Annual Report 2016 - Bupa/media/files/site-specific-files/our... · Bupa Annual Report 2016 01 Strategic report Governance Financial tatements Financial performance summary 1

Annual Report 2016

Australia and New Zealand

Bupa’s status, as a company limited by guarantee with no shareholders, enables us to make customers our absolute focus. This means we can reinvest our profi ts to provide more and better healthcare for current and future customers.

As a service organisation, everything we do for our customers relies on our people and partners, so being a place where people love to work is critical to our success. We employ 86,000 people, principally in the UK, Australia, Spain, Hong Kong, Poland, New Zealand, Chile, Brazil, Thailand, China, Saudi Arabia, India and the US.

Around 70% of our revenue is from health insurance, with the rest from health and care provision. We fund healthcare around the world and run clinics, dental centres, hospitals, care homes and retirement villages in a number of countries.

UK Europe andLatin America

International Markets2

Our business is managed through four Market Units:

Our nine global functions connect across Bupa:

– Bupa Health Insurance

– Bupa Health Services

– Bupa Aged Care Australia

– New Zealand Care Services

– Bupa UK Insurance

– Bupa Care Services

– Bupa Health Clinics

– Bupa Cromwell Hospital

– Oasis Dental Care1

– Sanitas Seguros

– Sanitas Hospitales and New Services

– Sanitas Dental (Spain)

– Sanitas Mayores (Spain)

– LUX MED (Poland)

– Bupa Chile

– Bupa Global

– Bupa Arabia

– Bupa Hong Kong

– Quality HealthCare (Hong Kong)

– Max Bupa (India)

– Bupa Thailand

Our organisation structure

Revenue

£4,360.6mRevenue

£2,785.9mRevenue

£2,474.7mRevenue

£1,427.8mUnderlying Profi t

£344.4mUnderlying Profi t



£65.9m

With no shareholders, Bupa exists to serve our customers

...is an inspiring and motivating driver of performance

See page 8 See page 9 See page 10 See page 11

Helping people live lon ger , he alth ier , happier lives Our

purpose

Medical InformationServices People Marketing Corporate

Aff airsFinance &

Governance Strategy Risk & Compliance Legal

Our Group Corporate Centre leads reporting, capital management, coordination and governance.

1 Bupa completed the purchase of Oasis Dental Care on 9 February 2017 with an enterprise value of £835m.2 While revenues from our associates and joint ventures are excluded from our reported fi gures, customer numbers and the appropriate share of profi t from these businesses are included

in our reported numbers.

01Bupa Annual Report 2016

Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Financial performance summary1

Revenue

£11.0bn+4% CER2015: £10.6bn

+12% AER2015: £9.8bn

+10% CER2015: £638.1m

+2% CER3

+20% AER2015: £582.5m

+40% AER2015: £374.3m

+13% AER2015: £788.1m

Underlying profit2

£700.7m

Statutory profit before taxation

£522.9mNet cash generated from operating activities

£891.0m2015: 178%Solvency II capital coverage ratio4

204%

Strategic reportifc Our purpose and

structure01 Financial performance

summary02 Chairman’s statement03 Group Chief Executive’s

review04 Our business model05 Our strategic framework06-07 Our performance08-11 Our Market Unit strategy in action12-15 Financial Review16 Longer term viability

statement17-21 Risks

Governance22-23 Chairman’s introduction24-25 Board of Directors26-27 Bupa Executive Team28-30 Leadership31-32 Effectiveness33 Engagement34-37 Audit Committee Report38-39 Risk Committee Report40-41 Nomination and

Governance Committee Report

42-52 Remuneration Report53 Report of the Board

of Directors54 Statement of Directors’

Responsibilities

Contents

Financial statements55-140 Financial statements 56-58 Independent Auditor’s

report

1 We use Constant Exchange Rates (CER) to compare trading performance in a consistent manner to the prior year. We have therefore retranslated our 2015 results using 2016 average foreign exchange rates. Please refer to the Financial Review for the foreign exchange rates in our principal currencies. Due to our geographically diverse portfolio, the impacts of foreign exchange rates fluctuate year on year.

2 To derive underlying profit, profit before taxation is adjusted for amortisation and impairment of intangible assets and goodwill arising on business combinations, net property revaluation gains or losses, realised and unrealised foreign exchange gains and losses, gains or losses on return seeking assets, profits or losses on the sale of businesses and fixed assets, transaction costs on acquisitions and disposals, and restructuring costs.

3 Underlying profit is up 2% at CER and up 12% at AER when excluding the impact of the IFRIC 12 adjustment relating to our Spanish Public-Private Partnerships (PPPs) in 2015.

4 The 2016 Solvency II capital coverage ratio is an estimated value. The 2015 Solvency II capital coverage ratio has been updated to 178% from the 180% estimate disclosed in the 2015 Annual Report and Accounts.

See Our performance on pages 6-7

02 Bupa Annual Report 2016

Focused on customers2016 has been a year of change at Bupa. Evelyn Bourke became Group Chief Executive Offi cer, after Stuart Fletcher stepped down in April. Stuart left Bupa in a strong position, and with our thanks. As our former Chief Financial Offi cer, Evelyn knows Bupa well. She refreshed Bupa’s strategy with a renewed emphasis on high quality service for our customers in this digital age. The focus is on strengthening Bupa’s positions in existing geographic markets, including extending into adjacent business lines such as dental. Selective geographic expansion will continue to be part of Bupa’s strategy, with Asia and Latin America of interest. Bupa operates in highly sensitive and regulated sectors and must uphold the high standards our customers and regulators expect. During 2016, we increased our focus on risk and compliance and this remains a priority going forward as part of our refreshed strategy. This is key to delivering strong and sustainable performance, now and in the future.

Growth in challenging markets Over the year, Bupa made solid progress in challenging market conditions amidst global political uncertainty. Revenue grew4% and underlying profi t 10%, albeit up 2% when excluding the impact of the IFRIC 12 adjustment, related to our Spanish Public-Private Partnerships, made in 2015. Bupa became Australia’s largest health insurer for the fi rst time, and progress has been made in reshaping the UK business. Bupa UK exited the home healthcare sector and announced a purchase in the dental market. In Spain, further progress was made in digitising the customer journey with the launch of Blua, Sanitas’ digital health insurance off ering. Our ownership of Bupa Chile was increased to 100%, while our stake in Max Bupa in India was also increased to 49%. Performance in International Markets was impacted by a large profi t decline in Bupa

Global due to our exit of non-strategic markets, investment in capability and infrastructure, and a lower rate of growth. In December, we acquired Care Plus, a market-leading health insurer in Brazil.

Culture, diversity and corporate responsibilityCulture is core to Bupa’s success, with the company’s purpose and values at the heart of the customer and employee experience. It is vital that Bupa’s people are engaged and empowered to deliver for our customers, and we place great emphasis on being a place where people love to work. The Bupa Code – our code of conduct – sets out the behaviours we expect, and is complemented by our confi dential Speak Up hotline. We are an inclusive organisation and celebrate diversity. 40% of our Board members are female, as are 45% of the Bupa Executive Team, 41% of our senior management team and 69% of our total workforce. Gender is, of course, only one measure of diversity and is considered alongside a wide range of relevant skills and experience. We are proud of the diverse culture Bupa has fostered and our commitment to corporate responsibility and sustainability. We actively engage with the community to make a positive contribution on public health matters and promote positive environmental practices.

Corporate governanceThere were a number of changes to the Bupa Board. With Evelyn’s appointment as Group CEO, we appointed Joy Linton as Chief Financial Offi cer. In January 2016, Simon Blair and Janet Voûte joined us as Non-Executive Directors, while Rita Clifton stepped down from the Board at the AGM in May 2016. More information about Bupa’s governance is contained in my introduction to governance on pages 22-23 of this report.

Well-positioned for the future I’m incredibly proud of the way Bupa has navigated the challenging market conditions in 2016. We anticipate these will continue for some time to come, and are committed to delivering the very best for our customers. I would like to thank all our 86,000 people around the world. Their commitment to serving our customers is vital to our success and something we never take for granted.

Our 2016 Strategic Report, from pages 1-21, was reviewed and approved by the Board of Directors on 1 March 2017.

By order of the Board.

Lord Leitch Chairman

“I’m incredibly proud of the way Bupa has navigated the challenging market conditions in 2016. We anticipate these will continue for some time to come, and are committed to delivering the very best for our customers.”

Lord Leitch

Chairman’s statement


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

It is a huge honour to be the Group Chief Executive of Bupa, a special organisation which exists to help our customers live longer, healthier, happier lives. Financially strong, we have a trusted brand, committed people, and market-leading positions which we continue to grow.

Delivering for customers in the digital ageWe are focused on improving and extending our services for customers. To equip Bupa for the next phase of growth, in 2016 we refreshed our strategy, putting customers front and centre in the context of today’s digital age. As a service organisation, it is critical our people love working at Bupa and delivering for customers. Insurance, healthcare and care services are highly sensitive and regulated sectors and we are increasing our focus on management of risk and compliance to ensure we continue to uphold the high standards our customers and regulators expect. Through rigorous capital management, and investing in strength and depth in our existing markets with selective expansion into new growth markets, we will deliver strong and sustainable performance for our customers and for Bupa.

In 2016, our businesses performed solidly in challenging market conditions. We achieved good profi t growth in our three largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America – and, while performance within International Markets was impacted by a signifi cant decline in profi t in Bupa Global, the overall Group grew revenue 4% and underlying profi t 10%, albeit up 2% when excluding the impact of the IFRIC 12 adjustment made in 2015. Our performance was bolstered by strong and consistent cash fl ow, a strong balance sheet, robust management and an upgrade in one of our credit ratings.

In Australia and New Zealand, we delivered good revenue and underlying profi t growth in diffi cult market conditions, and our Australian

health insurance business became the country’s biggest health insurer for the fi rst time. The Australian Government is considering reforms of the health insurance sector, and aff ordability remains a challenge for the whole healthcare industry.

In the UK, we achieved good underlying profi t growth despite continued market pressures. Revenue was down due to the disposal of Bupa Home Healthcare (BHH) in July. If BHH revenue is removed from 2015 and 2016 performance, UK revenue was up 5%. Over the year we made progress in reshaping our portfolio. In July, we exited the home healthcare market. In November, we announced our agreement to purchase Oasis Dental Care. We also undertook a review of our UK care services business.

In Europe and Latin America, we delivered strong growth in revenue and underlying profit. In Spain, we grew our dental and health insurance businesses, while our Public-Private Partnerships are meeting their profit targets and providing high quality medical services in a difficult political environment. LUX MED, our business in Poland, performed well primarily due to good performance in our ambulatory and inpatient businesses. Bupa Chile achieved strong revenue growth.

In International Markets, performance was impacted by a large profit decline in Bupa Global. This was driven by the ongoing impact of our decision to exit non-strategic markets, as well as our investment in capability and infrastructure to improve the customer experience and grow our corporate book, and a lower than anticipated rate of growth in our individual and small medium enterprise books. While progress is being made, there will continue to be some impact on performance in 2017. In December, we acquired Care Plus.

Structure and executive team changesIn July, we reshaped our operating structure, reducing from fi ve to four Market Units. We also made a number of changes to the Bupa Executive Team. With my appointment as Group CEO, Joy Linton became Chief Financial Officer and joined the Bupa Board. Richard Bowden is now CEO of Australia and New Zealand, with David Hynam succeeding him as CEO of the UK. Wayne Close was appointed Acting CEO of International Markets. The role of Chief Risk Officer became part of the Executive Team, refl ecting our increased focus on risk and compliance, with David Fletcher appointed to the role. Gabriela Pueyo became Chief Strategy Offi cer.

OutlookLooking ahead, we expect conditions to remain challenging in our key markets with changing political environments, including the UK preparing to exit the European Union. Demand for quality, value-for-money healthcare will remain strong for years to come, however governments and consumers face funding pressures and medical costs are outpacing inflation. In addition, there are new customer standards of personalisation, ease and choice as well as high expectations of quality, safety, privacy and transparency.

The Bupa Executive Team and I would like to thank our 86,000 people. Their dedication and commitment is key to delivering our purpose of helping people live longer, healthier, happier lives. By ensuring an excellent experience for customers, patients and residents, we also ensure Bupa can deliver strong and sustainable performance, both now and in years to come.

Evelyn Bourke Group Chief Executive Officer

“We are focused on improving and extending our services for customers. To equip Bupa for the next phase of growth, we have refreshed our strategy, putting customers front and centre in the context of today’s digital age.”

Evelyn Bourke

Group Chief Executive’s review


Our value creation model

How our business works

Delivering for

CustomersAs a company without shareholders, our customers are our primary stakeholder

with profi ts reinvested for their benefi t, now and in the future

EmployeesWe employ 86,000 people principally in the UK, Australia, Spain, Hong Kong,

Poland, New Zealand, Chile, Brazil, Thailand, China, Saudi Arabia, India,

and the US

PartnersWe work with a range of partners, including other health providers,

associates and distributors

SocietyWe deliver quality health and care services

and contribute to local economies, including through employment. We play

our part in the community and manage our social and environmental responsibilities

Our business model

Customers are at the heart of everything we do. We fund and provide health and care services to fulfi l our purpose of helping people live lon ger , he alth ier , happier lives . As a company without shareholders, our profi ts are reinvested back into our business for the benefi t of current and future customers.

Underpinned by

Our services

Brand healthOur focus on customers

drives us to deliver high-quality customer experiences and health

outcomes, earning brand trust

Hospitals

Purpose and statusOur status, as a company limited by guarantee with

no shareholders, means we are focused on delivering

our purpose for customers

Financial strength

Our robust capital base, profi tability and cash

generation refl ect our strong fi nancial management disciplines. A variety of funding sources ensures

our long-term sustainability and appropriate rates

of return to lenders

Advice Aged care

Regulation and governance

We operate in regulated markets and aim to ensure

best practice in governance where appropriate with strong

internal controls and risk management. Our executive

team is overseen by the Board, which is held to account by our

Association Members

Dental

Primary care clinics

We fundHelping customers fund health and care through domestic and international health insurance,

as well as other funding models

We provideProviding health and care

services through primary care clinics, hospitals, dental centres,

and aged care services

Customers

Internationalhealth insuranceAccess to premium insurance products

and healthcareservices worldwide

Domestic healthinsurance

Funding quality healthcare for customers where

they live

Other fundingPay-as-you-go,

subscriptions, and dental and travel insurance


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Our strategic framework

Our refreshed strategic framework is driving the next phase of our growth in today’s digital age. It has three core elements – Customers, People and Performance – underpinned by three operating principles, with Bupa’s purpose and values guiding everything we do.

Market contextThe digital age is bringing new standards of customer choice, personalisation, ease and availability, with the emphasis on customer centricity, transparency and accountability higher than ever. Demand for quality, value-for-money healthcare continues to rise. Ageing populations, growth in chronic disease, continual advances in medical science, and rising consumer expectations mean demand is very strong and will remain so for years to come. Broader economic trends, exacerbated by medical costs rising ahead of spending, mean funding healthcare and associated services is increasingly challenging for both governments and consumers. Healthcare is signifi cant within the wider political and regulatory agenda.

Win locally,enabled globally

Responsive to local conditions and customerneeds, while sharing knowledge globally

Invest in strength and depth

Strengthening our existing businesses,selective expansion into new markets

Ever-focused on quality, effi ciency, safety and compliance

Upholding the highest standards,continuou s focus on effi ciency

Ou

r values are Passionate Caring Open Authentic Accountable Coura

geous

E

xtra

ord

inar

y

Our

pur

pose

is helping people live

CustomersWe want to be loved as a

true customer champion in health and care

PeopleWe want our people to

love working at Bupa, andbe empowered to serve

our customers

PerformanceWe need to generate strong and sustainable performance to invest in meeting the needs

of current and future customers


Measuring our progress

We track our performance using both fi nancial and non-fi nancial metrics aligned to our refreshed strategic framework. As well as revenue and underlying profi t, we measure net cash fl ow and our solvency coverage ratio. We also measure customer numbers for insurance, provision and aged care, and regularly check how our people feel about working at Bupa. We remain committed to managing our environmental responsibilities and playing our part in communities.

Our performance

How we are performing

Customers 16.5mInsurance customers+6%

10.6mProvision customers +14%

33,100Aged care residents+2%

Employee Net Promoter Score(eNPS)

+21 (July 2016)

Extremely likely

Would you recommend Bupa as a place to work? Not at all likely

Net Promoter Score=%%

10 9 8 7 6 5 4 3 2 1 0+30(October 2016)

+4% CER+12% AER

Revenue £11.0bn

Underlying profi t £700.7m +10% CER+2% CER1

+20% AER

1 Under IFRIC 12, which applies to service concession contracts such as Spanish PPPs, we use the average operating margin for the life of the contract (based on historic performance plus projections) as a means for recognising results. Once there is a change in performance compared to expectations, the operating margin is reassessed and an adjustment made to the current year results to bring the contract performance to date in line with the revised margin. In 2015, this negative non-cash adjustment of £52m included an amount relating to the current year of £8.8m together with a retrospective adjustment for the years preceding 2015 of £43.2m. To compare the result on a ‘like for like’ basis with 2016, we have excluded £48.6m (being £43.2m retranslated at 2016 exchange rates) from underlying profi t in 2015.

Net cash generated from operating activities

£891.0m +13% AER

Solvency II capitalcoverage ratio 204%

2 The Solvency Coverage Ratio was updated to 178% from the 180% estimate disclosed in the 2015 Annual Report and Accounts.

Trend (AER)

2015

2016 £11.0bn

£9.8bn

Trend (AER)

2015

2016 £700.7m

£582.5m

Trend (AER)

2015

2016 £891.0m

£788.1m

Trend (AER)

2015

2016 204%

178%2


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Performance commentary

Our purpose – helping people live longer, healthier, happier lives – is at the core of our approach to corporate responsibility and sustainability.

We aim to make a positive impact by:

1. Funding and providing quality health and care services: As a health and care business without shareholders, we are focused on serving our customers. We champion quality, medically-evidenced treatment and care. We seek to deliver value for money, provide exceptional care, and help customers navigate the complex world of healthcare.

2. Conducting our business ethically: With a strong purpose across the organisation, we also have seven clear Bupa values and the Bupa Code which are designed to help our people make the right choices. More broadly, we aim to ensure a culture which emphasises serving the interests of customers while operating robust internal controls, including complying with our enterprise policies and all regulations. We have performance management, risk management, audit, governance, and ‘Speak Up’ processes in place.

3. Being a place where people love to work: Our people are vital to our success. We promote a positive working environment and a diverse and inclusive culture that engages and empowers people with the right tools, training, information, recognition and reward. We want everyone to be happier and healthier because they work at Bupa and invest in this through our ‘Smile’ programme. Our Bupa values and the Bupa Code set clear expectations to protect our customers, our colleagues, our partners and Bupa, now and in the future.

4. Engaging with our communities: Beyond our health and care services for customers, we engage people more widely in their health and wellbeing. We also connect with stakeholders to make a positive contribution on public health matters. We work with numerous community groups and sporting organisations and have dedicated Health Foundations in Australia, the UK and Spain to channel our investment in research and initiatives to improve public health (as noted below).

5. Making a positive impact on the environment: Climate change is a health concern, and we play an active part in promoting positive environmental practices. In 2016, we reduced our absolute global carbon emissions by a further 1% to 149.7 ktCO2e1 (representing an almost 25% reduction against our 2009 baseline) through energy efficiency and renewables projects across our business, and the purchase of electricity from certified renewable sources. During the year, we broadened our global environmental investment programme and continued our focus on promoting the use of renewable energy.

In 2016, we achieved many of our goals in corporate responsibility and sustainability. Our highlights include:

– Our Health Foundation in Australia invested AUD$3.1 million including projects to harness data to improve patient journeys and clinical outcomes, and raising awareness of the critical ‘First 1,000 Days’ period of child development from conception to age two. Through the Australia Reconciliation Action Plan we are also advocating for better delivery and health outcomes for Aboriginal and Torres Strait Islander people.

– Our UK Foundation awarded nearly £1 million to initiatives focused on mid-life mental health and caring for carers. Through our strategic partnership with Age UK, we supported the health and wellbeing of older people. We also supported employee fundraising for a range of health and social care charities in the UK thanks to our match-funding programme.

– Our Sanitas Foundation invested €750,000 to support social initiatives in Spain. Its flagship project promoted the inclusion of children with disabilities through sport and set a new Guinness World Record for inclusive spinning in one of Madrid’s most famous public squares. Sanitas also ran the ‘Madrid Healthy Cities’ initiative with a group of companies and the Spanish Heart Foundation, highlighting the power of workplaces to improve the health of employees and the wider environment. Employees from participant companies took part in walking activities, clocking more than 600,000km and raising funds to build healthy walking routes in the city.

Corporate responsibility and sustainability

From 2016, we are categorising our customers in line with our business model, grouping the numbers by insurance, provision and aged care. Insurance customers reflect closing members at the end of the year and do not include Rashtriya Swasthya Bima Yojana (RSBY) customers. Provision customers comprise people we have cared for in our health and dental clinics and hospitals during the year. This figure also includes the Bupa Home Healthcare customers we cared for until the sale of the business in July. Aged care residents reflect the number of residents in our care homes and retirement villages at the end of the year. All numbers are inclusive of customers in our associate and joint venture businesses.

In 2016, we replaced our annual employee survey with a contemporary global People Listening System called ‘People Pulse’. This includes measurement of an employee Net Promoter Score (eNPS) – a widely recognised system to measure employee recommendation of Bupa as a place to work. Our October Pulse recorded an eNPS of +30, up nine points from the first wave of results in July.

For more information, please visit bupa.com

1 Figure represents Bupa’s Total Carbon footprint, including Scope 1 emissions 65.4 kt CO2e, Scope2 emissions 65.9kt CO2e and Scope3 18.4kt CO2e.

Revenue increased by 4%, with solid growth across our three largest Market Units – Australia and New Zealand, the UK (when adjusted for the disposal of Bupa Home Healthcare in July 2016) and Europe and Latin America despite challenging operating environments and political uncertainty.

We achieved good profit growth in our three largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America – and while performance within International Markets was impacted by a significant decline in profit in Bupa Global, the overall Group delivered growth, with underlying profit up 10%, albeit up 2% when excluding the impact of the IFRIC 12 adjustment, made in 2015.

Net cash generated from operating activities remains strong, increasing to £891.0m (2015: £788.1m). This reflects the impact of the foreign exchange fluctuations affecting profit before tax and growth in earnings following the robust trading performance from our three largest Market Units – Australia and New Zealand, the UK and Europe and Latin America.

Solvency II capital coverage was 204% at year end following a £400m subordinated bond issue in December 2016, which occurred prior to completion of the Oasis Dental Care purchase. The 2016 Solvency II capital coverage ratio is an estimated value.


Operating environment – In the third quarter of 2016, Australia’s economic growth declined for the fi rst time in fi ve years, by 0.5%.

– The Australian Government is considering reforms of the health insurance sector, and aff ordability remains a challenge not only for Bupa and our customers, but for the broader healthcare industry. There was very low growth across the sector during the year.

– We are working with a variety of stakeholders, including governments, hospitals, doctors and our networks to tackle rising overall healthcare costs.

– Changes to the Australian Aged Care Funding Instrument will reduce aged care sector funding, particularly for residents with complex care needs. These changes are expected to adversely impact revenue and the sustainability of the whole aged care sector and we continue to urge the government to consider alternative funding arrangements.

– In New Zealand, our care services business has benefi ted from higher property values during the year but was challenged by care home occupancy rates and reduced government funding. A pending fair wage case for care homes could increase costs in the sector.

PerformanceIn 2016, we performed well with 7% growth in revenue and 9% growth in underlying profi t despite low-growth macroeconomic conditions and regulatory uncertainty. We focused on transforming our business and digitising manual processes to vastly improve experiences for our customers.

Against the backdrop of slower overall growth in the market, our health insurance business grew to become Australia’s largest health

insurer for the fi rst time. We achieved a 3% growth in customer numbers at year end, which is the result of our focus on providing enhanced customer service and better value. We believe customer aff ordability will continue to be an issue for the sector in 2017. As a result, we are focused on having a strong say in the national health debate, advocating government policy reform that will deliver a more aff ordable and effi cient health system for all Australians.

We grew our health services business, with our 237 Bupa dental practices making Bupa Australia’s largest dental provider. We also opened three new Bupa Optical stores in Australia, taking the total to 37, with some off ering audiology services for the fi rst time.

Bupa Aged Care Australia remains the country’s leading private aged care provider, caring for nearly 7,000 residents across an expanding network of 71 homes. Our Australian aged care business is driven by a person-fi rst model of care and a consistent management system.

During the year, our aged care business in New Zealand grew, with four new care homes opening at Wattle Downs, Parkstone, St Andrews and Hugh Green. We also opened a retirement village off ering at St. Andrews. We are the leading provider of dementia care in New Zealand and our focus is on ensuring people with dementia are valued, can contribute to and participate in society, and importantly that they can feel safe doing so. We are taking a leading role in dementia awareness and care, partnering with governments and industry.

We are committed to enhancing the experience of our customers and people through better and more effi cient use of technology. We are building new tools and capabilities so our customers have meaningful and personalised interactions with us, whether in store, on the phone or online.

Australia & New ZealandAustralia & New Zealand performed well in 2016, achieving strong growth in challenging local conditions.

Richard BowdenCEO, Australia & New Zealand

Revenue

£4,360.6mUnderlying profi t

£344.4mCustomers

4m Insurance

1.9m Provision

10,800 Aged care

Our Market Unit strategy in action

+7% 2015:

£4,078.3m

+9% 2015:

£314.7m

CER


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Operating environment – The UK Government has further increased

the Insurance Premium Tax, which challenges the aff ordability of health insurance for our customers. Together with industry partners, we are championing the role of independent healthcare and campaigning to make it more aff ordable for customers.

– The UK aged care sector remains under pressure with increased costs including the impact of the National Living Wage. We are maintaining a disciplined approach to fee negotiations with Local Authorities in order to recover the true cost of caring for publicly-funded residents.

– In 2016, we saw an uplift in contribution from funded nursing care payments towards the cost of providing registered nursing care.

Performance In the UK, good performances were delivered across our businesses despite ongoing challenges in the market. Revenue was down 3% due to the disposal of Bupa Home Healthcare (BHH). If BHH revenue is removed from 2015 and 2016 performance UK revenue was up 5%.

Our health insurance business has performed well, with profi t driven by improved corporate and consumer loss ratios. We are committed to our digital transformation and innovating to give our customers access to the best care, with initiatives such as our pioneering breast and bowel cancer self-referral service providing our customers faster access to diagnosis without the need for a GP referral. In 2016, we also launched an expanded cataract network tackling shortfalls in ophthalmology, improving our customers’ experience. Our intermediary partners are also seeing the benefi ts of Bupa Connect, our user-friendly online portal, which allows them to manage their clients more eff ectively.

Over the year we put considerable focus on managing risk and compliance across all areas of our business. We also made progress in reshaping our portfolio. In July, we exited the home healthcare market with the disposal of BHH. In November, we announced our agreement to purchase Oasis Dental Care1, the UK’s leading private dental provider, from European private equity group Bridgepoint. This purchase forms part of our growth strategy, making Bupa a major dental provider in the UK’s £7.1bn dental market, with over two million customers and around 420 clinics.

Following a review of our care services business, we have identifi ed a number of homes which are now held for sale to enable us to focus our eff orts and investment. We remain committed to the growing aged care sector. We refurbished 20 homes, began building four new homes and acquired two homes from Primetower Care. We are expanding our portfolio of six Richmond Care Villages with two new villages under construction in Worcestershire and South Derbyshire. Our care services occupancy is 86%.

In our health clinics business, revenue growth has been driven by health assessments, dental, primary care and greater capacity in our musculoskeletal services.

We are upgrading and improving our facilities at Bupa Cromwell Hospital, where our £2.1m investment in redeveloping our wards has taken customer satisfaction scores for accommodation from 71% to 91% post-completion.

David HynamCEO, UK

Revenue


£194.9mCustomers

2.4m Insurance

1.2m Provision

17,400 Aged care

-3% 2015:

£2,857.8m

+7% 2015:

£182.6m

United KingdomIn the UK, all our businesses delivered good performances, despite ongoing challenges in the market.

1 Bupa completed the purchase of Oasis Dental Care on 9 February 2017, subject to UK Competition and Markets Authority (CMA) approval, with an enterprise value of £835m.


Our Market Unit strategy in action continued

Europe & Latin America

Operating environment – In Spain, after a year of uncertainty following the fi rst general election in December 2015, the new government was formed in November 2016.

– The Polish market continues to show positive signs of growth, in spite of uncertainty around the impact of the current government’s agenda.

– Despite a challenging political scenario, our Public-Private Partnerships are meeting their profi t targets while providing high quality medical service in their respective areas.

– Legal uncertainties in Chile, which are linked to the premium increase process, are aff ecting the performance of the whole Isapre industry.

PerformanceIn Europe and Latin America, we delivered strong growth in revenue of 10% with underlying profi t up 63%. When excluding the impact of the adjustment relating to our Spanish Public-Private Partnerships in 2015, underlying profi t was up 10%. Our business units delivered good performance, with growth in our dental and health funding businesses and a year-on-year increase in new customers numbers.

In Spain, we achieved revenue growth across a number of business units, with a good increase in our Sanitas Seguros private medical insurance business as a result of successful partnerships with SantaLucia and Banco Bilbao Vizcaya Argentaria.

We are committed to digitising the entire customer journey through a new version of our Sanitas app, so customers can purchase products on our website, fi nd a doctor and make an appointment, undertake video consultations with our doctors and access their medical histories. Products such as Blua,

our health insurance off ering, are enhancing the customer experience through direct video consultations.

In Sanitas Mayores, our aged care business, occupancy is 96%. We opened our 14th home in Madrid and acquired a home in Valencia, and are now operating 40 homes and three day-care centres with a total capacity of nearly 5,000 residents.

In Sanitas Dental, we launched emergency video consultations, off ering services outside standard business hours, available nationwide. We opened fi ve new dental centres and acquired nine dental franchises.

In Sanitas Hospitales and New Services, we have successfully created an integrated care network in Barcelona connecting our Sanitas CIMA Hospital with a network of multi-specialty medical centres.

In Poland, LUX MED has achieved very strong growth in revenue, primarily due to good performance in our ambulatory and inpatient businesses. Ambulatory revenues were driven by demand for our core subscription product, supported by a strong fee-for-service revenue stream.

During the year, we increased our ownership of Bupa Chile from 73% to 100%. Bupa Chile has achieved year-on-year revenue growth, with good performance in our hospital and outpatient services and a performance improvement in Isapre despite diffi cult market conditions. Our claims programmes and operating cost controls have driven profi tability. In September, we strengthened our dental business opening four centres and off ering additional services at outpatient care facilities, as well as dental insurance. Construction of Clínica Bupa Santiago hospital is well advanced and expected to be operational from late 2017. We are also expanding our Clínica Bupa Antofagasta hospital.

Iñaki EreñoCEO, Europe and Latin America

Revenue


£165.6mCustomers

2.9m Insurance

6.7m Provision

4,900 Aged care

Europe and Latin America delivered good growth in revenue and underlying profi t and made digital advances across the business.

+10% 2015:

£2,251.8m

+63%2015:

£101.8m

CER


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

International MarketsIn International Markets, while revenue grew, underlying profi t declined driven by a profi t decline in Bupa Global.

Operating environment – We operate in diverse markets across the world where healthcare regulation and the economic environment are constantly evolving.

– Challenging market conditions in Saudi Arabia, including a slowing economy, have aff ected profi t margins.

– The Indian health insurance sector is attracting new entrants leading to a competitive market.

– High claims in the fi rst half of 2016 due to infl uenza led to a commercially challenging year for Bupa Thailand.

PerformanceIn International Markets, while revenue grew 1%, underlying profi t declined 52%, predominantly due to a large profi t decline in Bupa Global. As noted in our Half Year statement in August, this was driven by the ongoing impact of our 2013 decision to exit non-strategic markets, which has led to high lapses in the period, our investment in capability and infrastructure to improve the customer experience and grow our corporate book, and a lower than anticipated rate of growth in our individual and small medium enterprise (SME) books. While progress is being made, there will continue to be some impact on performance in 2017.

In Hong Kong, we grew our market share in private medical insurance through good growth in revenue and customers, supported by our bancassurance partnership with Hang Seng Bank. Our Quality HealthCare clinics delivered steady growth in patient visits, with fi ve new facilities, including health centres and clinics, opening in residential districts in Hong Kong and new business secured with large

regional and multinational companies. We announced our plans to open two medical centres in Guangzhou, China in 2017. In Thailand, high claims in the fi rst half of 2016 due to infl uenza led to a diffi cult year, but customer numbers have remained steady with revenue growth in the individual and SME markets.

Our Bupa Arabia associate business continued to deliver strong customer and revenue growth despite less favourable economic conditions, relaunching its health and wellness support service, Tebtom, and introducing a point-of-care service inside hospitals.

In India, we increased our shareholding of Max Bupa from 26% to 49% in June 2016 following a change in the law allowing greater foreign ownership. This business has delivered strong year-on-year growth in both customers and revenue.

In December, we announced the expansion of our Bupa Global Latin American business through the acquisition of Care Plus, a market-leading health insurer in Brazil, which serves more than 400 companies with around 100,000 customers.

Wayne CloseActing CEO, International Markets

Revenue

£1,427.8m1

Underlying profi t

£65.9mCustomers

7.2m Insurance

700,000 Provision

+1% 2015:

£1,418.9m

-52% 2015:

£138.1m

CER

1 While revenues from our associates and joint ventures are excluded from our reported fi gures, customer numbers and the appropriate share of profi t from these businesses are included in our reported numbers.


In 2016 we have maintained our strong fi nancial position in challenging market conditions through our focus on sustainable profi tability, supported by our robust capital base.

Following the result of the referendum on the UK’s membership in the European Union (EU), sterling weakened considerably against our major operational currencies (refer to currency table) which has a positive impact across all reported measures. Net cash generated from operating activities refl ects these favourable foreign exchange movements which, together with our strong fi nancial discipline, result in an increase in cash fl ows from operating activities of 13% to £891m (2015: £788.1m).

The continued revenue and profi t growth across our businesses underpins our cash generation. In 2016 we delivered revenue growth of 4% to £11bn (2015: £10.6bn) at constant exchange rates (CER), with our underlying profi t before tax increasing by 10% to £700.7m (2015: £638.1m). The result is up 2% at CER in 2016 when excluding the £48.6m impact of the IFRIC 12 adjustment1 relating to our Spanish PPPs in 2015. Underlying profi t increased in all our Market Units in 2016, with the exception of International Markets.

Our statutory profi t before taxation of £522.9m (2015: £374.3m) is up 40% at actual exchange rates (AER). This refl ects the good trading performance in our Market Units in 2016, while our 2015 result was negatively impacted by the impairment of goodwill and a write down in the value of property and equipment in UK Care Services. The increase in 2016 is after a loss of £112.3m on the redemption of the secured loan notes as previously reported.

We continued to invest in our core markets. In 2016 we acquired the remaining minority interest shareholding in Bupa Chile, increased our holding in Max Bupa to 49% and, in December, we increased our footprint in Latin America through the acquisition of Care Plus in

Brazil. Over the year we have made progress in reshaping our portfolio in the UK. We sold Bupa Home Healthcare in July and completed the purchase of Oasis Dental Care in February 2017, subject to UK CMA clearance, having announced our intention to do so in November 2016. We also undertook a review of our UK care services business and as a result have identifi ed a number of homes for sale as at 31 December 2016.

Our capital base remains strong with an estimated Solvency II surplus of £2.1bn2 (2015: £1.3bn), representing a coverage ratio of 204%3. Our coverage ratio decreased to an estimated 165%3 following the completion of the Oasis Dental Care purchase in February 2017, comfortably within our capital risk appetite. This capital strength helped to support the Moody’s upgrade of our Bupa Finance plc senior debt rating from Baa2 to Baa1 in September. The upgrade by Moody’s has reduced our cost of borrowing under the £800m committed bank facility and is expected to underpin lower costs in future debt issuances.

Our leverage ratio is down to 22.6% (2015: 27.7%) driven by strong repatriations and foreign exchange movements. Following the purchase of Oasis Dental Care in February 2017, our leverage is approximately 7 percentage points higher than at the year end.

Financial Review

Joy LintonChief Financial Offi cer

“We have delivered strong cash generation, improved our credit rating and restructured our debt. These actions refl ect the strong fi nancial management disciplines we have embedded across Bupa.”

Currency

2016 2015%

Change

AUD average rate 1.8234 2.0370 -10%

AUD closing rate 1.7106 2.0210 -15%

EUR average rate 1.2234 1.3782 -11%

EUR closing rate 1.1703 1.3560 -14%

USD average rate 1.3547 1.5288 -11%

USD closing rate 1.2345 1.4734 -16%

Revenue

£11.0bn

Statutory profi t before tax

£522.9m

Solvency II coverage ratio3

204%

+4% CER2015: £10.6bn

+12% AER2015: £9.8bn

+40% AER2015: £374.3m

+26p.p.2015: 178%

+10% CER2015: £638.1m

+2% CER4

+20% AER2015: £582.5m

+62% AER2015: £1.3bn

Underlying profi t

£700.7m

Net cash generated from operating activities

£891.0m

Solvency II capital surplus2

£2.1bn

+13% AER2015: £788.1m

1 Refer to page 6 for further detail.2 The 2016 Solvency II capital surplus is an estimate. The

2015 Solvency II capital surplus was updated to £1.3bn from the £1.4bn estimate disclosed in the 2015 Annual Report and Accounts.

3 The 2016 Solvency II coverage ratio is an estimate. The 2015 Solvency II coverage ratio was updated to 178% from the 180% estimate disclosed in the 2015 Annual Report and Accounts. The Solvency II number disclosed post Oasis Dental Care completion is a pro-forma fi gure as if the acquisition occurred at the balance sheet date.

4 Underlying profi t is up 2% at CER and up 12% at AER when excluding the impact of the IFRIC 12 adjustment relating to our Spanish Public-Private Partnerships (PPPs) in 2015. Refer to page 6 for further detail.


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Insurance Premium Tax. Care Services also benefi tted from a number of factors including an uplift in contribution from government funded nursing care payments to support the cost of providing registered nursing care. These were partially off set by increased staff costs following the introduction of the National Living Wage in April.

The strong growth in Europe and Latin America is primarily driven by growth in Bupa Chile, including the Isapre, hospitals and outpatient businesses, as well as increasing our shareholding to 100% (2015: 73.7%). In Spain we saw growth across most businesses.

In International Markets, our underlying profi t declined 52%, primarily driven by Bupa Global. This refl ects the continued impact of our 2013 decision to exit non-strategic markets which has led to high lapses in the year, our investment in capability and infrastructure to improve the customer experience and grow our corporate book, and a lower than anticipated rate of growth in our individual and small medium enterprise books.

Our underlying profi t result has also benefi tted from lower fi nancial expense resulting from the early redemption of the secured notes (refer to the Funding section for further detail), as well as lower debt costs following the repayment of the £350m senior bond which matured in July 2016.

Statutory profi tIn 2016 we generated 70% of our revenues outside of the UK (2015: 66%). This geographically diverse portfolio has driven the 40% (AER) increase year-on-year in statutory profi t before taxation due to the signifi cant weakening of sterling against our major operational currencies, together with a lower number of negative non-underlying items in 2016 compared to 2015, as presented in the table above.

Most notably and as reported within our Half Year results, in 2016 there was a net loss of £112.3m on the redemption of the secured loan notes (2015: £nil). The redemption reduced the complexity and cost of maintaining this expensive and complex piece of legacy debt funding. It also reduced the ongoing interest cost of our debt.

The gains on return seeking assets were £22.9m (2015: £7m), driven by our corporate bond and emerging market debt exposure. In 2017, we will continue to actively manage the portfolio, consistent with our investment risk appetite and in line with our views of prospective asset class returns.

Following the reclassifi cation of a number of UK care homes as assets held for sale, £10.7m was recognised as the expected costs of sale within net property revaluation losses.

To provide further year-on-year context, in 2015 there was a write down in the carrying amount of goodwill and property and equipment within our UK care services business, resulting in a charge of £181.9m to the income statement.

“Having no shareholders means that our profi ts are continuously reinvested into the business to fund and provide more and better healthcare, fulfi lling our purpose.”

TaxationOur taxation expense of £136.1m (2015: £96.0m) represents an eff ective tax rate of 26.0%. The eff ective rate is higher than the UK statutory rate of 20% mainly due to profi ts arising in higher tax territories.

We operate in a number of markets with diff erent tax rates ranging from 16.5% to 35.0% and the weighted average tax rate is 26.0%.

Non-underlying profi t items (AER)

2016£m

2015£m

Amortisation and impairments of intangible assets and impairments of goodwill arising on business combinations (70.7) (160.6)

Net gains/(losses) on disposal of businesses and transaction costs relating to business combinations 6.5 (3.8)

Net property revaluation losses (23.8) (61.7)

Realised and unrealised foreign exchange gains/(losses) 19.4 (11.7)

Other Market Unit and central non-underlying items (19.8) 22.6

Early termination of secured notes (112.3) –

Gains on return seeking assets, net of hedging 22.9 7.0

Total non-underlying profi t items (177.8) (208.2)

Underlying profi tIn order to compare trading performance in a consistent manner year-on-year, a number of non-trading items are removed from our statutory profi t before taxation to arrive at underlying profi t. Underlying profi t excludes a number of components of the statutory profi t before taxation, including items relating to business combinations and disposals, fl uctuations in foreign exchange rates, property revaluations and gains or losses on return seeking assets, along with other one-off items as shown in the table. Refer to Note 2.0 for a detailed explanation of underlying profi t and non-underlying items.

We achieved good underlying profi t growth in our three largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America. While performance within our International Markets Market Unit was impacted by a signifi cant decline in profi t in Bupa Global, the overall Group delivered growth with underlying profi t up 10%. The 2015 result included a £48.6m IFRIC 12 adjustment in relation to our PPPs, excluding this impact the 2016 result is up 2%.

Underlying profit by Market Unit (AER)

2016 2015

1. Australia and New Zealand 45% 41%

2. United Kingdom 25% 27%

3. Europe and Latin America 21% (restated) 13%

4. International Markets 9% (restated) 19%

1

2

3

4

In our Australia and New Zealand Market Unit, despite challenging trading conditions, we achieved 9% underlying profi t growth. The increase is due to a strong performance in our health insurance business, and is supported by increased occupancy in our care homes and retirement villages.

In the UK, revenue was down 3% due to the disposal of Bupa Home Healthcare in July. Despite the revenue shortfall, the UK achieved good underlying profi t growth due to our health insurance business performing well notwithstanding the further increase in


Financial review Continued

Cash fl ows Net cash generated from operating activities remains strong, increasing to £891.0m (2015: £788.1m). This refl ects the growth in earnings, strong infl ows from refundable accommodation deposits and occupational rights agreements following the opening of new care home and retirement village facilities in Australia and New Zealand, and the favourable impact of foreign exchange.

Cash used in investing activities decreased by £385.3m compared to 2015 primarily due to a change in mix in our investment portfolio from bonds into cash to support the repayment of debt and the funding of business growth and acquisitions. Capital expenditure of £502.7m (2015: £386.4m) was invested in our businesses, including the continued expansion and refurbishment of our care homes. We acquired a further 26.3% share holding in Bupa Chile for £93.1m thereby achieving 100% ownership. We increased our share holding in Max Bupa in India from 26% to 49%, for £21.9m, following the change in law allowing greater foreign ownership. In December 2016 we also acquired 100% of Care Plus.

This was partly off set by £128.5m cash received on sale of the zero coupon bond that provided security for repayment of the £235m secured loan notes and the net cash proceeds from the sale of Bupa Home Healthcare of £20.4m.

Cash outfl ows from fi nancing activities increased by £458.0m compared to 2015. The variance to the prior year is due to the repayment of the aforementioned secured loan notes (£381.6m) as well as the repayment of senior unsecured bonds (£350m). Partially off setting this were proceeds from the £400m subordinated bond issued in December 2016. As part of our eff ective capital management we settled hedging instruments at a cost of £77.7m to off set the impact of the weakening sterling.

Overall cash and cash equivalents increased 18% to £1,412.7m. These funds, in addition to our fi nancial investments and longer term deposits, continue to be managed conservatively and in line with a clearly articulated risk appetite. We actively manage our counterparty exposures as part of our ongoing risk management, and cash is only invested with counterparties rated A/A2 or higher, unless approved by the relevant Investment Committee.

FundingBupa Finance plc senior debt rating

Fitch

A-(Stable outlook)

Moody’s

Baa1(Stable outlook)

We manage our funding prudently to secure a sustainable platform for our continued growth. A key element of our funding policy is to target an A-/A3 senior debt rating for Bupa Finance plc, the main issuer of Bupa debt.

Our Bupa Finance plc senior debt rating was upgraded by Moody’s from Baa2 to Baa1 in September 2016. This follows the change to positive outlook by Moody’s in September 2015, where they noted our low product risk, improved fi nancial results and strong track record in generating capital. The Fitch rating was unchanged during the year at A- (stable). The upgrade by Moody’s has reduced our cost of borrowing under the £800m committed bank facility and is expected to underpin lower costs in future debt issuances. Our continued focus on cash generation and appropriate repatriation from Market Units enabled us to fund growth in the business and end the year undrawn on the £800m committed bank facility.

We focus on managing our leverage in line with our rating target. Leverage reduced during the year, driven by lower borrowings alongside the increase in equity from profi ts and foreign exchange movements. At year end, leverage stood at 22.6% (2015: 27.7%). Following the completion of Oasis Dental Care in February 2017, leverage is approximately 7 percentage points higher than at the year end. Coverage of fi nancial covenants remains considerably within levels required in Bupa’s bank facilities.

“Our credit rating upgrade in 2016 further supports our fi nancial strength in pursuit of long-term sustainability.”

On 1 April 2016, we took the opportunity to redeem early both tranches of the £235m secured loan notes, which were due to mature in 2029 and 2031 with coupons of 6.3% and 7.5% respectively. The redemption reduced the complexity and cost of maintaining the debt. It also reduced the ongoing interest cost of our debt. A zero coupon bond which was in place to support the ultimate repayment of one of the tranches of debt was simultaneously unwound and helped to fund the redemption. This resulted in a net loss of £112.3m, which comprises the early redemption of the notes (£151.6m) and profi t on early termination of the zero coupon bond (£39.3m). In July 2016, we repaid £350m of 7.5% senior unsecured bonds issued by Bupa Finance plc in July 2009.

An additional committed bank facility of £250m was agreed in June 2016 which was due to mature in December 2017.

On 8 December 2016, Bupa Finance plc issued a £400m 10 year tier 2 subordinated bond with a coupon of 5%. Following the bond issuance, a prepayment notice was issued cancelling the commitment under the £250m facility.

On 17 January 2017, Bupa Finance plc entered into a £650m acquisition fi nancing facility to part fund the purchase of Oasis Dental Care. The facility has a 12 month term, with an option to extend for a further six months.

Cash and Investments by Credit Rating (%)

1

2

3

4

5

2016 2015

1. AAA 3% 9%

2. AA 39% 41%

3. A 44% 41%

4. BBB 6% 4%

5. <BBB-/NR 8% 5%


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Capital structure2016£bn1

2015£bn

Unrestricted Tier 1 2.9 2.2

Restricted Tier 1 0.4 0.4

Tier 2 0.9 0.5

Own Funds 4.2 3.1

Our capital comprises equity, exclusive of any non-controlling interests, together with eligible subordinated debt.

We have £330m of callable subordinated perpetual guaranteed bonds, a £500m dated hybrid bond which matures on 25 April 2023 and a £400m dated hybrid bond which matures on 8 December 2026. These bond issues are accounted for as liabilities in the IFRS fi nancial statements, but are treated as solvency capital for regulatory and management purposes.

Solvency positionWe maintain regulatory capital coverage in line with our capital management objective as set out in Note 5.3.

At 31 December 2016, our eligible Own Funds, determined in accordance with the Solvency II valuation rules, were £4.2bn1 (2015: £3.1bn), which was in excess of our estimated SCR of £2.1bn1 (2015: £1.8bn). This represented a solvency coverage ratio of 204%2 (2015: 178%). The completion of the purchase of Oasis Dental Care in February 2017 reduced our coverage ratio to an estimated 165%2, comfortably within our capital risk appetite.

The key items of the reconciliation above:

– Goodwill and intangibles on the IFRS balance sheet are not recognised as Own Funds under Solvency ll.

– Subordinated debt is treated as Own Funds under Solvency ll but as a liability under IFRS.

– Pension surplus in excess of the pension risk contribution to the SCR of £361m is not included in Own Funds.

Own Funds SCR

£4.2bn

£2.1bn

Capitalsurplus£2.1bn

Solvency II capital position

Reconciliation of IFRS equity to Solvency II Own Funds

IFRS equityattributable

to Bupa

Goodwilland intangibles

Valuationdifferences

Pensionsurplus

adjustment

Subordinateddebt

Solvency IIOwn Funds

£6.6bn

£4.2bn£3.4bn £0.1bn £0.4bn

£1.3bn

“We continue to maintain a strong solvency position, which is comfortably within our risk appetite.”

Solvency capital requirement

Analysis of the Solvency Capital Requirement

2016 % of diversifi ed

SCR1

2015 % of diversifi ed

SCR1

Insurance risk 19% 19%

Market risk 60% 61%

Spread 2% 3%

Equity 2% 1%

Property 34% 31%

Currency 16% 13%

Pension Scheme 6% 13%

Counterparty risk 4% 3%

Operational risk 11% 11%

Participations (Associates) 6% 6%

100% 100%

SCR is calculated in accordance with the Standard Formula specifi ed in the Solvency II legislation. We have obtained approval from the Prudential Regulation Authority (PRA) to amend the formula with an Undertaking Specifi c Parameter (USP) which refl ects our own loss experience.

Replacing the standard parameter for insurance premium risk with our own refl ects the lower risk that our size, experience and geographic diversifi cation brings.

The single largest risk component of our SCR is property risk which relates to our care home portfolio in the UK, Australia, New Zealand and Spain. The majority of these care homes are not in regulated entities and therefore our policyholders are largely immunised for the volatility of the property value.

Risk sensitivities3

The following analysis shows the relative sensitivity of our estimated solvency coverage ratio as at 31 December 2016 to changes in market conditions and underwriting performance. Each sensitivity is an independent stress of a single risk and does not take into account management actions. The selected scenarios do not represent our expectations for future market and business conditions.

150 175 200100 125 225

Risk sensitivities

204%

204%

204%

204%

193%

201%

203%

196%

201%

Solvency Coverage Ratio

Interest rate +/- 100bps

Credit spreads + 100bpsassuming no credit transaction

Equity markets – 20%

Property values – 10%

GBP appreciates by 10%

Pension risk + 10%

USP + 0.2%

Loss ratio worsening by 2%

OutlookIn 2016 we have successfully navigated challenging market conditions to achieve solid trading performance, improved cash flows and reduced leverage. As we look to the future, we will continue to focus on growing and developing our businesses, as well as driving operational effi ciencies while sustaining a strong capital position and managing our funding to ensure a sustainable platform to support future growth.

In 2017 we look forward to welcoming the Oasis Dental Care team into the Bupa family, which will make us a major provider of dental care services in the UK and signifi cantly increase our high street presence for customers.

1 The 2016 Solvency II capital position and SCR are an estimate. The 2015 Solvency II capital surplus was updated to £1.3bn from the £1.4bn estimate disclosed in the 2015 Annual Report and Accounts.

3 The pension scheme surplus in excess of the pension risk contribution to the SCR is suffi cient to cover the sensitivity analysis stress such that the Group solvency capital surplus is unchanged.

2 The 2016 Solvency II coverage ratio is an estimate. The 2015 Solvency II coverage ratio was updated to 178% from the 180% estimate disclosed in the 2015 Annual Report and Accounts. The Solvency II number disclosed post Oasis Dental Care completion is a pro-forma fi gure as if the acquisition occurred at the balance sheet date.


In accordance with provision C2.2 of the 2014 UK Corporate Governance code the directors have assessed the prospects of the Company and the Group. They have evaluated Bupa’s ability to continue in operation and meet its liabilities as they fall due over a period of three years.

The three-year assessment period was chosen to align with the internal strategic planning process. This planning period is consistent with the nature of our business and is considered an appropriate period for strategic planning. The planning process considers all key financial and capital metrics over the period. The plan is also stressed for risks facing individual business units, as well as for global macro risks impacting Bupa as a whole.

Since 1 January 2016 the Group has been subject to regulation and supervision under Solvency II, which has promoted an increased focus on risk management. The Bupa own risk solvency assessment (ORSA) considers the appropriate level of capital that is required to meet overall solvency needs over the planning period, given the current risk profile and the strategy as articulated in the Bupa business plan and risk appetite statement. It considers all risks to Bupa as a whole. This assessment concluded that Bupa’s strategy and business plan provide reassurance that Bupa has sufficient capital and liquidity to continue to meet regulatory capital requirements and Bupa’s capital risk appetite over this period.

