On 31 March 2026, the Australian Prudential Regulation Authority (APRA) issued its response paper finalising amendments to the capital treatment for longevity products.
Background
The response document follows two rounds of consultation that took place in June 2025 and October 2025.
The response document includes an attachment which summarises the key changes to the prudential standards compared with the versions released in October 2025.
A key change that was proposed was the introduction of the option to use the ‘advanced illiquidity premium’ (AILP), a factor determining capital requirements for longevity products. To support this change, APRA proposed additional risk controls with respect to the governance, reporting and asset composition of the longevity product portfolio.
While overall feedback to the consultations was positive, APRA notes that many submissions suggested certain refinements to specific parameters of the proposed AILP calculation, notably in relation to the proposed floor for the risk allowance and treatment of the AILP in the credit spread stress charge under Prudential Standard LPS 114 Capital Adequacy: Asset Risk Charge (LPS 114). Mixed views were received in relation to proposed restrictions on assets backing longevity products, ranging from recommending the removal of restrictions to advocating for greater flexibility and higher asset limits.
Final policy
After reviewing the feedback received, APRA has determined that the proposed settings for the AILP remain sound and strike the right balance in providing capital efficiency in return for appropriate risk controls. APRA has issued the final prudential standards which include additional changes to improve the clarity of the AILP. For example, products eligible for the AILP are referred to as ‘longevity products’ for the purposes of the response document. To enhance technical clarity, the amended prudential standards use the term ‘illiquid liabilities’ to refer to these products.
APRA also confirms that the proposed 45% floor remains appropriate. APRA acknowledges industry concerns that the 45% floor can reduce the capital benefit for insurers, particularly in periods when credit spreads are very narrow. In such circumstances, which include the current market environment, the benefit obtained as a result of applying the AILP may be equivalent to the Standard Illiquidity Premium. However, APRA’s historical analysis indicates that these market conditions occur infrequently and as a result there is insufficient evidence to support lowering the 45% floor.
Next steps
The reforms will come into effect on 1 July 2026.
To support implementation, APRA has released a reporting template for insurers who choose to use the AILP and is seeking feedback on the template by 12 May 2026.