bupa bupa Registered office The British United Provident Bupa House Association Limited is a company 15-19 Bloomsbury Way limited by guarantee. London WC1A 2BA

Registered in England No. 432511. A

For further copies of this document 2010 report nnual ‘Bupa’ and the Heartbeat logo are +44 (0)20 7656 2300 registered service marks. Press office +44 (0)20 7656 2454

bupa Annual report 2010 w i t h yo u t h r o u g h l i f e

RA / 2010 www.bupa.com

2 0 1 0 h i g hl i g h t s

Group revenues 5 year record Group underlying 5 year record (up 9%) surplus before tax

06 £3,827.2m 06 £359.1m £7.58bn 07 £4,250.1m £464.9m 07 £374.2m 2009: £6.94bn 08 £5,923.9m 2009: £428.2m 08 £413.4m 09 £6,941.4m 09 £428.2m 10 £7,576.0m 10 £464.9m

Group revenues by segment Surplus by segment*

Care Services £1,182.9m Care Services £139.7m

Europe and North America £2,999.5m Europe and North America £116.7m

International Markets £3,394.0m International Markets £208.9m

Throughout the annual report and accounts: Equity 5 year record Underlying surplus before taxation expense excludes non-recurring items (mainly adjustments relating to amortisation of other intangible assets attributable arising on business combinations, impairment of goodwill and other to Bupa 06 £1,917.1m intangible assets, profit / (loss) on sale of businesses and assets, the impact 07 £3,347.4m of property revaluations, realised and unrealised foreign exchange gains and losses and the absolute return on return seeking assets). £4.37bn 08 £3,587.5m *Surplus by segment refers to surplus for reportable segment. 2009: £3.95bn 09 £3,949.1m 10 £4,366.4m

Printed on Revive 50:50 Offset – an FSC certified recycled paper containing 50% recovered waste and 50% virgin fibre and is manufactured at a mill which is accredited with the ISO 14001 environmental management standard. Printed by Fulmar Designed and produced by Salterbaxter Business review w h o w e ar e

Bupa’s purpose is to help people lead longer, healthier, happier lives. A leading international healthcare group, we offer personal and corporate health insurance, workplace health services and health Governance assessments. We also run care homes for older people, operate hospitals and provide chronic disease management services. With no shareholders, we invest all our profits to provide more and better healthcare. Apart from providing Financial statements healthcare funding solutions, we are committed to making patient centred healthcare more accessible in the areas of wellness, chronic disease management and ageing. c o n t e n t s

Business review Governance Financial statements

2 Bupa and the changing 38 Directors and advisers 50 Independent Auditors’ report healthcare landscape 40 Report of the Board 51 Financial statements 3 chairman’s statement of Directors 119 Five year financial summary 4 chief Executive’s review 41 corporate governance 120 International Financial Reporting statement Standards relevant to Bupa 6 our strategy 45 Remuneration report 8 With you and your family 48 statement of Directors’ through life responsibilities 10 healthy employees are happier and more productive 12 supporting public health systems 14 Partnering with healthcare professionals

16 our markets 18 our markets: Europe and North America 22 our markets: International Markets 24 our markets: Care Services

26 Group Finance Director’s report 30 sustainability report 34 Risks and uncertainties

Bupa Annual Report 2010 1 b u pa a n d t h e c h a n gi n g h e a lt h c ar e l a n d s c ap e

a g e i n g a g e i n g

Trend: How Bupa is making 300% a difference: According to Alzheimer’s £77m Disease International, In 2010, Bupa invested by 2050, the number over £77m in developing of people living with its care homes in the dementia worldwide is UK, Spain, Australia and predicted to increase by New Zealand, opening over 300% to 115 million. four new homes and four C h r o n i c care home extensions, d i s e a s e including specialist dementia facilities. Trend: 70% Chronic diseases account for more than 70% of Across the world, healthcare costs in many the rise of chronic countries including the disease, ageing US, England and Spain. populations, changing consumer C h r o n i c expectations and d i s e a s e escalating medical costs are driving How Bupa is making a difference: fundamental change in healthcare markets 400% W e l l b e i n g Health Dialog’s chronic disease management Trend: services were proven to deliver a: £17bn ° 400% return on According to the investment; and a Confederation of British ° 10% reduction in Industry, sickness absence hospital admissions by The New England costs the UK economy W e l l b e i n g £17bn a year. Journal of Medicine in September 2010. How Bupa is making a difference: 80% Bupa helps over 80% of FTSE 100 companies in the UK to keep their workforce healthy and productive through workplace health services.

2 Bupa Annual Report 2010 Business review C h airma n ’ s s tat e m e n t

alone, preventative healthcare and workplace health services are also becoming increasingly important for businesses. Through our health insurance products and services across the Group, we are helping millions of people not only access high quality healthcare when they are unwell, but also identify and make the lifestyle changes that will positively impact their health. Governance Alongside these efforts, as health inflation in every major economy continues to exceed the growth of GDP, we are Lord Leitch Chairman also innovating to provide affordable healthcare for the long-term, including harnessing effective new technologies, such as home healthcare services, to benefit patients and Using our expertise to help address the public healthcare providers we work with. healthcare trends Across the world, the rise of ageing populations, chronic Health underpins our sustainability agenda disease, changing consumer expectations and escalating We are committed to using our healthcare expertise in medical costs are driving fundamental change in healthcare a way that supports the delivery of Bupa’s strategy, is markets. As an international healthcare group, with over good for society and better for the environment – doing 11 million customers in more than 190 countries and over good beyond our current customer base through our six decades of healthcare expertise, Bupa is uniquely people, products and services, as well as our community Financial statements placed not only to identify the challenges facing the partnerships. healthcare sector, but also to help address them. This goes Bupa is shaping its sustainability agenda to concentrate to the heart of our purpose of helping people live longer, on where we can create the greatest public value, with a healthier, happier lives. strong focus on keeping people well, empowering them As a Group, our wide geographic footprint allows us to with their health and supporting a healthy planet. More see first hand that ageing populations are creating new information about sustainability challenges, and our patterns of disease in many of the markets in which we response to them, can be found on pages 30 to 33. operate. Dementia, for example, is anticipated to increase Board news by over 300% to affect 115 million people worldwide by In 2010, we welcomed Rita Clifton to the Board as a new 2050. Through our Care Services division, we are helping to Director of Bupa. In addition to being a Non-Executive improve the quality and availability of aged and dementia member of the Board, Rita is Chairman and former Chief care for older people in the UK, Spain, Australia and New Executive of Interbrand and is a member of the board of Zealand. In 2010, we invested over £77m in developing our Dixons Retail plc. She has previously been on the board care homes, opening four new homes and four care home of the Judge Business School in Cambridge and EMAP extensions, across our portfolio. plc and has also served on the Sustainable Development In each of the major markets in which we operate, the Commission. Rita is currently Chairman of Populus Limited, number of people living with chronic disease is rising. a Trustee of WWF (Worldwide Fund for Nature) and a The financial impact of this trend is considerable, with visiting professor of Henley Business School. a staggering 70% of healthcare costs in Spain, the US Bupa people at the heart of our success and England now spent on chronic illness. As such, how Without question, Bupa’s people are a vital ingredient best to treat and manage chronic disease – for the good in our success. Their commitment to care – and to go of patients and public finances – is one of the biggest the extra mile – for our customers is a common mindset issues facing public health systems today. Through Health right across the Group. We also have a highly skilled and Dialog, our chronic disease management business, we are experienced management team that has proven itself developing innovative approaches to support patients over many years and particularly during the current weak make informed healthcare decisions and to coach them economic conditions in some of our markets. Ray King and to manage their health better, including the management his senior team have been supported by all of our people of complex chronic diseases. In 2010, The New England around the world and I thank them for all their commitment Journal of Medicine independently found that Health to supporting our customers with their healthcare needs Dialog’s chronic disease management services deliver throughout life. a 400% return on investment and reduce hospital admissions by 10%. At the same time, consumer expectations about healthcare are also changing wholesale. Our customers tell us that they want expert support to keep well and more choice and control over their healthcare when they are ill. With Lord Leitch sickness absence costing the UK economy £17bn in 2010 Chairman

Bupa Annual Report 2010 3 c h i e f e x e c u t i v e ’ s r e v i e w : i n c o n v e r s at i o n wi t h ray K i n g

Cash generation was excellent, with net cash generated from operating activities after capital expenditure at £623.2m. Total borrowings declined by £201.8m to £1,288.8m, with leverage reduced to 23% (2009: 27%). Capital expenditure remained strong at £171.2m (2009: £197.1m) as we continued to invest in our businesses to provide more and better healthcare. Bupa’s customer base increased by 4% to 11.2 million customers.

Ray King Chief Executive What challenges did the Group face during the year? 2010 was a year of mixed conditions in our major markets. Bupa enjoyed benign economic conditions and good growth in markets such as Australia and Asia, Bupa delivered a good trading demonstrating once again the benefits of the Group’s performance in 2010, despite international scale and range of healthcare businesses. The UK, US and Spanish economies, however, remained mixed economic conditions in challenging, with high unemployment levels and weak consumer confidence. At the same time, we saw health some of our markets. reform agendas in the UK and US create uncertainty.

How would you summarise 2010 for Bupa? How did each of Bupa’s divisions perform? Bupa delivered a good trading performance in 2010 with The Europe and North America division delivered a resilient underlying surplus increased for the third successive year performance, despite weak economic conditions, high since the start of the global recession, despite mixed unemployment levels, the impact of government deficit economic conditions in some of our markets. reduction measures and the uncertainty created by health We achieved strong growth in our insurance businesses reform agendas in the UK and US. This performance in Australia and Asia and increased operational efficiency was achieved through a focus on customer retention, in our businesses in Europe and North America, where operational efficiency and the delivery of differentiated market conditions were more challenging. We maintained and compelling products and services. Overall revenues performance in Care Services in the UK by focusing increased by 1% to £2,999.5m, surplus grew 14% to on occupancy and managing costs carefully, despite £116.7m and insurance customer numbers were ahead by downward pressure on public sector fees. We also 1%. The advance in profitability was driven in particular delivered good growth in Care Services in Australia and by BHW, following an improvement in margins and the New Zealand, where market conditions were more benign. implementation of a significant restructuring programme. How did the Group perform? BHW delivered a good performance, growing revenues Group revenues grew by 9%. Our underlying surplus before and increasing surplus, despite continuing economic taxation increased by 9% to £464.9m, with strong advances uncertainty and high unemployment levels in the UK. This by our International Markets division and Bupa Health and performance was achieved through a focus on customer Wellbeing UK (BHW). retention, restructuring the business to improve efficiency, the launch of a range of new products and services and Group surplus before taxation was down by £298.5m to actions taken to improve margins. £118.0m as an increase in underlying surplus generated by Bupa’s businesses units was offset by goodwill impairments Sanitas, the leading healthcare brand in Spain, continued of £249.2m. These impairments were attributable to to benefit from its integrated business model, which sustained weak economic conditions and continuing combines insurance and provision assets and offers real healthcare reforms in the US and UK, which have impacted differentiation in a highly competitive marketplace. This near term prospects for Health Dialog and Bupa Home integrated model helped the business to deliver revenue Healthcare. Goodwill for The Bupa Cromwell Hospital was and surplus growth, despite challenging economic also impaired, as we have allocated additional investment conditions. This performance was supported by the launch required for the development of the hospital, which is of new products, a focus on efficiency and the impact of important to Bupa’s position in the London market. We the first full year of operations at the public hospital run by remain fully committed to these businesses and are Sanitas in Manises, Valencia. confident of their ability to generate value for the Group. In the US, in the face of challenging market conditions, Amortisation and impairment charges amounted to Health Dialog restructured the business to realign its cost £52.4m (2009: £54.2m) and a net charge to the income base and focused on customer retention. The business also statement of £35.1m was made, arising from the revaluation developed new propositions and launched in Australia at of properties (offset by net revaluation gains of £82.2m the end of the year. reflected in revaluation reserves). The disposal of non-core businesses in Australia and the UK gave rise to a book loss of £18.1m.

4 Bupa Annual Report 2010 Business review

Bupa’s International Markets division, which includes health Finally, we believe in making our international healthcare insurance businesses in Australia, Asia, Latin America and knowledge and the scale of our Group count for customers the Middle East, delivered an excellent performance in at local level. This means harnessing our expertise and 2010. Overall revenues grew by 20% to £3,394.0m and talent and sharing it across business units and markets. One surplus increased by 25% to £208.9m, driven by a strong example of how we are doing this is the rolling out of Care operating performance in Bupa Australia and favourable Services award winning “Personal Best” staff recognition foreign exchange movements, primarily due to the strong programme from the UK to Australia, New Zealand and Governance Australian dollar. Growth in surplus, excluding the impact Spain in 2010. of foreign exchange movements and acquisitions and It is these three overarching strategic priorities that disposals, was 15%. underpin our business strategies and the future growth Customer numbers grew strongly across the division by and development of our portfolio in 2011 and beyond. 6%, with the most notable increase in Bupa Arabia, an As a Group, we will continue to focus on differentiation in associated company, which reached one million customers, our existing markets, while expanding into new markets and Bupa Australia, which also completed the integration to bring Bupa’s healthcare partner capabilities to a wider of MBF and launched a single product suite in the second customer base. half of the year. Care Services continued to perform well despite increasing How would you describe the outlook for Bupa pressure on public sector budgets, notably in the UK, where and what are your priorities for 2011? the impact of both the Comprehensive Spending Review In 2011, with continued growth in Asia Pacific and Latin Financial statements and White Paper on Health produced uncertainty within America, we anticipate further strong momentum for our local government and the NHS. This impacted aged care businesses in these markets. In Australia, in particular, fees and referrals, as well as new business in Bupa Home our newly merged business is in an excellent position Healthcare. The division benefited, however, from more to develop an increasingly differentiated proposition benign economic conditions in Australia and New Zealand. for customers. In this environment, Care Services focused on managing In Europe and the US, high unemployment levels are occupancy and costs to maintain profitability. Revenues likely to continue to impact our health insurance related for the division increased, driven by a strong performance businesses in the near term. In this environment, we will in Australia, New Zealand and improved results in Spain. maintain our focus on operational efficiency and customer Surplus was marginally ahead on the previous year and retention, while continuing to develop compelling new occupancy was maintained at 88.2% (2009: 88.3%). products and services that respond to our customers’ changing healthcare needs and that allow them to exercise Bupa remains committed to developing its portfolio of care choice and control in healthcare. homes. Over £77m was invested in building, extending or refurbishing homes to provide the best environment for In Care Services, we anticipate Australia and New Zealand care. Throughout the year, we provided expert information will continue to perform well. In the UK, while demographic to governments in all markets to help shape the social care trends support good long-term growth, we expect pressure agenda, including actively participating in the Commission on public spending on aged care to continue to constrain on Funding of Care and Support in England. performance in the short-term. We will therefore maintain our focus on occupancy and managing costs, while What is your strategy for the Group? continuing to invest in the development of our care homes Helping people live longer, healthier, happier lives is Bupa’s portfolio, with a focus on dementia care. unifying purpose. The way we do this is to use our expertise Across the Group, the long-term drivers of growth in healthcare, developed over six decades, to support our remain strong. The global trends of advances in medical customers to get the most out of life, for life. Our ambition technology, the increasing incidence of chronic disease, is to become their healthcare partner throughout life. the rise of ageing populations and changing consumer To achieve this ambition, we are focused on three expectations about healthcare will drive demand for our strategic priorities. products and services. We are well positioned to take advantage of these trends given our international scale, Firstly, developing high quality, good value products that trusted brands, excellent market positions and strong respond to our customers’ changing healthcare needs and balance sheet. allow them to exercise choice and control in healthcare. Secondly, we are committed to using our expertise in healthcare to help people make more informed decisions about their health, improving their health outcomes and driving high standards in clinical governance and quality. We are also dedicated to working with individuals, companies, providers and governments to manage escalating medical costs.

Bupa Annual Report 2010 5 Our strategy drives our direction

h e l pi n g p eo p l e l i v e lo n g e r , h e a lt h i e r , h appi e r l i v e s

Helping people live longer, We are also committed to healthier, happier lives is at the broadening access to quality heart of everything we do. We healthcare even as medical costs believe in using our expertise in rise by targeting care more healthcare, developed over six effectively, delivering better decades, to help our customers patient outcomes and driving get the most out of life, for life. more efficient services. We want to be seen as a Across the world, we are making healthcare partner to our better healthcare and healthy customers. This ambition means lifestyles more accessible by we are focused on helping increasing choice, driving quality, millions of people around the and controlling cost. world stay well, on managing chronic illness to enhance quality of life and on continually improving care for older people.

6 Bupa Annual Report 2010 Business review 7 pa

his means means his T g Bupa Annual Report 2010 n i n e B u B e O 3 . our making in believe We healthcare international of scale the and knowledge customers for count Group our level. local at best expertise, our harnessing sharing and talent and practice and markets across them of benefit the for units business customers. our all also are we Group, a As that ensuring to committed only not do we everything commercial our to contributes for good also is but success, environment. the and society e ip

ar g s h n r e di lt h c l i a ad l e B u h e We are committed to using our our using to committed are We help to healthcare in expertise informed more make people health, their about decisions outcomes health their improve standards high drive and and governance clinical in dedicated also are We quality. individuals, with working to and providers companies, rising manage to governments broaden help to costs medical healthcare. affordable to access 2 . r i t i e s o

d d t e n i c p r i a g ia g n pi e n t c e s r u c t s i e d v o r s e D e v e lo pr diff u r s t r at e ur focus is on developing high high developing on is focus ur o support our ambition to be a healthcare partner for our customers, we are focused on the following on the following focused are we our customers, partner for be a healthcare o support our ambition to o T priorities: strategic in healthcare. in quality, good value products products value good quality, customers’ our to respond that needs healthcare changing them allow and life throughout control and choice exercise to O 1 . wi t h yo u a n d yo u r fami ly t h r o u g h l if e

We believe in being there for our customers in wellness as well as sickness. Helping them to access high quality healthcare when they are ill and offering guidance and support to help them make lifestyle changes that will positively impact their health.

n I K K I ’ s s to r y: at t h e c u t t i n g e dg e o f c a n c e r t r e at m e n t

About a year ago, Nikki Culleton was diagnosed with a cancerous tumour in her lacrimal gland — a tiny part of the eye that helps to produce tears. Nikki explains: “Once I was diagnosed, there was no hanging around worrying or waiting for treatment. Thanks to my Bupa health to pinpoint cancerous cells insurance, I had surgery to and target them precisely. remove my tumour just six days after diagnosis. I then “Finding out you have cancer began radiotherapy at The is terrifying. You just want Bupa Cromwell Hospital someone to take your hand in London. Conventional and guide you through the treatment would have whole process. For me, that’s damaged my eye, but what makes Bupa special — thankfully the hospital has I have a whole team one of the most modern supporting me and making radiotherapy techniques sure I have the best available called Tomo treatment each step Therapy, allowing doctors of the way.”

8 Bupa Annual Report 2010 Business review 9

ia p l dia e e ra k

nI n i ust t ens a a s to e r b Bupa Annual Report 2010 e t ces e l l 700 offices has already Bupa Max network a and India in cities 9 in across hospitals 700 over of country. the i 1 in 5 in 1 a significant saw 1 in 5 residents in their depression improvement of of the introduction as a result dementia gardens. m gard

v w ar

r ia e

d the senses

H

n g

f n a e se ent

i c u s to t m pa s g ar a e u a n d b c t ul lt h y i pi x a u n c ho n pa th im u a t ma l A h e h e l b Bupa launched In Australia, six at dementia gardens the homes across care benefiting in 2010, country residents. 1,000 around designed are gardens The the physical improve to of and mental wellbeing gardens The residents. with residents provide and sensory cognitive their through stimulation designs, therapeutic which included beach for a green areas, activities, such as lawn and an aviary. bowling, In 2010, Bupa launched its firstever health insurance product in India through its joint venture, In 2010, Sanitas launched three preventative health preventative launched three Sanitas In 2010, concern of health issues specific target to programmes gynaecology including a cardiology, customers, for programme Each programme. and baby and mother medical check ups, with regular customers provides so that diagnosis tests early specialists, clinical to access quickly can be identified and addressed health issues maintain help customers to resources and educational free available are programmes living habits. The healthy them keep help to all Sanitas customers to of charge and well. healthy Max Bupa. Max Bupa’s flagship health insurance product, ‘Heartbeat’, is an individual and family oriented health insurance product for Indians across all life stages – from newborns and young adults to parents and grandparents. s S wi merican merican A doctor led helpline helpline led doctor atin atin 24/7 A Bupa’s to available is L a hours 24 customers year. a days 365 day, h e a lt h y e mp loy e e s ar e h appi e r a n d m o r e pr o d u c t i v e

We believe that a healthy business performance depends on a healthy workforce. Evidence shows that employers who invest in appropriate workplace health initiatives to support the health and wellbeing of their employees have the potential to see a significant return on their investment. We help companies of all sizes understand and address the health needs of their employees — from high sickness absence levels to workplace stress — to boost productivity and morale.

h e a lt h dia lo g b u pa wo rki n g wi t h s y s c o to h e l p au s t R a l ia e mp loy e e s s to p s m o ki n g pr ov idi n g Health Dialog, Bupa’s h e a lt h chronic disease lo u n g e s management business, i n t h e is working with Sysco, wo rkp l ac e the largest foodservice distributor in the US, to In Australia, Bupa is help its people quit bringing Health Lounges smoking. Now available to into the workplace to help 45,000 Sysco employees employees learn about and their family members their health without across the country, the having to leave the office. programme helps Run by qualified health employees change their professionals, services behaviour and give up +50% include eye sight tests, smoking with the support Over half the Sysco health checks that test of health coaches, who employees who have cholesterol, blood provide continuous support completed the cessation pressure and glucose throughout the programme programme have stopped levels, and relaxation by helping employees set smoking. massages from a and work towards their qualified masseuse. personal health goals.

10 Bupa Annual Report 2010 Business review 11

l a PA AR ABIA e l l n e s s U Within its first year, year, first its Within from employees 1,000 took businesses 48 Arabia’s Bupa in part Wellness Total programme. w 1,000 B tot has Bupa Arabia launched ‘Total an innovative Wellness’, health and wellness seminar information for programme Within companies. the year, its first helped 48 programme all across businesses of Saudi major regions providing Arabia, and expert information employees to guidance of health on a range such as Swine topics, obesity Flu, diabetes, and smoking cessation. its success, Due to Total 2011, throughout is being made Wellness a wider to available while base, customer topics the healthcare being are covered include to extended cardiovascular and nutrition care during Ramadan. 27m year a days 27m the in lost are of because UK absence. sickness Bupa Annual Report 2010

ves i t ia t i n i ve i “Bupa’s support was not just not just support was “Bupa’s by was phoned financial — I their from a Danish doctor Medical Worldwide who was Centre, Assistance my me throughout for there ill are you When treatment. and anxious, speaking to own someone in your counts. language really lower my “It turned out that 80% was artery coronary operated and I was blocked hours. I felt on within 24 immediately almost better In the round. coming after out Bupa I found meantime, wife my for had arranged be the US to to travel to with me — which meant the world.” 80% after looks Bupa UK, the In for employees of health the top UK’s the of 80% over companies. 100 on i lth

ect a : l ct ff a

a rk

y e o r

n g o n i i ce he n w i t

a y a l n if r ence ’ s s to lthy rkp pa a id if ent o u n t e d I w i Nielsen Egeholm Leif an IT company for works with Bupa and is insured the world’s International, of expatriate provider largest through health insurance, his work. I went year, “In July last trip. a business for Texas to jogging in the I started it really but found evenings as if my going; it felt tough and constricted larynx was left arm ached. I put my the high to this down and kept temperatures next The persevering. out and was night I passed the emergency to taken I had Thankfully, room. with health insurance and Bupa International told I was relief my to would all expenses be covered. of all sizes in the UK to help keep their employees healthy and productive. Bupa published In 2010, in Evidence Work: Healthy Action, a report analysing 600over pieces of research to identify the for principles key implementing successful health at work initiatives. b he As a leader in workplace health services, Bupa works with businesses l e ev s u pp o r t i n g p u b l i c h e a lt h s ys t e m s

Now more than ever, healthcare systems around the world are facing huge challenges, not least in making quality healthcare more affordable and accessible, while medical costs escalate and pressure on public funding intensifies.

Bupa is committed to making a material contribution to each and every healthcare system in which we operate to help address these challenges. We believe a strong partnership between public and private healthcare funders and providers delivers better, more cost effective and sustainable healthcare services.

h o s pi ta l d e M a n i s e s pi o n e e ri n g p u b l i c- pri vat e par t n e r s h ip i n s pai n Hospital de Manises, in Valencia, is a pioneering public-private partnership that has seen Sanitas, Bupa’s Spanish business, take responsibility for the healthcare of an entire region in Valencia. The Sanitas built and managed hospital covers: ° 22 primary health centres in the surrounding area; over 1,000 health ° Through the Hospital de professionals working Manises, Sanitas cares for in 50 specialties; and ° an investment of €30m in advanced medical equipment. 197,000 people in 14 towns.

12 Bupa Annual Report 2010 Business review 13 : u l l f

Bupa Annual Report 2010 n c e 89% surveyed diabetics of 89% helped service the said understand better them its and condition their complications. “In 2010, I decided I wanted I decided I wanted “In 2010, research for money raise to disease by bowel into Manchester from kayaking Bupa Home London. to fantastic, were Healthcare supplying a special fridge at off supplies and dropping route. off points on stop my done it have I couldn’t without them.” ra pa lt h g y:

u a r

b

lo e to t h e to F h e g if dia g n n i s to l k n ’ s s to g gi i c h lt h n n n i a a a v ri i J u s t l t h remove to surgery After Crohn’s due to his intestines Hanan, 50, Justin disease, England, Portsmouth, from parenteral on total relies nutrition, which sees him all the nutrition he receive needs via an intravenous tube. “Following explains: Justin I spent the lots of surgery, years in part of five best eat unable to hospital. I was no was and drink and there than to survive to other way receive in hospital to stay my like It felt treatment. my still. stand a to come had life Bupa Home Then, care began to Healthcare my delivering me, for my to personalised formula home on behalf of the NHS. h e B Bupa’s Dialog, Health disease chronic business, management health first the running is in programme coaching country’s the for France insurance health national Nationale Caisse body, Maladie l’Assurance de Salariés Travailleurs des (CNAMTS). to aims programme The life of quality the increase by patients diabetes of knowledge their increasing manage to ability and disease. their c o n e k w t s ar o r d c o

n h s e p M e s u pa pp ar u ver 70% of Bupa’s Bupa’s of 70% ver b Homes UK Bupa Care with the NHS to works with patients provide and convalescent when care rehabilitative no longer require they ‘Step hospital treatment. or intermediate down’ are patients where care, in a recover helped to a short home for care period, can help reduce on hospital pressure up and free lists waiting acute clinical time for It also helps care. providing by patients them with a more experience comfortable hospital and between home. returning care down step Bupa’s partnership with the NHS in Oldham, England, times helped cut waiting non-emergency for a 10% over by care six month period. h o c s u t h e s t e 70% O residents home care funding. state receive partnering with he althcare professionals

Bupa partners with healthcare professionals around the world to help patients become more informed and involved in decisions about their healthcare, to develop best practice training and to support the sharing of clinical knowledge and expertise.

u s australia impr ov i n g h e a lt h c r o s s r oad s ® c h o i c e i n h e ar t c ar e

To support more informed, Bupa has partnered with with treatment and productive conversations Genesis Heart Care, the lifestyle information. between clinicians and largest group of private In 2010, Bupa Australia patients on different cardiologists in Australia, and Genesis Heart Care treatment and screening to provide quality, released their first report, options, Bupa’s Health evidence based providing patients with Dialog launched the Health cardiology services and information to support Crossroads® website in report publicly on the and encourage them to January 2010. Unique to outcomes of care. Bupa, Health Crossroads® engage in effective is a web tool which provides Patients will be helped to conversations about their evidence based, impartial better understand healthcare choices with information about different information that can be their doctor. treatments and healthcare an important influence interventions, explaining the on their healthcare strengths and weaknesses decisions, such as the of different options. It also 100,000 percentage of patients 36,000 offers information and 100,000 videos describing that might need a 36,000 Bupa Australia support on managing patient experiences of second procedure. customers are patients chronic conditions, such different treatment options Genesis Heart Care will of Genesis Heart Care as diabetes. were sent to patients. also provide patients every year.

14 Bupa Annual Report 2010 Business review 15 Bupa Annual Report 2010 ce k i g e n e ct

pi ar ar f c e s u c pra i o v e c pa d r u est if s e D e v e lo b b In the UK, Bupa has with collaborated at clinicians and experts the Marie Curie Palliative develop to Institute Care end of help make to ways and more safer care life Bupa centred. patient the commissioned a tool develop to Institute in Bupa staff help train to to Homes in how Care and practice best deliver people for care responsive the end of their lives. at this training, to Thanks to able now are staff many in partnership with work GPs and local community bring the to health teams into model of care hospice homes. care e n l 2,966 70 across staff, 2,966 the in homes care Bupa through trained were UK, programme. the 20,000 and Health Bupa works Wellbeing 20,000 around with UK. the in consultants e dg l e w n o k s t s l 934 2010, in held courses 29 leading 934 by attended Spain. across clinicians hand clinical experience hand clinical experience on topics and knowledge their to interest of broad as clinical peers. As well ethics, legal and topics, clinical governance aspects of the sector also covered. are which is also available which is also available by access online for worldwide. specialists i 83% 83% it would 83% of people say be to convenient be more in the home. treated a

l c i ia s e t h n i i t e c wi p r

c l e g s p g r n n e x n rki d n c e ari n a K h pai c a S successful its third For 2010, throughout year, Al Dia the Star Sanitas ran a seminar and programme, series which enables lecture learn Spanish clinicians to and developing about new the health across areas sector. aim of the programme The nurses doctors, provide is to and other healthcare with the professionals first share opportunity to s Bupa is working with Bupa is working help to specialists cancer about awareness raise the benefits of home 2010, In chemotherapy. an Bupa commissioned independent research that which showed report, is as home chemotherapy and as hospital care safe is some evidence there that preference increased for with satisfaction and patient when home chemotherapy with hospital compared therapy. delivered as they support clinicians To options treatment discuss Bupa patients, with cancer 1,300 over has provided across specialists cancer the UK with the report, U Wo our markets

Bupa’s purpose is to help people lead longer, healthier, happier lives. europe and north america A leading international healthcare group, we offer personal and corporate health insurance, workplace health services and £2,999.5m health assessments. We also run care revenue (2009: £2,975.2m) homes for older people, operate hospitals and provide chronic disease management services. With no shareholders, we invest all our profits to provide more and better healthcare. Apart from providing healthcare funding solutions, we are committed to making patient centred healthcare more accessible in the areas of wellness, chronic disease management and ageing.

The business is structured in three Bupa’s Europe and services. Sanitas also North America works with the public divisions (% of Group Revenue shown below): division incorporates: sector and operates the Hospital de Care Services ( %) 15 ° Bupa Health and Manises in Valencia, Wellbeing UK, which providing acute and Europe and North America (40%) offers a portfolio of primary care services services including to people in the health insurance, region, through an health assessments innovative public- and health at private partnership work services. with the Valencian regional government. ° The Bupa Cromwell Hospital, a leading ° Health Dialog, based 128 bed London in Boston, which hospital caring provides healthcare International Markets (45%) mainly for health analytics and decision insurance, self pay support services to and international around 18 million customers. people in the US and a growing number ° Sanitas, Bupa’s of customers in Spain, Spanish business Australia and France. offering health insurance, hospitals, clinics and health

16 Bupa Annual Report 2010 Business review 17 esidencial, Bupa Annual Report 2010 providing aged care aged care providing homes care in 41 in Spain. Bupa Home a Healthcare, leading UK provider, supporting the providing NHS by out-of-hospital care in their patients to homes or in local communities. ° Sanitas R ° ces i v r ervices ervices S e S are are C e providing aged providing providing providing ustralia, K, early 52,000 52,000 early ervices Services Care Bupa’s division incorporates: Bupa U in 305 care care the homes across both publicly UK to funded and privately residents. Services Bupa Care A in 47 aged care homes. care Services Bupa Care Zealand, New which runs 44 care homes, including 16 villages, retirement and provides via services telecare a personal medical alarm network. Car N employees ° ° ° 52,000 £1,182.9m m) revenue (2009: £1,134.3 in India. in hailand ets Max Bupa Bupa Max 11.2m over in customers countries 190 worldwide mark based in Miami, which international provides health insurance in customers for America and Latin the Caribbean. in Hong businesses and T Kong and our minority in Bupa Arabia stakes and Bupa Latin America, ° Bupa Latin ° Our wholly owned l a on i

t a ommunity n ustralia, ustralia,

r K %

U he business serves serves he business a Bupa International, leading international health expatriate with insurer in over customers 190 countries. brands. As well as its As well brands. health insurance core Bupa offering, provides Australia home and travel, car insurance. customers through through customers HBA and the MBF, Mutual C a leading health in Australia. insurer T nternational International Bupa’s division Markets incorporates: revenue (2009: £2,831.4m)

Inte

£3,394.0m ° Bupa A ° 

61 Bupa’s of come revenues outside from the o u r mark e t s europe and north america

Bupa’s Europe and North America The Europe and North America division delivered a division operates businesses in the UK, resilient performance, with increased revenue and surplus and stable insurance customer numbers, despite weak Spain and the US. The division offers economic conditions, high unemployment levels, the health insurance, hospital care, dental impact of government deficit reduction measures and the and wellbeing services, health analytics uncertainty created by health reform agendas in the UK and health coaching. and US. This performance was achieved through a focus on customer retention, operational efficiency and the delivery of differentiated and compelling products and services. The advance in profitability was driven in particular by Revenues £m The Bupa Cromwell BHW, following an improvement in margins and the Hospital patients implementation of a significant restructuring programme. treated: Bupa Health and Wellbeing UK (BHW) BHW is the UK’s leading health insurer serving the 9,475 individual, corporate and small business segments, with (2009: 9,461) Increase: 0% 3.0m customers. The business delivered an improved performance, 2009 2010 growing revenues and surplus, despite continuing Insurance customers economic uncertainty and high unemployment levels. This 000s: 2010 £2,999.5m performance was achieved through a focus on customer 2009 £2,975.2m retention, restructuring the business to improve efficiency, Increase 1% 5,764 the launch of a range of new products and services and (2009: 5,683) Increase: 1% actions taken to improve margins. The business was also named as one of the UK’s top three companies for Surplus £m customer service, in a survey of 26,000 consumers, by the Health Dialog Institute of Customer Service. Bupa was the only health lives served: insurer to make the top 10. BHW improved customer retention by placing strong 17.9m emphasis on service levels and developing closer (2009: 19.5m) Decrease: 8.3% relationships with existing customers. This included the launch of specialist patient support teams for cancer 2009 2010 and mental wellbeing, with BHW working in partnership 0 with consultants to enable more customers to have their 2010 £116.7m chemotherapy treatment at home and to gain quicker 2009 £102.6m access to mental wellbeing treatment by promoting Increase 14% ‘talking therapies’. Operations were streamlined to improve long-term productivity, as BHW benefited from its new, more efficient IT operating system, introduced in August 2009. Headcount was reduced by 15%, resulting in a one-off restructuring charge of £6.6m.

18 Bupa Annual Report 2010 Business review

New product launches included a best in class dental Revenue and surplus increased, supported by the launch Governance product, which performed above expectations, and of new products, a focus on efficiency and the impact of ‘Select’, a new B2B product allowing small to medium the first full year of operations at the public hospital run sized businesses to better manage their healthcare costs. by Sanitas in Manises, Valencia. Health insurance customer Select was named Best New Product Innovation at the numbers remained broadly stable as the business focused 2010 Health Insurance Awards. on customer loyalty and retention programmes and delivered a number of new corporate wins. The quality of the business was recognised by a series of awards over the course of the year, including Best Highlights during the year included the launch of UCCO, a Healthcare Insurance Provider at the Financial Adviser new specialist cancer unit, offering whole person care for Awards for the fourth year in succession. cancer patients, and the launch of the Healthcare Partner programme, which provides tailored services to target BHW’s preventative health and wellbeing offering includes specific health concerns of customers, including cardiology, occupational health services and health assessments via gynaecology and mother and baby programmes. Financial statements 47 Bupa centres. The number of lives covered by employee assistance programmes and health assessments reduced, Sanitas Hospitales enjoyed very strong occupancy at its as unemployment levels remained high. During the period, hospitals and ‘Milenium centres’ as well as improvements a new range of health assessment products, including a in productivity. Sanitas Health Services, which provides Core Assessment providing customers with an accessible, dental care and laser eye surgery, grew well, increasing entry level health assessment for £149, were launched. revenue and surplus. Sanitas is investing to support the growth of its ‘Milenium centre’ network and owned dental In October, BHW announced the sale of its life, income centres. During 2010, three new medical centres and five protection and critical illness business, Bupa Health dental centres neared completion and are due to open Assurance, in order to focus on its core healthcare products in 2011. Sanitas also continued to expand its franchised and services. The sale completed on 31 January 2011 network of dental centres, adding a further nine centres with proceeds of £168.2m and a book loss of £6.5m was during the period. recognised in the period. Sanitas benefited from the first full year of revenues from Sanitas the Manises public hospital, which opened in May 2009 as Sanitas, the leading private healthcare brand in Spain, part of an innovative public-private partnership with the provides services that cover many aspects of customers’ Valencian regional government. The hospital performed healthcare needs. Its offerings include health insurance, well and increased its coverage by incorporating the hospitals, clinics and wellbeing services for the private adjacent population of Mislata, adding an extra 44,000 lives and public sectors. The business has over 1.4m health and taking the total coverage of the hospital to 197,000 insurance customers. people. Sanitas also secured the contract to take over the During 2010, Sanitas continued to benefit from its operations and refurbishment of another hospital in the integrated business model, which combines insurance and region, which will provide chronic and psychiatric care. provision assets and offers real differentiation in a highly competitive marketplace. This integrated model helped the business to deliver a good performance despite ongoing weak economic conditions and Sanitas sees opportunities to further strengthen its provision activities.

Bupa Annual Report 2010 19 o u r mark e t s europe and north america continued

Scandinavia The implementation of the new healthcare reforms The Group decided to cease providing domestic health in the US is expected to present significant business insurance in Scandinavia because of the small scale of the opportunities for Health Dialog in the medium term, as they business in a highly competitive market. Provision was provide incentives for health insurers to purchase services made for customers to move to a leading Scandinavian that provide measurable improvements in the quality of provider to ensure continuity of cover. A one off charge of healthcare and reduce costs. These attributes are central £17.7m was incurred relating to redundancies, property exit to Health Dialog’s proposition, which was independently costs and run off costs. validated in 2010 by a peer reviewed study in The New England Journal of Medicine. This study concluded that Health Dialog Health Dialog’s health analytics, health coaching and Health Dialog is a leading US based provider of health shared decision making services provide a 400% return on analytics and care management services that works with investment for customers and reduce hospital admissions health plans, public insurers and employers to manage the by 10%. Health Dialog is the first care management cost and quality of healthcare. company to have its services validated through such In 2010, Health Dialog continued to operate against a a study. backdrop of high unemployment in the US. Revenues Health Dialog also continued to progress its international decreased as some customers held back from purchasing development. Health Dialog Australia was launched in care management services due to financial constraints and November, offering chronic disease management services uncertainty regarding new healthcare reforms. The business to Bupa Australia customers and Health Dialog España, realigned its cost base with current sales volumes at a cost which provides health coaching services to Sanitas health of £2.5m. However, surplus declined, notwithstanding a insurance customers, reached its annual customer targets £7.4m benefit relating to the closure of a prior ahead of schedule. In addition, Health Dialog delivered the year contract. first health coaching programme in France for diabetes In this challenging environment, Health Dialog reduced patients for the national health insurance body, Caisse operating costs by 16%, and focused on the retention of Nationale de l’Assurance Maladie des Travailleurs Salariés major clients. The business also increased its capabilities (CNAMTS). and developed new products to meet the changing The Bupa Cromwell Hospital demands of the market. This included the launch of the The Bupa Cromwell Hospital is a 128 bed London hospital Medicare Stars programme, which helps providers of caring mainly for health insurance, self pay and international Medicare, the US public health insurance subsidy for the customers. In the first half of the year, revenues were elderly and disabled, to show measurable improvements impacted by a fall in the number of international patients, in healthcare, driving government reimbursements. who were unable to fly to the UK due to the volcanic ash cloud. Revenue growth rebounded in the second half, as international patient volumes returned to normal levels.

20 Bupa Annual Report 2010 Business review

Strategic overview and outlook The Bupa Cromwell Hospital is focused on becoming a Governance With economic conditions remaining challenging in many centre of excellence in London for patient experience of Europe and North America’s key markets, the division’s and clinical outcomes. This is being supported by a major strategy in 2011 is focused on customer retention, redevelopment plan, involving the installation of specialist operational efficiency and the delivery of differentiated medical equipment and new management systems, as and compelling products and services. Through well as the extensive refurbishment of the hospital. development and innovation, the division will bring Bupa’s healthcare partner capabilities and funding expertise to a wider audience. In the UK, BHW will support the delivery of this strategy by introducing a new menu based range of health insurance products to provide customers with greater choice and flexibility, supported by a new brand advertising campaign. Financial statements The business will continue to enhance service levels and develop closer relationships with customers, including the development of services to help customers manage their health conditions and a range of digital tools to engage with customers about their healthcare needs online. In Spain, Sanitas will continue to focus on leveraging its integrated business model, which combines insurance and provision assets, to offer real differentiation in a highly competitive marketplace. The business will launch a new range of products in 2011 and continue to develop its Healthcare Partner programmes, which provide a tailored set of services focused on customers’ major health concerns. Growth will also be supported by the development of Sanitas’ network of hospitals, ‘Milenium’ and dental centres. In the US, as the new healthcare reforms take effect, Health Dialog will increase its differentiation through the development of new products to meet the changing demands of the market that require health insurers and businesses to make measureable improvements in the quality of healthcare and reduce costs. Health Dialog will also continue to develop its international capabilities, growing its business in Australia, France and Spain.

