Ann: Earnings and guidance update, page-17

 @investor tom

For me, at this stage, the two main questions are:

1) Why is the annuities business giving signs of a slowdown, and
2) How big is the aggregate hit from lower property prices going to be, through the housing downturn.

With regard to 1), there are some possible explanations for a short to medium term deceleration. From some recent reading I've done, two potential headwinds could be:

a) Japanese retail looking increasingly at USD-denominated annuities, as opposed to AUD, because of the inverted yield differential, and
b) An acceleration in the number of financial advisers leaving the industry, because of the incoming industry changes from the RC; CGF remains heavily reliant on advisers for their annuity sales (although new distribution agreements, such as the ones recently implemented with BT and HUB24, should help offset this trend).

Regarding 2), it is a matter of whether the aggregate balance sheet damage from lower property prices (which could affect both the Property and the Fixed Income portfolios, because of the RMBS/CMBS component) will be material enough to require a capital injection.

The half-year results in February should provide some useful extra detail, so I would wait until then before rushing to any drastic conclusions. One thing that does look somewhat bizarre to me, is the fact that CGF are flagging a negative investment experience on both the asset and the policy liability side; intuitively, that makes no sense to me, unless for some reason the Illiquidity Premium on policies has been left virtually unchanged, despite a material widening in credit spreads.

Just my thoughts, and it’s not like I’m getting many of them right these days…