Challenger : Third quarter update1

Market Release

18 April 2024

Third quarter update1

Continuing to focus on longer duration more valuable sales

Upgrading FY24 earnings to top end of guidance range

• Group assets under management (AUM) $124 billion, up 6% for the quarter
• Total Life sales $1.7 billion and Life book growth 0.9%2 for the quarter
• • Strong Lifetime annuity sales $202 million, up 37%
  • New business annuity sales tenor 8.1 years (6.1 years pcp)3
  • Moderating annuity maturity rate for the quarter 4%4
• Challenger Life strongly capitalised with a PCA ratio of 1.49 times5
• Funds Management funds under management (FUM) $114 billion, up 6% for the quarter
• Normalised net profit before tax guidance upgraded to the top end of the $555 million to $605 million FY24 guidance range

Challenger Limited (ASX:CGF) today reported its third quarter AUM, annuity sales and net flows, with AUM increasing 6% for the quarter, driven by Life book growth and Funds Management FUM growth.

Managing Director and Chief Executive Officer, Nick Hamilton said:

"I am very pleased with the continuing success of our strategy to prioritise growing longer duration and more valuable annuity business, which is improving the quality of our Life book growth and financial performance.

"Sales across our retirement income products in Life have remained strong, supported by rising demand for guaranteed lifetime income and a growing number of Australians entering retirement and aged care.

"As we continue to execute our sales remix strategy, we have seen a pick-up in new business tenor that has led to a significant reduction in maturities and will further support future book growth. We remain disciplined on pricing around shorter-term annuities as pricing dynamics in the term deposit market remain unattractive.

"The performance across our domestic advised sales channel and MS Primary reinsurance partnership is very pleasing, both of which are delivering strong volumes, and we continue to develop new institutional relationships for defined benefit and retirement income partnerships.

"Challenger is uniquely placed to help Australians achieve financial security for a better retirement. We recently launched the Retirement Happiness Index to explore retiree satisfaction. This identified the majority of Australians worry about their finances in retirement, with 70% of Australian retirees believing a guaranteed income in retirement would significantly boost their happiness.

"Challenger's latest marketing campaign highlights the importance of combining income streams - blending a lifetime annuity with an account-based pension - that can help customers achieve their

Challenger Limited A.B.N 85 106 842 371. Disclaimer: The forward-looking statements, estimates and projections contained in this release are not representations as to future performance and nothing in this release should be relied upon as guarantees or representations of future performance.

retirement goals with a guaranteed regular income for life, which allows them to 'do more, live more and create more.'

"Our technology partnership with Accenture is making good progress as we deliver a digital platform that will make it easier and more efficient for customers to do business with Challenger by allowing us to easily integrate with platforms, superannuation funds, advisor tools and direct.

"The Funds Management business has continued to rebound strongly, with strong momentum in flows and positive investment markets delivering a 6% increase in FUM for the quarter.

"Our focus on higher value private credit and alternatives strategies is showing very positive signs as advisors' and clients' demand continues to grow rapidly. Challenger Investment Management and Fidante have developed leading capabilities across private credit and alternatives.

"With the sale of the Bank expected to now complete by the end of April, Challenger will focus on its core Life and Funds Management businesses, continue to execute our growth strategy and deliver on our purpose of providing customers with financial security for a better retirement.

"Challenger is well placed to finish the year strongly and we're pleased to upgrade our full year profit guidance to the top end of the range", said Mr Hamilton.

Challenger Life

Total Life sales decreased 13% to $1.7 billion, reflecting continued focus on growing longer duration and more valuable business.

Annuity sales decreased 21% to $823 million, with very strong longer duration lifetime annuity sales more than offset by lower shorter duration fixed term annuity sales.

Lifetime annuity sales are benefitting from rising demand for lifetime income. Lifetime annuity sales increased 37% to $202 million and comprised Liquid Lifetime of $94 million (up 9%) and CarePlus of $108 million (up 77%). Reflecting the growing opportunity in aged care, CarePlus continues to experience strong momentum.

Fixed term annuity sales decreased 36% to $441 million as Challenger maintained its disciplined approach to pricing shorter duration business.

Japanese (MS Primary) annuity sales were $180 million. Total Japanese annuity sales for the nine months were $526 million and have now exceeded the FY24 minimum annual sales target6. Japanese- yen denominated annuity sales were very strong following the commencement of Japanese-yen denominated reinsurance from November 2023.

Consistent with Life's strategy of extending the duration of sales, 95% of new business annuity sales had a tenor of 2-years or more7 compared to 80% in the pcp. The tenor on new business annuity sales3 also increased to 8.1 years in the quarter compared to 6.1 years in the pcp.

Institutional sales decreased 8% to $974 million, with Challenger Index Plus sales decreasing 4% to $925 million and institutional term annuity sales decreasing 50% to $49 million.

Challenger Index Plus is an institutional product providing institutional clients guaranteed excess return above a chosen index. Challenger has been successful in extending the tenor of Index Plus business being written in the quarter, with the tenor on new business sales increasing to 2.1 years compared to 1.0 year in the pcp.

