CHALLENGER LIMITED — Investor Presentation 2014

Jun 3, 2014

==> picture [171 x 44] intentionally omitted <==

MARKET RELEASE

INVESTOR BUSINESS UPDATE

4 June 2014, Sydney – Challenger Limited’s (ASX: CGF) investor business update commences at 10am today. The presentation material is attached.

The investor briefing can be accessed via teleconference and will be webcast live.

Details to access the briefing are as follows –

Teleconference	Telephone number - 1800 558 698 or +61 2 9007 3187 (for overseas) Conferencepin - 702349
Webcast	www.challenger.com.au(from 10am)

ENDS

Stuart Kingham, Head of Investor Relations, Challenger Limited, 02 9994 7125 Jana Flanagan, Investor Relations Analyst, Challenger Limited 02 9994 7815 Stuart Barton, General Manager of Marketing and Communications, Challenger Limited, 02 9994 7008

Further enquiry:

Challenger Limited A.B.N 85 106 842 371

Investor business update

==> picture [113 x 28] intentionally omitted <==

4 June 2014

Investor business update

==> picture [87 x 98] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Outline

Providing Australians with financial security in retirement

==> picture [48 x 53] intentionally omitted <==

Retirement income policy – drivers and trends Jeremy Cooper – Chairman, Retirement Income

==> picture [48 x 57] intentionally omitted <==

Distribution Product and Marketing Paul Rogan – Chief Executive, Distribution Product and Marketing

==> picture [48 x 57] intentionally omitted <==

Life

Richard Howes – Chief Executive, Life

==> picture [48 x 57] intentionally omitted <==

Funds Management Rob Woods – Chief Executive, Funds Management

==> picture [52 x 59] intentionally omitted <==

Wrap up Brian Benari – Managing Director and Chief Executive Officer

Investor business update - Outline

==> picture [113 x 28] intentionally omitted <==

3

Investor business update

==> picture [87 x 103] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Key points

Retirement income policy – drivers and trends

1. Movement on the supply side

Policy interventions that might drive increased need for retirement income products

2. Financial System Inquiry (FSI)

FSI has a surprisingly strong retirement income and superannuation focus

3. Australian retirement income policy

What’s already happening and what’s over the horizon?

4. Where is super going?

Cooper’s views on market in 10 years time

Investor business update – Retirement income policy – drivers and trends

==> picture [113 x 28] intentionally omitted <==

5

==> picture [720 x 19] intentionally omitted <==

Movement on the supply side Policy interventions

==> picture [159 x 166] intentionally omitted <==

Annuity sales growth to date driven by demand

• Retirees focused on

• Longevity risk

• Peace of mind

• Inflation protection

Fiscal constraints/ideology driving retirement income policy interventions Where could policy interventions come from?

==> picture [178 x 166] intentionally omitted <==

1. Financial System Inquiry recommendations

2. Treasury review of retirement products

3. Commission of Audit-type ideas

4. Taxation White Paper

Investor business update – Retirement income policy – drivers and trends

==> picture [113 x 28] intentionally omitted <==

6

==> picture [720 x 19] intentionally omitted <==

Financial System Inquiry Comprehensive review of Australian financial system

==> picture [647 x 334] intentionally omitted <==

Investor business update – Retirement income policy – drivers and trends

David Murray – Chair of Financial System Inquiry panel. Photo Rob Homer AFR 2 May 2014.

==> picture [113 x 28] intentionally omitted <==

7

==> picture [720 x 19] intentionally omitted <==

Financial System Inquiry

What’s been said so far on retirement income?

David Murray quotes1

There is a "paucity of attractive financial products that help retirees manage their income and risks, particularly longevity risk ”

==> picture [670 x 114] intentionally omitted <==

"So we're curious why there's not an incentive for annuities , why the provision of annuities in the market isn't broader and whether that gives us signals about the state of that system"

Investor business update – Retirement income policy – drivers and trends

1. Australian Business Economists lunch, Sydney 1 May 2014, quoted in AFR 2 May 2014 by Karen Maley: ‘Short term focus of super industry a cause for concern’ page 3.

