Challenger Limited · ASX:CGF
Challenger — Investor Day (June 2019)
52 slides from Challenger's investor day presentation, Jun 13, 2019
Slide 1: Challenger Limited
Challenger Limited 13 June 2019 challenger £3
Slide 2: Overview
Overview Providing our customers with financial security for retirement Vision and strategy 10:00 – 10:10 Richard Howes – Managing Director and Chief Executive Officer 10:10 – 10:40 Distribution, Product and Marketing Angela Murphy – Chief Executive, Distribution, Product and Marketing Life 10:40 –
Slide 3: Vision and strategy
Vision and strategy Richard Howes Managing Director and Chief Executive Officer
Slide 4: A clear plan for sustainable long-term growth
Vision and strategy A clear plan for sustainable long-term growth 2019 Investor Day – Vision and strategy 4
Slide 5: Priorities to drive long-term growth
Priorities to drive long-term growth Fundamentals remain strong Industry trends Priorities Long-term structural tailwinds • Engage, educate and deepen customer connections • World class accumulation super system • Improve adviser experience • Ageing demographics • Retirement phase developing • Thoug
Slide 6: Expanding strategic relationship with MS&AD
Expanding strategic relationship with MS&AD Diversifying and increasing access to Japanese market MS Primary annuity relationship • Currently Australian dollar product reinsurance ~A$27bn market cap 41,733 employees • commenced November 2016 Total assets ~A$280bn 5 business domains (as at 30 Septemb
Slide 7: World class accumulation system
World class accumulation system Significant retirement savings but not delivering retirees financial comfort World class Significant Not delivering retirees accumulation system retirement savings financial comfort 7 National Seniors Australia survey (April 2019) Contribution rate 1 in 4 super dollar
Slide 8: Key growth driver
Key growth driver Making annuities mainstream in retirement Next phase – Driving growth Today – Strong foundations Recognised retirement Established operating income leader platform • Product innovator • Scalable platform • Strong distribution • Investment capability • Leading brand • Strong risk cu
Slide 9: Distribution, Product and Marketing
Distribution, Product and Marketing Angela Murphy Chief Executive, Distribution, Product and Marketing
Slide 10: Responding to disruption and driving growth
Responding to disruption and driving growth Making annuities mainstream in retirement Continued focus on strategic initiatives Expanding distribution channels including access to more IFAs Partnering with profit-for-member funds Maintaining thought leadership Active response to current operating env
Slide 11: Significant financial advice market disruption
Significant financial advice market disruption Impacting Challenger annuity sales • Challenger sales impacted by lower Quarterly annuity sales by channel ($m) adviser productivity Growth rate compared to pcp Domestic +21% -12% -7% Japan -53% -58% -49% • Major hubs more impacted than $1,192m IFAs – Q
Slide 12: Key growth driver
Key growth driver Making annuities mainstream in retirement Next phase – Driving growth Key growth driver • Build bottom-up customer demand Today – Strong foundations • Deeper integration with advice process Recognised retirement Established operating • Enhance product offering income leader platfor
Slide 13: Short term priorities
Short term priorities Mitigate advice market disruption and support move to new means test rules • Mitigate adviser disruption • New means test rules support lifetime • continue growth through building income streams, including deferred new cohorts of IFA advisers using lifetime annuities annuities
Slide 14: Driving ambitious growth
Driving ambitious growth Making annuities mainstream in retirement Investing up to $15m on new customer and adviser growth initiatives 1 Adviser usage of annuities 2 Organic growth in lifetime customers Build bottom-up • Engagement 30% 30,000 27% customer demand • Education for annuities 25% 23% 25,
Slide 15: Research informs customer strategy
Research informs customer strategy Increased customer understanding leads to higher consideration of annuities Retirees have a grounded retirement Product understanding: limited understanding of vision: most aspire to the continuation annuities and mispricing of risk / inappropriate of their current
Slide 16: Leveraging brand and expertise
Leveraging brand and expertise Opportunity to grow consumer familiarity 1 Recognised by advisers as leader in retirement income Brand strength 1,2,3 100% 95% 93% 95% 100% 95% 93% 95% 89% 89% 85% 85% 80% 80% 66% 62% 60% 60% 55% 53% 50% 51% 40% 40% 46% 43% 39% 20% 20% 13% 2011 2013 2015 2017 2018 2011
Slide 17: Engage and educate consumers
Engage and educate consumers Increased consumer understanding to drive bottom-up demand Targeted initiatives along customer retirement journey Develop engagement and Track customer Segment customers to education initiatives based on engagement and nurturing allow targeted customer insights prospecti
Slide 18: New brand campaign
New brand campaign Increase brand awareness and product familiarity 2011 2019 ‘Real Stories’ ‘Look forward with confidence’ In addition to promoting the Challenger brand, the new brand campaign seeks to address some of the misconceptions around annuities Key messages 1. Complements other income sour
Slide 19: Evolving financial advice landscape
