Challenger Surges with 12% Profit Growth Amid Retirement Income Boom

Strong Financial Performance in 1H25

Challenger Limited has reported a solid set of results for the first half of FY25, with normalised net profit after tax climbing 12% to $225 million, and statutory net profit after tax surging 28% to $72 million. Earnings per share followed suit, with normalised EPS up 12% to 32.8 cents and statutory EPS rising 28% to 10.5 cents. These gains reflect the company’s continued leadership in Australia's retirement income market and the resilience of its core Life and Funds Management businesses.

The Life segment, Australia's largest provider of annuities, posted a 7% increase in normalised cash operating earnings to $386 million, driven by higher average investment assets and improved margins. Despite a 13% decline in annuity sales, the quality of new business improved, with longer-duration annuity products gaining traction, particularly in retail lifetime annuities which grew 24% to a record $583 million.

Funds Management Momentum and Institutional Partnerships

Funds Management delivered a 37% jump in normalised net profit after tax to $27 million, supported by a 7% increase in average funds under management (FUM) to $119.8 billion. The division’s return on equity improved markedly to 17.8%, reflecting higher fee income and disciplined expense management. Fidante and Challenger Investment Management continue to attract and retain high-quality managers, with 95% of affiliates outperforming benchmarks over five years.

Challenger is deepening institutional relationships, notably with superannuation funds seeking to de-risk defined benefit pension liabilities. The company’s partnership with UniSuper as the sole external lifetime annuity provider and its ongoing collaboration with Aware Super underscore its strategic positioning in this growing market segment.

Strategic Investments and Technology Enhancements

Challenger is investing in technology and operational efficiency through partnerships with Accenture and State Street. The Accenture alliance is re-platforming Life’s core customer registry and technology, aiming to enhance customer experience and integration with advisers and superannuation platforms. This initiative is expected to deliver $90 million in operating savings over seven years starting FY25.

The company also acquired a NZ$560 million residential mortgage portfolio in New Zealand, expanding its whole loan investment platform. These moves reflect Challenger’s commitment to innovation and diversification within its investment portfolio.

Capital Position and Dividend Policy

Challenger maintains a strong capital position, with the Challenger Life Company Limited (CLC) holding a Prescribed Capital Amount (PCA) ratio of 1.61 times, comfortably above APRA’s minimum requirements. The company declared a fully franked interim dividend of 14.5 cents per share, up 12%, reflecting confidence in ongoing earnings and cash flow generation. The dividend payout ratio remains within the targeted 30% to 50% range of normalised profit after tax.

Outlook and Regulatory Environment

Looking ahead, Challenger has set FY25 normalised net profit after tax guidance between $440 million and $480 million, representing a 10% increase on FY24. The company’s normalised return on equity target remains above 11%, supported by a disciplined cost-to-income ratio target of 32% to 34%.

Challenger continues to support and adapt to evolving retirement income regulatory reforms in Australia, including the Retirement Income Covenant and Delivering Better Financial Outcomes package. These reforms are expected to enhance retirement income product innovation and accessibility, aligning well with Challenger’s strategic focus on providing secure, guaranteed income solutions for retirees.