Insurance (prudential standard) determination No. 7 of 2006 - Prudential Standard GPS 110 - Capital Adequacy
Upper Tier 2 capitalUpper Tier 2 capital
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Upper Tier 2 capital
- Upper Tier 2 capital consists of the following items that satisfy the relevant criteria set out in this Attachment:
(a) perpetual cumulative preference shares;
(b) perpetual cumulative mandatory convertible notes;
(c) perpetual cumulative subordinated debt;
(d) any other hybrid capital instruments of a permanent nature approved by APRA, including any capital amounts otherwise meeting APRA’s requirements for Tier 1 capital instruments (specified in this Attachment) that are ineligible for inclusion as Tier 1 capital as a result of the limits specified in paragraph 44 of this Attachment;
(e) 45 per cent of pre-tax revaluation reserves of each of the following:F[16]F
(i) property not held at fair value; and
(ii) investments in subsidiaries not held at fair value, other than subsidiaries that APRA deems part of an Extended Licensed Entity (ELE) (refer to Attachment D).F[17]F
The amount recognised must be net of any fair value gains and losses and any gains or losses on hedges offsetting revaluations included in reserves; and
(f) 45 per cent of the post-acquisition reserves of associates as defined in the Australian Accounting Standards. This includes, under equity accounting, the insurer’s share of undistributed profits, plus any share of asset revaluations in associates or any other revaluation of investments in associates. The amount recognised must be net of fair value gains and losses and any gains or losses on hedges offsetting revaluations of investments in associates included in reserves.F[18]F
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Where an insurer is aware that a particular asset is impaired and a loss arises, such a loss must be reflected in Tier 1 capital. However, where a particular asset belongs to a class of assets for which asset revaluation reserves are included in Upper Tier 2 capital and the asset has been identified as impaired and losses arise, the losses may be offset against any existing revaluations of the asset or class of revalued assets.
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If an asset revaluation reserve included in Upper Tier 2 capital is negative after adjustment for revaluations of assets included in the reserve, losses due to impairment of assets covered by the reserve and any gains or losses on hedges offsetting revaluations of assets included in the reserve, the amount of deficit in the reserve must be reported as a deduction from Tier 1 capital.