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Notes to the consolidated fnancial statements (continued)

for the year ended 30 June 2011

23. Suncorp Group capital management

The capital management strategy of the Suncorp Group is to optimise shareholder value by managing the level, mix and use of capital resources. The main objectives are to support the Suncorp Group’s credit rating, ensure there are suffcient capital resources to maintain the business and operational requirements, retain suffcient capital to exceed externally imposed capital requirements, and ensure the Suncorp Group’s ability to continue as a going concern. The Suncorp Group uses a range of instruments and methodologies to effectively manage capital including share issues, dividend policies and subordinated debt issues.

The Suncorp Group’s capital policy is to hold all surplus capital in Suncorp Group Limited (2010: Suncorp-Metway Ltd), being the ultimate parent entity of the Suncorp Group. Capital policy is reviewed regularly and where appropriate, adjustments are made to internal capital targets to refect changes in economic conditions and risk characteristics of the Suncorp Group’s activities. The Suncorp Group’s capital position is monitored on a continuous basis.

The Suncorp Group and its insurance and banking entities are subject to, and are in compliance with, externally imposed capital requirements set and monitored by APRA during the current and prior fnancial years.

APRA also requires regulated entities to maintain internal capital targets. It is the Suncorp Group’s policy to hold regulatory capital levels in excess of APRA requirements. The target capital for the General Insurance business is based on a multiple of the various minimum capital requirement (MCR) components. For the Banking business the capital target is a ratio representing total capital as a percentage of total risk-weighted assets. The Life business capital target is an amalgamation of target capital for statutory funds, minimum capital required for shareholder funds and for investment management entities; the greater of 0.25 per cent of funds under management, or net tangible asset requirements. Further details on the capital requirements applicable to General Insurance, Banking and Life can be found in notes 6.8, 7.11, and 8.8 respectively.

Capital requirements are measured at three levels of consolidation within the Suncorp Group. Each of the licensed general insurers, authorised deposit taking institution and life insurance funds is a Level 1 reporting entity. Certain banking entities which meet the APRA defnition of extended licensed entities (ELE) are also reported as Level 1. The Level 2 General Insurance group consists of Suncorp Insurance Holdings Limited and its subsidiaries. The Level 2 Banking Group consists of Suncorp-Metway Ltd, and its banking subsidiaries which include banking entities that are not ELE. Level 3 Conglomerate consists of Suncorp Group Limited and its subsidiaries (2010: Suncorp-Metway Ltd and its subsidiaries).

Within the Suncorp Group, regulatory capital is divided into Tier 1 and Tier 2 capital:

–– Tier 1 Capital consists primarily of shareholders’ equity plus other capital instruments considered acceptable by APRA, less goodwill and other prescribed deductions. –– Tier 2 Capital is comprised primarily of hybrid and debt instruments considered acceptable by APRA less any prescribed deductions. In line with APRA’s capital adequacy measurement rules, perpetual foating rate notes are included in upper Tier 2 capital. The term subordinated notes are included in lower Tier 2 capital and the value recognised as regulatory capital is reduced by 20% for each of their last fve years to maturity. Regulated capital will differ from the statutory capital disclosed in the consolidated statement of fnancial position. The following table demonstrates the distribution of regulatory capital across the Suncorp Group.