As part of the assessment of the viability of Bupa, the directors have considered the financial performance, capital management, cash flow, solvency and future outlook. Bupa is well capitalised and is expected to remain so over the plan period. The insurance businesses are cash generating and therefore expected to be able to settle liabilities as they fall due. Bupa has no shareholders and therefore has no requirement to pay dividends. Instead Bupa can invest in growing organically and through acquisition.

The directors considered each of the principal risks and uncertainties set out in the Risks section from page 17 which include those that would threaten its business model, future performance, solvency or liquidity. They are satisfied that Bupa has appropriate risk management and governance procedures in place to manage and mitigate these over the plan period. Bupa’s governance structure and the robust, regular reviews through the Internal Control Risk Management Assessment (ICRMA) process give comfort in this regard.

Based on the results of this analysis and the regular risk and capital reporting processes, the directors have a reasonable expectation that Bupa will be able to continue in operation and meet its liabilities as they fall due throughout the three year planning period up to 31 December 2019.

The going concern assessment within the Basis of Preparation in the financial statements section includes information regarding the directors’ detailed assessment of the Group’s going concern status based on its current position and forecast results. As part of this assessment details are provided on Bupa’s revolving credit facility and the Group’s short-term liquidity position.

Longer term viability statement


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

Risks

Delivering our purpose sustainably

Overview The risk profile of Bupa differs between funding and provision activities. Bupa’s geographic reach also exposes our Market Units (MUs) to a wide range of political, legal and economic contexts. We manage the risks to Bupa as a whole by understanding the risk drivers for our individual businesses and our balance sheet and by assessing how they interact. By understanding the risks we face, we seek opportunities to benefit from risk diversification, to identify emerging risks and to understand and manage any risk concentrations.

Risk GovernanceWe adopt a “three lines of defence” approach to the governance of risk management which is set out in our Risk Management Framework as described below.

The first line of defence encompasses management and staff in our MUs, Business Units and the Centre. MU CEOs are responsible for the identification and management of their risks. In each MU, executive risk committees, chaired by the MU CEO, scrutinise their risk profiles and generate mitigating actions where necessary covering both the funding and provision businesses. This process culminates in the Bupa Group CEO chairing an enterprise-wide committee, the Bupa Enterprise Risk Committee (BERC), which brings the whole picture together. For some key categories of risk there are specific risk forums, such as the Clinical Governance and Quality Steering Committee.

Each of the large insurance entities also has a Board Risk Committee composed primarily of independent Non-Executive Directors (NEDs) to oversee the operation of the risk management framework. Subsidiary boards receive reports from local management and local risk directors.

The second line of defence is comprised of risk and compliance and clinical governance functions both at the Centre and within MUs. Bupa has a global Risk Function led by the Chief Risk Officer. Its role is to advise, challenge and oversee the first line risk management activities and to collate reports for management and the Board on their independent views on risk issues.

The Bupa Board Risk Committee (BRC) receives the minutes from the subsidiary board committees and the BERC, and reports from the Chief Risk Officer and other Bupa executives as appropriate, covering both the funding and provision businesses. The BRC is accountable for the oversight of risk by the Board and recommends risk appetite to the Board for approval.

The third line of defence is Internal Audit. Bupa has a global Internal Audit Function led by the Chief Internal Auditor at the Centre. Internal Audit is responsible for providing assurance over the effectiveness and adequacy of governance and risk and controls, including the activities undertaken by the first and second lines in accordance with the Global Internal Audit Plan, which is approved by the Board Audit Committee.

Risk framework We manage risks according to a Board approved Risk Management Framework covering funding and provision businesses. This sets out the principles underpinning a robust and continuous risk management system for the first line. This ensures:

– Current and emerging risks to the business are identified and the potential consequences of them are understood;

– We have clear and established risk appetites within which we operate. These are discussed further below;

– Appropriate and effective steps are taken to mitigate and manage identified risks;

– Risk management information is utilised to make risk based decisions across the business;

– There is clear ownership of, and accountability for, risk;

– There is a culture in which: – Appropriate risk behaviours are encouraged and rewarded;

– Inappropriate behaviours are challenged and sanctioned;

– Risk events are communicated as quickly as good news without fear of blame.

We have well-established, regular reporting mechanisms in place which ensure that relevant top risks for our businesses are appropriately identified and escalated. These processes also ensure that strategies to manage and mitigate the risks to acceptable levels are identified and executed.

“Understanding our risks is the responsibility of everyone at Bupa and allows us to make the best decisions for our customers, our people and Bupa. Through an appropriately embedded framework for taking and accepting suitable risks, Bupa is able to deliver its purpose sustainably into the future." David Fletcher Chief Risk Officer


Risks Continued

Our Enterprise policies define the way we do business and cover funding and provision. The policies cover all key areas of risk and are implemented in our MUs which monitor compliance against the requirements. These policies all have designated ownership at both the enterprise and MU levels with defined roles and responsibilities. These policies are reviewed on an annual basis.

The processes we use to identify, measure, manage, monitor and report risks, include a programme of stress and scenario testing. We also undertake specific detailed reviews on particular risks where considered necessary.

We test the effectiveness of our implementation of the Risk Management Framework through our Internal Control and Risk Management Assessment (ICRMA). This aims to assess how well internal control and risk management practices and policy compliance are embedded across Bupa. This is a self-assessment conducted by the first line of defence, which is subject to review and challenge by the second and third lines. This assessment has been conducted on a half yearly basis and the results are presented to the Audit Committee and the Risk Committee.

Risk appetiteOur Board risk appetite expresses the degree of risk we are prepared to accept as we work to deliver on our strategy. Our core risk appetite statements focus on:

– management of our financial strength;

– the treatment of customers and employees;

– the sustainability of our business; and

– operational risk.

Our risk appetite statements are a key consideration in our business planning process and a central reference point for key decisions. These statements are not intended to automatically prevent activity outside of Bupa’s risk appetite, but rather to help identify any such instances in a timely manner so that the Board can consider an appropriate response.

The statements apply to all MUs. MU Enterprise Risk Committees ensure risk limits, consistent with Bupa’s Risk Appetite statements, are in place to manage the amount of risk taken within businesses and at the MU level. There is regular reporting against our risk

appetite statement limits at an MU and Group level to the Enterprise Risk Committees and to the Board Risk Committees.

The risk appetite statements are reviewed on an annual basis, with the Board Risk Committee recommending any changes to the statements to the Board for approval.

What we did in 2016 During 2016, we continued to strengthen our risk management approach and capability in response to Bupa’s growth and the increasing expectations of our regulators around the world. The Solvency II Directive came into force from 1 January 2016 and is now business as usual, with the ORSA process and report considered to be a key part of our Risk Management Framework. Insurance, healthcare and care services are highly sensitive and regulated sectors and we are increasing our focus on management of risk and compliance to ensure we continue to uphold the high standards our customers and regulators expect.

We have continued to embed all aspects of our risk management framework, including:

– refreshing our Enterprise policies to ensure the scope of the policies and the requirements within the policies remain adequate;

– strengthening our crisis management and business continuity capability;

– reviewing how risk management factors into our reward system;

– conducting a detailed review of how effectively we are mitigating operational risks through insurance;

– enhancing our ongoing regular risk reporting particularly in relation to risk appetite;

– introducing the Bupa Code, which aims to support all staff at Bupa to make the correct choices to protect our customers, our colleagues, our partners and Bupa;

– assessing the resilience of Bupa’s business model, including contagion risk of unrelated events in different parts of the group; and

– undertaking a stress and scenario testing programme to strengthen our understanding of severe scenario risks and how they may interact with business plan.

We are focused on ensuring that our risk management framework is fully embedded across the Group. This includes ensuring that processes and controls are designed and operating effectively and well documented in all MUs in line with our Enterprise Policies. We continue to look to ensure the training of our people is appropriate and adequate.

We are also deepening our understanding of particular areas of risk most notably in regards to the governance of all aspects of information risk and cyber security risk (see case study below); financial crime risk, pension risk and aspects of conduct risk.

Managing cybersecurity risk

Our cybersecurity programme, which commenced in 2015, has continued throughout 2016. The programme has increased a range of capabilities, including cybersecurity controls, incident response and crisis management, people capabilities and post-incident customer care. This is a Group wide programme and is enhancing our capabilities across all our MUs. This includes ensuring our IT systems that monitor and detect external threats are appropriate and implementing a robust and consistent internal control framework.

This has been supported by the formation of a new Directorate of Information Strategy and Governance in the first line to lead this programme. Working with the Risk function, the Directorate has realigned our risk categorisation to give our executive and board risk committees clearer visibility of cybersecurity risk on a quarterly basis. Fundamental cybersecurity controls have also formed a key focus of our Internal Audit plans.

Risk profileBupa accepts risks as part of its business operation. Some risks are avoidable (e.g. certain financial risks) and others are part and parcel of Bupa’s business model (e.g. operational risks). We consider that we have an effective risk management system and appropriate internal controls in place to mitigate our risks.

Bupa maintains significant economic capital as a mitigant against certain inherent risks. These reflect the nature of our operations and the level of risk associated with them.


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

These risks are set out in the table below in order of magnitude of SCR.

– By maintaining a geographic spread of businesses across the globe, Bupa is able to diversify exposure to individual property markets.

– Care home valuations are based on underlying profitability of the individual homes.

– The relatively short-tailed nature of Bupa’s products allows Bupa to respond to market changes quickly.

– Bupa has extensive control mechanisms in place to mitigate against the risk of higher than expected claims costs.

– Health insurance is a well diversified business and the geographical diversity of Bupa provides further mitigation against insurance risk.

– Bupa’s bond portfolio is small in relation to its other financial assets and of investment grade.

– Counterparty exposure is managed by dealing with highly rated counterparties with exposure limits as per Group Treasury Policy. In addition, Bupa does not permit securitised lending of its assets.

– Maintenance of robust internal control processes and governance frameworks, the approval of risk policies, and the assessment of compliance helps mitigate this risk.

– All MUs have a Medical Director responsible for ensuring clinical quality and governance within the business. They are accountable to the Chief Medical Officer (CMO) for clinical governance.

– Currency translation risk is partially mitigated through a hedging programme.

– Asset liability matching in local currencies helps ensure that sufficient funds are held in the local currency therefore limiting currency risk exposure.

Property riskRisk of devaluations in property markets leading to a material devaluation of Bupa’s property portfolio such as head offices, hospitals and care homes.

Insurance riskRisks relating to Bupa’s insurance businesses. Risk of inadequate pricing and/or underwriting of insurance policies, and of claims experience being materially adversely different to expectations.

– Bupa generally owns rather than rents property, which keeps lease commitments down but leaves Bupa exposed to falls in property values.

– If Bupa expands its care provision businesses and, if properties are owned rather than leased, its property risk exposure would increase.

– Bupa’s health insurance is short-tailed with lower outstanding claims as a percentage of revenue than most general insurers.

– Insurance risk exposure will grow with planned growth in premium income of the funding businesses.

Risk Comment and outlook Mitigating actions

Currency riskRisk arising from changes in the level, or volatility, of currency exchange rates impacting on cash flows and assets held in currencies other than sterling, and on the financial statements.

– As the net assets of businesses outside the UK grow there will be a corresponding increase in currency risk in relation to translation into sterling.

– There is transactional risk relating to policies where premiums and claims are in different currencies

Credit Spread and Counterparty Default RisksRisk of a loss in value of bond assets and/or that a counterparty fails to meet its obligations in the face of difficult economic conditions. This also includes the risk of a loss in value of the bond assets held within the Pension Schemes.

– Bupa’s funding businesses have modest holdings of corporate and other bonds. These are exposed to the risk of widening spreads and defaults.

– There is banking counterparty default risk in respect of deposits.

Operational Risk (including Conduct Risk and Clinical Risk)Risk of loss arising from inadequate or failed internal processes, or from personnel, systems or external events. This includes Conduct and Clinical Risk.

– We are committed to managing operational risk effectively. This includes continued close attention to management of regulatory risk and proactive engagement with regulators.

– As Bupa expands its care provision businesses, there will be an increase in inherent exposure to clinical risk. This is being actively managed through continued refinement of our approach to clinical risk governance.


There are other risks that cannot be effectively mitigated through capital. These are significant risks to Bupa. The MU Risk Committees regularly review the residual risks arising and the mitigating actions in place to reduce the levels of residual risk and the key themes and any areas of specific concern are provided to the Board and Enterprise Risk Committees. This provides management with a view of the areas of priorities to focus resources. The table below reflects the themes of the most significant risks currently facing Bupa from the latest review.

Risks Continued

– MU ownership is an important component of how change is managed and each MU has defined plans in place covering the change programmes underway.

– We are focusing on ensuring we have the right levels and amount of experience and succession plans to manage our businesses and deliver on change management, supported by a simple more automated operating model and enhanced ways of delivering training.

– MU specific programmes of work are in place to continue to address this risk.

– This is being supported by the implementation of the Information Risk Operating Model.

– Affected MUs have projects to implement the new European regulations, with a central oversight and assurance programme in place.

– All MUs have defined key activities to ensure we can continue to appropriately monitor, lobby and consider strategic implications on our businesses of any future changes in policy or regulation.

– This risk has been identified and reported as significant by all MUs and the Centre. A detailed programme of activities is underway across Bupa to ensure this risk is appropriately mitigated.

Change risks – transformations and transactionsThe risk that change programmes and portfolios of transformation are not adequately planned or managed, fail to deliver expected benefits, or do not deliver in appropriate timescales resulting in adverse impacts.

PeopleThe risk that we do not have the appropriate levels of capacity and capability of people to deliver our strategic objectives.

– This risk could lead to excessive management stretch, inadequate capability within the organisation, failure to identify and manage key risks.

– Failure to deliver on aspects of the existing transformation programmes which are of strategic importance to Bupa could have significant impacts.

– As a complex business with a multinational footprint it is critical to the delivery of our strategy that our people have the appropriate knowledge, skills and experience to identify and manage risk and to deliver on objectives.


Cyber resilienceThe risk that our inability to identify and respond to a successful information breach through an Advanced Persistent Threat (APTs) results in adverse impacts.

– Healthcare providers are increasingly being targeted by APTs.

Information governanceThe risk that a failure in our policies or controls over the management and security of personal data and other information results in adverse impacts.

Changes in government and regulatory policyThe risk that political, government, regulatory, economic or market changes adversely impact on the delivery of Bupa’s strategy. Also includes the risk that changes are either not reacted to quickly enough or are responded to inappropriately.

– We continue to review and enhance our controls over the management and security of information.

– For EU-based MUs there is also an additional risk arising from the implementation of a new European regulation on data in 2018.

– Our funding and provision businesses operate in the context of government and regulatory policy ranging from minimum wage requirements to prudential requirements and include clinical care requirements for our provision businesses.


Strategic rep

ort

Go

vernan

ceF

inan

cial statements

There are also other risks where capital is not an appropriate mitigant and even though they are not highlighted in the table above they are always a priority issue for management. These are set out in more detail in the table below.

– This is mitigated by the Treasury Function actively managing borrowings, where the amount and timing of outflows are known, and maintaining a portion of the Bank Facility undrawn.

– We have refreshed our strategy, and remain focused on delivering value for money and great service and care to our customers.

– Our purpose – helping people live longer, healthier, happier lives – and our values shape how we act and deliver for our customers and our people.

– Through the identification and assessment of emerging risks we are able to react to issues in a timely and appropriate manner.

– We continue to review our strategy and processes to ensure that they are flexible enough to take into account changing external conditions.

– While there will be commercial, operational and legal impacts from the UK’s eventual exit from the EU, it is too early to conclude how the UK exit will affect the Group’s businesses, customers and employees.

– While the UK Government has set out its intention to leave the ‘Single Market’, uncertainties remain relating to limitations about the movement of people and workers, regulation of financial services (passporting) and the wider impact on the UK economy.

Liquidity riskThe risk of insufficient financial resources to enable Bupa to meet its obligations as they fall due or to take advantage of potential opportunities, or being able to secure such resources only at excessive cost, resulting in adverse impacts.

Strategic risksThe risk of the inability to design or implement appropriate business plans and strategies, make decisions, allocate resources, or adapt to changes in the business environment.

– Liquidity risk is addressed not by capital but by holding liquid assets and through appropriate controls.

– With policyholder liabilities predominantly backed by liquid assets, Bupa’s liquidity risk exposure primarily relates to the funding risk associated with borrowings.

– The world is changing rapidly. The political and economic backdrop is uncertain, with powerful global social trends. Populations are ageing, public health solutions are ever-evolving, governments are facing funding issues in healthcare and aged care, and competition is intense – both from traditional and non-traditional players.



External conditionsThere are a number of evolving economic and geo-political conditions in the markets Bupa operates in that could impact our business model.

UK exit of the EUThe result of the UK Referendum to leave the EU has introduced uncertainty to our business.

– These include structural market changes (e.g. political change, medical inflation, minimum wage increases) and economic volatility.

– The immediate impact on Bupa’s financial position following the EU referendum in June has been limited.

– Liquidity remains strong, our investment portfolio is largely cash-based and low risk and our statutory profits and cashflows would be higher if sterling continues to stay weak.

– The UK Government intends to notify the intention to leave the EU by the end of March 2017 which will start the formal process.


Governance report

Chairman’s introduction to governance

Good corporate governance must be at the centre of any well-run company. Our status as a company limited by guarantee, without shareholders, enables Bupa to make our customers our focus. Our profi ts are reinvested to provide more and better healthcare for current and future customers, taking a longer term view.

In this governance report we explain the Board’s role in promoting a fair, accountable, responsible and transparent approach to corporate governance.

Board composition and succession planningStuart Fletcher stepped down as CEO on 4 April 2016 after four years, having brought the customer and our people to the fore, as well as extending Bupa’s global footprint. The Board extends their thanks to Stuart for his service. The Board appointed Evelyn Bourke as Acting Group CEO, confi rming her appointment as Group CEO on 25 July 2016. Evelyn was previously Bupa’s CFO for nearly four years. The Nomination & Governance Committee’s Report on pages 40-41 outlines the recruitment process undertaken.

Joy Linton, was appointed as Acting CFO on 1 May 2016, becoming CFO on 25 July. She brings 30 years’ experience in fi nancial and strategic roles in Australia and the UK.

Full biographical details for Evelyn and Joy are included on page 25. These internal appointments were identifi ed in Bupa’s succession plans, which are considered by the Board on a regular basis.

Simon Blair and Janet Voûte joined the Board as Non-Executive Directors (NEDs) on 12 January 2016 further strengthening the skills and international experience of our Board. Rita Clifton retired from the Board at the conclusion of the AGM on 11 May 2016. The Board would like to thank Rita for her six years of service as a NED, including her contribution as a member of the Remuneration and Nomination & Governance Committees.

The Board will continue to regularly review and assess our succession plans to ensure an orderly refreshment of the Board as NEDs come to the end of their tenure. It will also continue to focus on strengthening the executive pipeline within the business.

Diversity statementWe are pleased to report, that at the year end, 40% of our Board was female. We have already surpassed Lord Davies’ recommendation that by 2020, boards of FTSE 350 companies should aim for 33% female representation. Gender is, however, only one measure of diversity and Bupa believes diversity should be considered more broadly including a wide range of relevant skills and experience. Our Board diversity policy can be found on bupa.com and is covered in more detail on page 29 of this report.

“We aim to operate to the same governance standards as required of UK FTSE 100 companies, where appropriate. The Board closely monitors developments in corporate governance and assesses how these can be applied to Bupa.”


See page 34 See page 38 See page 40 See page 42

Bupa Board

Audit Committee

Risk Committee

Nomination & Governance

Committee

Remuneration Committee

Board and Committee structure

The Board delegates certain matters to the Audit, Risk, Nomination & Governance and Remuneration Committees. The activities of the Board and its Committees are detailed later in this governance report.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

RemunerationBupa aligns its remuneration policy with performance and strategy by incentivising our Executive Directors and senior management to focus on the long term and to fulfi l our purpose for current and future customers. The Directors’ Remuneration Report on pages 42-52 gives further detail on the design of the Remuneration Policy and how it was implemented during 2016.

Board evaluation Independent Audit Limited conducted our third, externally-facilitated, Board and Committee evaluation in the autumn of 2016 and the key fi ndings are set out in more detail in the Eff ectiveness Report on page 31 and within each of the Committee reports. The Board discussed the results at its meeting in December 2016. There is a plan to address the key development areas identifi ed in the evaluation process which will be monitored by the Nomination & Governance Committee during 2017. This evaluation confi rmed that the Board and its Committees continue to be eff ective.

Committee structure changeAs detailed in the 2015 Annual Report, it was agreed that the aims and objectives of the Medical Advisory Panel would be more eff ectively achieved through a diff erent approach. This included the appointment of Sir John Tooke to the Risk Committee, the expansion of the independent oversight of the Executive Global Clinical Governance and Quality Steering Committee and the establishment of a new Medical Advisory Council to advise on health horizon scanning and to support Bupa on key medical risks and opportunities relevant to delivering Bupa’s purpose. Details of the Risk Committee’s oversight of Clinical Risk are covered on pages 38-39.

Association MembersBoard oversight, which in listed companies is normally provided by shareholders, is exercised in Bupa by a body of around 100 distinguished Association Members (AMs). Serving for an initial term of up to 10 years, AMs are drawn mainly from business, public life, the medical professions, the charitable sector and academia. AMs are independent and do not have any claim on the assets of Bupa. They do not receive a fee for their service or a share of profi ts or dividends.

At the end of 2016, there were 115 AMs. They are kept informed of Bupa’s strategy and performance through regular AM Briefings and at the AGM. The Group CEO, Chairman and Senior Independent Director (SID) are also available to answer questions on an individual basis. AMs views are heard and communicated to the Board and to relevant teams throughout the business. More information on how Bupa engages with our AMs is on page 33.

Statement of complianceAs part of our commitment to excellence, we aim to operate to the same governance standards as required of UK FTSE 100 companies, where appropriate. We have applied the main principles and complied with all of the relevant provisions, for a company without shareholders, of the UK Corporate Governance Code (the Code) throughout 2016. Information on our external audit tendering plans can be found in the Audit Committee report on pages 34-37.

The Corporate Governance Report on pages 22-41, together with the Remuneration Report on pages 42-52, describe how we have applied the main principles of the Code during the year.

Our governance arrangements continue to be reviewed in line with developments in best practice. This includes considering consultations and guidance issued from the FRC in the UK as well as governance bodies globally.

Lord LeitchChairman

Read more Board evaluation page 31

Engagement page 33


Governance report

Board of Directors

4 5 6

987

32 1

10 11


Strateg

ic repo

rtG

overnanceF

inan

cial statements

1. Lord Leitch, ChairmanNon-Executive Chairman

N Re

Joined the Board in May 2005; appointed Chairman in November 2006. Lord Leitch has a deep and broad knowledge of insurance and fi nancial services gained over fi ve decades as a senior executive in a number of major international businesses. Lord Leitch is currently Chairman of Intrinsic Financial Services, Chairman of FNZ (Group), Non-Executive Director of Old Mutual Wealth, and member of the House of Lords. Previously Deputy Chairman of Lloyds Banking Group plc, Chairman of Scottish Widows plc, Senior Independent Director at United Business Media plc, Chairman and Chief Executive Zurich Financial Services UK, Ireland, South Africa and Asia Pacifi c, and Chairman of the Association of British Insurers.

2. Evelyn Bourke, Group Chief Executive Offi cerExecutive DirectorAppointed as Group CEO on 25 July 2016. Previously served as Acting Group CEO from 4 April 2016 and CFO from September 2012. Evelyn has a strong track record and extensive experience in fi nancial services, risk and capital management, and mergers and acquisitions. A qualifi ed actuary, she also holds an MBA from London Business School and was previously a Non-Executive Director of the IFG Group in Ireland. Evelyn joined from Friends Life where she was Chief Executive Offi cer of its Heritage division. Previously at Friends Provident, she was the Executive Director responsible for strategy, capital and risk and, before that, Chief Financial Offi cer.

3. Joy Linton, Chief Financial Offi cerExecutive DirectorAppointed CFO on 25 July 2016, and previously served as Acting CFO from 1 May 2016. Joy brings 30 years’ experience in fi nancial and strategic roles in Australia and the UK. She joined Bupa in March 2011 as Finance Director of Bupa’s Australian Health Insurance business, later becoming Finance and Commercial Director of Bupa Australia and New Zealand. Joy became Bupa’s Chief People Offi cer on an interim basis in 2015, prior to becoming General Manager, Health Services for Bupa UK. Previously, she was CFO of National Foods, one of Australia’s largest food and beverage companies. She was also a Non-Executive Director of Bega Cheese Ltd, an ASX-200 listed company, serving as Chair of their Audit and Risk Committee.

4. Lawrence Churchill, CBESenior Independent DirectorRi A N Re

Joined the Board in July 2009 and became the SID on 14 May 2015. Lawrence brings considerable expertise from operating in large, complex organisations and has extensive knowledge of fi nancial services, risk management, general management and public policy. Lawrence is Chairman of the Board of the Financial Services Compensation Scheme, Chairman of the Independent Governance Committee of Prudential Assurance Company and a Trustee of Prudential Corporate Trustee Limited. He is also Chairman of the Pensions Policy

Institute and Trustee of Age UK. Previously Chairman of the NEST Corporation and the Pension Protection Fund, a member of the Board for Actuarial Standards, Chief Executive of Zurich Financial Services UK, Executive Chairman of UNUM, CEO of NatWest Life and Investments, and a Director of the Association of British Insurers.

5. Simon BlairIndependent Non-Executive Director

A Ri

Joined the Board in January 2016. Simon brings international experience, particularly gained in Australia and New Zealand, and a strong understanding of the insurance and healthcare sectors. He is a Non-Executive Director of the Bank of Hangzhao, Sovereign Assurance, ASB Bank and BoCommLife. Simon was Group Executive International Financial Services for the Commonwealth Bank of Australia. He was previously Chief Operating Offi cer at Australian health insurer, Medibank, Lead Health Specialist for the World Bank, and CEO of Inner & Eastern Healthcare Network, then Australia’s largest public hospital group.

6. Roger DavisIndependent Non-Executive Director

A Re

Joined the Board in July 2015. Roger has extensive business experience and an international mindset acquired during a wide-ranging career in fi nancial services. He is Chairman of Gem Diamonds, Sainsbury’s Bank, Global RadioData Communications (GRC) and Future for Heroes. Roger is also a Non-Executive Director of Experian. He has extensive experience in the UK and Asia with previous positions including Managing Director of India for Jardine Fleming, Chief Executive Offi cer of BZW Asia Pacifi c, and Chairman and Chief Executive of Barclays Capital Asia Pacifi c. He left Barclays as Executive Director and Head of the UK Bank in 2005.

7. Martin HoustonIndependent Non-Executive Director Re N

Joined the Board in January 2014. Martin brings extensive international business experience to the Board. He is Chairman of TPH International and Vice Chairman of Tellurian Investments. He is also a Non-Executive Director of CC Energy Development and Vice Chairman of Hakluyt North America. Previously Martin was Chief Operating Offi cer and Executive Director of BG Group plc where he spent 32 years. He is a Fellow of the Geological Society of London, is on the advisory board of the Royal Opera House of London, is a member of the advisory board of the Global Energy Policy unit at Columbia University’s School of International and Public Aff airs in New York and is a former Non-Executive Director of Severn Trent plc.

8. Clare ThompsonIndependent Non-Executive Director

A Ri N

Joined the Board in May 2015. Clare brings a wealth of experience, particularly in the areas of finance and insurance. She is also a Non-Executive Director of Direct Line Group and Retail Charity

Bonds plc, a Non-Executive member of the Partnership Board of Miller Insurance Services LLP and a Trustee and Treasurer of the Disasters Emergency Committee. Clare was a Partner at PricewaterhouseCoopers (PwC) from 1988 until 2011. While she was at PwC, she held several senior and high profi le roles, particularly within the insurance sector. Clare is a Fellow of the Institute of Chartered Accountants in England and Wales.

9. Professor Sir John TookeIndependent Non-Executive Director Ri N

Joined the Board in July 2009. Sir John brings his medical expertise, gained over 40 years, to advise the Board on clinical governance and advances in healthcare practices and treatments. A consultant physician, he is immediate past President of the Academy of Medical Sciences. Sir John chairs the Centre for the Advancement of Sustainable Medical Innovation, joint between UCL and Oxford University, and is Executive Chairman of Academic Health Solutions Ltd. He is also a Member of the Independent Review Board for Google DeepMindHealth.

10. Janet VoûteIndependent Non-Executive DirectorRi Re

Joined the Board in January 2016. Janet brings an international perspective and experience gained in corporate strategy, the health and care sector and consumer facing businesses. She is Chairman of the Creating Shared Value Council at Nestlé SA and serves as an Ambassador of the International Integrated Reporting Initiative. Previously she served as Global Head of Public Aff airs at Nestlé SA and was a member of the board of Bamboo Finance SA. She also served as Partnership Advisor at the World Health Organization in the area of non-communicable diseases and mental health and as CEO of the World Heart Federation. Janet was formerly Vice President and Managing Partner at Bain & Company Switzerland.

11. Julian SandersCompany SecretaryAppointed as Company Secretary in July 2014. Julian was formerly Deputy Company Secretary, having joined Bupa in 1988. Prior to joining Bupa he was a Supervisor in the Business Services Group at Coopers & Lybrand (now PwC).

Committee Chairman

Audit

Risk

Nomination & Governance

Remuneration

A

Ri

N

Re

Full details of each director are available on bupa.com/corporate/about-us

Committee key


Governance report

Bupa Executive Team

13

87 9

10 11 12

32 1

4 5 6


Strateg

ic repo

rtG

overnanceF

inan

cial statements

The Bupa Executive Team (BET) is comprised of the Group CEO, who chairs the meetings, the CFO, the CEOs of the four Market Units and all Global Function Directors.

The BET meets regularly throughout the year to focus on Bupa’s global strategic agenda, which supports each BET member as they manage performance and risk in their individual roles. In particular, the BET spends time together on:

– Bupa’s refreshed strategic framework.

– Calibrating performance and generating improved opportunities.

– Aligning on priorities, including business development and M&A.

– High-level resource and capital allocation.

– Organisation culture and talent management.

– Key global strategic initiatives such as driving innovation and leadership development.

1. Evelyn BourkeGroup Chief Executive Offi cer See page 25 for biographical details.

2. Joy LintonChief Financial Offi cer See page 25 for biographical details.

3. Richard BowdenCEO, Australia and New Zealand (ANZ)Richard joined Bupa in 2002 as the Managing Director of Bupa Australia and has over 30 years’ experience in the health sector. He was MD of Bupa UK from 2012 to 2016 and was previously the MD of AXA Australia Health, Chairman and President of Private Healthcare Australia and a Commissioner on the Australian Commission of Safety and Quality in Healthcare.

4. David HynamCEO, United Kingdom (UK)

David was appointed as MD of Bupa UK in October 2016. He joined Bupa as Transformation Director in the UK and as leader of health and dental clinics before becoming General Manager of Bupa’s UK Care Services business in 2015. He was previously Chief Operating Offi cer and UK CEO of Friends Life.

5. Iñaki EreñoCEO, Europe and Latin America Domestic (ELA)Iñaki was appointed as MD of ELA in November 2016, with responsibility for Sanitas in Spain, LUX MED in Poland and Bupa Chile. Iñaki was previously the MD of Bupa’s Spain and Latin America Market Unit. He has held senior positions at Acerinox, the Telefonica Group and Carrefour as well as founding an online start-up. Iñaki has a degree in Law and holds an MBA from IESE Business School.

6. Wayne CloseActing CEO International Markets (IM)Wayne was appointed as Acting MD of IM in November 2016. He brings more than 20 years’ experience, having joined Bupa in 1992 with roles including leading, Bupa International (the precursor to Bupa Global), MD of Bupa Global North America, setting up and leading Bupa Saudi Arabia, and holding a number of CFO roles across Bupa including the former International Development Markets (IDM) MU.

7. Paul Zollinger-ReadChief Medical Offi cerPaul became Chief Medical Offi cer of Bupa in July 2012. He has led a distinguished medical career within the UK’s National Health Service, both as a GP and as CEO of a number of Primary Care Trusts. He has previously been the Medical and Primary Care Advisor at the King’s Fund.Paul leads the Bupa-powered CMO Network.

8. Alex ColeChief Brand & Corporate Aff airs Offi cerAlex joined Bupa in July 2014 and was appointed as Chief Brand & Corporate Aff airs Offi cer in May 2016. She has over 20 years’ experience across communications and public aff airs and was the Director of Corporate Aff airs at J Sainsbury plc and Cadbury plc.

9. Garry FinglandChief Information Offi cerGarry joined Bupa as its Chief Information Offi cer in 2014. He has extensive experience in global IT transformation, having held a number of senior IT leadership roles at both Serco and Diageo. He is a Chartered Accountant and holds an MBA from Strathclyde Business School.

10. Elisa NardiChief People Offi cerElisa was appointed as Bupa’s Chief People Offi cer in early 2015. Prior to joining Bupa she was the Chief People & Services Offi cer at Virgin Media and the Group Human Resources Director at Marconi Plc. She has also worked in Human Resources at Lloyds TSB, PepsiCo, HJ Heinz and Ford Motor Company. Elisa was a Board Trustee of Regent’s University London between 2010 to 2016.

11. Penny DudleyChief Legal Offi cerPenny was appointed as Chief Legal Offi cer in April 2016, having joined Bupa in 2010. Penny has extensive international legal experience in regulated fi nancial services, originally qualifying as a solicitor in Australia, and subsequently relocating to the UK where she has held in-house legal roles at Invesco, and Macquarie.

12. David FletcherChief Risk Offi cerDavid commenced in the new role of Chief Risk Offi cer in January 2017. He has been with Bupa since 2014 in senior roles including Chief Internal Auditor and MD of IDM. He has had extensive international fi nancial services experience, having held various senior positions in Nigeria, China, Hong Kong, Singapore, Bangladesh, Indonesia, and in London with Standard Chartered and Citibank.

13. Gabriela PueyoChief Strategy Offi cerGabriela joined Bupa in 2003 and began in her role as Chief Strategy Offi cer in January 2017. She has held a number of senior roles in the Sanitas business, including Strategy Director, CFO and General Manager of Sanitas Dental. Gabriela started her career as a strategy consultant at McKinsey and Company. She has an MBA from Harvard University and a degree in Economics and International Relations from Stanford University.


Governance report

Leadership

Bupa’s Governance Framework and the Role of the BoardThe Board is responsible for the long-term success of the Company. Bupa’s governance structure is designed to enable the Board to lead Bupa within a framework of prudent and eff ective controls which enables risk to be assessed and managed. In 2016, the Board held 11 full meetings and scheduled four additional meetings to discuss specifi c matters such as the appointment of our Group CEO and major acquisitions requiring approval. The Board devotes its time to overseeing Bupa’s strategy, the approval of business plans and signifi cant capital expenditure, acquisitions and disposals, as well as monitoring business performance. Minutes of all Board and Committee meetings are prepared and refl ect the substance of the discussion as well as the decisions made. The Board delegates certain matters to the Audit, Risk, Nomination & Governance and Remuneration Committees. The activities of the Board and its Committees are detailed later in this governance report.

Bupa has a schedule of matters reserved for the Board’s approval, which was updated in 2016, and all other items are delegated to the Group CEO. The matters reserved for the

Board can be found on bupa.com. The levels of authority delegated to management are regularly reviewed and updated when appropriate. The roles of the Board, the Chairman, the Group CEO, the Senior Independent Director (SID) and the Non-Executive Directors (NEDs) are clearly defi ned and set out in detail on bupa.com.

All Board and Committee members are provided with suffi cient resources to undertake their duties, including access to both internal and external specialist advice at Bupa’s expense. The Directors individually and collectively act in accordance with their duties under the Companies Act 2006. Bupa has a directors’ and offi cers’ insurance policy in place as well as a deed of indemnifi cation.

The roles of the Chairman and the Group CEOThe roles of the Chairman and the Group CEO are clearly separated.

The Chairman is responsible for the leadership of the Board and is pivotal in the creation of the conditions necessary for overall Board and individual director eff ectiveness, both in and outside the boardroom. It is also the Chairman’s

role to ensure eff ective communication with the Association Members (AMs) and to chair General Meetings.

The Group CEO is responsible for the day-to-day leadership and management of the business, in line with the strategy, risk appetite and long-term and annual objectives approved by the Board. The Group CEO may make decisions in all matters aff ecting the operations, performance and strategy of Bupa’s businesses, with the exception of those matters reserved for the Board or specifi cally delegated by the Board to its Committees, executive committees or subsidiary company boards. The Group CEO leads the Bupa Executive Team (BET) in driving the performance of the business and setting the overall strategic agenda. For more information about members of the BET, please see pages 26-27.

The role of the Senior Independent DirectorLawrence Churchill, one of the NEDs, is the SID. His role is to provide a sounding board for the Chairman, to serve as an intermediary for the other Directors where necessary and to provide an additional point of contact for AMs.

Simon Blair commented that: “As part of an excellent induction programme I have been able to see fi rst-hand Bupa dental and health clinics, hospitals, insurance processing and call centres across four diff erent countries and have been most impressed with the consistently high quality of our employees and the facilities, and the primacy accorded to customer service and care. Employee motivation and pride stands out across all geographies and all lines of business.”

Non-Executive Director Inductions 2016

Following any appointment to the Board, a personalised induction programme is drawn up, which includes Bupa-led knowledge building, site visits to Bupa’s businesses and discussions on strategy and development plans for the business.

As new members of the Board appointed during 2016, Simon Blair and Janet Voûte both commenced extensive induction programmes during the year, including meetings with the heads of various businesses across Bupa. Site visits were arranged to the Cromwell Hospital, health and dental clinics and call centres, in the UK in the fi rst instance, in order to enable the new Directors to experience fi rst-hand the way Bupa cares

for its customers. Both Janet and Simon participated in the Board visits in Chile and Australia during the year which included visits to customer centres in both countries. For more information see the Board in Action section on page 30.

Janet also attended one of the AM briefi ng sessions in October 2016 at which attendees are encouraged to question the Group CEO, CFO and Chairman in relation to strategy and performance. In addition to gaining further knowledge about Bupa, the briefi ng session presented an opportunity for Janet to engage with other AMs to learn more about issues of interest to them at an early stage in her directorship.

Janet Voûte commented that: “A comprehensive induction programme is an essential part of new Non-Executive Director onboarding. Bupa is a health insurance and health and care company which takes time to fully understand. Attendance at the briefi ng session provided another opportunity for me to observe and participate in the challenge provided by Bupa’s Association Members.”


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Board diversity policyBupa’s policy of ensuring that there is broad experience and diversity on the Board was adopted by the Board in 2012. Diversity in Bupa embraces knowledge and understanding of relevant diverse geographies, peoples and their backgrounds, including race, disability, gender, sexual orientation, religion, belief and age, as well as culture, personality and work-style. In particular, Bupa’s Board is focused upon increasing Board diversity without compromising on the calibre of Directors. Appointments to the Board are based on merit as well as complementing and expanding the skills, knowledge and experience of the Board as a whole. Within this context the Board aspires to have an appropriate proportion of Directors who have direct experience of some of Bupa’s key markets. In 2016 Simon Blair, Joy Linton and Janet Voûte were appointed to the Board, each with international healthcare experience. Our Board diversity policy can be found on bupa.com.

Succession plansSuccession plans are continually reviewed and a phased replacement of NEDs coming to the end of their tenure agreed. This approach is designed to ensure continuity on the Board,

as well as maintaining an appropriate balance of skills and experience on the Board and its Committees and ensuring we have a strong executive pipeline within the business.

Board composition and tenureBupa’s Board consists primarily of NEDs (eight including the Chairman), who substantially outnumber the Executive Directors (two). The independence of NEDs from management and any other business or relationship which could materially interfere with their independence, is considered and confi rmed on an annual basis. All Directors off er themselves for annual re-election by the AMs, save for those retiring at the AGM.

The ChairmanLord Leitch, Bupa’s Chairman, who was independent on appointment, holds a small number of other appointments, none of which are considered to impede his role at Bupa. Details of his other appointments are set out in his biography on page 25.

Confl icts of interestThe Company Secretary performed the annual review of all Directors’ actual or potential confl icts of interest and all potential confl icts were recorded and authorised.

Should a confl ict arise, the relevant director would agree to abstain from discussions on any matter where they may be confl icted. Many of Bupa’s NEDs hold appointments at other organisations, as set out in their profi les on page 25. Each NED confi rmed that they are able to devote suffi cient time to perform their role eff ectively.

Board training and developmentDuring the year, Board and Committee members attended Bupa-led specifi c training and development sessions. These took the form of presentations on specifi c markets from leading academics and economists to more detailed training on forthcoming regulatory developments. During 2016 the training included the implications of the new Senior Insurance Managers Regime, an Anti-Bribery and Corruption Update and some familiarisation sessions on the new Solvency II regulatory reporting requirements. NEDs also undertook training independently throughout the year to ensure that they maintained their skills and knowledge required for the role. The Committee members also receive training as necessary on specifi c technical topics. For example, in 2016, the Audit Committee received awareness training on the implications of the new Base Erosion Profi t Shifting taxation framework for Bupa.

The Board Diversity Policy was launched in 2012 with the intention of ensuring that diversity remains a central feature of the Board.

Board diversity

Board composition

Percentage of male Directors

60%

Percentage of female Directors

40%

Percentage of Executive DirectorsThe Executive Directors are the Group CEO and CFO

20%

Percentage of Non-Executive DirectorsThe Non-Executive Directors include the Chairman and SID

80%

The role of the Non-Executive DirectorsLawrence Churchill, Simon Blair, Roger Davis, Martin Houston, Clare Thompson, Sir John Tooke and Janet Voûte are collectively expected to constructively challenge and help develop strategy, to participate actively in the decision-making process of the Board, and to scrutinise the performance of management in meeting agreed goals and objectives.

A copy of the standard Non-Executive Director (NED) Terms of Appointment, which set out their expected time commitment, is available on bupa.com, at Bupa’s registered offi ce and is available for inspection before and during the AGM. NEDs have the same general legal responsibilities to the Company as any other director.

Sector experience

Financial services 7

Clinical and Healthcare Systems 6

Brand and Marketing 6

International Business 6

Strategy and Development 8

Length of tenure (years)

1 – 3 6

4 – 6 1

7+ 3

1-3 years Joy Linton, Simon Blair, Roger Davis, Martin Houston, Clare Thompson, Janet Voûte (2015: 5)4-6 years Evelyn Bourke, (2015: 3)7+ years Lord Leitch, Lawrence Churchill, Prof Sir John Tooke (2015: 1)


Governance report

Board in action

The Board undertook two overseas visits during the year, the fi rst to Chile in April and the second to Australia in October. These visits enable our Directors to deepen their knowledge of Bupa’s global operations and meet with local executives, both of which help to facilitate better decision making.

Santiago, Chile site visitIn Chile the Board visited the Integramédica Manquehue clinic where they saw the various departments in action. The Board then went on to Bupa Santiago Hospital which is currently under construction. This provided an opportunity to see the new facilities being built and hear about the approach to fi rst class healthcare provision. One to one meetings with executives were held, some of which were tailored to the Directors’ expertise and Committee positions, for example, Finance and Audit, Risk and Compliance, Medical, and Brand and Marketing. During the visit the Board also received presentations on the local economy and business environment, facilitated by Banchile Citi.

Melbourne, Australia site visitIn Australia, Board members visited Bupa Health Insurance and Bupa Optical stores, a Bupa Dental clinic and the Bupa Medical Visa Services centre. These site visits enabled Board members to see the customer experience fi rsthand and to speak to Bupa’s people directly, as well as see the Bupa off ering in that market. The Chairmen of the Audit and Risk Committees of Bupa and Bupa Australia attended one to one meetings on the fi rst day followed by a joint Bupa and Bupa Australia Board discussion. Once again some of the meetings with executives were tailored to the Directors’ role and expertise including Corporate Aff airs and the Political Landscape, Clinical and Remuneration & People.

“Site visits help the Board appreciate the context-specifi c nature of health and care problems and the challenges faced by management.”Sir John TookeNon-Executive Director

1. Evelyn Bourke visiting a Bupa Optical store in Melbourne during the Board’s visit to Australia in October 2016.

2. L-R: Lawrence Churchill and Sir John Tooke visiting the Transformation Hub in Melbourne (Bupa’s modern, fit-for-purpose, face-to-face collaboration capability).

3. The Board visiting the construction site of the Bupa Santiago Hospital, during their visit to Chile in April 2016. Top row L-R: Andrés Varas – Bupa Chile General Manager, Iñaki Ereño – CEO Europe & Latin America (ELA), Julian Sanders, Lawrence Churchill, Janet Voûte, Rita Clifton, Simon Blair and José Francisco Tomás – ELA Medical Director. Bottom row L-R: Sir John Tooke, Joy Linton, Evelyn Bourke and Clare Thompson.

4. L-R: Martin Houston, Julian Sanders and Clare Thompson visiting a Bupa Health Insurance retail store in Melbourne.

1 2

4 3


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Eff ectiveness

Board performance and evaluation

In 2016, the Board and individual Directors underwent the third externally facilitated Board evaluation process. This was conducted by Independent Audit Limited. The two previous reviews were conducted by Boardroom Review.

Independent Audit Limited has no connection with Bupa, other than having provided the online questionnaire tool used for the internally conducted reviews in 2014 and 2015. In 2016, the Board evaluation process took the form of

one-to-one interviews, attendance at the November Board meeting and culminated in a group discussion at the December meeting. The evaluation concluded that Bupa’s Board continued to operate eff ectively in an open and honest manner, providing support and challenge to executive management.

The Board considered the performance of the Chairman during 2016 and concluded that he continued to provide strong leadership of the Board.

2017 goalsBoard performance evaluation action plan 2016 (from the 2015 Board evaluation)

Categories CategoriesBoard action plan for 2016 Board action plan for 2017Achievements against action plan during 2016

Strategic focus

Continue to balance the number of strategic and operational agenda items. Explore risk appetite in relation to long-term strategy. Board submissions to be amended slightly to balance the amount of operational and strategic issues discussed.

There has been a shift in the Board’s Agenda during 2016 to ensure more space is made available for consideration of strategic issues, including the adoption of a new strategic framework and the ongoing detailed analysis of operations against strategy and risk appetite.

Clarity on medium/long term strategy

Keep Bupa’s long term ambitions and strategy under review.

Customers, competition and external developments

Further discuss the activities of Bupa’s competitors and external perspectives on Bupa’s markets. Monitor and oversee further implementation of the Net Promoter System (NPS) across Bupa.

The Board considered updates from the Market Units in respect of their competitors and also received external perspectives on Bupa’s markets during their visits to Chile in April and Australia in October. NPS has continued to be rolled out and embedded across Bupa throughout 2016.

Focus on Non-Executive Director succession planning

Continually review the Board skill set required to lead a global organisation and ensure orderly succession plans are in place.

Board impact

Set aside time to ensure there is real clarity about the expectations of the value that the Board can bring to Bupa, once the four new NEDs have been in the role for six months.

The Board’s focus in 2016 shifted to ensuring that the right individuals were appointed as the Group CEO and CFO respectively. The four most recently appointed NEDs have brought an enhanced international lens through which to examine the Board’s global activities.

Board impact

Ensure the Board agenda continues to have space for adequate discussion of emerging risks and opportunities.

Priorities arising from the 2016 evaluation are set out below and once again the Nomination & Governance Committee will monitor performance against these priorities during the year. We will report on progress in the 2017 Annual Report.

The results from the 2016 action plan (arising from the 2015 internal evaluation) and achievements against the goals set are outlined in the table below.


Board attendance

The following table sets out the attendance of the Company’s Directors at scheduled Board and Committee meetings during 2016:

Number of meetings held

Boardmeetings

11

Audit Committee

7

Nomination & Governance Committee

5

Remuneration Committee

7

Risk Committee

5

ChairmanLord Leitch 11/11 – 5/5 7/7 –Executive DirectorsEvelyn Bourke 11/11 – 2/4 – –Stuart Fletcher1 2/2 – 1/1 – –Joy Linton2 8/8 – – – –Non-executive Directors Lawrence Churchill 11/11 7/7 5/5 7/7 5/5Rita Clifton3 4/4 – 2/2 3/3 –Simon Blair4 10/11 3/4 – – 3/3Roger Davis5 10/11 5/7 – 3/4 1/2Martin Houston6 10/11 2/3 2/3 7/7 1/2Clare Thompson7 11/11 7/7 3/3 – 5/5Sir John Tooke8 10/11 – 3/3 – 5/5Janet Voûte9 11/11 – – 4/4 3/3

1 Stuart Fletcher stepped down from the Board and the Nomination & Governance Committee (N&G) on 4 April.2 Joy Linton joined the Board on 1 May 2016.3 Rita Clifton stepped down from the Board and the N&G on 11 May.4 Simon Blair joined the Board on 12 January and the Audit and Risk Committees on 11 May. He was unable to attend the December Board due to a confl icting board meeting.5 Roger Davis stepped down from the Risk Committee on 11 May. He was unable to attend the April meeting due to a confl icting board meeting.6 Martin Houston joined the N&G and resigned from the Audit & Risk Committees on 11 May 2016. He was unable to attend the February Board due to an annual commitment.7 Clare Thompson joined the N&G on 11 May 2016.8 Sir John Tooke joined the N&G on 11 May 2016. He was unable to attend the August Board due to a confl icting commitment.9 Janet Voûte joined the Board and the Risk Committee on 11 May 2016.

2016 Board meetingsThe Board held 11 scheduled meetings during the year (both in the UK and overseas) and the following table shows key items discussed at those meetings. The Board also attended an annual strategy off site session in June 2016.

July

August

September

October (meeting held in Australia)

November

December

February

March

April (meeting held in Chile)

May

June

– 2015 Outturn & Impact on 2016-18 Plan

– IDM Strategy Update

– Capital & Funding Capacity 2016-2018

– Group CEO Recruitment – CFO Appointment – Additional Changes to BET – Board Strategy Off site

– Bupa Global Corporate Business Strategy

– US Strategic Partnership

– PRA Presentation – Approval of 2015 Annual

Report & Accounts

– Digital & Social Media Progress

– Strategic Direction

– Half Year Results

– Group CEO Transition – Talent Breakfast

Conversations

– ANZ Customer Transformation Funding

– SLA MU Business Update

– Cyber Risk – UK MU Update – Bupa Insurance Programme

– Group CEO Recruitment – 2016 ORSA & Policy

– Brand & Customer Experience

– ANZ MU Update – Global Brand Strategy

– Solvency II – IDM Organisation Structure

& Strategy Refresh

– UK MU Clinical Quality

– M&A Pipeline & Capacity to Transact

– Oasis Dental Care Purchase – Bupa’s Financial Framework

– Talent & Succession Review

– Approval of 2017–2019 Plan – Enterprise Policies – Assets to be Made Available

for Sale – Insurance Risk Appetite

– Speak Up – IS&T Transformation – External Board Evaluation – IM MU Business Update

Examples of key strategic items covered at Board meetings included:

Governance report

Eff ectiveness continued


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Engagement

Association MembersBupa maintains a register of around 100 Association Members (AMs) (115 as at 31 December 2016) who perform a key governance role ordinarily undertaken by shareholders. AMs generally serve for an initial term of ten years which can be extended for further terms of fi ve years. AMs have no equity interest and, consequently, no right to dividends. AMs are eminent individuals in their own fi eld, coming from a diverse range of sectors, including health and social care, business, regulatory, academia, as well as charities and the public sector. Their expertise enables them to provide challenge to the Board on matters of performance and strategy, and furthermore, to draw upon their skills, knowledge and experience to help inform future strategy and development. Fundamentally, their role is to hold the Board to account in delivering on our purpose of helping people live longer, healthier, happier lives. AMs are selected via a number of criteria including having recent and relevant experience in their specifi c fi eld; being independent of Bupa; being able to make a contribution; and having experience in the key overseas markets in which Bupa operates.

Bupa’s AMs have a number of opportunities to engage with the entire Board, including at the AGM which is well attended. Details of the calendar of events are set out in the table to the right. A summary of the questions asked at many of the events is circulated to all AMs, the Board and the Bupa Executive Team which ensures that the views of AMs are well communicated and understood within the business. These more formal sessions are combined with regular correspondence on key changes and developments within Bupa, such as major acquisitions. The Group CEO, Chairman, Senior Independent Director and Company Secretary are available to the AMs throughout the year. To ensure that the AMs are kept fully informed, they also have access to a secure website containing useful information and updates, as well as daily media briefi ngs and a calendar of forthcoming events.

BondholdersBupa also has a number of debt securities in issue by its subsidiary company Bupa Finance plc and is therefore required to operate in accordance with the UK Listing Rules, Disclosure and Transparency Rules and the Market Abuse Regulations in respect of its announcements of fi nancial results and operations. Briefi ng calls are scheduled for bondholders and other interested parties to discuss the Half Year and Full Year results. This provides an opportunity for them to question management on the fi nancial performance and strategy of Bupa.