Evolving financial Enhancing productadvice offering landscape Opportunities Based on adviser to improve researchadviser and insights experience • Simplifying product • Including 1,000+ lifetime permutations removed • Refining product positioning • Including white labelled adviser-to-client collatera
Slide 20: Enhancing product offering
Enhancing product offering Based on adviser research and insights • Simplifying product • Including 1,000+ lifetime permutations removed • Refining product positioning • Including white labelled adviser-to-client collateral • Improving marketing collateral • Including focused product disclosure info
Slide 21: Improving adviser experience
Improving adviser experience Making it easier to do business with us Segment advisers and deliver tailored marketing and support Integrate into key advice process touchpoints Enhance adviser interface with Challenger e.g. AdviserOnline 2019 Investor Day – Distribution, Product and Marketing 21
Slide 22: Responding to disruption and driving growth
Responding to disruption and driving growth Making annuities mainstream in retirement Continued focus on strategic initiatives Expanding distribution channels including access to more IFAs Partnering with profit-for-member funds Maintaining thought leadership Active response to current operating env
Slide 23: Life
Life Chris Plater Chief Executive, Life
Slide 24: Key points
Key points Asset allocation optimising ROE Asset allocation framework Consistently applied with strong risk management Relative value and investment portfolio FY19 – portfolio reweighted to optimise ROE FY20 – no significant change to major asset class allocations Equity & Other portfolio Provides s
Slide 25: Asset allocation framework
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 entrenched matching • Liability maturity prof
Slide 26: Investment portfolio review
Asset and liability Investment portfolio review matching (ALM) Risk FY19 – portfolio reweighted to optimise ROE management Capital Relative & value ROE Life asset allocation Property allocation decreased 1 • >$1bn of property sold – REIT portfolio & 10 direct properties 2% 4% 2 10% 12% Low beta • Di
Slide 27: Relative value
Asset and liability Relative value matching (ALM) Risk Asset risk premiums higher than last year and above average management Capital Relative Illiquidity premiums remain high & value ROE Asset risk premium 1 12% 10% Average 8% Historical range 6% +/- SD 4% 2% Last year 0% Current (2%) (4%) Inve stm
Slide 28: Relative value and investment portfolio
Asset and liability Relative value and investment portfolio matching (ALM) Risk FY20 – no significant change to major asset class allocations management Capital Relative & value ROE Fixed income Property Infrastructure, Equity & Other • Continue to target ~75% IG • FY19 sale process of lower ROE Equ
Slide 29: Equity & Other portfolio
Asset and liability Equity & Other portfolio matching (ALM) Risk Provides strong risk-adjusted and diversified returns management Capital Relative & value ROE Equity & Other Equity & Other portfolio back tested using Equity & Other portfolio total return provides 1 benchmarks • strong risk- 8 6.0% a
Slide 30: Equity & Other portfolio
Asset and liability Equity & Other portfolio matching (ALM) Risk Provides strong risk adjusted and diversified returns management Capital Relative & value ROE Equity & Other portfolio 30 June 2019 Category Proforma $bn % Portfolio Primary benchmark 1 MSCI World Net Daily Total Return Equity beta 0.1
Slide 31: Equity & Other portfolio
Asset and liability Equity & Other portfolio matching (ALM) Risk Collar strategy reduces capital intensity and enhances ROE management Capital Relative & value ROE • Strategy initially implemented in October Equity collar strategy total return 2018 through reduction in equity beta 1.10 1H19 2H19 • I
Slide 32: Normalised growth assumptions
Asset and liability Normalised growth assumptions matching (ALM) Risk Reducing Equity & Other to 3.5% management Capital Relative No change to other asset classes & value ROE Normalised growth assumptions Equity & Other portfolio composition • Represent long term through the cycle expectations Equit
Slide 33: Life front book economics
Life front book economics Generating strong returns on new business Illustrative example of current book economics (return on equity and asset return spread to liability funding) Economics of new business based on current market conditions (June 2019) Total Normalised Normalised • Represents economi
Slide 34: Key points
Key points Asset allocation optimising ROE Asset allocation framework Consistently applied with strong risk management Relative value and investment portfolio FY19 – portfolio reweighted to optimise ROE FY20 – no significant change to major asset class allocations Equity & Other portfolio Provides s
Slide 35: Funds Management
Funds Management Ian Saines Chief Executive, Funds Management
Slide 36: Key points
Key points Prospering in a changing environment Challenger Funds Management Diversity and investment quality driving growth Funds Management industry trends Profit-for-member funds winning share and some are internalising investment management Independent platforms winning share from retail hubs Fun
Slide 37: Funds Management industry trends
Funds Management industry trends Profit-for-member funds winning share from retail hubs Independent platforms winning market share from major retail hubs Quarterly superannuation flows1 ($bn) Market share of FUM1 (%) 2 3 Major hubs IFAs 20 25.0% 2.5% 15 20.0% 2.0% 10 15.0% 1.5% 5 10.0% 1.0% 0 (5) 5.