==> picture [113 x 28] intentionally omitted <==

8

==> picture [720 x 19] intentionally omitted <==

Noteworthy FSI submissions

What are key sta	keholders saying?
Treasury	• Not enough products dealing with longevity risk • Is super meeting needs in retirement?
RBA 1	• Super fees too high • Notes impact of removal of incentives to buy annuities
Actuaries Institute	• Extend MySuper into the drawdown phase by auto-enrolment • Remove impediments to deferred lifetime annuities
ASFA 2	• Extend MySuper into retirement with intelligent defaults • Create incentives for people to take up annuities
FSC 3	• MySuper could have seamless transition to annuity/income stream • Strong ‘private provision’ of retirement income message

Investor business update – Retirement income policy – drivers and trends

1. Reserve Bank of Australia (RBA).

2. The Association of Superannuation Funds of Australia (ASFA).

3. Financial Services Council (FSC).

==> picture [113 x 28] intentionally omitted <==

9

==> picture [720 x 19] intentionally omitted <==

Australian retirement income policy ~~Already happening~~

Treasury retirement income product review

• Coalition election policy

• Consider unnecessary barriers to the development of longevity insurance products

• Expect discussion paper in coming months

2014 Federal Budget – Age Pension and related measures

• Raising pensionable age to 70 by 2035

• Tightening means test deeming thresholds

• Scrapping Seniors Supplement and tightening Pensioner Concession Card rules

• Age Pension indexation changes in 2017

Clear ‘ rivate rovision’ messa e p p g

Investor business update – Retirement income policy – drivers and trends

==> picture [113 x 28] intentionally omitted <==

10

==> picture [720 x 19] intentionally omitted <==

Australian retirement income policy Over the horizon?

Post-Budget comments

1

• Treasurer Joe Hockey signals proposal to raise super preservation age down the track Federal Treasury Secretary Martin Parkinson’s post-Budget speech 2

• Is super for wealth creation or retirement income?

• Need a debate on the distribution of tax concessions

Taxation White Paper

• Distribution of super tax concessions

Another Treasury Intergenerational Report in 2014 (last issued 2010)

• Looks at the sustainability of the Age Pension etc. for the next 40 years

• Could be a driver for further retirement income policy changes

Commission of Audit

• Including family homes, above a certain value, in the Age Pension assets test

Other issues

• Increasing proportion of people using super to pay off home loan – restrict lump sum

Investor business update – Retirement income policy – drivers and trends

1. ABC Q&A program – 19 May 2014.

2. Post-Budget speech – 20 May 2014.

==> picture [113 x 28] intentionally omitted <==

11

==> picture [720 x 19] intentionally omitted <==

Where is super going?

Cooper’s views on market in 10 years time

Market size

• 1

• • $4 trillion – double digit CAGR ensures this

Proportion of assets in retirement

• ~40% (~30% today)

Cooper’s views on super

• Retirement looks very different

• Health insurance/aged care wrapped in super

• Longevity insurance (e.g. DLAs) a standard default

• All-female funds covering higher longevity risk and broken work patterns

• Climate change/carbon #1 issue for super funds

==> picture [289 x 291] intentionally omitted <==

----- Start of picture text -----

Projected superannuation assets 2013 to 2024 2
4,000
3,500
3,000
2,500
$bn
2,000
1,500
1,000
500
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Pre-retirement assets Post-retirement assets
----- End of picture text -----

Investor business update – Retirement income policy – drivers and trends

1. Projected superannuation assets in 2014 dollars.

2. Rice Warner Actuaries projections.

==> picture [113 x 28] intentionally omitted <==

12

==> picture [720 x 19] intentionally omitted <==

Key points

Retirement income policy – drivers and trends

1. Movement on the supply side

Policy interventions that might drive increased need for retirement income products

2. Financial System Inquiry (FSI)

FSI has a surprisingly strong retirement income and superannuation focus

3. Australian retirement income policy

What’s already happening and what’s over the horizon?

4. Where is super going?

Cooper’s views on market in 10 years time

Investor business update – Retirement income policy – drivers and trends

==> picture [113 x 28] intentionally omitted <==

13

Investor business update

==> picture [84 x 100] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Key points

DPM capability a core strength

1. What retirees want

Lifetime annuities address retiree needs

2. Growth in Lifetime sales leveraging book growth Meeting demand for longevity protection

3. Life product and channel initiatives Growth leverage across channels

4. Brand update

Recognised as the leader in retirement incomes

5. Funds Management Strong growth driven by broadening product and footprint

Investor business update – Distribution Product and Marketing (DPM)