Other stakeholdersAcross our markets, we engage regularly with policymakers and regulators, health and care professionals, consumer groups, NGOs and other key stakeholders. This engagement enables us to contribute to the health policy debate and to build an understanding of issues relevant to our customers and to healthcare generally. We also partner with a number of other commercial organisations, to address and positively impact specifi c health issues as part of our commitment to help more people access better healthcare. Our business model on pages 4-5 explains how we deliver for our Customers.

Calendar of Association Members engagement events in 2016

March Financial Results Briefi ng Call

Briefi ng call with the Group CEO and CFO following the announcement of fi nancial results allowed the AMs to understand and challenge fi nancial and operational performance.

May Annual General Meeting

The AGM is preceded by a seminar update in respect of one of Bupa’s business areas. In 2016, the Seminar was “Leading Digital Transformation of the Healthcare Industry”. 48% of AMs attended the 2016 AGM (2015: 50%). The number of attendees increased in 2016, by 11 AMs, but comprised a smaller percentage of the total number due to the increase in the number of AMs following the extensive 2015 appointment exercise.

At the AGM, Bupa proposes a resolution on each substantially separate issue, including a resolution on the Annual Report and Accounts and the Remuneration Report and Policy. Voting at the AGM is conducted on a show of hands. The questions raised by AMs at the 2016 meeting covered a broad range of areas such as Bupa’s strategy, Brexit, Top Risks, Customer Satisfaction, Appointment of the new Group CEO, the National Living Wage, Competition and Digital Opportunities.

July New AMs’ Induction Session

This was an opportunity for newly appointed AMs to gain a further understanding of Bupa, our strategy, their role in our governance and how they can assist Bupa to achieve its purpose. 59% of the newly appointed AMs attended the induction session in 2016.

August Half Year Results Briefi ng Call

As for the Financial Results Briefi ng Call (above).

October & November

AMs’ Briefi ng Sessions

This was another opportunity for engagement with representatives of the Board on matters of strategy and performance. These sessions encourage rigorous challenge and questioning by the AMs. Four briefi ng sessions were held with a total of 45 AMs in attendance during 2016. A short presentation on Bupa’s strategy and development was followed by an in-depth Q&A at each session.

Throughout the year

Updates Regular email updates provided to the AMs throughout the year as they arise on business and executive changes.


Governance report

Audit Committee report

“During 2016, the Committee oversaw the Finance Development Programme focusing on accelerated Solvency II reporting and preparing for the new Solvency and Financial Condition Report and Regular Supervisory Report.”

Clare ThompsonCommittee Chair

Role of the CommitteeThe principal role of the Committee is to monitor the integrity of Bupa’s fi nancial statements, the eff ectiveness of the systems of internal controls and to monitor the eff ectiveness, performance, objectivity and independence of the internal and external auditors. The Committee also reviews regulatory reporting.

A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

Committee governanceAll members of the Committee are Non-Executive Directors (NEDs) and this applied throughout the year. Martin Houston stepped down and Simon Blair joined the Committee on 11 May 2016.

The Group CEO, CFO, Corporate Controller, Chief Internal Auditor, Chief Risk Officer and external auditors are routinely invited to attend meetings. The Committee at least annually holds separate discussions with the external auditor, the Chief Internal Auditor and Chief Actuary without management present. In compliance with the UK Corporate Governance Code (the Code), at least one of the members of the Committee has recent and relevant fi nancial experience. The Committee as a whole has a wide range and depth of fi nancial and commercial experience, a signifi cant amount of which is in fi nancial services. The biographies of members can be found on page 25.

2016 activities As set out in last year’s report, the Committee’s focus for 2016 was to assess the implementation of the EU Audit Reform regulations and the approach to and timing of placing the external audit out to tender; the further development of the Internal Control and Risk Management Assessment system to ensure its continued eff ectiveness; and developing the assurance process in respect of IT systems development and digital media. The Committee also undertook core activities such as reviewing fi nancial reporting, approving external audit plans and reviewing fi nancial control and reporting policies.

During 2016, the Committee also:

– Oversaw matters relating to the issue of the £400m 5.00% Fixed Rate Subordinated Notes due 2026 by Bupa’s subsidiary Bupa Finance plc.

– Reviewed the policy on the engagement of the external auditor to provide non-audit services and received a quarterly update on engagements with KPMG and other “Big Four” fi rms.

– Oversaw the new Finance Development Programme to deliver the additional processes, systems and data capabilities to ensure continued compliance with Solvency II Pillar 3 reporting requirements and in addition to bring together other fi nancial strategic change activities.

– Reviewed Solvency II Pillar 3 reporting and plans for narrative reporting in 2017.

– Received updates on the approach taken to implement actions recommended by internal audit, including meetings with management where appropriate.

– Held deep dives to discuss the control environment relating to topics such as cybersecurity, IT controls maturity and third party provider management.

– Received an update on the status of the whistleblowing programme (Speak Up) and reviewed and recommended the related policy to the Board.

– Attended awareness training on the new Base Erosion Profi t Shifting legislation coming into eff ect in 2017.

– Further improved the Auditor Eff ectiveness review process.

Key items covered included:

At most meetings the Committee receives reports from Internal Audit, Finance and KPMG and in addition discussed the following:

9 February – Key Accounting Issues & Areas of Judgement/Outstanding Claims Provision Update/Fraud Risk Management/Eff ectiveness of Audit Committee

29 February – Review of Systems of Internal Control & Risk Management (ICRMA)/Annual Report & Accounts 2015/Audit & Non-Audit Services Policy Review/Long Term Viability Statement

April – Solvency II Reporting/ICRMA Process

June – KPMG Engagement Letter/KPMG Fee Proposal/Solvency II Reporting/EU Audit Reform – External Audit Tender

July – Review of ICRMA/Key Accounting Issues & Areas of Judgement/Draft Half Year Report

September – Financial Reporting Issues/External Audit Lead Partner Change/Speak Up Update

December – 2017 Global Internal Audit Plan/Insurance Reserving/Draft SFCR and RSR 2016 Reports

Committee members

Clare Thompson Chair

Simon Blair

Lawrence Churchill

Roger Davis


Strateg

ic repo

rtG

overnanceF

inan

cial statements

The signifi cant issues and areas of judgement discussed in respect of the 2016 reporting period and how they were addressed are detailed below:

Key issue Committee response

Goodwill and intangible asset valuations: Signifi cant levels of goodwill and intangibles are held in respect of prior acquisitions. Impairment reviews are inherently complex and require a high level of judgement to be applied due to the uncertainty involved in forecasting future cash fl ows, the appropriateness of discount rates used and future growth rates of the respective business.

The Committee critically reviewed and discussed management reports outlining the basis of the assumptions used for our most sensitive Cash Generating Units (CGUs) and considered these in light of business performance. The Committee also received information on goodwill testing from KPMG. Particular focus was given to Quality HealthCare (QHC) where the cash fl ows are dependent in part upon the opening of new clinics along with general growth prospects. The Committee received reports from management regarding an external valuation of QHC as a key factor in supporting the carrying value of goodwill. The Committee is satisfi ed that the assumptions applied were reasonable and the carrying value of goodwill is appropriate.

Claims provisioning: Calculation of the outstanding claims provision is based on assumptions including claims development, margin of prudence, claims costs infl ation, medical trends and seasonality, which require a high level of judgement and actuarial expertise.

The Committee received reports from management detailing claims reserving methodologies and reviewed and approved the approach to claims reserving. In particular, the Committee reviewed and approved the assessment of margins of prudence, with a focus into areas where there were changes in methodology or practice. In making these judgements, the Committee also considered reports from the external auditor and is satisfi ed that the assumptions applied in calculating the claims provision are appropriate.

Property valuations: Bupa has a signifi cant portfolio of care home and hospital properties which are revalued to fair value on a periodic basis, with external valuations undertaken at least triennially. The underlying assumptions involved in the valuations, including earnings, profi tability, occupancy levels and future trends are subject to a high level of judgement.

The Committee considered the results from external valuations and discussed these with management in light of current trading performance of the businesses in which the properties are used and the external environment. The Committee considered and challenged Directors’ valuations where no external valuation had been carried out and received information from management about material changes in valuation and any potential write downs. The Committee also reviewed reporting from the external auditors addressing the valuations to assess their reasonableness and considered the appropriateness of disclosures made. A number of properties are classifi ed as held for sale at 31 December 2016. The Committee is satisfi ed that property values and disclosures for all properties, including those held for sale, are in compliance with fi nancial reporting requirements and are appropriate.

Pension assets and liabilities:Bupa’s principal defi ned benefi t scheme in the UK is The Bupa Pension Scheme. Signifi cant judgement is exercised in determining the actuarial assumptions used in valuing the pension asset/liability.

The Committee considered the appropriateness of the assumptions used in the valuation of the related pension assets and liabilities performed by the independent scheme actuary. The Committee challenged and reviewed internal management reports to determine their conclusions; supported by detailed triennial valuations with annual interim reviews produced by the independent scheme actuary and is satisfi ed that the assumptions used in the valuation are appropriate. The Committee received information from KPMG benchmarking the assumptions used in the valuation of pensions liabilities. The Committee concluded that the pension assumptions were appropriate.

Acquisitions and disposals:During 2016 Bupa completed the acquisition of Care Plus, a Brazilian health insurer. The purchase of Oasis Dental Care, subject to regulatory approval in 2017, was also announced.

The Committee considered the proposed accounting for Care Plus and management’s approach to reporting the acquisition balance sheet given the transaction’s close proximity to year end. The Committee challenged management and concluded that the approach was appropriate. Proposed disclosures for the purchase of Oasis Dental Care were also presented to and challenged by the Committee including the proforma impact on solvency capital.

In addition to the above, the Committee has considered any one-off transactions, such as the early redemption of the securitised loan notes, the disposal of Bupa Home Healthcare and the acquisition of increased stakes in Bupa Chile and Max Bupa in the year and is satisfi ed that these have been appropriately recognised and disclosed in the fi nancial statements.

Financial reportingThe Committee reviewed the appropriateness of the Half Year and Annual fi nancial statements, which it carried out with both management and the external auditors and included:

– Whether the Annual Report was fair, balanced and understandable.

– Compliance with disclosure requirements.

– The material areas in which signifi cant judgements had been applied.

In assessing whether the Annual Report was fair, balanced and understandable, the Committee evaluated whether:

Fair and Balanced – The narrative reporting in the strategic report is consistent with the fi nancial statements, providing challenge and feedback throughout the production of the Annual Report and Accounts.

– The key judgements referred to in the narrative reporting and the signifi cant issues reported within this Audit Committee Report are consistent with the fi nancial statements.

– Statutory and adjusted measures, such as underlying profi t have been given equal prominence and are clearly explained.

– Key Performance Indicators refl ect those that are used to measure business performance and management are able to explain their relevance in assessing the results.

Understandable – Clear, simple explanations are given of the business model, Bupa’s strategy and accounting policies.

– Key messages are clearly highlighted with consistent wording throughout the Annual Report.

– The layout and presentation are clear with appropriate language used throughout.

The Committee has also reviewed the going concern assumptions and underlying principles in the Longer Term Viability Statement. Overall, the Committee is satisfi ed that the assumptions and principles on which these are based are appropriate and reasonable. They also made an assessment as to whether the requirements of the risk management and internal control section of the Code have been satisfi ed.


Governance report

Audit Committee report continued

External auditorsEff ectivenessThe Committee assessed the scope, fee, objectivity and eff ectiveness of the external audit process during the year. Prior to making a recommendation on the reappointment of KPMG, the Committee reviewed the eff ectiveness of their performance against criteria which it agreed, in liaison with executive management, at the outset of each year’s audit. During 2016, the Committee further developed the assessment of the eff ectiveness of the audit.

The Committee assessed KPMG’s eff ectiveness during Committee meetings held in the year. The Committee also considered the results from:

– the annual auditor satisfaction survey sent to senior management across the Group; and

– a survey sent to the Committee members along with the Group CEO, CFO, Chief Internal Auditor and the Corporate Controller.

The Committee considered a number of areas such as the overall quality of service, timeliness of the resolution of issues, the quality of the audit resource and whether the audit plan was followed. The Committee is satisfi ed that KPMG continues to provide an eff ective audit service.

The Committee requested and reviewed the external audit plan, ahead of it being approved to have the opportunity to challenge resources in meeting the plan.

Mandatory rotation of external auditorsKPMG has been Bupa’s auditor since 1985 and during this time, Bupa has not put the audit out to tender. Daniel Cazeaux was part of Bupa’s 2010 audit team and appointed as Bupa’s lead audit partner after the conclusion of the 2013 audit. In accordance with the Financial Reporting Council Ethical Standard he will rotate off Bupa’s account after the completion of the fi nancial year ended 31 December 2016 audit. The Audit Committee Chair participated in the process to appoint a new lead audit partner Phil Smart along with Bupa’s Group CEO, CFO and Corporate Controller. Phil participated in an induction process during the latter part of 2016 which included presentations to and attendance at Committee meetings.

Under the new EU Audit Regulation transitional arrangements, Bupa will be required to rotate audit fi rm at the next appointment after 17 June 2020. In 2016, the Committee assessed tendering options and decided not to place the external audit out to tender in 2016. After consideration of the requirements, the Committee decided to progress with the rotation of the audit fi rm for the audit of fi nancial year ending 31 December 2019 at the earliest, but no later than for fi nancial year ending 31 December 2021. The Committee agreed it is likely to be disruptive to rotate the external audit fi rm earlier than for fi nancial year ending 31 December 2019 when signifi cant focus is being placed on delivering accelerated Solvency II reporting. In the meantime, the Committee will continue to review the eff ectiveness of KPMG closely.

Auditor independence and non-audit servicesTo ensure that KPMG’s objectivity and independence is safeguarded, the Committee has a formal policy addressing Bupa’s relationship with the external auditors, which includes fi nancial approval limits for non-audit services and restrictions on the nature of work that can be performed. As outlined in Bupa’s Audit and Non-Audit Services Policy, the Audit Committee Chair or the Audit Committee must approve all non-audit related engagements of £200k and above. In 2016, this policy was updated and approved by the Committee to address the requirements as set out in the EU Audit regulation. The Committee reviews non-audit services provided by KPMG and other audit fi rms, on a quarterly basis, to assess any potential independence issues. As part of the evaluation of the external auditors, the Directors confi rmed that they were satisfi ed that the external auditors had maintained their independence.

The non-audit fees paid to KPMG were £1.4m representing a non-audit to audit fee ratio of 0.2:1. Of the non-audit fees paid, £0.6m was in relation to Solvency II assurance activities and £0.3m was for tax services. Tax services contracted with KPMG were terminated during 2016 to comply with EU audit regulation. The audit and non-audit services are shown in Note 2.3 to the fi nancial statements.

The Committee was satisfi ed that KPMG continued to be independent. In addition, KPMG also annually reports on whether and why it deems itself to be independent.

Internal control and risk management assuranceAs noted in the Risks section on pages 17-21, Bupa has an ongoing process for the identifi cation and management of its principal risks and conducts the Internal Control and Risk Management Assessment (ICRMA) to review the eff ectiveness of internal controls and how well risk management and policy compliance is embedded in Bupa. This is a fi rst line of defence self-assessment, subject to review and challenge by the second and third lines of defence, the results of which are reviewed by the Committee. The Committee considered the results of the ICRMA at both the half and full year. The Risk Committee will assume this responsibility from January 2017.

During these reviews, the Committee did not identify any weaknesses which were determined to be signifi cant to the preparation of the fi nancial statements. The Committee noted that there were no signifi cant changes to the control environment noted in the current year, signifi cant to the preparation of the fi nancial statements. The Committee also noted the steps that had already been, and were planned to be, taken by management, to address those areas identifi ed, and the plans to further enhance the internal control systems and strengthen risk management.

The approach to the ICRMA continues to be subject to regular review and enhancement by management to ensure its continued eff ectiveness.

Internal auditInternal Audit provides the Committee with assurance over the eff ectiveness of governance, risk and internal controls. It reviews the eff ectiveness of controls by undertaking an agreed schedule of internal audits each year. Internal audit operates within a three lines of defence model (see page 17). As the third line of defence, it supports Bupa in accomplishing its purpose by helping the Board to protect the assets, reputation and sustainability of the organisation, and ensure risks to the customer and the Bupa business are appropriately managed. It reports its fi ndings to the Committee and assists both the Board and management to improve the eff ectiveness of governance, risk management and internal controls.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

In order to maintain the function’s independence and objectivity, the primary reporting line for the Chief Internal Auditor is to the Chair of the Committee. Bupa’s internal auditors have no direct operational responsibility or authority over any of the activities audited. Where specifi c skills are not available in-house, the Chief Internal Auditor and the Chair of the Committee have the ability to procure the services of expert external advisers. During the year, we appointed PwC as Internal Audit’s fi rst global co-sourcing provider. Bupa commenced onboarding in December, ensuring we were well placed to bring additional expertise and insights to the fore in delivering the 2017 Plan.

The assurance provided by Internal Audit was a crucial part of the Committee’s consideration of Bupa’s overall control environment during the year. In 2016, 106 audits were completed in line with the Internal Audit Plan approved by the Committee. There was a particular focus on conduct risk and customer experience, change management activities, critical business processes and data and digitalisation. The Committee received regular updates on internal audit activity as well as management’s progress in addressing audit fi ndings.

The Committee reviewed and approved the 2016 Plan and budget in December 2015. The annual Plan is developed within the context of a three year strategic internal audit plan, using a risk based methodology including input from senior management and the Board. In June, the Committee approved a half year refresh of the 2016 Plan based on a refreshed risk assessment in line with the Global Internal Audit methodology. The Committee also conducted an annual review of the Internal Audit Charter and recommended it to the Board for approval in December 2016.

The function acts in accordance with the Global Institute of Internal Auditors’ International standards. In addition to the external assessment on the eff ectiveness of the function (due to be conducted again in 2018), Internal Audit maintains a quality assurance and improvement programme that includes an evaluation of the function’s adherence to these standards. The programme outcomes were reported to the Committee which concluded that the quality, experience and expertise of the

function continue to be appropriate for the Bupa business. Across our global Internal Audit function we have a diverse skill-set with the majority of the team holding accounting or internal auditing qualifi cations, as well as having gained experience in insurance, health provision, transformation or technology assurance.

Strengthening linkages with subsidiary audit committeesProgress was made in strengthening linkages with major subsidiaries. The Committee Chairman held meetings with the Chair of Bupa Chile’s audit committee and the Chief Financial Offi cers and Head of Internal Audit of our Chilean and Spanish businesses during the Board’s visit to Chile. During the Board’s visit to Melbourne, the Committee Chairman held meetings with the Chair of the Australian board audit committee and Finance and Internal Audit managers of our Australian business. The Committee Chair also holds one-to-one calls with the Chairs of the audit committees of Bupa’s major subsidiaries throughout the year.

WhistleblowingThe Committee received regular updates on the adequacy and security of the Company’s enhanced whistleblowing process, known as “Speak Up” which was launched in 2016. A programme of communications to all Bupa’s people has commenced and the issues raised through this process will be brought to the Committee for discussion on an ongoing basis.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2016 and noted the need to continue strengthening of management’s reporting to the Committee.

Plans for 2017 In 2017, the Committee plans to:

– Continue to monitor the ongoing programme of improvements in the control environment and receive regular reports from the Internal Audit function.

– Oversee the automation and effi ciency improvements in accelerated Solvency II Pillar 3 reporting.

– Oversee the purchase price accounting for major acquisitions such as those recently announced for Care Plus and Oasis Dental Care.

– Work closely with Bupa’s new KPMG Lead Audit Partner, Phil Smart and receive a refreshed audit plan.

– Oversee the analysis and implementation of new accounting standards, particularly the impact of the new insurance contracts standard when it is fi nalised.


Governance report

Risk Committee report

“During the year the Committee emphasised the embedding of the Risk Management Framework across the Group, supported the strengthening of information security capabilities, identifi ed longer term emerging risks and continued to strengthen relationships with the board risk committees of our major subsidiaries.”

Lawrence ChurchillCommittee Chair


February – Country Concentration Risk/Governance of Information/Stress and Scenario Testing/Property Risk Concentration/Clinical Quality and Risk Quarterly Report/Clinical Risk Framework/Risk Committee Evaluation

April – Emerging Risks/Governance of Information/Draft ORSA Report & Policy/Brexit Impact Assessment/Stress & Scenario Testing/Worldwide Scenario Proposal/Chief Medical Offi cer’s Report

July – Review of Insurance Programme/Group Actuarial Function Report – Year End 2015/Group Risk Appetite Statement Review/Chief Medical Offi cer’s Report/UK Care Homes - Continuous Improvement Programme

October – Crisis Management and Business Continuity Review/Remuneration – Risk Considerations/Group Risk Appetite Statements/ICRMA/Chief Medical Offi cer’s Report

November – 2017 Insurance Compliance Plan/Information Risk Update/Insurance Risk Appetite/Health & Safety Update

Role of the CommitteeThe principal role of the Committee is to assist the Board in its leadership and oversight of risk across Bupa.

This includes:

– Understanding and, where appropriate, optimisation of current and future risk exposures.

– Reviewing and recommending overall risk appetite and tolerance to the Board.

– Reviewing the consistency of corporate strategy and risk appetite.

– Reviewing the risk management framework including Enterprise Policies, process and controls.

– Receiving and considering reports on all categories of risk.

– Promoting a risk awareness culture throughout Bupa.


In making this report, the Committee does not wish to duplicate the detailed description of Bupa’s Risks which are set out on pages 17-21 and form part of the strategic report.

Committee governance The Chief Risk Offi cer continues to have unrestricted access to all members of the Committee.

Sir John Tooke was appointed to the Committee on 1 January 2016 to further strengthen the clinical membership. Simon Blair and Janet Voûte both joined the Committee on 11 May 2016. Roger Davis and Martin Houston stepped down on 11 May 2016. Members of the Committee are all Non-Executive Directors (NEDs) and this applied throughout the year; the Group CEO, CFO, Chief Risk Offi cer, Chief Medical Offi cer and Chief Internal Auditor are routinely invited to attend all meetings. Representatives from the external auditors, KPMG, are also invited to attend all meetings. The biographies of members can be found on page 25. David Fletcher became Chief Risk Offi cer on 1 January 2017. The Committee expresses its thanks and appreciation to Gerry Kelly for his excellent support over the last three years, as Chief Risk Offi cer.

Risks see pages 17-21

Committee members

Lawrence Churchill Chairman

Simon Blair

Clare Thompson

Sir John Tooke

Janet Voûte


Strateg

ic repo

rtG

overnanceF

inan

cial statements

2016 activitiesAs set out in last year’s report, the Committee’s focus for 2016 was to oversee the embedding of Solvency II procedures, monitor enhancements to risk policies and embedding in the fi rst line, monitor a strengthening of our Information Security systems, dynamically monitor changing patterns of risk exposure and integrate the oversight of Clinical Governance.

Solvency IISolvency II is a major focus and force for good in strengthening risk management. The Risk Management Framework, System of Governance and the Senior Insurance Managers Regime have been implemented.

Embedding risk policiesThe Committee encouraged management to continue to strengthen the fi rst line of defence with a view to embed the appropriate culture across the business. The Bupa Enterprise Risk Committee plays a leading role as the most senior fi rst line executive committee. During the year, we have seen improvements in the self assessments provided by the fi rst line via the Internal Control and Risk Management Assessment. In the most recent review, the Committee noted high standards of performance in Australia and Spain and continued evolution required in the UK and developing markets.

Strengthening our Information Security SystemsWe have signifi cantly strengthened Bupa’s information security capabilities, including the ability to detect and respond to hostile cyber attacks. We recognise however that it is impossible to claim complete immunity from these threats and this remains a key area of focus for the business.

Dynamically monitor changing patterns of risk exposureThe Committee receives management’s assessment of the top risk profi le each quarter. During 2016, the Committee held its fi rst examination of longer term emerging risks in a half day session which included participation from the Chairs of our Australian and Spanish board risk committees. A number of the ideas and questions raised have been carried through to our Board strategy sessions.

Integrating oversight of clinical governanceThe Committee’s capability was enhanced by the membership of Sir John Tooke, who had previously chaired the Medical Advisory Panel and now chairs the new Medical Advisory Council, and by attendance of the Chief Medical Offi cer, who has been responsible for the development of an enhanced Clinical reporting system. The Chief Medical Offi cer presents a quarterly assessment of clinical risks across Bupa operations. Both Sir John Tooke and the Chief Medical Offi cer ensure that the opportunities and risks arising from medical innovation are brought to the Committee’s attention.

Strengthening linkages with subsidiary risk committeesProgress was made in strengthening linkages with major subsidiaries. Bupa’s suite of 31 Enterprise Policies has been adopted by the Boards of our major subsidiaries and deployment throughout the business continued. The Committee Chairman held meetings with the Chief Risk Offi cer (CRO) for Spain and Latin America domestic business during the Board’s visit to Chile, and with the Risk Chair and CRO of our Australian business during the Board’s visit to Melbourne. In addition, as reported above, the Chairs of the Australian and Spanish subsidiary board risk committees attended the Committee’s meeting on emerging risks. The Chair of Bupa UK’s insurance company also attended a Group Risk Committee meeting.

During 2016, the Committee also considered the following:

New market entry risk assessments Throughout the year, the Committee considered the risks associated with Bupa’s expansion plans and those associated with each proposed major acquisition. These reviews included the consideration of whether new market opportunities were within risk appetite and the impact on Bupa’s solvency position arising from growth through acquisition.

Risk and remuneration oversightDuring the year, the Committee provided a formal report as part of the Remuneration Committee’s assessment of the Company’s performance throughout the calendar year in relation to risk management and performance. This process continues to be developed and as a result, more emphasis on Return on Capital will be included in future assessments. The Chairman of the Committee also serves as a member of the Remuneration Committee to ensure close liaison between the two Committees.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2016 and noted the need to continue to focus on areas such as developing an explicit linkage between Risk Appetite and Strategy.

Plans for 2017In 2017, in addition to monitoring Bupa’s Risk Profi le, the Committee plans to:

– Further develop its role alongside the risk committees of our major subsidiaries.

– Ensure an even closer connection between risk appetite and Bupa’s strategy.

– Focus on the embedding of current Enterprise Policies.

– Continue to articulate emerging risks challenging Bupa’s strategy.


Governance report

Nomination & Governance Committee report

Role of the CommitteeThe Committee leads the process for Board appointments and makes recommendations to the Board, as well as reviewing the balance of skills, experience, knowledge, structure and composition of the Board and its Committees.

The Committee keeps Bupa’s governance structures under review and makes appropriate recommendations to ensure that, where appropriate, Bupa’s arrangements are consistent with best practice governance standards. The Committee also identifi es and selects suitable Association Member (AM) candidates.


Committee governanceMembers’ biographies can be found on page 25. Martin Houston, Clare Thompson and Sir John Tooke were appointed to the Committee on 11 May 2016. Evelyn Bourke joined the Committee on 25 July 2016. Stuart Fletcher stepped down from the Committee on 4 April 2016. Rita Clifton stepped down on 11 May 2016 following her retirement from the Board. The Chief People Offi cer and CFO are invited to attend meetings where considered appropriate.

2016 activitiesDuring 2016, the Committee considered the following:

Board successionThe Committee focused on Board recruitment during 2016. Evelyn Bourke was appointed as Acting Group CEO when Stuart Fletcher stepped down in April. The Committee agreed the key attributes required of Stuart’s successor and considered both internal and external candidates against these criteria. Lawrence Churchill in his capacity as the Senior Independent Director and I, together with Elisa Nardi the Chief People Offi cer, prepared a detailed role specifi cation and the JCA Group was retained to provide external search consultancy services. JCA also provided consultancy services for other executive roles within Bupa. At the conclusion of this process, the Committee unanimously agreed to recommend to the Board that Evelyn be appointed as Bupa’s Group CEO. Upon appointment, Evelyn formally recommended to the Board that Joy, who had been Acting CFO, be appointed to the role in a permanent capacity. The Committee discussed Joy’s performance as Acting CFO and concluded that it was supportive of Joy’s appointment as the CFO.

Lord LeitchCommittee Chair


February – Bupa’s Annual Report & Accounts 2015: Corporate Governance Report/Board Succession & Board Committee Membership/Subsidiary Non-Executive Director Appointment/Association Members Update/Board & Committee Evaluation Process 2016/Board Development & Training Update/Non-Executive Director Expenses

May – Group CEO Recruitment Process

July – Group CEO Recruitment Update/Appointment of CFO/Subsidiary Non-Executive Director Appointment

September – Succession Planning/Association Members Update/Board Evaluation/Committee Terms of Reference

December – AM Update, Compliance with UK Corporate Governance Code/Corporate Governance Issues Update

“In 2016, the Committee oversaw the appointment of a new Group Chief Executive Offi cer to drive Bupa forward and enhance our strategy and performance. We also oversaw the appointment of a new Chief Financial Offi cer and two new Non-Executive Directors to the Board.”

Committee members


Evelyn Bourke

Lawrence Churchill

Martin Houston

Clare Thompson

Sir John Tooke


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Simon Blair and Janet Voûte were both appointed as NEDs on 12 January 2016. The recruitment process undertaken with Ridgeway Partners LLP was reported on in the 2015 Annual Report.

Our approach to Board diversity is explained on page 29.

UK Corporate Governance CodeThe Committee continued to monitor Bupa’s compliance with the UK Corporate Governance Code (the Code) with an update in December 2016.

Governance issuesThe Committee receives regular updates on emerging governance issues which are subsequently shared with the wider Board. For example, during the year the Committee discussed the Government’s green paper on Corporate Governance Reform, in addition to other governance developments.

Association MembersThe Committee agreed at its meeting in September 2016 that there was no need to identify any further AMs because there were 115 AMs at the year end with only fi ve AMs scheduled to retire during 2017. There would therefore continue to be in excess of 100 AMs, our target number, at the end of 2017.

Committee eff ectiveness reviewOverall, the Committee considered that it was eff ective during 2016 and noted the continued need to focus on succession planning.

Plans for 2017In 2017, the Committee plans to focus on Board succession planning, including identifying the key skills, knowledge and experience that the Board requires for the future and the possible recruitment of a new NED. The Committee will also keep under review the need to undertake a further recruitment exercise for AMs.


Remuneration report

Part 1: Committee Chairman’s letter

On behalf of the Board, the Remuneration Committee is pleased to present the Directors’ Remuneration Report for 2016.

Role of the CommitteeWe seek to ensure that we are not only rewarding people for delivering great customer outcomes and long-term sustainable performance against our agreed strategies and plans, but also putting in place reward structures that attract and motivate the very best people and ensure our people love working at Bupa. I am convinced that we are delivering and at times exceeding our goals, though we cannot and will not rest here. There is still much to achieve.

2016 activitiesIt has been a busy year for the Committee and for the fi rst time we held a half-day strategy meeting and agreed to increase our number of meetings for 2017 to deal with increasing regulatory requirements.

I would like to highlight four key areas where we have focused our time and made tangible and positive progress.

1. Directors’ Remuneration PolicyBupa’s current Directors’ Remuneration Policy was approved at the 2014 Annual General Meeting (AGM). In line with reporting requirements applying to listed companies, which require those companies to submit the Directors’ Remuneration Policy to shareholders for approval every three years, the Committee undertook a detailed review of the existing policy and propose a number of changes which are incorporated into the revised policy and will be presented for approval at the 2017 AGM.

From 2017, one of the key changes is the balanced scorecard for measuring performance for both the Management Bonus Scheme (MBS) and the Long Term Incentive Plan (LTIP). The objective for this change is to ensure we use measures based on reinforcing the sustainable long-term fi nancial strength of Bupa enabling us to deliver on our purpose; helping people to live longer, happier, healthier lives.

For the short-term MBS scorecard, Profi t, Revenue, Risk Adjusted Profi t, Cost Effi ciency and Customer have been set as the measures. For the LTIP scorecard, we will use Profi t After

Tax, Return on Capital Employed and Customer measures. For both the MBS and the LTIP, in addition to the scorecards, the Committee will be applying an overall adjustment based on risk management across Bupa.

The Committee has worked closely with its advisers and management in developing these plans and the Remuneration Policy, which refl ect a shared agenda in how Bupa rewards future performance, with customers and risk management at the heart of what we do.

2. Solvency II complianceMuch of our 2016 agenda was focused on making sure we both understood and then implemented changes to our policies to ensure compliance with our evolving approach to the Solvency II remuneration requirements. Further, we put in place arrangements to deal with individuals covered by the regulations, e.g. Solvency II identifi ed staff .

3. Introduction of remuneration committees for subsidiary boardsWe are making excellent progress with the establishment of remuneration committees in our Australia and New Zealand (ANZ) Market Unit, as well as our UK regulated entity Bupa Insurance Limited (BINS). The Hon. Nicola Roxon will chair the ANZ remuneration committee and the chairman of the new BINS Remuneration Committee will be nominated by the BINS board shortly. Terms of Reference will ensure that the responsibilities of these committees and how they interact with this Committee, are clear. They will also take account of any specifi c local regulatory requirements.

4. Executive appointmentsThe year was dominated by key personnel changes at Executive Director and Bupa Executive Team (BET) levels. As well as the appointments of the new Group CEO and CFO, there were six new BET appointments. The Committee agreed the terms for both incoming and outgoing executives and retirements contemplated at year end. In all cases, we carefully reviewed all elements of remuneration and used benchmarking prepared by Mercer, remuneration advisors to the Committee and management, to calibrate our proposals.

Martin HoustonCommittee Chairman

“This year the Committee reviewed the Directors’ Remuneration Policy, compliance with Solvency II remuneration requirements, governance arrangements for subsidiary board remuneration committees and remuneration packages for all new BET appointments.”

In the Remuneration report:Part 1: Committee Chairman’s letter

Part 2: Policy

Part 3: Implementation (audited)


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Performance and Pay in 2016

SalaryThe Committee has decided in light of salary increases awarded in 2016 upon appointment to Group CEO and CFO, that no further salary increases should be awarded for 2017.

Management Bonus SchemeAs you will have seen, our business performed solidly in challenging market conditions. We achieved good profi t growth in our three largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America – while performance within International Markets was impacted by a signifi cant decline in profi t within Bupa Global.

The Management Bonus Scheme (MBS) for 2016 refl ects Bupa’s performance not only against profi t and revenue targets, but also non-fi nancial measures including risk, people and customer.

To recognise signifi cant achievements in a year that saw changes to our strategy, the leadership team, the organisational structure and to organisational processes, the Committee approved adjustments to the vesting level of the MBS to mitigate the eff ect of the disposal of BHH and the fact that the transaction costs relating to the purchase of Oasis Dental Care fell in 2016.

The Committee also discussed the eff ectiveness of the management of risk. It received input from the Risk and Audit Committees of the main Board as well as of the main subsidiary Boards. While the Committee noted that progress had been made during the year, the Committee decided to apply a reduction to the vesting percentage.

The Committee approved bonuses of 83.7% and 87.6% of target bonus opportunity for the Group CEO and CFO respectively, this payout also includes an individual performance modifi er which takes into account strong individual performance during the year. A partial mandatory deferral of the MBS was introduced in 2014 and therefore a proportion of these bonuses has been deferred for three years and is subject to malus and clawback provisions over this period. More details are provided on page 45.

Long Term Incentive PlanThe 2014-16 LTIP vesting is based on performance against Profi t After Tax (PAT) and Revenue, and quality and sustainability targets. In reviewing the vesting of this LTIP, the Committee exercised its discretion to exclude the impact of the redemption of secured loan notes, which was deemed to be a strategic decision taken to optimise the Group’s borrowings for the future and the 2016 one-off charge was not a refl ection of performance in the 2014-2016 period. As with the MBS, while the Committee noted that progress had been made during the year on risk management, the Committee decided to apply a reduction to the vesting percentage.

As stated in last year’s Directors Remuneration Report, the Committee calculated vesting of LTIP using an equal balance of actual and constant exchange rates to ensure the LTIP outcome refl ects both actual results and controllable performance.

Based on this and Bupa’s performance against targets calculated as per plan rules, the 2014-16 LTIP vested at 87.65% of target.

Plans for 2017In 2017, the Committee plans to:

– Further develop our approach to remuneration to refl ect updated Solvency II guidance;

– Continue with the development of subsidiary board remuneration committees;

– Review new approaches to compensation and best practice; and

– Build on measuring customer and risk and their infl uence on the outcome of incentive awards.

We are committed to being open and transparent with our Association Members. In addition to the familiar advisory vote on the Remuneration Report, we will this year have advisory votes on Bupa’s Remuneration Policy and the proposed LTIP.

I am available to our Association Members on any aspect of Bupa Remuneration.

Martin HoustonCommittee Chairman

1 March 2017

For more information please see page 48.

Single figure remuneration 2016 (£000)

Evelyn Bourke

Joy Linton

Stuart Fletcher

Base Salary Pension Other Benefits

309 93 215 680

18

376 69 91 180 102

729 195 480 41617

Total£000

818

1,315

1,837

Management Bonus Scheme LTIP


Remuneration report

Part 2: Policy

Remuneration policy table – Executive Directors

Purpose and link to strategy

Core element of remuneration set to attract and retain Executive Directors, refl ecting their role and contribution.

To drive behaviour and to promote focus on the business priorities for the year.

To motivate and incentivise delivery of performance over the annual operating plan.

To motivate and incentivise delivery of sustained performance over the long term aligned to Bupa’s strategic objectives.

To provide an income after retirement, health security and family protection benefi ts.

To attract and retain Executive Directors by providing health and wellbeing benefi ts and providing security for families.

Operation

Salary levels are reviewed annually with any changes becoming eff ective in April.

Factors taken into account include:

– Level of skill, experience and scope of responsibilities of the individual;

– Overall business performance, scarcity of talent, economic climate and market conditions;

– Increases across Bupa, and;

– External market data.

Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support the business strategy.

Performance over the fi nancial year is measured against stretching fi nancial and non-fi nancial performance targets set at the start of the fi nancial year.

Typically 50% of any bonus awarded will be deferred for a period of up to three years, with the remaining 50% paid in cash. To account for any loss of value over time, a modest uplift will be applied to the deferred amount.

As Bupa cannot provide incentives based on equity participation, it provides an LTIP in the form of a deferred cash incentive that is broadly refl ective of equity-based plans in comparable companies.

Awards are usually made on an annual basis and relate to performance over a three-year period.

Vesting of awards is based on the extent to which performance targets, set and assessed by the Committee, are achieved.

Any payments will be made at the end of the performance period and a portion may be deferred for up to two years.

For the current Executive Directors and new appointments, the Company operates a defi ned contribution pension scheme, called The Bupa Retirement Savings Plan. Executive Directors have the option to take any employer contribution as a cash allowance or a combination of pension contribution and cash allowance.

Executive Directors are entitled to a number of taxable benefi ts which may include private health cover for themselves and their family, an annual health assessment for themselves and their partner, life insurance, income protection insurance, car allowance and 30 days’ annual holiday. The Group CEO is entitled to the use of a car and driver instead of a car allowance.

The benefi ts off ered may need to be changed from time to time to refl ect changing circumstances.

Maximum opportunity

Salary increases are normally in line with those of the Bupa employee population.

Larger increases may be given in certain circumstances including where a new recruit has been appointed on lower than market rate salary with the expectation of phased increases to bring it up to market level.

The Committee does not consider it appropriate to set a maximum salary level.

The maximum bonus opportunity will not exceed 200% of base salary.

The maximum award will not exceed 275% of base salary.

Executive Directors who are eligible to be members of The Bupa Retirement Savings Plan receive employer contributions of up to 30% of base salary.

There is no specifi c maximum benefi t spend.

Performance metrics

None MBS payments are based on the achievement of challenging fi nancial and non-fi nancial objectives.

No less than 75% of the annual bonus will be subject to the achievement of fi nancial measures which will be aligned to the strategic priorities of the business.

Vesting of awards is based on performance against a combination of fi nancial and non-fi nancial measures.

Threshold performance results in a payment of 15% of the maximum.

No less than 75% of the LTIP will be based on fi nancial measures with the remainder based on measures linked to key strategic priorities of the business.

None None

Base Salary Pension Benefi tsManagement Bonus Scheme Long Term Incentive Plan

ContextThe aim of Bupa’s remuneration policy is to promote the long-term success of the Company and motivate management to deliver strong and sustainable business performance aligned with Bupa’s purpose: helping people live longer, healthier, happier lives. The policy is intended to deliver a competitive level and mix of remuneration compared with companies of a similar scale and complexity to Bupa.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Malus and clawbackMalus and clawback provisions may be operated at the discretion of the Committee in respect of awards granted under the MBS and LTIP. Malus (under which awards may be reduced, cancelled or made subject to additional conditions) may be applied prior to the payment of the award. Clawback (requiring a repayment of cash which has been delivered) may be operated for up to three years following payment of the non-deferred element of the MBS and fi ve years from grant for the LTIP.

Circumstances in which the operation of these provisions may be considered include:

– Misstatement of results;

– An error in assessing any relevant performance metric or in the information or assumptions on which the MBS or LTIP is determined;

– Serious reputational damage to Bupa or a relevant business unit;

– A scenario in which signifi cant risk has been taken which is outside of Bupa’s or a relevant business unit’s risk appetite;

– Gross misconduct or material breach of employment contract; and

– Any other circumstance which the Remuneration Committee in its discretion considers to be similar in nature or eff ect to the above.

Performance measures and target settingMeasures and targets for the MBS are aligned to delivery of Bupa’s annual operating plan and may include personal objectives that change from year-to-year.

Measures and targets for the LTIP are set by the Remuneration Committee taking into account a number of internal and external reference points which include historic Bupa performance, internal forward-looking plans and broader market trends. Targets are set for vesting at threshold, ‘on-target’ and out-performance levels.

Illustrations of the application of the remuneration policyBupa aims to provide a balance of fi xed and variable compensation that provides stability while also incentivising superior business performance. At target, over 50% of Executive Directors’ remuneration is based on individual and company performance.

The graph illustrates the possible variation for diff erent levels of performance.

1 On target fi gures have been calculated on the basis that Bupa achieves target fi nancial and non-fi nancial performance and individual multiplier is set at 100%.

2 Maximum fi gures have been calculated on the basis that Bupa achieves maximum fi nancial and non-fi nancial performance and individual multiplier is set at 200%.

Remuneration at various levels of performance (£000)Evelyn Bourke Group CEO

Maximum2

On target1

Fixed pay

Joy Linton CFO

Maximum2

On target1

Fixed pay

Base Salary Pension Benefits

800

800

800

240

240 800 1,100

240 1,600 2,200

2,961

1,061

4,861

21


Base Salary Pension Benefits

550

550

550

165

165 413 688

165 825 1,375

1,832

731

2,931

16


Total£000


Remuneration report

Part 2: Policy continued

Remuneration Committee discretionThe Remuneration Committee has ultimate discretion over all incentive plans relating to the Executive Directors and other individuals within its remit. This includes, but is not limited to:

– determining the size of the award/payment;

– determining whether minimum levels of performance have been met or underlying performance is satisfactory before determining vesting of any awards;

– determining whether the management of risk has been acceptable, or whether any downward adjustments are required;

– choosing or adjusting performance measures within the Remuneration Policy and the plan rules;

– determining whether individuals are good leavers for incentive plan purposes, based on plan rules;

– making one-off adjustments in exceptional circumstances.

Approach to remuneration policy on recruitment of an Executive DirectorOur approach to remuneration on recruitment is to pay no more than is necessary and appropriate to attract the right talent to the role.

The remuneration policy table on page 44 sets out the various components which would be considered for inclusion in the remuneration package for the appointment of an Executive Director. Typically a new appointment will have (or be transitioned onto) the same framework that applies to other Executive Directors as set out in the policy table. Salary would refl ect the skills and experience of the individual, and may be set at a level to allow future salary progression to refl ect performance in the role.

It would be expected that the structure and quantum of the variable pay elements would refl ect those set out in the policy table.

The Committee reserves the right to make any remuneration payments or payments for loss of offi ce where the terms of the payment were agreed (i) before the remuneration policy came into eff ect or (ii) at a time when the relevant individual was not a Director of the company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the company.

To facilitate recruitment, the Committee may make compensatory payments and/or awards for any remuneration arrangements subject to forfeit on leaving a previous employer. We will seek to replicate, as far as practicable, the potential value and time horizon of such remuneration, as well as performance conditions that may apply. In some circumstances, it might also be necessary to set up additional or alternative arrangements including but not limited to:

– Relocation-related expenses; and

– International assignment allowances and expenses.

In the case of internal promotions, any commitments made before appointment may continue to be honoured unless an alternative approach, more closely aligned to the prevailing policy, is agreed by the Remuneration Committee.

Any special joining arrangements may include malus and/or clawback, for example, tied to leaving within a certain period.

Diff erences in remuneration policy for Executive Directors compared with other employeesThe Remuneration Policy for the Executive Directors is designed to be broadly similar to the policy applicable to Bupa employees to ensure that they are all aligned to delivering sustainable business performance. Although the size of the opportunity varies, the underlying principles of the salary review cycle, MBS and LTIP remain the same for the senior employee population.

Junior employees are not eligible for LTIP awards, although most have an MBS opportunity. In some cases, additional fl exibility has been introduced for the Executive Directors and senior employees (e.g. to provide choice to receive cash in lieu of pension contributions) to allow for personal circumstances.

A small number of senior managers across Bupa participate in the LTIP, based on the same framework as the Executive Directors, with award levels calculated as a percentage of salary which is scaled down based on their level of seniority and accountability. Vesting of the awards is dependent upon performance against specifi c fi nancial and non-fi nancial measures over a three-year performance period.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Policy on payments for loss of offi ceThe table to the right summarises the key elements of our policy on payment for loss of offi ce, which will comply with the relevant plan rules and will consider local employment legislation.

Any payments made due to loss of offi ce may include malus or clawback provisions as described under malus and clawback on page 45.

Service contracts for Executive Directors Executive Directors have a 12-month rolling employment contract. The notice requirements are 12 months from both the Company and the individual, which may be payable in lieu. The contracts also include specifi c post-termination restrictions. Executive Directors are usually permitted, subject to approval, to have one external Non-Executive Director role and to accept and retain the fee for this appointment. This is on the condition that any external appointment does not give rise to a confl ict of interest.

Remuneration policy table – Non-Executive Directors

Service contracts for Non-Executive DirectorsTerms of engagement for the Non-Executive Directors of Bupa set out the fees and benefi ts to which they are entitled as well as the expectation of the time commitment required to eff ectively perform their role. Copies of the standard terms of engagement are available on bupa.com.

The table to the right describes the pay policy as it applies to the Chairman and Non-Executive Directors.

Provision Policy

Notice period and compensation for loss of offi ce in service contracts

– 12 months’ notice from the Company to the Executive Director.

– Up to 12 months’ base salary (in line with the notice period). Notice period payments will either be made as normal (if the Executive Director continues to work during the notice period or is on garden leave) or at the termination date for any unexpired notice period.

Treatment of MBS on loss of offi ce under plan rules

– The Committee may make a MBS payment for the year of cessation depending on the reason for leaving. Typically, the Committee will take into consideration the period served during the year and the individual’s performance up to cessation. Any such payment is at the discretion of the Committee.

– Any MBS will be paid at the normal time following the end of the performance year.

Treatment of LTIP on loss of offi ce under plan rules

– An Executive Director’s award will vest in accordance with the terms of the plan and satisfaction of performance conditions measured at the normal completion of the performance period if the reason for leaving is redundancy, pre-agreed retirement, early retirement on the grounds of ill health, death or any other special circumstance agreed by the Committee. In these cases, fi nal awards will be pro-rated based on completed months of service, in 36ths for the actual period of active employment during the plan performance period. The period of active employment excludes any period of garden leave or other such period when the Executive Director was legally employed but not required to actively carry out their duties. For any other reason, they will not be eligible for an LTIP payment.

– Any LTIP payment will be paid at the normal time e.g. in April following the end of the performance period, or two years later for any deferral.

Pension and benefi ts

– Generally pension and benefi t provisions will continue to apply until the termination date.

ElementPurpose and link to strategy Operation

Fees To attract and provide stability, refl ecting the complexity of the role and time commitment required

The Chairman receives an all inclusive fee.

NEDs receive a fi xed basic fee. Additional fees are paid for chairing and membership of Board Committees and/or additional work in relation to subsidiaries, and for the Senior Independent Director role.

Fees are reviewed annually by the Board with any changes implemented in July. Key factors taken into account include:

– Overall business performance;

– Scope and responsibility of the role;

– Appropriate market data; and

– NEDs are not eligible for any form of variable pay.

Benefi ts To provide health and wellbeing benefi ts aligned with Bupa’s purpose

During their time in offi ce, NEDs are entitled to private health cover for themselves and their family and an annual health assessment for themselves and their partner. The Chairman is also entitled to the use of a car and driver. These benefi ts are taxable. Travel and subsistence expenses for attending Bupa meetings are reimbursed as well as the additional tax and NIC, where these are treated as taxable income.


Remuneration report

Part 3: Implementation (audited)

The Implementation Report sets out details of Executive Directors’ and Non-Executive Directors’ pay and shows how the Executive Directors’ and Non-Executive Directors’ remuneration policy has been implemented in 2016 and how it will be applied for 2017. As well as disclosing remuneration fi gures for the Executive Directors, it includes details on the degree to which performance targets have been achieved and the resulting level of MBS payout and vesting of LTIP.

Set out below is a table showing a single total fi gure of remuneration for each Executive Director in 2016. Comparable fi gures for 2015 are also included in this table.

Detail of performance against metrics for MBSFor 2016, the Group CEO’s target bonus opportunity was 100% of salary with a maximum of 150% of salary. The CFO’s target bonus opportunity was 75% of salary with a maximum of 112.5% of salary. The performance measures used to determine the 2016 annual bonus for our Executive Directors were as follows:

– Group profi t (50% of award) – similar to underlying profi t before taxation, with the most signifi cant diff erences being the inclusion of restructuring and transaction costs on acquisitions and disposals;

– Group revenue (25% of award) – includes Bupa’s proportionate share of revenue from associates and joint ventures, which is not included within reported revenue; and

– Non-fi nancial metrics (25% of award).

The Committee assessed the profi t and revenue elements against the targets set at the start of the year and are comfortable that the amounts earned refl ect Bupa’s underlying fi nancial performance.

The fi nancial targets for the MBS and actual performance of the Company are shown in the table below.

Our business performed solidly in challenging market conditions. We achieved good profit growth in our three largest Market Units – Australia and New Zealand, the UK, and Europe and Latin America – while performance within International Markets was impacted by a signifi cant decline in profi t within Bupa Global.

The MBS for 2016 refl ects Bupa’s performance not only against profi t and revenue targets, but also non-fi nancial measures including risk, people and customer.

Executive Directors: Single total fi gure of remuneration

Director YearSalary£000

Benefi ts£000

MBS1

£000LTIP1

£000Pension

£000Total

£000

Evelyn Bourke2 2016 729 17 480 416 195 1,837

2015 523 16 382 215 157 1,293

Joy Linton3 2016 376 91 180 102 69 818

2015 – – – – – –

Stuart Fletcher4 2016 309 18 215 680 93 1,315

2015 730 48 681 403 219 2,081

Notes1 MBS refers to bonus payments earned during that year, and LTIP refers to payouts from the performance period which ended in that year.2 Evelyn Bourke’s salary was £548,500 from 1 April 2016 and increased to £800,000 upon appointment to Group CEO. She received an allowance for the period she was Acting Group CEO

and received cash in lieu of pension contributions. She was a Non-Executive Director of IFG and received a fee of £40,192 in respect of her position, which is not disclosed in the table above.3 Joy Linton was an international assignee prior to her appointment as CFO. Her salary was AUD 613,380 and she received additional allowances and benefi ts relating to this. She also received

an allowance for the period she was Acting CFO. Joy’s salary was increased to £550,000 from 1 August 2016 upon appointment to CFO. The Annual Bonus and LTIP fi gures for the period prior to appointment to CFO are based on AUD and have been converted into GBP in the table above using the 2016 Bupa business Plan exchange rate of 1 GBP : 2.24 AUD which is an internal rate fi xed at the start of the Plan year to report incentives across Bupa.

4 Stuart Fletcher is a former executive director having left Bupa on 31 May 2016. His salary was £753,375 from 1 April 2016 and he received £991,787 as pay in lieu of notice. He received cash in lieu of pension contributions.

2016 MBS payout

Threshold Performance

Level £m

On Target Performance

Level £m

Stretch Performance

Level £m

Actual Performance

Level £m

Evelyn Bourke5 Joy Linton6 Stuart Fletcher7

Max bonus

% of salary

Actual payout

% of salary

Max bonus

% of salary

Actual payout

% of salary

Max bonus

% of salary

Actual payout

% of salary

Group profi t 569.5 632.8 696.1 600.9 64.1% 27.9% 53.9% 30.3% 75.0% 22.8%

Group revenue 9,831.9 10,924.3 12,016.7 10,376.2 32.0% 14.0% 26.9% 15.2% 37.5% 11.4%

Non fi nancial metrics – – – – 32.0% 14.0% 26.9% 15.2% 37.5% 11.4%

Total 128.1% 55.8% 107.8% 60.6% 150.0% 45.7%

5 The actual payout fi gures for Evelyn Bourke include an adjustment to the whole bonus for personal performance. Evelyn’s individual multiplier for 2016 was 110%. The fi gure shown for Max Bonus (as % of salary) is pro-rated to refl ect time in roles and salary earned in the year.