Bupa Annual Report 2010 21 o u r mark e t s international markets

Bupa’s International Markets division Bupa Australia consists of domestic health insurance Bupa Australia is the largest privately owned health insurer in Australia, serving the healthcare needs of 3.2m people. businesses in Australia, Asia, and the The business serves customers through the MBF, HBA and Middle East, and international health Mutual Community brands. insurance businesses, Bupa International Bupa Australia delivered a strong financial performance and Bupa Latin America. and completed the integration of MBF. In July, the business The International Markets division delivered an excellent moved to one operating system and, in the second half of performance in 2010, with revenues increasing by 20% and the year, introduced a single product suite. Revenue and surplus up 25%. This performance was driven by strong surplus increased as health insurance customer numbers growth in Bupa Australia and favourable foreign exchange grew by 3% and the business improved its loss ratio and movements, primarily due to the strong Australian achieved back office synergies. This increase in surplus dollar. Growth in surplus, excluding the impact of foreign was after final integration costs of £17.7m (2009: £12.4m) exchange movements, was 15%. and a one off stamp duty levy of £10.9m on the integration of three separately registered health funds into one single Customer numbers grew strongly across the division by Bupa Australia fund. 6% with the most notable increase in Bupa Arabia, an associated company, which reached one million customers, Customer focus remained central throughout the integration, and in Bupa Australia. with the business maintaining its high customer satisfaction rating. The business is increasingly working with customers to help them develop healthier lifestyles and to offer them quality evidence based information on treatments. As part Revenues £m Insurance customers of this strategy, Bupa Australia has formed an alliance with 000s: the Genesis Heart Care Group, the largest group of private 3500 cardiologists in Australia, providing patients with information 3000 on cardiology services to help them discuss their healthcare 2500 5,319 choices with their doctor. 2000 (2009: 5,007) Increase: 6%

1500 In June, Bupa Australia sold its non-core life insurance

1000 and wealth management businesses in order to focus

500 on healthcare. The business also acquired Peak Health, 2009 2010 Loss ratio: 0 a corporate wellness business, and the remaining 50% of Health Eyewear, a chain of optical stores. 2010 £3,394.0m 2009 £2,831.4m 78.4% Bupa International (2009: 78.4%) Increase 20% Bupa International is the world’s leading provider of international health insurance. It provides individual and group medical cover to customers in more than 190 countries. Surplus £m 250 Employee satisfaction: Continued economic uncertainty impacted the overall

200 international health insurance market, although this was not 75.3% a global story with markets such as Asia and the Middle 150 (2009: 76.1%) East continuing to perform well. By the second half of 2010,

100 there were early indications that corporate confidence was returning, particularly in the oil and gas sector. Against this 50 mixed backdrop, Bupa International experienced a marginal 2009 2010 0 decline in customer numbers, driven by the repricing of 2010 £208.9m certain accounts that did not offer appropriate profitability, 2009 £166.5m and recorded a small decline in surplus. Increase 25%

22 Bupa Annual Report 2010 Business review

Bupa International focused on customer retention, further Strategic overview and outlook Governance improving customer service levels and extending its International Markets will pursue growth in 2011 through a proposition for customers, such as introducing a second strategy focused on quality, highly differentiated products medical opinion service for customers and launching cover and services and exceptional customer service in all of the for pre-existing conditions that were previously excluded. markets in which it operates. Hong Kong Following the successful integration of MBF, Bupa Bupa Hong Kong’s health insurance business delivered a Australia has laid the foundations on which to build an very good performance, increasing surplus and revenue as increasingly differentiated proposition. The business will customer numbers grew 12%. This was driven by excellent focus throughout the year on expanding into products and customer service and retention, as well as investment in services that complement its existing business and adding award winning advertising to support sales to individuals. value for customers. Thailand Bupa International is seeking to grow customers in Financial statements Bupa Thailand experienced good growth in customer all segments, by tailoring its products to the needs of numbers of 9%, despite political instability during the year, customers in specific regions and through market specific driven by strong sales and good customer retention in partnerships. In early 2011, this will include the launch of a the corporate and SME sectors. Surplus rose in line with partnership with insurer Alltrust to provide international customer growth and through careful management of the private health insurance to customers in China. cost base. Bupa Hong Kong, the only specialist health insurance Latin America business in the market, is focused on the delivery of Bupa Latin America is the largest international health exceptional customer service and distinguishing itself as insurer in the region. The business improved its revenues a health insurance expert. This strategy will be supported and profitability while maintaining its customer numbers. by the launch of new products and further investment During 2010, Bupa Latin America invested in developing in technology to improve customer experience and its operational infrastructure and successfully migrated a operational efficiency. significant portion of policies onto a new operating system. In Thailand, Bupa is focused on growing its customer India base, by continuing to develop differentiated, value based Max Bupa, our health insurance joint venture in India, was products. To support this strategy, the business is looking to launched in April. By year end, the business had opened increase its distribution channels and raise public awareness offices in nine cities and established a network of over 700 of the Bupa brand through investment in marketing. hospitals across the country. In Latin America, Bupa is focused on consolidating its ‘Heartbeat’, Max Bupa’s product for customers across all life leadership position in international health insurance in the stages, secured over 27,000 customers. The business will region, particularly in Mexico. be launching a series of new products in 2011 to broaden its Max Bupa’s ambition is to become India’s most admired offer to new customers. health insurance company, delivering high quality products Saudi Arabia and services to its customers. In 2011, the business will look Bupa Arabia, an associate of the Bupa Group, had another to accelerate customer growth through the launch of new very good year, as it continued to benefit from both a products and a multi-channel distribution strategy. robust economy in Saudi Arabia and legislation requiring In 2011, Bupa Arabia is looking to build on its strong market expatriates to hold private health insurance. New entrants position and reputation for superior service to support made the market increasingly competitive in 2010, but continued profitable growth. It will do this by expanding Bupa Arabia distinguished itself through outstanding its distribution network, further enhancing customer customer service. The business achieved growth in surplus service and improving awareness of Bupa’s brand and as customer numbers rose 19% to reach over one million, healthcare expertise. with strong new corporate sales and good retention in the corporate and SME sectors.

Bupa Annual Report 2010 23 o u r mark e t s care services

Bupa’s Care Services division is a world the division increased, driven by a strong performance in leading care homes operator providing Australia, New Zealand and Spain. Surplus was marginally ahead on the previous year and occupancy was maintained nursing and residential care to more at 88.2% (2009: 88.3%). than 29,000 residents in over 430 care Bupa remains committed to developing its portfolio of care homes in the UK, Spain, Australia and homes. Over £77m was invested in building, extending or New Zealand. refurbishing homes to provide high quality care. Four new Bupa Home Healthcare (BHH), which provides out-of- care homes were opened and a further four care home hospital care to the NHS, was incorporated into the division extensions completed, adding a total of 467 new beds during the period, as the Group sees opportunities for the across the division. Bupa also continues to retain freehold business to work with Bupa Care Homes UK in providing ownership of 80% of its care homes. services to the NHS. Bupa Care Homes UK Care Services continued to perform well despite increasing In the UK, Bupa cares for over 18,000 residents in 305 pressure on public sector budgets, notably in the UK, where homes, over 70% of whom are funded wholly or in part the impact of both the Comprehensive Spending Review by local authorities and primary care trusts (PCTs). and White Paper on Health produced uncertainty within Overall occupancy was 88.0% (2009: 88.4%), while local government and the NHS. This impacted aged care occupancy from mature homes increased slightly to 88.5% fees and referrals, as well as new business in BHH. The (2009: 88.4%). Revenues grew and surplus was maintained division benefited, however, from more benign economic despite public authority funding restrictions, with the conditions in Australia and New Zealand. average local authority fee increase across England from In this environment, Care Services focused on managing 1 April 2010 just 0.5%. occupancy and costs to maintain profitability. Revenues for This unsustainably low level of funding increase reflects the current pressure on public sector budgets. Research commissioned by Bupa shows that continuing local Revenue £m Available beds authority spending cuts will inevitably lead to a significant shortfall in care home places and a potential bed blocking 1200 (year end): crisis for the NHS. The business is therefore calling for the 1000 £2bn allocated for adult social care by the UK government 800 33,018 to be ring fenced immediately, rather than be directed to (2009: 32,771) Increase: 1% 600 plug holes in other areas of local council budgets. 400 Bupa is actively contributing to the UK government’s 200 Commission on Funding of Care and Support in England, 2009 2010 0 Staff numbers which is tasked with proposing a new, sustainable funding

2010 £1,182.9m (year end): system that will meet the demands of the growing number 2009 £1,134.3m of older people for the longer term and is due to report in the second half of 2011. The business also submitted Increase 4% 37,985 (2009: 36,928) responses to consultations by the All-Party Parliamentary Group on quality standards for dementia and to the Care Quality Commission on its plans for 2010-2015. Surplus £m In 2010, two new specialist dementia care homes were 150 Occupancy: opened in Southampton and in Church Crookham, 120 Hampshire, one care home extension was completed in 88.2% Cobham, Surrey and 23 homes were refurbished. A further 90 (2009: 88.3%) new care home in Ashford and a care home extension at 60 Newbury will open early in 2011.

30 Throughout the year, Bupa Care Homes UK demonstrated 2009 2010 Bupa Home Healthcare its commitment to investing in the training and 0 patients treated: development of its staff. The business launched its “Person 2010 £139.7m First, Dementia Second” specialist training programme and 2009 £138.7m 14,477 nearly 3,000 employees were trained to deliver high quality Increase 1% end of life care, through Bupa Care Services’ partnership (2009: 13,615) with the Marie Curie Palliative Care Institute.

24 Bupa Annual Report 2010 Business review

This investment in its workforce resulted in the business Sanitas Residencial Governance securing a number of awards, including ‘Daily Mail Care Sanitas Residencial operates 41 care homes and cares for Home Carer of the Year’ and ‘Outstanding Dementia Care over 4,100 residents throughout Spain. Support Worker’ at the National Dementia Care Awards. An unprecedented level of public spending cuts imposed The quality of Bupa’s care was also recognised by its by the Spanish government to reduce the budget deficit highest ever resident satisfaction levels, with 74% rating the slowed the growth of the aged care system in 2010 quality of care they receive as ‘excellent’ or ‘very good’. and resulted in fewer public tenders, a freeze on fees in New business opportunities for BHH were impacted by the some areas and an increase in competition for privately White Paper on Health, which produced uncertainty within funded residents. the NHS. The business invested in higher growth and higher In this context, Sanitas Residencial delivered robust results margin products, such as home infusion and pharmacy as it continued to fill recently completed care homes. services, and divested less profitable contracts. Occupancy levels increased to 81.4% (2009: 80.2%), and Financial statements Bupa Care Services Australia when coupled with good control over operating costs, Bupa Care Services Australia provides aged care for more surplus increased. than 3,700 residents in 47 homes. The business opened a new home in Madrid during the Occupancy levels remained high at 93.9% (2009: 95.5%), period and a fully refurbished home of 167 beds is due to despite the addition of new capacity, and revenues and open under a rental agreement in 2011. surplus increased, supported by good control over costs. Strategic overview and outlook The business also contributed to the inquiry on Caring for Bupa Care Services is focused on maintaining its position Older Australians by the Productivity Commission. Draft as a world leading care homes operator, providing high recommendations were published in January 2011 and the quality aged and dementia care. business will be working with the government and other In 2011, we anticipate continued momentum in Australia and industry organisations to ensure funding and availability of New Zealand, supported by favourable economic conditions high quality nursing care is at the forefront of the aged care in these markets. However, with the funding of aged care agenda in Australia. under review, particularly in the UK and Spain, Care Services The business opened a new home in Berry and a will manage occupancy and control costs carefully to significant extension at Tamworth. Investment in care home maintain profitability. development is set to continue in 2011, with around 200 The division will also continue to demonstrate its leadership new beds due to be added by year end. in aged care by providing input to governments to help Customer satisfaction levels were excellent, with 92% saying shape social care policies, investing in specialist training for they would recommend Bupa Care Services Australia. staff and developing its care homes portfolio in order to provide the best possible environment for care. Bupa Care Services New Zealand Bupa Care Services New Zealand delivers care and services In the UK, the care homes business is focusing on growing to 3,700 residents in 44 care homes and retirement villages. It occupancy levels, particularly with private pay customers, also provides telecare services via a personal alarm network. strengthening relationships with key partners in the NHS and local authorities, and continuing to develop and invest Despite fee increases for aged care coming under pressure, in its property portfolio. the business achieved excellent occupancy levels of 93.5% (2009: 92.1%) and delivered growth in surplus and revenue. Bupa Home Healthcare is looking to build its presence This was supported by excellent management of costs in the UK as a leading out-of-hospital care provider for and increased surplus from retirement villages due to NHS patients, particularly in complex care and home higher value sales and an increase in the valuation of the infusion services. village properties. In Australia and New Zealand, Bupa enjoys a strong care Two care home extensions and a village development home development pipeline and both businesses continue were completed in 2010 and a home was acquired in to focus on maintaining their excellent occupancy and Auckland, which will open in 2011 following comprehensive customer satisfaction levels. refurbishment. The development pipeline is strong, with five Sanitas Residencial is focusing on driving occupancy in new major care home and village extensions under construction homes and increasing the proportion of privately funded at year end. residents, while implementing operational efficiencies. Customer satisfaction levels were excellent with 93% saying they would recommend Bupa Care Services New Zealand.

Bupa Annual Report 2010 25 GR o u P fi n a n c e dir e c to r ’ s r e p o r t

Trading activities We use underlying surplus before taxation as our key performance measure when discussing the results of the Group. We believe that this measure provides a meaningful view of the results without distortion from items that impact comparability, as shown in the table below. The underlying surplus before taxation grew by 9% reflecting growth in International Markets and BHW. Detailed information on the divisional achievements is contained Tom Singer Group Finance Director in pages 18 to 25. The significant items that impact statutory surplus before taxation which are excluded from underlying surplus are discussed below. In addition, we comment on financial Good growth in underlying income and expenses, taxation and the balance sheet, surplus of 9% to £464.9m funding and solvency position. Items excluded from underlying surplus and a further strengthening Impairment of goodwill of the Group’s funding position. As a result of our annual impairment testing, we have identified the need to write down the carrying value of goodwill arising on acquisition in respect of Health Dialog, The Bupa Cromwell Hospital and Bupa Home Healthcare. Over the last two years, Health Dialog has experienced a reduction in the number of lives served in the US due to rising unemployment. The continuing challenges faced by the US economy and uncertainty surrounding the enacted healthcare reforms have constrained our ability to win significant new business. This has adversely impacted our financial forecasts for the business, resulting in an impairment charge on goodwill of £158.8m. We acquired The Bupa Cromwell Hospital as part of our strategy for the London market in order to provide a flagship asset to provide high quality treatment for all patients in this market. The Group is investing more than originally expected to develop the hospital and, as a result, is taking an impairment charge against goodwill of £53.7m. A significant portion of BHH’s business comes from sales to the NHS. Due to the uncertainty around future funding for the NHS arising from the UK government’s White Paper on Health, we have reduced our expectations of future growth resulting in an impairment charge of £36.7m. Not withstanding these revisions to future cash flow forecasts, all three businesses remain integral to our strategy and we continue to explore all means by which future financial performance can be improved.

26 Bupa Annual Report 2010 Business review

Underlying surplus Governance 2010 2009 Growth £m £m %

Surplus before taxation expense 118.0 416.5 Exclude: Impairment of goodwill arising on business combinations 249.2 – Amortisation and impairment of intangible assets 52.4 54.2 Deficit arising on revaluation of property 35.1 16.2 Loss / (profit) on sale of businesses and assets 18.1 (20.0) Gain on return seeking assets (13.2) (52.2) Other items 5.3 13.5

Underlying surplus before taxation expense 464.9 428.2 9% Financial statements

Amortisation and impairment of intangible assets arising At 31 December 2010, the return seeking asset portfolio on business combinations represented 7% (2009: 6%) of total cash and financial Amortisation of intangible assets arising on business investments and is invested primarily in funds holding combinations relates to our previous acquisitions and investment grade bonds and loans. totalled £34.7m (2009: £34.9m). Financial income and expenses As part of the triennial valuation of the care home property Net financial income decreased to £19.1m (2009: £48.7m) estate, we have written down the value of related intangible due to the full year effect on interest expense of the 7.5% assets, including bed licences and licences to operate bond issued in June 2009 and lower gains on the return care homes. In addition, we have written off the value of seeking asset portfolio, partly offset by higher financial a distribution agreement that terminated on the disposal income on cash investments in Australia. of MBF Life and Clearview. The aggregate charge for the Cash generated from operations continued to be used to impairment of these intangible assets amounted to £17.7m pay down bank borrowings and reduce interest expense. (2009: £11.7m). In 2010, excluding net gains on return seeking assets, our Revaluation of property net financial income was £5.9m compared to a net financial On a triennial basis, Bupa obtains an external market expense of £3.5m in 2009. valuation of its property portfolio and in the intervening Taxation years prepares a directors’ valuation. In 2010, Bupa revalued Taxation expense of £131.4m (2009: £115.7m) represents an its entire care home portfolio resulting in a net uplift effective rate of 111% (2009: 28%). The headline effective in value of £46.1m. In general, any upward revaluations tax rate is distorted due to the impairment of goodwill and are taken to reserves, and any reduction in the value of intangible assets, the loss on sale of businesses and assets, individual properties below historic cost is taken to the and other items which do not qualify for taxation relief. The income statement. The total charge taken to the income effective rate, based on the underlying surplus of £464.9m statement for 2010 was £35.1m (2009: £16.2m). is 33% (2009: 28%) and is higher than the UK corporation Loss on sale of businesses and assets tax rate of 28%, mainly due to the withdrawal of tax The loss on sale of business and assets of £18.1m primarily allowances on residential and care home buildings in relates to the disposal of non-core businesses MBF Life and New Zealand which gave rise to a deferred tax liability Clearview, and BHA. of £16.0m in the period. The losses are reported within other (charges) / income. Gains on return seeking assets Gains from our return seeking asset portfolio amounted to £13.2m (2009: £52.2m) due to the continuing recovery in the value of the various credit funds in the portfolio. Income from the return seeking asset portfolio is excluded from our underlying results, as the volatility in market values and investment performance distorts comparability between years.

Bupa Annual Report 2010 27 GR o u P fi n a n c e dir e c to r ’ s r e p o r t

Balance sheet, funding and solvency Credit ratings Our goal is to operate within a targeted range for leverage Group financial strength and interest cover ratios which are designed to support an We maintain a strong balance sheet through rigorous investment grade rating. These ratios are monitored and financial planning and a conservative approach to reported to the Board on a regular basis, with sensitivity leverage. Our long-term financial strategy is to facilitate analysis carried out to provide early warning of any growth within our risk appetite. potential issues. This approach is designed to ensure continued compliance The Bupa Group as a whole is not rated by any rating with borrowing covenants and with solvency requirements agency, although individual debt issues and various in our regulated businesses. Our financial strength is a regulated insurance companies within the Group do have function of operating cash flows combined with the a public rating. benefits of our status as a company without shareholders, which allows all surpluses to be reinvested in the business. The principal debt ratings relate to the senior, unsecured During 2010, leverage decreased from 27% to 23% (on a bonds issued in 2009, secured loans in the care homes debt / debt plus equity basis) as the Group repaid bank business and the callable subordinated perpetual debt using cash generated in the period. This level of guaranteed bonds. leverage is well within our Board approved risk appetite During the year, Fitch affirmed Bupa Finance plc’s senior and we expect that operational cash flows will be available unsecured rating at A- and revised the outlook from for further repayment of borrowings in the near future. negative to stable. All other key ratings remained constant The solvency positions of our regulated companies and of during the year. the Group as a whole are routinely monitored against the requirements of local regulators and of the UK’s Financial Cash flow and financing Services Authority (FSA). Strong cash flows generated from operations of £623.2m (2009: £522.3m) reflect the growth in underlying business. Balance sheet management The Group invested £171.2m in capital expenditure, paid Financial risk management is carried out by the Group down £223.9m of interest bearing liabilities and invested Treasury department, which is responsible for cash and the balance in cash deposits and financial investments. debt management as well as all hedging activities. Our goal is to ensure that there is adequate funding to allow The Group’s main source of funding comes from a £900m the Group to meet its obligations, manage interest rate committed bank facility, negotiated in June 2010, which risk and foreign currencies and protect our financial assets. matures in September 2013. Funding headroom under the committed facility was £696.8m at 31 December 2010. In addition, the Group and each of the regulated companies complied with all externally imposed capital Cash and other financial assets requirements during 2010. We hold cash and other financial assets principally to meet the liabilities and solvency requirements of our regulated insurance subsidiaries. Cash and other financial investments totalled £2,851.0m (2009: £2,683.3m) at 31 December 2010. Interest bearing liabilities At 31 December 2010, Bupa had total interest bearing liabilities of £1,288.8m (2009: £1,490.6m), which consisted primarily of bank borrowings, secured loans and bonds. Foreign exchange Approximately 70% (2009: 71%) of net assets are denominated in foreign currencies. The principal foreign exchange translation exposures arise on the Australian Dollar, the Euro and the US Dollar. Overall, 24% (2009: 22%) of the Group’s net asset exposure was hedged using foreign currency borrowings and currency forward contracts.

28 Bupa Annual Report 2010 Business review

The net increase in the foreign exchange translation Governance reserve was £322.5m (2009: £208.7m) and represents the increase in the value of the underlying net assets of the Group’s overseas subsidiaries, net of hedging. Much of the increase in reserves reflects the appreciation in 2010 of the Australian Dollar against Sterling. Solvency II Bupa Group, as well as our regulated insurance subsidiaries in the UK and Spain, will be subject to the requirements of Solvency II from 1 January 2013. The regulation imposes new requirements for solvency capital, governance and risk management, as well as external reporting. Financial statements Solvency capital requirements will be linked more closely to the risks that the business faces and increased public disclosure will enhance transparency to stakeholders. Bupa has established a multi-disciplinary programme to assist all businesses across the Group with the implementation of Solvency II. The Board’s involvement with the programme includes direct engagement on all key programme decisions and training sessions to develop its understanding and awareness. We believe that Solvency II is positive for the industry as it will improve understanding and confidence across the European insurance sector. Relative to other insurance segments, Bupa believes health insurance has a lower level of risk. On this basis, we continue to engage with European policymakers and regulators to support the development of regulations which reflect fairly and are proportionate for a mixed health insurance and healthcare provider such as Bupa. Conclusion We delivered a strong performance in 2010 in mixed economic conditions across our key markets. Our underlying surplus has increased, reflecting our international diversification, the strength of our brands and attractive market positions. Business performance was underpinned by strong cash flows from operations and a healthy balance sheet which provides a firm basis for growth in the future. Thomas Singer Group Finance Director 7 March 2011

Bupa Annual Report 2010 29 s u s tai n abi l i t y r e p o r t

s u s tai n abi l i t y at b u pa

We are committed to keeping people well and supporting a healthy planet through our people, products and services, as well as our community partnerships.

K e e pi n g p e o p l e w e l l e M P ow e ri n g p e o p l e to tak e p o s i t i v e s t e p s to b e h e a lt h i e r a n d h appi e r

The World Health Organisation AUSTRALIA: SPAIN: estimates that, by 2020, chronic KIDFIT TRIATHALON INCLUSIVE SPORT disease will account for almost 70% of ill health and death, impacting In Australia, over 12,000 children The Sanitas Foundation promotes people’s lives and the sustainability aged 7-15 were involved in Bupa inclusive sports activities and of healthcare systems. With people Australia’s Kidfit Triathalon series research through a number of living longer than ever before, this during 2010. Most children undertook activities, such as the Strategic brings new challenges – such as exercise to prepare for the event Alliance for Inclusive Sport. The funding care for older people and over 40% enjoyed changes Alliance endeavours to improve the without compromising the quality in behaviour. health and quality of life of people of life of the next generation. Keeping with disabilities. people well and empowering UK: them to change behaviour is our GREAT NORTH RUN INTERNATIONAL: core sustainability commitment to The Bupa Great North Run is the PARTNERING ON help address these challenges. world’s largest half-marathon, with ALZHEIMER’S over 54,000 people taking part in During 2010, Bupa invested in a 2010. One of the longest running Our partnerships with Alzheimer’s wide range of projects to keep sports partnerships in the world, the charities in the UK, Australia and people well, both directly and Bupa Great Run series raised over New Zealand have supported through the Bupa Foundations £28m for charity in 2010 and helped progress on care for people living (independent charitable tens of thousands of people stay with dementia. The Alzheimer’s organisations funded by Bupa), well by keeping fit. Society has also entered into a £1.5m including: dementia research project jointly funded with the Bupa Foundation.

30 Bupa Annual Report 2010 Business review 31 umber of of umber umber of of umber 8,336 N participants N participants 12,708

t y 8 in 10 that agree employees the for good is Bupa the and community environment Bupa Annual Report 2010 i l 192,819 133,610 2010 (tCO2e) abi n ai y 197,328 134,523 2009 g t e s u s t ervices Division ervices S r ra are are otal Group otal u roup carbon footprint carbon roup T C 203,124 134,894 2010 2009 £4.8m made donations Bupa the to Foundations 2008 • • • G Bupa staffvolunteering O strategic new a agreed Board Bupa the strong 2010, Bupa’s In on builds that for sustainability to funding and approach volunteering, philanthropy, of Group history new A foundations. charitable independent sponsor to formed was Committee at Sustainability champions sustainability and progress, businesses. drive our of and each in appointed were level goals, director and commitments global of set developed ambitious been An has delivery, for roadmap a planet. alongside healthy a support and well of people purpose keep to Bupa’s fulfilling to and contribute lives, also will happier This healthier, longer, live people current helping our beyond partner healthcare a becoming base. customer s t g n i

e u c d t h e d n t d ak e o o n r g

a pri d e n a

lt h ar o ot l e to t f a n e t a t p

a a g l h e e n t, e o o n n p p i m

ir t g r arb o n n o o n s t h c lt h y t h e ir i pi r r a pp e l c t u o During 2010, Bupa reduced its corporate carbon carbon corporate its reduced Bupa and 2010, During hotspots, carbon our mapped We 2%. by up make footprint which – homes care our on business attention services focused care Our footprint. overall our technology of 69% reducing carbon in £1.5m around new invest where will home care carbon low a be including will 2011, in footprint our reduce dramatically engage to to ways solutions new identifying also are We to explored. actions win-win in customers, and people, our planet. healthy a and people healthy support Changes in the Earth’s climate are already having a having already are climate Earth’s the in prices, Changes food affecting health, human and on clean impact of major availability the and disease, of second our spread is the planet healthy a Supporting water. safe commitment. sustainability S h e H a f o u e n v s u s tai n abi l i t y r e p o r t

our people drive our performance

“The way our care home runs together as a team is like a family. We work with the relatives to find out as much as possible about the resident to make their stay as comfortable as possible.” Employee research, November 2010

Par t n e ri n g wi t h D e v e lo pm e n t a n d o u r p e o p l e o pp o r t u n i t y We know that to be seen as a healthcare partner to We are committed to creating competitive our customers requires a diverse group of talented advantage by attracting, developing, motivating and people working in an environment in which they can retaining passionate, talented people who deliver deliver their very best every day for our customers on the company’s business strategy. We begin by and reach their own potential. recruiting people that fit our culture and capability requirements. We value being accountable, caring, respectful, ethical, enabling and dedicated in our interactions For the last eleven years, we have run a graduate with each other and in providing services for programme which operates across Bupa. In 2010, our customers. we welcomed 13 graduates to the business on four different programmes; general, finance, marketing We employ nearly 52,000 people in roles including and technology. The three year retention rate is 74% medical professionals, health coaches, residential and many of our graduates now hold senior positions aged care workers, chefs, call centre operators and in the company. In 2010, we received approximately professionals in a range of disciplines from IT to sales, 100 applications for every graduate position offered. marketing, finance and general management. We offer challenging, rewarding careers at all levels in a sector that really makes a difference to people. Many employees are proud to work for Bupa for its market leadership and the trust and respect associated with the brand.

32 Bupa Annual Report 2010 Business review 33

Bupa Annual Report 2010 e t y loy e e s af ad s mp d h e e n a

g a g n n ki lt h gagi a e n An annual employee opinion survey (called (called survey opinion employee that annual An ensure we where People) Our properly are Surveying employees by expressed views all taken. actions up follow and evaluated site, community collaboration employee 10,000 Our than more to grown has Live, generated Bupa user 1,600 over users, over registered blogs, 3,500 discussions, 4,000 2010, groups, In documents. 15,000 and of videos Use 1,000 Best for DigiAward a won Live Bupa Communications. Internal in Media Social Australia Bupa and UK Wellbeing and of Health Bupa thousands to events building engagement of out rolled process the begin to employees of concept frontline the to commitment and understanding customers. our to partner healthcare a being

lo o aligning further include ahead year the for strategy, Priorities business the deliver to strategy people propositions our career senior distinctive our communicating increasing and Bupa at work who people for employer. destination a as visibility For our customers, Bupa employees are the company, company, the are employees Bupa sharing customers, our regularly For informed, are they sure make financial we and so developments business key including on news channels of network a through group small performance roadshows, podcasts, video magazines, briefings. and seminars forums, our of opinions and views the value highly methods We of number a have we and employees management between dialogue generating for ° ° ° H good a promote and develop to continued General has Bupa business. the across culture safety and from health increased Group the 2010 for for ratio accidents accident employee the however, 7,113, to per 3.66 to 7,065 ratio 2009 the over 0.07 by reduced employees. 100 Injuries, of (Reporting RIDDOR of number The Regulations) Occurrences Dangerous and 2010. in 111 Diseases to 2009 in 109 from rose only UK the has for which 0.06, was 2010 for ratio were RIDDOR The There ratio. 2009 the as same the year. the remained in fatalities employee reported no E including: employees and

d n a ovember 2010 ovember o n N i o n i t u t i t y i n s rib g r v e i e c o o n t mployee research, research, mployee The principles of diversity and inclusion are firmly firmly are inclusion and diversity of recognise principles We The business. our of core the at attracts established organisation inclusive and diverse makes a and that base customer Bupa’s reflects that talent sense. business good of part is disabilities with people of employment The recruitment, the and diversity to commitment of Bupa’s promotion and development career and training, aptitudes the on based is disabilities with become people employees Should individual. the of to abilities committed is Bupa employment, during disabled employment their continue to effort every making necessary. as training appropriate providing and D r innovation recognise to continued Bupa Life One 2010, our In through levels all at excellence and employees 2,000 than More Scheme. Recognition excellence received world the over our in all from participated employees 1,000 Over awards. innovation recognises which scheme, last the suggestions In suggestions. improvement ideas business and 2,000 over implemented has Bupa financial years, in nine £9.2m estimated an delivered have which Group. the for benefits accredited is Scheme Recognition Life One Bupa best The for body professional the IdeasUK, affiliated through is which schemes, recognition of In world. practice the around bodies professional scheme other our with year, consecutive fourth the for highest 2010, (the status PLATINUM with accredited was achievable). level C E “When I say I work for Bupa, Bupa, for work I say I “When impressed.” always everyone’s Risks and u ncertainties

Balancing risk and reward is an integral part of running a successful business. Bupa, like all large, complex companies, has to identify and manage a range of business risks in order to achieve its objectives. Outlined below are the Group’s processes for managing risks, its key areas of risk and how it mitigates them.

RI S K M A N AG E M e n t F R A M E WO RK Insurance risks – those risks associated with providing insurance products including underwriting, pricing and The Bupa Risk Management Framework was agreed and claims, reserving and reinsurance. approved by the Bupa Board in 2009 and outlines Bupa’s approach to risk management across the Group. At the Financial risks – risks associated with the financial heart of the framework is the requirement for the various operation of the Group including capital management, business units to periodically identify and quantify the key investments, liquidity and credit. risks they face and to assess the effectiveness of control Clinical risks – those risks associated with the provision strategies to mitigate the risks to an acceptable level. of healthcare services to Bupa’s customers. The Bupa Risk Management Framework assesses risks Operational risks – those risks associated with inadequate under five broad headings: or failed internal processes, people and systems, or from Strategic risks – specifically focused on the economic external events. environment, the products offered, Bupa’s channel / markets and brand.

O u r ri s k ma n ag e m e n t pr o c e s s

Monitoring and Assessment Evaluation Action plans 1 management 2 3 4

Bupa’s risk appetite Each Quarterly Risk The output of the QRA Actions required to bring statements are set by the Assessment (QRA) seeks to forms the basis for the Chief risks within tolerance levels Board and provide a identify the key risks faced Risk Officer’s report which are assigned specific benchmark against which by the business, the residual is presented to the Group owners, with the nominated to identify risks that are likelihood and impact of the Audit, Risk & Compliance risk owner responsible for outside Bupa’s tolerance. risk based on the existing Committee quarterly. The ensuring they progress Risk monitoring is further controls and an evaluation report presents a view of appropriately. Progress aided by a suite of key risk of the level of risk against the key risks faced by the on actions is monitored as indicators that provide an management’s risk appetite. Group, trends that present part of the QRA process early indicator of an adverse Stress tests, including themselves across the with performance against shift in risk exposure. Risks reverse stress tests, are business and a view on the plan reported to local are assessed on a quarterly performed to assess certain action plans that are in management on a basis in line with good risk scenarios and their place to mitigate identified regular basis and by practice and are reviewed potential impact on the risks. The Chief Executive’s local management to and challenged by the Group, as well as identifying Committee (CEC) is the Group Board. Group Risk team. scenarios which could lead apprised frequently to insolvency. of the key risks identified via the QRA process.

34 Bupa Annual Report 2010 Business review

ri s K a n d mi t igat i o n The list below sets out the principal risks to the achievement of the Governance Group’s goals in relation to the five strategic risk categories set out in the Risk Management Framework. s t r at e g i c Competition Impact Business environment, government policy and Private medical insurance markets are increasingly development of the healthcare system competitive as companies diversify in search of profits. A number of new entrants has entered the market in Impact Many governments are reviewing their approaches to recent years, with many seeking to compete on price healthcare and funding provision and the involvement of and often offering products with more limited benefits. the private sector. Such changes to government policy Mitigation may have an impact on Bupa’s businesses in a number Bupa keeps its competitive position in each of its markets Financial statements of geographies and market sectors. under continuous scrutiny, regularly reviewing competitor activity, and strategic and tactical objectives. The Board Mitigation Bupa actively monitors the changing political environment and senior management monitor performance via key across all areas of operation and, where possible, seeks indicators such as trend data, customer satisfaction results to engage with relevant government officials. The Care and monthly financial results. Services division actively monitors demand and fee levels for residential care and responds appropriately where levels are consistently low. In the face of these pressures, i n s u r a n c e opportunities for cost savings are identified. Underwriting, pricing and claims The geographic spread of Bupa’s operations reduces the organisation’s exposure to significant changes in Impact government healthcare policy within any one country. Bupa’s insurance businesses face the risk that unexpected variations in the frequency, size or timing of claims will lead to variations in financial returns. By virtue of being in the healthcare insurance business, Bupa is exposed to a number of factors affecting its insurance risk. These include macroeconomic trends, medical inflation, shifts in demographics, changes in population health, developments in healthcare technology, natural catastrophes and statistical fluctuation. Mitigation Bupa manages its insurance risks by the use of advanced analytic models of products and prices, controls on underwriting and claims settlement, clarity over policy contract definitions, and internal and external actuarial reviews. Customers purchase our products primarily to cover the costs of unexpected acute illness. The majority of Bupa’s insurance business covers costs for conditions in a prospective twelve month period which enables regular pricing review in the event of changes in claims trends.

Bupa Annual Report 2010 35 ri s k s a n d u n c e r tai n t i e s c o n t i n u e d

Mitigation F i n a n c i a l Bupa commits to maintaining an appropriate level of undrawn headroom through a £900m committed bank Capital and solvency facility which expires in September 2013. In addition, Bupa Impact has access to a variety of debt capital markets including Solvency II will require all insurance businesses to the senior and hybrid bond markets. Bupa is committed reconsider their approaches to capital management to maintaining an appropriate investment grade rating and their overarching governance regimes. This will have and monitors key financial ratios, such as gearing and particular relevance to Bupa due to the unique nature interest cover. of its mixed activity operations. Mitigation c l i n i c a l Bupa has established a dedicated Solvency II programme team with work streams created to ensure that robust and Clinical governance proportionate solutions are embedded throughout the organisation in line with regulatory requirements. Bupa Impact is actively involved in lobbying the relevant regulators to Bupa is dedicated to ensuring its customers are treated ensure that Solvency II requirements appropriately take and cared for according to evidence based best practice, into account mixed activity insurance firms such as Bupa. high patient safety and clinical standards. Failure to fulfil these obligations could lead to significant financial, regulatory and reputational impact. Investment Mitigation Impact All key business units have a medical director responsible Bupa had financial investments and cash equivalents for ensuring clinical quality and governance within the totalling £2.85bn at year end. Failure to manage these business. They are professionally accountable to the assets effectively may result in financial loss and a Group Medical Director (GMD) for clinical governance; reduction in Group solvency. the GMD has been nominated as the senior manager, Mitigation independent from the businesses, who takes overall Most of the investments are managed by the Group’s responsibility on behalf of the Group, for the oversight Treasury department in London under the supervision of of systems and controls relating to clinical governance. the Treasury and Investment Committee, chaired by the The Board has a Medical Advisory Panel (MAP), chaired Group Finance Director. Most of the investments are held in by Professor Sir John Tooke, which advises it on medical cash; exposure to individual counterparties is restricted and issues and considers external perspectives from a number generally deposits are not held with institutions without of leading clinicians and health professionals to help two credit ratings of AA-/Aa3 or better by the major credit inform and develop Bupa’s approach. The GMD provides rating agencies. A small percentage of the Group portfolio a quarterly report on clinical governance to the MAP with is invested in return seeking assets, which may be volatile an annual report also going to the Board; this annual during periods of market stress or dislocation. The return report makes commendations and recommendations for seeking asset portfolio is managed within a risk budget improvements. The MAP receives summary information framework using Value at Risk methodology. regarding clinical incidents and the results of clinical audits undertaken across the Bupa Group.

Funding Impact Bupa supports its current operations and future growth from a combination of internally generated profits and externally raised debt. The Group needs to maintain good access to a variety of funding sources to ensure that short-term and long-term liquidity is maintained.

36 Bupa Annual Report 2010 Business review We have a well established process for identifying business risks, evaluating controls and executing action plans Governance O p e r at i on a l Change management Impact Provider costs Like all major organisations, Bupa has an ongoing programme of change and development to drive continued Impact Bupa’s insurance customers benefit from high quality, improvement in the products and services it provides. cost effective services procured from a wide range of Should these changes be managed ineffectively, the risk of providers including hospitals and consultants. In the face of failure to deliver the intended benefits may be increased. inflationary pressures, there is a risk that increasing provider Mitigation charges will lead to substantial increases in premium rates Bupa mitigates the risk inherent in change by having and customer dissatisfaction. stringent change management procedures. Major project expenditure on new developments is approved Mitigation Bupa’s policy is to work with its providers to maintain by the Board following a rigorous assessment of plans. Financial statements and improve quality while containing the cost of procuring Professional programme management resources are medical services. This includes, where possible, the use used and the internal audit function reviews the impact of of contracts, preferred supplier arrangements and case major changes on Bupa’s operational controls. Progress on management techniques. key projects is reviewed by the Audit, Risk & Compliance Committee or the Board.

Regulatory Information technology Impact Bupa serves customers in more than 190 countries and Impact could, therefore, be affected by changes in financial, clinical The services provided by each of Bupa’s businesses are and health and safety regulations in a number of countries. underpinned by information technology systems and This could affect the way it carries out business and, in infrastructure that enable the delivery of core processes certain cases, might increase costs or reduce revenues. and products. Failure of these systems may reduce the ability of Bupa to deliver products and services to Mitigation its customer base or increase the risk of information Bupa seeks to operate to high regulatory standards and to security breaches. maintain an awareness of and, where possible, anticipate regulatory change. Bupa’s principal financial regulator is the Mitigation UK’s Financial Services Authority, with which Bupa senior Bupa has a number of dedicated IT teams who are managers maintain a close working relationship. responsible for the development, maintenance and monitoring of IT services. A programme of work is in place to ensure the continued development and enhancement People of all IT services to provide the levels of services required Impact by the business and adequately protect sensitive customer As Bupa changes and grows, it needs to make sure it has and business data. Bupa has a dedicated information the right people to move the Group forward. The Board technology risk management function which monitors and views the development and training of Bupa’s people, and manages specific risks across the information technology the recruitment of experienced individuals from outside estate, reporting to both senior management and Group the Group, as central to the organisation’s future success. Risk on a routine basis. Mitigation Bupa has sound selection, evaluation and reward processes to recruit, develop, recognise and motivate strong performance and has a structured succession planning process.

Bupa Annual Report 2010 37 g ov e r n a n c e : Executive Directors Independent Non-Executive Directors dir e c to r s 1. Ray King3 Age 57. Appointed Chief Executive in May 2008. Previously Group Finance Director of 3. Lord Leitch2,3 Age 63. Joined the Board in a n d adv i s e r s Bupa since August 2001. Chartered Accountant. May 2005 and appointed Chairman in November Former Director of Group Finance and Control at 2006. Deputy Chairman of Lloyds Banking Group Diageo plc, Group Finance Director of Southern Plc. Chairman of Scottish Widows and Intrinsic Water Plc, Non-Executive Director of Friends Financial Services Ltd. Former Chairman and Provident plc. Chief Executive of Zurich Financial Services UK, Ireland, South Africa and Asia Pacific, Chairman 2. Tom Singer Age 47. Appointed Group Finance of the Life Insurance Council and the Association Director of Bupa in May 2008. Chartered of British Insurers. He chairs the Bupa Nomination Accountant. Former Chief Operating Officer (and & Governance Committee. prior to that Group Finance Director) of William Hill Plc, Finance Director of Moss Bros Group Plc, 4. The Rt Hon Baroness Bottomley of Management Consultant at McKinsey & Co and Nettlestone DL3 Age 62. Manager at Price Waterhouse. Joined the Board in May 2007. Member of The House of Lords. Chair of Board Practice at Odgers Berndtson. Trustee, The Economist Newspaper. Supervisory Board member, Akzo Nobel NV. Chancellor, University of Hull. Former Secretary of State for Health and then National Heritage (now Culture, Media and Sport).

1.

2. 7. 9. 3.

38 Bupa Annual Report 2010 Governance 39

Joined Bupa in in Bupa Joined

Appointed as as Appointed

10. Age 51. Age

Bupa Annual Report 2010 at Coopers & Lybrand and a solicitor solicitor a and Lybrand & Coopers at Freshfields. at June 2005. Former management consultant consultant management Former 2005. June in July 2000 and Company Secretary in in Secretary Company and 2000 July in President GBE. Nicholson Bryan Sir 2005. in President Life Honorary Bupa’s Bupa of Chairman as served Previously 2001. and 1992 between Memberof: ComplianceCommittee, & Risk Audit, the 1. RemunerationCommittee, the 2. Committee.Governance & Nomination the 3. Secretary Beazley Nicholas 10. Director Strategy Group Appointed 1993. 5. Joined the the Joined

Joined Joined

Age 60. Age 1,2,3 1,2,3 Age 62. Age Joined the Board in in Board the Joined

4. Age 53. Age Board in May 2007. Chairman of The Malcolm Malcolm The of Chairman 2007. May in Intrinsic Board of Director Non-Executive of and Group Director Former Limited. Services plc. Financial Scotland of Bank of Governor and Plc HBOS Compliance & Risk Audit, Bupa the Board. chairs He Entities Regulated Bupa’s and Committee Tooke John Sir Prof 9. Physician. Consultant 2009. July in London Board College the University (Health), Provost Medical Vice and Life of School UCL’s of Head and Non-Executive School. Medical and and Sciences Trust Foundation NHS Hospitals UCL of College Peninsula Dean, Former Bupa Business. the UCL chairs He Dentistry. and Medicine of Panel. Advisory Medical 7. Rita Clifton Clifton Rita 7. July 2010. Chairman and former Chief Executive Executive Chief former and Chairman 2010. July Limited Populus of Chairman Interbrand, Retail of Dixons of Director Non-Executive Society, and Research Market the of Henley President at Plc; Professor visiting and WWF of Trustee School. Business CBE Mitchell George 8. 8. Joined the the Joined

Joined the Board Board the Joined Age 64. Age 1 1 Age 67. Age

1,2,3 6. 5. Peter Cawdron Peter 5. Board in July 2009. Chairman, NEST Corporation. Corporation. NEST Chairman, 2009. July in Board Energy Good Director, Independent Standards. Senior Actuarial for Board Member, Group. Fund, Protection Pension Chairman, UK Former Services Financial Zurich Executive, Managing Chief and Chairman Life, Life International Natwest and Executive, Chief UNUM. Director, Investments. and in May 2007. Chartered Accountant. Chairman Chairman Accountant. Chartered of 2007. Director May in Non-Executive plc, Taverns Director Punch of Strategy Former plc. Group ProStrakan Non-Executive and plc Metropolitan Grand Group of Capita plc, Group Compass of Bupa Director the chairs He plc. (Holdings) ARM and Bupa’s plc as Appointed Committee. 2009. Remuneration January in Director Independent Senior CBE Churchill Lawrence 6. g ov e r n a n c e

R e p o r t o f t h e B oard o f D ir e c to r s g ov e r n a n c e The Directors of The British United Provident Association Limited (‘Bupa’) present their report and the financial statements for the year ended 31 December 2010. Bupa is managed in line with Introduction The business review on pages 2 to 37, the corporate the corporate governance governance statement on pages 41 to 44 and the remuneration report on pages 45 to 47 all form part of this safeguards and commercial report. The audited financial statements are presented on principles that would be pages 51 to 118. expected to be found in a Principal activities The principal activities of the Group are the provision of listed company health insurance, and health and care facilities and services. The latter includes ownership and management of care homes, hospitals and clinics, health screening, provision of disease management services, and occupational and In this section community health services. Financial results Report of the 40 The results of the Group for 2010 are reported on page 51. Board of Directors The deficit for the financial year is £13.4m (2009: surplus 41 corporate of £300.8m). Events after the balance sheet date are Governance disclosed in note 38 of the financial statements. Statement Acquisitions and disposals 45 Remuneration Details of the disposals made during the year are shown in Report note 21. There were no material acquisitions made during the year. 48 statement of Directors’ Charitable and political contributions Responsibilities During 2010, Bupa made charitable donations totalling £5.5m (2009: £6.6m). This included payments to The Bupa Foundation of £2.6m (2009: £2.6m), to the MBF Foundation of £1.8m (2009: £1.5m), to the Sanitas Foundation of £0.4m (2009: £0.4m), and to UK registered charities of £0.6m (2009: £1.1m), of which £0.3m (2009: £0.6m) was made under the Bupa Giving initiative. The remaining £0.1m (2009: £1.0m) was made to overseas registered charities. No political donations were made. Employment policies Details of Bupa’s employment policies, including policies on equal opportunities for disabled employees, are included in the sustainability report on pages 30 to 33. Principal Risks and Uncertainties The Group’s principal risks and uncertainties are set out on pages 34 to 37 together with a description of how the Group manages these.

