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Why the Challenger share price charged higher today

James Mickleboro
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The Challenger Ltd (ASX: CGF) share price has pushed higher on Friday afternoon following the release of an announcement in relation to its Japanese operations.

At the time of writing the annuities company’s shares are up almost 2% to $6.70.

What was announced?

Late this morning Challenger announced that it has received all the necessary regulatory approvals and implemented all the operational requirements needed to commence the reinsurance of US dollar denominated annuities from July 1 2019.

This means that under its expanded strategic relationship with MS&AD Insurance Group Holdings, Challenger will now commence a quota share reinsurance of US dollar denominated annuities issued in the Japanese market by MS&AD’s subsidiary Mitsui Sumitomo Primary Life Insurance Company.

Mitsui Sumitomo Primary Life Insurance will provide Challenger Life with an annual amount of reinsurance, across both Australian and US dollar annuities, of at least ¥50 billion (~A$670 million) per year for a minimum of five years.

Challenger’s chief executive officer, Richard Howes, believes the expanded strategic relationship will be a driver of growth in the future.

He said: “The expanded alliance with MS&AD will leverage the strengths of both businesses to create opportunities for continued growth. Having now received all necessary approvals, the commencement of US dollar reinsurance will broaden our access to the Japanese market while providing product and distribution diversification.”

This wasn’t the only agreement that the two parties made in respect to their expanded strategic relationship.

In March MS&AD advised of its intention to increase its shareholding in Challenger to over 15% of the issued capital.

It also advised that once this shareholding has been achieved and the reinsurance of US dollar annuities with Mitsui Sumitomo Primary Life Insurance has commenced, it would nominate one non-executive director to join the Challenger board.

Earlier this month a substantial holder’s change of interests notice revealed that MS&AD had increased its holding to 16.127% of the shares on issue, which means that it will now be able to push ahead with its non-executive director nomination.

Whilst at this stage it is purely speculation, some believe this is a sign that MS&AD could be interested in launching a takeover approach further down the line.

Elsewhere in the financial sector today, the Commonwealth Bank of Australia (ASX: CBA) share price and the Westpac Banking Corp (ASX: WBC) share price are both on course to finish the week with a solid gain.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019