2019Annual Report Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial and non-financial highlights1 Bupa’s purpose is helping people Revenue2 –– Simplified our organisational structure to accelerate organic growth live longer, healthier, happier lives. £12.3bn and unlock cost efficiencies while With no shareholders, we reinvest +4% AER 2018: £11.9bn strengthening governance 2018: £11.7bn +5% CER –– Increased customers to 33.3m (2018: profits to benefit our current and 30.0m6) with improved Net Promoter Statutory (loss)/profit before taxation System (NPS) scores across Bupa future customers. We provide health –– Strengthened our market positions: £(78)m • Remained a leading health insurer in insurance to 17.5m people around AER 2018: £502m Australia; began providing healthcare services to 85,000 ADF7 personnel the world. We have health provision Underlying profit3 • Grew UK health insurance portfolio; businesses and provide residential launched our Bupa Touch digital £416m portal and established a Family -32% AER 2018: £613m aged care services in selected markets. -31% CER 2018: £603m Mental HealthLine service • Extended Spanish bancassurance See Bupa at a glance on P02 Net cash generated from agreement with BBVA to 2033; operating activities grew Blua digital proposition to £697m over 480,000 customers • Progressed integration of Bupa Inside this report -14% AER 2018: £808m Acıbadem Sigorta in Turkey

Solvency II capital • Renewed SABIC contract in Strategic Report Governance 4 coverage ratio Bupa Arabia 02 Bupa at a glance 43 Chairman’s introduction to Governance

• Completed transition to our new 04 Chairman’s statement 44 Board of Directors 159% partner in India, True North 2018: 166%5 05 Group CEO’s review 46 Bupa’s system of governance –– Advanced multi-year strategic Our business model Leadership programme to enhance security and 06 50 privacy, ensure operational resilience 08 External context 61 Audit Committee Report and digitalise customer experience 10 Five-Year Vision and Strategic Framework 66 Risk Committee Report Nomination and Governance –– Developed our Environmental Social 12 Customers at the heart of all we do 68 and Governance (ESG) agenda Committee Report 16 People make the difference 70 Directors’ remuneration report –– Employee engagement scored 78 out of 100 in our People Pulse survey 20 Financial performance 86 Other statutory information 22 Corporate responsibility and sustainability Financial Statements Disclaimer: Cautionary statement concerning 1. We use constant exchange rates (CER) to compare trading performance in a consistent manner with the prior year. 26 Our Market Units forward-looking statements We have retranslated our 2018 results using 2019 average foreign exchange rates. Actual exchange rates (AER) are as 90 Independent Auditor’s Report Bupa undertakes no obligation to update the reported in our Financial Statements. 30 Financial review forward looking statements in this report or any 2. Revenues from our associates are excluded from our reported figures. Customer numbers and economic share of post-tax 97 Financial Statements other forward-looking statements we may make. profits from our associate businesses are included. Forward-looking statements in this report are current 3. Underlying profit is a non-GAAP financial measure. This means it is not comparable to other companies. Underlying profit 34 Engaging with our stakeholders only as of the date on which such statements are made. reflects our trading performance and excludes a number of items included in statutory (loss)/profit before taxation, to This report has been prepared for, and only for, the facilitate year-on-year comparison. These items include impairment of intangible assets and goodwill arising on business 37 Risks members of the Company, as a body, and no other combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on persons. The Company, its directors, employees, agents property revaluations and other material items not considered part of trading performance. A reconciliation to statutory or advisers do not accept or assume responsibility to (loss)/profit before taxation can be found in note 2 (page 107). any other person to who this document is shown or into 4. The 2019 Solvency II capital coverage ratio is an estimated value and unaudited. whose hands it may come, and any such responsibility or liability is expressly disclaimed. Neither the content 5. 2018 Solvency coverage position of 191% after taking into consideration the impact of IFRS 16 (18ppts) and the acquisition Key of Bupa’s website nor the content of any other website of Acıbadem Sigorta (7ppts). accessible from hyperlinks on Bupa’s website is 6. Following a change in methodology, 2018 provision customer numbers have been restated. Denotes that this section contains content related incorporated into, or forms part of, this document. 7. Australian Defence Force. to Environmental Social and Governance (ESG)

01 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Bupa at a glance

Overview Our Market Units1

We are an international health insurer and provider. Over the past We are organised as a matrix across Market Units, which lead our Revenue by Market Unit 70 years, our global footprint has grown from our origins in the UK operations in the regions where we are present, Business Units (see Australia and Europe and Bupa Global 1 Australia and New Zealand 38% to Australia, Spain, Poland, Chile, New Zealand, Hong Kong, Turkey, right) and Global Functions, which provide support to our Market Units. New Zealand Latin America and UK 2 Europe and Latin America 31% the US, Brazil, the Middle East and Ireland. We have valuable Each Market Unit and Global Function is structured to ensure effective 3 Bupa Global and UK partnerships with our associate businesses in Saudi Arabia and India. Our Australia and New Zealand Our Europe and Latin America Our Bupa Global and UK 27% governance and oversight, in line with local market conditions, Market Unit comprises a leading Market Unit comprises Sanitas, Market Unit includes our UK 4 Other businesses 4% healthcare systems, in-market regulations and customer needs. health insurer in Australia and our business in Spain which domestic health insurance a range of health services includes health insurance, business, dental centres, aged 4 Our business lines through our network of clinics, hospitals, clinics, dental centres care, clinics and a hospital. dental centres and optical and aged care services; Bupa In addition, our IPMI business stores. It also includes residential Chile, a leading health insurer Bupa Global administers 3 aged care services in Australia and provider; Care Plus, our medical and travel insurance 1 and New Zealand. health insurance business in and medical assistance for Brazil and Bupa Mexico, our individuals, small businesses Health insurance Provision Aged care domestic insurance business and corporate customers. in Mexico; LuxMed, our private healthcare business in Poland; and Bupa Acıbadem Sigorta, 73% 19% 8% our health insurance business of total revenue of total revenue of total revenue in Turkey; We also have an IPMI 2 We have a strong domestic health insurance presence in the UK, Hospitals: We run hospitals in Spain, Chile and Poland and We have residential business in Latin America. Australia, Spain, Saudi Arabia, Chile, Hong Kong, Turkey, India and one in the UK. aged care businesses Brazil. We also offer international private medical insurance (IPMI) Clinics: We operate health clinics in Spain, Chile, Poland, the UK, in Australia, to our globally-mobile customers through Bupa Global. Brazil, Hong Kong, Saudi Arabia, Australia, New Zealand and China. New Zealand, the UK and Spain. 4m 3.8m 2.8m Health insurance customers Health insurance customers Health insurance customers Dental We have around 1,000 dental centres across the UK, Ireland, Australia, Spain, Chile, New Zealand, Poland, Brazil and Hong Kong. We provide dental insurance in Australia, the UK, Spain, Chile, Poland, Hong Kong, Brazil and through Bupa Global. 1.2m 10.2m 3.3m Healthcare provision Healthcare provision customers Healthcare provision customers customers Our presence 6,100 9,500 Aged care residents 6,500 Aged care residents Aged care residents

For more detail see P27 For more detail see P28 For more detail see P29

Australia: Spain: UK: Other businesses: Bupa Health Insurance Sanitas Seguros Bupa UK Insurance Bupa Arabia4: Bupa Health Services Sanitas Hospitales and Bupa Dental Care Private health insurer in Saudi Bupa Villages and Aged Care New Services Bupa Care Services Arabia, in which we have a Australia Sanitas Dental Bupa Health Services 39.25% stake. Sanitas Mayores New Zealand: IPMI: Bupa Global3 Max Bupa (India)4: Bupa Villages and LuxMed Poland: Private health insurer in India, Domestic Aged Care New Zealand businesses by Turkey: Bupa Acıbadem Sigorta in which we have a 44.42% stake. Market Unit Chile: Bupa Chile Bupa Hong Kong: Health insurance and provision. Brazil: Care Plus Bupa China: Associate businesses Mexico: Bupa Mexico Comprises our representative IPMI: Bupa Global Latin America2 office in Beijing and an integrated We also offer international private medical medical centre in Guangzhou. insurance for cover in most countries, including through our associate business Highway to Health (GeoBlue) in the US. 1. – Revenues from our associate businesses are excluded in our reported figures. In China, we have a representative office in – Customer numbers and economic share of profits from these businesses are included in our reported figures. Beijing and an integrated medical centre 2. Bupa Global Latin America was recently restructured into three Business Units: Bupa Mexico, CarePlus in Brazil and Bupa Global Latin America. in Guangzhou. 3. Bupa Global includes Bupa Global European Economic Area and associate business Highway to Health (GeoBlue) in the US. 4. Associate businesses. 02 03 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Chairman’s statement Group CEO’s review

In the Strategic Report, Evelyn, Joy and the Strong governance is one of the keys to Our 2019 results reflect tough market enhancing security and privacy, as well Private Medical Insurance (IPMI) customers CEOs of our Market Units summarise our Bupa’s ability to achieve our vision and to “Bupa has a powerful conditions and operational challenges in some as digitalising the customer experience, living in the EU but outside the UK and Ireland. results for 2019. These reflect the challenges grow safely. The Group Board plays a vital of our key markets, especially Australia and UK improving the service we provide to Our associate business, Bupa Arabia, was we are experiencing in our Australian health role and I am pleased with how we continue and enduring purpose dental, and our continued significant customers. reappointed as the health insurer for the key insurance and aged care businesses, and in to strengthen its international reach and investment in technology to enable long term as an organisation that –– Trading conditions in our UK dental SABIC account and won the Saudi Telecom UK dental, as well as our decision to make experience. In 2019, we welcomed Matías sustainable growth. Company insurance contract. In India, our continued significant investments to enable Rodríguez Inciarte, Mike Hawker, Professor business. While we grew our market exists to help people At CER, Group revenue grew by 5% to £12.3bn position through acquisitions, underlying associate business grew revenue strongly and future growth. Our results also show Melvin Samsom and Cath Keers as Non- and underlying profit declined 31% year-on- the transition to our new associate partner, impairments of goodwill and intangible assets Executive Directors. Simon Blair, Sir John live longer, healthier, profit fell due to issues with the availability year. The statutory loss before tax of £78m of dental staff across the sector. We are True North, has now been completed. The arising mainly in UK dental and Australia aged Tooke and Martin Houston stepped down at happier lives.” at AER includes non-cash items of £443m, integration of Bupa Acıbadem Sigorta in care. Despite this, our financial position the end of their respective tenures. We have confident in the steps we’re taking to notably goodwill impairments in our UK dental address these pressures and in the longer Turkey is progressing well and we have grown remains strong. We are committed to growing built strong linkages between local and business (£226m) and Australian aged care the portfolio since acquisition in January 2019. sustainably, taking a long term view as well as subsidiary boards and Group governance Roger Davis term contribution of this business. Chairman business (£177m). Across Bupa, we advanced our corporate managing near term performance. which is adding great value. I’m also very –– Trading conditions in Bupa Chile, due to The principal drivers of underlying responsibility and sustainability (CRS) agenda, proud that our Board has 50% female the sector-wide delay in the Government’s In 2019, Bupa set out a new Five-Year Vision performance were: developing our position on Environmental representation since 1 January 2020. This is approval of the premium rate increase as to be ‘the most trusted health insurer and Social and Governance (ESG). We created a provider’, underpinned by our Strategic the fifth year we have surpassed Lord Davies’ –– Lower profits in Health Insurance and well as the broader impact of social unrest. report recommendation to have at least 33% losses in Aged Care in Australia. In health CRS Advisory Committee, with non-executive Framework (see more on page 10). Our solvency capital position is unaffected by director and management representation. female representation on UK boards by 2020. insurance, while revenue was stable, Being the most trusted health insurer and the goodwill impairments and remains solid We strengthened our responsible investment See page 42 for more details about Bupa’s underlying profit decreased due to claims provider means being the preferred choice for through good operational capital generation. standards for our return-seeking assets governance. inflation, which was greater than the customers, being a great place to work, being Our senior debt ratings remain unchanged. portfolio. We introduced a global focus government-approved rate increase. We recommended by partners, and being trusted The Board and I would like to thank all our on mental health and wellbeing for the are focused on improving and optimising In September, we launched our new Five-Year by regulators and governments alike. people working across our organisation for community and our people. Our global everything they do to serve our customers. our propositions and controlling costs, as Vision across Bupa and refreshed our 2019 saw increased public debate about the Strategic Framework. This sets out our global People Pulse survey of employees showed They are vital to delivering Bupa’s purpose well as advocating for sector reforms. We an employee engagement score of 78 out role of companies in society and widespread now and in the future. remain a leading health insurer in Australia priorities across three pillars: customers, social and political uncertainty. There is people and performance. We have defined of 100. We are on track to deliver our Our Strategic Report from pages 1-41 was with improved customer satisfaction and environmental targets, having increased increasing emphasis on corporate citizenship, retention. In aged care, we are investing to clear goals and measures to achieve our vision and all organisations are being challenged to reviewed and approved by the Board of of being the most trusted health insurer and our use of renewable energy year-on-year. Directors on 4 March 2020. address compliance and service issues demonstrate that they are creating shared which, together with lower occupancy and provider. It sets out clear ambitions which value across society, their communities and By order of the Board. sector funding issues, significantly affected shape our decision-making and direct our Outlook the wider world. performance. We have a new management planning for the next phase of Bupa’s growth. As announced at the half year, we simplified We anticipate near term trading conditions Bupa has a powerful and enduring purpose as team and have made significant our organisation structure moving from four will continue to be challenging, particularly an organisation that exists to help people live improvements. in Australia and UK dental. longer, healthier, happier lives. We need to to three Market Units, improving effectiveness ensure that we are constantly fulfilling this –– Investment in technology capabilities. and efficiency. This is working well. However, the strength of our core health purpose for our customers, our people and This is the largest multi-year investment We increased insurance customers from 15.7m insurance businesses and our strong balance wider society. In 2019, we strengthened our Roger Davis programme in the Group and impacted to 17.5m and provision customers from 14.3m1 sheet and capital position enables us to corporate responsibility and sustainability Chairman profits across all Market Units. It is further to 15.8m. We continue to focus on improving continue to invest in technology capabilities. (CRS) agenda to ensure that we are making a customer experience through applying the While this will impact profitability in the short positive social impact. I am clear that being a Bupa Customer Excellence Framework – our term, we are continuing to control costs and responsible business underpins the long term tailored version of the Net Promoter System. are focused on delivering operational success of Bupa. In December, we established We invested in training and in technology resilience and long term sustainable growth. a new CRS Committee as a management to increase insight into the drivers of customer We will continue to improve our offer for our advisory committee. It’s chaired by Nicholas satisfaction, with improvements in key NPS customers, further strengthening our brand Lyons, Non-Executive Director, and scores across Bupa. and market positions. We will also make a membership includes a mix of management, In Australia, our health services business grew. positive contribution to the health of the wider including the Group CEO and CFO, and of In July, we initiated the contract to provide community, particularly mental wellbeing, and Non-Executive Directors. One of the health services to 85,000 personnel in the we are taking action on climate change. developments of this agenda I’m personally Australian Defence Force. Like many other companies, we are closely most proud of is the stand we are taking on monitoring the COVID-19 outbreak as it the issue of mental health. As well as providing In Spain, our health insurance business, evolves. The situation is developing rapidly, services for our customers, we are supporting Sanitas Seguros, renewed its bancassurance and at this stage our efforts are focusing on the wellbeing of our people and have made it agreement with BBVA. Our digital proposition, managing the impact on our customers, the centre of our community engagement Blua, continues to be attractive and now has people and supply chain. (see more on page 24). over 480,000 customers. Our UK health insurance portfolio grew steadily across all segments. We further extended our offering in mental health, launching our Family Mental HealthLine service. Evelyn Bourke In readiness for Brexit, last March our new Group CEO

authorised insurer in Ireland, Bupa Global 1. Following a change in methodology, 2018 provision DAC, began operations serving International customer numbers have been restated. 04 05 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Our business model

We are an international health What we do Resources Who we create value for insurer and provider, with our businesses and operations We are primarily a health insurer. Health insurance We aim to have leading tailored to local market conditions, Health accounts for 73% of our total revenue with 17.5m market positions in health healthcare systems, in-market insurance insurance and believe our regulations and customer needs. insurance customers worldwide. focus on health ensures that Customers We provide: we are well positioned to Everything we do is guided by meet our customers’ needs. We work to: –– Our main business is health insurance for corporate customers, small and –– deliver exceptional customer service our Strategic Framework and medium-sized enterprises (SMEs) and for individual customers. Our IPMI business, Bupa Global, gives customers Status and purpose –– harness digitalisation, data and analytics to drive improvements Five-Year Vision. By executing –– International Private Medical Insurance (IPMI) through our Bupa Global access to a global network A private company –– innovate to meet and exceed customer expectations; our strategy and delivering our businesses, for customers wanting access to quality healthcare, wherever and limited by guarantee whenever they need it. of quality facilities and –– keep our customers’ data safe. vision, we will create value for professionals. without shareholders, –– Dental insurance and travel insurance in selected countries. with profits reinvested our customers, people, partners in the business and society. –– Additional health funding products, such as subscriptions and cash plans. –– We also deliver third-party administration services in selected markets. See our Strategic Framework and Five-Year Vision on P10

We are also a health provider. Health provision We provide services to See Customers on P12 Health accounts for 19% of our total revenue, comprising 370 complement our insurance provision businesses to create a health clinics, 20 hospitals and around 1,000 dental seamless experience Financial strength centres, serving around 15.8m people globally. for our customers. A robust capital base and We work to: strong financial position –– promote a positive, inclusive We provide: working environment –– Health clinics: Services include health assessments, GP services, fertility services –– create opportunities for people and physiotherapy. We also have outpatient and speciality clinics. to grow and develop; –– Hospitals: We run hospitals in some of the countries we operate in. People –– enable people to manage their health and wellbeing.

See People on P16 Risk management A culture of strong risk management We offer dental services across our health insurance We operate a network We work to: Dental and provision businesses. Dental is a key area for of quality practices –– create shared value for provision and professionals in a our partners including growth for Bupa, giving us a retail presence to bring and number of countries. Each health providers, brokers us closer to our customers. practice offers a tailored, and distributors. insurance personalised service, in line Partners We provide: with local needs. We aim to –– A wide network of around 1,000 dental centres across a number of countries. develop global standards –– Dental insurance and funding products in most of our markets. and knowledge sharing between our dental businesses around the world. Brand health Our brand is known and trusted for quality and We work to: health expertise –– make a difference through Residential aged care accounts for 8% Our aged care portfolio volunteering, community Aged care partnerships and contributions. of our total revenue, caring for around 22,000 comprises care homes, provision retirement villages and –– take care of the environment residents. day care centres. Society and address climate change We provide: and its health impacts. –– Aged care services in Australia, New Zealand, the UK and Spain. See Corporate Responsibility and Sustainability on P22

06 07 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

External context

Healthcare and health insurance are highly regulated industries, and our operations are localised to reflect Our strategy aims to respond to and reflect changes in market dynamics, this. We are also impacted by global trends across markets, which shape our global and local priorities. customer preferences and regulations.

Global trends influencing our markets Healthcare trends influencing our markets

Macroeconomic Social and Climate context political change change Cost pressures in the Changing consumer Regulatory healthcare market expectations environment

Global macroeconomic growth has Social unrest, populism and uncertainty The impact of climate change Demand for healthcare is growing, Consumer behaviours in healthcare are Governments and regulators are placing slowed, largely driven by a slowdown have increased in a number of countries. is a global concern. driven by increasing life expectancy, changing with increasing demand a greater focus on the quality of care in global trade. Stakeholders are emphasising the There is increasing evidence to the rise of chronic illness, and growth for digital services. delivered. In particular, ensuring This has mostly impacted mature importance of good corporate citizenship support the concerns around climate in demand in developing markets. Consumers are becoming more selective customers are treated safely and economies, while growth continues and corporate purpose. change, its impact on the planet and Some of this demand is being met in their purchases, seeking faster, more effectively, and monitoring the in emerging markets and developing on people’s health. There is greater by costly long term treatments, as personalised digital solutions, 24/7. With affordability and accessibility of care. Companies face increased scrutiny, economies. attention focused on what corporates, well as innovative but costly health more providers in the healthcare sector, Governments and regulators are also requiring them to focus on building consumers and governments are technologies. As a result, medical costs there is increased consumer volatility as increasingly placing greater scrutiny on trust, having a strong reputation and Our response doing to limit global warming. are rising faster than general inflation. customers switch between health funders consumer protection and data privacy. demonstrating transparency. and providers in search of value. –– We actively monitor and respond As a result, concerns about climate crisis Those operating in the healthcare This is shaping purchasing behaviours, Our response to the economic climate that each are of growing importance to the public, sector are confronted by the Consumers are also viewing health more where consumers seek to engage with of our businesses operate in. regulators, politicians and investors. challenges of the ever-rising demand holistically and expect health products –– As a health insurer and provider, we companies whose purpose aligns with maintain robust clinical governance –– We are committed to maintaining and ensuring future affordability to address their broader health and their beliefs and values. to uphold and improve the quality of our strength and scale in mature Our response of healthcare for wider society. wellbeing needs. In mature markets, some clinical care offered to customers, both markets, while selectively seeking to –– We are closely managing our consumers are switching from the private Our response from our owned provision businesses, grow our businesses in fast-growing environmental impact and Our response medical insurance category to lower-cost –– We actively monitor the key as well as our provider partners. and developing economies. actively promoting positive –– As a health insurer, we leverage our subscription-based health plans or social and political developments environmental practices. own provision businesses and develop out-of-pocket payments. –– Across our markets, we engage in our markets and maintain strong relationships with provider regularly and constructively with robust risk mitigation plans. –– We are increasing our use of networks to ensure that our customers Our response policymakers and regulators, health renewable energy and are committed –– We are clear on our purpose and have access to affordable and effective –– Our Strategic Framework and and care professionals, consumer to reducing our carbon footprint. status. Our vision is focused on healthcare. Five-Year Vision has been shaped groups, NGOs and other stakeholders. earning and retaining trust. –– We are making progress in to reflect and respond to changing This enables us to champion issues –– We tailor our operations in line with understanding, assessing and consumer behaviours. that matter to our customers and local market dynamics, healthcare overseeing the risks of climate contribute to policy debates. systems, regulations and customer –– We are developing new change that impact the Bupa Group. preferences, and work closely with propositions that are personalised –– We have progressed our multi-year –– We are defining our next level governments and regulators to and customer-centric, to remain strategic investment programme of ambition to strengthen our advocate the ongoing affordability competitive and relevant for our to build technology capabilities. response in line with the latest of healthcare. current and future customers. understanding of climate change –– We focus on innovating our products –– Through our Customer Excellence and rising stakeholder expectations. and services to deliver affordable Framework, we are constantly –– As an expert in health and solutions for our customers. assessing our products and care, we are seeking to better services against customer needs. understand and mitigate the health impacts of climate change.

See P25 for more about what See P16 for more about what we’re doing in this space we’re doing for our customers

08 09 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Our Five-Year Vision and Strategic Framework

In September 2019, we developed our Five-Year Vision for Bupa and refreshed our Strategic The Strategic Framework articulates our global priorities across our three pillars – customer, people and Framework. Our Five-Year Vision encapsulates our strategic choices, by business lines and performance, including clear goals and measures to achieve our vision of being the most trusted health insurer geographical presence. These are the participation choices we are making to deliver our vision and provider. of being the most trusted health insurer and provider.

Our purpose Helping people live longer, healthier, happier lives

Insurance-led in Leaders in our Our vision our approach chosen markets Health insurance is the core of our business. We aim to have leading positions in all The most trusted health insurer and provider We are working to have a scale insurance position of our health insurance markets. in all of our markets and our approach to growth will be insurance-led. Our pillars

Passionate about People make Strong and sustainable our customers the difference performance –– Differentiating Bupa through –– Attracting, developing and retaining –– Driving net customer growth, exceptional products and services outstanding people and leaders revenue and profit –– Harnessing digitalisation, –– Taking responsibility and –– Increasing scale in funding, supported

s data and analytics, customer accountability by physical and digitally connected s insights and innovation provision, with selective expansion e P –– Creating safe and healthy n

i r

e s –– Developing strong distribution workplaces –– Enhancing robust risk

s u The most trusted e to deliver seamless management and controls

B

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–– Celebrating diversity and inclusion

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c customer experiences

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health insurer and e –– Embedding corporate

e –– Keeping data safe responsibility and sustainability n

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See more on corporate responsibility and sustainability on P22-25 See more on performance in our Financial Review on P30-33 See more on Customers on P12-15 See more on People on P16-19 See more on Risk on P37-41

Our goals Owning complementary provision Selectively expand Market-leading Customer growth Strengthen dental Growth in Strong financial into new markets position in health and market-leading performance innovation and new discipline We aim to own provision businesses funding NPS scores propositions where they complement our health insurance We aim to selectively enter and build offer and enhance the customer experience. our presence in new markets.

Our values

Accountable Caring Courageous Authentic Open Passionate Extraordinary

10 11 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Customers at the heart of all we do

Our Strategic Framework includes a commitment to being passionate about our customers. We have a number of priorities: What our customers think – 2019 NPS scores We use our Customer Excellence 1. Do the right thing 4. Make things easier for our Framework (see page 14) to drive a great experience, which we measure using NPS. customers, innovating to meet We provide a wide range of products and and exceed their expectations NPS for priority areas in 20191 services to millions of customers around the world. In 2019, we strengthened our Customer Outcomes Policy. This sets high standards for Where our customers need 24/7 access to since Health insurance 2019 2018 how we identify and monitor risks, resolve healthcare, we have strengthened our digital solutions to allow them to interact with us any issues and ensure that our customers are Relationship treated fairly. We expect our people to keep time of day. Australia +17 8 customers at the heart of every decision they See Our Market Units on P26-29 make, and to actively plan for and prevent Spain2 +65 2 risks to them. Raising awareness of risks and UK2 +39 4 how to manage them help us to protect our 5. Protect our brand customers. Bupa Global +29 14 Our brand health is essential for us to be the Claims 2. Listen to our customers, using most trusted health insurer and provider. Spain +68 15 We use brand tracking insights to inform our feedback to deliver even better brand strategies and continue to focus on the UK +54 6 products and services importance of holistic wellbeing, both mental Bupa Global +53 10 and physical. Hong Kong +40 15 Customer feedback is central to developing and improving our products and services. New customers (See pages 14 and 34 for progress). 6. Track how we are performing Australia +37 9 Through surveys, we listen to what our Measurement sits at the centre of driving Spain +42 11 Customers customers are saying. We use technology a customer-centric culture. We continually UK +30 11 to connect, analyse and learn from their measure how we are performing and analyse Our vision is to be the most trusted health insurer and provider. feedback, sharing themes and bringing data to understand the causes of pain points the customer voice to life for our people. for our customers. To achieve this, customers must be at the heart of everything Provision we do. This means more than great customer service. It’s about We know we don’t always get it right. Customer metrics are reported throughout That’s why it’s important that we act on what the business, from the frontline to our Clinics being there for our customers whenever they need us, our customers tell us; doing more of what Executive Team and Board, allowing decisions Australia +58 4 customers say we do well and improving to be made with the customer front of mind. harnessing digitalisation, data and analytics, and developing the areas they think we can do better. We UK +68 2 In 2019, senior leaders were more informed empower our frontline teams to suggest Poland +60 22 products and services that are exceptional and suited to their improvements, so our services improve in line than ever with access to trends and root cause Hong Kong 10 needs. It’s about keeping data safe and protecting their privacy. with the everyday interactions our people analysis behind complaints, Net Promoter +28 Scores (NPS) and customer feedback channels. And it’s about looking ahead, innovating and exceeding our have with our customers. Dental Customer metrics form part of our Australia +75 7 customers’ expectations – today and for years to come. management incentive schemes. 3. Keep our customers’ data Spain +69 3 safe and protect their privacy 7. Share how we are doing UK +64 0 In 2019, we continued to invest in information with our people, inviting them technology capabilities. We believe that to get involved Aged care 17.5m 15.8m 0.02m everyone at Bupa has a role to play in keeping data safe and we support our people with Australia +25 6 Health insurance customers Provision customers Aged care residents Our people are actively involved in making the training to do so. Over the past year, we the customer experience better. We equip UK 17 invested in risk management and operating +49 our teams with customer data so that they controls. We are building teams to manage Spain +60 7 can understand customers’ perception of ongoing security operations. Bupa, empowering them to drive change based on their interactions with customers and their needs.

1. Scores are as of 31 December 2019. 2. Bundled score not traditional relationship measure.

12 13 Strategic Report / Governance / Financial Statements

Customers at the heart of all we do continued

Our Customer Driving behaviour Improving experience Excellence Listen Learn Act change in the UK in our clinics in Poland Framework Our Bupa Health Services In Poland, patients told us it was We embedded new We learn from what our We enable and empower business in the UK partnered important to get an appointment technologies and launched customers tell us. We put our people to act, making with our behavioural insights at the right time and with the right more touch points and their feedback at the centre improvements to our team and University College clinician. In 2019, we increased feedback channels, making of product and service products and services London to deliver behaviour the number of appointments it easier for our customers development through as well as implementing change training to clinicians. available per day and developed and our people to tell human-centred design new customer-focused This gave them the expertise our online Patient Portal so that us what they think. methodology. innovations. to have difficult conversations customers can book online. We with customers about making also ensured that patients needing lifestyle changes for the better. repeat treatments could see the same doctor throughout for greater consistency. Above: One of our frontline teams serving customers in LuxMed, Poland. Digital messaging Customer-led design In Australia, we created the Customer Expo, a programme In Australia, we launched new In the UK, we used customer of immersive activities designed messaging channels, including and patient focus groups to to help our people better Listen, Learn and Act WhatsApp, Apple Business Chat help redesign our new Health understand our customers’ needs and 2-way SMS. These new ways Assessment and to shape our and support customers as they Having embedded our Customer to listen to and communicate with Bupa Cromwell Hospital and navigate complex health systems. Putting parents’ Excellence Framework, our customers allow them greater Richmond Village environments. We ran similar sessions in our focus in 2019 was to enable choice in how they interact with minds at ease in the UK Our Hong Kong Insurance Europe and Latin America and our people to act on customer us and enable us to provide We continue to grow our business launched the Bupa Bupa Global and UK Market Units data in real time. better customer service. leadership position in mental Lab community panel, a and in Bupa Hong Kong. We improved how we health in the UK. Building on group of 1,300 customers Our active listening app in our interpret customer feedback, Better data our mental health propositions that help develop our Europe and Latin America Market strengthening data analysis so for both corporate and individual In 2019, we launched new products and services. Unit allows our people to listen to we can identify themes and customers, we launched the customer experience monitoring our customers without disclosing address issues more quickly. Family Mental HealthLine, a technology across our businesses Engaging our people customer data. It now includes dedicated service for parents in the UK and Poland. This We made our internal reporting In 2019, we empowered our customers’ social media and carers who are concerned has enabled us to listen to our more robust, making sure it tells people to understand our comments. about their children’s mental customers in the moments that our customers’ stories. customers’ experience and health and wellbeing. This matter to them. Through the Ideas for enhancing our products We also amplified the voice identify changes needed to service provides support to platform, we can analyse and and services come from people of the customer at all levels, our products and services. our customers, employees interpret this data in detail, and across Bupa as well as our sharing customer comments and their families. receive actionable insights that For our people who are not customers. In Bupa Global and and feedback themes across our help us improve our services in frontline roles it can be the UK, we introduced initiatives business to help our people see based on real customer feedback. challenging to fully engage with that allow every employee to our products and services from and understand the customer make suggestions to improve our customers’ point of view. the customer experience. Keeping an eye out experience. We created ways to bring the customer experience We introduced the ‘Customer into our workplaces around Eye’ app in our dental centres the world. and care homes in Spain. The app enables our people to identify issues that might Using augmented Improving everyday Personalisation for Evolving to meet impact the customer experience reality in Spain experiences in Spain SMEs in Saudi Arabia customer expectations and report them instantly, so In our dental business in Spain, Feedback from our care home In Bupa Arabia, small and in Australia that local management teams Below: Customer Expo in Australia. we introduced augmented residents in Spain told us that medium-sized enterprise (SME) can quickly put them right. As part of our Customer reality videos that enhance food is what they care about customers said they wanted Transformation Programme in the treatment explanation, most. We spoke to residents more personalised products. our Australian health insurance Hearing from our so customers have a good about their favourite foods The team conducted research business, we analysed the reasons IPMI customers understanding of the treatment and created healthy recipes, to understand exactly what they our customers contact us. This led they are about to have. customised and suited needed, creating Bupa Munsha’at us to restructure our centres and In Bupa Global, our IPMI business, to their needs. which consists of three tiers we introduced a customer insight train our customer service teams of cover. Customers now have accordingly. We introduced platform, to give our customers access to 24 schemes within the option to interact with us natural language processing, these new product tiers allowing a type of artificial intelligence, through video feedback. This them to better tailor their cover. helps our people to hear directly to direct calls so customers get from our customers around the through to the right team faster. world and anticipate what they need and expect from us.

14 15 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

People make the difference

In 2019, we continued to listen to employees’ views. Recognising how leaders are integral to our success, we defined a new set of competencies for leadership at Bupa. We also launched a global initiative to manage our development and succession pipeline for heads of business units. Our progress over the last year includes:

1. Working at Bupa 2. Creating a customer-centric culture

We believe that our people make the Our approach to culture uses our purpose, difference for our customers when they can values and the Bupa Code as core building Disruptive talent programme be themselves at work. We listen to our people blocks. When we combine this with our and promote a positive, flexible, inclusive commitment to corporate responsibility and ‘Disruptive’, our talent programme in Spain, working environment where everyone is sustainability, we have a clear set of standards, nurtures innovation. It helps our people to realise their full potential and, in turn, deliver welcome. We provide our people with relevant helping everyone to understand what is better experiences for our customers. tools, training, information, recognition and expected of them. These standards are benefits, which help them to be their best and reinforced through our operating model, Participants partner with start-up companies make a difference for our customers. processes and policies, and our suite of to develop new products and services, growing their skillset and confidence. controls and measures tells us whether our Learning Since 2018, over 40% of ‘Disruptors’ standards are being upheld. Should there be have taken up new roles as a result. It is important that all our people grow and issues, we can find the root cause and take develop at Bupa. We offer access to both appropriate action. These controls include professional and personal skills development, risk framework assurance, employee surveys, for example via our e-learning platform. audit findings and various management Almost 50,000 of our people globally have information metrics, as well as ‘Speak Up’, access to the platform and the number is our global, confidential independent increasing annually with mobile device whistleblowing process. capability enhancing the user experience. Driving cultural change Benefits In our UK health insurance business, we shared Our approach to benefits enables each a clear story about our future, the journey business to attract and retain people in a way we are on and the changes we need to make People to be extraordinary. The story articulates the that is relevant and appropriate for the local market. Health and wellbeing benefits are role our people play every day in helping our As a service organisation, it’s our people who make the core to our offer (see page 19) and many customers live longer, healthier, happier lives of our businesses offer employees and their and how they can make the difference for difference to our customers. Our Strategic Framework households discounted Bupa products and generations to come. Following the leadership services. We also offer access to our Bupa launch events in April 2019, both businesses highlights this in our People pillar, and outlines four pension scheme (or equivalent, depending demonstrated increased employee priority areas: attracting, developing and retaining on the country). engagement with specific improvements Above: Participants from the Disruptive Talent in how positively employees feel about Programme in Spain. outstanding people and leaders, taking responsibility Bupa recognised as a great Bupa’s future. and accountability, creating safe and healthy place to work We are proud that in 2019, several Bupa Bupa Week workplaces, and celebrating diversity and inclusion. businesses were externally recognised as Each year Bupa Week celebrates and great places to work. Our Sanitas business reinforces what it means to work at Bupa. was ranked 15 out of 100 in Merco’s annual In 2019, Bupa Week focused on the theme 100% Talent monitor in Spain, while Bupa Chile was of ‘#together’, how we collaborate both In 2019, all our Market Units recognised by Merco as one of the 100 best locally and globally for the benefit of our achieved their mandatory companies in Chile, ranked 36th. Bupa UK customers and communities. learning objectives. was named in the top five most sought-after places to work in the UK in LinkedIn’s 2019 83,000 78 out of 100 40% 25 Top Companies List. 78% of our former employees globally overall employee engagement Over 40% female representation and current employees would recommend score in our ‘People Pulse’ survey at the Bupa Executive Team working at Bupa to a friend (source: Glassdoor, July 2019). 81% of our people globally felt confident that they could use ‘Speak Up’, our global, confidential, independent whistleblowing service.

16 17 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

People make the difference continued

Listening and acting 3. Leadership and talent 4. Diversity and inclusion 5. Employee health, safety and wellbeing Following the launch of our employee ‘People Pulse’ survey in 2018, using state We know that great leaders make the Our approach to diversity and inclusion Working to close the gender pay gap Safe, healthy and inclusive working of the art technology we are able to reach difference to our people and our customers. is founded in our purpose and our values. environments help people to thrive. We offer 1 our 83,000 people to survey their views in It’s important we know what is expected Diversity and inclusion are core to Bupa’s We annually report our gender pay gap health and wellbeing benefits, products, Lost time injury rate seven languages, globally. In 2019, we have of our leaders in terms of behaviours, Strategic Framework and our philosophy data for our UK operations. Our Gender services and information that are in line with continued to focus on listening. It is critical competencies and outcomes. In 2019, is based on inclusion for all. Our ‘Everyone’s Pay Gap Report 2019 will be published what our people value and need, and each to our present and future success that our we launched Bupa’s Leadership Imperatives, welcome’ pledge encapsulates our on bupa.com later in the year. of our businesses operate within enterprise- 1.58 people can say what is on their minds and a new set of 12 competencies specific to commitment to encourage our people Beyond gender diversity level standards on health and safety. per 100 employees tell us where we can improve. As our data customer, people, performance and purpose. to bring their whole selves to work. We Our global approach to mental health focuses has accumulated, we have been able to know that this will make a difference to In 2019, we also made progress in other on raising awareness, creating supportive build insight and identify areas to address. Bupa Advance our customers, patients and residents. aspects of our diversity and inclusion agenda. workplaces, encouraging open conversations Lost time injury rate in 2019 All members of the Bupa Executive Team In Australia, we continued our partnership with Our global Bupa Advance programme brings On gender diversity, we signed up to the and providing access to support and care. Globally, our lost time injury rate take personal ownership for their own CareerTrackers to create ongoing internship individuals together from across Bupa for a Women in Finance Charter commitment in in 2019 was 1.58 per 100 employees. team’s engagement and survey results, opportunities for indigenous university Prevention and early intervention are six-day programme designed to accelerate the July 2018. The Charter reflects HM Treasury’s All our businesses reported safety and regularly discuss what actions are students and launched a cultural awareness priority areas for us and our global resilience readiness of Bupa leaders to take on bigger, aspiration to see gender balance across performance higher than local taking place to address employee feedback. module which focuses on truth and justice, programme, Performance Energy, sits at broader roles. The programme emphasises financial services. Since signing the Charter, benchmarks. looking to build the capability of all our people. the heart of this. It helps people feel better During 2019, we maintained an overall customer-centricity, operational excellence, we have continued to support female equipped to deal with everyday pressures. engagement score of 78 out of 100 with an the external environment and leadership representation at senior levels, through our In Chile, we established a Diversity Committee increase in participation to 70% of our people, styles. In 2019, it focused on customer broader diversity and inclusion agenda. to help us expand our programme to Leaders play a critical role. In 2019, we Work life balance against an ambitious global benchmark based experience, with participants spending time cover all elements of diversity, particularly ran a workshop with 150 senior leaders to We are also a member of the 30% on the top 10% of global companies. with real customers, face-to-face, to fully with a focus on disability. We embedded consider how they manage their personal Club mentoring scheme and have understand their needs and hear direct training in diversity and inclusion, including energy, how they enable and empower partnered with INvolve, a membership feedback on Bupa’s products and services. sign language training for our people and their team’s resilience and how they lead 77% organisation that focuses on inclusion in awareness workshops for new joiners. the wellbeing agenda in their area. of our People Pulse survey Insights to Action in Australia the workplace to include gender, LGBT+ respondents rate work-life In the UK, we became signatories of and New Zealand and BAME community representation. We are also investing in support and balance favourably at Bupa INvolve’s campaign to make ethnicity The ‘Insights to Action’ programme in our development for our line managers to feel pay gap reporting mandatory. Australia and New Zealand Market Unit has more confident in talking to a team member about mental health. We have a growing provided insight on executive successors, 1. Accidents that involve one or more complete highlighting strengths, gaps and market number of Mental Health First Aiders. day/shift absences from work but not including benchmarking. This programme has also the day/shift during which the accident occurred We regularly run campaigns to engage per 100 employees (full time equivalent). provided an opportunity for 14 senior our people in mental health issues. For leaders to gain deep understanding of example, our World Mental Health Day their own capability and potential, which campaign aimed to break down the stigma has been used to inform their ongoing of suicide, help people to feel comfortable development and career planning. talking about it and understand how to Below: Participants from the People First talent support someone impacted by suicide. development programme in Hong Kong.

People First programme Below: Kam Hussain, winner of the ‘Everyday Hero’ ‘People First’ is an award-winning nine month prize at the Bupa Awards 2019. talent development programme in our Quality HealthCare business in Hong Kong. It aims to Health and Safety Bupa Awards develop our frontline clinical staff with the Gender diversity in our leadership confidence, capabilities and exposure to take Excellence Our global Bupa Awards celebrate outstanding up clinic management roles. people and projects each year. In 2019, Qamar Board Executive Team Our health insurance and clinics (Kam) Hussain, who works in the housekeeping and businesses in the UK were both maintenance teams at Cottingley Hall Care Home, awarded Silver in the Royal Society for UK, was awarded our 2019 ‘Everyday Hero’ prize. He the Prevention of Accidents’ prestigious was recognised for going above and beyond his role 50% 50% 42% 58% annual Health and Safety awards for every day and having a positive impact on everyone Female Male Female Male heir performance and commitment who lives and works at the home. Kam regularly to health and safety in 2019. goes into the home on his days off to spend time with residents, and carry out tasks that he knows will make a difference, such as decorating residents’ rooms. Kam’s passion for the Bupa values, and his care, enthusiasm and hard work contribute to the care home being a great place to work and live, and he inspires his colleagues to be the same.

18 19 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial performance

Performance Revenue Statutory (loss)/profit We use our key financial metrics to focus before taxation on in-year performance and longer term Revenue was £12.3bn, up 4% on sustainability. These metrics include prior year (£11.9bn at AER) driven by Statutory loss before taxation was revenue, statutory (loss)/profit before good performance from our Europe £78m compared with a statutory taxation, underlying profit, net cash and Latin America Market Unit, profit before taxation of £502m in 2018 generated from operating activities Australian health services business (at AER). This mainly reflected the and Solvency II capital coverage ratio. and from our businesses in Hong goodwill impairments in our Australian Kong. Bupa Global and UK Market aged care and UK dental businesses, At the half year, we announced the Unit revenue was stable on last year. simplification of our organisation into together with lower underlying three Market Units: Australia and New trading performance on prior year. Zealand; Europe and Latin America; and Bupa Global and UK. For full year 2019, Revenue Statutory we are reporting in accordance with (£bn) (loss)/profit this new structure and have restated £12.3bn before taxation £(78)m our 2018 results, where applicable. (£m) 12.2 11.9 12.3 620 +4% AER 2018: £502m 11.0 523 2018: £11.9bn 502 +5% CER 2018: £11.7bn

(78)

See Financial review on P30-33 Performance 2016 2017 2018 2019 2016 2017 2018 2019 Underlying profit1 Net cash generated from Solvency II capital operating activities coverage ratio2 We are committed to growing sustainably to do more for customers, Group underlying profit declined by 32% to reinvest and have a wider impact. Because of our corporate status to £416m (2018: £613m at AER), reflecting Net cash generated from operating At 31 December 2019, our solvency the challenges in our Australian health activities fell by £111m (14%) to £697m coverage position remained solid at 159%, we have the freedom to think long term – delivering today and insurance and aged care businesses and (2018: £808m). a reduction of 7ppts from the pro-forma our planned investment in technology 2018 position. This decrease reflects the securing the future. Our Performance pillar outlines how we maximise capabilities. lower capital generation from our trading our opportunities to grow, ensuring robust risk management and operations, along with the investments controls and acting responsibly and creating shared value for our we have made in the business.

customers, our people and society. Underlying Net cash generated Solvency II capital profit from operating coverage ratio (£m) £416m activities £697m (%) 159% (£m) 805 929 204 891 -32% AER -14% AER 180 2018 Proforma: 701 808 3 2018: £613m 2018: £808m 166 166% 613 697 159 -31% CER 416 2018: £603m

2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019

1. Underlying profit is a non-GAAP financial measure. This means it is not comparable to other companies. Underlying profit reflects our trading performance and excludes a number of items included in statutory (loss)/profit before taxation, to facilitate year-on-year comparison. These items include impairment of intangible assets and goodwill arising on business combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on property revaluations and other material items not considered part of trading performance. A reconciliation to statutory (loss)/profit before taxation can be found in note 2 (page 107). 2. The 2019 Solvency II capital position, SCR and coverage ratio are estimates and unaudited. 3. 2018 Solvency coverage position of 191% after taking into consideration the impact of IFRS 16 (18ppts) and the acquisition of Acıbadem Sigorta (7ppts). 20 21 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Corporate responsibility and sustainability Creating sustainable shared value for our customers, people and communities

Corporate responsibility and sustainability (CRS) is integral to our Five-Year Vision, and reflects our purpose and values. Without shareholders, we have the freedom to think long term and short term. We’re clear that we need to run a robust and growing business, so our customers, people and communities can depend on us now and in the Responsible future. We know that being a responsible business and doing the right Environment and Customer People Business Community thing underpins our long term success. Our CRS agenda spans five pillars: Climate Change Customer, People, Responsible Business Conduct, Community, and Conduct Environment and Climate Change.

