Challenger Limited (CGF) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to those in person and online to Challenger's 2025 Half Year Results Briefing. I'm Mark Chen, Challenger's General Manager of Investor Relations. We're coming to you today from at 5 Martin Place in Sydney. [indiscernible] traditional custodians of the land on which we are hosting this event today and pay my respects to elders present and emerging. Today's presentation will be provided by our Chief Executive Officer, Nick Hamilton; and Chief Financial Officer, Alex Bell. It will then be followed by a Q&A session. You can ask a question either in person in the room, via the online portal or the telephone. Just a few words prior to passing over to Nick. As you will see from today's presentation, we delivered a very strong 2025 half year performance. and continue to successfully execute our strategy. Specifically, we are delivering against our financial targets with double-digit earnings growth and ROE that is now above our target and remain strongly capitalized. Our strategy to remix sales towards longer duration business continues to bear fruit, improving the quality of our book, and we continue to broaden our sales channels and investment capability. The business is in great shape with great momentum, good momentum and the investment we are making today in our new customer registry and investment platforms, they'll help scale and grow this business further. You'll also see in the half, we've taken further steps to improve our disclosures and transparency to help you improve our understanding of our investment capability. These new disclosures are both in the analyst pack and presentation. around total return and COE investment yields by asset class. I'll now pass over to Nick.

Thank you. Thank you, Mark. Good morning, everyone, and thank you for joining us. So today, we're joined by CFO, Alex Bell to deliver our first half 2025 result. Challenger recorded a clean, strong result in the first half of 2025. This reflects the strength and quality of our fundamentals as we delivered against our financial targets and executed our growth strategy. Higher earnings of $225 million were driven by momentum in Life, growth in Funds Management and actions to structurally reduce our expense base. We continue to focus on improving group ROE, which exceeded target. Our 12% higher interim dividend reflects confidence in the business, and we are on track to achieve our FY '25 earnings guidance. This performance was powered by the execution of our growth strategy. Remixing the Life book has lengthened the tenor of liabilities and is supporting stronger returns. We've broadened who we partner with, building relationships with more advisers, wealth managers and superannuation funds. Over the year, advisers writing our lifetime annuity products increased 12%, which translated into record retail life sales this half. Challenger Investment Management expanded its leading asset origination capability, and we executed material whole loan transactions, both block and flow to support investment yield. And we continue to strengthen our brand presence, which is particularly important as we progress the next phase of our growth strategy that will be enabled by the replatforming and uplift of our customer technology and investment technology platforms. In our presentation this morning, Alex and I will cover the key drivers of our strong first half result, priorities for the second half of this financial year with the overall objective of driving long-term sustainable growth. In this result, we're seeing the outworking of actions taken to reset the business and refresh our strategy over the last 3 years. In Life, we have prioritized restoring growth and improving sales momentum by ourselves remix strategy. This has in turn reduced the maturity rate improved ROE and is supporting higher quality book growth. Let me give some context on just how much we've rejuvenated our flagship Life offering. We have written longer-dated lifetime and Japanese annuity sales of $6 billion since the start of FY '22. These core Life offerings now account for over 60% and of total annuity liabilities and continue to grow. We've also materially enhanced the quality and composition of the Life annuity book, which has grown by $1.2 billion over the last 3 years. Today, 80% of total annuity liabilities are for terms of 3 years or more, increasing our company's long-term value. Funds Management has seen a strong recovery in equity flows and flows to domestic and global private credit offerings. Our platform of managers continues to deliver strong and repeatable alpha, which is a great sign for the years ahead. Challenger Investment Management has leveraged its expertise to meet growing demand for private credit. Over the last 3 years, our new flagship fund offerings have tripled in AUM and continue to grow strongly. We have also evolved our balance sheet investment strategy. largely removing equity risk, increasing our fixed income and alternatives allocations. This has diversified the balance sheet, reduced volatility and will support sustainable through-the-cycle ROE. We are strongly capitalized with significant flexibility to meet market volatility and growth. These actions have delivered a marked improvement in our financial improvement -- financial performance, my apologies, including double-digit earnings and EPS growth. year-on-year delivery against our plan to achieve the ROE target and dividend growth that demonstrates our confidence in the business and strength of our balance sheet. This slide brings together the refreshed strategy we laid out 3 years ago as well as our progress in delivery over the past 6 months. Building a strong and trusted brand, where Challenger is synonymous with retirement has been particularly important ahead of the launch of our new customer technology midyear. Our new brand campaign, which you just saw is now in market. Our new website, which is the first phase of our customer technology build is also live and will materially enhance the user experience. We have strengthened relationships across our customer channels, increasing the number of advisers who write business across our core retail offering and secured a new retail lifetime annuity relationship with UniSuper. Our focus on longer tenor liabilities has delivered record retail lifetime and Japanese annuity sales. At the same time, we've continued to deepen our investment capability. Challenger Investment Management, our leading credit asset origination platform now includes whole loan origination and servicing. That provides the Life business and our clients with access to very attractive whole loan assets. Fidante also broadened its network of affiliate managers, welcoming system capital to its table. We have strengthened our balance sheet and now hold higher capital whilst also generating higher returns and reflecting confidence in our outlook, the Board increased the interim dividend by 12%. As we look ahead, our investment into upgrading our customer platform will be a game changer, removing the myriad of sales frictions that exist today, which will drive future growth and generate operating efficiencies. A few words on progress we'll be making in delivering these growth initiatives. The rationale for modernizing Life's customer registry and technology was clear. We are confident in the opportunity in retirement. However, to achieve this and deliver more of our compelling retirement products, required investment and material step change in our legacy tech capability. Our future customer technology will integrate our retirement products and solutions across the financial system. and extend our partner network, increasing the number of advisers writing challenger term and lifetime annuities. Adviser sales will also be accelerated which work with advice platforms to equip advisers with the tools to sell our great products. Direct customers will be able to acquire our retirement product range online. We will provide new retirement tools that demonstrate the role our products play in providing financial security and enhanced service will support us to deliver more innovative products and reduce the time to bring these offerings to market. And the platform will be able to scale, supporting business growth, delivering productivity gains and efficiencies. We are currently through the midpoint of the customer project moving from development to testing where adviser feedback has been particularly positive. To reiterate, this program positions us to capture a growing share of the opportunity as 700 Australians retire daily. On our agreement with State Street. Investment administration has been an internally delivered infrastructure a challenger for decades. However, in the last few years, our business's evolving needs, the cost to serve clients and the necessary investment to support our growth, catalyze the need to overhaul our investment administration capability. The establishment of Artega was a first and necessary step in determining the future investment administration needs of Challenger and our affiliates. The agreement with State Street, a global leader in investment services materially accelerates our path to a highly scalable, front-to-back administration platform. More broadly, challenge will benefit from State Street's advanced technology, capability and ongoing investment in its Alpha platform. Importantly, this will support our plans to scale and grow Life and funds management. The Challenger Investment administration team has now transferred to State Street and 2025 will see us complete the first half of the transition. These programs will provide challenges with access to the best technology and capability to design, improve, innovate across retirement, investment management and asset origination and is part of an exciting future for our business. I will now pass to Alex, who will provide the detail on our half year result.

