Ann: Earnings and guidance update, page-42

Today I bought & here's why. 

1) The outlook is for -0.3% to 3.3% growth. It's a business with very strong market position, in a market that's growing & has decades of growth to come, regulatory tail winds & I believe in their model. 

2) As an investment arbitrage business it is naturally volatile. This is not new & can easily swing rapidly. Spreads will tighten, equities will go up & CGF will make a 3-4% margin over the long term. Since the end of the half in question the ASX200 is up c.4.5%.... not immaterial. 

4) We are exceptionally well capitalised & can clearly sustain a much much larger de-val & shock before anyone would even consider our stability an issue. 

5) A new CEO often clears the decks in the first 12 months. I would hazard a guess that these market movements are being accounted for somewhat early, in part to re-set the baseline. **This does not preclude further falls & it is probably only marginal the change he could effect, nevertheless a manager may effect a % here or there to lower the first year. (NOTE THAT THIS IS SPECULATION)

6) In 10 years I firmly believe annuity sales p.a. will be significantly higher with Challenger the market leader. Driven by the Aus super system & further aging of Aus' wealth. Property, equities & maybe bonds will all in aggregate be worth a decent clip more. 

7) Movement to higher grade bonds & lower property %, lowers capital intensity, risk & hence volatility. This push is recent & I am interested to see if it flows into Life's equity investments. 
       As an aside I'm curious on the size of our expose to the big 4 banks, given their size & yield they'd be tempting for Life to hold. Obvious risks as to why they wouldn't hold an over sized position. @Transversal do you know?

@Transversal my thoughts on the -41m policy liability movement is as a negative movement in 'economic & actuarial' assumptions over the period. Essentially lowering the expected return. Spread across the life book is a tiny % change & probably another 'risk off' type decision. 

Definitely a time for CGF & Richard to tighten the belt, lower our real cost base & not just rely on scale to drive cost to income down. Be prudent & set the business up to weather any further movement or to take advantage of a rebound.