Slide 1: Financial Results
ie Oe ee ee " ‘ fn , Financial Results challenger &2 16 August 2022
Slide 2: Overview
Overview Building a more diversified business and meeting more customer needs Business performance Nick Hamilton – Managing Director and Chief Executive Officer Financial results Rachel Grimes AM – Chief Financial Officer Strategy and financial outlook Nick Hamilton – Managing Director and Chief Exe
Slide 3: Highlights
Highlights Strong financial result with shareholder returns increasing Building a more diversified business and meeting more customer needs Financial performance Towards upper end of guidance range and strongly capitalised Normalised ROE and dividend growth Operating performance Strong Life and annu
Slide 4: Business performance
Business performance Nick Hamilton Managing Director & Chief Executive Officer
Slide 5: Financial performance
Financial performance Strong financial result with shareholder returns increasing Statutory NPAT Group AUM Group Reg. Capital $254m $99bn 1.68x ▼57% ▼10% CLC PCA ratio 1.60x1 Normalised NPBT Investment experience Life AUM +3% Strong Group capital position -$81m post-tax $472m Funds Management FUM -1
Slide 6: Operating highlights
Operating highlights Building a more diversified business and meeting more customer needs One Challenger Brand Capability Customers Partnerships Leading retirement brand New market-linked New Customer division New FM affiliates lifetime annuity Fidante brand refresh Institutional partnerships MS&AD
Slide 7: Life sales and book growth
Life sales and book growth Strong sales driving book growth Life and annuity sales ($bn) Life book growth ($bn) Life sales $9.7bn +40% Total Life net flows +$2.5bn (+14% book growth) Annuity sales $5.1bn +12% Annuity net flows +$1.1bn net flows (+8% book growth) 9.7 0.6 Japan1 $0.6bn (-22%) 6.9 2.5
Slide 8: Macro environment
Macro environment Higher interest rates supportive for sales, margin and ROE Rising interest rates Higher annuity rates Steeper yield curve Positive for annuity rates1 Opportunity to manage funding cost2 Extend product tenor5 5.00% 2.00% 4.00% 1.50% 50% 53% 62% 3.00% 74% 1.00% 2.00% 0.50% 50% 1.00%
Slide 9: Macro environment
Macro environment Unrealised investment experience from credit spread expansion Challenger remains strongly capitalised Indicative credit spread movement1 • Credit spread expansion results in bps unrealised mark-to-market investment losses 250 • Fixed income investment experience 230 consistent with
Slide 10: Funds Management
Funds Management Leading platform with diversified asset classes and managers Leading active manager Average FUM platform $104bn +13% Diversified across asset classes Equities 38%; Fixed income 55%; Alternatives 7% 104.3 92.7 93.4 ▼10% Market leading domestic 80.6 distribution 2021 Zenith Distributo
Slide 11: Strategic partnerships
Strategic partnerships Enabling growth to core activities Leading investment management #1 Japanese general insurer Global alternative asset manager solutions provider Investment program established MS Primary annuity sales Board established with providing Life investment above target1 independent C
Slide 12: Financial results
Financial results Rachel Grimes AM Chief Financial Officer
Slide 13: Group snapshot
Group snapshot Normalised profit towards upper end of guidance range FY22 Change Normalised NPBT Normalised ROE Net income $777m 14% $472m +19% 11.9% +70bps Expenses ($301m) 7% EBIT $476m 19% Life $472m +18% FY22 target 12.2%2 Interest & borrowing ($4m) -18% FM $83m +17% ROE excluding Bank 12.5%3 Ba
Slide 14: EBIT up 19%
EBIT up 19% Earnings growth driven by average AUM growth and stable margins Strong expense management Income $777m +14% Expenses $301m +7% Cost ratio 38.7% -250bps +2% ex. Bank 301 281 13 11 2 43.3% Average AUM +14% (3) 41.2% Life COE1 $583m +14% 39.3% 38.7% 38.1% FY21 Life FM Corporate Bank FY22 Av
Slide 15: Life performance
Life performance Strong sales and stable margin Life sales $9.7bn +40% Average AUM +14% Life EBIT Annuity sales $5.1bn +12% COE margin stable $472m +18% Life book growth +14% Average investment assets ($bn) Annuity book growth +8% Cash Operating Earnings margin (%) 472 Cash Operating Earnings $583m
Slide 16: Life COE margin
Life COE margin Stable margin with lower investment yields offset through pricing 1 1 2 FY22 COE margin stable COE margin and product spread One-off Asset Backed Security fee received in 2H21 Lower investment returns from Higher average tighter credit spreads and lower interest rates property yields
Slide 17: Life sales
