Challenger has posted a full-year statutory net loss of $416 million after pandemic-fuelled volatility in global financial markets hammered the investment books of its life arm.

In 2018/19 the investment company recorded a $308 million profit.

Changes in the financial advice market also impacted earnings in the last financial year, Challenger says.

Normalised net profit before tax fell 8% to $507 million and on an after-tax basis, it declined 13% to $344 million.

For this financial year Challenger has projected normalised pre-tax net profit of $390-440 million.

“This assumes Challenger Life’s strong capital position will be prudently deployed over the course of the year with the deployment of up to $3 billion in cash and liquids into higher returning investments,” the company says.

The statutory net loss “includes significant negative investment experience” that affected the value of holdings made by its life arm.

“Challenger Life is required to value all assets and liabilities supporting the Life business at fair value, with the investment market volatility over the past six months resulting in significant investment losses,” Challenger says. “Approximately half of these losses are unrealised.”

CEO Richard Howes says key areas of the business performed well in the past financial year despite the $416 million statutory loss.

Life sales rose to $5.1 billion from $4.6 billion a year earlier, while total funds under management increased 4% to $85 billion.

“While investment losses resulting from the major COVID-19 market event have impacted our net statutory performance, our strategy of growing funds under management and diversifying our revenue base demonstrates underlying business resilience,” Mr Howes said.

He says the increase in life sales reflects strong growth in institutional take-up and contributions from its partnership with MS Primary in Japan.

Challenger says it is responding to the changes in the financial advice market, with plans to increase the availability of its products on independent platforms.

“We are quickly evolving our business in response to the changes, and we are seeing positive signs that we are well positioned to rebuild momentum in the new market environment,” Mr Howes said.

“One example is the growth we are now achieving in lifetime annuity sales via independent financial advisers.”

S&P Global Ratings says the $344 million in normalised after-tax profit demonstrates the resilience of Challenger’s business model.

“In addition, the full impact of market volatility was lessened by active derisking initiatives, and the statutory results capture a material component that is unrealised,” the credit ratings agency says.

Challenger remains in an “extremely strong capital position” with its life arm Challenger Life holding $1.6 billion in excess regulatory capital.