APRA finalises changes to capital rules for annuities and longevity products
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The news: The Australian Prudential Regulation Authority (APRA) has finalised amendments to its prudential standards on the capital treatment of longevity products, including annuities, aiming to strengthen the market for retirement income products.
The context: 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.
APRA said the new approach better reflects the long‑term nature of these liabilities.
To underpin the AILP option, the regulator has also introduced additional risk controls relating to the governance, reporting and asset composition of portfolios to which it is applied.
The reforms will come into effect on 1 July.
What they said: “We’re backing innovation in retirement income and we’re doing it safely,” said APRA member Suzanne Smith.
“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 source: APRA media release
