Slide 1: FY21 Financial results
FY21 Financial results Providing our customers with financial security for a better retirement 10 August 2021
Slide 2: Overview
Overview Providing our customers with financial security for a better retirement FY21 business performance Richard Howes – Managing Director and Chief Executive Officer Financial results Rachel Grimes – Chief Financial Officer Financial outlook Regulatory reform update Corporate strategy and priorit
Slide 3: Highlights
Highlights Providing our customers with financial security for a better retirement Profit within guidance range Recovery of unrealised investment losses Strong business momentum and clear plan for long-term growth Life – Record sales driven by diversification strategy Funds Management – Diversified
Slide 4: FY21 performance
FY21 performance Richard Howes Managing Director and Chief Executive Officer
Slide 5: FY21 performance
FY21 performance Profit within guidance range Strong business momentum and clear plan for long-term growth $396m within FY21 profit delivered within guidance guidance range >$500m of Recovery of unrealised investment losses investment gains $7bn Record Life sales and very attractive asset grow
Slide 6: Life performance
Life performance Clear leader in retirement income Record sales driven by diversification strategy Sales +35% – growth in all key segments Life sales ($m) Life book growth (%) FY21 sales $6.9bn +35% FY21 book growth +14.4% • Retail +19% ‒ adviser disruption stabilising +35% 14.4% ‒ IFA and emerging
Slide 7: Funds Management performance
Funds Management performance Australia’s 3rd largest and one of the fastest growing active managers 1 2 Record flows driven by diversified client base and product offering One of the fastest growing active managers 2 Net flows ($bn) FUM ($bn) FY21 net flows $16bn FY21 $106bn +30% Fidante Partners re
Slide 8: Bank acquisition update
Bank acquisition update Extending customer reach to accelerate medium-term growth Scalable digital Transaction update savings APRA approval received and loans bank Acquisition completed Providing Challenger access to term deposit market Integration well progressed Expanding secure retirement inc
Slide 9: Sustainable ROE target
Sustainable ROE target 1 Focus on risk adjusted returns Clear pathway to ROE target in FY22 Normalised ROE (pre-tax) ROE target reset for enhanced risk settings 12.0% Pathway to RBA cash rate +12% target 11.2% • Benefit of cash and liquids already deployed in FY21 2 • FY22 guidance (mid-point) deliv
Slide 10: Financial results
Financial results Rachel Grimes Chief Financial Officer
Slide 11: FY21 earnings snapshot
FY21 earnings snapshot Profit within guidance range Statutory NPAT includes reversal of pandemic related market losses FY21 Change Normalised NPBT Statutory NPAT Net income $682m -14% $396m – down 22% $592m – up $1bn Expenses ($281m) -1% EBIT $401m -22% Life EBIT -24% Reversal of unrealised FM EBIT
Slide 12: Investment Experience $455m
Investment Experience $455m Positive experience across all asset classes Reversal of unrealised pandemic related market losses Fixed income +$383m Property +$55m 55 2H20 FY21 383 • 2H20: -$536m (2/3rds unrealised) • 2H20: -$212m (largely unrealised) • FY21: spreads back to pre- • FY21: All propertie
Slide 13: Life performance
Life performance Asset growth offset by lower margin Margin reflects more defensive portfolio settings Record sales and move to defensive settings Average AUM +3% Life EBIT $399m – Margin -72bps down 24% Record sales +35% and +14% book growth Strong book growth 2H up 7% on 1H Lower margin from def
Slide 14: Life sales and book growth
Life sales and book growth Record Life sales driving book and investment asset growth Record Life sales Life book growth FY21 $6.9bn +35%; 2H21 $3.5bn +2% +$2.2bn or +14.4% growth in liabilities 7.0 +14.4% Annuity +8.6% Strong 2H +6% Retail: 2H -10% Other +5.8% growth 2,164 6.0 reflecting seasonal +
Slide 15: Life investment assets
Life investment assets Record sales driving book and investment asset growth Life annuity and other liabilities ($bn)1 Investment assets ($bn) 17.3 21.6 15.0 Liabilities $17.3bn +15% Average $19.7bn up 3% 14.8 21% 18.3 13.9 Driven by book growth 18.1 19.0 Timing of book growth with 13% 16% strong 2H