Thank you, Nick, and a very good morning to everyone. Today, I'm pleased to be delivering a set of half year results that demonstrates the benefit from the execution of our strategy. We are hitting all of the financial metrics and targets that we've spoken about in recent reporting periods, which are an outworking of that refreshed strategy. There are three key messages in this morning's presentation. Firstly, our strategy has delivered higher returns and the pathway that we set out to meet our ROE target has been achieved. We have all the ingredients to continue to meet it with stronger returns underpinned by both our growth strategy and a structural reduction in our cost base. Secondly, our capital position is really strong. supporting both future growth and our ability to navigate through different market cycles. We're operating comfortably in the top half of our range despite the cumulative impact of office property revaluations since COVID. Over the past year, we've held significantly more excess regulatory capital, while at the same time making higher returns. And thirdly, our core investment capability continues to perform well. supporting investment returns for both the Life company and our third-party Challenger Investment Management clients. This period, we've taken further steps to improve transparency and understanding of our investment capability by providing new disclosures for both total return and COE investment yields by asset class. I'll take you through our financial performance for the half in detail and provide insight on how we are positioned for the rest of the year. So looking firstly at the group result. It's a clean one. We've got no new accounting standards, no discontinued operations, no restatements. The headline metrics show us capturing operating leverage in both businesses and the benefit of our strategy to focus on more valuable business. This strategy is driving revenue growth and combined with the benefit from our significant cost optimization program, we have reset the business to be structurally more profitable going forward. Compared to the prior comparative period, Normalized net profit after tax increased 12% to $225 million. Over the last 3 years, compound growth has been 11% per year. Statutory net profit after tax also increased meaningfully by 28% to $72 million, however, was below the normalized result. This was due to 3 items, the largest being noncash accounting adjustments, which I'll take you through in detail shortly. The highlight for this period is that we are back above our ROE target for the first time since 2017, with ROE post-tax increasing 120 basis points to 11.6%. Our capital strength and PCA ratio have been maintained in the top half of our range and reflecting confidence in these fundamentals, we've been able to fully pass through the 12% increase in normalized impact to shareholders. with the interim dividend also up 12% to $0.145 per share. This slide will be familiar to many of you, and I'm delighted that the addition of the 1H25 to the time series has seen the green group normalized ROE cross over the blue target. The realization of the pathway we set out demonstrates the positive underlying momentum we've achieved through executing our strategy and the impact of management actions to structurally reduce the cost base. As we move forward, we see further opportunities to improve ROE. One of these opportunities stems from capturing more operating leverage. The left-hand graph on this slide shows the outworking of the actions we've taken to step change our cost base. Note that we've annualized the 1H '25 result to demonstrate this. I'm really pleased with our expense performance, which has continued on from last year despite a highly inflationary environment. 1H '25 expenses fell $5 million in the half and the normalized cost-to-income ratio finished the half at 32%, down 110 basis points and at the bottom end of our 32% to 34% guidance range, a guidance range we reset lower by 2 percentage points at the start of this year. In our disclosures, we've shown the quantum of the transition costs that we are incurring during the State Street migration period. These reflect the personnel costs of the technology team supporting our legacy Dimension platform, which will fall away by the end of the migration in 2027. Critically, the expense-based reset has still enabled us to invest into growth initiatives. As outlined by Nick, we are prioritizing the reinvestment of savings back into the business, investing in our brand, expanding our asset origination capability and funding technology projects, which will support long-term success. I'd like to take a few minutes to look at the difference between normalized and statutory NPAT for the period. As you can see from the graph, there are 3 key drivers for the difference. Firstly, timing differences from Life insurance accounting was the largest contributor. These are noncash and reverse over time and includes $16 million of net new business strain from annuity book growth and a $ 45 million valuation mismatch impact from AASB 17 and on the U.K. Life risk business. AASB 17 introduced a number of accounting mismatches that impact the valuation of the Life risk business that is now sensitive to changes in currency and interest rates relative to those at the policy inception dates. The second impact is driven by the difference between the long-term expected capital growth of our property portfolio compared to how it actually performed in the period. A 4% reduction in the valuation of our office portfolio was the most material contributor, which was partially offset by increases across the retail and industrial portfolios. And finally, the return across the alternatives portfolio was lower than the long-term total return assumption, contributing $54 million to the difference. This largely relates to the absolute return fund portfolio, which had positive and above benchmark total return, but was less than the total return assumption included in the normalized cash operating earnings. The total return for normalized earnings is based on actual performance over the medium term, which we have been tracking very well since COVID. To provide greater transparency and understanding, we've now included total return performance by each asset class. Given the nature of these differences that I've just taken you through between normalized and statutory profit, the Board were confident to pay an interim dividend, which grows in line with that normalized profit. Looking now at the Life business performance in more detail. The Life business has continued its momentum with a focus on growing longer duration sales, including lifetime and Japanese annuities. I'd like to start with ROE as that's how we manage the business, and it's one of the first metrics that I look at. Life's normalized ROE post-tax was 13%, an increase of 50 basis points on last year. This included a 7% increase in earnings after tax to $225 million, driven by higher normalized cash operating earnings and operating leverage. Normalized cash operating earnings grew 7%, benefiting from a 5% increase in average investment assets and margin expansion of 7 basis points. Expenses were up only 2%, which included savings from the technology partnership with Accenture that were partly used to fund additional strategic investments including the replatforming of Life's core customer registry and technology. On the next few slides, I'll cover off the key drivers of the Life result in more detail. Firstly, sales. Total Life sales were $ 4.6 billion, comprising annuity sales of $ 2.9 billion and index plus sales of $1.8 billion. Annuity sales, excluding last year's aware super defined benefit win of $ 619 million, increased by 7%. However, compositionally were quite different. Retail lifetime annuities were a record, increasing 24% to $583 million. There was a material contribution from Japanese annuity sales, which were up 78% to $616 million, also a record for the half. We extended our reinsurance agreement with MSP last year and they are seeing strong annuity sales growth, which is providing stronger reinsurance outcomes for Challenger. Term sales decreased 12% with longer duration term sales more challenging with an inverted yield curve. Now drilling in on the strong growth we're seeing across retail lifetime annuities and how this is improving the quality of our annuity book. In response to our distribution and marketing initiatives, our sales team are reporting a change in the way advisers and clients view lifetime annuities and the demand for them. The number of advisers writing lifetime annuities has increased by 2/3 over the last 3 years and quoting levels across both new and existing advisers have nearly doubled. This corresponds with an impressive 160% increase in retail lifetime sales over that 3-year period. This uplift is structural, and we continue to broaden our sales channels and with more Australians moving towards retirement, we expect to see continued growth in lifetime sales. Our strategy to remix sales by focusing on more valuable business like Lifetime, is improving the quality of the overall Life annuity book. You can see this in the chart on the right-hand side, where liabilities greater than 3 years now represent 82% of the book, half of this is lifetime business, which represents 41% of the book. On the other end of the spectrum, 1-year liabilities have reduced to just 9% from 17% of the book over the past 3 years. Looking at the drivers of return in the Life business in more detail. The COE margin increased 7 basis points compared to this time last year. However, after experiencing 5 consecutive halves of strong margin expansion, the margin moderated by 9 basis points to 3.1% this half. The reduction in the margin reflects a combination of a couple of things. including tighter fixed income credit spreads and lower property yields partly due to 1 vacant building. There is also a timing impact from strong insurance-linked distributions in the second half of FY '24. We are pleased with this margin outcome given credit spreads are at historical lows. Importantly, we grew Life ROE in the period despite the dip in margin. You'll note the bottom right-hand chart shows our investment performance by asset class. This is a new disclosure and part of our commitment to provide the market with greater transparency. It shows each asset -- for each asset class, the total investment yield achieved for the half and also the yield contribution to the COE margin. Turning now to the Life investment portfolio composition. We have been diversifying our balance sheet and increasing its resilience. This reduces downside risk and provides financial flexibility so that we can navigate through different market cycles. There's been very little active change to the portfolio mix over the last half and we don't expect material change over the remainder of the year, although we do look for selective opportunities to divest from property. Fixed income represents 73% of the investment portfolio. The credit performance of the portfolio has been broadly in line with the credit default assumptions. This period, 3 investments were downgraded and as per our policy, we treat all investments rated below B- as being in default. 75% of the fixed income portfolio was investment grade down 5% from 30 June as an outworking of timing of investment decision deployment. Alternatives represent 14% of the investment portfolio, up 1%, largely as a result of the appreciation in the U.S. dollar. A reminder that we hold absolute return funds as they are less correlated to both credit and equity markets and are therefore more defensive during periods of market stress. Critically, they also provide a source of liquid capital. Property now represents just 11% of the portfolio and we have reduced our exposure with the sale of 2 retail properties sold this half. I called out capital strength as one of the highlights of today's results. The PCA ratio at 31 December remains strong at 1.61x the minimum regulatory requirement. While it fell 6 basis points this half, it remains in the top half of our target range and reduced because the PCA requirement increased not because our capital base got smaller. The higher PCA requirement was largely due to the appreciation of the U.S. dollar driving a higher alternative valuation and in turn, a higher capital requirement and capital intensity. When the U.S. dollar strengthens, the appreciation in the asset value drives a higher asset risk charge. However, on the capital base, the U.S. dollar strengthening is offset with the U.S. dollar hedge, keeping the capital base unchanged. This means that the overall impact is negative to the PCA ratio even though there is no change in risk. The strengthening of our overall capital position has been achieved while at the same time, delivering strong returns and a higher Life ROE. We're holding $0.3 billion more excess capital at 31 December than we were a year ago. Turning now to Funds Management, which has had a strong first half. Return on equity expanded 530 basis points to 17.8%. The improved funds management performance was one of the contributors to the higher group ROE this half and we see upside opportunity for this metric going forward. Normalized net profit after tax increased 37%, driven by higher net income and lower costs. Net income grew 9% versus the prior comparative period, reflecting higher fund income and strong performance fees. Expenses reduced 3% driven by savings from our partnerships with Accenture and partial period savings from State Street given the contract was only signed in November. The cost-to-income ratio improved 740 basis points to 60% and which also has more room to improve as the business scales. The transition of our investment and administration services and front office technology to State Street will support excellence in investment capability and deliver these benefits. It was a strong result and the business is set up for future growth. Now looking more closely at Funds Management net flows. Total net outflows were $3.1 billion. largely driven by lower margin institutional fixed income strategies, and this was partially offset by higher margin retail flows, particularly in equities. With strong market performance of almost $8 billion, FUM closed the half at record levels with $ 121 billion under management. We expect future growth to be supported by our ongoing strong investment performance. Fidante has achieved an impressive 95% outperformance across 5 years and 90% since inception. Challenger Investment Management, or CIM, is an important engine that supports the Life company's fixed income returns and is making significant progress winning third-party business. CIM has been active in the Australian private lending market for almost 20 years with experience through different credit cycles. Our team is one of the largest and most experienced in the country and our competitive strength lies in our reputation, asset origination capability and strong credit underwriting. CIM manages $16 billion in credit, ranging from relatively liquid publicly traded investment-grade corporate bonds through to private credit. The business closed the half with over $ 5 billion of private lending. CIM has seen strong growth in its fund strategies for third-party clients, which have grown 27% in the half and tripled over the last 3 years. We continue to invest in our asset origination capability which is important to support Life's fixed income returns. This half, Challenger Investment Management acquired a large New Zealand-based whole loan portfolio and will manage and service these loans on behalf of the Life company. Before I hand back to Nick, I will now provide an update on our FY '25 guidance and the outlook for the remainder of the year. We remain confident that we can continue to deliver strong financial performance for shareholders and meet our financial targets. At the halfway mark, we're on track to meet our normalized net profit after tax guidance of between $440 million to $480 million. with the midpoint of the range representing a 10% increase on last year. We will continue to operate within our 1.3x to 1.7x PCA range with a preference to remain strongly capitalized. Reflecting our confidence in the outlook ahead and how the business is positioned, we continue to target a dividend payout ratio of between 30% and 50%. In conclusion, we are hitting all of our financial metrics and targets that we've prioritized in the last couple of years. The successful execution of our strategy is helping drive improved financial performance while at the same time, investing for future growth. As a reminder of those 3 key takeaways. Firstly, we have delivered above our ROE target that reflects momentum across our businesses and actions we've taken to structurally reduce our expenses trajectory. Secondly, we're strongly capitalized with higher excess capital, whilst at the same time generating high returns. And thirdly, our investment capability continues to perform well and support long-term performance. And with that, I'll hand back to Nick, and I look forward to rejoining you for Q&A.