6 The actual payout fi gures for Joy Linton include an adjustment to the whole bonus for personal performance. Joy’s individual multiplier for 2016 was 115%. The fi gure shown for Max Bonus (as % of salary) is pro-rated to refl ect time in role and salary earned as an Executive Director in the year.

7 The actual payout fi gures for Stuart Fletcher include an adjustment to the whole bonus for personal performance. Stuart’s individual multiplier for 2016 was 90% and the actual payout was reduced pro-rata based on his time served in 2016.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

To recognise signifi cant achievements in a year that saw changes to our strategy, the leadership team, the organisational structure and to organisational processes, the Committee approved adjustments to the vesting level of the MBS to mitigate the eff ect of the disposal of BHH and the fact that the transaction costs of Oasis Dental Care fell in 2016.

The Committee also discussed the eff ectiveness of the management of risk. It received input from the Risk and Audit Committees of the main Board as well as of the main subsidiary Boards. While the Committee noted that progress had been made during the year, the Committee decided to apply a small reduction to the vesting percentage.

The Committee approved bonuses of 83.7% and 87.6% of target bonus opportunity for the Group CEO and CFO respectively, this payout also includes an individual performance modifi er which takes into account strong individual performance during the year. A partial mandatory deferral of the MBS was introduced in 2014 and therefore a proportion of these bonuses has been deferred for three years and is subject to malus and clawback provisions over this period. More details are provided on page 45.

2014-2016 LTIP vestingThe 2014-16 LTIP vesting is based on performance against Profi t After Tax (PAT) and Revenue, and quality and sustainability targets. In reviewing the vesting of this LTIP, the Committee exercised its discretion to exclude the impact of the redemption of secured loan notes, which was deemed to be a strategic decision taken to optimise the Group’s borrowings for the future and the 2016 one-off charge was not a refl ection of performance in the 2014-2016 period. As with the MBS, while the Committee noted that progress had been made during the year on risk management, the Committee decided to apply a reduction to the vesting percentage.

As stated in last year’s Director’s Remuneration Report, the Committee calculated vesting of LTIP using an equal balance of actual and constant exchange rates to ensure the LTIP outcome refl ects both actual results and controllable performance.

Based on this and Bupa’s performance against targets calculated as per plan rules, the 2014-16 LTIP vested at 87.65% of target.

Interests awarded during 2016During the year, LTIP awards for the 2016-2018 Plan were made to the Executive Directors. The Plan covers the three-year performance period to 31 December 2018. Subject to the achievement of performance conditions, up to 50% of the award may be paid in April 2019 with any excess being deferred for a further two years.

Within the LTIP scorecard, profi t after tax is weighted at 75% and revenue is weighted at 15%. For any level of payout to occur for achievement of revenue performance, a performance gateway applies in that the profi t after tax threshold must be achieved. The remaining 10% weighting for the LTIP is based on the improvement in the customer and brand dashboard. The targets for the fi nancial measures are set annually within each of the plan years. The 2016 metrics are set out in the tables below.

Financial targets 2016-2018 LTIP (90% weighting)

2016 targets

Profi t after taxWeighted 75%

RevenueWeighted 15%

Below threshold performance 0% vesting < 4% p.a. < 3% p.a.

Threshold performance 15% vesting 4% p.a. 3% p.a.

On-target performance 50% vesting 7% p.a. 5% p.a.

Out-performance 100% vesting 10% p.a. 8% p.a.

Notes Growth is measured as annual growth rate.Straight-line vesting occurs between the discrete levels of achievement.

Customer targets 2016-2018 LTIP (10% weighting)

0% vesting Outcomes and improvements are signifi cantly below expectations

30% – 70% vesting Outcomes and improvements are broadly in line with expectations

70% – 100% vesting Outcomes and improvements are signifi cantly above expectations

The table below shows the detail of the awards made to the Executive Directors in the year.

Long Term Incentive Plan

Scheme Type

2016-2018 Long-Term Incentive Plan

Evelyn Bourke Joy Linton Stuart Fletcher1

Basis of award 200% of

base salary120% of

base salary275% of

base salary

Face value of award (100% of award) £1,070,000 £321,429 £2,021,250

Amount that would vest at on-target performance (50% of award) £535,000 £160,714 £1,010,625

Amount that would vest at threshold performance (15% of award) £160,500 £48,214 £303,188

Date performance period ends 31 December 2018

Payment due date April 2019, and April 2021 (for deferred amount)

1 Stuart Fletcher will have pro rata vesting applied to any payout based on his employment ending 31 May 2016.


Remuneration report

Part 3: Implementation (audited) continued

Historical payout table

The table to the right shows levels of payout to the Group CEO against the maximum incentive opportunity for the last fi ve years.

Percentage change in remuneration of the Group CEO

The table to the right shows the change in salary, benefi ts and short-term incentives (annual bonus) for the Group CEO in 2016 compared to 2015 alongside a corresponding average fi gure for the Bupa employee comparator group. The UK salaried population5 has been chosen by the Committee as the most appropriate comparison, as the Group CEO is located in the UK.

Relative importance of spend on pay

The table to the right shows the relative importance of spend on pay. Given that Bupa does not have shareholders and therefore does not pay dividends, cash fl ow used in investing activities has been shown as an alternative measure.

Payments for loss of offi ce

The following was approved by Bupa’s Remuneration Committee in accordance with Bupa’s Remuneration Policy and Stuart Fletcher’s contract of employment.

Mr Fletcher remained an employee until 31 May 2016 to provide support to the Acting Group CEO, Evelyn Bourke, who took over Mr Fletcher’s responsibilities. He continued to receive his current salary and benefi ts until that date.

He received a payment of £991,687. This was in lieu of 12 months’ salary (£753,375), car allowance (£12,300) and pension allowance (£226,012). Mr Fletcher’s healthcare and life cover will continue until 31 May 2017, and the company contributed £40,000 plus VAT in respect of outplacement support for him, and £10,000 plus VAT in respect of legal fees incurred by him in connection with his departure.

Bupa will treat Mr Fletcher as eligible for MBS under the 2016 bonus scheme pro rata for the

period of his employment to 31 May 2016, subject to the rules of the scheme. Any such payment (subject to any deferral) would be paid in March or April 2017. He will also receive good leaver treatment under Bupa’s Long Term Incentive Plans (LTIPs) of which he is a member, with pro rata vesting based on his employment ending on 31 May 2016. All MBS and LTIP awards will be subject to the rules of the plans (including, for example, malus and clawback and the satisfaction of any applicable performance conditions).

Year Group CEO

Single fi gure of total remuneration

(£’000)

Management Bonus Scheme

payout against maximum

opportunity %

Long-term incentive vesting rates

against maximum opportunity %

2016 Evelyn Bourke1 1,837 56% 67%

2016 Stuart Fletcher2 1,315 46% 67%

2015 Stuart Fletcher 2,081 62% 30%

2014 Stuart Fletcher 2,812 82% 71%

2013 Stuart Fletcher 1,703 71% **N/A3

20124 Stuart Fletcher 1,670 100% **N/A3

20124 Ray King 1,797 67% 83%

1 Evelyn Bourke was appointed Group Chief Executive Offi cer on 21 July 2016.

2 Stuart Fletcher left Bupa on 31 May 2016 and annual bonus payment refl ects a pro-rated payment.

3 Stuart Fletcher did not receive payouts from these plans. However, the payment to other eligible participants was 83% in 2012 and 84% in 2013.

4 Stuart Fletcher joined Bupa on 1 March 2012 and Ray King retired on 30 June 2012.

Group CEO Employees

Salary 0.5% 2.49%

Benefi ts (excluding pension) -58.37% no material change

Short Term Incentives -18.93% 6.84%

5 The UK salaried population refers to the UK-based permanent employees whose records are held on the HR database.

2016(£m)

2015(£m)

Diff erence 2016-2015

(£m)

Remuneration paid to all employees 1,905.2 1,653.7 251.5

Cash fl ow used in investing activities 310.0 695.3 -385.3


Strateg

ic repo

rtG

overnanceF

inan

cial statements

Chairman and Non-Executive Director Fees

The table on the right shows the structure of the Chairman and Non-Executive Director fees with eff ect from 1 July 2016.

Statement of Implementation of Remuneration Policy in 2017

In the current fi nancial year (2017) Bupa intends to implement the remuneration policy as described on pages 44-45.The remuneration of the Group CEO and CFO will be as follows:

Salary (eff ective from 1 April)

Management Bonus Scheme

Long-term Incentive Plan

Evelyn BourkeGroup CEO

£800,000 (0% increase)

Target opportunity – 100% salary

Maximum opportunity – 200% salary

Fair (on-target) value – 137.5% salary (£1,100,000)

Maximum award – 275% salary (£2,200,000)

Joy LintonCFO

£550,000 (0% increase)

Target opportunity – 75% salary

Maximum opportunity – 150% salary

Fair (on-target) value – 125% salary (£687,500)

Maximum award – 250% salary (£1,375,000)

For 2017 onwards the MBS and LTIP have been redesigned, in line with the remuneration policy, to support the Bupa strategy more eff ectively. The targets and the weighting of these were carefully considered to ensure that the right balance of fi nancial and non-fi nancial measures in the short-term and long-term.

Strategic Pillar Measure MBS scorecard LTIP scorecard

Strong and sustainable performance Profi t Management Profi t – 50% Profi t after tax – 60%

Revenue 10% –

Return Risk Adjusted Profi t – 10% ROCE – 20%

Cost Cost effi ciency – 10% –

Loved as a true customer champion in health and care Customer 20% 20%

In addition to these measures, both schemes are subject to an overall adjustment based on Risk Management across Bupa. The Committee has the discretion to adjust any payment down to nil if required. The MBS also has an individual multiplier based on personal performance during the year against agreed objectives.

As stated in the policy, the underlying principles for reward remain the same for the senior employee population. As a result, both the Management Bonus Scheme and Long Term Incentive Plan are cascaded down through Bupa. The MBS is cascaded even further than the senior employee population and the only change is the level of opportunity.

2016 Fee

Chairman Fee £400,000

Non-Executive Director basic fee £65,000

Senior Independent Director fee £17,000

Committee chairmanship Audit Committee £25,000

Remuneration Committee £25,000

Risk Committee £25,000

Committee membership Audit Committee £8,000

Remuneration Committee £8,000

Risk Committee £8,000

Nomination & Governance Committee £4,500


Remuneration report

Part 3: Implementation (audited) continued

Committee governanceMartin Houston has chaired the Committee since 11 June 2014.

In addition to the Company Secretary, regular attendees at the Remuneration Committee meetings who have provided comment and advice were the Group CEO, the CFO, the Chief People Offi cer and the Reward Director.

The Committee reviews the quality and independence of their advisors on a regular basis. The Committee re-appointed their advisor, Mercer, from September 2016.

Mercer is the independent advisor to the Remuneration Committee. The Committee is of the view that Mercer provides independent remuneration advice to the Committee and does not have any connections with Bupa that may impair its independence. Mercer is a member of the Remuneration Consultants’ Group and voluntarily operates under their code of conduct when providing advice on executive remuneration in the UK. Mercer’s fees for services to the Committee in 2016 were £194,000 on a time and materials basis. Support to the Committee during the year has included reviewing incentives and performance conditions, advice on remuneration under Solvency II, advice on market and best practice guidance, remuneration benchmarking, drafting remuneration disclosures, and attending Committee meetings.

The Terms of Reference for the Committee were reviewed in February 2017 and adopted by the Board in March 2017. A copy of the Committee’s Terms of Reference is available on bupa.com.

Plans for 2017During 2017, the Committee intends to:

– Further develop our approach to remuneration to refl ect updated Solvency II guidance;

– Continue with the development of subsidiary board remuneration committees;

– Review new approaches to compensation and best practice; and

– Build on measuring customer and risk and their infl uence on the outcome of incentive awards.

Voting at the Annual General MeetingThe Association Members will be invited to vote at the Annual General Meeting on 10 May 2017 on the Remuneration Policy, Long-term Incentive Plan and Implementation Report.

Payments to former directorsNo payments, other than those disclosed under “Payments for loss of offi ce”, were made to former directors in 2016.

Committee eff ectiveness reviewOverall the Committee considered that it was eff ective during 2016 and noted the need to ensure that the relationships between the Risk and Audit Committees and the Committee continue to be well managed, particularly when considering executive remuneration.

Committee members

Martin Houston Chairman

Lawrence Churchill

Roger Davis

Lord Leitch

Janet Voûte


12 February

24 February

– Annual Reward Review - Group CEO, CFO and BET

– LTIP Payout Level for 2013-2015 and 2016 Incentive Targets

July – 2017 Incentive Design, 2016 Management Bonus Scheme and 2016-18 LTIP Rules/Subsidiary NED Fees and Solvency II

September – 2017 Incentive Design/Re-appointment of Committee Advisors/Solvency II

December – 2017 Incentive Design/Regulatory Update/Committee Terms of Reference Review/Group CEO, CFO and Bupa Executive Team Comparator Groups

Non-Executive Directors: single total fi gure of remuneration

Fees£000

Benefi ts1

£000Total

£000

2016 2015 2016 2015 2016 2015

Lord Leitch (Chairman) 365 345 42 40 407 385

Lawrence Churchill 148 150 14 16 162 166

Simon Blair2 71 – 2 – 73 –

Rita Clifton3 34 70 4 6 38 76

Roger Davis 77 31 2 1 79 32

Martin Houston 92 87 34 56 126 143

Clare Thompson 159 86 1 0 160 86

Prof Sir John Tooke 100 84 2 2 102 86

Janet Voûte4 72 – 28 – 100 –

Total 1,118 853 129 121 1,247 974

1 Travel and subsistence expenses for attending meetings at Bupa House are treated as taxable income, all Non-Executive Director expenses in relation to this are grossed up to meet the costs of the additional tax and NIC. The benefi ts fi gures refl ect this approach.

2 Simon Blair was appointed as a Non-Executive Director on 12 January 2016.

3 Rita Clifton ceased to be a Non-Executive Director on 11 May 2016.

4 Janet Voûte was appointed as a Non-Executive Director on 12 January 2016.


Strateg

ic repo

rtG

overnanceF

inan

cial statements

The Directors of The British United Provident Association Limited (‘Bupa’) present their reports and the financial statements for the year ended 31 December 2016. The Strategic Report and the audited Financial Statements are presented on pages 1-21, and from page 55, respectively. The Governance Report on pages 22-52, including the Remuneration Report on pages 42-52 all form part of this report.

The Directors have chosen, in accordance with section 414C(11) of the Companies Act 2006, to set out in the Strategic Report on pages 1-21 the following information which would otherwise be required by Schedule 7 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 to be disclosed in the Directors’ Report: Disclosures concerning Greenhouse Gas Emissions.

Financial resultsThe results of the Group for 2016 are reported on pages 55-118. The profit for the financial year of £386.8m (2015: profit £278.3m) has been transferred to equity.

Acquisitions and disposalsDetails of the acquisitions and disposals made during the year are shown in Note 4.0.

Board of DirectorsThe Board is responsible for the good standing of the Company, the management of its assets, including the management of risk and the strategy for its future development. There are 11 scheduled Board meetings each year and other meetings are convened as needed.

Biographical details of the Non-Executive Chairman, two Executive Directors and seven Non-Executive Directors who held office at the end of the year, are set out on pages 24-25. Simon Blair and Janet Voûte were appointed as Non-Executive Directors on 12 January 2016. Joy Linton was appointed as an Executive Director at the AGM on 14 May 2016. Stuart Fletcher and Rita Clifton stepped down from the Board on 4 April 2016 and 11 May 2016 respectively.

As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors and certain senior

managers, to the extent permitted by law and the Company’s articles of association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as Directors of the Company or any of its subsidiaries.

Going concernThe Directors confirm that they are satisfied that the Company and the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements.

Political contributionsNo political donations were made, nor any political expenditure incurred.

Employment policiesBupa considers clear communication with employees about employment issues to be key. Information is given to employees about employment matters and about the financial and economic factors affecting the Company’s performance through a wide range of channels to ensure accessibility by all. The new Bupa People Manager Expectations, clearly sets out management expectations, including the need to listen to our employees needs and issues. People Pulse provides the opportunity for all our employees to raise their views anonymously. A new approach to managing performance has simplified performance expectations. Every effort is made to inform, consult and encourage the full involvement of staff on matters concerning them as employees and affecting the Company’s performance. Schemes exist to incentivise, recognise and reward performance.

Bupa is committed to being an inclusive workplace for all its people where we recognise diversity by providing equal opportunities to all. The employment of disabled persons is included in this commitment and is reflected in our membership of Business Disability International. The recruitment, training, career development and promotion of disabled persons is based on the aptitudes and abilities of the individual. Should employees become disabled during employment, every effort would be made to continue their employment and, if necessary, appropriate training would be provided.

Disclosure of information to auditorsThe Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all the steps which they ought to have taken as a Director to make themselves aware of any relevant audit information, and to establish that the Company’s auditors are aware of that information.

AuditorsA resolution to reappoint KPMG LLP as auditors will be put to the forthcoming Annual General Meeting of the Company.

Health and safety During 2016 we have implemented lost-time injury reporting across Bupa. There were 837 employee lost-time injuries in 2016. This equates to 1.45 lost-time injuries per 100 full-time equivalents. As this is our first report against lost-time injury, benchmarking against previous years is not possible. Going forward we will benchmark against the previous year’s performance. We have launched a programme across our care homes called the 90 day challenges. This programme aims to help us more fully understand the causes of injury to our people and implement changes to improve safety in areas such as moving and handling and slips, trips and falls. Early indications are that this programme is having a positive impact on keeping our people safe and well.

Modern Slavery Act 2015In 2017 we will make our first statement under the Modern Slavery Act, explaining the steps we have taken to address the risk of modern slavery and human trafficking in Bupa’s business and supply chains. This will be available on bupa.com.

By order of the Board.

Julian SandersCompany Secretary

1 March 2017

Company number: 432511

Report of the Board of Directors


Governance report

Statement of Directors’ responsibilities

In respect of the annual report and the financial statementsThe Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they have elected to prepare the Group and the Parent Company financial statements in accordance with IFRS as adopted by the EU and applicable law.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

– Select suitable accounting policies and then apply them consistently;

– Make judgements and estimates that are reasonable and prudent;

– State whether they have been prepared in accordance with IFRS as adopted by the EU; and

– Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and to enable them to ensure that its financial statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Association Members to assess the Group’s position and performance, business model and strategy.

The Directors have decided to prepare, voluntarily, a Directors’ Remuneration Report in accordance with Schedule 8 to The Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those requirements were to apply to the Company.

The Directors have also decided to prepare, voluntarily, a Corporate Governance Statement as if the Company was required to comply with the UK Listing Rules, Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in relation to those matters.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Strateg

ic repo

rtG

overn

ance

Financial statements

Accounting policies that are relevant to the financial statements as a whole are described in Section 1 ‘Basis of preparation’. Thereafter, the notes to the financial statements have been presented in five key sections: ‘Results for the year’, ‘Operating assets and liabilities’, ‘Group Investments’, ‘Risk management and Capital management’, and ‘Other notes’.

For The British United Provident Association Limited on a standalone basis (the ‘Company’) primary statements and associated notes are set out in Section 7.

Each section sets out the relevant accounting policies applied in producing the notes, along with disclosures of any key judgements and estimates used.

Independent auditor’s report 56Primary statements 59Section 1 – Basis of preparation 64Section 2 – Results for the yearOperating segments 66Revenues 69Insurance claims 70Other operating expenses 71

Other income and charges 72Financial income and expense 73Taxation expense 74Section 3 – Operating assets and liabilities Working capital 75Intangible assets 78Property, plant and equipment 82Investment properties 86Provisions and other liabilities under

insurance contracts issued 87Provisions for liabilities and charges 89Post-employment benefits 90Deferred taxation assets and liabilities 94Section 4 – Group investmentsBusiness combinations and disposals 96Assets and liabilities held for sale 99Equity accounted investments 99Section 5 – Risk management and

capital managementFinancial investments 101Borrowings 104Derivatives 106Capital management 107Risk management 108Insurance risk 108Market risk 110Credit risk 114Liquidity risk 115Section 6 – Other notesRelated party transactions 117Commitments and contingencies 118Section 7 – Company primary statements

and associated notesPrimary statements 119Intangible assets 122 Property, plant and equipment 123Investment properties 123Post-employment benefits 124Provisions for liabilities and charges 126Working capital 126Risk management 127Deferred taxation assets and liabilities 127Related party transactions 128Commitments and contingencies 129Investment in subsidiaries 130Section 8 – Non-controlling interests 137Section 9 – Five year financial summary 139International Financial Reporting Standards

relevant to Bupa 140

Financial Statements


Independent auditor’s report to the members of The British United Provident Association Limited only

Opinions and conclusions arising from our audit1) Our opinion on the financial statements is unmodified We have audited the financial statements of The British United Provident Association Limited for the year ended 31 December 2016 set out on pages 59-138. In our opinion:

– the financial statements give a true and fair view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended;

– the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS as adopted by the EU);

– the Parent company financial statements have been properly prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

2) Overview

Materiality: Group financial statements as a whole

£28 million (2015: £31 million)

4.3% (2015: 5.6%) of normalised Group profit before tax

Coverage 91% (2015: 95%) of Group profit before tax

Risks of material misstatement vs 2015

Recurring risks Goodwill and intangibles impairment

Valuation of properties

Valuation of general insurance contracts

3) Our assessment of risks of material misstatementIn arriving at our audit opinion above on the financial statements, the risks of material misstatement, in decreasing order of audit significance, that had the greatest effect on our audit were as follows (unchanged from 2015):

Carrying value of goodwill in Bupa Care Services UK and New Zealand, Bupa Chile and Quality HealthCare businesses £429.3m (2015: £361.7m). Carrying value of intangible assets £959.5m (2015: £884.3m).

Refer to page 35 (Audit Committee Report) and Note 3.1.

– The risk – As described in Note 3.1, impairment is assessed based on discounted cash flow projections. For the Bupa Care Services UK and New Zealand cash generating units, cash flow forecasts require a high level of judgement in respect of fee rate and cost of care. In the Bupa Chile and Quality HealthCare cash generating units, key assumptions are revenue growth and gross margin, particularly in respect of assets such as clinics and hospitals which are under development, the discount rate and terminal growth rate. These two businesses were acquired more recently and there is a low level of headroom in the impairment calculations. For intangible assets subject to impairment tests, cash flow forecasts are sensitive to expected benefits to be derived from the assets, and the period over which they will be earned. For intangible assets subject to amortisation there is a high level of judgement when determining whether indicators of impairment exist.

– Our response – For assets subject to impairment tests our procedures included challenging the cash flow forecasts and the underlying assumptions, based on our understanding of the relevant business and the sector and economic environment in which it operates. We compared forecasts to business plans and also previous forecasts to actual results to assess the performance of the business and the accuracy of forecasting. We challenged the forecast periods utilised in the models and performed sensitivity testing using different forecast periods. We compared the Group’s assumptions to externally derived data as well as our own sector knowledge in relation to key inputs such as the projected cash flows for these cash generating units, terminal growth rates, cost inflation and discount rates and applied sensitivities in evaluating the Group’s assessments. Where external valuation specialists were used, we considered the external valuation report and assessed the valuer as an independent expert. Our own valuation specialists assisted us in evaluating the assumptions and methodologies used by the Group, in particular those relating to terminal growth rates and discount rates, and in evaluating these assumptions with reference to valuations of similar businesses. For intangible assets subject to amortisation, we considered indicators of impairment, focusing in particular on the extent to which assets are still being utilised and the levels of customer attrition and operating margin compared to the assumptions applied when the assets were acquired. We assessed whether the Group’s disclosures over the goodwill impairment review, including the disclosures regarding the sensitivity of the outcome of the impairment reviews to changes in key assumptions were appropriate.

Valuation of properties £2,766.5m (2015: £2,541.6m).

Refer to page 35 (Audit Committee Report) and Notes 3.2 and 3.3

– The risk - The Group revalues its freehold, leasehold and investment properties, including care homes, hospitals and offices primarily in the UK, Spain, Australia and New Zealand, to fair value on a periodic basis with external valuations being performed on at least a triennial basis and retirement villages in New Zealand being subject to an external valuation annually. A full external valuation of freehold, leasehold and investment properties in the UK and Chile was performed by chartered surveyors during 2016. Directors’ valuations were performed for other properties where there is an indication that the carrying value differed significantly from fair value. The principal assumptions underpinning these valuations including operating cash flows, future profitability and competitor activity require the exercise of a high level of judgement.

– Our response – For businesses where the properties are subject to a directors’ valuation, our procedures included critically assessing the assumptions applied by reference to external benchmarks and forecasts, along with any reports from external chartered surveyors. For properties that were valued externally, primarily in the UK, New Zealand and Chile we critically assessed any external valuers’ reports considering the qualifications of the external valuers and the assumptions applied by the external valuers. For properties classified as held for sale, we also challenged any adjustments that have been made to the valuations provided by the external valuers. For properties such as hospitals and care homes, we also challenge the valuation models, by comparing past cash flow projections to


Strateg

ic repo

rtG

overn

ance


actual performance. We used our own valuation specialists to assist us in challenging the key assumptions relating to operating cash flows, occupancy rates, future profitability, discount rates, market multiples and competitor activity used in the valuations. Where appropriate, we assessed the Group’s disclosures regarding the valuation basis applied, revaluation gains and any impairment losses.

Valuation of general insurance contracts – provisions for claims within provisions under insurance contracts issued £889.6m (2015: £657.1m).

Refer to page 35 (Audit Committee Report) and Note 3.4.1.

– The risk – The Group’s operations include a number of general insurance entities writing health insurance policies primarily in the UK, Spain, Australia, USA and Chile. The process of recognising the provision for claims arising from general insurance contracts is an inherently complex area, requiring judgement and actuarial expertise. This complexity arises from calculating the actuarial best estimate and the margin over best estimate using historical data which is sensitive to external inputs, such as claims cost inflation and medical trends, as well as the actuarial methodology that is applied and the assumptions on current and future experience.

– Our response – Our procedures included inspecting the claims reserving reports for each insurance business and evaluating and testing the key controls over the provisioning process, including controls over the completeness and accuracy of the data that supports key calculations, such as the data in respect of current and historical claims. This data provides us with evidence over trends in claims and their costs which drive the assumptions for claims, in current and preceding financial years, which have not yet been paid at the date of the financial statements. These assumptions include historical claims experience, claims cost inflation and medical trends as well as the level of margin that is applied. We used our own actuarial specialists to assist us in evaluating and challenging the assumptions on current and future experience used by the Group in each territory, as set out in the claims reserving reports, comparing them to expectations based on the Group’s historical experience, current trends and our own industry knowledge in each territory. For some elements of the business, we calculated our own estimate of the provision using the company’s data set for comparison against the provision calculated by the company, and considered the impact of any significant differences. We applied sensitivities to the assumptions in assessing the appropriateness and adequacy of the provisions recognised by the Group. We used our industry knowledge to benchmark the Group’s reserving methodologies and claims experience. We assessed whether the Group’s disclosures in relation to the assumptions in respect of provisions for claims in respect of general insurance business were appropriate.

4) Our application of materiality and an overview of the scope of our audit

Materiality – amount basis £28m (2015: £31m)

4.3% of Group profit before tax normalised to exclude loss on early redemption of secured loan notes of £635.2m (2015: 5.6% of Group profit before tax normalised to exclude the impairment of goodwill in Bupa Care Services UK and the write down of UK care home valuations)

Component materiality £21m (2015: £23m)

Threshold for reporting uncorrected and corrected differences to the Audit Committee

£1.4m (2015: £1.5m) plus other identified misstatements if warranted on qualitative grounds

Of the Group’s over 50 (2015: over 50) reporting components, we subjected eight (2015: eight) to audits for Group reporting purposes. These components were located in UK, Spain, Poland, USA, Australia, New Zealand and Chile. We also subjected three components (2015: three) to specified risk-focused audit procedures over goodwill and intangible assets (one component (2015: one component)), property (one component (2015: one component)) and tax (one component (2015: one component)). These three components were not individually financially significant enough to require an audit for Group reporting purposes, but did present specific individual risks that needed to be addressed.

The components within the scope of our work accounted for the following percentages of the Group’s results:

Number of components

Group revenue

(%)

Group profit before tax

(%)

Group total assets

(%)

Audits for Group reporting purposes

2016 8 89% 91% 93%

2015 8 87% 93% 87%

Specified risk-focused audit procedures

2016 3 2% 2% 5%

2015 3 2% 2% 3%

Total (2016) 11 91% 93% 98%

Total (2015) 11 89% 95% 90%

These audits were all performed by component auditors. For the remaining components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The segment disclosures in Note 2.0 set out the individual significance of specific countries.

The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materiality of £21m (2015: £23m), having regard to the mix of size and risk profile of the Group across the components. The Group team performed procedures on the items excluded from normalised Group profit before tax.


Independent auditor’s report to the members of The British United Provident Association Limited only continued

The Group audit team visited four (2015: five) component locations in UK, Spain, Australia and Hong Kong (2015: UK, Spain, Australia, Hong Kong and USA), to assess the audit risk and strategy. Telephone conference meetings were also held with these component auditors and others that were not physically visited. At these visits and meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor.

5) Our opinion on other matters prescribed by the Companies Act 2006 and under the terms of our engagement is unmodified In addition to our audit of the financial statements, the directors have engaged us to audit the information in the Directors’ Remuneration Report that is described as having been audited, which the directors have decided to prepare as if the company were required to comply with the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) made under the Companies Act 2006.

In our opinion:

– the part of the Directors’ Remuneration Report which we were engaged to audit has been properly prepared in accordance with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those requirements were to apply to the company; and

– the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the financial statements.

Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic Report and the Directors’ Report:

– we have not identified material misstatements in those reports; and

– in our opinion, those reports have been prepared in accordance with the Companies Act 2006.

6) We have nothing to report on the disclosures of principal risksBased on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:

– the directors’ statement of longer-term viability on page 16, concerning the principal risks, their management, and, based on that, the directors’ assessment and expectations of the group’s continuing in operation over the three years to 31 December 2019; or

– the disclosures in Note 1.4 of the financial statements concerning the use of the going concern basis of accounting.

7) We have nothing to report in respect of matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

– we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a

whole are fair, balanced and understandable and provide the information necessary for members to assess the Group’s position and performance, business model and strategy; or

– the Audit Committee Report on pages 34-37 does not appropriately address matters communicated by us to the audit committee.

Under the Companies Act 2006 and under the terms of our engagement we are required to report to you if, in our opinion:

– adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been received from branches not visited by us; or

– the Parent company financial statements and the part of the Directors’ Remuneration Report which we were engaged to audit are not in agreement with the accounting records and returns; or

– certain disclosures of directors’ remuneration specified by law are not made; or

– we have not received all the information and explanations we require for our audit.

In addition to our audit of the financial statements, the directors have engaged us to review their Corporate Governance Statement as if the company were required to comply with the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority in relation to those matters. Under the terms of our engagement we are required to review:

– the directors’ statements, set out on pages 16 and 53, in relation to going concern and longer-term viability; and

– the part of the Corporate Governance Statement on pages 22-23 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope and responsibilitiesAs explained more fully in the Directors’ Responsibilities Statement set out on page 54, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014b, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.

Daniel Cazeaux (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL

1 March 2017


Strateg

ic repo

rtG

overn

ance


Note2016

£m2015

£m

Revenues

Gross insurance premiums 2.1 8,044.3 7,059.0

Premiums ceded to reinsurers 2.1 (53.9) (48.6)

Net insurance premiums earned 7,990.4 7,010.4

Revenues from insurance service contracts 2.1 18.7 42.6

Care, health and other revenues 2.1 3,038.8 2,775.4

Total revenues 11,047.9 9,828.4

Claims and expenses

Insurance claims incurred 2.2 (6,332.9) (5,505.8)

Reinsurers’ share of claims incurred 2.2 42.9 37.1

Net insurance claims incurred (6,290.0) (5,468.7)

Share of post-taxation results of equity accounted investments 4.2 30.3 22.4

Other operating expenses 2.3 (4,197.3) (3,803.8)

Impairment of goodwill 3.1 – (114.1)

Other income and charges 2.4 (38.9) (40.6)

Total claims and expenses (10,495.9) (9,404.8)

Profit before financial income and expense 552.0 423.6

Financial income and expense

Financial income 2.5 212.1 68.7

Financial expense 2.5 (241.2) (118.0)

Net financial expense (29.1) (49.3)

Profit before taxation expense 522.9 374.3

Taxation expense 2.6 (136.1) (96.0)

Profit for the financial year 386.8 278.3

Attributable to:

Bupa 381.6 278.3

Non-controlling interests 5.2 –


Consolidated Income Statementfor the year ended 31 December 2016

Notes 2-6 form part of these financial statements.


Note2016

£m2015

£m


Other comprehensive income/(expense)

Items that will not be reclassified to the Income Statement

Remeasurement (losses)/gains on pension schemes 3.6 (14.6) 16.9

Unrealised gains/(losses) on revaluation of property 3.2 63.5 (84.6)

Taxation credit on income and expenses recognised directly in other comprehensive income 2.6 13.3 19.4

Items that may be reclassified subsequently to the Income Statement

Foreign exchange translation differences on goodwill 3.1 335.5 (96.0)

Other foreign exchange translation differences 453.6 (89.3)

Net (loss)/gain on hedge of net investment in overseas subsidiary companies (86.7) 8.5

Change in fair value of underlying derivative of cash flow hedge 5.4.2 2.0 1.2

Reclassification of foreign exchange translation differences to profit or loss on disposal of subsidiary 4.0 2.0 (4.1)

Taxation expense on income and expenses recognised directly in other comprehensive income 2.6 (0.2) (0.4)

Unrealised losses on available-for-sale assets (0.2) –

Total other comprehensive income/(expense) 768.2 (228.4)

Comprehensive income for the year 1,155.0 49.9

Attributable to:

Bupa 1,136.0 55.4

Non-controlling interests 19.0 (5.5)

Comprehensive income for the year 1,155.0 49.9

Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2016



Strateg

ic repo

rtG

overn

ance


Consolidated Statement of Financial Positionas at 31 December 2016

Note2016

£m2015

£m

Non-current assetsIntangible assets 3.1 3,391.4 2,862.0 Property, plant and equipment 3.2 2,851.6 2,838.7 Investment property 3.3 391.3 270.9 Equity accounted investments 4.2 302.9 238.0 Financial investments 5.0 1,061.9 831.9 Derivative assets 5.2 50.9 51.3 Assets arising from insurance business 3.0.2 2.2 0.2 Deferred taxation assets 3.7 7.1 2.5 Trade and other receivables 3.0.1 112.5 96.9 Restricted assets 3.0.4 55.8 45.1 Post-employment benefit net assets 3.6 481.3 413.4

8,708.9 7,650.9

Current assetsFinancial investments 5.0 1,110.7 1,356.4 Derivative assets 5.2 9.4 6.0 Inventories 3.0.5 92.2 82.9 Assets arising from insurance business 3.0.2 1,164.7 980.5 Assets held for sale 4.1 505.3 –Trade and other receivables 3.0.1 501.6 539.0 Restricted assets 3.0.4 4.2 10.8 Cash and cash equivalents 3.0.3 1,412.7 1,194.1

4,800.8 4,169.7 Total assets 13,509.7 11,820.6

Non-current liabilitiesSubordinated liabilities 5.1 (1,302.0) (909.5)Other interest bearing liabilities 5.1 (522.8) (726.8)Derivative liabilities 5.2 (10.4) (10.3)Provisions under insurance contracts issued 3.4.1 (33.9) (27.6)Post-employment benefit net liabilities 3.6 (85.1) (59.5)Provisions for liabilities and charges 3.5 (42.0) (27.5)Deferred taxation liabilities 3.7 (229.5) (224.1)Other payables 3.0.6 (24.3) (19.9)

(2,250.0) (2,005.2)

Current liabilitiesSubordinated liabilities 5.1 (14.7) (9.9)Other interest bearing liabilities 5.1 (82.1) (427.9)Derivative liabilities 5.2 (11.6) (22.1)Provisions under insurance contracts issued 3.4.1 (2,594.8) (2,227.5)Other liabilities under insurance contracts issued 3.4.2 (143.0) (72.1)Liabilities directly associated with assets held for sale 4.1 (45.5) –Provisions for liabilities and charges 3.5 (64.7) (69.1)Current taxation liabilities (54.9) (43.6)Trade and other payables 3.0.6 (1,673.4) (1,519.6)

(4,684.7) (4,391.8)Total liabilities (6,934.7) (6,397.0)Net assets 6,575.0 5,423.6

EquityProperty revaluation reserve 706.1 632.3 Income and expenditure reserve and other reserves 5,228.2 4,797.9 Cash flow hedge reserve 14.7 20.8 Foreign exchange translation reserve 595.3 (96.9)Equity attributable to Bupa 6,544.3 5,354.1 Equity attributable to non-controlling interests 30.7 69.5 Total equity 6,575.0 5,423.6

Approved by the Board of Directors and signed on its behalf on 1 March 2017 by

Lord Leitch Joy LintonChairman Chief Financial Officer



Note2016

£m2015

£m

Operating activities


Adjustments for:

Net financial expense 2.5 29.1 49.3

Depreciation, amortisation and impairment 345.7 454.7

Deferred consideration on disposal of Bupa Ireland Limited 2.4 – (25.5)

Other non-cash items 28.4 13.0

Changes in working capital and provisions:

Increase in provisions and other liabilities under insurance contracts issued 123.7 99.4

Increase in assets under insurance business (50.0) (64.9)

Change in net pension asset/liability (56.2) (51.7)

Increase in trade and other receivables, and other assets (26.6) (37.4)

Increase in trade and other payables, and other liabilities 119.8 82.3

Cash generated from operations 1,036.8 893.5

Income taxation paid (142.0) (102.7)

Increase in cash held in restricted assets 3.0.4 (3.8) (2.7)

Net cash generated from operating activities 891.0 788.1

Cash flow from investing activities

Acquisition of subsidiary companies, net of cash acquired 4.0 (127.5) (156.3)

Increase in equity accounted investments (31.8) (7.5)

Acquisition of non-controlling interests in subsidiary company 4.0 (95.1) –

Disposal of subsidiary companies, net of cash disposed of 21.9 –

Deferred consideration on disposal of Bupa Ireland Limited 2.4 – 25.5

Purchase of intangible assets 3.1 (103.1) (88.8)

Purchase of property, plant and equipment (361.9) (262.6)

Proceeds from sale of property, plant and equipment 19.1 9.2

Purchase of investment property 3.3 (37.7) (35.0)

Disposal of investment property 3.3 0.6 0.4

Net (purchase of)/proceeds from financial investments, excluding deposits with credit institutions (142.7) 108.8

Net withdrawal from/(investment into) deposits with credit institutions 509.9 (334.8)

Interest received 38.3 45.8

Net cash used in investing activities (310.0) (695.3)

Cash flow from financing activities

Proceeds from issue of interest bearing liabilities and drawdowns on other borrowings 556.0 102.0

Repayment of interest bearing liabilities and other borrowings (903.8) (90.4)

Interest paid (101.3) (112.3)

(Payments for)/receipts from hedging instruments (77.7) 33.4

Dividends paid to non-controlling interests (2.1) (3.6)

Net cash used in financing activities (528.9) (70.9)

Net increase in cash and cash equivalents 52.1 21.9

Cash and cash equivalents at beginning of year 1,194.1 1,187.6

Effect of exchange rate changes 166.5 (15.4)

Cash and cash equivalents at end of year 3.0.3 1,412.7 1,194.1

Consolidated Statement of Cash Flowsfor the year ended 31 December 2016



Strateg

ic repo

rtG

overn

ance


Consolidated Statement of Changes in Equityfor the year ended 31 December 2016

Note

Property revaluation

reserve £m

Income and expenditure reserve and

other reserves

£m

Cash flow hedge

reserve £m

Foreign exchange

translation reserve

£m

Total attributable

to Bupa £m

Non-controlling

interests £m

Total equity

£m

2016

At beginning of year 632.3 4,797.9 20.8 (96.9) 5,354.1 69.5 5,423.6

Retained profit for the financial year – 381.6 – – 381.6 5.2 386.8


Unrealised profit on revaluation of property 3.2 63.5 – – – 63.5 – 63.5

Realised revaluation profit on disposal of property (6.6) 6.6 – – – – –

Remeasurement loss on pension schemes 3.6 – (14.6) – – (14.6) – (14.6)

Unrealised loss on available-for-sale assets – (0.2) – – (0.2) – (0.2)

Foreign exchange translation differences on goodwill 3.1 – – – 335.5 335.5 – 335.5

Other foreign exchange translation differences 21.9 0.3 (7.9) 425.3 439.6 14.0 453.6

Net loss on hedge of net investment in overseas subsidiary companies – – – (86.7) (86.7) – (86.7)

Change in fair value of underlying derivative of cash flow hedge 5.4.2 – – 2.0 – 2.0 – 2.0

Foreign exchange reserve on disposal of subsidiary – – – 2.2 2.2 (0.2) 2.0

Taxation (expense)/credit on income and expense recognised directly in other comprehensive income 2.6 (5.0) 2.4 (0.2) 15.9 13.1 – 13.1

Other comprehensive income/(expense) for the year, net of taxation 73.8 (5.5) (6.1) 692.2 754.4 13.8 768.2

Total comprehensive income/(expense) for the year 73.8 376.1 (6.1) 692.2 1,136.0 19.0 1,155.0

Acquisition of subsidiary companies attributable to non-controlling interest 4.0 – 54.2 – – 54.2 (55.7) (1.5)

Dividends paid to non-controlling interests – – – – – (2.1) (2.1)

At end of year 706.1 5,228.2 14.7 595.3 6,544.3 30.7 6,575.0

2015

At beginning of year 707.9 4,590.7 20.0 71.4 5,390.0 78.4 5,468.4

Retained profit for the financial year – 278.3 – – 278.3 – 278.3


Unrealised loss on revaluation of property 3.2 (84.6) – – – (84.6) – (84.6)

Realised revaluation profit on disposal of property (0.2) 0.2 – – – – –

Remeasurement gain on pension schemes 3.6 – 16.9 – – 16.9 – 16.9

Foreign exchange translation differences on goodwill 3.1 – – – (96.0) (96.0) – (96.0)

Other foreign exchange translation differences (6.8) 0.1 – (77.1) (83.8) (5.5) (89.3)

Net gain on hedge of net investment in overseas subsidiary companies – – – 8.5 8.5 – 8.5

Change in fair value of underlying derivative of cash flow hedge 5.4.2 – – 1.2 – 1.2 – 1.2

Foreign exchange reserve on disposal of subsidiary – (0.4) – (3.7) (4.1) – (4.1)

Taxation credit/(expense) on income and expense recognised directly in other comprehensive income 2.6 16.0 3.4 (0.4) – 19.0 – 19.0

Other comprehensive income/(expense) for the year, net of taxation (75.6) 20.2 0.8 (168.3) (222.9) (5.5) (228.4)

Total comprehensive income/(expense) for the year (75.6) 298.5 0.8 (168.3) 55.4 (5.5) 49.9

Liability for future acquisition of minority interest 3.0.6 – (91.1) – – (91.1) – (91.1)

Dividends paid to non-controlling interests – (0.2) – – (0.2) (3.4) (3.6)

At end of year 632.3 4,797.9 20.8 (96.9) 5,354.1 69.5 5,423.6



1.1 Basis of preparationThe British United Provident Association Limited (‘Bupa’ or the ‘Company’), the ultimate Parent entity of the Group, is a company incorporated in England and Wales. The Company is limited by guarantee.

Both the Company financial statements and the Group’s consolidated financial statements have been prepared under International Financial Reporting Standards (IFRS) as adopted by the EU. The appropriate provisions of the Companies Act 2006 applicable to companies reporting under IFRS have also been complied with. A summary of IFRS that are relevant for the Group is included on page 140.

The financial statements were approved by the Board of Directors on 1 March 2017. The directors have reviewed and approved the Group’s accounting policies which have been applied consistently to all the years presented, unless otherwise stated. For the purposes of consolidation, the accounting policies of subsidiary companies have been aligned with those of the Parent company.

The financial statements are prepared on a going concern basis and under the historical cost convention, modified by the revaluation of property, investment property, financial investments at fair value through profit or loss, available-for-sale financial assets and derivative instruments.

1.2 Basis of consolidationThe consolidated financial statements for the year ended 31 December 2016 comprise those of the Company and its subsidiary companies (together referred to as the ‘Group’), and the share of results of equity accounted investments.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences to the date that control ceases. Non-controlling interests in the net assets of subsidiaries are identified separately from the Group’s equity. Non-controlling interests consist of the amount of those interests at the date of the original acquisition and the non-controlling shareholder’s share of changes in equity since this date. Intra-Group related party transactions and outstanding balances are eliminated in the preparation of the consolidated financial statements of the Group.

The consolidated financial statements are presented in sterling, which is the Group’s presentational currency. The functional currency is identified at statutory entity level. These vary across the Group and include sterling, Australian dollar, euro and US dollar. Each Group entity then translates its results and financial position into the Group’s presentational currency, sterling, for presentation in the Group consolidated financial statements. The immediate impact on Bupa’s financial position following the UK’s decision to leave the EU in June 2016 has seen a strengthening across all our key financial metrics due to the weakening of sterling.

1.3 Accounting estimates and judgementsThe preparation of financial statements requires the use of certain accounting estimates and assumptions that affect the reported assets, liabilities, income and expenses. It also requires management to exercise judgement in applying the Group’s accounting policies.

The areas involving a higher degree of judgement or complexity, or where assumptions are significant to the consolidated financial statements, are set out below and in more detail in the related notes:

Area Judgement Note

Claims provisioning Expected claims payments and expense required to settle existing insurance contract obligations. Calculation of the outstanding claims provision is based on assumptions including claims development, margin of prudence, claims costs inflation, medical trends and seasonality.

3.4.1

Property valuations Bupa has a significant portfolio of care home, hospital and office properties and fluctuations in the value of this portfolio can have a significant impact on the Statement of Financial Position, Income Statement and solvency position of the Group.

3.2, 3.3

Goodwill and intangible assets

Recognised on business combinations with the latter valued at the date of acquisition at fair value. Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis; other intangible assets are tested if a trigger of impairment is identified. The judgemental areas within this process include the inputs within the discount rate and the forecast cash flows.

3.1

Pension assets and liabilities The principal defined benefit scheme in the UK is the Bupa Pension Scheme. The judgemental area relates to the assumptions used in the valuation of the related pension liabilities performed by the independent scheme actuary.

3.6.2

Other judgements:

– Taxation (Note 2.6)

– Provisions (Note 3.5)

– Business combinations and disposals (Note 4.0)

– Assets and liabilities held for sale (Note 4.1)

– Financial investments (Note 5.0)

Notes to the Financial Statementsfor the year ended 31 December 2016

1.0 Basis of preparation

Basis of preparation in briefThis section describes the Group’s significant accounting policies and accounting estimates and judgements that relate to the financial statements and notes as a whole. Where accounting policies relate to a specific note, the applicable accounting policies and estimates are contained within the note.

Note


Strateg

ic repo

rtG

overn

ance


1.4 Going concernManagement has conducted a detailed assessment of the Group’s going concern status based on its current position and forecast results. They have concluded that the Group has adequate resources to operate for the next twelve months. In making this assessment, management have considered the discussions with the relationship banks as well as forecasts which take account of reasonably possible changes in trading performance, solvency capital and recently announced acquisitions.

Details of the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 1-21. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 12-15.

The Group’s £800.0m bank facility was unutilised at 31 December 2016, with the exception of £6.4m of outstanding letters of credit required for general business purposes. The Group has extended this facility from 2017 to 2021 with the option of extending this further to 2022.

An additional committed bank facility of £250.0m was agreed during June 2016. This facility was cancelled following the issuance of the £400.0m unguaranteed subordinated bond issued on 8 December 2016.

Refer to the Longer-Term Viability Statement in the Strategic Report which considers the Group’s ability to continue in operation and meet its liabilities as they fall due, over a period of three years. In making this assumption, management have considered the discussions with the relationship banks including the review of external ratings, forecasts that consider reasonably possible changes in trading performance, the solvency capital position and the Group’s financial and operational risk framework. It has been concluded that Bupa is a going concern and accordingly the financial statements have been produced on a going concern basis.

1.5 New financial reporting requirementsAll newly effective financial reporting standards applicable to the Group for the first time for the year ended 31 December 2016 have been reviewed and it has been concluded that they have no material impact on the financial statements of the Group. These include:

(a) IAS 1 Disclosure initiative The amendments to IAS 1 Presentation of Financial Statements are designed to further encourage companies to apply professional judgement in determining which information to disclose in their financial statements.

(b) Amendments to The Companies Partnerships and Groups (Accounts and Reports) Regulations 2015The amendment under section 410 of the UK Companies Act for companies to include all subsidiaries, associated undertakings and significant holdings in undertakings other than subsidiary undertakings has been extended to declare the registered address, shareholding and class of shares. Bupa has included a full listing of all entities meeting this criteria, shareholding and class of shares grouped by the registered country of the entities in the Annual Report and Accounts.

1.6 Forthcoming financial reporting requirementsThe following financial reporting standards have been issued but are not effective for the year ended 31 December 2016 and have not been early adopted by the Group.

(a) Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance ContractsIFRS 9 modifies the classification and measurement of financial assets, the recognition of impairment and hedge accounting. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value, with the basis of classification depending on the business model and the contractual cash flow characteristics of the financial assets. In September 2016, the IASB issued Amendments to IFRS 4, ‘Insurance Contracts’ regarding the implementation of IFRS 9, ‘Financial Instruments’, introducing two approaches: an overlay approach (giving companies that issue insurance contracts the option to recognise in Other Comprehensive Income, rather than the Income Statement, any volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued); or, a deferral approach (giving companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021). The mandatory effective date for applying IFRS 9 is for annual periods beginning on or after 1 January 2018. The standard was adopted into EU law on 22 November 2016. The impact of IFRS 9 on the financial statements is currently being evaluated by the Group, but cannot be fully assessed until the insurance contracts standard is finalised. The amendments to IFRS 4 are pending EU endorsement.

(b) IFRS 15 Revenue RecognitionIFRS 15 establishes principles that an entity can apply to report information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. It replaces IAS 11: Construction Contracts, IAS 18: Revenue, IFRIC 13: Customer Loyalty Programmes, IFRIC 15: Agreements for the Construction of Real Estate and IFRIC 18: Transfers of Assets from Customers. The standard will come into effect for annual periods beginning on or after 1 January 2018. The Group has reviewed the effect of this change and does not expect a significant impact to the financial statements.

(c) IFRS 16 LeasesIFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and supersedes IAS 17 Leases; IFRIC 4 Determining whether an Arrangement contains a Lease; SIC-15 Operating Leases-Incentives; and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The mandatory effective date for applying IFRS 16 is for annual periods beginning on or after 1 January 2019. The impact of IFRS 16 on the financial statements is currently being evaluated by the Group. See Note 6.1 Commitments and contingencies for operating lease disclosures under the current accounting standards.

Notes to the Financial Statements continuedfor the year ended 31 December 2016


(d) IAS 7 Disclosure initiative The IASB requires the following changes in assets/liabilities arising from financing activities to be disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. The Group expects that this would take the format of a reconciliation between the opening and closing balances for liabilities arising from financing activities. Comparative information will not be required. The amendments to IAS 7 will be effective from 1 January 2017, pending EU endorsement.

(e) IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses The amendments to IAS 12 will be effective from 1 January 2017, pending EU endorsement. The impact of this is currently being evaluated by the Group.

The Group has reviewed the effect of all other amendments to IFRS and interpretations effective for accounting periods beginning on or after 1 January 2017 and do not expect them to have a significant impact on the financial statements.

1.7 Events occurring after the reporting periodOn 9 February 2017, Bupa completed the purchase of 100% of the issued share capital of Oasis Dental Care, with an enterprise value of £835.0m, following regulatory referral from the European Commission to the UK Competition and Markets Authority (CMA).

Reorganisation during the year led to four Market Units being reported from the previous five; the newly formed Market Units being Europe and Latin America (resulting from the transfer of LUX MED into the previous Spain and Latin America Market Unit) and International

Markets (resulting from the merger of International Development Markets and Bupa Global). Comparatives have been restated to reflect this change. The new structure enhances collaboration and synergies across the business.