In 2019, we made good progress. We Over the year, we progressed our diversity strengthened CRS governance at Bupa. and inclusion agenda (see page 18). Our In December, we established a new Corporate ‘Everyone’s Welcome’ pledge encapsulates 1. Ensuring we fund 2. People make the 3. Conducting our 4. Playing an 5. Taking care of the Responsibility and Sustainability Committee our commitment to promoting and and provide quality difference business activities active role in environment and as a management advisory committee. It’s celebrating diversity and inclusion, recognising health and care in a responsible way our community addressing climate chaired by Nicholas Lyons, Non-Executive that a diverse workforce helps us to reflect change Director, and membership includes a mix the millions of customers we serve. of management, including the Group CEO We updated our approach to responsible Material issues and priorities Material issues and priorities Material issues and priorities Material issues and priorities Material issues and priorities and CFO, and Non-Executive Directors. investment, integrating ESG factors in –– Strong governance and –– Listening to our people –– Promoting ‘Speak Up’, our –– Establishing health and –– Reducing our year-on- We are committed to the highest the decision-making process. We built on controls to ensure that and acting on insight whistleblowing channel wellbeing flagship community year carbon emissions standards of business behaviour. Our our previous methodology and created customer interests are programmes in our main and increasing the use –– Creating safe and healthy –– Embedding ESG purpose and values help to maintain a a new set of standards, which apply recognised and addressed markets, with a particular of renewable energy workplaces considerations into our culture of responsible business conduct, to our cash and financial investment focus on mental wellbeing –– Listening, learning and acting financial investment practices –– Investing in natural transparency and a customer-first approach. portfolio. We are signatories to the UN –– Celebrating diversity and and resilience on feedback and insight resource efficiency The Bupa Code provides clear direction Principles for Responsible Investment, inclusion and creating inclusive –– Committed to combatting aiming for market leading –– Aligning and strengthening in decision-making, and our performance as are our external asset managers. We cultures through our modern slavery –– Assessing climate change Net Promoter Scores the activities of the various management, risk management, governance also signed up to the UK Sustainable leadership and practices risks to our business, (see page 13) –– Embedding ESG Bupa Foundations and audit processes underpin this. Investment Forum and the Institutional including health impacts considerations Investors Group on Climate Change. –– Improving and innovating our –– Engaging our people of climate change Our commitment to integrity and into our supply chain services to meet changing in volunteering transparency starts with our own people. We want to play our part in addressing –– Defining our 2021-2025 customer needs Our employees adhere to the Bupa climate change; a major global concern. strategy in the context Code and its related policies, including In 2019, we continued to promote positive –– Keeping data safe and of climate change Conflicts of Interest and managing environmental practices (see page 25), and protecting privacy Financial Crime risk. We also have ‘Speak made progress in understanding, assessing Up,’ a global, confidential, independent and overseeing the risks from climate change whistleblowing channel to help us identify that impact the Bupa Group. Our current 2019 highlights 2019 highlights 2019 highlights 2019 highlights 2019 highlights when we fall short and put things right. environment plan completes by the end of –– Strengthened our customer –– Invested in health and –– Strengthened our ESG –– Developed Community –– Reduced our carbon 2020 and so in 2019 we began a strategic Over the past year, we continued to improve outcomes risk culture and wellbeing support for our standards for our return- guidelines to expand our footprint and increased our review to establish the next phase. how we measure our CRS progress. Key non- management people, with a global focus seeking assets portfolio social impact use of renewable energy on mental health year-on-year financial information is reported to the Board We placed new emphasis on the Community –– Further strengthened data –– Improved due diligence –– Introduced global focus bi-annually alongside financial performance. pillar. We developed new Community security and privacy –– Actively supported Pride of suppliers as part of our on mental wellbeing and –– Conducted a climate change Environmental, Social and Governance (ESG) activity guidelines, with a global focus events across the UK commitment to combatting resilience risk stress testing exercise considerations are included as a factor in on mental wellbeing and resilience, to modern slavery and people –– Refreshed our recruitment –– Increased our reported –– Committed to the UN’s remuneration. We comply with applicable maximise our social impact (see page 24). trafficking regulations on non-financial reporting strategy in Australia to contribution to our Climate Neutral Now initiative including the publication of our Statement on For more information about our CRS progress, visit support recruitment of communities by more in the UK Modern Slavery, our Gender Pay Gap Reports bupa.com Aboriginal and Torres Strait than £1m to £7.3m in the UK and Spain, our report on Prompt Islander people Payments to Suppliers in the UK, our Group See P25 for more about See P12-15 for more about Customers See P16-19 for more about People See P24 for more about Community Approach to Tax and our annual carbon Environment and Climate Change footprint and use of renewable energy. We align our CRS agenda and our strategic priorities with the Sustainable Development Goals of the UN 2030 Agenda. We recognise the importance of each and every goal in order to achieve a sustainable future for all. We also know that there are some in which we can have a greater impact and we prioritise these. They are: good health and wellbeing; gender equality; sustainable cities and communities; and climate action.

22 23 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Corporate responsibility and sustainability continued Playing an active role in our communities Taking care of the environment and addressing climate change

Helping our communities to be well and stay healthy is fundamental to our Measuring and managing our 5 Creating shared value Our UK businesses committed to purpose. We want to make a positive contribution to the communities we environmental impact through Healthy Cities in Spain becoming carbon neutral serve through volunteering, fundraising, donations, in-kind contributions The impact of climate change is a key Sanitas in Spain founded the Healthy Cities concern for society. We closely manage In the UK, we committed to the UN’s Climate and partnerships. We have dedicated Foundations in Australia, the UK and project with the aim of encouraging Neutral Now initiative to offset our carbon our environmental impact and actively Spain to channel some of our investment. communities to promote physically and emissions through investing in UN-backed mentally healthy lifestyles, and a healthier promote positive environmental practices. environmental projects such as reforestation urban environment. In 2019, for the fifth year, We are on track to deliver our environmental and clean energy. This supports our efforts to Expanding our social impact customers, employees and members of the targets and increase our use of renewable minimise our carbon footprint where we can, local community joined a challenge to walk energy year-on-year. As part of our CRS which includes sourcing all our electricity from In 2019, we developed new Community In the UK, we are focusing on mental wellbeing 10,000 steps a day. This was the first year the policy, we ensure that capex investment renewables, installing solar panels in our care guidelines, to help our Global Functions for children and young people, and those that challenge was inclusive for those with is allocated to natural resource efficiency, homes and prioritising greener offices. and Market Units shape their community support them. This includes partnering with disabilities. Healthy Cities launched in Chile in carbon, water and waste reduction projects, health and wellbeing programmes and mental health charity Mind (see below) and Our response to the bushfires 2016 and in Hong Kong in 2019. and that we seek to switch to renewable or maximise the social impact. We increased developing our Performance Energy resilience clean energy where possible. We disclose Some of our Australian homes were impacted our reported contribution by more than £1m programme to become a community asset. 1 our annual carbon footprint on bupa.com. by the emergency-level bushfires which hit New to £7.3m through direct financial donations, In Spain, we built on the success of our South Wales and Victoria at the end of 2019. volunteering and in-kind support. Our current environmental strategy completes We worked with the authorities to ensure that Healthy Cities project to engage more people in 2020. In 2019, we started to define our our residents were safely transferred and cared With one in four people experiencing poor in physically and mentally healthy lifestyles new set of ambitions to respond to the for. In January 2020, we also announced mental health each year, we made mental and promoting healthy urban areas (see right). current environment of climate emergency. support for employees, customers, residents wellbeing and resilience a focus area for Beyond mental health, we also support We will publish this later in the year. and the community. These measures included a our people, customers and the wider disaster relief package for impacted customers, our communities with broader health community. Bupa can play a positive role and an AUD100,000 donation to the Australian needs. In the UK, we announced our new in raising awareness and reducing stigma, Red Cross Disaster Relief and Recovery Fund. partnership with Dentaid to provide free and providing practical tools and support. dental care to vulnerable people and In Australia and New Zealand, we sponsored LifeCare’s Better Together Addressing risks from progressed our flagship partnership with medical camp in the Maasai Mara (Kenya), climate change Waste to Wealth signatory Kids Helpline, and delivered mental health helping 2,400 local people access basic Climate change is a significant focus programmes for 15,000 students. medical healthcare for the first time. We recognise the importance of waste reduction as part of a sustainable future. Bupa Global area of our risk agenda. Progress and UK is a signatory of the Business in the Community Waste to Wealth initiative, joining For more information about our Community made in 2019 includes: activities, visit bupa.com 200 other organisations to commit to double the UK’s resource productivity and eliminate –– We established a Group cross-functional avoidable waste by 2030. Environment and Climate Change Steering Committee, chaired by the Group Chief Risk Officer and the Group 6 Chief People Officer. Main focus areas 100% renewable in Spain Foundations for the Committee are to assess and oversee the risks from climate change In Spain, we actively promote positive 2 3 4 impacting Bupa, and define the 2021-2025 environmental practices in our drive towards a environment and climate change strategy. low-carbon economy. We continue to use 100% renewable electricity in our Spanish businesses –– We incorporated climate change-related by embedding these practices in our risks as part of our Risk Management procurement processes and invest in energy Bupa Health Foundation Bupa UK Sanitas Foundation Framework (see page 47). efficiency projects to reduce our use overall. Foundation Spain –– We conducted a climate change risk Australia stress test based on those published by the UK Prudential Regulation Authority to evaluate the potential impact of aspects of climate-related risks on our profitability. Our evaluations confirmed The Bupa Health Foundation focuses on In 2019, the Bupa UK Foundation awarded The Sanitas Foundation is committed to that our investment approach remains Captions to images: translating Australian research into real over £1m in grants to local community driving social change and equality within low risk, particularly in the short term. 1. Healthy Cities initiative in Chile. health and care improvements. In 2019, projects, the majority of which focus on health and wellbeing. In 2019, the 2. The Bupa Health Foundation in Australia funded –– As signatories of the UN Principles for it announced the recipients of a AUD1m improving mental health. In early 2020, it Foundation invested €1.3m (£1.1m) in its Sanitas presence at COP25 research to support Aboriginal and Torres Strait Responsible Investment, we reported (£530,000) funding grant to improve announced a new partnership with Mind, flagship project Inclusive Sports, which We took part in the UN Climate Conference, Islander communities at high risk of suffering models of mental healthcare, specialising the leading mental health charity in the UK. promotes the practice of sports among key indicators in line with the Financial rheumatic heart disease. Stability Board’s Task Force on Climate- COP25, in Madrid. We hosted a round table on in digital platforms and patient experience. The Foundation is the exclusive supporter people with and without disabilities. In 2019, 3. The Bupa UK Foundation is the exclusive supporter related Financial Disclosure. the impact of climate change on people’s of Mind’s new mental health resources for it celebrated the 10th edition of the Inclusive health. A panel of experts discussed the issues, of Mind’s new mental health resources for children children and young people aged 11-25 with Sports Week to promote this practice in In 2020, we will continue to enhance our with our contribution focused on: the switch to and young people. the aim of helping 2.5m young people and schools and society at large. assessments on potential risks, including: renewable energy use and reduction of our 4. Inclusive Sports Week in Spain. their families by 2022. physical risk impacts on our property carbon footprint; using innovation to reduce 5. Bushfires in Australia. Photo credit: © Nick Moir, portfolio; considerations of supply customers’ carbon footprint; and playing an Sydney Morning Herald. For more information, visit For more information, visit For more information, visit chain; and considerations of potential active role in creating healthy communities. 6. Yolanda Erburu, Corporate Affairs Director for Bupa bupa.com.au/about-us/bupa-health-foundation bupaukfoundation.org corporativo.sanitas.es/fundacion-sanitas/ health impacts of climate change. Europe and Latin America, hosting a roundtable on the impact of climate change on people’s health at COP25 in Madrid.

24 25 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Our Market Units Australia and New Zealand

Market context This includes reducing costs and advocating for reform of the health insurance system. Results affected –– In 2019, economic growth in Australia was by margin pressures slow. The economy in New Zealand remained Our Australian health services business stable. delivered year-on-year revenue growth in Australia Health driven by the new Australian Defence Insurance and –– Australia’s Federal Election returned the Force contract and increased Bupa Medical Liberal and National Party Coalition to challenges in our Visa Service assessments. We continue to government in May. grow customer numbers in dental through Australian aged –– There are increasing pressures on the acquisitions and greenfield developments. care business. Australian private health insurance sector, Revenue in our Australian aged care business ranging from the growing cost of healthcare, was down, with a loss arising from lower affordability, and increasing regulation. occupancy and higher operating expenses. –– The Royal Commission into Aged Care Our closing occupancy rate of 83% was Quality and Safety continues to late 2020. 9ppts lower than last year. We have a new Revenue The interim report, released in October, called management team in place and are investing out for ‘fundamental overhaul of the design, significantly in improved care and support for objectives, regulation and funding of aged our residents and their families. During 2019, £4,652m care in Australia’. 15 homes operated under regulatory sanction; 0% AER 2018: £4,656m this reduced to five homes at the year end and +3% CER 2018: £4,532m improvement continues to be the top priority. Performance We are committed to ensuring all our homes are In Australia and New Zealand, difficult operating at the same high level of quality. Over Underlying profit market conditions continued from the prior the year, we engaged actively with the Royal year. Revenue increased 3% to £4,652m Commission into Aged Care Quality and Safety. and underlying profit was £160m, a Our New Zealand aged care business £160m decrease of 47% at CER, driven by margin performed in line with expectations. Revenue -49% AER 2018: £313m deterioration in our health insurance and decreased, reflecting divestments made in -47% CER 2018: £304m aged care businesses in Australia. 2018, and underlying profit fell due to lower Revenue in our Australian health insurance occupancy and higher staffing costs. We Our Market Units continued to invest in new integrated care business was stable while underlying profit Customers decreased by around 30%. Claims inflation homes and villages developments. Our year significantly exceeded the premium increases end occupancy rate was 89% (2018: 91%). 4m Insurance approved by the Government. These headwinds In addition, profit before taxation includes Our Market Units lead our operations in the regions were partially mitigated by cost efficiency an impairment of goodwill in our Australian 1.2m Provision where we are present, in line with local market initiatives and investment in our customer aged care business of £177m. Further 9,500 Aged care transformation programme, which is helping details are provided on page 120. conditions, healthcare systems, in-market regulations to provide more personalised services and an enhanced customer experience. The full year and customer needs. Our Market Unit reports in the combined operating ratio1 (COR) was 94%2 Revenue by business (2018: 92%). We maintained our position as a following pages show our performance and the key leading health insurer in Australia, with 26%3 market share, and 4m customers in line with highlights of the year. 1 Bupa Health Insurance 81% 1. Combined Operating Ratio is an alternative 2018. We delivered improvements in customer performance metric for insurance businesses. It is 2 Bupa Health Services 9% Net Promoter Scores (NPS) and customer calculated based on incurred claims and operating 3 Bupa Villages and Aged Care retention, as we made process and system expenses divided by net earned premiums. Australia 7% 2. Bupa HI Pty Ltd (Australia): HRF 602 Australia Prudential changes and enhanced communications. Regulation Authority quarterly returns (unaudited). 4 Bupa Villages and Aged Care We are committed to delivering value for New Zealand 3. Australian Prudential Regulation Authority 3% money for customers, addressing affordability (APRA), Operations of private health 4 insurers annual report (June 2019). 3 issues and reducing out-of-pocket costs.

2 1

Improved NPS scores We are investing and customer retention significantly in improved in health insurance. care and support for our residents and their families.

26 27 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Our Market Units continued Europe and Latin America Bupa Global and UK

Market context We launched Global Virtual Care, a digital GP Strong revenue Sanitas Seguros extended The integration of Bupa Results reflect planned service for employees and their families living its bancassurance Acıbadem Sigorta in –– Slow economic growth, reflecting the impact abroad. growth; underlying agreement with BBVA. Turkey is progressing strategic investment in of Brexit-related uncertainties and weaker In our UK dental business, underlying profit as planned and we global growth. profit mainly affected technology capabilities reduced, impacted by sector-wide pressures, strengthened our market by Bupa Chile. and dentist availability –– Improved political stability following the primarily the availability of dentists, exacerbated position, particularly December 2019 election, resulting in a clear by Brexit which led to significantly reduced as a corporate health impacting Bupa parliamentary majority. Uncertainty remains, recruitment from the EU. We introduced pay insurance provider. Dental Care. particularly in relation to Brexit. increases for dental nurses and supported –– Increased pressures in the dental sector due career development for our colleagues to market-wide shortage of dentists. through management academies and apprenticeships. We grew our market position through acquisitions, with now over 490 Market context divestment of our stake in Torrejón, a public- Performance centres and 10 laboratories. We are focused on private partnership hospital, in December 2018. creating excellent customer experiences, and Revenue –– In Spain, economic growth forecast lowered Revenue Bupa Global and UK revenue was stable, with This was partially offset by the acquisition of underlying profit down 37% at CER mainly opportunities for generating greater synergies amid domestic and global trade and political Ginemed, an IVF and fertility service provider. We across dental provision and dental funding uncertainty. Strong growth in the health due to our strategic investment in technology also opened an extension to La Moraleja Hospital. capabilities. products, as well as being a great place for £3,853m insurance market. £3,323m our dental clinical staff to work. +10% AER 20184: £3,499m Sanitas Mayores, our aged care business in +1% AER 20188: £3,288m –– In Chile, GDP remained stable. The market Our UK health insurance portfolio grew steadily +12% CER 2018: £3,435m Spain, continues to deliver good revenue and +1% CER 2018: £3,302m across all segments. Revenue was stable, while We achieved stable performance in our UK was impacted by social upheaval, political underlying profit growth. The closing care services business in a challenging sector. uncertainty and social reforms. written premiums grew reflecting customer occupancy rate remains strong at 96%. growth. Underlying profit was down due to our Ten of our care home services are rated as Underlying profit Underlying profit ‘Outstanding’ by the CQC. We opened a new –– Good economic growth in Poland. Increased In Poland, LuxMed delivered strong customer planned investment in technology capabilities. Richmond Village in Wood Norton and exited demand for private medical services. and revenue growth, particularly in corporate We remain a leading health insurer with around the Powys County Council contract, transferring subscriptions and inpatients. We acquired three 37% market share9. We further extended our £156m –– In Turkey, GDP is projected to rebound in £117m 12 homes to a new provider. Our closing 2020. High inflation is expected to drive hospitals, strengthening our expertise in mental health offering, including the launch -9% AER 2018: £172m -38% AER 2018: £188m occupancy rate increased to 87% (2018: 86%). short-term affordability challenges. ophthalmology and ENT (ear, nose, throat) care, of our Family Mental HealthLine to support -8% CER 2018: £169m and opened five outpatient clinics. We continued -37% CER 2018: £187m parents and carers with their children’s mental Performance in Health Services improved –– Economic growth in Brazil was stagnant in 2019, to expand our dental business with six new builds health. We also launched Bupa Touch, a digital steadily. We opened a new health clinic in Customers with GDP expected to grow moderately in 2020. and two acquisitions. portal giving customers access to their policy, Manchester and outsourced our occupational Customers health assessment reports and other digital health services to Optima Health. Our Bupa Bupa Acıbadem Sigorta, the business in Turkey 3.8m Insurance services like Virtual GP. Our customers’ NPS Cromwell Hospital partnered with GenesisCare which we acquired in January 2019, performed Performance 2.8m Insurance scores improved, and we are rated as ‘Excellent’ to meet growing demand for oncology services Provision in line with expectations. The integration is 10.2m In Europe and Latin America, we achieved strong on the external Trustpilot survey. We were in London. revenue growth of 12%, while underlying profit progressing as planned and we strengthened 3.3m Provision the first health insurer to be assessed by the 6,100 Aged care In 2019, profit before taxation includes fell by 8% at CER, mainly driven by a sector-wide our market position, particularly as a corporate Care Quality Commission (CQC), receiving a impairments of goodwill of £226m in relation to delay in the approval of the triennial premium health insurance provider, and now have over 6,500 Aged care ‘Good’ rating. our UK dental business and £16m to the Bupa Revenue by business rate increase in Bupa Chile. This was partially 600,000 customers. In Bupa Global, our IPMI business, revenue Cromwell Hospital. Further details are provided 1 offset by growth in a number of our businesses In Chile, revenue grew mainly driven by the Sanitas Seguros 30% was down on 2018 due to pricing discipline. on page 120. including Sanitas Dental in Spain, and by the 2 Sanitas Dental 4% performance of the Clínica Bupa Santiago Hospital Revenue by business Underlying profit declined due to our acquisition of Ginemed in our hospitals and new 3 Sanitas Mayores 4% and Integramédica, our outpatient business. investment in technology capabilities. The services business. Underlying profit was down on last year following the 4 Sanitas Hospitales and COR for Bupa Insurance Limited10, the UK delay in the Government’s approval of the triennial 1 Bupa UK Insurance 46% New Services 6% In Spain, our health insurance business, Sanitas based insurance entity that underwrites both premium rate increase and was also impacted by 2 Bupa Global 25% 9. LaingBuisson Health Cover, 2018. 5 LuxMed, Poland 10% Seguros, delivered solid revenue growth. This was domestic and international insurance, was 10. Bupa Insurance Limited: Prepared under local social unrest, which resulted in temporary closures 3 Bupa Dental Care 13% 6 Bupa Acıbadem Sigorta 5% driven by the Néctar Seguros acquisition in 2018 95% (2018: 93%), with the increase reflecting GAAP. Excludes our Irish insurer, and our associate, and our bancassurance partnerships. Underlying at a number of our facilities in November. 4 Bupa Care Services 12% the level of expenditure on technology and Highway to Health (GeoBlue). 7 Bupa Chile 28% profit declined, mainly due to our investment in Bupa Global Latin America7 delivered good 5 Bupa Health Services 4% operational resilience. In March, in readiness 8 Bupa Global Latin America 13% technology capabilities and, as a result, the COR revenue growth and made improvements to 5 for Brexit, our new authorised insurer in Ireland 8 increased to 89%5 (2018: 88%). In November, we underlying profitability. This was driven by strong 4 began operations. This serves IPMI customers extended our bancassurance agreement with results in Care Plus, our insurance business in Brazil, living in the EU but outside the UK and Ireland. BBVA which will run until the end of 2033. Blua, our partnership with Seguros Bolívar in Colombia 1 1 our digital proposition, continues to grow and now and improved customer retention in Mexico. 3 serves over 480,000 customers, a 46% increase We also incurred £59m of non-underlying We further extended 7 since 2018. We are number two in health insurance costs within profit before taxation, including our mental health offer with a stable market share of over 20%6. 2 an impairment of £21m to brands in Bupa Chile including the launch Our Spanish dental business delivered good and £26m expected losses relating to certain of our Family Mental 3 results. Revenue and underlying profit grew provision assets held for sale. Further details 2 HealthLine to support In dental, we introduced 6 4 5 driven by higher activity in our dental centres and are provided on page 120. parents and carers pay increases for dental an 8% increase in dental insurance customers to with their children’s nurses and supported 5. Sanitas S.A. de Seguros (Spain): Prepared under local mental health. 4. To reflect the simplification of our 1.5m. Portfolio expansion continued with further GAAP (unaudited). career development for organisation structure, 2018 openings planned for 2020. 6. ICEA (Investigación Cooperativa entre Entidades 8. To reflect the simplification of our our colleagues through revenue and underlying profit have Aseguradoras y Fondos de Pensiones). organisation structure, 2018 revenue management academies been restated to include Bupa Our hospitals and new services business in Spain and underlying profit have been Global Latin America. 7. Bupa Global Latin America was recently restructured restated to include Bupa Global. and apprenticeships. performed in line with expectations. Revenue and into three Business Units. From 2020, we will report in underlying profit decreased, reflecting our accordance with this new structure.

28 29 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial review

Revenue1 Overview Revenue (CER) Revenue by Market Unit Underlying profit (CER) At the half year, we announced the We achieved revenue growth of 5% driven Group underlying profit declined by 31% simplification of our organisation into three by good performance from Europe and Latin to £416m (2018: £603m at CER). Health £12.3bn 4 Market Units: Australia and New Zealand; America Market Unit, Australia Health Services insurance, our largest line of business, +4% AER 2018: £11.9bn Europe and Latin America; and Bupa Global and from our business in Bupa Hong Kong. 2018 contributed around 90% of underlying profit +5% CER 2018: £11.7bn 2019 and UK. For full year 2019, we are reporting in Revenue in Bupa Global and UK Market Unit 3 AER CER for reportable segments, and as expected, Statutory (loss)/profit before taxation accordance with this new structure and have was stable versus last year. 1. Australia and New Zealand 38% 39% decreased year-on-year. restated our 2018 results, where applicable. 1 By business lines, revenue in our health 2. Europe and Latin America 31% 29% Profit in our Australian health insurance At CER, Group revenue was £12.3bn, up 5% insurance businesses grew by 4% compared 3. Bupa Global and UK 27% 28% business was down on 2018 by around 30% £(78)m on prior year (£11.7bn), and underlying profit to last year, largely driven by Europe and Latin partly reflecting the annual premium rate 4. Other businesses 4% 4% AER 2018: £502m was £416m, down 31% on prior year (£603m). America Market Unit following the acquisition increase set by the Government being at a These results include the impact of IFRS 16, of Acıbadem Sigorta and growth in lower level than claims inflation. Profits from our 2 Underlying profit an increased charge of £26m. Excluding this Bupa Chile. UK health insurance businesses, UK Insurance impact, along with two significant 2 and Bupa Global, were down overall by around Our provision businesses delivered strong transactions, the disposal of Torrejón Hospital 30%, following our decision to make significant growth of 11% year-on-year as a result £416m in Spain and the benefit from the acquisition investments in technology capabilities. In of winning the Australian Defence Force Revenue -32% AER 2018: £613m of Acıbadem Sigorta, our year-on-year decline Europe and Latin America, profits were down contract, and growth in our corporate -31% CER 2018: £603m would have been unchanged at 31%. The 2019 2018 2018 around 20%, mainly due to Bupa Chile as subscription business in Poland, together AER % Change % Change Group’s underlying trading results reflected £m AER CER a result of the delay in the Government’s Net cash generated from with Bupa Chile. the challenges in our Australian health Australia and New Zealand 4,652 0% +3% approval of the triennial premium rate increase operating activities insurance and aged care businesses and our In our aged care businesses, revenue was in the ISAPRE business, together with higher Europe and Latin America +10% +12% planned investment in technology capabilities. marginally down on 2018 due to our Australian 3,853 claims. As a result of these factors, the Group’s business, where revenue fell by around 4% Bupa Global and UK 3,323 +1% +1% COR6 increased to 94% (2018: 93%). Profits £697m Our statutory loss before tax of £78m, reflecting lower occupancy levels. Our Spanish Other businesses 488 +17% +12% from our other insurance businesses, which compared to a statutory profit of £502m -14% AER 2018: £808m aged care business, Sanitas Mayores, includes Hong Kong, and our associate (at AER) in 2018, mainly reflected impairments continued to perform well, while revenue businesses, Bupa Arabia and Max Bupa, grew of goodwill and intangible assets arising on Solvency II capital in UK Care Services was stable on last year. by around 15%. This reflected both underlying 3 business combinations, principally in coverage ratio performance and our increased shareholding in Australian aged care and our dental business Bupa Arabia, which increased by 5% to 39.25% in the UK, and lower underlying trading Underlying profit by Market Unit from August 2018. 159% performance. 4 Underlying profit in our provision businesses 2018: 166% We generated net cash from operating fell by around 30% on last year mainly driven activities of £697m, down £111m (14%) on the 4 5 by our UK dental business which was Leverage ratio prior year. 3 2019 2018 impacted by ongoing sector-wide pressures, Our solvency capital coverage ratio of 159% AER CER primarily a shortage of dentists with the 25.1% at 31 December 2019 remained strong. 1. Australia and New Zealand 33% 43% uncertainty around Brexit resulting in a 2018: 23.5% 1 Bupa Finance plc’s senior debt rating remains 2. Europe and Latin America 33% 24% significant reduction in the recruitment from the EU. In Australia, our health services unchanged since December 2018. 3. Bupa Global and UK 24% 27% 1. Revenue from associate businesses are excluded from business was down on 2018 while Europe and reported figures. Customer numbers and economic 4. Other businesses 10% 6% Latin America Market Unit grew on last year, share of post-tax profits from our associate businesses are included. particularly in Sanitas Dental and through the All figures are at constant exchange rates (CER) unless acquisition of Ginemed. stated. We use CER to compare trading performance in 2 a consistent manner to the prior year. We have restated In our aged care businesses, underlying profit 2018 results to 2019 average exchange rates. declined around £55m compared to 2018. This 2. Underlying profit is a non-GAAP financial measure. “Our underlying trading Underlying Profit was mainly driven by a loss in our Australian This means it is not comparable to other companies. business, following the fall in occupancy levels Underlying profit reflects our trading performance and results reflected the 2019 2018 2018 and increased costs as we continue to invest excludes a number of items included in statutory (loss)/ AER % Change % Change profit before taxation, to facilitate year-on-year challenges in our £m AER CER to address a number of compliance and comparison. These items include impairment of service issues. intangible assets and goodwill arising on business Australian health Australia and New Zealand 160 -49% -47% combinations, as well as market movements such as Central expenses and net interest margin were gains or losses on foreign exchange, on return-seeking insurance and aged care Europe and Latin America 156 -9% -8% assets, on property revaluations and other material Bupa Global and UK 117 -38% -37% £34m lower than the prior year, partly as a items not considered part of trading performance. result of the acquisition of Acıbadem Sigorta A reconciliation to statutory (loss)/profit before taxation businesses and our Other businesses 46 +24% +15% can be found in note 2 (page 107). which contributed £29m of investment 3. The 2019 Solvency II capital position, SCR and coverage planned investment in income in 2019. ratios are estimates and unaudited. 4. 2018 Solvency coverage position of 191% after taking into technology capabilities.” consideration the impact of IFRS 16 (18ppts) and the 6. Combined Operating Ratio is an alternative performance acquisition of Acıbadem Sigorta (7ppts). Joy Linton metric for insurance businesses. It is calculated based on 5. Leverage is calculated based on gross debt (including incurred claims and operating expenses divided by net hybrid debt) divided by gross debt plus equity . Leverage Chief Financial Officer earned premiums. The Group combined operating ratio is 32.7% when including the impact of IFRS 16 (2018 is calculated based on the S.05.01 Prudential Regulation Proforma: 31.1%). Authority (SII) form (estimated and unaudited).

30 31 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial review continued

Statutory loss (AER) Hospitals and New Services, our Spanish Taxation Funding Solvency We perform an analysis of the relative provision business. sensitivity of our estimated solvency coverage Statutory loss before taxation was £78m The Group’s taxation expense for the year was We manage our funding prudently to ensure a Our solvency coverage ratio of 159% remains ratio to changes in market conditions and We recognised a charge of £26m relating compared to a statutory profit of £502m £133m which represents an effective tax rate strong platform for continued growth. A key solid, and above the Group’s risk appetite. underwriting performance. Each sensitivity in 2018. This mainly reflected the goodwill to the expected loss on sale of our interest in of negative 171% (2018: +38%) This was mainly element of our funding policy is to target an The Group holds capital to cover its Solvency is an independent stress of a single risk and impairments in our Australian aged care and certain provision assets held for sale in Europe due to the one-off goodwill impairments A-/A3 senior credit rating for Bupa Finance Capital Requirement (SCR), calculated on a before any management actions. The selected UK dental businesses, together with profits and Latin America Market Unit. In addition, we incurred for which no tax deductions can be plc, the main issuer of Bupa’s debt. Standard Formula basis, considering all our sensitivities do not represent our expectations from trading being down on prior year. incurred transaction costs of £5m in relation to claimed. Reversing the impact of these risks, including those related to non-insurance for future market and business conditions. the completion of our acquisition of Acıbadem together with prior period adjustments results A charge of £177m was recognised in our businesses. As at 31 December 2019, the A movement in values of properties that we Sigorta and additional costs in Bupa Global in an adjusted effective tax rate of 28%, which aged care business in Australia following the Funding Bupa Finance plc estimated SCR of £2.4bn was £0.3bn higher own continues to be the most sensitive item, and UK relating to the sale of a number of UK is higher that the UK corporation tax rate of decline in occupancy levels during the year, senior debt rating and Own Funds remained stable at £3.9bn with a 10% decrease having a 12 percentage care homes in 2018. There were net property 19%. This was mainly as a result of profits and an increase in the discount rate, reflecting when compared to 31 December 2018. point reduction to the solvency coverage ratio. revaluation gains of £6m. arising in jurisdictions with a higher rate of ongoing sector challenges. In Bupa Global and corporate income tax. Our surplus capital was estimated to be Our capital position is resilient in the face of UK, an impairment of goodwill amounting to There were no other Market Unit underlying Fitch A- (Stable outlook) £1.5bn, compared to £1.8bn at 31 December the individual risks, illustrating the strength of £226m was made in relation to our UK dental items in 2019. 2018, representing a solvency coverage ratio our balance sheet. business. This was largely driven by availability During the year, we impaired the value of Cash flow of 159% (2018: 191%); 2018 Proforma: 166%). of dentists across the sector, exacerbated by an investment following the termination Moody’s A3 Our business continued to generate capital the uncertainty of Brexit, higher operating Net cash generated from operating activities (Stable outlook) of a commercial relationship. In addition, due to our underlying profitability. This capital Forthcoming changes to expenses, including expected National Living fell by £111m (14%) to £697m (2018: £808m). we incurred restructuring costs following generation was offset by investment through accounting standards Wage costs and investment in technology On a like-for-like basis, when excluding the our simplification of our organisation into acquisitions, particularly Acıbadem Sigorta capabilities. In addition, there was a charge of change in presentation arising from IFRS 16 A final IFRS 17 Insurance Contracts standard three Market Units, and the provision for 7 and capital expenditure and the impact of £16m relating to the Bupa Cromwell Hospital (c.£170m) and a non-recurring inflow in 2018 has not yet been issued, but it is expected to expected credit losses on Bupa Acıbadem . IFRS 16 which became effective on 1 January which reflects lower forecast operating cash related to the disposal of UK care homes, net be effective for annual periods beginning on Sigorta investments. 2019. flows. In Europe and Latin America, £21m of cash generated from operating activities was or after 1 January 2022. A group-wide project customer brands in Bupa Chile was impaired, The return-seeking asset portfolio showed down by c.£240m or c.26%. At 31 December 2019, we had drawn £230m While the application of IFRS 16 accounting is underway to assess the detailed application under our £800m revolving credit facility, which along with an impairment of £3m in Sanitas gains in the period of £28m (2018: £1m loss). Net cash used in investing activities increased standard does not change our risk profile, it and implementation of IFRS 17. It is currently is due to mature in August 2022. We focus on by £22m to £565m (2018: £543m). In January requires all our lease assets and liabilities to be expected that the simplified premium managing our leverage in line with our credit 2019, we completed the acquisition of capitalised on the IFRS and Solvency II allocation approach option will be available rating targets. Leverage excluding leases at Acıbadem Sigorta, and invested in growth and balance sheet. The value of both lease assets for the majority of the Group’s insurance 31 December 2019 was 25.1% (2018: 23.5%). development including integrated care home and liabilities at 31 December 2019 on the contracts, so a significant change in the 2019 2018 Solvency II balance sheet was £1.0bn. The measurement basis is not anticipated. The £m £m and village developments in New Zealand, a Coverage of financial covenants remains well retirement village development in Australia within the levels required in our bank facilities. lease assets attract a property risk charge presentation and disclosure requirements Australia and New Zealand at CER 160 304 together with the continued expansion of our under the Solvency II Standard Formula, which of IFRS 17 will, however, differ considerably Europe and Latin America at CER 156 169 dental centre network in Australia, the UK, increased the SCR by £0.2bn, and as a result, compared to the current approach. Bupa Global and UK at CER 117 187 Spain and Poland. In 2019, there were lower reduced our coverage ratio. Other businesses at CER 46 40 proceeds from sale of property and reduced purchases of financial investments compared Underlying profit for reportable segments at CER 479 700 to last year. In addition, we increased our stake Central expenses and net interest margin at CER (63) (97) in Bupa Arabia to 39.25% in August 2018. Consolidated underlying profit before taxation at CER 416 603 Net cash used in financing activities increased FX retranslation on 2018 results (CER/AER) – 10 to £219m, a change of £54m from last year. Consolidated underlying profit before taxation at AER 416 613 This reflects a drawdown on our revolving Risk Sensitivities Impairment of intangible assets and goodwill arising on business combinations (443) (36) credit facility to fund the acquisition of Net loss on disposal of businesses and transaction costs on business combinations (31) (36) Acıbadem Sigorta partly offset by the IFRS 16 presentational change. Group – Risk Sensitivities SII Coverage Ratio Net property revaluation gains/(losses) 6 – Solvency Coverage Ratio 159% Realised and unrealised foreign exchange losses (23) (8) Property values -10% 147% Other MU and Group non-underlying items (31) (30) Gains/(losses) on return-seeking-assets, net of hedging 28 (1) Loss ratio worsening by 2% 152% Total non-underlying items (494) (111) Interest rate -100bps 157% Statutory (loss)/profit before taxation at AER (78) 502 Sterling depreciates by 10% 157%

Group Specific Parameter (GSP)† +0.2% 158%

Credit spreads +100bps* 158%

Pension risk +10% 159%

Equity markets -20% 159%

7. IFRS 16 moves c.£170m of cash outflows in relation * Assuming no credit transition. to lease payments from operating activities to financing † Group Specific Parameter (GSP) is substituted for the insurance premium risk parameter in the standard formula, activities. reflecting the Group’s own loss experience.

32 33 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Section 172(1) statement Engaging with our stakeholders

The Board has a duty to achieve Communities and the Company’s purpose of Customers People Regulators Association Members helping people live longer, Environment healthier, happier lives. It does this by having regard for the interests  Customers are at the heart of our business. As a service organisation, our people are Bupa operates in highly regulated We appoint AMs to carry out the governance We play an active role in the communities of our customers, our people, our We aim to deliver truly outstanding key to our business. We want our people environments across all its business areas. and oversight role usually performed by in which we operate and take care of relationship with our suppliers and customer experiences, ensuring great to feel engaged and empowered to deliver Regulators ultimately aim to protect shareholders. This includes voting on the environment. We have dedicated the impact of our operations on clinical outcomes and value for money. great outcomes for our customers and customers and ensure that they receive resolutions at the AGM that shareholders Foundations in Australia, Spain and the be healthier and happier themselves. high levels of care and are treated fairly. would usually be asked to approve. UK to channel some of our investment. The Board receives a global customer the communities in which we This clearly aligns with our strategy to Dashboard regularly, which includes The Board discusses the results of the twice- All Board Directors are automatically Community and the Environment form two operate, and to ensure that we put our customers front and centre. key metrics to track how we are yearly employee survey (People Pulse) which appointed as AMs. All AMs, other than pillars of our CRS strategy and we currently maintain a reputation for high performing for our customers. assesses engagement across the Group. Our regulators expect us to: Directors, normally serve for an initial have a global focus on mental wellbeing term of ten years which can be extended and resilience. We have recently partnered standards of business conduct. Key issues for customers include: The Board has engaged directly –– maintain sufficient capital to for further terms of five years. with Mind in the UK to provide mental with employees through site visits back our insurance business –– affordability of health insurance health resources for children and young and ‘town hall’ meetings. AMs have no equity holding in Bupa Bupa’s status as a company without –– have robust and effective processes people and for those who support them. –– high-quality products with broad and no right to dividends, only receiving shareholders means that we cannot Key issues for employees across the Group, and controls in place to mitigate coverage and high standards of care reasonable expenses for travelling We are evaluating the business risks and distribute our profits and must based on the People Pulse results include: risks to protect our customers for Bupa meetings or events. opportunities associated with climate change, reinvest them. –– simpler and quicker access to services, –– company prospects – being –– provide high-quality, clinically closely managing our environmental impact such as through digital applications. They are eminent individuals in their own Our key stakeholders are our customers excited about Bupa’s future robust services and actively promoting positive environmental field, coming from a diverse range of sectors and our people. Our suppliers, Association The Board has engaged with customers practices. In 2019, we started to define our –– customer focus – helping to deliver –– ensure that we operate in a sustainable way. including international businesses – with an Members (AMs), bondholders, regulators through site visits and call listening. new set of ambitions to respond to the a great customer experience emphasis on insurance and financial services, and the communities we operate in are We have a regular programme of interaction current environment of climate emergency. healthcare, academia, non-governmental also important stakeholder groups. All More information can be found on P12 –– collaboration – focusing on efficient and with the Group’s lead insurance regulator and organisations, regulatory and public service. key Board decisions take into account effective working practices across teams engage with them on key Board decisions. More information can be found on P22 the impact on relevant stakeholders. –– empowerment – feeling empowered to AMs are selected based on recent and relevant experience in their field, Increasingly, stakeholders are looking make decisions regarding their work. independence from Bupa, the capacity to Below: Sanitas Inclusive Sports Week 2019, Spain. to understand our performance across We operate several lines of business in make a contribution and experience in the key multiple areas from performance to Investors numerous markets and the issues important overseas markets in which Bupa operates. products and services, innovation, to our people vary by market and business. governance, workplace practices Our approach is therefore led locally with We engage with AMs through the Annual and corporate citizenship. The Board all teams planning actions in the light of the General Meeting, which includes a seminar endeavours to gain an understanding People Pulse results, and local boards and The Group has a number of debt securities providing an in-depth view of a particular of the perceptions and attitudes of management teams engaging with their in issue through Bupa’s subsidiary company, aspect of the business, calls on our Half-Year each stakeholder group and the weight people on the issues important to them. Bupa Finance plc, and is therefore and Full-Year results, briefing sessions on the they give to different issues. Where the required to operate in accordance with business each year, and regular email updates. views of different stakeholder groups More information can be found on P16 the relevant UK Listing Rules, Disclosure The Group CEO, Chairman, Senior do not align, the Board must decide on Guidance and Transparency Rules. Independent Director and Group the best course of action to promote Briefing calls are held for bondholders to Company Secretary are available to the Company’s long-term success. discuss the Full-Year and Half-Year results. the AMs throughout the year. This provides an opportunity for them to AMs are interested in all aspects of the question management on the financial business from strategy and performance performance and strategy of Bupa. Our CFO to our products and services and the Suppliers and Group Treasurer hold roadshows for standard of care provided to customers. bondholders annually, and other significant developments are communicated via regulatory announcements, press releases Suppliers are critical to delivering a high- and published on our website bupa.com. quality service to our customers and include Investors are interested in the hospitals, consultants, systems suppliers and Group’s performance and also in suppliers of products to our hospitals, clinics, our wider Environmental, Social and dental centres and care homes. We aim to Governance (ESG) activities. treat our suppliers fairly and pay them within agreed timescales, holding ourselves to high standards of business conduct. We work with our suppliers to ensure that they have effective controls in place to protect our customers’ health and safety and the security and privacy of their data.