Slide 16: Life investment assets
Life investment assets High quality portfolio delivering reliable and stable income No significant change to asset allocation expected in FY22 Investment assets (%) Fixed income 76% • Cash gradually reduced from 16% to 6% of total portfolio 5% 3% 6% • Investment grade1 reduced from 85% to 79% (above
Slide 17: Life COE margin
Life COE margin More defensive portfolio settings impacted margin Product cash margin down 14 bps 1 Average investment assets FY21 Life COE margin -72bps Portfolio repositioned to more defensive settings in 2H20 Change in asset mix (more defensive settings) and lower alternative assumption Fixed inc
Slide 18: Life COE margin
Life COE margin Impacted by asset mix and interest rates Product spread stable 2H21 2.65% – up 10 bps on 1H21 Life COE margin Product spread 2 • One-off early ABS1 repayment (2H21 impact +12 bps; FY21 impact +6 bps) 3.57% 3.67% 3.53% • Benefiting from deployment of cash 4.69% 4.73% 4.52% 23% 3.10% F
Slide 19: Challenger Life regulatory capital
Challenger Life regulatory capital PCA ratio above target operating level FY22 capital intensity expected to remain stable Challenger Life Company (CLC) excess regulatory capital ($m) CLC capital intensity ratio Release following 2H20 reduced following Capital intensity ratio up restructure of longe
Slide 20: Capital and balance sheet strength
Capital and balance sheet strength PCA ratio above target operating level Additional financial flexibility at Group CLC capital ratios (times) FY21 PCA ratio 1 S&P credit • Average: 1.67x up from 1.54x – 1.67 1.70 rating 1.51 1.81 reflects more defensive portfolio settings 1.63 1.30 Challenger Life
Slide 21: Funds Management performance
Funds Management performance Record results Record growth and financial results Average FUM FM EBIT $93bn +15% $71m +23% FUM closing +30% (average FUM +15%) Fidante +19% Income +7% CIPAM +2% Expenses -2% Improving income quality – FUM-based income +16% and performance and Closing 14% above FY av
Slide 22: Funds Management
Funds Management Superior investment performance supporting record flows Record net flows ($m) Fidante Partners investment performance 16.1 Fidante Partners 1 2 Quartile performance Relative to benchmark FY21 flows 8% 4% 9% 21% 77% Fixed 6.2 income 5.3 25% 21% 2.5 92% 96% Equities 91% 21% 63% 42% 42
Slide 23: Funds Management
Funds Management Record flows driving significant FUM and income growth FUM-based margin expanding Funds Management income margin Funds Under Management ($bn) Total FUM +30% 105.8 Fidante +36% +10% FUM increased 19.6 78.0 79.0 81.4 in all but one 19.4 18.3 boutique 66.9 4 boutiques with FUM >$10bn
Slide 24: Dividend
Dividend In line with payout target 1 Fully franked dividends (cps) Dividend payout ratio 40 60% 34.5 35.5 35.5 54.2% 52.1% 50.4% 48.2% 30 50% 17.5 18.0 18.0 20.0 20 17.5 40% 10.5 31.0% 10 17.5 17.5 17.5 30% 17.0 9.5 0 20% FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Interim Final Normalised di
Slide 25: Financial outlook
Financial outlook Regulatory reform update Corporate strategy and priorities Richard Howes Managing Director and Chief Executive Officer
Slide 26: FY22 guidance and targets
FY22 guidance and targets Earnings to benefit from business growth Enhanced risk settings with focus on risk adjusted returns Normalised net profit before tax guidance range $430m to $480m1 $430m $480m GUIDANCE Mid-point of range ($455m) represents best estimate (+15% increase on FY21) Mid-point of
Slide 27: Industry leader benefiting from long-term tailwinds
Industry leader benefiting from long-term tailwinds With clear plan for sustainable growth Long-term tailwinds Industry leader Market leading positions Market dynamic • #1 annuity provider and brand • Superannuation system growth • 3rd largest active fund manager • Assets in retirement segment growi
Slide 28: Regulatory reforms support long term growth
