TAL’s 15.1% Challenger stake reflects broader strategic agenda

ANALYSIS

The Federal Government’s retirement incomes policy approach meant It was only a matter of time before one of the major life insurers further asserted themselves in the annuities space and that has happened with Dai-Ichi-owned TAL taking 15.1% of Challenger.

The Retirement Income Covenant (RIC) has placed an obligation on superannuation funds to “develop a retirement income strategy for beneficiaries who are retired or approaching retirement – in other words retirement income products.

Annuities are one of the most-used retirement income products and it is no secret that Challenger has become Australia’s foremost provider in the space.

This explains the public statement issued by TAL in the wake of its announcement ot the Australian Securities Exchange (ASX) that it had picked up the 15.1% stake in Challenger previously held by Japanese insurer, MS&AD.

The statement from TAL chief executive, Fiona Macgregor said “TAL recognises the evolving needs of Australia’s ageing population and a shareholding in Challenger adds to TAL’s long-term commitment to the growing retirement sector”.

“There is an important community need to address with five million Australians currently in or preparing for retirement. Our minority investment in Challenger is an extension of our commitment to supporting Australians’ financial needs during retirement,” she said.

The importance of the investment from TAL’s point of view is that it will reinforce the company’s dominance in the group life market at a time when Challenger has been growing its annuities relationships with superannuation funds, including UniSuper.

TAL commands around 32% market share ahead of AIA with the recently announced but yet to complete merger of Resolution Life and Acenda (former MLC Life) providing competition around third place with Zurich.

News of TAL taking up the 15.1% stake had an immediate positive impact on the Challenger share price which spike up from $5.80 to $6.40

Challenger in early February announced a 12% increase in net profit after tax to $225 million, with the company at the time announcing that Japanese annuity sales were up strongly, increasing 78% to $616 million.