1985
Challenger International Limited established
Our ongoing performance, outlined in the CEO’s report and detailed further throughout the Annual Review, enabled the Board to increase the full-year dividend to 35.5 cents a share.
Challenger has strong business momentum and is well positioned for the next phase of growth.
An important element of this and a key driver of these results has been the broadening of our product range and expansion of our distribution activities in both Life and Funds Management.
Challenger has a clear vision to provide our customers with financial security for retirement. This year we have seen significant industry and regulatory progress that supports this vision. I’m particularly encouraged that products that provide secure and reliable income are becoming more mainstream.
This will be further enhanced by the Government’s retirement income framework announced in the Federal Budget which places more focus on the role of superannuation funds in providing members with reliable income for life. In addition, new social security means test rules due to come into effect on 1 July 2019 provide a strong foundation to further grow the use of lifetime income products.
These are positive developments that will help ensure that lifetime income products are an option for more Australians in retirement.
Strong corporate governance practices are essential for sustainable business performance, and ensuring that we have a highly effective Board is critical. In December 2017, we welcomed two new independent Non-Executive Directors to the Board, Melanie Willis and John Green. These high calibre appointments reflect the success of our Board renewal process, ensuring that we continue to have a diverse and high performing Board with a strong mix of skills, experience and tenure.
Brenda Shanahan and Jonathan Grunzweig retired from the Board in October 2017 and December 2017, respectively. Both brought valuable insight and dedication to the Board over many years, and I thank them for their service.
Reflecting our commitment to strong corporate governance, this year you will find additional detail about our approach and actions in our Corporate Governance Report.
Corporate sustainability is an integral part of how we do business and this year the Board approved a refined corporate sustainability strategy based on:
Our 2018 Sustainability Report provides detailed information about how we are addressing the environmental, social and governance risks and opportunities we see for our business.
One of our competitive advantages at Challenger is our highly engaged team. An essential part of that engagement is the progress we are making in ensuring a diverse and inclusive workforce, a commitment that has been recognised with Challenger’s citation as an employer of choice by the Workplace Gender Equality Agency.
On behalf of the Board, I would like to thank the entire Challenger team for their hard work and dedication which has led to another successful year for your company.
As a Board, our aim is to deliver sustainable returns for our shareholders and build a solid foundation for future growth. I am confident we are well on track.
Independent Chair
Strong growth in assets under management (AUM), was a highlight of the year, increasing 16% or $11.1 billion to more than $81 billion. Over the past five years, AUM has increased by more than $36 billion, reflecting significant growth in Life sales and very strong funds flow into our Funds Management business.
Normalised net profit after tax (NPAT), our key measure of profitability, increased by 6% to $406 million. Excluding a one-off fee in the prior period, normalised NPAT was up 8%. Statutory net profit after tax was $323 million, and includes mark-to-market gains and losses on our investment assets and policy liabilities.
Driving these results is our success in expanding our customer base by diversifying our products and distribution activities in Australia and internationally.
In our Life business, we achieved book growth of $1.8 billion, up 37%. New product and distribution initiatives introduced in recent years, including CarePlus for retirees moving into aged care, our new institutional Challenger Index Plus Fund and our Japanese partnership, contributed significantly to this outcome.
Similarly, strong net flows of $5.3 billion in our Funds Management business were driven by our diverse boutique offerings and strong performance outcomes, with 91% of funds under management outperforming benchmarks for the year.
As part of broadening a key strategic relationship with MS&AD, the parent company of our Japanese annuity partner Mitsui Sumitomo Primary Life Insurance Company, we further strengthened our capital position with a $500 million equity placement to MS&AD.
I’m pleased to note that S&P Global Ratings affirmed its ratings1 for Challenger and revised the outlook from stable to positive due to our expanded distribution network and leadership in annuities, which strengthens the quality and resilience of underlying earnings.
Throughout FY18, we have remained diligently focused on implementing our strategy for growth. This strategy has enabled us to build strong momentum across our business, and we will continue to build on this in FY19 as we position our business to capture the significant opportunities we see ahead.
We remain focused on extending our market reach, making our annuities available through a range of investment and administration platforms. Access to annuities on platforms makes it easier and more efficient for financial advisers to recommend annuities to their clients. This year, we launched on the AMP platform and as a result we have seen an increase in the number of advisers writing our annuities and a greater focus on lifetime annuities. We are now ready to launch on the BT Panorama platform early in the new financial year. When complete, our Life products will be available to two thirds of Australian financial advisers via platforms.
We are currently preparing for the introduction of new means test rules from July 2019 which will enable us to realise the benefits of regulations designed to support a wider range of lifetime income stream products. Further strengthening our approach, we have undertaken detailed research with customers and financial advisers to ensure that our offerings meet their needs.