Reportable segments Services and products

Australia and New Zealand Health insurance, health assessments, health coaching and international health cover

Dental provision in Australia and New Zealand, optical care within Australia

Nursing, residential and respite care in Australia and New Zealand

Retirement villages and telecare services within New Zealand

UK Health insurance, dental services, health assessments and related products

Nursing, residential, care villages and respite care

Management and operation of a private hospital providing medical and ancillary services to patients

Home healthcare products and services1

Europe and Latin America Health insurance and related products sold in Spain

Management and operation of hospitals, clinics and dental centres in Spain providing medical and ancillary services to patients

Provision of nursing, residential and respite care in Spain

Medical subscription, health insurance, diagnostics and operation of clinics and hospitals in Poland

Health insurance and operation of outpatient clinics and hospitals in Chile

International Markets International health insurance to individuals, small businesses and corporate customers in over 190 countries

Domestic health insurance and related products within Hong Kong, Thailand, China, Saudi Arabia and India

Diagnostics, primary healthcare and day care clinics in Hong Kong

1 Bupa Home Healthcare was sold to Celesio on 1 July 2016.

2.0 Operating segments

Operating segments in briefThe Group is managed through four Market Units based on geographic locations and customers. Management monitors the operating results of the Market Units separately to assess performance and make decisions about the allocation of resources. The segmental disclosures are reported consistently with the way the business is managed and reported internally.

Note


Strateg

ic repo

rtG

overn

ance


The operating results of each Market Unit, which form the operating segments on which the information in this section has been prepared, are regularly reviewed by the Group Chief Executive Officer (the Group’s chief operating decision maker) to assess performance and make decisions about the allocation of resources.

The segmental underlying profit includes items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central expenses and net interest margin comprise income and expenses generated at the Centre, which cannot be specifically allocated to the operating segments.

A key performance measure of operating segments utilised by the Group is underlying profit. This measurement basis distinguishes underlying profit from other constituents of the IFRS reported profit before tax, excluding items relating to business combinations and disposals, fluctuations in foreign exchange, property revaluations and investment return on return-seeking assets, along with other one-off items. Adjustments made exclude items derived from the application of Group accounting policies which are not directly related to the underlying trading performance of the business.

The adjustments made to reported profit before tax are to exclude the following:

– Amortisation and impairment of intangible assets and goodwill arising on business combinations – impairment reviews are performed at least annually. Although driven by trading performance, goodwill impairments are considered to be one-off and not reflective of the ongoing trading performance of the business. Amortisation and impairment of internally generated intangible assets and purchased computer software is included within underlying profit.

– Net gains/losses on disposal of businesses and transaction costs on business combinations – gains/losses on disposal of businesses are not considered part of the continuing business and are one-off in nature; transaction costs incurred for acquisitions or disposals are not related to the ongoing trading performance of the business.

– Net property revaluation gains/losses – short-term fluctuations which would distort underlying trading performance. Includes unrealised gains or losses on investment properties, deficit on revaluations and property impairment losses.

– Realised and unrealised foreign exchange gains/losses – short-term fluctuations outside of management control, which would distort underlying trading performance.

– Other Market Unit non-underlying items – include impairment of investment in associate, Market Unit restructuring costs (which are one-off and outside the normal operations of the business) and net gains/losses on disposal of fixed assets (not part of the continuing business or trading activity).

– Early termination of secured loans – relates to the one-off impact of UK care homes securitisation redemption.

– Gains on return seeking assets, net of hedging – fluctuations on investments are not considered to be directly related to underlying trading performance.

– Central non-underlying items – items which management believe are not representative of the underlying results of the business and which would distort underlying results.



The total underlying profit of the reportable segments is reconciled below to profit before taxation expense in the Consolidated Income Statement.

Australia and New Zealand UK

Europe and Latin America

International Markets Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 (restated)

£m2016

£m

2015 (restated)

£m2016

£m2015

£m

(i) RevenuesTotal revenues for reportable segments 4,360.6 3,648.4 2,786.1 2,858.1 2,474.7 2,027.4 1,427.9 1,296.2 11,049.3 9,830.1 Inter segment income – – (0.2) (0.3) – – (0.1) (0.5) (0.3) (0.8)External revenues for reportable segments 4,360.6 3,648.4 2,785.9 2,857.8 2,474.7 2,027.4 1,427.8 1,295.7 11,049.0 9,829.3

Net reclassifications to other expenses or financial income and expense (1.1) (0.9)

Consolidated total revenues 11,047.9 9,828.4

(ii) Segment resultUnderlying profit for reportable segments1 344.4 279.5 194.9 182.6 165.6 90.0 65.9 127.1 770.8 679.2 Central expenses and net interest margin (70.1) (96.7)Consolidated underlying profit before taxation 700.7 582.5

Non-underlying items:Amortisation and impairments of intangible assets

and goodwill arising on business combinations (14.4) (13.0) (14.7) (118.7) (28.3) (14.8) (13.3) (14.1) (70.7) (160.6)Net (losses)/gains on disposal of businesses and

transaction costs on business combinations2 (0.3) (0.6) 9.7 (1.6) (0.1) (1.7) (2.8) 0.1 6.5 (3.8)Net property revaluation gains/(losses)3 17.8 2.3 (35.3) (67.7) (6.3) 3.7 – – (23.8) (61.7)Realised and unrealised foreign exchange (losses)/gains (0.3) 0.2 (0.3) (0.1) (2.5) (2.0) 22.5 (9.8) 19.4 (11.7)Other Market Unit non-underlying items4 (1.0) (1.1) (12.7) (0.4) (0.7) 1.4 (0.9) (2.3) (15.3) (2.4)Early termination of secured loans (112.3) –Gains on return-seeking assets, net of hedging 22.9 7.0 Central non-underlying items5 (4.5) 25.0 Total non-underlying items (177.8) (208.2)Consolidated profit before taxation expense 522.9 374.3

1 Underlying profit for reportable segments includes share of post-taxation results of equity accounted investments. International Markets includes Bupa Arabia, Max Bupa and Highway to Health. For further information please refer to Note 4.2.

2 Includes £12.3m profit on disposal of Bupa Home Healthcare in 2016 (see Note 2.4).

3 2016 includes £11.2m write down on reclassification as held for sale in the UK (see Note 2.4). 2015 includes a property and equipment write down in UK Care Services of £67.8m, of which £8.7m is equipment (see Note 3.2).

4 Includes £11.0m UK Market Unit restructuring costs and £4.2m net losses on disposal of fixed assets in 2016; includes £1.1m Market Unit restructuring costs, £0.7m impairment of investment in associate and £0.6m net losses on disposal of fixed assets in 2015.

5 Includes £25.5m receipt of deferred consideration in relation to the sale of Bupa Ireland Limited in 2015 (see Note 2.4).

Australia and New Zealand UK


International Markets Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 (restated)

£m2016

£m

2015 (restated)

£m2016

£m2015

£m

(iii) Other information

Amortisation and depreciation costs for reportable segments 61.9 52.5 93.9 106.9 64.6 70.9 36.6 33.2 257.0 263.5

Non-cash (expense)/income for reportable segments (209.9) (166.4) (30.7) (35.8) 64.8 (77.5) (7.8) 12.3 (183.6) (267.4)Unallocated non-cash income/(expense) 15.9 (31.2)Total non-cash expenses (167.7) (298.6)

Australasia UK Spain Rest of the World Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 (restated)

£m2016

£m

2015 (restated)

£m2016

£m2015

£m

(iv) Geographic informationConsolidated total revenues 4,360.6 3,648.4 3,344.1 3,378.8 1,414.6 1,168.2 1,928.6 1,633.0 11,047.9 9,828.4 Consolidated non-current assets1 3,418.1 2,720.0 1,980.3 1,600.1 522.9 444.5 1,646.5 1,593.2 7,567.8 6,357.8

1 Consolidated non-current assets excludes financial investments, restricted assets, assets arising from insurance business, deferred taxation assets and post-employment benefit net assets.


Strateg

ic repo

rtG

overn

ance


Revenue stream Recognition policy

Insurance premiums Gross insurance premiumsGross insurance premiums represent the premiums earned relating to risk exposure for the reported financial year. They comprise gross premiums written, adjusted for the change in the provision for unearned premiums for premiums written relating to periods of risk in subsequent financial years.

Premiums are shown gross of commissions payable and net of insurance premium taxes that may apply in certain jurisdictions.

Premiums ceded to reinsurersPremiums ceded to reinsurers represent reinsurance premiums payable for contracts entered into that relate to risk mitigation for the reported financial year. These comprise written premiums ceded to reinsurers, adjusted for the reinsurers’ share of the movement in the gross provision for unearned premiums.

Premiums, losses and other amounts relating to reinsurance treaties are recognised over the period from inception of a treaty to expiration of the related business.

Insurance service contracts Contracts entered into by the Group’s general insurance entities that do not result in the transfer of significant insurance risk to the Group are accounted for as insurance service contracts. These contracts mainly relate to the administration of claims funds on behalf of corporate customers. Revenues from service contracts are recognised as the services are provided.

Some of these contracts contain financial liabilities representing deposits repayable to the customer. These are measured at amortised cost. The claims fund deposit held on behalf of customers is reported within other payables, accruals and deferred income as appropriate.

Care, health, dental and other The Group generates income from fees receivable from the operation of its care homes, hospitals, dental centres and other healthcare and wellbeing centres. Revenues from insurance service contracts are recognised as the services are provided, with the exception of an element of revenue for performance based service contracts which is recognised as deferred income. The accounting policy for deferred income for performance based service contracts is explained in Note 3.0.6.

Service concession receivablesThe Group also operates two public hospitals in Spain under separate service concession arrangements granted by the local governments (the grantors). Revenue is recognised from the construction of infrastructure and for operation of the hospitals. Construction revenues are recognised in line with the stage of completion of the work performed. Operational revenues are recognised in the period in which the services are provided, in line with the service concession arrangements. The accounting policy for the service concession receivables is explained in Note 3.0.1.

Total Revenues2016

£m2015

£m

Gross premiums written 8,058.1 7,139.3

Change in gross provision for unearned premiums (13.8) (80.3)

Gross insurance premiums 8,044.3 7,059.0

Gross premiums written ceded to reinsurers (59.3) (50.3)

Reinsurers’ share of change in gross provisions for unearned premiums 5.4 1.7

Premiums ceded to reinsurers (53.9) (48.6)

Net insurance premiums earned 7,990.4 7,010.4

Revenues from insurance service contracts 18.7 42.6

Care, health and other revenues 3,038.8 2,775.4

Total revenues 11,047.9 9,828.4

2.1 Revenues

Revenues in briefThe Group generates revenues from its underwriting activities (insurance premiums), trading activities through the provision of insurance management services (insurance service contracts) and the provision of healthcare services (care, health, dental and other).

Note



Insurance claimsInsurance claims incurred comprise insurance claims paid during the year together with related handling costs, the movement in the gross provision for claims in the period and the Risk Equalisation Trust Fund levy for Australian health insurance businesses. See Note 3.4 for details of the claims provision.

In Australia, the Risk Equalisation Trust Fund charges a levy to all registered private health insurers and then allocates a proportion of the cost of eligible claims between all fund participants.

Reinsurers’ share of claims incurredReinsurers’ share of claims incurred represents recoveries from reinsurers on claims paid, adjusted for the reinsurers’ share of the change in the gross provision for claims.

See ‘Assets arising from insurance business’ within Note 3.0.2 for the related balance sheet item and detail of impairments.

Net insurance claims incurred2016

£m2015

£m

Insurance claims paid 6,335.4 5,593.8

Change in gross provisions for claims 62.6 (0.5)

6,398.0 5,593.3

Risk Equalisation Trust Fund levy (net of recoveries) (65.1) (87.5)

Insurance claims incurred 6,332.9 5,505.8

Recoveries from reinsurers on claims paid (45.3) (36.1)

Reinsurers’ share of change in gross provisions for claims 2.4 (1.0)

Reinsurers’ share of claims incurred (42.9) (37.1)

Net insurance claims incurred 6,290.0 5,468.7

2.2Insurance Claims

Insurance claims in briefInsurance claims relate to the Group’s insurance underwriting activities. Insurance claims incurred are amounts payable under insurance contracts arising from the occurrence of an insured event.

Note


Strateg

ic repo

rtG

overn

ance


Other operating expenses

Note2016

£m2015

£m

Staff costs 2.3.1 1,962.1 1,712.0

Acquisition costs 2.3.2 258.2 226.0

Medical supplies and fees 794.9 878.6

Property costs 181.8 165.9

Operating lease rentals 148.1 126.5

Marketing costs 124.3 110.2

Catering and housekeeping costs 75.2 68.1

Consultancy fees 53.5 47.3

Net loss on foreign exchange transactions 58.6 15.0

Amortisation of intangible assets 3.1 120.2 116.0

Impairment of intangible assets 3.1 35.0 –

Depreciation expense 3.2 161.7 147.5

Other operating expenses (including auditors’ remuneration) 2.3.3 223.7 190.7

Total other operating expenses 4,197.3 3,803.8

2.3.1 Staff cost and employee numbersStaff costsThe below table represents the total employee benefit expenses incurred by the Group during the period.

2016 £m

2015 £m

Wages and salaries 1,910.7 1,653.7

Social security costs 128.3 114.3

Contributions to defined contribution schemes 32.7 29.6

Other pension amounts (2.7) 5.6

Total staff costs 2,069.0 1,803.2

Staff costs relating to claims handling reported in claims (106.9) (91.2)

Staff costs in operating expenses 1,962.1 1,712.0

Directors’ Remuneration Report is described on pages 42-52 of this report.

Employee numbersThe average number of full-time equivalent employees, including Executive Directors, employed by the Group during the year was:

Average employee numbers 20162015

(restated)

Australia and New Zealand 13,287 12,006

UK 26,960 27,333

Europe and Latin America 22,503 21,033

International Markets 3,588 3,361

Centre 331 285

Total employee numbers 66,669 64,018

The total employee headcount as at 31 December 2016 was 86,423 (2015: 83,635).

Reorganised Market Unit structure is detailed in Note 2.0.

2.3Other operating expenses

Other operating expenses in briefOther operating expenses include staff costs, overheads, depreciation, amortisation of intangible assets, and gains or losses on foreign exchange transactions incurred as a consequence of operating our businesses. Costs in relation to handling claims are included within insurance claims.

Operating expenses exclude insurance claims, finance costs and taxation.

Note



Other income and charges

Note2016

£m2015

£m

Net gain on disposal of business1 4.0.b 10.7 25.4

Movement in investment in associates provision – (0.7)

(Deficit)/surplus on revaluation of property 3.2 (30.9) 3.6

Write down of property2 3.2 ,4.1 (14.5) (68.2)

Net loss on disposal of property, plant and equipment3 (4.2) (0.7)

Total other income and charges (38.9) (40.6)

1 2016 includes £12.3m profit on disposal of Bupa Home Healthcare, which was sold to Celesio on 1 July 2016 and £1.6m loss on liquidation of Bupa Middle East Holdings. 2015 includes deferred consideration on 2007 disposal of Bupa Ireland Limited of £25.5m.

2 Includes £11.2m write down on reclassification as held for sale.

3 Includes loss on disposal of two office buildings which were sold in the year.

2.3.2 Acquisition costs2016

£m2015

£m

Commission for direct insurance 253.8 214.4

Other acquisition costs paid 14.2 14.6

Changes in deferred acquisition costs (9.8) (3.0)

Total acquisition costs 258.2 226.0

The movement in deferred acquisition cost is detailed in Note 3.0.2.

2.3.3 Auditors’ remuneration2016

£m2015

£m

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 0.8 0.8

Fees payable to the Company’s auditor and its associates for:

– the audit of the Company’s subsidiaries pursuant to legislation 4.8 3.9

– audit-related assurance services 0.8 0.7

Total audit fees payable to the Company’s auditors, KPMG LLP and its associates 6.4 5.4

Fees payable to other auditors:

Audit of overseas subsidiary companies 0.5 0.2

Total audit fees 6.9 5.6

Fees payable to the Company’s auditor and its associates for other services:

Tax compliance services 0.2 0.3

Tax advisory services 0.1 0.1

Corporate finance services – 1.0

All other non-audit services 1.1 1.5

Total non-audit fees 1.4 2.9

Total auditors’ remuneration 8.3 8.5

In addition, fees in respect of the audit of The Bupa Pension Scheme were £56,000 (2015: £49,000).

2.4Other income and charges

Other income and charges in briefOther income and charges comprise income or expenses that are related to the investing and divesting activities of the Group.

Note


Strateg

ic repo

rtG

overn

ance


Financial incomeInterest income, except in relation to assets classified at fair value through profit or loss, is recognised in the Income Statement as it accrues, using the effective interest method. Any mark to market movements are split between realised or unrealised.

Changes in the value of financial assets designated as at fair value through profit or loss are recognised within financial income as an unrealised gain or loss while the asset is held. Upon realisation of these assets, the change in fair value since the last valuation is recognised within financial income as a realised gain or loss.

Note2016

£m2015

£m

Interest income:

Loans and receivables 41.2 40.8

Investments designated as available for sale 1.3 –

Investments held to maturity 2.8 2.6

Investments designated at fair value through profit or loss 3.3 1.7

Net realised gains on financial investments designated at fair value through profit or loss 5.4 13.6

Realised gain on early termination of long term investment 39.3 –

Net increase/(decrease) in fair value:

Investments designated at fair value through profit or loss 19.7 (4.4)

Investment property 3.3 21.2 11.6

Net foreign exchange translation gains 77.9 2.8

Total financial income 212.1 68.7

Included within ‘net realised gains on financial investments designated at fair value through profit or loss’ and ‘investments designated at fair value through profit or loss’ is a net gain, after hedging, on the Group’s return seeking asset portfolio of £22.9m (2015: net gain of £7.0m). No financial investments designated at fair value through profit or loss are held for trading. A gain of £39.3m was recognised on the early termination of the financial investment which provided security against the repayment of the secured loans issued by UK Care No.1 Limited.

2016 net foreign exchange gain includes a £63.5m gain on the retranslation of US dollar and sterling investments held in Bupa Egypt as a result of a devaluation of the Egyptian pound in November 2016.

Financial expenseInterest payable on borrowings is calculated using the effective interest method.

2016 £m

2015 £m

Interest expense on financial liabilities at amortised cost 86.3 114.3

Finance charges in respect of finance leases 0.8 1.2

Loss on early repayment of debt 151.6 –

Other financial expenses 2.5 2.5

Total financial expense 241.2 118.0

A loss of £151.6m was recognised following the early redemption of the secured loans issued by UK Care No.1 Limited in April 2016. This has been partially offset by a £39.3m gain (in financial income) on the early termination of the financial investment which provided security against the A1 notes.

2.5Financial income and expense

Financial income and expense in briefFinancial income and expense are earned/(incurred) from the Group’s financial assets and liabilities, and non-financial assets such as investment property.

Note



The taxation expense on the profit for the year comprises current and deferred taxation. Income taxation is recognised in the Income Statement except to the extent that it relates to items recognised directly in Other Comprehensive Income, in which case it is recognised directly in the Statement of Comprehensive Income.

(i) Recognised in the Income Statement2016

£m2015

£m

Current taxation expense

UK taxation on income for the year 33.8 20.8

Adjustments in respect of prior periods (3.2) (18.8)

30.6 2.0

Double taxation relief (2.9) (2.5)

Foreign taxation on income for the year 136.4 109.0

Adjustments in respect of prior years 0.2 (8.8)

136.6 100.2

Total current taxation 164.3 99.7

Deferred taxation income

Origination and reversal of temporary differences (33.6) (11.1)

Adjustments in respect of prior periods 2.7 –

Changes in taxation rates 2.7 7.4

Total deferred taxation (28.2) (3.7)

Taxation expense 136.1 96.0

Current taxation is the expected taxation payable on the taxable profit for the year, using taxation rates enacted or substantively enacted at the balance sheet date, and any adjustments to taxation payable in respect of previous years.

The Group is subject to taxation audits in the territories in which it operates and considers each issue on its merits when deciding whether to hold a provision against the potential taxation liability that may arise. However the amount that is ultimately paid could differ from the amount initially recorded and this difference is recognised in the period in which such a determination is made.

(ii) Reconciliation of effective taxation rate2016

£m2015

£m


Taxation at the domestic UK corporation tax rate of 20.00% (2015: 20.25%) 104.6 75.8

Effect of:

Different taxation rates in foreign jurisdictions 28.1 25.8

Non-deductible expenses 0.9 17.0

Current income taxation adjustments in respect of prior periods (3.0) (27.6)

Deferred taxation adjustments in respect of prior periods 2.7 –

Changes in taxation rate 2.7 7.4

Movement on deferred taxation asset not recognised 0.1 (2.3)

Group relief not paid for – (0.1)

Taxation expense at the effective rate of 26.0% (2015: 25.6%) 136.1 96.0

(iii) Current and deferred taxation recognised directly in Other Comprehensive Income

2016 Taxation benefit/

(expense) £m

2015 Taxation benefit/

(expense) £m

Current taxation credit in respect of:

Other foreign exchange translation differences 15.9 –

Deferred taxation (charge)/credit in respect of:

Unrealised (loss)/profit on revaluation of property (10.3) 16.0

Remeasurement gain on pension schemes 7.7 3.4

Change in fair value of underlying derivative of cash flow hedge (0.2) (0.4)

Taxation credit on income and expenses recognised directly in Other Comprehensive Income 13.1 19.0

2.6Taxation expense

Taxation expense in briefTaxation expense on the profit for the year comprises current and deferred taxation and considers foreign tax, double tax relief and absorbs adjustments in respect of prior periods.

Note


Strateg

ic repo

rtG

overn

ance


3.0.1 Trade and other receivablesCurrent trade and other receivables are carried at amortised cost less impairment losses. Non-current trade and other receivables are carried at present value based on discounted cash flows, with the exception of prepayments carried at cost.

2016 £m

2015 £m

Non-current

Service concession receivables (a) 89.9 77.7

Other receivables 6.5 6.8

Prepayments 10.6 8.1

Investment receivables and accrued investment income 5.5 4.3

Total non-current other receivables 112.5 96.9

Current

Trade receivables – net of impairment losses (b) 183.6 256.2

Service concession receivables (a) 123.4 107.4



Accrued income 50.5 26.4

Investment receivables and accrued investment income 0.3 0.4

Total current trade and other receivables 501.6 539.0

Total trade and other receivables 614.1 635.9

The above balance is stated net of provisions for impairment losses. Information regarding the ageing of trade and other receivables is shown in Note 5.4.3.

The fair value of non-current investment receivables and accrued investment income is £5.2m (2015: £4.0m). The carrying value of the other non-current receivable balances are a reasonable approximation of the fair value.

(a) Service concession receivablesThe Group has recognised two service concession receivables in respect of the public-private partnership arrangement with the Valencian and Madrid Governments (the grantors). Under the arrangement with the Valencian Government, the Sanitas business was contracted to build and operate the Manises hospital for the grantor for 15 years. Under the current arrangement with the Madrid Government, the Sanitas business was contracted to operate the Torrejón hospital for the grantor for 30 years.

A financial asset has been recognised for each arrangement to the extent that the Group has an unconditional contractual right to receive cash from, or at the direction of, the grantors for the services provided per capita head of the population covered. The service concession receivables are carried at amortised cost less impairment losses, and relates to construction revenues which are recognised in line with the stage of completion of the work performed and are included in place of the related asset, as at the end of the contract the ownership of the hospitals reverts to the grantors. The receivable also relates to operational revenues, which are recognised in the period in which the services are provided, in line with the service concession arrangements. Under IFRIC 12, revenue is recognised based on the average operating margin for the life of the contract. The operating margin is based on historic performance plus projections and this margin is reassessed based on changes in expected performance, with an adjustment made to the current year results to bring the contract performance to date in line with the revised margin.

In 2015 the financial asset was impaired by £52.0m due to the impact on our business case projections of customers from within our catchment area seeking treatment at other facilities, accentuated by the introduction of the Free Choice Act in Valencia in 2015.

(b) Impairment of financial assetsFinancial assets comprise trade and other receivables and financial investments. Refer to Note 5.0 for financial investments.

If they are not already held at fair value, financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered impaired if objective evidence indicates that one or more events that have occurred since the initial recognition of the asset have had a negative impact on the estimated future cash flows of that asset.

An impairment loss in respect of a financial investment measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the effective interest rate at the date the investment was made.

Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the Income Statement. Impairment losses on trade receivables amounting to £5.4m (2015: £4.7m) have been charged to other operating expenses.

3.0Working capital

Working capital in briefWorking capital represents the assets and liabilities the Group generates through its trading activity. The Group therefore defines working capital as trade and other receivables, assets and liabilities arising from insurance business, inventory, cash and trade and other payables.

Note



3.0.2 Assets arising from insurance businessFinancial assets arising from insurance business, excluding reinsurers’ share of insurance provisions, are held at amortised cost. Valuation of reinsurers’ share of insurance provisions is discussed in Note 3.4.

2016 £m

2015 £m

Non-current

Deferred acquisition costs (a) 2.2 0.2

Total non-current assets arising from insurance business 2.2 0.2

Current

Insurance debtors (b) 952.8 799.8

Reinsurers’ share of insurance provisions (c) 19.3 4.8

Deferred acquisition costs (a) 103.5 87.8

Medicare rebate (d) 72.9 67.3

Risk Equalisation Trust Fund recoveries 16.2 20.8

Total current assets arising from insurance business 1,164.7 980.5

Total assets arising from insurance business 1,166.9 980.7

The above balance is stated net of provision for impairment losses. Information regarding the ageing of insurance debtors, Medicare rebate and Risk Equalisation Trust Fund recoveries is shown in Note 5.4.3.

(a) Deferred acquisition costsAcquisition costs represent commissions payable and other expenses related to the acquisition of insurance contract revenues written during the financial year. Acquisition costs that have been paid that relate to subsequent periods are deferred and recognised in the Income Statement in the relevant period on a straight line basis.

The movement in deferred acquisition costs is as follows:

2016 £m

2015 £m

At the beginning of the year 88.0 84.6

Acquisition costs deferred 341.8 288.0

Acquisition costs released to Income Statement (332.0) (285.0)

Foreign exchange 7.9 0.4

At end of year 105.7 88.0

(b) Insurance debtorsImpairment releases in respect of insurance debtors amounting to £5.6m (2015: release of £2.2m) have been recognised in other operating expenses in the Income Statement, detailed in Note 2.3.

(c) Reinsurers’ share of insurance provisionsThe recoverables due from reinsurers are shown within assets arising from insurance business and are assessed for impairment at each balance sheet date.

Reinsurers’ share of insurance provisions are further analysed in Note 3.4.

(d) Medicare rebateIn Australia, the government provides a rebate to health insurers in respect of the premiums paid for private health insurance. Rebates due from the government but not received at the balance sheet date are recognised in assets arising from insurance business.

3.0.3 Cash and cash equivalentsCash and cash equivalents comprise cash balances, call deposits and other short-term highly liquid investments (including money market funds) with original maturities of three months or less which are subject to an insignificant risk of change in value.

Bank overdrafts of £nil (2015: £nil) that are repayable on demand and form an integral part of the Group’s Capital Management Policy (see Note 5.3) are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

2016 £m

2015 £m

Cash at bank and in hand 998.7 684.2

Short-term deposits 414.0 509.9

Cash and cash equivalents 1,412.7 1,194.1

3.0.4 Restricted assetsRestricted assets are amounts held in respect of specific obligations and potential liabilities and may be used only to discharge those obligations and potential liabilities if and when they crystallise.

2016 £m

2015 £m

Non-current restricted assets 55.8 45.1

Current restricted assets 4.2 10.8

Total restricted assets 60.0 55.9

The restricted assets balance of £60.0m (2015: £55.9m) is split between non-current and current. The non-current restricted assets balance of £55.8m (2015: £45.1m) consists of cash deposits held to secure a charge over the non-registered pension arrangement maturing after 2022 (see Note 6.0). Included in current restricted assets is £3.2m (2015: £2.1m) in respect of claims funds held on behalf of corporate customers and £0.3m acquired restricted assets in relation to Care Plus.


Strateg

ic repo

rtG

overn

ance


3.0.5 InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in first-out method, or methods that approximate this and includes costs incurred in acquiring the inventories and in bringing them to their current location and condition.

Inventories relating to drugs, prostheses, consumables and housing stock were £92.2m (2015: £82.9m).

Inventory write downs of £1.3m (2015: £0.1m) were made during the year. The Group consumed £384.4m (2015: £496.8m) of inventories, which are recognised within other operating expenses in the Income Statement.

3.0.6 Trade and other payablesTrade and other payables (excluding deferred income) are carried at amortised cost.

2016 £m

2015 £m

Non-current

Accruals 9.0 8.5

Other payables 14.1 10.3

Deferred income (a) 1.2 1.1

Total non-current other payables 24.3 19.9

Current

Accruals 462.1 416.3

Accommodation bond liabilities (b) 558.5 369.6

Trade payables 134.6 261.8

Other payables (c) 414.7 354.0

Deferred income (a) 70.7 75.3

Social security and other taxes 32.8 42.6

Total current trade and other payables 1,673.4 1,519.6

Total trade and other payables 1,697.7 1,539.5

The fair value of other payables and accruals are £424.1m (2015: £363.5m) and £495.2m (2015: £424.6m) respectively. The carrying value of the other trade and other payables is a reasonable approximation of the fair value. Information regarding the ageing of trade payables, other payables, accommodation bond liabilities and accruals is shown in Note 5.4.4.

(a) Deferred incomeIn respect of the Group’s revenue and deferred revenue for performance based health service contracts, estimates are made by the Group based on the most recent performance evaluation data available at the year end and these estimates are utilised if they are determined to be reliable. Reliable estimates can only be made on an individual contract basis once the results of an initial performance evaluation are available, and revenue is deferred until the first reliable evaluation is available.

Where the results of the final performance assessment differ from the estimation or if an updated reliable estimate is available, the difference is recognised in the period in which such determination is made. Where reliable estimates are not available, the Group recognises revenue only to the extent of the contract costs recognised that the Group believes are recoverable.

(b) Accommodation bond liabilitiesAccommodation bonds are non-interest bearing deposits paid by some residents of care homes held in Bupa Aged Care Australia as payment for a place in the care home facility. These deposits are repayable when the resident leaves the facility. The bonds are recorded as the proceeds received, net of retention and any other amounts deducted at the election of the bondholder.

(c) Other payablesIncluded within 2015 other payables is £91.1m in relation to the mandatory offer to market for the remaining 26.3% of Bupa Chile shares which were external to Bupa. This transaction completed in February 2016.



GoodwillGoodwill represents the excess of the cost of a business combination over the fair value of the Group’s share of identifiable assets, liabilities and contingent liabilities of the acquired subsidiary company at the date of business combination. The carrying value of goodwill may be adjusted up to 12 months from the date of acquisition, as the allocation of the purchase price to identifiable intangible assets is finalised within that period. Goodwill arising on business combinations is capitalised and presented as part of intangible assets in the Consolidated Statement of Financial Position.

Goodwill is stated at cost less accumulated impairment losses. Impairment reviews are performed annually or more frequently if there is an indication that the carrying value may be impaired. Impairment reviews are performed at the level of the relevant cash generating unit (CGU). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Where the fair value of net assets acquired is greater than the consideration paid, the excess is recognised immediately in the Income Statement.

Other intangible assetsIntangible assets, other than goodwill, that are acquired as part of a business combination are capitalised at fair value.

Intangible assets acquired separately are stated at cost less accumulated amortisation and impairment.

Amortisation is charged to the Income Statement on a straight line basis as follows:

– Computer software 2-7 years

– Brand and trademarks 10 years-indefinite

– Technology and databases 10 years

– Distribution networks 10-11 years

– Customer relationships 4-15 years

– Present value of acquired in-force business 20 years

– Customer contracts 4-6 years

– Licences to operate care homes term of licence

– Leases term of lease

Intangible assets that are subject to amortisation are reviewed for impairment if circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the Income Statement to reduce the carrying amount to the recoverable amount.

Bed licences held by the Group have been attributed an indefinite useful life due to the fact that these licences, which are issued by the Australian Government, have no expiry date. Intangible assets with an indefinite useful life, or not yet available for use, are subject to annual impairment reviews.

3.1Intangible assets

Intangible assets in briefIntangible assets, including goodwill, are the non-physical assets used by the Group to generate revenues.

Note


Strateg

ic repo

rtG

overn

ance


Intangible assets

Goodwill £m

Computer software

£m

Brands/Trademarks

£m

Customer relationships

£mOther

£mTotal

£m

2016

Cost

At beginning of year 2,352.0 654.2 295.9 463.4 266.6 4,032.1

Assets arising on business combinations 118.8 0.4 – (2.8) – 116.4

Additions – 92.2 – 0.8 10.1 103.1

Disposals of subsidiary companies (58.5) (2.9) (3.1) (22.9) (1.1) (88.5)

Disposals – (3.5) – – – (3.5)

Other – 6.6 – – 3.8 10.4

Foreign exchange 360.5 38.8 60.6 74.8 35.3 570.0

At end of year 2,772.8 785.8 353.4 513.3 314.7 4,740.0

Amortisation and impairment loss

At beginning of year 374.3 438.4 75.8 179.4 102.2 1,170.1

Amortisation for year – 70.3 7.1 34.2 8.6 120.2

Impairment loss – 14.3 10.5 – 10.2 35.0

Disposals of subsidiary companies (58.4) (2.0) (3.1) (22.9) (1.1) (87.5)

Disposals – (2.2) – – – (2.2)

Other – 6.6 – – 3.8 10.4

Foreign exchange 25.0 25.0 12.9 27.6 12.1 102.6

At end of year 340.9 550.4 103.2 218.3 135.8 1,348.6

Net book value at end of year 2,431.9 235.4 250.2 295.0 178.9 3,391.4

Net book value at beginning of year 1,977.7 215.8 220.1 284.0 164.4 2,862.0

2015

Cost

At beginning of year 2,416.5 592.9 313.3 472.3 268.5 4,063.5

Assets arising on business combinations 59.7 0.2 – 2.0 – 61.9

Additions – 82.1 – 0.8 5.9 88.8

Disposals of subsidiary companies (24.7) – – – – (24.7)

Disposals – (12.1) – – – (12.1)

Other – (2.2) – – – (2.2)

Foreign exchange (99.5) (6.7) (17.4) (11.7) (7.8) (143.1)

At end of year 2,352.0 654.2 295.9 463.4 266.6 4,032.1


At beginning of year 288.4 382.5 72.0 153.5 95.0 991.4

Amortisation for year – 69.8 6.5 30.4 9.3 116.0

Impairment loss 114.1 – – – – 114.1

Disposals of subsidiary companies (24.7) – – – – (24.7)

Disposals – (11.7) – – – (11.7)

Other – 0.3 – – – 0.3

Foreign exchange (3.5) (2.5) (2.7) (4.5) (2.1) (15.3)

At end of year 374.3 438.4 75.8 179.4 102.2 1,170.1

Net book value at end of year 1,977.7 215.8 220.1 284.0 164.4 2,862.0

Net book value at beginning of year 2,128.1 210.4 241.3 318.8 173.5 3,072.1



Intangible assets of £3,391.4m (2015: £2,862.0m) includes £724.1m (2015: £668.5m) which is attributable to other intangible assets arising on business combinations (included within customer relationships, brand/trademarks and other) as follows:

2016 £m

2015 £m

Customer relationships 295.0 284.0

Bed licences (within Bupa Aged Care Australia) 123.1 102.7

Brand and trademarks 250.2 220.1

Licences to operate care homes 22.7 34.6

Customer contracts 3.4 6.8

Leases 9.3 10.7

Distribution networks 19.3 8.5

Present valuation of acquired in-force business 1.1 1.1

Total 724.1 668.5

Impairment testing of goodwillIntangible assets with indefinite useful lives are tested at least annually for impairment by comparing the net carrying value with the recoverable amount, using value in use (VIU) calculations for all cash generating units (CGUs) with the exception of Quality HealthCare goodwill which is determined on a fair value less costs of disposal (FVLCD) basis which has been externally valued.

In arriving at the value in use for each cash generating unit (CGU), key assumptions have been made regarding future projected cash flows, discount rates and terminal growth rates. The main assumptions upon which the cash flow projections are based include premiums and claims costs for our Health Insurance businesses, fee rate, cost of care and occupancy for our care services businesses and revenue growth and gross margins for hospitals and clinics. These valuation techniques are classified within level three of the IFRS 13 fair value hierarchy.

Aside from those mentioned below, cash flow projections have been based on management operating profit projections for a three year period which have been approved by the Board. Cash flow projections for Bupa Care Services UK and Bupa Chile are based on five years. LUX MED and Bupa Care Services New Zealand are based on longer periods of seven and ten years respectively as the business model of these CGUs requires investment beyond a three year period to reach a steady state of operation.

As part of the FVLCD valuation of Quality HealthCare, the external valuer produced a valuation of the business using a range of cash flow projections, looking ahead over periods up to twelve years, as well as using other market inputs.

Taxation has been applied to the pre-taxation management operating profits based on the statutory taxation rates in the country of operation.

Future post-taxation cash flows have been discounted at post-taxation discount rates. Discount rates used for the value in use calculations for each of the Group’s CGUs are based on considerations of the specific risks associated with the business plans of each CGU, as well as external factors. These include the market assessment of the time value of money and the risks inherent in the relevant country where the cash flows are generated.

Cash flow projections beyond the forecast periods have been extrapolated by applying a terminal growth rate between 2.0% and 3.5% (2015: 2.5% and 3.7%) for all CGUs. The terminal growth rates represent an estimate of the long-term growth rate for each of the CGUs, taking into account the future and past growth rates and external sources of data.

The values assigned to the key assumptions are based on past experience of the CGUs and assessment of future trends in the relevant industry.

The following table summarises the pre-taxation discount rates used for impairment testing for the main CGUs:

2016 %

2015 %

Bupa Australia Health Insurance 9.3 9.6

Bupa Aged Care Australia 8.7 9.0

Bupa Health Services Australia 11.0 11.5

Bupa Care Services New Zealand 8.8 8.8

Bupa Care Services UK 7.9 8.2

Bupa Cromwell Hospital 10.0 9.6

Dental UK 7.7 n/a

Bupa Chile 12.6 12.8

Sanitas Seguros 10.1 11.3

LUX MED 10.3 10.5

Quality HealthCare 10.5 10.4

Bupa Global 10.3 11.0

All CGUs are valued at the higher of VIU and FVLCD.


Strateg

ic repo

rtG

overn

ance


The recoverable amount of all CGUs is determined to be higher than their respective carrying amounts, resulting in no impairment to goodwill. In 2015, a partial impairment of the goodwill relating to Bupa Care Services UK (£114.1m) was recorded, along with impairment of property (£171.0m) and equipment (£8.7m) following the introduction of the National Living Wage from April 2016, and challenging trading conditions.

The following table summarises goodwill by CGU as at 31 December:

2016 £m

2015 £m


Bupa Australia Health Insurance 928.8 785.7

Bupa Aged Care Australia 283.3 239.8

Bupa Health Services Australia 311.3 252.5

Bupa Care Services New Zealand 38.2 31.5

UK

Bupa Care Services UK 87.4 84.0

UK Dental (restated)1 38.0 21.3

Bupa Cromwell Hospital 16.2 16.2

Other (restated)1 2.5 2.5


Bupa Chile 179.9 142.4

LUX MED 223.2 196.0

Sanitas Seguros 38.6 29.0

Other 10.1 5.2

International Markets

Quality HealthCare 123.8 103.8

Bupa Global 67.8 67.8

Care Plus 82.8 n/a

Total 2,431.9 1,977.7

1 Goodwill attributable to the UK Dental CGU in 2015 has been presented separately from Other UK.

Sensitivity to changes in key assumptionsA sensitivity analysis has been performed on the key assumptions used to determine the value in use for each CGU as at 31 December 2016.

Other than as disclosed below, management believes that no reasonably probable change in any of the key assumptions would cause the carrying value of any goodwill or intangible asset with an indefinite useful life to exceed its recoverable amount.

It is possible that a change in key assumptions could cause the impairment of goodwill for Bupa Care Services New Zealand, Bupa Care Services UK, Bupa Chile, Bupa Health Services, LUX MED and Quality HealthCare. The table below shows the decrease required in the terminal growth rate or increase required in discount rate for the recoverable amount of the CGU to equal the carrying amount.

Headroom £m

Terminal growth

rate %

Decrease in terminal growth

rate %

Increase in discount

rate %

Bupa Care Services New Zealand 4.7 2.8 0.1 0.1

Bupa Care Services UK 63.8 2.5 0.4 0.4

Bupa Chile 10.4 3.2 0.1 0.1

Bupa Health Services 102.4 3.0 2.1 1.9

LUX MED 53.3 3.5 0.8 0.6

Quality HealthCare 22.5 3.5 0.5 0.3

Impairment of other intangible assetsAt 31 December 2016, the recoverable amounts of other intangible assets with indefinite useful lives were tested in respect of their carrying amounts, resulting in an impairment of £15.0m. £10.5m was recognised in relation to impairment of brands arising on business combinations in Bupa Chile and £4.5m in relation to impairment of computer software projects not yet completed in Bupa Global. In the prior year there were no impairments of intangible assets with indefinite lives.

Intangible assets that are subject to amortisation were reviewed, resulting in an impairment of £20.0m. £10.2m was recognised in relation to the impairment of UK care home licences arising on business combinations, £4.2m for IT software in Bupa Care Services UK and £5.6m for IT software in Bupa Global. In the prior year there was an impairment of £0.7m to intangible assets.



EquipmentEquipment (including leasehold improvements) is stated at historical cost less subsequent depreciation and impairment losses.

DepreciationFreehold land and assets under construction, included within freehold or leasehold properties as appropriate, are not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight line method to allocate cost or revalued amount less residual value over estimated useful lives, as follows:

– Freehold buildings 50 years

– Leasehold buildings shorter of useful life or lease term

– Equipment shorter of useful life (leasehold improvements) or lease term

– Equipment 3-10 years

ImpairmentImpairment reviews are undertaken where there are indications that the carrying value of an asset may not be recoverable. An impairment loss on assets carried at cost is recognised in other income and charges to reduce the carrying value to the recoverable amount. An impairment loss on assets carried at the revalued amount is recognised in the revaluation reserve, except where an asset is revalued below historical cost, in which case the loss on historical cost is recognised in the Income Statement within other income and charges.

Leased assetsLeases are classified as finance leases when the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

On initial recognition, the leased asset is measured at the amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Finance lease liabilities, net of finance charges in respect of future periods, are included within other interest bearing liabilities (see Note 5.1). The interest element of the obligation is allocated over the lease term to reflect a constant rate of interest on the outstanding obligation.

Leasehold land, where no option to obtain title exists, is treated as an operating lease. Assets classified as being under operating leases are not capitalised and therefore not recognised within the balance sheet (Note 6.1). Payments made under operating leases are recognised as prepayments within trade and other receivables within Note 3.0.1 and are recognised in the Income Statement on a straight line basis over the term of the lease within other operating expenses (Note 2.3).

The amount included in property, plant and equipment in respect of equipment held under finance leases is £0.3m (2015: £0.1m).

3.2Property, plant and equipment

Property, plant and equipment in briefProperty, plant and equipment are the physical assets utilised by the Group to carry out business activities and generate revenues and profits.

Most of the assets held relate to care homes and hospital properties and equipment, and office buildings.

Note


Strateg

ic repo

rtG

overn

ance


Property, plant and equipment

Note

Freehold property

£m

Leasehold property

£m

Leasehold Improvements

£mEquipment

£mTotal

£m

2016

Cost or valuation

At beginning of year 2,188.0 111.1 103.1 1,006.6 3,408.8

Additions through business combinations 20.5 – 0.5 3.6 24.6

Additions 200.6 1.0 20.4 130.4 352.4

Transfer to assets held for sale 4.1 (367.8) (8.6) – (184.4) (560.8)

Disposals (29.4) – (12.7) (18.5) (60.6)

Disposals of subsidiaries – (7.2) – (5.8) (13.0)

Revaluations 5.4 9.5 – – 14.9

Other 10.4 (17.4) 46.1 (38.0) 1.1

Foreign exchange 233.7 2.0 21.4 105.5 362.6

At end of year 2,261.4 90.4 178.8 999.4 3,530.0

Depreciation and impairment loss

At beginning of year 65.4 23.8 42.3 438.6 570.1

Depreciation charge for year 34.2 5.7 13.0 108.8 161.7

Transfer to assets held for sale 4.1 – – – (70.5) (70.5)

Disposals (14.8) – (11.5) (12.0) (38.3)

Disposals of subsidiaries – (6.4) – (3.7) (10.1)

Revaluations (12.9) 1.9 – – (11.0)

Other 1.2 (2.0) (2.2) 1.7 (1.3)

Foreign exchange 10.0 0.1 7.6 60.1 77.8

At end of year 83.1 23.1 49.2 523.0 678.4

Net book value at end of year 2,178.3 67.3 129.6 476.4 2,851.6

Net book value at beginning of year 2,122.6 87.3 60.8 568.0 2,838.7

2015

Cost or valuation

At beginning of year 2,250.9 149.8 52.2 986.3 3,439.2

Additions through business combinations 27.8 – – 19.1 46.9

Additions 129.3 1.2 11.1 132.1 273.7

Disposals (10.3) (1.8) (3.7) (71.5) (87.3)

Revaluations (162.1) (14.1) – – (176.2)

Other 17.3 (23.1) 45.5 (35.8) 3.9

Foreign exchange (64.9) (0.9) (2.0) (23.6) (91.4)

At end of year 2,188.0 111.1 103.1 1,006.6 3,408.8


At beginning of year 58.4 34.9 15.4 414.9 523.6

Depreciation charge for year 33.5 3.9 9.5 100.6 147.5

Disposals (3.5) (1.7) (2.9) (69.7) (77.8)

Revaluations (33.8) (4.4) – – (38.2)

Impairments 11.2 – – 8.9 20.1

Other (1.6) (8.7) 8.7 1.3 (0.3)

Foreign exchange 1.2 (0.2) 11.6 (17.4) (4.8)

At end of year 65.4 23.8 42.3 438.6 570.1

Net book value at end of year 2,122.6 87.3 60.8 568.0 2,838.7

Net book value at beginning of year 2,192.5 114.9 36.8 571.4 2,915.6



Freehold and leasehold propertiesFreehold and leasehold properties comprise care homes, care villages, clinics, hospitals and offices and are initially measured at cost and subsequently at revalued amount less accumulated depreciation and impairment losses. These properties are subject to periodic valuations performed by external independent valuers. At each revaluation date, accumulated depreciation (and impairment) is eliminated against the gross carrying value of the asset. Borrowing costs relating to the acquisition or construction of qualifying assets are capitalised as part of the cost of that asset.

Revaluation of propertiesValuations are performed with sufficient regularity to ensure that the carrying value does not differ significantly from fair value at the balance sheet date. The revaluation of certain UK properties and

Polish properties carried out in 2016 was performed independently by Knight Frank Chartered Surveyors and in Chile by Tinsa and Phi Partners. Revaluations were effective as of 30 November in the year in which they were undertaken. Directors’ valuations were performed in the year where it was identified that carrying value differed significantly from fair value.

Care homes and hospitals are valued with regard to their trading potential based on discounted cash flow techniques, the principal assumptions are: quantifying a fair, maintainable level of trade and profitability; levels of competition; and assumed ability to renew existing licences, consents, certificates or permits.

At each revaluation date, accumulated depreciation is eliminated against the gross carrying amount of the asset.

The significant assumptions used in the calculation of the fair values of the material level three freehold and leasehold properties in the Group are:

Freehold and Leasehold Property Australia New Zealand UK Spain Chile LUX MED

Average occupancy rate 93.9% 92.1% 86.5% 96.3% 69.1% N/A

Average capitalisation rate 15.1% 14.7% 13.5% 9.1% 8.2% 10.0%

Level TwoUKAll UK properties apart from those held by Bupa Care Services UK are classified as level two with fair values being determined by an external valuer based on market values of similar properties which have been carried out in November 2016.

Europe and Latin AmericaRegional offices and clinics in Spain and Poland are valued by external valuers based on market value and these are classified as level two.

Bupa Chile offices, medical centres and clinics are valued based on replacement cost and market comparables which are observable inputs and therefore these properties are classified as level two.

Level ThreeUK, Australia and New Zealand, Europe and Latin AmericaAll care homes in the Group and hospitals in Spain, Chile and Poland are classified as level three. Their valuations are determined based on a capitalisation of earnings approach. A multiple is applied to each facility’s earnings to project the financial performance of the facility to determine its value in use. The multiple applied for each facility is set based on qualitative and quantitative indicators of the facility’s current and future performance and assumes normal prudent management of the facility. Unobservable inputs for these properties include the average capitalisation rate which is the average rate of return on a property based on the income that the property is expected to generate. It considers trends in earnings and land values. For all properties except those in Poland, the average occupancy is also an unobservable input.


Strateg

ic repo

rtG

overn

ance


Sensitivity analysisThe sensitivity analysis below considers the impact on the year end valuation of level three properties, and is based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in assumptions may be correlated.

Australia0.5% absolute

increase0.5% absolute

decrease

Average occupancy rate £2.0m increase £2.0m decrease

Average capitalisation rate £15.0m decrease £16.0m increase

New Zealand0.5% absolute


decrease



UK0.5% absolute


decrease



Spain0.5% absolute


decrease



Chile0.5% absolute


decrease



LUX MED0.5% absolute


decrease


The table below sets out the reconciliation of the opening and closing balances for property classified as level three fair value measurement as at 31 December 2016.

Freehold Property

£m

Leasehold Property and Improvement

£m

At 1 January 2016 1,999.5 113.5

Reclassification of property levels 33.9 (7.8)

Additions 186.1 5.0

Transfer to assets held for sale (367.8) (8.6)

Disposals (6.7) (0.2)

Revaluation and write down through the Income Statement (15.7) (0.9)

Revaluation and write down through Other Comprehensive Income 58.5 27.7

Depreciation (33.3) (5.5)

Other (7.6) (1.8)

Foreign exchange 218.6 10.8

At 31 December 2016 2,065.5 132.2

The table below shows the date at which properties were last subject to external valuation.

Freehold Property

£m

Leasehold Property and Improvement

£m

Valuation – December 2016 1,037.2 42.2

Valuation – December 2015 176.3 38.6



Assets held at cost 1 262.0 185.2

Cost or valuation 2,261.4 269.2

1 Primarily relates to assets under construction and initial fair value of additions.

Gains and losses on revaluation are recognised in the property revaluation reserve, except where an asset is revalued below historical cost, in which case the deficit is recognised in the Income Statement. Where a revaluation reverses the losses taken to the Income Statement in prior years, the credit is recognised in the Income Statement.

A £68.4m revaluation gain (2015: £36.5m) and £4.9m write down loss (2015: £121.1m) have been recognised in the property revaluation reserve.

In the current year, a revaluation deficit of £30.9m (2015 surplus: £3.6m) and write down of £14.5m (2015: £68.2m) were charged to the Income Statement (see Note 2.4).

Recognised in the carrying amount of freehold property is £158.4m (2015: £113.0m) in relation to freehold property in the course of construction.

Historical cost of the Group’s revalued assets2016

£m2015

£m

Historical cost of revalued assets 2,153.8 2,081.3

Accumulated depreciation based on historical cost (176.9) (296.6)

Historical cost net book value 1,976.9 1,784.7

Depreciation charge for the year on historical cost 43.1 41.6

The historical cost of all property, plant and equipment is £3,194.1m (2015: £3,087.2m).



Investment properties are measured at fair value, determined individually, on a basis appropriate to the purpose for which the property is intended and with regard to recent market transactions for similar properties in the same location.

In an active market, the portfolio is valued annually by an independent valuer, holding a recognised and relevant professional qualification, and with recent experience in the location and category of investment property being valued.

In New Zealand, the retirement village market is fragmented as each village is unique due to building configuration and location. Growth in new developments is also restricted due to a lack of suitable sites and transactions are not frequent given the relatively high value of each village. As a result, no active market exists for the retirement villages from which values can be derived. These properties are valued using discounted cash flow projections based on reliable estimates of future cash flows.

Any gain or loss arising from a change in the fair value is recognised in the Income Statement within financial income and expense.

(i) Investment properties2016

£m2015

£m

At 1 January 2016 270.9 242.0

Additions 37.7 35.0

Disposals (0.6) (0.4)

Increase in fair value 21.2 11.6

Reclassifications to Property, Plant and Equipment – (1.0)

Foreign exchange 62.1 (16.3)

At 31 December 2016 391.3 270.9

The historical cost of investment properties is £210.5m (2015: £173.9m).

In the current year, a revaluation surplus of £21.2m (2015: £11.6m) was credited to the Income Statement.

Of the £391.3m (2015: £270.9m) of investment properties in the balance sheet as at 31 December 2016, £6.5m (2015: £6.2m) was either valued based on active market prices by external valuers, Knight Frank, Chartered Surveyors or Chilean valuers Tinsa or Phi Partners. These properties are categorised as level two within the fair value hierarchy.

The remaining carrying value of investment properties of £384.8m (2015: £264.7m), primarily consisting of the Group’s portfolio of retirement villages in New Zealand, was valued by management using internally prepared discounted cash flow projections, supported by the terms of any existing lease and other contracts, and when possible, by external evidence such as current market rents for similar properties in the same location and condition. Discount rates are used to reflect current market assessments of the uncertainty in the amount or timing of the cash flows. The discounted cash flow projections are reviewed by an independent valuer, Deloitte. These properties are categorised as level three within the fair value hierarchy.

