The Australian Prudential Regulation Authority (APRA) has finalised amendments to its prudential standards on the capital treatment of longevity products, including annuities, to strengthen the market for retirement income products.
The key change is the introduction of an option for insurers to use an advanced illiquidity premium (AILP) when determining capital requirements for longevity products.
“This approach better reflects the long term nature of these liabilities,” APRA stated.
To underpin the AILP option, APRA has also introduced additional risk controls relating to the governance, reporting and asset composition of portfolios to which it is applied.
“Together, the reforms provide a more risk-sensitive, principles based approach that reduces procyclicality in capital settings, while maintaining appropriate safeguards,” it added.
APRA member Suzanne Smith said: “We’re backing innovation in retirement income and we’re doing it safely. As the prudential regulator, we always look for opportunities to refine our requirements. These adjustments to capital settings will free up insurers to invest in sustainable, competitively priced products that help Australians retire with greater confidence.”
The reforms will come into effect on 1 July 2026.
