Deductions from Tier 1 capitalDeductions from Tier 1 capital

Deductions from Tier 1 capital

39. The amount of Tier 1 capital to be included in an insurer’s capital base will be net of the following deductions:

(a) goodwill;F[22]F

(b) other intangible assets;

(c) deferred tax assets net of deferred tax liabilities;F[23]F

(d) any portion of current year earnings or retained earnings which represents any amount deriving from the insurer’s share of undistributed profit or loss in an associate, under equity accounting. This amount must be included in Upper Tier 2 capital;

(e) any surplus, net of deferred tax liabilities, in any insurer employer-sponsored defined benefit superannuation fund, unless otherwise approved, in writing, by APRA. Any excluded surplus must reverse any associated deferred tax liability from Tier 1 capital;

(f) any deficit in an insurer employer-sponsored defined benefit superannuation fund that is not already reflected in Tier 1 capital;

(g) all holdings of own Tier 1 capital instruments;

(h) any negative movement over the amount available in the respective revaluation reserves for the following items, to the extent not already accounted for in current year earnings or retained earnings:

(i) property not held at fair value;

(ii) investments in subsidiaries not held at fair value; or

(iii) investments in associates, including any excess of the share of losses in associates under equity accounting;

(i) any identified impairment of an asset not forming part of a class of assets, to which an asset revaluation reserve in Upper Tier 2 capital applies and where the impairment has not already been taken into account in the profit and loss;

(j) unrealised fair value gains, or, where applicable, adding back unrealised fair value losses, arising from changes in an insurer’s own creditworthiness;

(k) any amounts included in revaluation reserves in Upper Tier 2 capital which would otherwise have been included in Tier 1 capital;

(l) cumulative fair value gains and losses on effective cash flow hedges reflected in retained earnings or reserves included in Tier 1 capital which do not offset gains or losses on revaluations in reserves included in Tier 1 capital;F[24]F

(m) during the first and second transition periods, all reinsurance recoveriesF[25]F receivable on each reinsurance arrangement where the insurer has not reached the threshold levels of reinsurance documentation specified in Attachment H;

(n) after the second transition period, reinsurance recoveries receivable under each reinsurance arrangement that does not meet the reinsurance documentation test in paragraph 2 of Attachment H; and