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Challenger holds steady as annuities sales plummet

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Challenger recorded a slight incline in total assets under management to $84 billion in the first quarter of financial year 2020, up 3 per cent year-on-year, while the group saw a plunge in the performance of its annuities.

Notably, total life sales were $1.778 billion for the quarter, 13 per cent higher than the previous year and an 89 per cent rise from the previous quarter. 

However, total annuities sales for the group were $842 million for the quarter, down by 29 per cent from the prior corresponding period (pcp), with the business not faring well in Australia.

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Local annuities sales dived by 42 per cent from the pcp to its $842 million for the past quarter, continuing to be affected by disruption in the retail financial advice market following the royal commission.

Australian fixed term sales increased by 18 per cent from the prior quarter, almost halving from the pcp, dropping by 45 per cent to $529 million. 

Local lifetime sales plunged by 62 per cent from the previous quarter to $95 million, down by 58 per cent from the pcp – with Challenger citing financial advice market disruption in addition to the transition to new age pension means test rules. 

Challenger blamed lower new client acquisitions for its weaker sales, due to decreased numbers of financial advisers and increased movement by advisers across licensees, with major advice hubs being subject to business sales and restructures.

However, as Challenger’s annuities tumbled in Australia, the business expanded in Japan: Japanese sales represented 26 per cent of total annuity revenue, up $180 million on the prior quarter. 

Managing director and chief executive Richard Howes stayed optimistic, noting the Life company’s revenue had improved quarter-on-quarter.

“Despite ongoing disruption in the Australian wealth industry, total life book growth was 5.2 per cent for the quarter,” Mr Howes said.

“Total annuity sales were up, buoyed by strong Japanese sales which increased by five times on the June 2019 quarter. This is a result of our expanded strategic relationship with the MS&AD group, after we commenced reinsurance of US dollar annuities in July.”

The company reported Japanese sales across Australian and US dollar annuities are on track to achieve around $680 million in sales in financial year 2020.

Mr Howes added the low rate environment has also generated strong demand for guaranteed income products from institutional clients, particularly superannuation funds, as they seek secure returns. 

Sales of other life products, including institutional guaranteed index return and Challenger index plus products were $936 million, in contrast to the pcp’s $395 million.

‘Demand for actively managed ETFs’

Meanwhile in the funds management business, funds under management (FUM) increased 3 per cent from the pcp to $81 billion, with net flows of $400 million.

“Strong net flows contributed to a solid performance by our funds management business, with funds under management up 2 per cent,” Mr Howes said.

“We saw strong flows in fixed income products, including $69 million of flows generated by the ActiveX Ardea Real Outcome Bond Fund, reflecting demand from retail investors for high-quality, actively managed ETFs.”

Challenger’s multi-boutique asset manager Fidante Partners had $60.7 billion in FUM, increasing by 1.1 per cent from the pcp. 

Its institutional manager, Challenger Investment Partners, saw its FUM increase to $20.2 billion for the quarter, up 8 per cent from the year before.

Earlier this month, Fidante and US-based Ares Management Corporation launched a joint venture, Ares Australia Management, aiming to capitalise on demand for alternative investments in the Australian and New Zealand markets. 

Fidante has also recently established its second active ETF is in its ActiveX Series, with a fixed income active ETF from Kapstream. 

Challenger anticipates a FY20 normalised net profit before tax between $500 million and $550 million, in line with its previous outlook.

 

Challenger holds steady as annuities sales plummet
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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