Challenger (CGF) Investor Update summary

Overview of APRA's Proposed Capital Standards

• APRA's proposed capital standards for longevity products represent a major regulatory reform, aiming to align capital requirements more closely with actual risk and support the development of Australia's retirement system.

• The new standards introduce a principle-based approach to the illiquidity premium, allowing use of broader reference indices and risk allowances that better reflect portfolio risks.

• The standards align capital requirements with international peers and support competitive annuity pricing.

• These changes are expected to make the business less capital-intensive, more resilient, and better positioned for growth and innovation in retirement solutions.

• APRA aims to foster innovation and competition in the retirement income market while maintaining insurer resilience.

Expected Impacts and Benefits

• Capital requirements will be more responsive to market conditions, reducing procyclicality and the need for de-risking during stress events.

• The PCA ratio is expected to improve, with less volatility in capital metrics during market shocks, supporting full participation in market recoveries.

• PCA ratio improves from 1.60x to 1.77x under proposed standards, with further increases possible in normalized spread environments.

• Transition to the new standards could release significant excess capital, especially in a normalized credit spread environment, with much of the benefit accruing to CET1 capital.

• The platform enables writing new business with lower capital intensity, supporting product innovation and improved customer pricing.

Strategic and Operational Considerations

• The business will reassess risk appetite, asset allocation, and capital allocation as part of the transition, with board and APRA input required.

• A shift toward higher-quality fixed income assets is anticipated, reducing capital intensity and supporting sustainable growth.

• Positioned for growth in longer duration annuity products, with book growth backed by fixed income.

• Structured internal planning includes actuarial, risk, and capital management reviews.

• Ongoing consultation with APRA and internal reviews will determine final impacts on capital targets and reporting frameworks.