Regulatory reforms support long term growth Retirement Income Covenant on track for 1 July 2022 2022 and beyond The Government is progressing • APRA, ASIC and ATO requirements and guidance a range of reforms to enhance New means test rules to 2021/2022 Budget • Technology, competition and data the r
Slide 29: Corporate strategy
Corporate strategy FY21 – 30 June 2021 29
Slide 30: FY22 strategic priorities
FY22 strategic priorities Clear plan for long-term sustainable growth Broaden customer Expand range of financial Leverage the combined Strengthen resilience access across products and services for capabilities of the and sustainability of multiple channels a better retirement Group Challenger • Buil
Slide 31: Highlights
Highlights Providing our customers with financial security for a better retirement Profit within guidance range Recovery of unrealised investment losses Strong business momentum and clear plan for long-term growth Life – Record sales driven by diversification strategy Funds Management – Diversified
Slide 32: Appendix
Appendix Additional background information
Slide 33: Appendix
Appendix Providing our customers with financial security for a better retirement Challenger business overview 34-36 Life sales and AUM 54 Life asset allocation & portfolio overview 55-59 Superannuation system 37-41 Life normalised profit framework 60 Retirement phase overview 42-45 Life asset and li
Slide 34: Challenger business overview
Challenger business overview Corporate strategy FY21 – 30 June 2021 34
Slide 35: Challenger overview
Challenger business overview Challenger overview Providing customers with financial security for a better retirement Challenger Limited (ASX:CGF) 1 Life Funds Management Bank Australia’s leading provider of Australia’s 3rd largest3 and one of the Recent acquisition to drive annuities and clear retir
Slide 36: Provide customers with financial security for a better retirement
Challenger business overview Provide customers with financial security for a better retirement Complementary businesses extending customer and product reach FUNDS High alpha across all capabilities MANAGEMENT Equities, alternatives, real assets, fixed income Term deposits and future product innovati
Slide 37: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Market growth supported by Australian superannuation growth2 ($bn) • Mandatory and increasing contributions 8,000 • Earnings and contributions compounding 6,000 • Population growth and ageing d
Slide 38: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Projected superannuation assets2 ($bn) Pre-retirement (super savings) phase 7,500 • Funds Management target market • Supported by mandated and increasing contributions 5,000 Post-retirement (su
Slide 39: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Mandatory and increasing contributions – increasing from 10% to 12.0% 1 Superannuation Guarantee contribution rate1 1992 1997 2002 2015 2021 2022 2023 2024 2025 3.0% 6.0% 9.0% 9.5% 10.0% 10.5%
Slide 40: Australian superannuation system
Superannuation system Australian superannuation system High allocation to equities and low allocation to fixed income Australia has low fixed income and high equity allocations1 Fixed income allocation • Australia 28% 27% 31% 15% • OECD average 45% 6% 44% 27% 42% 23% 26% 9% 33% Equities allocation 5
Slide 41: Australian superannuation system
Superannuation system Australian superannuation system World class accumulation system with significant retirement savings Not delivering retirees financial comfort World class Significant Not delivering retirees accumulation system retirement savings financial comfort 7 National Seniors Australia s
Slide 42: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Combining products provides better outcomes for retirees Discretionary (wants) Funds Management Account Equities, fixed income Based and alternative asset Pension products (ABP) Life Essential Guaranteed Annuity and income stream guarantee
Slide 43: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Superannuation starting to reduce reliance on age pension • Average household wealth at retirement $680,000 1 Portion of retirees reliant on age pension2 (excluding family home) 30% • Age pension subject to assets and income tests 44% 44%
