S&P Global Ratings has revised its outlook on Challenger Life from stable to positive and confirmed its “A” financial strength and issuer credit ratings.

“The positive outlook on the group reflects our expectations in the medium term regarding Challenger Life’s strengthening business profile,” the ratings agency says.

“We expect Challenger Life’s expansion of its distribution network, including the Japan-based MS&AD Group joint venture and access to material domestic platforms, to lessen the constraints of its limited product diversification.”

S&P says there is a one-in-three chance it will raise the long-term ratings a notch to “A+” within the next two years. This is based on the annuities provider growing its distribution networks and strengthening its balance sheet, without taking excessive risk.

“We anticipate Challenger Life will maintain its very strong market position, focused on the provision of a range of annuities,” S&P says. “The positive outlook incorporates our expectation the insurer will maintain its extremely strong capital adequacy throughout the next two years and continue to improve its risk management controls.”

The outlook could revert to stable if earnings fall below expectations, there is a reduction in capital adequacy, or it experiences growth problems or exposure to higher-risk assets.