On 29 October 2025, the Australian Prudential Regulation Authority (APRA) released a response to its submissions paper on proposed changes to the capital treatment of longevity products.
In June 2025, APRA released a consultation paper seeking to address two issues with the prudential framework for longevity products:
- it imposes relatively conservative capital requirements; and
- the framework is insufficiently risk sensitive and may exacerbate procyclicality by requiring life insurers to liquidate assets during a market downturn.
APRA proposed to address these issues by redesigning the ‘illiquidity premium’, a key factor determining capital requirements for longevity products.
The response paper summarises the key substantive feedback received from stakeholders to the consultation and outlines APRA’s response. In addition, APRA has also released draft prudential standards proposed to take effect from 1 July 2026, subject to feedback.
As regards transitional arrangements, APRA’s assumption is that they will not be required as the proposals in the response paper introduce an additional option for the calculation of the illiquidity premium (the ‘advanced illiquidity premium’). APRA does not intend to change the existing calculation (‘the standard illiquidity premium’), which remains available to insurers.
Next steps
The deadline for comments on the consultation is 17 December 2025.