Investment group Challenger says its annuities business has had a strong start to fiscal 2021, with record quarterly annuity sales and significant progress in deploying Challenger Life’s cash balance into higher-yielding investments.

The company says it is on track for normalised net profit before tax of between $390 million and $440 million in the year to June 30.

“My first full year as CEO of your company has certainly been one to remember,” MD and CEO Richard Howes told shareholders last week at the company’s AGM. “It has been an extraordinary year and I’m proud of the progress we’ve made to deliver our vision, notwithstanding the coronavirus outbreak.

“We delivered record annuity sales and industry leading funds management inflows,’ he said. “We also continue to benefit from our diversified business model, with our Life business complemented by funds management.”

Challenger Life is Australia's largest provider of annuities. Annuity sales in the first quarter grew 46% to $1.23 billion from a year earlier, it said last month.

New product offerings in the works include a new lifetime annuity payment option called RBA Cash Linked that is specifically designed for customers and advisers who are concerned about investing in a low interest rate environment.

Last year Challenger paid out approximately $3.8 billion in guaranteed annuity payments to its customers, with payments not impacted by the pandemic or related investment market sell-off.

“Significant market sell-offs highlight the benefits of annuities and guaranteed income relative to market-linked account-based pension products,” Mr Howes said.

The first quarter increase was driven by strong Australian sales and robust contributions from its partnership with MS Primary in Japan. Australian annuity sales increased 35% to $842 million, underpinned by strong growth in both term and lifetime products. Sales through the MS Primary partnership surged 79% to $391 million.

However, overall life sales fell to $1.58 billion from $1.78 billion a year, dragged down by lower institutional volumes.

Last year Challenger reported a 13% increase in Life sales while normalised net profit before tax was down 8% to $507 million.

Challenger says the Life division redeployed about $800 million into higher-yielding investments that will generate returns in excess of 20%.

Challenger’s UK life risk business, which provides wholesale longevity and mortality protection to institutional clients such as major pension funds and insurance companies, experienced record annual volumes.

“We expect this market to grow strongly from here as clients pool their longevity and mortality risks. We stand to benefit as this market continues to develop,” Mr Howes said.