Significant assumptions used in the valuation include:


Discount rate 9.0%

Capital growth rate 2.6%

Provision for capital replacement 0.4%

Vacancy period 3 months

Turnover in apartments and villas 4–7 years

The following table sets out the reconciliation of the opening and closing balances for investment properties classified as level three fair value measurements as at 31 December 2016:

Total £m

At 1 January 2016 264.7

Additions 37.7

Unrealised gains recognised in financial income 21.0

Foreign exchange 61.4

At 31 December 2016 384.8

The sensitivity analysis below considers the impact on the year end valuation of level three investment properties, and is based on a change in assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in assumptions may be correlated.

Australia and New Zealand0.5% absolute


decrease

Discount rate £8.8m decrease £10.0m increase

Capital growth rate £24.4m increase £21.1m decrease

3.3Investment properties

Investment properties in briefInvestment properties are physical assets that are not occupied by the Group and are leased to third parties to generate rental income.

Most investment properties held by the Group relate to a portfolio of retirement villages in New Zealand.

Note


Strateg

ic repo

rtG

overn

ance


(ii) Leases as lessorInvestment properties include commercial properties which are leased to third parties. The leases contain an initial non-cancellable period of between one and three years. Subsequent renewals are negotiated with the lessee.

The Group leases out its investment properties under operating leases. The future lease receipts under non-cancellable leases are as follows:

2016 £m

2015 £m

Less than one year 0.2 0.2

Between one and five years 1.0 1.0

More than five years 0.5 0.8

Total 1.7 2.0

During the year ended 31 December 2016, the Group’s retirement village portfolio generated £13.4m (2015: £9.8m) of income which was recognised as revenue in the Income Statement. Total direct operating expenses of these retirement villages amounted to £8.5m (2015: £6.6m). £0.3m (2015: £0.3m) was recognised as rental income in the Income Statement for other investment properties held by the Group. Direct operating expenses of these properties amounted to £nil (2015: £0.1m).

3.4.1 Provisions under insurance contracts issuedUnearned premiumsThe unearned premium provision represents premiums written that relate to periods of risk in future accounting periods. It is calculated on a straight line basis, which is not materially different from a calculation based on the pattern of incidence of risk.

Provision for claimsThe gross provision for claims represents the estimated liability arising from claims episodes in current and preceding financial years which have not yet given rise to claims paid. The provision includes an allowance for claims management and handling expenses.

The gross provision for claims is estimated based on current information, and the ultimate liability may vary as a result of subsequent information and events.

Adjustments to the amount of claims provision for prior years are included in the Income Statement in the financial year in which the change is made. In setting the provisions for claims outstanding, a best estimate is determined on an undiscounted basis and then a margin of prudence is added such that there is confidence that future claims will be met from the provisions. The level of prudence set is either one required by regulation or one that provides an appropriate degree of confidence.

3.4Provisions and other liabilities under insurance contracts issued

Provisions and other liabilities under insurance contracts issued in briefThe provisions and other liabilities under insurance contracts issued arise from the Group’s underwriting activities.

The provisions mainly relate to unearned premiums, which are deferred revenues that relate to future periods; and claims, where an estimate is made of the expense required to settle existing insurance contract obligations. The other liabilities primarily consist of obligations to repay deposits and commissions payable.

Note



Provision is made for unexpired risks when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claims and administrative expenses. The expected claims are calculated having regard only to contracts commencing prior to the balance sheet date. The methods used and estimates made for claims provisions are reviewed regularly.

2016 2015

Gross £m

Reinsurance £m

Net £m

Gross £m

Reinsurance £m

Net £m

General insurance business

Provisions for unearned premiums (a) 1,705.2 (11.6) 1,693.6 1,570.4 (3.0) 1,567.4

Provisions for claims (b) 889.6 (6.6) 883.0 657.1 (0.9) 656.2

Long-term business

Provisions for life insurance benefits 33.9 (1.1) 32.8 27.6 (0.9) 26.7

Total insurance provisions 2,628.7 (19.3) 2,609.4 2,255.1 (4.8) 2,250.3

Non-current 33.9 – 33.9 27.6 – 27.6

Current 2,594.8 (19.3) 2,575.5 2,227.5 (4.8) 2,222.7

Total insurance provisions 2,628.7 (19.3) 2,609.4 2,255.1 (4.8) 2,250.3

(a) Analysis of movements in provisions for unearned premiums

At beginning of year 1,570.4 (3.0) 1,567.4 1,499.4 (9.3) 1,490.1

Premiums deferred 8,058.1 (57.3) 8,000.8 7,136.4 (48.6) 7,087.8

Deferred premiums released to income (8,044.5) 51.9 (7,992.6) (7,051.8) 47.0 (7,004.8)

Transfers (0.2) (4.2) (4.4) (7.6) 7.6 –

Foreign exchange 121.4 1.0 122.4 (6.0) 0.3 (5.7)

At end of year 1,705.2 (11.6) 1,693.6 1,570.4 (3.0) 1,567.4

(b) Analysis of movements in provisions for claims

At beginning of year 657.1 (0.9) 656.2 683.1 (5.7) 677.4

Additions through business combinations 17.3 – 17.3 – – –

Cash paid to settle claims (6,269.4) 44.9 (6,224.5) (5,505.1) 35.4 (5,469.7)

Decrease for prior years’ claims (3.5) – (3.5) (4.8) (0.2) (5.0)

Increase for current year claims 6,399.9 (42.4) 6,357.5 5,596.2 (36.2) 5,560.0

Risk Equalisation Trust Fund levy (65.2) – (65.2) (87.5) – (87.5)

Transfers 42.4 (8.0) 34.4 (5.8) 5.8 –

Foreign exchange 111.0 (0.2) 110.8 (19.0) – (19.0)

At end of year 889.6 (6.6) 883.0 657.1 (0.9) 656.2

Assumptions for general insurance businessThe process of recognising liabilities arising from general insurance entails the estimation of future payments to settle incurred claims and associated claims handling expenses, as well as assessing whether additional provisions for unexpired risk are required. The principal assumptions in the estimation of the liability relate to the expected frequency, severity and settlement patterns of insurance claims, which are expected to be consistent with recently observed experience and trends. The aim of claims reserving is to select assumptions and reserving methods that will produce the best estimate of the future cash outflows for the subject claims; it is an uncertain process which also requires judgements to be made. The resulting provisions for outstanding claims incorporate a margin for adverse deviation, over and above the best estimate liability, the quantum of which reflects the level of this uncertainty.

Claims development patterns are analysed in each of the Group’s insurance entities; where distinct sub-portfolios with different claims cost and development characteristics exist, further analysis

is undertaken to derive assumptions for reserving that are appropriate and can be applied to relatively homogeneous groups of policies. Such sub-portfolios may be defined by product line, risk profile, geography or market sector. Various established reserving methods for general insurance are considered, typically basic chain ladder, Bornhuetter-Ferguson and pure risk cost methods. Additional consideration is given to the treatment of large claims, claim seasonality, claims inflation and currency effects, for which appropriate adjustments to assumptions and methods are made.

While there is some diversity in the development profile of health insurance claims across the Group, such claims are generally highly predictable in both frequency and average amount, and claims are settled quickly following the medical event for which benefit is claimed. Medical expenses claims are typically, substantially fully-settled within just a few months. Claims management practices such as pre-authorisation of the claim with the insurer, electronic claims settlement and effective network provider arrangements can reduce the development period to four to six months.


Strateg

ic repo

rtG

overn

ance


Insurance provisions are inevitably estimates. Actual experience of claims costs and/or administrative expenses may well vary from that anticipated in the reserving estimates.

The following table shows the sensitivities to such variation:

Increase in claims

Increase in expenses

2016

Change in variable % 5.0 10.0

Reduction in profit net of reinsurance before taxation £m 67.1 19.3

2015

Change in variable % 5.0 10.0

Reduction in profit net of reinsurance before taxation £m 61.1 15.4

These variances would reduce the amount of profit that would otherwise emerge in subsequent periods. Since premium provisions include profit margins and claims provisions include prudence margins, variance from expectations can be absorbed by these margins.

Bupa’s long-term insurance business does not form a core part of its operations.

Liability adequacy testsLiability adequacy tests are performed for Bupa’s insurance portfolios. For short duration contracts, a premium deficiency is recognised if the sum of expected costs of future claims and claim adjustment expenses, capitalised deferred acquisition costs, and maintenance expenses exceeds the corresponding unearned premiums while considering anticipated investment income. Such a deficiency would be immediately recognised in the Income Statement.

3.4.2 Other liabilities under insurance contracts issuedOther liabilities under insurance contracts issued consist of payables to insurance creditors other than policyholders.

2016 £m

2015 £m

Reinsurers’ deposits 5.7 2.6

Reinsurance payables 26.7 18.9

Commissions payable 13.8 12.2

Other insurance payables 96.8 38.4

Total other liabilities under insurance contracts issued 143.0 72.1

These payments can result from a legal obligation or a constructive obligation, where an expectation has been set by the Group. A provision is made where an outflow of resources is probable and where the payments can be reliably estimated. If the effect is material, provisions are determined by discounting the estimated future payments at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Although provisions are made where payments can be reliably estimated, the amounts provided are based on a number of assumptions which are inherently uncertain and therefore the amount that is ultimately paid could differ from the amount recorded.

Long service and annual

leave £m

Provisions for contingent

consideration £m

Customer remediation

and legal provisions

£m

Insurance provisions

£m

Unoccupied property

£m

Regulatory provisions

£mOther

£mTotal

£m

At beginning of year 47.3 22.8 2.3 9.6 2.8 3.7 8.1 96.6

Acquisitions through business combinations 0.1 8.9 0.6 – – – – 9.6

Charge for year 43.3 1.1 4.4 7.5 0.6 0.7 3.2 60.8

Released in year (0.6) (4.7) (1.4) – (1.6) (1.0) (0.2) (9.5)

Utilised in year – cash (38.1) (13.8) (0.5) (6.9) – (3.3) (0.6) (63.2)

Disposal of subsidiary companies – – – – – – (0.3) (0.3)

Foreign exchange 9.1 2.8 0.5 – – – 0.3 12.7

At end of year 61.1 17.1 5.9 10.2 1.8 0.1 10.5 106.7

Non-current 17.0 11.0 – 7.6 1.8 – 4.6 42.0

Current 44.1 6.1 5.9 2.6 – 0.1 5.9 64.7

Total provisions for liabilities and charges 61.1 17.1 5.9 10.2 1.8 0.1 10.5 106.7

3.5Provisions for liabilities and charges

Provisions for liabilities and charges in briefA provision is recognised when the Group is expected to make future payments as a result of a past event.

Note



Long service and annual leaveThe long service leave provision relates to territories where employees are legally entitled to substantial paid leave after completing a certain length of qualifying service. Uncertainty around both the amount and timing of future outflows arises as a result of variations in employee retention rates, which may vary based on historical experience. The annual leave provision relates to territories where the annual entitlement of leave is not required to be taken within a predetermined time nor does it expire. Therefore uncertainty exists around the timing of future outflows as well as around the amount of future outflows due to wage inflation.

Provisions for contingent considerationContingent consideration is a financial liability largely related to earn-out payable on acquisitions of dental practices in Australia and the UK. The deferred consideration arising from the purchase of Dental Corporation Ltd (Australia) on 31 May 2013 was fully paid during the year with the remaining balance in Australia relating to payments to practice principals. In the UK, the deferred consideration relates to the acquisition of dental centres. This balance is reviewed at each reporting period and any fair value adjustments are recorded in the Income Statement.

Customer remediation and legal provisionsCustomer remediation provisions relate to the costs of compensating customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Legal provisions relate to potential and ongoing legal claims and represent the discounted fair value of total estimated liabilities. Due to the nature of these provisions, the timing and potential cost is uncertain.

Insurance provisionsThe insurance provision is in respect of the Group’s self insurance and covers the excess that arises on claims made in relation to losses arising from damage to property, business interruption and medical, employee or public liability. Any outflows relating to this provision are dependent on the frequency and value of claims submitted as well as the excess amount specified within individual policies with insurers. The fund is actuarially assessed twice a year to ensure that the provision is adequate.

Unoccupied propertyIn prior years, the Group entered into non-cancellable leases for property which it no longer occupies. The Group has provided for lease obligations, net of sub-lease receivables. The lease obligations are payable monthly, quarterly or annually, within a range of one to 13 years, the average being five years. The future net outflows are uncertain and are affected by the Group’s ability to sub-let unoccupied property.

Regulatory provisionsRegulatory provisions relate to levies payable to customer protection bodies by the Group’s various regulated entities. Such levies are generally determined on a ‘capped percentage of revenues’ basis. Payments are normally made annually, although the frequency may be increased or decreased at the discretion of the customer protection bodies.

OtherOther provisions include amounts relating to payments under legislation and restructuring costs.

Defined contribution pension schemesThe defined contribution pension schemes provide employees with a retirement fund accumulated through investment of contributions made by Bupa and the employees. Members of the scheme use their funds to secure benefits at retirement. Benefits are not known in advance and the investment and longevity risks are assumed solely by the members of the scheme. Contributions payable by the relevant sponsoring employers are defined in the scheme rules or plan specifications and these contributions are recognised as an expense in the Income Statement as incurred.

Defined benefit post-employment schemesThe defined benefit pension schemes provide benefits based on final pensionable salary. The Group’s net obligation in respect of defined benefit pension and the post-retirement medical scheme is calculated separately for each scheme and represents the present value of the defined benefit obligation less, for funded schemes, the fair value of scheme assets. The discount rate used is the yield at the balance sheet date on high quality corporate bonds denominated in the currency in which the benefit will be paid. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of any future refunds from the scheme or reductions in future contributions to the scheme.

3.6Post-employment benefits

Post-employment benefits in briefThe Group operates several funded defined benefit and defined contribution pension schemes for the benefit of employees and directors, in addition to an unfunded (non-registered) and a post-retirement medical benefit scheme.

The main defined benefit scheme is The Bupa Pension Scheme which has been closed to new entrants since 1 October 2002.

The principal defined contribution pension scheme is The Bupa Retirement Savings Plan.

The National Employment Savings Trust (NEST) has been used to meet the Group’s automatic enrolment duties for UK employees.

Note


Strateg

ic repo

rtG

overn

ance


The charge to the Income Statement for defined benefit schemes represents the following: current service cost calculated on the projected unit credit method, net interest cost, past service costs and administrative expenses.

All remeasurements are recognised in full in the Statement of Comprehensive Income in the period in which they occur.

(i) Amount recognised in the Consolidated Income StatementThe amounts charged/(credited) to other operating expenses for the year are:

2016 £m

2015 £m

Current service cost 9.1 10.2

Past service cost 0.7 –

Gains on curtailments – (0.4)

Net interest on defined benefit liability/asset (14.2) (10.7)

Administrative expenses 1.7 2.0

Total amount (credited)/charged to Consolidated Income Statement (2.7) 1.1

The charge to operating expenses in respect of cash contributions to defined contribution schemes is £32.7m (2015: £29.2m).

(ii) Amount recognised directly in Other Comprehensive IncomeThe amounts charged/(credited) directly to Equity:

2016 £m

2015 £m

Actual return less expected return on assets (396.6) 44.5

Loss/(gain) arising from changes to financial assumptions 437.2 (45.1)

Gain arising from changes to experience assumptions (25.7) (19.5)

(Gain)/loss arising from changes to demographic assumptions (0.3) 3.2

Total remeasurement losses/(gains) charged/(credited) directly to Equity 14.6 (16.9)

The cumulative amount of remeasurement losses recognised directly in Equity is £25.1m (2015: £10.5m).

3.6.1 Group post-employment benefit schemesDefined contribution pension schemesThe principal defined contribution pension scheme in the UK is the Bupa Retirement Savings Plan. This scheme has been in effect since 1 October 2002 and is available to permanent employees of The British United Provident Association Limited and Bupa Insurance Services Limited to join on a voluntary basis. There are several other contract based defined contribution arrangements available to employees of other employers within the Group to join on a voluntary basis. The Group automatically enrols any eligible non-pensioned employees into the National Employment Savings Trust (NEST).

Defined benefit post-employment schemesThe principal defined benefit scheme in the UK is The Bupa Pension Scheme. Contributions by employees and by Group companies are paid into separate funds administered by a corporate trustee. The scheme has been closed to new entrants since 1 October 2002, but its existing members continue to accrue pension entitlements.

Contributions by Group companies to this scheme are made in accordance with the recommendations of the independent scheme actuary.

The independent scheme actuary for The Bupa Pension Scheme performs detailed triennial valuations together with annual interim reviews. Both triennial and interim valuations use the attained age method, recognising the closure of the scheme to new entrants.

At the most recent triennial valuation, as at 1 July 2014 the scheme’s independent actuary recommended payment of employer contributions at the rate of 24.8%. In addition to these employer contributions a payment equivalent to the employee contribution of 7% of pensionable salaries is paid as part of the Group’s salary sacrifice arrangement (known as PeopleChoice Pensions). There is a corresponding reduction in members’ wages and salaries as a result.

The expected contributions payable in 2017, with regards to the accumulation of future benefits, are £6.8m in respect of The Bupa Pension Scheme and £6.2m in respect of PeopleChoice Pensions.

There are several other smaller defined benefit pension schemes operated by UK and overseas subsidiaries. The defined benefit pension schemes are assessed by independent scheme actuaries in accordance with UK or local practice and under IAS 19 as at 31 December 2016 for the purposes of inclusion in the Group’s consolidated financial statements. Complete disclosure of these other defined benefit pension schemes is not practicable within this report but they are disclosed within the financial statements of the relevant sponsoring employer of each scheme.

Unfunded schemesUnfunded defined benefit pension arrangements exist for certain employees and former employees to provide benefits in addition to the funded pension arrangements provided by the Group. There are no separate funds or assets in the Statement of Financial Position to support the unfunded schemes; however, provisions included in the Statement of Financial Position in respect of these liabilities and assets are ring fenced to support these liabilities.

The latest valuation of these arrangements was performed as at 31 December 2016 under IAS 19 by the Group’s independent actuary. The charge to the Consolidated Income Statement in respect of these arrangements and the assessment of the related pension liability as at 31 December 2016 have been made in accordance with this latest valuation, which used the same principal assumptions as adopted at 31 December 2016 under IAS 19 for The Bupa Pension Scheme.

Post-retirement medical benefit schemeThe Group also provides unfunded post-retirement medical benefits for certain former employees. These benefits were granted under an agreement which closed to new entrants in 1992. The latest valuation of this scheme was carried out on 31 December 2016 by an actuary employed by the Group using the same key assumptions as adopted at 31 December 2016 under IAS 19 for The Bupa Pension Scheme.



(iii) Assets and liabilities of schemes

Note

Pension schemesPost-retirement medical

benefit scheme Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

Present value of funded obligations (iv) (1,764.2) (1,356.3) – – (1,764.2) (1,356.3)

Fair value of scheme assets (v) 2,225.0 1,761.5 – – 2,225.0 1,761.5

Net assets of funded schemes 460.8 405.2 – – 460.8 405.2

Present value of unfunded obligations (iv) (54.0) (42.8) (10.6) (8.5) (64.6) (51.3)

Net recognised assets/(liabilities) 406.8 362.4 (10.6) (8.5) 396.2 353.9

Represented on the Statement of Financial Position

Net liabilities (85.1) (59.5)

Net assets 481.3 413.4

Net recognised assets 396.2 353.9

(iv) Present value of funded schemes’ obligationsThe movements in the present value of schemes’ obligations are:

Pension schemesPost-retirement medical

benefit scheme Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

At beginning of year 1,399.1 1,431.8 8.5 11.4 1,407.6 1,443.2

Current service costs 9.1 10.2 – – 9.1 10.2

Past service costs 0.7 – – – 0.7 –

Interest on obligations 54.1 53.0 0.3 0.4 54.4 53.4

Contribution by employees 0.5 0.6 – – 0.5 0.6

Loss/(gain) arising from changes to financial assumptions 435.8 (45.1) 1.4 – 437.2 (45.1)

(Gain)/loss arising from changes to experience assumptions (26.8) (19.5) 1.1 – (25.7) (19.5)

(Gain)/loss arising from changes to demographic assumptions (0.3) 6.0 – (2.8) (0.3) 3.2

Benefits paid (56.6) (36.6) (0.7) (0.5) (57.3) (37.1)

Gains on curtailment – (0.4) – – – (0.4)

Foreign exchange 2.6 (0.9) – – 2.6 (0.9)

At end of year 1,818.2 1,399.1 10.6 8.5 1,828.8 1,407.6

(v) Fair value of funded schemes’ assetsThe movements in the fair value of the funded schemes’ assets are:

2016 £m

2015 £m

At beginning of year 1,761.5 1,728.5

Interest income 68.6 64.2

Return on assets excluding interest income 396.6 (44.5)

Contributions by employer 50.1 49.7

Contributions by employees 0.5 0.6

Administration expenses (1.7) (2.1)

Benefits paid (54.0) (33.9)


At end of year 2,225.0 1,761.5


Strateg

ic repo

rtG

overn

ance


The market values of the assets of the funded schemes’ are as follows:

2016£m

2016%

2015 £m

2015 %

Debt instruments 494.1 22 587.7 34

Gilts 801.6 36 524.6 30

Corporate bonds 767.8 35 462.3 26

Cash/other assets 77.5 4 89.0 5

Equities 51.7 2 65.8 4

Diversified growth funds 23.7 1 24.0 1

Government bonds 7.0 – 6.5 –

Property 1.6 – 1.6 –

Total market value of the assets of the funded schemes 2,225.0 1,761.5

All assets have a quoted market price.

3.6.2 Actuarial assumptionsThe responsibility for setting the assumptions underlying the IAS 19 valuations rests with the directors, having first taken advice from an independent actuary.

The key weighted average financial assumptions used when valuing the obligations of the post-employment benefit schemes under IAS 19 for the smaller schemes are as follows:

Section

Funded schemes Unfunded schemes

2016 %

2015 %

2016 %

2015 %

Inflation rate (a) 3.2 3.1 3.3 3.2

Rate of increase in salaries (a) 3.7 3.7 3.8 3.7

Rate of increase to pensions in payment (a) 3.1 3.0 3.2 3.1

Rate of increase to pensions in deferment (a) 2.3 2.2 2.2 2.2

Discount rate for scheme assets and obligations (a) 2.7 3.9 2.9 3.9

Medical cost trend rate (b) – – 4.0 4.0

(a) Actuarial assumptions underlying the valuation of obligationsThe inflation assumption is set by reference to the difference between the yield on long-term fixed interest gilts and the real yield on index-linked gilts, with a deduction of 0.2% to reflect an inflation risk premium. The rate of increase of pensions in payment is the same as the inflation rate, with the exception of benefits which receive fixed increases in payment as defined under the respective scheme rules.

The rate of increase in salaries is equal to the long-term expected annual average salary pay increase for the employees who are members of the respective schemes. This assumption is set relative to the inflation rate assumption.

The discount rate used to value scheme liabilities is the yield at the balance sheet date on high quality corporate bonds of appropriate term.

(b) Medical cost trend rateThe medical cost trend rate is the assumed additional escalation of medical costs over and above the assumed inflation rate. It is assumed that such an effect will continue during the remaining run-off of the liability. Assumed medical cost trend rates have an impact on the amounts recognised in the Consolidated Income Statement. A one percentage point change in assumed medical cost trend rates would result in the following increase and decrease in the post-retirement medical benefit obligation.

1% point increase

2016 £m

1% point decrease

2016 £m

1% point increase

2015 £m

1% point decrease

2015 £m

Effect on post-retirement medical benefit obligation 1.6 (1.3) 1.1 (0.9)

Effect on the aggregate of current service cost and interest cost 0.1 (0.1) 0.1 (0.1)



(c) Mortality assumptionsThe trustees of The Bupa Pension Scheme have undertaken a scheme specific mortality investigation as part of the 1 July 2014 triennial valuation.

The trustees shared the conclusion drawn from this analysis with the directors, who have adopted assumptions in line with this analysis for the purposes of IAS 19 valuation as at 31 December 2016.

The mortality tables adopted at 31 December 2016 are the S2PA year of birth mortality tables using the CMI projection model, with a long-term rate of improvement of 1.5% pa adjusted by -0.1 years (male non-pensioners); -0.2 years (female non-pensioners); -0.3 years (male pensioners) and -0.5 years (female pensioners). The average life expectancies at age 60 based on these tables for a male currently aged 60 (45) is 28.1 years (29.6 years) and for a female currently aged 60 (45) is 30.2 years (31.8 years).

(d) Assumptions over duration of liabilitiesThe weighted average duration of the defined benefit obligation is approximately 22 years.

(e) Sensitivity analysis of the principal assumptions used to measure scheme liabilitiesThe sensitivity analysis provided below is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and experience variations for some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating the pension liability recognised within the Statement of Financial Position. The methods and types of assumption did not change.

Assumption Change in assumption Indicative impact on Scheme liabilities

Discount rate Increase/decrease by 0.25% Decrease/increase by £90m

Rate of inflation Increase/decrease by 0.25% Increase/decrease by £81m

Rate of increase in salaries Increase/decrease by 0.25% Increase/decrease by £9m

Rate of mortality Increase by one year Increase by £50m

Deferred taxation is recognised in full using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

The following temporary differences are not recognised: goodwill not deductible for taxation purposes and the initial recognition of an asset or liability in a transaction that is not a business combination and which, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

The amount of deferred taxation recognised is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using taxation rates enacted or substantively enacted at the balance sheet date.

Deferred taxation is recognised on temporary differences arising on investments in subsidiary companies, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Deferred taxation assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and when the Group can settle its current taxation assets and liabilities on a net basis.

3.7Deferred taxation assets and liabilities

Deferred taxation assets and liabilities in briefDeferred tax is an amount which recognises the differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for taxation purposes.

An example is the variance between the carrying value of equipment due to depreciation being charged for financial reporting purposes and written down allowances being applied for the relevant tax authorities.

Note


Strateg

ic repo

rtG

overn

ance


Recognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following:

Assets Liabilities Net

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

Accelerated capital allowances – – (99.6) (94.4) (99.6) (94.4)

Post-employment benefit liability – – (67.1) (64.5) (67.1) (64.5)

Revaluation of properties to fair value – – (39.7) (32.7) (39.7) (32.7)

Employee benefits (other than post-employment) 30.5 23.8 – – 30.5 23.8

Provisions 24.4 23.0 – – 24.4 23.0

Taxation value of losses carried forward 43.2 38.1 – – 43.2 38.1

Goodwill and intangible assets – – (109.2) (105.4) (109.2) (105.4)

Other 4.2 1.4 (9.1) (10.9) (4.9) (9.5)

Deferred taxation assets/(liabilities) 102.3 86.3 (324.7) (307.9) (222.4) (221.6)

Allowable netting of deferred tax assets and liabilities (95.2) (83.8) 95.2 83.8 – –

Net deferred taxation assets/(liabilities) 7.1 2.5 (229.5) (224.1) (222.4) (221.6)

Recognised deferred taxation assetsDeferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can be utilised.

Unrecognised deferred taxation assetsAs at 31 December 2016, the Group had deductible temporary differences relating to intangible assets of £7.7m (2015: £6.7m), trading losses of £72.0m (2015: £58.0m) and capital losses of £66.7m (2015: £43.4m) for which no deferred taxation asset was recognised due to uncertainty of utilisation of those temporary differences.

Movement in net deferred taxation (liabilities)/assets

At beginning of year

£m

Recognised in Income

Statement £m

Recognised in Other

Comprehensive Income

£m

Acquisitions through business

combinations £m

Disposal of subsidiary

undertakings£m

Foreign exchange

£m

At end of year

£m

2016

Accelerated capital allowances (94.4) 13.2 – (0.1) (0.6) (17.7) (99.6)

Post-employment benefit (liability)/asset (64.5) (10.2) 7.7 – – (0.1) (67.1)

Revaluation of properties to fair value (32.7) 7.7 (10.3) – – (4.4) (39.7)

Employee benefits (other than post-employment) 23.8 2.9 – – (0.3) 4.1 30.5

Provisions 23.0 (0.6) – – – 2.0 24.4

Taxation value of losses carried forward 38.1 1.5 – – – 3.6 43.2

Goodwill and intangible assets (105.4) 12.1 – – – (15.9) (109.2)

Other (9.5) 1.6 (0.2) 0.9 0.1 2.2 (4.9)

Total (221.6) 28.2 (2.8) 0.8 (0.8) (26.2) (222.4)

2015

Accelerated capital allowances (109.0) 8.0 – (0.8) – 7.4 (94.4)

Post-employment benefit (liability)/asset (56.4) (11.6) 3.4 – – 0.1 (64.5)

Revaluation of properties to fair value (58.9) 9.1 16.0 – – 1.1 (32.7)

Employee benefits (other than post-employment) 25.9 (0.8) – – – (1.3) 23.8

Provisions 18.0 5.0 – – – – 23.0

Taxation value of losses carried forward 35.8 3.3 – – – (1.0) 38.1

Goodwill and intangible assets (122.2) 13.1 – – – 3.7 (105.4)

Other 15.7 (22.4) (0.4) 0.1 – (2.5) (9.5)

Total (251.1) 3.7 19.0 (0.7) – 7.5 (221.6)



(a) AcquisitionsBusiness combinations are accounted for using the acquisition method. Identifiable assets and liabilities acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

The identification and valuation of intangible assets arising on business combinations is subject to a degree of judgement. We engage independent third parties, including Deloitte, EY and Knight Frank, to assist with the identification and valuation process. This is performed in accordance with the Group’s policies.

The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable assets acquired is recorded as goodwill. Acquisition accounting must be completed within 12 months of the transaction date.

Costs related to the acquisition are expensed as incurred.

A number of acquisitions were made during the year ended 31 December 2016, the most significant being Care Plus:

Date of acquisitionPercentage of holdings


Dental Centres – various Various

UK

UK Care No.1 Limited1 18 February 2016 100.0%

The Links and The Lindsay care homes 5 October 2016 100.0%

Dental Centres - various Various


Bupa Chile2 8 January and 26 February 2016 26.3%

Dental Centres – various Various

Torrejón3 22 April 2016 10.0%

Elegimosalud S.L. 21 December 2016 100.0%

Sport Medica S.A.4 29 February 2016 17.6%

Euro Dental 29 February 2016

International Markets

Care Plus 22 December 2016 100.0%

1 UK Care No.1 Limited was previously fully consolidated as 100% non-controlling interest

2 Increased shareholding of 73.7% to full ownership in two stages; 26% on 8 January 2016 and the remaining 0.3% on 26 February 2016

3 Increased shareholding from 50% to 60%

4 Increased shareholding of 82% to 99.63%

4.0Business combinations and disposals

Business combinations and disposals in briefA business combination refers to the acquisition of a controlling interest in a business, which is further defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing economic benefits to the owners. A disposal refers to the sale of a subsidiary.

Note


Strateg

ic repo

rtG

overn

ance


2016 Business combinations

Care Plus (provisional) Other

Carrying value at

acquisition £m

Fair value adjustments

£mFair value

£m

Carrying value at

acquisition £m

Fair value adjustments

£mFair value

£m

Intangible assets 0.3 – 0.3 0.1 (2.8) (2.7)

Property, plant and equipment 2.5 – 2.5 23.2 (2.9) 20.3

Inventories – – – 0.1 – 0.1

Financial investments 41.0 – 41.0 – – –

Trade and other receivables 3.0 – 3.0 (2.2) – (2.2)

Assets arising from insurance business 1.3 (0.8) 0.5 – – –

Restricted assets 0.3 – 0.3 – – –

Cash and cash equivalents 1.0 – 1.0 1.8 – 1.8

Deferred tax liabilities – 0.8 0.8 (0.5) 0.5 –

Trade and other payables (12.3) (2.6) (14.9) (15.2) 2.4 (12.8)

Insurance liabilities (17.3) – (17.3) – –

Provisions for liabilities and charges (0.6) – (0.6) (0.2) – (0.2)

19.2 (2.6) 16.6 7.1 (2.8) 4.3

Net assets acquired 16.6 4.3

Goodwill 74.4 44.4

Acquisition of non-controlling interests in subsidiary company – 2.0

Consideration 91.0 50.7

Consideration satisfied by:

Cash 91.0 41.3

Deferred consideration – 9.4

Total consideration paid 91.0 50.7

Purchase consideration settled in cash 91.0 41.3

Additional 26.3% acquisition of Bupa Chile – 93.1

Cash acquired on acquisition (1.0) (1.8)

Net cash outflow on acquisition 90.0 132.6

Note that fair value adjustments relating to current year acquisitions are provisional and will be finalised during 2017.

2016 acquisitionsOn 22 December 2016, the Group acquired 100% of Care Plus, a premium health insurer in Brazil, for £91.0m (BRL 431.0m). The business provides dental insurance as well as health insurance and has small occupational health, travel insurance and clinics businesses.

Care Plus serves more than 400 Brazilian companies with around 100,000 members, providing a range of health insurance products. Bupa’s international insurance business specialises in products and services for customers looking for international coverage with access to the healthcare they need anytime, anywhere in the world. The acquisition will therefore enable customers in Brazil to access an expanded range of products with access to healthcare professionals and providers in Brazil and around the world. This development sees Bupa extend its operations in Latin America in line with its strategy of selective geographic expansion.

The acquisition balance sheet for Care Plus is provisional, subject to a purchase price allocation exercise, which will be finalised during 2017.

If the transaction had occurred on 1 January 2016, Care Plus would have contributed £149.9m (BRL 709.9m) revenue and £6.8m (BRL 32.2m) profit before taxation for the year ended 31 December 2016.

The Group acquired 100% ownership of Bupa Chile in 2016 for £93.1m (CLP 95.1bn). The transaction occurred in two stages; on 8 January 2016 the Group secured a further 26% interest in Bupa Chile taking its shareholding to 99.7%, with the remaining 0.3% shareholding acquired on 26 February 2016. As a result of the transaction, the Group recognised a decrease in non-controlling interest of £38.6m and an equivalent increase in the income and expenditure reserve.



There has been continued expansion of the dental business across the Group. In Australia, ten centres have been acquired in 2016 for a total consideration of £12.7m (AU$23.2m) of which £1.6m is deferred, giving rise to £12.2m of goodwill. Additional UK dental centres were acquired in the period, for a total consideration of £19.0m, of which £4.9m is deferred, resulting in goodwill of £16.7m. In Spain, the Group has acquired six further dental centres for a consideration of £5.1m (€6.3m) for which goodwill of £4.4m has been recognised. Finally, in Poland, the Group acquired Euro Dental, a dental centre for a total consideration of £1.2m (PLN 6.3m), for which £1.2m of goodwill has been recognised.

There has also been expansion of our aged care business, including the acquisition of The Links and The Lindsay care homes in the UK for a total consideration of £7.4m, resulting in £3.4m goodwill and the acquisition of La Seu care home in Valencia for a total consideration of £4.4m (€5.4m) for which goodwill of £3.9m has been recognised.

During the year, there have also been several changes in ownership interests. On 18 February 2016, the Group acquired the shareholding of UK Care No.1 Limited for £0.9m, recognising a reduction in non-controlling interest during the year of £13.1m and an equivalent increase in the income and expenditure reserve. On 29 February 2016 the Group also acquired 17.63% interest in Sport Medica for £1.1m (PLN 6.0m), which has been recorded within the income and expenditure reserve, taking our ownership to 99.63% and on 22 April 2016, the Group acquired an additional 10% interest in Torrejón, taking our ownership to 60%.

On 21 December 2016, a web-based start-up company specialising in sports medical services, Healthia.es was acquired in Spain for £0.3m (€0.4m), for which goodwill of £0.4m has been recognised. Acquisition accounting was also completed for the 2015 LUX MED acquisitions, giving rise to an additional £2.2m goodwill.

Acquisition transaction costs expensed in the year ended 31 December 2016, within other operating expenses, total £4.2m (£1.2m Care Plus, £3.0m Other).

2015 acquisitions

Fair value £m

Purchase consideration settled in cash 97.4

Additional 17.3% acquisition of Bupa Chile 59.2

Cash acquired on acquisition (0.3)

Net cash outflow on acquisition 156.3

On 5 December 2015, the Group exercised its option to acquire an additional 17.3% of the shares of Bupa Chile, for a total consideration of £59.2m (CLP 62.8bn), bringing the total ownership to 73.7% at 31 December 2015.

The exercise of the option triggered a mandatory offer to market for the remaining 26.3% shareholding, as required by local legislation in Chile. As a result, a liability of £91.1m (CLP 95.1bn) was recognised in other payables with the corresponding entry in the income and expenditure reserve recorded at 31 December 2015.

During 2015 the Group continued to expand its dental businesses in Australia, Spain and the UK. In Australia, a total of 18 clinics were acquired in 2015 for a total consideration of £21.9m, of which £4.0m

was deferred, giving rise to £21.7m of goodwill. In addition, Bupa acquired five UK dental centres in the year, for a total consideration of £5.3m, net of cash acquired, resulting in goodwill of £6.0m. The goodwill represents the premium paid to acquire established dental practices including the value of dentists (assembled workforce) and other intangibles that do not meet the recognition criteria of IAS 38. In Spain, the Group acquired further dental clinics for a consideration of £1.7m for which goodwill of £1.7m was realised.

Further investment of £37.1m was made in Poland during 2015 with the acquisition of Medicor, a health clinics, diagnostics and pharmacy business; TK Medyk, a diagnostic imaging company; Magodent, an oncology provider and associated properties. In total, goodwill amounting to £21.9m was recognised for these acquisitions. The goodwill recognised primarily represents a premium paid to acquire a leading oncology provider in Poland to enable delivery of coordinated oncology care as well as further expansion of our geographical reach across Poland.

On 2 December 2015, Bupa acquired 100% of Hadrian Healthcare Limited, a care services business comprising five homes and two development sites in the north of England for £34.7m, exclusive of acquisition costs, with net assets (debt free) of £27.5m and resulting in goodwill of £7.2m. The goodwill represents a portfolio premium for acquiring a care home business.

(b) DisposalsAt the date when the Group ceases to have control in an entity it results in recognition of a gain or loss on sale of the interest and on the revaluation of any retained non-controlling interest.

Any amounts relating to the entity that have previously been recognised in the Statement of Comprehensive Income are reclassified to the Income Statement. The net gain made on the sale of businesses is included within other income and charges in the Consolidated Income Statement.

2016 Disposals and liquidationCash proceeds of £27.7m were received on the sale of Bupa Home Healthcare which completed on 1 July 2016, with a net gain on disposal of £12.3m taking into account £8.8m net assets divested and £6.6m transaction costs.

On 23 March 2016, Bupa Middle East Holdings W.L.L., a holding company in Bahrain which was part of International Markets was liquidated. A net loss of £1.6m was recognised and is included within other income and charges in the Consolidated Income Statement.

2015 Disposals and liquidationDuring 2015, £25.5m deferred consideration was received in relation to the disposal of Bupa Ireland Limited in 2007 and is included within other income and charges in the Consolidated Income Statement.

On 8 July 2015, Bupa Health Care Asia Pte Ltd, a holding company in Singapore, which was part of the International Developments Markets Market Unit (now International Markets) was liquidated. A net gain of £0.3m was recognised and is included within other income and charges in the Consolidated Income Statement.


Strateg

ic repo

rtG

overn

ance


Classification as held for saleAssets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss.

On classification as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated.

Assets and liabilities classified as held for sale2016

£m2015

£m

Assets held for sale

Property, plant and equipment 479.0 –

Trade and other receivables 26.3

Total assets classified held for sale 505.3 –

Liabilities associated with assets held for sale

Trade and other payables (45.5)

Total liabilities classified as held for sale (45.5) –

Net assets classified as held for sale 459.8 –

An office building in the UK is presented as held for sale at 31 December 2016 following the decision to sell the property.

As a result of a review of the UK care services business, a number of homes are also held for sale at 31 December 2016, comprising the assets and liabilities of Bupa Care Homes Limited (one of the Group companies in which some UK care homes are held) and certain assets and liabilities of other Group companies.

On classification as held for sale a write down of £11.2m has been recognised in other income and charges in the Income Statement with regards to expected costs to sell.

4.1Assets and liabilities held for sale

Assets and liabilities held for sale in briefNon-current assets, or disposal groups comprising assets and liabilities are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than continuing use and a sale is considered to be highly probable.

Note

Associated companies and joint ventures are accounted for using the equity method and are initially recognised at cost. The cost of the investment includes transaction costs.

Associated companies include those entities in which the Group has significant influence, but no right to direct the activities which determine the variable returns it receives from the entity. Joint ventures include those entities over the activities of which the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. The Group also has the rights to the net assets.

When the Group’s share of losses exceeds its interest in an equity accounted investment, the carrying amount of that interest (including any long-term interests that, in substance, form part of the Group’s net investment), is reduced to nil. In addition, the recognition of further losses is discontinued except to the extent that the Group has an obligation to make payments on behalf of the equity accounted investment.

Associates and joint ventures During 2016, no capital injections were made in our investment in Bupa Arabia (2015: £3.9m).

4.2Equity accounted investments

Equity accounted investments in briefEquity accounted investments comprises associated companies and joint ventures.

Note



During 2016, capital injections of £23.8m (2015: £2.2m) were made in Max Bupa Health Insurance Company Limited, £21.9m of which was to increase the Group’s shareholding from 26% to 49%. This investment has been reclassified from a joint venture to an associate as the Group exercises significant influence. Max Bupa continues to be accounted for using the equity method.

Distributions to shareholders are currently restricted by local regulatory requirements which are re-assessed on a regular basis.

The consolidated financial statements include the Group’s share of income and expenses, and Other Comprehensive Income, after adjustments to align the accounting policies with those of the Group where materially different, from the date that significant influence or control commences until the date that significant influence or control ceases.

The carrying amount of equity accounted investments is £302.9m (2015: £238.0m). All equity investments are included on a coterminous basis.

The Group’s principal equity accounted investments are:

Business activity

Share of issued capital

Principally operates in

Country of incorporation

Bupa Arabia for Cooperative Insurance Company Associate Insurance 26.25% Saudi Arabia Saudi Arabia

Highway to Health, Inc Associate Insurance 49.00% USA USA

Max Bupa Health Insurance Company Limited Associate Insurance 49.00% India India

(i) Summarised financial information for associates and joint venturesThe tables below provide summarised financial information for those associates and joint ventures that are material to the Group. The information disclosed reflects the amounts presented in the

financial statements of the relevant associates and joint ventures, and not the Group’s share of those amounts. They have been amended to reflect adjustments made by the Group when using the equity method, including fair value adjustments and modifications for differences in accounting policy.

Bupa Arabia Highway to Health Max Bupa

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

Cash and cash equivalents 48.8 144.5 85.5 51.2 3.5 2.5

Other current assets 1,038.0 888.6 57.2 47.4 2.8 2.9

Current assets 1,086.8 1,033.1 142.7 98.6 6.3 5.4

Non-current assets 460.3 79.6 7.8 6.1 75.5 55.6

Current liabilities (1,109.2) (783.5) (87.6) (63.2) (21.3) (16.3)

Non-current liabilities – (27.8) (0.2) (0.2) (31.2) (23.6)

Net assets 437.9 301.4 62.7 41.3 29.3 21.1

Reconciliation to carrying amounts

Opening net assets 301.4 179.9 41.3 31.5 21.1 16.8

Profit/(loss) for the period 124.1 112.5 10.1 5.8 (4.9) (7.3)

Other comprehensive expenses (21.1) (4.6) – – – –

Dividends paid (31.5) – – – – –

Other reserve movements 65.0 13.6 11.3 4.0 13.1 11.6

Closing net assets 437.9 301.4 62.7 41.3 29.3 21.1

% ownership 26.25% 26.25% 49.00% 49.00% 49.00% 26.00%

Reporting entity’s share 114.9 79.1 30.7 20.2 14.3 5.5

Fair value and local accounting differences (20.2) (8.5) 133.1 138.4 18.4 0.4

Carrying amount 94.7 70.6 163.8 158.6 32.7 5.9

Reporting entity’s share of profit/(loss) 26.3 23.7 5.1 2.6 (0.1) (1.9)

(ii) Individually immaterial associates and joint venturesIn addition to the interests in associates disclosed above, the Group also has interests in a number of individually immaterial associates that are accounted for using the equity method. The aggregate carrying amount of these associates is £11.7m (2015: £2.9m). The reporting entity’s share of loss recognised during the year for these associates was £1.0m (2015: £2.0m).


Strateg

ic repo

rtG

overn

ance


All financial investments are initially recognised at fair value, which includes transaction costs for financial investments not classified at fair value through the profit or loss.

Financial investments are derecognised when the rights to receive cash flows from the financial investments have expired or where the Group has transferred substantially all risks and rewards of ownership.

The Group has classified its financial investments into the following categories: available-for-sale (AFS), at fair value through profit or loss, held to maturity, and loans and receivables. Management determines the classification at initial recognition.

The accounting policy for the impairment of financial investments is detailed in Note 3.0.1.

The analysis of derivatives is disclosed in Note 5.2.

Financial investmentsFinancial investments are analysed as follows:

Carrying value 2016

£m

Fair Value 2016

£m

Carrying value 2015

£m

Fair Value 2015

£m

Non-CurrentAvailable-for-sale

Corporate debt securities 192.2 192.2 – – Government debt securities 17.2 17.2 – –

Designated at fair value through profit or lossGovernment debt securities 62.6 62.6 49.8 49.8 Corporate debt securities and secured loans 207.0 207.0 242.2 242.2 Pooled investment funds 212.9 212.9 110.9 110.9 Deposits with credit institutions – – 0.1 0.1

Held to maturityCorporate debt securities and secured loans 128.9 135.7 98.7 99.2 Government debt securities 43.4 43.8 0.6 0.6

Loans and receivablesDeposits with credit institutions 197.1 201.6 241.0 246.0 Corporate debt securities and secured loans – – 88.2 130.0 Other loans 0.6 0.6 0.4 0.4

Total non-current financial investments 1,061.9 1,073.6 831.9 879.2

CurrentDesignated at fair value through profit or loss

Government debt securities 26.2 26.2 19.3 19.3 Corporate debt securities and secured loans 10.1 10.1 3.1 3.1 Pooled investment funds 39.8 39.8 35.0 35.0 Deposits with credit institutions 4.9 4.9 1.0 1.0

Held to maturityCorporate debt securities and secured loans 158.2 158.4 103.0 103.2 Government debt securities 0.7 0.7 – –

Loans and receivablesDeposits with credit institutions 870.8 872.4 1,195.0 1,196.0

Total current financial investments 1,110.7 1,112.5 1,356.4 1,357.6

Total financial investments 2,172.6 2,186.1 2,188.3 2,236.8

5.0Financial investments

Financial investments in briefThe Group generates cash from its underwriting, trading and financing activities and invests the surplus cash in financial investments. These include government bonds, corporate bonds, pooled investments funds and deposits with credit institutions.

Note



Classification Criteria and treatment

Available-for-sale Available-for-sale assets are non-derivative financial assets designated on initial recognition as available for sale or any other instruments that are not classified in the below categories. Available-for-sale assets are measured at fair value in the balance sheet. Fair value changes on available-for-sale assets are recognised directly in equity, through the Statement of Changes in Equity, except for interest and foreign exchange gains or losses which go through the Income Statement. The cumulative gain or loss that was recognised in equity is recognised in the Income Statement when an available-for-sale financial asset is derecognised.

Fair value through profit or loss Financial investments designated at fair value through profit or loss consist of investments or instruments where management make decisions based upon their fair value. The investments are carried at fair value, with gains and losses arising from changes in this value recognised in the Income Statement in the period in which they arise.

Held to maturity Held to maturity investments are non-derivative financial assets which are quoted on an active market, with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. This is assessed at each reporting date. Held to maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.

Any discount or premium on purchase is amortised over the life of the investment through the Income Statement.

Loans and receivables Loans and receivables are carried at amortised cost calculated using the effective interest method, less impairment losses.

Fair value of financial investmentsFair value is a market-based measurement for assets for observable market transactions where market information might be available. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the asset would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset).

Fair values disclosed in the table have been calculated as follows:

– debt securities, pooled investment funds, deposits with credit institutions, other loans – quoted price if available or discounted expected future principal and interest cash flows; and

– listed securities – quoted price.

The fair values of quoted investments in active markets are based on current bid prices. The fair values of unlisted securities and quoted investments for which there is no active market, are established by using valuation techniques corroborated by independent third parties.

These may include reference to the current fair value of other investments that are substantially the same and discounted cash flow analysis.

Financial investments carried at fair value are measured using different valuation inputs categorised into a three level hierarchy. The different levels have been defined by reference to the lowest level input that is significant to the fair value measurement, as follows:

– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

– Level 2: inputs other than quoted prices included within level one that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).


Strateg

ic repo

rtG

overn

ance


An analysis of financial investments by valuation method is as follows:

Non-current Current

Level 1 £m

Level 2 £m

Total Non-current

£mLevel 1

£mLevel 2

£m

Total Current

£m

2016Available-for-sale

Corporate debt securities 192.2 – 192.2 – – –

Government debt securities 17.2 – 17.2 – – –

Designated at fair value through profit or loss

Government debt securities 37.6 25.0 62.6 26.2 – 26.2

Corporate debt securities and secured loans 30.6 176.4 207.0 10.1 – 10.1

Pooled investment funds 124.0 88.9 212.9 39.8 – 39.8

Deposits with credit institutions – – – 4.9 – 4.9

Held to maturity

Corporate debt securities and secured loans 135.7 – 135.7 158.4 – 158.4


Loans and receivables

Deposits with credit institutions – 201.6 201.6 – 872.4 872.4

Corporate debt securities and secured loans – – – – – –

Other loans – 0.6 0.6 – – –

Total 580.6 493.0 1,073.6 240.1 872.4 1,112.5

2015Designated at fair value through profit or loss


Corporate debt securities and secured loans 42.6 199.6 242.2 3.1 – 3.1

Pooled investment funds 35.2 75.7 110.9 35.0 – 35.0

Deposits with credit institutions 0.1 – 0.1 – – –

Other loans – – – 1.0 – 1.0

Held to maturity

Corporate debt securities and secured loans 68.8 30.4 99.2 94.4 8.8 103.2

Government debt securities 0.5 0.1 0.6 – – –

Loans and receivables

Deposits with credit institutions – 246.0 246.0 – 1,196.0 1,196.0

Corporate debt securities and secured loans – 130.0 130.0 – – –

Other loans – 0.4 0.4 – – –

Total 169.9 709.3 879.2 152.8 1,204.8 1,357.6

Currently the Group does not hold any level three financial investments.

There have been no significant transfers between the valuation methods.

The Group uses a market interest curve as at the balance sheet date to discount financial instruments, borrowings and derivatives, where the fair value cannot otherwise be found from quoted market values. The range of interest rates used is as follows:

2016 %

2015 %

Sterling assets and liabilities 0.6-0.9 1.1-2.0

Australian dollar assets and liabilities 1.7-2.8 2.1-2.0

Euro assets and liabilities (0.8)-(0.5) (0.4)-(0.2)

US dollar assets and liabilities 0.9-3.2 0.6-2.3



Subordinated liabilitiesSubordinated liabilities are stated at amortised cost using the effective interest method. The carrying value is adjusted for the gain or loss on hedged risk; changes in the fair value of derivatives that mitigate interest rate risk resulting from the fixed interest rate of the bonds are recognised in the Income Statement as an effective fair value hedge of this exposure.

The interest expense on the bonds is recognised as a financial expense.

The Group holds callable subordinated perpetual guaranteed bonds with a corresponding fair value hedge. The amortised cost of these borrowings is adjusted for the fair value of the risk being hedged.

Other interest bearing liabilitiesOther interest bearing liabilities consist of senior unsecured bonds, secured loans, bank and other loans and finance lease liabilities. These borrowings are recognised initially as proceeds receivable less attributable transaction costs, net of any discount on issue.

Subsequent to initial recognition, they are stated at amortised cost, with any difference between cost and redemption value being recognised in the Income Statement over the period of the borrowings on an effective interest basis.

Note

2016 2015

Non-current £m

Current £m

Total £m

Non-current £m

Current £m

Total £m

Subordinated liabilities

Callable subordinated perpetual guaranteed bonds 330.0 5.9 335.9 330.0 5.9 335.9

Fair value adjustment in respect of hedged interest rate risk 50.9 – 50.9 51.3 – 51.3

Callable subordinated perpetual guaranteed bonds at fair value (a) 380.9 5.9 386.8 381.3 5.9 387.2

Other subordinated debt (b) 921.1 8.8 929.9 528.2 4.0 532.2

Total subordinated liabilities 1,302.0 14.7 1,316.7 909.5 9.9 919.4

Other interest bearing liabilities

Senior unsecured bonds (c) 399.3 1.1 400.4 387.1 366.8 753.9

Secured loans (d) – – – 233.5 4.3 237.8

Bank loans (e) 117.1 75.6 192.7 97.0 50.2 147.2

Finance lease liabilities (f) 6.4 5.4 11.8 9.2 6.6 15.8

Total interest bearing liabilities 522.8 82.1 604.9 726.8 427.9 1,154.7

Total borrowings 1,824.8 96.8 1,921.6 1,636.3 437.8 2,074.1

(a) Callable subordinated perpetual guaranteed bondsIn December 2004, Bupa Finance plc issued £330.0m of callable subordinated perpetual guaranteed bonds, which are guaranteed by Bupa Insurance Limited. Interest is payable on the bonds at 6.125% per annum. The bonds have no fixed maturity date but a call option is exercisable by Bupa Finance plc to redeem the bonds on 16 September 2020. In the event of the winding up of Bupa Finance plc or Bupa Insurance Limited the claims of the bondholders are subordinated to the claims of other creditors of these companies.

