Challenger Limited reported a 52% increase in total sales to $4.4 billion for the September 2026 quarter, driven primarily by a new funding structure that has reshaped the company’s capital position and growth trajectory. The standout figure is fixed term annuity sales, which more than doubled to $2.2 billion, boosted significantly by the inaugural issuance of a $750 million annuity-backed note (CABN) in July and strong demand for fixed term products in the higher rate environment.
The $6 billion CABN program represents a material shift in how Challenger funds its annuity book. By converting customer annuities into securities that can be sold to institutional investors, the company has opened a new distribution channel and diversified its funding sources. This innovation allows Challenger to grow its annuity business without depleting capital reserves, particularly important given the stricter capital standards that came into effect on 1 July 2026 under new APRA regulations for longevity insurance products. Management characterizes the approval for RBA repurchase agreement eligibility as further enhancing the attractiveness of the CABN structure.
Annuity sales overall increased 72% to $2.8 billion, with net flows of $1.1 billion translating to 6.3% book growth in the quarter. Offshore reinsurance sales, predominantly yen-denominated annuities in Japan, grew 30% to $320 million. The company continues to extend the tenor of new business, with the weighted average maturity of new annuity sales reaching 5 years, a mix that supports better economics and customer retention.
Index Plus and LiFTS sales rose 27% to $1.6 billion, though lifetime annuity sales declined 2% to $314 million, suggesting a shift toward fixed term products where yields are more attractive to customers seeking guaranteed income. The maturity profile for the quarter was benign at 8% of opening annuity liabilities, though management flagged the expectation of a 26% maturity rate for the full 2027 financial year as prior period sales mature.
Total assets under management increased 5% to $31.9 billion, composed of $27.7 billion in insurance investment assets and $4.2 billion in third-party AUM. The gains were partially offset by capital returned to shareholders and weakness in the Fidante division, where funds under management declined 5% to $85 billion amid $3.3 billion in net outflows concentrated in equity strategies. The outflows reflect shifts in client preferences toward alternative strategies, which saw $1.3 billion in inflows, while the merger with Channel Capital is progressing toward completion later this half.
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Key items to monitor are the take-up and frequency of future CABN issuances and the completion of the Fidante-Channel Capital merger. This announcement is marked as price sensitive by the ASX and constitutes a material disclosure to shareholders.
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About Challenger Limited (ASX: CGF)
Challenger Limited is an investment management company focused on providing financial services related to retirement and annuities. The company operates two main segments: Life, which provides annuity and retirement income products in Australia and Japan, and Funds Management, which manages boutique investment funds. The company is headquartered in Sydney, Australia and also operates in Asia and the United Kingdom.
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