Challenger Limited (CGF) Earnings Call Transcript & Summary

Good morning. I'm Stu Kingham, and welcome to Challenger's First Half '22 Financial Results. We're coming to you today from Martin Place, Challenger's head office, and today's briefing will be conducted online. I'd like to begin today by acknowledging the Gadigal people of the Eora Nation, the custodian -- the traditional custodians of the land on which we're meeting today, and I'd like to pay my respects to elders past and present. Today's presentation will be undertaken by Nick Hamilton, Challenger's Chief Executive Officer; and Rachel Grimes, Challenger's Chief Financial Officer. The presentation will be followed by a question-and-answer session. [Operator Instructions] I'll now pass over to Nick to get it underway. Thanks, Nick.

Thank you, Stuart, and good morning. Thanks for joining us for today's presentation. I look forward to meeting many of you face to face as soon as conditions allow. It's a pleasure to present our first half results and a privilege to be taking the role of Chief Executive Officer at such an important time for the company. I'm pleased to report that 40 days into the role, I am more confident and excited than ever about Challenger's future. Challenger is a unique business with an extraordinary opportunity to improve the financial outcomes of even more Australians in retirement while delivering for our shareholders, our people and the community. We have a powerful brand in Challenger, one that is regarded as a leader in retirement income. We have one of the fastest-growing active fund managers in the country. And our recent acquisition of MyLife MyFinance provides us with a scalable digital bank. This further expands our potential to reach more customers and provide them with relevant products. For today's presentation, I will start by providing a summary of our performance and key achievements for the half. Rachel will present the financial results in more detail, and I'll finish with some comments on our priorities and outlook for the rest of the year. We'll then be happy to take your questions. Challenger delivered a strong result this half, benefiting from our successful strategy and disciplined execution that has provided significant current and ongoing business momentum. The performance of our market-leading Life and Funds Management businesses drove group AUM through $115 billion. We're well placed to continue this growth trajectory, and the acquisition of our new bank will broaden our business, our customer base and product offering. Pleasingly, we have maintained stable margins in both Life and Funds with AUM growth translating into strong earnings growth. We remain on track to achieve our full-year guidance and targets, and I'm committed to delivering improved shareholder returns. From where we are today, we have a significant opportunity to drive growth, meet the needs of more Australian retirees and continue to deliver on our purpose of providing financial security for a better retirement. To achieve this, our experienced and talented team will focus on delivering 5 immediate priorities, which I'll take you through later in the presentation. Today's result demonstrates the success of our diversification strategy and our focus on driving growth and building momentum across our business. Both Life and Funds Management delivered standout performances. Challenger achieved record Life and annuity sales, totaling $4.9 billion. Funds Management also delivered another strong result, outperforming the market with net flows of $0.9 billion, benefiting from strong momentum in domestic retail and offshore. Group assets under management were up 20%, driven by the strong growth across both Life and Funds Management. Normalized net profit before tax increased by 21%, benefiting from AUM growth and stable margins. Statutory net profit after tax increased to $282 million and included significant investment gains. And reflecting confidence in our business and strong capital position, the Board declared an interim dividend of $0.115 per share, up 21% and in line with earnings and AUM growth. Life delivered a record-breaking half across Life and annuity sales as well as strong book growth. Of note is the momentum in our institutional business, which delivered exceptionally strong sales growth of over 90%. In line with our diversification strategy, we're focused on building new and extending existing relationships with a wide range of institutional clients. The results highlight the success of this approach. Institutional sales accounted for over 2/3 of total Life sales in the half, and our institutional client base has more than doubled in the past 5 years. Institutional term annuities are priced at similar economics to our retail business and performed particularly well, up 2.5x on the prior corresponding period. We see an exciting opportunity to drive growth in this area, as we focus on offering innovative solutions to cater to the needs of superannuation funds, insurance companies and multi-managers. Meeting the needs of even more retirees through developing innovative solutions and contemporary retirement products is something that I'm passionate about and also provides a further opportunity to diversify and grow our business. During the half, we launched our new market-linked annuity that complements our existing offering. It's attractive to a wider client base, its exposure to investment markets combined with the benefit of a lifetime income stream. We're in the process of making the market-linked annuity available for sale by advisers. Marketing activity commenced earlier this month, and you may have started to see some of the campaigns in the press. Pleasingly, initial feedback from advisers and clients has been positive. Challenger has been a strong advocate of retirement income reform for many years, and the passage of the retirement income covenant through Parliament last week is an important step in enhancing the retirement phase of the Australian super system. We've been engaging with super funds around the needs of their members and look forward to partnering with them over time to deliver innovative solutions as Australians plan for and enter retirement. We have achieved today's result having built a strong and diversified Life business, key to delivering book growth of 8.4%, one of the strongest halves that we have recorded. Our retail and institutional clients and customers enjoy the confidence that our innovative range of products provide to meet their retirement needs. Funds Management has delivered another very strong result, a focus on diversifying our distribution channels, growing our contemporary range of products and services, and our offshore expansion have all contributed to a strong performance. In the half, FUM grew by 20% to $109 billion, supported by net flows of nearly $1 billion. Business momentum continued into the start of the second half with a EUR 1 billion fixed income mandate funded in early January, demonstrating that our international growth strategy will continue to deliver growth in the years ahead. Fidante Partners was also recognized as the #1 active asset manager for retail flows in Australia and impressively was second overall across both active and passive managers. Our retail business continued its exceptional growth with flows of $2.6 billion and our strongest ever half yearly sales result, driven by an increasingly diversified client base and innovative products. And we were pleased to be awarded Zenith's Distributor of the Year for the second consecutive year. In the institutional market, 90% of the top 50 Australian super funds are clients. We're also starting to see the results of our diversification strategy to expand offshore. Ardea has now opened a U.K. office to establish its presence and is off to a fantastic start, securing new investors in Europe and the U.S. In Singapore, we now have a highly capable team on the ground to build our presence in this rapidly growing market, providing a distribution hub to access investors across Southeast Asia. Reflecting our focus on diversifying our product range, Fidante Partners welcome Ox Capital, an emerging markets boutique. Alphinity also launched its new global sustainable equity fund that invests in global companies supporting the transition to a more sustainable future. Also in the half, CIP Asset Management maintained its standing as a market leader in domestic private lending with the launch of a new offering for sophisticated and wholesale clients. We also saw pleasing flows in a range of third-party credit funds and are very well-positioned for the future. Overall, an impressive performance from our Funds Management business. This was achieved by our contemporary product lineup, the strength of Australian distribution as well as our offshore expansion. Now to the bank. I'm pleased to report that integration is well progressed, following regulatory approvals received in July. The bank is important to our growth strategy, providing us with a digital platform that allows us to reach more customers. The integration is focused on building out our lending and asset origination capability, system integration, expanding our team and our distribution strategy. In this initial phase, our distribution strategy is focused on building early momentum and customer reach via a range of channels. Our term deposits, which now range from 1 to 5 years, are available on the most widely used bank-specific comparator sites and will shortly become available via the retail broker channel. Our term deposits have initially been marketed under the MyLife MyFinance brand, which has been crucial in ensuring speed to market. The bank and its products will transition to the Challenger brand by the end of the financial year, allowing us to leverage our position as the brand leader in retirement incomes. To date, the majority of our term deposit sales have been to customers over the age of 50. This highlights the potential of this product to the pre-retiree market and aligns with our goal to provide solutions to help customers for and in retirement. We're in a very strong position with significant momentum, delivering wins across our business. As I mentioned in my opening remarks, I believe that Challenger is a unique business, and we have an outstanding team. Today's strong result is a reflection of their hard work in what has been unprecedented times. I look forward to taking you through the immediate priorities after Rachel's presentation.