The total hedged fair value of the callable subordinated perpetual guaranteed bonds, net of accrued interest, is £386.8m (2015: £387.2m). The valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap contracts in place to hedge this risk.

(b) Other subordinated debt On 25 April 2013, Bupa Finance plc issued £500.0m of unguaranteed subordinated bonds which mature on 25 April 2023. Interest is payable on the bonds at 5.0% per annum. In the event of the winding up of Bupa Finance plc the claims of the bondholders are subordinated to the claims of other creditors of that company.

On 8 December 2016, Bupa Finance plc issued £400.0m of unguaranteed subordinated bonds which mature on 8 December 2026. Interest is payable on the bonds at 5.0% per annum. In the event of winding up of Bupa Finance plc the claims of the bondholders are subordinated to the claims of other creditors of that company.

Subordinated debt of £35.5m (€41.6m) issued by Torrejón Salud S.A. matures on 31 December 2022. Interest accrues on the debt at EURIBOR +6%. In the event of a winding up of Torrejón Salud S.A., the claims of the holder of the debt are subordinated to the claims of the senior creditors of that company.

5.1Borrowings

Borrowings in briefThe Group has various sources of funding including subordinated bonds, senior unsecured bonds and loans.

Note


Strateg

ic repo

rtG

overn

ance


(c) Senior unsecured bondsOn 2 July 2009, Bupa Finance plc issued £350.0m of 7.5% senior unsecured bonds. The bonds were repaid in July 2016.

On 17 June 2014, Bupa Finance plc issued £350.0m of senior unsecured bonds, guaranteed by the Company, which mature on 17 June 2021. Interest payable on the bonds is 3.375% per annum.

On 30 June 2012, Cruz Blanca Salud SA, now Bupa Chile issued UF 1.6m (Unidad de Fomento - an inflation linked currency commonly used in Chile) (£38.0m) of inflation linked senior unsecured bonds which mature on 30 June 2033.

(d) Secured loansDuring the year the secured loans were repaid early (2015: £237.8m). The secured loan balance related to secured loan notes issued by UK Care No.1 Limited. These secured loans were redeemed on 1 April 2016. A £175.0m Class A1 note was due to mature in 2029 and a £60.0m Class A2 note was due to mature in 2031. The A1 and A2 loan notes had fixed interests of 6.3% and 7.5% respectively. The loan notes were secured by fixed and floating charges over the assets and undertakings of UK Care No.1 Limited. The security included UK Care No.1 Limited’s overriding lease interest, and the rental income receivable thereunder, held in a number of the Group’s care homes.

(e) Bank loans and bank overdraftBank loans are £192.7m (2015: £147.2m), this includes a tri syndicated loan held in Especializada y Primaria L’Horta-Manises S.A.U. of £26.8m (2015: £24.8m) and a portfolio of loans held in Bupa Chile totalling £146.8m (2015: £113.0m).

Bupa maintains a £800.0m revolving credit facility which was renegotiated in August 2015 and matures in July 2021 as a result of an optional year extension triggered during 2016. There is a second option to extend by a further one year. The facility was undrawn at 31 December 2016 with the exception of £6.4m of outstanding letters of credit for general business purposes.

Drawings under the £800.0m facility are guaranteed by the Company and other Group subsidiary companies. The overdraft facilities are subject to cross guarantees within the Group. The bank loans and overdrafts bear interest at commercial rates linked to LIBOR, or EURIBOR, or at a commercial fixed rate.

An additional committed bank facility of £250.0m was agreed in June 2016. This facility was cancelled following the issuance of the £400.0m unguaranteed subordinated bond issued on 8 December 2016.

In January 2017, Bupa Finance plc signed a £650.0m committed facility with one of its lending banks to ensure sufficient funding would be made available to complete the acquisition of Oasis Dental Care in 2017.

(f) Obligations under finance leasesFuture minimum payments under finance leases are as follows:

Future minimum

lease payments

2016 £m

Present value of minimum

lease payments

2016 £m

Future minimum

lease payments

2015 £m

Present value of minimum

lease payments

2015 £m

Payable within one year 5.9 5.4 7.3 6.6

Payable after one year but within five years 6.0 5.4 9.2 8.4

Payable after five years 1.3 1.0 1.2 0.8

Total gross payments 13.2 17.7

Less: finance charges included above (1.4) (1.9)

Total payments net of finance charges 11.8 11.8 15.8 15.8

Fair value of financial liabilitiesThe fair value of a financial liability is defined as the amount for which a financial liability could be exchanged in an arm’s-length transaction between informed and willing parties. Fair values disclosed in the table below have been calculated as follows:

– Subordinated liabilities – quoted price if available or discounted expected future principal and interest cash flows;

– Senior unsecured bonds – quoted price; and

– Secured loans – quoted price.

The fair values of quoted liabilities in active markets are based on current bid prices. The fair values of financial liabilities for which there is no active market, are established using valuation techniques corroborated by independent third parties. These may include reference to the current fair value of other instruments that are substantially the same and discounted cash flow analysis.

Financial liabilities are categorised into a three level hierarchy, a description of the different levels is detailed in Note 5.0 along with the market interest rates used to discount financial liabilities, where the fair value cannot otherwise be found from quoted market values.

An analysis of borrowings by valuation method is as follows:

2016 2015

Level 1 £m

Level 2 £m

Total £m

Level 1 £m

Level 2 £m

Total £m

Subordinated liabilities 1,312.9 46.1 1,359.0 870.6 32.3 902.9

Senior unsecured bonds 377.2 59.3 436.5 719.4 38.7 758.1

Secured loan – – – 314.8 - 314.8

Bank loans – 192.7 192.7 - 147.2 147.2

Finance lease liabilities – 11.8 11.8 – 15.8 15.8

Total 1,690.1 309.9 2,000.0 1,904.8 234.0 2,138.8

Currently the Group does not hold any level three financial liabilities.



Derivatives that have been purchased or issued as part of a hedge that subsequently do not qualify for hedge accounting are accounted for at fair value through profit or loss.

Derivative financial instruments are initially recognised and subsequently measured at fair value.

Fair values are obtained from market observable pricing information including interest rate yield curves. The value of foreign exchange forward contracts is established using listed market prices.

Fair values have been calculated for each type of derivative as follows:

– The fair value of currency forward contracts, swaps and options is determined using forward exchange rates derived from market sourced data at the balance sheet date, with the resulting value discounted back to present value;

– The fair value of interest rate swaps is determined as the present value of the estimated future cash flows based on observable yield curves.

All derivatives are disclosed as level two in the three level hierarchy.

2016 £m

2015 £m

Derivative assets

Non-current* 50.9 51.3

Current 9.4 6.0

Total derivative assets 60.3 57.3

Derivative liabilities

Non-current (10.4) (10.3)

Current (11.6) (22.1)

Total derivative liabilities (22.0) (32.4)

* See fair value hedges in Note 5.4.2.2.

5.2Derivatives

Derivatives in briefA derivative is a financial instrument whose value is based on one or more underlying assets. The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risk. Derivatives are not held for speculative reasons.

Note


Strateg

ic repo

rtG

overn

ance


There have been no changes to the Group’s capital management objectives during the year.

The Group’s capital resources are managed in line with the Group Capital Management Policy. All regulated entities within the Group maintain sufficient capital resources to meet any minimum capital requirement required by the local Regulators. In addition the Group and regulated entities maintain a buffer in excess of the regulatory minimum requirements in line with their capital risk appetites. During the year, the Group and its subsidiaries complied with all externally imposed capital requirements to which they were subject.

The Group’s capital position is kept under constant review and is reported monthly to the Board.

The Group has target ranges for solvency, leverage and interest cover ratios with a view to maintaining an A-/A3 long-term senior credit rating for Bupa Finance plc. The Bupa Group as a whole is not rated by any rating agency. Individual debt issues and certain subsidiaries within the Group have public ratings.

The Group’s capital comprises equity, exclusive of any non-controlling interests, together with eligible subordinated debt. The Group has £330.0m of callable subordinated perpetual guaranteed bonds, a £500.0m dated hybrid bond which matures on 25 April 2023 and a £400.0m dated hybrid bond which matures 8 December 2026. These bond issues are accounted for as liabilities in the IFRS based financial statements, but are treated as solvency capital for regulatory and management purposes.

Since 1 January 2016, the Group has been subject to the requirements of the Solvency II Directive and must hold sufficient capital to cover its Group Solvency Capital Requirement (SCR) which takes account of all the risks in the Group, including those related to non-insurance businesses. The Group SCR is calculated in accordance with the Standard Formula specified in the Solvency II legislation. Bupa has obtained approval from the Prudential Regulation Authority (PRA) to substitute the insurance premium risk parameter in the Standard Formula with an Undertaking Specific Parameter (USP) which reflects Bupa’s own loss experience.

At least annually, the Group carries out an Economic Capital Assessment (ECA) in which it makes its own quantification of how much capital is required to support its risks. The ECA is used to assess how well the Standard Formula SCR reflects the Group’s actual risk profile.

The ECA forms part of the Own Risk and Solvency Assessment (ORSA) which comprises all the activities by which the Group establishes the level of capital required to meet its solvency needs over the planning period given the Group’s strategy and risk appetite. The conclusions from these activities are summarised in the ORSA Report which is reviewed by the Risk Committee, approved by the Board and submitted to the PRA annually.

At 31 December 2016, Bupa’s eligible Own Funds, determined in accordance with the Solvency II valuation rules, were £4.2bn1 (2015: £3.1bn), which was in excess of the Group estimated SCR of £2.1bn1 (2015: £1.8bn). This represented a solvency coverage ratio of 204%1

(2015: 178%2). The Solvency II rules superseded those of the IGD.

1 The Solvency II Capital Position (Own Funds and Solvency Capital Requirement) and related disclosures are estimated values and unaudited.

2 The Solvency Coverage Ratio was updated to 178% from the 180% estimate disclosed in the 2015 Annual Report and Accounts.

5.3Capital management

Capital management in briefBupa is a company limited by guarantee, has no shareholders and is funded through retained earnings and borrowings. The Group’s capital management objective is to maintain sufficient capital to protect the interests of its customers, investors, regulators and trading partners while deploying capital efficiently and managing risk to enable Bupa to continue to deliver its purpose in a sustainable manner. All profits are therefore reinvested to develop the Group’s business for the benefit of current and future customers.

Note



Bupa operates a ‘Three Lines of Defence’ model.

1. Business management is responsible for the identification and assessment of risks and controls.

2. Risk functions provide support and challenge the completeness and accuracy of risk assessments and the adequacy of mitigation plans.

3. Internal audit provides independent and objective assurance on the robustness of the risk management framework, and the appropriateness and effectiveness of internal controls.

The current principal risks of the Group, its inherent risks and how they are mitigated are described on pages 19-21.

The Group has adopted a risk management strategy that endeavours to mitigate these risks, which is approved by the Board. In managing these exposures, the Corporate Finance Executive Committee reviews and monitors any significant investment and market risks.

The Group has exposure to a number of risks from its use of financial instruments and risks associated with its insurance business. These have been categorised into the following types of risk, and details of the nature, extent, and how the Group has managed these risks is described below:

(i) Insurance risk

(ii) Market risk

(iii) Credit risk

(iv) Liquidity risk

(i) Underwriting riskUnderwriting risk refers to the potential deviation from the actuarial assumptions used for setting insurance premium rates which could lead to premium inadequacy. Underwriting risk is therefore concerned with both the setting of adequate premium rates (pricing risk) as well as the management of claims (claims risk) for insurance policies underwritten by the Group.

(ii) Pricing riskPricing risk relates to the setting of adequate premium rates taking into consideration the volume and characteristics of the insurance policies issued. External influences to pricing risk include (but are not limited to) competitors’ pricing and product design initiatives, and regulatory environments. The level of influence from these external factors can vary significantly between regions and largely depend on the maturity of health insurance markets and the role of the regulator. Thorough actuarial analysis performed on a regular basis combined with an understanding of local market dynamics and the ability to change insurance premium rates when necessary can act as effective risk mitigations.

In every general insurer in the Group, the dominant product or policy category is of an annually renewable health insurance contract. This permits insurance premium rate revisions to respond reasonably quickly to changes in customer risk profiles, claims experience and market considerations.

The ability to review benefit levels and premium rates is a significant mitigant to pricing risk. The Group underwrites no material general insurance business that commits it to cover risks at premiums fixed beyond a twelve-month period from inception or renewal.

5.4Risk management

Risk management in briefThe Bupa Risk Committee has responsibility to the Board for the oversight of risk. It recommends to the Board a risk appetite that reflects Bupa’s purpose and expresses the degree of risk Bupa should accept in delivering on its strategy.

5.4.1Insurance risk

Insurance risk in briefInsurance risk only affects the general insurance businesses in the Group. It consists of underwriting and pricing risks which relate to inadequate tariffs of insurance products as well as reserving risk which relates to the potential inadequacy of claims provisions.

Note

Note


Strateg

ic repo

rtG

overn

ance


(iii) Claims riskClaims risk is the risk of failure in managing Bupa’s exposure to claims inflation and fluctuations in claims leading to losses. This can be driven by an adverse fluctuation in the amount and incidence of claims incurred, higher than expected future claims on existing policies with past exposures, and external factors such as medical inflation. Claims reserving risk is part of claims risks and it is a risk of mis-estimation of claims reserve.

Claims risk is managed and controlled by means of pre-authorisation of claims, outpatient benefit limits, the use of consultant networks and agreed networks of hospitals and charges. Specific claims management processes vary across the Group depending on local requirements, market environment and practice.

Future adverse claims experience, for example, which is caused by external factors such as medical inflation, will affect cash flows after the date of the financial statements. Recent adverse claims experience is reflected in these financial statements in claims paid and in the movement in the claims provisions.

Generally, the Group’s health insurance contracts contain terms and conditions that provide for the reimbursement of incurred medical expenses for treatment related to acute medical conditions. The contracts do not provide for capital sums or indemnified amounts. Therefore claims experience is underpinned by prevailing rates of illness. Additionally, claims risk is generally mitigated by insurers running control processes to ensure that both the treatments and the resulting reimbursements are appropriate.

(iv) Reserving riskReserving risk is the risk that provisions made for claims prove to be insufficient in light of later events and claims experience. There is a relatively low exposure to reserving risk compared to underwriting risk due to the very short-term nature of our claims development patterns. The short-term nature of the Group’s general insurance contracts means that movements in claims development assumptions are generally not significant. The development claims settlement patterns are kept under constant review to maintain the validity of the assumptions and hence, the validity of the estimation of recognised general insurance liabilities.

The amount of claims provision at any given time that relates to potential claims payments that have not been resolved within one year is relatively small in the context of the Group. Also, of the small provisions that do relate to longer than one year, it is possible to predict with reasonable confidence the outstanding amounts.

(v) Other risks related to underwriting health insurance businessClaims provisions are not discounted and their short-term nature means that changes in interest rates have no impact on reserving risk. In addition, the future premium income and claims outflows of health insurance premium liabilities are largely unaffected by changes in interest rates. However, changes to inflationary factors such as wage inflation and medical provider cost inflation affect the financial soundness of health insurance businesses.

None of the Group’s general insurance contracts contain embedded derivatives so the contracts do not give rise to interest rate risk.

The Group is exposed to foreign currency risk through some of the insurance liabilities which are settled in a local currency. Where possible these liabilities are matched to assets in the relevant currency to hedge this exposure.

The majority of the Group’s general insurance activities are single line health portfolios. Even though only one line of business is involved, the Group does not have significant concentration of insurance risk for the following reasons:

– broad geographical diversity across several markets – UK, Spain, Australia, Latin America, the Middle East, Hong Kong and Thailand;

– product diversity between domestic and expatriate, and individual and corporate health insurance; and

– a variety of claims type exposures across diverse medical providers; consultants, nursing staff, clinics, individual hospitals and hospital groups.

The Group as a whole, and its principal general insurance entities, are well diversified. Only in selected circumstances does the Group use reinsurance. The reinsurance used does not give rise to a material counterparty default credit risk exposure to the Group.

(vi) Catastrophe riskEither a natural disaster or a manmade disaster could potentially lead to a large number of claims and thus higher than expected claims costs. In the majority of jurisdictions Bupa is not liable. Such risks are further reduced by excess of loss cover by Bupa and external providers. Bupa’s Centre Risk Function oversee the risk management of this risk exposure, and Bupa’s Centre Actuarial Function oversee and implement strategic improvements to ensure overall adequacy of these arrangements.



In order to reduce the risk of assets being insufficient to meet future policyholder obligations, the Group actively manages assets using an approach that balances duration, quality, diversification, liquidity and investment return.

The Group manages market risk by ensuring that the majority of its cash and investments are held with highly rated credit institutions. Where the Group has moved away from straight money market investments and invested in a limited portfolio of return seeking assets (principally bonds), the Group uses a value at risk analysis (VaR) to quantify risk, taking account of asset volatility and correlation between asset classes. This portfolio is held in the UK and Australian insurance companies and was £390.4m at 31 December 2016 (2015: £342.8m). The one year VaR measured at a 95% confidence level attributable to the portfolio is £31.0m at 31 December 2016 (2015: £20.8m).

5.4.2.1 Foreign exchange riskThe Group is exposed to foreign exchange risks arising from commercial transactions and from recognising assets, liabilities and investments in overseas operations. The Group is exposed to both transaction and translation risk. The former is the risk that a company’s cash flows and realised profits may be impacted by movements in foreign exchange rates. The latter arises from translating the financial statements of a foreign operation into the Group’s presentational currency.

The results and financial position of the Group’s foreign entities that do not have a functional currency of sterling are translated into sterling as follows:

– assets and liabilities at the exchange rate at the balance sheet date; and

– income and expenses at average rates for the period.

All foreign exchange differences arising on translation are recognised initially in the Statement of Comprehensive Income, and only in the Income Statement in the period in which the entity is eventually disposed.

The following significant exchange rates applied during the year:

Average rate Closing rate

2016 2015 2016 2015

Australian dollar 1.8234 2.0370 1.7106 2.0210

Chilean peso 916.9790 1,001.2247 826.5939 1,044.1436

Danish krone 9.1092 10.2797 8.7032 10.1194

Euro 1.2234 1.3782 1.1703 1.3560

Hong Kong dollar 10.5167 11.8520 9.5722 11.4186

New Zealand dollar 1.9473 2.1963 1.7786 2.1544

Polish zloty 5.3394 5.7671 5.1584 5.7834

Thai bhat 47.8002 52.3953 44.2258 53.0735

US dollar 1.3547 1.5288 1.2345 1.4734

In the consolidated financial statements, where a loan between Group entities results in an exchange gain or loss, then it is recognised in the Statement of Comprehensive Income to the extent that it relates to the Group’s net investment in overseas operations.

Bupa has exposure to foreign exchange risk arising from its overseas operations. Key exposures are to the Australian dollar, euro, Polish zloty, New Zealand dollar, Hong Kong dollar, Chilean peso, US dollar, Brazilian real, Singapore dollar and Thai baht. Currency exposures as at 31 December are as follows:

Net currency exposure

£m

Currency contracts

£m

Net currency exposure including

hedges £m

2016

Australian dollar 2,623.2 (248.9) 2,374.3

Euro 771.4 (384.7) 386.7

New Zealand dollar 491.4 – 491.4

Polish zloty 439.8 – 439.8

Chilean peso 366.7 3.6 370.3

Hong Kong dollar 337.8 18.6 356.4

US dollar 248.1 (219.1) 29.0

Brazilian real 37.3 4.8 42.1

Singapore dollar 32.7 21.0 53.7

Thai baht 17.9 – 17.9

Other 19.1 (3.8) 15.3

Total foreign denominated net assets 5,385.4 (808.5) 4,576.9

Percentage of Group net assets 81.9% 69.6%

5.4.2Market risk

Market risk in briefMarket risk is the risk of financial impacts due to changes in fair values or future cash flows of financial instruments from fluctuations in interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the Group’s long-term financial strategy is to facilitate growth without undue balance sheet risk.

Note


Strateg

ic repo

rtG

overn

ance


Net currency exposure

£m

Currency contracts

£m

Net currency exposure including

hedges £m

2015

Australian dollar 2,158.1 (79.0) 2,079.1

Euro 681.8 (329.0) 352.8

Polish zloty 391.4 – 391.4

New Zealand dollar 366.8 – 366.8

Hong Kong dollar 284.7 – 284.7

Chilean peso 170.0 – 170.0

US dollar 183.8 (128.5) 55.3

Danish krone 7.0 7.5 14.5

Thai baht 16.0 – 16.0

Other 21.6 – 21.6

Total foreign denominated net assets 4,281.2 (529.0) 3,752.2

Percentage of Group net assets 78.9% 69.2%

Certain forward currency contracts are entered into to hedge net monetary asset exposure and future cash flows of the Group, and do not form part of designated hedging arrangements.

Foreign currency transactions in the Group’s subsidiary companies are measured using the functional currency of the subsidiary company, which is based on the primary economic environment in which the subsidiary operates. The transactions are translated into the functional currency at the exchange rate ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate ruling at the balance sheet date; the resulting foreign exchange gain or loss is recognised in operating expenses, except where the gain or loss arises on financial assets or liabilities, when it is presented in financial income or financial expense as appropriate.

Non-monetary assets and liabilities, denominated in a foreign currency at historical cost (with the exception of deferred acquisition costs and unearned premiums) are translated using the exchange rate at the date of the transaction; therefore no exchange differences arise. Deferred acquisition costs and unearned premiums denominated in foreign currency are translated at the average exchange rate for the period. Foreign exchange differences that arise on retranslation are recognised in operating expenses.

Non-monetary assets and liabilities denominated in a foreign currency at fair value are translated using the exchange rate ruling at the date that the fair value was determined. Foreign exchange differences that arise on retranslation are recognised in operating expenses.

Transactional exposures arise primarily in the International Markets businesses as a result of differences between the currency of local revenues and costs. A programme is in place to hedge a signficant proportion of material currency exposures using forward foreign exchange contracts. These contracts are not designated hedges, but reduce the impact of foreign exchange volatility on the Company’s economic balance sheet and corresponding Solvency II capital position. The remaining currency exposures are deemed to be acceptable but are kept under review by management.

The impact of a hypothetical strengthening/weakening of sterling against the currencies below, with all other variables constant, would have increased/(decreased) equity and profit by the amounts shown below:

Strengthening 10% Weakening 10%

(Losses)/gains

included in Income

Statement £m

Losses included in

Equity £m

Gains/(losses) included in

Income Statement

£m

Gains included in

Equity £m

2016

Australian dollar (32.5) (215.8) 39.7 263.8

Euro (13.2) (39.8) 16.2 48.6

US dollar 5.2 (7.4) (6.4) 9.1

New Zealand dollar (3.7) (44.7) 4.5 54.6

Chilean peso (1.2) (40.0) 1.5 48.9

Polish zloty 1.3 (33.7) (1.6) 41.1

Hong Kong dollar (0.7) (32.4) 0.9 39.6

Singapore dollar 0.1 (4.9) (0.1) 6.0

Thai baht – (3.8) – 4.7

Brazilian real 0.1 (1.6) (0.1) 2.0

Other (4.6) (1.4) 5.7 1.7

Total sensitivity (49.2) (425.5) 60.3 520.1

2015

Australian dollar (25.2) (189.0) 30.8 231.0

Euro (7.1) (32.1) 8.7 39.2

US dollar (4.0) (5.0) 4.9 6.1

New Zealand dollar (1.5) (33.3) 1.9 40.8

Polish zloty (1.1) (35.6) 1.3 43.5

Chilean peso 1.1 (15.5) (1.3) 18.9

Hong Kong dollar (0.5) (25.9) 0.6 31.6

Danish krone (0.7) (1.3) 0.9 1.6

Other (1.0) (4.8) 1.2 5.9

Total sensitivity (40.0) (342.5) 49.0 418.6

Foreign exchange hedging activitiesThe Group manages its exposure to foreign exchange risk by entering into hedging transactions using derivative financial instruments. The Group applies fair value, cash flow and net investment hedge accounting.

The hedging relationship between a hedging instrument and a hedged item is formally documented. Documentation includes the risk management objectives and the strategy in undertaking the hedge transaction.

(a) Fair value hedgesWhere a derivative financial instrument hedges the change in fair value of a recognised asset or liability or an unrecognised firm commitment, any gain or loss on remeasurement of the hedging instrument at fair value is recognised in the Income Statement. The hedged item is fair valued for the hedged risk with any adjustment being recognised in the Income Statement.



The Group holds foreign currency forward contracts that hedge the Group’s currency exposure, which arises from holding US dollar and euro denominated financial investments classed as corporate debt securities and secured loans and government debt securities.

(b) Cash flow hedgesWhere a derivative financial instrument hedges the change in cash flows related to a recognised asset or liability, a firm commitment or a highly probable forecast transaction, it is accounted for as a cash flow hedge.

The effectiveness of a cash flow hedge is the degree to which the cash flows attributable to a hedged risk are offset by changes in the cash flows of the hedging instrument. The effective portion of any gain or loss on the hedging instrument is recognised directly in Other Comprehensive Income until the forecast transaction occurs and results in the recognition of a financial asset or liability which impacts the Income Statement. The ineffective portion of the gain or loss is recognised in the Income Statement.

If the hedged cash flow is no longer expected to take place, all deferred gains and losses are released to the Income Statement immediately. If the hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss at that point remains in Other Comprehensive Income and is recognised in accordance with the above policy when the transaction occurs.

In 2016, a foreign currency forward contract of BRL 452.0m (£102.8m) was entered into to hedge the cash outflows in relation to the acquisition of Care Plus, acquired in December 2016. The hedge resulted in a net cash flow hedge reserve loss of £8.0m.

In 2015 there were no derivative financial instruments assigned in cash flow hedge relationships to hedge foreign exchange risks.

At 31 December 2016, the cash flow hedge reserve amounts to £14.7m (2015: £20.8m).

(c) Net investment hedgingThe Group applies hedge accounting to its foreign currency exposure on a net investment basis. By designating opposing instruments in the same currency, the net exposure to currency fluctuations is reported. The Group uses foreign currency forward contracts, foreign currency zero cost collar options and foreign currency borrowings to hedge its net investment foreign exchange risk.

A collar option is an instrument that combines the purchase of a cap and the sale of a floor to specify a range in which a foreign currency rate will fluctuate. The instrument insulates the buyer against the risk of a significant weakening of a foreign currency rate, but limits the benefit of a strengthening of that foreign currency rate. Collar options are only exercised, at specified intervals, if the benchmark rate is exceeded. Settlement amounts are calculated by reference to the agreed notional amounts.

If an external foreign currency denominated loan is used as a hedge, the portion of the exchange gains or losses arising from the retranslation, that is found to be an effective hedge, is recognised in the Statement of Other Comprehensive Income. The same treatment is applied to both the realised and unrealised exchange gains and losses arising from foreign currency forward contracts and foreign currency collar options.

These hedging relationships are documented and tested as required by IAS 39.

All foreign currency forward contracts and collar options are accounted for on a fair value basis.

Australian dollar translation exposureThe Group’s Australian dollar translation exposure of £2,623.2m (AU$4,487.3m) (2015: £2,158.1m (AU$4,361.4m)) arises from the net assets of Australian dollar denominated businesses. At 31 December 2016, the Group held foreign currency forward contracts totalling a notional £206.9m (AU$353.9m) (2015: £45.7m (AU$92.4m)) and collar options totalling £58.5m (AU$100.0m) (2015: £99.9m (AU$200.0m)) to hedge a portion of net assets, which have been designated as hedges under IAS 39. At 31 December 2016, options in the money had a fair value liability of £9.1m (2015: £nil). In 2016, a £13.3m loss (2015: £nil) is reflected in Other Comprehensive Income. Collar options totalling AU$100.0m mature within one year (2015: AU$100.0m) from the balance sheet date. The forward contracts mature within one year from the balance sheet date.

Euro translation exposureEuro translation exposure of £771.4m (€902.7m) (2015: £681.8m (€924.5m)) arises from the net assets of euro denominated businesses. At 31 December 2016, the Group held euro forward foreign exchange contracts totalling £314.6m (€368.2m) (2015: £231.3m (€313.7m)) to hedge a portion of these net assets, all of which have been designated as hedges under IAS 39. The forward contracts mature within one year from the balance sheet date and are rolled forward on an ongoing basis.

Effect of foreign exchange hedging transactionsThe impact of net investment currency hedging activity is set out below. The ineffective portion of all hedges recognised in the Income Statement was £nil (2015: £nil).

(Losses)/gains included in Other Comprehensive Income are:

Currency contracts

2016 £m

2015 £m

Euro (47.0) 12.2

Danish krone (27.5) (4.5)

Australian dollar (12.2) 0.8

Total (86.7) 8.5


Strateg

ic repo

rtG

overn

ance


5.4.2.2 Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group is exposed to interest rate risk arising from fluctuations in market rates. This affects both the return on floating rate assets, the cost of floating rate liabilities and the balance sheet value of its investment in fixed rate bonds. Floating rate assets represent a natural hedge for floating rate liabilities.

The net balance on which the Group is exposed as at 31 December 2016 was £1,860.7m (2015: £2,153.8m). The rate at which maturing deposits are reinvested represents a significant potential risk to the Group, in currencies such as sterling and Australian dollar where the Group has a significant net floating cash position.

The Group has also used interest rate swaps to manage interest rate exposure whereby the requirement to settle interest at fixed rates has been swapped for floating rates. This increases the ability to match floating rate assets with floating rate liabilities.

The anticipated repayment profile of interest bearing financial liabilities is as follows:

Variable £m

Fixed £m

Total £m

2016

2017 (33.1) (63.7) (96.8)

2018 (20.3) (8.3) (28.6)

2019 (3.7) (3.1) (6.8)

2020 (385.7) (2.7) (388.4)

2021 (6.7) – (6.7)

2022-2026 (54.3) (1,271.5) (1,325.8)

After 2026 (28.9) (39.6) (68.5)

Total (532.7) (1,388.9) (1,921.6)

2015

2016 (27.3) (410.0) (437.3)

2017 (16.0) (8.2) (24.2)

2018 (15.7) (7.2) (22.9)

2019 (2.9) (2.9) (5.8)

2020 (385.0) (3.0) (388.0)

2021-2025 (17.3) (867.1) (884.4)

After 2025 (46.7) (264.8) (311.5)

Total (510.9) (1,563.2) (2,074.1)

Variable loans are repriced at intervals of between one and six months. Interest is settled on all loans in line with agreements and is settled at least annually.

The impact of a hypothetical rise of 100 bps in interest rates at the reporting date, on an annualised basis, would have increased equity and surplus by £2.4m (2015: £8.6m). The impact of a fall of 100 bps in interest rates, on an annualised basis, would have the inverse effect. This calculation is based on the assumption that all other variables, in particular foreign exchange rates, remain constant.

Interest rate hedging activitiesThe Group applies fair value hedges and cash flow hedges to hedge its exposure to interest rate risk.

(i) Fair value hedgesInterest rate swaps totalling £330.0m have been entered into to swap the fixed rate coupon on the £330.0m callable subordinated perpetual guaranteed bond to a floating rate. The swaps mature in September 2020. These interest rate swaps are designated as fair value hedges of the underlying interest rate risk on the debt. The fixed receipt occurs annually on the payment of the bond coupon in September. The variable payment is settled quarterly and the rate is reset on the floating element at this time. In the year ended 31 December 2016, the fair value movement in the bond attributable to the hedged risk amounted to a £0.4m gain (2015: £10.8m gain). The fair value movement on the interest rate swaps amount to £0.4m loss (2015: £10.8m loss).

(ii) Cash flow hedgesDuring 2009, interest rate swaps were designated to hedge the variability of cash flows associated with £26.7m (€31.3m) (2015: £29.7m (€40.3m)) of floating rate debt in Especializada Y Primaria L’Horta Manises which matures on 30 December 2018. The swaps currently cover 70.0% of the floating rate loan principal balance outstanding at the balance sheet date. At 31 December 2016, the fair value of the interest rate swap liability was £1.8m (€2.1m) (2015: £2.3m (€3.1m)). During 2016, a gain of £0.5m (€0.8m) (2015: £0.7m (€1.0m)) was recognised through Other Comprehensive Income.

Within the Bupa Chile business, cross currency swaps have been designated to hedge the variability of cash flows associated with £31.8m (CLP 26.3bn) (2015: £37.6m (CLP 39.3bn)) of floating rate debt maturing June 2018. The interest payments have been swapped from floating rate CLP to fixed rate UF (Unidad de Fomento – an inflation linked currency commonly used in Chile). At 31 December 2016, the fair value of the interest rate swap liability was £8.6m (CLP 7.1bn) (2015: £7.6m (CLP7.9bn)). During 2016, a loss of £1.0m (gain of CLP 1.3bn) (2015: gain of £0.4m (CLP 0.4bn)) was recognised through Other Comprehensive Income.

During 2016, interest rate forwards were designated to hedge the variability of cash flows associated with the £400.0m subordinated debt issued in December 2016. The interest rate depended on the UK government bond benchmark rate on debt pricing date plus a fixed credit spread. The interest rate forwards were settled in December 2016 with a gain of £0.4m recognised through Other Comprehensive Income.



Credit risk is the risk of loss in the value of financial assets due to counterparties failing to meet all or part of their contractual obligations.

Investment exposure with external counterparties is managed by ensuring there is a sufficient spread of investments and that all counterparties are rated at least A by two of the three key rating agencies used by the Group (unless specifically approved by the Corporate Finance Executive Committee).

The investment profile (including financial investments, restricted assets and cash and cash equivalents) at 31 December is as follows:

2016 £m

2015 £m

Investment grade counterparties 3,336.9 3,254.7

Non-investment grade counterparties 308.4 183.6

Total 3,645.3 3,438.3

Investment grade counterparties include restricted assets of £60.0m (2015: £55.9m). Non-investment grade counterparties are those rated below BBB–/Baa3, and mainly comprise corporate bonds, government bonds and pooled investment funds of £224.3m (2015: £128.9m), cash and cash equivalents of £84.1m (2015: £54.7m) and other loans of £nil (2015: £0.2m).

Information regarding the ageing and impairment of financial and insurance assets is shown below.

Neither past due

or impaired £m

0-3 months £m

3-6 months £m

6 months- 1 year

£m

Greater than 1 year

£mImpairment

£m

Total carrying value in

the balance sheet

£m

2016

Debt securities and other loans 847.1 – – – – – 847.1

Pooled investment funds 252.7 – – – – – 252.7

Deposits with credit institutions 1,072.8 – – – – – 1,072.8

Reinsurers’ share of insurance provisions 19.3 – – – – – 19.3

Insurance debtors1 870.8 140.0 14.1 34.5 - (17.5) 1,041.9

Investment receivables and accrued investment incomes 0.3 - - - 5.5 – 5.8

Trade and other receivables2 279.7 68.1 11.3 63.1 96.4 (20.4) 498.2

Total financial and insurance assets 3,342.7 208.1 25.4 97.6 101.9 (37.9) 3,737.8

2015

Debt securities and other loans 605.3 – – – – – 605.3

Pooled investment funds 145.9 – – – – – 145.9

Deposits with credit institutions 1,437.1 – – – – – 1,437.1

Reinsurers’ share of insurance provisions 4.8 – – – – – 4.8

Insurance debtors1 800.3 68.8 6.0 26.4 4.5 (18.2) 887.8

Investment receivables and accrued investment income 2.6 0.1 – 0.1 1.9 – 4.7

Trade and other receivables2 281.6 134.0 16.8 21.3 96.0 (15.3) 534.4

Total financial and insurance assets 3,277.6 202.9 22.8 47.8 102.4 (33.5) 3,620.0

1 Comprises insurance debtors, Medicare rebate and Risk Equalisation Trust Fund recoveries detailed in Note 3.0.2

2 Comprises trade receivables, other receivables and service concession receivables detailed in Note 3.0.1

5.4.3Credit risk

Credit risk in briefCredit risk is the risk that those that are in debt to the Group default on their obligation. Examples of credit risk would be non-payment of a trade receivable or a corporate bond failing to repay the capital sum and related interest.

Note


Strateg

ic repo

rtG

overn

ance


The carrying amount of financial and insurance assets of £3,737.8m (2015: £3,620.0m) and cash, cash equivalents and restricted assets of £1,472.7m (2015: £1,250.0m) included on the Group balance sheet represents the maximum credit exposure.

The movement in the allowance for impairment in respect of financial and insurance assets during the year was as follows:

2016 £m

2015 £m

At beginning of year 33.5 34.9

Impairment loss recognised 5.9 5.0

Additions through business combinations 1.4 –

Disposals through business combinations (0.9) –

Bad debt provision released in year (7.5) (4.5)



The Group believes no impairment allowance is necessary in respect of financial assets not past due date.

The Group considers notified disputes, significant changes in the counterparty’s financial position and collection experience in determining which assets should be impaired. The credit quality of receivables is managed at a local business unit level with uncollectable amounts being impaired when necessary.

Assets pledged as security include £60.0m (2015: £55.9m) of cash held in restricted access deposits.

The Group holds notional cash pools with banks under which overdrafts can net with cash balances held by other members of the Group. In these circumstances, where the criteria of IAS 32 are met, cash balances and overdrafts are offset in the statement of financial position. The amounts offset total £169.0m (2015: £207.5m).

The Group enters into derivative transactions under International Swaps and Derivative Association (ISDA) master netting agreements. Under such agreements the amounts owed to each counterparty may be offset as a single amount in certain circumstances. The Group does not offset these balances in the Statement of Financial Position as the right of offset is enforceable only on the occurrence of a future event such as a default.

The Group’s main source of short-term funding is via an £800.0m revolving credit facility which matures in July 2021 and was undrawn at 31 December 2016, with the exception of £6.4m of outstanding letters of credit for general business purposes. An additional committed bank facility of £250.0m was agreed in June 2016 and then cancelled following the issuance of the £400.0m unguaranteed subordinated bond on 8 December 2016.

In January 2017, Bupa Finance plc signed a £650.0m committed facility with one of its lending banks to ensure sufficient funding would be made available to complete the purchase of Oasis Dental Care in 2017. This commitment in addition to further liquidity obtained following the £400.0m bond issue in December, ensure that Bupa will retain good quality liquidity following completion of the acquisition.

The Group monitors funding risk as well as compliance with existing financial covenants within the banking arrangements. There were no concerns regarding bank covenant coverage in 2016 and that position is not expected to change in the foreseeable future.

The Group enjoys a strong liquidity position and adheres to strict liquidity management policies as set by the Risk Committee as well as adhering to certain liquidity parameters, as defined by regulatory authorities for specific regulated entities within the Group.

Liquidity is managed by currency and by considering the segregation of accounts required for regulatory purposes; short-term operational working capital requirements are met by cash-in-hand and committed bank facilities.

5.4.4Liquidity risk

Liquidity in briefLiquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due.

Note



The contractual maturities of financial liabilities and the expected maturities of insurance liabilities including estimated interest payments of the Group as at 31 December are as follows:

Subordinated liabilities

£m

Other interest bearing

liabilities £m

Provisions under

insurance contracts

issued £m

Other liabilities

under insurance contracts

issued £m

Trade and other payables1

£m

Derivative liabilities

£mTotal

£m

20162017 (65.2) (45.2) (2,594.8) (143.0) (1,569.9) (11.6) (4,429.7)

2018 (65.2) (42.4) (33.9) – (7.5) (10.4) (159.4)

2019 (65.2) (20.6) – – (8.6) – (94.4)

2020 (391.0) (21.4) – – (2.5) – (414.9)

2021 (45.0) (364.4) – – (1.1) – (410.5)

2022-2026 (1,092.0) (63.9) – – (3.3) – (1,159.2)

After 2026 – (80.6) – – (0.1) – (80.7)

Total (1,723.6) (638.5) (2,628.7) (143.0) (1,593.0) (22.0) (6,748.8)Carrying value in the Statement of Financial Position (1,316.7) (604.9) (2,628.7) (143.0) (1,593.0) (22.0) (6,308.3)

20152016 (45.2) (452.8) (2,227.3) (72.1) (1,401.7) (22.1) (4,221.2)

2017 (45.2) (57.2) (0.2) – (7.3) (1.5) (111.4)

2018 (45.2) (53.9) (0.2) – (4.4) (8.8) (112.5)

2019 (45.2) (36.8) (0.3) – (1.2) – (83.5)

2020 (370.2) (419.2) (0.4) – (1.0) – (790.8)

2021-2025 (610.3) (128.8) (6.1) – (3.9) – (749.1)

After 2025 – (241.2) (20.4) – (0.9) – (262.5)

Total (1,161.3) (1,389.9) (2,254.9) (72.1) (1,420.4) (32.4) (6,331.0)Carrying value in the Statement of Financial Position (919.4) (1,154.7) (2,255.1) (72.1) (1,420.5) (32.4) (5,854.2)

1 Comprised of trade payables, other payables, accomodation bond liabilities and accruals detailed in Note 3.0.6.

The total liability is split by remaining duration in proportion to the cash flows expected to arise during that period. Interest payments are included in the cash flows for subordinated liabilities and other interest-bearing liabilities.

Maturity profile of financial assetsThe maturity profile of financial assets as at 31 December, which are available to fund the repayment of liabilities as they crystallise, is as follows:

Cash and cash

equivalents £m

Deposits with credit

institutions £m

Government debt

securities £m

Corporate debt

securities and other loans

£m

Pooled investment

funds £m

Total £m

20162017 1,412.7 875.7 26.9 168.3 39.8 2,523.4

2018 – 99.0 8.5 186.4 135.5 429.4

2019 – 65.4 68.7 219.6 7.7 361.4

2020 – 29.3 0.6 32.3 2.0 64.2

2021 – – 0.9 52.0 5.5 58.4

2022-2026 – 3.4 20.6 38.4 38.8 101.2

After 2026 – – 23.9 – 23.4 47.3

Total 1,412.7 1,072.8 150.1 697.0 252.7 3,585.3 20152016 1,194.1 1,195.2 24.2 126.0 47.8 2,587.3

2017 – 90.9 2.1 110.4 3.9 207.3

2018 – 88.3 2.0 30.7 2.0 123.0

2019 – 35.1 0.1 24.7 3.6 63.5

2020 – 24.8 14.0 50.9 40.9 130.6

2021-2025 – 2.8 27.2 104.5 35.7 170.2

After 2025 – – 0.1 88.4 12.0 100.5

Total 1,194.1 1,437.1 69.7 535.6 145.9 3,382.4


Strateg

ic repo

rtG

overn

ance


All transactions with related parties are conducted on an arm’s- length basis.

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, provision for expected claims is made on an incurred basis.

There were no material transactions during the year with any related parties, as defined by IAS 24, other than those disclosed in this note.

(i) Transactions with key management personnelThe key management personnel are the Group’s Executive and Non-Executive Directors and includes the Chief Executive Officers of the Group’s Market Units. No director had any material interest in any contracts with Group companies at 31 December 2016 (2015: £nil) or at any time during the year. The remuneration of the Group’s Executive and Non-Executive Directors is disclosed on pages 48-52.

The total remuneration of the Market Unit Chief Executive Officers is as follows:

2016 £m

2015 £m

Short-term employee benefits 4.1 4.6

Long-term incentive plan 2.0 0.9

Post-employment benefits 0.8 0.6

Total 6.9 6.1

The total remuneration of key management personnel is included in staff costs (see Note 2.3).

(ii) Transactions in relation to the non-registered pension arrangementsThe Company has made pension commitments to certain current and former Executive Directors and key management personnel through a non-registered pension arrangement which mirrors the terms of The Bupa Pension Scheme (see Note 3.6), maturing after 2022. These unfunded benefits are governed by The Law Debenture Pension Trust Corporation Plc which is the trustee of the non-registered pension arrangement, and is secured by a charge over £55.8m (2015: £45.1m) of cash deposits (see Note 3.0.4). The increase in the charge of £10.7m during 2016 mainly reflects changes in market conditions and market-related changes in the underlying actuarial assumptions.

6.0Related party transactions

Related party transactions in briefThese are transactions between the Group and related individuals or entities by nature of influence or control. The Company has such relationships with its subsidiaries, key management personnel, equity accounted investments and associated pension arrangements. The disclosure of transactions with these parties in this section enables readers to form a view about the impact of related party relationships on the Group.

Note



(i) Operating leasesThe total value of future non-cancellable operating lease rentals is payable as follows:

2016 £m

2015 £m

Less than one year 142.0 117.0

Between one and five years 390.3 354.2

More than five years 460.0 630.6

Total operating leases 992.3 1,101.8

The Group leases a number of properties under operating leases. The leases typically run for a period of between 10 and 25 years, with an option to renew the lease after that date. Lease payments are reviewed regularly in accordance with the terms and conditions of the individual lease agreements. None of these leases include contingent rentals.

Some of the leased properties have been sub-let by the Group. Both the leased properties and the sub-leases expire between 2019 and 2024. Sub-lease receipts of £0.7m (2015: £0.8m) are expected to be received during the next financial year. The Group has an unoccupied property provision of £1.8m (2015: £2.9m) in respect of these leases (see Note 3.5). The Group leases out some of its investment properties as a lessor, see Note 3.3 for details.

(ii) Capital commitmentsCapital expenditure for the Group contracted at 31 December 2016 but for which no provision has been made in the financial statements, amounted to £128.7m (2015: £141.6m), of which £109.7m (2015: £99.8m) related to property, plant and equipment and £19.0m (2015: £41.8m) related to investment property.

(iii) Contingent assets and contingent liabilitiesThe Group currently has no contingent assets.

The Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, from which it is anticipated that the likelihood of any material unprovided liabilities arising is remote.

(iv) Pensions contributionsThe Group had an obligation to make a final special contribution to The Bupa Pension Scheme amounting to £40.0m for the year ended 31 December 2016, which was made in December 2016.

6.1Commitments and contingencies

Commitments and contingencies in briefA commitment is future expenditure that is committed to as at 31 December 2016. These commitments fall under non-cancellable operating lease payments and contracted capital expenditure. Contingent assets and liabilities are those that are considered possible at year end, whose existence will be determined by a future event.

Note


Strateg

ic repo

rtG

overn

ance


Statement of Financial Positionas at 31 December 2016

Note2016

£m2015

£m

Non-current assetsIntangible assets 7.1 27.8 29.8 Property, plant and equipment 7.2 21.1 25.1 Investment in subsidiary companies 7.11 200.1 200.1 Investment property 7.3 0.1 0.2 Other receivables 7.6 0.3 0.3 Post-employment benefit assets 7.4 474.0 408.4

723.4 663.9

Current assetsTrade and other receivables 7.6 93.2 58.5 Current taxation asset 0.2 0.2 Cash and cash equivalents 3.7 8.5

97.1 67.2 Total assets 820.5 731.1

Non-current liabilitiesPost-employment benefit net liabilities 7.4 (64.6) (51.3)Provisions for liabilities and charges 7.5 (10.7) (5.4)Deferred taxation liabilities 7.8 (59.0) (56.5)Other payables 7.6 (7.8) (7.4)

(142.1) (120.6)

Current liabilities Provisions for liabilities and charges 7.5 (3.1) (5.1)Trade and other payables 7.6 (90.6) (76.9)

(93.7) (82.0)Total liabilities (235.8) (202.6)


EquityIncome and expenditure reserve 584.3 528.1 Foreign exchange translation reserve 0.4 0.4 Total equity 584.7 528.5

Approved by the Board of Directors and signed on its behalf on 1 March 2017 by

Lord Leitch Joy LintonChairman Chief Financial Officer

7.0Company Primary Statements and Associated Notes

Company Primary Statements and Associated Notes in briefThis section consists of the Company’s primary statements including Statement of Financial Position, Statement of Cash Flows and Statement of Changes in Equity. Notes 7.1-7.11 form the associated notes to the Company financial statements.

The Company accounting policies are aligned with those of the Group, described in Notes 2-6.

Note

Notes 7.1-7.11 form part of these financial statements.



Income Statementfor the year ended 31 December 2016

The profit for the financial year recorded within the accounts of the Company, The British United Provident Association Limited (Bupa), is £58.1m (2015: £67.3m). In accordance with the exemption granted under Section 408 of the Companies Act 2006, a separate Income Statement and Statement of Comprehensive Income for the Company have not been presented. The average number of full-time equivalent employees, including Executive Directors, employed by the Company during the year was 1,689 (2015: 2,067).

Statement of Cash Flowsfor the year ended 31 December 2016

Note2016

£m2015

£m

Operating activities


Adjustments for:

Net financial expense 0.4 0.2

Depreciation, amortisation and impairment 16.8 17.2

Other non-cash items 1.1 –

Changes in working capital and provisions:

Changes in net pension asset/liability 7.4 (56.0) (52.2)

Increase/(decrease) in provisions for liabilities and charges 1.8 (4.8)

Decrease in trade and other receivables, and other assets 7.6 1.9 74.8

Increase in trade and other payables, and other liabilities 19.8 (56.0)

Cash generated from operations 3.6 29.9

Net cash generated from operations 25.9 29.9

Cash flows from investing activities

Purchase of intangible assets 7.1 (21.6) (32.3)

Proceeds from sale of intangible assets 7.1 – 15.0

Purchase of property, plant and equipment 7.2 (8.7) (4.8)

Interest received – 0.1

Net cash used in investing activities (30.3) (22.0)

Cash flow from financing activities

Interest paid (0.4) (0.4)

Net cash used in financing activities (0.4) (0.4)

Net (decrease)/increase in cash and cash equivalents (4.8) 7.5

Cash and cash equivalents at beginning of year 8.5 1.0

Cash and cash equivalents at end of year 3.7 8.5



Strateg

ic repo

rtG

overn

ance


Statement of Changes in Equityfor the year ended 31 December 2016

Note

Income and expenditure

reserve £m

Foreign exchange

translation reserve

£m

Total equity

£m

2016

At beginning of year 528.1 0.4 528.5

Profit for the financial year 58.1 – 58.1

Other comprehensive (expense)/income:

Remeasurement loss on pension scheme 7.4 (3.7) – (3.7)

Taxation charge on income and expenses recognised directly in other comprehensive income 7.8 1.8 – 1.8

Other comprehensive income for the year, net of taxation (1.9) – (1.9)

Total comprehensive income for the year 56.2 – 56.2

At end of year 584.3 0.4 584.7

2015

At beginning of year 449.7 0.4 450.1

Profit for the financial year 67.3 – 67.3

Other comprehensive income:

Remeasurement gain on pension scheme 7.4 11.0 – 11.0

Taxation charge on income and expenses recognise directly in other comprehensive income 7.8 0.1 – 0.1

Other comprehensive income for the year, net of taxation 11.1 – 11.1

Total comprehensive income for the year 78.4 – 78.4

At end of year 528.1 0.4 528.5




Intangible assets – Computer software2016

£m2015

£m

Cost


Additions 21.6 32.3

Disposals (15.1) (15.0)

Transfer to property, plant and equipment – (1.9)




Amortisation for year 9.2 10.2

Impairment loss 1.8 –

Disposals (2.5) –


Net book value at end of year 27.8 29.8

Net book value at beginning of year 29.8 24.6

7.1Intangible assets

Intangible assets in briefIntangible assets are the non-physical assets held by the Company and consists of computer software only.

Note


Strateg

ic repo

rtG

overn

ance


Property, plant and equipment2016 2015

Leasehold property

£mEquipment

£mTotal

£m

Leasehold property

£mEquipment

£mTotal

£m

Cost or valuation


Additions – 8.7 8.7 0.2 4.6 4.8

Disposals – (11.5) (11.5) – 1.9 1.9

At the end of the year 19.0 51.3 70.3 19.0 54.0 73.0



Depreciation charge for year 1.3 4.5 5.8 1.6 5.4 7.0

Disposals – (4.6) (4.6) – – –

At the end of the year 13.4 35.8 49.2 12.1 35.9 48.0

Net book value at end of year 5.6 15.5 21.1 6.9 18.1 25.0

Net book value at beginning of year 6.9 18.1 25.0 8.3 17.0 25.3

The company had no finance leased properties in the current or prior year.

7.2Property, plant and equipment

Property, plant and equipment in briefProperty, plant and equipment are the physical assets utilised by the Company to carry out business activities and generate revenues and profits. The majority of the assets held relate to office buildings, IT and other office equipment.

Note

There is currently only one office building recognised as an investment property at £0.1m (2015: £0.2m).