Thank you, Alex. So looking to the second half of 2025, we have a clear set of priorities. Our new core registry system in the retirement business is significantly built and has commenced testing. We'll also finalize our go-to-market plan to support an acceleration in Life sales. On State Street, we'll progress the stage migration of our investment administration and custody services to their flagship Alpha platform. We'll continue to build on the success of our sales remix strategy to grow longer-duration liabilities across our retail, institutional and offshore channels. Our asset origination platform is performing extremely well. We're seeing the benefits of our investment in whole loan origination and servicing and have a pipeline of flow and block opportunities. We'll leverage our capabilities to deliver yield for the Life company and more broadly meet growing demand for high-yielding income strategies. We are progressing more solutions under the Challenger brand. income products with capital-light earnings across our private credit platform as well as guaranteed retirement products to be delivered via our new customer platform. And we're pursuing further opportunities to expand our reinsurance capability. We'll continue to closely engage with our regulator, government and industry, to develop a vibrant retirement market that's supported by appropriate legislative and regulatory settings. Underpinning all of this, Challenger remains focused on achieving our FY '25 financial targets and driving shareholder value. In summary, over the last 3 years, we've reset the business to focus on our core strengths, which has delivered a material improvement in our financial performance. Challenger closed the half in a very strong position. with momentum across the organization. We have a business with strong fundamentals that is delivering against our targets, and we are executing our refreshed strategy. At the same time, we've progressed a major program of work across our core platforms that will enable the next phase of the growth strategy and deliver operating efficiencies. We are very confident in the future of Challenger, our ability to achieve our financial targets and generate long-term sustainable growth. This will drive shareholder returns. Finally, none of this could be achieved without the commitment of the Challenger team, who I thank for their dedication. Alex and I will now look forward to taking your questions.