Thank you, Nick, and good morning, everyone. It's great to be here today to deliver Challenger's first-half financial results for 2022. Our half-year results show continued strength and momentum across both Life and Funds Management with earnings in line with expectations and shareholder returns improving. We remain on track to achieve our full-year normalized net profit before tax guidance with a first half profit of $238 million, being 52% of the midpoint of our full-year guidance range. Statutory profit after tax was significantly higher than normalized profit at $282 million with positive investment experience of $109 million and significant items, a positive $7 million. I'll provide more details on the investment experience again shortly. Group assets under management closed the half at $115 billion, up 20% on the corresponding prior period. For the first half, AUM increased by 4.5%, driven by Life sales and Funds Management net flows. Now looking at the group results in more detail. Challenger's total income increased by 19%, reflecting stable margins and strong asset growth. Expenses increased by 16% or by $20 million, of which $4 million relates to the bank, and I'll take you through the expenses shortly. Group EBIT increased 21%, resulting from strong contributions from both Life and Funds Management with Life up 21% and Funds Management up 28%. The bank acquisition approval process took a little longer than we anticipated, and it will take longer than initially expected to reach breakeven. Normalized NPAT was $166 million, an increase by 21%. Pretax return on equity of 12.1%, which was up 60 basis points from last year, is in line with our ROE target. Investment experience after tax was a positive $109 million, reflecting strong credit performance and property revaluation gains. Significant items were a gain of a positive $7 million with a $9 million gain achieved following the sale of Accurium, partially offset by bank integration costs. There is very strong momentum in both Life and Funds Management. We remain confident in our ability to scale the bank, which will enhance our overall financial performance. Looking at income and expenses. Income was $387 million, an increase by 19%, driven entirely by the increase in AUM with stable margins in both Life and Funds Management. Life income or normalized cash operating earnings increased by 18%, 1% higher than the average increase in AUM. In Funds Management, the net income increase was slightly less than the increase in average FUM with a net income margin 1 basis point lower due to a reduction in performance fees. Expenses were $147 million for the half. This reflected costs associated with the recently acquired bank and personnel costs due to higher FTE and lower levels of annual leave taken throughout the pandemic. Other expenses related to growth opportunities, including the development of the new market-linked annuity product and the establishment of the Funds Management Singapore office. Expenses this half were up $1 million against the second half of 2021 when excluding the one-off software impairment charge of $9 million last period. The group cost-to-income ratio was 38.1% and decreased by 90 basis points on last year. Looking to the Life business performance in more detail. As Nick mentioned, the continued success of our sales diversification strategy resulted in half-year Life sales of $4.9 billion, including annuity sales of $2.5 billion. Both were half yearly records. Total Life sales increased by an impressive 44%, driving strong growth in both policy liabilities and investment assets. Average investment assets increased by 17% on prior period, ended with a normalized cash operating earnings margin that was 1 basis point higher than last year. Cash operating earnings growth was 18%. Expenses increased by $3 million or 6%, and Life's EBIT was $233 million, 21% above last year. Life's PCA ratio was 1.69x, up 6 points for the half and at the top end of our 1.3 to 1.7x range. The Life company continues to remain very strongly capitalized. Life had exceptional sales outcome that saw a book growth of 8.4% for the half. Annuity book growth was also strong for the period. In retail, annuity sales were $1.1 billion and were up slightly on the prior period. This is particularly pleasing given the disruption as a result of COVID-19-related lockdowns. We have seen significant growth in the institutional channel. This includes new institutional clients and existing clients topping up their investments, particularly in the profit-for-member superannuation sector. 79% of index plus maturities were reinvested, demonstrating the value institutional clients see in the index product offering. Institutional term annuities are a relatively new focus area for us with sales of $1 billion, which more than doubled that of the first half of FY '21. Index Plus sales were $2.4 billion for the half, almost doubling the first half of last year and represent both reinvestment of maturities and new client sales. In the second half of 2022, there will be a small Index Plus mandate, but we will not actively seek to retain. This reflects our disciplined approach to pricing. Our Japan annuity sales were $423 million, representing approximately 70% of the full-year minimum annual sales volume. We have significant sales momentum that puts us in a good position for the full year. Now, looking at the liability and asset portfolio. Liabilities increased by 17% compared to the prior corresponding half and finished the period at $18.5 billion with all key categories increasing. With the exceptional growth in our Institutional franchise, Index Plus liabilities increased by 45% and now represent 23% of total liabilities. Term annuity liabilities benefited from our successful diversification strategy with $1 billion of Institutional term annuity sales, driving a 19% increase. Record sales drove strong book and asset growth. We continue to maintain a high-quality investment portfolio to allow us to meet our liability obligations. For the half, there was a 2% increase in the allocation to equities and infrastructure and a corresponding decrease in fixed income. There has been no significant change within the fixed income portfolio in the half with Investment Grade continuing to represent 79% of the fixed income portfolio, which is above our target to hold at least 75% Investment Grade. Investment experience before tax was a positive $156 million, driven mainly by fixed income and property revaluations. Credit performance remained resilient with only 2 basis points of credit defaults for the half, which was well below the 35 basis points per annum we forecast. With relatively stable credit spreads, this delivered $23 million positive fixed income investment experience. For property, there were upward revaluations across all key categories. And we do not expect any significant change to asset allocation in the second half. Now turning to Life's margin trends. We operate a spread-based model with the cost of funds or our annuity pricing adjusted for changes in investment yields in order to generate a net spread. You can see from the chart on the left side that the product spread has remained broadly stable. You may recall from the full-year results, we were expecting a cash operating earnings margin of around 2.5%. This is equivalent to the margin generated in the second half of last year after adjusting for the 12 basis points one-off asset-backed security fee. We have provided a detailed analysis today to show the key margin movements. Lower asset returns of 14 basis points were more than offset by a 19 basis points reduction in interest expenses. Distribution expenses were 3 basis points higher following our decision to prepay future trail commissions to our customers. Normalized capital growth was 2 basis points higher as a result of an increased allocation to equities, and the return on shareholder capital was down 3 basis points, reflecting lower returns. We are running a little ahead of our 2.5% expectation with the first half benefiting by an additional $7 million or 6 basis points of absolute return fund distributions, which we do not expect to see in the second half. We remain confident of achieving a COE margin of 2.5% for FY '22. Now turning to Funds Management. Funds Management EBIT was $45 million for the half, an increase of 28%. Funds Management has produced impressive results, building on the strong foundations established over many years. FUM growth was exceptional with average FUM up by 26% to $108 billion. Higher average FUM drove a 21% increase in net income, slightly less than that in average FUM due to a reduction in Fidante Partners performance fees and CIP Asset Management transaction fees. Funds Management expenses increased by $7 million or 15%, as we invested in our people and added capability to support our growth ambitions. Pleasingly, investment performance has remained strong. Looking more closely at net flows and Fidante Partners investment performance. Funds Management net flows for the half were $900 million and were almost exclusively driven by Fidante Partners. Retail flows continued to be very strong and were $2.6 billion for the half. The strength in our retail flows is providing the opportunity to remix FUM to optimize our margins. Fidante Partners institutional business recorded an outflow of $1.5 billion impacted by the termination of a $4.2 billion fixed income mandate. Excluding this lower-margin mandate, institutional flows were positive $2.7 billion across a range of our managers. Underpinning our net flows is a continuation of Fidante Partners and CIP Asset Management superior investment performance. Over 3 years, 97% of FUM has outperformed the benchmark and 83% of funds have achieved first or second quartile performance since inception. Now looking at Funds Management margins and FUM growth. The total net income margin was 18 basis points, down 1 basis point. The lower net income margin is entirely attributed to lower performance and transaction fees, which were $2 million lower than last year. Reflecting this, the FUM base margin was stable at 16.7 basis points, benefiting from our multiyear focus on retail. Growth in FUM for the half was 3% with very strong growth in equities, offset by lower fixed income, reflecting the benefit of our diversified platform. Now let's turn to our new bank. We completed the acquisition of MyLife MyFinance in late July, and the results for the bank include its performance over the 5-month period. The bank is a key component of our growth strategy and integration is well progressed. Our key priority has been to ensure the foundations are strong as we prepare to scale and grow the business. We are investing, including adding a treasury function and enhancing its risk and credit capability. We are taking a very disciplined approach to deposit and asset growth until our lending program is established. As a result, approximately 60% of assets are currently held in cash and cash equivalents with the remaining 40% of assets in residential lending. The bank maintains a high-quality residential lending book with an average LVR of 51%, and 86% of our customers are owner occupiers. Over time, we expect cash to be redeployed into higher returning investments as we expand into SME, corporate and commercial real estate lending. Taking this approach will impact the timing of when we reach our breakeven point, which now is unlikely to be in this financial year. The timing will be dependent on how quickly we enhance our lending activities to improve investment returns and scale business through deposit growth. Capital management. Today, we have reported a consolidated or Level 3 equivalent capital position for the entire business, which includes our 2 regulated APRA entities, the Life Company and the Bank. Our group minimum regulatory requirement ratio closed the half at 1.75x, which means Challenger is holding 75% more regulatory capital than minimum requirements. Our financial strength was noted by Standard & Poor's, who recently reconfirmed Challenger Life's A rating with a stable outlook. We are strongly capitalized and maintain significant financial flexibility across the group. Now to dividends. We have declared an interim dividend of $0.115 per share for the half, which is up 21%, reflecting the increase in normalized net profit after tax. More recently, investors have been focused on the impact of rising inflation and interest rates. I'd like to give you an update on how these factors impact our business, and I'm pleased to report we are very well positioned. Across our policyholder funds, we are fully hedged for inflation and the impact of changes in interest rates. On our shareholder funds, we do not hedge the profit and loss for movements in interest rates. Reflecting this, we have an ROE target that is tied to the RBA cash rate. I'm also pleased to report our capital position has remained very strong and remains broadly unchanged at the end of January despite the market volatility. Our half-year results show strength and momentum with both Life and Funds Management businesses maintaining their market-leading positions, driving significant growth. With our disciplined approach to annuity pricing, we are maintaining stable margins and converting AUM growth to earnings growth, helping to improve our shareholder returns. I'll now hand back to Nick, and I look forward to rejoining you for Q&A.

