If you experience any technical difficulties, the helpline number is displayed at the bottom of the page where you enter your login details. At the conclusion of the meeting, we would like to invite those attending in person to join the Directors and the Executive Team for refreshments in the foyer. Turning now to my address, it's a pleasure to be able to address you this morning, our shareholders, as Challenger celebrates 40 years of serving our customers. It's a milestone that speaks to the strength of our business and to the importance of our purpose: helping Australians achieve financial security in retirement. Four decades on, that need and opportunity are greater than ever. Let me start with a few comments on the broader landscape. Over the last 30 years, Australia has built a world-class retirement savings system.
Compulsory Super has created one of the largest and fastest-growing pension systems in the world. The next and urgent step is to turn those savings into secure, regular income that gives people the confidence to enjoy their retirement years. That is the challenge today and of the decade ahead, and it is also our greatest opportunity. At the same time, the broader operating environment remains dynamic. Interest rates have normalized from the post-COVID lows and have supported pricing and demand for income products. At the same time, cost of living pressures remain front of mind for many in our community, especially retirees. Over time, market conditions shift, and trust of customers and the wider community must be earned and retained through cycles. That is why we focus on consistency for all our customers and our stakeholders. We price for the long term. We manage risk carefully.
We support customers with clear information and simple choices. We continue to invest in systems and processes that will make it easier to do business with us. When it comes to retirement reform, the announcement of APRA's proposed capital standards for longevity products is a real step forward. The reforms will reduce the cyclical risks to the capital position of life insurers, significantly improving the financial resilience of Challenger. These amendments represent a positive shift for Australia's retirement system. They will promote growth and innovation in the lifetime income market, increase the uptake of annuities, and help the funding of long-term investment in Australia. As we announced yesterday, we are working through the detail of the changes and will hold an investor briefing next Wednesday. However, we are delighted with the direction of reform, which will be positive for retirees, the wider community, and our shareholders.
On application, the changes will have an immediate positive impact on our capital requirements and, over time, significantly change the settings for our business, including our asset allocation, risk appetite, and financial metrics. Your Board will continue to be disciplined allocators of capital. We will look to allocate capital to support the growth of the business, where it is accretive to long-term shareholder returns. Where we consider there's capital in excess of future business requirements, we will consider appropriate capital management activity subject to regulatory approval. We also welcome the continued implementation of the retirement income covenant, which requires super fund trustees to develop a retirement income strategy to improve the long-term outcomes for their members in or approaching retirement. That is a positive shift and will help lift the overall maturity of the system.
Alongside this, important work is also underway to improve access to affordable, quality advice and to broaden the range of retirement products available to retirees, and we are encouraged by the government's commitment. Taken together, these steps show real momentum in the development of a mature retirement system. The important task now is to complete this reform agenda, and Challenger is committed to playing its part, working with government, regulators, and industry to ensure these changes deliver for retirees. We are positive about the growth opportunities and demand for income products over the next few years. In addition to the focus on growing the demand, we are also conscious of the need to grow asset origination to meet this demand. Turning now to our performance in 2025. This year, Challenger made significant progress in executing our growth strategy and delivered another strong performance against its targets.
Normalized net profit after tax increased 9% to AUD 456 million and was in line with our guidance. Normalised return on equity also increased to 11.8%, which exceeded our target for the first time since 2020. This result reflects Challenger's focus on executing its strategy and actions to simplify our business. In life, we delivered record retail lifetime and Japanese annuity sales, demonstrating our position as the go-to leader in retirement. In funds management, we continue to broaden our range of income solutions with innovative offerings and expand our asset origination capability to deliver higher returns for our balance sheet. Challenger remains strongly capitalized, with AUD 1.7 billion excess capital at 30 June 2025, which provides financial flexibility and will support future growth. Reflecting the business's strong financial performance this year, the board determined a full-year dividend of AUD 0.295/ share, up 11%. Governance and renewal remain priorities for your board.
