Retirement Income Group Wholesale
Retirement Income Group
Retirement Income Group Limited (“RIG”) owns Lifetime Income Limited (“LIL”), New Zealand’s only licenced retirement income operator which enables retirees to turn their savings into a guaranteed regular income that’s insured to last as long as they do. RIG has established a highly successful, robust and scalable platform and is seeking capital to fund ongoing growth.
This offer is exclusively open to wholesale, sophisticated and accredited investors.
All investments will be held through the Equitise Nominee. The Equitise Nominee is a Bare Trust structure that holds securities on behalf of the investor. The Nominee is in place to handle administrative responsibilities on behalf of the company and to limit total shareholder numbers. Investors are entitled to the same rights as they would directly on the share register. More information can be found in the Investment Agreement, accessible at the final stage of investing.
- NZD/AUD Exchange Rate: 0.9647
Key Documents
Offer Overview
Please see the Information Memorandum for more information.
RIG Overview
Founded by Ralph Stewart, RIG obtained New Zealand’s first (and only) Variable Annuity Licence in 2015 and created a product that addresses the challenges faced by retirees of needing to use savings to provide income but not knowing future returns or how long they will live.
Lifetime Income (a Variable Annuity), RIG’s flagship product, is a combination of funds management (investing clients’ money and gradually paying it out at an agreed amount) and life insurance (guaranteeing to continue to pay the agreed amount even if customers’ principal has been depleted).
RIG operates in a large and growing market targeting KiwiSaver and other superannuation assets and has been successful in generating sales through a range of channels (direct sales, white label and financial advisor led) with funds under management (“FUM”) having now grown to over $300m.
The RIG business is highly scalable with a low marginal operating cost to serve; capital light distribution channels and stable capital requirements for new sales.
Following the growth in FY19/20, changes to regulatory capital requirements, the impact of COVID-19 (including hedge effectiveness) and a number of operational adjustments, RIG Is undertaking a capital raise open to existing shareholders and new wholesale and eligible persons to raise up to approximately $15-$25m to:
- meet required regulatory capital requirements; and
- provide capital to fund a forecast >30% CAGR in Group FUM growth over the next 4 years FY20 - 24F.
Company Structure
The RIG business is comprised of:
Lifetime Asset Management (“LAM”) - funds management business (which manages retirees money as they gradually draw down on their savings, and manages other retirement assets); and
Lifetime Income Limited (“LIL”) - insurance business that guarantees retirees’ income if they deplete their capital.
Investment Highlights
- RIG is the only Variable Annuity provider in NZ
LIL holds New Zealand’s only Variable Annuity licence from the Reserve Bank of New Zealand (“RBNZ”)
- Operating in a large and growing market with strong tailwinds
RIG operates in the New Zealand superannuation industry underpinned by an ageing population, declining interest rates and increasing market volatility.
- Established platform that is highly scalable
The business is fully licenced and operational having implemented a number of recent improvements now with a lower marginal cost to serve each new customer.
- Tangible strategy to grow revenue at a >30% CAGR over the next 4 years
4 year plan developed confirming capital requirements to support new business with improved embedded value and multiple paths to market.
- Additional upside with new products and business targeted
RIG plans to lever its growing market position, reputation and regulatory status to create new products and provide closure solutions for existing defined benefit schemes.
- Highly experienced and dedicated team
The RIG board and management teams are experienced across a range of relevant industries and backgrounds.
Lifetime Income Annuity
RIG’s primary product is Lifetime Income (Variable Annuity) which enables retirees to turn their savings into a guaranteed regular income that’s insured to last as long as they do.
Retirees face the challenge of needing to use savings to provide income but do not know future returns or how long they will live. Further, current Government NZ Super payment only covers a basic standard of living, with people who want a comfortable lifestyle requiring another source of income.
Lifetime Income makes fortnightly payments to add to retirees NZ Super payments and protects retirees from market risk by providing a fixed guaranteed regular income.
RIG now has over NZ$300m funds under management.
Growth Strategy
RIG has a number of growth strategies that it intends to implement in the future.
Grow Lifetime Income Sales
RIG is focused on developing direct to market digital platforms, increasing white label distribution agreements and expanding the network of advisors promoting Lifetime products. With the product in place and growing, RIG intends to focus on initiatives to scale and educate.
Defined Benefit Superannuation Schemes
Acquisition of defined benefit schemes by annuity providers is commonplace globally (e.g. Challenger in Australia) and provides an avenue for RIG to utilise its liability management expertise to grow shareholder value.
A defined benefit superannuation scheme is an older style superannuation scheme where providers pay employees / members an agreed amount post retirement.
New Products
RIG has a suite of new products under consideration that it is confident it can bring to market. These additional product lines include: Lifetime Grow, Lifetime Home, Lifetime Village and Lifetime Care. For more information please see section 4.3 of the Information Memorandum.
Industry Overview
The value of New Zealand superannuation assets under management (AUM) is large and is expected to grow strongly over the foreseeable future underpinned by growth in KiwiSaver.
As at June 30, 2020, total New Zealand superannuation AUM was at ~$210 billion, having grown at a CAGR of 11% over the last 10 years. Of this around $70 billion was comprised by KiwiSaver AUM, having grown at a CAGR of 28% over the same period.
Growth in RIG’s target market is underpinned by an increasingly ageing population, the government provided NZ Super only covering the basic cost of living and declining interest rates reducing the ability of retirees being able to rely on a stable secure regular income from their retirement savings.
International annuity markets are large and have evolved considerably over the last 40 years. RIG has taken the best aspects of various markets developments and paths to market to create a product ideally suited for New Zealand’s current market.