Thank you, Rachel. I will probably embarrass Rachel now in acknowledging her recognition in the Australia Day Honours. Rachel received the Member of the Order of Australia for her contribution to accountancy and financial services. So very big congratulations to you, Rachel. Driven by our purpose to provide customers with financial security for better retirement, we have an exciting opportunity to meet the needs of more Australians, as they save for and enter retirement. I believe we are best placed to achieve this by leveraging the capabilities of our broad business, Australia's leading retirement income business. Our market-leading active manager platform and Australia's largest fixed income manager and our digital bank providing a platform to develop Australia's leading retirement bank. And we will focus on driving long-term sustainable growth, delivering great outcomes for our customers. Achieving all of this requires an experienced and highly capable team. And I believe we have the right team in place to deliver on a strategy now and into the future. As CEO, one of my first priorities was to establish a leadership structure that best supports our people and our business so we can unlock our full potential. Reflecting this, I'm delighted that Louise Roche has joined the leadership team as Chief Human Resources Officer. Michael Clarke, who has successfully led institutional and offshore distribution in Funds Management, has stepped into the role of acting Chief Executive Funds Management. Mark Ellis, who has extensive local and international banking experience, has joined the leadership team as Chief Executive of the Bank. The more familiar faces, whom you know well, Angela, Chris and Tony, have very long Challenger tenure. And finally, Stuart Kingham, known to many of you, joins the leadership team in a new position, Chief Commercial Officer. This role will bring together the best of our business to help drive innovation and deliver stronger commercial outcomes aligned with our strategy. My leadership team has a strong mix of market-leading experience and tenure across Challenger and externally and are deeply committed to delivering for our people, our customers and shareholders. As a member of Challenger's leadership team since 2019, I've been closely involved in developing Challenger's growth strategy. I have a strong belief in Challenger's purpose and the opportunity to deliver better financial outcomes for retirees. We will provide a more detailed update on our strategic plans at our upcoming Investor Day in early May. Today, however, I would like to share my priorities for the second half. We will work as 1 team to bring the best of Challenger to more retirees than we do today, leveraging the combined and complementary capabilities of Life, Funds Management and the Bank. This also means focusing on our people, supporting a culture of openness and inquiry and ensuring that our high-performing team are clear and motivated on their role in delivering our priorities. Building on the strong performance in the first half, we will maintain momentum across our business, progressing our diversification strategy to drive growth. In Life, that includes expanding and strengthening relationships with institutional clients. In Funds Management, we will continue to broaden our distribution capabilities, including realizing the benefits of our offshore expansion. And in the Bank, establishing relationships with a wider range of customers will be a priority as we build momentum in our lending program. Our new market-linked annuity highlights our readiness to develop products to meet the needs of a wider range of retirees. This is the first cab off the rank this calendar year, and we'll continue to evolve our product offering across the business to meet the needs of our customers. In the second half, we'll transition the bank to the Challenger brand, leveraging the group's strong reputation and market position to drive growth. Excitingly, we'll be Australia's first retirement bank with products specifically designed to meet the needs of retirees. And finally, we'll pursue strategic opportunities with Apollo Asset Management, including a joint venture. Challenger and Apollo share a number of similarities, including our common purpose. Over the last few months, we've held strategic discussions to explore further opportunities to work together. Today, I'm pleased to share that we've entered into a nonbinding MOU with the intention of establishing a joint venture to build a nonbank lending business. This initiative would further diversify our business and provide important origination capability to support the growth of our Life and Bank businesses. The proposed joint venture would also leverage the capabilities of both Challenger and Apollo. It will bring together Challenger's operating platform and relationships across the country's lending markets, with Apollo's extensive global credit investing capabilities and range of retirement products. We believe this JV would provide significant opportunity and value for both parties. This is an important step in developing our relationship with Apollo, and I look forward to sharing more detail in due course. Turning to the outlook. Challenger is on track to meet our full-year guidance with normalized net profit before tax expected to be within our range of between $430 million and $480 million. Achieving the midpoint of this range would deliver 15% earnings growth and also achieve our group ROE target of RBA cash rate plus 12%. The group remains strongly capitalized with $2 billion of excess regulatory capital. Reflecting the Board's confidence in the business, we will continue to target a dividend payout ratio of between 45% and 50%. The business is in great shape. Our diversification strategy is delivering impressive results, and there's significant momentum across the group. This has translated into strong profit growth in the half, and we're on track to achieve full-year guidance and targets. Looking ahead, I'm energized by the opportunity we have to deliver for our customers, our shareholders and our people. We have the right team and the right purpose with clear and immediate priorities that will drive growth over the remainder of the year. For our customers, we have a unique opportunity to meet more of their needs. For our shareholders, we're focused on improving returns. I'd like to finish by thanking our people for their energy and dedication as well as openness to sharing ideas on how we can continue to grow and deliver for our customers. I am delighted to have shared this first result, and what a great platform and result to build from. Rachel and I will now take your questions, and we'll also be joined by Chris, our Deputy CEO, and lead on Apollo discussions. Thank you.