34 35 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Section 172(1) statement continued Engaging with our stakeholders continued Risks

Embedding a strong risk –– monitoring the resolution of regulatory Our approach to risk Board decisions and their impact on stakeholders management culture is a compliance issues and addressing clinical risk in our Australian aged care business management strategic priority across Bupa. The table below sets out a number of decisions taken by the Board during the year and how stakeholder views were taken into account. and the progress of the Royal Commission Governance into Aged Care Quality and Safety; Further information on some of these decisions can be found in the Governance section on page 52. This focus on culture is essential in order We have governance processes overseen by to respond to changing environments and –– reporting on the results of the Governance non-executive directors at Group Board level Decision How we took stakeholders into account Long-term implications evolving regulation. This means we can better Effectiveness Review requested by the and at subsidiary board level for our main foresee the potential risks that could affect our Board - this included a recommendation to insurance subsidiaries (more on our System Setting our Customers, People, AMs and Communities and the Environment: Our Five-Year Vision aims to: customers and our business, and to mitigate review the operating model to clarify and of governance on page 46). Our vision for 2024 – to be the most trusted health insurer and provider – is focused on –– deliver outstanding experiences and them. Together with our controls, ensuring a document roles and responsibilities; the Five-Year our customers. The Board Risk Committee receives reports outcomes for our customers strong risk culture helps us to continue to operating model has now been revised, The Board looked at how the Group can best address the opportunities and challenges from the Chief Risk Officer, Chief Medical Vision –– ensure our business is sustainable in serve our customers well and meet including reducing the market units from arising from current global healthcare trends such as ageing populations, rising demand, the long-term Officer and other Bupa executives as our stakeholders’ expectations. four to three; rising costs of medical technology and affordability for customers. –– retain our competitive advantage by appropriate, and sees reports and minutes Achieving our vision will require investment in the business which Bupa is able to do to providing high-quality products and Our comprehensive risk management –– improving our regular risk reporting to the from the major insurance subsidiary boards’ a greater extent than our competitors due to our status. This includes investment in our services programme ensures that risk management Board Risk Committee to assist in its people to attract, retain and develop outstanding people and leaders. risk committees and the Group level executive comes as second nature to everyone at Bupa effective oversight; risk committee, Bupa Enterprise Risk Our CRS strategy is also an important part of our vision. See the CRS section on page and they are equipped to manage risk. We 22 for more information on the CRS part of our vision. Committee (BERC). The BERC is responsible have tools in place to achieve this, including –– reviewing the risks to Bupa associated with Our vision also provides AMs with a framework to assess and challenge the Company for the leadership and oversight of risk across the Bupa Code, risk appetite statements, the UK leaving the EU, particularly in the event on its achievement of strategy. of no deal in future trading relationships; the Group and recommends risk appetite to Enterprise Policies and the ‘Speak Up’ the Board Risk Committee and the Board. whistleblowing process (see more on –– reviewing the risks associated with changing The BERC is chaired by the Group CEO. Effective Customers, Bondholders, AMs and Regulators: Managing our risks appropriately People pages 16-19). regulatory and political environments across In 2018, the Board asked the Group Risk function to undertake a Governance ensures Bupa’s long-term sustainability the Group; Each of our main insurance entities is overseen and efficient Effectiveness Review across the Group to ensure that governance and risk management so that we are here for our customers Standards and expectations continue to rise by a local Board and a local Board Risk governance activities are appropriate and effective in delivering the right risk and control outcomes. now and in the future. in order to ensure appropriate outcomes –– undertaking a stress and scenario testing Committee, consisting mainly of independent The results of the review were received in early 2019 and actions were agreed to It has also improved the Group’s risk for customers, markets and our business. programme to improve our understanding Non-Executive Directors (NEDs) who oversee implement the recommendations, which the Board then monitored through updates management and internal control Our businesses are exposed to a wide range of of severe risks and how they may affect the the Risk Management Framework. The during the year. processes and driven improved business plan in both our insurance and collaboration. political, regulatory, legal and economic risks. subsidiary boards receive regular reports from The review helped us ensure that we have strong governance in place and can healthcare provision businesses, including demonstrate this to all our stakeholders, particularly our AMs, bondholders and Our health insurance, provision – including local management and Chief Risk Officers. regulators. This also ensures that we are operating in a sustainable way, mitigating risks dental – and aged care activities also have the impact of climate change; to ultimately protect our customers. While investors have traditionally focused on different risk profiles including clinical risk. –– continuing to improve our information performance, they are increasingly taking ESG factors into account and therefore the We manage these profiles by understanding Approach and implementation interests of the relevant stakeholder groups aligned well in this instance. This activity has security and privacy controls to respond also ensured that we maintain high standards of business conduct. the factors behind the risk to each individual to the ever-evolving external environment; We use a ‘three lines of defence’ approach to business and to our balance sheet, and by risk management. –– continuing to improve our wider information assessing how these risks interact, making technology and IT operational resilience We manage risk across our health insurance, Simplifying People and Customers: The revised operating model provides sure we are in the best place to manage The revised operating model was agreed following a recommendation from the improved risk management and has controls; and provision and aged care businesses in line with our operating and diversify our risks. our Board-approved Risk Management Governance Effectiveness Review. delivered cost savings. It should help –– reviewed the progress on integration of accelerate organic growth of our model The ultimate benefit for our customers and workforce through strengthened our most recent acquisition of Acıbadem governance and increased efficiency outweighed the impact on a smaller part of our businesses. Progress in 2019 workforce where a number of redundancies were made. Where possible, people were Sigorta in Turkey. redeployed to other roles. We strengthened our approach to risk See the Risk Committee Report on P66 for more on how management and how we embed this the Committee oversee management of these issues capability within the business. Our approach Customers, People and Suppliers: Investing in Investing in digitisation will help Bupa is in line with the evolution of our business We are investing significant amounts in technology capabilities to protect our meet changing customer expectations technology customers’ and peoples’ privacy and digitise our customers’ experience, including to interact with us more digitally and as a whole and how risks are evolving globally. capabilities ensuring our suppliers manage information security and privacy risks to a high standard. make processes more efficient, in turn We continued to embed all aspects of our Risk “ In 2019, we strengthened helping us provide affordable products. The Board considered this investment to be critical to the Group’s future success and Management Framework into our business by: agreed that capital should be allocated to this activity in priority over investment in As standards in information security our approach to risk other initiatives such as inorganic growth. This also benefits our people by making their and privacy continue to evolve we –– conducting in-depth reviews of specific management and how jobs easier and enabling them to spend more time on value-adding activities. need to invest to protect our aspects of risk as they arise in the external Decisions are sometimes required to invest in one initiative or system over another and customers’ data and maintain their we embed this capability trust in Bupa. environment and focusing on specific areas the Board considers the benefit to the Group and relevant stakeholders to ensure that of risk for our insurance and healthcare capital is invested in the most effective way. within the business.” provision businesses;

–– performing an assessment of the physical, David Fletcher transitional and liability risks to Bupa Customers and People: These investments will deliver organic Chief Risk Officer Care homes associated with climate change; During the year, the Board approved significant investments to develop a new care growth in our aged care businesses. investment home, assisted living and independent living village in our Richmond Villages business in the UK and to develop an integrated care village in New Zealand. These will grow this area of the business organically and provide high-quality care to residents as well as creating new jobs.

36 37 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Risks continued

Framework. This sets out the principles behind The risks set out in the table below are in order of the solvency capital required to mitigate them. a robust and continuous risk management Risk management life cycle Risk Description Comment and outlook Mitigating actions system in our first line of defence. This ensures that: Property The risk of the volatility in values –– We generally own rather than rent –– By maintaining a geographic spread or the devaluation of properties property. This could leave us exposed of businesses across a number of –– we identify current and emerging risks to held for own use (including owned to falls in property values. countries, we are able to diversify the businesses and strategy and understand care provision properties), or for exposure to national or regional –– Care home valuations are based on their the potential consequences; investment purposes, resulting property markets. trading potential based on discounted in adverse impacts. –– we have clear and established risk appetites cash flow techniques. within which we operate (these are Identify This includes capital associated discussed further below); with leased properties following the introduction of IFRS 16. –– we take appropriate and effective steps to mitigate and manage identified risks. –– we use risk management information to Insurance Risks relating to our insurance –– Health insurance is short-tailed with –– The relatively short-tailed nature of help inform risk-based decisions across businesses. Risk of inadequate lower outstanding claims as a Bupa’s products allows us to respond the business; and Report Assess pricing and/or underwriting of percentage of revenue than most to market changes quickly, although insurance policies, and of claims general insurers. this can be limited by government set –– there is clear ownership of, and experience being materially pricing controls in some markets. –– Insurance risk exposure will grow in step accountability for, risk. adversely different to expectations. with planned growth in premium income –– We have extensive control mechanisms We have a culture in which: of the insurance businesses. in place to ensure that reserves are adequate to mitigate against the risk –– appropriate risk behaviours are encouraged of higher-than-expected claims costs. and rewarded; –– The geographical diversity of Bupa –– inappropriate behaviours are challenged offers further mitigation against with appropriate consequences; and insurance risk. –– risk events are communicated quickly without fear of blame. Monitor Manage Currency Risk arising from changes in the –– As the net assets of businesses outside –– Currency translation risk is, where We have well-established reporting systems level or volatility of currency the UK grow, there will be a possible, significantly mitigated through in place to make sure that major risks to our exchange rates impacting on cash corresponding increase in currency risk a hedging programme. businesses are identified, escalated, managed flows and assets held in currencies in relation to translation into sterling. –– We limit currency risk exposure through other than sterling, and on the and mitigated. We carry out detailed reviews –– There is transaction risk relating to asset liability matching in local financial statements. and in-depth analyses on particular risks policies for which premiums and claims currencies. where required, and have a stress and are in different currencies. scenario testing programme for key risks. Risk appetite Our Enterprise Policies define the way we conduct business. The policies are reviewed annually and Our Board risk appetite is a measure of the degree of risk we are prepared Credit Risk of a loss in value of bond assets –– Our health insurance businesses have –– Our bond portfolio is small in relation cover all key areas of risk for our health insurance, to accept in our work to deliver on our strategy. Our core risk appetite and/or that a counterparty fails to modest holdings of corporate and other to our other financial assets and the provision and aged care businesses. These are statements focus on: spread and meet its obligations in the face of bonds. majority is investment grade. adverse economic conditions. This implemented by our Market Units and in Group –– the treatment of customers and employees; counterparty –– These are exposed to the risk of –– Counterparty exposure is managed by also includes the risk of a loss in widening spreads and defaults. dealing with highly-rated counterparties Functions, and overseen by Group Functions default value of the bond assets held within –– management of our financial strength; with exposure limits defined by Group to ensure compliance with the requirements in the pension schemes. –– There is banking counterparty default Treasury Policy. each Market and Business Unit. Each policy has –– the sustainability of our business; and risk in respect of deposits. a designated owner with defined roles and –– operational risk, including information security; privacy and clinical risks. responsibilities at both enterprise and local levels. The risk appetite statements are reviewed annually, with the Risk Our annual Internal Control and Risk Committee recommending any changes to the statements to the Board Operational Risk of loss arising from inadequate –– We are committed to managing –– Maintaining internal control processes Management Assessment tests how for approval. or failed internal processes, or from operational risks effectively. This includes and governance frameworks, approving effectively we put the Risk Management (including personnel, systems or external continued close attention to risk policies and assessing compliance Framework into practice. This is a self- conduct risk events. This risk also includes management of regulatory risk and help to mitigate this risk. conduct risk (the risk that our proactive engagement with regulators. assessment which evaluates our internal –– The Group Clinical Function, led by the and clinical risk) behaviours, actions or controls control and risk management practices Risk profile –– If we expand our provision and aged Group Chief Medical Officer, is result in detriment or unfair care businesses, there will be an increase responsible for ensuring clinical quality and policy compliance across Bupa. outcomes for our customers), in inherent exposure to clinical risk. This and governance within the business. We accept risk as part of our business. Some risks are avoidable while and clinical risk (the risk of injury, The assessment is conducted by the first line is actively managed through continued others are part and parcel of our business model. We have an effective risk loss or harm to customers in receipt of defence and reviewed and challenged by refinement of our approach to clinical management system and internal controls in place to mitigate these risks. of healthcare). the second and third lines, with the results risk governance. presented to the Board Risk Committee. We maintain significant economic capital as a means of mitigating certain The importance of risk management is inherent risks. This reflects the nature of our operations and the level of risk reinforced by the effectiveness of our risk associated with them. management processes being a factor in remuneration decisions.

38 39 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Risks continued

Some significant risks to Bupa, such as operational risk, cannot be effectively mitigated through holding capital alone, although we do hold Risk Description Comment and outlook Mitigating actions significant capital for operational risks. Our Market Unit Executive Risk Committees regularly review these residual risks and the mitigating actions taken to reduce them. They also inform the Risk Committee and BERC about key areas of specific concern. This provides management with a view External market The risk of geopolitical volatility, –– This includes structural market changes –– We have refreshed our Strategic changing customer dynamics and (e.g. political change or medical inflation) Framework this year to continue to of the priority areas in which resources should be focused. The table below reflects the themes of the most significant risks currently facing Bupa. conditions competitor activity having an and economic volatility. address these areas. This list and the residual risks for each remained relatively stable throughout 2019 with additional focus on climate change risks. adverse impact on our business –– We have an established process to consider model. the emerging and strategic risks to the Risk Description Comment and outlook Mitigating actions Group to identify appropriate responses. Information The risk of significant financial and –– Businesses are increasingly being targeted –– We have a detailed programme of UK exit The UK’s decision to leave the EU has –– Bupa’s key financial metrics remain strong, –– We have established a new entity in reputational impacts due to a failure by cyber attacks. activities across Bupa to appropriately led to uncertainty for our business. with a Solvency II capital coverage ratio of Ireland to provide continuity for our Bupa security to appropriately secure information mitigate this risk. from the EU 159% from 191%. While uncertainty around Global customers within the European (including personal information). the UK-EU future relationship negotiations Economic Area following the loss of EU including –– We continue to invest in technology may impact sterling, as a Group with passporting rights. cyber-resilience capabilities to further enhance security significant operations outside of the UK –– We have monitoring and risk management and privacy, and digitise customer this would lead to higher reported profits plans in place to protect Bupa’s position experience. in the short term. Operationally, currency from a customer, people and performance risk is actively managed as described on –– Sub-committees of the BERC, specifically perspective. We recognise that the page 39 above. focus on both information security and impacts of the UK leaving the EU are likely to crystallise over time at an operational privacy risks while delivering continual –– Liquidity is robust and the investment level and will be dependent on a range service improvements through our digital portfolio is largely low risk, focused in of political and economic factors. transformation. bonds and cash. Environmental The risk that our activities cause harm –– Climate change is one of the major risks we –– We have a corporate responsibility and to the environment, and the risks that face as a society. We closely manage our sustainability policy which includes The risk of adverse impacts due to –– Regulatory requirements and expectations –– We continually review and improve our Privacy and climate climate change could have for our environmental impacts and promote environmental considerations and is failure to handle personal in relation to privacy are increasing globally. controls over the management and business and on people’s health. positive environmental practices. reviewed on an annual basis. information fairly, lawfully and security of personal information. change risks –– This is also true of customer expectations –– We have established the CRS Committee securely. –– We performed an assessment of the as people become increasingly more aware –– We have appointed Data Protection to advise management on actions to physical, transitional and liability risks of the value and risks associated with Officers and other privacy experts as part address environment and climate associated with climate change. We have personal information. of our enterprise-wide privacy Risk change risk. minimal direct investment and insurance Management Framework activities to help exposures related to physical risks, –– The short-tailed nature of our products manage this risk. although, as we saw in early 2020 with the allows us to respond to these Australian bushfires affecting some of our developments, although this can be limited care homes, climate-change related events by pricing controls in some markets. We Changes in The risk of failure to anticipate or –– Our health insurance, provision and aged –– All our markets have defined key activities can increasingly affect our operations in continue to work to ensure our business is influence changes in governmental care businesses are subject to government to make sure we can continue to monitor our provision businesses in particular. equipped to anticipate and mitigate the government and regulatory environment which and regulatory policy, including minimum and assess the strategic implications on health impacts of climate change. –– We may be impacted by adverse economic may impact our customers and the wage requirements, prudential our businesses of any future changes in –– We stress tested the impact of climate and regulatory outcomes from the transition to a lower- viability or profitability of our requirements, changes to tax regimes and policy or regulation, and advocate for change scenarios on our investment carbon economy that may impact the ability policy business. the interpretation of existing tax practices, appropriate change in these areas. profile. We will continue to explore further of our customers to afford our products. pricing controls in some of our health potential scenario analysis and stress tests insurance businesses and clinical care –– The direct impacts of climate change on to perform. requirements for our provision and aged health are becoming more evident. care businesses. –– In Australia, the government-approved There are further risks that capital cannot appropriately mitigate which remain a priority for management. These are detailed in the table below. premium increase for our customers was Risk Description Comment and outlook Mitigating actions lower than claims inflation in the last couple of years. This is affecting results across Liquidity risk The risk that we hold insufficient liquid –– Liquidity risk is addressed not through –– This is mitigated by the Treasury function the industry. financial resources to enable us to meet capital but by holding liquid assets and actively managing borrowings, for which our obligations as they fall due or to maintaining appropriate controls. the amount and timing of outflows are take advantage of potential known, and by maintaining a portion of –– Policyholder liabilities are predominantly opportunities, or of being able to secure the bank facility undrawn. The risk that we are not providing –– The Group Clinical Function, led by the –– This has been the primary area of focus backed by liquid assets, so our liquidity risk Clinical risks, such resources only at excessive cost, the right clinical outcomes for our Group Chief Medical Officer, is responsible for local management and a range of exposure primarily relates to the funding resulting in adverse impacts. particularly customers. for ensuring clinical quality and governance activities are underway and have been risk associated with borrowings. in Australia within the business. completed. The risk that we are unable to design –– Global trends and key areas influencing our –– Our purpose – helping people live longer, –– We have a Clinical Risk Enterprise Policy –– In Australia, we have been working with Strategic risks Aged Care or implement appropriate business markets are set out on page pages 26-29. healthier, happier lives – and our values in place. the regulator to make improvements in plans and strategies, to make shape how we act and deliver for our order to enhance care and support for –– The prevalence of social media has decisions, to allocate resources, or to customers and our people. our residents and their families. increased the contagion risk to our brand adapt to changes in the business –– Through the identification and assessment and reputation from events in one part of –– In addition, we are engaging with the environment. of emerging risks, we can react to issues the Group impacting the whole Group. Royal Commission into Aged Care Quality in a timely and appropriate manner. This includes the risks associated with and Safety which is examining the whole acquisition and disposal decisions and –– We are enhancing our capability to ensure aged care system in Australia. their implementation. our businesses remain operationally resilient to ensure that we continue to provide for our customers.

40 41 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Chairman’s introduction to governance

Strong governance and risk Board balance and diversity Investing for the future management are key to achieving The diversity and balance of skills, knowledge We have continued to invest in technology our vision of being the most and experience on the Board bring different capabilities, with the Risk Committee trusted health insurer and provider. perspectives which challenge the ‘accepted overseeing progress on managing these key view’. We have made a number of risks. The Remuneration Committee has The Board’s role is to provide clear appointments to the Board during the year to worked hard during the year to review the leadership in setting strategy and maintain and broaden the Board’s diversity. effectiveness of our Remuneration Policy and risk appetite, and to oversee Professor Melvin Samsom’s appointment establish the new Group Performance Plan. ensures continued medical expertise on the The revised Remuneration Policy will be management’s implementation Board following Sir John Tooke’s retirement. submitted to our Association Members for of that strategy within a prudent Cath Keers’ appointment adds experience approval at this year’s Annual General Meeting and effective governance and of digital technology and marketing, which (AGM). More details can be found in the is important for the future growth of Directors’ remuneration report on page 70. risk management structure. our business. The following pages explain how Ensuring good governance the Board and its Committees Getting to know our people We have applied the 2018 UK Corporate achieve this. In my first year as Chairman, I have enjoyed Governance Code (the Code) during the year getting to know our Association Members and disclose in this report how we have met better and spending time at our locations its requirements. The Board also conducted around the world, meeting the people at the an externally facilitated evaluation of its heart of our business. During my individual effectiveness during the year which gave us visits, and also when travelling with the full some valuable insights and actions to work on Board, I have spent time with our people, during 2020. The results are summarised on to understand the issues important to them. page 59. During 2020, the Board will continue I will continue to do this in 2020. We are to focus on delivering our Five-Year Vision also further strengthening our engagement and strengthening our governance and risk with the boards of key subsidiaries through management practices. cross-directorships, attendance at each other’s Governance meetings and regular calls between Group and subsidiary board and committee chairs.

Challenges in 2019 Bupa has faced significant challenges during Roger Davis the year in our Australian aged care and UK Chairman dental businesses. The Board and Committees have closely monitored these areas to ensure that the right actions are taken to address these issues in a sustainable way. The Audit Governance Committee carefully considered the impairments of goodwill and intangible assets 43 Chairman’s introduction to governance in our Australian aged care and UK dental care 44 Board of Directors businesses, challenging management to ensure that the level of impairment was 46 Bupa’s system of governance appropriate and the right actions are being “Strong governance taken to address the causes of the 50 Leadership impairments. More detail on this can be found and risk management 61 Audit Committee report in the Audit Committee’s report on page 61. are key to achieving 66 Risk Committee report our Five-Year Vision 68 Nomination and Governance and purpose.” Committee report 70 Directors’ remuneration report Roger Davis 86 Other statutory information Chairman

Key Environmental Social and Governance (ESG) content contained in this section

42 43 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Board of Directors

Roger Davis Joy Linton Paul Evans She is Chairman of Ustwo, a digital Matías Rodríguez Inciarte Caroline Silver 1 3 5 9 11 Board Chairman/N/Re Chief Financial Officer Non-Executive Director product and games studio, and a Non-Executive Director/Ri Non-Executive Director A/N/Ri Non-Executive Director of Sage Group A/Re/Ri Roger was appointed as Chairman in Joy joined Bupa in 2011 and was plc and Funding Circle Holdings plc. Matías joined the Board in 2019, and is 2019, having joined the Board in 2015. appointed CFO in 2016. She is a Paul joined the Board in 2018 and is a member of the Risk Committee and Caroline joined the Board in 2017, 1 2 3 Previously, Cath was a Non-Executive He is Chairman of the Nomination and member of our Corporate a member of the Audit, Nomination Deputy Chairman of Sanitas Seguros, is Chairman of the Risk Committee Director of Royal Mail, LV=, Telefonica Governance Committee and a member Responsibility and Sustainability and Governance, and Risk Committees. Bupa’s Spanish insurance subsidiary. and a member of the Audit and Europe, TalkTalk Telecom Group plc of the Remuneration Committee. Committee. Joy is also a director He also joined the boards of Bupa’s Remuneration Committees. She brings and Home Retail Group Limited. She Matías brings experience of Spanish of two Bupa associated insurance UK regulated entities in 2019 and over 30 years of experience in Roger has extensive business has held a number of commercial roles, financial services, risk management businesses, Max Bupa in India and chairs their audit committee. international investment banking as experience and an international including marketing and business and government to the Board. He is Bupa Arabia in Saudi Arabia. She was well as extensive experience in advising mindset acquired during a wide- Paul is a Chartered Accountant with development at Sky TV, Avon, Next, Chairman of Unión de Créditos previously CFO of our Australian clients and regulators across Europe. 4 5 6 ranging career in financial services. over 30 years’ experience in the Inmobiliarios, S.A., E.F.C. and a Health Insurance business, Finance and and O2, and was Chairman of financial services industry. He is a Non-Executive Director of Financiera She is a Managing Director at Moelis & Roger is Chairman of Sainsbury’s Bank, Commercial Director of Bupa ANZ and Tesco Mobile. Non-Executive Director of Swiss Re El Corte Inglés E.F.C., S.A, both credit Company, Chairman and Interim Global RadioData Communications then Interim Chief People Officer and Europe SA, Swiss Re International SE institutions; and an Independent Executive Chairman of FMCG Group and Future for Heroes. General Manager, Health Services, Nicholas Lyons and Anorak, a digital insurance 8 Director of Financiera Ponferrada SA PZ Cussons plc, a Non-Executive He has extensive experience in the Bupa UK. Non-Executive Director business, and chairman of the board Sicav, a Spanish investment fund. He is Director of Meggitt plc and a UK and Asia with previous positions A/N/Re Joy brings over 30 years’ experience in of trustees of Youth@Heart. also Head of Santander Universities, Non-Executive Director and Senior including Managing Director of India financial and strategic roles in Australia a Department of Banco Santander in 7 8 9 Paul spent 13 years with Nicholas joined the Board in 2018 and Independent Director of M&G Plc. She for Jardine Fleming, Chief Executive and the UK. Prior to joining Bupa, she charge of Santander’s Programme PricewaterhouseCoopers before is a member of the Audit, Nomination is also a Trustee of the Victoria & Albert Officer of BZW Asia Pacific, and was CFO of National Foods, one of with Universities. joining AXA where he held a number and Governance, and Remuneration Museum. Chairman and Chief Executive of Australia’s largest food and beverage of senior roles including Chief Financial Committees. He is also the Chair of His early career included roles in the A Chartered Accountant, Caroline was Barclays Capital Asia Pacific. He left companies. She was also a Non- Officer of AXA UK, CEO of AXA Life, our Corporate Responsibility and Spanish civil service and as a Minister previously Vice Chairman of EMEA Barclays as Executive Director and Executive Director of Bega Cheese Ltd, Group CEO AXA UK and Group CEO Sustainability Committee. in the Spanish Government. He then Investment Banking at Bank of Head of the UK Bank in 2005. He was an ASX-200 listed company, serving as of AXA’s global Life, Savings and Nicholas brings substantial experience held a number of executive roles at America Merrill Lynch and spent formerly a Non-Executive Director of Chair of their Audit and Risk 10 11 12 Health businesses. He is a former from his executive career and Banco Santander SA including 14 years at Morgan Stanley where she Experian plc. Committee. Chairman of the Association of non-executive roles at financial Executive Vice President and Chief held a number of senior positions Evelyn Bourke British Insurers. services and insurance companies. Financial Officer, and Vice Chairman including Global Vice Chairman of 2 Clare Thompson and Head of Risk Management. He was Group Chief Executive 4 He is currently Chairman of Phoenix Investment Banking and European Senior Independent Michael Hawker AM Group Holdings plc and Clipstone also Head of the Princess of Asturias Head of Financial Institutions. Officer 6 Director/N/A/Ri Non-Executive Director/Ri Industrial REIT plc and a Non- Foundation. Evelyn was appointed as Group CEO Executive Director of Convex Group. Janet Voûte Clare joined the Board in 2015 and is 12 in 2016 having joined Bupa as CFO Michael joined the Board in 2019, is a Professor Melvin Samsom Non-Executive Director Senior Independent Director, Chairman member of the Risk Committee and is In his executive career, Nicholas spent 10 in 2012. She is a member of our Non-Executive Director/Ri N/Re of the Audit Committee and a member Deputy Chairman of Bupa’s Australian 12 years at JP Morgan working in Corporate Responsibility and of the Nomination and Governance, Debt and Equity Capital Markets and Nationality Gender diversity D and New Zealand business. Melvin joined the Board in 2019 and Janet joined the Board in 2016 and Sustainability Committee, a Mergers and Acquisitions, and eight and Risk Committees. She is also is a member of the Risk Committee. is a member of the Nomination management advisory committee. a member of our Corporate Michael brings extensive knowledge years at Lehman Brothers as a A. British (5) 1. Men (6) Melvin brings substantial clinical and and Governance, and Remuneration Evelyn is currently a Non-Executive Responsibility and Sustainability and experience of financial services Managing Director in their European B. Australian (2) 2. Women (6) management experience from his Committees. She is also a member Director of the Bank of Ireland Group Committee, a management advisory gained over a long career in the Financial Institutions Group and finally C. Other European (4) career in gastroenterology as both a of our Corporate Responsibility and plc and a member of their Audit and committee. banking and insurance industries, in as Global Co-Head of Recruitment D. Other (1) C consultant and researcher and more Sustainability Committee. 2 1 Nomination and Governance both executive and non-executive roles with a focus on corporate culture, Clare brings a wealth of experience, recently as a hospital chief executive. Committees and on the Board of in Europe, Asia and Australia. diversity and inclusion. Janet brings an international particularly in finance and insurance, He is the Director of Health and perspective and experience gained A London First. Michael is Lead Independent Director He was previously the Chairman of and is a Non-Executive Director and Wellbeing and a member of the in corporate strategy, the health and Evelyn has a strong track record at Washington H Soul Pattinson Pty Miller Insurance Services LLP, Senior Chairman of the Audit Committee of executive board of Neom, a proposed care sector and consumer-facing and extensive experience in financial M&G plc. and Company Ltd and a Non- Independent Director and Chairman Non-Executive Directors’ new, futuristic city in the north-west businesses. She is Chairman of the services, risk and capital management, Executive Director of Macquarie Group of the Remuneration Committee of skills and experience Her executive career at of Saudi Arabia. Creating Shared Value Council at B and mergers and acquisitions. Ltd and Macquarie Bank Ltd where he Pension Insurance Corporation plc, PricewaterhouseCoopers included 23 Melvin began his clinical career at Nestlé SA, a Council Member at A qualified actuary, she also holds an chairs the Remuneration Committee. Senior Independent Director and Audit years as audit/lead partner on major the University of Utrecht in the SustainAbility, an ERM Group Finance, Financial Services MBA from London Business School. He was awarded the General Division Committee Chairman of Catlin Group and Regulation financial services groups during which Netherlands and also worked at Company, and serves as an Evelyn was previously a Non-Executive of the Order of Australia for services Limited, and a Non-Executive Director time she served as UK Insurance Lead. leading academic medical centres Ambassador of the International Director of the IFG Group in Ireland. to the community. of Temple Bar Investment Trust, Health, Care, Medical She was formerly a Non-Executive including the Royal Adelaide Hospital Integrated Reporting Initiative. Previously at Friends Life, she was Friends Life Group Limited and Friends Director and Chairman of the Audit in Australia and the Mayo Clinic in the Strategy Chief Executive Officer of its Heritage Cath Keers Life Holdings plc. Nicholas is also an Janet previously served as Global Head Committee of Bupa’s UK regulated 7 US. Melvin was formerly Chairman of division, and at Friends Provident she Non-Executive Director/Re Alderman of the City of London of Public Affairs at Nestlé SA and was Risk Management insurance subsidiaries, a Non-Executive the Supervisory Board of Stockholm was the Executive Director responsible Corporation and is involved with a a member of the board of Bamboo Director of Direct Line Insurance Group Cath joined the Board in 2019 and Care AB, a Supervisory Board member for strategy, capital and risk and, prior number of educational and charitable Finance SA. She also served as IT, Information Security and Digital plc and Retail Charity Bonds plc and a is Chairman of the Remuneration for TIAS School for Business and to that, Chief Financial Officer. organisations. Partnership Advisor at the World Non-Executive Member of the Committee. Cath brings substantial Society, Chief Medical Officer and Experience in our key markets Health Organization in the area of Partnership Board of Miller Insurance digital consumer expertise to the Bupa latterly Chief Executive of Radboud non-communicable diseases and Customer and Marketing Services. Clare is a Fellow of the Board, with over three decades of University Medical Center in The mental health and as CEO of the World Institute of Chartered Accountants in professional and leadership experience Netherlands and Chief Executive Heart Federation. Janet was formerly England and Wales. across the retail, consumer, digital and of Karolinska University Hospital Vice President and Managing Partner Committee key technology sectors. in Sweden. at Bain & Company Switzerland. Committee Chairman B Audit A Nomination and Governance N Remuneration Re Risk Ri

44 45 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Bupa’s system of governance

System of governance Our Board governance structure Bupa’s governance structure is designed to Key components of the Risk Management Framework enable the Board to lead within a framework of prudent and effective controls so that risk is effectively assessed and managed. As already Association Members (AMs) stated in the Risks section, our system of External oversight governance includes a Risk Management Hold Board to account Framework (RMF) implemented using a ‘three lines of defence’ approach. The RMF ensures that: –– all parts of the Group apply a consistent and robust approach to risk management Board –– current and emerging risks are identified Group oversight and the potential consequences of them Risk Management Risk Set strategy, risk appetite and culture are understood Processes Governance Take major decisions –– clear risk appetites are set within which the ORSA, stress and scenario – Committee business operates testing, ICRMA, Risk Structure Assurance and Risk –– appropriate and effective steps are taken Outcomes to mitigate and manage identified risks Governance Governance including using risk management information to make risk-based decisions Risk Management Risk Appetite Risk Management Framework Policies, standards, internal controls –– there is clear ownership of, and Lifecycle and Enterprise accountability for risk, without fear of blame Identify, Assess, Manage, Policies when communicating risk events Monitor and Report –– the culture in all areas of the Group encourages and rewards appropriate risk behaviours and challenges and sanctions Group CEO Risk Committee Audit Committee Remuneration Nomination inappropriate risk behaviours. Oversees risk Oversees the integrity Committee and Governance Has day-to-day authority to lead Committee The diagram opposite shows the key and manage the business management of the financial Sets remuneration components of the RMF. The diagram on the statements policy Board balance and preceding page shows how each of the ‘three Internal financial Rewards delivery diversity lines’ reports to the Board or its Committees. controls of customer outcomes Association Members Bupa Executive Team (BET) and strategy Internal audit Oversees corporate Supports the Group CEO in leading External audit governance the business and managing risk See P66 See P61 See P70 See P68

First line of defence Second line of defence Third line of defence

Market Units and Functions Risk, Compliance Group Implement strategy and Clinical Internal Identify, manage, monitor Governance Audit and report on risks Test, monitor Independent assurance and challenge risk of governance, Australia and New Zealand governance risk management and internal controls

Europe and Latin America

Bupa Global and UK

46 47 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Bupa’s system of governance continued

The roles of each line of defence are set out below together with a description of our ‘Speak Up’ First line accountability The Group Risk function is responsible for To maintain the function’s independence and External Auditor whistleblowing process. The role and activities of the Board and Committees in our system of the consolidation of risks across Bupa, and objectivity, the primary reporting line for the governance are described in the subsequent sections of this report. All our people are responsible for managing reporting them to management, through Chief Audit Officer (CAO) is to the Chair of the External audit provides independent risk and ensuring compliance with relevant the Bupa Enterprise Risk Committee, and to Audit Committee, which has responsibility for assurance to Association Members to The Board is ultimately responsible for the system of governance, RMF and setting policies. laws, regulation, best practice and Bupa the Risk Committee. It has established the approving the appointment (and removal) of provide confidence over the audited financial policies and processes within their role. This principles and framework that support the the CAO. For administrative purposes, the information in this Annual Report and ranges from care home employees following processes and procedures to identify, assess, CAO liaises with the Group CEO. GIA has no Accounts. KPMG LLP (KPMG) is our current 1st line Identify, manage and report procedures to keep our residents safe, to manage, monitor and report risks that the direct operational responsibility or authority External Auditor. The Audit Committee All our people in Identifying, assessing, controlling and mitigating risks to Bupa’s senior managers ensuring that they have provides clear guidance to KPMG on the objectives; compliance with Enterprise Policies, laws and Group is, or might be, exposed to. over any of the activities audited. Co-source Market Units and appropriate and up to date policies and arrangements are in place with external Committee’s expectations of KPMG as regulations; identifying, escalating and learning from incidents; The Function provides oversight and Functions procedures in place in their areas and that providers in order to access specialist audit External Auditor. The lead audit partner, reporting of risk positions, weaknesses and incidents. challenge of risk governance and risk their people are following these and reporting capability when that is deemed necessary. Philip Smart, attends all meetings of the Advise and support any breaches or incidents quickly and fully. management carried out by the first line and Audit Committee and Risk Committee reports on the quality and sufficiency of these An Internal Audit Charter is in place setting and provides regular reports to the Advise on the application of Enterprise Policies and external To assist our people to understand their first line activities to the Risk Committee. out the function’s role, authority and Audit Committee. regulations; set standards and provide advice on the design and responsibilities we have the Bupa Code which testing of controls to support compliance. This includes providing an opinion on the independence. GIA operates in accordance sets out how we expect our people to behave effectiveness of internal controls and with the Global Institute of Internal Auditors’ Philip Smart has been our audit partner

Monitoring every day, and mandatory training on key the management of risks within appetite. international standards and the UK Chartered since 2017 and it is intended that he will Monitor and test the effectiveness of controls and compliance with issues and role-specific training for frontline Further information on our approach to risk Institute of Internal Auditors Financial Services remain in this role until Bupa rotates audit Enterprise Policies and external regulations. people. We also run regular internal management and details of the principal and Code (FS Code). Following an annual review, firms, to ensure a smooth handover. This is in communications campaigns on key issues to other significant risks to the Group are set out the Internal Audit Charter was approved by accordance with Financial Reporting Council 2nd line Oversight and challenge maintain awareness. Each Business Unit in the Risks section on page 37. the Audit Committee in December 2019 and (FRC) standards on lead audit partner proposes target risk outcomes for the year rotation. As part of the annual evaluation of Risk, Compliance Independent oversight and challenge (including testing and is available on bupa.com. which are reviewed at Market Unit and Group the External Auditor, the Directors confirmed and Clinical monitoring) of risk governance and risk management practices management risk committees, monitored by that they were satisfied that the External Governance conducted by the first line of defence. Form an independent view Third line assurance on the quality and sufficiency of the business’ risk management local management and the outcomes Whistleblowing Auditor had maintained its independence Group Internal Audit (GIA) Information flow Information reported to the Risk Committee. The Internal during the year and to the date of this report. activities and internal control environment. We foster an open and honest culture which Control and Risk Management Assessment GIA provides independent and objective Advise and support includes encouraging and enabling our people KPMG has internal procedures and controls, (ICRMA) process assesses compliance with assurance to the Audit Committee over the Designing the RMF through which the business manages risk; to raise concerns of any malpractice or and follows the FRC’s Ethical Standard for our Enterprise Policies and is carried out by effectiveness of governance, risk and internal providing guidance and support to the first line of defence on how wrongdoing at Bupa in a secure and auditors to ensure that it remains independent. the first line and challenged by the second line. controls throughout the Group. It reviews the to embed the RMF. Aggregate risk information for analysis and anonymous way in cases where reporting There are no contractual obligations restricting It requires continuous monitoring of risk effectiveness of controls by undertaking an onward reporting to the Risk Committee and Board. directly to a manager is not appropriate or the the Group’s choice of External Auditor and management controls and real-time escalation agreed schedule of audits each year. concern has not been fully addressed. We run there is no limitation of liability in relation to of identified issues or gaps against Enterprise GIA supports Bupa in accomplishing its regular internal campaigns to raise awareness statutory audit activities in the terms of 3rd line Independent assurance Risk Policies. Each Market Unit CEO and purpose by helping the Board to protect the of ‘Speak Up’, Bupa’s internal whistleblowing KPMG’s appointment as External Auditor Examine and evaluate the adequacy and effectiveness of Bupa’s Enterprise Policy Sponsor provides an annual Group Internal assets, reputation and sustainability of the process, in addition to mandatory annual of the Company. Bupa has an Audit and governance, risk management and internal control processes in confirmation or opinion of compliance with Audit Group. It ensures that risks to our customers training. There are Speak Up officers for each Non-Audit Services Policy, setting out the relation to Bupa’s defined goals and objectives. Evaluate all Bupa each Policy. circumstances under which the Group’s processes including governance and risk management processes. and businesses are appropriately managed in business. The Audit Committee annually accordance with the risk appetite set by the reviews the policy to ensure that it is robust External Auditor can be engaged for non- Second line assurance Board. GIA reports its findings to the Audit and operating effectively, and recommends it audit services, recruitment restrictions for Committee and assists both the Board and to the Board for approval. The Board receives candidates with employment experience Risk and Compliance Function management in improving the effectiveness regular updates on issues reported through with the External Auditor and monitoring and The Chief Risk Officer (CRO) leads the Risk of Bupa’s governance and internal control ‘Speak Up’ during the year and on reporting requirements for Bupa employees, and Compliance Function and reports to systems. investigations and actions taken. contractors and temporary staff with close the Group CEO. He has unfettered access family members who are employed by the to the Chairman and to the Chair of the Risk External Auditor. Committee, which has responsibility for approving the appointment (and removal) of the CRO. Each Market Unit has a CRO and a Risk and Compliance team.

48 49 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Leadership

Bupa’s governance framework The Chairman and the The Senior Independent Director backgrounds who have direct experience of focused experience as well as leadership some of Bupa’s key markets. At Bupa, the and the role of the Board Group CEO Clare Thompson is the current Senior skills and I work at the forefront of innovation concept of diversity includes race, social, The Board is responsible for the long-term The roles of the Chairman and the Group CEO Independent Director (SID). Her role is to serve in healthcare. I have also worked in Australia educational and professional background, success and sustainability of Bupa for the are separate with distinct accountabilities. as a conduit for AMs and Directors who may and the United States and am currently disability, gender, sexual orientation, religion, benefit of its customers, now and in the future. have concerns that have not been resolved based in Saudi Arabia and so I bring The Chairman is responsible for leading the belief and age, as well as culture, personality, It does this by providing clear leadership in through other channels, to act as a sounding knowledge of different markets. I am building Board and focusing it on strategic matters, work style, and cognitive and personal setting strategy and risk appetite and by board for the Chairman and Group CEO on my knowledge of the health insurance overseeing the Group’s business and setting strengths. overseeing management’s implementation of Board and AM matters and to lead the annual products we offer across the Group. high governance standards. He plays a pivotal Diversity also includes a diversity of strategy within a prudent and effective review of the Chairman’s performance. role in fostering the effectiveness of the Board perspectives on what motivates and interests governance structure and ensuring that and individual Directors, both inside and Bupa’s existing and potential customers. We Bupa’s culture is aligned to our purpose, What are your first outside the board room. The Chairman is also Non-Executive Directors (NEDs) aim to ensure that candidates for the Board values and strategy. The diagram on page 46 Q impressions of Bupa? responsible for ensuring that there is effective and senior management are taken from as shows how the Board and its Committees Our NEDs provide an independent view on Q&A with Professor communication with the AMs, acting as a Melvin: This is the first single-tier board wide a pool as possible and the firms that oversee the business through the three lines of the running of our business, governance and sounding board for the Group CEO and Melvin Samsom (with management and NEDs on the same assist us in our recruitment are all signatories defence model. The Board delegates certain boardroom best practice. They oversee and representing the Group externally. With the “Bupa’s values resonated governing body) I have joined and it gets to the Voluntary Code of Conduct for activities to its Committees to ensure that constructively challenge management in its support of the Group Company Secretary, he you much closer to the business with more Executive Search Firms. As at the date of this there is sufficient time to discuss and provide implementation of strategy within the Group’s with me.” ensures that the Board receives accurate, frequent interaction with management. The report, 50% of the Board, and 42% of the BET, challenge in these areas, and to allow the system of governance and the risk appetite set Melvin joined the Board in April 2019 timely and clear information. by the Board. The Board considers each of the level of induction provided has also been are women. 36% of the direct reports of the Board to focus on key strategic decisions. In as a NED and is a member of the really good, with site visits long enough to The Group CEO is responsible for the current NEDs to be independent in character BET are women. turn, the Board is held to account by the AMs Risk Committee. Nearly one year in, we spend time with our frontline people which day-to-day leadership and management of and judgement and that there are no The appointments of Professor Melvin as set out in more detail in the Engagement asked Melvin for his thoughts on Bupa. is how you can get a good sense of the the business, in line with the Strategic relationships or circumstances which are likely Samsom and Cath Keers during the year, and with stakeholders section on page 34. culture. The Board has good discussions on Framework, risk appetite and annual and to affect, or could appear to affect, the the skills they bring to the Board, are discussed There is a schedule of matters reserved for the both current issues and forward-looking long-term objectives approved by the Board. judgement of each of them. What attracted you to in the Nomination and Governance Board, which includes: strategy and strategic matters and the Directors work The Group CEO may make decisions in all Q Committee Report. management; Group structure and capital; The Board comprises a majority of Bupa and what do you well together with plenty of debate and matters affecting the operations, performance financial reporting and controls; internal independent NEDs, and all Directors offer challenge. Given the focus on technology capabilities, the and implementation of strategy of Bupa’s bring to the Board? control and risk management; mergers and themselves for annual re-election by the AMs. Board engaged an independent cyber adviser businesses, except for those matters reserved Melvin: Bupa’s values resonated with me acquisitions and material contracts; and NEDs are appointed for an initial three-year during the year to provide expert advice and for the Board or specifically delegated by the and align to my personal values. It is a various corporate governance matters. The term, and any term beyond six years is subject What do you think will be to assist the Board in challenging Board to its Committees, executive customer and people-focused organisation schedule is reviewed annually and is available to particularly rigorous review. A copy of the Q management on information security matters. committees or subsidiary company boards. that feels very supportive, with everyone key focus areas for Bupa standard NED Terms of Engagement, setting In particular, he has advised on the on bupa.com. All other matters are delegated working together to achieve Bupa’s in 2020 and beyond? The Group CEO leads the BET in driving the out their expected time commitment, is appropriateness of management’s plans to to the Group CEO, who cascades authority to purpose. The Five-Year Vision gives Bupa performance of the business and setting the available on bupa.com and at Bupa’s Melvin: Boards can be tempted to focus on further enhance information security and the business and Group Functions through a clear objectives that support the purpose. Delegated Authority Framework. overall strategic agenda. registered office. These are also available for current issues but they need to continuously related assurance activity across the Group, inspection before and during the AGM. During The mix of health insurance and provision monitor risks and opportunities and ensure Roger Davis was appointed as Chairman from and whether the plans are likely to achieve the The Chairman has reviewed the frequency, the year, three meetings of the NEDs were across the Group is very important to the that the business is on track to achieve its 1 January 2019, having been an independent desired outcomes. timing and content of Board meetings in 2020 held without management present. future development of healthcare due to the objectives. A key area for me is the speed Non-Executive Director since July 2015. The to ensure that sufficient time is devoted to speed of medical developments and their with which medical advances are being Board was satisfied that Roger met the strategic matters; regular site visits are held cost, and the ability of governments to fund made and how we can take advantage of Conflicts of interest independence criteria in the Code at the time across the Group to deepen the Directors’ healthcare. This mix is also important to that to continue to offer our customers the of his appointment as Chairman. Roger has a Each Director is required to notify the understanding of the business and build meeting different customer needs around best products and services at affordable relationships with local management and for number of external appointments which the Company as soon as possible of any actual the world. prices. In particular, digitalisation will provide or potential conflicts of interest, and this the Board to hear directly from our people Board considers do not prevent him from alternative communication methods with through local ‘town hall’ meetings. providing sufficient time to his duties at Bupa. I have a medical background and have run requirement has been adhered to during our customers and new ways for customers the year. In addition, the Group Company Details of his other appointments are set out in university hospitals in The Netherlands and to monitor their own health and we will need his biography on page 44. Sweden and so I bring medical and patient- Secretary carries out an annual review of all to take advantage of these. Directors’ actual or potential conflicts of interest and any such potential conflicts were recorded and authorised. Should a conflict Board diversity, skills and The Nomination and Governance Committee Report on page 68 sets out in more detail the arise, the relevant Director agrees to exclude succession planning process adopted for changes to the Board themselves from discussions on any matter in Succession plans are regularly reviewed by the during the year. which they may be conflicted. Many of our Board and the Nomination and Governance NEDs hold appointments externally, but each Bupa’s Board Diversity Policy is available on Committee, and we plan a phased has confirmed that they are able to devote bupa.com. The Policy requires all Board replacement of NEDs who are coming to the sufficient time to perform their role effectively. appointments to be made on merit, employing end of their tenure. This approach is designed objective criteria reflecting the skills, to ensure continuity on the Board and to knowledge and experience required to ensure maintain an appropriate balance of skills and a rounded and effective Board. The Board is experience on the Board and its Committees. focused on increasing diversity and aspires The Board reviews succession plans for senior to achieve an appropriate proportion of executives to ensure that we have a strong Directors reflecting different ethnic and social pipeline of executive talent within the business.