Historical Financials
For more information please see the Information Memorandum.
Use of Funds
For more information please see section 6.1 of the Information Memorandum.
Key Team Members
For more information please see section 3.3 of the Information Memorandum.
Ralph spent more than two years in the research and development phase, looking globally at retirement income, where he subsequently broke the mould and then rebuilt it specifically to give New Zealand retirees a better product.
With more than 30 years’ experience, Ralph is a well-known and respected expert in the New Zealand Insurance Industry. Having helmed AXA Insurance for a decade, where he introduced one of New Zealand’s first default KiwiSaver Schemes.
More recently he was the CEO of Accident Compensation Corporation (ACC), New Zealand’s Crown entity responsible for administering the country's universal no-fault accidental injury scheme. He has also held the position of General Manager of Marketing and Strategy for Tower Insurance and holds a master’s in business administration from Manchester University in England.
Ralph sits on a number of Boards, including Master Build Services Board. He is Chair of the Police Health Care Plan Limited, a Director of the Police Welfare Fund Limited, Police Association Insurances Limited and Police Association Mortgages Limited.
Casey Bright has 30 years experience within the financial services industry across New Zealand and Australia including IPAC Securities in Sydney. Casey and her team are all about ensuring our investors have exceptional experiences. She has overall accountability and responsibility for all registry, customers enquires, customer related policies and procedures and record management for RIG.
Ellen Cheyne holds two decades of financial experience across the UK and New Zealand, including Head of Finance for Co-operative Bank and later Head of Strategy and Planning. At RIG Ellen oversees the Finance team, her detailed orientated attitude and high ethical standards is exactly what you want when it comes to looking after investors and shareholders.
Charlotte Montgomerie has over 15 years experience including 12 years of legal experience in asset management and investment funds across New Zealand and Ireland; including Kensington Swan and leading financial institutions law firm Matheson in Dublin. Charlotte keeps RIG moving from HR to IT, and knows that good customer outcomes are vital, this is why she keeps the Group in order on a regulation and compliance level.
Chelsea Devlin has 15 years experience in marketing and sales in leading successful New Zealand brands as well as global brands such as Mitsubishi Electric. Chelsea, with the support of her team, oversees marketing, sales and product development and is deeply passionate about providing kiwi retirees with a worry-free retirement income.
Key Risks Facing the Business
For more information, including commentary and mitigations, please see section 3.11 of the Information Memorandum.
Customers who hold annuity products may live for longer than expected increasing the amount that RIG has to pay out under its insurance obligations.
Customer balances and hedging – If customer investment balances decline due to changes in financial markets there is a risk that hedges do not fully offset the increase in associated policy holder liabilities and could lead to a reduction in RIG’s w factor.
Pricing – Variable Annuities are priced such that expected returns from financial markets assist in meeting Guaranteed Income Rates. There is a risk that Guarantee Benefit Rates are not changed quickly enough to match changes in financial markets.
Declining interest rates – If interest rates decline further, in-force and future Variable Annuity sales could require more regulatory capital.
Customers may withdraw their funds resulting in the portfolio having a greater weighting of those with a higher risk of calling on the guarantee.
As part of its Variable Annuity licence granted by the RBNZ, sufficient regulatory capital is required to be held.
RIG is subject to multiple and complex tax rules across its subsidiaries and there is a risk that RIG (or its subsidiaries) could be exposed to unexpected tax costs.
RIG utilises debt funding at the parent (RIG) level which is subject to certain covenants that in certain circumstances could result in an acceleration of repayment.
RIG equity holders rank behind all other liabilities of the business which are subject to significant assumptions and can change materially.
A.M. Best provides an ongoing credit rating on LIL that is subject to change at any time.
RIG has previously made several, and may consider in the future, business transfers or acquisitions, which increases the operational, policy holder liabilities and financial exposure of the business.
RIG also considers providing closure solutions to a number of defined benefit superannuation schemes trustees considering alternative options to manage life pensions. These are large superannuation schemes and require RIG to take out significant reinsurance and there is a risk that assessments of value (based on a number of material assumptions) are inaccurate leading to risk of loss.
As a financial services and insurance business, RIG faces regulatory and financial risks which may restrict the business’ ability to meet its licence obligations under the financial markets conduct act 2013 and the Insurance (Prudential Supervision) Act 2010.
In addition parts of RIG’s business (being acquired businesses) are conducted overseas and there are risks of non compliance with overseas regulation.
LIL holds the only Variable Annuity Licence in New Zealand. From 31 December 2020 LIL is required to hold more regulatory capital to meet the minimum solvency margin requirements of the RBNZ. There are provisions to reduce the minimum solvency margin requirements in the future subject to RBNZ approval. LIL’s financial forecasts include a reduction in the minimum solvency margin in 2024.
The RBNZ solvency Standard for Variable Annuities 2015 includes provision for future capital reductions if investment hedging performance is maintained, subject to RBNZ approval. LILs financial forecasts include future capital reductions arising from maintaining hedge effectiveness.
RIG outsources many key operational components of its business. This enables scale supported delivery of services, but also leads to the potential for significant counterparty / operational risk should the third parties not perform their duties as expected.
There is a risk that RIG does not achieve its forward sales projections (which are based on a $22m capital raise), or that its assumptions are wrong and actual profits are materially different to expectations and/or requires more capital than expected,
If interest rates continue to decline this may impact RIG’s ability to offer a competitive product and meet projections.
A resurgence of COVID-19 or the experience of a material new pandemic could present a serious business interruption resulting in business projections not being achieved.