Insurance, Life Insurance and Health Insurance (prudential standard) determination No. 1 of 2026

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Insurance Act 1973, section 32

Life Insurance Act 1995, section 230A

Private Health Insurance (Prudential Supervision) Act 2015, section 92

APRA may, in writing, determine, vary or revoke a prudential standard under:

On 29 April 2026, APRA made Insurance, Life Insurance and Health Insurance (prudential standard) determination No. 1 of 2026 (the instrument), which revokes Prudential Standard CPS 320 Actuarial and Related Matters made under Insurance, Life Insurance and Health Insurance (prudential standard) determination No. 1 of 2023 (the previous CPS 320) and determines a new Prudential Standard CPS 320 Actuarial and Related Matters (the new CPS 320).

The instrument commences on 1 July 2026.

1.         Background

APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders and fund members within a stable, efficient and competitive financial system.

APRA carries out this mandate through a multi-layered prudential framework that encompasses licensing and supervision of institutions. APRA is empowered under the Insurance Act, Life Insurance Act and PHIPS Act to issue legally binding prudential standards that set out specific prudential requirements with which APRA-regulated institutions in each industry must comply. These standards are supported by prudential practice guides which clarify APRA’s expectations with regard to prudential requirements.

APRA regularly reviews its prudential framework and amends its prudential requirements as a result of a number of factors, including:

• international developments;
• changes in financial market conditions;
• changes in risk management practices, in response to identified weaknesses in the prudential framework; and
• to reduce potential negative impacts of emerging industry issues.

When amending its prudential requirements APRA has regard to, amongst other things, the impact on industry in terms of both industry burden and matters of proportionality.

In June 2025, APRA commenced a review of its capital framework for longevity products (including annuities), to support better retirement outcomes for Australians by fostering a more vibrant and competitive annuity market.

The review was consistent with the Government’s objective of expanding options for retirees to manage longevity risk and was a key contribution to APRA’s strategic objective of ‘getting the balance right’ by ensuring its regulation is efficient and proportionate. The initiative was designed to support the market for retirement income products, with the better alignment of APRA’s capital settings with the long-term nature of longevity liabilities supporting greater innovation and competition in the market for longevity products and allowing life companies to offer retirees better retirement income solutions.

In April 2026, the previous CPS 320 was remade to incorporate reforms stemming from the review.

1.         Purpose and operation of the instrument

The purpose of this instrument is to revoke the previous CPS 320 and to replace it with the new CPS 320. The new CPS 320 amends the previous CPS 320 by incorporating changes arising out of APRA’s review of its capital framework for longevity products. This includes introducing a new, optional way to calculate the illiquidity premium (the ‘advanced illiquidity premium’ or ‘AILP’), which increases the discount rate that life companies use to calculate liabilities for longevity products under APRA’s capital framework. The changes are expected to provide capital relief benefits and to reduce pro-cyclicality within the capital requirements.

The new CPS 320 sets out prudential requirements for general insurers, life insurers and private health insurers to maintain appropriate actuarial advice. This advice is designed to assist the board and senior management in carrying out their responsibilities for the sound and prudent management of the insurer.

A description of the provisions of the new CPS 320 is set out in Attachment A to this Explanatory Statement.

1.         Scope of administrative powers

Exercise of discretion by APRA

The new CPS 320 provides for APRA to exercise various discretions. Decisions made by APRA in exercising the discretions are not subject to merits review. This is because these decisions are preliminary decisions that may facilitate or lead to substantive decisions which are subject to merits review.

Under the Insurance Act, Life Insurance Act and PHIPS Act, a breach of a prudential standard is a breach of the enabling legislation, as each enabling Act provides that regulated entities must comply with the requirements of a standard. However, there are no penalties prescribed for breach of the prudential standards under any of these Acts. Instead, an entity’s breach of the enabling legislation is grounds for APRA to make further, substantive decisions under the relevant enabling legislation in relation to the entity. Those decisions may include the decision:

1.           to issue a direction to the regulated entity, including a direction to comply with the whole or part of a prudential standard (section 104 of the Insurance Act and section 230B of the Life Insurance Act) and a direction to comply with all or specified obligations, which includes prudential standards (section 96 of the PHIPS Act);
2.           to impose conditions on the entity’s registration (sections 13 and 19 of the Insurance Act, sections 22 and 28B of the Life Insurance Act and section 15 of the PHIPS Act);  
3.           to conduct an investigation into the regulated entity (section 52 of the Insurance Act, section 137 of the Life Insurance Act and section 130 of the PHIPS Act); and 
4.           to revoke an authority to carry on insurance business if APRA is satisfied that the insurer has no liabilities in respect of insurance business carried on by it in Australia (section 15 of the Insurance Act), an insurance NOHC authorisation (section 21 of the Insurance Act), a life company’s registration under section 21 if APRA is satisfied that the company has no liabilities in respect of life insurance business carried on by it in Australia  (section 26 of the Life Insurance Act) or a registered NOHC’s registration under section 28A (section 28C of the Life Insurance Act).

