Challenger (CGF) Investor Update summary

Overview of APRA's proposed capital standards

• APRA's proposed capital standards for longevity products represent a major regulatory reform, aiming to support a more resilient and less capital-intensive business model for providers of retirement solutions.

• The reforms are expected to remove disincentives for offering lifetime income products, maintain financial resilience, and improve global alignment.

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

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

• Written submissions on the proposed reforms are due by December 17, with implementation expected from July 1, 2026.

Impact on capital resilience and financial strength

• Modeling a COVID-like market shock, the new standards would result in a much smaller drop in the PCA ratio (from 1.77x to 1.74x) compared to the current standards (1.60x to 1.28x), reducing the need for de-risking and enabling full participation in market recovery.

• The transition to the new standards is expected to increase the PCA ratio, with the benefit size dependent on market conditions at the time of transition.

• In a normal credit spread environment, the benefit to the PCA ratio could be approximately 23 points, with a significant portion of excess capital arising as CET1.

• Capital position becomes more resilient to market shocks, reducing the need for management actions.

• Excess capital is expected, creating strategic optionality, with most benefit arising as excess CET1.

Strategic positioning and growth platform

• The new standards will make new business materially less capital-intensive, supporting product innovation and improved customer pricing.

• More efficient capital settings will allow greater investment in high-quality fixed income assets and less allocation to higher volatility growth assets.

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

• The reforms provide flexibility to pursue growth opportunities or return capital to shareholders, supporting long-term stability and narrowing the valuation gap to sector peers.

• Investment excellence and industry partnerships drive retirement solutions at scale.