Challenger financial services group has signed  an agreement with Mitsui Sumitomo Primary Life Insurance Company to sell Australian dollar-demoninated annuities to Japan.The Japanese market is seven times the size of Australia’s.

Annuities are a key retirement product in Japan, which faces the twin challenges of an ageing population and low interest rates. The size of the total Japanese annuity market is more than $1 trillion, of which $28 billion is denominated in Australian dollars, The Australian Financial Review has reported.

Mitsui Sumitomo Life is the second biggest distributor of Australian dollar annuities in the world’s third largest economy.

Under the terms of the agreement, Challenger will issue fixed rate annuities with a 20-year term to the Japanese market and will initially assume the investment risk on half of each new policy.