Challenger Limited · ASX:CGF
Challenger — Investor Day (May 2023)
55 slides from Challenger's investor day presentation, May 30, 2023
Slide 1: Challenger Investor Day 2023
Challenger Limited 30 May 2023 CHALLENGER INVESTOR DAY 2023 Challenger Limited (ASX:CGF) is today holding its 2023 Investor Day, beginning at 1:00pm (Sydney time). The investor day will be held as a hybrid meeting, held physically at the Amora Hotel Jamison Sydney and online via a webcast at https:/
Slide 2: Investor Day
3 0 M a y 2 0 2 3 Investor Day Building a more diversified business Meeting more customer needs
Slide 3: Agenda
Agenda Building a more diversified business to meet more customer needs 13:00 14:20 01 Strategy and growth Nick Hamilton – Managing Director and Chief Executive Officer 05 Break 13:25 14:30 02 Customer-centric business Mandy Mannix – Chief Executive, Customer 06 Funds Management growth platform Vict
Slide 4: Strategy and growth
01 Strategy and growth Nick Hamilton Managing Director & Chief Executive Officer 3
Slide 5: Key points
Key points Building a more diversified business to meet more customer needs Uniquely positioned to play a leading role in retirement Operating environment supportive and underpinned by structural trends Focusing business on core capabilities Customer focused business responding to meet more needs Le
Slide 6: Purpose and strategy
Purpose and strategy Building a more diversified business to meet more customer needs Our purpose is to provide customers with financial security for a better retirement Broaden customer Leverage the combined Expand range of Strengthen resilience access across capabilities of the group financial pro
Slide 7: Positioned to benefit from structural tailwinds
Positioned to benefit from structural tailwinds World class accumulation system with significant retirement savings Focus moving to retirement phase, underpinned by longevity and public policy settings Growing super system Australian superannuation assets1,2 ($tn) Increasing 24 years 9.0+ longevity
Slide 8: Retirement income ecosystem
Retirement income ecosystem Challenger uniquely positioned to play a leading retirement income role Structural drivers Ageing population Leading brands Increasing longevity Leader in retirement income Significant retirement savings Leading multi-affiliate platform Rising rate environment Customer ce
Slide 9: Operating environment
Operating environment Supportive Lower annuity rates Normalisation of annuity rates Life sales shorter duration Life sales longer duration FM flows slowing Customer FM flows stable Starting to focus on retirement and decumulation Supporting investment returns Seeking retirement partnerships and prov
Slide 10: Focusing business on core capabilities
Focusing business on core capabilities Customer focus and simplifying the business Reorganised business around customer Embedded new Customer division and leadership Digitising annuity and FM customer experience Institutional partnerships SIMPLIFYING BUSINESS DIVERSIFYING REVENUE Bank Investment Rea
Slide 11: Leveraging core capabilities for growth
Leveraging core capabilities for growth Customer channel and customer strategy to drive growth and diversification Strategic priorities Broaden customer Leverage the Expand range of Strengthen access across combined financial products resilience and multiple channels capabilities of and services for
Slide 12: Customer-centric business
02 Customer-centric business Mandy Mannix Chief Executive, Customer 11
Slide 13: Key points
Key points Customer-centric business Customers at the centre of everything we do Customer preferences driven by changing conditions Annuities play a core part in portfolio construction Challenger uniquely positioned as clear retirement leader Modernising the customer experience 12
Slide 14: Customers at the centre of everything we do
Customers at the centre of everything we do Enabling customers to accumulate and spend their wealth Customer Customers are at the heart of everything we do Our customers are saving for and spending in retirement Customer goals They are accumulating wealth and looking for ways to optimise that wealth
Slide 15: Customer preferences driven by changing conditions
Customer preferences driven by changing conditions Need for solutions that provide retirees with confidence to spend in retirement Then Today Challenger response • Reposition offering to service • Investment options that solve for • Deeper integration of annuities in higher value segments income, ma
Slide 16: Risks in retirement
Sequency risk A simple run of bad luck early in retirement can turn a cusotmer¹s financial life upside down Emotional risk Market risk Risks in Behavioural biases getting in the way of Market performance can fluctuate, making it hard How retirement good decision making annuities to predict whether i
Slide 17: Annuities provide confidence and regular income in retirement
Annuities provide confidence and regular income in retirement Annuities can help Annuities can play a core part in portfolio construction you spend with confidence Illustrative example retirement portfolio Guaranteed regular income Term annuities Inflation protection Guaranteed regular income for Pa
Slide 18: Term annuities offer compelling returns