50 51 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Leadership continued

Board training and knowledge review. In particular, a session on global dental The review looked at four areas: governance; agreed to simplify the Group’s structure purpose of helping people live longer, on the results of each survey and challenges strategy was held in September 2019. accountability; risk management; and culture. to accelerate organic growth, strengthen healthier, happier lives. management on the level of participation and building The review was carried out through a review governance and increase efficiency. From the action taken to address key themes arising Our culture is shaped by our values and the Each of the Directors is required to keep up Investing in technology capabilities of key documents, sample testing processes second half of the year onwards, the Group from the results. Overall, the Group’s Bupa Code which sets out what we expect to date on matters potentially affecting the and interviews with members of the Board, has been structured into three Market Units: engagement score has stayed constant During the year, we have invested a significant from our people to help them live our values business, and we arrange regular briefings BET, directors of major Group subsidiaries and Australia and New Zealand, Europe and Latin at 78 out of 100. amount in a multi-year strategic investment and achieve our purpose. As part of our for them over and above any training they members of senior management at Group, America, and Bupa Global and UK. The programme in technology capabilities across Five-Year Vision, the Board has also recently As part of the detailed quarterly management may receive outside of Bupa. During the Market Unit and Business Unit level. businesses that made up the former the Group to enhance security and privacy, agreed a number of leadership imperatives, information which the Board receives, people year, briefings have included competition International Markets Market Unit have either and to digitise the customer experience. The review findings were presented to a set of competencies specific to customer, and culture issues in each of our Market Units law and IFRS 17 Insurance Contracts and been aligned to the appropriate remaining Information security and cyber-resilience is the Board in early 2019 and no material people, performance and purpose. These will are highlighted during the year. The Board has demonstrations during site visits on our Market Units or are now overseen directly a significant risk for the Group given the weaknesses in the Group’s approach to help our senior leaders across the business considered people issues such as the shortage mental wellbeing and resilience offering from the Group centre. In addition, the role sensitive data we hold about our customers, governance were found. However, a number to deliver performance through putting of dentists in the UK and the turnover of and customer experience. of Group Functions was clarified to focus on and the sophistication of malicious attempts of recommendations were proposed to customers at the heart of everything we general managers and nurses in our aged care statutory and governance oversight activity Committee members also receive training as to access information held by businesses is further enhance Group governance. The do and helping our people be at their best. business in Australia. We want our people to with operational tasks being moved to the necessary on specific technical topics. For increasing. Therefore, investing to keep ahead Board accepted the findings and agreed a All employees are required to complete see the Board as accessible and approachable Market Units. The changes have also achieved example, in 2019, the Audit Committee held of these threats is a priority for us. Customers number of short and long-term actions as mandatory training on the Bupa Code and and therefore regularly schedule site visits for cost reductions. a deep dive on cost of capital methodology. also expect to interact with us in a more well as taking a number of themes forward other areas including information security and the Board as a whole or for individual digital way. for further exploration during the year. Aged care in Australia privacy, risk management, conflicts of interest Directors. During the year, the Board has held An information security uplift programme has and financial crime. ‘town hall’ meetings with employees at our The Board received regular updates on The Board and the Risk Committee have Key activities in 2019 been in progress throughout the year. The Risk offices in Madrid, Manchester and London, management’s progress to implement the closely monitored the improvement The Board monitors behaviours in a number Committee has overseen this activity from a which provided an opportunity for our people Setting our Five-Year Vision agreed actions. All the short and long-term programme commenced in 2018 to identify of ways including: risk management perspective. The Board has to meet the Board and to ask questions and recommendations were completed by the and implement enhancements across all our At the Board’s annual strategy offsite meeting received regular updates on the progress of –– measuring our people’s engagement level raise matters of interest. Going forward, these end of 2019 with some of the themes for Australian care homes and to undertake in 2019, the Group CEO and members of the the project and approved the budget for the through our People Pulse survey tool meetings will form an integral part of the further exploration remaining in progress. specific remediation activity in those homes BET set out the opportunities and challenges work required, as well as receiving regular semi-annually Board’s site visits. Directors also regularly visit Implementing the recommendations has under sanction by the Australian Aged Care the Group faces and proposed a refreshed, updates from the Chief Information Officer. our frontline operations and talk to our people. ensured that Bupa’s practices remain fit for Quality and Safety Commission. The –– considering semi-annually the level of, and focused Strategic Framework developed in In December 2019, the Risk Committee held During the year this has included visits by a purpose in a rapidly changing environment. improvement programme is having an impact, themes arising from, reports received response to these issues. The Board had a meeting, with all other Board Directors number of Directors to call centres and a clinic One of the key recommendations was to with the number of care homes under through our ‘Speak Up’ whistleblowing already provided input and guidance to the present, to assess progress on reducing in the UK and a hospital, dental centre and review the Group’s Operating Model. This sanction reducing. The Board will continue process and customer complaints BET as the proposed Strategic Framework information security and technology risk. multi-service clinic in Spain. activity has also been completed and more to monitor the progress of the programme was developed over the preceding months. Further information can be found in the –– taking into account how our people have detail is provided below. Other actions taken in 2020. These visits are an invaluable opportunity for The Board considered the global healthcare Risk Committee’s report on page 66. lived our values and followed the Bupa include requiring a Deputy Chairman or Senior Code in achieving their performance goals. our people to ask questions directly to the trends of rising demand, ageing populations, Independent Director to be appointed by each In addition, the ongoing Royal Commission Board and for the Directors to gain an insight increasing prevalence of lifestyle-related Governance Effectiveness Review into Aged Care Quality and Safety, which of our major insurance subsidiaries, to enhance Engaging our people into the issues important to our people in diseases, the high cost of developments in During 2018, the Board asked the Group Risk the channels of communication between the commenced in 2018 and is due to issue its final different parts of the business. This helps medical technology and clinical practice, and function to undertake a review of the report in late 2020, will be monitored. The Code requires boards to understand the Group and subsidiary boards. We have also views of companies’ key stakeholders and enhance decision-making and consideration the funding challenges that result from those effectiveness of governance across the Group arranged for the Chairs of these subsidiaries of the longer-term impact of the Board’s trends. Social attitudes are also changing and appointed a sub-committee of the Board, External audit tender recommends a number of methods for to attend a Board meeting at least annually engaging with our people. We believe that decisions on our people. with the public, governments and regulators chaired by Clare Thompson, to oversee the to provide a report on their respective During the year, the Board approved the our existing people engagement mechanisms Senior managers also regularly hold ‘town hall’ seeking to hold companies to account for project. The review aimed to assess whether businesses, including their governance appointment of PricewaterhouseCoopers LLP and channels, as enhanced during the year, meetings across sites or for their own teams, their role in society. governance and risk management activities arrangements. (PwC) as the Group’s External Auditor from carried out across the Group are appropriate 2021 following a tender process led by the provide an effective means of engaging with including on the Group’s Full-Year and With this in mind, the Board discussed how and effective in delivering the right risk and The Board agreed in December 2019 that Audit Committee. EU Audit Regulations our people. Our existing engagement Half-Year results and strategy. There is a best the Group can address these control outcomes. To ensure that the review the recommendations involved a programme require the Group to rotate its audit firm by methods are described in more detail below. proactive programme of internal opportunities, challenges and the proposed was objective, an external consultant was of continuous improvement and asked the 2021. Details of the tender process and communications via email, the intranet, Five-Year Vision. It agreed a clear vision to be Listening engaged to review and comment on the Chief Risk Officer to continue to monitor the decision are set out in the Audit Committee presentations, and internal social media the ‘most trusted health insurer and provider’. approach taken and the reasonableness recommendations and report to the Board Report on page 61. The Company listens to its people and platforms. We also have employee forums Achieving this relies on delivering outstanding of the findings. semi-annually on progress. In addition, the promotes a positive, flexible working for areas such as training and development, experiences and outcomes for our customers Board is considering how board and executive environment and a diverse and inclusive IT and security and for local office issues. We felt that the review was required given the and we have set clear objectives to achieve by governance of the Group’s healthcare Workforce engagement culture so everyone can be their authentic external environment in which Bupa operates, 2024 through our existing strategic pillars of provision businesses could be enhanced. selves at work. Our People Pulse survey Diversity and inclusion with increasing regulation and compliance Culture and our people Customers, People and Performance. More tool provides sophisticated insights and Our approach to diversity and our philosophy risks, and recent external high-profile detail on our Five-Year Vision is set out on Revised Operating Model The Board is responsible for establishing benchmarking with other companies, so we is based on inclusion for all. DiverCity, our corporate governance failures globally. page 10. Following the recommendation in the Bupa’s purpose, values and strategy and can learn and listen to what is of interest or employee network in the UK raises awareness These have highlighted the key role an Governance Effectiveness Review to review ensuring that our culture is aligned to these at concern to our people and act, where and understanding of all areas of diversity and The Board will receive regular updates on effective governance structure plays in the Group’s Operating Model, the Board all levels of the organisation. In order to do our appropriate, on what our people are telling us. progress against these objectives throughout ensuring the ongoing strength and stability best for our customers, we need to take care The survey is run twice a year, and 70% of our 2020 and will provide review and challenge as of organisations. of our people and this will lead to strong and people took part in the survey conducted in specific initiatives are developed, as well as sustainable performance for the benefit of our November 2019. The Board receives reports keeping the Strategic Framework itself under

52 53 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Leadership continued

inclusion with groups focusing on topics are raising awareness of mental wellbeing in members of the Board of workforce Complying with the UK Corporate Governance Code 2018 including gender, ethnicity, LGBTQ+, mental the workplace, encouraging open engagement issues, which are escalated wellbeing, ability, faith and working families. conversations and providing access to through the People pillar. This will be a focus We aim, where appropriate, to operate to the same governance standards as are required of UK FTSE 100 companies and therefore we choose We are also working with INvolve to harness support and care through regular internal of the Committee as its work develops in to apply the UK Corporate Governance Code 2018 (the Code). We have applied the UK Corporate Governance Code for a number of years, prior LGBTQ+, ethnic minority and female talent communications campaigns such as for World 2020. The Board will receive the minutes of to the new requirement for large private companies to report which corporate governance code they follow, if any. We applied the Principles and and help drive positive cultural change and Mental Health Day, online information, our each meeting and the Committee may make complied with all the Provisions, to the extent they are applicable to a company without shares, in the Code throughout 2019. The Code is available increase diversity at all levels of our workforce Performance Energy resilience programme recommendations to management. at frc.org.uk. and training mental health first aiders. and in the talent pipeline. The interests of employees are taken into The table below sets out how we have complied with the Principles of the Code during 2019. We are also members of Business Disability Corporate responsibility and sustainability account in decision-making. See the Engaging Principle How we apply the Principle Further information International which helps companies and our stakeholders section on page 34 for an 1. Board leadership and company purpose individuals to adapt the workplace and CRS is a key focus for the Board. Embedding example of this in relation to employees. CRS in order to create shared value is an challenge attitudes to disability. The A. The board’s role The Board is responsible for the long-term sustainable success of Bupa for the See Leadership on P52 for important element of how the Group will more information on the recruitment, training, career development and A successful company is led by an benefit of its customers and wider stakeholders, now and in the future. continue to fulfil our purpose as well as Board’s activities during promotion of all employees is based on the effective and entrepreneurial board, The Board works to achieve this by: the year achieve strong and sustainable performance. skills, knowledge and experience of the whose role is to promote the long-term –– providing clear leadership in setting the Group’s strategy, culture and risk The Board has a schedule The Board sets the Group’s current approach individual and takes no account of age, sustainable success of the company, appetite to achieve its purpose of matters reserved to it to CRS matters as part of its approval of the for approval which is disability, race, beliefs, gender, sexual generating value for shareholders and Group’s refreshed Strategic Framework during –– overseeing management’s implementation of strategy within a prudent and reviewed annually and orientation or other characteristics. Should contributing to wider society. effective governance structure using a three lines of defence model as which is available on 2019, including strengthening the nature and bupa.com employees become disabled during described on page 46 employment, every effort is made to continue impact of our activities for the community by developing new community guidelines and –– receiving regular management information on customers and their views their employment and, if necessary, of the Group and our products appropriate training is provided. making mental wellbeing and resilience a particular focus. Further details of the Group’s –– reviewing the results of employee surveys and interacting with our people Having a diverse workforce and an inclusive, CRS activities are set out on page 22. through site visits and ‘town hall’ meetings. accessible working environment, brings fresh In order to enhance the governance of our During 2019, the Chairman reviewed the frequency, timing and content of views to the table and reflects the customers Board meetings for 2020 to ensure that sufficient time is devoted to strategic we serve and communities within which we CRS activities, the Corporate Responsibility and Sustainability Committee was set up in matters; regular site visits are held to deepen the Directors’ understanding of the operate. The People pillar of our corporate business and build relationships with local management; and to hear directly responsibility and sustainability (CRS) strategy late 2019 as an advisory committee to management on CRS issues. The Committee from our people. aims to promote diversity and inclusion during The schedule of matters reserved to the Board includes: See the following for 2020 by further embedding a culture that held its first meeting in December 2019 and B. Setting purpose, –– ensuring that Bupa’s culture is aligned with its purpose, values and strategy more information: gives our people the freedom to be their will receive updates on activity under each of values and strategy whole selves at work, empower diverse and the five pillars of our CRS strategy and provide The board should establish the –– setting the Group’s strategic aims and reviewing management’s performance. Leadership on P50 high-performing teams and ensure that our guidance to management. The People pillars company’s purpose, values and The Board holds an annual strategy meeting with updates on progress and Market Five-Year Vision on P10 people practices and policies support our of our Strategic Framework and CRS strategy, and satisfy itself that these Unit deep dives taking place throughout the year. framework are sponsored by the Chief People people. See the People section on page 16 for and its culture are aligned. All directors During the year, the Board approved an updated Strategic Framework, with the Corporate Responsibility Officer and are focused on making Bupa a more information on diversity and inclusion. must act with integrity, lead by vision to be the most trusted health insurer and provider, and set objectives to and Sustainability Committee on P22 place where people love to work and can example and promote the desired achieve this over the next five years. make a difference. The priorities are leadership culture. Mental health and wellbeing A new Corporate Responsibility and Sustainability Committee was established in and talent, employee engagement, employee Our approach to mental health focuses on late 2019 as a management advisory committee. It will have visibility of culture health and wellbeing, health and safety, and raising awareness, creating supportive through the People and Responsible Business Conduct pillars of the CRS strategy. diversity and inclusion. The Committee also workplaces, encouraging open conversations provides a more focused forum for the C. Resourcing and risk management The Board annually approves the Group’s annual budget and base operating plan See the following for and providing access to support and care. We more information: consideration by senior management and The board should ensure that the for the following three years ensuring that sufficient resources are available to necessary resources are in place for achieve objectives. Risks on P37 the company to meet its objectives The Board retains ultimate responsibility for risk management and internal System of governance and measure performance against controls, with detailed oversight carried out by the Audit and Risk Committees. on P46 On the recommendation of the Risk Committee, the Board sets the Group’s risk them. The board should also establish report of the a framework of prudent and effective appetite and RMF. These set out the principal risks facing the Group and the nature Risk Committee on P66 controls, which enable risk to be and extent of risk the Board is willing for the Group to take in order to achieve the assessed and managed. Group’s strategic objectives. The Group’s enterprise risk policies are approved by the Board or relevant Committee and overseen by the Risk Committee. During the year, revised risk appetite statements were approved in relation to information technology and security, and investment risk. A revised risk appetite statement for clinical risk was also approved in early 2020 with improved risk indicators and reporting.

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Principle How we apply the Principle Further information Principle How we apply the Principle Further information 1. Board leadership and company purpose continued 2. Division of responsibilities continued The Group Company Secretary advises the Board on company law and corporate D. Stakeholder engagement We are a customer-focused business reliant on our people to deliver great service. See the following for I. The Company Secretary more information: governance matters, including compliance with the Code. He works with the In order for the company to meet its The Board receives regular management information and considers the impact of The board, supported by the company decisions on relevant stakeholders. There is an active programme of engagement the Customers, People and secretary, should ensure that it has the Chairman and Committee chairs to ensure that the right matters are escalated responsibilities to shareholders and Engaging with with our key stakeholders: our customers; our people; regulators; Association policies, processes, information, time and to the Board and Committees at the appropriate time and that sufficient time stakeholders, the board should ensure stakeholders sections of is devoted to strategic matters. effective engagement with, and Members; and bondholders. the Strategic Report on resources it needs in order to function P12, P16 and P36 The Group Company Secretary works with management to ensure that the Board encourage participation from, effectively and efficiently. Workforce engagement receives papers of a high quality in a timely manner. He arranges Directors’ these parties. on P53 induction and ongoing training and supports the succession planning for NEDs E. Workforce policies The Board receives detailed quarterly management information which includes See the following for and the recruitment of new NEDs. He is responsible for the Group’s Subsidiary more information: The board should ensure that workforce metrics on people and culture issues. Governance Enterprise Risk Policy which sets minimum standards of corporate policies and practices are consistent During the year, the Board approved revised people and CRS strategies. the People section on P16 governance across the Group. with the company’s values and support These include ensuring that the Group’s workforce policies and practices are He also facilitates communication with our AMs and ensures that due regard is Workforce engagement its long-term sustainable success. consistent with our values and support our long-term sustainable success. on P53 given to their interests. The appointment (and removal) of the Group Company The workforce should be able to raise The Board receives regular updates on the issues reported through Speak Up, Secretary is a matter reserved to the Board. any matters of concerns. and on investigations and actions taken. The Audit Committee annually reviews Whistleblowing on P49 the Speak Up policy to ensure that it is sufficiently robust and operating effectively. 3. Composition, succession and evaluation

J. Board appointments The Nomination and Governance Committee regularly reviews the balance, The Nomination and 2. Division of responsibilities structure and composition of the Board and its Committees and leads the process Governance Committee’s Appointments to the board should be report on P68 sets out the F. Chair leadership Roger Davis leads the Board in an open and transparent manner, encouraging See the Board evaluation subject to a formal, rigorous and for appointments to the Board and Board succession planning. Succession Committee’s role in the debate and challenge. He plays a pivotal role in fostering the effectiveness of the disclosure on P59 for planning for senior management is carried out by the Board. recruitment of Directors The chair leads the board and is information on the annual transparent procedure, and an effective and the process followed responsible for its overall effectiveness Board and the individual directors both in and outside the board room. evaluation of the Chairman succession plan should be maintained All Board recruitment takes into account the Board Diversity Policy. in relation to the in directing the company. They should The Chairman works with the Group Company Secretary to ensure that sufficient for board and senior management. appointments of Professor Melvin Samsom and Cath demonstrate objective judgement time is available to discuss agenda items for each Board meeting and to ensure Both appointments and succession plans Keers during the year throughout their tenure, and promote that papers are of a high standard and circulated in a timely manner. should be based on merit and objective See P51 of the Leadership a culture of openness and debate. criteria and, within this context, should section for more In addition, the chair facilitates promote diversity of gender, social and information on the Board Diversity Policy constructive board relations and the ethnic backgrounds, cognitive and which is available in effective contribution of all non-executive personal strengths. full at bupa.com directors, and ensures that directors K. Skills, experience and knowledge The Nomination and Governance Committee regularly reviews the balance, See the Board diversity, receive accurate, timely and clear composition and structure of the Board, including reviewing the skills of each skills and succession The board and its committees should planning disclosure in the information. have a combination of skills, experience NED against a skills matrix. This identifies the key skills, knowledge and experience Leadership section on P51 G. Balance of the Board The Board comprises the Group CEO, CFO, Chairman (who was independent on The roles of the Board are and knowledge. Consideration should be relevant to the markets in which Bupa operates and for the effective operation See the report of the appointment), and nine independent NEDs. The roles of the Chairman and Group set out in more detail in the of the Board and leadership of the Group. Nomination and The board should include an appropriate Leadership section on P50 given to the length of service of the board Governance Committee combination of executive and non- CEO are separate with distinct accountabilities set out in their role profiles. as a whole and membership regularly The Nomination and Governance Committee keeps the length of service of each on P68 executive (and, in particular, independent The Group CEO is responsible for the day-to-day leadership and management refreshed. Board member under review, recommends the re-appointment of the NEDs and non-executive) directors, such that no of the business, in line with the Strategic Framework, risk appetite and annual any extensions to their term. It ensures that Board recruitment is commenced in one individual or small group of and long-term objectives approved by the Board. The Group CEO cascades her a timely manner to regularly refresh the membership of the Board. authority through a delegated authority framework which is approved by the individuals dominates the board’s L. Board evaluation The annual Board evaluation considers the composition and diversity of the Board See P59 for a summary of decision-making. There should be a clear Board annually. and how effectively members work together. the externally facilitated Annual evaluation of the board should Board evaluation division of responsibilities between the The NEDs provide an independent view on the running of our business, consider its composition, diversity and In 2019, an externally facilitated Board evaluation was carried out which assessed conducted in 2019 leadership of the board and the executive governance and boardroom best practice. They oversee and constructively how effectively members work together the effectiveness of the Board and its Committees. The Chairman separately led leadership of the company’s business. challenge management in its implementation of strategy within the Group’s to achieve objectives. Individual an evaluation of each Director, with the Senior Independent Director leading the system of governance and the risk appetite set by the Board. evaluation should demonstrate whether evaluation of the Chairman. H. NEDs’ role and time commitment Prior to his or her appointment as a director, the Board considers whether each The roles of the Board are each director continues to contribute NED has sufficient time to devote to their role at Bupa. This is re-assessed by the set out in more detail in the Non-executive directors should have Leadership section on P50 effectively. sufficient time to meet their board Nomination and Governance Committee annually and in light of any changes to responsibilities. They should provide a NED’s external commitments during the year. constructive challenge, strategic guidance, offer specialist advice and hold management to account.

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Principle How we apply the Principle Further information Martin Houston was not included in this Committee regularly reviews the composition 4. Audit, risk and internal control Board and Committee performance individual evaluation as he retired from the of the Board and each Committee. See System of governance Board on 31 December 2019. Roger Davis’ M. Financial reporting integrity The Board delegates detailed oversight of GIA and the External Auditor to the The Chairman has regular meetings with the Audit Committee, together with oversight of the Group’s system of internal on P46 for details of the In 2019, a review of the effectiveness of the evaluation of each of the other Directors The board should establish formal and role of GIA and the Group CEO and CFO on Company matters Board and its Committees was conducted by concluded that each Director had carried out transparent policies and procedures to controls to ensure the integrity of the Group’s Full-Year and Half-Year Results and External Auditor and includes feedback on their performance an independent external evaluator, Boardroom their duties effectively during the year by: ensure the independence and the Annual Report and Accounts. See the Audit Committee’s during these meetings. Review Limited (Boardroom Review), which effectiveness of internal and external On the recommendation of the Audit Committee, the Board reviewed and report on P61 for details of –– constructively challenging management that Committee’s activities was appointed following a selection process The Remuneration Committee also takes the audit functions and satisfy itself on the approved the 2019 Half-Year and Full-Year Results and the 2019 Annual Report and building good relationships with during the year to provide conducted by members of the Nomination Group CEO’s and CFO’s individual integrity of financial and narrative and Accounts and was satisfied that the Group’s system of internal controls had assurance to the Board on management the integrity of Bupa’s and Governance Committee and which is performance into account when agreeing their statements. operated effectively during the year. Full-Year and Half-Year summarised in that Committee’s report. –– adding value through diversity of discretionary remuneration each year. Results and this Annual perspective and deep areas of knowledge Report and Accounts The evaluation involved observation by Clare Thompson, as Senior Independent N. Fair, balanced and understandable The Audit Committee reviewed the 2019 Annual Report and Accounts in early See the Audit Committee’s Dr Tracy Long of meetings of the Board and –– demonstrating Bupa’s values and setting Director, led an initial assessment of the 2020 and was satisfied that it presents a fair, balanced and understandable report on P61 for details of The board should present a fair, balanced its assessment of the 2019 each of its Committees, and interviews with the tone on culture and risk management. Chairman’s effectiveness following his first few assessment of the Group’s position and prospects. It reported its findings to the months of tenure in 2019 and provided and understandable assessment of the Annual Report and all current Directors, except Cath Keers who Each NED has sufficient time to commit to Board. Accounts feedback. A further evaluation will be carried company’s position and prospects. joined the Board following the conclusion of the role and remains independent and ‘fit and Statement of Directors’ the evaluation process, and some members out by June 2020. Responsibilities on P87 proper’ to carry out their role. The Board and of senior management. Martin Houston was the membership of its Committees have been The Board has agreed a number of actions O. Risk management and internal The Risk and Audit Committees monitor the Group’s risk management and internal See the reports of the included in the interviews. An initial meeting to control systems on behalf of the Board on a continuous basis and the Risk Audit and Risk substantially refreshed over the last two years, to take forward during 2020 including in the control Committees on P61 and discuss the findings was held with Roger Davis and the overall level of the Board’s skills, areas of strategy and governance as detailed The board should establish procedures to Committee reviews the Group’s principal risks and recommends any changes to P66 for further information prior to the final report being circulated to the risk appetite to the Board. knowledge and expertise has been enhanced. in the table below. manage risk, oversee the internal control See the Risks section of Board and presented at the December 2019 No further changes to the composition of An annual assessment of compliance with the enterprise risk policies is undertaken the Strategic Report on Board meeting. Roger Davis and Clare framework, and determine the nature and page 37 for a description the Board and its Committees are planned at by management, overseen by the Risk function and reported on to the Audit and extent of the principal risks the company of principal and emerging Thompson then proposed specific actions for this time as a result of the evaluation and to is willing to take in order to achieve its Risk Committees. risks and how they are the Board’s approval and the final actions to being mitigated ensure stability and continuity of corporate long-term strategic objectives. During the year, the Risk Committee has carried out a robust assessment of the be taken forward in 2020 were agreed at the knowledge. The Nomination and Governance The directors’ assessment February 2020 Board meeting. Group’s principal and emerging risks and recommended appropriate changes to of the Group’s emerging risk appetite statements to the Board which has approved these. Emerging risks and principal risks and risk The Board concluded that, overall, the Board are continually monitored by the Risk function and regularly reported to the Risk management and internal control systems is on P87 and Committees had operated effectively External Board evaluation process Committee for consideration. during the year. In particular, it was found that the balance of skills, knowledge and experience on the Board and each Committee Selection 5. Remuneration was appropriate and that the changes to the P. Supporting strategy and long-term The Remuneration Committee proposes the Group’s remuneration policy to the See the DIrectors’ Board’s composition over the last year had Board and AMs for approval and the Directors’ remuneration report is put to an remuneration report on ensured continued expertise on the Board in sustainable success P70 for more information Sub-committee evaluate Nomination and Remuneration policies and practices advisory vote at the AGM, in line with listed company practice. The Remuneration key areas. The appointment of an independent shortlist through Governance Committee Board engages should be designed to support strategy Policy is structured to promote the long-term success of the Group and link reward cyber adviser during the year had also proved presentations and agree longlist and Boardroom Review to Bupa’s strategic goals and purpose. beneficial to address an area where the Board identify preferred and promote long-term sustainable criteria success. Executive remuneration should To assist the Remuneration Committee in setting discretionary reward outcomes in had less experience. The Board and provider be aligned to company purpose and relation to each financial year, the Risk Committee considers whether to make any Committees work well together and challenge recommendations to the Remuneration Committee on making risk adjustments to management effectively. While time was

values, and be clearly linked to the Evaluation successful delivery of the company’s variable remuneration outcomes for that year. For 2019, no risk adjustment was devoted to the Five-Year Vision during the long-term strategy. made to variable remuneration outcomes. year, more could be done to build on this Boardroom Review further in 2020. In addition, greater interaction Action monitoring attend Board and See the Directors’ Q. Remuneration Policy The Remuneration Committee has recommended a revised Remuneration Policy with key subsidiaries, both through, and to take place Committee meetings and to the Board for approval at the 2020 AGM. The revised policy aims to promote remuneration report on A formal and transparent procedure for P70 for more information outside of, Board and Committee meetings interview Directors developing policy on executive the long-term success of the Group and motivate management to deliver strong would further strengthen governance remuneration and determining director and sustainable business performance aligned with Bupa’s purpose. This includes oversight. and senior management remuneration a new Group Performance Plan to replace the Long-Term Incentive Plan. Roger Davis evaluated the performance should be established. No director should The schedule of matters reserved to the Board requires that no Director may be during 2019 of each NED through individual Preliminary findings be involved in deciding their own involved in deciding their own remuneration outcome. Actions for 2020 Report issued and meetings covering topics such as commitment discussed with Chairman remuneration outcome. agreed discussed at Board to the role, contribution and feedback from and Group CEO R. Independence of remuneration The Remuneration Committee comprises solely independent NEDs, and the See the Directors’ other Directors. In addition, all Directors Committee takes advice from external remuneration consultants. The Committee remuneration report on outcome decisions P70 for more information completed an annual assessment of their Directors should exercise independent has robust discussions on remuneration outcomes for the Group and senior fitness and propriety in accordance with UK judgement and discretion when executives, taking into account all relevant internal and external factors to ensure insurance regulatory requirements and these Outcomes and implementation authorising remuneration outcomes, that any exercise of the Committee’s discretion is suitable and justifiable. assessments were reviewed and approved taking account of company and individual by Roger, with Clare Thompson reviewing performance, and wider circumstances. Roger’s assessment.

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Leadership continued Audit Committee report

The Board has agreed a number of actions to take forward during 2020 including in the areas The Committee’s role included a refresh of the inputs used in the of strategy and governance. calculation and a review of the peer group and governance comparators. The External Auditor reviewed Agreed actions from 2019 Board evaluation The principal function of the Committee is to the proposed methodology and substantively Topic Agreed action By monitor the integrity of Bupa’s financial tested it during the audit of the 2019 Full Year Strategy Build on the Five-Year Vision to define Board statements, the effectiveness of our internal results. The Committee was satisfied that the what success looks like control systems, and to monitor the revised methodology was appropriate. Hold more frequent deep dives into Board effectiveness, performance, objectivity and the competitive environment and independence of GIA and the External Goodwill impairments customer engagement Auditor. The Committee also reviews Management proposed recognition of regulatory reporting and disclosure Governance Continued focus on succession Board/Nomination and significant goodwill impairments in 2019 in planning for the Board’s senior roles Governance Committee requirements. relation to our UK dental care and Australian aged care businesses. The Committee Do more ‘lessons learned’ sessions to Board/Risk Committee Clare Thompson A full description of the Committee’s role is set bring risk to life out in its Terms of Reference on bupa.com. discussed the causes of the proposed Committee Chair impairments in detail and reviewed the Further strengthen interaction with Board/Committees/ The Group CEO, CFO, Group Financial underlying calculations and proposed and oversight of key subsidiaries How does the Committee oversee Controller, CAO, CRO and lead partner of the Directors disclosures. The Committee was satisfied including through more site visits for Q the control environment? External Auditor are routinely invited to attend meetings. The Committee meets at least that the level of impairments proposed was Directors outside of Board meetings Clare: The Committee receives regular annually with each of the External Auditor, appropriate given the performance of these updates from management on key issues businesses during the year and the risks and Progress against actions from the 2018 Board evaluation and judgements and approves any CAO and Chief Actuary in the absence of management. All of the Committee members sensitivities in their plans for 2020 and beyond. The Board reviewed progress against the 2018 evaluation actions during the year. material changes to accounting policies. have recent and relevant financial experience. It agrees GIA’s annual plan and receives Alternative Performance Measures Topic Agreed action Progress made regular reports from the CAO on the Considering Enhancing the content of Board The Board holds deep dives with outcome of audits which highlight In 2018, the Committee had asked the big trends papers to include future trends in the senior management team of weaknesses in the control environment. Key activities in 2019 management to clarify, simplify and improve the alignment of the Alternative Performance more detail. each Market Unit once a year, and During the year, the Committee considered the strategic and market context The Committee reviews the results of the Measures used in internal performance Inviting contributions from external annual ICRMA process which gives a view regular reports from management on key of each Market Unit is now a key reporting and external reporting. During the experts to challenge the Board’s from all three lines of defence on issues and judgements impacting the Group’s element of this. year, management presented its revised thinking. the Group’s control environment. The statutory financial results; the External simpler approach to be used across internal Closely monitor the information Regular updates on the Committee also receives regular reports Auditor’s audit plan, engagement letter, annual Information performance reporting and external reporting. security programme. Group-wide information security from GIA on the outcome of audits which letter to management, audit progress and security The Committee considered how the new programme have been discussed highlight weaknesses in the Group’s conclusions; reports from the CAO on the methodology had been tested and how it at the Risk Committee, and the control environment and discusses the internal control environment; and reports from compared with that used by the Group’s peers Board throughout the year to proposed remdiation with relevant the Chief Actuary on insurance reserving. Ad and the External Auditor’s view of the monitor progress on risk management. hoc matters included an update on the control appropriateness of the new methodology. reduction. environment in the Group’s Hong Kong What was the most significant The Committee was satisfied that the new A joint meeting of the Risk business, reviewing changes to the Group’s Q accounting judgement this year? methodology was robust and appropriate. Committee and the Board to Alternative Performance Measures, and the Clare: The Committee challenged assess progress on information planning and conduct of the external audit management on the goodwill impairments security was held in December tender. in our UK dental care business and 2019. Australian aged care businesses. The Weighted Average Cost of Capital The Board has strengthened its Committee discussed the methodology knowledge of information used to calculate the value of goodwill in During the year, management refreshed its technology and security matters each of our businesses and requested methodology for calculating the Weighted through the appointment of Cath additional detailed supporting analysis Average Cost of Capital (WACC), which is Keers as a NED and an where judgements have been significant. used for goodwill impairment testing, “The principal role of independent cyber adviser. investment appraisals and to risk adjust the The Committee felt that the level of performance of each business. The review the Committee is to See the Risk Committee’s report impairments was appropriate and on page 66. reflected the current risks and sensitivities monitor the integrity of in these businesses. the financial statements What are the key areas of focus Q for the Committee in 2020? and the effectiveness of Clare: IFRS 17 Insurance Contracts is a our systems of internal major new accounting standard and we will be reviewing management’s proposed control.” accounting policies during the year. Clare Thompson We will also closely monitor the transition Committee Chair of the External Auditor from KPMG to PwC and any proposed new regulations arising from the Brydon Review into the quality and effectiveness of external audit.

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Significant issues and areas of judgement Financial reporting Financial Condition Report and Regular Quality assurance Supervisory Report under Solvency II and the Key issue Committee response The Committee reviewed the Half-Year and GIA maintains a quality assurance and technology capabilities programme, which improvement programme that includes an Goodwill and intangible Significant levels of goodwill and intangibles are The Committee critically reviewed and discussed management reports outlining the basis Full-Year 2019 financial statements with of the assumptions used for our most sensitive cash generating units (CGUs) and reflect issues prevalent throughout the Group annual evaluation of the function’s adherence asset valuations held in respect of prior acquisitions. Impairment both management and the External Auditor. challenged the results in the light of business performance and the external environment, where a global audit could provide deeper reviews are inherently complex and require a This review considered the following areas: to the relevant external standards. The high level of judgement to be applied due to the particularly in respect of the goodwill impairments in Australian aged care, UK dental care insight. Data governance and the maturity of external quality assessment carried out in uncertainty involved in forecasting future cash and Bupa Cromwell Hospital in the UK. The Committee challenged management on the the three lines of defence risk management Fair, balanced and understandable 2018 highlighted further work to enhance the flows, the appropriateness of discount rates elements included in the WACC methodology, the forecast cash flows and the terminal model were also agreed as themes for growth rates for the CGUs. The Committee also considered the appropriateness of the function’s effectiveness and meet the best used and future growth rates of the respective In assessing whether the 2019 Annual Report coverage in all audits planned for 2019. businesses. proposed disclosures. practices recommended in the FS Code. was fair, balanced and understandable, the The Committee approved a half year refresh The Committee also received from KPMG a report of their views on the assessments Committee found as follows: These have been implemented through a GIA performed by management. The Committee is satisfied that the assumptions applied of the 2019 plan, based on a renewed risk development programme including changes were reasonable and the carrying value of goodwill and other intangible assets, following –– The narrative reporting in the Strategic assessment in line with the GIA methodology, to audit methodology, adopting function-wide impairments recognised in certain CGUs, is appropriate. Report is consistent with the financial in June 2019. objectives and developing the function’s Claims Calculation of the outstanding claims provision The Committee received a report from the Chief Actuary setting out estimates of the statements, providing challenge and people, scale and capability. The Committee technical provisions, including the margin of prudence held by each insurance entity, The 2020 GIA annual plan and budget were provisioning is based on assumptions including claims feedback throughout the compilation as well as the result of the annual review of compliance with Bupa’s Claims Reserving approved by the Committee in late 2019 and has received regular updates on the progress development, margin of prudence, claims costs of the Annual Report and Accounts inflation, medical trends and seasonality, which and Liability Adequacy Standards. aim to provide the Committee with assurance of the programme and is satisfied with the require a high level of judgement and actuarial The Committee considered the appropriateness of the overall level of insurance technical –– the key judgements referred to in the over key risks. Global audits will be carried steps taken and that GIA conforms to the expertise. provisions, including the level of prudential margin. In reviewing and approving the narrative reporting and the significant issues out in a number of areas including clinical FS Code. insurance technical provisions, the Committee also took into consideration the External reported in this Audit Committee report are governance, financial reporting, whistleblowing Auditor’s report to the Committee. In 2019, GIA has assessed the nature, quality consistent with the financial statements and embedding risk management. The and quantity of its work through ongoing Property Bupa has a significant portfolio of care homes, The Committee received the results from the external valuations in UK, Poland, Chile and themes of risk culture, three lines of defence Brazil undertaken as part of the triennial property review, and Directors’ valuations quality assurance activity carried out by PwC, valuations villages and hospital properties which are –– statutory and adjusted measures, such as maturity and data governance will be built into revalued to fair value on a periodic basis, with performed in other Market Units. stakeholder feedback and the employee underlying profit, have been given equal all audits. The diagram below shows the key external valuations undertaken at least triennially. The Committee also reviewed reporting from the External Auditor addressing the prominence and are clearly explained engagement survey. The results were The underlying assumptions involved in the valuations to assess their reasonableness and considered the appropriateness of drivers of audit coverage across the business. considered by the Committee who concluded valuations, including earnings, profitability, disclosures made. –– Key Performance Indicators reflect those The CAO regularly reports to the Committee that GIA operates effectively. Grant Thornton occupancy levels and future trends are subject The Committee is satisfied that property values and disclosures for all properties are used to measure business performance have been appointed to carry out quality to a high level of judgement. in compliance with financial reporting requirements and are appropriate. on GIA’s activities as well as management’s and management is able to explain their progress in addressing audit findings and assurance work in 2020. A more formal Pension assets Bupa’s principal defined benefit scheme in the The Committee considered the appropriateness of the assumptions used in the valuation relevance in assessing the results all GIA reports are made available to the internal assessment of GIA’s effectiveness of the related pension assets and liabilities performed by the independent scheme actuary and liabilities UK is The Bupa Pension Scheme. Significant is in progress and will be reported to the and is satisfied that the assumptions used in the valuation are appropriate. –– clear, simple explanations are given of Committee members. judgement is exercised in determining the Committee during 2020, and the outcome actuarial assumptions used in valuing the The Committee received information from KPMG benchmarking the assumptions used the business model, Bupa’s strategy pension asset/liability. in the valuation of pensions liabilities. and accounting policies will be disclosed in the next Annual Report. The Committee concluded that the pension assumptions were appropriate. –– key messages are clearly highlighted Acquisitions During 2019, Bupa completed the acquisition The Committee considered the proposed accounting for the acquisition balance sheet with consistent wording throughout the in relation to the acquisition of Acıbadem Sigorta, including the valuation of acquired and disposals of Acıbadem Sigorta in Turkey. Annual Report Key drivers of audit coverage Assessing whether the sale of businesses is customer relationship, distribution channels and brand intangible assets. sufficiently probable to require classification as The Committee critically reviewed and discussed management’s judgements in respect –– the layout and presentation are clear with ‘held for sale’ can require significant judgement. of the held for sale assessments for potential disposal groups. appropriate language used throughout. erforman The Committee challenged management and concluded that the approach and ss p ce ne assumptions used were appropriate. si Bu R The Group has contingent liabilities arising in the The Committee received reports from management setting out the rationale applied to the e Provisions Group Internal Audit g consideration of the recognition and disclosure of provisions and contingent liabilities. u ordinary course of business, including losses and contingent Details of the role of GIA is set out in Bupa’s la which might arise from litigation, disputes, and The Committee concluded that management’s assumptions were appropriate regarding t liabilities system of governance section on page 49. o interpretation of tax law. the need or otherwise for accounting provisions and that the proposed disclosure in the s r k y financial statements was appropriate. s i d r Annual Plan e The Committee considered the proposed changes to the Group’s operating segments s Operating segments During 2019, the Group announced changes v s and concluded that the approach and disclosures were appropriate. The assurance provided by GIA is an IT Risk e to its organisation structure. This required e l reassessment of the external reporting structure n o important part of the Committee’s i

p as required by IFRS 8 Operating Segments. s consideration of Bupa’s overall control m u

B

As discussed in the 2018 Annual Report and The Committee considered the application of key policy recommendations for IFRS 16, environment during the year. GIA’s annual plan e IFRS 16 Leases n

Accounts, the requirements of the standard have including the transitional impacts and disclosures on adoption of the standard and is aligned to an assessment of risk across the Insurance Provision t s

been assessed and applied from 1 January 2019. judgements in respect of lease term and discount rates. Group and to the RMF, and also covers

The Committee concluded that the application of key policy recommendations and

emerging risks. A significant proportion of the

proposed disclosures made by management were appropriate.

plan covers operational risk, reflecting Bupa’s O

exposure in this area. The 2019 GIA annual u t plan and budget were approved by the c People o Clinical m Committee in December 2018. It included e s two global audits in relation to the Solvency s e f v ro ti m tia t ni he c i pa egi st Strat

62 63 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Audit Committee report continued