A decision of APRA to give a direction or impose a condition is subject to merits review (section 104 of the Insurance Act, section 236 of the Life Insurance Act and section 168 of the PHIPS Act). Before exercising such a power, APRA will give an affected body corporate an opportunity to comment on whether the exercise is warranted or not.

All decisions to revoke authorisations/registrations under the Insurance Act and Life Insurance Act are subject to merits review, unless specifically excluded by the enabling legislation.

Revocation of an authorisation to carry on insurance business or an insurance NOHC authorisation is subject to merits review (sections 15 and 21 of the Insurance Act).

Revocation of a life company’s registration or a life NOHC’s registration is subject to merits review (section 236 of the Life Insurance Act).

Decisions relating to the cancellation of registration for private health insurers are governed under the PHIPS Act.

Adjust and exclude discretion

The new CPS 320 gives APRA the discretion to adjust or exclude a specific requirement in the prudential standard (paragraph 41). The power to include such a discretion is provided for under subsections 32(3D) of the Insurance Act, 230A(4) of the Life Insurance Act and 92(4) of the PHIPS Act.

APRA may exercise this power when it is satisfied that the adjustment or exclusion of a specific requirement will better support APRA in meeting its objectives. For example, the adjustment or exclusion may be necessary to obtain a better prudential outcome than would be the case if the prudential requirement were applied unaltered. A tailored approach gives APRA greater flexibility to ensure that the prudential requirements are fit for purpose and protect the interests, relevantly, of policyholders. APRA will also take into account other considerations, such as efficiency, competition, contestability, competitive neutrality and regulatory burden.

The exercise of APRA's powers is governed by a robust decision-making framework. This framework supports APRA in fulfilling its mandate by limiting decision-making to those APRA officers with the appropriate experience and skill to exercise prudent judgement.

1.         Documents incorporated by reference

Under paragraph 14(1)(a) of the Legislation Act 2003, the prudential standard incorporates by reference as in force from time to time:

• Acts of Parliament and associated delegated laws;
• Prudential Standards determined by APRA under:
  • subsection 32(1) of the Insurance Act;
  • subsection 230A(1) of the Life Insurance Act; and
  • subsection 92(1) of the PHIPS Act; and
• Reporting Standards determined by APRA under subsection 13(1) of the Financial Sector (Collection of Data) Act 2001;
• the Australian Accounting Standards determined by the Australian Accounting Standards Board under section 334 of the Corporations Act 2001 (Cth); and
• the Australian Auditing Standards determined by the Auditing and Assurance Standards Board under section 336 of the Corporations Act 2001 (Cth).

These documents may be freely obtained at www.legislation.gov.au (all documents listed above except for Australian Accounting and Auditing Standards), https://www.aasb.gov.au/pronouncements/accounting-standards/ (Australian Accounting Standards) and https://auasb.gov.au/standards-guidance/auasb-standards/auditing-standards/ (Australian Auditing Standards).

1.         Consultation

APRA undertook two separate rounds of public consultation on proposed changes to its capital settings for longevity products (including annuities).

In June 2025, APRA released a consultation paper inviting industry feedback on certain proposed changes to the life insurance capital framework for longevity products. In response, APRA received 11 submissions from entities and industry bodies. APRA also undertook additional engagements with several stakeholders. Submissions were generally supportive of APRA’s direction and included a range of suggestions to refine the proposal. The main suggestion was that the proposed capital benefit should be better aligned with the level of risk controls proposed. This feedback was accepted and informed the development of draft revised prudential standards.

In October 2025, APRA undertook a second round of consultation inviting further feedback on APRA’s refined proposal, including a draft version of the new CPS 320. APRA received nine submissions, primarily from entities and industry bodies. Industry feedback strongly supported the reforms, with it being noted that the changes represent a significant improvement to the current framework by reducing procyclical risks to life insurers’ capital positions. Stakeholders noted APRA’s reforms represent an important step towards developing Australia’s retirement income market by promoting innovation and expanding options for retirees to manage longevity risk. Respondents indicated that they largely expect the reforms to improve capital efficiency and stimulate greater market participation.

While overall feedback was positive, many submissions suggested some further refinements to specific parameters of the proposed ‘advanced illiquidity premium’ (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. 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. APRA acknowledged the feedback received but 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.

In March 2026, APRA released a response paper finalising the changes to its capital settings for longevity products, including the new CPS 320. All relevant consultations and non-confidential submissions are available on APRA’s website.

APRA is satisfied that the consultation undertaken was appropriate and reasonably practicable.
 

1.         Impact Analysis

The Office of Impact Analysis confirmed that a Regulation Impact Statement was not required.

1.         Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

A statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is included in Attachment B to this Explanatory Statement.

ATTACHMENT A

Description of provisions of the new CPS 320

Authority, application and interpretation

Paragraphs 1 to 8 relate to the legal authority under which the prudential standard is made, the institutions that are required to comply with the prudential standard, the commencement date, interpretation of the standard and relevant definitions.

Appointment

Paragraphs 9 and 10 set out requirements for the appointment of an Appointed Actuary.

Group Actuaries

Paragraphs 11 to 15 set out requirements for a Level 2 insurance group to have a Group Actuary.

