Deductions from a Level 2 insurance grouDeductions from a Level 2 insurance group’s capital base

Deductions from a Level 2 insurance group’s capital base

55. For the purposes of calculating its capital base, a Level 2 insurance group must deduct from its capital base:

(a) any items specified as capital deductions in GPS 112 applicable at Level 1 read with this Prudential Standard except for those items mentioned in paragraph 56; and

(b) any other items specified as capital deductions in this Prudential Standard.

56. Deductions relating to the reinsurance documentation test arising from the operations of any consolidated entity within a Level 2 insurance group carrying on insurance business in a foreign jurisdiction, need not be made unless such a deduction is required in that jurisdiction.

57. In applying the capital deductions in GPS 112 in conjunction with this Prudential Standard to a Level 2 insurance group, the group must deduct any surplus, net of deferred tax liabilities, in any defined benefit superannuation fund of which an insurer or other group entity is an employer-sponsor unless otherwise approved by APRA. Any excluded surplus must reverse any associated deferred tax liability from Tier 1 capital.

58. The capital deduction in GPS 112 relating to any deficit after taking into account adjustments in the amount available in the respective revaluation reserves for investments in controlled entities not held at fair value does not apply to a Level 2 insurance group as the assets of controlled entities are consolidated for Level 2 insurance groups.

59. Equity exposures and other capital investments[17] in non-consolidated subsidiaries or controlled entities, whether regulated or unregulated, must be deducted 50 per cent from Tier 1 capital and 50 per cent from Tier 2 capital subject to the materiality of the controlled entity (to be determined in consultation with APRA).[18] This deduction does not apply to a controlled entity, where it acts as a holding company for pass-through of equity exposures and other capital investments in Level 1 insurers or equivalent overseas entities carrying on insurance business. In the event that a controlled entity holds equity exposures and other capital investments in controlled entities not eligible for consolidation, the Level 2 insurance group must deduct its equity exposures and other capital investments in the holding company net of the value of the holding company’s investment in any Level 1 insurer or equivalent overseas entities carrying on insurance business.

60. Goodwill and any other intangible component of the investments in non-consolidated subsidiaries must be deducted from the group’s Tier 1 capital at Level 2.