Life sales Strong institutional sales driving greater maturity rate High reinvestment rate extends effective tenor Life annuity sales by tenor ($bn)1 Sales 5.1 • Benefiting from diversification strategy 4.6 0.6 • FY22 term annuity sales: 52% 1-year 0.8 3.1 1.8 • Shorter duration sales reflect flat y
Slide 18: Life liabilities and assets
Life liabilities and assets Strong sales driving asset growth Life annuity and other liabilities ($bn)1 Life investment assets ($bn) Discounted Undiscounted 22.2 20 21.6 18 18.3 17 19.0 22% Index Plus liabilities 18.1 15 15 21% 24% 14 13% 16% 12% 15% 12% 12% 8% 7% 11% ▲$1.1bn book growth Lifetime2 +
Slide 19: Life investment assets
Life investment assets No material changes to portfolio settings Life AUM1 Fixed income 75% down 1% 2 • Cash and investment grade 58% down 2% 4% 7% 6% • Represents 78% of fixed income (above 75% target) 2 15% • Sub-investment grade 17%: up 1% FY22 Property 15% down 1% $22.2bn 51% • 1 property sold w
Slide 20: Investment experience
Investment experience Asset experience (-$261m); Liability experience (+$146m) Investment Experience (pre-tax) Expansion in credit spreads, particularly in 4Q221 Fixed income -$384m Valuation loss -$434m; normalised growth +$59m; Credit default experience2 -$9m (-5bps) All properties independently v
Slide 21: Funds Management performance
Funds Management performance FUM growth and higher margins Average FUM $104bn +13% Net income $192m +13% Average FUM FM EBIT FUM based-income $178m +18% $104bn +13% $83m +17% Performance & transaction fees $14m -23% Fidante $83bn +15% Income +13% Income margin 18bps +0.1bps Challenger IM $21bn +3% E
Slide 22: Funds Management
Funds Management Higher margins Funds Management income margin (bps) Funds Under Management ($bn) Total FUM -12% 105.8 Total FUM ex 93.4 Whitehelm2 -7% 78.0 79.0 81.4 19.4 19.6 18.3 18.4 Fidante -15% due to market movements, outflows in fixed 17.1 income and 16.1 16.3 15.7 Whitehelm derecognition C
Slide 23: Funds Management
Funds Management Markets and derecognition of Whitehelm Capital impacting FUM Well positioned with diversified model Funds Under Management ($bn) Diversified asset mix 3rd party property Life property 1% 4% Fidante Alternatives 2% 2.3 105.8 3rd party fixed income 4% (5.6) 7% Life fixed income 14% Fi
Slide 24: Bank performance
Bank performance Strategic review commenced 1 Deposit book and Deposit sales $219m Lending assets2 ($m) 228 Net interest income $2m – NIM 0.93% Expenses ($13m) 105 EBIT ($11m) – Breakeven not achieved in FY22 – Term deposit book $163m 1 2 Deposits Lending assets FY22 – 30 June 2022 1. Deposits inclu
Slide 25: Capital management
Capital management Strongly capitalised Strongly Additional financial capitalised flexibility S&P credit rating Challenger Life ‘A’ Challenger Group Challenger Life Company stable outlook capital position PCA ratio2,3 Challenger Limited ‘BBB+’ stable outlook 1.68x 1.60x Group minimum regulatory PCA
Slide 26: Dividend
Dividend Increasing and within payout guidance range 1 Fully franked dividends (cps) Dividend payout ratio 40 60% 35.5 35.5 54.2% 52.1% 48.2% 48.3% 30 50% 18.0 18.0 23.0 20.0 20 17.5 40% 11.5 10.5 31.0% 10 17.5 17.5 17.5 30% 9.5 11.5 0 20% FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 Interim Fi
Slide 27: Strategy and financial outlook
Strategy and financial outlook Nick Hamilton Managing Director & Chief Executive Officer
Slide 28: Business well positioned
Business well positioned Competitive advantages and tailwinds supporting growth Challenger competitive advantages Leading origination Exceptional Investment Highly Strong and investment distribution operations capable and brands capability footprint excellence engaged team Supportive long-term tailw
Slide 29: Challenger growth strategy
Challenger growth strategy Building a more diversified business and meeting more customer needs Where we are today Where we are headed Multi-brand Brand One Challenger Advised Retail Multi-channel, Adviser, Institutional Institutional Customer Broker, HNW, Direct Guaranteed Wider range of products N
Slide 30: FY23 guidance and targets
FY23 guidance and targets Earnings to benefit from a higher rate environment Continue to remain disciplined on costs Guidance considerations NORMALISED $485m $535m Life: COE margin increasing NET PROFIT 1 BEFORE TAX FM: Opening FUM 10% lower than FY22 average GUIDANCE Bank: ~$10m EBIT loss – Commenc
Slide 31: Highlights
Highlights Strong financial result with shareholder returns increasing Building a more diversified business and meeting more customer needs Financial performance Towards upper end of guidance range and strongly capitalised Normalised ROE and dividend growth Operating performance Strong Life and annu
Slide 32: Appendix
Appendix Additional background information
Slide 33: Appendix