Chief Audit Officer Standard and EU regulations which come Committee effectiveness review External audit tender The Committee is responsible for the into force during 2020. The Committee has regularly reviewed the non-audit services As already disclosed, the 2019 evaluation appointment and removal of the CAO, setting of the effectiveness of the Board and its The Audit Committee conducts the process to select the External Auditor and recommends their appointment, re-appointment or removal to the CAO’s objectives and reviewing his provided by KPMG and other audit firms to assess any potential independence issues and committees was externally facilitated by the Board for approval by our Association Members at each Annual General Meeting (AGM). As disclosed in last year’s report, the Committee performance, taking into account the views Boardroom Review and the results of the agreed to put the external audit out to tender to comply with EU Audit Regulation (Regulation 537/2014/EU) transitional arrangements, of the Group CEO. The CAO has access to the Committee also agreed KPMG’s terms of engagement and remuneration for the 2019 evaluation, including actions for the which require the Group to rotate its audit firm at the time of next appointment on or after 17 June 2020. the Committee Chair and Board Chairman Committee, are set out on page 59. as required and is directly accountable to audit. KPMG’s remuneration for the year The tender process ran from January to June 2019 and was run in compliance with statutory requirements that apply to a number of our UK the Committee. The previous Chief Internal ended 31 December 2019 is shown in In terms of addressing the actions arising from subsidiaries and guidance issued by the FRC. The recommendations from the Competition & Markets Authority’s study on the statutory audit Auditor moved to a new role within Bupa in note 2.3.3. the Committee’s evaluation of its performance services market, published during the tender process, were taken into account. early 2019 and the current CAO joined during The Committee held two meetings with the in 2018, the Group Company Secretary’s team has provided training for regular authors of Audit tender process and timeline the year following appointment by the lead audit partner during the year without Committee. A contractor from PwC was management present to ensure that he had Board and Committee papers to improve the 2018 Jan 2019 March 2019 Apr-May 2019 Jun 2019 2020 2021 engaged as interim CAO to support the the opportunity to raise any concerns and to quality of papers to help the Board and Committee Chair and GIA until the current assist the Committee in ensuring that KPMG Committees make informed decisions. To aid –– Agreed to tender –– Issued –– Issued request –– Meetings with –– Recommendation –– ‘Cooling-in’ –– PwC appointed CAO joined. During the year, the Committee the Remuneration Committee’s consideration independence for proposal stakeholders to Audit period and commence remains independent and objective. –– Agreed firms to held one private meeting with the outgoing of discretionary remuneration in the annual assessments Committee and role The Committee approved the external audit reward cycle, the Committee looked at the invite –– Set up data –– Presentations Board –– PwC shadow Chief Internal Auditor, one private meeting room 2020 Full-Year with the Interim CAO and one private meeting plan for the audit of the 2019 Annual Report quality of the Group’s underlying performance –– Decision audit with the new CAO. Management did not and Accounts and remains satisfied with the and the Committee Chair provided feedback made and attend these meetings. quality of service that KPMG provide, and to the Chair of the Remuneration Committee. communicated accordingly recommends their re- to firms appointment at the 2020 AGM. –– Debriefs held External Auditor Focus for 2020 During the year, the Committee assessed Subsidiary governance During 2020, the Committee will focus on the transition to PwC as the Group’s External Shortlist –– market/industry experience including regulatory experience the performance of the External Auditor in conducting the audit of the 2018 Annual The Committee has maintained its links with Auditor, the project to implement accounting The three eligible ‘Big Four’ firms were invited to tender and all three –– seamless transition. Report and Accounts. This assessment the audit committees of Bupa’s major for IFRS 17 Insurance Contracts, further submitted proposals. Medium-tier audit firms were considered ahead considered the overall quality of service, insurance subsidiaries. Paul Evans, a improvement to the Group’s control of commencing the formal tender process but the Committee Recommendation and decision timeliness of the resolution of issues, the Committee member, also chairs the audit environment and greater engagement with concluded that they would not be able to provide the expertise and The Committee held an additional meeting in June 2019 to discuss quality of the audit resource and whether committee of the UK major insurance the audit committees of the Group’s major seamless service that an organisation of Bupa’s complexity, scale and the assessment of each firm against the agreed criteria and the the audit plan was followed and was subsidiary and provides regular verbal insurance subsidiaries. geographic diversity requires. feedback received from management during meetings with the conducted through surveys sent to updates to the Committee. The Committee firms. The Committee recommended two firms to the Board with met with members of the risk committee of Clare Thompson Process Committee members, the Group CEO, Audit Committee Chair PwC identified as the first choice. The Board noted that PwC: CFO, CAO and Group Financial Controller, the Spanish insurance subsidiary, Sanitas The tender was led by a sub-committee comprising Nicholas Lyons, and senior finance management across the Seguros, during the Board’s annual strategy Clare Thompson, the CFO, Group Financial Controller and Corporate –– could provide the high quality of audit required Group. The Committee was satisfied with the meeting held in Madrid in 2019. In addition, the Development Director. Nicholas acted as chair of the sub-committee –– clearly demonstrated deep insurance expertise and strong External Auditor’s performance and the CEO and audit chair of the Group’s business in to mitigate any potential conflict of interest arising from Clare’s expertise in relevant markets quality of the audit. Hong Kong attended a Committee meeting to former position as a partner of PwC. Appropriate members of discuss management actions and their audit –– demonstrated high levels of competence, experience and a clear management attended meetings as required. The Committee approved a revised Audit and committee’s oversight of these in relation to quality focus Non-Audit Services Policy to comply with a The firms were given access to a data room providing information to improvements to the control environment. –– clearly understood Bupa’s business in some depth revised Ethical Standard issued by the FRC for help them understand our business and the scope of the audit and auditors relating to the provision of non-audit During the year, the Committee Chair a period to ask questions to assist in preparing their submissions. –– had good experience of transitioning audits and good potential services which aims to safeguard the External attended a meeting of the audit committee Each firm was required to meet with specific stakeholders across the value-add. Auditor’s independence. The changes place of the Bupa ANZ Board and has held calls Group including the chairs of the audit committees of each of our Therefore, the Board agreed to appoint PwC as the Group’s External stronger restrictions on the engagement of or meetings with the chairs of the audit major insurance subsidiaries. This included introducing the proposed Auditor from 1 January 2021, subject to AM approval at the 2021 the External Auditor for non-audit services committee of each major insurance subsidiary. senior team members for the audit of each business to relevant AGM. This recommendation was made free from any influence by a and start with the principle that other A programme of attendance at Committee senior stakeholders. third party and there are no contractual terms imposed on the Group providers will be used unless there is a clear meetings by the chairs of the audit Each firm submitted a written proposal and technology presentation of the kind mentioned in Article 16(6) of the EU Audit Regulation. and exception-based rationale for engaging committees of each major insurance and gave a presentation to the sub-committee who then asked the External Auditor. The Group has an annual subsidiary in the Group is being arranged questions. Separate submissions were requested outlining proposed Transition cap on the value of non-audit engagements for 2020. fees; however, this did not form part of the key decision criteria. PwC will shadow KPMG during their audit of Bupa’s 2020 Annual which aligns to the revised FRC Ethical Report and Accounts, and the Non-Audit Services Policy applied Assessment criteria to PwC from 1 January 2020 to ensure their independence at Each firm was assessed on the following criteria using a scorecard appointment. The lead PwC audit partner attended a Committee with an overarching criteria of audit quality: meeting following selection, to outline the firm’s progress on reaching independence from Bupa and the firm’s approach to transition. –– team and professional fit The Company intends to tender the External Auditor appointment –– demonstrating understanding of the business at least every ten years. –– value-add

64 65 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Risk Committee report

The Committee’s role During the year, the Committee received Emerging and strategic risks now in place to provide an update on the areas and governance regular updates on our preparedness for a “Bupa’s more significant The Committee regularly considers emerging of focus of their respective committees, as well ‘No-deal’ Brexit. Climate change is a risk that and strategic risks, both internal and external, as details of any specific concerns they wished The principal role of the Committee is to the Committee has increased focus on and will risks include changes in the context of the current, and expected to raise with the Committee. assist the Board in articulating and continue to develop its thinking on, and future, business and market environments in In addition, the Committee met with members developing its risk management strategy and in government and approach to, during 2020. which we are operating. These risks inform of the Spanish insurance subsidiary’s risk providing oversight of risk across Bupa. This regulatory policy, clinical, strategy discussions and they can present committee during the Board’s annual strategy includes understanding current and future Information technology and security strategic opportunities as well as threats to meeting held in Madrid in 2019. There is risk exposures, recommending overall risk cyber and climate During the year, the Board approved a be mitigated. The risks considered include cross-membership between the Committee appetite and tolerance to the Board, multi-year strategic investment programme change risks.” the impact of significant governmental or and the risk committees of our major insurance reviewing the consistency of corporate in the Group’s technology capabilities. The regulatory changes, changes in customer subsidiaries in Australia, the UK and Spain. strategy with the Company’s risk appetite, Committee has placed significant emphasis on Caroline Silver behaviours and expectations, significant The Committee Chair has regular calls with reviewing the RMF, considering the risk information technology, security and privacy Committee Chair changes in medical treatment or the way her local counterparts and the Committee Caroline Silver aspects of major transactions, and promoting risks during the year to ensure that we protect care is provided, digital disruption and climate receives summaries and minutes of the a risk awareness culture throughout Bupa. Committee Chair the data of our customers, partners, employees change. There is significant linkage between meetings of the risk committees of the major A full description of the Committee’s role is and suppliers and that our systems are resilient. line of defence. Increasing the capacity and these risks and it is unlikely that any one risk insurance subsidiaries. She also attended What are the most material risks set out in its Terms of Reference on bupa. The Committee received regular updates from capability of the Risk function will continue to would emerge in isolation. a meeting of the risk committee of the UK Q facing Bupa? and a detailed description of the com the Chief Information Officer during the year on be important in the coming year. major insurance subsidiary during the year. Caroline: The most significant risks we principal risks to Bupa’s business are set the progress of the technology investment We have assessed the potential impact of climate change in a number of risk categories. face remain: changes in government and out in the Risks section on page 37. programme. Second line assurance was Aged care in Australia Other regulatory policy in the markets where we Liability risk is the impact on health, which we The Committee comprises solely independent provided by the Information Security and Our Australian aged care business continues operate; clinical risks; cyber and privacy see as a medium-term risk, which we are well In addition, the Committee has carried out NEDs. The Group CEO, CFO, CRO, Chief Technology Chief Risk Officer and the Board’s to operate in a challenging market. During other business as required under its Terms of risk; and increasingly, climate change risk. independent cyber adviser also attended the 2019, 15 homes operated under regulatory placed to consider given our healthcare In addition, the risk to reputation, Medical Officer, CAO and the lead partner of expertise. Exposure to physical risk is mainly in Reference including: recommending the Group’s the External Auditor are invited to attend all majority of Committee meetings. The sanction from the Australian Aged Care ORSA to the Board for approval; reviewing the particularly in a global group, remains Committee held a series of private meetings Quality and Safety Commission and this our provision businesses, and we have recently ever present. Bupa is well placed relative meetings. The CRO has unrestricted access to annual insurance compliance plan; reviewing with the Board’s independent cyber adviser, has now decreased to 5. The Committee seen the impact of this with the bushfires in to many of its competitors to understand all members of the Committee and has regular the results of reverse stress testing of Bupa’s without management being present. received regular reports on the progress Australia. There is also risk associated with the these risks and benefit from the private meetings with the Committee, in the business model; reviewing the modelling of of the improvement programme during the transition to lower-carbon economies and opportunities they also present. Through absence of management, to ensure that there The Committee challenged management to different ways of working which will have economic capital as part of our annual ORSA our people, processes and actions, we is an opportunity for the CRO to raise any ensure continuous improvement and uplift in year, including through an update from the process; and approving, or recommending to chair of the risk committee in Australia. associated cost and will therefore put pressure must ensure that we understand and concerns he may have. The Committee Chair controls by addressing risk culture, resourcing on affordability. This could impact short-term the Board, refreshed enterprise risk policies and mitigate these risks from the frontline is also a member of the Remuneration and the target outcomes of the programme The Royal Commission into Aged Care Quality economic growth but is an area all businesses risk appetite statements. through to the leadership team. Committee, to assist with ensuring that risk during the year. The Committee is satisfied that and Safety, an industry-wide review, continued must focus on. Why is first line accountability for management and culture are taken into the programme is progressing to plan, and that during the year and issued its interim report in Committee effectiveness review Q risk management so important? account in remuneration decisions. Each year, there is now evidence of risk reduction. The October 2019. Stress and scenario testing As already disclosed, the 2019 evaluation the Committee considers whether to make Committee remains focused on ensuring that Management carries out stress and scenario Caroline: Our people are the first line in Clinical governance risk of the effectiveness of the Board and its any recommendations to the Remuneration the benefits are sustainable, with documented tests annually to test the impact of various our ‘three lines of defence’ model of risk committees was externally facilitated by Committee on making risk adjustments to policies, controls and reporting in place. The Group’s approach to overseeing clinical scenarios on the Group’s capital strength, management. They know the most about variable remuneration outcomes for that year. Boardroom Review and the results of the our business and how it operates so are governance risk was refreshed by the new liquidity and profitability. The Committee For 2019, having regard to the executive First line accountability for risk evaluation, including actions for the best placed to identify areas where risk Chief Medical Officer in late 2019. This was agreed the scenarios to be tested during the performance evaluation process in place, the management Committee, are set out on page 59. could be managed better. Making sure based on our recent experience of issues in year and reviewed the results of the tests. our people understand risk management Committee did not recommend any further Management continues to embed risk this area such as in our Australian care homes The scenarios are designed to test the In terms of addressing the actions arising and embed it as a matter of course in individual or Group-wide adjustments to management in the first line of defence. and informed by our previous experiences strength of our three-year base operating plan from the Committee’s evaluation of its own their ways of working will ensure we make remuneration. The CRO provides updates at each meeting in the UK aged care business. The Group’s and also form part of the Group’s Own Risk and performance in 2018, the Committee has the best decisions for our customers, and Matías Rodríguez Inciarte, Michael Hawker of the Committee which include his view of Clinical Governance Enterprise Risk Policy Solvency Assessment (ORSA). The Committee continually challenged management to further our business. and Professor Melvin Samsom joined the management’s progress in this area, and the and clinical risk appetite statement have noted that the Group operates in a more embed risk management in the first line of Committee asked members of management recently been revised and improved clinical How do you think climate change Committee during the year. Melvin ensures volatile external environment than was defence and is satisfied with management’s to present on key risk issues during the year. risk indicators and reporting agreed. The Q will impact Bupa? continued medical expertise on the previously the case due to increasing political progress during the year. Committee. Matías and Michael are NEDs In addition, each business sets annual risk Committee is satisfied that clinical governance and regulatory risk and the public’s changing Climate change is likely to Caroline: of our Spanish insurance and Australian objectives to focus on which are validated and is appropriately positioned within the Group’s expectations of our products and services, as impact negatively on health trends, and so Focus for 2020 businesses respectively, and bring to the monitored by the Risk function and reported to overall RMF. well as increasing expectations of the standards could challenge our operational resilience the Committee. The Committee is satisfied that of corporate behaviour. The Committee was In 2020, the Committee will continue to and business model. Short-term, we must Committee direct insight into our key markets. senior managers across the Group understand Political risk satisfied that, while these scenarios would have focus on: be prepared to deal with more extreme the need to manage risk well but acknowledge Political risk is increasing and the Committee events, such as the Australian bushfires, a significant impact on the Group, Bupa could –– maturing risk management accountability 2019 activities that there is further work to do to fully embed held a deep dive on political risk during the which saw three of our care homes withstand them, with recovery within a in the first line of defence this at all levels of the Group. year focusing on the risks associated with needing to be evacuated. Longer-term, we Information security and technology risk and reasonable timescale and with appropriate –– overseeing the Group’s continued must assess the impact on both our health privacy risk have been a continued focus for The Committee has also considered the changes of government in Bupa’s key markets management actions being taken. investment in technology capabilities insurance and provision businesses, in the Committee during 2019. capability and capacity of the Risk function and the activities in place to mitigate these risks. This links to regulatory risk with Subsidiary governance terms of our customer needs, our people We have increased focus on clinical governance during the year to ensure that it has the right –– affordability of our products and services and future financial profile. the Committee governments introducing stricter regulatory The Committee has strengthened links with during the year, and the ongoing compliance quality and quantity of resource to effectively –– risks to achieving Bupa’s strategy. will continue to consider this throughout regimes and regulators being given more subsidiaries with a rolling programme of and service issues in our Australian aged care carry out its assurance role. The Committee the coming year. powers to hold businesses to account. attendance by subsidiary risk committee chairs business remain a priority. was pleased to see activity moving to the first Caroline Silver Risk Committee Chair

66 67 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Nomination and Governance Committee report

The Committee’s role on the Committee’s recommendation, Other Board matters chairmen or senior independent directors for consumer experience and by the appointment following interviews with all Committee each of the four major insurance subsidiaries. of an independent cyber adviser to the Board. and governance members. Melvin brings extensive The Committee reviewed the Directors’ other In June 2019 the Committee approved the The oversight of corporate governance The Committee reviews the balance, structure international clinical and management commitments for potential conflicts of interest appointment of Bryan Mogridge ONZM, who matters across the Group was enhanced and composition of the Board and its expertise to the Board from his career in and for threats to their independence, such as was already a non-executive director of Bupa through the introduction of the requirement committees and leads the process for gastroenterology as both a consultant and Caroline Silver’s and Clare Thompson’s roles as Australia and New Zealand, as Chairman of for our major insurance subsidiaries to appointments to the Board. It considers researcher, as well as clinical leadership NEDs of M&G plc. The Committee concluded our business there, following the resignation appoint a deputy chairman or senior succession planning to ensure that the Board experience, and also serves on the Risk this did not compromise their independence, of the Hon Nicola Roxon. Bryan brings independent director. has the skills and expertise it needs to lead and Committee. and re-confirmed that they were able to meet substantial experience, having served on the The Committee continues to keep the manage the Company in the future. The the time commitment required as a NED of boards of a number of private and public Cath Keers joined the Board on 1 November composition of the body of AMs under Committee takes the Board Diversity Policy Bupa. Subsequently, Caroline Silver has companies in Australia and New Zealand 2019, and succeeded Martin Houston as Chair review. There was no active programme of into account in both succession planning and announced that she will retire from the Board over many years. of the Remuneration Committee on 1 January recruitment of new AMs in place during 2019, recruitment. As at the date of this report, 50% of M&G plc in May 2020. The Committee also 2020. Cath has over three decades of The Committee also reviewed the evaluations although the Committee has refined its Roger Davis of the members of the Board are women, identified topics to be covered in Board professional and leadership experience across of effectiveness undertaken during the year by approach to recruiting and engaging with including both Executive Directors. Succession development and training sessions during Committee Chair the retail, consumer, digital and technology the boards of our major insurance subsidiaries AMs in future. planning for the BET and other senior the year. sectors. Cath was identified by the Committee in the UK, Australia and Spain. Why is good corporate executives is done by the Board. The as being able to enhance the Board’s digital Q governance important for Bupa? Committee also leads the process for the and consumer expertise, which had been Corporate governance oversight Focus for 2020 Roger: Strong corporate governance selection and appointment of AMs and recognised by the Committee as an area Board and Committee In 2020, the Committee plans to continue is crucial to the sustainable long-term approves the appointment of non-executive The Committee reviewed the Company’s where the Board’s collective expertise needed effectiveness its work on strengthening the governance success of any organisation. At Bupa, directors to subsidiary boards. Further compliance with the Code during the year, and to be bolstered. In addition, she has the skills to arrangements for the Group’s subsidiaries, our Board plays a vital part in ensuring information on the Board Diversity Policy can a statement of compliance is included on page As already disclosed, the 2019 evaluation replace Martin Houston as the Chair of the to refine the Board’s skills matrix as part of that the tone for the Group’s values and be found on page 51 and the full policy is on 55. The Code sets out three ways in which of the effectiveness of the Board and its Remuneration Committee, having previously its ongoing succession planning work and bupa.com. companies can engage with the workforce Committees was externally facilitated by culture is set from the top. Culture is at performed this role at other companies. Cath but allows companies to adopt alternative Boardroom Review and the results of the to re-start a selective programme of the centre of good governance – doing The Committee keeps Bupa’s corporate was appointed by the Board on the arrangements. Bupa’s approach to employee evaluation, including actions for the recruitment of new AMs. the right thing and putting customers governance arrangements under review Committee’s recommendation, having been first, in order to achieve our purpose of engagement, and why it is considered Committee are set out on page 59. and makes recommendations to the Board interviewed by all Committee members. effective, is set out on page 53. The helping people live longer, healthier, to ensure that, where appropriate, those A longlist of providers was considered by the Russell Reynolds provides services to recruit Committee will continue to keep this approach Roger Davis happier lives. arrangements are consistent with best Committee and a sub-committee comprising NEDs and to identify potential AMs, and has under review in 2020. Nomination and Governance Committee Chair practice in corporate governance standards. the Chairman, Senior Independent Director What skills have the new an employee health insurance scheme A full description of the Committee’s role is set During 2019, the Committee approved the and Group CEO then compiled a shortlist. Q directors brought to the Board? provided by Bupa. Russell Reynolds is a out in its Terms of Reference on bupa.com. establishment of the CRS Committee. The The Committee agreed the key factors that signatory to the Enhanced Voluntary Code Roger: Michael Hawker and Professor CRS Committee has initially been established the shortlisted providers should demonstrate, The Committee currently comprises the of Conduct for Executive Search Firms. Melvin Samsom joined the Board and the as an advisory committee to the Group CEO. being: Chairman and four independent NEDs Risk Committee in April 2019. Michael Matías Rodríguez Inciarte and Michael Hawker The Committee will monitor the CRS including the Senior Independent Director. The –– experience of undertaking evaluations in brings significant international insurance also joined the Board as NEDs during the year. Committee’s activities and development, Group CEO was a member of the Committee large, global companies, including regulated expertise, particularly in Australia, and is Their appointments were disclosed in more including whether it should, over time, be until 1 April 2019. Janet Voûte joined the financial services organisations the deputy chairman of our business detail in the 2018 Annual Report and constituted as a standing committee of Committee on 1 January 2019, and Nicholas there. Melvin brings extensive clinical and Accounts. the Board. –– ability to provide quality insight and management experience to the Board. Lyons and Paul Evans were appointed to the recommendations We welcomed Cath Keers to the Board Committee in June. Martin Houston stepped The Committee reviewed succession planning The Committee receives regular updates on and to the Remuneration Committee in down from the Committee on 31 December for the Board throughout the year. It also corporate governance developments across –– ability to provide insight into the Board’s November 2019, and she brings strong 2019 when he retired from the Board. The reviewed the composition of the Board and its the Group’s key markets to ensure that the oversight of its global operations. Group continues to maintain high standards digital and consumer expertise, as well as Group CEO, CFO and Chief People Officer Committees and recommended the changes The three shortlisted providers then presented of governance. experience of chairing the remuneration regularly attend Committee meetings. in Committee membership described above. to the sub-committee and were assessed committees of listed companies. using a pre-agreed scoring system that How does the Board ensure NED succession “During the year we Subsidiary governance included the provider’s methodology and Q oversight of its subsidiaries approach, cultural fit and the experience, Professor Sir John Tooke retired from the In 2019, the Committee approved a new across the world? appointed deputy capability and capacity of the evaluation team, Board at the AGM on 15 May 2019 and requirement for our major insurance which resulted in Boardroom Review being Roger: We have a governance framework Martin Houston retired from the Board on chairmen to the boards subsidiaries in the UK, Australia, Spain and identified as the preferred supplier. The which is applicable throughout the Group, 31 December 2019. Sir John agreed to join the of our major insurance Chile, to appoint a deputy chairman or senior Committee recommended Boardroom and compliance with that framework is board of Bupa Chile, the holding company of independent director, who must be approved Review’s engagement to the Board who overseen by the Board. We have three our insurance subsidiary in Chile, following his subsidiaries to enhance by the Committee in advance; new endorsed the engagement. Boardroom NEDs on the Board who are also NEDs of retirement, and Martin remains on the board of requirements for director training; and for the Review has no other connection with the the major insurance subsidiaries in the Bupa Arabia for Cooperative Insurance communication major insurance subsidiaries to maintain a Group or individual Directors. Group. This year we have also approved Company, our associate business in Saudi channels between these board skills matrix and to consider succession the appointment of deputy chairmen of Arabia. The Board appointed Russell Reynolds planning at least annually. These requirements In terms of addressing the actions arising these companies to enhance the to lead on the recruitment of a Director with and the Bupa Board.” are contained in the revised Group Subsidiary from the Committee’s evaluation of its own communication channels between the healthcare and clinical expertise to replace Sir Governance Enterprise Risk Policy, which is performance in 2018, the Board’s knowledge Board and subsidiary boards. John. This process resulted in the appointment Roger Davis approved and overseen by the Committee. of information technology and security has of Professor Melvin Samsom on 11 April 2019, Committee Chair In line with the revised policy, the Committee been strengthened through the appointment approved the appointment of deputy of Cath Keers who has strong digital

68 69 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Part 1: Committee Chair’s letter

Dear Association Members The GPP applies to Bupa’s senior leaders and Rather than set absolute targets, as Bupa did The 2019 transition arrangement –– the 2019 Transition Award, equivalent to a Executive Directors and will work as follows: under the previous LTIP, listed companies normal annual award opportunity, will be I am pleased to introduce my first Directors’ often use relative measures to determine Moving from the previous LTIP with a potential paid in 2022 after the second deferral year; –– an individual will be invited to join the Remuneration Report as Chair of the payout, such as performance against an index payout in year 4 of the award schedule, to the and scheme at the beginning of the one-year Remuneration Committee (the Committee). or comparator group. GPP with potential payout in year 5 of the I would like to thank Martin Houston for his performance period, subject to a minimum award schedule, has created a payment gap –– the 2019-22 GPP award will be payable in stewardship of the Committee over the last six individual performance level; However, as we do not have a share price, with no award payout possible in 2022. To 2023 after the third deferral year. the range of substitute relative performance years and thoughtful guidance on handover. –– at the end of the one-year performance rectify this, a transitional one-off arrangement The 2019 Transition Award is timed to mirror measures is limited. In addition, given Bupa’s period, the Committee will assess Bupa’s applies for 2019 only (the 2019 Transition the payout schedule of the previous LTIP, had mix of business and geographies, it is performance using a balanced scorecard Award): a 2019-21 award been made. The 2019-22 GPP Role of the Committee challenging to find suitable companies to capturing financial and non-financial award moves participants onto the new compare ourselves with. –– for the first cycle of the scheme only, two The Committee is responsible for ensuring measures; awards will be made to deliver potential payment schedule, which has three years of that Bupa adheres to the highest standards of For these reasons, the Committee decided to deferral. Further awards will be made on the –– the Committee will take a view of the overall payouts in 2022 and 2023 (with each award Cath Keers governance and best practice in remuneration use a balance of financial and non-financial basis of this latter schedule. The diagram performance of the Group, based on the being equivalent to participants’ normal Committee Chair matters. The remuneration policy is structured measures against a single year’s performance, below shows the timings of the GPP and LTIP. performance of these measures and the annual award opportunity); to promote strong and sustainable success of reflecting Bupa’s wide range of stakeholders, scorecard outcome, and make a judgement Key items covered at scheduled the Company and link reward to the delivery with the Committee retaining overall –– the payout will be communicated to on the overall level of payout; meetings in 2019 of Bupa’s strategic goals and purpose. A full governance over the assessment of the participants once it has been determined description of the Committee’s role is set out –– payout will be confirmed to participants by the Committee; 7 February outcomes. This is combined with a three-year in its Terms of Reference on bupa.com. after the one-year performance period and deferral to be able to take account of any 2018 MBS outcome, BET annual then deferred in full for three years; and issues which might surface over a longer reward review. Committee membership was stable throughout 2019. Caroline Silver joined the –– the deferred award is subject to malus and period. 20 February Committee in January 2019. I joined the clawback for a further three years. 2016-18 LTIP outcome, review of 2019-21 Committee on 1 November 2019 and succeeded Martin Houston as Committee LTIP targets resulting in decision to Key GPP design features Group Performance Plan (GPP) undertake an LTIP redesign, annual Chair from 1 January 2020. reward review for Group Designated Balanced scorecard Individuals below BET level. New Group Performance Plan The Committee identified that Bupa’s GPP scorecard remuneration approach could be strengthened 15 May (GPP) Category Measures further by having performance measures for Financial (60%) Group profit (40%) Review of alternative LTIP designs. As a key initiative for 2019 and as disclosed in variable remuneration appropriately weighted the 2018 Remuneration Report, the Company and a better balance between financial and Revenue (10%) 16 July committed to undertake a redesign of the non-financial performance weighted at 60% Cost efficiency (10%) Review of Committee adviser, overview Long Term Incentive Plan (LTIP) to ensure and 40%, respectively. of general workforce, approval of 2019 that it remained effective. Customer (15%) Basket of measures e.g. Net Promoter Score (NPS), customer complaints etc. Group Performance Plan, regulatory All the measures in the GPP scorecard People (10%) Basket of measures based on employee engagement e.g. overall engagement score relative to benchmark The LTIP was not fully achieving its key are derived from key strategic reports the update, subsidiary NED fees. (15%) Basket of measures e.g. risk appetite indicators, feedback from regulators, clinical and provision risk, ESG, etc. objectives of motivating, retaining and Board receives through the year so are Risk 10 October incentivising our people and did not have a linked to the regular performance updates clear line of sight between performance of the the Board receives. We strongly believe Pay comparator groups, control function senior team and the LTIP outcome. bonus design, Group Performance Plan that an assessment on these measures will LTIP, GPP and Transition Award timeline implementation update. The 2019-21 LTIP grant was put on hold by the provide a sound assessment of how Bupa Committee in February 2019 until the review has performed. The performance measures 2017 2018 2019 2020 2021 2022 2023 2024 12 December and redesign had been finalised and are open to review each year, and as with all 2017-19 LTIP Performance Performance Performance Payment Year 1 Year 2 Year 3 Committee effectiveness review, Terms approved, with the intention of granting good incentive schemes, will evolve where Year necessary. of Reference review, gender pay gap participants a 2019 award under a new plan. 2018-20 LTIP Performance Performance Performance Payment disclosures, Remuneration Policy Year 1 Year 2 Year 3 Through the course of the year the Committee Performance period Year Statement, remuneration standard, met to discuss and design the new incentive. 2019 Performance Deferral Deferral Payment sales incentive principles, control function A one-year performance period under the There were four key design principles: Transition Award Year 1 Year 1 Year 2 Year bonus performance assessment, GPP replaces the three-year LTIP performance 2020 incentive scheme rules. –– attract, motivate and retain senior leaders; period. 2019-22 GPP Performance Deferral Deferral Deferral Payment Year 1 Year 1 Year 2 Year 3 –– capture a broad range of financial and Financial planning over a three-year period is Year non-financial measures to incentivise strong subject to uncertainty in a period of significant 2020-23 GPP Performance Deferral Deferral Deferral Payment and sustainable performance; regulatory intervention, investment and Year 1 Year 1 Year 2 Year 3 Year –– improve line of sight for participants to the restructuring, which means setting In the Directors’ remuneration report LTIP measures and thereby improve the appropriate targets against this timeframe is ability to influence the performance challenging, and participants across Bupa feel Part 1: Committee Chair’s letter outcome; and that they do not have much opportunity to influence the outcome of the performance Part 2: Implementation –– simplify the scheme to allow participants to measures nor the ability to track the forecast Part 3: Policy understand how the scheme works and outcomes through the course of the plan. how the payout is calculated.

70 71 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Part 1: Committee Chair’s letter continued

Directors’ Remuneration Policy Wider employee context on incentive schemes), the Committee Bupa is committed to ensuring that determined no business-wide risk adjustments Our executive remuneration at a glance For 2020, we are proposing an updated would apply in respect of 2019. Remuneration Policy, to be voted on by AMs remuneration across the organisation is at the 2020 AGM, which incorporates the new appropriate and fair for all employees. The individual performance multipliers for (£000) The chart to the left is representative GPP design features discussed. The Board are We reviewed the outcomes from our two the Group CEO and CFO, based on their 2019 remuneration of the ongoing implementation of the supportive of the updated policy. global employee engagement (People Pulse) performance during the year, were 100% Total and 110% respectively. £000 Directors’ Remuneration Policy. The Company consulted with AMs in October surveys, launched in May and November 2019, The chart shows salary, pension and 2019 regarding the GPP and its impact on the to obtain detailed insight into what our Despite the MBS performance outcomes Evelyn Bourke 2,503 benefits paid in 2019, the total payout of Executive Directors’ Remuneration Policy. employees are saying, and we discussed with discussed above, 2019 was a particularly 869 261 55 175 1,143 management the insights from these surveys. challenging year and the Group reported a the 2019 MBS, 50% of which is deferred A second change proposed for the Directors’ until March 2023, and the 2019-22 GPP We also reviewed general workforce metrics loss on an after-tax basis. While this does not Joy Linton 1,574 Remuneration Policy is in respect of Executive award, payment of which is deferred in order to take into consideration the feature explicitly as a measure in MBS, the 576 173 18 116 691 Director pensions, with employer pension Committee decided to look past the formulaic until March 2023. contributions for current Executive Directors remuneration of the general workforce, Base salary Pension Other benefits Management Bonus Scheme Group Performance Plan related policies, and the alignment of outcome of the MBS and chose to exercise to be reduced from 30% of base salary to 25%. discretion, reducing the bonus payments of This recognises the current external focus on incentives and rewards with culture, when setting the policy for Executive Director the Executive Directors down to 20% of salary. the alignment of Executive Director pension This is a reduction of £476,527 for the Group contributions (as a percentage of salary) with remuneration. Reward is managed on a local 2019 MBS outcome basis with benchmarking usually conducted CEO and £240,532 for the Group CFO. As per Measure Outcome those for the majority of the wider workforce. the plan rules, deferral, malus and clawback During 2020, a plan will be developed to on an annual basis to ensure that our overall Group profit (55% weighting) –– The Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion reward package remains in line with relevant will apply to the bonus payments. equalise the pension contributions as a Revenue (10% weighting) and reduce the bonus payments of the Executive Directors down to 20% of salary. percentage of salary of the incumbent local market practice. Long Term Incentive Plan Cost efficiency (10% weighting) Executive Directors, to the majority of the Members of the Committee have attended The performance measures of the 2017-19 Customer (25% weighting) workforce by 2022. workforce events throughout the year LTIP are based on profit after tax (PAT), including town hall meetings with the Board return on capital employed (ROCE) and in a number of Bupa’s locations. 2017-19 LTIP outcome 2019 activities customer. While performance under the ROCE and customer measures would have Measure Outcome In addition to designing the new Group Profit after tax (60% weighting) –– Threshold for PAT was not met and therefore ROCE and Customer performance measures do not vest. Performance and pay in 2019 resulted in a payout, the PAT threshold was Performance Plan incentive and reviewing our not met despite the inclusion of previously ROCE (20% weighting) Remuneration Policy, the Committee focused Salary agreed adjustments such as the Australian Customer (20% weighting) on a number of other areas during 2019. Government’s restriction of health insurance The Committee has approved increases to price increases to a lower rate than claims Control functions Management Bonus the Group CEO and CFO of 2.9%, to reflect 2019-22 GPP outcome inflation. Therefore, under the rules of the Scheme (MBS) performance in the role and general market, scheme, no payout was achieved, leading Measure Outcome and this was consistent with budgets applied The Committee reviewed the approach to to the LTIP awards of 137.5% of salary for Financial (60% weighting) –– Around target level performance (49.4% of max), taking account of the response to challenges faced for other employees in the UK. measuring performance for the 2020 MBS the CEO and 125% of salary for the CFO, during the year and quality of the underlying performance within Bupa’s main businesses. and future awards for control functions (risk, Management Bonus Scheme made at the beginning of 2017, not vesting. Customer (15% weighting) –– Around target level performance (49.5% of max). Bupa made positive progress across all customer compliance, audit and actuarial) in our measures throughout the year. insurance businesses across Bupa, responding Group profit performance was below target, Group Performance Plan driven principally by adverse performance People (10% weighting) –– Slightly above target level performance (52.5% of max). Positive set of employee surveys, tracking upwards. to regulatory challenges to strengthen For the 2019 Transition Award and 2019-22 within the aged care business in Australia (15% weighting) –– Slightly below expectations (43.9% of max). Despite considerable progress, the Australia Aged Care functional independence while still maintaining GPP award, the payout is based on Bupa Risk and the UK dental business. This is offsetting business issues were taken into account. a link to financial affordability. performance assessed against a scorecard favourable performance across other parts measured over the 2019 financial year. The As a result of the review, the Committee of the business. has adjusted the metrics for staff in control scorecard is made up of 18 measures assessed functions to ensure that they are more Revenue and cost efficiency were both around at Group level, sitting within four broad target. categories: financial 60%; customer 15%; consistent and weighted towards the Customer (15%) throughout 2019 have seen a fall in the People (10%) achievement of objectives linked to their All markets continued to make good progress people 10%; and risk 15%. The Committee assessed the performance on number of complaints. Results over three People Pulse employee function. This is an area we will be keeping on customer performance metrics, reflecting Financial (60%) customer measures to be strong, while Customer numbers have increased year-on- surveys across all markets and businesses under review, adopting an evolutionary the high level of operational focus on delivery recognising the need for continued focus, for year in insurance and provision, although confirm our people are eager to have a voice, approach. for customers across the Group, and the Financial performance metrics are example in our Australian aged care business residents in our care homes at the end of with encouraging levels of participation and impact of the robust mid-year review process, closely linked to the 2019 MBS financial Executive appointments performance measures discussed above where we have had particular challenges. December 2019 are down compared with employee sentiment trending upwards. which ensured that action was taken in several Good progress has been made in improving There were four key changes at BET level with in the Management Bonus Scheme section. December 2018. Employee engagement globally remains areas that required further focus. NPS scores across our key markets in 2019. the appointments of the new CEO in ANZ, The Committee assessed the overall We have made good progress embedding stable at 78 points, with an increase in Alongside the measures that make up the Chief Information Officer, Chief Strategy underlying financial performance at around During the course of the year, Bupa made the Customer Outcomes Policy across the participation to 70% of our people, against an MBS scorecard, the MBS outcome is subject Officer and Chief Medical Officer. A new target level of performance, taking account positive progress across the Group on Group through the year. ambitious global benchmark based on the top to an overall adjustment relating to risk Company Secretary was also appointed of the response to challenges faced during reducing complaints. Overall in insurance we 10% of global companies. management. Assisted by contributions from Health insurance brand awareness and during the year. The Committee carefully the year and the quality of the underlying are seeing an improvement in complaints the Risk Committee and the Risk Review Panel consideration has remained largely stable The Committee assessed overall People considered the terms for all individuals and performance within Bupa’s main businesses. ratios (complaints per 1,000 customers) and in (an advisory panel to the Group CEO, chaired through the year across the Group, with small performance as good, particularly given the used external benchmarking in setting the provision and aged care; all businesses that by the Group CRO, which supports increases in Spain and the UK where our challenges faced by a number of our people levels of remuneration. have consistently tracked complaints consideration of the impact of risk behaviours brand continues to outperform competitors. in the period.

72 73 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Directors’ remuneration report Part 1: Committee Chair’s letter continued Part 2: Implementation

Risk (15%) Committee evaluation This section sets out the details of the Executive Directors’ and NEDs’ remuneration, showing how the Remuneration Policy has been implemented in 2019 and how it will be applied in 2020. As well as disclosing remuneration figures for the Executive Directors, it includes details on how well Good risk management is a key component As already disclosed, the 2019 evaluation of Bupa’s Strategic Framework and critical performance targets have been met and the resulting level of MBS and GPP payout as well as the vesting of the LTIP. Certain disclosures of the of the effectiveness of the Board and its detailed information about the Directors’ remuneration set out below have been audited by the Group’s independent auditor, KPMG LLP. to achieving our Five-Year Vision. The Committees was externally facilitated Committee has assessed that considerable by Boardroom Review and the results progress has been made across both the first of the evaluation, including actions for Single total figure of remuneration 2019 – Executive Directors (audited) line of defence and the second line following the Committee, are set out on page 59. increased investment in capability in 2019. 2019 This investment is delivering improved Transition Total fixed Total variable leadership, which is ensuring suitable attention Focus for 2020 Salary Benefits MBS1 Award2 GPP2 LTIP3 Pension4 Sub-total5 Total remuneration remuneration Director Year £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 and prioritisation is given to the management As a newly appointed Chair of the Committee, Evelyn Bourke6 2019 869 55 175 1,143 1,143 0 261 2,503 3,646 1,185 2,461 of top risks and the maturity of our control I would like to take the opportunity to ensure Group CEO environment. While good progress has been that our Remuneration Policy and incentive 2018 838 53 770 0 0 166 251 – 2,078 1,142 936 made, considerable effort is required to ensure arrangements continue to support our overall Joy Linton7 2019 576 18 116 691 691 0 173 1,574 2,265 767 1,498 that risk management practices are consistent strategy. As such, focus areas for 2020 include Group CFO 2018 561 17 384 0 0 68 168 – 1,198 746 452 across all our businesses. a review of Remuneration Policy and a 1. MBS refers to incentive earned in respect of 2019 performance with 50% deferred until March 2023. In terms of top risks, good progress was detailed assessment of the new GPP to ensure 2. The 2019 Transition Award and the 2019 GPP are determined based on the GPP rules, based on 2019 performance. The Transition Award is payable in March 2022 and the GPP award made in cyber security, although further that it remains fit for purpose and continues to is payable in March 2023. effort is required and planned for 2020. meet its design principles, as well as a review 3. LTIP refers to the vesting of the 2017-19 scheme. of the incentive adjustment principles and 4. Pension figures reflect a cash allowance paid to Executive Directors in lieu of company contributions into a pension scheme. Regarding clinical and regulatory framework that is currently in place. 5. The sub-total figure shows the sum of salary, benefits, MBS, GPP and pension and is representative of the ongoing implementation of the Directors’ Remuneration Policy. performance, over the last 18 months, the 6. Evelyn Bourke’s salary from January to March 2019 was £850,000 and increased on 1 April 2019 to £875,000. Her benefits figure includes certain travel and subsistence expenses that are aged care business in Australia went from treated as taxable, grossed up to meet the costs of the additional tax. She is a NED of the Bank of Ireland and received fees of €78,750 in respect of this position, which are not disclosed a position of having never previously had in the table above. Voting on remuneration 7. Joy Linton’s salary from January to March 2019 was £565,000 and increased on 1 April to £580,000. Her benefits figure includes certain travel and subsistence expenses that are treated sanctions imposed on any of its 72 homes as taxable, grossed up to meet the costs of the additional tax. to 15 homes being sanctioned at some point The annual report on remuneration and the during this period. As of 31 December 2019, Directors’ Remuneration Policy will both be subject to an advisory vote at this year’s AGM, 2019 MBS measures and Alongside the measures that make up the The CFO received an individual performance 5 homes remained under sanction. There has MBS scorecard, the MBS outcome is subject multiplier of 110% based on her 2019 been considerable management commitment although the Board intends to act as though performance bound by the Remuneration Policy as to an overall adjustment relating to risk performance, including: and focus to address issues highlighted by the management across Bupa as determined by approved by the Association Members. For 2019, the Group CEO’s target MBS –– leadership of the development of the regulators, and good progress has been made, the Committee, assisted by contributions from opportunity was 100% of salary, with a Strategic Framework underpinning the although the challenges will persist into 2020 the Risk Committee and the Risk Review maximum of 200%. The CFO’s target MBS Five-Year Vision of being ‘the most trusted and need continued focus. Panel. As set out in more detail in the Cath Keers opportunity was 75% of salary, with a health insurer and provider’; Overall, the Committee was pleased in its risk Committee Chair maximum of 150%. Committee Chair’s letter, the Committee decided that no business-wide risk –– providing focus on Group and Global performance assessment about the pace of The performance measures used to determine progress and delivery of management actions. adjustments should apply. Functions to be more effective and efficient, the 2019 MBS for our Executive Directors were including strengthening governance and The Group CEO received an individual as follows: control accountabilities and streamlining performance multiplier of 100% based on her –– Group profit (55% of award) – this is similar advisory activities; and Outcome 2019 performance, demonstrating energetic to underlying profit before taxation, with Payout of the GPP is determined based on the and determined leadership in a challenging –– leading significant advances in finance the most significant differences being the Committee’s judgement taking into account year for Bupa. Key achievements include: delivery processes. the performance across the measures. In inclusion of restructuring and transaction –– strengthening and streamlining the Bupa The financial targets and actual performance applying its judgement across the four broad costs and acquisitions and disposals. organisation; for the 2019 MBS are set out in the table on categories discussed above, the Committee –– Group revenue (10% of award) – this the next page. Based on a formulaic outcome –– simplifying the Group into three Market assessed GPP performance at 48.9% of includes Bupa’s proportionate share of of the MBS, the payout for the Group CEO Units, and optimising ways of working; maximum. revenue from associates and joint ventures, would have been £651,527, representing an The Committee considered exercising which is not included within reported –– continued investment in culture to improve actual payout of 74.9% of salary and the discretion on the GPP payout for the Executive revenue. and maintain customer-centricity at both payout for the CFO would have been Directors, but recognised that the GPP is –– Cost efficiency (10% of award) – this is a a practical and strategic level with good £356,532, representing an actual payout of retention focused and believes the 2019 measure focused on ensuring that we are progress made in embedding and 61.8% of salary. As detailed in the Committee MBS reduction outlined earlier is substantial running the business efficiently, calculated improving customer Net Promoter Scores Chair’s letter, the Committee decided to look and a sufficient adjustment to the level of as overhead costs divided by revenue. across our key markets in 2019; past the formulaic outcome of the MBS and incentive pay. chose to exercise discretion to reduce the –– Customer (25% of award) – this measure –– strengthening risk management in the first MBS payments of the Executive Directors includes both improving our Customer line and information security in all our to 20% of salary. Excellence Framework and NPS scores. businesses; and –– setting a clear vision and strategy for Bupa.