==> picture [113 x 28] intentionally omitted <==

15

==> picture [720 x 19] intentionally omitted <==

What retirees want

Lifetime annuities address retiree needs

Financial strength of provider Ability to access funds during life of product Easy to understand Tax effective Reputation of provider Entitles me to Age Pension/health card Recommended by my adviser Income lasts for life Protected against market falls Lowest cost Linked to my everyday banking a/c Hands on control Guaranteed min. income payments Indexed against inflation Available from my super fund Highest returns Ability to leave an inheritance Available in my SMSF Recommended by family/friends Other 0% 10% 20% 30% 40% 50% 60% Retirees

Investor business update – Distribution Product and Marketing (DPM)

Source: 2014 Investment Trends Pty Ltd, 2013 Retirement Income Report, n=911.

==> picture [113 x 28] intentionally omitted <==

16

==> picture [720 x 19] intentionally omitted <==

What pre and post retirees want Lifetime annuities address retiree needs

==> picture [631 x 333] intentionally omitted <==

----- Start of picture text -----

Financial strength of provider
Ability to access funds during life of product
Easy to understand
Tax effective
Reputation of provider
Entitles me to Age Pension/health card
Recommended by my adviser
Income lasts for life
Protected against market falls
Lowest cost
Linked to my everyday banking a/c
Hands on control
Guaranteed min. income payments
Indexed against inflation
Available from my super fund
Highest returns
Ability to leave an inheritance
Available in my SMSF
Recommended by family/friends
Other
0% 10% 20% 30% 40% 50% 60%
Pre-retirees Retirees
----- End of picture text -----

Investor business update – Distribution Product and Marketing (DPM)

Source: 2014 Investment Trends Pty Ltd, 2013 Retirement Income Report, Retirees n=911; Pre Retirees n=1,483.

==> picture [113 x 28] intentionally omitted <==

17

==> picture [720 x 19] intentionally omitted <==

What retirees want

Lifetime annuities address retiree needs

	Top retiree preferences	Lifetime annuity product features
1	Financial strength of provider	 Issued by regulated Life Company with capital reserves  S&P “A” rated
2	Ability to access funds	 Liquidity feature resolves capital access concerns  Flexible options
3	Easy to understand	 Product is simple and does what it says  Clear role in retirement income portfolio construction
4	Tax effective	 Superannuation product – tax free in retirement
5	Reputation of provider	 Challenger is the leader in retirement incomes  On all major approved product lists
6	Age Pension / health card	 Preferential social security treatment

==> picture [84 x 64] intentionally omitted <==

==> picture [85 x 64] intentionally omitted <==

==> picture [84 x 64] intentionally omitted <==

==> picture [103 x 70] intentionally omitted <==

==> picture [69 x 64] intentionally omitted <==

==> picture [74 x 59] intentionally omitted <==

Investor business update – Distribution Product and Marketing (DPM)

==> picture [113 x 28] intentionally omitted <==

18

==> picture [720 x 19] intentionally omitted <==

Growth in Lifetime sales

Meeting demand for longevity protection

Australian annuity market flows

• Challenger market share ~97% in 2013 – 1 ~4% share of $72bn moving to retirement

• Sales mix changing with Lifetime sales

• Annuity providers today

• Challenger (term & lifetime)

• Comminsure (term & lifetime)

• BT (term)

==> picture [155 x 14] intentionally omitted <==

----- Start of picture text -----

2
Total annuity market flows ($m)
----- End of picture text -----

==> picture [294 x 132] intentionally omitted <==

----- Start of picture text -----

2,500
CAGR 32%
2,000
1,500
1,000
500
CY09 CY10 CY11 CY12 CY13
Challenger term Challenger Lifetime Non Challenger
----- End of picture text -----

Australian Lifetime annuity market

• Reinvigorated by Challenger innovation

• Guaranteed liquidity access in first 15 years

• Provides retirees with liquidity peace of mind

• Calculators and research that assist advisers

• Lifetime sales growing strongly

• ~60% Liquid Lifetime and ~40% Care Annuity

2 Lifetime annuity market flows ($m)

==> picture [282 x 138] intentionally omitted <==

----- Start of picture text -----

500
400
300
200
100
CY09 CY10 CY11 CY12 CY13 Q1CY14 3
Non Challenger Challenger Q1 flows Challenger Q2, Q3, Q4
----- End of picture text -----

Investor business update – Distribution Product and Marketing (DPM)