We'll now turn to the Q&A session. [Operator Instructions] Can we take our first question, we'll take them from Freya.

Freya Kong from Bank of America. Things are flagging the one-offs in the COE margin for H1. However, I guess even adjusting for this, the trajectory of improvement we've seen in margin seems to be slowing. Is this fair? And how much more can COE margins improve from here?

Sure. Thanks for the question, Freya. So maybe just as a reminder of some of the things I said earlier, just in terms of the fact that for us when we're managing the business, we really do think about ROE as the primary metric and that, that is up in the period. And COE is really just a blended outworking of all the business we've written over prior years. We talked about the fact that in the second half, we did -- of last year, we did receive some large insurance-linked distributions, which make the second half of last year, particularly high. But if you look at the trend of the COE margin, we have seen a marked improvement in COE, increases of 5 consecutive halves up to where we are today. And in fact, the margin for this half is in line with the full year margin for last year. So compositionally, we still see upside for COE. We are writing annuity business that is still accretive to that COE margin. But as I've reminded people before, it's not margin that we're targeting in and of itself. And it is possible to write business. that is lower margin but still great business to do because it can be accretive to that ROE. So Index Plus is a good example of that. And that can be a low-margin business, but it's super capital light and so it's good for ROE. So it's really just an outworking, -- it's not a KPI that we target explicitly.

Okay. And second question, if I can. I guess there's quite a meaningful difference between the normalized profits and the statutory profits. And I understand some of that is due to timing but also higher return assumptions, especially in the alternatives portfolio. How often do you review the return assumptions and how much deviation and for how long are you willing to tolerate before you look at them?

Yes, sure. I'm happy to take that one, too. So when we think about the differences between normalized and statutory for this period, if anything, what it's really done is highlighted the need for a normalized framework and to actually be able to show really clearly what the underlying result is of the business. AASB 17 has kind of made that even worse with a lot of volatility coming through in that liability experience, which we now see separately from our asset experience. And all of that, as you said, is noncash and will unwind over time. On the asset side of things, we revisit our normalized assumptions every year. For the alternatives portfolio, that is something that is based on actual experience in the medium term. So if you go back and look at the performance of our absolute return funds since COVID, it has been in line with that normalized assumption. And there's really just a dip in this half and it can just as easily bounce back in the next one.

It's Andrei Stadnik from Morgan Stanley. Can I ask around cost first. So costs were flat half-on-half in this result. How much of that is just strong underlying cost management versus maybe the Accenture relationship development faster? And then should we expect to see costs flat into the second half and into FY '26?

I'll take that one as well. Thanks, Andrei. So a couple of things to say about costs. I guess the first thing is the reason we have done some of these material contracts with Accenture and State Street is about uplift in capability and enabling us to ensure that we are set up for growth into the future. clearly, that does have a benefit from a cost perspective. And that's why we stepped down our cost-to-income ratio at the start of this year and have been able to come in at the very bottom end, so that 32%. And we don't guide to a specific point in that range. But the things that we're doing around costs mean that we should be near the bottom end of that range as we look forward. Composition inside expenses, what we have seen is higher staff costs, as you'd expect, with CPI and a number of other costs that increase with CPI and inflation across the board, but that's been offset with the savings from Accenture. And we talked about those savings as being cumulatively $90 million over 7 years versus what it would have cost us so versus a baseline. So it can be tricky to compare versus the prior period. But again, what it would have cost us, and we're absolutely seeing those savings come through. That's exactly what you're seeing in the cost base.

And my second question, can I ask around margins? I think I think a lot of us will be interested in terms of any impact of a cash rate cut. So can you give us a feel for what kind of sensitivity would it 25 basis points rate card have? And how quickly would it actually move through the COE margin?