74 75 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Part 2: Implementation continued

Threshold On-target Stretch Actual Evelyn Bourke1 Joy Linton1 CEO pay ratio from Bupa’s insurance, corporate and pay, linked to corporate performance, in performance performance performance performance provision businesses. To ensure that the results comparison with the employee population, level level level level Max bonus Actual payout Max bonus Actual payout New regulations for listed companies require are representative of the employee and for 2019, the one-off 2019 Transition £m or % if £m or % if £m or % if £m or % if % of % of % of % of them to report on the pay ratio of the Group 2019 MBS payout (audited) indicated indicated indicated indicated salary salary salary salary population’s pay and benefits at those Award has inflated the total remuneration CEO to UK employees. While Bupa is not Group profit 559.0 621.1 683.3 592.2 110% – 82.5% – quartiles, Bupa has chosen to use a median figure considerably. By excluding the one-off obliged to comply with these regulations, the Transition Award and using the sub-total Group revenue 12,438.0 13,820.0 15,202.0 13,822.9 20% – 15% – value of the pay and benefits for the 15 Committee has chosen to adopt them and employees above and below, and including, figure from the Single total figure of Cost efficiency 16.1% 14.6% 13.2% 14% 20% – 15% – provide full disclosure. The regulations allow the individual at the given quartile. This remuneration table, the resultant ratio of Customer 90% 100% 110% 104.6% 50% – 37.5% – for three potential approaches in calculating approach was taken to allow for any leavers 98:1 is more reflective of a normal year’s Total 200% 20% 150% 20% the pay ratio and the Committee has agreed through the year given Bupa’s large and remuneration. A further point of note is that to adopt Option B, which entails using the diverse workforce. the employee population of Bupa is largely 1. The Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion and reduce the of MBS down to 20% of salary. most recent gender pay gap information to made up of our people in provision businesses In considering the pay ratios presented, the identify and select employees at the 25th, and pay is reflective of that industry, rather Committee noted that the remuneration of the For both awards, the payout for our Executive GPP measures and made a judgement on 50th and 75th percentile. This method was than the insurance sector. 2017-19 LTIP vesting (audited) Group CEO has a higher proportion of variable Directors is based on the Committee’s the overall level of payout being 48.9% of chosen as it is made up of all UK employees The 2017-19 LTIP vesting was based on assessment of Bupa performance based on maximum award. performance against PAT, ROCE and performance against a scorecard for the 2019 Payout of both the 2019 Transition Award and Year Method 25th percentile ratio 50th percentile ratio 75th percentile ratio customer metrics and included a PAT financial year, details of which are set out in the the 2019-22 GPP is confirmed to participants 2019 Option B Total pay and benefits 167:1 143:1 116:1 threshold gateway for any measure to pay table below. out. While performance under the ROCE after the one-year performance period. The Salary only 43:1 37:1 29:1 and customer measures would have resulted As detailed in the Committee Chair’s letter and 2019 Transition Award is deferred for two in a payout, the PAT threshold was not met. displayed in the Our executive remuneration years and the 2019-22 GPP is deferred for Therefore, under the rules of the scheme, at a glance section, the Committee took three years with payments subject to malus In the table above, the Committee has chosen to provide additional information relating to salary in addition to the total remuneration calculations. the 2017-19 LTIP did not vest. a view of the overall performance of the and clawback. As incentive pay can vary significantly year-on-year, the Committee determined that the salary ratio provides helpful context beyond that of the company based on the performance of the single figure. Interests awarded during 2019 2019-22 GPP scorecard1 (audited) UK employees 25th percentile 50th percentile 75th percentile Performance measures within each category of the scorecard are weighted equally (except for During the year, awards for the 2019 Transition Salary £20,325 £23,543 £29,914 financial measures). All performance measures are measured on Group performance. Where Award and the 2019-22 GPP were made to the Total pay and benefits £21,899 £25,412 £31,468 performance measures are not tracked at a Group level, Market Unit or Business Unit level Executive Directors. The plans cover the performance will be collated and reviewed on a Group basis. annual performance period to 31 December 2019. Subject to the application of malus, the Category No. Performance measure Relative importance of spend Difference Transition Award may be paid in March 2022 Financial 1 Group profit (40%) 2019 2018 2019-2018 on pay £m £m £m and the 2019-22 GPP paid in March 2023. (60%) 2 Revenue (10%) The table to the right shows the relative Remuneration paid to all employees1 2,133 1,994 139 The table to the right shows the 2019 3 Cost efficiency (10%) importance of spend on pay. Given that Bupa Cash flow used in investing activities 565 543 22 Transition Award and 2019-22 GPP Customer 4 Customer NPS does not have shareholders and therefore performance measures. 1. Remuneration paid to all employees includes staff costs relating to wages and salaries as found in Note 2.3.1 (page 113). (15%) 5 Customer complaints does not pay dividends, cash flow used in investing activities has been shown as an 6 Customer numbers 2019 Transition Award and alternative measure. 7 Customer outcomes 2019-22 Group Performance 8 Brand position Plan (GPP) measures and People 9 Employee engagement score performance (10%) 10 People Pulse participation level The 2019 Transition Award has the same 11 Employee sentiment design, measures and award levels as the 2019-22 GPP, with the exception of a two-year Risk 12 Risk appetite indicators – financial, conduct, H&S, information security and privacy rather than a three-year deferral. The Group (15%) 13 Relationship with primary regulators CEO’s target 2019-22 GPP award is 137.5% of 14 Feedback from regulators salary, with a maximum of 275% and the CFO’s 15 Clinical and provision risk target annual award is 125% of salary with a maximum of 250%. Payout of the 2019-22 16 Operational resilience GPP will be made in 2023. 17 Cyber security 18 Environmental Social and Governance (ESG)

1. The scorecard above also applies to the 2019 Transition Award.

76 77 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Part 2: Implementation continued

Percentage change in Group CEO Employees1 Statement of implementation of Remuneration Policy in 2020 remuneration of the Group CEO Salary 2.9% 2.3% The remuneration of the Group CEO and CFO for 2020 was reviewed by the Committee, in the context of the Remuneration Policy as described Benefits (excluding pension) 3.8% no material change The table to the right shows the change in on pages 81-85. Having reviewed their salaries, the Committee approved salary increases for the Group CEO and CFO of 2.9%, to reflect their salary, benefits and short term incentives Short term incentives -77.3% 27.1% performance in the role and position against external market. (annual bonus) for the Group CEO in 2019 1. Employees refers to the UK salaried population, being the UK-based permanent employees whose records are held on the Salary Pension compared with 2018 alongside a pay and bonus review database. (effective from 1 April 2020) (effective from 1 January 2020) Management Bonus Scheme1 Group Performance Plan2 corresponding average figure for the Bupa Evelyn Bourke £900,000 (2.9% increase) 25% salary Target opportunity – Target opportunity – employee comparator group. The UK salaried Group CEO (down from 30% salary in 2019) 100% salary 137.5% salary (£1,203,125) population has been chosen by the Maximum opportunity – Maximum opportunity – Committee as the most appropriate 200% salary 275% salary (£2,406,250) comparison, as the Group CEO is located in the UK. The percentage change in salary for Joy Linton £597,000 (2.9% increase) 25% salary Target opportunity – Target opportunity – the employee population is a view of 1 April Group CFO (down from 30% salary in 2019) 75% salary 125% salary (£725,000) 2019 increases only and does not reflect Maximum opportunity – Maximum opportunity – increases awarded through the year. 150% salary 250% salary (£1,450,000)

1. Based on salary earned in 2020. 2. GPP award based on salary as at 1 March 2020.

Historical Annual bonus Long term GPP Transition For 2020 onwards, the MBS and GPP have been designed, in line with the Remuneration Policy, to support Bupa’s Strategic Framework. Single figure of payout against incentive vesting GPP vesting Award vesting The targets and the weighting of these were carefully considered to ensure the right balance of financial and non-financial measures in the short The table to the right shows levels of payout total maximum rates against rates against rates against term and the long term. to the Group CEO against the maximum remuneration opportunity maximum maximum maximum Year CEO (£000) % opportunity % opportunity % opportunity % incentive opportunity for the last five years. Our pillars Measure Management Bonus Scheme Group Performance Plan 2019 Evelyn Bourke 3,646 10% 0% 49% 49% Strong and sustainable performance Profit 55% 40% 2018 Evelyn Bourke 2,078 45% 16% – – Revenue 10% 10% 2017 Evelyn Bourke 2,511 64% 41% – – Cost efficiency 10% 10% 2016 Evelyn Bourke1 1,837 56% 44%2 – – Risk –1 15%2 2016 Stuart Fletcher3 1,315 46% 44% – – Passionate about our customers Customer 25% 15% 2015 Stuart Fletcher 2,081 62% 30% – – People make the difference People – 10%

1. Evelyn Bourke was appointed Group CEO on 25 July 2016. 1. The MBS outcome is subject to an overall adjustment relating to risk. 2. Figure corrected from 2016 Annual Report. 2. Risk is a specific measure in the GPP scorecard, as well as being applied to the GPP as an overall adjustment. 3. Stuart Fletcher left Bupa on 31 May 2016; his annual bonus reflects a pro-rated payment. Payments to former Directors (audited) There were no payments for loss of office agreed for Executive Directors for 2019. Those NEDs who stepped down during the year did not receive any payment for loss of office.

Chairman and Non-Executive Director fees During 2019, the fee for the Chairman was reviewed by the Committee and the fees for the Non-Executive Directors were reviewed by the Chairman and the Executive Directors. The Chairman’s fee was not increased this year and the Non-Executive Director basic fee was increased by 2.9% with effect from 1 July 2019. The Senior Independent Director fee was aligned with the Committee Chair fee on the basis that the amount of work and the accountability is similar, resulting in an increase in the fee from £17,000 to £25,000 (47.1%). The current fee levels are set out in the table on the right. Please note that membership of the CRS Committee does not attach a fee.

2019 Fee Chairman fee £425,000 Non-Executive Director basic fee £70,500 Senior Independent Director fee £25,000 Committee Chair fee Audit Committee £25,000 Remuneration Committee £25,000 Risk Committee £25,000 Committee membership fee Audit Committee £8,000 Remuneration Committee £8,000 Risk Committee £8,000 Nomination and Governance Committee £4,500

78 79 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Directors’ remuneration report Directors’ remuneration report Part 2: Implementation continued Part 3: Policy

Single total figure of remuneration 2019 – NEDs (audited) The aim of Bupa’s Remuneration Policy is to promote the long term success of the Company and motivate management to deliver strong and sustainable business performance aligned with Bupa’s purpose of helping people live longer, healthier, happier lives. The policy is intended to Fees Benefits1 Total £000 £000 £000 deliver a level and mix of remuneration competitive with companies of a similar scale and complexity. The proposed policy is subject to an advisory 2019 2018 2019 2018 2019 2018 vote by AMs at the 2020 AGM in May 2020. If approved, it will apply immediately, for up to three years. Roger Davis (Chairman) 425 97 15 6 440 103 Simon Blair2 3 97 0 228 3 325 Remuneration Policy table – Executive Directors 3 Paul Evans 88 14 17 5 128 19 Base salary Management Bonus Scheme Group Performance Plan Pension Benefits 4 Michael Hawker 58 – 132 – 190 – Purpose and link to strategy 5 Martin Houston 99 97 38 92 137 199 Core element of remuneration To drive behaviour and to To attract and retain senior To provide an income after To attract and retain Executive Cath Keers6 13 – 0 – 13 – set to attract and retain promote focus on the business leaders and incentivise strong retirement, healthcare security Directors by providing health and Executive Directors, reflecting priorities for the year. and sustainable performance. and family protection benefits. wellbeing benefits and providing Nick Lyons 88 14 1 0 89 14 their role and contribution. To motivate and incentivise security for families. 7 Matías Rodríguez Inciarte 78 – 24 – 190 – delivery of performance over Prof. Melvin Samsom8 60 – 38 – 98 – the annual operating plan. Caroline Silver 111 88 0 0 111 88 Operation Clare Thompson9 128 116 1 2 129 191 Salary levels are reviewed Bonus levels and the As Bupa cannot provide For the current Executive Executive Directors are entitled to Prof. Sir John Tooke10 108 2 110 41 1 42 annually with any changes appropriateness of measures incentives based on equity Directors and new a number of benefits which may Janet Voûte 86 90 19 30 105 120 becoming effective in April. and weightings are reviewed participation, it provides a appointments, the Company include private health cover for Total 1,278 804 309 365 1,587 1,169 Factors taken into account annually to ensure that they deferred cash incentive in the operates a defined contribution themselves and their family, an include: continue to support the form of GPP. pension scheme. annual health assessment for 1. Travel and subsistence expenses for attending meetings at Bupa’s head office are treated as taxable income. All NED expenses in relation to this are grossed up to meet the costs of the –– level of skill, experience and business strategy. Awards are usually made on an Executive Directors have the themselves and their partner, life additional tax and NIC. The benefits figures reflect this approach. scope of responsibilities of Performance over the financial annual basis and relate to option to take any employer insurance, income protection, car 2. The 2019 fees for Simon Blair exclude EUR 85,000 in respect of his services as a NED of Bupa Chile S.A. He retired from the Board on 11 January 2019. the individual; year is measured against performance over a one-year contribution as a cash allowance (or alternately for the 3. The 2019 figures for Paul Evans exclude £64,250 of fees and £23,209 of benefits, in respect of his services as a NED of Bupa Insurance Limited and Bupa Insurance Services Limited. CEO, the use of a company car –– overall business performance, stretching financial and period. allowance or a combination of and driver) and 30 days’ annual 4. Michael Hawker was appointed as a NED on 1 April 2019. His 2019 fees exclude AUD 118,260 in respect of his services as Deputy Chairman of Bupa Australia and New Zealand. scarcity of talent, economic non-financial performance Vesting of awards is based on pension contribution and cash holiday. The benefits offered may 5. The 2019 fees for Martin Houston exclude SAR 260,000 (2018 figures exclude SAR 50,000) in respect of his services as a NED of Bupa Arabia for Cooperative Insurance Company, climate and market targets set at the start of the the extent to which allowance. an associate of Bupa. need to be changed from time to conditions; financial year. performance, under four 6. Cath Keers was appointed as a NED on 1 November 2019. time to reflect changing –– general increases across Typically, 50% of any bonus categories, is judged by the 7. Matías Rodríguez Inciarte was appointed as a NED on 1 January 2019. His 2019 fees exclude EUR 100,000 in respect of his services as NED of Sanitas, S.A. de Seguros. circumstances. Bupa; and awarded will be deferred for a Committee. 8. Prof. Melvin Samsom was appointed as a NED on 11 April 2019. period of up to three years, with Authorised travel expenses are –– external market data. Payout would be determined at 9. The 2019 fees for Clare Thompson exclude £37,000 (2018 figures exclude £73,500) in respect of her services as a NED of Bupa Insurance Limited and Bupa Insurance Services Limited the remaining 50% paid the end of the performance reimbursed along with the from 1 January 2019 to 30 June 2019. immediately in cash. To account period. Payment is deferred for additional tax and NIC incurred 10. The 2019 fees for Prof. Sir John Tooke exclude EUR 60,000 in respect of his services as a NED of Bupa Chile S.A. He retired from the Board on 15 May 2019. for any loss of value over time, three years, subject to a further where these are treated as taxable a modest uplift will be applied review by the Committee income; and, in exceptional A resolution is being put to the AGM in May In addition to the Company Secretary, regular its independence. Mercer is a member of to the deferred amount. before payment is made. circumstances, where spouses or partners are required to travel 2020 to authorise an increase in the maximum attendees at the Committee meetings who the Remuneration Consultants’ Group and for business purposes, travel and amount per annum available for NED provided comment and advice were the voluntarily operates under this group’s code subsistence expenses are remuneration from £1,500,000 to Group CEO, the CFO, the Chief People Officer of conduct when providing advice on reimbursed along with the £2,000,000. This restriction, which is and the Performance and Reward Director. executive remuneration in the UK. Mercer’s additional tax and NIC. contained in Bupa’s Articles of Association, fees for services to the Committee in 2019 The Committee presented the 2018 DRR at takes into account the fees payable to NEDs were £124,785 on a time and materials basis. Maximum opportunity the AGM in May 2019 and was approved by by subsidiary companies. During the year, Mercer advised on market Salary increases are normally The maximum bonus The maximum award will not Executive Directors receive There is no specific maximum the AMs. practice, corporate governance and in line with those of the Bupa opportunity will not exceed exceed 275% of base salary. employer contributions of up to benefit spend. Mercer was appointed by the Remuneration regulations, remuneration benchmarking and employee population. Larger 200% of base salary. 25% of base salary. increases may be given in Committee Governance Committee as its independent adviser in 2015. other matters that the Committee was Executive Directors newly certain circumstances such as appointed on or after 1 January Martin Houston has chaired the Remuneration The appointment is reviewed every year and considering. when a new recruit has been 2020 receive employer Mercer’s re-appointment was confirmed in appointed on lower than market Committee from 11 June 2014 until he stepped The Terms of Reference of the Committee contributions in line with the July 2019. The Committee is of the view that rate salary with the expectation rest of the workforce. down on 31 December 2019. Cath Keer was were reviewed by the Committee and Mercer provides independent remuneration of phased increases to bring it appointed Chair of the Committee from adopted by the Board in December 2019. up to market level. advice to the Committee and does not have 1 January 2020. A full description of the Committee’s role is set The Committee does not any connections with Bupa that may impair out in its Terms of Reference on bupa.com. consider it appropriate to set a maximum salary level.

Performance metrics None. Management Bonus Scheme Vesting of awards is based on None. None. (MBS) payments are based on performance against a the achievement of challenging combination of financial and financial and non-financial non-financial measures. objectives. No less than 60% of the GPP No less than 60% of the annual will be based on financial bonus will be subject to the measures with the remainder achievement of financial based on measures linked to measures which will be aligned key strategic priorities of the to the strategic priorities of the business. business.

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Directors’ remuneration report Part 3: Policy continued

Malus and clawback Circumstances in which the operation of these or risk alignment of any awards under the Performance measures and Approach to Remuneration In the case of internal promotions, any provisions may be considered include: Plan, including any deferred amount; commitments made before appointment may Malus and clawback provisions may be target setting Policy on recruitment of an be honoured unless an alternative approach, –– misstatement of results; –– an act or omission which justifies, or in the operated at the discretion of the Committee Measures and targets for the MBS are aligned Executive Director more closely aligned to the prevailing policy, opinion of the Board would have justified, in respect of awards granted under the MBS, –– an error in assessing any relevant to delivery of Bupa’s annual operating plan is agreed by the Committee. summary dismissal or service of notice of Our approach to remuneration on recruitment LTIP and GPP. Malus (under which awards performance metric or in the information and may include personal objectives that termination of employment on the grounds is to pay no more than is necessary and Any special joining arrangements may include may be reduced, cancelled or made subject or assumptions on which the MBS, LTIP change from year to year. of misconduct on the part of an employee; appropriate to attract the right talent to malus and/or clawback; for example, tied to to additional conditions) may be applied prior or GPP is determined; Measures for the GPP are set by the the role. leaving within a pre-defined period. to the payment of the award. Clawback –– gross misconduct or material breach of –– serious reputational damage to Bupa Committee, taking into account internal and (requiring a repayment of cash which has employment contract; The Remuneration Policy table on page 81 sets been delivered) may be operated for up to or a relevant business unit; external reference points which include out the various components which would be –– new information presenting itself Differences between the three years following payment of the GPP –– a scenario in which significant risk has historic Bupa performance, internal forward- considered for inclusion in the remuneration highlighting that performance (Company or and the non-deferred element of the MBS been taken which is outside of Bupa’s or looking plans and broader market trends. package for the appointment of an Executive Remuneration Policies for eligible employee) was incorrectly assessed; and five years from grant of the LTIP. a relevant Business Unit’s risk appetite; Director. Typically, a new appointment will be Executive Directors and other and placed (or be transitioned) onto the –– an employee enters into any hedging Committee discretion employees –– any other circumstance which the framework that applies to other Executive transaction or transactions that might Committee in its discretion considers to The Committee has ultimate discretion over Directors as set out in the policy table. Salary The Remuneration Policy for the Executive undermine the intended performance and/ be similar in nature or effect to the above. all incentive plans relating to the Executive would reflect the skills and experience of the Directors is designed to be broadly similar to Directors and other individuals within its remit. individual, and may be set at a level to allow the policy applicable to Bupa employees to This includes, but is not limited to: future salary progression to reflect ensure that they are both aligned to delivering sustainable business performance. Although –– determining the size of the award/payment; performance in the role. Illustrations of the application of the Remuneration Policy the size of the opportunity varies, the –– determining whether minimum levels of It would be expected that the structure and underlying principles of the salary review Bupa aims to provide a balance of fixed and variable compensation that provides stability while also incentivising superior business performance. performance have been met or underlying quantum of the variable pay elements would cycle, MBS and GPP are the same for the At target, over 50% of the Executive Directors’ remuneration is based on individual and Company performance. performance is satisfactory before reflect those set out in the policy table. senior employee population. This graph illustrates the potential remuneration outcomes variation for different levels of performance using the incumbents’ salaries as at determining the vesting of any awards; The Committee reserves the right to make any A small number of senior managers across 1 April 2019 to calculate the MBS values and 1 March 2019 to calculate the GPP values. –– determining whether the management remuneration payments or payments for loss Bupa participate in the GPP, based on the of risk has been acceptable, or whether of office where the terms of the payment were same framework as the Executive Directors, any downward adjustments are required; agreed: (i) before the Remuneration Policy with award levels calculated as a percentage Remuneration at various levels of performance (£000) came into effect, or (ii) at a time when the of salary based on their level of seniority –– selecting or adjusting performance relevant individual was not a Director of the measures within the Remuneration Policy and accountability. Vesting of the awards is Evelyn Bourke, Group CEO Company and, in the opinion of the dependent on performance against specific Total and the plan rules; Committee, the payment was not in £000 financial and non-financial measures over –– determining whether individuals are ‘good consideration for the individual becoming a a one-year performance period. Junior Fixed pay 1,180 leavers’ for incentive plan purposes, based Director of the Company. employees are not eligible for GPP awards. on plan rules; and 900 225 55 To facilitate recruitment, the Committee may In some cases, additional flexibility has been –– making one-off adjustments in exceptional make compensatory payments and/or awards introduced for the Executive Directors and On target1 3,283 circumstances. for any remuneration arrangements subject senior employees (e.g. providing the option 900 225 55 900 1,203 to forfeit on leaving a previous employer. to receive cash in lieu of pension contributions) We will seek to replicate, as far as practicable, to allow for personal circumstances. Maximum2 5,386 the potential value and time horizon of such 900 225 55 1,800 2,406 remuneration, as well as performance conditions that may apply. In some circumstances, it may also be Joy Linton, Group CFO necessary to set up additional or alternative Total arrangements including but not limited to: £000 –– relocation-related expenses; and Fixed pay 764 –– international assignment allowances 597 149 18 and expenses.

On target1 1,937 597 149 18 448 725

Maximum2 3,110 597 149 18 896 1,450

Base salary Pension Benefits Management Bonus Scheme Group Performance Plan

1. On-target figures have been calculated on the basis that Bupa achieves target financial and non-financial performance, and the individual performance multiplier is set at 100%. 2. Maximum figures have been calculated on the basis that Bupa achieves maximum financial and non-financial performance, and the individual performance multiplier is set at 160%.

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Directors’ remuneration report Part 3: Policy continued

Policy on payments for loss Policy Committee response Remuneration Policy table – NEDs of office Notice period and –– 12 months’ notice from the Company to the Executive Director. compensation for loss The table summarises the key elements of –– Up to 12 months’ base salary (in line with the notice period). Notice Service contracts for NEDs Element Purpose and link to strategy Operation of office in service period payments will either be made as normal (if the Executive Director our policy on payment for loss of office in Fees To attract and provide The Chairman receives an all-inclusive fee. contracts continues to work during the notice period or is on ‘gardening leave’) The terms of engagement for the Non- compliance with the relevant plan rules and stability, reflecting the NEDs receive a fixed basic fee. Additional fees are paid for or at the termination date for any unexpired notice period. Executive Directors (NEDs) of Bupa set out local employment legislation. the fees and benefits to which they are complexity of the role chairing or membership of Board Committees and/or Any payments made due to loss of office may Treatment of MBS on –– The Committee may make an MBS payment for the year of cessation entitled as well as the expectation of the time and time commitment additional work in relation to subsidiaries, and for the Senior take into account malus or clawback loss of office under depending on the reason for leaving. Typically, the Committee will take commitment required to effectively perform required Independent Director role. provisions as set out on page 82. plan rules into consideration the period served during the year and the individual’s their role. Copies of the terms of engagement Fees are reviewed annually by the Board with any changes performance up to cessation. Any such payment is at the discretion of are available on bupa.com. implemented in July. Key factors taken into account include: the Committee. The table describes the Remuneration Policy –– overall business performance Service contracts for Executive –– Any MBS will be paid at the normal time following the end of the as it applies to the Chairman and NEDs. –– scope and responsibility of the role Directors performance year. –– appropriate market data Executive Directors have a 12-month rolling Treatment of GPP on –– The Committee may make a GPP payment for the year of cessation –– the fact that NEDs are not eligible for any form of employment contract. The notice requirement loss of office under depending on the reason for leaving. Typically, the Committee will take variable pay. is 12 months from both the Company and the plan rules into consideration the period served during the year and the individual’s To provide health and During their time in office, NEDs are entitled to private health individual, which may be payable in lieu. performance up to cessation. Any such payment is at the discretion of Benefits wellbeing benefits cover for themselves and their family and an annual health These contracts also include specific post- the Committee. aligned with Bupa’s assessment for themselves and their partner (subject to termination restrictions. Executive Directors –– Any GPP will be paid at the normal time following the end of the deferral purpose availability of a Bupa domestic private health product). are usually permitted, subject to the Board’s period. These benefits are taxable. Authorised travel expenses are approval, to have one external NED role and to Treatment of LTIP on –– An Executive Director’s award will vest in accordance with the terms reimbursed along with the additional tax and NIC incurred accept and retain the fee for this appointment. loss of office under of the plan and satisfaction of performance conditions measured at the where these are treated as taxable income and, in exceptional This is on the condition that any external plan rules normal completion of the performance period if the reason for leaving circumstances, where spouses or partners are required to appointment does not give rise to a conflict is redundancy, pre-agreed retirement, early retirement on the grounds travel for business purposes, travel and subsistence expenses of interest. of ill health, death or any other special circumstance agreed by the are reimbursed along with the additional tax and NIC. Committee. In these cases, final awards will be pro-rated based on completed months of service. The period of active employment excludes any period of ‘gardening leave’ or other such period when the Executive Director was legally employed but not required to actively carry out their duties. For any other reason, they will not be eligible for an LTIP payment. –– Any LTIP payment will be paid at the normal time, e.g. in April following the end of the performance period, or two years later for any deferral. Pension and benefits –– Generally, pension and benefit provisions will continue to apply until the termination date.

84 85 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Other statutory information

Board and Committee attendance in 2019 Going concern Although Bupa pays interest on its controls which are being addressed by borrowings, it has no shareholders and there management and monitored by the Risk and Nomination and The Directors confirm that they are satisfied are therefore no dividends to pay. Instead, we Audit Committees. This view was broadly Audit Governance Remuneration Risk that the Company and the Group have Number of meetings held Board Committee Committee Committee Committee can invest in growing organically and through supported by the Risk function. The CAO also Roger Davis 12/12 5/5 5/5 adequate resources to continue in operation acquisition. provides an annual opinion to the Audit for the next 12 months. Accordingly, they Evelyn Bourke1 12/12 1/1 Committee and the Board on the level of continue to adopt the going concern basis in Following a review of the key risks and Joy Linton 12/12 assurance that the Committee can place on preparing the financial statements. The going uncertainties set out in the Risks section 2 the Group’s systems of internal control. In Paul Evans 12/12 7/8 2/2 5/6 concern assessment in Note 1: Basis on page 37, the Directors are satisfied that 3 relation to 2019, the CAO’s opinion noted that Michael Hawker 8/10 4/5 we have appropriate risk management and of Preparation on page 102 includes there is generally a sound system of internal Martin Houston4 12/12 5/5 5/5 governance procedures in place to manage information on the Directors’ detailed control, with improvements during the year Matías Rodríguez Inciarte5 12/12 5/6 and mitigate these risks over the three-year assessment of the Group’s status as a going on risk culture and awareness. Cath Keers6 2/2 1/1 concern based on its current position and period. We also identify and report on Nicholas Lyons7 11/12 7/8 1/2 4/5 forecast results. emerging risks to ensure that they are properly Prof. Melvin Samsom8 8/10 3/5 understood and are considered in our future Political donations 9 strategic decisions. Caroline Silver 9/12 4/8 5/5 6/6 Longer-term viability Our policy is not to make political donations Clare Thompson10 12/12 8/8 4/5 6/6 Based on this analysis and our regular risk and and we confirm that no political donations Prof. Sir John Tooke11 5/5 1/1 2/2 Our Directors have examined the outlook for capital reporting processes, the Directors have were made, nor any political expenditure Janet Voûte12 11/12 5/5 4/5 the Company and the Group as required by a reasonable expectation that Bupa will be incurred within the definition contained in provision 31 of the Code, assessing our ability able to continue in operation and meet its Section 364 of the Companies Act 2006 (as 1. Evelyn was a member of the Nomination and Governance Committee until 1 April 2019. to operate and meet our liabilities as they fall liabilities as they fall due throughout the three- 2. Paul was appointed to the Nomination and Governance Committee on 13 June 2019 and was unable to attend one Audit and one Risk Committee meeting due to illness. amended). In line with many large companies, due over a three-year period. year planning period up to 31 December 2022. 3. Michael was appointed to the Board and Risk Committee with effect from 1 April 2019 and was unable to attend two Board meetings and one Risk Committee meeting due to pre-existing we are proposing a resolution at our 2020 commitments. The Strategic Framework continues to be the AGM to authorise the Group to make political 4. Martin retired from the Board on 31 December 2019. force behind our planning process. We chose Assessment of emerging and donations given the wide definition in Section 5. Matías was appointed to the Board and Risk Committee with effect from 1 January 2019 and was unable to attend one Risk Committee meeting due to a pre-existing commitment. a three-year assessment period because it ties 364 of what constitutes a political donation. 6. Cath was appointed to the Board and Remuneration Committee with effect from 1 November 2019 and as Chairman of the Remuneration Committee from 1 January 2020. in with our internal strategic planning process. principal risks 7. Nicholas was appointed to the Nomination and Governance Committee on 13 June 2019. He was unable to attend one Board meeting and one Remuneration Committee meeting due Our planning considers all important financial to a pre-existing commitment and one Nomination and Governance Committee meeting due to an urgent matter relating to another company which he is a director of. The principal and significant risks to the Group, Charitable donations 8. Melvin was appointed to the Board and Risk Committee with effect from 11 April 2019 and was unable to attend one Board meeting due to a pre-existing commitment and one Board and regulatory measures over the period and and how they are being mitigated, are set out and two Risk Committee meetings due to urgent matters which arose through his executive role outside of Bupa. stresses the key risks facing individual business in the Risks section on page 37. The Risks During the year, the Group donated a total of 9. Caroline was unable to attend three Board meetings and four Audit Committee meetings, including one ad hoc meeting, due to a number of pre-existing commitments, illness and one urgent matter relating to another company which she is a director of. units, as well as global risks that could impact section also describes the RMF which sets out £7.3m to charitable causes with £1.9m being 10. Clare was unable to attend one ad hoc meeting of the Nomination and Governance Committee due to a pre-existing commitment. Bupa as a whole. This process shows the Bupa’s process for the ongoing identification donated to charitable causes in the UK. Of the 11. Sir John retired from the Board on 15 May 2019. current three-year plan remains robust, even and management of these risks and emerging UK donations, £1.7m was donated to the Bupa 12. Janet was unable to attend one Board meeting and one Remuneration Committee meeting due to a pre-existing commitment. under the stressed scenarios examined. risks. These are reported to the Risk UK Foundation, £38,000 to match fundraising 13. Simon Blair retired from the Board on 11 January 2019 and there were no Board or Committee meetings held during the year to that date. We also conduct ‘reverse stress testing’ at the Committee on a regular basis through reports by our employees, £20,000 related to Group level which aims to identify hypothetical from the CRO, and any proposed changes in community grants, £27,000 in relation to Insurance and indemnities Disclosure compliance circumstances that might result in our risk appetite are reviewed by the Risk volunteering activities and £186,000 to Committee and approved by the Board. The various charities. The total donations by the Bupa has a directors’ and officers’ insurance The Strategic Report and the audited financial statements are presented on pages 1-41 and from business model failing and helps our Directors to better understand the Group’s risks. Risk Committee’s report on page 66 explains Company to the Bupa UK Foundation was policy in place, together with indemnities for page 89 respectively. The Governance Report on pages 42-88 comprises the Directors’ Report. its activities in relation to emerging risks during £1.58m. Further information on our charitable the Directors and certain senior managers, to The following disclosures required to be contained in the Directors’ Report are set out on the Our most recent ORSA considers the level the year. and community activities can be found in the the extent permitted by English law and the pages referred to below and incorporated by reference into this Directors’ Report: of regulatory capital we require to remain Corporate responsibility and sustainability Company’s Articles of Association. These financially stable over the planning period section on page 22. Disclosure Location cover all losses arising out of, or in connection given the nature of the risks we currently face, Effectiveness of risk Note 10 page 134 with, the execution of their powers, duties and Financial instruments our strategy and our risk appetite. It takes into management and internal responsibilities, as directors of the Company or Risk management objectives and policies Note 25 page 150 account the quantification of the Group’s Branches of any of its subsidiaries. There are no other current risks as defined by the Solvency II control systems Likely future business developments Strategic Report page 1 The Company has an inactive branch in third-party qualifying indemnity provisions or Directive and considers the impact of potential The Risk and Audit Committees monitor the Cyprus. pension indemnity provisions in place. Acquisitions and disposals Note 23 page 147 stressed scenarios. This assessment Group’s risk management and internal control Financial results Financial performance page 21 concluded that we expect to have sufficient systems on behalf of the Board on a capital assets to continue to meet regulatory continuous basis through regular reports from Articles of Association Relationships with suppliers, customers and others Engaging with our stakeholders page 34 requirements over a three-year period. the CRO and CAO. This includes material The Company is limited by guarantee and as financial, operational and compliance controls. As part of their assessment of our viability, the such has no share capital nor any traded An annual assessment of the Group’s risk Directors looked at our financial performance, securities. The AMs have one vote each on management and internal control systems is capital management, cash flow, solvency and business at general meetings. The Company’s undertaken by management through the future outlook. Bupa is well capitalised and is Articles of Association require all Directors ICRMA process which is reviewed by the Risk expected to remain so over the plan period. to be AMs. The Directors have the authority function. Management’s assessment during The insurance businesses generate cash and to exercise all the powers of the Company. 2019 was that Bupa generally has a sound are therefore expected to be able to settle A Director may be appointed by ordinary system of risk management and internal liabilities as they fall due. resolution or by a decision of the Directors. control, with some weaknesses in internal

86 87 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Other statutory information continued

A Director’s appointment ceases in a variety responsibility for taking such steps as are of circumstances including resignation, reasonably open to them to safeguard the becoming prohibited from being a director assets of the Group and to prevent and by law, bankruptcy, ceasing to be an AM, detect fraud and other irregularities. incapacity or being removed from a medical The Directors consider that the Annual Report register if a qualified medical practitioner, and financial statements taken as a whole are being requested to resign in writing by at least fair, balanced and understandable and provide three-quarters of the other Directors, or by the information necessary for AMs to assess ordinary resolution given on special notice. the Group’s position and performance, business model and strategy. Statement of Directors’ The Directors have decided to prepare, responsibilities voluntarily, a Directors’ Remuneration Report in accordance with Schedule 8 to The Large The Directors are responsible for preparing and Medium-Sized Companies and Groups the Annual Report and Accounts and the Accounts and Reports) Regulations 2008 Group and Parent Company financial made under the Companies Act 2006 (as statements, in accordance with applicable amended), as if those requirements were to law and regulations. Company law requires apply to the Company. the Directors to prepare Group and Parent Company financial statements for each The Directors are responsible for the financial year. Under that law they have maintenance and integrity of the corporate elected to prepare the Group and the Parent and financial information included on the Company financial statements in accordance Company’s website. Legislation in the UK with IFRS as adopted by the EU and governing the preparation and dissemination applicable law. of financial statements may differ from legislation in other jurisdictions. Financial Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view Disclosure of information to the of the state of affairs of the Group and Parent Company and of their profit or loss for that External Auditor period. In preparing each of the Group and The Directors who held office at the date Parent Company financial statements, the of approval of this Directors’ Report confirm Directors are required to: that, so far as they are each aware, there is no relevant audit information of which the statements –– select suitable accounting policies and then Company’s External Auditor is unaware; and apply them consistently each Director has taken all the steps which –– make judgements and estimates that are they ought to have taken as a Director to reasonable, relevant and reliable make themselves aware of any relevant audit information, and to establish that –– state whether they have been prepared in the Company’s External Auditor is aware accordance with IFRS as adopted by the EU of that information. Financial statements –– assess the Group and Parent Company’s 90 Independent auditor’s report 135 11. Deferred taxation assets and liabilities 163 Financial Statements of the Company ability to continue as a going concern 97 Consolidated Group Financial Statements 136 12. Assets arising from insurance business 166 A. Intangible assets External Auditor re-appointment –– use the going concern basis of accounting 102 Notes to the Consolidated 137 13. Inventories 166 B. Property, plant and equipment Financial Statements unless they either intend to liquidate the A resolution to re-appoint KPMG LLP as 137 14. Trade and other receivables 167 C. Investment in subsidiaries 102 1. Basis of preparation Group or the Parent Company or to cease External Auditor will be put to the forthcoming 138 15. Cash and cash equivalents 167 D. Post-employment benefits operations, or have no realistic alternative Annual General Meeting of the Company. 106 2. Operating segments 138 16. Assets and liabilities held for sale 168 E. Trade and other receivables 109 2.1 Revenues 17. Borrowings F. Lease liability but to do so. By order of the Board. 139 169 112 2.2 Insurance claims 141 18. Lease liabilities 169 G. Provisions for liabilities and charges The Directors are responsible for keeping 112 2.3 Other operating expenses 143 19. Provisions arising from insurance 169 H. Deferred taxation assets and liabilities adequate accounting records that are Colin Campbell 114 2.4 Other income and charges contracts and other liabilities arising 170 I. Trade and other payables sufficient to show and explain the Parent Group Company Secretary 114 2.5 Financial income and expense from insurance business J. Risk management Company’s transactions and disclose with 170 4 March 2020 115 2.6 Taxation expense 145 20. Provisions for liabilities and charges reasonable accuracy at any time the financial 171 K. Related party transactions Company number: 432511 117 3. Goodwill and intangible assets 146 21. Trade and other payables position of the Parent Company and enable 171 L. Commitments and contingencies 122 4. Property, plant and equipment 147 22. Entities in which the Group holds less 172 Related undertakings them to ensure that its financial statements than 100% equity interest 125 5. Investment property 179 Five-year financial summary comply with the Companies Act 2006. They 147 23. Business combinations and disposals are responsible for such internal control as 126 6. Equity accounted investments 180 International Financial Reporting 149 24. Capital management they determine is necessary to enable the 127 7. Post-employment benefits Standards relevant to Bupa 150 25. Risk management preparation of financial statements that are 131 8. Restricted assets 162 26. Related party transactions free from material misstatement, whether 132 9. Financial investments 27. Commitments and contingencies due to fraud or error and have general 134 10. Derivatives 162

88 89 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

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

1. Our opinion is unmodified Overview The risk Our response We have audited the financial statements of The British United Materiality: £28.7m (2018: £25.6m) The impact of Unprecedented levels of uncertainty We developed a standardised firm-wide approach to the consideration of Provident Association Limited (‘the Company’) for the year ended Group financial 5.4% normalised profit before tax (2018: 5.1% profit uncertainties due All audits assess and challenge the reasonableness of estimates, in the uncertainties arising from Brexit in planning and performing our audits. to the UK exiting Our procedures included: 31 December 2019 which comprise the Consolidated Income statements as a whole before tax) particular as described in the: valuation of goodwill and indefinite life the European intangible assets and valuation of investment properties below, and –– Our Brexit knowledge: We considered the Directors’ assessment of Statement, Consolidated Statement of Comprehensive Income, Coverage 83% (2018: 78%) of Group (loss)/profit before tax Union on our related disclosures and the appropriateness of the going concern Brexit-related sources of risk for the Group’s business and financial resources Consolidated Statement of Financial Position, Consolidated audit (‘Brexit’) basis of preparation of the financial statements. All of these depend compared with our own understanding of the risks. We considered the Key audit matters vs 2018 Statement of Cash Flows, Consolidated Statement of Changes Refer to page 37 on assessments of the future economic environment and the Directors’ plans to take action to mitigate the risks. in Equity, and the related notes, including the accounting policies. Event driven The impact of uncertainties due to the UK (Risks), page 66 Group’s future prospects and performance. –– Sensitivity analysis: When addressing: valuation of goodwill and indefinite exiting the European Union on our audit tu (Risk Committee In addition, we are required to consider the other information life intangible assets and valuation of investment properties below and other Report), and page presented in the Annual Report including the principal risks areas that depend on forecasts, we compared the Directors’ analysis to In our opinion: Valuation of goodwill and intangible Recurring risks 61 (Audit disclosure and the viability statement and to consider the Directors’ our assessment of the full range of reasonably possible scenarios resulting assets p –– the financial statements give a true and fair view of the state of the Committee statement that the annual report and financial statements taken from Brexit uncertainty and, where forecast cash flows are required to be Group’s and of the parent Company’s affairs as at 31 December 2019 Valuation of freehold and investment Report). as a whole is fair, balanced and understandable and provides the discounted, considered adjustments to discount rates for the level of and of the Group’s loss for the year then ended properties tu information necessary for shareholders to assess the Group’s remaining uncertainty. position and performance, business model and strategy. –– Assessing transparency: As well as assessing individual disclosures as part of –– the Group financial statements have been properly prepared in Valuation of insurance contract liabilities tu Brexit is one of the most significant economic events for the UK and our procedures on the: valuation of goodwill and indefinite life intangible assets accordance with International Financial Reporting Standards as Parent Company risk: Valuation of its effects are subject to unprecedented levels of uncertainty of and valuation of investment properties below, we considered all of the Brexit adopted by the European Union (IFRSs as adopted by the EU) post-employment benefits tu consequences, with the full range of possible effects unknown. related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks. –– the parent Company financial statements have been properly Our results prepared in accordance with IFRSs as adopted by the EU and –– As reported under: valuation of goodwill and indefinite life intangible assets as applied in accordance with the provisions of the Companies 2. Key audit matters: including our assessment of and valuation of investment properties below we found the resulting estimates Act 2006 risks of material misstatement and related disclosures of these matters and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict –– the financial statements have been prepared in accordance with the Key audit matters are those matters that, in our professional judgment, the unknowable factors or all possible future implications for a company and requirements of the Companies Act 2006. were of most significance in the audit of the financial statements and this is particularly the case in relation to Brexit. include the most significant assessed risks of material misstatement Basis for opinion (whether or not due to fraud) identified by us, including those which Valuation of Forecast based valuation Our procedures included: We conducted our audit in accordance with International Standards on had the greatest effect on: the overall audit strategy; the allocation of goodwill and As described in note 3, impairment is assessed based on discounted –– Control design: evaluating the management review control performed Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are resources in the audit; and directing the efforts of the engagement indefinite life cash flow projections. Estimating and discounting the cash flows by Bupa Group over the impairment assessments performed locally by described below. We believe that the audit evidence we have obtained team. We summarise below the key audit matters, in arriving at our intangible assets requires significant judgement. The assumptions requiring the most management within each relevant business unit, which is designed to provide is a sufficient and appropriate basis for our opinion. Our audit opinion audit opinion above, together with our key audit procedures to address (£3,842m; 2018: significant judgement vary by asset or cash generating unit (‘CGU’), independent review and challenge of the assumptions used to estimate cash £4,263m) is consistent with our report to the Audit Committee. those matters and, as required for public interest entities, our results as a result of the differences in Bupa’s operations and market flow forecast. Refer to page 61 environments globally. from those procedures. These matters were addressed, and our results –– Our valuation expertise: using valuation specialists to evaluate and challenge We were first appointed as auditor by the Directors on 20 June 1985. (Audit Committee Considering goodwill, the key assumptions are generally the the methodology applied by the Group to determine the discount rates against The period of total uninterrupted engagement is for the 35 financial are based on procedures undertaken, in the context of, and solely for Report) and note 3 forecast terminal growth rates and discount rates. For the Bupa standard industry practices. (for accounting years ended 31 December 2019. We have fulfilled our ethical the purpose of, our audit of the financial statements as a whole, and in Dental Care UK CGU they also include short term revenue growth. –– Historical comparisons: comparing cash flow forecasts used in the review to forming our opinion thereon, and consequently are incidental to that policy and financial For indefinite life intangible assets, the most significant judgements historical performance, and challenging where forecasts indicated performance responsibilities under, and we remain independent of the Group in disclosures). accordance with, UK ethical requirements including the FRC Ethical opinion, and we do not provide a separate opinion on these matters. relate to the benefits that are expected to derive from the asset, and that deviated significantly from historical performance, in the absence of the period over which they are realised. significant changes in the business or market environment. Standard as applied to public interest entities. No non-audit services Estimation uncertainty –– Benchmarking assumptions: comparing the key assumptions of the terminal prohibited by that standard were provided. The effect of these matters is that, as part of our risk assessment, growth rates and discount rates to externally derived data and our knowledge we determined that the valuation of the recoverable amount of of sector performance, to evaluate the reasonableness of the Group’s goodwill and indefinite life intangible assets has a high degree assessments. of estimation uncertainty, with a potential range of reasonable –– Sensitivity analysis: performing sensitivity analyses on the key assumptions outcomes greater than our materiality for the financial statements such as forecast period, terminal growth rate and discount rate, to identify as a whole, and possibly many times that amount. The financial assumptions that the goodwill or indefinite life intangible asset valuation was statements (note 3) disclose the sensitivity estimated by the Group. highly sensitive to. –– Assessing transparency: assessing whether the disclosures in relation to the valuation of goodwill and intangible assets are compliant with the relevant financial reporting requirements. Our results –– We found the resulting estimate of the recoverable amount of goodwill and indefinite life intangible assets to be acceptable.

