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1 Solvency and Financial Condition Report Solvency and Financial Condition Report Bupa Insurance Limited 31 December 2016 Contents Summary ................................................................................................................................................. 3 A. Business and Performance................................................................................................................. 7 A.1 Business ........................................................................................................................................ 7 A.2 Underwriting performance ............................................................................................................. 9 A.3 Investment performance .............................................................................................................. 10 A.4 Performance from other activities ................................................................................................ 11 A.5 Any other information .................................................................................................................. 11 B. System of Governance ..................................................................................................................... 12 B.1 General information on the system of governance ...................................................................... 12 B.2 Fit and proper requirements ........................................................................................................ 14 B.3 Risk management system including Own Risk and Solvency Assessment ................................ 15 B.4 Internal control system ................................................................................................................ 18 B.5 Internal audit function .................................................................................................................. 18 B.6 Actuarial function ......................................................................................................................... 19 B.7 Outsourcing ................................................................................................................................. 19 B.8 Any other information .................................................................................................................. 20 C. Risk Profile ....................................................................................................................................... 21 C.1 Underwriting risk .......................................................................................................................... 21 C.2 Market risk ................................................................................................................................... 22 C.3 Credit risk .................................................................................................................................... 24 C.4 Liquidity risk ................................................................................................................................. 24 C.5 Operational risk ........................................................................................................................... 24 C.6 Other material risks ..................................................................................................................... 25 C.7 Any other information .................................................................................................................. 25 D. Valuation for Solvency Purposes ..................................................................................................... 27 D.1 Assets .......................................................................................................................................... 28 D.2 Technical provisions .................................................................................................................... 30 D.3 Other liabilities ............................................................................................................................. 33 D.4 Alternative methods for valuation ................................................................................................ 35 D.5 Any other information .................................................................................................................. 35 E. Capital Management ......................................................................................................................... 36 E.1 Own Funds .................................................................................................................................. 36 E.2 Solvency Capital Requirement and Minimum Capital Requirement ........................................... 38 E.3 Use of the duration-based equity risk sub-module in the calculation of the SCR ....................... 39 E.4 Differences between the standard formula and any internal model used ................................... 39 E.5 Non-compliance with the Minimum Capital Requirement and Solvency Capital Requirement ... 39 E.6 Any other information .................................................................................................................. 39 Directors’ responsibility statement ........................................................................................................ 40 Independent auditor’s opinion ............................................................................................................... 41 Glossary ................................................................................................................................................ 44 Annex - Reporting templates ................................................................................................................ 45 Bupa Insurance Limited Solvency and Financial Condition Report 2016 Summary (Unaudited) BUSINESS AND PERFORMANCE SUMMARY Bupa Insurance Limited (BINS or “the Company”) is part of the Bupa Group (“the Group”). The ultimate parent undertaking of the Company is The British United Provident Association Limited (“Bupa”). Bupa’s status, as a company limited by guarantee with no shareholders, enables the Group to make customers its absolute focus. This means the Group can reinvest its profits to provide more and better healthcare for current and future customers. As a service organisation, everything Bupa does for its customers relies on its people and partners, so being a place where people love to work is critical to its success. Bupa employs 86,000 people principally in the UK, Australia, Spain, Hong Kong, Poland, New Zealand, Chile, Brazil, Thailand, China, Saudi Arabia, India and the U.S. Around 70% of Bupa’s revenue is from health insurance, with the rest from health and care provision. Bupa funds healthcare around the world and runs clinics, dental centres, hospitals, care homes and retirement villages in a number of countries. Bupa’s refreshed strategic framework is driving the next phase of the Group’s development 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 it does. Bupa’s refreshed strategic framework: BINS is Bupa’s UK short-term health, dental and travel insurance underwriter and reinsurer through which the domestic UK Private Medical Insurance (UK PMI) and International Private Medical Insurance (IPMI) businesses write insurance contracts. 3 Bupa Insurance Limited Solvency and Financial Condition Report 2016 BINS strategic focus is to deliver great customer outcomes and long-term profitable growth. Our priorities include: Customer experience, delivering great value and care. Strengthened risk and compliance management. Health risk management, assuring quality and supporting customer affordability. Customer growth and retention, meeting the needs of different customer segments across our domestic UK PMI and global IPMI markets. Continued focus on operational efficiency ensuring value for money for all of our customers. BINS is authorised by the Prudential Regulation Authority (PRA) and regulated by both the Financial Conduct Authority (FCA) and the PRA. SYSTEM OF GOVERNANCE SUMMARY The Company recognises the importance of strong corporate governance and has established a well-defined governance framework, system of control and committee structure. BINS and Bupa Insurance Services Limited (BISL) are collectively known as the Regulated Entities. BISL is a fellow Group company which provides operational services to BINS, including the provision of insurance mediation and administrative services. The BINS and BISL Boards, collectively known as the Regulated Entities Board (“the Board”), operate within the agreed strategy, risk appetite and policies of the Bupa Board. The Regulated Entities Board Committee structure is as follows: The Company employs a ‘three lines of defence’ governance model to ensure that risk management is effective, appropriate decisions are made and best practice is implemented and maintained. Broadly the responsibility of the three lines is as follows: First line: business management is responsible for the identification and assessment of risks and controls, as well as for developing and implementing mitigation plans where necessary. Second line: risk functions provide support and challenge the completeness and accuracy of risk assessments and the adequacy of mitigation plans. Third line:
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