Underpinning our business growth, we continue to apply our disciplined asset allocation framework, and as a result we are currently refining our asset mix, with a strong focus on risk, optimising our return on equity and ensuring that we are well placed to fund our future growth.
We’ve also built strong momentum as one of the fastest growing active fund managers in Australia. Our Fidante Partners stable of boutique managers added two US-based fund managers and six new strategies in FY18. Fidante is also now ready to launch Australia’s first active fixed income exchange traded funds early in FY19, appealing to a much wider range of customers.
Challenger has a highly differentiated business model that gives our business considerable resilience and competitive advantage in high growth markets. We are in good shape to continue to deliver strong returns for shareholders.
Managing Director and Chief Executive Officer
1 Challenger Limited is rated BBB+ and Challenger Life Company Limited is rated A by S&P Global Ratings.
Life focuses on the retirement spending phase of superannuation by providing products that convert retirement savings into safe and secure income.
Funds Management focuses on the retirement savings phase of superannuation by providing products seeking to deliver superior investment returns.
1 Strategic Insights annuity market share – March 2018.
2 Consolidated FUM for Australian fund managers – Rainmaker Roundup (March 2012-2018).
Challenger International Limited established
Challenger International Limited listed on the ASX
Australia’s compulsory superannuation system began
Challenger enters annuities market following acquisition of Equity Life Limited
Merger between Challenger International and CPH Investment Corporation.
Name changed to Challenger Financial Services Group Limited
First Funds Management boutique
Strategy refocused on retirement savings (Funds Management business) and retirement spending (Life business)
Name changed to Challenger Limited
Equity raised and Challenger Capital Notes (CGFPA) issued
Fidante Partners Europe established
Annuity Relationship with MS Primary established.
Challenger Capital Notes 2 (CGFPB) issued
Strategic relationship established and equity investment by MS&AD
Winner of Association of Financial Advisers Life Annuity Provider of the Year
(2008 to 2018)
Independent Non-Executive Director and Chair
Peter has been the independent Chair since 2004 and an independent Non-Executive Director since 2003. Peter is Chair of the Nomination Committee and a member of the Group Risk Committee, the Group Audit Committee and the Remuneration Committee.
Independent Non-Executive Director
Steven has been an independent Non-Executive Director since 2012, and is a member of the Remuneration Committee, the Group Risk Committee, the Group Audit Committee and the Nomination Committee.
Managing Director and Chief Executive Officer
Brian has been Challenger’s Managing Director and Chief Executive Officer since 2012 and was previously appointed Chief Financial Officer in 2008.
Independent Non-Executive Director
JoAnne has been an independent Non-Executive Director since 2012, and is Chair of the Group Risk Committee and Group Audit Committee, and a member of the Nomination Committee.
Independent Non-Executive Director
Graham has been an independent Non-Executive Director since 2004, and is Chair of the Remuneration Committee, and a member of the Group Risk Committee, the Group Audit Committee and the Nomination Committee.
Independent Non-Executive Director
Melanie has been an independent Non-Executive Director since 2017, and is a member of the Group Risk Committee, the Group Audit Committee and the Nomination Committee.
Independent Non-Executive Director
John has been an independent Non-Executive Director since 2017, and is a member of the Group Risk Committee, the Group Audit Committee and the Nomination Committee.
Independent Non-Executive Director
Leon has been an independent Non-Executive Director since 2006, and is a member of the Nomination Committee.
Managing Director and Chief Executive Officer
Brian has been Challenger’s Managing Director and Chief Executive Officer since 2012 and was previously appointed Chief Financial Officer in 2008.
Chief Executive, Funds Management
Ian joined Challenger in 2015 as Chief Executive of Funds Management. Prior to this, Ian held senior executive roles with the Commonwealth Bank of Australia.
Chief Risk Officer
Tony joined Challenger in 2004 and was appointed Chief Risk Officer in 2018. Prior to this, Tony was Chief Financial Officer and Appointed Actuary of the Life business.
Chief Executive, Corporate Affairs and Sustainability
Michelle joined Challenger in 2016 and was appointed Chief Executive, Corporate Affairs and Sustainability in 2018. Prior to this, Michelle held senior roles in corporate affairs, sustainability and strategy across several industries.
Chief Executive, Distribution, Product and Marketing
Richard joined Challenger in 2003 and was appointed Chief Executive, Distribution, Product and Marketing in 2017. Prior to this, Richard was Chief Executive of the Life business.