Challenger is committed to maintaining a comprehensive and diverse mix of experience and industry knowledge across the board to effectively oversee the Challenger business today and into the future. This year, we were delighted to welcome John Somerville and David Whittle as Non-Executive Directors. Both bring valuable expertise that further strengthens the board's capability, and today, they stand for election for the first time. The board strongly endorses their election. You will hear from John and David later in the meeting. At the same time, we said farewell to JoAnne Stephenson, who retired after more than a decade of service. JoAnne's experience and dedication have been greatly valued, and she has made a significant contribution to Challenger throughout her tenure. I also want to acknowledge Kobayashi San, who stepped down as MS&AD's representative on our board following the sale of MS&AD's interest in Challenger to Dai-ichi Life.
He made an exceptional contribution over the last six years, helping to build the strong collaborative relationship between Challenger and MS&AD that continues to deliver shared value for our organizations. On behalf of the board and our shareholders, I would sincerely like to thank both JoAnne and Kobayashi San for their contribution and commitment and to wish them all the very best for the future. The board is committed to ensuring that reward outcomes remain aligned with shareholder returns. Over the last five years, Challenger delivered a total shareholder return of almost 90%, well above the ASX 200. It is important that our people are motivated to deliver sustainable growth, manage risk well, and build a culture that serves customers over many years. We feel we have the balance right, and it is pleasing to see the overwhelming support for our remuneration report at this meeting. Turning now to sustainability.
Ensuring a strong, sustainable business is crucial to our long-term success and to make the promise we make to our customers. In 2025, we established a climate risk program to align the organization with emerging mandatory climate disclosure regulations and continue the important work of progressing the measurement of our financed emissions. At Challenger, we recognize that our people are key to our long-term, sustainable success. I'm pleased to report that in 2025, we continue to achieve our gender diversity targets across management, the Board, and broader business. Our gender pay gap has significantly improved as we are working towards a zero gender pay gap, with our median gap of 2% well below the industry average benchmark of 16.3%. Challenger has long been an advocate for gender equality and has been recognized as an employer of choice for gender equality for eight consecutive years.
We continue to be strong advocates of reforms and policy settings that contribute to a stronger retirement income system. This year, we participated in a range of activities advocating for reforms that will help provide Australians with financial security in retirement, including APRA's consultation on capital settings. These achievements show that sustainability is not a side program for Challenger. It is part of how we manage risk, how we plan for the future, and how we create long-term value for shareholders, customers, employees, and the community. Looking ahead, our priorities are clear. We are confident in the role that we will play in providing more retirees with financial confidence. The coming year will see us building on the foundational work undertaken in 2025 to deliver growth and shareholder value.
We will continue to deepen our partnerships with superannuation funds, wealth platforms, and advisors so that more Australians can access guaranteed income as part of a complete retirement plan. We will keep simplifying how customers engage with us, with clearer language, better tools, and faster processes. We will invest where we see opportunities to scale while maintaining discipline in risk and capital. We will continue to keep working with government and industry to help complete the reform agenda that is already underway. In conclusion, it is apparent that the strengths that brought Challenger to this milestone year will continue to serve us well in the future.
Specifically, a clear purpose and a leading brand, a strong focus on the customer, a compelling customer experience with a broad range of leading retirement and income solutions, a disciplined approach to risk, a strong capital position, and a team that turns strategy into delivery. Together, these strengths position us to grow, to serve more customers, to compete, and ultimately to deliver good outcomes to you, our shareholders. Challenger is well-positioned to capture the growth opportunities ahead. We have the scale, the expertise, and the relationships to play an even greater role in providing financial confidence for more Australians in retirement. We have momentum in the business, supportive long-term drivers, and a clear set of priorities for the year ahead. On behalf of the Board, I'd like to thank our shareholders and customers for your continued support. To my fellow Directors, thank you for your guidance and oversight.