Appendix Providing our customers with financial security for a better retirement Challenger business overview 34-36 Life sales and AUM 53 Life asset allocation & portfolio overview 54-58 Superannuation system 37-41 Life normalised profit framework 59 Retirement phase overview 42-47 Life asset and li
Slide 34: Corporate purpose and strategy
Challenger business overview Corporate purpose and strategy Building a more diversified business to meet more customer needs FY22 – 30 June 2022 34
Slide 35: Challenger overview
Challenger business overview Challenger overview Providing customers with financial security for a better retirement Challenger Limited (ASX:CGF)1 Life Funds Management Bank #1 Australian retirement One of Australia’s largest Australian-based digital income business2 active fund managers5 banking pl
Slide 36: Meeting the needs of more customers
Challenger business overview Meeting the needs of more customers Through yield, alpha, solutions and partnerships Saving for Spending for retirement retirement Starting Working Paying Accumulating Starting Travelling Downsizing Aged care out off debt wealth retirement YIELD SOLUTIONS PARTNERSHIPS AL
Slide 37: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Market growth supported by Australian superannuation growth2,3 ($bn) • Mandatory and increasing contributions 10,000 • Earnings and contributions compounding 8,000 • Population growth and agein
Slide 38: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Projected superannuation assets ($bn) 2 Pre-retirement (superannuation savings) phase 10,000 • Funds Management target market • Supported by mandated and increasing contributions 7,500 Post-ret
Slide 39: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Mandatory and increasing contributions – increasing from 10.5% 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 allocations 1 Fixed income allocation 26% • Australia 30% 31% • OECD average 43% 24% 6% 26% 42% 27% 43% 25% 10% 34% Equities allocation
Slide 41: Australian superannuation system
Superannuation system Australian superannuation system World class accumulation system with significant retirement savings World class Significant Not delivering retirees accumulation system retirement savings financial comfort 7 National Seniors Australia survey (January 2020) Contribution rate 1 i
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 2 • Average household 1 wealth at retirement Portion of retirees reliant on age pension $686,000 (excluding family home) • Age pension subject to assets and income tests • 2.6m Aust
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 671) Single $987.60 $25,678 pension rates 2 Couple $1,488.80 $38,709 • Age pension based on lower outcome unde
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 67 (male) Example - $100,000 lifetime income
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) • 67 years old • Approaching retirement • Target income $65,445
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 $65,445 p.a. until
Slide 48: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Combined product Combined product (70% Account Based Pension; 30% Lifetime Annuity) (70% Account Based Pension; 30% Lifetime Annuity) Income from combined pro
Slide 49: MS&AD strategic relationship
MS&AD MS Primary MS&AD strategic relationship Diversifying and increasing access to Japanese market Strategic relationship with MS&AD Group • Increases access to Japanese market through MS&AD • Opportunities for both Challenger and MS&AD 1 Japanese general insurer #1 market share • Broadens Challeng
Slide 50: MS Primary annuity relationship
MS&AD MS Primary MS Primary annuity relationship Diversifying and increasing access to Japanese market MS Primary • MS&AD subsidiary Product overview • leading provider of foreign currency life products in Japan Term annuities – A$ and US$ • extensive distribution footprint via bancassurance channel
Slide 51: Life product overview
Life product overview Life product overview Providing customers with guaranteed income Fixed term Long term Other (including lifetime) 1 35% of total book1 43% of total book1 22% of total book Provides regular guaranteed Provides income for life Institutional product providing payments for a fixed r
Slide 52: Clear leader in retirement incomes
Challenger brand and Adviser ratings Clear leader in retirement incomes Strong Challenger reputation within the market 1 Brand strength: Leaders in Retirement Income Market Leader in Australian retirement incomes 100% 95% 93% 95% 93% 93% 84% Annuity market share 2 92% 90% 89% 85% 80% ‘Annuity Provid
Slide 53: Life sales and AUM
