Document ID: chunk:federal_register_of_legislation:F2024L01525:body:0:p29
Version: federal_register_of_legislation:F2024L01525
Segment Type: other
Provision Reference: 
Character Range: 78076–81006

Criteria for inclusion in Tier 2 Capital
 1.              To be classified as Tier 2 Capital, an instrument must satisfy all of the criteria in this Attachment.
 1.              The instrument must clearly indicate that it is subordinate to the interests of policy owners of a particular health benefits fund in the liquidation of the private health insurer.
 2.              The instrument must be paid-up and the amount must be irrevocably received by the relevant health benefits fund.
 3.              The paid-up amount of the instrument must be classified as a liability of the relevant health benefits fund under the relevant accounting standards.
 4.              The instrument represents, prior to any conversion to Common Equity Tier 1 Capital (refer to Attachment E to this Prudential Standard), the most subordinated claim in liquidation of the issuer after Common Equity Tier 1 Capital instruments and Additional Tier 1 Capital instruments.
 5.              The paid-up amount of the instrument, or any future payments related to the instrument, is neither secured nor covered by a guarantee of the issuer or related entity, or other arrangement that legally or economically enhances the seniority of the claim. The instrument may not be secured or otherwise subject to netting or offset of claims on behalf of the holder or the issuer of the instrument.
 6.              The principal amount of the instrument:
         1.           has a minimum maturity of at least five years;[35] and
         2.           is only recognised in Tier 2 Capital (and so in the capital base) in the five years prior to maturity on a straight-line amortised basis (refer to paragraph 23 of this Attachment).
 7.              The instrument contains no step-ups or other incentives to redeem. The issuer and any other member of a group to which the issuer belongs must not create an expectation at issuance that the instrument will be bought back, redeemed or cancelled before its contractual maturity. The contractual terms of the instrument must not provide any feature that might give rise to such an expectation.[36]
 8.              The instrument may only be callable at the initiative of the issuer and only after a minimum of five years from the date on which the issuer irrevocably receives the proceeds of payment for the instrument. The issuer:
         1.           must receive prior written approval from APRA to exercise a call option;
         2.           must not do anything that creates an expectation that a call will be exercised; and
         3.           must not exercise a call unless:
                 1.             the issuer, prior to or concurrent with the exercise of the call, replaces the instrument with a capital instrument of the same or better quality, and the replacement of the instrument is done at conditions that are sustainable for the income capacity of the issuer; or
                 2.