1. Rice Warner Actuaries projection for the financial year to 30 June 2014.

2. Source: Plan for Life based on calendar years. CY11 excludes the High Yield Fund annuity ($444m).

3. Q1CY14 Lifetime sales per Challenger’s 31 March 2014 AUM and annuity sales announcement.

==> picture [113 x 28] intentionally omitted <==

19

==> picture [720 x 19] intentionally omitted <==

Lifetime sales leveraging book growth

Sales mix matters

• Increase in new business tenor is benefiting book growth

• Lifetime sales ~30% of total retail annuity sales in Q314

• Book growth rises as mix of lifetime sales increases

• Illustrative example – NewAnnuityCo:

• Assume year 1 sales $2.5bn and 10% pa growth

• 1

• – Scenario A – 0% lifetime sales mix

• 2

• – Scenario B – 30% lifetime sales mix

• Annuity book growth

  • ~17% larger year 10

Illustrative example – book growth for different sales mix

==> picture [321 x 256] intentionally omitted <==

----- Start of picture text -----

50 25%
40 20%
30 15%
$bn
20 10%
10 5%
0 0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
year
Sales
Scenario A - 4 Year Term
Scenario B - 4 Year Term + Lifetime
Book differential % (RHS)
----- End of picture text -----

• ~25% larger year 15

Investor business update – Distribution Product and Marketing (DPM)

1. Scenario A – assumes sales mix 100% 4 year term annuities (RCV100 repayment at maturity) and 0% lifetime annuities.

2. Scenario B – assumes sales mix 70% 4 year term annuities (RCV100) and 30% lifetime annuities (split 60% Liquid Lifetime with a 15 year term; 40% Care Annuity with a 4 year term).

==> picture [113 x 28] intentionally omitted <==

20

==> picture [720 x 19] intentionally omitted <==

Life product and channel initiatives Growth leverage across channels

• Retail

• 1 2

• – GIF and GPF already on platforms

• Objective – all products via platforms

• Institutional

• Annuities complement account based pensions of major super funds

• Enhances retirement offering for retention of valuable members

• Implementation of retirement income models within super funds

• SMSF

• Bendzulla acquisition

• Repositioning as SMSF retirement specialists

• Education and research focus

• SMSF cash flow manager solution

==> picture [206 x 208] intentionally omitted <==

==> picture [199 x 71] intentionally omitted <==

Investor business update – Distribution Product and Marketing (DPM)

1. Guaranteed Income Fund (GIF).

2. Guaranteed Pension Fund (GPF).

==> picture [113 x 28] intentionally omitted <==

21

==> picture [720 x 19] intentionally omitted <==

Brand update - customers

New advertising campaign effectively engaging customers

• New campaign – retirement on paper launched September 2013

• To improve “Challenger” brand position amongst consumers and annuity product perception

• Innovative animation execution

• Education focus

  • “Google Challenger Annuities”

• Exceeding expectations

• Brand awareness

• Advertising awareness

• Brand attribution

• Product consideration

• Money Management advertising campaign of the year 2014

==> picture [287 x 152] intentionally omitted <==

==> picture [150 x 12] intentionally omitted <==

----- Start of picture text -----

Retirees considering annuities 1
----- End of picture text -----

==> picture [309 x 113] intentionally omitted <==

----- Start of picture text -----

16%
20%
8% 40% 43%
21% 29% 20% 27%
13% 21% 16%
13%
33% 15%
Pre launch Dec-13 Apr-14
----- End of picture text -----

Very likely Quite likely Quite unlikely Very unlikely

Investor business update – Distribution Product and Marketing (DPM)

1. Hall & Partners Open Mind Consumer Study December 2013 and May 2014. Chart does not add to 100% due to “not sure” responses excluded.