We might -- we can break that up probably to 2 sides. So I think, first of all, let's talk about sales because that is one part of interest rates. Over the last 3 years. One of the things you heard us talk about today is the success we've had growing longer-dated business into Challenger. That has materially reduced any sensitivity we have to interest rates. And in fact, Alex made the comment that the term sales, which are the more commoditized end of the Life sales program, we've had an inverted yield curve last 3 halves, probably 4 halves now. And that has seen money come short. So to the extent there's a rate cut is to do or in the near future, that -- and we get a different shape to the yield curve, that could be quite supportive for the term business, where you're less competitive out 2 and 3 years because if we price off swap. So I think the business with longer-dated sales and the momentum we have around lifetime just becomes naturally less sensitive to it. And on the balance sheet, we talk about -- we've always talked about the policyholder policy liability has been fully hedged for interest rate for interest rates and the shareholder funds, which are unhedged. But again, there's 2 sites that there's moving parts. There's asset -- there's potential asset moves, there's potential continued increase in rate rolls and we'll get from property that could offset any impact from the interest rates. So that's all a bit of a wash. Do you want to add anything to that?

Yes, I think that's right. I think the only thing to maybe say is that obviously, our ROE target as we describe it, is pegged to the cash rate. So if that does come down, that moved down very slightly, but it's at the margin.

The other thing I'd point out as well, Andrei, is just the word -- you would have seen in the slides here, just the work we've done, particularly around investment origination and capability. And so there's been a lot of work there, particularly within our whole loans capability as well that should also support things like yield and providing additional income going forward. Can we take the next question from Nigel and then we'll go to Sid after that?

It's Nigel Pittaway from Citi. Just on the sort of tenor of sales, et cetera, I mean, new business tenor did go backwards in the period. So are you saying that interest rates are the key to turning that back around again? Or what else should we think about when we're thinking about how that might move moving forward?

No, might just make a start on that. I think just to on the specific numbers, I think it was 6.5 years for retail 6.4% for growth. So that is materially longer than what it was sort of 3 years ago. So you will get a bit of composition change to the tender, but that is for us, that's good looking book tenor. In the prior period, we did have the DB, which was $620 million block, and that was materially longer tenor. So that does provide a slightly higher comp. But if you adjust for that, it's very much in line with the step change that we've been seeing. And I think the comment about interest rates was as much what we've seen very clearly in the term sales -- and you've seen it in the most commoditized and the 1-year term sales is that they -- that's where the money has been pulled back to because the way the swap curve has been and the margin we're offering over swap, right or wrong. The decision has been made by savers to keep the money short. And so to the extent like we had in '22 and '23, you do get a slightly different shape on the swap curve and the yield curve, that may see you reasonably expect that to see some of those shorter sales start to push out or sales come back into those medium tenure term buckets that we sell into.

I think importantly, with tenor 2, it's the cumulative impact, which is why the chart that I had earlier, which shows the whole liability book is really important because 1 half can be hard to change the whole tank around. And so showing that cumulative delta impact that we've had on now having as much as 82% of the liability has been greater than 3 years. That's the sort of thing that helps drive performance meter.

Okay. And then just on that, I mean, I a bit surprised in a way that with that sort of extension of tenor, it's not really that obvious in the COE margin in terms of the level of improvement there. So can you talk a little bit about that? How do you expect that to sort of impact COE margin moving forward?

Yes. Thanks, Nigel. So I think the biggest thing to point to specifically on that question is really just how tight the credit spread environment is at the moment and has been consistently so. That obviously is something that can turn around, but that does hinder some of the opportunities to deploy in as attractive yields as we can. As Mark said, though, there are definitely still pockets even in this tight environment where we are seeing good opportunities whole loans is certainly one of them and some of the offshore ABS as well.

Okay. And then maybe just finally, I mean you've obviously got the State Street deal now. You had a good cost reduction in funds management. Where do you expect the cost-to-income ratio to be able to go in Fund Management once you've got to 2027 and that State Street deal is fully consummated?

Thanks, Nigel. So we don't provide specific forward-looking guidance on the cost-to-income ratio. But one of the ways to think about the State Street deal is to look at the new line item that we've shown in group costs around the transition expenses. So we only signed the contract with State Street in September -- in November. So there's only $1.3 million sitting in that line for the half. But once annualized, it's about $8 million to $10 million for the full year. And those are the personnel costs associated with the technology team that we've brought back from Ortega take that will sit in-house and support the Dimension platform until we are fully migrated. Once we are fully migrated in 2027, that line item falls all the way completely from the cost base.

Siddharth Parameswaran from JPMorgan A couple of questions, if I can. Firstly, just on the -- just an extension of Nigel's question, just on the COE margin on the on the different types of liabilities you have. I just keen to understand if you could give us just a split of the ROEs and the COE margins across lifetime or at least just a relative difference between lifetime, Japanese, et cetera. Are they similar? Are they different?

I'll start. So first, from an ROE perspective, we write all the business to meet ROE as a baseline. What we have talked about is that the opportunity at the longer tenures opens up the ability to earn a greater ROE if we're able to deploy those into more illiquid assets and attract more of an illiquidity premium. We've certainly taken steps today to show those asset yields by asset classes. We haven't provided profitability by product at this stage, but certainly something I'll look at it.

Yes. I mean, logically, you think that lifetime should have a higher margin. Would that be fair? Or is that not reasonable just because you're earning mortality profit as well?

Look, it depends on what you're able to invest the assets in at any particular point in time. But all things being equal, you are able to invest in longer-dated assets with a higher liquidity premium, which will get you a higher COE margin. And if you're writing a very short business where you only have the money for, say, 11.5 months, and the ability to attract a really high return on that. But bearing in mind, there's different capital impacts on those 2 things, and that's really what's important for us and therefore, the impact on that return on capital. that's the most important driver rather than COE in and of itself.

Okay. Okay. Maybe a question just on the book growth thing, just how to think about the outlook for that? We've had a couple of quarters of shrinking book. I was just keen to get your perspective maybe particularly in 6 months' time, I think, Nick, you were talking about turning on a new distribution platform. If you could just talk about the outlook that you're expecting the composition as well of Japanese was very strong, maybe?