40 Bupa Annual Report 2010 Business review Bupa is committed to maintaining high standards of corporate governance in all its businesses

Board of Directors c o RP O RAt e G ov e R N A n c e s tAt e M e n t Governance The Board is responsible for the good standing of the Overview of Bupa’s corporate status and governance Company, the management of its assets, including the Bupa is a private company limited by guarantee. As such, management of risk, and the strategy for its future it has no shareholders and all of its surpluses are reinvested development. There are nine Board meetings each year back into the business. Bupa exists for the benefit of its and other meetings are convened as needed. present and future customers. Biographical details of the two Executive Directors and The oversight normally provided by shareholders seven Non-Executive Directors who currently hold office is exercised by a body of around 100 distinguished are set out on pages 38 and 39. Association Members drawn mainly from business, As at the date of this report, indemnities are in force under public life, the medical professions, the charitable sector which the Company has agreed to indemnify the Directors and academia, all of whom exercise the usual rights of and senior managers, to the extent permitted, in respect of shareholders. Nonetheless, as Bupa is a company limited Financial statements all losses in connection with the exercise of their duties and by guarantee, the Association Members do not have any responsibilities, as Directors of the Company or any of its claim on the assets of the Company and are not entitled subsidiaries. to receive a share of profits or dividends. Going concern Bupa is managed in line with the corporate governance, The Directors confirm that they are satisfied that the safeguards and commercial principles that would be Company and the Group have adequate resources expected to be found in a listed company. Bupa’s Board of to continue in operation for the foreseeable future. Directors includes a majority of independent Non-Executive Accordingly, they continue to adopt the going concern Directors who currently outnumber Executive Directors basis in preparing the financial statements. by a ratio of three to one. The Non-Executive Directors are eminent people in their own right and normally serve for Policy for paying creditors two terms of three years. It is Bupa’s policy to pay its providers and other creditors in accordance with agreed terms and conditions. As a holding The Board has a number of committees, all of which company, the Company itself has no trade creditors. comply with corporate governance principles, including Audit, Risk & Compliance, Nomination & Governance Disclosure of information to auditors and Remuneration Committees, together with a Medical The Directors who held office at the date of approval of Advisory Panel, which includes leading independent this Directors’ report confirm that, so far as they are each medical professionals. There is also an Executive aware, there is no relevant audit information of which Sustainability Committee, established in 2007, which the Company’s auditors are unaware; and each Director reports to the Board on a regular basis. The sustainability has taken all the steps that they ought to have taken as a report can be found on pages 30 to 33. Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors In addition to the internal systems and controls that apply are aware of that information. across the Bupa Group, most of Bupa’s principal trading companies are monitored and supervised by external Auditors regulators, including in the UK the Financial Services In accordance with Section 485 of the Companies Act Authority (FSA) and the Care Quality Commission. 2006, KPMG Audit Plc offers itself for re-appointment at Separate regulatory requirements apply to each market the Annual General Meeting as auditors of the Company. in which Bupa operates. By order of the Board Bupa believes that its corporate status is relevant and particularly important to healthcare and a significant N T Beazley advantage to the Company and its customers. It Company Secretary represents a considerable strength and means that 7 March 2011 Bupa is operated with customers, both present and future, as its absolute priority.

Bupa Annual Report 2010 41 g ov e r n a n c e

c o RP O RAt e G ov e R N A n c e s tAt e M e n t This year the annual Board evaluation process was continued externally facilitated. This included one-to-one interviews with each member of the Board and divisional managing Compliance with the Combined Code directors. In addition, the Audit, Risk & Compliance The Board continues to support the principles of Committee has considered and reviewed the findings on corporate governance set out in the Combined Code the Audit, Risk & Compliance Committee. The results of published by the Financial Reporting Council in June this whole exercise gave a strong endorsement to Bupa’s 2008 and available on the FRC’s website www.frc.org.uk. approach to governance and the workings of the Board. While not itself a listed company and having regard to its status as a company with no shareholders, Bupa has Board committees complied with the provisions set out in section 1 of the Members of the following committees are disclosed in Code throughout the year ended 31 December 2010. Code Directors and Advisers on pages 38 and 39. The terms provision D.1.2, relating to the views of major shareholders, of reference of Board committees are available on is not applicable to a company with no share capital. Bupa’s website. The Board has also agreed actions arising from the new Audit, Risk & Compliance Committee 2010 UK Corporate Governance Code which applies The Audit Committee became the Audit, Risk & for financial years ending on or after 29 June 2010 and Compliance Committee in July 2010 and met five times in intends to report compliance with this new code in the 2010. The Committee’s terms of reference were reviewed next financial reporting period. and adopted by a resolution of the Board on 8 July 2010 Board of Directors to reflect this widened remit and have subsequently been Details of the Directors are set out on pages 38 and 39. updated. The Committee is responsible for:

The Board of Directors normally meets nine times a year ° The overall monitoring of the Group’s systems of and ad hoc as required. It has adopted a schedule of internal controls, risk management and compliance. matters, such as strategy and policy, approval of business The Committee reviews the Risk Assessments carried plans and significant capital expenditure, acquisitions out across the Group, including action plans to and disposals and monitoring of performance, which address any significant risks. Quarterly, the Committee are required to be brought to it, or its duly authorised considers a risk update and details of progress against committees, for decision or review. Information, in a form risk action plans, in addition to reports from the Internal and of a quality appropriate to enable them to discharge Audit and Compliance functions. The Committee is their duties, is provided to members of the Board in good responsible for the Group’s annual statement on its time, so that they may consider such information and any systems of internal control; issues arising. ° The integrity of the Company’s financial statements The Board currently comprises two Executive Directors, including its annual and interim reports and reviewing the independent Non-Executive Chairman, and six significant financial reporting issues; further independent Non-Executive Directors. All The approval of the Group’s annual Internal Audit and Directors are subject to triennial retirement. Directors ° Compliance Plan and; appointed in between each Annual General Meeting (AGM) are required to seek re-election at the AGM ° The selection of the Group’s external auditors and review following their appointment. All the Non-Executive of the findings of the external auditor’s work including Directors are considered by the Board to be independent the audit of the annual report and accounts. The Audit, of management and free from any business or other Risk & Compliance Committee has discussions with the relationship which could materially interfere with the external auditors without management being present. exercise of their independent judgement. The terms and The Committee comprises three Non-Executive Directors conditions of appointment of Non-Executive Directors who have broad experience and knowledge of the issues are available on Bupa’s website. and items covered by the Audit, Risk & Compliance The Executive Directors are allowed to take up a Committee. It is chaired by George Mitchell, who has Non-Executive Directorship of a significant company extensive current financial experience. The Chief Executive, where this brings additional value and external Group Finance Director, Group Chief Risk Officer, Chief perspectives and experiences to Bupa. Internal Auditor and external auditors also attend meetings by invitation.

42 Bupa Annual Report 2010 Business review The Board evaluation gave a strong endorsement to Bupa’s approach to governance and the workings of the Board

Remuneration Committee Medical Advisory Panel Governance The Remuneration Committee met five times during 2010. The principal role of the Medical Advisory Panel is to advise It determines the detailed terms of service of the Executive the Board on medical issues affecting any part of the Directors and the divisional Managing Directors, including Group. It meets three times a year and monitors Bupa’s salary, incentives and benefits. The Committee comprises clinical and related activities. Members of the Panel include the Chairman and two Non-Executive Directors. It is chaired two Non-Executive Directors, Ray King, the Chief Executive, by Peter Cawdron. The Chief Executive attends meetings and Dr Andrew Vallance-Owen, Bupa’s Group Medical by invitation. No Director attends any meeting relating to Director. Professor Sir John Tooke is the Chairman. his or her remuneration. The remuneration report can be The independent members of the Panel are also found on pages 45 to 47. Association Members of Bupa. Nomination & Governance Committee Membership of the Panel is as follows: The Nomination Committee became the Nomination & Prof Sir John Tooke MA, MSc, BM, BCh, DM, DSc (Oxon),

Governance Committee in July 2010 and met five times FRCP, FRCPI, FRCGP (Hon), FAcadMed (Hon), Financial statements during 2010. It is responsible for the selection and proposal FMedSci (Chairman) to the Board of suitable candidates for appointment as Ray King BSc, FCA, MCT, Chief Executive Executive and Non-Executive Directors. The Committee engages external search consultants to draw up a shortlist Baroness Bottomley DL BA, MSc. of potential candidates for each Board vacancy and Prof Tar-Ching Aw MBSS, PhD, FFOM, FRCP, FFPHM considers the merits of each shortlisted candidate before recommending the preferred candidate to the Board Tony Clayson MB, ChB, FRCS, FRCSOrth for consideration. It also makes recommendations to Prof Martin McKee CBE MSc MD FRCP FRCPI, FFPHM the Board for re-appointment of Directors, members of Committees and new Association Members. In addition, the Prof Mike Pringle CBE MD FRCGP FRCP Committee’s remit was widened during the year to assume Prof Mary Watkins PhD MN RN RMN responsibility for reviewing the Company’s governance and making recommendations to the Board, when appropriate, Dr Andrew Vallance-Owen MBA, FRCS Ed, Group to ensure that the Company’s arrangements remain Medical Director consistent with best practice governance standards. Policy framework The Committee comprises the Chairman, the Senior The Group maintains a set of formal policies which ensure Independent Director, two other Non-Executive Directors a consistent approach to the management of all areas of and the Chief Executive; the Chairman chairs the meetings. the business. In 2010, the policy set framework continued to be enhanced in light of the continued changes to the regulatory environment. The policies set out the roles and at t e n da n c e at b oard a n d responsibilities of Business Units along with limits and c o mmi t t e e m e e t i n g s escalation procedures. Board ARC RC NC Internal control statement Number of meetings held 10 5 5 5 The Board of Directors is responsible for the Group’s Attendance system of internal control and for reviewing its effectiveness. Such a system is designed to manage, Baroness Bottomley 10 – – 5 rather than eliminate, the risk of failure to achieve business Peter Cawdron 10 5 5 5 objectives and can only provide reasonable, not absolute, Lawrence Churchill 10 5 – – assurance against material misstatement or loss. Rita Clifton1 5 – – – The Board has established an ongoing process, which Ray King 10 – – 5 is documented in Bupa’s Risk Management Policy, for Lord Leitch 10 – 5 5 identifying, evaluating and managing the significant risks George Mitchell 10 5 5 5 faced by the Group. It accords with the guidance set Tom Singer 10 – – – out in Internal Control: Revised Guidance for Directors Prof Sir John Tooke 9 – – – on the Combined Code. Further details of Bupa’s risk Key: ARC: Audit, Risk & Compliance Committee, RC: Remuneration management process appear on page 34. This process is Committee, NC: Nomination & Governance Committee regularly reviewed by the Group Audit, Risk & Compliance – indicates not a member of that committee. Committee on behalf of the Board and has been in place 1 Rita Clifton joined the Board on 1 July 2010. for the year ended 31 December 2010 and up to the date of approval of the annual report and accounts.

Bupa Annual Report 2010 43 g ov e r n a n c e

The processes used to review the effectiveness of the ° Other committees, subsidiary boards and advisers to system of internal control include the following: the Board monitor the Group’s significant risks on an ongoing basis and report to the Board as appropriate. Bupa has established a ‘three lines of defence’ ° These include the boards of key operating subsidiaries, model, which is the FSA’s best practice approach to the Group’s Treasury and Investment Committee, and safeguarding the Internal Control Framework. Internal the Medical Advisory Panel. Audit acts as a third line of defence in Bupa’s control framework. It provides independent and objective ° The external auditors are engaged to express an opinion assurance to the Group Audit, Risk & Compliance on Bupa’s financial statements, which are prepared Committee over the adequacy of systems of from the Group’s accounting records and comply with internal control, risk and governance established by applicable law and International Financial Reporting management (first line of defence) and monitored by Standards as adopted by the EU. They review and test the Group Control functions such as Risk Management the systems of internal financial control and the data and Compliance (second line of defence that is in contained in the financial statements to the extent place to provide an oversight of the effectiveness of necessary to express their opinion. the Internal Control Framework). Bupa’s Internal Audit Independence of the external auditors function acts in accordance with the Global Institute The Audit, Risk & Compliance Committee and the external of Internal Auditors professional standards and has auditors have policies in place to avoid the possibility unrestricted access to the Chairman of the Group that the auditors’ objectivity and independence could Audit, Risk & Compliance Committee. Where specific be compromised. As part of the Board and Committee’s skills are not available in-house, the Chief Internal evaluation of the external auditors, the Directors Auditor and Chairman of the Group Audit, Risk & confirmed that they were satisfied that the external Compliance Committee have the ability to procure auditors had maintained their independence. the services of expert external advisers. In 2009, an updated policy on the use of external auditors The work of the Internal Audit function is focused on ° for non-audit services was approved by the Audit, Risk & areas of highest operational risk. As in any large and Compliance Committee. The policy is primarily intended diverse organisation, failings or weaknesses in internal to ensure that Bupa does not engage the audit firm in control are identified from time to time. In all such situations where there could be a conflict of interest. instances action plans are agreed with management to This policy is kept under review. remedy weaknesses identified and the progress made in implementing these is reported to the Group Audit, On the basis of its meetings and other information Risk & Compliance Committee. available, the Audit, Risk & Compliance Committee assesses the ongoing effectiveness of the external audit In addition to receiving Internal Audit reports, assurance ° and recommends to the Board the re-election of the on the key strategic risks facing the Group is provided external auditors. to the Board or Audit, Risk & Compliance Committee as appropriate via reports and presentations from either the Group control functions (second line of defence) or from Business Unit Managing Directors (first line of defence).

° During 2010, a Group Chief Risk Officer and Group Head of Risk were appointed and given responsibility for both Regulated Entities and Group risks. The second line of defence was further strengthened by the addition of a Group Head of Compliance and a Group Head of Financial Crime.

44 Bupa Annual Report 2010 Business review

r e m u n e rat i o n r e p o r t Remuneration policy Governance The aim of the Group’s remuneration policy is to provide The Board is committed to total remuneration at a level sufficient to attract and retain key executives and to motivate them to provide strong achieving best practice in the business performance and excellent customer service. determination and implementation The policy is intended to deliver a competitive level and mix of remuneration compared with companies of a similar of Bupa’s remuneration policy. The scale and complexity to Bupa, taking into account the purpose of this report is to provide significant international element of Bupa’s operations. information on the policy and In 2010, Bupa continued to benchmark its total remuneration with organisations in the private sector using a comparator group of 24 companies. This group was

practices followed by the Board Financial statements selected with the assistance of Mercer Ltd (Mercer), who and Remuneration Committee. This provide advice to the Committee. report describes the remuneration The policy is to target base salary at the median of the comparator group with the potential to achieve total and benefit policies of Bupa as they remuneration at or towards the upper quartile for the relate to the Directors of the Group. delivery of outstanding performance in the long-term. This is in line with Bupa’s objectives of achieving stretching It has been prepared in the format performance targets over the medium and long-term. of Schedule 8 to the Accounting Base salary Base salaries are established by taking account of the Regulations 2008. market median for comparable roles and aim to reflect the market value for the executive’s core responsibilities. Members of the Remuneration Committee An annual review is conducted and any changes are The Remuneration Committee is comprised entirely implemented in April. This is to ensure that salary reflects of Non-Executive Directors. The chairman of the current market conditions, as well as any changes in the Remuneration Committee is Peter Cawdron and the other level of accountability and individual performance. members are Lord Leitch and George Mitchell. They have Annual bonus all served on the Committee for the full year. The Chief Executive has a bonus potential of 90% of base Operation of the Remuneration Committee salary and the Group Finance Director has the potential to The Remuneration Committee decides remuneration policy receive a bonus of 75% of base salary. 85% of the bonus and practice relating to Executive Directors and divisional potential is linked to the achievement of the Group’s annual Managing Directors. The Remuneration Committee meets profit plan and the remaining 15% to the delivery of other at least three times a year. key objectives. These targets are set at the start of the performance year. The remit of the Remuneration Committee covers all aspects of service contracts including salary, bonus, and The Management Bonus Scheme, of which the Chief the long-term incentive plan (LTIP) as well as pension Executive and Group Finance Director are members, and benefits. is currently being reviewed for performance in 2011. The remuneration of Non-Executive Directors is determined by the Bupa Board as a whole.

Bupa Annual Report 2010 45 g ov e r n a n c e

In summary, elements of executive remuneration are:

E l e m e n t P u rp o s e AIM

Base salary To attract and retain, reflecting Targeting market median, role and contribution having regard to individual performance and responsibilities

Annual bonus plan To recognise and reward the Market median to upper achievement of annual objectives quartile according to performance in the achievement of annual profit plan and key objectives

Long-term incentive plan To attract and retain, while Market median to upper ensuring sound long-term strategy quartile according to implementation and achievement performance in the of long-term objectives achievement of growth in reserves

Pension and benefits, To attract and retain by Benefits in alignment with eg medical benefits, providing security and current market practice, life insurance, car allowance family protection benefits value generally linked to and income protection at a competitive market level service and / or salary

Long-term incentive plan (LTIP) The incentive is calculated on the basis of a notional The LTIP is designed to reward Directors and other senior amount being allocated to the participant’s account on the Bupa Executives for the part they play in achieving the day each new plan commences. This amount is expressed Group’s long-term growth objectives over a number of as a percentage of base salary. The Chief Executive has an years. As Bupa cannot provide long-term remuneration annual notional allocation to the LTIP of 130% of base salary based on equity plans, it provides a cash incentive in the and the Group Finance Director has an annual notional form of an LTIP that is broadly reflective of equity based allocation of 100% of base salary. plans in comparable organisations in the private sector. The amount of the LTIP payable is defined by a scale. The The LTIP is designed to provide a cash payment subject threshold performance level will be 67% of the targeted to the Group achieving pre-determined targets. The LTIP growth in reserves, and this will provide 30% of the target targets are currently based on growth in Group reserves as award with 100% being paid for the complete target being set out in the three year business plan which is considered achieved. In the event of over-achievement, up to 120% of to be the most appropriate measure of Bupa’s financial the award may be earned. performance. The targets used are reviewed and approved Payments are calculated at the end of the three year by the Remuneration Committee and the Board. period and are normally only made to executives still in The LTIP has a three year rolling performance period to the employment of the Group on the date of payment. reflect the three year business plan and market practice. However, in the event that an executive leaves the Group, A new three year performance period starts each year and there are some circumstances, such as normal retirement, any awards are paid annually on 1 April in the year after where a prorated payment may be made. each plan has ended. The most recent performance period began on 1 January 2010 and will end on 31 December 2012 with any payments due in April 2013.

46 Bupa Annual Report 2010 Business review The Board is committed to achieving best practice in the determination and implementation of Bupa’s remuneration policy

Pensions Non-Executive Directors Governance The Chief Executive is a member of The Bupa Pension Non-Executive Directors are appointed for an initial term Scheme and is entitled to a defined benefit pension of three years, normally with the possibility of a period of calculated by reference to final pensionable salary and extension for one term. See pages 38 to 39 of this report length of service with 1/30th accrual per annum. The for appointment dates. Non-Executive Directors are paid Group Finance Director is entitled to a defined contribution a fee for their services to the Group. During their time in pension in The Bupa Retirement Savings Plan; employer office, they are also entitled to private medical benefits for contributions are 30% of pensionable salary. The Group themselves and any partner or dependent children and an Finance Director retains the option to take this as a cash annual health assessment for themselves and their partner. allowance instead of pension. In both cases, pensionable The Chairman is also entitled to the use of a car and driver. salary is the Executive Director’s basic salary only. There are no continuing benefits on termination except that of an annual health assessment for those who continue as For the Chief Executive, the defined benefit pension is an Association Member. funded up to the Lifetime Allowance (or Personal Lifetime Financial statements Allowance) through The Bupa Pension Scheme, using Non-Executive Directors are not entitled to participate a capped salary. The balance of the pension promise is in any bonus, long-term incentive plan or pension provided through a non-registered arrangement, set out in arrangement funded by the Company. an individual deed of agreement, which mirrors the terms Non-Executive Directors’ fees are reviewed periodically by of The Bupa Pension Scheme. This non-registered scheme the Board with the assistance of independent advisers. is unfunded but the benefits are secured by a charge, in the name of the independent Trustees, over specific Advisers Group assets. The Committee currently takes advice on remuneration issues from Mercer, which provides market data on levels Other benefits of executive remuneration and benefits. Mercer and Other benefits for the Executive Directors include car related companies also provide Bupa with employee allowance, fuel benefit, use of a car and driver (for the Chief benefit consulting and actuarial support. In addition, as an Executive), private medical benefits for themselves and any independent insurance intermediary, it advises some of its partner or dependent children, annual health assessment other clients about Bupa’s services. for them and their partner, life assurance, income protection and 30 days annual holiday. Mercer reports to the Chairman of the Remuneration Committee and works with the Group Human Resources Contracts and notice periods Director in preparing necessary advice to the Remuneration Executive Directors have a twelve month rolling Committee on matters of remuneration policy and employment contract. The notice requirements are six interpretation of market data. months from the Executive Director and twelve months from the Company which may be payable in lieu. As Bupa is a company limited by guarantee with no share capital, it is not possible to illustrate company performance The Group recognises that its Executive Directors are likely in terms of shareholder return. to be invited to become Non-Executive Directors of other companies. Participation in these duties will be to the Disclosure tables (audited) benefit of Bupa as they can bring value, by way of external Further details of each Director’s remuneration and perspectives and new experience, to the business. This is numerical information, which have been audited, on the basis that any appointment is not with a competing is disclosed in note 5 to the financial statements. organisation and does not give rise to a conflict of interest. Peter Cawdron Executive Directors are usually permitted, subject to Chairman of the Remuneration Committee approval, to have one Non-Executive Director role and to accept and retain the fee for this Non-Executive Director appointment. In 2010, neither Ray King nor Tom Singer earned fees as Non-Executive Directors of other companies.

Bupa Annual Report 2010 47 g ov e r n a n c e

s tat e m e n t o f dir e c to r s ’ r e s p o n s ibi l i t i e s In respect of the annual report and the financial statements The Directors are responsible for preparing the Annual The Directors are responsible for keeping adequate Report and the Group and Parent Company financial accounting records that are sufficient to show and explain statements in accordance with applicable law and the Parent Company’s transactions and disclose with regulations. reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its Company law requires the Directors to prepare group and financial statements comply with the Companies Act 2006. parent company financial statements for each financial year. They have general responsibility for taking such steps Under that law, they have elected to prepare the Group and as are reasonably open to them to safeguard the assets the Parent Company financial statements in accordance of the Group and to prevent and detect fraud and with IFRS as adopted by the EU and applicable law. other irregularities. Under company law, the Directors must not approve the The Directors have decided to prepare voluntarily financial statements unless they are satisfied that they give a directors’ remuneration report in accordance with a true and fair view of the state of affairs of the Group and Schedule 8 to the Companies Act 2006 The Large and Parent Company and of their surplus or deficit for that Medium-sized Companies and Groups (Accounts and period. In preparing each of the Group and Parent Company Reports) Regulations 2008, as if those requirements financial statements, the Directors are required to: were to apply to the Company. The Directors have also ° select suitable accounting policies and then apply decided to prepare voluntarily a corporate governance them consistently; statement as if the Company were required to comply with the Listing Rules and the Disclosure Rules and make judgments and estimates that are reasonable ° Transparency Rules of the Financial Services Authority and prudent; in relation to those matters. state whether they have been prepared in accordance ° The Directors are responsible for the maintenance and with IFRS as adopted by the EU; and integrity of the corporate and financial information included ° prepare the financial statements on the going concern on the Company’s website. Legislation in the UK governing basis unless it is inappropriate to presume that the Group the preparation and dissemination of financial statements and the Parent Company will continue in business. may differ from legislation in other jurisdictions.

48 Bupa Annual Report 2010 financia l s tat e m e n t s

50 Independent auditors’ report 51 Consolidated income statement 52 Consolidated statement of comprehensive income 53 Consolidated balance sheet 54 Consolidated statement of cash flows 55 Consolidated statement of changes in equity 56 Company balance sheet 57 Company statement of cash flows 58 Company statement of changes in equity 59 Accounting policies 70 Notes to the financial statements 119 Five year financial summary 120 International Financial Reporting Standards relevant to Bupa

Bupa Annual Report 2010 49 independent auditors’ report To the members of The British United Provident Association Limited

We have audited the Group and Parent Company financial ° the financial statements have been prepared in statements of The British United Provident Association accordance with the requirements of the Companies Limited for the year ended 31 December 2010 set out on Act 2006. pages 51 to 118. The financial reporting framework that has Opinion on other matters prescribed by the Companies been applied in their preparation is applicable law and Act 2006 and under the terms of our engagement International Financial Reporting Standards (IFRSs) as In our opinion: adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the ° the part of the Directors’ Remuneration Report which provisions of the Companies Act 2006. we were engaged to audit has been properly prepared in accordance with Schedule 8 to the Companies Act In addition to our audit of the financial statements, the 2006 The Large and Medium-sized Companies and Directors have engaged us to audit the information in the Groups (Accounts and Reports) Regulations 2008, as if Directors’ Remuneration Report that is described as having those requirements were to apply to the Company; and been audited, which the Directors have decided to prepare (in addition to that required to be prepared) as if the ° the information given in the Report of the Board Company were required to comply with the requirements of Directors for the financial year for which the of Schedule 8 to the Companies Act 2006 The Large financial statements are prepared is consistent with and Medium-sized Companies and Groups (Accounts the financial statements. and Reports) Regulations 2008 (SI 2008 No. 410). Matters on which we are required to report by exception This report is made solely to the Company’s members, We have nothing to report in respect of the following: as a body, in accordance with Chapter 3 of Part 16 of the Under the Companies Act 2006 and under the terms of Companies Act 2006 and, in respect of the separate our engagement we are required to report to you if, in opinion in relation to the Directors’ Remuneration Report our opinion: and reporting on corporate governance, on terms that have been agreed. Our audit work has been undertaken ° adequate accounting records have not been kept by the so that we might state to the Company’s members those Parent Company, or returns adequate for our audit have matters we are required to state to them in an auditors’ not been received from branches not visited by us; or report and, in respect of the separate opinion in relation the Parent Company financial statements and the part to the Directors’ Remuneration Report and reporting on ° of the Directors’ Remuneration Report which we were corporate governance, those matters that we have agreed engaged to audit are not in agreement with the to state to them in our report, and for no other purpose. accounting records and returns; or To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company ° certain disclosures of Directors’ remuneration specified and the Company’s members, as a body, for our audit by law are not made; or work, for this report, or for the opinions we have formed. ° we have not received all the information and Respective responsibilities of Directors and auditors explanations we require for our audit. As explained more fully in the Statement of Directors’ In addition to our audit of the financial statements, the Responsibilities set out on page 48, the Directors are Directors have engaged us to review their Corporate responsible for the preparation of the financial statements Governance Statement as if the Company were required and for being satisfied that they give a true and fair view. to comply with the Listing Rules and the Disclosure Rules Our responsibility is to audit, and express an opinion on, and Transparency Rules of the Financial Services Authority the financial statements in accordance with applicable law in relation to those matters. Under the terms of our and International Standards on Auditing (UK and Ireland). engagement we are required to review: Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. ° the Directors’ statement, set out on page 48, in relation to going concern; and Scope of the audit of the financial statements A description of the scope of an audit of financial ° the part of the Corporate Governance Statement on statements is provided on the APB’s website at pages 41 to 44 relating to the Company’s compliance www.frc.org.uk/apb/scope/private.cfm. with the nine provisions of the June 2008 Combined Code specified for our review. Opinion on financial statements In our opinion:

° the financial statements give a true and fair view of the Mary Trussell (Senior Statutory Auditor) state of the Group’s and of the Parent Company’s affairs for and on behalf of KPMG Audit Plc, Statutory Auditor as at 31 December 2010 and of the Group’s deficit for the Chartered Accountants year then ended; 15 Canada Square ° the Group financial statements have been properly London E14 5GL prepared in accordance with IFRSs as adopted by the EU; 7 March 2011

° the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

50 Bupa Annual Report 2010 Business review Governance Financial statements 51 – – £m 2.4 2.8 2.4 4.3 11.9 15.4 61.8 (11.7) (11.7) 48.7 96.6 116.2 377.1 2009 (67.5) (83.9) 416.5 (96.6) (115.7) 367.8 288.9 300.8 300.8 1,562.1 6,941.4 5,359.6 5,443.5 (4,160.6) (4,222.4) (6,573.6) (2,406.5) £m 7.9 3.5 5.8 9.9 19.1 (0.7) 2010 75.3 (17.7) (10.1) 98.3 (17.7) 98.9 (13.4) (13.4) (19.2) 118.0 (79.2) 419.8 (54.0) (54.0) (90.8) (131.4) (249.2) (249.2) 6,011.8 5,921.0 1,643.6 (7,477.1) 7,576.0 (2,581.9) (4,573.4) (4,648.7) 1 1 1 1 7 2 2 3 3 8 6 9 4 11 11 17 17 Bupa Annual Report 2010 14 1,2 Note

ENT M TE A T E S COM D IN TE DA I SOL N he notes on pages 70 to 118 form part of these financial statements. financial these of part form 118 to 70 pages on notes he axation expense axation otal revenues otal otal claims and expenses and claims otal T for the year ended 31 December 2010 CO Net insurance claims incurred claims insurance Net liabilities contract investment life of value fair in (increase) / Decrease liabilities contract investment life backing investments financial on Return Net insurance premiums earned premiums insurance Net Revenues premiums insurance Gross Premiums ceded to reinsurers to ceded Premiums investments accounted equity of results post-taxation of Share Care, health and other revenues other and health Care, incurred claims of share Reinsurers’ Revenues from life investment contracts investment life from Revenues T expenses and Claims incurred claims Insurance Revenues from service contracts service from Revenues expenses operating Other combinations business on arising assets intangible other of Impairment Impairment of goodwill of Impairment (Deficit) / surplus for the financial year financial the for surplus / (Deficit) T Surplus before taxation expense taxation before Surplus Financial expenses Financial T expenses and income Financial income Financial Other (charges) / income / (charges) Other income / (charges) Other expenses and income financial before Surplus Impairment of other intangible assets arising on business combinations business on arising assets intangible other of Impairment Attributable to: Attributable Bupa Surplus before impairment of goodwill, impairment of other intangible assets arising on business on arising assets intangible other of impairment goodwill, of impairment before Surplus expenses and income financial and income, / (charges) other combinations, Impairment of goodwill of Impairment Non-controlling interests Non-controlling consolidated statement of comprehensive income for the year ended 31 December 2010

2010 2009 Note £m £m

(Deficit) / surplus for the financial year (13.4) 300.8

Other comprehensive income / (expense) Unrealised gain / (loss) on revaluation of property 82.2 (44.9) Actuarial gain / (loss) on pension schemes 27 67.5 (132.2) Realisation of foreign exchange on disposal of overseas subsidiary companies 1.6 (2.2) Foreign exchange translation differences on goodwill 212.6 114.8 Other foreign exchange translation differences 150.4 142.1 Net loss on hedge of net investment in overseas subsidiary companies (43.2) (57.7) Realisation of cash flow hedge on disposal of overseas subsidiary companies (0.9) – Realisation of cash flow hedge on impairment of overseas subsidiary companies 2.8 – Change in fair value of underlying derivative of cash flow hedge (0.4) (2.8) Disposal of subsidiary companies 0.1 – Other movements in non-controlling interests (6.8) – Taxation (charge) / credit on income and expense recognised directly in other comprehensive income 9 (35.7) 52.0 Other comprehensive income for the year, net of taxation 430.2 69.1

Total comprehensive income for the year 416.8 369.9

Attributable to: Bupa 417.3 361.6 Non-controlling interests (0.5) 8.3 Total comprehensive income for the year 416.8 369.9

The notes on pages 70 to 118 form part of these financial statements.

52 Bupa Annual Report 2010 Business review Governance Financial statements – – 53 £m 17.0 25.1 13.2 (5.9) 29.7 52.9 36.8 38.4 86.9 (21.8) 2009 (52.8) (25.8) (32.8) (93.8) 541.9 (33.9) 104.7 (60.9) 596.7 333.6 833.9 (187.2) 830.5 383.0 (155.9) (832.0) (858.2) 1,083.1 (356.5) 2,989.1 2,146.8 3,949.1 1,058.3 9,806.1 (1,891.5) (1,106.4) 3,985.9 3,985.9 2,590.4 4,205.8 5,600.3 (1,996.3) (3,928.7) (5,820.2) – – – £m 4.4 (5.9) 19.9 77.7 2010 29.7 30.7 42.2 121.3 (24.1) (13.7) (21.6) (18.9) 351.5 656.1 (56.7) (33.6) 120.3 (64.5) 367.2 (158.1) (181.4) 692.2 785.0 660.5 (220.1) (374.7) 1,127.0 (953.2) 3,019.1 (886.6) 1,031.8 4,396.1 4,396.1 2,293.6 9,543.7 (5,147.6) 3,342.8 2,509.6 (3,538.1) 4,366.4 (2,134.5) 6,200.9 (1,609.5) 11 17 17 12 13 21 21 18 18 19 19 16 16 14 27 27 22 23 23 25 25 28 28 24 24 26 29 29 20 30 30 Bupa Annual Report 2010 Note arch 2011 by 2011 arch M homas Singer homas Group Finance Director Finance Group t

heet e s c n d bala te da i

sol n on-currentassets et assets et on-currentliabilities quity attributable to Bupa to attributable quity interests non-controlling to attributable quity quity quity accounted investments accounted quity he notes on pages 70 to 118 form part of these financial statements. financial these of part form 118 to 70 pages on notes he iabilities associated with assets held for sale for held assets with associated iabilities ife investment contract liabilities contract investment ife rade and other payables other and rade rade and other receivables other and rade otal liabilities otal otal assets otal rade and other payables other and rade otal equity otal T Property, plant and equipment and plant Property, Investment property Investment Inventories N assets Intangible as at 31 December 2010 co L Current taxation liabilities taxation Current T E investments Financial business insurance from arising Assets assets taxation Deferred liabilities contract investment life backing Assets business insurance from arising Assets Current assets Current investments Financial Other receivables Other assets net benefit employment Post T Provisions under insurance contracts issued contracts insurance under Provisions L T N liabilities Subordinated liabilities bearing interest Other issued contracts insurance under liabilities Other charges and liabilities for Provisions Cash and cash equivalents cash and Cash issued contracts insurance under Provisions liabilities bearing interest Other Current liabilities Current liabilities Subordinated T sale for held Assets N E E Deferred taxation liabilities taxation Deferred Post employment benefit net liabilities net benefit employment Post charges and liabilities for Provisions T E reserve revaluation Property reserve expenditure and Income reserve hedge flow Cash T Foreign exchange translation reserve translation exchange Foreign Approved by the Board of Directors and signed on its behalf on 7 7 on behalf its on signed and Directors of Board the by Approved Lord Leitch Lord Chairman consolidated statement of cash flows for the year ended 31 December 2010

2010 2009 Note £m £m

Operating activities Surplus before taxation expense 118.0 416.5

Adjustments for: Net financial income and expenses (19.1) (48.7) Depreciation, amortisation and impairment 449.4 193.3 Other non-cash items 54.5 2.4

Changes in working capital and provisions: Increase in provisions and other liabilities under insurance contracts issued 80.1 62.1 Increase in assets under insurance contracts issued (19.5) (34.1) Increase / decrease in net pension asset / liability (33.0) (32.7) Decrease in trade and other receivables, and other assets 36.4 20.5 Increase in trade and other payables, and other liabilities 65.7 5.9 Cash generated from operations 732.5 585.2

Income taxation paid (105.1) (75.2) (Increase) / decrease in cash held in restricted access deposits 22 (4.2) 12.3 Net cash generated from operating activities 623.2 522.3

Cash flow from investing activities Acquisition of subsidiary companies, net of cash acquired 35 (3.4) – Acquisition of joint ventures and associates 14 (3.5) (5.5) Disposal of subsidiary companies, net of cash disposed of 21 115.1 (25.5) Disposal of joint ventures and associates – 0.4 Purchase of intangible assets 11 (35.7) (72.3) Purchase of property, plant and equipment (135.5) (124.8) Proceeds from sale of property, plant and equipment 1.6 2.7 Purchase of investment property (5.1) (4.0) Proceeds from sale of investment property 0.2 1.3 Purchase of financial investments, excluding deposits with credit institutions (261.5) (1,005.2) Proceeds from sale of financial investments, excluding deposits with credit institutions 375.2 817.7 Net (investment into) / withdrawal from deposits with credit institutions (778.7) 312.0 Interest received 76.4 68.3 Net cash used in investing activities (654.9) (34.9)

Cash flow from financing activities Proceeds from issue of interest bearing liabilities - 376.1 Repayment of interest bearing liabilities (223.9) (680.7) Interest paid (80.1) (59.1) Payments for hedging instruments (2.7) (39.6) Payment of capital redemption to non-controlling interests (6.8) - Dividends paid to non-controlling interests (6.6) (8.5) Net cash used in financing activities (320.1) (411.8)

Net (decrease) / increase in cash and cash equivalents (351.8) 75.6 Cash and cash equivalents at beginning of year 1,026.4 875.1 Effect of exchange rate changes 65.3 47.6 Cash and cash equivalents reclassified (to) / from assets held for sale (85.4) 28.1 Cash and cash equivalents at end of year 22 654.5 1,026.4

The notes on pages 70 to 118 form part of these financial statements.

54 Bupa Annual Report 2010 Business review Governance Financial statements – 55 1.6 £m 2.8 otal 69.1 (2.2) (2.8) (6.6) (6.6) (8.5) (8.5) (0.9) (0.4) 67.5 T 82.2 52.0 (6.8) 142.1 114.8 (13.4) (57.7) 212.6 (43.2) (35.7) (44.9) 150.4 416.8 equity 369.9 (132.2) 430.2 300.8 0.1 4,396.1 3,624.5 3,985.9 3,985.9 – – – – – – – – – – – – – – 0.1 £m (1.1) 5.8 8.3 0.3 0.6 11.9 (2.8) (6.8) (6.6) (6.6) (0.2) (8.5) (8.5) (3.6) (6.3) (0.5) 37.0 Non- 29.7 36.8 36.8 interests controlling – – – – – – – 1.6 £m 2.8 otal (1.7) 51.7 (2.2) (0.2) (0.9) 67.5 72.7 T 82.2 114.8 (19.2) (57.7) 417.3 212.6 (43.2) (35.7) 149.8 361.6 (44.9) 144.9 288.9 436.5 (132.2) to Bupa to 3,949.1 3,949.1 3,587.5 Bupa Annual Report 2010 4,366.4 attributable – – – – – – – – – – – – – – – – – 1.6 £m 5.9 0.6 (2.2) 114.8 (57.7) 147.9 212.6 (43.2) 124.9 150.9 656.1 333.6 333.6 322.5 322.5 208.7 208.7 reserve Foreign exchange translation – – – – – – – – – – – – – – – – – – – – – £m 1.0 1.0 2.8 0.5 (1.7) (1.2) (1.2) (0.7) (0.2) (0.9) 29.7 29.7 30.7 30.9 hedge reserve Cash flow flow Cash – – – – – – – – – – – – – – – – – – – – £m 0.6 67.5 36.6 49.2 30.0 (19.2) (18.3) 193.9 (95.6) 288.9 (132.2) reserve 3,019.1 2,989.1 2,989.1 2,795.2 Income andIncome expenditure expenditure

– – – – – – – – – – – – – – – – – – – – £m (1.1) 8.7 (3.0) (0.6) 82.2 (17.3) 63.8 63.8 (39.2) (39.8) (44.9) 596.7 596.7 636.5 660.5 reserve Property s in equity revaluation revaluation 9 9 27 27 Note nge

a

h

ent of c m te a t d s te da i sol n subsidiary companies subsidiary subsidiary companies subsidiary subsidiary companies subsidiary subsidiary companies subsidiary directly in other comprehensive income comprehensive other in directly subsidiary companies subsidiary companies other comprehensive income comprehensive other he notes on pages 70 to 118 form part of these financial statements. financial these of part form 118 to 70 pages on notes he otal comprehensive income / (expense) for the year the for (expense) / income comprehensive otal otal contributions to non-controlling interests for the year the for interests non-controlling to contributions otal axation (charge) / credit on income and expense recognised recognised expense and income on credit / (charge) axation otal comprehensive income / (expense) for the year the for (expense) / income comprehensive otal otal contributions to non-controlling interests for the year the for interests non-controlling to contributions otal axation credit on income and expense recognised directly in in directly recognised expense and income on credit axation Realisation of foreign exchange on disposal of overseas overseas of disposal on exchange foreign of Realisation Actuarial gain on pension schemes pension on gain Actuarial Other comprehensive income / (expense) / income comprehensive Other property of revaluation on gain Unrealised 2010 year of beginning At for the year ended 31 December 2010 co Retained (deficit) / surplus for the financial year financial the for surplus / (deficit) Retained Foreign exchange translation differences on goodwill on differences translation exchange Foreign differences translation exchange foreign Other Realisation of cash flow hedge on impairment of overseas overseas of impairment on hedge flow cash of Realisation Net loss on hedge of net investment in overseas overseas in investment net of hedge on loss Net Realisation of cash flow hedge on disposal of overseas overseas of disposal on hedge flow cash of Realisation Change in fair value of underlying derivative of cash flow hedge flow cash of derivative underlying of value fair in Change companies subsidiary of Disposal Other movements in non-controlling interests non-controlling in movements Other Other comprehensive income / (expense) for the year, year, the for (expense) / income comprehensive Other taxation of net T T Contributions to non-controlling interests non-controlling to Contributions interests non-controlling to paid Dividends T At end of year of end At Other comprehensive income / (expense) / income comprehensive Other property of revaluation on loss Unrealised Realisation of foreign exchange on disposal of overseas overseas of disposal on exchange foreign of Realisation Retained surplus for the financial year financial the for surplus Retained goodwill on differences translation exchange Foreign Actuarial loss on pension schemes pension on loss Actuarial 2009 year of beginning At Other foreign exchange translation differences translation exchange foreign Other Net loss on hedge of net investment in overseas subsidiary overseas in investment net of hedge on loss Net hedge flow cash of derivative underlying of value fair in Change T Other comprehensive income / (expense) for the year, net year, the for (expense) / income comprehensive Other taxation of Realised revaluation surplus on disposal of subsidiary companies subsidiary of disposal on surplus revaluation Realised T Contributions to non-controlling interests non-controlling to Contributions interests non-controlling to paid Dividends T At end of year of end At T COMPANY BALANCE SHEET for the year ended 31 December 2010

2010 2009 Note £m £m

Non-current assets Intangible assets 11 16.9 14.8 Property, plant and equipment 12 22.0 12.3 Investment in subsidiary companies 15 200.1 200.1 Other receivables 19 50.9 244.9 Post employment benefit net assets 27 120.6 24.9 Deferred taxation assets 29 – 18.7 410.5 515.7

Current assets Trade and other receivables 19 433.7 358.9 Cash and cash equivalents 22 3.2 – 436.9 358.9 Total assets 847.4 874.6

Non-current liabilities Post employment benefit net liabilities 27 (52.8) (49.9) Provisions for liabilities and charges 28 (15.7) (14.4) Deferred taxation liabilities 29 (8.0) – Other payables 30 (240.7) (207.3) (317.2) (271.6)

Current liabilities Other interest bearing liabilities 24 – (11.1) Provisions for liabilities and charges 28 (4.2) (4.2) Current taxation liabilities (1.2) – Trade and other payables 30 (582.7) (646.8) (588.1) (662.1) Total liabilities (905.3) (933.7)

Net liabilities (57.9) (59.1)

Equity Property revaluation reserve 0.1 0.1 Income and expenditure reserve (58.4) (59.7) Foreign exchange translation reserve 0.4 0.5 Total equity (57.9) (59.1)

Approved by the Board of Directors and signed on its behalf on 7 March 2011 by

Lord Leitch thomas Singer Chairman Group Finance Director

The notes on pages 70 to 118 form part of these financial statements.

