Challenger rides high on life income demands

Fund manager Challenger says policy certainty is needed for retirees, as it lifts profit by 80pc on the back of demand for new private credit and property products.

Challenger CEO Nick Hamilton said the diversification of income streams was seeing a “really positive” reception in the market. Picture: Britta Campion

Fund manager Challenger has called on the federal government to provide more certainty for income planning, as strong appetite for retirement products powered the group to an 80 per cent surge in first-half profit.

Challenger chief executive Nick Hamilton told The Australian investors deserved greater certainty to help those planning for retirement, as the government moves to tweak the retirement system including taxing balances in excess of $3m.

Mr Hamilton said he wanted to see government “recognition that advice is critical for retirement” as Treasury weighed various policy options, noting this would allow retirees “to make the right decisions”.

“We’ve got a range of views on that. We’re supportive of all the discussion around retirement but what the market will look for is just a bit of certainty,” he said.

The comments came as Challenger revealed it was riding high on the back of record sales for its life products, driven by a string of deals signed with institutional customers as well as new streams to offer private equity and credit investments.

Australians looking to secure more diverse retirement funding streams helped power Challenger to a first-half statutory net profit of $56.3m, up 80 per cent from $31.2m a year earlier.

Normalised net profit before tax grew 16 per cent to $290m, beating consensus analyst expectations for pre-tax earnings of circa $284m.

Diversified income drive

Mr Hamilton told The Australian retirees were demanding diversification to their income streams, with the opening up of new opportunities proving popular.

Challenger has inked deals with Apollo Asset Management, with the American private equity operation gaining a seat on Challenger’s board, opening the door to customers to access its investments.

Challenger has also added Elanor to distribute a real estate investment stream through the Fidante platform.

Mr Hamilton said the diversification of income streams was seeing a “really positive” reception in the market.

“If you think about private credit versus public market credit, there’s a huge market investors otherwise can’t get access to,” he said.

The financial services company revealed a record $1.9bn in annuity sales in the first half, contributing to its $5.6bn in life sales in the period.

“This in turn is extending the tenor of our Life book, which will support higher, longer term profitability,” Mr Hamilton said.

Challenger saw a drying up of long-dated deals as interest rates tumbled towards their pandemic lows, but Mr Hamilton said the return to higher funding costs coupled with soaring inflation had spurred retirees to take a longer horizon on investments.

Mr Hamilton said Challenger was also making significant progress in delivering a transformation strategy for the business, including moving to “take a broader stance in retirement” driving more sales across its life products through tie-ups with superannuation providers.

Challenger has inked deals with the Commonwealth Super Corporation and TelstraSuper, which Mr Hamilton noted “demonstrate our expertise in developing retirement and longevity solutions that address the specific needs of members in retirement”.

Mr Hamilton said retirement was “fundamentally different to accumulation”, but noted he was “supportive of all the discussion around retirement”.

“The government right now is doing the right thing, they’re consulting the industry on the challenges and what needs to evolve to deliver retirement,” he said.

‘Patchy but positive’

But Challenger saw challenges in its funds management arm, with total earnings down 7 per cent to $29m “due to changes in business mix” which clipped net income by 1 per cent in addition to a 3 per cent lift in expenses.

Total funds under management lifted 9 per cent in the period, to $108bn, as Challenger’s institutional clients pumped an additional $6.5bn into the investment operation.

Challenger also revealed it would kick off a technology transformation of its Life platforms.

The company announced it would sign a seven-year deal with consulting heavyweight Accenture to become its “long-term technology partner” in a move tipped to save up to $90m over seven years.

Challenger said the tech transformation was aimed at “making it easier to do business with us, broadening the customer base and delivering an innovative offering”.

The deal will see Accenture run Challenger’s Life platform and replace its core annuity registry with Accenture’s Life Insurance and Annuity Platform as well as create new customer portals.

Challenger said it would book a $25m investment cost across the 2024 and 2025 financial years for the program, including a $4m cost already incurred in the first half.

Challenger said the systems would allow customers to fully originate services online and add efficiencies for advisers to write new business as well as upgrading interfaces for institutional clients.

The move is expected to start by the beginning of the 2025 financial year.

Challenger, which manages assets and supplies life income products to retirees, said it was standing by its guidance of a pre-tax net profit for the full year coming between $555m to $605m, excluding losses from Challenger Bank which is set to be sold to Heartland Group.

However, Challenger said it expected earnings in the top half of the range.

Challenger acquired its bank in 2021 in a deal that saw it take over credit union MyLifeFinance, before securing a banking licence.

Challenger declared it would hand investors a 13c fully franked dividend, up on the 12c handed out in July.

UBS analyst Scott Russell said Challenger’s result was “patchy” but positive.

“A modest earnings and div beat. While investment experience was well below consensus (negative marks to property and alternatives), normalised NPBT was 1 per cent ahead of consensus,” he said.

Originally published as Challenger rides high on life income demands