Attachment E - Loss absorption at the poAttachment E - Loss absorption at the point of non-viability: Additional Tier 1 and Tier 2 Capital instruments

Attachment E - Loss absorption at the point of non-viability: Additional Tier 1 and Tier 2 Capital instruments

1. An Additional Tier 1 Capital or Tier 2 Capital instrument must include a provision whereby upon the earliest occurrence of a non-viability trigger event, it will be immediately and irrevocably:

   1. converted into the ordinary shares of the private health insurer or its ultimate parent entity, which must be listed at the time the instrument is issued.[44] For an unlisted private health insurer with no listed upstream entity at the time the instrument is issued, the instrument is to be converted into unlisted ordinary shares of the private health insurer. Where an unlisted private health insurer issues the instrument to its listed parent entity, conversion may be into the unlisted shares of the private health insurer;
   2. converted into mutual equity interests; or
   3. written off.

2. A non-viability event is:

   1. in relation to a private health insurer when APRA notifies the private health insurer that APRA considers;
      1. conversion or write-off of a capital instrument is necessary because, without it, a particular fund or the private health insurer would become non-viable; or
      2. without a public sector injection of capital or equivalent support, a particular fund or the private health insurer would become non-viable;
   2. subject to paragraphs 6 and 7 of this Attachment, where a private health insurer is a locally incorporated subsidiary private health insurer of a foreign entity, notification by the home regulator of the foreign entity to the foreign entity or the private health insurer that the home regulator considers that:
      1. conversion or write-off of capital instruments is necessary because without it, the foreign entity or the private health insurer would become non-viable; or
      2. without a public sector injection of capital, or equivalent support, the foreign entity or the private health insurer would become non-viable.

3. Conversion or write-off of an Additional Tier 1 or Tier 2 Capital instrument must generate an unequivocal addition to the private health insurer’s Common Equity Tier 1 Capital (for Additional Tier 1 and Tier 2 Capital instruments) and the net assets of the relevant fund (for Tier 2 Capital instruments) under Australian Accounting Standards.

4. For the purposes of conversion or write-off, in whole or in part, of an Additional Tier 1 Capital or Tier 2 Capital instrument as a result of a non-viability event, the amount to be converted must be the face value of the instrument or relevant part thereof. Dividends and interest associated with the instrument which have been converted or written off, but which are not yet due and payable must also be extinguished.