56 Bupa Annual Report 2010 Business review Governance Financial statements 57 0.1 1.0 £m 2.4 (7.1) 4.2 6.6 9.0 4.0 (11.1) (7.2) (6.8) (5.0) (9.0) (9.0) (31.1) (15.1) 34.5 (41.5) 2009 381.4 (348.5) 1.3 £m 3.2 9.5 2.6 8.6 0.7 4.0 (11.1) (6.7) (6.7) 14.3 2010 38.2 (17.2) (30.1) (13.6) (16.9) (37.9) 128.8 (23.9) (50.0) 22 Bupa Annual Report 2010 Note s w h flo as ent of C m te a t NY s A P et cash used in investing activities investing in used cash et et cash used in financing activities financing in used cash et equivalents cash and cash in (decrease) / increase et he notes on pages 70 to 118 form part of these financial statements. financial these of part form 118 to 70 pages on notes he Operating cash flow before changes in working capital and provisions provisions and capital working in changes before flow cash Operating provisions: and capital working in Changes liability / asset pension net in increase / Decrease Increase / (decrease) in provisions for liabilities and charges and liabilities for provisions in (decrease) / Increase receivables other and trade in (increase) / Decrease activities investing from flow Cash assets intangible of Purchase Operating activities Operating expense taxation before Deficit for the year ended 31 December 2010 COM Adjustments for: Adjustments expenses and income financial Net amortisation and Depreciation payables other and trade in increase / (Decrease) operations from generated Cash N Purchase of property, plant and equipment and plant property, of Purchase received Interest Proceeds from sale of intangible assets intangible of sale from Proceeds Cash flow from financing activities financing from flow Cash paid Interest N N Proceeds from sale of property, plant and equipment and plant property, of sale from Proceeds T Cash and cash equivalents at beginning of year year of beginning at equivalents cash and Cash Cash and cash equivalents at end of year year of end at equivalents cash and Cash Company statement of changes in equity for the year ended 31 December 2010

Foreign Property Income and exchange revaluation expenditure translation Total reserve reserve reserve equity Note £m £m £m £m

2010 At beginning of year 0.1 (59.7) 0.5 (59.1) Deficit for the financial year – (44.4) – (44.4)

Other comprehensive income / (expense) Actuarial gain on pension schemes 27 – 62.7 – 62.7 Foreign exchange translation differences – – (0.1) (0.1) Taxation charge on income and expenses recognised directly in other comprehensive income 29 – (17.0) – (17.0) Other comprehensive income / (expense) for the year, net of taxation – 45.7 (0.1) 45.6

Total comprehensive income / (expense) for the year – 1.3 (0.1) 1.2 At end of year 0.1 (58.4) 0.4 (57.9)

2009 At beginning of year 0.2 43.0 0.9 44.1 Deficit for the financial year – (9.2) – (9.2)

Other comprehensive (expense) / income Unrealised loss on revaluation of property (0.2) – – (0.2) Actuarial loss on pension schemes 27 – (129.3) – (129.3) Foreign exchange translation differences – – (0.4) (0.4) Taxation credit on income and expenses recognised directly in other comprehensive income 29 0.1 35.8 – 35.9 Other comprehensive expense for the year, net of taxation (0.1) (93.5) (0.4) (94.0)

Total comprehensive expense for the year (0.1) (102.7) (0.4) (103.2) At end of year 0.1 (59.7) 0.5 (59.1)

The notes on pages 70 to 118 form part of these financial statements.

58 Bupa Annual Report 2010 Business review Governance Financial statements 59

Bupa Annual Report 2010 ew financial reporting requirements reporting financial ew After making enquiries, the Directors have a reasonable reasonable a have Directors the enquiries, making After have Group the and Company the that expectation existence operational in continue to resources adequate continue they Accordingly, future. foreseeable the for apply to continues standard revised The 2010. January with 1 but combinations, business to method acquisition the be must costs transaction All changes. significant some to payments All statement. income the through the at expensed value fair at recorded be to are business a cases, purchase most in payments, contingent with date, acquisition through remeasured subsequently and debt as classified transaction a on choice a is There statement. income the non-controlling the measure to basis transaction or by method’) goodwill (‘full value fair at either of interest share proportionate interest’s non-controlling the step at In method’). goodwill (‘partial assets net identifiable remeasured are interests held previously any with acquisitions, acquisition, subsequent the of date the at value fair to income the in recognised loss or gain not resulting has any (revised) 3 IFRS applying of impact The financial statement. Group’s the to changes material any in resulted 2010. December 31 ended year the for statements periods financial for applicable is (revised) 27 IAS has Group the and 2009, July 1 after or on beginning non-controlling with transactions to standard this the applied requires standard This 2010. January 1 from to interests interests non-controlling with transactions all of with effect transactions those Therefore, equity. in recorded be goodwill, in result longer no will interests non-controlling Adjustments statement. income the in losses and change gains a nor in result not do that interests non-controlling to amount proportionate the at measured are lost, control is in control Where subsidiary. the of assets net be the to of required is entity the in interest remaining loss any or gain resulting any and value fair to are remeasured that losses Any statement. income the in recognised the between allocated are subsidiary the by losses the incurred if even interests, non-controlling and controlling the in investment equity non-controlling the exceed to adopt the going concern basis in preparing these these preparing in basis concern going the adopt to statements. financial its meet to balances cash significant maintains Group 22). The note (see requirements capital working day to day from combinations business all to standard this applied The Group’s medium-term financing requirements are are requirements financing medium-term Group’s The the under drawn loans bank and balances these by in funded matures which facility, bank committed £900m Group’s 2013. September N reporting financial following the applied has Group The financial its preparing in time first the for standards The 2010. December 31 ended year the for statements quantified is statements financial Group the on impact reporting financial effective newly other All year below. the for time first the for Bupa to applicable standards has it and reviewed been have 2010 December 31 ended financial the on impact no have they that concluded been Group. the of statements periods financial for applicable is (revised) 3 IFRS has Group The 2009. July 1 after or on beginning

s cie i ol unting p oing concern oing the purposes of consolidation, the accounting policies policies accounting the consolidation, of purposes the those with aligned been have companies subsidiary of company. parent the of compliance of Statement Group the and statements financial Company the Both accordance in prepared been have statements is financial Company The Directors. the by approved and IFRS the with of 408 Section in exemption the of advantage taking income individual its present to not 2006 Act Companies these of part a form that notes related and statement statements. financial approved preparation of Basis concern going a on prepared are statements financial modified The as convention, cost historical the under and basis, property, investment property, of revaluation the loss, by or profit through value fair at investments financial derivative investments, financial sale for financial available and liabilities contract investment life instruments, liabilities. contract investment life backing investments the with G together activities, business Group’s the of Details performance development, future its affect to likely 2 pages factors on Review Business the in out set are flows, position cash and its Group, the of position financial The in 37. to described are facilities borrowing and position liquidity together 29, to 26 pages on report Director’s 32. and Finance the 24 to 22 notes in disclosed information further with Group’s the summarise 34 and 33 notes addition, In capital; its managing for processes and policies objectives, its of details objectives; management risk financial its its and activities; hedging and instruments financial risk. liquidity and risk credit to exposure its of assessment an make to Group the requires 1 IAS preparing when concern going a as continue to ability to all the years presented, unless otherwise stated. For For stated. otherwise unless presented, years the all to assessment, this making In statements. financial its with discussions the considered have management on based forecasts as well as banks relationship the Basis of consolidation of Basis (‘Bupa’ Limited Association Provident United British Group, The the of entity parent ultimate the ‘Company’), the or The Wales. and England in incorporated company a is consolidated The guarantee. by limited is Company 2010 December 31 ended year the for statements financial subsidiary its and Company the of those comprise ‘Group’). the as to referred (together companies are statements financial consolidated Standards Group’s The Reporting Financial International under prepared provisions appropriate The (‘IFRS’). EU the by adopted as with. complied been also have Act Companies the of are Group the for relevant are that IFRS of summary A 121. page on included of Board the by approved were statements financial The reviewed have Directors The 2011. March 7 on are Directors which policies, accounting Group’s the approved and consistently applied been have which and below out set 2013, to 2011 period the for plan year three Group’s the acco which take account of reasonably possible changes in in changes possible reasonably of account take which performance. trading accounting policies continued subsidiary. There has been no impact to the Group’s Subsidiary companies financial statements for the year ended 31 December 2010 Subsidiary companies include all entities over which the as a result of the application of IAS 27 (revised). Group or Company has the power, directly or indirectly, to govern the financial and operating policies so as to obtain Financial reporting standards applicable to the Group benefits from their activities. for future financial periods The following interpretation has been issued and endorsed Investments in subsidiary companies are carried at cost by the EU but is not effective for the year ended less impairment in the Company’s accounts. Dividends 31 December 2010, and has not been early adopted by received from subsidiaries are recognised in the income Bupa. The Group has reviewed the effect of all other statement when the right to receive the dividend is amendments to IFRS and interpretations effective for established. accounting periods beginning on or after 1 January 2011 Subsidiary companies are included in the consolidated and does not expect them to have an impact on the financial statements using the purchase method, from financial statements of the Group. the date that control commences until the date that The amendment to IFRIC 14 is effective for periods control ceases. beginning on or after 1 January 2011. The amendment Transactions between Group companies are on applies in the limited circumstances where an entity’s commercial terms. Intra Group balances and any gains, defined benefit pension scheme is subject to minimum losses, income and expenses arising from intra Group funding requirements and makes an early payment of transactions are eliminated in preparing the consolidated contributions to cover those requirements. This financial statements. amendment permits the entity to treat the benefit of these early payments as an asset. The Group is currently Non-controlling interests in the net assets of subsidiaries reviewing the impact of this on its financial statements. are identified separately from the Group’s equity. Non-controlling interests consist of the amount of those Re-presentation of 2009 financial information interests at the date of the original acquisition and the Following the change in the divisional structure of the non-controlling shareholder’s share of changes in equity Group in 2010, the reportable segments of the Group since this date. have been revised. In 2009, the Group disclosed four reportable segments: UK and North America, EMEALA, Equity accounted investments Asia Pacific and Care Services. As a result of the divisional Equity accounted investments comprise associated reorganisation, the UK and North America, EMEALA and companies and joint ventures. Associated companies Asia Pacific businesses have been reallocated between include those entities in which the Group has significant two new divisions: Europe and North America; and influence, but no control, over the financial and operating International Markets. Bupa Home Healthcare has been policies of the entity. Joint ventures include those entities moved to the Care Services division and The Bupa over the activities of which the Group has joint control, Cromwell Hospital has been aggregated into the Europe established by contractual agreement and requiring and North America division for the purposes of segmental unanimous consent for strategic financial and operating reporting, although it is managed separately by the Group decisions. Associated companies and joint ventures are Development Director. accounted for using the equity method and are initially recognised at cost. The Group’s investment in equity The segmental disclosures for the comparative period accounted investments includes goodwill identified on have been re-presented based on the new divisional acquisition, and is presented net of any accumulated structure. The new segments reported for the first time in impairment losses. The consolidated financial statements the segmental analysis information (note 1) are: Europe and include the Group’s share of the income and expenses, North America, International Markets and Care Services. from the date that significant influence or control The Group reorganisation has no effect on amounts commences or that the Group gains significant influence, presented on the face of the income statement. until the date that control or significant influence ceases. Business combinations When the Group’s share of losses exceeds its interest in Identifiable assets acquired and liabilities and contingent an equity accounted investment, the carrying amount of liabilities assumed in a business combination are measured that interest (including any long-term interests that, in initially at their fair values at the acquisition date, substance, form part of the Group’s net investment), is irrespective of the extent of any non-controlling interest. reduced to nil. In addition, the recognition of further losses The excess of the cost of acquisition over the fair value of is discontinued except to the extent that the Group has the Group’s share of the identifiable assets acquired is incurred a legal or constructive obligation or made recorded as goodwill. If the cost of acquisition is less than payments on behalf of the equity accounted investment. the fair value of the Group’s share of the net assets of the Associates and joint ventures are carried at cost less subsidiary acquired, the difference is recognised directly impairment in the Company’s accounts. in the income statement. Foreign currency Costs related to the acquisition, other than those The consolidated financial statements are presented in associated with the issue of debt or equity securities, Sterling, which is the functional and presentational that the Group incurs in connection with a business currency of the Company. combination, are expensed as incurred.

60 Bupa Annual Report 2010 Business review Governance Financial statements 61

Bupa Annual Report 2010 a levy to all registered private health insurers and then then and insurers health private registered all to levy a claims eligible of cost the of proportion a allocates participants. fund all between estimated the represents claims for provision gross The and current in episodes claims from arising to rise liability given yet not have which years financial claims preceding for allowance an includes provision The paid. claims expenses. handling and management on based estimated is claims for provision a as gross vary The may liability ultimate the and information current Adjustments events. and information subsequent of are result years prior for provision claims of amount the in to year financial the in statement income the in for included provisions the setting In made. is change the which an on determined is estimate best a outstanding, claims is prudence of margin a then and basis will undiscounted claims future that confidence is there that such is added set prudence of level The provisions. the from met be Basis of accounting for general insurance activities insurance general for accounting of Basis premiums insurance Gross earned premiums the represent premiums insurance year. Gross financial reported the for exposure risk to the relating for adjusted written, premiums gross comprise They premiums unearned for provision gross the in change provision premium unearned The year. financial the year during the in written premiums of proportion the It years. represents financial subsequent in risk of periods to materially relating not is which basis, line straight a on calculated is of pattern the on based calculation a from different risk. of incidence payable commissions of gross shown are in Premiums apply may that taxes premium insurance of net and jurisdictions. certain reinsurers to ceded Premiums reinsurance represent reinsurers to ceded relate Premiums that into, entered contracts for payable These premiums year. financial reported the for mitigation risk to adjusted reinsurers, to ceded premiums gross written the comprise in movement the of share reinsurers’ the for premiums. unearned for provision the for reinsurance cedes Group the where cases In arrangements the potential, loss net its limiting of under purpose obligations direct its of Group the relieve not do written. policies insurance to relating amounts other and losses from Premiums, period the over recognised are treaties business. reinsurance related the of expiration to treaty a of at inception not recognised therefore is loss or profit actual The particular, In emerges. loss or profit such as but the on inception recognised are commissions reinsurance initial any incurred. costs acquisition the as basis same incurred claims Insurance paid claims insurance comprise incurred claims the Insurance costs, handling related with together year the period during the in claims for provision gross the in movement Australian for levy Fund Trust Equalisation Risk the and businesses. insurance health charges Fund Trust Equalisation Risk the Australia, In

nsurance activities nsurance Foreign currency transactions currency Foreign in transactions companies, subsidiary Group’s the In functional the into translated are currencies of foreign date the at ruling rate exchange the at currency transaction. the foreign in denominated liabilities and assets at Monetary currency functional the into translated are the currencies date; sheet balance the at ruling rate the in exchange the recognised is loss or gain exchange foreign resulting liabilities and assets Non-monetary statement. are income cost historical at currency foreign a in the of denominated date the at rate exchange the using translated arise. therefore differences exchange no transaction; a in denominated liabilities and assets the Non-monetary using translated are value fair at currency was value foreign fair the that date the at ruling rate exchange on arise that differences exchange Foreign determined. statement. income the in recognised are retranslation loan a where statements, financial consolidated the a In of recognition the in results entities Group is between difference exchange the loss, or gain exchange to foreign income comprehensive of statement the in in investment recognised net Group’s the to relates it that extent the operations. overseas operations Foreign including operations, foreign of liabilities and assets The other currencies functional in held goodwill, currency associated functional their from translated are Sterling sheet than balance the at rate exchange the at Sterling rates into average at translated are expenses and Income the date. approximates average the provided period, the for Foreign transactions. the of date the at ruling rates recognised are translation on arising differences and exchange income, comprehensive of statement the in the initially which in period the in statement income the in only translation Cumulative of. disposed eventually is entity be to deemed were operations overseas for differences Contracts entered into by the Group’s insurance entities entities insurance Group’s the by into entered of Contracts transfer the in result that those into classified do are that those and Group the to risk insurance significant significant of transfer the in result that Contracts not. general either as for accounted are risk insurance 4. IFRS under contracts insurance long-term or transfer insurance the in result not do that contracts from Revenues service within included are risk insurance significant of revenues. contract contract insurance requirements, IFRS current Under Accepted Generally local using measured are 4. liabilities IFRS by permitted as (GAAP), Principles Accounting nil at 1 January 2004, the date of the Group’s transition transition Group’s the of date the 2004, January 1 at nil IFRS. to with Revenues into entered contracts insurance from arise Revenues rendered services provision health and care funds customers, claims of administration the to relating contracts and policies accounting The customers. corporate of behalf on below. described are revenues these to relevant I accounting policies continued either one required by regulation or one that provides a claims are accounted for when admitted. The amounts high degree of confidence. recoverable under reinsurance contracts are assessed for impairment at each balance sheet date. Impairments are Provision is made for unexpired risks where the claims and accounted for within the income statement on an incurred administrative expenses likely to arise after the end of the loss basis. financial year, in respect of contracts commencing before that date, are expected to exceed the related unearned Long-term business provisions premiums, less related deferred acquisition costs. In the UK, long-term business provisions are calculated on a gross premium valuation basis. The provision is The methods used and estimates made for claims calculated by subtracting the present value of future provisions are reviewed regularly. premiums from the present value of future benefits Reinsurers’ share of claims incurred payable under the policy. The gross premium method Reinsurers’ share of claims incurred represents recoveries makes explicit allowance for future policy maintenance from reinsurers on claims paid, adjusted for the reinsurers’ costs and taxes. The provision is calculated using actuarial share of the change in the gross provision for claims. The methods that include assumptions such as estimates of recoverables due from reinsurers are shown within assets mortality, morbidity, investment performance, expenses arising from insurance business and are assessed for and taxes. These assumptions are based on best impairment at each balance sheet date. Impairments are estimates of future experience plus margins for the risk accounted for within the income statement on an incurred of adverse deviation. loss basis. In Australia, long-term business provisions are calculated Acquisition costs on a margin on services valuation basis. Under this Acquisition costs, included within other operating methodology, planned profit margins and an estimate of expenses, represent commissions payable and other future liabilities are calculated separately for each related expenses related to the acquisition of insurance contract product group, with future cash flows determined using revenues written during the financial year. Acquisition best estimate assumptions and discounted to the costs that have been paid but not yet been incurred are reporting date. The provision is calculated using actuarial deferred to the subsequent period at the point at which methods that include assumptions such as estimates of they are paid, and recognised in the income statement mortality, morbidity, interest rates, voluntary in the relevant period. discontinuances and expenses. These assumptions are based on best estimates of future experience. Medicare rebate In Australia, the government provides a rebate to health Acquisition costs insurers in respect of the premiums paid for private health Acquisition costs are included within other operating insurance. Rebates due from the government but not expenses. In the UK, the costs of acquiring new and received at the balance sheet date are recognised in assets renewal long-term business are deferred and amortised in arising from insurance business. proportion to the margins in respect of the related policies or over the life of the policy. Acquisition costs are not Basis of accounting for long-term insurance business deferred to the extent that available future margins are Recognition and measurement of contracts not expected to cover such future costs. Long-term insurance contracts are measured and In Australia, acquisition costs represent the costs of accounted for under existing practices at the later of acquiring new and renewal business. The acquisition the date of transition to IFRS or the date of the business costs incurred in relation to life insurance contracts are combination. The Group has adopted the modified capitalised in the valuation of the policy liabilities. statutory solvency basis of accounting for long-term insurance business in the UK. Liabilities and related assets under liability adequacy test Insurance contract provisions for long-term insurance are Net insurance premiums earned tested for adequacy by discounting current estimates of all Premiums are recognised on a receivable basis excluding future contractual cash flows and comparing this amount any taxes or duties. Outward reinsurance premiums are to the carrying value of the liability net of deferred recognised on a payable basis. acquisition costs and any other related intangible assets. In cases where the Group cedes reinsurance, the Where a shortfall is identified, an additional provision is arrangements do not relieve the Group of its direct made and the Group recognises the deficiency in the obligations under insurance policies written. income statement for the period. Reinsurance contracts relating to the long-term Basis of accounting for life investment contracts business are accounted for over the life of the underlying Life investment contracts comprise deposits held on policies using assumptions consistent with those for the behalf of investment policyholders and include investment underlying policies. linked contracts where the benefit is directly linked to the market value of the investments held in the particular Net insurance claims incurred investment linked fund. While the underlying investments Insurance claims incurred and reinsurers’ share of claims are registered in the name of the life insurer and the incurred are accounted for as described for the general investment linked policyholder has no direct access to the insurance business. Death claims are accounted for on specific investments, the contractual arrangements are notification of death. Critical illness and income protection

62 Bupa Annual Report 2010 Business review Governance Financial statements 63

Bupa Annual Report 2010 axation Financial income and expenses and income Financial realised receivable, interest comprises income Financial on income dividend investments, on losses and gains items of value fair the in changes investments, equity change loss, or profit through value fair at value recognised fair the in changes derivatives, of value fair the in gains exchange foreign and property investment of losses. fair and at classified assets to relation in except income income, the in Interest recognised is loss, or profit method. through interest value effective the using accrues, it as statement as designated assets financial of value the in Changes at fair value through profit or loss are recognised within within recognised are loss or profit through value fair the at while loss or gain unrealised an as income change financial the assets, these of realisation Upon held. is asset recognised is valuation last the since value fair in loss. or gain realised a as income financial within borrowings, on payable interest includes expenses impairment Financial method, interest effective the value using fair at calculated measured not investments financial on expenses. losses financial other and loss or profit through T year the for deficit or surplus the on taxation Income taxation Income taxation. deferred and current extent the comprises to except statement income the in recognised other is in directly recognised items to relates it that recognised is it case which in income, comprehensive income. comprehensive other in directly the on payable taxation expected the is taxation enacted Current rates taxation using year, the for surplus taxable date, sheet balance the at enacted substantively of or respect in payable taxation to adjustments any and years. previous balance the using full in recognised is taxation Deferred differences temporary for providing method, liability sheet for liabilities and assets of amounts carrying the between for used amounts the and purposes reporting financial differences temporary following The purposes. taxation taxation for deductible not goodwill recognised: not liability are or asset an of recognition initial the and and purposes combination business a not is that transaction a the in neither affects transaction, the of time the at which, loss. or profit taxable nor profit accounting on based is recognised taxation deferred of amount The the of settlement or realisation of manner expected the taxation using liabilities, and assets of amount carrying balance the at enacted substantively or enacted rates date. sheet differences temporary on recognised is taxation Deferred except companies, subsidiary in investments on arising temporary the of reversal the of timing the where probable is it and Group the by controlled is the difference in reverse not will difference temporary the that future. foreseeable

such that the investment linked policyholder bears the the bears policyholder linked investment the that such performance. investment fund’s the of rewards and risks liabilities contract investment life backing assets Net deferred receivables, investments, financial include liabilities other payables, deposits, cash, assets, taxation liabilities. taxation and contract investment life backing and investments loss or Financial profit through value fair at valued are liabilities income fixed equities, as such investments of consist trusts. property and securities withdrawals and surrenders contributions, Deposits, which relate to life investment contracts are treated treated are contracts investment life to relate which liabilities. contract investment life in movements as contracts investment life from Revenues life of administration the from derived is income Fee the of value the reduces and contracts is investment fee management single A liability. contract the investment on based is which option, investment each for fee The applied option. investment each in held assets the of value valued, is option investment an time each calculated is revenue fee Management declared. is price unit the before recognised is contracts investment life to respect with in the income statement on an accruals basis, as services services as basis, accruals an on statement income the in provided. are contracts service from Revenues general Group’s the by written contracts of significant number A of transfer the in result not do entities insurance relate mainly contracts The Group. the to risk insurance to the administration of claims funds on behalf of of behalf on funds claims of administration the to contain contracts these of Some customers. to corporate repayable deposits representing liabilities financial cost. amortised at measured are These customer. the surplus the represent contracts service from Revenues the as recognised are and contracts such on receivable provided. are services customers of behalf on held deposit fund claims The is reported within other payables, accruals and and accruals payables, other within reported is income. deferred revenues other and revenues health Care, represent revenues other rendered. and services health Care, provision health and care from receivable and taxation added value of net stated are Revenues other sales taxes, rebates and discounts. Revenues are are Revenues discounts. and rebates taxes, sales other Group the which in period accounting the in recognised for exchange in consideration to right the obtains performance. its receivables concession service with associated Revenues the of construction the from revenues include Construction revenues. operation and infrastructure of stage the on based recognised are revenues revenues Operation performed. work the of completion the which in period accounting the in recognised are provided. are services accounting policies continued

A deferred taxation asset is recognised only to the extent Intangible assets that it is probable that future taxable profits will be Goodwill available against which the asset can be utilised. Goodwill represents the excess of the cost of a business Deferred taxation assets and liabilities are offset when combination over the fair value of the Group’s share of they relate to income taxes levied by the same taxation identifiable assets, liabilities and contingent liabilities of the authority and when the Group can settle its current acquired subsidiary company or associated company at taxation assets and liabilities on a net basis. the date of business combination. Where goodwill can only be determined on a provisional basis for a financial Segmental reporting year, adjustments may be made to this balance for up to The Group determines and presents its reportable twelve months from the date of business combination. segments based on information that internally is provided to the Chief Executive and the Group Finance Director, Goodwill arising on business combinations is capitalised who together fulfil the function of the Group’s chief and presented as part of intangible assets in the operating decision makers. consolidated balance sheet. Goodwill is stated at cost less accumulated impairment losses. Impairment reviews are A reportable segment is a component of the Group that performed annually, or more frequently if there is an engages in business activities from which it may earn indication that the carrying value may be impaired. revenues and incur expenses, including inter segment Impairment reviews are performed at the level of the transactions. The reportable segments reflect the Group’s relevant cash generating unit. main operating divisions. The divisional structure is defined by the different products and services provided by each Goodwill is allocated to those cash-generating units that division and the geographic areas in which they operate. are expected to benefit from synergies of the related Discrete financial information is available for these business combination and represent the lowest level within segments and is reviewed regularly by the Group’s chief the Group at which management monitors goodwill. operating decision makers to monitor the results of the Any excess of the Group’s interest in the net fair value of business, assess performance and make decisions about the acquired identifiable assets, liabilities and contingent the allocation of resources. liabilities over cost that arises on an acquisition is Segment results that are reported to the Group’s chief recognised immediately in the income statement. operating decision makers include items directly Goodwill arising on business combinations before the date attributable to a segment as well as those that can be of transition to IFRS and capitalised in the balance sheet allocated on a reasonable basis. Unallocated results has, at the date of transition, been retained at the amount comprise mainly head office revenues, income and recorded previously under UK GAAP, subject to expenses which cannot be specifically allocated to the impairment testing. Goodwill previously written off to reportable segments. reserves under UK GAAP (on business combinations prior Non-current assets acquired by the reportable segments, to 31 December 1997) remains eliminated against reserves as reported to the Group’s chief operating decision and is not included in calculating any subsequent profit or makers, is the total cost of additions to intangible assets, loss on disposal. property, plant and equipment and investment property, Other intangible assets but excludes assets acquired through business Intangible assets, other than goodwill, that are acquired combinations and other intangible assets arising on separately are stated at cost less accumulated business combinations. amortisation and impairment. Amortisation is charged to The accounting policies of the reportable segments the income statement on a straight line basis as follows: are the same as those for the Group as a whole. Any Computer software 2 to 10 years transactions between reportable segments are on ° commercial terms. Intangible assets, other than goodwill, acquired as part of a business combination are capitalised at fair value. Geographical information is also presented; revenues Amortisation is charged to the income statement on a are based on the geographical source of revenues and straight line basis as follows: non-current assets are based on the geographical location of the assets. ° Brand and trademarks 10 years

Current / non-current classification ° Technology and databases 10 years Assets and liabilities are classified as current if they are Distribution networks 10 to 11 years expected to be realised within twelve months from the ° balance sheet date, the primary purpose of the asset or ° Customer relationships 10 to 21 years liability is to be traded or, for loans and receivables, where Present value of acquired they have a maturity of less than twelve months from the ° in-force business 13 to 20 years balance sheet date. All other assets and liabilities are classified as non-current. ° Licences to operate care homes term of licence

° Non-compete agreements term of agreement

° Leases term of lease

64 Bupa Annual Report 2010 Business review Governance Financial statements 65

Bupa Annual Report 2010 nvestment properties nvestment The assets’ residual values and useful lives are reviewed, reviewed, are lives useful and values residual assets’ The adjusted and date sheet balance each at significant, where appropriate. if are there where undertaken are reviews Impairment recoverable. be not may value carrying that indications An impairment loss on assets carried at cost is recognised recognised is cost at carried assets on loss impairment to An value carrying the reduce to statement income the in assets on loss impairment An amount. recoverable the revaluation the in recognised is amount revalued at carried below revalued is asset an where except in reserve, recognised is deficit the case which in cost, historical statement. income the assets of Leased terms the when leases finance as classified of are Leases rewards and risks the all substantially transfer as lease the classified are leases other All lessee. the to ownership leases. operating within capitalised are leases finance under obtained Assets acquisition at value fair at equipment and plant lease property, minimum the of value present the at lower, if useful or, their of shorter the over depreciated and payments term. lease the and life economic finance of net leases, finance to relating Obligations within included are periods, future of respect the in of charges element interest The liabilities. bearing interest a other reflect to term lease the over allocated is obligation obligation. outstanding the on interest of rate constant exists, title obtain to option no where land, Leasehold is treated as an operating lease. operating an as treated is as recognised are leases operating under made Payments are and receivables other and trade within basis prepayments line straight a on statement income the in recognised lease. the of term the over I capital for held or parties third to leased Property properties. investment within classified is appreciation value. fair at stated are properties Investment basis a on individually, determined are values Fair is property the which for purpose the to appropriate transactions market recent to regard with and intended location. same the in properties similar for a holding valuer, independent an market, active an In and qualification professional relevant and recognised with recent experience in the location and category category and location the in experience recent with of investment property being valued, values the the values valued, being property investment of annually. portfolio the market, active an in prices current of absence the In flow cash discounted using valued are properties cash future of estimates reliable on based market projections current reflect to used are rates Discount flows. timing or amount the in uncertainty the of assessments flows. cash the of is value fair the in change a from arising loss or gain Any statement. income the in recognised

shorter of useful life life useful of shorter term lease and life useful of shorter term lease and years 10 to 3 50 years 50

improvements) Equipment Leasehold buildings Leasehold (leasehold Equipment Freehold buildings buildings Freehold MBF brand: determined upon acquisition by an external external an by acquisition upon determined brand: MBF awareness, existing the upon based expert, valuation and Australia in brand MBF the of share market the and in age acquisitions in names brand of rates retention the sector. business same Bed licences: attributed an indefinite useful life due to due life useful indefinite an attributed licences: Bed the by issued are which licences, these that fact the is It date. expiry no have government, Australian indefinite an attribute to Australia in practice common licences. bed to life roperty, plant and equipment and plant roperty,

P homes, care comprise properties leasehold and Freehold fair at shown are properties These offices. and hospitals valuations triennial, least at but periodic, on based value less valuers, independent external by performed The losses. impairment and depreciation subsequent to regularity sufficient with performed are valuations significantly differ not does value carrying the that ensure Directors’ date. sheet balance the at value fair from where years interim in performed are and valuations homes care for value Fair exist. indicators Valuations impairment value. use existing be to considered is hospitals Borrowing basis. value market a on are buildings office of of construction or acquisition the to relating of costs cost the of part as capitalised are assets qualifying that asset. asset. that stated is improvements) leasehold (including Equipment and depreciation subsequent less cost historical at losses. impairment the in recognised are revaluation on losses and Gains revalued is asset an where except reserve, revaluation is deficit the case which in cost, historical below revaluation a Where statement. income the in prior recognised in statement income the to taken deficits reverses statement. income the to credited is it then years, Depreciation included construction, under assets and land are Freehold appropriate, as properties leasehold or freehold within property, of items other on Depreciation depreciated. line not straight the using calculated is equipment and plant residual less amount revalued or cost allocate to method follows: as lives, useful estimated over value ° ° ° ° ° ° Assets that are subject to amortisation are reviewed for for reviewed are amortisation to subject are that Assets circumstances in changes or events whenever impairment recoverable. be not may amount carrying the that indicate statement income the in recognised is loss impairment An amount. recoverable the to amount carrying the reduce to business a of part as acquired assets subject Intangible are life indefinite an have to deemed as combination substantiated are and reviews impairment annual to follows: accounting policies continued

Financial investments Any discount or premium on purchase is amortised over The Group has classified its financial investments into the the life of the investment through the income statement. following categories: at fair value through profit or loss, The intent and ability to hold the asset to maturity is available for sale, held to maturity, and loans and assessed at each reporting date. receivables. Management determines the classification Loans and receivables at initial recognition. Loans and receivables are non-derivative financial All financial investments are initially recognised at fair investments with fixed or determinable payments that are value, which includes transaction costs for financial not quoted in an active market. They arise when the Group investments not classified as at fair value through profit provides money, goods or services directly to a borrower or loss. Financial investments are derecognised when the or customer with no intention of trading the receivable. rights to receive cash flows from the financial investments Loans are recognised when cash is advanced to have expired or where the Group has transferred the borrowers. substantially all risks and rewards of ownership. Loans and receivables are carried at amortised cost Financial investments at fair value through profit or loss calculated using the effective interest method, less An instrument is classified at fair value through profit or impairment losses. loss if it is held for trading or is designated as such upon Sale and repurchase agreements initial recognition. Financial instruments are designated Securities purchased under commitments to resell at fair value through profit or loss if the Group manages (‘reverse repos’) are not recognised on the balance sheet; such investments and makes purchase and sale decisions however, the consideration paid is recognised in loans and based on their fair value, in accordance with the Group’s receivables within financial investments. The difference documented risk management or investment strategy. between sale and repurchase price is treated as interest The investments are carried at fair value, with gains and and accrued over the life of the agreements using the losses arising from changes in this value recognised in the effective interest method. income statement in the period in which they arise. The fair Trade and other receivables values of quoted investments in active markets are based Trade and other receivables, including service concession on current bid prices. The fair values of unlisted securities, receivables but excluding derivative assets, are carried at and quoted investments for which there is no active amortised cost less impairment losses. Derivative assets market, are established using valuation techniques are carried at fair value as detailed in the derivative corroborated by independent third parties. These may financial instruments note. include reference to the current fair value of other instruments that are substantially the same and discounted Impairment of financial assets cash flow analysis. Financial assets comprise investment properties, financial investments, and trade and other receivables. If they are Derivatives are held at fair value through profit or loss not already held at fair value, financial assets are assessed unless they are designated as hedges. The accounting at each reporting date to determine whether there is any policy for hedging instruments is described on page 68. objective evidence that they are impaired. A financial asset Available for sale is considered impaired if objective evidence indicates that Available for sale financial investments are those intended one or more events that have occurred since the initial to be held for an undisclosed period of time which may be recognition of the asset have had a negative impact on sold in response to liquidity needs or changes in interest the estimated future cash flows of that asset. rates, exchange rates or equity prices. An impairment loss in respect of a financial investment Available for sale financial investments are carried at measured at amortised cost is calculated as the difference fair value, with the exception of investments in equity between its carrying amount and the present value of the instruments where fair value cannot be reliably estimated future cash flows discounted at the effective determined, which are carried at cost. Fair values are interest rate at the date the investment was made. determined in the same manner as for investments at Significant financial assets are tested for impairment fair value through profit or loss. Changes in fair value are on an individual basis. The remaining financial assets are recognised in other comprehensive income whilst an assessed collectively in groups that share similar credit risk investment is held, and are subsequently transferred characteristics. All impairment losses are recognised in the to the income statement upon sale or derecognition income statement. of the investment. Inventories Held to maturity investments Inventories are stated at the lower of cost and net Held to maturity investments are non-derivative financial realisable value. Cost is determined using the first-in assets with fixed or determinable payments and a fixed first-out method, or methods that approximate this, and maturity. Investments are designated as held to maturity includes costs incurred in acquiring the inventories and where the Group has a positive intention and ability to hold in bringing them to their current location and condition. investments to maturity. Held to maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.

66 Bupa Annual Report 2010 Business review Governance Financial statements 67

Bupa Annual Report 2010 mployee post employment benefits employment post mployee rovisions for liabilities and charges and liabilities for rovisions rade and other payables other and rade Offsetting financial instruments financial and Offsetting offset are liabilities financial and investments Financial there when sheet balance the in reported amount net the recognised the offset to right enforceable legally basis, a is net a on settle to intention an is there and amounts simultaneously. liability the settle and asset the realise or the P when sheet balance the in recognised is a provision as A obligation constructive or legal present of a has outflow an Group that probable is it and event, past a of result obligation the settle to required be will benefits economic material, is effect the If estimated. reliably be can that expected the discounting by determined are provisions reflects that rate pre-taxation a at flows cash future money of value time the of assessments market current liability. the to specific risks the appropriate, where and, Tliabilities, derivative excluding payables, other and are Trade liabilities Derivative cost. amortised at carried financial are derivative the in detailed as value, fair at stated note. instruments liabilities bond Accommodation deposits bearing non-interest are bonds a Accommodation for payment as home care the of resident the by liabilities paid are deposits These facility. home care the in place leaves resident the when payable are and due fall which equal amount an at recorded are bonds The facility. other the any and retention of net received, proceeds the to of election the at bond the from deducted amounts bondholder. the E defined and contribution defined operates Group The retirement post a as well as schemes, pension benefit funded maintains Group The scheme. benefit medical schemes. unfunded and schemes pension contribution Defined contribution defined to contributions for Obligations the in expense an as recognised are schemes pension incurred. as statement income schemes employment post benefit Defined benefit defined of respect in obligation net Group’s The is schemes medical retirement post and pension represents and scheme each for separately calculated less, obligation benefit defined the of value present the The assets. scheme of value fair the schemes, on funded date for sheet balance the at yield the is used rate discount currency the in denominated bonds corporate quality high calculation the When paid. be will benefits the is which in asset recognised the Group, the to benefit a in from results refunds future any of value present the to limited to contributions future in reductions or scheme the past unrecognised any of total the plus scheme, the costs. service

on-current assets classified as held for sale and and sale for held as classified assets on-current N operations discontinued as classified are groups disposal or assets Non-current recovered be will amount carrying their where sale for held than rather transaction sale a through principally where and probable highly is sale where use, sale continuing immediate for available is group disposal or asset the condition. present its in are sale for held groups disposal and assets Non-current value fair and amount carrying of lower the at the in recognised recognised are losses Impairment sell. to costs less statement. income Group’s the of component a is operation discontinued A business of line major separate a represents that business subsidiary a is or operations of area geographical or resale. to view a with exclusively acquired company upon occurs operation discontinued a as Classification meets operation the when or abandonment earlier. disposal, if sale, for held as classified be to criteria the equivalents cash and Cash call balances, cash comprise equivalents cash and Cash investments liquid highly short-term other and of deposits maturities original with funds) market money (including insignificant an to subject are which less or months three repayable are that overdrafts Bank value. in change of risk cash Group’s the of part integral an form and demand on and cash of component a as included are management of statement the of purpose the for equivalents cash expense. financial a as recognised is bonds the to subject are but date maturity set no have bonds The cash flows. cash bonds guaranteed perpetual subordinated Callable perpetual subordinated callable issued has Group The that such are bonds the of terms The bonds. guaranteed limited certain in interest of payments defer cannot Bupa as classified therefore are bonds The cost circumstances. amortised at stated is liability The liabilities. is financial value carrying The method. interest effective the using in changes risk; hedged on loss or gain risk the for rate adjusted interest mitigate that derivatives of value are fair the bonds the of rate interest fixed the from resulting fair effective an as statement income the in recognised on payable coupon The exposure. this of hedge value the and 2020 from payments interest the in result a increase an as bonds the refinance to likely therefore is Group compulsion. economic of interest other and liabilities subordinated Other as liabilities bearing initially recognised are liabilities bearing interest All costs. transaction attributable less receivable at proceeds stated are they recognition, initial to Subsequent and cost between difference any with cost amortised income the in recognised being value redemption an on borrowings the of period the over statement borrowings of cost amortised The basis. interest the effective for adjusted is hedge value fair corresponding a with hedged. being risk the of value fair accounting policies continued

The charge to the income statement for defined benefit If the hedged cash flow is no longer expected to take schemes represents the following: current service cost place, all deferred gains and losses are released to the calculated on the projected unit credit method; the income statement immediately. If the hedging instrument expected return on scheme assets, less the interest cost or hedge relationship is terminated but the hedged on scheme liabilities; and gains and losses on curtailments. transaction is still expected to occur, the cumulative gain or loss at that point remains in other comprehensive All actuarial gains and losses are recognised in full in the income and is recognised in accordance with the above statement of comprehensive income in the period in which policy when the transaction occurs. they occur. Foreign currency hedging of net investment Derivative financial instruments The Group applies hedge accounting to its foreign The Group uses derivative financial instruments to hedge currency exposure on a net investment basis. The Group its exposure to foreign exchange and interest rate risk. uses foreign currency denominated borrowings and Derivatives that have been purchased or issued as part foreign currency forward contracts to hedge net of a hedge that subsequently does not qualify for investment risk. hedge accounting are accounted for as if they were trading instruments. If an external foreign currency denominated loan is used as a hedge, the portion of the exchange gains or losses Derivative financial instruments are recognised initially arising from the retranslation, that is found to be an at fair value. Subsequent to initial recognition, they are effective hedge, is recognised in other comprehensive remeasured at fair value within trade and other income. The same treatment is applied to both the realised receivables, or within trade and other payables. and unrealised exchange gains and losses arising from Fair values are obtained from exchange quoted prices and, foreign currency forward contracts. Any ineffective where specific exchange prices are not available, from portion is recognised directly in the income statement. market observable pricing information including interest If an entity is subsequently sold or liquidated, any gains rate yield curves. The fair values of futures and options are or losses that have been previously recognised in obtained from the quoted prices on the relevant exchange, other comprehensive income are recognised in the including LIFFE. The value of foreign exchange forward income statement. contracts is established using listed market prices. Accounting estimates and judgements Hedge accounting The preparation of financial statements in conformity with The Group applies fair value, net investment and cash IFRS requires the use of certain accounting estimates. It flow hedge accounting. The Group formally documents also requires management to exercise its judgement in the hedging relationship between a hedging instrument applying the Group’s accounting policies. The estimates and a hedged item. Documentation includes the risk and assumptions are based on historical experience and management objectives and the strategy in undertaking other related variables, updated to reflect current trading the hedge transaction. performance. The estimates and assumptions are reviewed on an ongoing basis and are considered to be prudent and Fair value hedges appropriate but actual results may differ from these Where a derivative financial instrument hedges the estimates. Judgements made by management in applying change in fair value of a recognised asset or liability or the Group’s accounting policies that have a significant an unrecognised firm commitment, any gain or loss on effect on the financial statements, and estimates with a remeasurement of the hedging instrument at fair value is significant risk of material adjustment in subsequent recognised in the income statement. The hedged item is periods, are described below: fair valued for the hedged risk with any adjustment being recognised in the income statement. Insurance accounting: The estimates, uncertainties and judgements arising as a result of the Group’s insurance Cash flow hedges operations are detailed in note 34. Gains and losses on derivative financial instruments designated as a hedge to the exposure in the variability Deferred revenue: In respect of the Group’s revenue and in cash flows that are attributed to a recognised asset or deferred revenue for performance based health service liability, a firm commitment or a highly probable forecast contracts, estimates are made by the Group based on the transaction are accounted for as cash flow hedges. most recent performance evaluation data available at the year end and these estimates are utilised if they are The effectiveness of a cash flow hedge is the degree to determined to be reliable. Reliable estimates can only be which the cash flows attributable to a hedged risk are made on an individual contract basis once the results of offset by changes in the cash flows of the hedging an initial performance evaluation is available, and revenue instrument. The effective portion of any gain or loss on is deferred until the first reliable evaluation is available. the hedging instrument is recognised directly in other Where the results of final performance assessment differ comprehensive income until the forecast transaction from the estimation or if an updated reliable estimate occurs and results in the recognition of a financial asset is available, the difference is recognised in the period in or liability which impacts the income statement. The which such determination is made. Where reliable ineffective portion of the gain or loss is recognised estimates are not available, the Group recognises revenue in the income statement. only to the extent of the contract costs recognised that the Group believes are recoverable.