Just as a matter of process, we'll take questions from the phone first. I remind you, you can ask a question via the webcast. We've received a few, but we'll do the phone first. Thank you, operator.

Thank you, speaker. [Operator Instructions] We'll take our first question of the day. Please go ahead. Your line is open.

It's Nigel Pittaway. I think that's me that's got the first question. Is it? Yes.

Yes, Nigel.

Okay. Yes, sorry. So yes, firstly, just a question on the sort of COE margin. I mean, you've called out obviously the lower yield on alternatives in the -- projecting second half relative to first half, so you're not going to get that 6 basis points of distribution. But are there any other headwinds that you see for the COE margin in the second half?

Nigel, I might start off and then I'll pass to Rachel and Chris to maybe to make some additional comments. So we set out at the beginning of this financial year to target a 2.5%, and we're very pleased to be able to deliver in this half. We have said that we've probably pulled forward from the second half, as you know, the absolute return funds. The COE margin will be dependent on a number of things including our asset allocation of the balance sheet and the composition of future sales mix and level of interest rates. So the approach we're taking is to remain very disciplined on our pricing, and I hope you saw that today in the result. The other thing that Rachel noted is that in the second half we won't renew a Index Plus mandate, which is circa $500 million due to the lower returns on that business through increased hedging costs. So there's a number of pieces that go into that COE, and we're -- we think we've pulled some of it forward from the first half -- from the second half, sorry. And so remaining, we're committed to that 2.5%. But Rachel, would you like to add any additional comments?

The only thing Nick I'd add is we don't see any change to our asset allocation, Nigel. So we do still hold firm on the 2.5%.

Okay. And if you do look at the second half, is there any sort of positive or negative delta from property rentals? Or is that sort of pretty much stable now in terms of those sort of concessions you were giving as a result of COVID?

We're...

Do you want to take that?

Yes, I'm happy to take that. No, we don't see any major headwinds in relation to rental relief at this point in time. We were very pleased where we landed for this half and comfortable in terms of where we are positioned at the moment with our portfolio being so heavily weighted to government tenancies.

Okay. So I mean just stating the obvious, I mean, you've done 2.56% first half on your cap, so you can't calculate another way and get 2.58%. But it sounds like, if anything, there's more tailwinds than headwinds in second half. So to get around 2.5%, you obviously have to go lower than 2.5% in the second half, it just sounds quite conservative. Are we missing anything there?

No. In terms -- we're only looking at the half year, so -- that upside, you've got a split over the whole year. So that would be 1 component that I'd say. And if we did have any tailwinds from an increase in the cash rate in relation to our shareholder funds, it does take a while for that to season through our portfolio. And as yet, those rates haven't moved. So you're right. But as Nick said, there's so many variables in this number. So at this point in time, around that 2.5% is where we're focused.

Okay. Maybe moving on then. So there was quite a pickup in retail fixed term sales in the December quarter, at least a reasonable pickup, did you view that as sort of an improvement in the trend there? Or is there other some one-offs in that, meaning that the outlook might not be any better than it was at the end of September quarter?