So I think for context, in the last couple of years, because of the sales room mix, we have seen that maturity rate come down materially, and we guided this year to 24%, which was pretty heavily weighted towards the short end. So we had 15% maturity rate in the first half -- sorry, not the short term, the first half of the year. One of the comments we made a few years ago is that we've written quite a lot of short-dated institutional term annuity business. And in this environment, we have maintained our pricing discipline, and as we expected to see, we've seen a large amount of that business roll off. So there's still some of that business left in the book. So we will continue to prioritize the longer-dated retail sales, the Japanese reinsurance sales, noting that the second half has clearly a far lower maturity rate than the first half on the business. So I think the comment is where to from here for the business and particularly in terms of the shape of sales and the acceleration that we can get in sales from making it just easier to do business with Challenger. And so as we go live with our customer technology and we become more integrated into the financial ecosystem, which is an fully complex and many different parts to it, which we know really well. That's going to give us the ability to write a lot more retail business, whether it be the term business, whether it be the lifetime business, either as a stand-alone or sitting inside retirement plans that are being designed by platforms, by advice groups by the super funds, retail and into retail industry. So that technology gives us the capacity. So we're very optimistic around the momentum that we get. But I just take you back to -- I think Alex had the chart up there. If you look at what we've achieved in the first half sales for a REIT of our lifetime is more than we sold in all of FY '22. So that record and that momentum we got we have, quote rates are really strong. number of advisers right in the business, this half is up 12%. So we've got all the right dynamics to continue to drive that longer-dated business. The variable around what happens to the institutional business. We're just going to remain price disciplined, you have the money rolls, that's fine. If it doesn't, then that can impact the book growth and margin, but noting a lot of the maturity rate was first half not second half.

Okay. Just a final quick question. Just -- there was a new business strain over the half. I was just keen to understand why there was one when the book went backwards?

So the new business strain in the P&L is net new business strain, which is the first thing to say. So it's not necessarily a dynamic -- an exact correlation to the sales in the period because you've got the sales written as well as the reversal of new business strain from prior periods, very large new business strain on assets, which are longer duration. And as Nick said, we mentioned with the really strong performance of things like Lifetime, that means you do get the new business strain even if book growth is low.

Sorry, we'll just take one more question from Freya before we go to the telephones.

Freya from BofA. I guess as the rates come down at the start of a cutting cycle, your ROE targets will also move down. would this make you more inclined to be aggressive on pricing to solve for a lower ROE target? Or I guess now since there's been a more deliberate shift to longer-dated business, which is less sensitive to cash rates, would you move less?

We price off the swap curve. So as the interest rate curve moves, the margin that we offer over that swap curve is definitely more static, right? What you saw if you went back maybe to '22 would be a good example as rates started time increase, and you saw the curve steepen, that does give you some -- a bit more optionality around the margin you pay out the term. But we're always trying to balance ensuring that we're offering the best value to our customers. But at the same time, pricing it to meet the ROE target.

Okay. There's no more questions in the room. We'll now cut over to the telephones. Operator, can we go to the first call?

[Operator Instructions] Your first question comes from Simon Fitzgerald from Jefferies.

Just a couple first on the margin. I just was hoping you could elaborate a bit more on the property. I think I heard you say a building or an entire asset had the vacancy. And at least if that's been relet, just sort of the impact in the second half of how that will change?

Sure. Thanks, Simon, for the question. So just on the yield impact on the COE margin for this period, we did roll out that we had 1 property that was vacant. That's not yet relet. But pleasingly, if you look across the whole portfolio of assets, we're actually seeing really good leasing activities. So the vacancy rate across the whole portfolio has not declined, and we've still got occupancy up at 91%.

Okay. And then just on the cat bonds exposure. You mentioned that they paid Right. distribution in the second half of last year. I was just curious as to why cap ons or if they necessarily typically pay in the second half as challenges fiscal period and whether that might line up to a U.S. hurricane season or something like that. Maybe you could just sort of elaborate on the timing of those?

Yes. Thanks, Simon. So Crosswire is there. So it was not cap bond distributions that we're talking about, but actually our ILS and insurance-linked securities that pay the...

Okay. And with those insurance-linked securities do they typically distribute in the second half rather than the first half? Is that a trend that we should be considering going forward?

No, they pay in the first half and the second half that they can be lumpy. They're one of the things they're 1 of the reasons that we have a range around our guidance because they're not sort of absolutely certain in terms of the quantum that they will be.

Okay. That's very clear. And then just a little bit about the strategy of improving or at least encouraging longer-dated annuities. There were several months, I think, last year where the yield curve had flattened down. I think gender was an inverted yield curve for a period of time. Just in terms of the TAM book the 5-year swap versus the 3-year swap, what sort of premium do you need on the 5 years to sort of try and really see that encouragement of the longer-dated annuity sales?

It's a question without a very specific answer, to be honest, because it's -- it can depend. I mean what we had achieved was as we came out of '22 where the term book tenet was in the 1, so it was sort of mid 1s. We've got the term tenor out through the high 2s as the curve was steep. And a lot of that business was being written around 3 years average tenor, which felt like a spot in particularly the retail market where the clients and the advisers were happy to take that illiquidity. So what we don't have now is sort of a term premium through the swap curve. We do price the 1-year business because the investment opportunity set and we can in a liquidity premium at that sort of tender where we're matching assets to liabilities. That is just a -- that is a far tighter cost of funds or spread that we can offer over 1 year. But as it gets out to 3 to 5 years, it sort of lines up particularly in the Australian market with where we can deploy capital to learn really good liquidity premiums around that our fixed income and credit origination platform. So that -- it sort of depends, but the shape of the curve is definitely important because term is often as an absolute rate sale as opposed to -- it's more a backward-looking rate sale than it is people taking perspectives on what the future interest rates will be.

So maybe I could ask that a different way then, given it was flat for a period of time in the first half of the fiscal period, did you see that big impact on the term sales for, say, between 5 and 3?

Well, we've definitely seen through the course of the last 3 to 4 halves, the longer-dated term sales have just been softer than what we're able to achieve in beginning of '23 and definitely '22, but most of '23. So it's really the last 3 halves where for preference people have either been keeping the money short in 1 year because it's optically equal or at sometimes higher rate that's been offered as through the banks. But the strategy from here if we do get a steeper shape in the yield curve will definitely be for the team to be out demonstrating the value of locking in higher for longer in the retail sales channel.

Your next question comes from Andrew Buncombe from Macquarie.

Just one from me, please. Just interested in how you're currently seeing the defined benefit sales pipeline over the last 12 to 18 months, that's really been a focus of discussions with the business and get there haven't been that many executed on? Just thoughts on the outlook.

