Strong life business returns as Challenger profits up 13%

In its full-year earnings results, Challenger announced a 10 per cent increase in normalised net profit before tax of $521 million, which it said was in the top half of its earnings guidance range.

Statutory net profit after tax (NPAT) increased 13 per cent to $288 million driven by strong normalised earnings growth, while group assets under management (AUM) increased 6 per cent to $105 billion.

Challenger said its Life business remained well capitalised with a PCA ratio of 1.59 times the minimum regulatory requirement.

Managing director and chief executive Nick Hamilton said: “Challenger has delivered a strong performance this year as we focus on expanding our customer reach and driving growth initiatives.

“The result reflects the strength of our franchise and our ability to meet the growing demand for guaranteed income as an increasing number of customers seek financial security in retirement.

“Our Life business achieved total sales of $9.7 billion driving book growth of 5.2 per cent.”

Challenger Life’s earnings before interest and tax (EBIT) increased 14 per cent to $541 million, benefiting from both margin expansion and AUM growth.

Total Life sales of $9.7 billion were driven by strong growth in retail annuity sales and strong Japanese annuity sales, Challenger said.

“Growth across retail annuities was exceptional, up 53 per cent to $3.6 billion, reflecting the attractiveness of our offering. Pleasingly, this growth was weighted towards longer duration business, with 74 per cent of new business annuity sales for terms of two years or more,” Mr Hamilton said.

Japanese (MS Primary) annuity sales increased by 20 per cent to $741 million. Institutional sales were $5.4 billion, while Challenger Index Plus sales were $4.2 billion.

Challenger also recently announced a defined benefit partnership with Aware Super, which it called the “largest annuity buy-in in Australian history”. This includes a group lifetime annuity policy to the value of $619 million and will be included in Challenger’s first quarter 2024 lifetime annuity sales.

Challenger’s Funds Management business saw its earnings before interest and tax drop 26 per cent to $62 million due to lower average FUM and higher expenses. The Funds Management average FUM also decreased by 9 per cent to $95.0 billion.

“In Funds Management, the business delivered a solid performance, whilst continuing to invest for growth across Challenger Investment Management and Fidante,” Mr Hamilton said.

“Reflecting Challenger’s strong FY23 performance, the board determined a fully franked full-year dividend of 24.0 cents per share, an increase of 4 per cent on last year.”

Mr Hamilton added Challenger had made significant progress delivering on its strategy to build a more customer-focused business, while executing a range of strategic initiatives to drive growth.

“Our term and lifetime income products provide essential building blocks to a retirement portfolio and we are focused on ensuring our customers have a seamless experience. This past year we launched fixed term direct, allowing income seekers to access market-leading guaranteed rates via our website in minutes,” he said.

“Across Funds Management, our new registry service has supported the expansion of our suite of active ETFs and made it easier for customers to do business with us through a new online self-service portal.

“With the Australian savings market firmly focused on retirement, there is a significant growth opportunity for us to support superannuation funds to develop retirement income solutions to help meet their members’ needs.

“Through our new strategic partnerships with Aware Super and TelstraSuper, we will leverage our expertise and market-leading investment capability to develop retirement and longevity solutions for their members.”

Looking to FY24, Challenger said it is targeting normalised net profit before tax guidance between $555 million and $605 million, with the mid-point of the range representing an 11 per cent increase on FY23.

The FY24 guidance range excludes Challenger Bank, the sale of which is expected to complete in the first half of FY24.

“As we look to the future, we are uniquely positioned to seize the growth opportunity ahead. We have a clear and compelling strategy that our team are focused on executing,” Mr Hamilton said.

“New and emerging channels will broaden our customer reach, and significant demographic and regulatory shifts are in our favour which will help us deliver an exciting growth agenda.”