7.3Investment properties

Investment properties in briefInvestment properties are physical assets that are not occupied by the Group and are leased to third parties to generate rental income.

Note



The defined benefit scheme is The Bupa Pension Scheme which has been closed to new entrants since 1 October 2002. The principal defined contribution pension scheme is The Bupa Retirement Savings Plan.

The Company is the sponsoring employer for The Bupa Pension Scheme, the unfunded pension scheme and post-retirement medical benefit scheme described in Note 3.6. The actuarial assumptions underlying the valuation of obligations are detailed in Note 3.6.2.

(i) Assets and liabilities of schemesThe assets and liabilities in respect of the defined benefit funded pension scheme, unfunded pension and post-retirement medical benefit scheme are as follows:

Note

Pension schemePost-retirement benefit scheme Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

Present value of funded obligations (ii) (1,662.6) (1,262.2) – – (1,662.6) (1,262.2)

Fair value of scheme assets (iii) 2,136.6 1,670.6 – – 2,136.6 1,670.6

Net assets of funded schemes 474.0 408.4 – – 474.0 408.4

Present value of unfunded obligations (ii) (54.0) (42.8) (10.6) (8.5) (64.6) (51.3)

Net recognised assets/(liabilities) 420.0 365.6 (10.6) (8.5) 409.4 357.1

Represented on the Statement of Financial Position as:


Net liabilities (64.6) (51.3)

Net recognised assets 409.4 357.1

(ii) Present value of the schemes’ obligationsThe movement in the present value of schemes’ obligations are:

Pension schemePost-retirement

medical benefit scheme Total

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

At beginning of year 1,305.0 1,332.2 8.5 11.4 1,313.5 1,343.6

Current service cost 7.6 8.5 – – 7.6 8.5

Past service costs 0.7 – – – 0.7 –

Interest on obligations 50.7 49.3 0.3 0.4 51.0 49.7

Contributions by employees 0.1 0.1 – – 0.1 0.1

Losses/(gains) arising from changes to financial assumptions 418.4 (41.7) 1.4 – 419.8 (41.7)

Gains arising from changes to experience assumptions (24.4) (17.2) 1.1 – (23.3) (17.2)

Losses/(gains) arising from changes to demographic assumptions – 6.2 – (2.8) – 3.4

Benefits paid (52.9) (32.4) (0.7) (0.5) (53.6) (32.9)

Group transfer1 11.4 – – – 11.4 –

At end of year 1,716.6 1,305.0 10.6 8.5 1,727.2 1,313.5

1 The Clinovia pension scheme was part of the Bupa Home Healthcare business disposed of in 2016. On disposal, the pension scheme was transferred to Bupa Limited from Bupa Finance plc.

7.4Post-employment benefits

Post-employment benefits in briefThe Company operates a defined benefit and a defined contribution pension scheme for the benefit of employees and Directors, in addition to an unfunded and post-retirement medical benefit scheme.

Note


Strateg

ic repo

rtG

overn

ance


(iii) Fair value of funded scheme’s assetsThe movements in the fair value of the funded schemes’ assets are:

2016 £m

2015 £m

At beginning of year 1,670.6 1,637.5

Interest income 65.4 61.0

Return on assets excluding interest income 392.8 (44.5)

Contributions by employer 48.4 48.0

Contributions by employees 0.1 0.1

Administrative expenses (1.7) (1.5)

Benefits paid (50.3) (30.0)

Group Transfer 11.3 –

At end of year 2,136.6 1,670.6

The market value of the assets of the funded scheme is as follows:2016

£m2015

£m

Debt instruments 494.2 587.7

Gilts 801.6 522.5

Corporate bonds 753.7 450.1

Cash/other assets 53.5 –

Diversified growth funds 8.8 67.9

Equities 24.8 42.4

Total market value of the assets of the funded scheme 2,136.6 1,670.6

All assets have a quoted market price.

(iv) Amounts recognised in the Income StatementThe amounts charged/(credited) to other operating expenses for the year are:

2016 £m

2015 £m

Current service cost 7.6 8.5

Past service cost 0.7 –

Net interest on defined benefit liability/asset (14.4) (11.3)

Administrative expenses 1.6 1.5

Total amount charged to Income Statement (4.5) (1.3)

(v) Amounts recognised directly in Other Comprehensive IncomeThe amounts (credited)/charged directly to equity are:

2016 £m

2015 £m

Actual return less return on assets included within profit and loss (392.8) 44.5

Loss arising from changes to financial assumptions 419.8 (41.7)

Gain arising from changes to experience assumptions (23.3) (17.2)

Gain arising from changes to demographic assumptions – 3.4

Total remeasurement losses/(gains) charged/(credited) directly to Equity 3.7 (11.0)

The cumulative amount of actuarial losses recognised directly in equity is £0.6m as at 31 December 2016 (2015: £0.2m).



Provisions for liabilities and charges

Insurance £m

Unoccupied property

£mOther

£mTotal

£m

At beginning of year 9.7 0.8 – 10.5

Charge for year 7.5 – 2.7 10.2

Released in year – – – –

Utilised in year – cash (6.9) – – (6.9)

At end of year 10.3 0.8 2.7 13.8

Non-current 7.6 0.7 2.4 10.7

Current 2.7 0.1 0.3 3.1

Total provisions for liabilities and charges 10.3 0.8 2.7 13.8

7.6.1 Trade and other receivables2016

£m2015

£m

Non-current

Prepayments 0.3 0.3

Total non-current other receivables 0.3 0.3

Current

Amounts owed by subsidiary companies 78.1 41.5



Total current trade and other receivables 93.2 58.5

Total trade and other receivables 93.5 58.8

7.6.2 Trade and other payables2016

£m2015

£m

Non-current

Amounts owed to subsidiary companies 0.3 0.3

Accruals 7.5 7.1

Total non-current trade and other payables 7.8 7.4

Current

Amounts owed to subsidiary companies 22.9 19.8

Other payables 6.3 6.5

Accruals 61.4 50.6

Total current trade and other payables 90.6 76.9

Total trade and other payables 98.4 84.3

7.5Provisions for liabilities and charges

Provisions for liabilities and charges in briefProvisions for liabilities and charges are those not related to insurance contracts issued that require settlement in the future as a result of a past event.

7.6Working capital

Working capital in briefWorking capital represents the assets and liabilities the Company generates through its trading activities. The Company therefore defines working capital as trade and other receivables, and trade and other payables.

Note

Note


Strateg

ic repo

rtG

overn

ance


The Group’s risk management strategy is outlined in detail within Note 5.4.

The risks faced by the Company have been assessed as part of the Group’s ongoing risk management processes, a summary of these risks are outlined below:

Risk type Summary of risk assessment

Insurance risk The Company is not exposed to insurance risk.

Market risk The Company is not materially exposed to foreign exchange or interest rate risk.

Credit risk The maximum credit risk exposure of the Company is £6.7m (2015: £9.2m). The Company believes amounts owed to it by subsidiary companies carry no credit risk.

Liquidity risk The contractual maturity of financial liabilities, held by the Company, fall due within one year.

7.7Risk management

Risk management in briefThe Board is responsible for identifying, evaluating and managing risks faced by the Company and considers the acceptable level of risk, the likelihood of these risks materialising, how to reduce the risk and the cost of operating particular controls relative to the benefit of managing the related risks.

Note

Recognised deferred taxation assets and liabilitiesDeferred taxation assets and liabilities are attributable to the following:

Assets Liabilities Net

2016 £m

2015 £m

2016 £m

2015 £m

2016 £m

2015 £m

Accelerated capital allowances 5.5 2.5 – – 5.5 2.5

Post-employment benefit liability – – (69.6) (64.5) (69.6) (64.5)

Revaluation of properties to fair value 0.1 0.2 – – 0.1 0.2

Employee benefits (other than post-employment) 4.0 2.8 – – 4.0 2.8

Provisions 0.7 2.1 – – 0.7 2.1

Other 0.3 0.4 – – 0.3 0.4

Net deferred taxation asset/(liability) 10.6 8.0 (69.6) (64.5) (59.0) (56.5)

Recognised deferred taxation assetsDeferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can be utilised.

7.8Deferred taxation assets and liabilities

Deferred taxation assets and liabilities in briefDeferred tax is an adjustment to recognise the differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for taxation purposes.

Note



Movement in net deferred taxation (liabilities)/assets

At beginning of year

£m

Recognised in Income

Statement £m

Recognised in Other

Comprehensive Income

£m

At end of year

£m

2016

Accelerated capital allowances 2.5 3.0 – 5.5

Post-employment benefit (asset)/liability (64.5) (6.9) 1.8 (69.6)

Revaluation of properties to fair value 0.2 (0.1) – 0.1

Employee benefits (other than post-employment) 2.8 1.2 – 4.0

Provisions 2.1 (1.4) – 0.7

Other 0.4 (0.1) – 0.3

Total (56.5) (4.3) 1.8 (59.0)

2015

Accelerated capital allowances 2.5 – – 2.5

Post-employment benefit liability (58.6) (5.9) – (64.5)

Revaluation of properties to fair value 0.1 – 0.1 0.2

Employee benefits (other than post-employment) 2.9 (0.1) – 2.8

Provisions 4.1 (2.0) – 2.1

Other 0.1 0.3 – 0.4

Total (48.9) (7.7) 0.1 (56.5)

The Company has a related party relationship with its key management personnel and with its subsidiary companies (see Note 7.11).

(i) Transactions with key management personnelThe key management personnel for the Company are the same as for the Group. These transactions are disclosed in Note 6.0.

The total remuneration of key management personnel is included in staff costs (see Note 2.3).

(ii) Transactions in relation to the non-registered pension arrangementsThese transactions are disclosed in Note 6.0.

7.9Related party transactions

Related party transactions in briefThese are transactions between the Company and related individuals or entities by nature of influence or control. The Company has such relationships with its subsidiaries, key management personnel and associated pension arrangements. The disclosure of transactions with these parties enables readers to form a view about the impact of related party relationships on the Company.

Note


Strateg

ic repo

rtG

overn

ance


(iii) Transactions and balances with subsidiary companiesTransactions during the year Balance at 31 December

2016 £m

2015 £m

2016 £m

2015 £m

Income Statement

Management charges received 228.1 229.8

Interest income – 0.1

Interest expense (0.1) (0.1)

Income received 2.4 2.5

Expenses paid (including rental expense £6.0m (2015: £5.6m)) (7.7) (7.6)

Dividends received 147.6 138.3

Statement of Financial Position

Amounts owed by subsidiary companies 36.6 (75.4) 78.1 41.5

Amounts owed to subsidiary companies (3.1) 66.4 (22.9) (19.8)

Loans from subsidiary companies – 0.2 (0.3) (0.3)

The above outstanding balances arose during the ordinary course of business and are on substantially the same terms, including interest rates, as for comparable transactions with third parties.

(i) CommitmentsCapital expenditure for the Company contracted as at 31 December 2016 but for which no provision has been made in the financial statements amounted to £38.0m (2015: £0.2m).

(ii) Operating leasesThe Company has £51.9m of operating lease obligations (2015: £51.6m).

(iii) Pensions contributionsThe Group has no obligation to make a special contribution to The Bupa Pension Scheme for the year ending 31 December 2017.

In addition, Bupa Finance plc has entered into a legally binding and irrevocable guarantee for the benefit of the trustees of The Bupa Pension Scheme in respect of these payments.

(iv) Contingent assets and liabilitiesThe Company has given guarantees in respect of the £350.0m bond issued in 2014 by Bupa Finance plc.

The Company is party to an £800.0m revolving credit facility, together with various other companies within the Group. The revolving credit facility was undrawn at 31 December 2016 (2015: £nil). There are £6.4m of outstanding letters of credit required for general business purposes. The Company has joint and several liability for all obligations under the agreement.

7.10Commitments and contingencies

Commitments and contingencies in briefA commitment is future expenditure that is committed to as at 31 December 2016. These commitments primarily consist of contracted capital expenditure.

Contingent liabilities include bank loan and bond issue guarantees.

Note



Carrying value of investment in subsidiariesInvestments in subsidiary companies are carried at cost less impairment in the Company’s accounts. Dividends received from subsidiaries are recognised in the Income Statement when the right to receive the dividend is established.

As at 31 December 2016, the Company held investments in subsidiaries of £200.1m (2015: £200.1m).

In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associated undertakings and significant holdings in undertakings other than subsidiary undertakings, the registered addresses and the effective percentage of equity owned, as at 31 December 2016 are disclosed below.

Fully owned subsidiaries registered at Bridge House, Outwood Lane, Horsforth, Leeds, LS18 4UP, England Unless stated otherwise, the subsidiaries below are 100% held by Group companies.

Name Share class

ANS 2003 Limited £0.01 Ordinary

ANS Limited £0.10 Ordinary

Bede Village Management Limited £1.00 Ordinary

Belmont Care Limited1 £0.50 Ordinary

Bridge Health Investments Limited £1.00 Ordinary

Bupa Care Homes (AKW) Limited £1.00 Ordinary

Bupa Care Homes (ANS) Limited £1.00 Ordinary £1.00 Special share

Bupa Care Homes (Bedfordshire) Limited £1.00 Ordinary

Bupa Care Homes (BNH) Limited £1.00 Ordinary

Bupa Care Homes (BNHP) Limited1 £1.00 Ordinary

Bupa Care Homes (CFCHomes) Limited £1.00 Ordinary

Bupa Care Homes (CFG) plc £0.25 Ordinary

Bupa Care Homes (CFHCare) Limited £1.00 Ordinary €0.000001 redeemable preference

Bupa Care Homes (Developments) Limited £1.00 Ordinary

Bupa Care Homes (GL) Limited £1.00 Ordinary

Bupa Care Homes (HH Bradford) Limited £1.00 Ordinary

Bupa Care Homes (HH Hull) Limited £1.00 Ordinary

Bupa Care Homes (HH Leeds) Limited £1.00 Ordinary

Bupa Care Homes (HH Northumberland) Limited £1.00 Ordinary

Bupa Care Homes (HH Scunthorpe) Limited £1.00 Ordinary

Bupa Care Homes (HH) Limited £1.00 Ordinary

Bupa Care Homes (Partnerships) Limited £1.00 Ordinary

Bupa Care Homes Group Limited £1.00 Ordinary

Bupa Care Homes Limited £1.00 Ordinary

Bupa Care Services Limited £0.20 Ordinary

Calverguild Limited £1.00 Ordinary

Name Share class

Ebbgate Nursing Homes Limited £1.00 Ordinary

Ebbgate Nursing Homes (London) Limited £1.00 Ordinary

Goldsborough Estates Limited £1.00 Ordinary

Richmond Care Villages Holdings Limited £1.00 Ordinary

Richmond Care Villages (Property) Limited £1.00 Ordinary

Richmond Coventry Limited £1.00 Ordinary

Richmond Letcombe Limited £1.00 Ordinary

Richmond Nantwich Developments Limited £1.00 Ordinary

Richmond Nantwich Limited £1.00 Ordinary

Richmond Nantwich Properties Limited £1.00 Ordinary

Richmond Northampton Limited1 £1.00 Ordinary

Richmond Northampton Management Limited1 £1.00 Ordinary

Richmond Painswick Management Company Limited1 £1.00 Ordinary

Richmond Villages Operations Limited £1.00 Ordinary

Watertight Investments Limited £1.00 Ordinary

Fully owned subsidiaries registered at Bupa House, 15-19 Bloomsbury Way, London, WC1A 2BA, EnglandUnless stated otherwise, the subsidiaries below are 100% held by Group companies.

Name Share class

Andrew Greenwood Ltd £1.00 Ordinary

Aqua Dental Spa Limited £1.00 Ordinary

BHS (Holdings) 2006 Limited £1.00 Ordinary

Bupa Care Homes (Holdings) Limited £1.00 Ordinary

Bupa Care Homes (PT Lindsay) Limited £1.00 Ordinary

Bupa Care Homes (PT Lindsay Prop) Limited £1.00 Ordinary

Bupa Care Homes (PT Links Prop) Limited £1.00 Ordinary

Bupa Care Homes (PT Links) Limited £1.00 Ordinary

Bupa Care Homes (PT) Limited £1.00 Ordinary

Bupa Dental Services Limited £1.00 Ordinary

Bupa Europe Investments Limited1 £1.00 Ordinary

Bupa Europe Limited £1.00 Ordinary

Bupa Finance plc2 £1.00 Ordinary

Bupa Financial Investments Limited1 £1.00 Ordinary

Bupa Global Holdings Limited €1.00 Ordinary €0.01 Ordinary

£1.00 Ordinary

Bupa Health at Work Limited1 £1.00 Ordinary

Bupa Healthcare Services Limited £1.00 Ordinary

Bupa Insurance Limited £1.00 Ordinary

Bupa Insurance Services Limited £1.00 Ordinary

Bupa Investments Limited £1.00 Ordinary

7.11Investments in subsidiaries

Investments in subsidiaries in briefBelow is a summary of all investments in subsidiaries held by the Company.

Note


Strateg

ic repo

rtG

overn

ance


Name Share class

Bupa Investments Overseas Limited AUD 1.00 Redeemable preference CLP 1.00 Redeemable preference €1.00 Redeemable preference PLN 1.00 Redeemable preference US$1.00 Redeemable preference £1.00 Ordinary

Bupa Limited1 £1.00 Ordinary

Bupa Occupational Health Limited £1.00 Ordinary

Bupa Pension Scheme Trustees Limited1 £1.00 Ordinary

Bupa Secretaries Limited £1 .00 Ordinary

Bupa Treasury Limited £1.00 Ordinary

Bupa Trustees Limited £1.00 Ordinary

Bupa Wellness Group Limited1 £0.01 Ordinary

Cranbrook Dental Practice Limited £1.00 Ordinary

David Row Limited £1 .00 Ordinary

Health Dialog UK Limited1 £1.00 Ordinary

In Store Dental Limited £1.00 Ordinary

K R Postlethwaite Ltd £1.00 Ordinary

Lab 53 Limited £1.00 Ordinary

Occupational Health Care Limited £1.00 Ordinary £1.00 Redeemable preference

Paul Coulthard Ltd £1.00 Ordinary

Perlan Limited £1.00 Ordinary

Personal Effectiveness Centre Limited £1.00 Ordinary

Plainprime Limited1 £1.00 Ordinary

Stephen E B Jones Ltd £1.00 Ordinary

Store Dental Care Limited £1.00 Ordinary

The Smile Centres Limited £1 .00 Ordinary

Ultimate Smile Spa Ltd £1.00 Ordinary

Fully owned subsidiaries registered at Level 16, 33 Exhibition Street, Melbourne VIC 3000, AustraliaUnless stated otherwise, the subsidiaries below are 100% held by Group companies.

Name Share class

Australia Fair Dental Care Pty Ltd AUD Ordinary

Bupa Aged Care Australasia Pty Limited AUD Ordinary AUD Preference

Bupa Aged Care Australia Holdings Pty Ltd AUD Ordinary

Bupa Aged Care Australia Pty Ltd AUD Ordinary

Bupa Aged Care Holdings Pty Ltd AUD Ordinary

Bupa ANZ Finance Pty Ltd AUD 1.00 Ordinary

Bupa ANZ Group Pty Ltd AUD Ordinary

Bupa ANZ Healthcare Holdings Pty Ltd AUD Ordinary

Bupa ANZ Insurance Pty Ltd AUD Ordinary AUD Preference

Bupa ANZ Property 1 and 2 Limited AUD Ordinary

Bupa ANZ Property 3 and 3A Pty Ltd AUD Ordinary

Bupa Dental Corporation Limited AUD Ordinary

Bupa Disability Services Pty Ltd AUD 1.00 Ordinary

Name Share class

Bupa Health Services Pty Ltd AUD Ordinary

Bupa HI Holdings Pty Ltd AUD Ordinary

Bupa HI Pty Ltd AUD Ordinary

Bupa Innovations (ANZ) Pty Ltd AUD Ordinary

Bupa Medical (GP) Pty Ltd AUD Ordinary

Bupa Medical Services Pty Limited AUD Ordinary

Bupa Optical Pty Ltd AUD Ordinary

Bupa Telehealth Pty Ltd AUD Ordinary

Bupa Wellness Pty Limited AUD Ordinary

DC Holdings WA Pty Ltd AUD Ordinary

Dental Care Network Pty Ltd AUD Ordinary

Dental Corporation Australia Fair Pty Ltd AUD Ordinary

Dental Corporation Cox Pty Ltd AUD Ordinary

Dental Corporation Gerber Pty Ltd AUD Ordinary

Dental Corporation Holdings Limited AUD Ordinary

Dental Corporation Levas Pty Ltd AUD Ordinary

Dental Corporation Petrie Pty Ltd AUD Ordinary

Dental Corporation Pty Ltd AUD Ordinary

Dr Chris Hardwicke Pty Ltd AUD Ordinary

Gerber Dental Group Pty Ltd AUD Ordinary

Larry Benge Pty Limited AUD Ordinary

Scott Petrie (Dental) Pty Ltd AUD Class E AUD Class F AUD Ordinary

Fully owned subsidiaries registered at 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong KongUnless stated otherwise, the subsidiaries below are 100% held by Group companies.

Name Share class

Allied Medical Practices Guild Limited HKD 1.00 Ordinary

Case Specialist Limited HKD 1.00 Ordinary

DB Health Services Limited HKD 1.00 Ordinary

Great Option Limited HKD 1.00 Ordinary

Jadeast Limited HKD 1.00 Ordinary

Jadefairs International Limited HKD 1.00 Ordinary

Jadison Investment Limited HKD 1.00 Ordinary

Jadway International Limited HKD 1.00 Ordinary

Marvellous Way Limited HKD 1.00 Ordinary

Megafaith International Limited HKD 1.00 Ordinary

Quality HealthCare Dental Services Limited HKD 1.00 Ordinary

Quality HealthCare Medical Centre Limited HKD 100.00 Ordinary

Quality HealthCare Medical Services Limited HKD 1.00 Ordinary

Quality HealthCare Nursing Agency Limited HKD 1.00 Ordinary

Quality HealthCare Physiotherapy Services Limited HKD 1.00 Ordinary

Quality HealthCare Professional Services Limited HKD 1.00 Ordinary

Quality HealthCare Psychological Services Limited HKD 1.00 Ordinary

Quality Healthcare TPA Services Limited HKD 1.00 Ordinary



Fully owned subsidiaries registered elsewhereUnless stated otherwise, the subsidiaries below are 100% held by Group companies.

Name Country Share class

Bupa Aged Care Property No.2 Trust Level 19, 201 Kent Street, Sydney 2000, Australia Australia AUD 1 .00Unit

Bupa Aged Care Property No.3 Trust Level 14, 255 George Street, Sydney, NSW 2000, Australia Australia AUD 1.00 Unit

Bupa Aged Care Property No.3A Trust Level 14, 255 George Street, Sydney, NSW 2000, Australia Australia AUD 1.00 Unit

Bupa Aged Care Property Trust Level 19, 201 Kent Street, Sydney 2000, Australia Australia AUD 1.040422 Units AUD 1.00 Unit AUD 1.178896 Units

Amedex Insurance Company (Bermuda) Limited Crawford House, 4th Floor, 50 Cedar Avenue, Hamilton, HM11, Bermuda Bermuda BMD 1.00 Ordinary

Bupa Insurance (Bolivia) S.A Santa Cruz – AV. San Martin No 1800, Equipetrol, Bolivia Bolivia BOB 100.00 Ordinary

Bupa Do Brasil Saúde Ltda Rua James Watt, 84, 10th floor, CEP 04576-050, São Paulo, Brazil Brazil BRL 1.00 Quota

Care Plus Medicina Assistencial Ltda City of Barueri, State of São Paulo, at Avenida Sagitário, No. 138, office 1905 and 1906, Zip Code 06473-073

Brazil R$ 1.00 Quota

Care Plus Negócios Em Saúde Ltda City of Barueri, State of São Paulo, at Avenida Sagitário, No. 138, office 2113, Zip Code 06473-073

Brazil R$ 1.00 Quota

Personal System Serviços Médicos e Odontológicos Ltda

Av. das Nações Unidas, no. 12,901, unit 901, Torre Oeste, Bloco C, Centro Empresarial Nações Unidas, Brooklin Paulista, Zip Code-04578-000

Brazil R$1.00 Quota

Service Care Participações e Negócios S.A. Av. Sagitário, no. 138, 19th floor – conjunto 1915, Condomínio Alpha Square Torre 2, City of Barueri, State of São Paulo

Brazil R$ Common shares R$ Preferred shares

Bupa Guernsey No 2 Limited 1st & 2nd Floors, Elizabeth House, Les Ruettes Brayes, St Peter Port, GY1 1EW, Guernsey

Channel Islands £1.00 Ordinary

Bupa Holdings (Guernsey) Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands


Bupa Holdings (Jersey) Limited1 13 Castle Street, St Helier, JE4 5UT, Jersey Channel Islands NZD 1.00 Ordinary

Bupa LeaseCo Holdings Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands

Channel Islands £1 .00Ordinary

Bupa LeaseCo. (Guernsey) Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands


UK Care No. 1 Limited PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands

Channel Islands £1 .00 Ordinary

Virgo Limited1 PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, Channel Islands


Bupa Chile S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Bupa Chile Servicios Corporativos SpA Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary

Bupa Inversiones Latam S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Cruz Blanca Compania De Seguros De Vida S.A. Cerro El Plomo 6.000, piso 2, Las Condes, Santiago, Chile Chile CLP Ordinary

Grupo Bupa Sanitas Chile Uno, SpA Avenida El Golf 40, piso 20, Las Condes, Santiago, Chile Chile CLP 1,000.00 Ordinary

Inmobiliaria Y Constructora CBS S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Inversiones Clinicas CBS S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Proisa Aseosorias SpA Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary

Servicios Clinicos Domiciliarios S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Servicios De Personal Clinico CBS Dos S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary

Bupa Consulting (Beijing) Co. Ltd. Room 07-08, 3rd floor, Building 1, 21st Century Plaza, 40A Liangmaqiao Road, Chaoyang District, Beijing, 100125, China

China HKD 1.00 Ordinary

Guangzhou Bupa First Outpatient Facility Company Limited

Unit 305A -305, 3/F, GT Land Autumn Plaza, No.11, 13 ZhuJiang East Road, ZhuJiang New Town, Tianhe District, Guangdong Province, China

China CNY 1.00 Ordinary

Guangzhou Bupa Hospital Management Company Limited

Unit 03, 13/F, No.604 RenMin North Road, Yuexiu District, Guangzhou, China China CNY 1.00 Ordinary

Quality EAP (Macau) Limited Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau China MOP 1.00 Ordinary

Quality Healthcare Medical Services (Macau) Limited

Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau China MOP 1.00 Ordinary

Bupa Denmark Services A/S Palaegade 8, 1261 Copenhagen K, Denmark Denmark DKK 100.00 Ordinary

Amedex Medical Group, S.R.L. Av. Gustavo Melia Ricart, No. 81, Terre Profesional Biltmore II, Suite 1007, Piantini, Santo Domingo, Dominican Republic

Dominican Republic

DOP 1,000.00 Quota

Bupa Dominicana, S.A. Av. Winston Churchill, corner with Rafael Augusto Sanchez, Plaza Acropolis, Apt. P2-D, Santo Domingo, Dominican Republic

Dominican Republic

DOP 1,000.00 Ordinary

Bupa Egypt Insurance Bupa Global S.A.E. Building 55, Street 18, Maadi, Cairo, Egypt Egypt EGP 10.00.Ordinary


Strateg

ic repo

rtG

overn

ance



Bupa Egypt Services LLC Building 55, Street 18, Maadi, Cairo, Egypt Egypt EGP 100.00 Ordinary

Bupa Malta Investments No. 1 Limited1 9/3a International Commercial Centre, Casemates Square, Gibraltar Gibraltar £1.00 Ordinary

Bupa Malta Investments No. 2 Limited1 10/8 International Commercial Centre, Casemates Square, Gibraltar Gibraltar £1.00 Ordinary

Bupa Guatemala, Compania de Seguros, S.A. Quinta avenida número cinco guión cincuenta y cinco, Zona catorce de esta ciudad, Edificio Europlaza World Business Center, Torre III, undécimo nivel, área corporativa número un mil, Guatemala

Guatemala GTQ 1.00 Ordinary

Bupa (Asia) Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 10.00 Ordinary

Bupa International Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 1.00 Ordinary

Bupa Limited 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong Hong Kong HKD 1.00 Ordinary

Bupa Mexico, Compania de Seguros, S.A. de C.V. Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion, C.P. 11000, Mexico City

Mexico MXN 1,000.00 Capital Stock Series E (fixed) MXN 1,000 Capital Stock Services M (variable)

Bupa Servicios Administrativos de Salud, S. de R.L. de C.V.1

Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion, C.P. 11000, Mexico City

Mexico US$1.00 Ordinary

Bupa Servicios de Evaluacion Medica, S. de R.L. de C.V.



Bupa Servicios Ejecutivos de Salud, S. de R.L. de C.V.1



BI Healthcare Holdings BV B-tower, sixth floor, Schiphol Boulevard 409, 1118 BK Amsterdam, Netherlands Netherlands €1.00 Ordinary

Bupa Holdings Overseas Cooperatief B.A. B-tower, sixth floor, Schiphol Boulevard 409, 1118 BK Amsterdam, Netherlands Netherlands € Membership capital

Bupa Care Services NZ Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD Ordinary

Bupa Retirement Villages Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD Ordinary

Dental Corporation (NZ) Limited Level 5, 5-7 Kingdon Street, Newmarket, Auckland, New Zealand New Zealand NZD 1.00 Ordinary

Bupa Panama S.A. Prime Time Tower, Floor 25, Office 25 b La Rotonda Ave, Costa del Este, Panama Panama US$1,000.00 Ordinary

Integramedica Peru S.A.C. Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary

Centrum Medyczne Diagnostyka sp. z.o.o. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 100.00 Ordinary

Centrum Opieki Medycznej Comed Sp. z.o.o. ul. Elblaska 135, 80-718, Gdansk, Poland Poland PLN 500.00 Ordinary

Diagnostic – Med. Centrum Diagnostyki Radiologicznej Sp. z.o.o.

Grunwaldzka 16/18 Street, 60-780, Poznan, Poland Poland PLN 500.00 Ordinary

Elba 1 Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary

Elblaska Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary

Euro-Clinic Sp. z.o.o. ul. Pilotow, nr 2, 31-462, Krakow, Poland Poland PLN 50.00 Ordinary

Lux Med Lodz Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Ordinary

LUX MED Sp. z.o.o. ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 500.00 Ordinary

LUX-MED Investment Spolka Akcyjna ul. Postepu 21 C Street, 02-676, Warsaw, Poland Poland PLN 50.00 Series A PLN 50.00 Series B PLN 50.00 Series C

Medicor Centrum Medyczne sp. z.o.o. 35-068 Rzeszow, Stanislawa Jablonskiego, 2/4 Street, Poland Poland PLN 1,000.00 Ordinary

Medicor sp. z.o.o. 35-068 Rzeszow, Stanislawa Jablonskiego, 2/4 Street, Poland Poland PLN 1,000.00 Ordinary

Medika Uslugi Medyczne Sp. z.o.o. Kuznicka 1 Street, 72-010, Police, Poland Poland PLN 50.00 Ordinary

Megamed Sp. z.o.o. Czapliniecka 93/95, 97-400, Belchatow, Poland Poland PLN 1,000.00 Ordinary

Tomograf Sp. z.o.o. ul. Stefana Batorego 17/19, 87-100 Torun, Poland Poland PLN 500.00 Ordinary

Amedex Services Ltd. (St Kitts) Amory Building, Victoria Road, Basseterre, St. Kitts, Saint Kitts and Nevis Saint Kitts and Nevis

US$1.00 Capital Stock

Bupa Singapore Holdings Pte Ltd 600, North Bridge Road, #05-01 Parkview Square, 188778, Singapore Singapore SGD Ordinary

Elegimosalud S.L.U Calle Ribera Del Loira , 52 – 28042, Madrid, Spain Spain €1.00 Ordinary

Especializada y Primaria L’Horta-Manises, S.A.U. Avenida Generalitat Valenciana no 501, Valencia, Spain Spain €1.00 Ordinary

Grupo Bupa Sanitas S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €100.00 Ordinary

La Seu Valencia S.L.U. calle Gobernador Viejo, 21, Valencia, Spain Spain €1.00 Ordinary

Sanitas Emision S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €1.00.Ordinary

Sanitas Holding, S.L.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €1.00 Ordinary

Sanitas Mayores Navarra S.L. Avda Marcelo Celayeta, 144 – Pamplona (31014), Spain Spain €60.10 Ordinary

Sanitas Mayores Pais Vasco S.A. c/ Eguskiaguirre no.8, 48902, Baracaldo, Bilbao, Spain Spain €120.00 Ordinary

Sanitas Mayores S.L. Calle Tuset 5 – 11, Barcelona, Spain Spain €651.28 Ordinary




Sanitas Nuevos Negocios S.L.U. Calle Ribera Del Loira, 52 – 28042, Madrid, Spain Spain €1.00 Ordinary

Sanitas S.L. de Diversificacion S.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €6.02 Ordinary

Sanitas, S.A. de Hospitales S.U. C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €6.01 Ordinary

LMG Forsakrings AB Box 27093, 102 51, Stockholm, Sweden Sweden €1,000.00 Ordinary

Bupa Global Middle East (DIFC) Limited Unit 10, Level 3, Gate Village Building 10, Dubai International Financial Centre, Dubai, UAE, PO Box 507019, United Arab Emirates

United Arab Emirates

US$1.00 Ordinary

Bupa Care Homes (Carrick) Limited 39 Victoria Road, Glasgow, G78 1NQ United Kingdom £1.00 Ordinary

Cromwell Health Group Limited Cromwell Hospital, Cromwell Road, London, SW5 0TU United Kingdom £1.00 A Ordinary

Medical Services International Limited Cromwell Hospital, Cromwell Road, London, SW5 0TU United Kingdom £1.00 Ordinary

Bupa Insurance Company 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$1.25 Capital Stock

Bupa Investment Corporation, Inc. 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$1.00 Capital Stock

Bupa U.S. Holdings, Inc. 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$0.01 Common Stock

Bupa Worldwide Corporation 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$5.00 Capital Stock

U.S.A. Medical Services Corporation 17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States United States US$5.00 Capital Stock

Altai Investments Limited PO Box 957, Offshore Incorporations, Centre, Road Town, Tortola, Virgin Islands, British

Virgin Islands, British

HKD 1.00 Ordinary USD 1.00 Ordinary

Berkshire Group Limited PO Box 957, Offshore Incorporations, Centre, Road Town, Tortola, Virgin Islands, British


USD 1.00 Ordinary

Dynamic People Group Limited PO Box 957, Offshore Incorporations, Centre, Road Town, Tortola, Virgin Islands, British


USD 1.00 Ordinary

Subsidiary undertakings

Name Registered Address Country Share classEffective holdings (%)

Bupa Servicios de Salud SpA3 Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 100.00

Examenes De Laboratorio S.A.4 Avenida Italia 1056, Providencia, Santiago, Chile Chile CLP Ordinary 100.00

Integramedica S.A.5 Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 100.00

Sonorad I S.A. 4 Las Bellotas No.200, Providencia, Sanitago, Chile Chile CLP Ordinary 100.00

Sonorad II S.A. 4 Las Bellotas No.200, Providencia, Sanitago, Chile Chile CLP Ordinary 100.00

Isapre Cruz Blanca S.A. Cerro Colorado 5240, Piso 7, Las Condes, Santiago, Chile Chile CLP Ordinary 99.01

Clinica Renaca S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 88.60

Desarrollo E Inversiones Medicas S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 88.60

Inmobiliaria Centro Medico Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.44

Inversiones Clinicas Pukara S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Centro Medico Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Inmobiliaria Somequi S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Servicios Y Abastecimiento A Clinicas S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Sociedad De Resonancia Magnetica Del Norte S.A.

Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Sociedad Medico Quirurgica De Antofagasta S.A. Manuel Antonio Matta 1945, Antofagasta, Chile Chile CLP Ordinary 85.43

Sociedad Medica Imageneologia Clinica Renaca Limitada

Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Social Rights 70.88

Sociedad De Inversiones Pacasbra S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 69.19

Centro De Diagostico Avanzado San Jose S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 69.98

Corporacion Medica de Arica S.A. Doctor Juan Noe 1370, Arica, Chile Chile CLP Ordinary 68.97

Promotora De Salud S.A. Anabaena 336, Jardin del Mar, Renaca, Vina del Mar, Chile Chile CLP Ordinary 67.03

Recaumed S.A. Cerro Colorado 5240, Piso 11, Las Condes, Santiago, Chile Chile CLP Ordinary 58.40

Bupa Ecuador S.A. Compania de Seguros6 Av. Republica de El Salvador N34-229, 4th Floor, Quito, Ecuador

Ecuador USD 1.00 Capital Stock

100.00

Central Medical Diagnostic Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong

Hong Kong HKD 1.00 Ordinary 70.00


Strateg

ic repo

rtG

overn

ance


Name Registered Address Country Share classEffective holdings (%)

Central MRI Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong


Central PET/CT Scan Centre Limited 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong


MediPeru S.A.C Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary 99.97

Anglolab S.A. Av. Guardia Civil 664 San Isidro, Lima, Peru Peru PEN Ordinary-A 70.00

Pory 78 Sp. z.o.o. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 100 Ordinary 98.91

Centrum Diagnostyki Obrazowej Sp. z.o.o. Broniewskiego 89 Street, 01-876, Warsaw, Poland Poland PLN 50 Ordinary 98.54

Centrum Edukacji Medycznej CEMED Sp. z.o.o. Broniewskiego 89 Street, 01-876, Warsaw, Poland Poland PLN 7,000.00 Ordinary

98.54

Service Medica Sp. z.o.o. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 50.00 Ordinary 98.54

Sport Medica S.A. Pory 78 Street, 02-757 Warsaw, Poland Poland PLN 1.00 Ordinary-A PLN 1.00 Ordinary-B PLN 1.00 Ordinary-C PLN 1.00 Ordinary-D PLN 1.00 Ordinary-E PLN 1.00 Ordinary-F

98.54

Niepubliczny Zaklad Opieki Zdrowotnej Przychodnia Lekarska “POGORZE” Sp. z.o.o.

Porebskiego 9 Street, 81-185, Gdynia, Poland Poland PLN 200.00 Ordinary

88.15

Lux Med Tabita Sp. z.o.o. ul. Dluga 43, 05-510 Konstancin Jeziorna, Poland Poland PLN 100.00 Ordinary 88.00

Magodent Sp. z.o.o. ul. Gen. Augusta Emila Fieldorfa “Nila” 40, Warszawa, 04-125, Poland

Poland PLN 50.00 Ordinary 80.00

Endoterapia Sp. z.o.o. Brzeska 12 Street, 03-737, Warsaw, Poland Poland PLN 1,000.00 Ordinary

80.00

Sanitas S.A. de Seguros C/ Ribera del Loira no 52, 28042 Madrid, Spain Spain €0.68 Ordinary 99.90

Torrejon Salud, S.A. Calle Mateo Inurria 1, Urb. Soto de Henares, 28850– Torrejón de Ardoz, Madrid, Spain

Spain €1,000 Ordinary 60.00

Bupa Health Insurance (Thailand) Public Company Limited

98, Sathorn Square Office Tower, 14th-15th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand

Thailand THB 100.00 Ordinary 74.83

Healthcare Management Company Limited 98, Sathorn Square Office Tower, 14th-15th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand

Thailand THB 100.00 Ordinary THB 100.00 Preference

73.99

Minor Health Enterprises Limited 98, Sathorn Square Office Tower, 14th-15th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand

Thailand THB 100.00 Ordinary THB 100.00 Preference

61.75



Significant holdings in undertakings other than subsidiary undertakingsAssociates

Name Registered Address Country Direct/Indirect Share classEffective holdings (%)

Centro De Imagenes Medicas Avanzadas San Jose S.A.

Doctor Juan Noe 1370, Arica, Chile Chile Indirect CLP Ordinary 48.28

Sociedad Instituto De Cardiologia Del Norte Limitada

Manuel Antonio Matta 1945, Antofagasta, Chile Chile Indirect CLP Social Rights 42.71

Forsikringens DataCenter A/S Lautrupvang 3A, DK-2750 Ballerup, Denmark Denmark Indirect DKK 1.00 Ordinary 33.33

Max Bupa Health Insurance Company Limited

Max House, 1, Dr Jha Marg, Okhla, New Delhi, 110020, India India Indirect INR 10.00 Ordinary 49.00

Endoterapia PFG Sp. z.o.o Al. Niepodleglosci 18, 02-653, Warsaw, Poland Poland Indirect PLN 50.00 Ordinary 32.00

Bupa Arabia For Cooperative Insurance Company

Al-Khalidiyah-Nour Al Ehsan 3538, Unit 1 Jeddah 7505-23423, P.O. Box 23807, Jeddah, 21436, Saudi Arabia

Saudi Arabia Indirect SAR 10.00 Ordinary 26.25

Bupa Holdings (Thailand) Limited

98, Sathorn Square Office Tower, 14th-15th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand

Thailand Indirect THB 100.00 Ordinary 49.00

Healthcode Limited Swan Court, Waterman’s Business Park, Kingsbury Crescent, Staines, Surrey, England, TW18 3BA, UK

United Kingdom Indirect £1.00 A Ordinary £1.00 E Ordinary

20.00

Highway to Health, Inc One Radnor Corporate Center, Suite 100, Radnor, PA 19087, United States

United States Indirect US$0.01 Ordinary 49.00

HTH Re, Ltd United States United States Indirect US$1.00 Ordinary 49.00

HTH Worldwide, LLC United States United States Indirect US$1.00 Ordinary 49.00

Worldwide Insurance Services, LLC

United States United States Indirect US$1.00 Ordinary 49.00

Joint Ventures

Name Registered Address CountryEffective holdings (%)

Mobile Dental Pty Ltd Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Australia 49.00

SmartGenRx Pty Limited Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Australia 38.71

Bupa Middle East Holdings Two W.L.L.

Flat 41, Building No. 962, Road 1812, Block 318, Manama/Al Hoora, Bahrain Bahrain 50.00

Alpha Medical MRI (TST) Limited

3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong Hong Kong 65.00

Centrum Edukacyjne Medycyny Sportowej Sp. z.o.o.

Marszalkowska 99 A lok. 5B Street, 00-693, Warsaw, Poland Poland 49.27

Nazer Bupa Medical Equipment Company Limited

P.O. Box 5958 Jeddah 21432, Khaldyah Dist. Bin Suliman Centre 6th floor, Prince Sultan Road, Jeddah, Saudi Arabia

Saudi Arabia 50.00

Bupa CSH Limited Bupa House, 15-19 Bloomsbury Way, London, WC1A 2BA, England United Kingdom 50.00

Fulford Grange Medical Centre Limited1

Bridge House, Outwood Lane, Horsforth, Leeds, LS18 4UP, England United Kingdom 50.00

1 Dormant

2 Directly owned by The British United Provident Association Limited.

3 Bupa Servicios de Salud SpA is 99.99861% owned by the Group.

4 Examenes De Laboratoria S.A., Sonorad I S.A. and Sonorad II S.A. are 99.99860% owned by the Group.

5 Integramedica S.A. is 99.9986% owned by the Group.

6 Bupa Ecuador is 99.999846% owned by the Group.


Strateg

ic repo

rtG

overn

ance


(i) Consolidation of entities in which the Group holds less than 50%Bupa Health Insurance (Thailand) plcThe directors have concluded that the Group controls Bupa Health Insurance (Thailand) plc and its holding companies; Bupa Holdings (Thailand) Ltd, Minor Health Enterprises Ltd and Healthcare Management Co Ltd.

The Group holds 25% of the voting rights of Bupa Health Insurance (Thailand) Plc directly along with a 49% minority interest in the holding companies mentioned above, that in turn hold the other 75% of the voting rights. The articles of these holding companies require shareholder decisions to be unanimous, meaning that the holding companies are unable to exercise any actions without the Group’s agreement.

Eurocredit Investment Fund 1 plcEurocredit Investment Fund is a structured entity set up for the purpose of investing in primary and secondary secured loans. Bupa is the only company contributing investment capital but the nominal share capital is held by a charitable trust. The Group participates in the risks and rewards, but 100% minority interest is recognised due to the Group holding no share of the ownership.

UK Care No 1 LimitedDuring 2016, the Group acquired 100% of UK Care No 1 Limited, a structured entity incorporated for the purposes of issuing the Group’s secured loans which were repaid in 2016. In 2015, 100% minority interest was recognised due to the Group holding no share of the ownership but participating in the risks and rewards.

(ii) Subsidiary significant restrictionsThere are no significant restrictions on the subsidiaries ability to access or use the assets to settle the liabilities of the Group. The Group’s insurance entities are subject to local regulatory requirements.

(iii) Non-controlling interests (NCI)Set out below is summarised financial information for each subsidiary that has non-controlling interests material to the Group. The amounts disclosed for each subsidiary are before intercompany eliminations.

Bupa acquired 56.4% of the shares in Bupa Chile on 24 February 2014 and on 5 December 2015 exercised its option to acquire an additional 17.3% of the shares, bringing the total ownership to 73.7% at 31 December 2015. The Group acquired 100% ownership of Bupa Chile in 2016 with the transaction occurring in two stages; on 8 January 2016 the Group secured a further 26% interest, with the remaining 0.3% shareholding acquired on 26 February 2016. Please see acquisitions in Note 4.0 for further detail.

On 22 April 2016, the Group increased its shareholding in Torrejón Salud S.A. From 50% to 60%.

8.0Non-controlling interests

Non-controlling interests in briefAdditional disclosure is provided for entities which are consolidated where the Company does not hold a 100% interest.

Note



Summarised Statement of Financial Position

Torrejón 40.0% NCI

Torrejón 50.0% NCI

Bupa Chile 0.0% NCI

Bupa Chile 26.3% NCI

2016 £m

2015 £m

2016 £m

2015 £m

Current assets 60.2 41.9 – 109.9

Current liabilities (45.0) (32.5) – (172.4)

Current net assets/(liabilities) 15.2 9.4 – (62.5)

Non-current assets 89.9 77.8 – 387.3

Non-current liabilities (88.4) (73.9) – (139.9)

Non-current net assets 1.5 3.9 – 247.4

Net assets 16.7 13.3 – 184.9

Accumulated NCI 6.7 6.7 – 48.6

Summarised Statement of Other Comprehensive Income

Torrejón 40.0% NCI

Torrejón 50.0% NCI

Bupa Chile 0.0% NCI

Bupa Chile 26.3% NCI

2016 £m

2015 £m

2016 £m

2015 £m

Revenue 81.1 71.0 – 656.3

Profit for the period 1.3 (5.9) – (1.9)

Profit allocated to NCI 0.5 (3.0) – (1.2)

Dividends paid to NCI – – – (1.4)

Summarised cash flows

Torrejón Bupa Chile

2016 £m

2015 £m

2016 £m

2015 £m

Cash flow from operating activities (6.9) (3.3) – 0.4

Cash flow from investing activities – – – (16.6)

Cash flow from financing activities 5.8 2.5 – 5.0

Net decrease in cash and cash equivalents (1.1) (0.8) – (11.2)


Strateg

ic repo

rtG

overn

ance


2016 £m

2015 £m

2014 £m

2013 £m

2012 £m

Revenue – segmental analysis

Australia & New Zealand 4,360.6 3,648.4 3,759.6 3,791.8 3,554.0

UK 2,785.9 2,857.8 2,711.2 2,573.5 2,528.8

Europe & Latin America 2,474.7 2,027.4 2,036.3 1,497.2 1,190.8

International Markets 1,427.8 1,295.7 1,271.6 1,196.6 1,099.3

Net reclassifications to other expenses or financial income and expense (1.1) (0.9) (0.9) (0.4) 0.9

Unallocated central revenues – – – – 0.1

Consolidated total revenues 11,047.9 9,828.4 9,777.8 9,058.7 8,373.9

Reorganised Market Unit structure is detailed in Note 2.0.

Claims and expenses

Operating expenses (including claims) (10,436.3) (9,250.1) (9,143.9) (8,497.8) (7,840.4)

Impairment of goodwill – (114.1) – (20.7) –

Impairment of other intangible assets arising on business combinations (20.7) – (0.7) (12.8) –

Other income and charges (38.9) (40.6) 12.9 (7.1) (3.2)

Total claims and expenses (10,495.9) (9,404.8) (9,131.7) (8,538.4) (7,843.6)

Profit before financial income and expense 552.0 423.6 646.1 520.3 530.3

Financial income and expense (29.1) (49.3) (36.9) (5.9) 54.8

Profit before taxation expense 522.9 374.3 609.2 514.4 585.1

Taxation expense (136.1) (96.0) (86.4) (103.0) (134.9)

Profit for the financial year 386.8 278.3 522.8 411.4 450.2

Attributable to:

Bupa 381.6 278.3 515.7 405.6 439.7

Non-controlling interests 5.2 – 7.1 5.8 10.5

Profit for the financial year 386.8 278.3 522.8 411.4 450.2

Equity

Property revaluation reserve 706.1 632.3 707.9 700.2 631.9

Income and expenditure reserve and other reserves 5,228.2 4,797.9 4,590.7 3,940.6 3,544.9

Cash flow hedge reserve 14.7 20.8 20.0 25.0 25.1

Foreign exchange translation reserve 595.3 (96.9) 71.4 182.8 590.1

Equity attributable to Bupa 6,544.3 5,354.1 5,390.0 4,848.6 4,792.0

Equity attributable to non-controlling interests 30.7 69.5 78.4 22.2 25.9

Total equity 6,575.0 5,423.6 5,468.4 4,870.8 4,817.9

9.0Five year financial summary

Five year financial summary in briefThe five year financial summary provides a five year time summary in order to better understand trends.

Note


International Financial Reporting Standards relevant to Bupa

International Financial Reporting Standards (IFRS)IFRS 3 Business combinationsIFRS 4 Insurance contractsIFRS 5 Non-current assets held for sale and discontinued

operationsIFRS 7 Financial instruments: disclosuresIFRS 8 Operating segments IFRS 10 Consolidated financial statementsIFRS 11 Joint arrangementsIFRS 12 Disclosure of interests in other entitiesIFRS 13 Fair value measurement

International Accounting Standards (IAS)IAS 1 Presentation of financial statementsIAS 2 InventoriesIAS 7 Cash flow statementsIAS 8 Accounting policies, changes in accounting estimates

and errorsIAS 10 Events after the reporting dateIAS 12 Income taxesIAS 16 Property, plant and equipmentIAS 17 LeasesIAS 18 RevenueIAS 19R Employee benefitsIAS 20 Accounting for government grants and disclosure

of government assistanceIAS 21 The effects of changes in foreign exchange ratesIAS 23 Borrowing costsIAS 24 Related party disclosuresIAS 27 Consolidated and separate financial statementsIAS 28 Investments in associatesIAS 32 Financial instruments: presentationIAS 36 Impairment of assetsIAS 37 Provisions, contingent liabilities and contingent assetsIAS 38 Intangible assetsIAS 39 Financial instruments: recognition and measurementIAS 40 Investment property

InterpretationsIFRIC 4 Determining whether an arrangement contains a leaseIFRIC 9 Reassessment of embedded derivativesIFRIC 10 Interim financial reporting and impairmentIFRIC 12 Service concession arrangementsIFRIC 13 Customer loyalty programmesIFRIC 14 The limit on a defined benefit asset, minimum funding

requirements and their interactionIFRIC 16 Hedges of a net investment in a foreign operationIFRIC 17 Distributions of non-cash assets to ownersIFRIC 18 Transfer of assets from customersIFRIC 21 LeviesSIC 15 Operating leases – incentivesSIC 27 Evaluating the substance of transactions involving the

legal form of a leaseSIC 29 Service concession arrangements: disclosuresSIC 32 Intangible assets – website costs

Designed and produced by: Friend www.friendstudio.com

Print: Pureprint Group

This report has been printed on Edixion Challenger Offset which is FSC® certified and made from 100% Elemental Chlorine Free (ECF) pulp. The mill and the printer are both certified to ISO 14001 environmental management system and registered to EMAS the eco management Audit Scheme. The report was printed using vegetable-based inks by a CarbonNeutral® printer.

Cover photo Our cover photo was taken at our Sanitas La Zarzuela hospital in Spain. Our Spanish business is leading the way in the development of digital technology to enhance care and services, aiming to provide a seamless, comprehensive experience for clinicians and patients. The photograph shows how clinicians are able to share and discuss scans with patients in a more personalised interaction.

Registered office

Bupa House15–19 Bloomsbury WayLondon WC1A 2BA

For further copies of this document+44 (0)20 7656 2300

Corporate affairs+44 (0)20 7656 2176

The British United Provident Association Limited is a company limited by guarantee.

Registered in England No. 432511.

‘Bupa’ and the master brand logo are registered trade marks of the British United Provident Association Limited.

Bupa A

nnual Rep

ort 2016

Documents

Annual Report 2016 - Bupa/media/files/site-specific-files/our... · Bupa Annual Report 2016 01 Strategic report Governance Financial tatements Financial performance summary 1