Asset revaluation reservesAsset revaluation reserves

Asset revaluation reserves

22. Only revaluation reserves arising from the revaluation of property and investments in subsidiaries not held at fair value, other than subsidiaries that APRA deems part of an ELE, and associates referred to in paragraphs 23 to 25 of this Attachment can be included in the capital of an insurer.

23. Reserves arising from the revaluation of property can only be included in Upper Tier 2 capital if the following conditions are met:

(a) the property is owned by the insurer;

(b) the property represents only land and buildings;

(c) the reserves are shown as a component of equity in the published audited financial accounts of the insurer;

(d) the revaluations are prudent, in accordance with Australian Accounting Standards and subject to audit or review consistent with Auditing and Assurance Standards; and

(e) the amount of reserves incorporates the full effect of any fair value gains and losses and any gains or losses on hedges offsetting revaluations of property not held at fair value included in the reserves.

24. Reserves, including any share of undistributed profits in subsidiaries otherwise included in earnings, arising from the revaluation of investments in subsidiaries not held at fair value, other than subsidiaries that APRA deems to be part of an ELE, are to be included in Upper Tier 2 capital subject to the following conditions:

(a) an insurer is able, if required by APRA, to demonstrate that a reliable fair value can be credibly inferred to the subsidiary. This could include demonstrating recent prices received for the sale of entities with similar business profiles, or reliable estimates of the fair value of assets and liabilities of a subsidiary or values derived from other sound valuation practices;

(b) the amounts included in the reserves are shown as a component of equity in any published audited financial accounts of the insurer;

(c) the revaluations are prudent, in accordance with Australian Accounting Standards, and subject to audit or review consistent with Auditing and Assurance Standards; and

(d) the amount of reserves incorporates the full effect of any fair value gains and losses and any gains or losses on any hedges offsetting revaluations of the investments in subsidiaries not held at fair value.

25. Reserves representing an insurer’s share of profits in associates or revaluation of assets in associates under equity accounting plus any reserves otherwise arising from the revaluation of investments in associates are to be included in Upper Tier 2 capital subject to the following conditions:

(a) where reserves simply reflect investments in associates and are revalued, an insurer is able, if required by APRA, to demonstrate that a reliable fair value can be credibly inferred to the investment in the associate. This could include demonstrating recent prices received for the sale of an equity interest in the associate or by way of sale of entities with similar business profiles, or reliable estimates of the fair value of assets and liabilities of the associate or values derived from other sound valuation practices;

(b) the amounts included in the reserves are shown as a component of equity in any published audited financial accounts of the insurer;

(c) any revaluations are prudent, in accordance with Australian Accounting Standards, and the amounts reported in the reserves are subject to audit or review consistent with Auditing and Assurance Standards; and

(d) the amount of reserves incorporates the full effect of any fair value gains and losses and any gains or losses on any hedges offsetting revaluations of the investments in associates.