Slide 38: Funds Management industry trends
Funds Management industry trends Internalisation trend not consistent across funds • Profit-for-member funds continue to Trend to internalise investment management not consistent across funds1 Illustrative example of two leading profit-for-member funds benefit from record inflows assisted Example 1
Slide 39: Funds Management
Funds Management Diversified client base across retail and institutional channels Fidante Partners net flows ($bn) Top exposures 3.0 4% Top 10 3rd party 4% clients account 3% 2.0 Other for 26% of FUM 3% ~$2bn profit-for- 2% member fund 2% 1.0 redemption in 2% April 2019 2% Total FUM 2% 0.0 $76.5bn 2
Slide 40: Funds Management panel
Funds Management panel One of Australia’s fastest growing asset management businesses Nick Hamilton Victor Rodriguez General Manager, Head of Fixed Income, Fidante Partners Challenger Investment Partners Nick is responsible for Fidante Victor is responsible for the team Partners global business incl
Slide 41: Fidante Partners boutique FUM growth
Fidante Partners boutique FUM growth A strong track record of growth 1 Funds Under Management ($bn) Funds Under Management by boutique (A$bn) 12.0 1.4 59.6 59.3 Incubation Established 51.0 boutiques boutiques 1.2 43.0 10.0 39.3 31.4 1.0 25.1 8.0 15.6 0.8 12.6 6.0 5.8 1.6 0.6 Pre FY09 FY10 FY11 FY12
Slide 42: Broadening Fidante Partners distribution reach
Broadening Fidante Partners distribution reach Extending into active ETF market • Strong investor demand for simple, easy to access, liquid products • Diversifying distribution footprint – accessing retail investors through advisers, brokers and other channels • Launching active ETFs under ActiveX b
Slide 43: Challenger Investment Partners
Challenger Investment Partners One of Australia’s largest fixed income managers Challenger Investment Partners fixed income FUM ($bn) • Highly skilled fixed income team FY10 – FY18 13.1 CAGR 17% • 16 investment professionals 12.3 • average industry experience >16 years 11.1 • All mandates outperform
Slide 44: CIP Credit Income Fund
CIP Credit Income Fund Diversified fixed income strategy • CIP’s flagship defensive Fund objective • Target return of Bank Bill + 3% (after fees) income product FUM 1 • ~$150m Weighted average • Product extension providing credit rating2 • >BBB- regular income to • High quality, multi-sector credit
Slide 45: Key points
Key points Prospering in a changing environment Challenger Funds Management Diversity and investment quality driving growth Funds Management industry trends Profit-for-member funds winning share and some are internalising investment management Independent platforms winning share from retail hubs Fun
Slide 46: Financial outlook & Wrap up
Financial outlook & Wrap up Richard Howes Managing Director and Chief Executive Officer
Slide 47: Normalised ROE target
Normalised ROE target To drive strong shareholder outcomes • Normalised ROE target1 implemented Group normalised ROE (pre tax) 2004 to drive shareholder outcomes 26% • Applied in business decision making 22% including capital allocation, annuity 18% Historical target pricing and business case assess
Slide 48: Normalised ROE target
Normalised ROE target Target revised to RBA cash rate plus 14% from FY20 1 No change in how target is applied • Interest rates impact ROE through Group normalised ROE (pre tax) • asset yields 24% • shareholder capital not hedged 22% • Target revised in light of structural change in interest rates –
Slide 49: Financial outlook
Financial outlook FY19 FY20 Normalised • Range $545m to $565m • Range $500m to $550m including: $566m $550m net profit ($23m) • Expected to achieve bottom • lower equities normalised ($15m) $528m $500m before tax end of guidance range growth assumption (-$23m) • Consensus $544m1 • DPM2 initiatives (
Slide 50: Priorities to drive long-term growth
Priorities to drive long-term growth Fundamentals remain strong Industry trends Priorities Long-term structural tailwinds • Engage, educate and deepen customer connections • World class accumulation super system • Improve adviser experience • Ageing demographics • Retirement phase developing • Thoug
Slide 51: Q&A session
Q&A session challenger £3
Slide 52: Important note
Important note This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on 13 June 2019. The material in this presentation is general background information about Challenger Limited activities and is current at the date of this presentation. It