Yes. Thanks, Andrew. So I'll just say just a couple of comments on the broader sale strategy. I mean what we've tried to achieve over a whole lot of years but a lot of folks in the last 3 years is to open up multiple channels to ensure that we can access flow, whether it be from institutional DB, institutional flow, retail lifetime and retail term and then our reinsurance. So in this half, while we're really pleased with is we're absolutely firing on that longer-dated retail lifetime and the offshore reinsurance. We announced the flow partnership where we were sole provider of lifetime annuity for external provider for UniSuper, which went live a few months ago, which is a really great step. We've got Telstra going really well. CSC comes on, goes live with its product solution this half. So we sort of built that flow partnership up and there's a lot of focus on working with the retail and the industry funds around further partnership opportunities. In the block, there was a small one done in this half. the conversations with some of the larger ones are ongoing with both the actuarial consultants as well as the trustees and clients. And so it's hard to be definitive. There's been some pricing activity. So we're still very active in that space. But I would just say, one of the things we've tried to do that is very lumpy. It will come in when it comes in, is focus as much on insurer. We've got there's other broader mix of flow and reinsurance channels open to support the growth strategy.

Okay. So is it fair to assume that we shouldn't be expecting any of those block sales in the second half then?

Well, we don't guide on forward sales as a principle. So we'll update every 90 days. I mean we've talked about DB there. But we've also talked about in the past some really good discussions and building on the 5-year index plus piece of business we wrote last year. And so there is progress there in the pipeline. So again, it's not just 1 thing as a range of investment on liabilities that we're looking to target that institutional channel. But we'll be back in market with sales update in must be now 45 days because we're halfway through this quarter.

Your next question comes from Lafitani Sotiriou from MST Financial.

A few questions, if I may. The first is to better understand for -- if we look at investment experience and the timing differences that are reported from results result, the initial discussion that you gave us was along that further cycle that you should net out pretty even. So could you just add some color around where you think we are in the cycle with respect to those 2 items, but in particular, what a cut in interest rates is likely to do to those 2 items over the next few years. Yes.

Sure. Thanks for the question, Laf. So I think importantly, if you look at cumulative IE, particularly since COVID, what you have seen is the impact of the revaluations downwards of the property portfolio. That is definitely a key feature. And then you've also got the very, very large impact of AASB 17 and the mismatch that we have on valuing our Life risk portfolio. And those unwind over time as we earn the profits from those business back through the P&L. And that's with reference to their inception dates rather than a particular market cycle. For Life risk, the impact there that we have seen are actually versus the U.K. gilt yields as well as the appreciation of the British pound rather than to cash rates here. And so that's what that -- it's important that the sensitivities are done to those 2 metrics rather than cash rates here. I think -- when you look at interest rates, as Nick spoke about earlier, if we have modest cuts from here, that's probably positive for asset valuations or at least start to ensure that we really are at the bottom of the cycle around property. So those are the 2 biggest dynamics. But if you look at asset experience, certainly since COVID and you don't -- and you exclude property, then that total cumulative amount is positive and you've got the AASB 17 coming back over time.

Yes. Maybe just after 2 comments at to what Alex said there. I mean, what we've seen in the office portfolio peak to trough, if it is trough, is a 40% widening of the cap rate that we've taken there. So we've had very, very material cap rate expansion. And I think the cap rate is what -- 7.14% today for the office portfolio, we have seen a very material move there. But as Alex noted, what we have very pleasingly seen is positive leasing activity across those assets. The other comment Alex spoke about the Life risk and we have it in the disclosures, but the present value of that Life risk, which isn't sitting in the net assets is around $930 million today, which is coming back to us through the earnings each year. So there's significant value in that Life risk book, albeit it is producing material volatility to the normalized stat numbers.

Got it. Can I just move on to the cost to income and just a follow-up there. I understand that you only recently reset the cost-to-income ratio targets. But there's a lot of things that are still happening here. You're still talking to a structural change in the cost base, and there's still the Accenture of cost-out benefits flowing through each year. And you just started getting some of the cost out of the Funds Management business. It just seems like there's a little bit of disconnect where the cost to income currently is and that future cost out that we can see coming. Why is there not some scope to further explore reducing the cost-to-income ratio target even more. Is that being considered? Or could you talk us through some of those dynamics, given there's still a lot of cost coming out?

Yes. I'm happy to start on this one. So thanks for the question,. I think as I mentioned, we did only just reset that cost-to-income ratio down 2% this year. We will absolutely look at it again when we think about guidance for FY '26 and beyond but it's important to get the balance right between persistently reducing that cost to income ratio but also looking for opportunities to invest and ensuring that we are taking some of the savings that we're making and investing those into areas which set us up for future growth, which today, we've spoken about as brand our asset origination capability, whole loan servicing and those sorts of things. So getting that balance right is important in the long term.

Okay. And just one final question. So just going into the ROE you are above your ROE target now and given that you've talked to, there's been a structural shift in your cost base. And it's clear in the fund management business, you're only at the start of improving the ROE. Is it possible that you could return to your ROE target and refresh that as part of your future guidance?

Yes. Thank you. I'm happy to just to make a couple of comments on that. I mean, similar to the cost-to-income ratio. As you'll know, our absolute focus over the last few years has been getting back to the target rather than sort of the philosophical debate about whether the target itself was exactly the right one. So that's been our focus. And I think it needs to -- we need to be able to demonstrate that we can consistently meet that target over time and have that be shown as a sustainable outcome for shareholders. So that's our priority in the medium term. But of course, it is something that we will revisit when we look at guidance each year.

Your next question comes from Julian Braganza from Goldman Sachs.

Just a first one for me. In terms of just the yields, the yields by asset cost that you provided there. Can you provide some color on how that's tracked over time, particularly for the alternatives portfolio, just interests in that and just sort of the yields you've seen over the last few halves, now that it's 9.1% for this half?

Yes. Happy to. Thanks, Julian. So what we've provided is just the specific yields for this half as well as what's gone into the COE margin. But I can absolutely confirm that, that normalized expectation that we have for absolute return funds is based on our actual experience in the medium term. So each year that goes back to the investment committee for reassessment to determine whether we have a structural change to the view about the outlook on the return from that particular asset class. It's reasonably modest at 9%, as you can see on there. Actually, that's -- it's not an aggressive assumption that we're using.

Okay, sorry. Let's talk about the assumption, but more so about just the total return. The yield, just wanted to know how that tracked over the last years?

Yes. So certainly, if you look -- you need to look over a little bit of a period. But if you look since COVID, it's almost exactly tracked the assumption that we have used for that asset class. So you would get a zero asset experience if it was tracking exactly to the assumption.

Okay. And then just to be this is the yields that you're referring to? Total returns, which is in the order of sort of 9%, 10%, is that right?

That's right, that's for return funds.

