOT and numbers summary 49
Appendix III: Superannuation value chain 51