Challenger Limited · ASX:CGF
Challenger — Citi Australian Investment Conference 2009
16 slides from Challenger's conference presentation, Oct 20, 2009
Slide 1: The retirement income opportunity
For personal use only Challenger Financial Services Group The retirement income opportunity Dominic Stevens Chief Executive Officer 20 O October t b 2009 1
Slide 2: Agenda
Agenda For personal use only • Significance of demographic changes in the retirement income market • Organic growth developments • Product and distribution initiatives • Growing sustainable earnings • Capital and balance sheet management • Summary 2
Slide 3: The significance of demographic change
The significance of demographic change For personal use only • At present, developed countries on average have about four people of working age for every person over 65. By 2050 this reduces to only two workers for every pensioner • Australia faces similar demographic changes to other OECD nations –
Slide 4: OECD 2009 Report
OECD 2009 Report For personal use only 5. Scale of impact of the crisis on retirement–income provision by age group Age Group Younger/prime-age Nearing retirement Retired Strong Individuals with long periods in Individuals who did not take an annuity iimpact d fi d defined-contribution, ib i private
Slide 5: Glide path to retirement
• 2010 baby-boomers begin Glide path to retirement retiring For personal use only • Risk appetite is changing • Reduced equity focus in retirement • Increased awareness of the 100% importance of ‘glide-path’ to 2050 2045 retirement & appropriate asset 2040 90% 2035 allocation 2030 13% 80% 14% 15% 20
Slide 6: OECD – global annuity markets
OECD – global annuity markets For personal use only Figure 1: Schematic representation of selected annuity markets Life Long annuities Netherlands United Kingdom predominate C d Canada Germany Switzerland South Denmark Africa Chile Chil Singapore Mexico Ireland Belgium Sweden Alternative United Stat
Slide 7: Dispelling myths about annuities
Dispelling myths about annuities For personal use only • M th #1 – annuities Myth • Facts: iti are expensive i 8 – Annuities are nil MER – Commissions to IFAs are low ~50bps • Myth #2 – annuities offer poor investment returns • Facts: 8 – Returns significantly above cash or government bond rates – 7
Slide 8: Underlying organic annuity sales growing
Underlying organic annuity sales growing For personal use only 300 Impact of ~30% GFC/deposit growth guarantee 250 Impact of social security changes 200 $m 150 100 50 0 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08
Slide 9: Expanded product & distribution footprint
Expanded product & distribution footprint For personal use only • Significant work undertaken in the last 9 months to develop a platform ‘friendly’ annuity product in unitised form to meet market demand • Challenger Guaranteed Income Fund (GIF) represents an innovative annuity y based retirement inc
Slide 10: Increased marketing and advertising
Increased marketing and advertising For personal use only • Challenger Ch ll No.1 N 1 in i the th annuities iti market • Initiated new marketing and advertising campaign earlier this month • Raise awareness with customers and financial planners of key issues • Dispel ‘myths’ about annuities 10
Slide 11: Potential for regulatory tailwinds
Potential for regulatory tailwinds For personal use only Date Government Industry • Initial submission to Henry Review raising longevity and Oct 2008 mandatory annuitisation as a possible response • Main submission to Henry Review on Retirement Incomes Policy – Challenger Ch ll on iinternational i l
Slide 12: Retirement income opportunity
Retirement income opportunity For personal use only • Expanded product offerings • Expanded p • Potential P t ti l ffor distribution positive footprint via regulatory • Underlying platforms tailwinds demographic • Innovative • Incremental book trends and annuity-based purchases – change in risk prod
Slide 13: Sustainable earnings profile
Sustainable earnings profile For personal use only Life Company AUM/COE 7 350 • COE guidance of $300m – FY10 300 6 250 million COE spread of ~5.0% sustainable $ billion • 200 5 over the medium term 150 $m 4 100 • Challenger’s assets purchased 50 3 0 over time 2007 2008 2009 2010 – Average spreads ov
Slide 14: Putting capital to work – reinvestment of cash
Putting capital to work – reinvestment of cash For personal use only Cash bond spreads contracting but still historically wide 600 • In last two months ~$500m of CBA Spectrum 5-year Single A to Swap cash balances have been iTraxx Australia 500 reinvested in accretive assets at high margins 400 • Liq
Slide 15: Capital & balance sheet management
Capital & balance sheet management For personal use only • No requirement to undertake dilutive equity issues during GFC • Net cash at group expected to be ~$350m following completion of mortgage management sale to NAB1 • Group borrowings to be repaid in full • Surplus capital in Life ~$800m as at 3
Slide 16: Summary
Summary For personal use only • Growing franchise in the retirement income sector – Number 1 annuity provider in Australia • Underlying book growing organically driven by: – Demographic D hi ttrends d – Favourable trends to risk aversion – Broader distribution footprint – extended via administration
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