Obligations of the Appointed Actuary and other actuaries subject to prudential requirements

Paragraphs 16 and 17 require an Appointed Actuary to comply with relevant obligations set out in prudential requirements and an Appointed Actuary and any other relevant actuary to perform their functions impartially and expertly in line with relevant actuarial professional standards, unless those standards conflict with the prudential standard.

Insurers’ obligations with respect to actuaries

Paragraphs 18 to 21 set out an insurer’s responsibilities to support actuaries in meeting prudential requirements. It requires the insurer to provide actuaries with all necessary information, to provide the Appointed Actuary with access to committees, auditors, senior management and others as required, to ensure actuaries are fit and proper and professionally qualified and to ensure that certain working papers and other documents are retained for seven years and made available to APRA upon request.

Actuarial advice framework

Paragraphs 22 and 23 require an insurer to have a board-approved actuarial advice framework that enables the Appointed Actuary to perform their functions and that meets prudential requirements, including the requirement to appropriately document the framework.

Financial Condition Report

Paragraphs 24 to 29 require the Appointed Actuary to assess the insurer’s financial condition and to provide a written Financial Condition Report (FCR) covering matters such as a business overview, valuation results, pricing, reinsurance and investment strategies, an Advanced Illiquidity Premium Declaration (where applicable), actual versus expected experience and performance, risk and capital management, current and future profitability and capital adequacy, and any other relevant and material matters. The Appointed Actuary must consider future outlook and implications and propose recommendations for adverse implications. The FCR must be prepared annually and be submitted to the board.  The FCR must also be submitted to APRA within three months of the end of the relevant period.

Actuarial Valuation Report

Paragraphs 30 to 33 require the Appointed Actuary to annually calculate the insurer’s insurance liabilities and, for life companies, the capital base and prescribed capital amount for each fund. They must prepare an Actuarial Valuation Report (AVR) that includes these values, a statement on data completeness and accuracy, an explanation of methodologies and assumptions including key risks and limitations, information regarding significant recent experience affecting valuations and any other required matters. The AVR must be submitted to APRA within three months of the end of the relevant period.

Departures from actuarial advice

Paragraph 34 sets out requirements to notify APRA if an insurer does not accept certain advice of the Appointed Actuary in a material respect.

Actuarial reviews required by APRA

Paragraphs 35 to 40 set out requirements relating to actuarial reviews required by APRA. If requested by APRA, an insurer must arrange an actuarial review of specified matters and the preparation of a report covering all APRA requirements. The review can be done by the Appointed Actuary or another actuary as specified by APRA and provided that certain requirements are met. The report must be submitted to APRA and the insurer within three months and shared with other key stakeholders. The insurer must bear the cost of the review. Additionally, any actuary other than the Appointed Actuary who is conducting the review must have full access to the Appointed Actuary and relevant actuarial advice or reports.

Adjustments and exclusions

Paragraph 41 provides for APRA to adjust or exclude a specific requirement in the prudential standard.

Determinations made under previous prudential standards

Paragraph 42 is a saving provision and provides that an exercise of APRA’s discretion under a previous version of the prudential standard continues to have effect.

Attachment A – General insurance matters
 

Paragraph 1 sets out requirements for the actuarial advice framework for general insurers.

Paragraphs 2 to 4 set out when an insurer is not required to appoint an Appointed Actuary and certain associated requirements.

Paragraph 5 outlines when an actuary is not eligible to be appointed as a Group Actuary.

Paragraphs 6 to 9 set out requirements relating to FCRs for Level 2 insurance groups.

Paragraphs 10 to 13 set out requirements relating to AVRs for Level 2 insurance groups.

Paragraphs 14 to 17 set out requirements for run-off insurers.

Attachment B - Life insurance matters

Paragraph 1 sets out requirements for the actuarial advice framework for life insurers.

Paragraph 2 requires that where a life insurer elects to use the advanced illiquidity premium, the Appointed Actuary must provide APRA with an advanced illiquidity premium declaration in the FCR.  The advanced illiquidity premium declaration must meet certain minimum requirements.

Attachment C - Private health insurance matters

Paragraph 1 sets out requirements for the actuarial advice framework for private health insurers.

ATTACHMENT B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Insurance, Life Insurance and Health Insurance (prudential standard) determination No. 1 of 2026

This legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the Legislative Instrument

The purpose of this instrument is to revoke Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320) and replace it with a new version of CPS 320 to incorporate certain changes arising out of APRA’s review of its capital framework for longevity products.

CPS 320 sets out prudential requirements for general insurers, life insurers and private health insurers to maintain appropriate actuarial advice. This advice is designed to assist the board and senior management in carrying out their responsibilities for the sound and prudent management of the insurer.

CPS 320 is designed to protect policyholder interests and ensure sound prudential outcomes by improving the functioning of the Appointed Actuary role.

Human rights implications

APRA has assessed the legislative instrument and is of the view that it does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. 

Conclusion

Accordingly, in APRA's assessment, this legislative instrument is compatible with human rights as it does not raise any human rights issues.