Slide 44: Overview of age pension system
Retirement phase overview Overview of age pension system Social safety net for those unable to support themselves • Qualification age 66.5 Maximum age Per fortnight Per annum (increasing to 67 ) 1 Single $952.70 $24,770 pension rates2 Couple $1,436.20 $37,341 • Age pension based on lower outcome und
Slide 45: Government enhancing post-retirement phase
Retirement income regulatory reforms Government enhancing post-retirement phase New means test rules for lifetime income products commenced 1 July 2019 Pension assets test Pension income test Example - $100,000 lifetime income stream purchase price at age 65 Example - $100,000 lifetime income stream
Slide 46: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study Jenny and John • Homeowning couple • $600,000 of super (in addition to family home) • 66 years old • Approaching retirement • Target income $62,000
Slide 47: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study – Jenny and John Combined product 100% Account Based Pension (ABP) (70% Account Based Pension; 30% Lifetime Annuity) • Provides $62k p.a. until age
Slide 48: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Combined product Combined product (70% Account Based Pension; 30% Lifetime Annuity) (70% Account Based Pension; 30% Lifetime Annuity) Income from combined pro
Slide 49: MS&AD strategic relationship
MS&AD MS Primary MS&AD strategic relationship Diversifying and increasing access to Japanese market Strategic relationship with MS&AD Group • Increases access to Japanese market through MS&AD 1 Japanese general insurer • Opportunities for both Challenger and MS&AD #1 market share • Broadens Challeng
Slide 50: MS Primary annuity relationship
MS&AD MS Primary MS Primary annuity relationship Diversifying and increasing access to Japanese market MS Primary • MS&AD subsidiary Product overview • leading provider of foreign currency life products Term annuities – A$ and US$ • extensive distribution footprint via bancassurance channel • Austra
Slide 51: Life product overview
Life product overview Life product overview Providing customers with guaranteed income Fixed term Long term Other (including lifetime) 36% of total book 43% of total book 21% of total book Provides regular guaranteed Provides guaranteed regular Institutional product providing payments for a fixed ra
Slide 52: Challenger brand and adviser ratings
Challenger brand and adviser ratings Clear leader in retirement incomes Challenger rated #1 in overall adviser satisfaction Excellent customer experience driving advocacy and strong satisfaction Brand strength: Leaders in Retirement Income1 Customer experience3 100% 35% Net Promoter Score (%)4 95% 9
Slide 53: Customer brand journey
Challenger brand and adviser ratings Customer brand journey Evolution of brand and target audience TOTAL BRAND AWARENESS 66% 64% 62% 59% 61% 55% 62% 53% 2019 campaign shifted focus PRE-RETIREES RETIREES to older audience (65-74) 13% (aged 55-64) (aged 65-74) with building brand familiarity and educa
Slide 54: Life sales and AUM
Life sales and AUM Life Diversified distribution driving sales and AUM growth Total Life sales ($m) Life AUM ($m) 10% 5-year CAGR 9% CAGR 21,563 6,928 19,010 18,085 18,303 5,556 15,677 5,151 4,952 14,112 4,550 4,350 FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21 Annuity sales Other Life
Slide 55: Asset allocation framework
Life asset allocation and portfolio overview Asset allocation framework Consistently applied with strong risk management • Fundamental principle – assets Risk management and liabilities cash flow matched Asset and • Strong governance framework liability • Managed by dedicated team • Risk management
Slide 56: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio High quality portfolio providing reliable income Life investment portfolio1 Life investment portfolio – asset allocation Asset classes revised to reflect General Insurance 2 Absolute Return repositioned portfolio Life Insurance 1
Slide 57: Fixed income portfolio
