APRA details new longevity product regulations
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The news: The Australian Prudential Regulation Authority (APRA) has launched a second consultation paper on new capital settings for longevity products, detailing a series of updated proposals redesigning the illiquidity premium and other risk controls.
The context: APRA’s first consultation paper was issued in June 2025, with the aim of addressing two issues with the prudential framework for longevity products.
Namely, that “it imposes relatively conservative capital requirements” and that the framework is “insufficiently risk sensitive and may exacerbate procyclicality by requiring life insurers to liquidate assets during a market downturn”.
The latest consultation paper makes revised proposals on the illiquidity premium — an increased return expected by investors to compensate an investor for holding an illiquid asset — as well as risk controls relating to governance, reporting and asset composition of the longevity product portfolio.
What they said: “In response to industry feedback, APRA is proposing a more principles-based approach to the illiquidity premium, including product eligibility under the revised framework,” APRA said in the consultation paper.
“Further, the accompanying risk controls have been adjusted to be more proportionate in some areas, including the Appointed Actuary’s attestation and cashflow matching requirements to support a more adaptive approach as the market matures.”
The managing director and CEO of investment manager Challenger Nick Hamilton said: “We strongly support APRA’s reforms, which will significantly improve Challenger’s financial resilience and promote growth of the retirement income market”.
The sources: APRA media release, APRA consultation paper, ASX