Okay. Then just a follow-up question. And I just want to understand, in terms of the tailwind that you're seeing to your margin over the last few halves, how much of that is driven by the risk up into alternative vis-a-vis other asset losses. And if you strip out that effect, it's at a very high level. What has actually happened to underlying margins ex the after some of the balance sheet?

Yes. I'll start on that. I think the important first point to make is there's definitely been no risking up of the balance sheet. In fact, quite the contrary, what we've talked about doing in the last few years is resetting the balance sheet to be more stable and more resilient. We've really swapped our equities exposure for absolute return funds, and we've done that because they provide the same access to liquid capital. but are much less correlated to equity and credit markets. And so we're doing what we can within the existing capital standards to optimize the investment portfolio that we have. And so it's certainly not a risk up in terms of how to think about that COE margin.

Okay. I understand. Just one more question from me to sit on, I think just following up on a question from earlier. Just on and to the extent that you're targeting more time, more lifetime policies, longer duration annuities, which are traditionally more capital intensive. So to retain -- to meet your ROE target, that means that the margin on that business needs to be higher. So just to be very clear then, to that extent, should we continue to see margin improvement to the extent that you're shifting that lift towards longer-duration lifetime annuities. Is that a fair assessment? So we should continue to see margin improvement in yields?

Yes. I think you've almost answered your own question. It exactly depends on the mix. So to the extent to which we're writing longer duration business than in a truly all things being equal, basis, then yes, but we are also looking at opportunities in the institutional space. As Nick talked about, some of that business could be quite low margin, but it's very capital light. So that would have a drag on the COE margin. So it's an outworking of that mix.

But just generally speaking, the mix you're targeting is longer duration. So therefore, should -- all else equal should be better, is that fair?

All else being equal.

Yes.

It might be useful. So I mean do you want to make any comments just on how the alternatives portfolio has just performed in the early days of FY '20 in terms of January as well.

You'll then give given the invitation now?

Sure. Thanks Well, I think the point is just from a yield perspective, from the COE margin, we use a normalized assumption for so that, that doesn't move around a lot. -- but what you have coming through the asset experience in this half is a small dip in the absolute return fund performance, but the benchmarks also underperformed in the half. So we've actually done better than the benchmarks in the period. And if you look at January, those have come back both the benchmarks and our performance.

Operator, can we go to the next question? Thank you.

Your next question comes from Anthony Hoo from CLSA.

Just a question on the asset side. You've talked previously about investing in the whole loan capability, also private credit opportunities to Apollo just wondering whether you can talk about which of your initiatives you see the most potential? And then can you make a comment around potential impacts or potential benefits on your spread on the asset spread and hence the margin?

Yes. I might make a start to give Alex a bit of rest there. The job of the investment team is to identify relative value opportunities across asset class. And then within the asset class specifically, you've noted credit and fixed income is to identify opportunities there. So I think it's a thematic -- what we have seen is credit spreads pretty tight right now, and that, as you know, cyclically happens. However, within that mix, what we've done I think, very successfully is work across the different investment opportunities to maximize the yield. So the objective there is to get the most return per unit of risk. So we're not risking up the balance sheet. We're just moving the capital around. So the team have deployed a lot into the whole loan opportunities, which from a capital perspective, really attractive, they're good returns, plus we can own servicing fees on them in addition to which they're starting to find some opportunities around property debt as well for the first time, an area we just have not been close to for a whole lot of years. We stood back from. So there's always opportunities in the market, but as a general comment, credit spreads are pretty tight. So we're always working very hard to make sure that we've got enough investment opportunities to deploy into. You asked about -- I think you noted the U.S. mid-market lending finance strategy that we entered into with Apollo. We've made some deployments into that. So that's now building into the balance sheet, but we also use a number of other managers globally to access assets where we don't have a competitive advantage ourselves or the capability to access them to access them at this time. So we use specialist partners.

Operator, I think we'll take the last call and then we'll wrap up the call.

The next question comes from Marcus Barnard from Bell Potter.

Yes. A couple of questions on Lifetime one. Firstly, I'm interested in the average age of utilization, Pete tell me what that is and how it's varied, I'm guessing you're seeing a trend of older people and utilizing and perhaps a bit of catch-up post low interest rates and COVID. Perhaps comment on that. And secondly, I'd like to interested to know what the sort of surrender rate is on lifetime in your us know you have a period where your people are a surrender option. What sort of take-up do you see on that? Is that a worthwhile option? Is that -- how does that vary? Is it quite random?

Thanks, Marcus. Let me make a start. So on lifetime annuities, the average age is in the 60s for the take-up of those. Tends -- has tended historically to be that people travel through the first part of their retirement. And for a range of reasons, as you can imagine, they start to think about the need for lifetime income through advice. Annuities are sold, they're not bought by people. So the real mission that I think we've been extremely successful on in the last 3 years is having a very different conversation with our through our advice channels, the advice sales channels around the role of an annuity as a sort of a replacement for part of people's retirement savings as a building block as opposed to being just that contract to enter into to get an age pension benefit. So what you're seeing is a far wider take-up of annuities from a very broader cohort of advised clients, which is fantastic. And but still an incredible amount of space there for us to build into. We offer lifetime annuities across a range, whether it be inflation linked, which is very popular now, higher starting payments. investment options, investment-linked options, RBA cash rate options and partial inflation. So there's a real family of products there that suit and later-stage care products that suit different stages of retirement. So there's a very broad suite of opportunities for us to go after. On surrender rates, it's very, very low, almost 0 across the annuities.

And COVID was a good period to think about that because a lot of insurance products saw spikes in surrender rates -- but if you think about the role that lifetime annuities play, it's not someone's entire portfolio. It's really just that base layer, providing a guarantee. And so we see very, very low surrender rates.

Is it actually worth offering that surrender option?

Well, we have the death benefit. -- which is a version of yes, and/or you can nominate a reversionary beneficiary to your annuity. So there is a range of options around that market.

Yes. I know about the death benefit. I'm just wondering why you put a surrender or option on. It's not something that's done in other markets.

Yes, I think it will come down to pricing.

There is one more question online. But I think we've answered this, and I'll take this offline. It's just in relation to the difference between normalized NPAT, stat NPAT and cumulative asset experience. So we have answered that question multiple times in the presentation and in the Q&A, I'll take this offline with the person asking. So there are no further questions. That closes today's briefing. Thank you for all attending. If you have any further questions, both Irene and myself, we're both on the phones today to answer anything. Thanks for your interest in Challenger. Thank you.

Thank you.