Term annuities offer compelling returns Best customer proposition in last 10 years Pricing: 3-year fixed annuity versus Term Deposits¹ • Annuities provide regular income and return of capital 6.00% • Annuities continue to be priced 5.00% attractively – highest annuity rates 4.00% in last 10 years² •
Slide 19: Demand for guaranteed income increasing
Demand for guaranteed income increasing Opportunity to remix book 1 Adviser quotations Annuity sales mix ($bn) Maturity rate (%) 34% 70,000 5.1 60,000 4.6 12% 28% 50,000 10% 17% 3.5 25% 27% 24% 40,000 3.1 13% 26% 12% 11% 24% 30,000 30% 13% 33% 20,000 36% 52% 10,000 40% 44% 27% 0 1H20 1H21 1H22 1H23
Slide 20: Uniquely positioned as clear retirement leader
Uniquely positioned as clear retirement leader Opportunity to extend adviser reach Brand strength Challenger attributes with advisers¹ Leader in Retirement Income¹ Advisers who have Advisers who have recommended annuities not recommended annuities 93% 90% 92% 92% 93% 95% 91% 90% Opportunity to impro
Slide 21: Modernising the customer experience
Modernising the customer experience Make it easier to do business, enable sales growth and reduce cost to serve Current offering Response Applications Launched new Funds largely paper-based Management digital capability Manual handling Refreshed digital and processing content and branding Increased
Slide 22: Refreshed digital content and branding
Refreshed digital content and branding Opportunity to engage with customers Social media Social media Investor/Adviser Fidante LinkedIn campaign Facebook campaign advertising campaign rebrand 21
Slide 23: Direct – Fixed Term Smart Application
Fixed Term Direct – Smart Application Delivering greater operating efficiencies and better customer experiences Smart data Immediate online Easy to use quoting Three funding capture ID verification calculator options available 22
Slide 24: Institutional solutions
03 Institutional solutions Anton Kapel Chief Executive, Life and Solutions 23
Slide 25: Key points
Key points Institutional solutions Building deeper relationships with institutional customers Investment and de-risking propositions that enhance returns Demographic and regulatory forces increasing focus on retirement Uniquely positioned to deliver better outcomes for institutional customers 24
Slide 26: Institutional customers
Institutional customers Track record of delivering better outcomes Customer need Current state Challenger offering • Trusted partners to assist with • Utilising Challenger’s core • Support adoption of more problem solving and meeting investment offering (Term comprehensive retirement investment obje
Slide 27: Deepening relationships with customers
Deepening relationships with customers Best in class investment strategies Retirement solution expertise and collaborative approach Core investment offering Bulk deals Retirement partnerships Supporting investment De-risking solutions to Trusted partner to assist with program of customers help impro
Slide 28: Life Risk business
Life Risk business Provides business and capital diversification Life Risk ($m) • Wholesale longevity swaps • Participating in risk transfer market 1,200 50 FY23 COE since 2013 ~$45m 45 1,000 Lower PV 40 • Core capability and experienced team reflects higher 800 discount 35 • FY23 COE ~$45m rate 30
Slide 29: Defined benefit market
BULK DEALS Defined benefit market Attractive market segment with favourable thematics Growing defined benefit liabilities1 Market factors encouraging DB de-risking 100% $500bn Simplification following fund mergers Challenger 80% $400bn Complex to administer is the 60% $300bn Future funding risk mark
Slide 30: Retirement partnerships
RETIREMENT PARTNERSHIPS Retirement partnerships Partnering to create innovative retirement solutions The retirement landscape Challenger’s response Partner with funds to help meet their members’ Life span needs Challenger and TelstraSuper2 strategic partnership TelstraSuper: • Offers its own lifetim
Slide 31: Life investment portfolio
04 Life investment portfolio Peter Schliebs Chief Investment Officer, Life 30
Slide 32: Key points
Key points Life investment portfolio Well positioned for macro environment No significant change expected to portfolio allocation Attractive fixed income and unlisted equities investment opportunities Cap rate expansion expected across Australian domestic property portfolio Remains strongly capitali
Slide 33: Market themes
Market themes Well positioned for macro environment Financial conditions Economic Continued tightening growth slowing volatility • Well positioned to take advantage • Diversified portfolio, looking at • Investment portfolio hedged for of funding gaps in the market further diversification strategies
Slide 34: Asset risk premium update
Asset risk premium update Attractive fixed income and unlisted equities investment opportunities Asset risk premiums¹ Key 14% observations 12% 10% • Opportunities persist within 8% fixed income and continue to 6% be supportive for new business profitability 4% • Whilst equity risk premiums 2% remain
Slide 35: Asset allocation
Asset allocation No significant change expected to portfolio allocation Asset allocation Key observations 100% • Further increase to fixed income given relative value outlook Property reduction reflects • Asset backed finance markets and unlisted equity continue to book growth deployed provide compe
Slide 36: Fixed income