Nigel, I'll start on that. So we did have a pickup in the second half. It is hard to -- and there is in the term sales, a larger piece of business there. I think as we look forward, there's a couple of things that will happen on the retail side. One is activity from our sales teams will be -- will pick up in market. And I think we feel confident about the pipeline there, but there is seasonalities in how the term sales come through.

Okay. And then maybe just finally, I mean, obviously, the lifetime sales are still sort of a little bit sort of sluggish. Do you see any prospect that they might pick up now moving forward? Or is it still a sluggish outlook for the Lifetime sales?

Nigel, I'll make a comment. I think what we've pleasingly seeing is stabilization in the Lifetime sales of both the Liquid Lifetime and CarePlus. We've called out the product development around the market-linked annuity, which sits inside the PDS for the Liquid Lifetime product. That is going through the premarket or premarketing stage, getting approvals, going on to APLs. And so -- and we feel good about that. So as we look forward, there'll be more in-market activity by our sales teams with travel restrictions easing and face-to-face meetings possible. Plus, we'll also have our market-linked annuity product coming through this half.

We'll take our next question from Siddharth Parameswaran of JPMorgan.

A couple of questions, if I can. Firstly, just on the agreement with Athene and the relationship that you're setting up with Athene and Apollo. I was hoping if you could just comment on a couple of things. So firstly, what do they actually bring to the table in terms of you setting up a nonbank lending business in Australia? And how does that business -- how that business sits alongside your Bank, if I could just ask that question? And the second one on Athene just around whether they're seeking a Board seat or not?

Thank you, Sid, for the question. I'll pick that one apart. So it's not sitting in the bank just as 1 comment. This will be a nonbank lending asset origination platform. And so I'll make a couple of comments, and I'll let Chris also add to that. We've had a very fruitful set of conversations with Apollo over this last period. They are clearly a market leader in international markets around nonbank lending. They have very significant balance sheet. Challenger itself within the Australian market has been active through our Life Company and through our CIP Asset Management business in nonbank lending, so it's an extension for us, and it is a way for the 2 businesses. I think 1 plus 1 here is more than 2. So we're very excited about it. We think the opportunity in the Australian market for nonbank lending to grow is there. And as well for us, it's core to asset origination to support our ambitions for the Life Company and for the Bank for growth. So Chris, if I missed anything, would you like to add anything to those comments?

Yes. Thanks, Nick. And look, I think you captured it really well, but it's still worth repeating. We think this is a really exciting opportunities in that it really does speak to both the strategic objectives of both companies and also our competitive advantages. And Nick talked about this, but Challenger, we see bringing our leading operating platform and also that deep knowledge and experience in Australian credit markets. And obviously, Apollo brings amazing global expertise and scale. So together, we think there's a real opportunity there. And as Nick said, this is going to be another way that we can generate assets in a reliable way that can support the growth of our balance sheet for both companies.

Thanks, Chris. And so just on the final part of the question, the conversations with Apollo are focused around the MOU and the JV. And ultimately, it's not for us as executives to answer the question with regards to a Board seat. That's a Board decision.

Okay. Sorry, just 1 last question on Athene and Apollo. I mean you talk about other opportunities you're investigating. I was just wondering does that include perhaps seeking new investment assets for yourselves using their reach? Am I -- is that what you're hinting at that the Life Company may have access to different yields or different assets that you otherwise couldn't get?

Sid, I think what we've been pretty clear about today is the focus for us with Apollo, Athene is around the MOU for -- to move towards a joint venture. And that for us is the focus. They are a world-leading originator of assets, and they've got a purpose and a business model that's not wholly dissimilar as you would, I'm sure, know to Challenger. So I think that would be what I'd leave the comment at this stage. And actually, final thing to say, as soon as we've got more to add around the formation of the JV, we will be very excited to bring it back to market.

Yes. Nick, I'll just, maybe just add a couple of things to that. So, I mean, as Nick said, there's a lot of parallels in our 2 businesses. There's a number of conversations going on. There's still a bit too formative to be able to talk to you about. But if you think about what we do in our market and what they do in their markets, you can see that there's plenty of ways to work together in both directions.

Okay. Okay. And just a question maybe for Rachel. Just on the capital charges, obviously, there's quite a sharp drop in your asset charge, and you do explain that, that's because of, I think, just a lower asset charge on equities. Should we expect a similar benefit going forward? I mean I understand that the charges are based on trailing dividends. And if dividends are maintained in the market at current levels, should we expect, as you go forward, that just the rolling 12 months should basically help you out again? So should that capital ratio improve again going forward?

Thank you for the question. Look, we believe that they will be relatively stable. We anticipate that in relation to equities. Our capital is quite high because we've had the benefit of property sales. We see that those -- that, that will be redeployed in the future. So again, lots of moving parts to our capital number, but I think your assumption there is correct.

So during the half -- maybe just worth adding, during the half there was a sale of a property asset, which has reduced the capital intensity as well as Rachel mentioned, with the rising dividend yield the increase in the equity allocation has come without there being an increase in the capital requirement. But Chris is Chair of Investment Committee, might like to add a comment to that as well.

Yes. Look, we're getting a bit into the weeds here, but I'll just make one quick observation, which is to say that there was a specific kind of one-off benefit in that -- out of the pandemic, obviously, there was a really big widespread reduction in dividends being paid. And so that had a kind of quite material impact on overall market dividend yield. And that was that being -- that was what we saw being unwound. So in that respect, that's kind of a one-off. But as the guys said, we're in a really strong capital position at this point.

Okay. And just related to the increase in equity's exposure. Just the -- should we expect the benefit to the margin going forward? Or has that actually flowed through? I think most of that was back-ended, wasn't it? So there should be a benefit to your COE margin going forward. Is that right? And could you comment how much that would likely be?

Do you want to pick that one up?

Okay. So I think we did mixed given overall guidance. And that's only one part of it. There's a whole bunch of factors that go into that, and that's reflected in the outlook. But that movement occurred in the first quarter of this half and that was -- that showed up in the fund numbers. It's just one factor.

We'll take our next question from Matt Dunger of Bank of America.

Just wondering if I could ask, firstly, on the institutional sales. If you could talk to what's driving them and the outlook. You've noted repricing in line with retail annuities. And if you can talk to the new clients and clarify whether those institutional sales are yet to benefit from the retirement income covenant? Or are you talking to future upside here, Nick?

