Attachment A — Criteria for classificatiAttachment A — Criteria for classification as paid-up ordinary shares

Attachment A – Criteria for classification as paid-up ordinary shares

1. To be classified as paid-up ordinary shares in Common Equity Tier 1 Capital, an instrument must satisfy the following criteria:

   1. the instrument must be the only class of ordinary shares, except for the distinction between voting and non-voting ordinary shares. Non-voting ordinary shares must be identical to voting ordinary shares of the issuer in all respect except the absence of voting rights;
   2. the instrument represents the most subordinated claim in liquidation of the issuer;
   3. the instrument holder is entitled to a claim on the residual assets that is proportional to its share of issued capital, after all senior claims have been repaid in liquidation (i.e. there is an unlimited and variable claim, not a fixed or capped claim);
   4. the principal amount of the instrument is perpetual (i.e. it has no maturity date) and is never repaid outside of liquidation (other than discretionary repurchases subject to APRA approval);
   5. distributions on the instrument are paid out of distributable items (retained earnings included) of the issuer, and there are no features that require the issuer to make payments in kind. The level of distributions must not be tied or linked to the amount paid up at issuance, or to the credit standing of the issuer, and must not be subject to a contractual cap, except to the extent that restrictions applied to the payment of distributions are in accordance with Prudential Standard HPS 110 Capital Adequacy (HPS 110);
   6. there are no circumstances under which the distributions are obligatory. Non-payment of a distribution does not trigger any restrictions on the issuer or any other member of the group to which the issuer belongs. Any waived distributions are non-cumulative (i.e. they are not required to be made up by the issuer at a later date). Non-payment of distributions must not be an event of default of the issuer or of any other member of the group to which the issuer belongs;
   7. distributions are paid only after all legal and contractual obligations have been met and payments on more senior capital instruments have been made. There are no preferential distributions, including in respect of other elements classified as Common Equity Tier 1 Capital;
   8. the instruments take the first and proportionately greatest share of any losses as they occur.[9] Within Common Equity Tier 1 Capital, each instrument absorbs losses proportionately, and pari passu, with all the other instruments included in Common Equity Tier 1 Capital;
   9. only the paid-up amount of the instrument, irrevocably received by the issuer, is recognised as equity capital (i.e. it is not recognised as a liability) for determining balance sheet insolvency;
   10. the paid-up amount of the instrument is classified as equity under relevant accounting standards;
   11. the instrument is directly issued by the issuer, and, except where otherwise permitted in this Prudential Standard, the issuer, any other member of a group to which the issuer belongs, or any related entity[10], cannot have purchased or directly or indirectly[11] funded the purchase of the instrument, or be funding the instrument;
   12. the paid-up amount of the instrument, or any future payments related to the instrument, is neither secured nor covered by a guarantee of the issuer or a related entity, or subject to any other arrangement that legally or economically enhances the seniority of the claim. The instrument may not be subject to netting or offset claims on behalf of the holder or the issuer of the instrument;
   13. the instrument is only issued with the approval of the owners of the issuer, either given directly by the owners or, if permitted by applicable law, given by the Board or by other persons duly authorised by the owners; and
   14. the instrument is clearly and separately disclosed on the issuer’s financial statements and, in any consolidated financial statements. Disclosure must be in line with the frequency with which a private health insurer publishes its financial results.

2. Where issue documentation, marketing of an instrument, or any ongoing dealings with investors in the instrument, suggest the instrument has attributes not consistent with the eligibility requirements in this Attachment, the instrument will be ineligible to be included in the private health insurer’s Common Equity Tier 1 Capital.

3. Where an instrument is subject to the laws of a foreign jurisdiction, the private health insurer must also ensure that the instrument satisfies all relevant qualifying criteria for Common Equity Tier 1 Capital under this Attachment and the laws of the foreign country do not override the provisions within the instrument designed to meet these criteria.

4. APRA may require the private health insurer to provide an independent expert opinion, addressed to APRA by a firm or practitioner of APRA’s choice and at the expense of the private health insurer, confirming that the instrument meets all or any criteria applied to Common Equity Tier 1 Capital instruments in this Prudential Standard.

5. For the purposes of Attachment F to this Prudential Standard, a reference in this Attachment (except in paragraphs 1(b), 1(c), 1(e), 1(g), and 1(h) of this Attachment) to ‘paid up ordinary shares’ is to be read as a reference to ‘paid up mutual equity interests’.