The benefit of longer duration sales is resulting in a material step down in the annuity maturity rate, which was 4% for the quarter4 (down from 10% in 3Q23). As previously announced, Challenger's FY24 maturity rate is expected to be 26%.

Annuity net flows were $87 million benefitting from the lower maturity rate, with annuity book growth of 0.6%2 for the quarter. Total Life net flows were $171 million representing Life book growth of 0.9%2 for the quarter.

Challenger Life's investment assets as at 31 March 2024 were $25 billion, up 3% for the quarter.

Challenger Limited A.B.N 85 106 842 371. Disclaimer: The forward-looking statements, estimates and projections contained in this release are not representations as to future performance and nothing in this release should be relied upon as guarantees or representations of future performance.

Challenger Life remains strongly capitalised with a PCA ratio of 1.49 times, reflecting statutory profit for the quarter, offset by higher capital intensity due to investment gains in alternatives and a decline in the ASX dividend yield, and the payment of dividends and Additional Tier 1 instrument coupons. Challenger remains comfortable operating within the target range of 1.3 to 1.7 times PCA.

Funds Management

Funds Management FUM was $114 billion, up $6.9 billion or 6% for the quarter, benefitting from institutional net inflows of $1.0 billion and positive investment markets.

Fidante's FUM was $96.8 billion, an increase of $5.9 billion or 6% for the quarter. FUM growth benefitted from net inflows of $321 million for the quarter and positive investment markets of $5.8 billion. Net inflows primarily related to equity ($515 million) and alternative strategies ($303 million), partially offset by outflows in fixed income strategies ($497 million).

Fidante's investment managers continue to be externally recognised. In March 2024, Greencape Capital was awarded 'Fund Manager of the Year - Domestic Equities - Large Cap' at the 2024 Morningstar Awards for Investing Excellence.

Challenger Investment Management (CIM) FUM was $17.7 billion and increased by $1.0 billion or 6% for the quarter driven by net inflows of $697 million and positive investment markets of $322 million.

Challenger Bank

On 8 April 2024, Heartland Group Holdings Limited (Heartland) announced that it had received indicative direction from the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) to acquire Challenger Bank.

The sale is expected to complete by 30 April 2024 subject to Heartland receiving final regulatory approvals from APRA and the RBNZ.

The sale is expected to generate a gain on sale of approximately $11 million, which will be reported as a significant item once completed. Of the capital returned on completion, approximately $40 million is expected to be injected into Challenger Life.

Outlook

Challenger reaffirms its FY24 normalised net profit before tax guidance, and now expects to be at the top end of the $555 million and $605 million guidance range8.

ENDS

This release has been authorised by Challenger's Continuous Disclosure Committee.

Challenger Limited A.B.N 85 106 842 371. Disclaimer: The forward-looking statements, estimates and projections contained in this release are not representations as to future performance and nothing in this release should be relied upon as guarantees or representations of future performance.

About Challenger

Challenger Limited (Challenger) is an investment management firm focused on providing customers with financial security for a better retirement.

Challenger operates a fiduciary Funds Management division, an APRA-regulated Life division and an APRA regulated authorised deposit-taking institution. Challenger Life Company Limited is Australia's largest provider of annuities.

For more information contact:

Mark Chen

General Manager Investor Relations Mob [phone] [e-mail]

Irene Xu

Investor Relations Manager Mob [phone] [e-mail]

Felicity Goodwin

Head of External Communications Mob [phone] [e-mail]

Rhiannon Hornsey

General Manager Corporate Affairs and Sustainability Mob [phone] [e-mail]

1. All commentary compares the March 2024 quarter against the March 2023 quarter (the prior corresponding period or pcp), unless otherwise stated.
2. Book growth percentage represents net flows for the period divided by opening book value for the financial year. Book growth calculations prior to adoption of AASB 17 from 1 July 2023 have not been restated.
3. Based on new business annuity sales, including term annuities and Lifetime sales, excluding reinvestments.
4. Maturity rate represents the value of Life annuities maturing and repayments (excluding interest payments) in the period as a proportion of opening Life annuity liabilities (undiscounted) of $16.6 billion.
5. PCA ratio represents total Challenger Life Company Limited (CLC or Challenger Life) Tier 1 and Tier 2 regulatory capital base divided by the Prescribed Capital Amount (PCA) and is as at 31 March 2024.
6. Reinsurance across both Australian, US dollar and Japanese yen annuities, of at least ¥50 billion (A$520m based on the exchange rate as at 30 June 2023) in FY24.
7. Based on new business annuity sales, including term annuities and Lifetime annuities, excluding reinvestments and Japanese sales.
8. Given the pending sale of the Bank to Heartland, it has been classified as a discontinued operation and excluded from the FY24 guidance range.

Challenger Limited A.B.N 85 106 842 371. Disclaimer: The forward-looking statements, estimates and projections contained in this release are not representations as to future performance and nothing in this release should be relied upon as guarantees or representations of future performance.

