Speaking to InvestorDaily, Challenger chief executive Brian Benari said the group had $1.1 billion in capital “above and beyond” the regulatory requirements of the Australian Prudential Regulation Authority’s LAGIC regime, which began on 1 January 2013.
The Challenger group overall also has $177 million in cash – up from $94 million last year – said Mr Benari, adding that the group as a whole posted a normalised net profit after tax of $309 million for the 2012/2013 year, which is up four per cent on the previous year.
The funds management side of the business currently has $41.1 billion in funds under management (FUM), and the annuities business has $10.8 billion in FUM.
Challenger sold $3.1 billion in annuities in the 12 months to 30 June 2013, including $257 million in lifetime annuity sales.
Mr Benari said that regardless of the result of the upcoming federal election, he expected the new government to remove the regulatory and taxation roadblocks for the creation of deferred lifetime annuities in Australia.
“Challenger plans to have its deferred lifetime annuities ready once those changes occur,” he said.
The business is transitioning its investment portfolio into more long-dated assets as it takes on more long-term annuity obligations, he said. Seventy-nine per cent of the portfolio was previously in fixed interest, but that amount fell to 76 per cent for the 2012/2013 year, he said.
According to Mr Benari, the funds have shifted into long-dated assets such as property, infrastructure and equities: “What we want to do is buy assets that will meet the required payments to annuitants. Longer-dated annuities mean longer dated assets,” he said.
Moving into long-dated assets is good for Challenger’s bottom line because it allows the company to benefit from the “illiquidity margin” of assets like infrastructure, he added.
Challenger will launch a new advertising campaign in September that will target retirees and pre-retirees.
On the institutional side, the company has entered into white-labelling arrangements with Bendigo and Adelaide Bank and QSuper in the past 12 months. Challenger is also running a relatively small-scale pilot program with a scaled advice provider, Mr Benari revealed.
The company has increased its full-year dividend by 11 per cent to 20 cents per share. The dividend is unfranked in 2013, but Challenger expects to “partially frank” its dividend in 2014.
