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Health Insurance (prudential standard) determination No. 3 of 2024

Prudential Standard HPS 112 Capital Adequacy: Measurement of Capital

Private Health Insurance (Prudential Supervision) Act 2015

I, Sean Carmody, a delegate of APRA:

 1.                under subsection 92(5) of the Private Health Insurance (Prudential Supervision) Act 2015 (the Act) REVOKE Health Insurance (prudential standard) determination No. 1 of 2024, including Prudential Standard HPS 112 Capital Adequacy: Measurement of Capital made under that determination; and
 2.                under subsection 92(1) of the Act DETERMINE Prudential Standard HPS 112 Capital Adequacy: Measurement of Capital, in the form set out in the Schedule, which applies to all private health insurers.

This instrument commences on 1 January 2025.
Dated: 27 November 2024

Sean Carmody
Executive Director
Policy and Advice Division

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.
private health insurer has the meaning given in section 4 of the Act.

Schedule

Prudential Standard HPS 112 Capital Adequacy: Measurement of Capital, comprises the document commencing on the following page.

Prudential Standard HPS 112

Capital Adequacy: Measurement of Capital
Objectives and key requirements of this Prudential Standard
This Prudential Standard sets out the characteristics that an instrument must have to qualify for inclusion in the capital base of a private health insurer and the various regulatory adjustments to be made to determine the capital base for each health benefits fund, the general fund and the private health insurer as a whole.
The ultimate responsibility for ensuring that the capital base of a private health insurer and the capital bases of all of its funds meet the requirements of this Prudential Standard rests with its Board of directors.
The key requirements of this Prudential Standard are that a private health insurer must:
     * comply with minimum requirements regarding the size and composition of the capital base for the private health insurer as a whole and for each of its funds;
     * include in the appropriate category of capital (i.e. Common Equity Tier 1 Capital, Additional Tier 1 Capital or Tier 2 Capital) only those capital instruments that meet the detailed criteria for that category;
     * ensure all capital instruments are capable of bearing loss; and
     * make certain regulatory adjustments to capital, mainly from Common Equity Tier 1 Capital, to determine the capital base.

Table of Contents
Authority...........................................................4
Application and commencement.......................................4
Interpretation........................................................4
Adjustments and exclusions...........................................5
Determinations made under previous prudential standards................5
Definitions..........................................................5
Capital base of a private health insurer.................................6
Common Equity Tier 1 Capital.........................................9
Additional Tier 1 Capital.............................................12
Tier 2 Capital......................................................12
Additional Tier 1 or Tier 2 Capital issued overseas by the private health insurer......13
Intra-group capital transactions.......................................13
Holding of capital instruments in group members by other group members.14
Capital base of a health benefits fund.................................15