Thank you, Matt, for the question. So it was -- as we've called out, a very, very strong period for institutional sales across both annuity and the Index Plus. We've had strong retention of clients, so rolling over of pre-existing clients plus new clients. To put that in context, this has been a journey for us -- to Challenger over the last, say, 3 to 4 years to build out across the Challenger business the opportunity within the institutional marketplace. So on the Fund Management side, 90% plus of institutions are clients. What we're doing on the Challenger side on the Life side is building out a really attractive-looking footprint. So what is attractive about the product? It's a guaranteed product that gives them a market-leading yield. And so that from a fund executive perspective is very attractive. We've been really clear that the Institutional business that we've been writing on the annuity side and the enhanced Index Plus side is that the economic similar to the retail side of it. So I'll leave that as a comment on the first part. On retirement income covenant, I think my comments today, let's put that into a macro context, Australia has built up a world-class accumulation system, and it's growing extraordinarily quickly. The demographics of Australia are moving towards retirement. And retirement has a number of parts which are just genuinely unique to accumulation and longevity, and mortality is key to that. So we see the opportunity from this -- the demographic trends and from an institutional perspective, as they start to deliver and develop products to their members, solutions for their members will play out over the coming years. So yes, the retirement income covenant is a great step. It recognizes the criticality of ensuring certain unique aspects of retirement dealt with by the institution. So building the institutional relationships as we have done over these last number of years and familiarization with the annuity product and the Index Plus product, we see as being very supportive going forward.

Great. If I could just ask a follow-up question on the asset allocation. I note you noted there's going to be no changes to that asset allocation. But just given the change in lower capital intensity on equities you noted, also around the absolute return funds, do you intend to review the normalized COE margin there that there's no distribution from those funds? Wondering if you could comment...

So I think Matt it comes a bit back to how Chris and I characterized before. We've set ourselves 2.5% COE margin for the year. We've pulled forward a little bit from the second half. There's a lot of pieces that go into the formulation of that, and so we're committed to that. And we've also made clear that we see no change in asset allocation as we go through the second half of the financial year. But clearly, any changes around this would be communicated to the market down the track.

We'll take our next question from Anthony Hoo of CLSA.

Just a couple of questions. Firstly, just maybe following up on Matt's question around institutional sales. They represent almost 70% of total sales now. That's a lot higher than even 2 or 3 years ago. How high do you expect this to go to? Is this -- do you expect that to continue to trend higher given the retirement income covenant and directly increase demand for institutions? And are there implications from that on your returns in the Life business?

Anthony, thanks for the question. So probably the first thing, we don't give sales guidance, but let me make some comments. So clearly, we're being successful in this period around not only winning clients initially, but then seeing that money roll over. So the effective maturity of those clients is longer than the initial term. We've also been very disciplined around the pricing to ensure that we're meeting our ROE target. This is shorter-dated business, and that comes with different asset allocation, clearly, but we've been very disciplined around where we're riding the business. And you can see that through the product yield as part of the COE. You're seeing the product yield that's remained stable through this piece. In terms of the second part, which I think, Anthony, was in relation back to retirement income covenant, it's early days. The super funds have had -- they've had a range of things that they've been working on, which are probably reasonably well known of which development of retirement products is but one of them. We've been engaged in really substantive conversations over a long time now around the differences of retirement to accumulation. So the way that we think about the opportunity for Challenger, and I'll bring it back out of the Life Company for a second, is the delivery of retirement products will be secured and guaranteed and non-guaranteed. So the acquisition of the bank is a great opportunity for us down the track. The Life Company continues, and you can see that in the institutional sales. And on the fund side, our strong position in non-guaranteed fixed income provides us a great platform to meet the income needs and the longevity requirements into retirement. Rachel has made mention of the very strong capital position that we have, and that gives us confidence that we can continue to support growth. And as we look forward, we feel good about the pipeline ahead.

Okay. Can I also ask another question just on the bank? You've said that you're waiting for approvals to expand your lending activities there. Can you elaborate on that? What are you planning to do on the asset side?

Sure, Anthony. So the acquisition of the bank was somewhat delayed. It -- also the integration came up through the fourth quarter of last calendar year and through the holiday season. One of the things that we've been really committed to through this transition period of the bank into Challenger is building really strong foundations around the business. So Rachel spoke today about the uplift in headcount, and that is across treasury, credit, risk and compliance, and that's a substantial step-up in capability. The MyLife MyFinance business had a residential mortgage focused lending program. Challenger is obviously highly regarded for its non-resi lending in commercial CRE, et cetera, and we're broadening the bank's permissions to match more where our -- some of our core DNA, our core skill set is. So that is a process that we're going through. We will be very disciplined until the approvals come through around our TD rates so that we don't build up liabilities there. And you can see that if you go on the comparator sites today, so that's where we're at. And so that's why Rachel has also noted for the second half. We're not expecting breakeven in the second half where we just -- it will be later than that.

Okay. And do you have an updated target for breakeven?

The moving parts to go into breakeven from the asset origination, finding the lending, the distribution program, so there's a number of moving parts. So we're not providing any guidance. It isn't a material part of group, and our focus today is this is part of the long-term strategy, we've got to get it right. It's a very clean balance sheet. We're going to put the resourcing in place in the business. And as the approvals and the resourcing comes up, then we will start to grow the liability book. So we'll provide more updates down the track.

We'll take our next question from James Cordukes of Credit Suisse.

Just a follow-up on the MOU, maybe on from Sid's question. I mean when I look at Apollo, I mean, and that agreement potential, you're already a leading nonbank originator. You've got great relationships with super funds and advisers. You can already manufacture your own product. So is the only thing they're bringing in on balance sheet and origination capability, do you view their role as more being a partner who you can just syndicate excess assets out to? Or is it that the demand expectations for annuities and term deposits are so great you couldn't possibly have seen yourself being able to write enough assets, in which case you probably don't need the balance sheet as much? So I'm just trying to understand a bit more around those 2 points.

It's a great question, James. And it is about market dynamics within that space, and Chris has been working closely on -- for many years in this space, so I might let Chris provide a bit more color on the opportunity in nonbank lending in Australia.

Thanks, Nick. And look, I think as well, it's important to say that what we've done right now is we've signed this MOU. So there's a lot of work to be done, and we'll be keeping you guys updated as that sort of progresses. But I think if you have to sort of take it right up to a sort of macro level, and you look at the Australian lending markets and you compare that internationally, the banks continue to dominate. And we think that there are a lot of opportunities to respond to that and that there are some really underserved areas and that we think combining the 2 groups' capabilities and knowledge and expertise puts us in a great position to respond to that. So I think it's a lot more than just leveraging our existing capabilities. We think we can use those to go into new areas as well.