==> picture [113 x 28] intentionally omitted <==

22

==> picture [720 x 19] intentionally omitted <==

Brand update - advisers Recognised as the leader in retirement incomes

==> picture [219 x 12] intentionally omitted <==

----- Start of picture text -----

Challenger - the leader in retirement incomes 1
----- End of picture text -----

• Brand strength

• Very strong amongst advisers

• All key metrics improving

• 3

• – 45% of advisers receiving reverse annuity enquiries

• 2

• • Specialist capability independently recognised

• Overall satisfaction - equal first

• BDM team - No.1

• Technical Services team - No.2

• Client Services - No.2

• Online capability - No.2

• Value - Top 3

• Image and reputation - Top 3

==> picture [297 x 334] intentionally omitted <==

----- Start of picture text -----

89%
85% 85%
64%
62%
58% 58% 58%
2010 2011 2012 2013
Challenger Top Peer
Key adviser metrics improving 3
100%
80%
60%
40%
Reliable Secure Good value Simple Innovative Specialist
products provider
Dec-11 Dec-12 Dec-13
----- End of picture text -----

Investor business update – Distribution Product and Marketing (DPM)

1. Source: Marketing Pulse: Survey of advisers - asked “do you agree with the statement that this Company is a leader in providing retirement income products” . Peer comparison included AMP, CFS, BT, MLC, Perpetual, Macquarie, ING, Vanguard, Zurich, Fidelity, Tyndall.

2. Source: Wealth Insights: 2014 Service Level Report – Fund Managers, n=856.

3. Source: Marketing Pulse Adviser study, May 2010 n=117; Dec 2011 n=146, Dec 2012 n=331, Dec 2013 n=231 financial planners across Australia.

==> picture [113 x 28] intentionally omitted <==

23

==> picture [720 x 19] intentionally omitted <==

Funds Management

Strong growth driven by broadening product and footprint

	From July 2012
	Increase in total FUM	1	$17.3bn(up ~56%)
	FUM market ranking		8th (up from 10th)
	Net new products 2		11
	New institutional clients		43
	New institutional mandates		16; $5bn+
	Retail platform wins		27
	Retail APL wins		83
	Retail model portfolio	wins	66
					Challenger
					Investment Partners

Investor business update – Distribution Product and Marketing (DPM)

1. Based on 31 March 2014 FUM ($45.3bn excluding Five Oceans) plus Whitehelm Capital ($3bn of FUM to be contributed by Access Capital Advisers on 1 July 2014).

2. Excludes new share classes for New Zealand distribution and mFunds platform.

==> picture [113 x 28] intentionally omitted <==

24

==> picture [720 x 19] intentionally omitted <==

Key points

DPM capability a core strength

1. What retirees want

Lifetime annuities address retiree needs

2. Growth in Lifetime sales leveraging book growth Meeting demand for longevity protection

3. Life product and channel initiatives Growth leverage across channels

4. Brand update

Recognised as the leader in retirement incomes

5. Funds Management Strong growth driven by broadening product and footprint

Investor business update – Distribution Product and Marketing (DPM)

==> picture [113 x 28] intentionally omitted <==

25

Investor business update

==> picture [87 x 102] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Key points High quality investment portfolio meeting 18% RoE target

1. Financial risk management Life assets and liabilities cash flow matched and risks managed

2. Investment portfolio construction

Tenor and RoE key metrics driving asset allocation

3. Fixed income portfolio

High quality with investment continuing to meet RoE targets

4. Property portfolio

Annuity sales mix affords conservative property portfolio

5. Life risk Journey commenced … diversification and RoE enhancement opportunity

Investor business update - Life

==> picture [113 x 28] intentionally omitted <==

27

==> picture [720 x 19] intentionally omitted <==

Financial risk management

Assets and liabilities cash flow matched

Assets and liabilities are matched

• Liquid Lifetime matching reflects life expectancy and early redemption option

Risks that do not generate a return are hedged

• FX • Interest rate

• Inflation

Interest rate risk management

• Interest rate swaps used to manage interest rate risk

• P&L sensitivity to 100bps rate change +/-$3m

• 1

• • Hedging via CGS has become less expensive

• Opportunity to rotate hedging strategy to Government bonds and repos from swaps

==> picture [292 x 135] intentionally omitted <==

----- Start of picture text -----

4,000
3,000
2,000
$m
1,000
0
<=1 Year 1-3 Years 3-5 Years 5-10 Years 10 Years +
Liability flows Asset flows Non-debt asset realisations
----- End of picture text -----

Sensitivity to a 1bp movement in interest rates

==> picture [294 x 156] intentionally omitted <==

----- Start of picture text -----

800
400
$m 0
(400)
(800)
0 1 2 3 4 5 7 10 15 20 30 >30
years
Annuities Other Debt investments
Interest rate hedges Net sensitivity
----- End of picture text -----

Investor business update - Life

1. Commonwealth Government Securities (CGS).

==> picture [113 x 28] intentionally omitted <==

28

==> picture [720 x 19] intentionally omitted <==

31 March 2014

Investment portfolio construction Tenor and RoE key metrics driving asset allocation

==> picture [93 x 42] intentionally omitted <==

----- Start of picture text -----

Property 18%
Infrastructure 5%
Equity and other 4%
----- End of picture text -----

Fixed income 73%

Approach

• Asset allocation reflects

  1. annuity maturity profile

  2. relative value

• Primary asset classes internally managed by highly regarded teams

  1. fixed income

  2. property

• Infrastructure and equities provide

• diversification, capital efficiency and longer duration cash flows

Relative value

• Fixed income - continues to deliver 18% RoE

• Property - risk premium contracted and good match for long term annuity sales success

• Infrastructure and equity risk - premia attractive and plays a role in matching long term annuities

Change in asset allocation

==> picture [299 x 147] intentionally omitted <==

----- Start of picture text -----

100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
FY09 FY10 FY11 FY12 FY13 Q314 FY14
forecast
Fixed income and cash Property Infrastructure Equity and other
----- End of picture text -----

==> picture [266 x 169] intentionally omitted <==

----- Start of picture text -----

Primary asset class risk premium1
6%
5%
4%
3%
2%
1%
0%
Corporate Credit Asset Backed Securities Property
 Mean High/Low  +/- 1 SD Current
----- End of picture text -----

Investor business update - Life

1. Challenger based on external data.

==> picture [113 x 28] intentionally omitted <==

29

==> picture [720 x 19] intentionally omitted <==

Fixed income portfolio High quality and diversified portfolio … (82% IG)

==> picture [81 x 81] intentionally omitted <==

----- Start of picture text -----

Fixed income
73%
----- End of picture text -----

==> picture [453 x 289] intentionally omitted <==

----- Start of picture text -----

Offshore Alternative Finance (1%)
Asset Backed Securities (11%)
Domestic
Asset Backed Securities (21%)
Liquids (11%)
Offshore
Corporate Credit (7%)
Domestic
Corporate Credit (22%)
----- End of picture text -----

Investor business update - Life

==> picture [113 x 28] intentionally omitted <==

Note – 31 March 2014 investment assets.

30

==> picture [720 x 19] intentionally omitted <==

Fixed income portfolio Corporate credit - $3.0bn

==> picture [85 x 87] intentionally omitted <==

==> picture [322 x 171] intentionally omitted <==

----- Start of picture text -----

Commercial Real Estate
Lending (15%)
Infrastructure Debt
(35%)
Senior Secured Bi-Lateral
Loans (18%)
Sovereigns and
Supranationals (1%)
Non-financial Corporate
Lending (5%)
Banks and Financials (26%)
----- End of picture text -----

Corporate Credit (29%)

Corporate credit portfolio

==> picture [274 x 119] intentionally omitted <==

----- Start of picture text -----

100%
80%
60%
40%
20%
0%
Investment grade Externally rated
----- End of picture text -----

Name	Senior Secured Bi-Lateral Loan	Senior Loan on Diversified Property Portfolio	Infrastructure Medium Term Note	Long Term PPP Backed Bond
Trade date	May 2014	August 2013	October 2013	May 2014
Rating	BB-	BBB-	BBB-	A+
Term	5 years	3 years	5 years	17 years
Margin	4.30%	3.70%	2.25%	2.10%
RoE	25%	>25%	18%	18%

Investor business update - Life

Note – 31 March 2014 investment assets. The investments listed are sample only and terms (including margin and RoE) of investments vary across the portfolio.

==> picture [113 x 28] intentionally omitted <==

31

==> picture [720 x 19] intentionally omitted <==

Fixed income portfolio Asset Backed Securities - $3.4bn

==> picture [108 x 64] intentionally omitted <==

----- Start of picture text -----

Asset Backed Securities
(32%)
----- End of picture text -----

==> picture [43 x 32] intentionally omitted <==

==> picture [264 x 161] intentionally omitted <==

----- Start of picture text -----

Senior Secured Loan NIM Notes (6%)
Securitisation (16%)
Other ABS (15%)
RMBS (57%)
CMBS (6%)
----- End of picture text -----

Asset Backed Securities portfolio

==> picture [274 x 117] intentionally omitted <==

----- Start of picture text -----

100%
80%
60%
40%
20%
0%
Investment grade Externally rated
----- End of picture text -----

Name	Private RMBS	Private RMBS	Commercial Equipment Finance	Receivables Finance	Senior Secured Loan Securitisation
Trade date	Current opportunity	April 2014	March 2014	August 2013	February 2014
Rating	AAA-B	AA-	BB-	BBB	AAA
Collateral	Non-prime mortgages	Prime mortgages	Large ticket equipment	Receivables	Senior Secured Bank Loans
Term	3 years	1 years	5 years	3 years	1.5 years
Margin	3.40%	2.00%	4.20%	3.30%	1.65%
RoE	>25%	>25%	21%	25%	>25%

Investor business update - Life

Note – 31 March 2014 investment assets. The investments listed are sample only and terms (including margin and RoE) of investments vary across the portfolio.

==> picture [113 x 28] intentionally omitted <==

32

==> picture [720 x 19] intentionally omitted <==

Property portfolio Conservative portfolio - $2.1bn

• Long term annuity sales success affords investment in conservative property portfolio

• Portfolio remix occurring

• Takeover of CDI

• return on equity 18%

• weighted average lease expiry 4.6 years

• occupancy 96%

• 1

• weighted average cap rate 8.30%

• predominantly office (61% of portfolio)

• allows full control of underlying property portfolio

• Disposal of ~15% or ~$110m (~$20m net) of Japanese properties

• 4% above book value

==> picture [307 x 321] intentionally omitted <==

----- Start of picture text -----

Jam Factory, Melbourne 31 Queen street, Melbourne
Life property portfolio - adjusted for CDI acquisition 2
40%
30%
20%
10%
Australian Australian Australian Japanese REITs &
office retail industrial other
31-Mar-14 CDI acquisition
----- End of picture text -----

Investor business update - Life

1. CDI cap rate represents 31 March 2014 adjusted for subsequent property disposals (Todd Road and Taylors House).

2. Life property portfolio based on 31 March 2014, adjusted for the acquisition of CDI.

==> picture [113 x 28] intentionally omitted <==

33

==> picture [720 x 19] intentionally omitted <==

Life risk - longevity and mortality risk ~~Diversification and RoE enhancement opportunity~~

Strategic rationale

• Core Life insurance company capability and natural business extension

• Challenger Life experienced in pricing, managing and reinsuring longevity risk

• Conservative risk limits

Reinsurance markets

 UK longevity

 US mortality

• European longevity

Business model

• Originating longevity risk via lifetime annuity sales which are growing strongly

• Provides income and capital diversification in RoE accretive way

• Participating in reinsurance transactions alongside global reinsurers

Financial implications

• 4 transactions executed in last 12 months

• PV of future profit margins ~$110m (to be released over life of transactions)

• FY15 Normalised COE expected to be ~$5m to ~$10m

Investor business update - Life

==> picture [113 x 28] intentionally omitted <==

34

==> picture [720 x 19] intentionally omitted <==

Key points High quality investment portfolio meeting 18% RoE target

1. Financial risk management Life assets and liabilities cash flow matched and risks managed

2. Investment portfolio construction

Tenor and RoE key metrics driving asset allocation

3. Fixed income portfolio

High quality with investment continuing to meet RoE targets

4. Property portfolio

Annuity sales mix affords conservative property portfolio

5. Life risk Journey commenced … diversification and RoE enhancement opportunity

Investor business update - Life

==> picture [113 x 28] intentionally omitted <==

35

Investor business update

==> picture [87 x 103] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Funds Management Scalable and diversified platform with significant capacity

1. Multiple brands and strategies

Providing a scalable and diversified platform

2. Significant manager capacity

Existing manager capacity underwrites future growth

3. Managers at key life cycle stages

Provides diversification of earnings and growth opportunities

4. Leading and contemporary business model

Delivering significant shareholder returns

Investor business update – Funds Management

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

37 37

==> picture [720 x 19] intentionally omitted <==

Multiple brands and strategies 1 Scalable and diversified - 16 managers with $48bn of FUM

==> picture [638 x 362] intentionally omitted <==

----- Start of picture text -----

Australian Equities - A$15.2bn Global Equities A$1.0bn
Multiple brands
& strategies
Challenger
Investment Partners
Alternatives A$8.4bn Fixed Income A$23.7bn
----- End of picture text -----

Investor business update – Funds Management

1. 31 March 2014 FUM ($45.3bn excluding Five Oceans) plus Whitehelm Capital ($3bn of FUM to be contributed by Access Capital Advisers on 1 July 2014).

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

38

==> picture [720 x 19] intentionally omitted <==

Significant manager capacity

>$50bn of existing manager capacity underwrites future growth

10
• $36bn of capacity added over last 12 months • Driven by – adding new strategies – adding 5 new managers • Strong flows maintained - 2 4 6 8 $bn						Remaining manager capacity FUM
		Australian equity managers	Global equity managers	Fixed income managers	Alternative managers	Total
Maximum capacity		$29bn	$16bn	+ $35bn	+ $23bn	+ $103bn
Remaining manager capacity		$14bn	$15bn	+ $12bn	+ $14bn	+ $55bn

Investor business update – Funds Management

Note: Challenger Investment Partners included in both fixed income managers and alternative managers.

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

39

==> picture [720 x 19] intentionally omitted <==

Managers at key life cycle stages Provides diversification of earnings and growth opportunities

Maturity

==> picture [99 x 23] intentionally omitted <==

----- Start of picture text -----

Growth
----- End of picture text -----

==> picture [35 x 36] intentionally omitted <==

     - **5 boutiques**

     - Highly profitable

• Incubation  5 boutiques  Challenger Investment Partners (CIP)

• 5 boutiques

• Mid levels of profitability

• Break-even profitability

  • Focused on

• Focused on

• Investment track

• Investment track record

• record

• Focused on  Investment track record

  • Managing growth and new strategies

  • Business succession planning

• Diversifying client

• Attracting initial flows base

• Establishing  Cementing

• credentials profitability

Investor business update – Funds Management

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

40

==> picture [720 x 19] intentionally omitted <==

Leading and contemporary business model Delivering significant shareholder returns

1. Investors support active managers with good track record

• Boutique – focus on investment performance

• 93% outperformance since inception1

• Fidante – focus on everything else

2. Full service platform attracts talent

• Investment professionals have clear focus

• 5 new managers established in last 12 months

3. Earnings and product diversification

==> picture [47 x 109] intentionally omitted <==

==> picture [304 x 55] intentionally omitted <==

Platform allows for growth materially above system

• Scope to add new boutiques and new strategies

• $36bn of capacity added in last 12 months

Significant shareholder returns

• 1H14 EBIT up 60%

• 1H14 RoE up 12 percentage points to 31%

• 5 managers in maturity phase

• 6 managers in growth phase

Investor business update – Funds Management

1. Investment performance as at 31 March 2014 for all funds and mandates.

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

41

==> picture [720 x 19] intentionally omitted <==

Funds Management Scalable and diversified platform with significant capacity

1. Multiple brands and strategies

Providing a scalable and diversified platform

2. Significant manager capacity

Existing manager capacity underwrites future growth

3. Managers at key life cycle stages

Provides diversification of earnings and growth opportunities

4. Leading and contemporary business model

Delivering significant shareholder returns

Investor business update – Funds Management

==> picture [110 x 36] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

42 42

Investor business update

==> picture [87 x 98] intentionally omitted <==

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Wrap up

Providing Australians with financial security in retirement

1. Retirement income policy – drivers and trends

Strong retirement income focus in multiple policy forums

2. Distribution Product and Marketing

Challenger’s capability recognised as market leading

3. Life

High quality investment portfolio meeting 18% RoE target

4. Funds Management

Diversified and scalable platform with significant capacity

5. FY14 guidance

Expect to be at upper end of guidance

• Retail annuity net book growth range of 10% to 12%1

• Life COE range of $470m to $480m

Investor business update – Wrap up

1. Excludes impact from maturity of the High Yield Fund annuity.

==> picture [113 x 28] intentionally omitted <==

44 44

Investor business update

•

•

==> picture [113 x 28] intentionally omitted <==

==> picture [720 x 19] intentionally omitted <==

Important note

This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on 4 June 2014.

The material in this presentation is general background information about Challenger Limited activities and is current at the date of this presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered with professional advice when deciding if an investment is appropriate.

Any forward looking statements included in this document are by nature subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, Challenger, so that actual results or events may vary from those forward looking statements, and the assumptions on which they are based.

While Challenger has sought to ensure that information is accurate by undertaking a review process, it makes no representation or warranty as to the accuracy or completeness of any information or statement in this document.

==> picture [113 x 28] intentionally omitted <==

46 46