Holding of capital instruments in group members by other group members

1. Capital instruments of a private health insurer that are held as direct investments by a vehicle[6] subject to consolidation within the financial statements of the group to which it belongs in accordance with Australian Accounting Standards, may be included in Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital, or the capital base of a fund, only if:
   1. the private health insurer (or relevant vehicle other than a parent company of the private health insurer, in respect of its own holdings of these instruments) did not fund the acquisition of the capital instruments (i.e. acquisition of capital instruments is funded by third parties such as private health insurance policy holders or other third-party investors);
   2. the risk and rewards associated with the investments are borne primarily by third-parties;
   3. the private health insurer can demonstrate to APRA, if required, that decisions to acquire or sell such capital instruments are made independently of the issuer of the capital instruments and in the interests of the third parties who primarily bear the risks and rewards of the investments in the instruments; and
   4. the instruments are not held for the purposes of employee share-based remuneration scheme.
2. Direct investments in shares of a private health insurer by an SPV (e.g. a trust) established under a share-based employee remuneration scheme may be included in the private health insurer’s Common Equity Tier 1 Capital only if:
   1. the shares issued to the SPV represent ordinary shares of the private health insurer;
   2. the amount included in Common Equity Tier 1 Capital is matched by an equivalent charge to profit or loss of the private health insurer for expensing the issue of ordinary shares to, or funding the acquisition of ordinary shares by the vehicle; and
   3. the ordinary shares issued cannot be converted to payment in another form (e.g. cash).
3. If the requirements in paragraphs 47 and 48 are not satisfied, the relevant capital instruments must be treated as holdings of own capital instruments and deducted from Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital as appropriate.