Life asset allocation and portfolio overview Fixed income portfolio Represents 76% of portfolio with 79% investment grade 1 Fixed income portfolio by asset class1 Fixed income portfolio by sector1 Fixed income portfolio by geography1 Non-IG Corporate Credit Other New Rest of Liquids Infrastructure 1
Slide 58: Property portfolio
Life asset allocation and portfolio overview Property portfolio Represents 16% of portfolio All direct properties independently valued in June 2021 Property portfolio1 Australian office 60%; industrial 6% Japanese retail • 11 office assets; 3 industrial assets 10% • Average cap rate 5.3% (office) &
Slide 59: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Equity and infrastructure 3% of portfolio; Alternatives 5% of portfolio Equity and infrastructure portfolio1 Alternatives portfolio1 Other United Kingdom 6% 10% Europe 13% Australia 9% 22% 36% 27% Europe 15% 22% United Kingdom 9%
Slide 60: Normalised profit framework
Life normalised profit framework Normalised profit framework Reflects underlying performance of Life business Investment Experience Cumulative Investment Experience (pre-tax) ($m) Asset and policyholder liability valuation 200 movements plus net new business strain - (200) (400) Asset and policy lia
Slide 61: Asset and liability matching
Life asset and liability matching Asset and liability matching Unwanted risks mitigated with assets and liabilities cash flow matched 1 Asset and liability cash flow matching ($m) • Assets deliver contracted cash flows to match liability flows 10,000 • Risk appetite seeks to minimise 8,000 duration
Slide 62: Funds Management
Funds Management sales and FUM Funds Management Strong FUM growth track record • Fidante Partners Funds Under Management (FUM) ($bn) 13% CAGR • growing multiple boutique platform 105.8 • located in Australia, UK, Japan and Singapore 20.9 79.0 81.4 78.0 • asset class diversification 66.9 19.0 18.4 20
Slide 63: $106bn FUM
$106bn FUM Funds Management $5bn Property $7bn Alternatives Laying foundations to support future growth $37bn Equities Markets contribution FUM CAGR growth rates Fixed Income: +20% Equities +20% Alternatives (incl. Property) +6% $57bn Fixed Net flows contribution Income Pre FY09 FY09 FY10 FY11 FY12
Slide 64: Funds Management – multiple brands and strategies
Funds Management managers Funds Management – multiple brands and strategies Scalable and diversified ~$106bn of FUM Equities $37.4bn1 Multiple brands & strategies Alternatives $11.5bn1 Fixed Income $56.9bn1 FY21 – 30 June 2021 1. Funds Under Management (FUM) as at 30 June 2021. 64
Slide 65: Fidante Partners
Fidante Partners model & performance Fidante Partners Contemporary model with strong alignment of interests Administration services Distribution services • Investment operations • Asset consultant & research • Client operations Investment • Strategic positioning • Risk and compliance Management • Pr
Slide 66: Fidante Partners investment performance
Fidante Partners model & performance Fidante Partners investment performance Strong performance underpinning FUM growth 1 2 Fidante Partners percentage of funds 1st or 2nd quartile Fidante Partners performance relative to benchmark 21% Since 91% inception 25% 25% 21% 13% 5 Year 96% 20% 63% 50% 42% 4
Slide 67: Funds Management
Fidante Partners manager capacity Funds Management Growth supported by available capacity Manager capacity ($bn) Quarterly net flows vs peers1 ($bn) 40 6.0 35 5.0 30 4.0 25 20 3.0 15 2.0 10 1.0 5 0.0 0 Fixed -1.0 Equity Alternatives Income Managers Managers Managers -2.0 Available capacity -3.0 FUM
Slide 68: CIP Asset Management
CIP Asset Management CIP Asset Management Proven long-term investment track record and capability 1 • $21 billion of FUM • Investment manager for Challenger Life and third party institutions • Clients benefit from experience and market insights through breadth and scale of mandates Trusted partner A
Slide 69: Important note
Important note The material in this presentation is general background information about Challenger Limited group’s activities and is This document may contain certain ‘forward-looking statements’. The words ‘forecast’, ‘expect’, ‘guidance’, ‘intend’, current at the date of this presentation. It is