68 Bupa Annual Report 2010 Business review Governance Financial statements 69 Bupa Annual Report 2010

determining the necessary taxation provision where the the where provision taxation necessary the determining unclear. is regulations and laws taxation of effect determining whether a substantial transfer of risks and and risks of transfer substantial a whether and determining assets; leased to relation in occurred has rewards determining the nature of intangible assets arising on on arising assets intangible of nature the determining combinations; business in risk insurance of absence or presence the entities; determining insurance Group’s the by into entered contracts establishing whether special purpose entities are are entities purpose special whether establishing Group; the by controlled

° ° ° ° ° Financial instruments: The Group is exposed to uncertainty uncertainty to exposed is Group The and instruments: liquidity Financial credit, currency, to exposure of result a Group’s as the with together risks, These risks. rate discussed interest are uncertainty, resulting mitigate to procedures 34. and 33 notes in estimation the details 27 Note assumptions: pension Pension net Group’s the calculating in involved techniques liabilities. or assets combinations: business on arising assets Intangible business a of part as arising assets identifiable All The value. fair at recognised be must and combination estimates of use the requires value fair of calculation assets These techniques. modelling including judgements, 11. note in described are about information contains 11 Note impairment: Goodwill the calculate to used estimates and assumptions the goodwill. of impairment hospital and home care Group’s The valuations: potential. Property trading their to regard with valued are properties valuers external independent, by performed are Valuations assumptions principal The assumptions. and trade incorporate of who level maintainable fair, a quantifying to: to relate ability assumed and competition; of levels profitability; permits. or certificates consents, licences, existing renew in taxes income to subject is Group The taxes: Income and transactions many are There jurisdictions. numerous determination taxation ultimate the which for calculations Where business. of course ordinary the during uncertain is amount the from different is outcome taxation in final the recognised is difference the recorded, initially was that made. is determination such which in period the applying of process the in made judgement of areas The how categorise to policies accounting Group’s the most the have that and displayed are transactions the in recognised amounts the on effect significant are: statements financial Notes to the financial statements for the year ended 31 December 2010 1 Segmental information The Group has three reportable segments which are defined by the different products and services they provide and the geographic areas in which they operate:

• europe and North America – provision of health insurance, life assurance and related products sold in domestic markets within the UK and Europe; – provision of care management and analytic services; – management and operation of a private London hospital, The Bupa Cromwell Hospital, providing medical and ancillary services to patients.

• International Markets - provision of health insurance, life assurance, life investment contracts and related products sold in the international expatriate market and domestic markets in the Middle East, Latin America and Asia Pacific.

• Care Services – provision of nursing, residential and respite care within the UK, Spain, Australia and New Zealand; – provision of home healthcare products and services within the UK.

These reportable segments reflect the management structure used by management to monitor the results of the business and to assess performance and make decisions about the allocation of resources. Segmental performance is assessed based on surplus before share of post taxation results of equity accounted investments, amortisation of intangible assets arising on business combinations, impairment of goodwill, impairment of other intangible assets arising on business combinations, other charges and income, financial income and expenses, taxation expense and non-controlling equity interests. The total surplus of the reportable segments is reconciled below to surplus before taxation expense in the consolidated income statement. Financial income and expenses and taxation expense are reported and monitored on a Group basis and are not attributed to individual segments. Europe and North America International Markets Care Services Total

2010 2009 2010 2009 2010 2009 2010 2009 (restated) (restated) (restated) (restated) £m £m £m £m £m £m £m £m

(i) Revenues Total revenues for reportable segments 3,008.0 2,981.8 3,394.0 2,831.4 1,183.2 1,134.6 7,585.2 6,947.8 Inter segment elimination (8.5) (6.6) – – (0.3) (0.3) (8.8) (6.9) External revenues for reportable segments 2,999.5 2,975.2 3,394.0 2,831.4 1,182.9 1,134.3 7,576.4 6,940.9

Net reclassifications to other expenses or financial income and expenses (0.6) (0.1) Unallocated central revenues 0.2 0.6 Consolidated total revenues 7,576.0 6,941.4

(ii) Segment result Surplus for reportable segments 116.7 102.6 208.9 166.5 139.7 138.7 465.3 407.8 Share of post taxation results of equity accounted investments (0.3) – (0.4) 2.8 – – (0.7) 2.8 Amortisation of other intangible assets arising on business combinations (8.8) (8.7) (20.7) (20.2) (5.2) (6.0) (34.7) (34.9) 107.6 93.9 187.8 149.1 134.5 132.7 429.9 375.7 Net reclassification to financial income and expenses (8.8) (6.8) Unallocated central (expenses) / income (1.3) 8.2 Surplus* 419.8 377.1 Impairment of goodwill (212.5) – – – (36.7) – (249.2) – Impairment of other intangible assets arising on business combinations – – (4.8) – (12.9) (11.7) (17.7) (11.7) Other (charges) / income (54.0) 2.4 Surplus before financial income and expenses 98.9 367.8 Financial income and expenses 19.1 48.7 (104.9) 93.9 183.0 149.1 84.9 121.0 Consolidated surplus before taxation expense 118.0 416.5

(iii) Other information Amortisation and depreciation costs for reportable segments 78.1 74.8 40.1 37.9 64.3 61.3 182.5 174.0

Non-cash (expenses) / income** for reportable segments (98.2) 25.4 (74.5) (66.4) (57.4) (18.1) (230.1) (59.1) Unallocated non-cash expenses (29.9) (16.7)

Total non-cash expenses (260.0) (75.8)

* Surplus before impairment of goodwill, impairment of other intangible assets arising on business combinations, other (charges) / income, and financial income and expenses. **Excluding amortisation and depreciation costs.

70 Bupa Annual Report 2010 Business review Governance Financial statements 71 £m £m £m 2.7 4.3 15.4 (5.9) 32.8 (61.8) 2009 2009 2009 (16.3) (55.9) (83.9) (56.8) (86.6) 1,562.1 6,941.4 4,160.6 4,279.2 5,359.6 5,459.8 4,222.4 5,443.5 4,246.4 6,941.4 4,933.2

otal otal otal T T T £m £m £m 7.9 3.5 (2.5) 2010 2010 2010 49.7 (37.5) (10.5) (75.3) (79.4) (88.3) (64.8) (90.8) 6,011.8 4,728.1 5,921.0 1,643.6 7,576.0 7,576.0 4,573.4 4,678.4 4,648.7 5,043.4 6.049.3 –

a 1.3 £m £m £m 13.8 (2.6) (6.3) 69.2 34.9 83.0 83.0 (41.8) (48.1) 2009 2009 2009 (64.1) 104.1 170.8 170.8 (65.4) 168.2 635.2 1,369.4 Bupa Annual Report 2010 – £m £m £m 8.9 5.0 (3.1) (7.0) 81.0 2010 2010 2010 36.8 89.9 89.9 (53.1) (46.1) 167.7 (67.4) 172.7 (70.5) 102.2 628.3 ong-term business ong-term business ong-term 1,174.3 L L

Rest of the World the of Rest alta, China and Bolivia. and China alta, 1.4 £m £m £m 0.4 M 19.0 (14.1) (21.2) (13.7) (13.7) 2009 2009 2009 (19.8) (56.8) 4,177.2 4,125.7 4,139.4 4,196.2 2,236.7 5,275.3 5,255.5 5,289.0 2,423.2 gypt, gypt, E £m £m £m 0.6 (3.5) 2010 2010 2010 Australasia 40.8 (18.7) (42.5) (22.2) (79.4) (20.3) (20.9) hailand, Generalinsurance Generalinsurance 5,839.1 5,818.8 5,881.6 2,918.3 4,597.4 4,558.8 4,638.2 4,536.6 T 2,804.0 £m 2009 786.6 1,116.5 ast, Hong Kong, Kong, Hong ast, Spain E £m 2010 554.1 1,161.5 iddle M £m 2009 354.0 2,953.0 UK £m 2010 396.7 2,982.2 b Note continued rust Fund levy Fund rust T et insurance claims incurred claims insurance et qualisation qualisation otal revenues otal E Segmental information information Segmental Included within Rest of the World are operations in the US, Denmark,US, the the in operations are World the of Rest Includedwithin net assets. net Consolidated non-current assets excludes financial investments, assets arising from insurance business, deferred taxation assets and post employment benefit employment post and assets business,insurance taxation deferred from arising financialassets investments, non-currentConsolidatedexcludes assets et insurance claims incurred claims insurance et eographic information eographic et insurance premiums earned premiums insurance et ross insurance premiums insurance ross

n t

otes otal revenues revenues otal

nsurance claims incurred claims nsurance N I Recoveries from reinsurers on claims paid claims on reinsurers from Recoveries incurred claims of share Reinsurers’ Reinsurers’ share of change in gross provisions for claims claims for provisions gross in change of share Reinsurers’ Risk Risk Insurance claims paid claims Insurance 3 Gross premiums written written premiums Gross 2 claims for provisions gross in Change N a. Consolidated total revenues total Consolidated 1 G Consolidated non-current assets non-current Consolidated b. Reinsurers’ share of change in gross provision for unearned premiums unearned for provision gross in change of share Reinsurers’ Change in gross provision for unearned premiums unearned for provision gross in Change reinsurers to ceded written premiums Gross Revenues from service contracts service from Revenues revenues other and health Care, N T remiums ceded to reinsurers to ceded Premiums G Revenues from life investment contracts investment life from Revenues Notes to the financial statements continued for the year ended 31 December 2010 4 Other operating expenses

2010 2009 £m £m

Amortisation of intangible assets arising on business combinations and computer software 82.4 75.0 Impairment of computer software – 7.6 Depreciation expense 100.1 99.0

Acquisition costs Commission for direct insurance 208.2 216.4 Other acquisition costs paid 12.0 15.2 Changes in deferred acquisition costs 0.1 (11.7) Total acquisition costs 220.3 219.9

Cost of sales 168.1 176.1 Property costs 165.6 143.8 Marketing costs 109.3 87.6 Medical supplies and fees 156.7 130.8 Operating lease rentals 41.8 40.0

Staff costs Wages and salaries 1,078.7 1,011.1 Social security costs 91.4 87.2 Contributions to defined contribution schemes 22.3 18.4 Other pension costs 9.2 12.8

Net loss on foreign exchange transactions 0.3 4.8

Other operating expenses (including auditors’ remuneration) 335.7 292.4 Total other operating expenses 2,581.9 2,406.5

Auditors’ remuneration Fees payable to the Company’s auditors, KPMG Audit Plc and its associates: Statutory audit of the Company’s consolidated annual accounts 0.7 0.6 Fees payable to the Company’s auditors and its associates for other services: Statutory audit of the Company’s subsidiaries and pension scheme audits pursuant to legislation 3.5 3.2 Total audit fees payable to the Company’s auditors, KPMG Audit Plc and its associates 4.2 3.8 Fees payable to other auditors: Audit of overseas subsidiary companies 0.1 0.3 Total audit fees 4.3 4.1 Other services relating to taxation 0.4 0.3 Services relating to corporate finance transactions 0.7 – All other services 2.2 1.0 Total auditors’ remuneration 7.6 5.4

Employee numbers

The average number of full time equivalent employees, including Executive Directors, employed by the Group during the year was:

2010 2009

Health insurance 10,279 9,804 Care and health provision 32,268 32,094 42,547 41,898

Company

The average number of full time equivalent employees, including Executive Directors, employed by the Company during the year was:

Health insurance 675 594

72 Bupa Annual Report 2010 Business review Governance Financial statements

– £ 73

2009 31,052 30,912 77,313 imited. 329,141 329,141 46,261 37,879 37,879 68,854 54,427 108,104 L 629,317 720,405 1,353,027 2,073,432 2,780,062 otal T – – – £ 2010 55,502 92,256 73,004 64,504 28,000 789,712 imited with effect from with imited 799,738 150,004 336,468 L 1,469,340 2,259,052 3,058,790 he fees receivable by by receivable fees he T – – – – – – – – £ 2010 bonus Bupa Annual Report 2010 Annual 672,172 341,565 1,013,737 1,013,737 – £ xecutive Director of Bupa InsuranceBupa of Director xecutive 502 2010 E 1,256 1,004 1,004 1,004 59,911 45,718 20,538 50,488 80,449 130,937 Benefits £ fees xecutive Director of Bupa InsuranceBupa of Director xecutive 2010 E Salary/ 91,000 63,500 72,000 55,000 28,000 737,257 427,609 749,250 1,914,116 149,000 290,750 1,164,866 f c a e b d Note edical Advisory Panel with effect from 1 July 2009. 1 July effect from with Panel Advisoryedical M edical Advisory Panel.Advisoryedical M imited with effect from 1 July 2009. He received a fee of £75,000 (2009: £37,500) as Chairman of Bupa of Chairman £75,000as (2009:of £37,500) fee a received 2009. He July 1 effect from with imited L xecutive Director and as Chairman of the the Chairmanof as and Director xecutive xecutive Director with effect from 1 July 2009, and as a Non-a as 2009, and July 1 effect from with Director xecutive awrence Churchill include an amount of £36,000 of amountNon- (2009:£10,364) an include a Churchill as awrence E E L xecutive Director with effect from 1 July 2010. July 1 effect from with Director xecutive E he fees receivable by by receivable fees he T ooke was appointed as a Non- a as appointed was ooke ooke include an amount of £8,500 of the amount (2009:£3,500)an includeChairmanof as ooke ooke T T T imited. He also received a fee of £19,000 (2009: £15,750) as Chairman of the Audit Committee. Audit £19,000the of Chairmanof (2009: fee £15,750)as a received also He imited. L itchell served as Chairman of Bupa InsuranceBupa Chairmanof as served itchell itchell M M xecutive Directors xecutive eitch (Chairman) eitch L E Directors’ emoluments Directors’ remuneration Directors’ he highest paid Director was Ray King. Ray was Director paid highest he he fees receivable by Peter Cawdron include an amount of £10,000 (2009: £8,000) as Chairman of the Remuneration Committee. Peter Cawdron is Senior IndependentSenior is Cawdron RemunerationCommittee.Peter £10,000 the of amountChairmanof (2009:£8,000) an include as Cawdron Peter by receivable fees he awrence Churchill was appointed as a Non- a as appointed was Churchill awrence

T T position. this respectof (2009:£6,000)in £7,000 of amount an include fees his and Director L September2009. 17 George Insurance Prof Sir John Sir Prof Prof Sir John Sir Prof

on-

otes xecutive Directors xecutive d Byrne d awrence Churchill awrence ord ord om Singer om Baroness Bottomley Baroness Cawdron Peter T N L L George George d. N a. b. c. E King Ray Directors’ remuneration for the year ended 31 December 2010 was as follows: as was 2010 December 31 ended year the for remuneration Directors’ 5 (i) f. Rita Clifton was appointed as a Non- a as appointed was Clifton Rita f. Prof Sir John John Sir Prof Clifton Rita e. Former Directors Former E Robert Walther Walther Robert Notes to the financial statements continued for the year ended 31 December 2010 5 Directors’ emoluments continued

(ii) Long-term incentive plan (LTIP) awards Adjustment to / At 31 interest on Awards At 31 Payable Payable December Paid Target accrued becoming December April April 2009 in year award balance payable 2010 2011 2012 Note £ £ £ £ £ £ £ £

Payable awards Ray King 2007 / 2008 plan a 513,098 (513,098) – – – – – – 2009 / 2010 plan – – – – 1,009,320 1,009,320 1,009,320 –

Tom Singer 2007 / 2008 plan b 286,764 (172,059) – 2,294 – 116,999 – 116,999 2009 / 2010 plan – – – – 492,000 492,000 492,000 –

Potential awards Ray King 2009 / 2010 plan c 841,100 – – 168,220 (1,009,320) – 2009 / 2011 plan d 841,100 – – – – 841,100 2010 / 2012 plan d – – 891,566 – – 891,566

Tom Singer 2009 / 2010 plan c 410,000 – – 82,000 (492,000) – 2009 / 2011 plan d 410,000 – – – – 410,000 2010 / 2012 plan d – – 418,200 – – 418,200

Notes a. In accordance with the rules of the LTIP, 40% of the award earned under the 2007 / 2008 plan was payable in April 2010, 60% of the award having been paid in April 2009. b. Subject to performance criteria being satisfied, in accordance with the rules of the 2007 / 2008LT IP regarding joiners during a plan period, 40% of the award earned under this plan will become eligible for payment in April 2012, 60% of the award having been paid in April 2010. Any payment will be made provided the Director is still employed by the Company on the payment date. c. The maximum potential award is 120% of the target award, and is payable if stretch targets set by the Remuneration Committee are achieved. The plan period ended on 31 December 2010 and the award will pay out at 120% of the target value. Therefore, an adjustment of 20% has been added to the opening balance of the potential award which is due for payment in April 2011. d. The 2009 / 2011 plan period ends on 31 December 2011 and the 2010 / 2012 plan period ends on 31 December 2012. The maximum potential award is 120% of the target award and, subject to the performance criteria being satisfied, the awards will become eligible for payment in April 2012 and April 2013 respectively. Any payment will be made provided the Director is still employed by the Company on the respective payment dates.

(iii) Directors’ pensions Ray King, who joined The Bupa Pension Scheme prior to October 2002, participates in defined benefit pension arrangements sponsored by the Company. These schemes provide benefits based on earnings at or near retirement and are part funded and part unfunded.T he unfunded element is provided for by the Group. The following table shows details of Ray King’s accrued pension benefits at the end of the year:

Total accrued Total accrued Transfer Transfer Increase in pension at pension at value at value at transfer value 31 December 31 December 31 December 31 December less Director’s 2010 2009 2010 2009 contributions Note £ £ £ £ £

Ray King a, b 236,797 192,409 5,219,021 4,064,954 1,135,527

Notes a. The accrued pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year. The increase in accrued annual pension during the year for Ray King, excluding any increase for inflation, was £44,388.T he transfer value of this increase, less Director’s contributions, was £959,768. b. The transfer values have been calculated by an independent actuary in accordance with Guidance note eleven issued by the Institute and Faculty of Actuaries.

During the year, the Company paid contributions of £153,689 (2009: £144,935) to The Bupa Retirement Savings Plan, a defined contribution scheme, in respect of Tom Singer.

74 Bupa Annual Report 2010 Business review Governance Financial statements – – 75 1.2 £m £m £m 7.0 7.0 3.3 2.4 0.2 (1.9) (11.1) 66.1 61.3 (0.5) (0.3) 67.5 41.7 20.3 14.5 116.2 (15.7) 2009 2009 2009 – 1.1

5.1 0.1 £m £m £m 0.3 0.5 0.2 15.5 (6.5) (0.7) (0.7) 77.9 67.5 10.0 2010 2010 2010 79.2 (11.6) 98.3 (35.2) (54.0) Bupa Annual Report 2010 Financial expenses Financial Financial income Financial Other (charges) / income income / (charges) Other oans and receivables and oans Investments designated at fair value through profit or loss or profit through value fair at designated Investments Derivatives Derivatives Investments designated at fair value through profit or loss or profit through value fair at designated Investments L Investments held to maturity to held Investments Investment property Investment

he net amount of foreign exchange differences recognised in financial income for the year, excluding those arising on financial assets and financial and assets financial on arising those excluding year, the for income financial in recognised differences exchange foreign of amount net he otal other (charges) / income / (charges) other otal otal financial income financial otal otal financial expenses financial otal Net increase / (decrease) in fair value fair in (decrease) / increase Net 8 7 Net loss on sale of equity accounted investment accounted equity of sale on loss Net Net charge on disposal group held for sale for held group disposal on charge Net property of revaluation on Deficit equipment and plant property, of disposal on loss Net T cost amortised at liabilities financial on expense Interest leases finance of respect in charges Finance Interest income Interest Net (loss) / gain on sale of business of sale on gain / (loss) Net 6 Net realised gains on financial investments designated at fair value through profit or loss or profit through value fair at designated investments financial on gains realised Net loss exchange foreign Net T trading. for held are loss or profit through value fair at designated investments financial No T £4.6m). of gain (2009: £0.5m of gain a was loss, or profit through value fair at measured liabilities portfolio asset seeking return Group’s the on hedging, after gain, net a £98.3m (2009: is of £116.2m) income financial within Included £52.2m). of gain £13.2m net (2009: of expenses financial Other T Notes to the financial statements continued for the year ended 31 December 2010 9 taxation expense

(i) Recognised in the income statement 2010 2009 £m £m

Current taxation expense / (income) UK taxation on income for the year 60.2 95.4 Adjustments in respect of prior periods (11.1) (15.6) 49.1 79.8 Double taxation relief (2.0) (14.8)

Foreign taxation on income for the year 59.1 103.8 Adjustments in respect of prior periods (0.5) (4.7) 58.6 99.1

Total current taxation 105.7 164.1

Deferred taxation expense / (income) Origination and reversal of temporary differences 20.4 (35.5) Adjustments in respect of prior periods 5.8 (13.6) Changes in taxation rates (0.5) 0.7 Total deferred taxation 25.7 (48.4)

Taxation expense 131.4 115.7

(ii) Reconciliation of effective taxation rate

Surplus before taxation expense 118.0 416.5 Taxation at the domestic UK corporation taxation rate of 28.0% (2009: 28.0%) 33.0 116.6

Effect of: Different taxation rates in foreign jurisdictions (0.1) (3.7) Non-deductible expenses 110.0 35.8 Current income taxation adjustments in respect of prior periods (11.6) (20.3) Deferred taxation adjustments in respect of prior periods 5.8 (13.6) Changes in taxation rate (0.5) 0.7 Movement on deferred taxation asset not recognised (5.2) 0.2 Taxation expense at the effective taxation rate of 111.4% (2009: 27.8%) 131.4 115.7

(iii) Current and deferred taxation recognised directly in other comprehensive income

2010 2009 Taxation Taxation Before (expense) Net of Before benefit / Net of taxation / benefit taxation taxation (expense) taxation £m £m £m £m £m £m

Current taxation credit / (charge) in respect of: Actuarial loss on pension schemes – – – (24.5) 6.9 (17.6) Realisation of foreign exchange on disposal of overseas subsidiary companies 1.6 – 1.6 (2.2) – (2.2) Foreign exchange translation differences on goodwill 212.6 – 212.6 114.8 – 114.8 Other foreign exchange translation differences 150.4 (1.1) 149.3 142.1 (0.3) 141.8 Net loss on hedge of net investment in overseas subsidiary companies (43.2) 1.7 (41.5) (57.7) 6.2 (51.5) Realisation of cash flow hedge on disposal of subsidiary companies (0.9) – (0.9) – – – Realisation of cash flow hedge on impairment of subsidiary companies 2.8 (0.8) 2.0 – – – Disposal of subsidiary companies 0.1 – 0.1 – – – Other movements in non-controlling interests (6.8) – (6.8) – – – Deferred taxation credit / (charge) in respect of: Unrealised deficit on revaluation of property 82.2 (17.3) 64.9 (44.9) 8.7 (36.2) Actuarial gain / (loss) on pension schemes 67.5 (18.3) 49.2 (107.7) 29.7 (78.0) Change in fair value of underlying derivative of cash flow hedge (0.4) 0.1 (0.3) (2.8) 0.8 (2.0) Taxation credit on income / (expense) recognised directly in other comprehensive income 465.9 (35.7) 430.2 17.1 52.0 69.1

76 Bupa Annual Report 2010 Business review Governance Financial statements – – – – – – – – – – 77 – – – – – – £m 5.1 5.5 (2.3) 41.8 14.8 14.8 61.9 16.9 (0.7) 16.9 12.9 56.6 41.5 41.8 45.0 36.7 (10.9) 56.6 49.6 (34.5) software Company Computer £m 3.0 otal (4.1) (6.1) (1.0) (6.9) (3.9) (0.7) (6.4) (3.0) 35.7 T 82.4 19.3 24.0 (13.7) (12.3) (13.8) 72.3 (10.5) (10.5) 75.0 264.1 (45.6) 835.2 488.7 299.4 145.9 415.0 488.7 3,079.1 3,079.1 3,079.1 3,344.8 2,509.6 2,467.4 2,467.4 2,882.4 2,590.4 2,590.4 – – – – – – – – – – – – – £m 2.3 8.3 0.1 0.1 17.7 (1.6) 11.7 31.3 (3.6) 11.0 83.5 58.8 18.6 37.7 37.7 imited (Bupa), is £44.4m is (Bupa), imited 333.1 58.8 Other (23.4) 325.2 268.8 249.6 L Bupa Annual Report 2010 325.2 266.4 266.4 306.5 – – – – – – – – – – – – – – – – – – £m 1.7 5.8 21.1 42.1 37.8 21.7 42.1 42.1 18.7 ships 69.0 20.9 291.4 329.2 291.4 260.2 270.5 270.5 249.3 249.3 248.8 Group relation- Customer – – – – – – 4.1 £m 2.3 (4.1) (6.1) 7.6 7.6 (2.2) (6.9) (9.5) (0.7) (6.4) (3.0) 35.7 72.2 53.0 (13.7) (12.3) (13.8) 45.3 451.8 387.1 387.1 207.3 242.5 165.7 231.5 231.5 221.4 438.8 209.3 207.3 207.3 438.8 software Computer – – – – – – – – – – – – – – 1.1 £m 3.0 13.6 (0.3) 115.9 (10.5) (10.5) (22.2) 189.9 180.5 226.2 246.4 180.5 440.2 1,918.3 1,843.2 1,843.2 1,790.5 2,023.7 2,023.7 2,230.7 1,728.4 Goodwill he British United Provident Association Association Provident United British he T ntangible assets ntangible Deficit for the financial year attributable to the Company the to attributable year financial the for Deficit

i et book value at end of year of end at value book et et book value at end of year of end at value book et he deficit for the financial year dealt with in the accounts of the Company, Company, the of accounts the in with dealt year financial the for deficit he ransfer to assets held for sale for held assets to ransfer ransfer to property, plant and equipment and plant property, to ransfer ransfer to property, plant and equipment and plant property, to ransfer ransfer to assets held for sale for held assets to ransfer ransfer to property, plant and equipment and plant property, to ransfer N year of beginning at value book Net At end of year year of end At Foreign exchange exchange Foreign Disposals Disposals Disposal of subsidiary companies subsidiary of Disposal 2010 Cost year of beginning At 11 10 T Assets arising on business combinations business on arising Assets Disposal of subsidiary companies subsidiary of Disposal Amortisation for year year for Amortisation Foreign exchange exchange Foreign T T (2009: £9.2m). In accordance with the exemption granted under Section 408 of the Companies Act 2006, a separate income statement and statement income separate 2006,a Act Companies the of 408 Section under granted exemption the with accordance In £9.2m). (2009: presented. been not have Company the for income comprehensive of statement Additions Disposals exchange Foreign year of end At loss impairment and Amortisation year of beginning At T Impairment loss loss Impairment Disposals T Amortisation for year year for Amortisation loss Impairment At end of year year of end At loss impairment and Amortisation year of beginning At Disposal of subsidiary companies subsidiary of Disposal Additions Additions Net book value at beginning of year of beginning at value book Net 2009 Cost year of beginning At At end of year year of end At N Disposal of subsidiary companies subsidiary of Disposal exchange Foreign T Notes to the financial statements continued for the year ended 31 December 2010 11 intangible assets continued Intangible assets of £2,509.6m (2009: £2,590.4m) includes £546.7m (2009: £556.4m) which is attributable to other intangible assets arising on business combinations (included within Computer software, Customer relationships and Other) as follows:

2010 2009 £m £m

Customer relationships 260.2 249.3 Bed licences (within Bupa Care Services Australia) 99.8 99.8 Brand and trademarks 68.6 61.2 Licences to operate care homes 54.9 55.4 Technology and databases 36.9 40.7 Leases 13.4 11.9 Distribution networks 11.4 18.0 Present valuation of acquired in-force business 1.5 20.0 Non-compete agreements – 0.1 546.7 556.4

Brand and trademarks includes £59.7m (2009: £51.2m) in respect of the MBF brand, which can be attributed to MBF PHI £59.7m (2009: £50.5m) and MBF Financial Services £nil (2009: £0.7m).

Impairment of other intangible assets arising on business combinations During the year, impairment of other intangible assets arising on business combinations totalled £17.7m (2009: £11.7m).

An impairment charge of £16.4m (2009: £nil) has been recognised in respect of the bed licences that are held within Bupa Care Services Australia. The bed licences are intangible assets with an indefinite useful life and are tested annually for impairment.T he current year impairment has arisen due to reduced demand for licences in some regions of Australia.

An impairment charge of £4.8m (2009: £nil) has arisen after the distribution agreement that was recognised as an intangible asset on acquisition of MBF was fully written down due to a decision during the year to terminate the agreement.

Licences to operate care homes have been impaired by £1.6m (2009: £11.7m) due to the reduction in the cash flow projections of the Spanish care homes. In addition, £5.1m of impairment losses that were recognised in prior years in respect of licences to operate care homes have been reversed. The reversal arose due to increased occupancy levels leading to favourable changes in the cash flow projections of a number of individual Spanish care homes. A discounted cash flow model was used to value these assets.

Impairment testing Goodwill and intangible 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 calculations. 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.

Except for Bupa Care Services Australia and The Bupa Cromwell Hospital, 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 Australia andT he Bupa Cromwell Hospital have been based on a period of eight and six years, respectively. A longer period was justified for these CGUs as management believes that this is an appropriate timescale over which to look at the annual cash flow projections before applying the terminal growth rate to the final year.T axation 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.T he discount rates used for the value in use calculations for each of the Group’s CGUs are an estimate of a market assessment of the time value of money and the risks inherent in the relevant country where the cash flows are generated and within the Group’s business plans.

The following table summarises the pre-taxation discount rates used for impairment testing:

2010 2009 % %

Bupa Australia 12.8 12.4 Bupa Care Services Australia 9.3 9.3 Bupa Care Services UK 9.0 9.3 Health Dialog 12.6 12.0 Bupa International 10.4 10.4 Bupa Care Services New Zealand 10.0 10.1 Bupa Home Healthcare 11.9 11.4 The Bupa Cromwell Hospital 13.0 12.9 Other – range of discount rates 12.7-14.3 11.6–12.1

Cash flow projections beyond the three year period have been extrapolated by applying a terminal growth rate between 1.5% and 3.0% (2009: 1.5% and 3.5%) for all CGUs. The terminal growth rates represent management’s estimate of the long-term growth rate for each of the CGUs, taking into account both the future and past growth rates and external sources of data. They are conservative estimates which do not exceed the long-term average growth rate for the respective industries, countries or markets in which the CGUs operate.

The values assigned to the key assumptions are based on management’s past experience and assessment of future trends in the relevant industry.

Impairment of goodwill and other intangible assets with indefinite useful lives At 31 December 2010, the carrying values of the following CGUs are determined to be higher than their recoverable amounts, resulting in impairments to goodwill arising on business combinations totalling £246.4m (2009: £nil).

78 Bupa Annual Report 2010 Business review Governance Financial statements

79 % he 1.8 £m T 7.8 7.8 8.5 0.9 rate 13.8 28.0 64.2 20.4 70.0 2009 59.3 559.1 178.2 313.6 254.3 266.0 1,843.2 discount Increase in Increase

– – % 1.3 £m 8.5 2.0 31.2 19.8 16.2 10.9 2010 59.3 20.5 178.2 314.3 170.4 961.2 1,790.5 Decrease in terminal in rate growth £m 62.8 96.9 Bupa Annual Report 2010 Headroom his brings the total impairment charge recognised in the the in recognised charge impairment total the brings his he Bupa Cromwell Hospital and Bupa Home Healthcare Home Bupa and Hospital Cromwell Bupa he T he main assumptions on which the cash flow projections were were projections flow cash the which on assumptions main he T T he key valuation assumptions used to test the carrying value of of value carrying the test to used assumptions valuation key he T BF Australia were transferred into a single fund and as a result the related related the result a as and fund single a into transferred were Australia BF BF PHI CGUs has been combined into a single merged CGU, Bupa Australia. Australia. Bupa CGU, merged single a into combined been has CGUs PHI BF M M he Bupa Cromwell Hospital (acquired in 2008) of £53.7m. Whilst the business has been has business the Whilst £53.7m. of 2008) in (acquired Hospital Cromwell Bupa he T he key valuation assumptions used to test the carrying value of goodwill include a include goodwill of value carrying the test to used assumptions valuation key he T he main assumptions on which the cash flow projections were based include revenue growth rates and gross gross and rates growth revenue include based were projections flow cash the which on assumptions main he T continued he main assumptions on which the cash flow projections were based include cost of re-development of the hospital, future future hospital, the of re-development of cost include based were projections flow cash the which on assumptions main he T he table below shows the change required in the terminal growth rate, currently 3.0% for both CGUs, and discount rate for the the for rate discount and CGUs, both for 3.0% currently rate, growth terminal the in required change the shows below table he T I he key valuation assumptions used to test the carrying value of goodwill include a pre-taxation discount rate of 12.6% (2009: 12.0%) and 12.0%) (2009: 12.6% of rate discount pre-taxation a include goodwill of value carrying the test to used assumptions valuation key he M T atin America atin L ntangible assets assets ntangible i BF PHI BF BF Financial Services Financial BF he Bupa Cromwell Hospital Cromwell Bupa he he Bupa Cromwell Hospital Hospital Cromwell Bupa he he following table summarises goodwill by CGU as at 31 December: 31 at as CGU by goodwill summarises table following he lives useful indefinite with assets intangible of mpairment Both Bupa Care Services Australia and Bupa Care Services New Zealand were impaired to recoverable amounts in 2008. Since then, they have built built have they then, 2008. Since in amounts recoverable to impaired were Zealand New Services Care Bupa and Australia Services Care Bupa Both assumptions. in changes to sensitive remain they however, headroom; additional up Bupa Care Services UK Services Care Bupa Dialog Health Bupa Care Services New Zealand New Services Care Bupa Bupa Care Services Australia Services Care Bupa Bupa Australia Bupa Australia Services Care Bupa M Bupa International Bupa Zealand New Services Care Bupa 11 in outflow cash the hedge to 2008 in into entered contracts exchange foreign forward the £2.8mof on loss reserve hedge flow cash the addition, In statement. income the to recycled been has Dialog Health of acquisition the of respect Bupa Home Healthcare Home Bupa Sanitas P Sanitas T Bupa Bupa M income statement to £249.2m (2009: £nil). £nil). (2009: £249.2m to statement income Dialog Health of provider based US a is £156.0m. Dialog of Health 2008) in (acquired Dialog Health to relating goodwill the to made been has impairment An healthcare. of quality and cost the manage employers and insurers public plans, health helps that services management care and analytics health the for outlook short-term the reforms, healthcare US enacted the surrounding uncertainty the and US the in conditions economic weak the to Due uncertain. more become has business margins. Other and Australia Bupa across funds health registered separately three As at 1 July 2010, the goodwill allocated to the Bupa Australia and and Australia Bupa the to allocated goodwill the 2010, July 1 at As basis. combined a on monitored and managed being now are businesses assumptions key in changes to Sensitivity 2010. December 31 at as CGU each for use in value the determine to used assumptions key the on performed been has analysis sensitivity A the cause would assumptions key above the of any in change possible reasonably no that believes management below, disclosed as than Other amount. recoverable its exceed to life useful indefinite an with asset intangible or goodwill any of value carrying Dialog, Health of amount recoverable the 2010, in impairments goodwill the Following isolation, in would, assumptions the in change adverse any consequently and 2010 December 31 at as values carrying respective their equalled recognised. be to loss impairment further a cause Services Care Bupa and Australia Services Care Bupa for goodwill of impairment the cause could assumptions key in change a that possible is It Zealand. New goodwill include a pre-taxation discount rate of 13.0% (2009: 12.9%) and a terminal growth rate of 3.0%. of rate growth terminal a and 12.9%) (2009: 13.0% of rate discount pre-taxation a include goodwill Healthcare Home Bupa provides Healthcare Home Bupa £36.7m. of 2006) in (acquired Healthcare Home Bupa to relating goodwill the to made been has impairment An on Paper White government’s UK the from arising funding NHS around uncertainty future the to NHS. Due the to predominantly care out-of-hospital flows. cash short-term in growth of expectations its reduced has business the Health, margins. gross and rates growth revenue include based trading in line with expectations to date, the capital investment required for the hospital re-development has increased, leading to a decline in cash in decline a to leading increased, has re-development hospital the for required investment capital the date, to expectations with line in trading projections. flow margins. operating future of achievement the and levels occupancy projected a terminal growth rate of 3.0%. of rate growth terminal a T to relating goodwill the to made been has impairment An recoverable amount of the goodwill to equal the carrying amount. carrying the equal to goodwill the of amount recoverable pre-taxation discount rate of 11.9% (2009: 11.4%) and a terminal growth rate of 3.0%. of rate growth terminal a and 11.4%) 11.9% (2009: of rate discount pre-taxation I further no been have there above, described Australia, Services Care Bupa by held licences bed the £16.4mto impairment the than Other £nil). (2009: lives useful indefinite with assets intangible to year the during impairments T Notes to the financial statements continued for the year ended 31 December 2010 12 property, plant and equipment Group Company Freehold Leasehold Leasehold property property Equipment Total property Equipment Total £m £m £m £m £m £m £m

2010 Cost or valuation At beginning of year 1,865.9 148.5 624.3 2,638.7 4.7 35.1 39.8 Additions through business combinations – 1.0 0.1 1.1 – – – Additions 35.9 15.6 90.3 141.8 4.2 9.4 13.6 Reclassifications (2.6) (1.3) 3.9 – – – – Transfer from investment properties 0.3 – – 0.3 – – – Transfer from intangible assets – – 0.7 0.7 – 0.7 0.7 Transfer to assets held for sale – – (2.2) (2.2) – – – Disposal of subsidiary companies – (0.8) (1.8) (2.6) – – – Disposals (0.3) (2.5) (18.9) (21.7) – (4.2) (4.2) Revaluations (59.4) (4.7) – (64.1) – – – Foreign exchange 57.5 4.4 8.1 70.0 – – – At end of year 1,897.3 160.2 704.5 2,762.0 8.9 41.0 49.9

Depreciation and impairment loss At beginning of year 98.4 32.6 360.9 491.9 1.0 26.5 27.5 Depreciation charge for year 25.4 9.2 65.5 100.1 0.5 3.5 4.0 Transfer to assets held for sale – – (1.9) (1.9) – – – Disposal of subsidiary companies – (0.7) (1.1) (1.8) – – – Disposals – (1.3) (18.1) (19.4) – (3.6) (3.6) Revaluations (105.8) (4.4) – (110.2) – – – Foreign exchange 3.5 2.0 4.2 9.7 – – – At end of year 21.5 37.4 409.5 468.4 1.5 26.4 27.9

Net book value at end of year 1,875.8 122.8 295.0 2,293.6 7.4 14.6 22.0 Net book value at beginning of year 1,767.5 115.9 263.4 2,146.8 3.7 8.6 12.3

2009 Cost or valuation At beginning of year 1,843.1 146.2 566.0 2,555.3 2.8 33.0 35.8 Additions 41.5 8.7 69.4 119.6 2.6 4.2 6.8 Reclassifications (9.8) 5.8 4.0 – – – – Transfer to investment properties (6.4) – – (6.4) – – – Transfer (to) / from intangible assets – (0.1) 4.2 4.1 – – – Disposal of subsidiary companies (2.6) (9.1) (1.4) (13.1) – – – Disposals (2.8) (4.1) (12.8) (19.7) – (2.1) (2.1) Revaluations (29.2) (0.6) – (29.8) (0.7) – (0.7) Foreign exchange 32.1 1.7 (5.1) 28.7 – – – At end of year 1,865.9 148.5 624.3 2,638.7 4.7 35.1 39.8

Depreciation and impairment loss At beginning of year 40.4 28.7 309.9 379.0 1.3 24.8 26.1 Depreciation charge for year 25.6 9.6 63.8 99.0 0.2 3.7 3.9 Reclassifications 0.1 (0.1) – – – – – Transfer from intangible assets – – 3.0 3.0 – – – Disposal of subsidiary companies (0.1) (3.3) (1.3) (4.7) – – – Disposals (0.1) (3.1) (11.9) (15.1) – (2.0) (2.0) Revaluations 31.7 (0.5) – 31.2 (0.5) – (0.5) Foreign exchange 0.8 1.3 (2.6) (0.5) – – – At end of year 98.4 32.6 360.9 491.9 1.0 26.5 27.5

Net book value at end of year 1,767.5 115.9 263.4 2,146.8 3.7 8.6 12.3 Net book value at beginning of year 1,802.7 117.5 256.1 2,176.3 1.5 8.2 9.7

Certain property, plant and equipment is held as securitised assets under borrowing arrangements described in note 24.

80 Bupa Annual Report 2010 Business review Governance Financial statements 81 1.2 £m £m £m 2.3 4.7 3.5 otal 71.5 27.7 T 86.4 2009

160.2 (142.3) 1,242.7

1,385.0 property easehold L he fair he T 1.1 £m £m £m 2.5 3.6 41.0 2010 29.8 106.2 (175.6) 1,750.1 1,897.3 1,316.6 1,492.2 property Freehold quipment E 1.1 £m 0.1 1.0 Bupa Annual Report 2010 property easehold L he depreciation charge for the the for charge depreciation he T he entire £47.0m net revaluation surplus was valued was surplus revaluation net £47.0m entire he T he revaluations were effective as of 31 December in the year in which they were undertaken. were they which in year the in December 31 of as effective were revaluations he continued T roup’s freehold and leasehold properties leasehold and freehold roup’s G he principal assumptions inherent in such valuations are described on page 69. page on described are valuations such in inherent assumptions principal he T roup’s revalued assets revalued roup’s G roperty, plant and equipment equipment and plant roperty, p et book value book et istorical cost of the the of cost istorical istorical cost net book value book net cost istorical he valuation of properties was carried out independently by Knight Frank and Darroch, Chartered Surveyors and, where impairment indicators indicators impairment where and, Surveyors Chartered Darroch, and Frank Knight by independently out carried was properties of valuation he he historical cost of all property, plant and equipment is £2,021.1m (2009: £2,009.3m).£2,021.1m (2009: is equipment and plant property, all of cost historical he he net book value of finance leased property held by the Company at 31 December 2010 is £1.0m (2009: £1.1m). (2009: £1.0m £1.1m). is 2010 December 31 at Company the by held property leased finance of value book net he by external valuers (2009: £19.9m deficit was valued by external valuers and £40.7m deficit was valued internally). valued was deficit £40.7m and valuers external by valued was £19.9m (2009: deficit valuers external by T valuations. Directors’ using internally exist, on based valued were hospitals and homes Care prices. market active to reference by mainly determined were properties use corporate of values techniques. valuation use in value Valuation — December 2009December — Valuation 6). note (see statement income the to charged was cost historical below £15.7m) (2009: Assets held at cost at held Assets £35.2mof deficit net a 2010, In reserve. revaluation property the in recognised been has £44.9mdeficit) (2009: gain £82.2m revaluation An Valuation — December 2010 December — Valuation H 12 the of valuation or cost of Analysis At end of year of end At N At beginning of year of beginning At Historical cost of revalued assets revalued of cost Historical Depreciation year for Charge Accumulated depreciation based on historical cost historical on based depreciation Accumulated Depreciation cost historical on year the for charge Depreciation T leases finance under held assets of respect in equipment and plant property, in included Amounts H Company T year ended 31 December 2010 is £0.1m (2009: £0.1m). (2009: £0.1m is 2010 December 31 ended year construction of course the in equipment and plant Property, construction. of course the in property freehold to relation in £11.4m£19.2m) (2009: is property freehold of amount carrying the in Recognised Notes to the financial statements continued for the year ended 31 December 2010 13 investment property

2010 2009 Group £m £m

At beginning of year 104.7 87.4 Additions 5.1 4.0 Increase / (decrease) in fair value 0.1 (0.5) Transfer (to) / from property, plant and equipment (0.3) 6.4 Disposals (0.2) (1.3) Foreign exchange 10.9 8.7 At end of year 120.3 104.7

The historical cost of investment property is £106.2m (2009: £92.0m).

