Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Solid Challenger result still leaves market unimpressed
The Challenger Group (ASX: CGF) interim numbers looked solid – as was the confident prediction for the full-year result to June 30, 2025. In the first half, the net profit after tax (NPAT) was up 12 per cent to $225 million, normalised return on equity (post-tax) was up 11.6 per cent and group assets under management were $131 billion, up 12 per cent.
For shareholders, the interim dividend was up 12 per cent to 14.5 cents a share (fully franked). But it all failed to impress the market, with the share price dipping nine per cent the same day chief executive officer Nick Hamilton (pictured) announced the results. To rub salt into the wound, the share price was down 13 per cent for the year, to close at $5.98 on Tuesday.
For Hamilton and the board it must be a little perplexing as the results met their financial targets and the growth strategy was religiously implemented. At the same time, significant progress was made in re-platforming the customer and investment technology, enabling future growth.
As he told shareholders when announcing the results, “the Life business maintained its momentum, with record retail lifetime and Japanese annuity sales contributing to total sales of $4.6 billion. Our focus on longer-duration sales has lengthened the tenor of our liabilities and is supporting stronger returns.
“Further progress has also been made in strengthening relationships across our sales channels, including with institutional clients where we have secured new lifetime annuity and defined benefit opportunities in the half, while funds under management increased three per cent to $121 billion.”
Hamilton said that the uplift in Challenger’s operating platforms would be a key enabler of future growth.
“Over the past three years, we have reset the business to deliver stronger earnings — uplifting our customer and investment platforms lays the foundations for the next phase of our growth strategy. Our business will have access to the best technology and capability to design, improve and innovate across retirement, investment management and asset origination.”
Challenger should benefit from two significant partnerships that have the potential to transform its operational capabilities in 2025 and beyond. In November 2024, Challenger appointed State Street to provide investment administration and custody services, that should deliver operating efficiencies once fully transitioned by the end of the 2027 financial year.
Additionally, Challenger’s technology partnership with Accenture is progressing towards replacing the core annuity registry system with the Accenture Life Insurance & Annuity Platform, an initiative that should improve the customer experience.
Looking to the full financial year, Challenger has provided full-year normalised NPAT guidance of between $440 and $480 million. The midpoint of this range ($460 million) represents a 10.4 per cent increase on 2024, signalling management’s confidence in continued profitable growth.
With a prescribed capital amount (PCA) ratio for Challenger Life Company of 1.61 times—comfortably within the target range of 1.3 to 1.7 times – and excess regulatory capital of $1.8 billion, Challenger maintains a strong capital position to support future growth initiatives while continuing to deliver attractive returns to shareholders.
(The PCA ratio is a key indicator of an insurer’s financial health and its ability to withstand potential losses or unexpected events; it is the minimum amount of capital the insurer is required to hold, as determined by regulatory bodies like APRA (Australian Prudential Regulation Authority). The PCA ratio is calculated by dividing the insurer’s capital by the PCA; a higher ratio indicates a stronger capital position.)
When coupled with its interim results, this all suggests a company successfully balancing immediate returns with strategic positioning for long-term growth. The increasing shift toward lifetime products, strong fund management performance and technological transformation initiatives all indicate a business adapting to market conditions while capitalising on structural demographic trends.
As Australia’s superannuation system continues to mature and more Australians transition to retirement, Challenger’s focus on providing financial security through guaranteed income streams appears well-aligned with both market needs and regulatory direction – potentially delivering continued shareholder value in 2025 and beyond.
So, what’s making investors wary – especially considering there’s no shortage of analysts liking the story? Perhaps it’s the fact institutional investors have stayed away since Wall Street asset manager Apollo Management halved its stake in September last year, only leaving Japanese insurer MS & AD Insurance Group as a major shareholder at 15 per cent. Whatever the reason, a 13 per cent price fall over 12 months can’t be solely attributed to its results.