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The risk Our response The risk Our response Valuation of Subjective valuation Our procedures included: Parent company Subjective valuation Our procedures included: freehold and The Group revalues its freehold and investment properties, –– Assessing valuer’s credentials: for properties that were valued externally, risk: Valuation of The Company operates several defined benefit funded pension –– Tests of detail: agreeing the defined benefit pension asset holdings to investment including care homes, dental practices and hospitals, to fair value on principally in the UK, Chile, Brazil and Poland, critically assessing the post-employment schemes. The estimate of the defined benefit pension obligations independent custodian confirmations. properties a cyclical basis, with external valuations being performed on at least qualifications and experience of the external valuers to determine whether benefits is inherently uncertain and requires significant judgement around –– Assessing accounting treatment: critically assessing the basis for the (freehold property a triennial basis and retirement villages in New Zealand being they have the knowledge required to perform the valuations. (£588m; 2018: assumptions relating to mortality improvements, inflation, and recognition of the surplus against the requirements of accounting standards. £2,401m (2018: subject to an external valuation annually. A full external valuation £540m) discount rates. Small changes in the assumptions and estimates –– Historical accuracy: challenging the valuation models by comparing past cash –– Independent re-valuation: independently re-valuing the material defined £2,418m) and of freehold and investment properties in the UK, Chile, Brazil and flow forecasts to actual performance, and using this in the evaluation of the Refer to page 61 can have a significant effect on the parent Company’s net pension benefit pension scheme assets, using external data and market inputs. investment Poland was performed by chartered surveyors during 2019. expected accuracy of current cash flow forecasts. (Audit Committee surplus. –– Assessing external actuary’s credentials: critically assessing the qualifications property £522m Directors’ valuations were performed for other properties where –– Assessing key assumptions: challenging the key assumptions relating to Report), and note Whilst subject to less judgment, the valuation of the schemes assets and experience of the external actuary to determine if they have the knowledge (2018: £454m)) there was an indication that the fair value may have significantly operating cash flows such as occupancy rates and discount rates, as well as 7 (for accounting is also an important factor in deriving the net surplus recognised. and experience required to perform the valuation of the defined benefit differed from the prior valuation. Refer to page 61 reviewing costs capitalised during the year, carrying values and useful lives of policy and financial The net asset (surplus) is also impacted by actions to de-risk the pension schemes. (Audit Committee The principal assumptions underpinning the valuation of properties existing facilities. In critically assessing assumptions we have utilised our own disclosures.) schemes and the schemes’ investment strategies. –– Benchmarking assumptions: benchmarking the assumptions applied in the Report) and notes – including operating cash flows, future profitability and competitor valuation specialists, considered external benchmarks and forecasts, and Estimation uncertainty valuation of the defined benefit pension obligations against market data and 4 and 5 (for activity – require significant judgement, whether developed by reports from external chartered surveyors. The effect of these matters is that, as part of our risk assessment, peers. accounting policy external valuation specialists or Bupa Directors. A small change in –– Assessing transparency: assessing whether the disclosures in relation to the we determined that the valuation of post-employment benefits has and financial the assumptions and estimates used to value the property could –– Our actuarial expertise: using our own actuarial specialists in evaluating and valuation of freehold and investment properties are compliant with the relevant a high degree of estimation uncertainty, with a potential range of disclosures). have a significant impact on the overall valuation. challenging the assumptions on mortality rates, forecast future inflation rates, financial reporting requirements and appropriately present the sensitivities of reasonable outcomes greater than our materiality for the financial and discount rates applied to estimate the present value of the future Estimation uncertainty the valuation to alternative assumptions. statements as a whole, and possibly many times that amount. The obligations of the defined benefit pension schemes, by the external actuary. The effect of these matters is that, as part of our risk assessment, we financial statements (note 7) disclose the sensitivity estimated by Our results –– Assessing transparency: assessing the Group’s disclosures for adequacy determined that the valuation of freehold and investment properties –– We found the resulting estimate of the valuation of freehold and investment the Group. against the requirements of IAS 19. has a high degree of estimation uncertainty, with a potential range properties to be acceptable. of reasonable outcomes greater than our materiality for the financial Our results statements as a whole, and possibly many times that amount. –– We found the resulting estimate of the valuation of post-employment benefits The financial statements (notes 4 and 5) disclose the sensitivity of the parent company to be acceptable. estimated by the Group.

Valuation of Subjective valuation Our procedures included: 3. Our application of materiality and an overview Normalised PBT Group materiality insurance The Group’s operations include a number of general insurance –– Control design and implementation: testing the design and implementation of the scope of our audit £535m £28.7m contract liabilities entities writing health insurance policies primarily in Australia, the of key controls over the reserving process, including controls over the (Provisions for UK, Spain, Chile, Turkey and Hong Kong. The valuation of insurance completeness and accuracy of data supporting key calculations, such as the Materiality for the group financial statements as a whole was set at £28.7m (2018: £25.6m), determined with reference to a benchmark £28.7m claims £865m; contract liabilities requires significant judgement and actuarial data in respect of current and historical claims. Reviewing the effectiveness Whole financial statements materiality (2018: £875m)) expertise. of group level oversight. of Group loss before tax, normalised to exclude this year’s impairment, Refer to page 61 In the context of our audit, this is also an area of significant audit –– Assessing key assumptions: evaluating the assumptions used in the valuation disposal losses and one off costs of £613m of which it represents 5.4% £21.5m (Audit Committee effort. of insurance contract liabilities for reasonableness, considering our Range of materiality at 37 components (2018: profit before tax, 5.1%). (£7.2m-£11.5m) Report), and note Calculation of the actuarial best estimate and the margin over best understanding of the business, past history of claims settlements, wider market 19 (for accounting estimate uses historical data, which is sensitive to external inputs trends and changing legislation. Materiality of £7.2m (2018: £20.9m), as communicated by the Group policy and financial including claims cost inflation and medical trends, and requires –– Our actuarial expertise: working closely with our actuarial specialists, sampling Audit Team, has been applied to the audit of the parent Company. disclosures). assumptions to be made in respect of current and future the premiums, claims and other data used in the actuarial models, and This is lower than the materiality we would otherwise have determined experience. Small changes in the assumptions and estimates used reconciling it to the data audited through our testing of these account balances; by reference to total assets, and represents 0.1% of the Company’s total £1.4m to value the insurance contract liabilities can have a significant working with our IT specialists to test the data extraction processes used in the assets (2018: 1.9%). impact on the overall liability valuation. actuarial modelling process in order to obtain evidence over the entire Misstatements reported to the audit committee Estimation uncertainty population of input data; reviewing the mechanics of the statistical models and We agreed to report to the Audit Committee any corrected or claims triangles, including the mathematical accuracy of formula and PBT The effect of these matters is that, as part of our risk assessment, uncorrected identified misstatements exceeding £1.4m (2018: £1.3m), Materiality functioning of automated calculations. we determined that the valuation insurance contract liabilities has in addition to other identified misstatements that warranted reporting –– performing sensitivity analyses to assess the adequacy a high degree of estimation uncertainty, with a potential range of Sensitivity analysis: on qualitative grounds. reasonable outcomes greater than our materiality for the financial of liabilities in the event of severe but possible adverse deviations in key statements as a whole, and possibly many times that amount. assumptions. Of the Group’s reporting components, we subjected 33 (2018: 36) The financial statements (note 19.1) disclose the sensitivity –– Independent re-performance: for a sample of portfolios, selected on the basis to full scope audits for group purposes and 4 (2018: 2) to specified estimated by the Group. of assessed risk of material misstatement, calculating our own estimate of the risk-focussed audit procedures. The latter were not individually liability using the Group’s data, and comparing to the liability calculated by the Group, and considering the impact of any significant differences. financially significant enough to require a full scope audit for group –– Assessing transparency: assessing whether the disclosures in relation to purposes, but did present specific individual risks that needed to be the valuation of insurance contract liabilities are compliant with the relevant addressed. financial reporting requirements and appropriately present the sensitivities of the valuation to alternative assumptions. We subjected 2 (2018: none) components to specified risk-focused Our results audit procedures over insurance contract liabilities, gross earned –– We found the resulting estimate of the valuation of insurance contract liabilities premiums and financial investments; 1 (2018: 1) component to specified to be acceptable. risk-focused audit procedures over goodwill and intangibles; and 1 (2018: 1) component to specified risk-focused audit procedures over properties. For the residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these.

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In our evaluation of the Directors’ conclusions, we considered the Directors’ remuneration report In addition to our audit of the financial statements, the Directors have Group revenue Group profit before tax inherent risks to the Group’s and Company’s business model and In addition to our audit of the financial statements, the Directors have engaged us to review their Governance Report as if the Company were analysed how those risks might affect the Group’s and Company’s engaged us to audit the information in the Directors’ Remuneration required to comply with the Listing Rules and the Disclosure Guidance financial resources or ability to continue operations over the going and Transparency Rules of the Financial Conduct Authority in relation 7 Report that is described as having been audited, which the Directors concern period. The risks that we considered most likely to adversely have decided to prepare as if the Company were required to comply to those matters. Under the terms of our engagement we are required 2 2 affect the Group’s and Company’s available financial resources over with the requirements of Schedule 8 to The Large and Medium-sized to review: 2 this period were: 91% 83% Companies and Groups (Accounts and Reports) Regulations 2008 –– the part of the Corporate Governance Statement relating to the (2018: 92%) (2018: 80%) –– significant adverse deviation in insurance claims experience (SI 2008 No. 410) made under the Companies Act 2006. Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. 90 78 –– a deterioration in the valuation of the Group’s investments arising In our opinion the part of the Directors’ Remuneration Report to be 84 81 from a significant change in the economic environment. audited has been properly prepared in accordance with the Companies We have nothing to report in these respects. Act 2006. As these were risks that could potentially cast significant doubt on Group total assets the Group’s and the Company’s ability to continue as a going concern, Disclosures of principal risks and longer-term viability 6. We have nothing to report on the other matters we considered sensitivities over the level of available financial resources Based on the knowledge we acquired during our financial statements Full scope for Group audit indicated by the Group’s financial forecasts taking account of on which we are required to report by exception 7 audit, we have nothing material to add or draw attention to in purposes 2019 reasonably possible (but not unrealistic) adverse effects that could Under the Companies Act 2006, we are required to report to you if, relation to: 3 Specified risk-focused audit arise from these risks individually and collectively and evaluated the in our opinion: procedures 2019 achievability of the actions the Directors consider they would take to –– the Directors’ confirmation within the longer term viability statement 93% Full scope for Group audit –– adequate accounting records have not been kept by the parent (2018: 93%) purposes 2018 improve the position should the risks materialise. We also considered on page 87 that they have carried out a robust assessment of the Company, or returns adequate for our audit have not been received Specified risk-focused audit less predictable but realistic second order impacts, such as the impact emerging and principal risks facing the Group, including those that from branches not visited by us; or 90 procedures 2018 of Brexit and the erosion of customer or supplier confidence, which would threaten its business model, future performance, solvency 86 Residual components could result in a rapid reduction of available financial resources. and liquidity –– the parent Company financial statements and the part of the Directors’ Remuneration Report which we were engaged to audit Based on this work, we are required to report to you if we have –– the disclosures describing these risks and explaining how they are are not in agreement with the accounting records and returns; or The Group team instructed component auditors as to the significant concluded that the use of the going concern basis of accounting is being managed and mitigated –– certain disclosures of Directors’ remuneration specified by law are areas to be covered, including the relevant risks detailed above and the inappropriate or there is an undisclosed material uncertainty that may –– the Directors’ explanation in the longer term viability statement not made; or information to be reported back. cast significant doubt over the use of that basis for a period of at least of how they have assessed the prospects of the Group, over what a year from the date of approval of the financial statements. The Group team approved the component materialities, which ranged period they have done so and why they considered that period –– we have not received all the information and explanations we require from £7.2m to £11.5m (2018: £11.5m to £17.3m), having regard to the mix We have nothing to report in these respects, and we did not identify to be appropriate, and their statement as to whether they have a for our audit. reasonable expectation that the Group will be able to continue in of size and risk profile of the Group across the components. going concern as a key audit matter. We have nothing to report in these respects. operation and meet its liabilities as they fall due over the period of The work on 36 of the 37 components (2018: 31 of 38) was performed their assessment, including any related disclosures drawing attention by component auditors and the rest, including the audit of the parent 5. We have nothing to report on the other to any necessary qualifications or assumptions. Company, was performed by the Group team. 7. Respective responsibilities information in the Annual Report Our work is limited to assessing these matters in the context of only The Group team visited component locations in the United Kingdom, Directors’ responsibilities The Directors are responsible for the other information presented in the the knowledge acquired during our financial statements audit. As we Australia, Spain, Hong Kong and Turkey to assess the audit risk and Annual Report together with the financial statements. Our opinion on cannot predict all future events or conditions and as subsequent events As explained more fully in their statement set out on page 88, the strategy. Telephone conference meetings were also held with these the financial statements does not cover the other information and, may result in outcomes that are inconsistent with judgements that were Directors are responsible for: the preparation of the financial statements component auditors and others that were not physically visited. At accordingly, we do not express an audit opinion or, except as explicitly reasonable at the time they were made, the absence of anything to including being satisfied that they give a true and fair view; such internal these visits and meetings, the findings reported to the Group team stated below, any form of assurance conclusion thereon. report on these statements is not a guarantee as to the Group’s and control as they determine is necessary to enable the preparation of were discussed in more detail, and any further work required by the Company’s longer-term viability. financial statements that are free from material misstatement, whether Group team was then performed by the component auditor. Our responsibility is to read the other information and, in doing so, due to fraud or error; assessing the Group and parent Company’s ability consider whether, based on our financial statements audit work, the Corporate governance disclosures to continue as a going concern, disclosing, as applicable, matters information therein is materially misstated or inconsistent with the We are required to report to you if: related to going concern; and using the going concern basis of 4. We have nothing to report on going concern financial statements or our audit knowledge. Based solely on that work accounting unless they either intend to liquidate the Group or the The Directors have prepared the financial statements on the going we have not identified material misstatements in the other information. –– we have identified material inconsistencies between the knowledge parent Company or to cease operations, or have no realistic alternative concern basis as they do not intend to liquidate the Company or the we acquired during our financial statements audit and the Directors’ but to do so. Group or to cease their operations, and as they have concluded that the Strategic Report and Directors’ Report statement that they consider that the annual report and financial Company’s and the Group’s financial position means that this is realistic. Based solely on our work on the other information: statements taken as a whole is fair, balanced and understandable and Auditor’s responsibilities provides the information necessary for shareholders to assess the They have also concluded that there are no material uncertainties that –– we have not identified material misstatements in those reports Our objectives are to obtain reasonable assurance about whether the could have cast significant doubt over their ability to continue as a Group’s position and performance, business model and strategy; or financial statements as a whole are free from material misstatement, –– in our opinion the information given in the Strategic Report and the going concern for at least a year from the date of approval of the –– the section of the Annual Report describing the work of the Audit whether due to fraud or other irregularities (see below), or error, and to Directors’ Report for the financial year is consistent with the financial financial statements (‘the going concern period’). Committee does not appropriately address matters communicated issue our opinion in an auditor’s report. Reasonable assurance is a high statements level of assurance, but does not guarantee that an audit conducted in Our responsibility is to conclude on the appropriateness of the by us to the Audit Committee. accordance with ISAs (UK) will always detect a material misstatement Directors’ conclusions and, had there been a material uncertainty –– in our opinion those reports have been prepared in accordance with when it exists. Misstatements can arise from fraud, other irregularities or related to going concern, to make reference to that in this audit report. the Companies Act 2006. error and are considered material if, individually or in aggregate, they However, as we cannot predict all future events or conditions and as could reasonably be expected to influence the economic decisions of subsequent events may result in outcomes that are inconsistent with users taken on the basis of the financial statements. judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report A fuller description of our responsibilities is provided on the FRC’s is not a guarantee that the Group or the Company will continue website at www.frc.org.uk/auditorsresponsibilities. in operation.

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Irregularities – ability to detect 8. The purpose of our audit work and to whom We identified areas of laws and regulations that could reasonably be we owe our responsibilities expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the This report is made solely to the Company’s members, as a body, in directors and other management (as required by auditing standards), accordance with Chapter 3 of Part 16 of the Companies Act 2006 and and from inspection of the Group’s regulatory and legal the terms of our engagement by the Company. Our audit work has correspondence and discussed with the directors and other been undertaken so that we might state to the Company’s members management the policies and procedures regarding compliance with those matters we are required to state to them in an auditor’s report, laws and regulations. We communicated identified laws and regulations and the further matters we are required to state to them in accordance throughout our team and remained alert to any indications of non- with the terms agreed with the Company, and for no other purpose. compliance throughout the audit. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s The potential effect of these laws and regulations on the financial members, as a body, for our audit work, for this report, or for the statements varies considerably. opinions we have formed. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), taxation legislation (including VAT and payroll taxes), and pension legislation and we assessed the Philip Smart (Senior Statutory Auditor) extent of compliance with these laws and regulations as part of our for and on behalf of KPMG LLP, Statutory Auditor procedures on the related financial statement items. Chartered Accountants Secondly, the Group is subject to many other laws and regulations 15 Canada Square where the consequences of non-compliance could have a material London effect on amounts or disclosures in the financial statements, for E14 5GL instance through the imposition of fines or litigation or the loss of the 4 March 2020 Group’s licence to operate. We identified the following areas as those most likely to have such an effect: financial conduct regulations, healthcare provision conduct regulations, and regulatory capital and liquidity recognising the financial and regulated nature of certain of the Group’s activities and certain regulated subsidiaries. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Through these procedures, we became aware of actual or suspected non-compliance and considered the effect as part of our procedures on the related financial statement items. The identified actual or suspected non-compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

96 Strategic Report / Governance / Financial Statements

Consolidated Income Statement for the year ended 31 December 2019

2019 2018 Note £m £m Revenues Gross insurance premiums 2.1 9,077 8,791 Premiums ceded to reinsurers 2.1 (79) (63) Net insurance premiums earned 8,998 8,728

Care, health and other customer contract revenue 2.1 3,287 3,117 Other revenue 2.1 31 14 Total revenues 12,316 11,859

Claims and Expenses Insurance claims incurred 2.2 (7,239) (6,912) Reinsurers' share of claims incurred 2.2 56 44 Net insurance claims incurred (7,183) (6,868)

Share of post-taxation results of equity accounted investments 48 33 Impairment of goodwill and intangible assets 3 (449) (39) Other operating expenses 2.3 (4,705) (4,389) Other income and charges 2.4 (42) (53) Total claims and expenses (12,331) (11,316)

(Loss)/profit before financial income and expense (15) 543

Financial income and expense Financial income 2.5 110 70 Financial expense 2.5 (162) (103) Net impairment loss on financial assets (11) (8) Net financial expense (63) (41)

(Loss)/profit before taxation expense (78) 502

Taxation expense 2.6 (133) (190)

(Loss)/profit for the financial year (211) 312

Attributable to: Bupa (213) 306 Non-controlling interests 2 6 (Loss)/profit for the financial year (211) 312

Notes 1-27 form part of these financial statements.

97 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position for the year ended 31 December 2019 as at 31 December 2019

2019 2018 2019 2018 Note £m £m Note £m £m (Loss)/profit for the financial year (211) 312 Goodwill and intangible assets 3 3,842 4,263 Property, plant and equipment 4 4,197 3,200 Other comprehensive (expense)/income Investment property 5 522 454 Equity accounted investments 6 716 690 Items that will not be reclassified to the Income Statement Post-employment benefit net assets 7 650 602 Remeasurement gains on pension schemes 7 24 21 Restricted assets 8 117 107 Unrealised gains on revaluation of property 4 18 23 Financial investments 9 2,331 2,350 Taxation charge on income and expenses recognised directly in other comprehensive income 2.6 (7) (12) Derivative assets 10 59 28 Deferred taxation assets 11 44 52 Items that may be reclassified subsequently to the Income Statement Current taxation assets 13 9 Foreign exchange translation differences on goodwill 3 (107) (73) Assets arising from insurance business 12 1,416 1,348 Other foreign exchange translation differences (188) (11) Inventories 13 98 109 Net gain on hedge of net investment in overseas subsidiary companies 51 1 Trade and other receivables 14 589 577 Change in fair value of financial investments through other comprehensive income 5 – Cash and cash equivalents 15 1,234 1,608 Change in fair value of underlying derivative of cash flow hedge 1 – Assets held for sale 16 278 7 Taxation charge on income and expenses recognised directly in other comprehensive income 2.6 (1) (10) Total assets 16,106 15,404 Total other comprehensive expense (204) (61) Comprehensive (expense)/income for the year (415) 251 Subordinated liabilities 17 (1,245) (1,255) Other interest bearing liabilities 17 (1,105) (1,055) Attributable to: Lease liabilities 18 (1,068) – Bupa (415) 247 Post-employment benefit net liabilities 7 (62) (62) Non-controlling interests – 4 Provisions arising from insurance contracts 19.1 (2,836) (2,753) Comprehensive (expense)/income for the year (415) 251 Derivative liabilities 10 (34) (47) Provisions for liabilities and charges 20 (187) (178) Notes 1-27 form part of these financial statements. Deferred taxation liabilities 11 (343) (355) Current taxation liabilities (43) (122) Other liabilities arising from insurance business 19.2 (146) (144) Trade and other payables 21 (1,818) (1,923) Liabilities associated with assets held for sale 16 (193) – Total liabilities (9,080) (7,894)

Net assets 7,026 7,510

Equity Property revaluation reserve 692 700 Income and expenditure reserve 6,059 6,306 Cash flow hedge reserve 21 20 Foreign exchange translation reserve 237 464 Equity attributable to Bupa 7,009 7,490 Equity attributable to non-controlling interests 17 20 Total equity 7,026 7,510

Approved by the Board of Directors and signed on its behalf on 4 March 2020 by

Roger Davis Joy Linton Chairman Chief Financial Officer

Notes 1-27 form part of these financial statements.

98 99 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity for the year ended 31 December 2019 for the year ended 31 December 2019

2019 2018 Equity Note £m £m Foreign attributable Operating activities Property Income and Cash flow exchange Equity to non- revaluation expenditure hedge translation attributable controlling Total (Loss)/profit before taxation expense (78) 502 reserve reserve reserve reserve to Bupa interests equity Note £m £m £m £m £m £m £m Adjustments for: 2019 Net financial expense 63 41 Balance as at 1 January 2019, as previously reported 700 6,306 20 464 7,490 20 7,510 Depreciation, amortisation and impairment 941 367 Opening balance adjustments 1.5.1 (3) (61) – – (64) – (64) Other non-cash items (44) 20 Balance as at 1 January 2019, as restated 697 6,245 20 464 7,426 20 7,446

Changes in working capital and provisions: (Loss)/profit for the financial year – (213) – – (213) 2 (211) Increase in provisions and other liabilities arising from insurance contracts 17 156 Increase in assets arising from insurance business (25) (104) Other comprehensive (expense)/income Funded pension scheme employer contributions (15) (9) Unrealised gain on revaluation of property 4 18 – – – 18 – 18 Increase in trade and other receivables, and other assets (131) (14) Realised revaluation profit on disposal of property (2) 2 – – – – – Increase in trade and other payables, and other liabilities 199 53 Remeasurement gain on pension schemes 7 – 24 – – 24 – 24 Cash generated from operations 927 1,012 Foreign exchange translation differences on goodwill 3 – – – (107) (107) – (107) Other foreign exchange translation differences (18) 3 – (171) (186) (2) (188) Income taxation paid (220) (173) Net gain on hedge of net investment in overseas subsidiary companies – – – 51 51 – 51 Increase in cash held in restricted assets 8 (10) (31) Change in fair value of financial investments through other comprehensive income – 5 – – 5 – 5 Net cash generated from operating activities 697 808 Change in fair value of underlying derivative of cash flow hedge – – 1 – 1 – 1 Taxation charge on income and expense recognised directly in other Cash flow from investing activities comprehensive income 2.6 (3) (5) – – (8) – (8) Acquisition of subsidiary companies, net of cash acquired (146) (215) Other comprehensive (expense)/income for the year, net of taxation (5) 29 1 (227) (202) (2) (204) Investment in equity accounted investments 6 (8) (81) Dividends received from associates 12 13 Total comprehensive (expense)/income for the year (5) (184) 1 (227) (415) – (415) Disposal of subsidiary companies, net of cash disposed of – 57 Acquisition of subsidiary companies attributable to non-controlling Divestment in equity accounted investments 4 7 interests 23 – (2) – – (2) – (2) Purchase of intangible assets 3 (162) (100) Dividends paid to non-controlling interests – – – – – (3) (3) Purchase of property, plant and equipment 4 (303) (265) Balance as at 31 December 2019 692 6,059 21 237 7,009 17 7,026 Proceeds from sale of property, plant and equipment 12 84 Purchase of investment property 5 (58) (27) 2018 Disposal of investment property 4 19 Balance as at 1 January, as previously reported 796 5,882 22 558 7,258 30 7,288 Net proceeds from sale, maturities and (purchases) of financial investments, excluding deposits with credit institutions 157 (232) Opening balance adjustments 1.5.4 – (8) – – (8) – (8) Net (withdrawal)/investment from deposits with credit institutions (92) 61 Balance as at 1 January 2018, as restated 796 5,874 22 558 7,250 30 7,280 Interest received 83 68 Net cash used in investing activities (565) (543) Profit for the financial year – 306 – – 306 6 312

Cash flow from financing activities Other comprehensive income/(expense) Proceeds from issue of interest bearing liabilities and drawdowns on other borrowings 113 103 Unrealised gain on revaluation of property 4 23 – – – 23 – 23 Repayment of interest bearing liabilities and other borrowings (30) (190) Realised revaluation profit on disposal of property (101) 101 – – – – – Principal repayment of lease liabilities (114) – Remeasurement gain on pension schemes 7 – 21 – – 21 – 21 Repayment of interest on lease liabilities (57) – Foreign exchange translation differences on goodwill 3 – – – (73) (73) – (73) Interest paid1 17 (91) (87) Other foreign exchange translation differences (9) 14 (2) (12) (9) (2) (11) (Payments)/receipts on settlement of hedging instruments (35) 18 Net gain on hedge of net investment in overseas subsidiary companies – – – 1 1 – 1 Acquisition of non-controlling interests in subsidiary company 23 (2) (8) Taxation charge on income and expense recognised directly in other Dividends paid to non-controlling interests (3) (1) comprehensive income 2.6 (9) (3) – (10) (22) – (22) Net cash used in financing activities (219) (165) Other comprehensive income/(expense) for the year, net of taxation (96) 133 (2) (94) (59) (2) (61)

Net (decrease)/increase in cash and cash equivalents (87) 100 Total comprehensive income/(expense) for the year (96) 439 (2) (94) 247 4 251 Cash and cash equivalents at beginning of year 1,607 1,520 Acquisition of subsidiary companies attributable to non-controlling interests – (7) – – (7) (4) (11) Effect of exchange rate changes (69) (13) Elimination of non-controlling interests on disposal of subsidiary – – – – – (9) (9) Cash and cash equivalents at end of year2 15 1,451 1,607 Dividends paid to non-controlling interests – – – – – (1) (1) 1. Includes other bank fees and charges of £4m (2018: £3m). Balance as at 31 December 2018 700 6,306 20 464 7,490 20 7,510 2. Includes cash balances classified as held for sale of £218m (2018: £nil) and bank overdrafts of £1m (2018: £1m) which are not considered as a component of cash and cash equivalents within note 15. Notes 1-27 form part of these financial statements. Notes 1-27 form part of these financial statements.

100 101 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Note 1: Basis of preparation Basis of preparation in brief Area Judgements Note This section describes the significant accounting policies and accounting estimates Right-of-use assets Key assumptions used in the calculation of right-of-use assets and lease liabilities include determining the lease term and the interest 18 and lease liabilities rate used for discounting future cash flows. and judgements that relate to the financial statements and notes as a whole. Assessing whether the sale of businesses is sufficiently probable to require classification as ‘held for sale’ can require significant 16 Where accounting policies relate to a specific note, the applicable accounting ‘Held for sale’ classification of potential disposal groups judgement. policies and estimates are contained within the note.

1.4 Going concern 1.1 Basis of preparation Management has conducted a detailed assessment of the Group’s going concern status based on its current position and forecast results and The British United Provident Association Limited (‘Bupa’ or the ‘Company’), a company limited by guarantee and incorporated in England and has concluded that the Group has adequate resources to operate for at least the next 12 months from the approval of these financial statements. Wales, together with its subsidiaries (collectively the ‘Group’) is an international healthcare business, providing health insurance, treatment in clinics, In making this assessment, management has considered the discussions with the relationship banks as well as forecasts which take account dental centres and hospitals, and operating care homes. The Company is the ultimate parent entity of the Group. of reasonably possible changes in trading performance, solvency capital and recently announced acquisitions, if applicable. Both the Company Financial Statements and the Group’s Consolidated Financial Statements have been prepared under International Financial Details of the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out Reporting Standards (‘IFRS’) as adopted by the EU. The appropriate provisions of the Companies Act 2006 applicable to companies reporting in the Strategic Report on pages 2 to 41. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described under IFRS have also been complied with. A summary of IFRS that are relevant for the Group is included on page 180. in the Financial Review on pages 30 to 33. The financial statements were approved by the Board of Directors on 4 March 2020. The Directors have reviewed and approved the Group’s The Group has an £800m revolving credit facility (‘RCF’) maturing in August 2022, of which £230m was drawn at 31 December 2019 (2018: accounting policies which have been applied consistently to all the years presented, unless otherwise stated. For the purposes of consolidation, £170m). the accounting policies of subsidiary companies have been aligned with those of the Company. The financial statements are prepared on a going concern basis and under the historical cost convention, modified by the revaluation of property, 1.5 Changes in accounting policies investment property, and financial investments at fair value. Except for the changes below, the Group has consistently applied its accounting policies to all periods presented in these Consolidated Financial The presentation of line items within the Consolidated Statement of Financial Position are broadly in order of liquidity. Statements.

Current assets and liabilities disclosed in the notes to the accounts are those expected to be settled in less than one year. 1.5.1 Leases – adjustments recognised on adoption of IFRS 16 The Group has adopted IFRS 16 Leases with a date of initial application of 1 January 2019. IFRS 16 sets out the principles for the recognition, 1.2 Basis of consolidation measurement, presentation and disclosure of leases and supersedes IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC 15 Operating Leases – Incentives, and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Consolidated Financial Statements for the year ended 31 December 2019 comprise those of the Company and its subsidiary companies and the share of results of equity accounted investments. For lessees, the IAS 17 distinction between operating and finance leases is removed under IFRS 16, with all lease rights and obligations now being recognised in the statement of financial position on a similar basis to finance leases under IAS 17. A lease liability is recognised for all leases, The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences to the date reflecting the present value of the lease payments discounted using the rate implicit in the lease or, if this cannot be readily determined, the relevant that control ceases. Non-controlling interests in the net assets of subsidiaries are identified separately from the Group’s equity. Non-controlling individual lessee company’s incremental borrowing rate. The lease liability is measured at amortised cost and settled over the life of the lease. interests consist of the amount of those interests at the date of the original acquisition and the non-controlling shareholder’s share of changes in A corresponding right-of-use asset is also recognised and depreciated over the life of the lease. equity since this date. Intra-group related party transactions and outstanding balances are eliminated in the preparation of the Consolidated Financial Statements of the Group. On transition to IFRS 16, a lessee can select the measurement approach to apply for right-of-use assets on a lease-by-lease basis. For the majority of leases, the Group has applied IFRS 16 using the modified retrospective approach, where the right-of-use assets equal the lease liabilities on The Consolidated Financial Statements are presented in sterling, which is the Group’s presentational currency. Unless otherwise noted, the transition, adjusted by the amount of any prepayments, intangible assets and onerous lease provisions. For a small proportion of leases, the amounts shown in these financial statements are in millions of pounds sterling (£m). The functional currency is identified at statutory entity level. modified retrospective approach for the right-of-use asset has been determined as if IFRS 16 had been applied since the lease commencement These vary across the Group and include sterling, Australian dollar, euro and US dollar. Each Group entity then translates its results and financial date but discounted using the lessee’s incremental borrowing rate at the date of initial application. There is no restatement of comparative position into the Group’s presentational currency, sterling, for presentation in the Consolidated Financial Statements. information and the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to the opening balance of retained earnings. In applying IFRS 16 on transition, the Group has used the following practical expedients permitted by the standard: 1.3 Accounting estimates and judgements –– The Group has elected not to reassess whether a contract is or contains a lease as defined in IFRS 16 at the date of initial application. The preparation of financial statements requires the use of certain accounting estimates and assumptions that affect the reported assets, liabilities, For contracts entered into before the transition date, the Group relied on its assessment made when applying IAS 17 and IFRIC 4. income and expenses. It also requires management to exercise judgement in applying the Group’s accounting policies. –– For the majority of leases, reliance has been placed on previous assessments of whether leases are onerous under IAS 37 Provisions, Contingent The areas involving a higher degree of judgement or complexity, or where assumptions are significant to the Consolidated Financial Statements, Liabilities and Contingent Assets. For leases where the right-of-use asset has been determined as if IFRS 16 had been applied since the lease are set out below and in more detail in the related notes. Claims, provisions, property valuations, goodwill and intangibles and pension assets and commencement date, this expedient has not been taken. liabilities are the areas where there is more risk of a material adjustment to the carrying amounts within the next financial year. –– Accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases. Area Estimates Note Claims provisioning Expected claims payments and expenses required to settle existing insurance contract obligations. The key assumptions used in the 19 –– The exclusion of initial direct costs for the measurement of the right-of-use asset at transition date. calculation of the outstanding claims provision include claims development, margin of prudence, claims costs inflation, medical trends and seasonality. On transition to IFRS 16 on 1 January 2019, leases previously classified as finance leases under IAS 17 have been recognised as a right-of-use asset and lease liability based on the carrying amount of the finance lease asset and liability as at 31 December 2018. These leases are subsequently Property valuations The Group has a significant portfolio of care home, hospital and office properties. Significant assumptions for freehold properties 4, 5 include average occupancy and capitalisation rates, whereas for investment property key assumptions include discount and capital measured under IFRS 16 principles. Other reclassifications relate to previously recognised lease intangible assets/liabilities arising on business growth rates. combinations due to favourable/unfavourable lease terms, prepayments and accruals, which are all reclassified to the right-of-use asset on Goodwill and Goodwill and intangible assets are recognised on business combinations with the latter valued at the date of acquisition at fair value. 3 transition. intangible assets Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis; other intangible assets are tested if a trigger of impairment is identified. The key assumptions within this process include the discount rate, terminal growth rate and the IFRS 16 has had no significant impact on arrangements where Group acts as a lessor. forecast cash flows. Pension assets The Group’s principal defined benefit scheme is in the UK, The Bupa Pension Scheme. The key assumptions used in the valuation of the 7 and liabilities related pension liabilities include discount rate, and rates of inflation, salary increases and mortality.

102 103 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

The impact of the adoption of IFRS 16 is set out below: 1.5.4 2018 Transitional impacts Measurement In 2018, the Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. Both standards were implemented adjustments Reclassifications Total retrospectively, with the cumulative effect of initially applying the standards recognised as an adjustment to the opening balance of retained £m £m £m earnings at the date of initial application of 1 January 2018. The impacts of this are set out below: Goodwill and intangible assets – (18) (18) Property, plant and equipment (right-of-use assets) 1,023 28 1,051 Income and expenditure Property, plant and equipment (leasehold property/equipment) – (11) (11) reserve Investment property (right-of-use asset) – 2 2 £m Deferred taxation assets 13 – 13 IFRS 9 Trade and other receivables – (23) (23) Impact of reclassification of financial investments (1) Other interest bearing liabilities – 4 4 Impact of expected credit losses (‘ECL’) assessment (6) Lease liabilities (1,100) (1) (1,101) IFRS 15 Trade and other payables – 19 19 Change in the timing of revenue (1) Total impact on net assets (64) – (64) Total impact on opening equity (8)

In addition, £3m has been reclassified from the property revaluation reserve to the income and expenditure reserve as a result of reclassifying finance leased property assets to right-of-use assets on implementation of IFRS 16. 1.6 Forthcoming financial reporting requirements The following reconciliation to the opening balance for the lease liabilities as at 1 January 2019 is based upon the operating lease obligation as at The following financial reporting standards, amendments and interpretations have been issued but are not effective for the year ended 31 December 2018. 31 December 2019 and have not been early adopted by the Group. £m Operating lease commitments at 31 December 2018 under IAS 17 as disclosed in the Group’s Consolidated Financial Statements 1,295 (a) IFRS 17 Insurance Contracts Less: Recognition exemption under IFRS 16 for: IFRS 17 Insurance Contracts was issued in May 2017 as a replacement for IFRS 4 Insurance Contracts, with an exposure draft of subsequent Short term leases recognised on a straight-line basis as expense (6) amendments issued in June 2019. The IASB has started considering feedback on the proposed amendments and aims to issue final amendments Leases of low value assets recognised on a straight line basis as expense (1) in mid-2020, with the final standard expected to be effective for annual periods beginning on or after 1 January 2022. 1 Add: adjustments as a result of the different treatment of expected lease payments 254 IFRS 17 requires a current measurement model where estimates are remeasured each reporting period. Contracts are measured using the building Total undiscounted operating lease commitments 1,542 blocks of: discounted probability-weighted cash flows, an explicit risk adjustment, and a contractual service margin (‘CSM’) representing the Effect of discounting using the incremental borrowing rate at 1 January 2019 (442) unearned profit of the contract which is recognised as revenue over the coverage period. However, an optional, simplified premium allocation Reclassifications in the opening balance sheet: approach, similar in nature to the Group’s existing measurement basis, is permitted for short-duration contracts. Add: IAS 17 financial lease liabilities recognised as at 31 December 2018 2 The detailed application of IFRS 17 is currently being evaluated by the Group. It is expected that the simplified premium allocation approach Less: lease incentives receivable (1) option will be available for the majority of the Group’s insurance contracts, so a significant change in the measurement basis is not anticipated. Lease liabilities recognised under IFRS 16 at 1 January 2019 1,101 The presentation and disclosure requirements of IFRS 17 will, however, differ considerably compared to the current approach. 1. Primarily related to extension options that are reasonably certain to be exercised. (b) IFRS 3 Business Combination amendment The weighted average lessee’s incremental borrowing rate applicable to the lease liabilities on 1 January 2019 was 5.3%. The IASB has issued ‘Definition of a Business (Amendments to IFRS 3)’ to clarify whether an entity has acquired a business or a group of assets. Following the adoption of IFRS 16, the Group has reviewed its estimates of restoration provisions. Consequently, the provision has been increased The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting by £30m, of which £12m has been expensed in the current year and £18m adjusted to the right-of-use asset. period beginning on or after 1 January 2020. This has not been endorsed by the EU. The amendment is not expected to have a significant impact on the Group’s accounting for future acquisitions. 1.5.2 IFRIC 23 Uncertainty over Income Tax Treatments IFRIC 23 has been developed by the IFRS Interpretation Committee to provide greater clarity on how uncertain tax treatments should be (c) IAS 1 and IAS 8 amendment recognised and measured under IAS 12. IFRIC 23 is effective from 1 January 2019 and covers all income taxes within the scope of IAS 12. Under The IASB has issued ‘Definition of Material (Amendments to IAS 1 and IAS 8)’ to align the definition of ‘material’ with the IFRS Conceptual IFRIC 23, a tax provision should be recognised if it is probable that a taxation authority will not accept the tax treatment adopted by an entity. Framework. The amendment, which has been endorsed by the EU, is effective from 1 January 2020. The amendments will have no impact on the When measuring the uncertainty, an entity can select from either the ‘most likely amount’ or the ‘expected value’ method, based on which Group on transition. approach better predicts the ultimate outcome. The amendment had no impact on the Group on transition. (d) IFRS 9, IAS 39 and IFRS 7 Interest rate benchmark reform amendment 1.5.3 Other amendments The IASB has issued amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures that provide temporary relief from Amendments to IFRS 9 Financial instruments on prepayment features with the negative compensation, IAS 19 Employee benefits plan applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform, whereby an entity can assume that amendment, curtailment or settlement and IAS 28 Investments in Associates on long term interest in Associates and Joint Ventures were effective the interest rate benchmark on which the cash flows of the hedged item, hedging instrument or hedged risk are based is not altered by IBOR from 1 January 2019 but had no impact on the Group. reform. This has the effect that IBOR reform should not generally cause hedge accounting to terminate in circumstances where a hedge is directly impacted. The amendments, which have been endorsed by the EU, is effective from 1 January 2020 and has no immediate impact on the Group.

104 105 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 2: Operating segments Operating segments in brief The total underlying profit of the reportable segments is reconciled below to the (loss)/profit before taxation expense in the Consolidated Income Statement. During 2019, the Group announced a simplification of the organisational structure, to manage the Group through three Market Units based on geographic locations and (i) Revenues customers: Australia and New Zealand; Europe and Latin America; and Bupa Global Australia and Europe and Bupa Global Other and UK. Management monitors the operating results of the Market Units separately New Zealand Latin America and UK businesses Total to assess performance and make decisions about the allocation of resources. 2018 2018 2018 The segmental disclosures below are reported consistently with the way the 2019 2018 2019 (restated) 2019 (restated) 2019 (restated) 2019 2018 business is managed and reported internally. £m £m £m £m £m £m £m £m £m £m Gross insurance premiums 3,731 3,829 2,685 2,367 2,295 2,275 366 320 9,077 8,791 Businesses previously part of International Markets have been reallocated. Bupa Global Business Unit is now part of Bupa Global and UK. Bupa Premiums ceded to reinsurers – – (21) (16) (57) (47) (1) – (79) (63) Global Latin America and Bupa Acıbadem Sigorta are now part of Europe and Latin America. All remaining International Markets business units, Internal reinsurance – – 1 – 49 54 (50) (54) – – including Bupa Hong Kong, Bupa China and the associates, Bupa Arabia and Max Bupa, are reported within Other businesses. Comparative Net insurance premiums earned 3,731 3,829 2,665 2,351 2,287 2,282 315 266 8,998 8,728 information has been restated accordingly. Care, health and other customer contract revenue 906 824 1,184 1,144 1,028 1,004 169 151 3,287 3,123 Reportable segments Services and products Other revenue 15 3 4 4 8 7 4 – 31 14 Australia and New Zealand Bupa Health Insurance: Health insurance, international health cover in Australia. Bupa Health Services: Health provision services relating to dental, optical, audiology and medical assessments and therapy. Intersegment revenue – – – – – (5) – – – (5) Bupa Villages and Aged Care – Australia: Nursing, residential and respite care. Total revenues for reportable segments 4,652 4,656 3,853 3,499 3,323 3,288 488 417 12,316 11,860 Bupa Villages and Aged Care – New Zealand: Nursing, residential, respite care and residential villages. Europe and Latin America Sanitas Seguros: Health insurance and related products in Spain. Net reclassifications to other expenses Sanitas Dental: Insurance and dental services through clinics and third-party networks in Spain. or financial income and expense – (1) Sanitas Hospitales and New Services: Management and operation of hospitals and health clinics in Spain. Consolidated total revenues 12,316 11,859 Sanitas Mayores: Nursing, residential and respite care in care homes and day centres in Spain. LuxMed: Medical subscriptions, health insurance, and the management and operation of diagnostics, health clinics and hospitals in Poland. (ii) Segmental result Bupa Acıbadem Sigorta: Domestic health insurance in Turkey. Australia and Europe and Bupa Global Other Bupa Chile: Health insurance and the management and operation of health clinics and hospitals in Chile. New Zealand Latin America and UK businesses Total Bupa Global Latin America: Health insurance, mainly Brazil and Mexico. 2018 2018 2018 2018 Bupa Global and UK Bupa UK Insurance: Health insurance, and administration services for Bupa health trusts. 2019 2018 2019 (restated) 2019 (restated) 2019 (restated) 2019 (restated) Bupa Dental Care UK: Dental services and related products. £m £m £m £m £m £m £m £m £m £m Bupa Care Services: Nursing, residential, respite care and care villages. Underlying profit for reportable segments1 160 313 156 172 117 188 46 37 479 710 Bupa Health Services: Clinical services, health assessment related products and management and operation of a private hospital. Bupa Global: International health insurance to individuals, small businesses and corporate customers. Central expenses and net interest margin (63) (97) Other businesses Bupa Hong Kong: Domestic health insurance, primary healthcare and day care clinics including diagnostics. Consolidated underlying profit before taxation expense 416 613 Bupa China: Clinical services. Associates: Bupa Arabia (Kingdom of Saudi Arabia) and Max Bupa (India): Health insurance. Non-underlying items: A key performance measure of operating segments utilised by the Group is underlying profit. This measurement basis distinguishes underlying Impairments of intangible assets and profit from other constituents of the IFRS reported profit before taxation not directly related to the trading performance of the business. goodwill arising on business combinations (177) (36) (24) – (242) – – – (443) (36) Underlying profit Net loss on disposal of businesses and The following items are excluded from underlying profit: transaction costs on business combinations2 – – (28) (26) (3) (10) – – (31) (36) –– Impairment of intangible assets and goodwill arising on business combinations – impairment reviews are performed at least annually. Goodwill Net property revaluation gain/(loss) 9 17 (1) (4) (2) (13) – – 6 – impairments are considered to be one-off and not reflective of the in-year trading performance of the business. Realised and unrealised foreign exchange (loss)/gain3 – (6) (3) 1 (8) –– Net gains/losses on disposal of businesses and transaction costs on business combinations – gains/losses on disposal of businesses that are – (6) (17) – (23) 4 material and one-off in nature to the reportable segment are not considered part of the continuing business. Transaction costs that relate to Other Market Unit non-underlying items – (21) – – – (9) – – – (30) 5 material acquisitions or disposals are not related to the ongoing trading performance of the business. Group non-underlying items (31) – Gains/(losses) on return-seeking assets, –– Net property revaluation gains/losses – short-term fluctuations which would distort underlying trading performance. Includes unrealised gains net of hedging 28 (1) or losses on investment properties, deficit on revaluations and property impairment losses. Total non-underlying items (494) (111) –– Realised and unrealised foreign exchange gains/losses – short-term fluctuations outside of management control, which would distort underlying Consolidated (loss)/profit before trading performance. taxation expense (78) 502 –– Other Market Unit/Group non-underlying items – includes items that are considered material to the reportable segment or Group and are not 1. Underlying profit for reportable segments includes share of post-taxation results of equity accounted investments. Other businesses includes Bupa Arabia and Max Bupa. Bupa Global and UK includes Highway to Health. For further information please refer to note 6. reflective of ongoing trading performance. 2. Net loss on disposal of businesses and transaction costs on business combinations include £26m loss recognised upon classification of a provision business in the Europe and Latin –– Gains/losses on return-seeking assets, net of hedging – fluctuations on investments that are not considered to be directly related to underlying America segment to held for sale. 2018 includes £22m loss on disposal of interest in Torrejón Salud and £18m mainly relating to completion costs in respect of the disposal of a number of UK care homes in December 2017 and February 2018. trading performance. 3. Includes the FX impact of treating unearned premiums and deferred acquisition costs as a monetary item. 4. 2018 includes penalties and associated consultancy costs relating to a settlement with the Australian Taxation Office (£21m) and costs associated with the establishment of the Irish insurance entity as part of our Brexit strategy (£9m). 5. 2019 includes a £20m impairment of an investment following the termination of the Group’s commercial relationship with that company.