The carrying value of investment properties is the fair value of the properties. Where there is an active market for a property, valuations are carried out annually by an external valuer, Knight Frank, Chartered Surveyors. The most recent independent valuation was effective as of 31 December 2010.

Where there is an absence of current prices in an active market, the properties are valued using 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.T he discounted cash flow projections are reviewed by an independent valuer, Deloitte.

Of the £120.3m (2009: £104.7m) of investment properties in the balance sheet as at 31 December 2010, £9.8m (2009: £13.4m) was valued by an external valuer, Knight Frank, Chartered Surveyors and £110.5m (2009: £91.3m) was valued using discounted cash flow projections.

Investment properties include commercial properties which are leased to third parties. The leases contain an initial non-cancellable period of between five and seven years. Subsequent renewals are negotiated with the lessee.

Company The Company has no investment properties (2009: £nil).

14 equity accounted investments

2010 2009 Group £m £m

At beginning of year 38.4 31.4 Additions 3.5 5.5 Disposals (0.9) (0.4) Share of (deficit) / surplus after taxation (0.7) 2.8 Foreign exchange 1.9 (0.9) At end of year 42.2 38.4

The Group’s principal equity accounted investments are:

Share of Accounting Business issued share Principally Country of period activity capital operates in incorporation end date

ADD Wellness Holdings Limited Retail 50.00% UK England and Wales 31 July Bupa Arabia For Cooperative Insurance Company Insurance 26.25% Saudi Arabia Saudi Arabia 31 December Forsikringsselskaber Nes Data Centre A / S Insurance 33.30% Denmark Denmark 31 December Mutual Community General Insurance Pty Limited Insurance 49.00% Australia Australia 31 December MAX Bupa Health Insurance Company Limited Insurance 26.00% India India 31 December IBC Asia Healthcare Limited Healthcare 26.00% US Cayman Islands 31 December

The accounting period end date for ADD Wellness Holdings Limited is 31 July. In respect of each year ended 31 December, this company is included in the Group’s results based on the latest available financial statements and management accounts. All other equity accounted investments are included on a coterminous basis.

The Group has not recognised losses relating to Bupa Healthcare Asia in the year of £0.1m (2009: £0.3m) and cumulatively £0.5m (2009: £0.4m), as this investment has been fully impaired and the share of losses exceeds the interest in the associate.

In November 2010, the Group’s previously held 23.85% shareholding in Fitbug Holdings plc was diluted to 9.24% and the investment was reclassifed from equity accounted investments to financial investments. In 2009, the Group’s 50.00% investment in CoreE xercise Clinics Limited was disposed of for proceeds of £0.1m.

In 2009, the Group acquired a 26.0% investment in MAX Bupa Health Insurance. This is a joint venture providing a health insurance service in India. During 2010, a capital injection of £3.2m was made to maintain the shareholding of 26.0%.

82 Bupa Annual Report 2010 Business review Governance Financial statements 83 US £m £m £m 7.5 3.3 4.6 0.3 0.9 (1.3) 78.1 (2.5) (4.6) Spain Spain Spain 88.8 30.4 2009 2009 (58.4) 200.1 ngland Australia E Singapore

New Zealand New – £m £m 2.8 3.9 5.0 0.6 0.4 (4.1) (1.7) 2010 2010 32.6 (68.3) 102.5 100.9 Bupa Annual Report 2010 imited imited L imited L imited L imited imited imited L L L L L td imited L imited L imited L L imited L ) ) imited L L L imited L edical Services International International Services edical uroresidencias Sotogrande S Sotogrande uroresidencias M Health Dialog Services Corporation Services Dialog Health Sanitas Residencial S Residencial Sanitas Hospitales de SA Sanitas, Pte Asia Care Health Bupa Bupa Care Services Services Care Bupa Zealand New Healthcare Bupa E Bupa Care Homes (BNH) Homes Care Bupa Bupa Care Homes (CFCHomes) (CFCHomes) Homes Care Bupa (CFHCare) Homes Care Bupa (G Homes Care Bupa (Partnerships) Homes Care Bupa 2003 ANS Group Healthcare Home Bupa Health Occupational Bupa Bupa Aged Care Australasia Pty Australasia Care Aged Bupa Bupa Care Homes (CFG) plc (CFG) Homes Care Bupa Group Homes Care Bupa Care and health provision health and Care imited, it has the right to obtain benefits or is exposed to risks relating to the to relating risks to exposed is or benefits obtain to right the has it imited, L US Spain Spain Australia Australia Guernsey Guernsey Hong Kong Hong continued imited L imited L imited L imited imited L L imited imited imited L L imited imited imited L L imited L imited imited L reasury reasury quity accounted investments investments accounted quity T nvestment in subsidiary companies subsidiary in nvestment e i Directly owned by the Company the by owned Directly ealth insurance — long-term — insurance ealth ealth insurance — general business general — insurance ealth xpenses he principal subsidiary companies of the Company as at 31 December 2010 are listed below and, except where stated, are incorporated in in incorporated are stated, where except and, below listed are 2010 December 31 at as Company the of companies subsidiary principal he he Group’s share of the assets, liabilities, revenue and surplus as reported in the most recent accounts of the individual equity accounted accounted equity individual the of accounts recent most the in reported as surplus and revenue liabilities, assets, the of share Group’s he he Group’s share of the assets, liabilities, revenue and expenses as reported in the most recent accounts of the individual joint ventures, ventures, joint individual the of accounts recent most the in reported as expenses and revenue liabilities, assets, the of share Group’s he iabilities

nvestment and financing activities financing and nvestment UK Care No 1 1 No Care UK Bupa Financial Securities (1992) Securities Financial Bupa S Sanitas Bupa Grupo Although the Group holds none of the voting power of UK Care No 1 1 No Care UK of power voting the of none holds Group the Although statement. income consolidated its in entity this of results the included has Group the Consequently, company. this of activities * Company 15 Bupa (Asia) (Asia) Bupa Overseas Investments Bupa Bupa Asia Pacific Pty Pacific Asia Bupa Investments Bupa L expense taxation before Surplus follows: as is T At beginning and end of year of end and beginning At Non-current assets Non-current Revenues assets Current liabilities Non-current Revenues Bupa Assets 14 T follows: as is associates, T liabilities Current E H Assurance Health Bupa Bupa Insurance Company Company Insurance Bupa I plc* Finance Bupa Sanitas, SA de Seguros (99% holding) holding) (99% Seguros de SA Sanitas, Pty Australia Bupa and Wales. Subsidiary companies are 100% owned unless otherwise stated. Full details of all Group undertakings will be annexed to the Company’s Company’s the to annexed be will undertakings Group all of details Full stated. otherwise unless 100%owned are companies Subsidiary Wales. and 2006. Act Companies the with compliance in return annual next H Insurance Bupa Notes to the financial statements continued for the year ended 31 December 2010 16 Financial investments

Group

Carrying Carrying value Cost value Cost 2010 2010 2009 2009 £m £m £m £m

Non-current Designated at fair value through profit or loss Debt securities — government gilts 39.3 39.1 66.1 64.2 Debt securities — corporate bonds 54.8 69.4 122.7 143.7 Shares and other variable yield securities 132.6 124.3 0.1 0.1

Held to maturity Medium-term notes 150.8 150.0 122.9 121.8

Loans and receivables Debt securities — corporate bonds 69.0 40.2 65.6 40.2 Deposits with credit institutions 585.3 585.3 164.5 164.5 1,031.8 1,008.3 541.9 534.5

Current Designated at fair value through profit or loss Debt securities — government gilts 6.2 6.0 87.8 87.9 Shares and other variable yield securities 10.1 19.0 131.3 138.0

Held to maturity Medium-term notes 75.5 74.5 259.3 257.4 Debt securities — government gilts 0.3 0.3 – –

Loans and receivables Reverse repo securities 202.2 202.2 191.8 191.8 Deposits with credit institutions 832.7 832.7 410.2 410.2

Property trusts – – 2.7 2.7

1,127.0 1,134.7 1,083.1 1,088.0

Total financial investments 2,158.8 2,143.0 1,625.0 1,622.5

Included within current financial investments of £1,127.0m (2009: £1,083.1m) is £nil (2009: £92.4m), which supports the liability to external unit trust holders in the MBF Life business (disclosed within trade and other payables).

Financial investments comprise:

Fair Fair value Cost value Cost 2010 2010 2009 2009 £m £m £m £m

Listed investments 110.7 133.8 407.9 433.8 Unlisted investments 630.1 591.2 642.4 614.0 Deposits with credit institutions 1,418.0 1,418.0 574.7 574.7 2,158.8 2,143.0 1,625.0 1,622.5

The movement in fair value attributable to credit risk on loans and receivables if designated at fair value is immaterial.

Company The Company has no financial investments (2009: £nil).

84 Bupa Annual Report 2010 Business review Governance Financial statements – 85 £m £m £m 4.6 21.8 15.9 15.4 48.1 Cost 57.6 25.7 74.8 86.9 96.6 30.9 56.0 511.6 2009 2009 2009 929.1 (95.3) 108.4 (112.4) 933.7 626.3 260.7 833.9 369.4 920.8 (221.0) (679.4) (832.0) – Group 3.1 1.3 £m £m £m 7.9 8.5 8.8 4.6 8.4 4.4 2010 2010 36.3 28.6 (10.1) 415.1 value 80.2 60.6 2009 110.7 (18.9) 607.1 (59.2) (88.6) 374.5 825.9 852.8 789.4 830.5 785.0 (832.0) Carrying – – – – – – £m Cost 2010 Bupa Annual Report 2010 – – – – – – £m 2010 value Carrying ife business. ife L BF BF M rust Fund recoveries Fund rust T qualisation qualisation Shares and other variable yield securities yield variable other and Shares Debt securities Debt E Assets arising from insurance business insurance from arising Assets Life investment contracts investment Life

Property trusts Property Investments designated at fair value through profit or loss or profit through value fair at designated Investments Designated at fair value through profit or loss or profit through value fair at Designated

edicare rebate edicare anagement fees anagement roup on-current he assets backing life investment contract liabilities and life investment contract liabilities are £nil at 31 December 2010 as they were sold as part of of part as sold were they as 2010 December 31 at £nil are liabilities contract investment life and liabilities contract investment life backing assets he otal return on financial investments backing life investment contract liabilities contract investment life backing investments financial on return otal otal assets arising from insurance business insurance from arising assets otal otal financial investments backing life investment contract liabilities contract investment life backing investments financial otal Foreign exchange Foreign Return on financial investments backing life investment contract liabilities contract investment life backing investments financial on Return At end of year year of end At taxation policyholder A taxation. policyholder and liabilities other receivables, cash, comprise liabilities contract investment life backing assets Other statement. income the in recognised is £1.3m) charge £1.5m taxation (2009: of credit T the of disposal the Deposits received from life investment contract holders contract investment life from received Deposits holders contract investment life to paid Withdrawals companies subsidiary of Disposal T liabilities contract investment life backing Assets Net other assets backing life investment contract liabilities contract investment life backing assets other Net 18 Net decrease / (increase) in fair value fair in (increase) / decrease Net provisions insurance of share Reinsurers’ M N provisions insurance of share Reinsurers’ Net (decrease) / increase in fair value fair in increase / (decrease) Net T liabilities contract investment Life Current year of beginning At M costs acquisition Deferred Current debtors Insurance costs acquisition Deferred Distribution income Distribution Current investments Financial Assets backing life investment contract liabilities contract investment life backing Assets 17 G Risk Risk T Reinsurers’ share of insurance provisions are further analysed in note 25. note in analysed further are provisions insurance of share Reinsurers’ Notes to the financial statements continued for the year ended 31 December 2010 18 Assets arising from insurance business continued Impairment losses in respect of insurance debtors amounting to £8.4m (2009: £5.7m) have been charged to other operating expenses in the income statement.

Deferred acquisition costs As part of the Group’s insurance business, direct costs in relation to the acquisition of insurance contract revenues are deferred. The movement in these deferred costs is set out below: Group

2010 2009 £m £m

At beginning of year 139.3 129.9 Acquisition costs deferred 300.7 270.4 Acquisition costs released to income statement (300.8) (258.7) Transferred to assets held for sale (76.4) – Foreign exchange 0.9 (2.3) At end of year 63.7 139.3

In compliance with IFRS 4, local GAAP applies for insurance accounting. Under Australian IFRS, acquisition costs incurred in Australia in relation to life insurance contracts are capitalised in the valuation of the policy liabilities and are included within provisions under insurance contracts issued.

Company The Company has no assets arising from insurance business (2009: £nil).

19 trade and other receivables

Group Company

2010 2009 2010 2009 £m £m £m £m

Non-current Investment receivables and accrued investment income 2.1 2.1 – – Amounts owed by subsidiary companies – – 50.4 244.7 Other receivables 1.8 0.2 – – Service concession receivables 22.0 17.3 – – Fair value of derivative assets 40.8 22.6 – – Prepayments 8.1 7.9 0.5 0.2 Accrued income 2.9 2.8 – – 77.7 52.9 50.9 244.9

Current Trade receivables — net of impairment losses 123.5 138.2 – – Investment receivables and accrued investment income 0.8 11.1 – – Amounts owed by subsidiary companies – – 415.8 348.7 Other receivables 55.1 81.2 1.2 2.1 Service concession receivables 130.2 88.3 – – Fair value of derivative assets 3.0 – – – Prepayments 39.5 38.5 16.7 8.1 Accrued income 15.1 25.7 – – 367.2 383.0 433.7 358.9

Total trade and other receivables 444.9 435.9 484.6 603.8

Impairment losses on trade receivables amounting to £7.4m (2009: £0.9m) and on investment receivables amounting to £1.6m (2009: £nil) have been charged to other operating expenses in the income statement.

20 Inventories

Group 2010 2009 £m £m

Drugs, prostheses and consumables 19.9 17.0

Inventory write downs of £0.2m (2009: £0.1m) were made during the year.

The Group consumed £201.8m (2009: £191.7m) of inventories, which is recognised within other operating expenses in the income statement. Certain inventories are subject to a floating charge in respect of certain interest bearing liabilities (see note 24).

Company The Company has no inventories (2009: £nil).

86 Bupa Annual Report 2010 Business review Governance Financial statements – – – – – 87 3.1 8.1 1.6 £m

0.2 0.3 0.8 (2.2) (2.3) (6.5) 10.2 27.2

At 31 At 55.4 20.3 43.9

2009 (97.6) eddies T

), a ), December ME – – 9.1 1.6 £m 2.7 5.0 0.8 0.4 37.1 41.7 (5.5) (0.9) C (B C (0.4) 2010 At 31 At (11.6) 128.7 136.9 (99.2) 148.3 E 852.4 (852.8) he cash proceeds proceeds cash he arkets segment, arkets December T M hese subsidiary companies subsidiary hese T Bupa Annual Report 2010 imited Company Company imited L ast ast imited, the domiciliary care business care domiciliary the imited, E L iddle iddle M he primary assets held by these companies were the the were companies these by held assets primary he T imited and its subsidiary companies, which traded as as traded which companies, subsidiary its and imited L imited and its subsidiary companies. companies. subsidiary its and imited L imited, which was included in the International International the in included was which imited, L anagement Pty anagement were sold for cash proceeds of £16.0m, of which £8.0m was deferred as at at as deferred £8.0mwas £16.0m,which of of proceeds cash for sold were M ME BF BF M ife) and wealth management business (ClearView) in Australia, and were included within the the within included were and Australia, in (ClearView) business management wealth and ife) L BF BF M ife and ClearView businesses were sold for cash proceeds of £121.4m (AU$204.3m). of proceeds cash for sold were businesses ClearView and ife L BF BF M he total of these payments will not exceed £8.0m and any deferred proceeds that remain unpaid after 2015 will will 2015 after unpaid remain that proceeds deferred any £8.0mand exceed not will payments these of total he T he assets and liabilities of B of liabilities and assets he he he T T he deferred proceeds are being settled through a series of annual payments between 2010 and 2015 representing 50% of the the of 50% representing 2015 and 2010 between payments annual of series a through settled being are proceeds deferred he T arkets segment. segment. arkets arkets Segment. arkets M M Disposals and assets and associated liabilities classified as held for sale sale for held as classified liabilities associated and assets and Disposals Disposals

– non-cash – – cash –

he net gain on sale of business is included within other (charges) / income in the consolidated income statement (see note 6). note (see statement income consolidated the in income / (charges) other within included is business of sale on gain net he deferred. £5.9mwas which of £128.7m, of cash by satisfied were companies subsidiary of disposal the from proceeds sale he he Company made no disposals during the year (2009: £nil). (2009: year the during disposals no made Company he ife investment contract liabilities contract investment ife rade and other payables other and rade rade and other receivables other and rade otal disposals are analysed below: analysed are disposals otal Sale proceeds Sale T T Net (loss) / gain on sale of business of sale on gain / (loss) Net Net assets divested assets Net exchange Foreign £115.1m.of inflow cash a in resulted of disposed equivalents cash and cash and December, 31 to paid costs disposal of net received, Company T Cash flow hedge flow Cash disposal of costs related Directly T L liabilities taxation Deferred Assets arising from insurance business insurance from arising Assets asset taxation Deferred T equivalents cash and Cash issued contracts insurance under Provisions charges and liabilities for Provisions Assets backing life investment contract liabilities contract investment life backing Assets Intangible assets Intangible Property, plant and equipment and plant Property, investments Financial 2010 disposals 2010 in 100%shareholding its sold Group the 2010, June 9 On 21 (i) held the trade of the life insurance business ( business insurance life the of trade the held International UK Homecare Guardian in 100%shareholding its of sale the completed Group the 2010, September 24 On deferred. is £0.2m which £6.9m, of of proceeds cash for segment, Services Care the within included Healthcare Home Bupa of Hickman and Byrne in shareholding 88% its sold Group the 2010, June 21 On 2009 disposals 2009 Bupa of liabilities and assets related the and book insurance the sold Group the January2009, 1 On for cash proceeds of £0.4m (HKD4.8m). £0.4m of proceeds cash for 50% owned subsidiary to Bupa Arabia For Cooperative Insurance Company, a 26.25% owned associate, both of which are included within the the within included are which of both associate, 26.25% owned a Company, Insurance Cooperative For Arabia Bupa to subsidiary owned 50% International 31 December 2009. December 31 Arabia. Bupa of profits net annual received. was amount proceeds deferred the of £4.9m 2010, December 31 to year the In recovered. be not Provision Childcare Bupa in 100%shareholding its sold Group the 2009, April 30 On Nurseries and was included within the Care Services segment, for cash proceeds of £10.7m. £10.7m. of proceeds cash for segment, Services Care the within included was and Nurseries nurseries. 30 their on improvements leasehold T Notes to the financial statements continued for the year ended 31 December 2010 21 Disposals and assets and associated liabilities classified as held for salecontinued

(ii) Assets and associated liabilities classified as held for sale

The assets and liabilities of the Group’s subsidiary Bupa Health Assurance Limited, part of the Europe and North America segment, are presented as held for sale at 31 December 2010 following the decision to sell the business after a review of strategy for the life market. The completion date of the transaction is 31 January 2011.

There were no assets or liabilities classified as held for sale as at 31 December 2009. Group

2010 2009 £m £m

Assets held for sale Intangible assets 4.6 – Property, plant and equipment 0.2 – Financial investments 88.2 – Assets arising from insurance business 170.8 – Trade and other receivables 2.3 – Cash and cash equivalents 85.4 – Total assets classified as held for sale 351.5 –

Liabilities associated with assets held for sale Provisions under insurance contracts issued (151.9) – Other liabilities under insurance contracts issued (8.9) – Net deferred tax liability (18.0) – Trade and other payables (2.6) – Total liabilities classified as held for sale (181.4) –

Net assets classified as held for sale 170.1 –

In the year ended 31 December 2010, an impairment loss on intangible assets of £1.3m (2009: £nil) and on property, plant and equipment of £0.1m (2009: £nil) was included within other (charges) / income in the income statement.

Company The Company has no assets or liabilities classified as held for sale as at 31 December 2010 (2009: £nil).

22 Cash and cash equivalents Group Company

2010 2009 2010 2009 £m £m £m £m

Cash at bank and in hand 483.8 223.8 3.2 – Short-term bank deposits 208.4 834.5 – – Cash and cash equivalents 692.2 1,058.3 3.2 –

Bank overdrafts (2.3) (0.7) – (11.1) Restricted access deposits (35.4) (31.2) – – Cash and cash equivalents in the statement of cash flows 654.5 1,026.4 3.2 (11.1)

Cash and cash equivalents include £35.4m (2009: £31.2m) over which the Group has restricted access. These amounts are 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. Included in short-term deposits is £29.5m (2009: £25.4m) to secure a liability for unapproved pension arrangements.

88 Bupa Annual Report 2010 Business review Governance Financial statements 89 £m 3.9 5.9 22.6 2009 352.6 356.5 362.4 330.0

£m 3.9 5.9 2010 40.8 374.7 370.8 380.6 330.0

Bupa Annual Report 2010 he bonds have no fixed maturity date but a call option is option call a but date maturity fixed no have bonds he his call option coincides with an increase in the interest rate rate interest the in increase an with coincides option call his T T he bonds were issued by Bupa Finance plc and are guaranteed by the Company. A call option is exercisable by Bupa Finance plc Finance Bupa by exercisable is option call A Company. the by guaranteed are and plc Finance Bupa by issued were bonds he T imited. Interest is payable on the bonds at 6.125% per annum. per 6.125% at bonds the on payable is Interest imited. imited, the claims of the bondholders are subordinated to the claims of other creditors of these companies. these of creditors other of claims the to subordinated are bondholders the of claims the imited, L L Subordinated liabilities Subordinated

roup on-current he total fair value of the callable subordinated perpetual guaranteed bonds, net of accrued interest, is £376.7m (2009: £358.5m). (2009: £376.7m is interest, accrued of net bonds, guaranteed perpetual subordinated callable the of value fair total he place in contracts swap of value fair the by matched is which risk, rate interest from arising value in change the is adjustment valuation he he Group has not had any defaults of principal, interest or other breaches with respect to its subordinated liabilities during 2010 or 2009. or 2010 during liabilities subordinated its to respect with breaches other or interest principal, of defaults any had not has Group he £nil). (2009: liabilities subordinated no has Company he otal subordinated liabilities subordinated otal 10.5% subordinated guaranteed bonds due 2018 due bonds guaranteed 10.5%subordinated N bonds guaranteed perpetual subordinated Callable 23 G Fair value adjustment in respect of hedged interest rate risk rate interest hedged of respect in adjustment value Fair value carrying at bonds guaranteed perpetual subordinated Callable Current bonds guaranteed perpetual subordinated Callable T Callable subordinated perpetual guaranteed bonds guaranteed perpetual subordinated Callable by guaranteed are which bonds, guaranteed perpetual subordinated callable £330.0mof issued plc Finance 2004, Bupa December In Insurance Bupa exercisable by Bupa Finance plc to redeem the bonds on 16 September 2020. 2020. September 16 on bonds the redeem to plc Finance Bupa by exercisable to hedge this risk. this hedge to bonds guaranteed subordinated 10.5% on repayable are which bonds, guaranteed 10.5%subordinated of respect in outstanding was £3.9m£3.9m) (2009: 2010, December 31 At 2018.December 3 T T applicable on the bonds, which makes redemption at this point highly likely. In the event of the winding up of Bupa Finance plc or plc Finance Bupa of up winding the of event the In likely. highly point this at redemption makes which bonds, the on applicable Insurance Bupa to redeem the bonds on 3 December 2013. In the event of the winding up of Bupa Finance plc or the Company, the claims of the bondholders are are bondholders the of claims the Company, the or plc Finance Bupa of up winding the of event the In 2013. December 3 on bonds the redeem to annum. 10.5%per at payable is Interest Company. the and plc Finance Bupa of creditors other of claims the to payment of right in subordinated T Company T Notes to the financial statements continued for the year ended 31 December 2010 24 Other interest bearing liabilities

Group This note provides information about the contractual terms of the Group’s interest bearing liabilities. Further information about the Group’s exposure to interest rate and foreign currency risk is included in note 34.

Non- current Current Total Note £m £m £m

2010 Secured loans (i) 234.0 4.1 238.1 Debenture stock (ii) 55.1 1.8 56.9 Senior unsecured bonds (iii) 347.7 12.3 360.0 Bank loans (iv) 246.5 0.3 246.8 Bank overdrafts (iv) – 2.3 2.3 Finance lease liabilities (v) 3.3 0.8 4.1 Total interest bearing liabilities 886.6 21.6 908.2

2009 Secured loans (i) 234.1 4.1 238.2 Debenture stock (ii) 57.0 1.7 58.7 Senior unsecured bonds (iii) 347.1 12.5 359.6 Bank loans (iv) 464.0 1.9 465.9 Bank overdrafts (iv) – 0.7 0.7 Finance lease liabilities (v) 4.2 0.9 5.1 Total interest bearing liabilities 1,106.4 21.8 1,128.2

(i) Secured loans The secured loans balance of £238.1m (2009: £238.2m) relates to a loan issue by UK Care No 1 Limited. On 17 February 2000, UK Care No 1 Limited issued two classes of secured notes. A £175.0m Class A1 note is due to mature in 2029 and a £60.0m Class A2 note is due to mature in 2031. The £238.1m balance is shown net of initial issue costs and discount on issue not yet fully amortised of £5.0m. The A1 and A2 loan notes bear a fixed interest rate of 6.3% and 7.5% respectively.T he loan notes are secured by fixed and floating charges over the assets and undertakings of UK Care No 1 Limited. The security includes 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 which eliminates on consolidation. The carrying value of the property, plant and equipment of these homes is £571.2m (2009: £461.6m).

(ii) Debenture stock The 11.8% debenture stock of £56.9m (2009: £58.7m) is repayable at par in 2014. The stock is secured by a fixed charge over certain of the Group’s assets and a first floating charge over the businesses attached thereto and a general floating charge over certain assets.T he assets pledged as security include £86.8m (2009: £86.4m) of property, plant and equipment and £0.5m (2009: £0.2m) of inventories.

(iii) Senior unsecured bonds On 2 July 2009, Bupa Finance plc issued £350.0m of 7.5% senior unsecured bonds. The bonds are repayable in July 2016. They are guaranteed by the Company and other Group subsidiary companies. The £360.0m balance (2009: £359.6m) is net of initial issue costs, discount on issue and accrued interest.

(iv) Bank loans and bank overdrafts Bank loans of £246.8m (2009: £465.9m) include balances of £196.9m (2009: £407.6m) which 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, EURIBOR, or at commercial fixed rates.

(v) Obligations under finance leases Future minimum payments under finance leases are as follows: Present Present Future value of Future value of minimum minimum minimum minimum lease lease lease lease payments payments payments payments 2010 2010 2009 2009 £m £m £m £m

Payable within one year 1.0 0.9 1.0 0.9 Payable after one year but within five years 1.4 1.0 2.1 1.6 Payable after five years 3.1 2.2 3.7 2.6 Total gross payments 5.5 6.8 Less: finance charges included above (1.4) (1.7) Total payments net of finance charges 4.1 4.1 5.1 5.1

The balance of £4.1m (2009: £5.1m) due under finance leases relates to leases of equipment.

Company The Company has an overdraft balance of £nil (2009: £11.1m).

90 Bupa Annual Report 2010 Business review Governance Financial statements 91 – – – 1.5 £m Net

18.1 2.5 54.1 54.1 (2.9) 14.6 37.8 23.5 50.6 (15.7) (95.7) (56.8) 708.7 754.9 754.9 1,163.6 1,199.4 1,199.4 1,970.6 5,267.8 4,292.3 2,008.4 2,008.4 (4,108.2) (5,255.5)

– – – – – – – – 1.0 £m Re- 8.9 0.2 14.1 (1.4) (2.8) (2.8) 19.8 (0.9) (0.5) (0.5) (17.5) (21.2) (81.7) (81.7) (13.7) (71.0) (25.7) (78.4) (78.4) (56.0) 2009 insurance – – – £m 2.5 0.5 (3.1) 14.6 23.5 93.8 121.6 35.6 Gross 132.5 (95.7) (24.6) (56.8) 132.5 755.4 755.4 709.6 1,165.0 1,202.2 1,202.2 2,090.1 Bupa Annual Report 2010 (4,122.3) 5,289.0 1,996.3 2,090.1 4,306.0 (5,275.3) et 1.6 £m N (2.1) (5.7) 15.2 54.1 (2.2) 52.8 22.8 42.8 22.0 22.0 46.2 (16.8) (79.4) (86.9) (70.6) 839.3 839.3 754.9 1,199.4 1,287.5 1,287.5 2,148.8 2,148.8 2,126.0 4,702.9 5,860.9 (5,819.0) (4,499.3) – – – – – 0.1 £m Re- (1.2) (1.3) (1.3) (1.3) (1.9) 18.7 81.3 12.9 (2.8) (3.9) (9.8) (3.9) (9.8) (4.6) (8.5) (4.6) (0.5) (0.3) 20.3 (14.9) (22.2) (78.4) (20.9) 2010 insurance £m 3.5 ross (1.8) 24.1 (5.7) (2.2) 30.1 47.4 52.7 23.3 23.3 42.8 he Group’s Australian life business was disposed of in the year year the in of disposed was business life Australian Group’s he G 132.5 (29.7) (79.4) (86.9) 755.4 (151.9) 843.2 843.2 T 1,292.1 1,292.1 4,725.1 2,158.6 2,158.6 2,134.5 5,881.8 1,202.2 (4,518.0) (5,839.3) (i) (ii) (iii) Note he receipts associated with these deposits are accounted for directly in provisions under provisions in directly for accounted are deposits these with associated receipts he T rust Fund levy Fund rust T qualisation qualisation E he Group’s other deferred acquisition costs are included within assets arising from insurance business (see note 18). note (see business insurance from arising assets within included are costs acquisition deferred other Group’s he T rovisions under insurance contracts issued contracts insurance under rovisions Analysis of movements in provisions for life insurance life for provisions in movements of Analysis benefits Analysis of movements in provisions for claims for provisions in movements of Analysis P Analysis of movements in provisions for unearned premiums unearned for provisions in movements of Analysis ovement in opening value of in force business force in of value opening in ovement eneral insurance eneral roup eneral insurance business insurance eneral he movement in the long-term business provision includes £2.2m (2009: £2.3m) in respect of the movements in policyholder deposits relating relating deposits policyholder in movements the of respect in £2.2m £2.3m) includes (2009: provision business long-term the in movement he he Company has no provisions under insurance contracts issued (2009: £nil). £nil). (2009: issued contracts insurance under provisions no has Company he ransfer to assets held for sale for held assets to ransfer otal insurance provisions provisions insurance otal New business written written business New Assumption changes Assumption Net movement in deferred acquisition costs in Bupa Australia Bupa in costs acquisition deferred in movement Net T companies subsidiary of Disposal Foreign exchange exchange Foreign to relation in Australia in incurred costs acquisition IFRS, Australian Under accounting. insurance for applies GAAP local 4, IFRS with compliance In liabilities. policy the of valuation the within capitalised are contracts insurance life At end of year year of end At At beginning of year year of beginning At (ii) (ii) Cash paid to settle claims claims settle to paid Cash Increase for current year claims claims year current for Increase M Disposal of subsidiary companies subsidiary of Disposal Decrease for prior years’ claims claims years’ prior for Decrease T (see note 21). 21). note (see features. savings include that policies certain to At end of year year of end At At beginning of year year of beginning At At end of year year of end At business Long-term (iii) Foreign exchange exchange Foreign Increase in Risk Risk in Increase insurance contracts. insurance to relates £1.6m£1.5m) (2009: of changes assumption net of respect in provision business long-term the in increase the 2010, December 31 At changes. economic and demographic changes, model Company T Foreign exchange exchange Foreign T income to released premiums Deferred Non-current deferred Premiums G (i) year of beginning At Current Current Provisions for claims claims for Provisions business Long-term benefits insurance life for Provisions G premiums unearned for Provisions 25 G Notes to the financial statements continued for the year ended 31 December 2010 25 Provisions under insurance contracts issued continued

Assumptions for general insurance business The process of recognising liabilities arising from general insurance contracts requires the exercise of judgement in relation to estimating future claims payments, claims handling expenses and unexpired risk provisions. The principal assumption affecting the measurement of liabilities is that the nature of recent claims development profile of the Group’s insurance entities and that current claims experience will be consistent with recent trends. Other assumptions are also applied in measuring the Group’s insurance liabilities but have a less material effect.T he aim of these assumptions is to arrive at the best estimate of future obligations and cash outflows of the Group. A margin for adverse deviation is reflected within the estimates.

Claims development patterns are analysed in each of the Group’s general insurance entities and, in some cases, are further sub-analysed where an entity has distinct portfolios of general insurance with distinct characteristics. The characteristics may differ by product line, geographic sector or market sector. The analysis is used to determine a claims settlement pattern using recent experience, adjusted where appropriate by observed trends over time. Claims are assessed on a case by case basis. Extrapolation methods based on the claims settlement pattern are used: these are recognised methods described in the Institute and Faculty of Actuaries Claims Reserving Manual (1997). Large homogeneous sections of insurance business (eg corporate business in a specific region) are often analysed by more than one method, such as the chain ladder, Bornheutter-Ferguson and paid claim loss ratio methods.

While there is some diversity in the claims development profile across the Group, the Group’s general insurance contracts principally relate to healthcare benefits that occur with stable frequencies and exhibit very short development patterns that can be characterised in months rather than years. Less automated medical insurance portfolios may have development patterns of twelve to 18 months, whereas pre-authorisation electronic claims settlement and network provider arrangements may produce development patterns of four to six months.

Insurance provisions are estimates. Actual experience may vary, primarily as a result of claims or administrative expenses being greater than expected. The following table shows the sensitivities to such variation from expectations.

2010 2009 Reduction in surplus Reduction in surplus Change in net of reinsurance Change in net of reinsurance variable before taxation variable before taxation % £m % £m Base run Increase in claims 5.0 50.2 5.0 47.1 Increase in expenses 10.0 19.8 10.0 16.2

These variances would lower the amount of surplus that would otherwise be expected to emerge in subsequent periods. Since premium provisions include profit margins and claim provisions include margins of prudence, variance from expectations by the amounts shown will be absorbed by these margins for the current book of business.

Assumptions for long-term insurance business The Group makes estimates of future policyholder deaths, illnesses and recoveries for the period that it is exposed to risk. The principal assumptions underlying the calculation of the long-term business provision include mortality and morbidity, discount rate and renewal expenses, lapse rates and inflation.T hese estimates are based on industry mortality and morbidity tables, adjusted to reflect anticipated changes in market conditions, experience, price inflation and the Group’s own experience.T here is a considerable level of uncertainty in these estimates in relation to changing lifestyles, future advances in medical prevention and detection, epidemics and catastrophes. The estimates are reviewed at least annually to reflect changes in the Group’s and industry experience. The assumptions derived represent best estimates of future experience as required under Prudential Sourcebook for Insurers (INSPRU) 1.2 in the UK, plus a margin for adverse deviation, and in Australia under Prudential Standards that support the Life Insurance Act 1995 without the additional margin.

Mortality and morbidity The incidences of death and disability are derived from studies, performed by independent actuarial bodies, on the experience of assured lives published by the Continuous Mortality Investigation (CMI) and the Institute and Faculty of Actuaries. These estimates are adjusted, where appropriate, to reflect the Group’s own experience and expected improvement or deterioration in industry experience, including more recent CMI data and reinsurers’ data.

Discount rate The interest rate risk is managed through asset / liability matching that seeks to match the interest rate sensitivity of the assets to that of the underlying liabilities. The valuation rate of interest is the risk adjusted gross redemption yield for the matching gilts, corporate bonds and cash. This rate implicitly includes an allowance for risk over and above the best estimate.

Renewal expenses, lapse rates and inflation The current level of renewal expenses is assumed to be an appropriate expense base. In the UK and Australia, lapse rates are set by policy and are based on actual experience. Expense inflation is derived from the Consumer Price Index and the National AverageE arnings Index.

The Group runs its valuation models on various bases. An analysis of sensitivity around various scenarios provides an indication of the adequacy of the Group’s estimation process in respect of its life assurance contracts. In the UK, an additional margin is applied. The table below shows the sensitivity of insured liability estimates to particular movements in assumptions used in the estimation process. Certain variables can be expected to impact on life assurance liabilities more than others, and consequently a greater degree of sensitivity to these variables may be expected.

2010 2009 Reduction in surplus Reduction in surplus Change in net of reinsurance Change in net of reinsurance variable before taxation variable before taxation % £m % £m Base run Increase in mortality / morbidity 10.0 0.7 10.0 0.8 Increase in renewal expenses 10.0 0.1 10.0 0.1 Increase in inflation 1.0 0.5 1.0 0.4 Decrease in interest rates 1.0 1.2 1.0 1.2 Decrease in lapses 10.0 0.2 10.0 0.3

92 Bupa Annual Report 2010 Business review Governance Financial statements 93 4.1 £m £m £m 2.3 5.9 9.8 14.1 25.1 10.7

32.8 24.9 24.9 2009 2009 2009 (49.9) (49.9) (49.9) (35.8) (35.8) 916.2 (25.0) (25.0) (60.9) 855.7 (902.1) (830.8) otal otal T T – – 1.8 £m £m £m 6.6 18.9 10.5 67.8 67.8 2010 2010 2010 117.4 64.6 64.6 121.3 (52.8) (52.8) (52.8) (56.7) 120.6 120.6 967.9 (921.9) (847.3) 1,039.3 – – – – – – £m £m (21.7) (21.7) (21.7) (21.7) 2009 2009 Bupa Annual Report 2010 – – – – – – £m £m 2010 2010 (20.8) (20.8) (20.8) (20.8) benefit schemes benefit schemes Post retirement medical retirement Post Post retirement medical retirement Post £m £m 14.1 (3.3) (14.1) 24.9 2009 2009 (28.2) (28.2) 916.2 855.7 (902.1) (830.8) £m £m 2010 2010 85.4 88.6 117.4 (32.0) (32.0) 120.6 967.9 (921.9) Pension schemesPension Pension schemesPension (847.3) 1,039.3 (ii) (ii) (ii) (ii) (iii) (iii) (iii) (iii) Note Note continued continued rust Fund rust T qualisation qualisation ost employment benefits employment ost rovisions under insurance contracts issued issued contracts insurance under rovisions E Other liabilities under insurance contracts issued contracts insurance under liabilities Other

P P roup roup et recognised assets / (liabilities) (liabilities) / assets recognised et et recognised assets / (liabilities) (liabilities) / assets recognised et (liabilities) / assets recognised et (liabilities) / assets recognised et he assets and liabilities in respect of defined benefit funded pension schemes, unfunded pension and post retirement medical benefit schemes are schemes benefit medical retirement post and pension unfunded schemes, pension funded benefit defined of respect in liabilities and assets he he reduction in equity as a result of the various changes in variables detailed in the table above would be materially the same as the reduction the as same the materially be would above table the in detailed variables in changes various the of result a as equity in reduction he he analysis above has been prepared for a change in variable with all other assumptions remaining constant and ignores changes in values of of values in changes ignores and constant remaining assumptions other all with variable in change a for prepared been has above analysis he he company has no other liabilities under insurance contracts issued (2009: £nil) (2009: issued contracts insurance under liabilities other no has company he otal other liabilities under insurance contracts issued contracts insurance under liabilities other otal T follows: as G 27 Present value of funded obligations funded of value Present Reinsurance payables Reinsurance liabilities Net Net assets Net Present value of funded obligations funded of value Present Current deposits Reinsurers’ 26 G 25 T N Company Other insurance payables insurance Other Commission payable Commission Risk T Fair value of scheme assets scheme of value Fair in surplus highlighted. highlighted. surplus in T immaterial. being difference the with effect similar a in result will reinsurance of net or gross analysis sensitivity the Performing assets. related Company T Fair value of scheme assets scheme of value Fair Net assets of funded schemes funded of assets Net Present value of unfunded obligations obligations unfunded of value Present schemes funded of assets Net obligations unfunded of value Present Represented on the balance sheet as: sheet balance the on Represented assets Net N N liabilities Net N Individual pension schemes showing a net deficit are classified on the balance sheet within post employment benefit liabilities and those schemes those and liabilities benefit employment post within sheet balance the on classified are deficit net a showing schemes pension Individual follows: as assets benefit employment post within classified are surplus net a showing Notes to the financial statements continued for the year ended 31 December 2010 27 Post employment benefitscontinued

Pensions — funded schemes The Group operates several funded defined benefit and defined contribution pension schemes for the benefit of employees and Directors.T he defined benefit schemes provide benefits based on final pensionable salary. Contributions by Group companies to such schemes are made in accordance with the recommendations of independent scheme actuaries of the individual schemes. Complete disclosure of each separate pension scheme’s details is not practicable within this report. The key factors relating to the Group’s funded pension arrangements are discussed below.

The principal defined benefit scheme in the UK isT he Bupa Pension Scheme. Contributions by employees and by Bupa Group companies are administered by the Trustees in funds independent of the Group. The scheme was closed to new entrants from 1 October 2002, but its existing members continue to accrue entitlements in respect of current service.

An independent actuary performs detailed triennial valuations together with periodic interim reviews. Both triennial and interim valuations use the attained age method, recognising the closure of the scheme to new entrants. The latest triennial valuation of The Bupa Pension Scheme was carried out as at 1 July 2008. The key assumptions were the rate of return on investments both pre and post retirement of 5.7%, the rate of increase in pensionable salaries of 5.7% and the rate of increase in pensions in payment of 3.7%. At the date of the last triennial valuation, the value of accrued benefits was £830.0m.T he aggregate market value of the scheme assets, excluding members’ additional voluntary contributions, at the valuation date was £772.7m, representing 93.1% of the accrued benefits.T he triennial valuation as at 1 July 2008 is The Bupa Pension Scheme’s first valuation under the new scheme specific funding legislation introduced by the Pensions Act 2004.

The Bupa Pension Scheme has been valued as at 31 December 2010 under IAS 19 by the Group’s independent actuary using the projected unit method based on data used for the triennial valuation dated 1 July 2008, with an approximate allowance for membership movements to 1 July 2010. Details of the assumptions used are set out in note (i).

As recommended by the scheme’s independent actuary in the triennial valuation dated 1 July 2008, regular employer contributions have been paid at the rate of 31.9% of pensionable salary since 1 July 2009. In accordance with the triennial valuation dated to 1 July 2005, from 1 January to 30 June 2009, regular employer contributions were paid at the rate of 26.34%. Included in the employer contributions is 7.0%, which represents the employer pension contributions paid as part of the Group’s salary sacrifice arrangement, PeopleChoice Pensions.T here is a corresponding reduction in wages and salaries as a result. The expected contributions payable in 2011, with regard to the accumulation of future benefits, are £11.7m in respect of The Bupa Pension Scheme and £3.1m in respect of PeopleChoice Pensions.