Thanks, Chris.

I mean, is that more of a strategic view like following in the markets like, for example, the U.K., where you've seen a lot of business lending shift off bank balance sheets to the non-lend, wherein this is a way to, I guess, see that trend continue in Australia -- will start in Australia?

To some extent. And I think as we've said before, we see opportunities to create real platforms so that there's real recurring assets because importantly what this comes back to for us is creating high-quality assets for our growing balance sheet. So that will be an important sort of objective for the JV as we build out the strategy.

Look, just on the retirement income covenant, I'd be interested in feedback from your discussions with super funds and advisers and how that's changed over the last 6 months. In the explanatory materials of the legislation, it did say that the age of pension may be sufficient to manage longevity risk. So how -- are clients aware of that? And has that changed your appetite?

Thank you, James, for that question on retirement income covenant. I think you've got to see this in the bigger picture to see the opportunity in many ways. So the retirement income covenant catalyzes and recognizes the uniqueness of the risks in retirement. And those -- and being a covenant, it then becomes a duty of the trustees to ensure that members' interests are then looked after through retirement. And that's some of the super funds have been incredibly good at through the accumulation phase. And the move is on to work out how we create in Australia the best decumulation system in the world. And so it's not one nor the other in many ways. And this is a multi-year demographic trend that is occurring. And I come back to the opportunity for us as a business from the ability to write guaranteed incomes and longevity through both the Life Company and guaranteed income through the Bank. And then within the Funds business, our capacity to provide alternative credit or income product, where we're a leader in fixed income and credit today. So I see it being multifaceted as an opportunity for us. And our expertise is highly regarded in the market. Challenger is uniquely positioned as the retirement income leader with its very long history of longevity, in this protection of longevity in the market. So we're very pleased with the level of engagement that we've got with the superannuation funds.

We'll take our next question from Kieren Chidgey of Jarden.

Just a couple of questions. Maybe just starting on group costs. 16% cost growth this half on pcp. And I know sort of the bank coming in, obviously, contributed to that, but I think you said ex that it was 13%, which just sounded a little bit high given the headcount. Didn't seem up that materially on an average basis relative to last year. I think it was up only 2% on our calculation. So just wondering if you can unpack that a little bit more and then sort of give us a feel for how you're thinking on a go-forward basis relative to the $147 million base this half. What sort of wage inflation you're seeing moving through the organization and how much additional headcount around factors like the bank needs to come in, in the second half?

Thanks, Kieren, for the question. I'll just make a few comments, and Rachel can pick up on the details. So you're right about the numbers. There is an element of that, which is both the bank plus also recruiting in additional roles to support the bank as well as general people-related uplift in the business. We've also invested into some areas for growth. We've called out the Singapore office as well, and there are expenses that relate to that as well. So that's probably is a summary, but I'll give it to Rachel, if there is more detail you wanted to provide.

Thanks, Kieren. And look, I'd like to say Challenger really takes a disciplined approach to expenses. If you look at the first half for '21, it was unusually low. In fact, it was lower than the 4 preceding halves, and that's largely because of the COVID lockdown. So while the incremental looks extreme, it's actually pretty much in line when you take out the bank costs of those other previous halves in terms of just distribution, travel, all those different components. So -- but I do think it is a good call-out. In relation to going forward, we do expect a slight uptick on our costs from the $147 million base, largely because of the travel and our market-linked annuity products. So it's growth pieces of travel associated with distribution costs and our market-linked annuity launch. But as I said, we take a disciplined approach, and we're definitely focused on expenses as a whole.

Okay. And maybe just rolling that discussion into sort of a broader question around the guidance -- it's been raised a few times more divisional levels, but the midpoint of your range for this year would require your second half to be 8% below first half. So what -- which across each of the divisions, I'm just struggling to understand given sort of wider credit spreads in Life and industry rates coming through pretty annuity book at the end of the period. Funds Management seems to have pretty good traction as well. Why that would be the case that we'd get profits going backwards in the second half of the year? It doesn't sound like your flagging costs will be particularly large step-up across the group in the second half?

Thanks, Kieren. I'll make a few comments, and again, Rachel want to add to it. So across the business, I think we've spoken quite a lot about the margin. And to the point around interest rates, obviously, we hedge the policyholders and any credit spread widening or seasoning over an extended period. And it would need base rates to go up to impact the shareholder fund returns. And we've talked about future sales mix. On the FM side, we're broadly tracking in line with our assumptions. So we're pleased with how that business is tracking. But there's clearly some variability that you'll see in the funds business around the final result, whether it be performance fees, transaction fees or markets. And on the Bank side, we've just spoken about -- that take longer and the expenses there that we're incurring as we move towards ramping the lending program and the deposit program. So it is a mix of those 3 things. That's why we've landed on the $455 million as where we want to maintain our target.

Thanks, Nick. The other things I'd add, again, that absolute return fund distribution, $7 million higher in our first half, and we just don't anticipate receiving that level of distributions in the second half. The asset allocations will remain the same for the second half, and not all our assets have guaranteed returns. So we have done well in the first half. So we're still comfortable with that. As Nick said, the $455 million guidance at this point, Kieren.

Rachel, just on the $7 million contribution from alternatives, which you spoke about bringing forward some of the margin from second half, you seem to be calling out $5 million high one-off distribution costs, which largely offset that. And that doesn't really seem to be a net drag into second half. Should we be viewing that net contribution across both those items?

In relation to the distribution fees, we did bring that forward as part of our simplification approach. So those trail commissions will be returned to the customers, but that was over a 5-year period. So it's very negligible on each half even though we have brought that whole piece forward. So it's just a small contribution for the second half for our margin, but not a material one.

All right. And maybe just a final question for Nick around sort of the broader Life business -- taking over as CEO, we've seen some of your predecessors use that as an opportunity to reconsider the normalized earnings framework and some of the assumptions underpinning that around the Life division. Just wondering if you could offer your thoughts on that and sort of -- particularly in light of the fact over the last 10-or-so years, it's underperformed those assumptions.

