The capital base must be assessed for the private health insurer as a whole and for each of its funds.
The capital base of a private health insurer consists of the following categories:
Tier 1 Capital, which comprises:
Common Equity Tier 1 Capital;
Additional Tier 1 Capital;
Paid-up mutual equity interests issued by a mutually-owned private health insurer that meet the criteria in paragraph 1 of Attachment F to this Prudential Standard and are above the limit specified in paragraph 4 of Attachment F; and
Tier 2 Capital.
that satisfy the criteria in this Prudential Standard.
A private health insurer must ensure that at all times:[1]
the Common Equity Tier 1 Capital for the private health insurer exceeds 60 per cent of the prescribed capital amount of the private health insurer;
the Tier 1 Capital for the private health insurer exceeds 80 per cent of the prescribed capital amount of the private health insurer;
the capital base for the private health insurer exceeds the Prudential Capital Requirement (PCR) of the private health insurer;
120 percent of the net assets for the private health insurer exceeds 60 percent of the prescribed capital amount of the private health insurer;
the sum of 120 percent of the net assets and the Additional Tier 1 Capital for the private health insurer exceeds 80 percent of the prescribed capital amount of the private health insurer; and
the sum of 120 percent of the net assets, the Additional Tier 1 Capital and the Tier 2 Capital for the private health insurer exceeds the PCR of the private health insurer.
APRA may require, by notice in writing, a private health insurer to hold a higher percentage of its prescribed capital amount as Common Equity Tier 1 Capital and/or Tier 1 Capital.
A private health insurer must ensure that any item of capital that the private health insurer includes in a particular category of its capital base satisfies, in both form and substance, all requirements in this Prudential Standard for the particular category of capital in which it is included.
A private health insurer must not include an item of capital in a particular category of its capital base if that item, when considered in conjunction with other related transactions that affect its overall economic substance, could be reasonably considered not to satisfy the requirements of this Prudential Standard for that category of the capital base.
A private health insurer must not include a capital instrument in a category of the capital base based on a future event, until such time as:
the proceeds have been irrevocably received by the private health insurer.
APRA may require a private health insurer to:
exclude from its capital base any item included as a component of capital that in APRA’s opinion is not a genuine contribution to the financial strength of the private health insurer; or
reallocate to a lower category of the capital base any component of capital that in APRA’s opinion does not satisfy the requirements of this Prudential Standard for the category of the capital base to which it was originally allocated.
A capital instrument is not eligible for inclusion in a category of the capital base if the nature or complexity of its terms, its location of issue, or its structure raises concerns over whether the instrument fully, and unequivocally, satisfies the requirements for the category of the capital base in this Prudential Standard.
A private health insurer must not include a capital instrument that involves the use of a special purpose vehicle (SPV), or a stapled security structure consisting of the issue of a preference share and a stapled instrument of another form, in its regulatory capital.
A private health insurer must not include a capital instrument in its capital base if the capital instrument has features that hinder recapitalisation of the private health insurer, or any other members of the group to which the private health insurer belongs. This includes features that require the private health insurer or any other members of the group, to compensate investors if a new instrument is issued at a lower price during a specified timeframe.
A capital instrument is not eligible for inclusion in the capital base if it contains any terms that could inhibit the private health insurer’s ability to be managed in a sound and prudent manner, particularly in times of financial difficulty, or restrict APRA’s ability in its role as a prudential regulator to resolve any problems encountered by the private health insurer.
A capital instrument is not eligible for inclusion in the capital base if it includes any ‘repackaging’ arrangements that have the effect of compromising the quality of capital raised.[3]
A private health insurer must, and must ensure that other members of the group to which the private health insurer belongs, not create an expectation at issuance that a capital instrument will be bought back, redeemed or cancelled prior to maturity, and the statutory or contractual terms of the instrument must not include any feature that may give rise to such an expectation. A private health insurer must, and must ensure that any other members of the group to which the private health insurer belongs, not assume, or create market expectations, that supervisory approval will be forthcoming for the private health insurer or any other members of the group, to buy back, redeem or cancel an instrument prior to maturity.
A private health insurer may not, without obtaining APRA’s prior written approval, enter into an arrangement where it may purchase, or provide financial assistance with a dominant purpose of facilitating the purchase by another party of, its own capital instruments. Any such arrangement, if approved by APRA, shall be subject to a limit agreed with APRA.
A private health insurer must provide APRA, as soon as practicable, with copies of documentation associated with the issue of Additional Tier 1 Capital and Tier 2 Capital instruments.
Where the terms of a capital instrument depart from established precedent, a private health insurer must consult with APRA on the eligibility of the capital instrument for inclusion as a category of the private health insurer’s capital base in advance of the issuance of the instrument, and provide APRA with all information it requires to assess the eligibility of the instrument.
As part of the documentation provided for the purposes of paragraphs 27 and 28 of this Prudential Standard, a private health insurer must include a statement of compliance of the capital instrument signed by senior management of the private health insurer. The statement must:
address how the issuer is satisfied that each required capital eligibility criterion set out in this Prudential Standard is met and will continue to be met in the future; and
clearly set out references to supporting documents and opinions that demonstrate that the criteria are met.
A private health insurer must obtain APRA’s approval before the terms of an instrument are altered in a way that may affect its eligibility as a component of the capital base.
Part Capital base of a private health insurer - Health Insurance (prudential standard) determination No. 3 of 2024 - Capital base of a private health insurer | Zoe