The Company has made a series of additional payments in order to reduce the deficit in the scheme. During 2010, the total of additional payments made was £24.5m (2009: £24.5m), bringing the total of additional payments made since November 2003 to £303.6m (2009: £279.1m). Following the disposal of its UK hospitals business in 2007, Bupa agreed to pay, or procure the payment of, a number of further contributions to the Trustees of the scheme. Certain of these contributions remain payable on the following terms:

— on or before 31 December 2011, a payment of £24.5m; and

— on or before 31 December 2012, a further payment intended to equate to the investment return that the scheme would have achieved had £98.0m been paid into the scheme at the time of the sale of the UK hospitals business, assuming that the scheme would have achieved investment returns of 7.0% per annum compound during that period. The payments may be reduced if, in the view of the scheme’s independent actuary, the liability to take the entire scheme to a closed scheme funding level is secured by a lesser payment.

In addition, Bupa Finance plc (which is not an employer in respect of the scheme) entered into a legally binding and irrevocable guarantee for the benefit of theT rustees in respect of the payments due from Bupa as set out above.

The principal defined contribution pension plan in the UK is the Bupa Retirement Savings Plan, which is a discrete tier ofT he Bupa Pension Scheme. It provides benefits based on the accumulated contributions made by employee and employer.T his scheme was opened with effect from 1 October 2002. The charge to the consolidated income statement in respect of this plan, and all other defined contribution schemes, is the amount of employer contributions payable to the scheme in respect of the accounting period.

There are several other minor schemes operated by UK and overseas subsidiaries. Of these, the defined benefit schemes are assessed by independent actuaries in accordance with UK or local practice and under IAS 19 as at 31 December 2010 for the purposes of inclusion in the Group’s consolidated financial statements.

Pensions — unfunded schemes Unfunded defined benefit pension arrangements exist for certain employees and former employees in excess of the funded pension arrangements provided by the Group. There are no separate funds or assets in the balance sheet to support the unfunded schemes; however, provisions are included in the balance sheet in respect of these liabilities. The latest valuation of these arrangements was performed as at 31 December 2010 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 2010 have been made in accordance with this latest valuation, which used the same principal assumptions as adopted at 31 December 2010 under IAS 19 for The Bupa Pension Scheme.

Post retirement medical benefit schemes The Group also provides unfunded post retirement medical benefits for certain former employees.T hese benefits were granted under an agreement which closed to new entrants in 1992. The latest valuation of this scheme was carried out as at 31 December 2010 by an actuary employed by the Group using the same key assumptions as adopted at 31 December 2010 under IAS 19 for The Bupa Pension Scheme.

Company The Company is the sponsoring employer for The Bupa Pension Scheme, the unfunded pension scheme and post retirement medical benefit scheme described above.

94 Bupa Annual Report 2010 Business review Governance Financial statements – 95 %

£m 5.7 3.6 3.6 5.6 3.6 4.5 (0.1) (2.7) point 2009 2009

One % One decrease – % £m 3.5 3.2 5.5 3.5 5.4 3.0 0.2 4.4 he deferred deferred he he average life life average he 2010 point T 2009 T One % One Unfundedschemes increase he Bupa Pension Pension Bupa he T he expected return on return expected he T – £m % (0.1) Company (2.5) 2010 point 5.7 3.6 3.6 5.6 3.6 6.3 One % One 2009 Bupa Annual Report 2010 decrease 3.1 – £m % 0.2 he expected return on bonds has been has bonds on return expected he 2010 point 3.5 5.5 3.5 5.8 5.4 3.0 T One % One 2010 increase Funded schemes Funded – % 5.7 3.6 3.6 5.6 3.6 4.5 2009 – % 3.5 5.5 3.5 5.4 3.0 4.4 2010 Unfundedschemes Group – % 5.7 3.5 3.5 5.6 3.6 6.3 2009 he rate of increase of pensions in payment is the same as the inflation rate, rate, inflation the as same the is payment in pensions of increase of rate he T – % he mortality tables adopted at 31 December 2010 are the PA92 year of birth mortality birth of year PA92 the are 2010 December 31 at adopted tables mortality he 3.5 2.9 5.9 5.4 3.4 5.4 T 2010 Funded schemes Funded he rate of increase to pensions in payment has remained as the RPI in respect of of respect in RPI the as remained has payment in pensions to increase of rate he T continued he Bupa Pension Scheme, then the impact of the change in indexation has been presented as an actuarial gain in the the in gain actuarial an as presented been has indexation in change the of impact the then Scheme, Pension Bupa he T he key weighted average financial assumptions used when valuing the obligations of the post employment benefit schemes benefit employment post the of obligations the valuing when used assumptions financial average weighted key he T he Bupa Pension Scheme have undertaken a scheme specific mortality investigation as part of the 1 July 2008 triennial valuation. valuation. triennial 2008 July 1 the of part as investigation mortality specific scheme a undertaken have Scheme Pension Bupa he T his assumption is set relative to the inflation rate assumption. assumption. rate inflation the to relative set is assumption his T ost employment benefits benefits employment ost rustees of of rustees rustees shared the conclusion drawn from this analysis with the Directors, who have adopted assumptions in line with this analysis for the the for analysis this with line in assumptions adopted have who Directors, the with analysis this from drawn conclusion the shared rustees T T Actuarial assumptions Actuarial P

edical cost trend rate trend cost edical roup and Company and roup xpected rate of return on assets on return of rate xpected ffect on post retirement medical benefit obligation benefit medical retirement post on ffect ffect on the aggregate of current service cost and interest cost interest and cost service current of aggregate the on ffect he 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 on index-linked yield real the and gilts interest fixed long-term on yield the between difference the to reference by set is assumption inflation he the of members are who employees the for increase pay salary average annual expected long-term the to equal is salaries in increase of rate he he discount rate used to value scheme liabilities is the yield at the balance sheet date on high quality corporate bonds of appropriate term. appropriate of bonds corporate quality high on date sheet balance the at yield the is liabilities scheme value to used rate discount he major the of each to applied return expected average weighted the calculating by derived been has assets scheme on return expected overall he a plus date sheet balance the at gilts interest fixed on yield the as taken been has assets seeking return other and equities on return expected he he medical cost trend rate is the assumed additional escalation of medical costs over and above the assumed inflation rate. It is assumed that such that assumed is It rate. inflation assumed the above and over costs medical of escalation additional assumed the is rate trend cost medical he he responsibility for setting the assumptions underlying the IAS 19 valuations rests with the Directors, having first taken advice from the Group’s Group’s the from advice taken first having Directors, the with rests valuations 19 IAS the underlying assumptions the setting for responsibility he he he he he Discount rate for scheme obligations scheme for rate Discount Overall expected return on scheme assets scheme on return expected Overall M Asset performance for the disclosures for the year ended 31 December 2010 have been measured against the expected return on assets disclosed disclosed assets on return expected the against measured been have 2010 December 31 ended year the for disclosures the for performance Asset 2009.December 31 at as measure inflation the as (RPI) Index Price Retail the replace should (CPI) Index Price Consumer the that announced Government the 2010, July In benefits. retirement of features index-linked statutory to applied be must that increase pension minimum the determining in use to pension obligations have been remeasured using the CPI and, as Bupa has no constructive obligation to use the RPI in the rate of pensions in in pensions of rate the in RPI the use to obligation constructive no has Bupa as and, CPI the using remeasured been have obligations pension of respect in deferment income. comprehensive other of statement statutory to applied be must that increase pension minimum the determine to RPI the using continue to obligation legal a has Bupa as Scheme, payment. in pensions of features index-linked obligations of valuation the underlying assumptions Actuarial T premium. risk inflation an reflect 0.2%to of deduction a with gilts, rules. scheme respective the under defined as payment in increases fixed receive which benefits of exception the with T scheme. Rate of increase to pensions in deferment in pensions to increase of Rate T E T ‘other’. and bonds equities, classes, asset T class. asset the on available return free risk the of top on return additional the 3.5%, representing of margin taken as an average of the yield available on fixed interest gilts and high quality corporate bonds at the balance sheet date. date. sheet balance the at bonds corporate quality high and gilts interest fixed on available yield the of average an as taken securities. dated short and cash on return expected long-term the representing pa, 3.0% as taken been has ‘other’ rate trend cost Medical T the amounts on effect significant a have rates trend cost medical Assumed liability. the of run-off remaining the during continue will effect an following the in result would rates trend cost medical assumed in change point percentage one A statement. income consolidated the in recognised obligation: benefit medical retirement post the in decrease and increase G Rate of increase to pensions in payment in pensions to increase of Rate Rate of increase in salaries in increase of Rate under IAS 19 are as follows: as are 19 IAS under T actuary. independent 27 (i) Mortality assumptionsMortality T E E Inflation rate rate Inflation T 2010. December 31 at as valuation 19 IAS the of purposes tables with the ‘medium cohort’ improvements, a plus one year age rating and a minimum level of future improvements of 1.0% pa. pa. 1.0% of improvements future of level minimum a and rating age year one plus a cohort’improvements, ‘medium the with tables expectancies at age 60 based on these tables for a male currently aged 60 (aged 45) is 26.7 years (28.2 years), and for a female currently aged 60 aged currently female a for and (28.2years), years 26.7 is 45) (aged 60 aged currently male a for tables these on based 60 age at expectancies (31.5 years). years 29.9 is 45) (aged Notes to the financial statements continued for the year ended 31 December 2010 27 Post employment benefitscontinued

(ii) present value of the scheme obligations The movement in the present value of the schemes’ obligations is:

Group Post retirement medical Pension schemes benefit schemes Total 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m

At beginning of year 930.3 718.6 21.7 17.0 952.0 735.6 Current service cost 22.1 19.3 – – 22.1 19.3 Interest on obligations 52.0 42.0 1.2 1.0 53.2 43.0 Contributions by employees 0.8 0.9 – – 0.8 0.9 Actuarial (gains) / losses (21.7) 174.5 (1.4) 4.4 (23.1) 178.9 Benefits paid (25.6) (24.6) (0.7) (0.7) (26.3) (25.3) Gains on curtailment (5.2) (3.0) – – (5.2) (3.0) Past service cost (2.2) – – – (2.2) – Foreign exchange 3.4 2.6 – – 3.4 2.6 At end of year 953.9 930.3 20.8 21.7 974.7 952.0

Company

At beginning of year 859.0 663.0 21.7 17.0 880.7 680.0 Current service cost 19.3 16.9 – – 19.3 16.9 Interest on obligations 48.4 39.1 1.2 1.0 49.6 40.1 Contributions by employees 0.1 0.2 – – 0.1 0.2 Actuarial (gains) / losses (20.1) 165.4 (1.4) 4.4 (21.5) 169.8 Benefits paid (22.2) (22.6) (0.7) (0.7) (22.9) (23.3) Gains on curtailment (5.2) (3.0) – – (5.2) (3.0) At end of year 879.3 859.0 20.8 21.7 900.1 880.7

(iii) Fair value of funded schemes’ assets The movement in the fair value of the funded schemes’ assets is:

Group Company

2010 2009 2010 2009 £m £m £m £m

At beginning of year 916.2 799.7 855.7 753.2 Expected return on scheme assets 58.7 46.5 54.5 43.5 Actuarial gains 41.2 45.1 40.1 39.6 Contributions by employer 43.7 43.4 38.9 39.0 Contributions by employees 0.8 0.9 0.1 0.2 Benefits paid (24.6) (21.6) (21.4) (19.8) Foreign exchange 3.3 2.2 – – At end of year 1,039.3 916.2 967.9 855.7

The market value of the assets of the funded schemes is as follows:

Equity 450.1 414.3 404.1 375.2 Bonds 523.4 442.2 506.2 427.2 Other assets 65.8 59.7 57.6 53.3 1,039.3 916.2 967.9 855.7

Equity assets comprise index tracker funds as well as funds managed by specialist equity managers and other absolute return managers, who seek a return above pre-set benchmarks.

96 Bupa Annual Report 2010 Business review Governance Financial statements – 97 £m £m £m 5.2 5.0 (5.2) (2.6) 16.9 10.5 40.1 (3.0) (0.4) (0.4) (17.2) (17.2) (83.1) 2009 2009 2006 (10.9) (87.9) 179.8 129.3 (43.5) (92.4) (39.6) 695.2 653.0 (787.6) (740.9) – 1.8 £m £m £m Company Company 6.7 3.9 9.2 (3.3) 19.3 (0.2) (0.2) (5.2) 10.6 2010 2010 38.3 2007 49.6 40.8 (16.8) (16.8) (40.1) 813.4 (62.7) (33.2) (54.5) (94.6) 778.3 (772.6) (740.0) – – – £m 81.1 £m £m (17.0) (17.0) 115.5 90.2 2008 (27.3) (25.7) 102.9 12.8 19.3 753.2 799.7 (3.0) (11.4) (718.6) (45.1) 43.0 2009 2009 (91.6) (663.0) 132.2 188.7 (46.5) Bupa Annual Report 2010 £m Group Group (9.8) (9.6) (3.3) (0.2) (0.2) (14.1) £m £m (45.1) (21.7) (21.7) 2009 9.2 916.2 (39.6) 22.1 855.7 (5.2) (2.2) 10.4 2010 2010 53.2 (41.2) (859.0) (930.3) (67.5) (58.7) (36.7) (99.9) £m (0.3) (0.3) 2010 85.4 88.6 (41.2) (31.8) (40.1) (33.2) (20.8) (20.8) 967.9 (879.3) (953.9) 1,039.3 continued ost employment benefits benefits employment ost istory of experience gains and losses and gains experience of istory Amounts recognised directly in other comprehensive income comprehensive other in directly recognised Amounts Amounts recognised in the consolidated income statement income consolidated the in recognised Amounts H

P

Scheme obligations obligations Scheme Scheme obligations Scheme Scheme assets Scheme Scheme obligations obligations Scheme Scheme assets Scheme Scheme obligations Scheme roup roup et surplus / (deficit) (deficit) / surplus et et surplus / (deficit) / surplus et xperience gains arising on obligations obligations on arising gains xperience xperience credit arising on: arising credit xperience xpected return on scheme assets scheme on return xpected xperience (credit) / charge arising on: arising charge / (credit) xperience xperience (credit) / charge arising on: arising charge / (credit) xperience xperience credit arising on: arising credit xperience he cumulative amount of actuarial losses recognised directly in other comprehensive income is £112.4m£179.9m). (2009: is income comprehensive other in directly recognised losses actuarial of amount cumulative he £104.4m £167.1m). is (2009: income comprehensive other in directly recognised losses actuarial of amount cumulative he he charge to other operating expenses in respect of cash contributions to defined contribution schemes is £22.3m (2009: is £18.4m). schemes contribution defined to contributions cash of respect in expenses operating other to charge he are: income comprehensive other to directly (credited) / charged amounts he he amounts charged / (credited) to other operating expenses for the year are: year the for expenses operating other to (credited) / charged amounts he otal actuarial (gains) / losses (credited) / charged directly to other comprehensive income comprehensive other to directly charged / (credited) losses / (gains) actuarial otal otal amount charged to consolidated income statement income consolidated to charged amount otal G T Company T (vi) G E T Company schemes Pension obligations scheme of value Present Changes in assumptions assumptions in Changes ost retirement medical benefit schemes benefit medical retirement Post obligations scheme of value Present ension schemes Pension obligations scheme of value Present Actual return less expected return on assets on return expected less return Actual Interest on obligations obligations on Interest assets scheme of value Fair Current service cost cost service Current 27 (iv) T E E Past service cost service Past E Fair value of scheme assets scheme of value Fair N T (v) T assets scheme on return Actual T Gains on curtailments on Gains E ost retirement medical benefit schemes benefit medical retirement Post obligations benefit defined of value Present N E Notes to the financial statements continued for the year ended 31 December 2010 28 Provisions for liabilities and charges

Group Long service and annual Regulatory Unoccupied Insurance leave provisions property Other Total £m £m £m £m £m £m

At beginning of year 17.6 22.2 5.5 3.7 10.7 59.7 Acquisitions through business combinations – – – – 0.3 0.3 Charge for year 6.4 15.0 5.3 6.1 24.1 56.9 Released in year – (3.9) (3.6) (0.2) (5.9) (13.6) Utilised in year — cash (6.2) (11.1) (1.8) (0.4) (0.4) (19.9) Transfer from accruals – 9.2 – – – 9.2 Disposal of subsidiary companies – (0.4) – – – (0.4) Foreign exchange – 4.6 – – 1.3 5.9 At end of year 17.8 35.6 5.4 9.2 30.1 98.1

Non-current 13.8 7.9 – 6.5 5.4 33.6 Current 4.0 27.7 5.4 2.7 24.7 64.5 17.8 35.6 5.4 9.2 30.1 98.1

Insurance The 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.T he fund is actuarially assessed twice a year to ensure that the provision is adequate.

Long service and annual leave The 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 pre-determined 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. Annual leave previously classified within accruals in these territories has been reclassified as a provision.

Regulatory provisions Regulatory 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.

Unoccupied property In prior years, the Group entered into non-cancellable leases for property which it no longer fully 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 14 years, the average being six years. The future net outflows are uncertain and are affected by the Group’s ability to sub-let unoccupied property.

Other Other provisions include amounts relating to restructuring provisions (principally £14.8m in Bupa Scandinavia), legal claims, payments under legislation and deferred consideration.

Company Unoccupied Insurance property Other Total £m £m £m £m

At beginning of year 17.6 – 1.0 18.6 Charge for year 6.4 – 0.3 6.7 Released in year – – (0.6) (0.6) Utilised in year – cash (6.2) – – (6.2) Transfer from Group companies – 1.4 – 1.4 At end of year 17.8 1.4 0.7 19.9

Non-current 13.8 1.4 0.5 15.7 Current 4.0 – 0.2 4.2 17.8 1.4 0.7 19.9

98 Bupa Annual Report 2010 Business review Governance Financial statements

– 99 9.1 6.1 £m £m 8.7 8.7 5.8 5.8 21.1 21.1 5.0 5.0 17.4 17.4

14.0 (17.4) 38.0 2009 (14.8) (14.8) (38.4) (98.3) At end At (220.1) year of (133.2) (174.0) (174.0) (174.0) (174.0) (109.2) (109.2) (108.0) (108.0) Net – – – – – 1.5 9.1 6.1 £m £m 0.2 0.3 0.3 0.8 0.4 (0.1) (4.9) (4.5) (2.3) (8.4) (0.2) (0.5) (0.6) 14.0 2010 38.0 (17.4) (38.4) (98.3) (133.2) (220.1) (220.1) Foreign exchange – – – – – – – – – – – – – – – – – – – £m 18.1 sale (0.1) 18.0 £m 71.3 2009 (14.8) held for held (26.5) (187.2) to assets to Bupa Annual Report 2010 (109.2) (108.0) (258.5) ransferred T – – – – – – – – – – – – – – – £m 5.5 5.9 iabilities (0.1) (0.2) (0.4) (0.3) £m L 2010 (17.4) (33.2) (38.4) (98.3) 100.4 (133.2) (220.1) (320.5) subsidiary companies Disposal of Disposalof – – – – – – – – – – 0.1 £m 8.7 0.8 29.7 – – – 39.2 (17.3) (18.3) (35.5) £m 8.7 income 5.8 21.1 5.0 hensive in other in 13.2 compre- 43.9 84.5 2009 (71.3) Recognised 1.1 3.1 £m 8.7 3.3 (7.1) 2.4 0.4 (1.9) (1.8) (7.5) (8.2) (3.3) (0.5) (19.1) – – – – 20.7 – 32.4 48.4 Assets (25.7) 9.1 6.1 £m 71.2 14.0 2010 in income in statement 100.4 (100.4) Recognised At At £m 8.7 5.8 6.5 21.1 4.8 5.0 17.4 18.5 22.7 (17.7) (17.3) (14.8) (138.1) (140.1) year of (174.0) (109.2) (108.0) (260.7) beginning Deferred taxation assets and liabilities and assets taxation Deferred

roup et deferred taxation asset / (liability) (liability) / asset taxation deferred et nrecognised deferred taxation assets taxation deferred nrecognised mployee benefits (other than post employment) post than (other benefits mployee mployee benefits (other than post employment) employment) post than (other benefits mployee mployee benefits (other than post employment) employment) post than (other benefits mployee axation value of losses carried forward forward carried losses of value axation axation value of losses carried forward forward carried losses of value axation axation value of losses carried forward forward carried losses of value axation 2010 allowances capital Accelerated Accelerated capital allowances capital Accelerated Recognised deferred taxation assets and liabilities and assets taxation deferred Recognised following: the to attributable are liabilities and assets taxation Deferred 29 G Revaluation of properties to fair value value fair to properties of Revaluation E Post employment benefit asset / liability / asset benefit employment Post E Post employment benefit asset / liability liability / asset benefit employment Post value fair to properties of Revaluation Provisions T Provisions Provisions Other T 2009 allowances capital Accelerated Goodwill and intangible assets intangible and Goodwill Goodwill and intangible assets intangible and Goodwill Other (liabilities) / assets taxation Deferred Deferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation taxation deferred other and losses taxation unused provisions, other benefits, employee of forward carry the to relating assets taxation Deferred can assets taxation deferred the which against available be will profits taxable future that probable is it that extent the to recognised are assets utilised. be U of losses trading £19.8m(2009: of £22.6m), assets intangible to relating differences temporary deductible had Group the 2010, December 31 at As utilisation of uncertainty to due recognised was asset taxation deferred no which for £23.2m £14.1m) (2009: of losses capital and £3.2m) (2009: £nil differences. temporary those of asset / (liabilities) taxation deferred net in Movement Allowable netting of deferred taxation assets and liabilities liabilities and assets taxation deferred of netting Allowable N Post employment benefit asset / liability / asset benefit employment Post Revaluation of properties to fair value value fair to properties of Revaluation Goodwill and intangible assets intangible and Goodwill E T Provisions Provisions Other Notes to the financial statements continued for the year ended 31 December 2010 29 Deferred taxation assets and liabilities continued

Company

Recognised deferred taxation assets and liabilities Deferred taxation assets and liabilities are attributable to the following: Assets Liabilities Net

2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m

Accelerated capital allowances 1.2 1.5 – – 1.2 1.5 Post employment benefit asset / liability – 6.7 (18.4) – (18.4) 6.7 Employee benefits (other than post employment) 3.1 4.3 – – 3.1 4.3 Provisions 5.9 5.2 – – 5.9 5.2 Other 0.2 1.0 – – 0.2 1.0 Deferred taxation assets / (liabilities) 10.4 18.7 (18.4) – (8.0) 18.7 Allowable netting of deferred taxation assets and liabilities – – – – – – Net deferred taxation asset / (liability) 10.4 18.7 (18.4) – (8.0) 18.7

Deferred taxation assets relating to the carry forward of post employment assets, employee benefits, other provisions 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.

Movement in net deferred taxation (liabilities) / assets Recognised in other At Recognised compre- beginning in income hensive At end of year statement income of year £m £m £m £m

2010 Accelerated capital allowances 1.4 (0.2) – 1.2 Post employment benefit asset / liability 6.7 (8.1) (17.0) (18.4) Employee benefits (other than post employment) 4.4 (1.3) – 3.1 Provisions 5.2 0.7 – 5.9 Other 1.0 (0.8) – 0.2 18.7 (9.7) (17.0) (8.0)

2009 Accelerated capital allowances 0.9 0.5 – 1.4 Post employment benefit asset / liability (20.4) (8.7) 35.8 6.7 Employee benefits (other than post employment) 4.4 – – 4.4 Provisions 5.5 (0.3) – 5.2 Other 0.4 0.5 0.1 1.0 (9.2) (8.0) 35.9 18.7

100 Bupa Annual Report 2010 Business review Governance Financial statements – – – – – – – – 101 £m 6.5 8.4 30.5 2009 854.1 198.9 207.3 646.8 609.8 – – – – – – – – 8.1 £m Company 8.5 2010 53.5 582.7 232.6 520.7 823.4 240.7 – – – 3.1 1.8 £m 9.9 61.1 95.1 52.8 24.0 38.0 2009 911.0 101.4 277.9 298.7 858.2 Bupa Annual Report 2010 – – – Group 3.1 1.6 £m 8.5 0.5 13.7 13.7 2010 26.7 65.4 121.8 391.4 953.2 334.2 966.9 rade and other payables other and rade T on-current iability to external unit trust holders trust unit external to iability otal trade and other payables payables other and trade otal rade payables payables rade Current other payables of £391.4m (2009: £277.9m) includes £219.5m (2009: £176.6m) relating to accommodation bonds in Bupa Care Services Care Bupa in bonds accommodation to relating £219.5m £176.6m) includes (2009: £277.9m) £391.4m (2009: of payables other Current Australia. Accruals liabilities derivative of value Fair T Other payables payables Other Deferred income Deferred Social security and other taxes taxes other and security Social Amounts owed to subsidiary companies subsidiary to owed Amounts Accruals Accruals Deferred income Deferred payables Other N companies subsidiary to owed Amounts 30 Fair value of derivative liabilities derivative of value Fair L Current T Notes to the financial statements continued for the year ended 31 December 2010 31 Equity

Capital management The Group manages as capital the cumulative individual amount of the equity of all Group subsidiaries, exclusive of any non-controlling interests, and other inadmissible assets as discussed below. The Group has a £330.0m perpetual bond accounted for as debt in these financial statements. However, this is managed as though it were capital for regulatory purposes, as discussed below.

As a company limited by guarantee, Bupa has no shareholders or owners. All profits are therefore used to develop the Group’s businesses for the benefit of customers.E xcept for equity attributable to non-controlling interests, any equity in the Group is considered ‘equity attributable to Bupa’.

The Group’s capital management objective is to maintain sufficient capital to protect the interests of all of its customers, investors, regulators and trading partners while also efficiently deploying capital and managing risk to sustain ongoing business development.

The Group aims to operate within a targeted range for solvency, leverage and interest cover ratios designed to support an investment grade rating. The Bupa Group as a whole is not rated by any rating agency, although individual debt issues and various subsidiaries within the Group do have public ratings.

The UK’s Financial Services Authority (FSA) classifies the whole of the Group as an insurance group. As such, the Group must maintain regulatory capital resources in excess of a collective capital requirement, imposed by the FSA through its Prudential Sourcebook (PSB), for Bupa to comply with the EU Insurance Groups Directive (IGD). When assessing the Group’s compliance with its capital requirement, the PSB requires that the Group values and credits towards its net asset position only those assets that meet certain criteria on admissibility, concentration limits and counterparty exposure limits. Group companies that are regulated are subject to similar regulatory restrictions within the jurisdictions in which they operate. The Group and its regulated subsidiaries complied with all externally imposed capital requirements during the prior year. Although they are not insurance businesses, the Group can and does recognise the book value of its care provision businesses as capital resources.

It is the Board’s policy that the Group maintains capital resources significantly in excess of its capital requirements and furthermore, that all regulated entities within the Group’s corporate structure meet any local minimum capital requirement imposed by local regulators at all times.

The Group has a number of internal processes to ensure compliance with the Group’s capital requirements. These include requiring that significant future capital expenditure and growth initiatives be approved by the Board, either as stand alone projects or as part of the budgeting and forecasting exercises. The Group’s Investment Committee must approve any change to financial investment strategy. Strategic developments and acquisitions affecting the Group’s capital require Board authorisation.

The Group Finance Department routinely reports to the Board the Group’s capital position, leverage and interest cover ratios as well as any constraints, risks or uncertainties about this position. The Group reports on any regulatory capital resources to local regulators and the FSA each year end.

In addition, the Group’s management reporting process to the Board includes the regular calculation of the return on capital employed.

The Group has in place internal debt and investment management arrangements that allow the assets supporting technical liabilities or any solvency capital to be efficiently managed in a centralised manner.T he Group’s Treasury Department also maintains large external credit lines with several leading banks to ensure the liquidity of the Group as needed.

There have been no changes to the Group’s capital management objectives, policies or procedures during the year.

102 Bupa Annual Report 2010 Business review Governance Financial statements – – – £m 103 6.5 (4.1) 10.1 (1.8) (2.3) (5.9) (3.9) (3.3) (0.8) (0.3) 2010 At 31 At 75.5 39.3 (55.1) (12.3) 132.6 123.8 173.0 120.3 150.8 832.7 585.3 202.2 483.8 1,647.1 (347.7) (370.8) (246.5) (234.0) December – – – – – – – – – – – 1.9 0.1 £m 2.3 0.2 0.2 (0.1) (1.5) 41.2 61.8 (0.2) (0.3) (0.6) (0.6) (72.1) (25.1) (41.2) (15.9) (87.7) Other (34.3) (171.9) changes non-cash – – – – – – – – – – – – 0.1 1.0 £m 7.6 2.6 9.8 (6.1) 11.0 (1.8) (1.0) (0.5) (0.4) 32.9 32.4 42.9 58.8 46.8 (18.2) (42.9) 175.0 market value and value currencies Bupa Annual Report 2010 Changes to Changesto £m – – – – – – – – – – – – – – – – – – – – – – – – – (3.7) (83.1) (61.5) disposals 852.8 (143.0) (847.5) Acquisitions / Acquisitions overdrafts) and (excluding cash cash (excluding – – – – – – – – – – – – £m 2.2 2.2 2.5 4.9 4.9 4.9 0.3 0.6 (1.6) 22.1 16.5 (15.1) 83.7 (17.5) 131.8 (37.2) 221.4 (58.4) 375.7 533.2 224.8 100.0 526.9 220.8 (245.1) (351.8) 403.0 (575.0) flow Cash 0.1 £m 2.7 At 1 At (4.1) (1.7) (1.9) (4.2) 66.1 (5.9) (0.7) (3.9) (0.9) 87.8 2010 131.3 191.8 (12.5) (57.0) 122.9 188.3 164.5 104.7 410.2 259.3 223.8 825.9 (347.1) 803.3 (234.1) (352.6) (832.0) 1,260.1 (464.0) January edium-term notes edium-term edium-term notes edium-term et funds per balance sheet balance per funds et he movement in the Group’s net funds during the year is explained as follows: as explained is year the during funds net Group’s the in movement he ife investment contract liabilities contract investment ife nvestment properties nvestment Overdrafts Overdrafts Cash and cash equivalents cash and Cash hand in and bank at Cash 32 Movement in net funds funds net in Movement 32 T Short-term bank deposits bank Short-term Reverse repo securities securities repo Reverse Financial investments — non-current — investments Financial gilts government — securities Debt institutions credit with Deposits Debt securities — corporate bonds corporate — securities Debt current — investments Financial gilts government — securities Debt M Deposits with credit institutions credit with Deposits securities yield variable other and Shares Shares and other variable yield securities yield variable other and Shares Property trusts Property contracts investment Life liabilities contract investment life backing investments Financial M L I Other interest bearing liabilities — non-current — liabilities bearing interest Other loans Secured Debenture stock Debenture bonds unsecured Senior Bank loans Bank Finance lease liabilities lease Finance Other interest bearing liabilities — current — liabilities bearing interest Other loans Secured stock Debenture Senior unsecured bonds unsecured Senior Bank loans Bank Finance lease liabilities liabilities lease Finance 10.5% subordinated guaranteed bonds due 2018 due bonds guaranteed 10.5%subordinated Subordinated liabilities — non-current — liabilities Subordinated bonds guaranteed perpetual subordinated Callable Subordinated liabilities — current — liabilities Subordinated bonds guaranteed perpetual subordinated Callable N Notes to the financial statements continued for the year ended 31 December 2010 33 Financial instruments

Hedging activities

The Group applies net investment hedges, fair value hedges and cash flow hedge accounting in order to hedge its exposure to foreign exchange and interest rate risk.

Net investment hedges Net investment foreign exchange risk is managed using both foreign currency forward contracts and foreign currency denominated borrowings. These hedging relationships are documented and tested, as required by IAS 39, as net investment hedges and were effective in hedging the designated portion of net investment exposures during the year. All foreign currency forward contracts are accounted for on a fair value basis.

The Group’s Australian Dollar translation exposure of £2,134.6m (AU$3,257.2m) (2009: £1,867.8m (AU$3,367.8m)) arises from the net assets of MBF, Bupa Australia Pty Limited, Bupa Care Services Australia and their subsidiary companies. Foreign exchange gains and losses on the Australian Dollar inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21, total a loss of £78.2m (2009: loss of £60.8m). At 31 December, the Group held forward foreign exchange contracts totalling £261.2m (AU$398.5m) (2009: £221.0m (AU$398.5m)) to hedge a portion of net assets, which have been designated as hedges under IAS 39. All forward contracts mature within one month from the balance sheet date and are rolled forward on monthly contracts.

Euro translation exposure of £337.0m (€392.6m) (2009: £299.9m (€338.1m)) arises from the net assets of Grupo Bupa Sanitas SL and its subsidiary companies. Foreign exchange gains and losses on the Euro inter company loans that are permitted to be taken to other comprehensive income on consolidation, under IAS 21, total a gain of £19.9m (2009: gain of £21.9m). At 31 December, the Group held Euro borrowings of £94.8m (€110.5m) (2009: £98.0m (€110.5m)) to hedge a portion of these net assets, all of which have been designated as hedges under IAS 39. These borrowings have an interest rate reset and a maturity profile that is rolled forward monthly.

US Dollar translation exposure of £362.2m (US$550.6m, HK$115.3m) (2009: £418.4m (US$662.2m, HK$111.6m)) arises from the net assets of Health Dialog, Bupa International Miami and their subsidiary companies, and from exposure through the Hong Kong Dollar (which is pegged to the US Dollar), which arises from the net assets of Bupa International (Hong Kong), Bupa Asia Limited and Bupa Limited (HK). Foreign exchange gains and losses on the US Dollar inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a gain of £9.3m (2009: loss of £29.5m). At 31 December, the Group held forward foreign exchange contracts totalling £182.6m (US$285.0m) (2009: £176.3m (US$285.0m)) to hedge a portion of net assets, which have been designated as hedges under IAS 39.

The Danish Krone translation exposure of £3.8m (DKK33.0m) (2009: £12.4m (DKK104.2m)) arises from the net liabilities (2009: net assets) of International Health Insurance danmark a/s and its subsidiary companies. Foreign exchange gains and losses on the Danish Krone inter company loans that are permitted to be taken to other comprehensive income on consolidation under IAS 21 total a gain of £2.0m (2009: gain of £4.6m). At 31 December, the Group held the following financial instruments to hedge a portion of these net liabilities / assets of the Danish business, all of which were designated as hedges under IAS 39: Danish Krone borrowings of £nil (2009: £36.9m (DKK309.8m)), which had an interest rate reset and a maturity profile that was rolled forward monthly. Responding to the restructuring of the Danish business in December 2009 and the resulting decrease in the Danish Krone translation exposure, on 11 February 2010, the Group closed out Danish Krone borrowings of £36.5m (DKK309.8m). A portion of these borrowings were deemed ineffective and recognised in the income statement.

104 Bupa Annual Report 2010 Business review Governance Financial statements

he 105 1.0

T £m £m 0.5 (0.2) (0.3) 22.6 value value 40.8 Carrying Carrying

anises. anises. M £m £m (41.6) (53.8) (48.8) (26.0) assets 330.0 330.0 value of of value of value ’Horta Notional Notional liabilities L £m £m sold sold (41.4) (25.7) (49.8) (54.3) 330.0 330.0 Bupa Annual Report 2010 Initial value Initial value Initial of contacts of contacts of uro denominated financial denominated uro E BF amounting to AU$2,001.1m to amounting BF M specializada Y Primaria Primaria Y specializada E execution date execution date execution aturity, expiry or expiry aturity, or expiry aturity, M M 20 January2011 20 20 January2011 20 15 January2010 15 14 January2010 14 September 2020 September 2020 September he variable payment is settled quarterly and the rate is reset reset is rate the and quarterly settled is payment variable he T BF business was disposed of and as a result £0.9m of the related cash related the of £0.9m result a as and of disposed was business BF M hese hedged items have resulted in an income statement loss of £0.5m of loss statement income an in resulted have items hedged hese T he impairment of Health Dialog goodwill in 2010 has resulted in the cash flow flow cash the in resulted has 2010 in goodwill Dialog Health of impairment he T hese interest rate swaps are designated as fair value hedges of the underlying interest rate risk on the debt. the on risk rate interest underlying the of hedges value fair as designated are swaps rate interest hese T continued

30.3m) 55.0m) € € Financial instruments instruments Financial

uro ( uro uro ( uro he following derivative contracts were in place as at 31 December to hedge the Group’s interest rate exposure: rate interest Group’s the hedge to December 31 at as place in were contracts derivative following he he currency forward contracts hedge the Group’s currency exposure, which arises from holding US Dollar and and Dollar US holding from arises which exposure, currency Group’s the hedge contracts forward currency he he fixed receipt occurs annually on the payment of the bond coupon in September. September. in coupon bond the of payment the on annually occurs receipt fixed he US Dollar (US$84.0m) Dollar US T 33 hedges value Fair 2010 currencies: following the in held contracts forward Currency E 2010 value fair — swaps rate Interest 2009 value fair — swaps rate Interest 2009 currencies: following the in held contracts forward Currency E flow hedge gain has been recognised in the income statement. statement. income the in recognised been has gain hedge flow statement. income the in £2.8mrecognised being of loss hedge swaps currently cover 70.4% of the floating rate loan principal balance outstanding at the balance sheet date. At 31 December 2010, the fair value of value fair the 2010, December 31 At date. sheet balance the at outstanding balance principal loan rate floating the of 70.4% cover currently swaps £2.8m (2009: (€3.1m)). (€3.6m) £3.1m was liability swap rate interest the of acquisition the for outflows cash hedge to into entered were contracts exchange foreign 2008, forward In US$653.2m(£343.0m) to amounting Dialog Health of acquisition the £36.4m, and of gain reserve hedge flow cash a to led which (£915.2m), the of part £2.8m. 2010, of In loss reserve hedge flow cash a in resulting Interest rate swaps totalling £330.0m have been entered into to swap the fixed rate coupon on the £330.0m callable subordinated perpetual perpetual subordinated £330.0m callable the on coupon rate fixed the swap to into entered been £330.0mhave totalling swaps rate Interest rate. floating a to bond guaranteed £3.5m). (2009: hedges flow Cash in debt rate floating €40.3m(£35.7m) the hedge to designated were swaps rate interest 2009, During US Dollar (US$67.2m) (US$67.2m) Dollar US T securities. yield variable other and shares as classed investments T on the floating element at this time. As at 31 December 2010, the fair value movement in the bond attributable to the hedged risk amounted to amounted risk hedged the to attributable bond the in movement value fair the 2010, December 31 at As time. this at element floating the on £18.2m£17.2m). (2009: exposure: currency Group’s the hedge to place in were contracts derivative following the December, 31 at As Notes to the financial statements continued for the year ended 31 December 2010 33 Financial instruments continued

Effect of hedging transactions The impact of all external foreign currency hedging activity is set out below. The ineffective portion of all hedges recognised in the income statement was a gain of £0.5m (2009: £0.5m).

Gains / (losses) included in the income statement are:

Currency forward External contracts borrowing Total £m £m £m

2010 Euro 0.5 – 0.5 US Dollar (1.7) – (1.7) Danish Krone – 0.5 0.5 (1.2) 0.5 (0.7)

2009 US Dollar 4.2 – 4.2 Danish Krone – 0.5 0.5 4.2 0.5 4.7

(Losses) / gains included in other comprehensive income are:

2010 Australian Dollar (40.2) – (40.2) Euro – 3.2 3.2 US Dollar (6.3) – (6.3) Danish Krone – 0.1 0.1 (46.5) 3.3 (43.2)

2009 Australian Dollar (19.6) – (19.6) Euro (1.4) 7.8 6.4 US Dollar 13.7 – 13.7 Danish Krone – 2.3 2.3 (7.3) 10.1 2.8

At 31 December 2010 and 2009, there were no material exposures to foreign currency transaction risk.

Fair value of financial instruments The fair value of a financial instrument is defined as the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties. Fair values have been calculated as follows:

— debt securities, shares and other variable yield securities — discounted expected future principal and interest cash flows or quoted price if available; — listed securities — quoted price; — interest bearing loans and borrowings — discounted expected future principal and interest cash flows or quoted price if available; — other receivables and other payables (current) — carrying value; — other receivables and other payables (non-current) — discounted cash flows; — derivatives (currency forward contracts) — quoted prices at balance sheet date; and — derivatives (interest rate swaps) — bank and broker quotes.

The carrying values of short-term receivables and payables are a reasonable approximation of the fair value.

The Group uses the zero coupon curve as at the balance sheet date to discount financial instruments where the fair value cannot otherwise be found from quoted market values. The range of interest rates used is as follows:

2010 2009 % %

Sterling assets and liabilities 1.5 – 4.2 1.2 – 4.5 Australian Dollar assets and liabilities 5.0 – 5.7 4.6 – 6.4 Euro assets and liabilities 0.7 – 3.6 1.2 – 4.2 US Dollar assets and liabilities 0.3 – 5.0 1.0 – 4.8

106 Bupa Annual Report 2010 Business review Governance Financial statements 107 £m 2.7 Fair (3.1) 12.7 81.4 22.6 28.4 value (95.1) 131.4 191.8 153.9 188.3 105.6 (313.1) 574.7 825.9 384.5 (276.7) (832.0) (308.4) 1,058.3 (1,158.0) 2009 £m 2.7 (3.1) 81.4 22.6 28.5 13.2 value (95.1) 131.4 191.8 105.6 574.7 382.2 825.9 153.9 188.3 (315.9) (362.4) (832.0) (308.6) 1,058.3 (1,128.2) Carrying – – – – £m 2.5 Fair 17.9 56.8 45.8 43.8 value (16.8) 142.7 152.2 123.8 692.2 202.2 225.0 (971.6) (296.1) (391.9) (342.5) 1,418.0 Bupa Annual Report 2010 2010 – – – – £m 2.9 18.0 56.9 45.8 43.8 value (16.8) 142.7 152.2 123.8 226.3 692.2 202.2 (391.9) (342.7) 1,418.0 (380.6) (908.2) Carrying continued edium-term notes edium-term Financial instruments instruments Financial iability to external unit trust holders trust unit external to iability

Reverse repo securities securities repo Reverse institutions credit with Deposits Debt securities — corporate bonds corporate — securities Debt Debt securities — government gilts gilts government — securities Debt Shares and other variable yield securities securities yield variable other and Shares Service concession receivables receivables concession Service assets Derivative income Accrued Property trusts Property M L Other payables payables Other Accruals Accruals liabilities Derivative Investment receivables and accrued investment income income investment accrued and receivables Investment Other receivables Other he fair values of financial instruments are as follows: as are instruments financial of values fair he ife investment contract liabilities contract investment ife rade and other payables other and rade rade and other receivables other and rade Assets investments Financial 33 T Financial investments backing life investment contract liabilities contract investment life backing investments Financial equivalents cash and Cash T L T Liabilities liabilities Subordinated liabilities bearing interest Other Notes to the financial statements continued for the year ended 31 December 2010 33 Financial instruments continued Financial instruments carried at fair value are measured by different valuation methods defined by a three level hierarchy.T he different levels have been defined 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 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices); and — Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

An analysis is as follows: Level 1 Level 2 Level 3 Total £m £m £m £m

2010 Financial investments Debt securities – government gilts 45.3 0.2 – 45.5 Debt securities – corporate bonds 14.4 40.4 – 54.8 Shares and other variable yield securities 142.6 0.1 – 142.7 Trade and other receivables Derivative assets 43.8 – – 43.8 Trade and other payables Derivative liabilities (13.7) (3.1) – (16.8)

2009 Financial investments Debt securities – government gilts 153.9 – – 153.9 Debt securities – corporate bonds 31.5 91.2 – 122.7 Shares and other variable yield securities 122.5 8.9 – 131.4 Financial investments backing life investment contract liabilities 827.6 (1.7) – 825.9 Trade and other receivables Derivative assets 22.6 – – 22.6 Life investment contract liabilities – (832.0) – (832.0) Trade and other payables Derivative liabilities – (3.1) – (3.1)

The financial investments backing the life investment contract liabilities are primarily classified as level 1, as they are based on quoted prices in active markets. The fair value of the life investment contract liabilities is calculated using the fair value of the underlying assets and they are therefore classified as level 2.

34 Risk management

Risk management policy The Board is responsible for ensuring that there is a continuous process for identifying, evaluating and managing any material risks faced by the Group and for ensuring that it is effective. As such, the Board is responsible for the nature and extent of the risks facing the Group.T his includes:

— the extent and categories of risk the Board regards as acceptable for the Group to bear; — the likelihood of these risks materialising; — the Group’s ability to reduce the incidence or impact on the business of any risks that do crystallise; and — the costs of operating particular controls relative to the benefit from managing the related risks.

