Challenger sees significant profit growth following priorities shift

retirement fund management challenger Challenger life

14 February 2024
| By Maja Garaca Djurdjevic |
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Challenger’s Funds Management business benefitted from strong net flows of $5.6 billion on the back of a “diverse offering and investment for growth”. 

In its financial statement for the first half of the financial year 2024, Challenger announced an 80 per cent increase in its statutory net profit after tax (NPAT) to $56 million, while its normalised net profit before tax (NPBT) added 16 per cent to $290 million.

Challenger said its total Life sales stood at $5.3 billion at the end of December, a decrease of 4 per cent on the year, but the figure included “exceptional growth” in lifetime annuity sales with a boost of 190 per cent to $1.1 billion.

Lifetime sales included institutional lifetime annuity policy to the value of $619 million to Aware Super, alongside strong retail lifetime annuity sales of $469 million.

“Challenger delivered a strong performance in the half, demonstrating our focus on executing our strategic priorities – broadening our customer reach, expanding our offering and making it easier to do business with us,” said managing director and chief executive officer, Nick Hamilton.

“Retirement is fundamentally different to the accumulation phase of superannuation, and the momentum across our Life business highlights our expertise in meeting Australians’ growing demand for secure, guaranteed income,” Hamilton added.

Life earnings before interest and tax (EBIT) increased 15 per cent to $302 million, reflecting the business’s focus on driving longer duration sales, while new business annuity sales reached a record $1.9 billion, up 19 per cent.

Challenger’s Fund Management business experienced 9 per cent growth in funds under management to $108 billion, benefiting from strong net flows of $5.6 billion on the back of a “diverse offering and investment for growth”. 

But it also saw a slight 7 per cent drop in EBIT to $29 million due to changes in business mix reducing net income by 1 per cent, and higher expenses, which increased by 3 per cent.

Over the last two years, Challenger said it has positioned the business to take a broader stance in retirement, with the firm now said to be “executing its strategy to build and deepen partnerships with superannuation funds”.

In the first half of financial year 2024, Challenger formed a new retirement partnership with Commonwealth Superannuation Corporation (CSC), with its longevity solution set to form a part of CSC’s broader retirement income strategy.

Moreover, Challenger also participated in TelstraSuper’s launch of RetireAccess Lifetime Pension the first profit-to-member guaranteed lifetime income stream following the Retirement Income Covenant.

“We are driving growth across a broader range of channels, including deepening our relationships with superannuation funds,” said Hamilton.

“Our retirement partnership with Commonwealth Super Corporation and the launch of TelstraSuper’s lifetime pension, designed in partnership with Challenger, demonstrate our expertise in developing retirement and longevity solutions that address the specific needs of members in retirement.”

Looking forward, Hamilton said Challenger has “an exciting year ahead”, particularly given the “extraordinary” opportunity in retirement.

“Australia is now firmly focused on strengthening the retirement phase of superannuation. As more Australians live longer and retire in ever greater numbers, there will be more demand across more channels for a broader range of retirement income solutions.

“We will leverage our retirement and investment expertise to capture this opportunity and deliver on our purpose of providing customers with financial security in retirement.”

Also on Tuesday, Challenger announced a technology transformation partnership with Accenture that will enable its growth strategy.

Under the arrangement, Accenture will run Challenger’s technology platform and modernise Life’s customer technology. The initial agreement is expected to commence by the start of the 2025 financial year for a seven-year term.

Touching also on its outlook, Challenger reaffirmed its FY24 normalised net profit before tax guidance, and now expects to be in the top half of the $555 million to $605 million guidance range.

The firm added that the sale of Challenger Bank to New Zealand’s Heartland Group continues to progress and is expected to complete in 2H24. The sale was first announced in late 2022, following “extensive analysis”, which the firm said at the time would allow it to focus on its Life and Funds Management businesses.

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