Finally, I want to thank Nick, the leadership team, and our employees for their hard work and commitment to delivering on our purpose. To our customers, thank you for your trust. I will now hand over to Nick Hamilton, our CEO and Managing Director, who will provide an update on our performance and achievements in 2025. Nick.
Thank you, Duncan, and good morning to everyone. It's a pleasure to speak with you today and provide an update on our achievements in 2025 and the opportunities ahead. I believe success for us will come from continuing to deliver on our purpose and achieving great outcomes for our customers. Let me begin with a customer story that speaks to the heart of what we do. Twenty years ago, Merle and her husband invested in a Challenger lifetime annuity. That decision gave them the financial confidence to live retirement on their terms, enjoying golf, travel, painting, and time with family. Today, Merle is 102 years old. Her husband has sadly passed, but our guarantee endures. Each month, without fail, Merle continues to receive her payment, just as she has for these past two decades. It is not just Merle.
In our history, Challenger has never missed a payment to a customer. This individual story is a powerful reminder of why what we do matters and why we should feel so confident about the purpose of our business. Our own research shows that 78% of Australians would be happy in retirement with a guaranteed income for life. This is against a backdrop of Australians that are retiring in ever-greater numbers. Each day, 780 Australians will retire, yet less than a third feel confident about their retirement. As a leading retirement income brand, that gap is our opportunity and our responsibility. Retirement is not a single life event. It's a journey that can last 20, 30, or even 40 years.
Australia has built a world-class accumulation savings system, and the industry is now focused on the next stage, developing a system that supports the millions of Australians entering and in retirement with financial confidence. The proposed reforms announced by APRA yesterday on its capital standards for longevity products are a critical turning point, which will significantly improve Challenger's financial resilience and promote growth of the retirement income market. Together with regulatory reform to improve access to quality, affordable financial advice, these changes will help ensure that guaranteed income becomes an essential building block of the retirement process. Turning now to FY 2025 achievements. 2025 has been another year of strong performance, strategic progress, and delivery against our targets. This reflects our decision to focus on our core strengths: retirement and investment management and origination.
With our digital transformation well underway, we are becoming a simpler, more contemporary business that's moving to the next phase of growth. We continue to demonstrate our standing as Australia's retirement income leader. Record lifetime sales this year reflect the opportunity ahead to support more customer needs. This is a trend we saw continue through our most recent quarterly result. We've strengthened relationships across the retirement market. In July, we secured a pivotal partnership with Insignia Financial, and just this week, we announced an industry first with Iris to develop an advice-led solution that improves the accessibility of retirement income products for financial advisors and their clients. These are just two partnership examples that demonstrate our ability to deliver retirement innovation at significant scale.
Our long-term reinsurance partnership with Mitsui Sumitomo Primary delivered record Japanese annuity sales, and pleasingly, we are progressing new partnership opportunities with them that will expand the ways we work together. Our business continues to innovate to meet more customer needs. A highlight was the launch of our ASX-listed LIFS Notes, a first-of-its-kind income product that was substantially oversubscribed and marks the beginning of an ongoing series that will broaden the income solutions we offer our customers. We've continued to expand our funds management business as we invest in our capability to meet changing client demand. This year, we welcome System Capital and Fulcrum to Fidante as investors seek high-quality alternative investment capabilities. In Challenger Investment Management, we've materially expanded our private credit origination capabilities, which is core to our growth plans. Our business is built on the talent of our people, and we're committed to maximizing their potential.
Our digital transformation journey that I mentioned earlier will future-proof our business. The investment into our customer technology will better position us for growth and allow us to integrate our retirement offering across the financial system and step change how we engage with our customers. This, along with the transition of our investment administration and custody services to State Street, continues at pace. 2025 also saw changes to our share register. We welcome TAL Dai-ichi as a strategic shareholder, a business very much aligned to our strategy and our core purpose of delivering secure and reliable income streams to customers. We look forward to building a relationship with TAL Dai-ichi that will benefit all shareholders. Our strong progress this year reflects the energy and focus of our team to deliver our technological and operational transformation, and it gives me great confidence for the business in the years ahead.
