Slide 1: Challenger – platform for growth
For personal use only Challenger – platform for growth Andrew Tobin Chief Financial Officer 20 June 2012
Slide 2: Overview
Overview Overview For personal use only 1. Annuity sales and net book growth 2. Life portfolio overview 3. Life COE margin 4. Investment experience 5. Capital and LAGIC 2
Slide 3: Strategy recap: strong platform for continuation of retirement income strategy
Strategy recap Strong platform for continuation of retirement For personal use only income strategy Growth in retirement assets over next 15 years1 2,500 • Commitment to retirement income 2,000 strategy $bn 1,500 1,000 • Key to our success: 500 - – retirement income market leader focused on organic
Slide 4: Accelerating retail annuity sales
Annuity sales and net book growth Accelerating retail annuity sales For personal use only 600 Forecast 500 400 Line 300 represents ~34% CAGR $m 200 100 0 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 • FY12 retail annuity sales growth
Slide 5: Net book growth driven by increasing sales offset by run-off from closed book acquisitions
Annuity sales and net book growth Net book growth driven by increasing sales For personal use only offset by run-off from closed book acquisitions Life - net book growth Forecast 2,000 20% Met High Life Yield 1,500 book AXA $0.4b Sales/book $1.8b book purchases $1.3b $m 10% 10% 1,000 10% 500 3% 0% 0
Slide 6: Annuity liabilities duration matched with assets
Life portfolio overview Annuity liabilities duration matched with assets For personal use only Asset and liability matching Assets backing the portfolio1 Equity and other 2% Assets Infrastructure 6% Property 16% Liabilities Time Fixed income and cash cash flows Property income cash flows Infrastruct
Slide 7: High quality fixed income portfolio
Life portfolio overview High quality fixed income portfolio For personal use only 31 Mar 2012 % of $m portfolio 84%1 of portfolio is investment grade Average term of portfolio 4 years1 Less than 5% exposure to European fixed income and no exposure to European sovereign debt Credit ratings: F
Slide 8: Sustainable cash flows from property and infrastructure assets
Life portfolio overview Sustainable cash flows from property and For personal use only infrastructure assets 31 Mar 2012 % of $m portfolio Mainly direct exposure - 69% of property portfolio Australian property portfolio: high quality tenants – 59% AAA rated1 86% of leases have fixed or CPI t
Slide 9: Life Cash Operating Earnings (COE) margin
Life COE margin Life Cash Operating Earnings (COE) margin For personal use only • COE margin: – Overall margin currently at higher end of long term historic range (4% to 5%) 6.0% Life COE margin 5.0% – Fixed income continues to be an 4.0% attractive asset class 3.0% – COE margin reflects: 2.0% – lia
Slide 10: 1H12 change in COE margin
Life COE margin 1H12 change in COE margin For personal use only 5.5% 5.0% 0.0% -0.3% 0.1% 5.1% 4.9% 4.5% 4.9% 4.0% FY11 COE margin Asset and capital impact Lower annuity costs Change in normalised growth 1H12 COE margin • 2H12 COE margin expected to be unchanged from 1H12 • Expect COE margin to tran
Slide 11: Life COE margin and Return on Net Assets (RoNA)
Life COE margin Life COE margin and Return on Net Assets (RoNA) For personal use only 40% 30% 30% COE margin 20% RoNA % % 20% 18% RoNA 10% hurdle 10% 0% 0% FY07 FY08 FY09 FY10 FY11 1H12 Life COE margin (LHS) Group RoNA (pre-tax) (RHS) • Focused on balancing RoNA and COE margin • Internal RoNA hurdle
Slide 12: Recent investment experience driven by credit spreads
Investment Experience Recent investment experience driven by credit For personal use only spreads • Life Company assets are required to be marked to market • With the portfolio weighted toward Australian iTraxx index fixed income, changes in credit 300 spreads is a key driver of investment experienc
Slide 13: Navigating the LAGIC transition
Capital and LAGIC Navigating the LAGIC transition 1 For personal use only Jun 2012 Sep to Oct 2012 Sep 2012 Jan 2013 Timeline Submissions on illiquidity Release of final reporting Transition applications New standards premium and draft standards due effective standards due LAGIC impacts Challenger’s
Slide 14: LAGIC impacts
Capital and LAGIC LAGIC impacts For personal use only • Challenger remains strongly capitalised with: • in excess of $600m1 in surplus capital over minimum requirements in the Life Company • more than $200m1 of cash at Group • $250m of undrawn banking facilities at Group • strong organic capital gen
Slide 15: Summary: Key points
Summary Key points For personal use only • Focus on retirement income sector remains unchanged as favourable structural and demographic trends will continue to play out providing a platform for future growth in annuity sales • High quality asset portfolio weighted toward fixed income – no European s
Slide 16: Disclaimer
For personal use only Disclaimer: The material in this presentation is general background information about Challenger Limited activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon