Challenger : Third quarter performance update

THIRD QUARTER PERFORMANCE UPDATE1

PERFORMANCE HIGHLIGHTS BENEFITS OF DIVERSIFICATION STRATEGY

• • Life sales $2.7 billion, up 10%

• • Life book growth $0.5 billion or 2.8%2 for the quarter

• • Funds Management FUM $100 billion, down 3% for the quarter excluding the derecognition of Whitehelm Capital following sale3

• • Group assets under management $106 billion

• • Challenger Group remains very strongly capitalised

• • Normalised net profit before tax expected to be towards the upper end of $430 million to $480 million FY22 guidance range

Challenger Limited (ASX: CGF) today reported its third quarter results, with total Life sales up 10% driven by strong institutional and retail annuity sales. Group assets under management (AUM) was down 8% for the quarter following the completion of the previously announced sale of Whitehelm Capital.

Managing Director and Chief Executive Officer Nick Hamilton said:

"Challenger is a unique business with an exciting opportunity to meet the needs of more customers.

"This quarter, our business continued to perform well, highlighting the benefits of our diversification strategy.

"The Life business maintained its impressive performance, with book growth of 2.8% for the quarter. Sales growth exceeded 10% across both institutional and retail, reinforcing the success of our strategy to extend our customer reach and broaden our distribution channels.

"Product innovation remains a key priority and our market-linked annuity reflects our commitment to meeting the needs of more customers. The market-linked annuity has now been added to approved product lists of key financial advice businesses and initial feedback and engagement from financial advisers has been positive.

"The Funds Management business continues to see significant opportunities in both Australia and offshore.

"Integration of the Bank is well advanced and good progress has been made preparing our term deposits for launch via the retail broker channel. We expect to commence corporate and SME lending shortly, which will support sales growth and margins.

"Challenger remains on-track to achieve full year profit guidance and now expects to be towards the upper end of the range.

"As we look to the future, we are well placed to continue our growth trajectory, meet the needs of more customers and deliver on our purpose to provide financial security for a better retirement."

Life

Total Life net flows were $491 million for the quarter, including annuity net inflows of $286 million and Other Life inflows of $205 million. Life's book growth for the third quarter was 2.8%2.

Total Life sales increased 10% to $2.7 billion, driven by higher institutional sales and higher domestic retail sales, further demonstrating the success of Challenger's diversification strategy.

Institutional sales grew by 10% to $2.1 billion, driven by strong Challenger Index Plus sales of $1.1 billion (up 30%) and institutional term annuity sales of $1.0 billion. Institutional sales are benefiting from new client sales and maturities reinvested during the quarter. Institutional sales are typically shorter duration, however experience has shown clients generally roll the investment a number of times which extends the effective duration. All institutional term sales for the quarter continue to be priced at similar economics to Challenger's retail term offering.

Domestic retail sales increased 18% to $498 million, reflecting higher retail fixed term annuity sales of $390 million (up 23%) and stable lifetime sales of $108 million.

Japanese (MS Primary) annuity sales were $63 million. Consistent with last year, sales volumes have moderated following the strong performance in the first half. Total Japanese sales for the nine months were $485 million, delivering 81% of the agreed minimum annual sales target4.

Life's investment assets at 31 March 2022 were $22.4 billion, down 2% for the quarter. The movement in investment assets includes the impact of changes in retained earnings, and movements in interest rates and foreign currency.

Challenger Life is required to value all assets and liabilities at fair value, resulting in investment experience which was negative $27 million for the quarter, due to wider fixed income credit spreads and lower equity valuations.

Challenger Life remains strongly capitalised with a PCA ratio5 of 1.65 times, which is towards the top end of its target range of 1.3 to 1.7 times the minimum amount set by the Australian Prudential Regulation Authority.

Funds Management

Funds Management funds under management (FUM) was $100 billion, down 8% for the quarter, primarily reflecting the derecognition of $5.2 billion of FUM following the previously announced sale of Fidante Partners' 30% equity interest in Whitehelm Capital to PATRIZIA AG. The derecognition of Whitehelm Capital FUM is not expected to have any material impact on Funds Management earnings.

Excluding the impact of Whitehelm Capital, FUM reduced by 3% ($3.6 billion) for the quarter and included negative investment market movements of $1.9 billion and net outflows of $1.7 billion. Net outflows were impacted by a single institutional client redemption ($1.3 billion) in a low-margin fixed-income mandate.

Bank

The Bank is a key pillar of Challenger's diversification strategy and provides Challenger with access to a wider range of customers through broader distribution channels.

Bank deposit sales were $59 million and maturities and withdrawals $29 million, resulting in net flows of $30 million for the quarter. Bank deposit book growth for the third quarter was 22.4%6.

In March 2022, MyLife MyFinance term deposits were awarded 'Best Personal Term Deposit', 'Best Business Term Deposit' and 'Best MySavings Account' as part of the Mozo Expert Choice Awards.

The Bank is preparing to make Challenger's term deposits available via the broker channel, including Australian Money Market, expected in the fourth quarter of 2022.

Challenger is taking a deliberate approach to moderate Bank deposit and asset growth until lending capabilities have been established and the rebranding of the Bank to a Challenger brand has been finalised.

Guidance

Challenger reaffirms its FY22 normalised net profit before tax guidance, and now expects to be towards the upper end of the $430 million to $480 million guidance range.

ENDS

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

Mark Chen	Jane Keeley
Head of Investor Relations	Head of External Communication
Mob [phone]	Mob [phone]
[e-mail]	[e-mail]
Irene Xu	Rhiannon Hornsey
Investor Relations Manager	Head of Corporate Affairs & Sustainability
Mob [phone]	Mob [phone]
[e-mail]	[e-mail]

About Challenger

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

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

For more information contact:

• 1 All commentary compares the March 2022 quarter against the March 2021 quarter (the prior corresponding period or pcp), unless otherwise stated.

• 2 Life book growth of 2.8% for the quarter represents Life net flows divided by opening FY22 annuity and Challenger Index Plus liabilities.

• 3 Challenger completed the sale of its 30% equity interest in Whitehelm Capital for €32 million (~A$50 million) on 2 February 2022. Following completion, the Funds Management business derecognised $5.2 billion of funds under management and a ~A$44 million gain on sale was recorded, which will be reported as a significant item in the second half of the 2022 financial year. The derecognition of Whitehelm Capital FUM is not expected to have any material impact on Funds Management FY22 earnings.

• 4 Reinsurance across both Australian and US dollar annuities, of at least ¥50 billion (A$600m based on the exchange rate as at 30 June 2021) per year for a minimum of five years, commencing 1 July 2019.

• 5 PCA ratio represents total Challenger Life Company Limited (CLC) Tier 1 and Tier 2 regulatory capital base divided by the Prescribed Capital Amount (PCA) and is as at 31 March 2022.

• 6 Bank book growth percentage represents Bank net flows over the period divided by opening book value as at 30 July 2021 of $134 million.

Challenger Limited

Assets and Funds Under Management, net flows and sales

Life quarterly sales and investment assets

$m

Life sales

Retail fixed term sales Institutional fixed term sales Japan sales

Fixed term sales Lifetime sales1

Life annuity sales Maturities and repayments Life annuity flows Annuity book growth2

Other Life sales

Other maturities and repayments Other Life flows

Other Life net book growth

Total Life sales

Total maturities and repayments Total Life net flows

Total Life book growth2

Life

Fixed income and cash3 Property3

Equity and Infrastructure3 Alternatives

Total Life investment assets Average Life investment assets4

Q2 22

Q1 22

Q4 21

Q3 21

529

459

178

381 504 245

463 316 50 1,070 168 79

1,166

1,130 681 1,465

119 1,285 (969) 316 2.3%

101 1,231 (939) 292 2.1%

122 107 803 1,572 (760) (693)

43 879 0.3% 7.0%

1,571

(1,035)

536 14.8%

856 (554) 302 8.3%

268 847 (233) (349)

35 498 1.5% 20.6%

2,856 (2,004)

2,087 (1,493)

1,071 2,419 (993) (1,042)

852 5.0%

594 3.4%

78 1,377 0.5% 9.2%

17,031 3,583 1,096 1,227 22,937 22,508

16,230 3,481 1,067 1,234 22,012 21,944

16,418 15,996 3,468 3,309 623 569 1,054 922 21,563 20,796 21,062 19,924

• 1 Lifetime sales includes CarePlus, a product that pays income for life and 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.

• 3 Fixed income, property and infrastructure are reported net of debt.

• 4 Average Life investment assets calculated on a monthly basis.

Life Asset Allocation

Q3 22

Q2 22 (1H22)

Q1 22

Q4 21 (FY21)

Q3 21

4%

16%++4+6 74% 5++ 74% 16% +3+4

6%

16% ++5+5 74%

5%

5%

5%

5%

3%

16%

16% 5++3 76%

5%

3%

4% 77%

Fixed income and cashPropertyEquity and InfrastructureAlternatives