Kieren, thanks for the question. I'll make a few general comments, and then we'll come back to the normalized one in a second. Stepping into this role, I'm incredibly excited about the opportunity that the business presents from our capacity to do more for customers and to grow our business using both the Life, the Funds and the Bank platform. So my priority is growth through the development of new solutions and new products. And I called out that Challenger is one. And that's -- it's something we're talking a lot about inside the business. So I feel very excited about the position that Challenger finds itself in the strategy that -- and it's really worth saying, I joined the business in 2016, came on to the leadership team in 2019. I've been in and around the Life Company, my entire time here. We're not a giant business, and I've been part of the strategy development and formulation for Challenger. So I feel very confident in the business that we have today and the opportunity as I look ahead. We're not intending. We're not making any noises in relation to the normalized framework. I think we've provided in the pack a slide that sort of shows the trend of that relative to stat. And so I think -- I understand your comment, but it is coming back through time. And for a business of ours, it's an appropriate framework given the asset volatility that sits behind the balance sheet. So we're committed to that, Kieren.

We'll take our last question in line from Andrew Buncombe of Macquarie.

I just had 1 main one, please. You've tweaked your majority expectations for FY '22. How should we be thinking about those for FY '23? And the reason I asked the question is that previously, we've been told that those maturity numbers would edge towards 10% over time. But as that maturity and duration starts to shift, I'm just thinking maybe it doesn't come down as quickly. So any thoughts on that would be great.

Sure, Andrew. I will start, and Rachel will have some comments, I'm sure, to add to it. So we've clearly called out a stellar sales result here, big institutional numbers. The term of this business is shorter tenor. The effective term is longer because we are seeing reinvestments. They are saying that the maturity rate almost matching, not almost, but less 1.4. The growth in annuity and record sales. So the way that -- and so actually, I mean, the other comment, and actually, I might forget the number here. But if you look at all the business that we've written, the effective maturity is about 5.1 years is the right number. So that's looking at 20%. So trending back down from where we are today. But Rachel, do you want to make sure I got that?

You've got that 100% correct. The only thing I would add, the higher in-store sales. Our duration is shorter, but our retention rates are stronger. And if we look at -- we split it out. Our retail maturity rates are more in the order of around 20%. So you have to look at the book as a total for that number, but, if we split it out a little bit, I think the numbers don't tell the true story. If we just look at that in one hit because of those strong retention rates we experienced right across our book.

We have a range of questions that have come in online. So thank you for sending those through. The first one comes from Lafitani at MST. Thanks, Laf, for your question. It's in relation to the cost-to-income ratio with 38%. Last question is a criticism of Challenger over the years has been the inability to get scale benefits from the healthy growth that it's seen. Should we expect improved operating leverage over the medium term?

Laf, thank you for the question. So one of the things that we called out today is that we've seen our earnings growth in line with our FUM growth that we've been writing our business in a disciplined way and that we've had stable margins on the Life side and the fund side. We've also spoken about the bank and the opportunity and scale potential for there. So I understand your question. Rachel has spoken about expenses. We're very focused on running the business effectively -- efficiently, but also mindful that we're investing for growth as well. So unless, Rachel, do you want to add any other comments to that?

No, that's fine.

Okay. Thanks, Laf. The next question comes from Andrei Stadnik at Morgan Stanley. There's 3 parts to Andrei's question, so we might do them one at a time. The first is in relation to the strategy of the bank, which seems subscale for now. Does the bank need to be integrated with the new nonbank JV? And how do you ensure the nonbank and the bank lending activities will not overlap?

Thanks. Let's take that one first. So what we've spoken about today in the formation of the JV, but also in Challenger's broader credit capabilities is the importance of origination to support the balance sheet growth over time. So our focus around whether it be the JV or how we scale the bank is the quality of the lending program. It is a small acquisition, but it's a very clean business. It's got new technology that had been integrated and installed through it, which is pleasing. So that in itself was a significant investment made into the purchase. And so our focus is on -- for the second half is on rebranding the bank, working through the lending program and then starting to grow our deposit -- our term deposit book.

Thank you, Andrei. And Andrei's second question is in relation to interest rates. The 3-year and 5-year swap rates are starting to rise. Does this make you more confident about your full-year outlook? And how much uplift to earnings can interest rate rises deliver?

Thank you for that. So just as a reminder, the stat funds, the policyholder funds are fully hedged for interest rates. The shareholders' funds aren't, but it needs the base rate to go up, not the swap curve. Where it starts to play through from a swap curve perspective is the pricing that we put into the market around our annuities. And indeed, this last 3, 4 days, we've increased the 3-year TD rate -- term annuity rate, my apologies, up to 2.8% from 2.55%. So we have seen a steepening of the curve, and we're passing that through. That's -- it shouldn't necessarily matter because we price over a swap, but optically from a customer's perspective that higher rate has the potential as we look forward to be more appealing. So we are passing the rate through to our customers. We're keeping the spread though between that 90 to 100 points over swap.

And Andrei's final question is in relation to the capital intensity in January 2022. How big is the asset allocation change been? And how big of a headwind will that be to normalized profit?

I think if I answered it -- just to make sure I understand the question. What we've said is that there's no -- I mean, Rachel made clear from asset allocation perspective to change. Where we have provided some detail in the fixed income book, we have increased the quality of that book from triple -- somewhere at a BBB, up to AA, AAA ABS. So that's coming through. But, there's -- as we've said, we're not looking to change the asset allocation of the book. So we're maintaining our guidance that -- for the COE of 2.5%.

I'll just add to that, Andrei, the detail for you. The capital intensity reduction we've referred to that's largely a function of the equity market falling. As Nick mentioned earlier, the capital requirement for equities is a dividend shock -- is a shock to the yield of the ASX 200. And so as equity markets fall, the capital intensity of equities also correspondently falls. The next question comes from Bell Potter from Marcus Barnard. It's in relation to the Life Risk business, the U.K. Life Risk business. In 2021, you increased your PV from changes in mortality rates. Does this cover the period to end of 2021? And what is the opportunity for mortality improvements to come through in future years?

Thanks for that question. That's a very technical one. So what I might do is just, Chris, if you wanted to add any color if you had any thoughts on that or we take it away.

No, look, I -- and Rachel may be able to add to it, but I'll just really briefly say that those are very long-term assumptions, and they tend to move slowly. There was that adjustment in the previous year. And I don't know if there's been any material. Rachel?

No, there have been no material movements in relation to the mortality rates. COVID has not worked its way through on this. It's one that we continue to watch, but there's been no change at this point in time, but thank you for the question.

Great. Thank you, everybody. That concludes the question-and-answer session for today. I'm available today for questions, and Mark is obviously available ongoing. So please feel free to get in touch if we can assist you with any further questions. Thank you.