Bupa operates the three lines of defence model. Business management provide the first line of defence and is responsible for the identification and assessment of risks and controls. The second line is provided by the risk functions together with risk policy owners who provide support and challenge the completeness and accuracy of risk assessments and the adequacy of mitigation plans. Internal audit constitutes the third line by providing independent and objective assurance on the robustness of the risk management framework, and the appropriateness and effectiveness of internal controls.

The principal significant risks of the Group and how they are mitigated are described on pages 33 to 37.

The Group has exposure to a number of risks from its use of financial instruments, including: credit, liquidity and market risks and from its insurance business. 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 Investment Committee reviews and monitors any significant investment and market risks.

Risk and future cash flows from short-term health insurance contracts

Underwriting, pricing and claims risk Underwriting risk affects future cash flows of the general insurance entities in the Group. It can be subdivided into claims risk and pricing risk which represent the risk of adverse variances in claims outflows and premium inflows respectively; these are described in more detail on page 35, Risks and Uncertainties. Pricing risk arises from routine revisions to premium tariffs and from the processes, in certain businesses, to set bespoke premiums for large corporate health insurance customers. The adequacy of pricing rests on thorough actuarial analyses of past and most recent claims levels, combined with forward projections of the most recent observed trends. Pricing risk affects only future cash flows since new tariffs impact on levels of premium earned when health insurance contracts renew.

In every general insurer in the Group, the dominant product style is of an annually renewable health insurance contract. This permits tariff revisions to respond reasonably quickly to changes in claim experience. This is a significant mitigant to pricing risk.T he 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.

Claims risk is controlled by means of pre-authorisation of claims, outpatient benefit limits, the use of consultant networks and agreed networks of hospitals and charges. Specific processes vary across the Group depending on local conditions and practice.

108 Bupa Annual Report 2010 Business review Governance Financial statements 109 herefore claims experience experience claims herefore T Bupa Annual Report 2010 ast, and Hong Kong; Kong; Hong and ast, E iddle iddle M he Risk & Compliance Committee approves approves Committee Compliance & Risk he T atin America, the the America, atin L ven though only one line of business is involved, the Group does not not does Group the involved, is business of line one only though ven his can arise from higher claim incidence rates and longer claim claim longer and rates incidence claim higher from arise can his E T his could result in a loss should insufficient premiums be collected to collected be premiums insufficient should loss a in result could his T he contracts do not provide for capital sums or indemnified amounts.indemnified or sums capital for provide not do contracts he T hese products are distributed primarily through intermediary channels in the UK and direct to individual individual to direct and UK the in channels intermediary through primarily distributed are products hese T continued he reinsurance that is used does not give rise to a material credit risk exposure to the Group. the to exposure risk credit material a to rise give not does used is that reinsurance he he development patterns are kept under constant review to maintain the validity of the assumptions and hence, the validity of the the of validity the hence, and assumptions the of validity the maintain to review constant under kept are patterns development he T T product diversity between domestic and expatriate, and individual and corporate health insurance; and insurance; health corporate and individual and expatriate, and domestic between diversity product groups. hospital and hospitals individual clinics, staff, nursing consultants, – providers medical diverse across exposures type claims of variety a broad geographical diversity across several markets – the UK, Spain, Australia, Australia, UK,Spain, the – markets several across diversity geographical broad

Risk management management Risk

— — — orbidity risk orbidity ortality risk ortality xpense variability xpense ither a natural disaster, such as the spread of an epidemic, or a man made disaster could lead to a large number of claims and thus higher than than higher thus and claims of number large a to lead could disaster made man a or epidemic, an of spread the as such disaster, natural a ither he products currently sold within the long-term business are income protection, critical illness and life assurance to both corporate and individual individual and corporate both to assurance life and illness critical protection, income are business long-term the within sold currently products he he Group as a whole and its principal general insurance entities are very well diversified. Only in select circumstances does the Group use use Group the does circumstances select in Only diversified. well very are entities insurance general principal its and whole a as Group he contracts insurance these under claims mortality and morbidity of severity and frequency timing, the around uncertainty to exposed is Group he expected. than costs claim higher paying of risk the to exposed is Group he he Group is at risk of higher than expected lapse rates at early durations. durations. early at rates lapse expected than higher of risk at is Group he he amount of claims provision at any given time that relates to potential claims payments that have not been resolved within one year is not not is year one within resolved been not have that payments claims potential to relates that time given any at provision claims of amount he these possible, Where currency. local a in settled are which liabilities insurance the of some through risk currency foreign to exposed is Group he he short-tail nature of the Group’s general insurance contracts means that movements in claims development assumptions are generally not not generally are assumptions development claims in movements that means contracts insurance general Group’s the of nature short-tail he he Group is exposed to the risk that a single event occurs in a location which would result in a large number of claims arising under a Group risk policy. risk Group a under arising claims of number large a in result would which location a in occurs event single a that risk the to exposed is Group he event. single a from arising liability overall the caps which reinsurance by mitigated is his o manage all of the above risks presented by long-term business, the Group operates a risk management framework of approval procedures, approval of framework management risk a operates Group the business, long-term by presented risks above the of all manage o Long-term insurance risk insurance Long-term T years. 40 to up of terms for customers, T reinsurance. from withdrawal following products some for Bermuda and UK,Australia the in operated are business of books closed Some Australia. in customers products. care long-term pre-funded and needs immediate particular in markets, these specified a of diagnosis the beneficiary upon or policyholder the to sum lump a of payment a for provide products assurance life and illness Critical through work to unable being time of period a following policyholder the to payment monthly a for provides protection Income death. or illness contain contracts insurance long-term Group’s the of None work. to returns individual the when or age retirement until payable is which illness, derivatives. embedded T such factors on experience operating anticipated than worse to exposed also is It events. catastrophic and random and pricing inadequate through expenses. administrative and management and levels persistency as M T 34 the of date the after flows cash affect will inflation, medical as such factors external by caused example, for experience, claims adverse Future provisions. in movement the in and paid claims in statements financial these in reflected are risks claims adverse Recent statements. financial for expenses medical incurred of reimbursement the for provide that conditions and terms contain contracts insurance health Group’s the Generally, conditions. medical acute to related treatment have significant concentrations of insurance risk for the following reasons: following the for risk insurance of concentrations significant have claims. future cover to sufficient not are liabilities insurance the that risk a is there estimated, than higher are costs claim If expected. than durations arrangements. reinsurance share quota of use the by mitigated is risk this of proportion significant A M and expected than higher are rates mortality that risk the to exposed is Group the death, on payable benefit sum lump a offer which contracts For payable are benefits hence and expected than lower are rates mortality that is risk the contracts, care long-term For costs. claim increased to lead arrangements. reinsurance share quota of use the by mitigated is risk this of proportion significant A expected. than longer for Persistency T estimation of recognised general insurance liabilities. liabilities. insurance general recognised of estimation T outstanding the confidence reasonable with predict to possible is it year, one than longer to relate do that provisions small the of Also, material. provided. not therefore are estimates previous against claims actual of Comparisons amounts. business insurance health underwriting to related risks Other addition, In risk. reserving on impact no have rates interest in changes that means nature short-term their and discounted not are provisions Claims rates. interest in changes by unaffected are liabilities premium insurance health of outflows claims and income premium future the risk. rate interest to rise give respect that in not do contracts the so derivatives embedded contain contracts insurance general Group’s the of None T exposure. this hedge to currency relevant the in assets to matched are liabilities portfolios. health line single are activities insurance general Group’s the of All is necessarily underpinned by prevailing rates of illness. Additionally, claims risk is generally mitigated by the insurers running control processes to to processes control running insurers the by mitigated generally is risk claims Additionally, illness. of rates prevailing by underpinned necessarily is appropriate. are reimbursements consequent the and treatments the both that ensure risk Reserving not is risk Reserving information. or events later of light in inadequate proving incurred claims for provisions technical of risk the is risk Reserving the toderive used processes the of efficacy the with coupled patterns, development claims of shortness the of result a as Group the to significant provisions. setting in used assumptions T significant. underwriting limits, pricing guidelines, premium loadings, policy exclusions and close monitoring of actual performance and market developments. developments. market and performance actual of monitoring close and exclusions policy loadings, premium guidelines, pricing limits, underwriting Catastrophe treaties. reinsurance non-proportionate and proportionate through ceded is underwritten is that risk the of proportion significant A portfolio. life Group the within risk of concentration against protect to purchased also is reinsurance cover the costs of acquiring the policy. At longer durations there is a risk of lower than expected lapses leading to higher claims frequency and frequency claims higher to leading lapses expected than lower of risk a is there durations longer At policy. the acquiring of costs the cover annuities. or contracts premium single Group’s the affect not does risk Persistency costs. E costs. cover to sufficient be not may liabilities insurance expected, than higher are inflation expense or levels expense If risk of concentrations Geographical T T risk Catastrophe E cover. reinsurance catastrophe and surplus share, quota by reduced are risks Such costs. claims expected T arrangements. reinsurance to changes any Notes to the financial statements continued for the year ended 31 December 2010 34 Risk management continued

Market risk Market risk is the risk of adverse financial impact 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. The Treasury and Investment Committee is responsible for the management of the Group’s cash and short-term borrowings.

Under the guidance of the Committee, the role of the Group Treasury Department is to manage the Group’s liquidity position and short-term borrowings, together with the risks arising on interest rates and foreign currencies and to protect the security of the Group’s financial assets.

Market risk in relation to the long-term insurance business arises from fluctuations in values or income from current invested assets or projected yields for future investments. In order to reduce the risk of assets being insufficient to meet future policyholder obligations, the Group matches investments to liabilities. In addition, the Group actively manages assets using an approach that balances quality, diversification, liquidity and investment return.

In respect of its life assurance contracts, a sensitivity analysis is performed on renewal expenses and inflation based around various scenarios, to provide an indication of the adequacy of the Group’s estimation of these. Further details of this are set out in note 25.

The Group manages price 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 absolute return assets (principally corporate bonds), the Group uses a value at risk (VaR) analysis to quantify risk, taking account of asset volatility and correlation between asset classes. This portfolio was £184.5m at 31 December 2010 (2009: £161.2m).

Interest rate risk Interest 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.T his 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 2010 was £1,259.8m (2009: £991.5m). The rate at which maturing deposits are reinvested represents a significant potential risk to the Group, in currencies such as the Australian Dollar where the Group has a significant net floating cash or debt 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.T his increases the ability to match floating rate assets with floating rate liabilities.

The Group manages investment liquidity against a target benchmark of four months’ duration for deposits with financial institutions and takes actions around this target based on future market expectations. The maturity profile of financial assets as at 31 December 2010 and 2009 is as follows:

Shares UK Overseas and other Cash and Deposits Reverse govern- govern- UK Overseas Medium variable cash with credit repo ment ment corporate corporate term yield Property equivalents institutions securities gilts gilts bonds bonds notes securities trusts Total £m £m £m £m £m £m £m £m £m £m £m

2010 2011 692.2 832.7 202.2 – 6.5 – – 75.5 10.1 – 1,819.2 2012 – 585.3 – – 39.1 – 14.7 50.1 132.3 – 821.5 2013 – – – – 0.1 – – – – – 0.1 2014 – – – – – – – 50.0 – – 50.0 2015 – – – – – – – 50.7 – – 50.7 2016–2020 – – – – 0.1 – 40.4 – 0.2 – 40.7 After 2020 – – – – – 68.7 – – 0.1 – 68.8 Total 692.2 1,418.0 202.2 – 45.8 68.7 55.1 226.3 142.7 – 2.851.0

2009 2010 1,058.3 410.2 191.8 – 87.8 – – 259.3 131.3 2.7 2,141.4 2011 – 164.5 – – 40.5 2.1 1.7 72.9 – – 281.7 2012 – – – – – 14.1 4.6 – – – 18.7 2013 – – – 4.8 – 16.4 1.6 – – – 22.8 2014 – – – – – 24.1 2.1 50.0 – – 76.2 2015–2019 – – – 5.1 – 44.3 6.6 – – – 56.0 After 2019 – – – 15.7 – 70.7 – – 0.1 – 86.5 Total 1,058.3 574.7 191.8 25.6 128.3 171.7 16.6 382.2 131.4 2.7 2,683.3

Information regarding the ageing of financial and insurance assets, including those above, and the value of any impairment made against these assets is included on page 114.

110 Bupa Annual Report 2010 Business review Governance Financial statements – – – – – – – – – – – – 111 1.2 1.2 1.5 1.9 £m £m 3.7 5.7 2.3 3.8 6.9 2.0 0.5 16.7 21.3 (4.7) (3.7) (2.5) 14.2 (3.3) (3.3) 10.6 facility (703.1) (703.1) (685.7) (685.7) Undrawn

Gains / (losses) / Gains £m otal (7.3) (8.7) (4.4) T included in income includedin (27.7) (27.5) (26.7) (56.8) (56.4) (233.1) (413.2) (198.4) (372.7) (742.3) (604.2) statement and equity and statement (1,288.8) (1,490.6) £m (2.4) (2.6) (2.6) (2.6) (3.4) (0.4) (25.1) (51.5) (51.6) Fixed (26.9) (233.1) (256.1) (712.8) (694.3) (394.8) (354.0) Bupa Annual Report 2010 – £m (6.1) (1.0) (4.7) (4.8) (2.6) (5.3) (0.6) (18.7) (26.3) (410.8) (348.1) (195.8) (347.5) (576.0) (796.3) Variable his analysis assumes that all other variables, in particular foreign exchange rates, remain constant. remain rates, exchange foreign particular in variables, other all that assumes analysis his T continued

Risk management management Risk

edium-term notes edium-term notes edium-term he impact of a rise of 100 bps (2009: 100 bps) in interest rates at the reporting date, on an annualised basis, would have increased / (decreased) (decreased) / increased have would basis, annualised an on date, reporting the at rates interest in bps) 100 (2009: bps 100 of rise a of impact he he contractual and anticipated repayment profile of interest bearing financial liabilities is as follows: as is liabilities financial bearing interest of profile repayment anticipated and contractual he the in shown that to effect inverse the have would basis, annualised an on rates, interest in bps) 100 (2009: bps 100 of fall a of impact he he Company is not materially exposed to interest rate risk. rate interest to exposed materially not is Company he ife investment contract liabilities contract investment ife otal otal otal otal otal 2015–2019 2019 After T T below. shown amounts the by surplus and equity 2014 2013 2009 2010 2011 T 2012 2015 2016–2020 2020 After 2013 2014 2012 2010 gilts government — securities Debt Debt securities — corporate bonds corporate — securities Debt equivalents cash and Cash liabilities Subordinated liabilities financial bearing interest Other 2010 2011 34 settled is and agreements with line in loans all on settled is Interest months. six and one between of intervals at re-priced are loans Variable at least annually. least at T M institutions credit with Deposits T 2009 gilts government — securities Debt bonds corporate — securities Debt M securities repo Reverse T T Reverse repo securities securities repo Reverse liabilities contract investment life backing investments Financial liabilities financial bearing interest Other L Deposits with credit institutions institutions credit with Deposits equivalents cash and Cash liabilities Subordinated Company T table above. above. table Notes to the financial statements continued for the year ended 31 December 2010 34 Risk management continued

Foreign exchange risk The 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 functional currency.

Bupa has exposure to foreign exchange risk arising from its overseas operations. Key exposures are to the Australian Dollar, US Dollar, Euro, New Zealand Dollar, Bahraini Dinar, Danish Krone, Hong Kong Dollar, Thai Baht and Swiss Franc.

Where appropriate, the Group uses foreign currency forward contracts and foreign currency borrowings to hedge balance sheet translation exposure.

The carrying value of total assets and total liabilities categorised by currency is as follows:

Net currency Net Currency Borrowing exposure currency forward trans- including exposure contracts actions hedges £m £m £m £m

2010 Australian Dollar 2,134.6 (261.2) – 1,873.4 US Dollar 352.7 (322.8) – 29.9 Euro 337.0 (44.3) (94.8) 197.9 New Zealand Dollar 197.1 – – 197.1 Bahraini Dinar 25.0 – – 25.0 Danish Krone (3.8) – – (3.8) Hong Kong Dollar 9.5 – – 9.5 Thai Baht 9.6 – – 9.6 Swiss Franc 4.9 (8.2) – (3.3) Other 7.6 – – 7.6 Total foreign currency denominated net assets 3,074.2 (636.5) (94.8) 2,342.9

Percentage of Group net assets 69.9% 53.3%

2009 Australian Dollar 1,867.8 (221.0) – 1,646.8 US Dollar 409.5 (217.8) – 191.7 Euro 299.9 (48.8) (98.0) 153.1 New Zealand Dollar 177.1 – – 177.1 Bahraini Dinar 46.7 – – 46.7 Danish Krone 12.4 – (36.9) (24.5) Hong Kong Dollar 8.9 – – 8.9 Thai Baht 7.7 – – 7.7 Other 8.4 – – 8.4 Total foreign currency denominated net assets 2,838.4 (487.6) (134.9) 2,215.9

Percentage of Group net assets 71.2% 55.6%

The following significant exchange rates applied during the year:

Average rate Closing rate

2010 2009 2010 2009

Australian Dollar 1.6832 1.9906 1.5259 1.8031 US Dollar 1.5456 1.5659 1.5610 1.6170 Euro 1.1664 1.1227 1.1650 1.1275

112 Bupa Annual Report 2010 Business review Governance Financial statements

113 £m £m (9.1) (1.4) (7.3) (9.4) (11.7) 25.6 92.5 2009 (10.7) (111.7) 128.3 (89.2) (78.4) Gains / Gains (105.5) (losses) (losses) included in equity in 2,683.3 2,436.9

– 1.0 £m £m 6.6 (2.1) (4.1) (3.1) (1.8) (6.2) (5.4) (8.9) 2010 45.8 (13.2) 40.5 Gains / Gains income (losses) (losses) 2,851.0 2,764.7 statement includedin imited and BHA Risk & Risk BHA and imited L Bupa Annual Report 2010 he Bupa Insurance Insurance Bupa he T continued he Group monitors the exposure and financial status of reinsurers on an ongoing basis. basis. ongoing an on reinsurers of status financial and exposure the monitors Group he T Risk management management Risk

uro uro uro uro he impact of 5% weakening of Sterling (2009: 5%) against the currencies above, with all other variables constant, would have the inverse effect to effect inverse the have would constant, variables other all with above, currencies the against 5%) (2009: Sterling of weakening 5% of impact he risk. exchange foreign to exposed materially not is Company he Committee. Investment the of guidance the under exposures risk credit its manages Group he follows: as is December 31 at profile investment he he impact of 5% strengthening of Sterling (2009: 5%) against the currencies below, with all other variables constant, would have (decreased) / (decreased) have would constant, variables other all with below, currencies the against 5%) (2009: Sterling of strengthening 5% of impact he he investments which are held with non-investment grade counterparties are classed as shares and other variable yield securities and include and securities yield variable other and shares as classed are counterparties grade non-investment with held are which investments he imited (BHA). (BHA). imited otal sensitivity otal otal sensitivity otal T above. shown that Company T risk Credit obligations. contractual their of part or all meet to failing counterparties to due assets financial of value the in loss of risk the is risk Credit T are counterparties all that and investments of spread sufficient a is there ensuring by managed is counterparties external with exposure Investment Committee). Investment the by approved specifically (unless Group the by used agencies rating key three the of two by AA– least at rated T US Dollar US T 2009 Dollar Australian Dollar US E 2010 Dollar Australian 34 T below: shown amounts the by surplus and equity increased Other Other T E UK government gilts gilts government UK Overseas government gilts gilts government Overseas Investment grade counterparties counterparties grade Investment £1,058.3m).£692.2m (2009: of equivalents cash and cash include counterparties grade Investment T BBB-. below rated those are counterparties grade Non-investment funds. commodity business. insurance life UK the in concentrated is exist does what however, material; not is risk credit reinsurance Group, the across aggregate In Assurance Health Bupa of Committee Compliance & Risk the by approved been have which reinsurers using by mitigated is risk credit Reinsurance L Non-investment grade counterparties grade Non-investment Compliance Committee is responsible for approving all new reinsurance arrangements. reinsurance new all approving for responsible is Committee Compliance Notes to the financial statements continued for the year ended 31 December 2010 34 Risk management continued Information regarding the ageing of financial and insurance assets and the value of the impairment made against these assets is provided below:

Total carrying Neither value in the past due or 0-3 3-6 6 months- Greater Impair- balance impaired months months 1 year than 1 year ment sheet £m £m £m £m £m £m £m

2010 Debt securities 169.6 – – – – – 169.6 Shares and other variable yield securities 142.7 – – – – – 142.7 Medium-term notes 226.3 – – – – – 226.3 Reverse repo securities 202.2 – – – – – 202.2 Deposits with credit institutions 1,418.0 – – – – – 1,418.0 Reinsurers’ share of insurance provisions 9.8 – – – – – 9.8 Insurance debtors 643.1 72.9 9.1 8.5 0.4 (18.1) 715.9 Investment receivables and accrued investment income 2.3 0.3 – – 1.9 (1.6) 2.9 Trade and other receivables 288.1 52.0 8.4 8.7 33.2 (14.0) 376.4 Total financial and insurance assets 3,102.1 125.2 17.5 17.2 35.5 (33.7) 3,263.8

2009 Debt securities 342.2 – – – – – 342.2 Shares and other variable yield securities 131.4 – – – – – 131.4 Medium-term notes 382.2 – – – – – 382.2 Reverse repo securities 191.8 – – – – – 191.8 Deposits with credit institutions 574.7 – – – – – 574.7 Property trusts 2.7 – – – – – 2.7 Reinsurers’ share of insurance provisions 81.7 – – – – – 81.7 Insurance debtors 470.2 210.4 22.1 11.9 7.4 (22.2) 699.8 Investment receivables and accrued investment income 12.3 0.1 – – 0.8 – 13.2 Trade and other receivables 227.2 102.8 12.1 3.9 10.9 (9.1) 347.8 Total financial and insurance assets 2,416.4 313.3 34.2 15.8 19.1 (31.3) 2,767.5

The carrying amount of financial and insurance assets of £3,263.8m (2009: £2,767.5m) 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:

2010 2009 £m £m

At beginning of year 31.3 41.1 Impairment loss recognised 17.4 6.6 Disposal of subsidiary companies (0.3) (0.8) Bad debt provision released in year (14.2) (13.0) Transferred to assets held for sale (0.4) – Foreign exchange (0.1) (2.6) At end of year 33.7 31.3

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 £35.4m (2009: £31.2m) of cash held in restricted access deposits, £86.8m (2009: £86.4m) of property, plant and equipment and £0.5m (2009: £0.2m) of inventories.

Company The maximum credit risk exposure of the Company is £1.2m (2009: £2.1m). The Company believes amounts owed to it by subsidiary companies carry no credit risk.

114 Bupa Annual Report 2010 Business review Governance Financial statements 115 £m otal T (86.1) (87.7) (80.3) (122.6) (401.0) (732.4) (270.6) (845.2) (980.6) (504.3) (3,104.5) (4,339.5) (5,976.3) (3,720.6) (4,959.6) (5,269.6)

– – £m £m (1.0) (7.7) (7.6) rade (0.7) (3.8) (6.6) (15.0) T (20.7) (861.1) (773.1) (824.1) (824.1) (873.2) (873.2) payables and other and – – – – – – – – – – – – – ife ife £m £m L (832.0) (832.0) (832.0) contract liabilities Bupa Annual Report 2010 investment investment – – – – – – – – – – £m £m (18.9) (18.9) (18.9) Other under (32.8) (32.8) (32.8) issued liabilities contracts insurance – – – £m (1.7) (2.9) (2.8) (2.0) (0.8) under (23.3) (84.4) issued (2,158.6) (2,158.6) (2,134.5) (2,090.1) (2,090.1) (1,996.3) contracts insurance Provisions Provisions £m (55.1) Other (52.3) (65.8) (69.4) (56.5) (101.3) (415.6) (461.0) (527.9) (377.7) (246.2) interest (588.6) bearing (908.2) (1,128.2) liabilities (1,374.8) (1,642.6) – £m he Group repaid £211.1m of bank borrowings under this facility during facility this under borrowings bank £211.1mof repaid Group he Sub- T (127.1) (20.6) (20.6) (20.6) (20.6) (20.6) (20.6) (20.6) (20.6) (451.7) (534.1) (554.7) (362.4) (345.2) (380.6) liabilities ordinated imited in early 2011, the level of bank borrowings will continue to fall in the short-term. short-term. the in fall to continue will borrowings bank of level the 2011, early in imited L continued reasury department monitors funding risk as well as compliance with existing financial covenants within the banking arrangements. banking the within covenants financial existing with compliance as well as risk funding monitors department reasury T Risk management management Risk

he total liability is split by remaining duration in proportion to the cash flows expected to arise during that period. Interest payments are included are payments Interest period. that during arise to expected flows cash the to proportion in duration remaining by split is liability total he year. one within due fall liabilities financial of maturity contractual he he Group’s main source of funding is via a £900m committed bank facility which was put in place in June 2010 and matures in September 2013. September in matures and 2010 June in place in put was which facility bank £900mcommitted a via is funding of source main Group’s he he Group Group he here were no concerns regarding bank covenant coverage in 2010 and that position is not expected to change in the foreseeable future. future. foreseeable the in change to expected not is position that and 2010 in coverage covenant bank regarding concerns no were here as well as Committee Investment the by set as policies management liquidity strict to adheres and position liquidity strong a enjoys Group he 114. page on disclosed is risk liquidity manage and liabilities match to used are which assets of maturity he the of payments interest estimated including liabilities insurance of maturities expected the and liabilities financial of maturities contractual he iquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due. fall they when liabilities its meet to funds available have not will Group the that risk the is risk iquidity iquidity is managed by currency, and by considering the segregation of accounts required for regulatory purposes, short-term operational working working operational short-term purposes, regulatory for required accounts of segregation the considering by and currency, by managed is iquidity long-term the of portion a maintaining by and liabilities to assets matching by managed is business insurance long-term the for risk iquidity otal otal 2012 2011 2013 2009 2010 2014–2019 2015–2020 sheet balance the in value Carrying After 2019 After T liabilities. bearing interest other and liabilities subordinated for flows cash the in Company T 2012 T Carrying value in the balance sheet balance the in value Carrying 2013 2014 2020 After 2010 2011 34 risk Liquidity L T 2010. December £696.8m31 at was facility the under headroom Funding 2010 primarily from operating cash flows and proceeds from disposal of businesses. As a result of ongoing operating cashflows and proceeds from proceeds and cashflows operating ongoing of result a As businesses. of disposal from proceeds and flows cash operating from primarily 2010 Assurance Health Bupa of sale the T T T T the for authorities equivalent local and UK the in entities regulated Group’s the for FSA the by defined as parameters, liquidity certain to adhering operations. foreign Group’s L facilities. bank committed and hand in cash by met are requirements capital L deposits. short-term liquid, in portfolio investment T T follows: as are December 31 at as Group Notes to the financial statements continued for the year ended 31 December 2010 35 Acquisitions

2010 acquisitions On 9 August 2010, the Group acquired the remaining 50% shareholding in the Health Eyewear business from Blink Optical Pty Limited for cash consideration of £1.1m (AU$1.7m). The Group had an existing 50% shareholding in Health Eyewear, which at 31 December 2010 had a fair value of £0.6m. The primary reason for this acquisition was to enable cost savings on claims.

On 25 August 2010, the Group acquired the assets of Peak Fitness Management for cash consideration of £2.3m (AU$4.1m), this resulted in goodwill of £3.0m being recognised. The primary reason for this acquisition was to complement the existing offerings to customers.

The acquisition related costs included in operating expenses within the income statement for the year ended 31 December 2010 are £0.4m (AU$0.7m).

Carrying Fair value value at adjust- acquisition ments Fair value £m £m £m

Property, plant and equipment 1.1 – 1.1 Inventories 0.6 – 0.6 Trade and other receivables 0.2 – 0.2 Provisions for liabilities and charges (0.3) – (0.3) Trade and other payables (0.3) – (0.3) 1.3 – Net assets acquired 1.3 Goodwill 3.0 Consideration 4.3

Consideration satisfied by: Cash 3.4 Fair value of previously held equity interest 0.6 Deferred consideration 0.3 4.3

Purchase consideration settled in cash 3.4 Net cash outflow on acquisition 3.4

The fair value adjustments relating to the acquisition of Health Eyewear and Peak Fitness Management are provisional and will be finalised during the 2011 financial year but within the twelve month anniversary date of each respective acquisition.

2009 acquisitions No acquisitions were made during the year ended 31 December 2009.

36 Commitments and contingencies

(i) Capital commitments

Group Capital expenditure for the Group contracted as at 31 December 2010 but for which no provision has been made in the financial statements amounted to £10.0m (2009: £10.5m), of which £7.8m (2009: £7.1m) related to property, plant and equipment and £2.2m (2009: £3.4m) related to investment property.

Company Capital expenditure for the Company contracted as at 31 December 2010 but for which no provision has been made in the financial statements amounted to £0.2m (2009: £nil), all of which related to property, plant and equipment.

(ii) Operating leases

Group The total value of future non-cancellable operating lease rentals is payable as follows:

2010 2009 £m £m

Less than one year 42.3 39.4 Between one and five years 152.9 140.9 More than five years 362.2 415.8 557.4 596.1

The Group leases a number of properties under operating leases. The leases typically run for a period of 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. These leases expire between 2012 and 2024 and the sub-leases between 2010 and 2022. Sub-lease receipts of £1.4m (2009: £1.6m) are expected to be received during the next financial year.T he Group has recognised an unoccupied property provision of £9.2m (2009: £3.7m) in respect of these leases (see note 28).

116 Bupa Annual Report 2010 Business review Governance Financial statements 117 1.1 £m £m 2.7 8.7 3.6 3.6 5.6 2.4 0.9

2009 2009

– 1.1 1.5 £m £m 3.5 2.5 8.3

4.3 4.6 rustees of of rustees 2010 2010 T Bupa Annual Report 2010 he remuneration of the business segment business the of remuneration he T anaging Directors of the Group’s business Group’s the of Directors anaging M imited. L he future lease receipts under non-cancellable leases are as are non-cancellableleases under receipts lease future he T he Bupa Pension Scheme between 31 December 2010 and 2010 December 31 between Scheme Pension Bupa he T xecutive Directors and the the and Directors xecutive E he Company has joint and several liability for all obligations under the agreement. the under obligations all for liability several and joint has Company he T xecutive Directors is disclosed in note 5. note in disclosed is Directors xecutive E hese unfunded benefits have been secured by a charge, in the name of the the of name the in charge, a by secured been have benefits unfunded hese T xecutive and Non- and xecutive E xecutive Directors and key management personnel through an unapproved pension arrangement pension unapproved an through personnel management key and Directors xecutive he British United Provident Association Association Provident United British he continued E T xecutive and Non- and xecutive ension Scheme Pension E he Bupa Bupa he he Bupa Pension Scheme in respect of these payments. these of respect in Scheme Pension Bupa he T T he Bupa Pension Scheme. Pension Bupa he T rustees of of rustees rustees of of rustees T T he remuneration of the Group’s Group’s the of remuneration he T Commitments and contingencies contingencies and Commitments Contingent assets and liabilities and assets Contingent Related party transactions party Related ension contributions P ension

ore than five years five than ore anaging Directors is as follows: as is Directors anaging roup roup he Company has made pension promises to to promises pension made has Company he he ultimate parent company of the Group is is Group the of company parent ultimate he he Bupa Pension Scheme, over £29.5m (2009: £25.4m) of cash deposits. cash of £29.5m £25.4m) (2009: over Scheme, Pension Bupa he 24. IAS by defined as parties, related other any with year the during transactions material no were here he total remuneration of key management personnel is included in staff costs (see note 4). note (see costs staff in included is personnel management key of remuneration total he he Company had no operating lease obligations (2009: £nil). (2009: obligations lease operating no had Company he to contributions special of series a make to obligation an has Company he he Group leases out its investment properties under operating leases (see note 13). 13). note (see leases operating under properties investment its out leases Group he he key management personnel are the Group’s Group’s the are personnel management key he he Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, from which which from litigation, from arise might which losses including business, of course ordinary the in arising liabilities contingent has Group he he Company has guaranteed the borrowings of certain subsidiary undertakings, which at 31 December 2010 amounted to £196.9m to amounted 2010 December 31 at undertakings,which subsidiary certain of borrowings the guaranteed has Company he he Company has given a guarantee in respect of a £350.0m bond issued by Bupa Finance plc. Finance Bupa by issued £350.0mbond a of respect in guarantee a given has Company he £196.9m which of Group, the within companies other various with together facility, credit £900.0m revolving a to party is Company he ess than one year year one than ess ong-term incentive plan incentive ong-term ransactions with the the with ransactions ransactions with key management personnelmanagement key with ransactions otal remuneration paid to key management personnelmanagement key to paid remuneration otal T M Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company Company the Group, the within companies other of indebtedness the guarantee to contracts guarantee financial into enters Company the Where an on made is claims expected for provision respect, this In such. as them for accounts arrangements,and insurance be to these considers T 37 basis. incurred G T T T T year. the during time any at or £nil) (2009: 2010 December 31 at companies Group with contracts any in interest material any had Director No of terms the mirrors which L T Short-term employee benefits employee Short-term Post employment benefits employment Post follows: M statement. income the in income rental as recognised was £1.1m) £1.1m(2009: 2010, December 31 ended year the During Company T (iii) Company T L 36 lessor as Leases T Between one and five years five and one Between guarantee irrevocable and binding legally a into entered has plc Finance Bupa addition, In 27. note in out set are which of details 2012, December 31 the of benefit the for (iv) segments. Intra Group related party transactions and outstanding balances are eliminated in the preparation of the consolidated financial statements statements financial consolidated the of preparation the in eliminated are balances outstanding and transactions party related Group Intra Group. the of T T G T it is anticipated that the likelihood of any material unprovided liabilities arising is remote. is arising liabilities unprovided material any of likelihood the that anticipated is it Company T (2009: £407.6m). (2009: T T 2010. December 31 at as down drawn been had £407.6m) (2009: Notes to the financial statements continued for the year ended 31 December 2010 37 Related party transactions continued

Company The Company has a related party relationship with its key management personnel and with its subsidiary companies (see note 15).

Transactions with key management personnel The key management personnel are the Group’s Executive and Non-Executive Directors and the Managing Directors of the Group’s business segments. The remuneration of the Group’s Executive and Non-Executive Directors is disclosed in note 5. The total remuneration of the business segment Managing Directors is as disclosed above.

The total remuneration of key management personnel is included in staff costs (see note 4).

Transactions with the Trustees of The Bupa Pension Scheme These transactions are as disclosed above.

Transactions and balances with subsidiary companies Transactions Balance at during the year 31 December 2010 2009 2010 2009 £m £m £m £m

Income statement Management charges received 132.2 139.9 Interest income 4.0 6.6 Interest expense (6.7) (9.0) Income received (including rental income of £0.1m (2009: £0.1m)) 2.3 2.1 Expenses paid (including rental expense of £6.3m (2009: £6.4m)) (6.9) (7.0)

Balance sheet Amounts owed by subsidiary companies 67.1 108.7 415.8 348.7 Amounts owed to subsidiary companies 89.1 (200.8) (520.7) (609.8) Loans to subsidiary companies (194.3) 244.7 50.4 244.7 Loans from subsidiary companies (33.7) (194.3) (232.6) (198.9)

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.

38 Events after the balance sheet date On 15 October 2010, the Group announced the proposed sale of the Group’s subsidiary Bupa Health Assurance Limited to Resolution Limited. The transaction was conditional upon receiving regulatory approval from the FSA. The sale completed on 31 January 2011 for cash proceeds of £168.2m. The assets and liabilities of Bupa Health Assurance Limited are classified as held for sale in the consolidated balance sheet as at 31 December 2010 (see note 21).

118 Bupa Annual Report 2010 Business review Governance Financial statements – – – –

– – – 119 £m 2.6 11.7 (1.2) (1.3) 12.7 (4.7) (2.5) 14.3 39.7 (11.8) 38.5 10.2 10.2 36.0 36.0 2006 (91.0) (14.3) (14.3) 237.7 237.7 301.5 237.7 237.7 641.9 616.4 973.7 1,917.1 1,917.1 201.7 220.8 420.6 297.4 297.4 292.7 (380.9) 1,287.0 1,928.8 3,827.2 2,225.7 4,247.8 (3,910.7) (3,525.7) (3,529.8) (restated) –

– – – £m 17.1 2.6 3.9 (1.4) (5.7) (5.7) (2.8) 16.5 (9.8) (6.3) 42.7 52.5 20.1 20.1 20.1 20.1 2007 44.1 30.4 (12.3) 815.3 815.6 647.5 839.7 295.3 809.3 355.3 399.4 (104.5) 294.9 (242.8) 1,132.0 340.9 1,134.6 1,134.6 1,072.9 4,250.1 3,347.4 (4,137.6) 3,363.9 2,684.2 2,360.8 4,545.4 (3,894.8) (3,909.2) (restated) – – – – – – – – – – – – £m 2.9 (3.1) 5.5 (4.0) (3.4) (4.0) (3.4) 37.0 30.9 112.4 112.4 2008 124.9 112.4 (79.5) 191.9 (40.6) 106.9 (116.5) (116.5) 356.4 636.5 232.5 2,741.2 2,103.3 1,079.6 3,587.5 2,795.2 3,624.5 5,923.9 5,923.9 (5,691.4) (5,691.4) (5,567.5) Bupa Annual Report 2010 (restated) – – – – – – – – – – – – – – £m 2.4 2.4 0.6 11.9 (0.1) (11.7) (11.7) 29.7 48.7 36.8 377.1 2009 416.5 (115.7) 367.8 596.7 333.6 288.9 300.8 300.8 300.8 1,134.3 2,989.1 2,831.4 3,949.1 6,941.4 6,941.4 2,975.2 3,985.9 (6,573.6) (6,573.6) (6,564.3) (restated)

– – – – – – – – – – – – £m 5.8 0.2 19.1 (0.6) 2010 29.7 (17.7) 30.7 (17.7) 98.9 (13.4) (13.4) (13.4) (19.2) 118.0 656.1 419.8 (54.0) (54.0) (131.4) 660.5 1,182.9 (249.2) (249.2) 3,019.1 4,396.1 (7,477.1) (7,477.1) 7,576.0 7,576.0 (7,156.2) 2,999.5 3,394.0 4,366.4

y mmar u al s ci n a in arkets M ar f Callable subordinated perpetual guaranteed bonds guaranteed perpetual subordinated Callable Other quity attributable to non-controlling interests non-controlling to attributable quity quity attributable to Bupa to attributable quity urope and North America North and urope otal claims and expenses and claims otal axation expense axation axation expense axation otal equity otal axation on profit on sale of business of sale on profit on axation Discontinued operations Discontinued expenses and income financial before activities operating from Surplus Revenues — segmental analysis segmental — Revenues E Five yeFive International International Net reclassifications to other expenses or financial income and expenses and income financial or expenses other to reclassifications Net Care Services Care expenses and income Financial Unallocated central revenues central Unallocated income / (charges) Other operations continuing from expenses and Claims Impairment of other intangible assets arising on business combinations business on arising assets intangible other of Impairment expense taxation before activities operating from Surplus Surplus before taxation expense taxation before Surplus Revenue from continuing operations continuing from Revenue goodwill of Impairment operations discontinued from expenses and Claims T Consolidated total revenues total Consolidated operations Continuing claims) (including expenses Operating operations continuing from year financial the for surplus / (Deficit) T Revenue from discontinued operations discontinued from Revenue Other (charges) / income / (charges) Other expenses and income Financial Impairment of other intangible assets arising on business combinations business on arising assets intangible other of Impairment operations continuing from expenses and income financial before Surplus Surplus from operating activities for the financial year financial the for activities operating from Surplus Goodwill impairment and amortisation and impairment Goodwill T assets, intangible of impairment impairment, goodwill before Surplus other (charges) / income, and financial income and expenses from continuing from expenses and income financial and income, / (charges) other operations Profit on sale of business of sale on Profit T Surplus for the financial year from discontinued operations discontinued from year financial the for Surplus (Deficit) / surplus for the financial year financial the for surplus / (Deficit) Attributable to: Attributable Bupa interests Non-controlling Cash flow hedge reserve hedge flow Cash reserve translation exchange Foreign E T Income and expense reserve expense and Income Reserves reserve revaluation Property E International Financial Reporting Standards relevant to Bupa

International Financial Reporting Standards (IFRS) IFRS 1 First-time adoption of International Financial Reporting Standards IFRS 3 Business combinations IFRS 4 Insurance contracts IFRS 5 Non-current assets held for sale and discontinued operations IFRS 7 Financial instruments: Disclosures IFRS 8 Operating segments

International Accounting Standards (IAS) IAS 1 Presentation of financial statements IAS 2 Inventories IAS 7 Cash flow statements IAS 8 Accounting policies, changes in accounting estimates and errors IAS 10 events after the balance sheet date IAS 12 Income taxes IAS 16 Property, plant and equipment IAS 17 leases IAS 18 Revenue IAS 19 employee benefits IAS 21 the effects of changes in foreign exchange rates IAS 23 Borrowing costs IAS 24 Related party disclosures IAS 27 Consolidated and separate financial statements IAS 28 Investments in associates IAS 31 Interests in joint ventures IAS 32 Financial instruments: Presentation IAS 36 Impairment of assets IAS 37 Provisions, contingent liabilities and contingent assets IAS 38 Intangible assets IAS 39 Financial instruments: Recognition and measurement IAS 40 Investment property

Interpretations IFRIC 4 Determining whether an arrangement contains a lease IFRIC 9 embedded derivatives IFRIC 12 Service concession arrangements IFRIC 13 Customer loyalty programmes IFRIC 14 the limit on a defined benefit asset, minimum funding requirements and their interaction IFRIC 17 Distributions of non-cash assets to owners IFRIC 18 transfer of assets from customers IFRIC 19 extinguishing financial liabilities with equity instruments SIC 12 Consolidation: Special purpose entities SIC 27 evaluating the substance of transactions involving the legal form of a lease

120 Bupa Annual Report 2010

2 0 1 0 h i g hl i g h t s

Group revenues 5 year record Group underlying 5 year record (up 9%) surplus before tax

06 £3,827.2m 06 £359.1m £7.58bn 07 £4,250.1m £464.9m 07 £374.2m 2009: £6.94bn 08 £5,923.9m 2009: £428.2m 08 £413.4m 09 £6,941.4m 09 £428.2m 10 £7,576.0m 10 £464.9m

Group revenues by segment Surplus by segment*

Care Services £1,182.9m Care Services £139.7m

Europe and North America £2,999.5m Europe and North America £116.7m

International Markets £3,394.0m International Markets £208.9m

Throughout the annual report and accounts: Equity 5 year record Underlying surplus before taxation expense excludes non-recurring items (mainly adjustments relating to amortisation of other intangible assets attributable arising on business combinations, impairment of goodwill and other to Bupa 06 £1,917.1m intangible assets, profit / (loss) on sale of businesses and assets, the impact 07 £3,347.4m of property revaluations, realised and unrealised foreign exchange gains and losses and the absolute return on return seeking assets). £4.37bn 08 £3,587.5m *Surplus by segment refers to surplus for reportable segment. 2009: £3.95bn 09 £3,949.1m 10 £4,366.4m

Printed on Revive 50:50 Offset – an FSC certified recycled paper containing 50% recovered waste and 50% virgin fibre and is manufactured at a mill which is accredited with the ISO 14001 environmental management standard. Printed by Fulmar Designed and produced by Salterbaxter bupa bupa Registered office The British United Provident Bupa House Association Limited is a company 15-19 Bloomsbury Way limited by guarantee. London WC1A 2BA

Registered in England No. 432511. A

For further copies of this document 2010 report nnual ‘Bupa’ and the Heartbeat logo are +44 (0)20 7656 2300 registered service marks. Press office +44 (0)20 7656 2454

bupa Annual report 2010 w i t h yo u t h r o u g h l i f e

RA / 2010 www.bupa.com