Fixed income High quality portfolio performing in line with expectations Fixed income portfolio ($b) Credit defaults (bps) 20 10 0 76% 76% Fixed income 75% 76% allocation -10 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 1H23 expected to increase -20 66% 17.6 -30 16.4 16
Slide 37: Alternatives
Alternatives Provides liquid capital and financial flexibility with diversification to credit and equity exposures Alternatives portfolio ($bn) 2.3 Life General Absolute 5% insurance insurance return funds 2.0 5% 21% 14% • Exposures • Includes insurance- • Includes global 1.4 linked to life linked s
Slide 38: Property
Property Defensive property portfolio Higher interest rates driving cap rate expansion Defensive property portfolio1 Higher interest rates driving cap rate expansion • Actively reduced exposure with over $0.5bn of sales in last 18 months 2H23 expectations: • Occupancy rate increased to over 94% • 10
Slide 39: Capital
Capital Remains strongly capitalised with financial flexibility Capital and book growth Strongly capitalised 1.81 Challenger Life Company (CLC) 1.63 PCA ratio as at 30 April2 1.57 1.60 1.59 1.53 1.53 13.7% 14.1% 13.8% 10.7% 12.1% 11.5% 11.4% 1.58x Target range 1.30x to 1.70x3 15.0% Additional flexib
Slide 40: Break
05 Break 39
Slide 41: Funds management growth platform
06 Funds management growth platform Victor Rodriguez Chief Executive, Funds Management 40
Slide 42: Key points
Key points Funds Management growth platform Diversified multi-asset active manager well positioned for macro environment Consistently outperforming peers High quality investment and distribution capability Platform for growth – range of initiatives to grow the business Elanor – leveraging Fidante’s
Slide 43: Funds Management – multiple brands and strategies
Funds Management – multiple brands and strategies Unique multi-asset platform supporting better customer outcomes Affiliate brands, strategies and asset classes Strong market position Fixed Income $49bn1 #3 Largest active manager2 Australian equities Equities Global, regional #1 Fixed income manager
Slide 44: Funds Management outperformance
Funds Management outperformance Benefitting from high quality investment and distribution capability Fidante performance relative to benchmark1 Quarterly net flows vs peers2 ($bn) 8 Outperformed 9 out of last 11 quarters 6 Since Exceptional inception 85% 4 start to 4Q23 2 5 Year 97% 0 (2) 3 years 80
Slide 45: Challenger Investment Management
Challenger Investment Management Long track record of excellence in credit markets Supporting Life and third-party customer outcomes CIM funds strategies – performance1 ($bn) Investment Excellence • 18 years of investing in alternative credit • Generate consistent income with capital stability 12% 1
Slide 46: Platform for growth
Platform for growth Range of initiatives to grow the business Organic growth Inorganic growth Build Partner Buy • Working capital to incubate • Leverages Fidante distribution, product • Different ways to execute new managers / strategies and marketing excellence • Immediate uplift in AUM • Lead-time
Slide 47: Elanor – Case study
Elanor – Case study Leveraging Fidante’s distribution strength Multi-sector real estate platform Award winning distribution capability • Track record in high quality real estate origination • Market leading retail capital raising platform • Differentiated investment capability • Deep understanding a
Slide 48: AASB 17 and outlook
07 AASB 17 and outlook Alex Bell Chief Financial Officer 47
Slide 49: Key points
Key points AASB 17 and outlook AASB 17 Insurance Contracts – no impact to underlying economics of the business FY23 NPBT expected to be slightly above midpoint of guidance range 48
Slide 50: AASB 17 Insurance Contracts
AASB 17 Insurance Contracts Business Strategy No change to how business operates Does not impact normalised profit, cash generation or dividend policy APRA Capital AASB 17 Insurance Contracts is a change of accounting No material impact to regulatory capital calculations standard for insurance contr
Slide 51: AASB 17 transition impact
AASB 17 transition impact KPIs and line items impacted by AASB 17 Impacted by AASB 17 Life insurance liabilities Statutory NPAT Normalised ROE Investment Experience Increase in CLC's insurance Impact is to timing of profit/loss Small reduction in net Movements in policy policy liabilities resulting
Slide 52: FY23 business performance update
FY23 business performance update Normalised profit slightly above midpoint of guidance range Expect to be slightly above midpoint of FY23 guidance range Guidance considerations Normalised net • Bank: ~$10m EBIT full year loss $485m $535m profit before tax • Expenses: 5% to 6% full year growth Challe
Slide 53: Wrap up
08 Wrap up Nick Hamilton Managing Director & Chief Executive Officer 52
Slide 54: Key points
Key points Building a more diversified business to meet more customer needs Uniquely positioned to play a leading role in retirement Operating environment supportive and underpinned by structural trends Focusing business on core capabilities Customer focused business responding to meet more needs Le
Slide 55: Thank you
Thank you IMPORTANT NOTE This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on 30 May 2023. The material in this presentation is general background information about Challenger Limited’s activities and is current at the date of this presen