Life sales and AUM Life Diversified distribution driving sales and AUM growth Total Life sales ($m) Life AUM ($m) 14% 5-year CAGR 7% 5-year CAGR 9,706 22,224 21,563 19,010 18,085 18,303 6,928 15,677 5,556 4,952 5,151 4,550 FY17 FY18 FY19 FY20 FY21 FY22 FY17 FY18 FY19 FY20 FY21 FY22 Annuity sales Oth
Slide 54: 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 • Strong governance framework Asset and • Managed by dedicated team liability • Risk management
Slide 55: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio High quality portfolio providing reliable income Life investment portfolio Life investment portfolio – asset allocation 1 General Insurance 100% Absolute Return Life Insurance Infrastructure 80% Low beta 60% Equity beta 6% Offsho
Slide 56: Fixed income portfolio
Life asset allocation and portfolio overview Fixed income portfolio Represents 75% of portfolio with 78% investment grade 1 Fixed income portfolio by asset class1 Fixed income portfolio by sector1 Fixed income portfolio by geography1 Non-IG Corporate Credit Liquids Other New Rest of 10% Infrastructu
Slide 57: Property portfolio
Life asset allocation and portfolio overview Property portfolio Represents 15% of portfolio Defensive property portfolio with a focus on long-term income streams Property portfolio 1 Australian office 55%; industrial 8% Japanese retail • 10 office assets; 3 industrial assets 10% Other • Average cap
Slide 58: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Equity and infrastructure 4% of portfolio; Alternatives 6% of portfolio Equity and infrastructure portfolio1 Alternatives portfolio1 Other United Kingdom 9% 10% Europe Australia 19% 26% 13% 11% 8% Europe 17% 16% $1.0bn $1.4bn Uni
Slide 59: Normalised profit framework
Life normalised profit framework Normalised profit framework Reflects underlying performance of Life business Investment Experience Cumulative Investment Experience (pre-tax) ($m) Asset and policy liability valuation movements 200 plus net new business strain - (200) (400) Asset and policy liability
Slide 60: 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 ($m) • Assets deliver contracted cash flows to match liability flows 10,000 • Risk appetite seeks to minimise 8,000 duration
Slide 61: Funds Management
Funds Management sales and FUM Funds Management Strong FUM growth track record Fidante Funds Under Management (FUM)($bn) 7% 5-year CAGR • growing multiple boutique platform 105.8 • located in Australia, UK, Japan and Singapore 20.9 93.4 79.0 81.4 • asset class diversification 78.0 21.0 66.9 19.0 18.
Slide 62: Funds Management
Funds Management sales and FUM Funds Management $93bn FUM $6.9bn Alternatives Laying foundations to support future growth FUM CAGR growth rates $35.7bn Fixed Income: +18% Equities Markets contribution Equities +18% Alternatives2 (incl. Property) +1% Net flows contribution $50.8bn Fixed Income Pre FY
Slide 63: Funds Management – multiple brands and strategies
Funds Management managers Funds Management – multiple brands and strategies Diversified offering generating strong returns for clients Affiliate brands, strategies and asset classes Australian equities Equities1 Global, regional $35.7bn & EM equities Sustainable investments Fixed Income 1 $50.8bn Al
Slide 64: Fidante affiliate managers and partnerships
Funds Management managers Fidante affiliate managers and partnerships Diversified managers and investment strategies Partnership Partnership Affiliate Asset class Affiliate Asset class commenced commenced Aug 2010 Affiliate – Australian and global equities Oct 2005 Affiliate – Australian small cap e
Slide 65: Fidante
Fidante model & performance Fidante Contemporary model with strong alignment of interests Administration services Distribution services • Investment operations • Asset consultant & research • Client operations Investment • Strategic positioning • Risk and compliance Management • Product development
Slide 66: Fidante investment performance
Fidante model & performance Fidante investment performance Strong performance underpinning FUM growth 1 2 Fidante percentage of funds 1st or 2nd quartile Fidante performance relative to benchmark 22% Since 92% inception 29% 23% 38% 5 Year 97% 36% 14% 61% 3 years 98% 46% 41% 36% 33% 29% 1 year 52% 1
Slide 67: Growth supported by available capacity
Fidante manager capacity Funds Management Growth supported by available capacity Manager capacity ($bn) Quarterly net flows vs peers ($bn) 2 40 8 35 6 30 25 4 20 2 15 0 10 5 (2) 0 (4) Fidante Peer average Equity Fixed Income Alternatives Managers Managers Managers (6) FUM Available capacity (8) Sep-
Slide 68: Challenger Investment Management
Challenger Investment Management Challenger Investment 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 ma
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