Chief Financial Officer
Andrew joined Challenger in 2007 and was appointed Chief Financial Officer in 2012. Prior to this, Andrew was Deputy Chief Financial Officer.
Chief Human Resources Officer
Natalie joined Challenger in 2017 as Chief Human Resources Officer. Prior to this, Natalie held senior positions with the Commonwealth Bank of Australia.
General Counsel and Chief Executive Group Strategy
Michael joined Challenger in 2006 and was appointed General Counsel in 2011. In 2017 Michael’s role was expanded to include responsibility for group strategy.
Chief Executive, Life
Chris joined Challenger in 2003 and was appointed Chief Executive of the Life business in 2017. Prior to this, Chris was Chief Investment Officer for the Life business.
Sustainability is critical for Challenger to build long-term value for our customers, shareholders, employees and the broader community
In Australia, a key ongoing priority is to make Challenger annuities readily available through investment and administration platforms. In the past three years Challenger has built partnerships to deliver annuities with nine major superannuation providers. We've also worked hard to maintain our relationships with financial advisers and 97% of advisers who place business with us, rate us as a market leader. We provide advisers with support, including education and tools and complement this with our strong brand presence.
Beyond our shores, we’ve built a strategic relationship with MS&AD in Japan. One aspect of this is our annuity partnership with its subsidiary, MS Primary, a leading provider of Australian dollar annuities in the country. Our businesses are very complementary, and we can see great potential to deliver further benefits for both groups in the future.
Our funds management business is comprised of Fidante Partners and Challenger Investment Partners and both rely on strong relationships. Fidante Partners invests in and forms long-term alliances with talented investment professionals to create, grow and support specialist, boutique funds management businesses and Challenger Investment Partners clients include global institutions and Australia's leading superannuation funds.
Challenger invests considerable resources into educating our customers on the role annuities can play in their retirement. As our business grows we intend to be even more influential and targeted in our education programs, helping empower more customers to plan for financial security for retirement.
This year, we’ve undertaken a detailed customer research program with the aim of better identifying the needs and understanding the experiences of existing and prospective customers. The research was both qualitative and quantitative and developed a 360° view of lifetime annuity customers with varying wealth, and at differing stages of their retirement.
Through the customer research we aim to better identify Australian pre-retirees and retirees who would most value and be most interested in annuities. Our immediate focus involved understanding the needs and experiences of current and prospective annuity customers, including gathering deeper insights on their perspectives on retirement, how they plan for retirement, the channels they use in planning for retirement, and the critical perspectives, biases, emotions, experiences and views of those who become customers of Challenger.
The research will help us to improve customer and adviser outcomes and position our services in a more relevant way. It also helps us to design products and product features for specific customer needs.
Challenger has a research relationship with National Seniors Australia (NSA). NSA is Australia's largest member body for older (aged 50+) Australians. Our research relationship includes sponsorship of its key annual survey to understand the sentiment of its membership base and enables us to explore issues around financing retirement.
Challenger works with NSA to develop a series of questions each year. The topics have varied in different years, but they typically relate to the key goals of Australians in retirement, their financial preparedness for retirement and their understanding of the issues faced by retirees.
As a key thought leader in retirement incomes in Australia, we work with NSA, industry groups and government to contribute to policy outcomes that will be beneficial for all older Australians.
Over the years, Challenger has introduced a range of new products and features to meet the needs of our customers and to help overcome their concerns. A great example of this is our CarePlus product. The Government estimates that more than 300 people move into government-funded permanent residential and home aged cared, every day.
CarePlus was specifically designed to address the need for a targeted aged care product solution. The product was conceived in January 2015 to address the financial needs related to managing aged care. CarePlus launched in August 2015 and today, is our fastest growing product.
We have also worked with government to develop policy to enable a wider range of retirement income products to be able to offer to Australian retirees. The Australian superannuation system continues to evolve and there has been a need to adjust the settings on an almost annual basis. While until recently the retirement phase has not changed much, the rapid growth in balances at retirement in recent years (as the system continues to mature) is creating a large unmet need for better retirement solutions. We monitor these needs and seek to develop products and solutions that will be beneficial to this growing demographic.
 | Financially resilient customers and communitiesHelping our customers and communities to be strong and financially resilient. |
 | Responsible business practicesResponsible business practices that focus on our customers, employees, shareholders and the environment. |
 | Constructive public policy settingsTaking action on issues affecting the ability of retirees to achieve financial security. |
| Financially resilient customers and communitiesHelping our customers and communities to be strong and financially resilient. |
| Responsible business practicesResponsible business practices that focus on our customers, employees, shareholders and the environment. |
| Constructive public policy settingsTaking action on issues affecting the ability of retirees to achieve financial security. |
