General rules for regulatory adjustmentsGeneral rules for regulatory adjustments

General rules for regulatory adjustments

1. In determining the size of regulatory adjustments (i.e. deductions) from a category of a private health insurer’s capital base, items must be valued on the same basis as a private health insurer’s accounts prepared in accordance with the FSCODA.

2. For the purposes of deductions to Additional Tier 1 Capital and Tier 2 Capital:

   1. where the amount of Additional Tier 1 Capital is insufficient to cover the amount of deductions required to be made from this category of capital, the shortfall must be deducted from Common Equity Tier 1 Capital; and
   2. where the amount of Tier 2 Capital is insufficient to cover the amount of deductions required to be made from this category of capital, the shortfall must be deducted from Additional Tier 1 Capital and, if Additional Tier 1 Capital is insufficient to cover the amount of the deductions required, the remaining amount must be deducted from Common Equity Tier 1 Capital.

3. Where a capital instrument is required to be deducted and it is not possible to determine whether it should be deducted from Common Equity Tier 1 Capital, Additional Tier 1 Capital or Tier 2 Capital, the deduction must be made from Common Equity Tier 1 Capital. A private health insurer must consult APRA if there is uncertainty about the category of capital against which a deduction must be made.

4. For the purposes of deducting from the relevant category of the capital base, a private health insurer may net any provisions against the relevant exposures or holdings, or the relevant non-defaulted exposures or holdings that represent identified losses, before making the necessary deductions from the relevant categories of capital.

5. A private health insurer must not recognise, for the purpose of measuring its capital adequacy, any transactions (or dealings) which have the aim of offsetting required deductions.