The Challenger Ltd (ASX: CGF) share price is up 1% after the business announced it’s extending the reinsurance partnership with Mitsui Sumitomo Primary Life Insurance.
The ASX financial share said since November 2016, it had successfully partnered with MS Primary, a leading annuities provider in Japan, to reinsure Australian dollar annuities. The arrangement has expanded to include US dollar and Japanese yen denominated annuities.
Extension of MS Primary partnership
Under the new agreement, Challenger Life will continue to receive a quota share of reinsurance across Australian dollar, US dollar and Japanese yen denominated annuities issued in Japan by MS Primary, starting from 1 July 2024.
MS Primary will provide an annual amount of reinsurance of at least ¥50 billion per year (worth around A$500 million) for the next five years, subject to review in the event of a “material adverse change” for either MS Primary or Challenger Life.
Challenger Life will also support MS Primary with any new reinsurance requirements MS Primary may have.
As a reminder, MS Primary’s parent – MS&AD Insurance Group – owns 15% of Challenger’s shares and under a long-term strategic relationship has representation on Challenger’s board.
Management commentary
The Challenger CEO and Managing Director, Nick Hamilton, said:
We are delighted to extend our reinsurance partnership with MS Primary. This reflects the strong, collaborative and mutually beneficial relationship that we have developed over a number of years, and it was a privilege to celebrate the eighth year of our reinsurance partnership with a MS Primary delegation at our Sydney office this week.
The arrangement that we’re announcing today also supports our focus on longer duration annuity business with the objective of improving the quality of Life’s annuity book growth and driving stronger returns.
Challenger Life is an important reinsurance partner for MS Primary and we’re very pleased to continue to support its growth.
Final thoughts on the Challenger share price
Challenger is a complex business, and it’s sensitive to long-term interest rates. I believe higher interest rates are a positive for the business, for both annuity demand and Challenger’s earnings on bonds.
It’s not the first ASX share I’d buy, but the amount of money that’s about to enter retirement phase in the coming years due to ageing demographics is appealing. This agreement with MS Primary also seems to be a positive.
