Challenger Limited reported a solid 4% increase in total Life sales to $2.5 billion in Q1 FY26, buoyed by strong annuity sales and strategic partnerships. The company reaffirmed its FY26 earnings guidance while highlighting upcoming regulatory changes expected to benefit the sector.
- Total Life sales up 4% to $2.5 billion, led by annuity growth
- Lifetime annuity sales rose 16%, fixed term annuities surged 29%
- Challenger Life maintains strong capital position with PCA ratio of 1.58
- Funds Management FUM declined 3% to $109.6 billion due to net outflows
- Reaffirmed FY26 normalised EPS guidance between 66 and 72 cents
Strong Start to FY26 with Annuity Sales Momentum
Challenger Limited has kicked off FY26 with a robust performance in its Life division, reporting a 4% increase in total Life sales to $2.5 billion for the first quarter. This growth was primarily driven by a 21% rise in annuity sales, with lifetime annuities up 16% to $320 million and fixed term annuities surging 29% to $1.1 billion. The company’s focus on guaranteed lifetime income solutions continues to resonate with Australians entering retirement and aged care, particularly through its CarePlus product, which achieved its highest ever quarterly sales.
Despite a competitive retail fixed term annuity market, Challenger maintained disciplined pricing, resulting in an 18% decline in retail fixed term sales but offset by new institutional mandates. Japanese annuity sales remained stable at $246 million, underscoring Challenger’s steady international presence.
Capital Strength and Book Growth Support Confidence
Challenger Life’s capital adequacy remains robust, with a Prescribed Capital Amount (PCA) ratio of 1.58 times, reflecting strong regulatory capital buffers. The annuity book grew by 2.5% during the quarter, supported by net inflows of $415 million and a moderating maturity rate. The tenor of new annuity sales improved to 5.1 years, enhancing the quality and duration of the book.
Meanwhile, Challenger’s investment assets reached a record $26 billion, a 2% increase quarter-on-quarter, highlighting ongoing asset growth despite market volatility.
Funds Management Faces Outflows Amid Market Headwinds
The Funds Management division experienced a 3% decline in funds under management (FUM) to $109.6 billion, driven by net outflows of $4.9 billion and client distributions of $0.6 billion. Positive market movements partially offset these outflows by $2.3 billion. Fidante, Challenger’s affiliate platform, saw a 4% drop in FUM to $91.4 billion, primarily due to the partial redemption of a low-margin institutional equity mandate. Conversely, Challenger Investment Management grew its FUM by 6% to $18.2 billion, boosted by strong net inflows and the successful launch of the ASX-listed LiFTS income notes.
Strategic expansion continued with the addition of London-based Fulcrum Asset Management to Fidante’s affiliate platform, broadening alternative investment offerings and reinforcing Challenger’s growth ambitions in liquid and illiquid alternatives.
Strategic Partnerships and Regulatory Tailwinds
Challenger highlighted significant progress in building partnerships with superannuation funds, wealth managers, and platforms. Notably, the collaboration with TAL and Insignia Financial to launch MLC Retirement Boost on the MLC Expand platform exemplifies its commitment to innovative retirement income solutions.
Looking ahead, Challenger is optimistic about upcoming changes from the Australian Prudential Regulation Authority (APRA) to capital settings for longevity products. These regulatory updates, the most significant in over a decade, are expected to enhance balance sheet resilience, foster product innovation, and encourage greater uptake of guaranteed retirement products, benefiting both the industry and retirees.
Outlook and Earnings Guidance
Reaffirming its confidence, Challenger maintained its FY26 normalised basic earnings per share guidance range of 66 to 72 cents. The company’s strategic initiatives, combined with a strong capital position and evolving regulatory environment, position it well to navigate market challenges and capitalize on growth opportunities in the retirement income sector.
Bottom Line?
Challenger’s solid start to FY26 and strategic momentum set the stage for navigating evolving market and regulatory landscapes.
Questions in the middle?
- How will APRA’s new capital regulations concretely impact Challenger’s product offerings and profitability?
- Can Challenger sustain annuity sales growth amid competitive pressures in the retail fixed term market?
- What are the implications of net outflows in Funds Management for Challenger’s broader growth strategy?