Challenger life sales drop 13% in Q3, lifetime annuities up

In an announcement on the ASX on Thursday morning, Challenger reported its total life sales decreased 13 per cent to $1.7 billion, reflecting a “continued focus on growing longer duration and more valuable business”.

Lifetime annuity sales increased 37 per cent for the quarter to $202 million, benefiting from rising demand for lifetime income. This comprised Liquid Lifetime of $94 million (up 9 per cent) and CarePlus of $108 million (up 77 per cent).

“Reflecting the growing opportunity in aged care, CarePlus continues to experience strong momentum,” Challenger said.

However, total annuity sales decreased 21 per cent to $823 million, which Challenger attributed to shorter duration fixed term annuity sales offsetting the “very strong longer duration lifetime annuity sales”. Fixed term annuity sales decreased 36 per cent to $441 million.

”I am very pleased with the continuing success of our strategy to prioritise growing longer duration and more valuable annuity business, which is improving the quality of our life book growth and financial performance,” said Challenger managing director and chief executive Nick Hamilton.

“Sales across our retirement income products in Life have remained strong, supported by rising demand for guaranteed lifetime income and a growing number of Australians entering retirement and aged care.”

The benefit of longer duration sales is resulting in a material step down in the annuity maturity rate, which was 4 per cent for the quarter, down from 10 per cent in Q3 2023. As previously announced, Challenger’s FY2024 maturity rate is expected to be 26 per cent.

Annuity net flows were $87 million, benefiting from the lower maturity rate, with annuity book growth of 0.6 per cent for the quarter. Total life net flows were $171 million, representing life book growth of 0.9 per cent for the quarter.

Challenger Life’s investment assets as at 31 March 2024 were $25 billion, up 3 per cent for the quarter.

Challenger said it remains strongly capitalised with a PCA ratio of 1.49 times, “reflecting statutory profit for the quarter, offset by higher capital intensity due to investment gains in alternatives and a decline in the ASX dividend yield, and the payment of dividends and Additional Tier 1 instrument coupons”.

Challenger’s third quarter assets under management (AUM) increased 6 per cent to $124 billion, driven by life book and funds management growth.

Funds under management (FUM) hit $114 billion, also up 6 per cent for the quarter, while Challenger upgraded its normalised net profit before tax guidance to the top end of the $555 million to $605 million FY24 guidance range.

“The funds management business has continued to rebound strongly, with strong momentum in flows and positive investment markets delivering a 6 per cent increase in FUM for the quarter,” Hamilton said.

“Our focus on higher value private credit and alternatives strategies is showing very positive signs as advisers’ and clients’ demand continues to grow rapidly. Challenger Investment Management and Fidante have developed leading capabilities across private credit and alternatives.

“With the sale of the bank expected to now complete by the end of April, Challenger will focus on its core life and funds management businesses, continue to execute our growth strategy and deliver on our purpose of providing customers with financial security for a better retirement.

“Challenger is well placed to finish the year strongly and we’re pleased to upgrade our full-year profit guidance to the top end of the range.”