Challenger Limited

Assets and Funds Under Management, net flows and sales

Life quarterly sales and investment assets

$m	Q3 24	Q2 24	Q1 24	Q4 23	Q3 23
Life sales
Fixed term sales - 1-year	121	247	260	229	194
Fixed term sales - 2-years or more	271	406	467	327	394
Lifetime sales1	202	251	218	187	147
Total retail annuity sales	594	904	945	743	735
Fixed term sales - 1-year	6	12	407	50	9
Fixed term sales - 2-years or more	43	28	34	5	88
Lifetime sales	-	-	619	14	-
Total institutional annuity sales	49	40	1,060	69	97
Total domestic annuity sales	643	944	2,005	812	832
Japan sales	180	206	140	117	212
Total Life annuity sales	823	1,150	2,145	929	1,044
Maturities and repayments	(736)	(1,239)	(1,548)	(807)	(1,583)
Total Life net flows	87	(89)	597	122	(539)
Annuity book growth2	0.6%	(0.6%)	4.2%	0.9%	(4.0%)
Challenger Index Plus sales	925	1,267	691	1,331	963
Challenger Index Plus maturities and repayments	(841)	(811)	(1,327)	(993)	(933)
Challenger Index Plus flows	84	456	(636)	338	30
Challenger Index Plus net book growth	1.6%	8.7%	(12.1%)	7.7%	0.7%
Total Life sales	1,748	2,417	2,836	2,260	2,007
Total maturities and repayments	(1,577)	(2,050)	(2,875)	(1,800)	(2,516)
Total Life net flows	171	367	(39)	460	(509)
Total Life book growth2	0.9%	1.9%	(0.2%)	2.5%	(2.8%)
Life investment assets
Fixed income and cash3	18,356	17,877	16,921	17,800	17,506
Property3	2,955	2,964	3,060	3,062	3,236
Equity and Infrastructure3	422	365	333	291	259
Alternatives	3,121	2,888	2,942	2,385	2,349
Total Life investment assets	24,854	24,094	23,256	23,538	23,350
Average Life investment assets4	24,473	23,593	23,446	23,600	23,287

1. Lifetime sales includes CarePlus, a product that pays income for life and is specifically designed for the aged care market.
2. Book growth percentage represents net flows for the period divided by opening book value for the financial year. Book growth calculations prior to adoption of AASB 17 from 1 July 2023 have not been restated.
3. Fixed income, property and infrastructure are reported net of debt.
4. Average Life investment assets is calculated on a monthly basis.

Life asset allocation

Funds Under Management and net flows

$m	Q3 24	Q2 24	Q1 24	Q4 23	Q3 23
Funds Under Management
Equities	58,887	52,853	43,914	44,020	40,632
Fixed Income	52,896	52,375	52,007	48,693	49,223
Property1	768	787	781	4,036	4,289
Alternatives	1,932	1,579	1,729	1,718	1,600
Total Funds Under Management	114,483	107,594	98,431	98,467	95,744
Fidante	96,778	90,879	81,692	78,075	74,571
Challenger Investment Management1,2	17,705	16,715	16,739	20,392	21,173
Total Funds Under Management	114,483	107,594	98,431	98,467	95,744
Institutional1	95,997	89,505	80,368	79,894	76,643
Retail	18,486	18,089	18,063	18,573	19,101
Total Funds Under Management	114,483	107,594	98,431	98,467	95,744
Average Fidante	94,168	85,036	80,239	77,145	73,808
Average Challenger Investment Management	17,070	16,739	17,634	20,899	21,014
Total average Funds Under Management3	111,238	101,775	97,873	98,044	94,822
Analysis of flows
Equities	515	5,733	663	2,368	617
Fixed income	200	(441)	2,999	(107)	(760)
Property1	-	-	(3,254)	(64)	-
Alternatives	303	(130)	33	86	(786)
Total net flows	1,018	5,162	441	2,283	(929)
Fidante	321	5,227	4,265	2,928	(882)
Challenger Investment Management1	697	(65)	(3,824)	(645)	(47)
Total net flows	1,018	5,162	441	2,283	(929)
Institutional1	1,028	5,625	839	2,750	(652)
Retail	(10)	(463)	(398)	(467)	(277)
Total net flows	1,018	5,162	441	2,283	(929)

1. Q1 24 included $3,253m FUM derecognition following the sale of Challenger's Australian real estate business to Elanor Investors Group (ASX:ENN).
2. Includes -$0.8bn of FUM relating to Japanese real estate holdings managed by Challenger Kabushiki Kaisha (CKK) in periods Q3 23 to Q3 24.
3. Average total Funds Under Management calculated on a monthly basis.

Reconciliation of total Group assets and Funds Under Management

$m	Q3 24	Q2 24	Q1 24	Q4 23	Q3 23
Funds Management Funds Under Management	114,483	107,594	98,431	98,467	95,744
Life investment assets	24,854	24,094	23,256	23,538	23,349
Adjustments to remove double counting of cross-holdings	(15,572)	(14,563)	(14,247)	(17,278)	(17,555)
Total Assets Under Management1	123,765	117,125	107,440	104,727	101,538

1. Total Assets Under Management excludes Bank lending and financing assets, which have been held for sale: Q3 24 $972m, Q2 24 $346m, Q1 24 $382m; Q4 23 $225m; Q3 23 $322m.