Supporting organizations that contribute to our local communities is an important part of who we are at Challenger. During these last four years, our engagement with Women Up North has deepened into a long-term partnership, helping women, children, and young people in the northern New South Wales region escape domestic or family violence and to rebuild their lives. Our annual fundraising gala in October 2024 helped raise more than AUD 100,000. The Challenger team and I are proud to support the incredible Women Up North organization, helping raise awareness for their invaluable work and services. We're also proud to support Food Lab Sydney, a social enterprise that works with food entrepreneurs from marginalized communities. This year, our financial contribution to Fresh Produce and their outdoor garden initiative helps support the businesses of local culinary innovators. I am extremely pleased with what we have achieved this year.
We delivered against our key priorities, and we're becoming a simpler, more contemporary business that's moving to the next phase of growth. I want to thank the employees of Challenger for their energy and commitment in delivering for our customers and their passion to deliver our transformation program as we look to the future. At 40 years young, Challenger has never been a more contemporary business to help Australians achieve financial security for better retirement. Finally, I'd like to thank the Board and particularly Duncan for their continued guidance and support, and who share my confidence in the future of our business. I'll now hand back to Duncan.
Thank you, Nick. We'll now detail each item of business to be considered at today's meeting. We will call for questions from shareholders for each item as it is read. If you are attending in person and would like to ask a question, we invite you to approach the microphone in the center of the room when I read the items of business relevant to your question. The notice of meeting and accompanying explanatory notes have been circulated to shareholders, and I propose to take them as read. As I get to each item of business, it will be shown on the screen together with the proxy results for that item. Where undirected proxies have been given in favor of the chair for a resolution, I will vote those proxies in favor of each resolution, as was indicated in the notice convening this meeting.
The first item of business relates to Challenger's financial reports, and there is no resolution for this item. As I mentioned earlier, we have Louise Burns from our external auditor, Ernst & Young, present at today's meeting. She will be able to answer any questions relating to the conduct of the audit, preparation and content of the auditor's report, and accounting policies adopted by the company in preparation of the financial statements. Ernst & Young did not receive any written questions from shareholders prior to the meeting. I will open for questions for the room. If you can give your name as well, that would be great.
Chairman, my name is Enzo Prater. I am a shareholder, and I'm also a customer, a happy customer, very happy actually. So much happy that, in fact, I am in the process of purchasing a new product, a lifetime annuity. Now, the question that I have is about the cost of doing business, if I may. As everyone who is in the market for this type of product, I'm interested in getting a good rate. Up until last month, this was a simple process. Every Monday, I will go to the Challenger website, look up the rate. If it was good, fine, I will call customer support, ask for a formal quote, and then proceed. If it was not so good, no big deal, I will just forget about it and try again the next week. That was until September.
Starting in October, for some reason, Challenger does not publish the rates on the website anymore. From my viewpoint, this is a minor nuisance because in order to find out whether the rates are good, bad, or indifferent, I need to call customer support and ask for a quote. A 10-second process becomes a five-minute process, no biggie. I'm not complaining about that. For Challenger, it is an additional cost. A customer service officer must listen to my call, understand what I'm after, prepare the quote, email it to me, wait for a response or not. My question is very simply, why have the rates been taken off the website? Can we please have them back? It will make life so much easier.
Okay, I'll also make a couple of comments, and then I'm going to pass straight to Nick to respond to the specifics. Firstly, we're delighted you're a customer, and we're delighted you're a happy customer, and we hope you continue to buy more products from Challenger, and that you're also a happy shareholder. That's all very good. The other more generic point I would make is we're very conscious of the cost of doing business, and we have made really good progress actually at reducing our overall cost-to-income ratio last year down to under 32%. That's a massive progress over the last few years. I'll ask Nick maybe to comment on the specific.
