APRA’s longevity capital changes welcomed

Mike Taylor

Managing Editor and Publisher

1 April 2026

Annuities specialist Challenger has described the Australian Prudential Regulation Authority’s (APRA’s) changes to the capital treatment of longevity products as the most significant changes in a decade.

Challenger managing director and chief executive, Nick Hamilton said that for his company the changes would serve to lower the levels of required capital and cyclical risks to Challenger’s capital position during times of market stress, while maintaining policyholder security.

APRA yesterday announced it was amending its prudential standards on the capital treatment of longevity products, including annuities, to strengthen the market for retirement income products.

The move is consistent with the Federal Government’s broader retirement incomes agenda, particularly with reference to the Retirement Income Covenant.

The regulator said the changes reflect its commitment to “support innovation and reduce unnecessary regulatory constraints, while maintaining strong prudential safeguards”.

“Better aligning capital settings with the long-term nature of longevity liabilities enhances capital efficiency and creates a more proportionate and risk-sensitive framework,” the APRA announcement said.

APRA member, Suzanne Smith said the adjustments to capital settings will free up insurers to invest in sustainable, competitively priced products that help Australians retire with greater confidence.

The APRA announcement said 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. 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,” the regulator said.

“Together, the reforms provide a more risk-sensitive, principles‑based approach that reduces pro cyclicality in capital settings, while maintaining appropriate safeguards.”