FAQs on Challenger and the changing market

02 Apr, 2020

If you have a question you need answering about how COVID-19 is affecting our business, read the list of common questions we have received to date.

Q.  I’ve seen a lot of media coverage about Challenger recently, what does this mean for my annuity?

A.  Challenger has provided two recent updates to our shareholders:

These updates were issued to shareholders via the ASX to provide an update on Challenger’s strong capital position and to reassure shareholders that, despite the significant share market volatility, Challenger continues to hold significantly more capital than we are required to hold by the regulator, the Australian Prudential Regulation Authority (APRA).

Most importantly, these announcements do not affect our annuity customers who continue to have certainty and peace of mind during this time, knowing they have a guaranteed income stream in retirement, regardless of how the share market performs.

Q.  What are Challenger Capital Notes?

A.  The update we provided to shareholders on 30 March included an update for holders of Challenger Capital Notes. Noteholders should contact ComputerShare with any questions.

Challenger Capital Notes make up part of the regulatory capital held by Challenger. These notes are also known as listed hybrid debt and are a subordinated, unsecured, perpetual convertible security trading on the ASX under the code CGFPA.

Under the terms of these notes, Challenger has the option to convert, redeem or resell the Notes before 25 May 2020. If this does not occur, it is mandatory that they convert into Challenger ordinary shares on 25 May 2022.

It was Challenger’s intention to repurchase the Notes through a replacement capital notes offer which was going to launch in March 2020. However, investment market volatility has significantly impacted the listed hybrid debt market and launching a replacement capital notes offer at this time is not feasible. Challenger has therefore extended its ongoing right to repurchase the Notes on any quarterly distribution date after 25 May 2020 and up to 25 May 2022. APRA has confirmed it has no objection to this.

By extending the potential repurchase date, we are balancing the interests of all stakeholders, by ensuring we can continue to maintain our strong capital position during this period of uncertainty and providing more potential options for noteholders to have their notes repurchased.

Q.  Is my money safe?

A.  Yes. Challenger is regulated under the Life Insurance Act which is supervised by the Australian Prudential Regulation Authority (APRA). APRA actively monitor our investments to ensure we can continue to meet our promise to our customers both now and in the future.

Challenger holds significantly more capital than the amount required by the regulator. So even if there is an unfortunate event or a share market downturn, investments in a Challenger annuity and future payments are still guaranteed.

In times like these, our annuities provide our customers with certainty knowing they have a guaranteed income stream in retirement, regardless of how the share markets perform.

Q.  How do you invest my money?

A.  When you invest in a Challenger annuity your capital investment goes into a fund along with the capital received from other annuity investors. This fund is known as the statutory fund, and all regular payments to our annuity investors are paid from this fund.

We are also required by APRA to invest our own money into the fund. APRA actively monitors the statutory fund’s investments, to ensure that we can meet the promises that we have made to you.

Q.  What is Challenger doing to manage money in the statutory fund during this period?

A.  We are actively managing our investment portfolio to reduce our capital intensity and manage risk arising from the increased market volatility due to the COVID-19 pandemic. We have shifted to a higher weighting of investment grade fixed income.

It is important to note that changes in our investment portfolio have no impact on our promise to our annuity customers who continue to enjoy guaranteed income, regardless of how markets perform.

Q.  I’m concerned about the market and considering withdrawing my money.

A.  You can be confident that the current issues in the market do not affect your Challenger annuity in any way – you will continue to receive the same payments, and this is guaranteed for the life of your product.

We understand that you are concerned. More than ever, in the current economic environment we strongly recommend that you talk to an adviser to consider the full impact of making a withdrawal at this time.

Please read the PDS and get in touch with us if you want to discuss this further.