Thank you. I'll just echo the Chairman's comments. It's lovely to have you here as one of our very valued customers. I will take that on notice, if I may. I understand the changes that we made. One point I'd make to you is that we've consistently achieved Challenger incredible customer service scores for the quality of our contact center, which we're very proud of. We do always look at feedback very closely from our customers. You can be promised that we will take this away, and we will seek to resolve it so it is easier for you to access the information that you need.
Thank you very much. If I may add, the rates for the term deposits or term annuities, four years, two years, five years, two years, are still on the website. Only the lifetime have disappeared.
Yes, the lifetime and care rates are on the website, the term and the care rates are on the website, and the lifetime rates were taken down. Leave that with us. I can make one other promise that we do try to price as competitively as we can and pass as much value to our customers as we can.
Thank you.
Thank you.
Thank you.
Thank you. We'll take that on board. Any other questions in the room? Yes, Elizabeth.
Can you use the microphone, Elizabeth? I can hear you, but maybe not everybody can. That would be great. Thank you.
Thank you. Australian Shareholders Association. We note that the net profit after tax did increase by 41%, but nonetheless, for a long-term shareholder, the results have been pretty dismal on their invested capital. Assumedly, the solution to the company's woes is to try to grow in size and profitability. It will be asked about, and we'd like to know how you can remediate the long-term poor performance of shareholders for shareholders.
Thank you, Elizabeth, and thank you for your time before the meeting as well in terms of spending time with us, and we appreciate your support as well. You are right in pointing out that over a 10-year period, the statutory and shareholder performance for Challenger shareholders has not been where we would like it to be. It has been significantly better over one, three, and five years, but over 10 years, it hasn't been. You're also right in pointing out that there is a gap between statutory and normalized profit, and that's driven by two factors. Liability experience over that period, which effectively is just a timing issue, and then asset experience over that period, which has been driven by two things. One is the sell-off in March 2020, which, because of the current capital standards, required us to realize a series of losses to meet those capital standards.
Since COVID, investment losses on largely property and a bit on alternative absolute return funds, which against our normalized assumptions. Going forward, I'm optimistic actually for two reasons. One is the change in capital standards that were announced yesterday fundamentally changed the way that our balance sheet and our capital will respond in moments of stress. That is a real positive going forward. It will also enable us to reconsider our asset allocation over time, which also will help the go-forward performance. I'm optimistic. We've had a better five years, and I'm optimistic for the future as well. Thank you. Any other questions in the room? Can't see any. Are there any questions online?
There are no questions online, Chair.
Okay. All right. Thank you. We'll move on to the second item, which relates to the adoption of Challenger's remuneration report, which is contained in the 2025 annual report. Again, you'll see the proxy results up on the screen, but I'll ask for any questions in the room first on the remuneration report. Looks like there are no questions in the room. Are there any questions online? Mark, are there any questions online?
There are no questions online.
Thank you. Please cast your vote now on this item if you haven't done so already. The third item relates to the grant of long-term hurdled performance share rights to the Chief Executive Officer and Managing Director, Nick Hamilton. I will open for questions in the room on this item. There are no questions in the room. Mark, are there any questions online?
There are no questions online.
Okay. Again, I would ask you to please cast your vote on this item if you haven't already done so. The fourth item relates to the election of John Somerville and David Whittle as Non-Executive Directors of Challenger. You'll now hear from John and David, who will speak briefly to you on their proposed election. John will speak first to his election. John.
