The Challenger Ltd (ASX: CGF) share price climbed 9% to $7.92 this afternoon as the annuities manager announced its Japanese partner Mitsui Sumitomo had lifted its equity holding in the business to more than 15% and wanted a seat on its board of directors as a result.
As such some may think its powerful Japanese partner might eventually launch a full takeover bid for the Australian annuities manager with it making sense for it to try sooner, rather than later, given Challenger's valuation has fallen on the back of a couple of soft profit reports recently.
Mitsui will also provide Challenger annual reinsurance amounts across both US and Australian dollar denominated annuities worth $640 million per year for at least 5 years.
Challenger also reinsures annuity products issued by Mitsui Sumitomo as a ceding insurer enjoys powerful balance sheet benefits in terms of investment risk and capital adequacy requirements.
In other words if investment capital or assets on the balance sheet are de-risked, then the proportion of risk weighted capital required to be held idly in reserve is lowered in a result that helps improve return on equity as a key measure of profitability.
Despite today's rise Challenger stock is still down around 30% in just one year.