Thank you, Duncan, and good morning, everyone. I was recently appointed to Challenger's board, and I'm pleased to speak with you today regarding my nomination for election as a Non-Executive Director. On the Challenger board, I'm currently a member of the Group Audit Committee, the Group Risk Committee, Nomination Committee, and Independent and Related Party Committee. By way of background, I spent well over two decades at KPMG, including as National Managing Partner. At KPMG, I've worked primarily in financial services, supporting major organizations in Australia, the U.S., Europe, and Asia. I led the risk management practice for 10 years and was the head of the advisory business in Australia and the Asia Pacific. After leaving KPMG, I was appointed CEO and Managing Director of law firm Slater & Gordon, a firm that had encountered financial, reputational, and operational difficulties.
Over six years as CEO, I led its turnaround, which included rebuilding an engaged workforce, upgrading technology and processes with a focus on engaging with clients digitally, and instilling robust financial disciplines across the organization. Challenger has a long and successful track record of innovation and is a clear market leader in retirement income, playing a very important role in Australia's retirement system. As our population ages and lives longer and more people start benefiting from years of contributing to their superannuation, this important role will grow. I'm personally connected with Challenger's purpose to provide customers with financial security for a better retirement. I must say it's a connection which grows every year. I believe my experience and skills position me well to contribute to Challenger's growth and future as it evolves to continue its success.
In particular, my broad business expertise, leading businesses, which includes designing and implementing governance and risk structures, will be an asset as we continue to grow our leading retirement and income franchise. I believe that my personal values align with Challenger's, and with your support for my election, I look forward to making a positive contribution on your behalf for our customers and our people. Thank you, and I'll hand back to Duncan.
Thank you, John. I will open this item up for questions for the room. Does anyone have any questions on John's election in the room? No? Any online, Mark?
There are no questions online.
Okay. Please cast your vote now on this item if you haven't already done so. I'll give you a couple of seconds, and then I'll now ask David to speak to his election.
Thank you, Duncan. Good morning, ladies and gentlemen. It's a privilege to offer myself for election as an independent Non-Executive Director of Challenger and to be a part of a company with a clear purpose of providing Australians with financial security in their retirement. Since joining the board in June 2025, I've contributed through the Group Audit, Group Risk, Nomination, and Independent and Related Party Committees. Together with my fellow directors, I'm absolutely committed to delivering for our customers and continue to build enduring value for our shareholders. My background includes several areas that are critical to Challenger's future, including digital transformation, customer engagement, brand and marketing, and data-driven strategy. As a founder and former CEO of Lexa, an AI customer data platform, I've worked with global brands to help them understand and engage their customers.
Prior to that, I spent a decade at advertising agency M&C Saatchi, leading digital growth in Asia Pacific and the U.S., and three years as Group Managing Director, advising and working with household brands like Commonwealth Bank, Woolworths, and Optus. Currently, I serve the boards of Metcash Ltd, Michael Hill International, Lexa Proprietary Ltd, and previously served the board of Maya Holdings Ltd for nine years. Amongst other things, Challenger has a tremendous opportunity to deepen its digital capabilities, accelerate transformation through AI, and enhance its customer experience journey. With your support for my election, I look forward to helping guide that journey with a strong focus on brand, data, technology, customer, and strategy. Thank you, and I'll hand back to you, Duncan.
Thanks, David. I'll open up for questions on David's election in the room. No questions. Mark, are there any online?
There are no questions.
Okay, please cast your vote now on this item if you haven't already done so. This concludes the items of business. Ladies and gentlemen, we have now considered all the items of business for this meeting. I would like to advise that voting on all resolutions will close shortly. I'll provide you with a few moments now to allow you to finish your voting. If you're in the room and are voting by completing the blue attendance card, these will now be collected by Computershare staff in the room. I think that's all the votes, so I will now declare the poll closed for all items of business. The result of the polls for each item of business will be notified to the Australian Securities Exchange as soon as practical after today's meeting. That concludes the formal business of the meeting.
Thank you for joining us today and for your participation and feedback. I'll now close this meeting and thank you for your attendance. Please join us for some refreshments outside. Thank you.