106 107 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(iii) Other information Note 2.1: Revenues Revenues in brief The Market Unit segmental results set out in table (ii) above include the following material non-cash items: The Group generates revenues from its underwriting activities (Insurance premiums), Australia and Europe and Bupa Global Other trading activities through the provision of healthcare and insurance management New Zealand Latin America and UK businesses Total services (Care, health and other customer contract revenue) and rental income and 2018 2018 2018 other fees (Other). 2019 2018 2019 (restated) 2019 (restated) 2019 (restated) 2019 2018 £m £m £m £m £m £m £m £m £m £m Amortisation and depreciation costs for Revenue stream Recognition policy reportable segments (121) (85) (175) (113) (144) (111) (39) (16) (479) (325) Insurance premiums Gross insurance premiums Unrealised gain on investment property 25 21 – – – – – – 25 21 Gross insurance premiums represent the premiums earned relating to risk exposure for the reported financial year. They comprise gross premiums Deficit on revaluation of property (16) (4) (1) (4) (2) (13) – – (19) (21) written, adjusted for the change in provision for unearned premiums that relates to periods of risk in subsequent financial years. Premiums are Share of profits from associates – – – – 6 3 42 30 48 33 shown gross of commission payable and net of insurance premium taxes that may apply in certain jurisdictions.

(iv) Geographical information Premiums ceded to reinsurers The following information has been provided based on the geographical location of the business. Premiums ceded to reinsurers represent reinsurance premiums payable for contracts entered into that relate to risk mitigation for the reported financial year. These comprise of written premiums ceded to reinsurers, adjusted for the reinsurers’ share of the movement in the gross provision Australasia United Kingdom Spain Rest of the world Total for unearned premiums.

2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m £m £m £m £m Premiums, losses and other amounts relating to reinsurance treaties are recognised over the period from inception of a treaty to expiration of the related business. Total revenues 4,652 4,656 3,099 3,073 1,687 1,682 2,878 2,448 12,316 11,859 Care, health and other The Group generates income from fees receivable from the operation of its care homes, hospitals, dental centres and other healthcare and Consolidated non-current assets customer contract revenue wellbeing centres. In instances where Bupa is acting as an agent and another party is primarily responsible for fulfilling the contract, revenue is (by geography)1 3,401 3,117 606 1,545 8,669 3,365 3,351 835 1,764 9,315 recognised on a net basis. When considering whether the Group is acting as an agent or as a principal, factors such as which party is primarily responsible for fulfilling the obligation, bears the inventory and credit risk and has discretion in establishing prices are considered. In the majority 1. Consolidated non-current assets excludes financial investments, restricted assets, assets arising from insurance business, deferred taxation assets and post-employment benefit net assets. of cases, significant judgement is not required.

The revenue streams typically relate to short term services that have fixed, rather than variable, transaction prices and there is generally no significant judgement required when considering the time pattern of revenue recognition. Payment terms vary from completion of the service, to payments made monthly in advance. Bupa has the right to bill and receive payment for services rendered to date.

The Sanitas Hospitales and New Services revenue stream includes one public hospital in Spain that is operated under a separate service concession arrangement granted by the local government (‘the grantor’). Revenue is recognised from the construction of infrastructure and from the operation of the hospital. Construction revenues are recognised in line with the stage of completion of the work performed. Operational revenues are recognised in the period in which the services are provided, based on the average operating margin for the life of the contract. As revenue is based on an expected margin, with some potential variability, revenue is only recognised to the extent that it is highly probable a significant reversal will not occur when the uncertainty is resolved.

Other customer contract revenue includes contracts entered into by the Group’s insurance entities that do not result in the transfer of significant insurance risk to the Group and are accounted for as service contracts. These contracts mainly relate to the administration of claims funds on behalf of corporate customers. Revenues from service contracts are recognised as the services are provided. Some of these contracts contain financial liabilities representing deposits repayable to the customer. These are measured at amortised cost. Other Other revenue is earned mainly from rental income and amenities fees from Occupation Right Agreements. Revenue is recognised on a straight-line basis over the term of the arrangement.

108 109 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Revenue for the year has been analysed at Business Unit Level, reflecting the nature of services provided by geography that is reported internally Care, health and to management. other customer Net insurance contract revenue premiums earned Other revenue Total revenues Care, health and 2018 (restated) 2018 (restated) 2018 (restated) 2018 (restated) other customer Net insurance £m £m £m £m contract revenue premiums earned Other revenue Total revenues 2019 2019 2019 2019 Bupa Health Insurance 8 3,829 1 3,838 £m £m £m £m Bupa Health Services 306 – 1 307 Bupa Health Insurance 8 3,731 2 3,741 Bupa Villages and Aged Care – Australia 353 – – 353 Bupa Health Services 428 – – 428 Bupa Villages and Aged Care – New Zealand 157 – 1 158 Bupa Villages and Aged Care – Australia 330 – – 330 Australia and New Zealand 824 3,829 3 4,656 Bupa Villages and Aged Care – New Zealand 140 – 13 153 Australia and New Zealand 906 3,731 15 4,652 Sanitas Seguros 7 1,106 3 1,116 Sanitas Dental 74 59 – 133 Sanitas Seguros 8 1,149 1 1,158 Sanitas Hospitales and New Services 289 – – 289 Sanitas Dental 83 62 1 146 Sanitas Mayores 140 – – 140 Sanitas Hospitales and New Services 230 – 1 231 LuxMed 338 10 – 348 Sanitas Mayores 148 – – 148 Bupa Chile 293 721 1 1,015 LuxMed 383 10 – 393 Bupa Global Latin America 3 455 – 458 Bupa Acıbadem Sigorta – 185 – 185 Europe and Latin America 1,144 2,351 4 3,499 Bupa Chile 330 744 1 1,075 Bupa Global Latin America 2 515 – 517 Bupa UK Insurance 19 1,534 2 1,555 Europe and Latin America 1,184 2,665 4 3,853 Bupa Dental Care UK 436 – 2 438 Bupa Care Services 407 – – 407 Bupa UK Insurance 15 1,537 3 1,555 Bupa Health Services 137 – – 137 Bupa Dental Care UK 454 – 1 455 Bupa Global – 748 3 751 Bupa Care Services 408 – – 408 Bupa Global and UK 999 2,282 7 3,288 Bupa Health Services 150 – 1 151 Bupa Global 1 750 3 754 Hong Kong 147 266 – 413 Bupa Global and UK 1,028 2,287 8 3,323 Other 4 – – 4 Other businesses 151 266 – 417 Hong Kong 169 315 – 484 Other – – 4 4 Net reclassifications to other expenses or financial income and expense (1) – – (1) Other businesses 169 315 4 488 Consolidated total revenues 3,117 8,728 14 11,859

Consolidated total revenues 3,287 8,998 31 12,316 Analysis of net insurance premiums earned

2019 2018 £m £m Gross premiums written 9,097 8,913 Change in gross provisions for unearned premiums (20) (122) Gross insurance premiums 9,077 8,791

Gross premiums written ceded to reinsurers (78) (66) Reinsurers' share of change in gross provisions for unearned premiums (1) 3 Premiums ceded to reinsurers (79) (63)

Net insurance premiums earned 8,998 8,728

110 111 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 2.2: Insurance claims Insurance claims in brief 2.3.1 Staff costs Insurance claims relate to the Group’s insurance underwriting activities. Insurance The below table represents the total employee benefit expenses incurred by the Group during the year. claims incurred are amounts payable under insurance contracts arising from the occurrence of an insured event. 2019 2018 £m £m Wages and salaries 2,133 1,994 Insurance claims Social security costs 136 135 Insurance claims incurred comprise insurance claims paid during the year together with related handling costs, the movement in the gross Contributions to defined contribution schemes 42 37 provision for claims in the period and the Risk Equalisation Special Account levy for the Australian health insurance business. See note 19 for details Other pension costs (4) 3 of the claims provision. Total staff costs 2,307 2,169 Staff costs relating to claims handling reported in claims (120) Private health insurers in Australia provide private health insurance cover through a community rated scheme. To avoid adverse selection and (168) ensure the Australian private health insurance scheme is sustainable, a risk equalisation mechanism operates to subsidise insurers with higher risk Staff costs in operating expenses 2,139 2,049 policy holders. The Directors’ Remuneration Report is detailed on pages 70 to 85 of this report.

Reinsurers’ share of claims incurred Employee numbers Reinsurers’ share of claims incurred represents recoveries from reinsurers on claims paid, adjusted for the reinsurers’ share of the change in the The average number of employees, including Executive Directors, employed by the Group during the year was: gross provision for claims. See note 12 for the related balance sheet item. 2018 2019 (restated)1 Australia and New Zealand 18,781 18,389 2019 2018 £m £m Europe and Latin America 37,358 34,579 Insurance claims paid 7,316 6,985 Bupa Global and UK 22,268 23,189 Change in gross provisions for claims 3 10 Other businesses 1,579 1,549 Risk Equalisation Special Account levy (net of recoveries) (80) (83) Group 531 610 Insurance claims incurred 7,239 6,912 Total average employee numbers 80,517 78,316 1. Employee numbers have been restated to reflect the new operating segments. Recoveries from reinsurers on claims incurred (56) (44) The total employee headcount as at 31 December 2019 was 82,977 (2018: 78,973). Reinsurers' share of claims incurred (56) (44) The number of full-time equivalent employees as at 31 December 2019 was 63,655 (2018: 61,170).

Net insurance claims incurred 7,183 6,868 2.3.2 Acquisition costs 2019 2018 Note 2.3: Other operating Other operating expenses in brief £m £m Commission for direct insurance 349 297 expenses Other operating expenses include staff costs, medical supplies, overheads, Other acquisition costs paid 73 23 depreciation, amortisation of intangible assets, and gains or losses on foreign Changes in deferred acquisition costs (26) (21) exchange transactions incurred as a consequence of operating our business. Total acquisition costs 396 299 Costs in relation to handling claims are included within insurance claims. The movement in the deferred acquisition cost asset is detailed in note 12. Other operating expenses 2.3.3 Auditors’ remuneration 2019 2018 2019 2018 £m £m Note £m £m Audit fees for audit of Company's annual accounts 0.9 0.9 Staff costs 2.3.1 2,139 2,049 Fees payable to the Company's auditor and its associates for: Acquisition costs 2.3.2 396 299 Audit fees for audit of Company's subsidiaries required by legislation 6.2 5.3 Medical supplies and fees 985 908 Audit fees for audit-related assurance services 0.7 0.9 Property costs 223 215 Audit fees to the Company's auditors 7.8 7.1 Lease rentals and other expenses1 22 182 Fees payable to the Company's auditor and its associates for other services: Marketing costs 105 105 Corporate finance services and related services 3.5 – Catering and housekeeping costs 59 56 All other non-audit services 0.4 0.6 Consultancy fees 144 121 Total non-audit fees 3.9 0.6 Net loss on foreign exchange transactions 2 2 Total auditors' remuneration 11.7 7.7 Amortisation of intangible assets 3 161 141 Depreciation expense 4 331 185 In addition, fees in respect of the audit of The Bupa Pension Scheme were £48,000 (2018: £48,100). Other operating expenses (including auditors' remuneration) 2.3.3 138 126 During the year KPMG were engaged to provide a range of corporate finance services across the Group’s operations. The services were all 4,389 Total other operating expenses 4,705 in compliance with the Group’s Non-Audit Services Policy and approved by the Audit Committee. 1. In 2019 this includes short term and low value lease rentals, and other lease expenses recognised under IFRS 16. 2018 includes all operating lease rentals recognised under IAS 17.

112 113 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 2.4: Other income and Other income and charges in brief Financial expense charges Other income and charges comprise income or expenses that are related to the Interest payable on borrowings is calculated using the effective interest method. investing and divesting activities of the Group. 2019 2018 £m £m Interest expense on financial liabilities at amortised cost 100 100 1 2019 2018 Finance charges in respect of leases and restoration provisions 58 – Note £m £m Other financial expenses 4 3 Net loss on disposal and restructuring of businesses1 (24) (31) Total financial expenses 162 103 Deficit on revaluation of property 4 (19) (21) 1. For the year ended 31 December 2019, finance charges in respect of leases relate to leases recognised on the Consolidated Statement of Financial Position in accordance with IFRS 16. Net gain on disposal of property, plant and equipment 1 – Movement in provision for equity accounted investments – (1) Total other income and charges (42) (53) Note 2.6: Taxation expense Taxation expense in brief 1. Net loss on disposal and restructuring of businesses include £26m loss recognised on classification of a provision business in the Europe and Latin America segment to held for sale. Also Taxation expense on the (loss)/profit for the year comprises current and deferred includes a net £2m profit on other business disposals and restructuring. taxation and considers foreign taxation, double taxation relief and absorbs The 2018 loss on disposal of business includes a £22m loss on disposal of Torrejón Salud on 28 December 2018 and £18m of losses relating to ongoing completion costs in respect of the disposal of UK care homes. This is partially offset by profits of £8m on disposal of a 33.33% share of Forsikringens Datacentre A/S and a net profit of £1m on other disposals. adjustments in respect of prior periods.

Income taxation is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in other Note 2.5: Financial income Financial income and expense in brief comprehensive income, in which case it is recognised directly in the Consolidated Statement of Comprehensive Income. and expense Financial income and expenses are earned/(incurred) from the Group’s financial assets (i) Recognised in the Consolidated Income Statement and liabilities, and non-financial assets such as investment property. Current taxation is the expected taxation payable on the taxable profit for the year, using taxation rates enacted or substantively enacted at the balance sheet date, and any adjustments to taxation payable in respect of previous years. Financial income The Group is subject to taxation audits in the territories in which it operates and considers each issue on its merits when deciding whether to Interest income is recognised in the Consolidated Income Statement, using the effective interest method. hold a provision against the potential tax liability that may arise. However, the amount that is ultimately paid could differ from the amount initially Changes in the value of financial assets at fair value through profit or loss are recognised within financial income as an unrealised gain or loss while recorded and this difference is recognised in the period in which such a determination is made. the asset is held. Upon derecognition of these assets, the cumulative unrealised gains are reversed and a realised gain is recognised. 2019 2018 £m £m Changes in the value of debt instruments at fair value through other comprehensive income are recognised in other comprehensive income as an unrealised gain or loss. The cumulative gain or loss recognised in the fair value through other comprehensive income reserve is reclassified Current taxation expense to realised gains or loss in the Consolidated Income Statement when the financial asset is derecognised. UK taxation on income for the year (5) 18 UK taxation adjustments in respect of prior periods 20 (19) Total UK current taxation expense 15 (1) 2019 2018 Note £m £m Double taxation relief (10) (9) Interest income: Investments at fair value through profit or loss 28 5 Foreign taxation on income for the year 127 162 Investments at fair value through other comprehensive income 1 – Foreign taxation adjustments in respect of prior years 4 63 Investments at amortised cost 51 47 Total foreign current taxation expense 131 225 Net realised gains: Net realised gains on investments at fair value through profit or loss 9 8 Total current taxation 136 215 Net increase/(decrease) in fair value: Investments at fair value through profit or loss 13 (8) Deferred taxation income Investment property 5 25 21 Origination and reversal of temporary differences (3) (35) Net foreign exchange translation losses (17) (3) Adjustments in respect of prior periods 1 11 Total financial income 110 70 Changes in taxation rates (1) (1) Total deferred taxation (3) (25) Included within financial income is a net gain, after hedging, on the Group’s return-seeking asset portfolio of £28m (2018: net loss of £1m). Taxation expense 133 190

114 115 Bupa Annual Report 2019

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(ii) Reconciliation of effective taxation rate 2019 2018 £m £m (Loss)/profit before taxation expense (78) 502 UK corporation taxation rate 19% 19% Tax at the UK corporation taxation rate (15) 95

Effects of recurring taxation reconciliation items: Different taxation rates in foreign jurisdictions 7 33 Deductions not allowable for taxation purposes 35 36 Income not taxable or taxable at concessionary rates (14) (29) Property revaluation (4) (4) Results of associates (10) (7) Changes in taxation rates (1) (1) Deferred taxation assets not recognised (2) 1 11 29 Effects of non-recurring taxation reconciliation items: Taxation adjustments in respect of prior periods 26 55 Profit on disposal of business 3 2 Profit on disposal of property, plant and equipment – 1 Goodwill and other impairments 110 – Other (2) 8 137 66 Taxation expense at the effective rate of (171%) (2018: 38%) 133 190

(iii) Current and deferred taxation recognised directly in other comprehensive income 2019 2018 £m £m Deferred taxation charge in respect of: Unrealised gain on revaluation of property (3) (9) Remeasurement gain on pension schemes (4) (3) Other items including foreign exchange translation differences (1) (10) Taxation charge on income and expenses recognised directly in other comprehensive income (8) (22)

116 Strategic Report / Governance / Financial Statements

Note 3: Goodwill and Goodwill and intangible assets in brief intangible assets Intangible assets and goodwill are non-physical assets used by the Group to generate revenues.

Goodwill Goodwill represents the excess of the cost of a business combination over the fair value of the Group’s share of identifiable assets, liabilities and contingent liabilities of the acquired subsidiary company at the date of business combination. The carrying value of goodwill may be adjusted up to 12 months from the accounting date of acquisition, as the allocation of the purchase price to identifiable intangible assets is finalised within that period. Goodwill arising on business combinations is capitalised and presented with intangible assets in the Consolidated Statement of Financial Position. Where the fair value of net assets acquired is greater than the consideration paid, the excess is recognised immediately in the Consolidated Income Statement. Goodwill is stated at cost less accumulated impairment losses. Impairment reviews are performed annually or more frequently if there is an indication that the carrying value may be impaired. Impairment reviews are performed at the level of the relevant cash generating unit (‘CGU’). In identifying CGUs, the Group considers the smallest identifiable group of assets that generate independent cash inflows, how managers monitor operations and the level at which strategic decisions are made.

Other intangible assets Intangible assets, other than goodwill, that are acquired as part of a business combination are capitalised at fair value which represents cost at acquisition and are subsequently held at cost less accumulated amortisation and impairment. Intangible assets acquired separately are stated at cost less accumulated amortisation and impairment. Costs relating to the development of intangible assets, including computer software, are capitalised once all the development phase recognition criteria are met. Amortisation is charged to the Consolidated Income Statement on a straight-line basis as follows, excluding any intangible assets which have been attributed an indefinite useful life: –– Computer software 2-7 years –– Brand and trademarks 3 years-indefinite –– Customer relationships 3-20 years –– Technology and databases 10 years –– Distribution networks 10 years –– Present value of acquired in-force business 20 years –– Customer contracts 4-6 years –– Licences to operate care homes term of licence Intangible assets that are subject to amortisation are reviewed for impairment if circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the Consolidated Income Statement to reduce the carrying amount to the recoverable amount. Bed licences, with a carrying value of £108m (2018: £114m), held within the Bupa Villages and Aged Care – Australia CGU have been attributed an indefinite useful life since these licences, which are issued by the Australian government, have no expiry date. Intangible assets with an indefinite useful life, or not yet available for use, are subject to annual impairment reviews.

117 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Computer Brands/ Customer Intangible assets of £3,842m (2018: £4,263m) include £956m (2018: £999m) which is attributable to other intangible assets arising on business Goodwill software Trademarks relationships Other Total combinations (included within customer relationships, brand and trademarks and other) as follows: Note £m £m £m £m £m £m 2019 2018 2019 £m £m Cost Customer relationships 575 599 At beginning of year 3,328 889 354 894 308 5,773 Bed licences (within Bupa Villages and Aged Care – Australia) 108 114 Adoption of IFRS 16 Leases 1.5.1 – – – – (23) (23) Brands and trademarks 181 224 Assets arising on business combinations 118 4 6 45 33 206 Licences to operate care homes 18 22 Additions – 133 – – 29 162 Leases 3 23 Disposals (6) (11) – – (4) (21) Distribution networks 69 15 Other – (2) – – – (2) Present valuation of acquired in-force business 1 1 Foreign exchange (115) (22) (27) (24) (14) (202) Non-compete agreement 1 1 At end of year 3,325 991 333 915 329 5,893 Total 956 999

Amortisation and impairment loss Impairment testing of goodwill and indefinite life intangible assets At beginning of year 372 581 130 295 132 1,510 Goodwill and intangible assets with indefinite useful lives are tested at least annually for impairment by comparing the net carrying value with the Adoption of IFRS 16 Leases 1.5.1 – – – – (5) (5) recoverable amount, using value in use calculations. Amortisation for year – 82 11 59 9 161 In arriving at the value in use for each CGU, key assumptions have been made regarding future projected cash flows, discount rates and terminal Impairment loss 422 6 21 – – 449 growth rates. The main assumptions upon which the cash flow projections are based include premiums and claims costs for our health insurance Disposals (5) (9) – – (2) (16) businesses, fee rate, cost of care and occupancy for our care services businesses and revenue growth and gross margins for hospitals and clinics. Foreign exchange (8) (11) (10) (14) (5) (48) At end of year 781 649 152 340 129 2,051 Aside from those mentioned below, cash flow projections have been based on management operating profit projections for a three-year period which have been approved by the Board. Cash flow projections for Bupa Chile, LuxMed, Care Plus, Bupa Care Services UK, Bupa Dental Care UK Net book value at end of year 2,544 342 181 575 200 3,842 and Hong Kong are based on a five-year period. Bupa Cromwell Hospital is based on a period of ten years as the business model requires investment over a longer term to ensure a steady state of operation. Net book value at beginning of year 2,956 308 224 599 176 4,263 Taxation has been applied to the pre-taxation management operating profits based on the statutory taxation rates in the country of operation. 2018 Forecast future post-taxation cash flows have been discounted at post-taxation discount rates. Discount rates have been derived using a weighted Cost average cost of capital (‘WACC’) methodology, representing the minimum return a business must earn on its asset base to satisfy providers At beginning of year 3,299 896 361 880 333 5,769 of capital. Discount rates used for the value in use calculations for each of the Group’s CGUs are based on considerations of the systemic risks Assets arising on business combinations 104 – 12 43 – 159 associated with each CGU, as well as external factors. These include the market assessment of the time value of money and the risks inherent Additions – 100 – – – 100 in the relevant country where the cash flows are generated. Disposal of subsidiary companies (1) – – – – (1) Cash flow projections beyond the forecast periods have been extrapolated by applying a terminal growth rate between 2.0% and 5.5% (2018: 2.0% Other disposals (2) (97) (8) (21) (21) (149) and 5.5%) for all CGUs. The terminal growth rates represent an estimate of the long-term growth rate for each of the CGUs, taking into account Other – (4) – – – (4) the future and past growth rates and external sources of data, such as forecasted GDP growth rates, inflation and long-term consumer price Foreign exchange (72) (6) (11) (8) (4) (101) index rates. At end of year 3,328 889 354 894 308 5,773 The values assigned to the key assumptions are based on past experience of the CGUs and assessment of future trends in the relevant industry.

Amortisation and impairment loss At beginning of year 336 607 128 264 146 1,481 Amortisation for year – 68 9 56 8 141 Impairment loss 35 2 5 – (3) 39 Other disposals – (95) (8) (21) (19) (143) Other – 1 – – – 1 Foreign exchange 1 (2) (4) (4) – (9) At end of year 372 581 130 295 132 1,510

Net book value at end of year 2,956 308 224 599 176 4,263 Net book value at beginning of year 2,963 289 233 616 187 4,288

118 119 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

The following table summarises the pre-taxation discount rates used for impairment testing for the main CGUs: The following table summarises goodwill by CGU as at 31 December: 2019 2018 2019 2018 % % £m £m Bupa Australia Health Insurance 10.2 9.8 Australia and New Zealand Bupa Health Services Australia 10.4 10.0 Bupa Australia Health Insurance 840 876 Bupa Villages and Aged Care – Australia 10.0 9.4 Bupa Health Services Australia 292 295 Bupa Chile 12.8 14.0 Bupa Villages and Aged Care – Australia 80 268 LuxMed 10.4 9.9 Europe and Latin America Sanitas Seguros 9.5 11.2 Bupa Chile 150 168 Sanitas Mayores 8.4 8.2 LuxMed 250 252 Bupa Acıbadem Sigorta 22.1 – Sanitas Seguros 95 103 Care Plus 17.6 17.9 Sanitas Mayores 21 22 Bupa Care Services UK 7.1 7.0 Bupa Acıbadem Sigorta 53 – Bupa Dental Care UK 7.2 7.1 Care Plus 24 26 Bupa Global 11.1 11.3 Bupa Global and UK Bupa Cromwell Hospital 8.6 9.0 Bupa Care Services UK 90 90 Hong Kong1 10.5 10.2 Bupa Dental Care UK 463 650 Bupa Global 68 68 1. From 2019, the Hong Kong Quality HealthCare and Insurance businesses are being managed as a single business, and are now treated as a single Hong Kong CGU reflecting the operating structure of the business. Bupa Cromwell Hospital – 16 As at 31 December 2019, the carrying values of the following CGUs are determined to be higher than their recoverable amounts, resulting in Other 3 3 impairments to goodwill arising on business combinations totalling £422m. Other businesses Hong Kong1 115 119 Bupa Dental Care UK Total 2,544 2,956 Bupa Dental Care has over 490 dental centres across the UK and provides service to around 2.3m customers. The business has recently been 1. From 2019, the Hong Kong Quality HealthCare and Insurance businesses are being managed as a single Hong Kong CGU reflecting the ongoing structure of the business. affected by sector-wide pressures, in particular a shortage of dentists. In addition to this, ongoing investment in information security as well as recently announced increases in the National Living Wage have impacted forecast future cash flows. As a result, the recoverable amount for Bupa Sensitivity to changes in key assumptions Dental Care UK on a value in use basis has reduced to £796m, resulting in an impairment of goodwill of £226m. There remains a goodwill balance A sensitivity analysis has been performed on the key assumptions used to determine the value in use for each CGU as at 31 December 2019. of £463m in respect of this business. A decrease of 0.5% to the current terminal growth rate of 2.6% would result in a further impairment of c.£85m; an increase of 0.5% to the current discount rate of 7.2% would result in a further impairment of c.£96m; and a decrease in cashflows Other than as disclosed below, management believes that no reasonably probable change in any of the key assumptions would cause the carrying of 10%, which are sensitive to dentist availability, dentist hours, rates and costs, would result in a further impairment of c.£78m. value of any goodwill or intangible asset with an indefinite useful life to exceed its recoverable amount. The sensitivity analysis for Bupa Dental Care UK and Bupa Villages and Aged Care – Australia has been set out earlier. It is possible that a change in Bupa Villages and Aged Care – Australia key assumptions could cause the impairment of goodwill for Bupa Chile, LuxMed and Bupa Care Services UK. The table below shows the decrease Bupa Villages and Aged Care is an approved provider of aged care in Australia and operates 72 care homes throughout the country which provide required in the terminal growth rate or increase required in discount rate for the recoverable amount of the CGU to equal the carrying amount. residential and respite care to residents. The business has been impacted by lower forecasted operating cash flows as the business recovers from Decrease regulatory sanctions and lower occupancy rates. There has been an increase in the discount rate, reflecting increased market risk in the Australian Terminal growth in terminal Increase in aged care sector, which has been partially driven by the ongoing Royal Commission into Aged Care Quality and Safety. This has led to a reduction Headroom rate growth rate discount rate in the recoverable amount for the business on a value in use basis to £431m, resulting in an impairment of goodwill of £177m. There remains a £m % % % goodwill balance of £80m in respect of the business. A decrease of 0.5% to the current terminal growth rate of 3.0% would result in a further Bupa Chile 22 3.0 0.3 0.3 impairment of c.£30m; an increase of 0.5% to the current discount rate of 10.0% would result in a further impairment of c.£30m; and a decrease LuxMed 25 3.6 0.3 0.3 in cashflows of 10%, which are sensitive to occupancy and operating cash flows would result in a further impairment of c.£43m. Bupa Care Services UK 19 2.6 0.1 0.1

Bupa Cromwell Hospital Impairment of other intangible assets A £16m impairment has been recognised in respect of Bupa Cromwell Hospital at 31 December 2019, driven by lower forecast operating cash At 31 December 2019, other intangible assets with indefinite useful lives were tested for impairment, resulting in an impairment of £21m (2018: £5m) flows. This reduces the goodwill balance of Bupa Cromwell Hospital to £nil. in relation to brands in Bupa Chile. In addition to these impairments, a £3m impairment was recognised in Sanitas Seguros immediately prior to the transfer of an element of that A review of intangible assets that are subject to amortisation resulted in an impairment of £6m (2018: £1m net impairment reversal) relating business to held for sale. to computer software. An impairment of £35m was recognised in 2018 in respect of Bupa Villages and Aged Care – New Zealand. The testing undertaken determined the recoverable amount of all other CGUs to be higher than their respective carrying value, resulting in no further impairments to goodwill.

120 121 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 4: Property, plant and Property, plant and equipment in brief Right-of- Leasehold Right-of- Freehold use-asset property and Owned use-asset equipment Property, plant and equipment are the physical assets or rights to use the leased assets property property improvements1 equipment equipment Total which are utilised by the Group to carry out business activities and generate revenues Note £m £m £m £m £m £m and profits. 2019 Cost or valuation Most of the assets held relate to care homes, hospital properties and equipment, and office buildings. At beginning of year 2,451 – 317 1,218 – 3,986 Adoption of IFRS 16 Leases 1.5.1 – 1,043 (8) (5) 8 1,038 Freehold properties Assets arising on business combinations 9 – 1 5 – 15 Freehold properties comprise care homes, care villages, clinics, hospitals and offices and are initially measured at cost and subsequently at Additions 70 135 41 192 5 443 revalued amount less accumulated depreciation and impairment losses. These properties are subject to periodic and at least triennial valuations Transfer to assets held for sale (1) (2) – (2) – (5) performed by external independent valuers. Borrowing costs relating to the acquisition or construction of qualifying assets are capitalised as part Disposals (4) (3) (14) (20) – (41) of the cost of that asset. Revaluations (23) – – – – (23) Other 34 1 (36) (3) – (4) Equipment Foreign exchange (86) (45) (11) (51) – (193) Equipment (including leasehold improvements) is stated at historical cost less subsequent depreciation and impairment losses. At end of year 2,450 1,129 290 1,334 13 5,216 Depreciation Depreciation and impairment loss Freehold land and assets under construction, included within freehold properties, are not depreciated. Depreciation on other items of property, At beginning of year 33 – 109 644 – 786 plant and equipment is calculated using the straight-line method to allocate cost or revalued amount less residual value over estimated useful lives, Adoption of IFRS 16 Leases 1.5.1 as follows: – – (1) (1) – (2) Depreciation charge for year 41 139 24 123 4 331 –– Freehold property 50 years Transfer to assets held for sale – (1) – (1) – (2) –– Right-of-use property lease term Disposals – (3) (10) (17) – (30) Revaluations (22) – – – – (22) –– Leasehold improvements shorter of useful life or lease term Other – – (5) – – (5) –– Owned equipment 3-10 years Foreign exchange (3) (2) (4) (28) – (37) –– Right-of-use equipment lease term At end of year 49 133 113 720 4 1,019

Impairment Net book value at end of year 2,401 996 177 614 9 4,197 Impairment reviews are undertaken where there are indications that the carrying value of an asset may not be recoverable. An impairment loss Net book value at beginning of year 2,418 – 208 574 – 3,200 on assets carried at cost is recognised in other income and charges to reduce the carrying value to the recoverable amount. An impairment loss on assets carried at the revalued amount is recognised in the revaluation reserve, except where an asset is revalued below historical cost, in which 2018 case the loss on historical cost is recognised in the Consolidated Income Statement within other income and charges. Cost or valuation For information regarding leased (right-of-use) assets, see note 18. At beginning of year 2,510 – 304 1,106 – 3,920 Assets arising on business combinations 9 – 1 4 – 14 Additions 68 – 24 165 – 257 Transfer to assets held for sale (17) – – – – (17) Disposals (2) – (5) (52) – (59) Revaluations (53) – (8) – – (61) Other (12) – 5 2 – (5) Foreign exchange (52) – (4) (7) – (63) At end of year 2,451 – 317 1,218 – 3,986

Depreciation and impairment loss At beginning of year 57 – 87 573 – 717 Depreciation charge for year 39 – 26 120 – 185 Transfer to assets held for sale – – – (1) – (1) Disposals (3) – (4) (41) – (48) Revaluations (59) – (4) – – (63) Impairment loss – – – 2 – 2 Other – – 5 (7) – (2) Foreign exchange (1) – (1) (2) – (4) At end of year 33 – 109 644 – 786

Net book value at end of year 2,418 – 208 574 – 3,200 Net book value at beginning of year 2,453 – 217 533 – 3,203

1. 2019 closing balance represents leasehold improvements only.

122 123 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Revaluation of properties Note 5: Investment property Investment property in brief External valuations are performed every three years. To ensure that the carrying value does not differ significantly from fair value at the balance Investment properties are physical assets that are not occupied by the Group and are sheet date, in years where a full external valuation is not scheduled to be completed, a director’s valuation is conducted, based on updated cash leased to third parties to generate rental income. Most investment properties held by flows and other market variables. Consideration is also given to whether there are any factors which indicate an out of cycle external revaluation the Group relate to a portfolio of retirement villages in New Zealand. is required. The external revaluation of properties in 2019 were performed independently by Knight Frank in the UK and Poland, Phi Partner Consultores and TINSA Chile in Chile and Elo Engenharia in Brazil. Investment properties are measured at fair value, determined individually, on a basis appropriate to the purpose for which the property is intended The valuations of care homes in the Group and hospitals in Spain, Chile and Poland are determined based on a capitalisation of earnings approach. and with regard to recent market transactions for similar properties in the same location. Each facility’s normalised earnings are divided by an appropriate capitalisation rate to determine a value in use. The capitalisation rate is the average rate of return for each facility and is based on qualitative and quantitative indicators of the facility’s current and future performance and In an active market, the portfolio is valued annually by an independent valuer, holding a recognised and relevant professional qualification, and with assumes normal prudent management of the facility. Unobservable inputs include the capitalisation rate and, for all properties except those recent experience in the location and category of investment property being valued. in Poland and Chile, the average occupancy. In New Zealand, the retirement village market is fragmented as each village is unique due to building configuration and location. Growth in new All other properties are valued by external valuers based on observable market values of similar properties. Due to the level of judgement and developments is also restricted due to a lack of suitable sites and transactions are not frequent given the relatively high value of each village. As a adjustments required to the observable inputs used in the valuation methodologies, a level three classification is deemed appropriate for all result, no active market exists for the retirement villages from which values can be derived. These properties are valued using discounted cash flow properties in the Group. projections based on reliable estimates of future cash flows. At each revaluation date, accumulated depreciation is eliminated against the gross carrying amount of the asset. Any gain or loss arising from a change in the fair value is recognised in the Consolidated Income Statement within financial income and expense.

Sensitivity analysis 2019 2018 Note £m The significant assumptions used in the calculation of the fair values of the material level three freehold properties in the Group are: £m At beginning of year 454 399 Freehold properties Australia New Zealand UK Spain Chile Poland Adoption of IFRS 16 Leases 1.5.1 2 – Valuation assumptions: average occupancy rate 94.3% 91.7% 87.1% 94.1% N/A N/A Additions 58 27 Valuation assumptions: average capitalisation rate 15.0% 14.0% 13.3% 14.6% 36.3% 9.8% Disposals – (2) Valuation assumptions: average price per square metre N/A N/A £3,977 £3,012 N/A N/A Increase in fair value 2.5 25 21 Valuation assumptions: average yield N/A N/A 5.5% 4.7% N/A N/A Transfer from assets held for sale – 1 The valuations are most sensitive to changes in capitalisation rate assumptions and a reasonably possible increase/decrease of 0.5% in Reclassification from property, plant and equipment – 6 capitalisation rates would decrease/increase the total carrying value of freehold properties by (£74m)/£76m. Foreign exchange (17) 2 At end of year 522 454 The table below shows the date at which freehold properties held as at 31 December 2019 were last subject to external valuation. 2019 In the current year, a revaluation surplus of £25m (2018: £21m) was credited to the Consolidated Income Statement. £m The carrying value of investment properties primarily consists of the Group’s portfolio of retirement villages in New Zealand of £483m (2018: Valuation – December 2019 1,012 £437m). These were valued by management using internally prepared discounted cash flow projections, supported by the terms of any existing Valuation – December 2018 153 lease and other contracts. Discount rates are used to reflect current market assessments of the uncertainty in the amount or timing of the cash Valuation – December 2017 1,197 flows. The discounted cash flow projections are reviewed by an independent valuer, Deloitte. Assets held at cost1 88 Cost or valuation 2,450 The historical cost of investment properties is £264m (2018: £222m). The properties are categorised as level three within the fair value hierarchy.

1. Primarily relates to assets under construction and initial fair value of additions. Significant assumptions used in the valuation include: Gains and losses on revaluation are recognised in the property revaluation reserve, except where an asset is revalued below historical cost, in which Australia and New Zealand case the deficit is recognised in the Consolidated Income Statement. Where a revaluation reverses the losses taken to the Consolidated Income Discount rate 9.5% Statement in prior years, the credit is recognised in the Consolidated Income Statement. Capital growth rate 2.6% Provision for capital replacement 0.4% A £18m net revaluation gain (2018: £23m) has been recognised in the property revaluation reserve. In the current year, a revaluation deficit of £19m Vacancy period 3 months (2018 deficit: £21m) was charged to the Consolidated Income Statement within other income and charges (see note 2.4). Turnover in apartments and villas 4-6 years Recognised in the carrying amount of freehold property is £80m (2018: £70m) in relation to freehold property in the course of construction. The sensitivity analysis below considers the impact on the year end valuation of level three investment properties and is based on a change in Historical cost of the Group’s revalued freehold property assets assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in assumptions may be correlated. 2019 2018 0.5% absolute 0.5% absolute £m £m Australia and New Zealand increase decrease Historical cost of revalued assets 2,544 2,483 Discount rate £11m decrease £13m increase Accumulated depreciation based on historical cost (327) (276) Capital growth rate £31m increase £27m decrease Historical cost net book value 2,217 2,207 Depreciation charge for the year on historical cost 51 50 Retirement villages During the year ended 31 December 2019, the Group’s retirement village portfolio in New Zealand generated £18m (2018: £19m) of income which was recognised as revenue in the Consolidated Income Statement. Total direct operating expenses of these retirement villages amounted to £11m (2018: £10m).

124 125 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 6: Equity accounted Equity accounted investments in brief Reconciliation to carrying amounts Bupa Arabia Highway to Health Max Bupa investments Equity accounted investments comprise associated companies in which the Group has significant influence, but not control. 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m Opening net assets 539 458 77 64 27 26 Associated companies include those entities in which the Group has significant influence, but no right to direct the activities which determine the Profit/(loss) for the year 105 5 (2) variable returns it receives from the entity. 126 10 (10) Other comprehensive expenses (1) (6) – – – – Associated companies are accounted for using the equity method and are initially recognised at cost. The cost of the investment includes Dividends paid (38) (32) – – – – transaction costs. The carrying value of the investment is adjusted for the Group’s share of any post acquisition profits or losses of the associated Other reserve movements (8) 14 (2) 8 16 3 entity. Closing net assets 618 539 85 77 33 27 If the Group’s share of losses exceeds its interest in an equity accounted investment, the carrying amount of that interest (including any long-term % Ownership 39.25% 39.25% 49.00% 49.00% 44.42% 49.00% interests that, in substance, form part of the Group’s net investment), is reduced to nil. In addition, the recognition of further losses is discontinued Reporting entity’s share 243 212 42 38 15 13 except to the extent that the Group has an obligation to make payments on behalf of the equity accounted investment. Fair value and local accounting differences1 207 217 177 181 16 20 Carrying amount 450 429 219 219 31 33 Associates Reporting entity's share of profit/(loss)2 47 31 6 3 (5) (2) The consolidated financial statements include the Group’s share of income and expenses, and other comprehensive income, after adjustments to align the accounting policies with those of the Group where materially different, from the date that significant influence or control commences until 1. Primarily relates to goodwill and implicit intangible assets on acquisition. the date that significant influence or control ceases. 2. 2019 share of profits in Max Bupa are based on a share in ownership of 49.00% up to 15 December 2019. The carrying amount of equity accounted investments is £716m (2018: £690m). All equity accounted investments are included on a coterminous (ii) Individually immaterial associates basis. In addition to the interests in associates disclosed above, the Group also has interests in a number of individually immaterial associates that are The Group’s principal equity accounted investments are: accounted for using the equity method. The aggregate carrying amount of these associates is £16m (2018: £9m). The reporting entity’s share of profit recognised during the year for these associates was £nil (2018: share of profit of £1m). Share of issued Principally Country of Business activity capital operates in incorporation Bupa Arabia for Cooperative Insurance Company Associate Insurance 39.25% Saudi Arabia Saudi Arabia Highway to Health, Inc. Associate Insurance 49.00% USA USA Note 7: Post-employment Post-employment benefits in brief Max Bupa Health Insurance Company Limited Associate Insurance 44.42% India India benefits The Group operates several funded defined benefit and defined contribution pension schemes for the benefit of employees and Directors, in addition to an unfunded During the year the Group received dividends of £13m (2018: £10m) from Bupa Arabia. scheme and a post-retirement medical benefit scheme. During the year, capital injections of £8m (2018: £2m) were made in Max Bupa Health Insurance Company Limited (‘Max Bupa’), the Group’s associate in India. Distributions to shareholders are currently restricted by local regulatory requirements which are re-assessed on a regular basis. The principal defined contribution pension scheme is The Bupa Retirement Savings Plan. On 16 December 2019, the Group decreased its shareholding in the associate Max Bupa from 49% to 44.42% as a result of the disposal of a portion The main defined benefit scheme is The Bupa Pension Scheme which has been closed to new entrants since 1 October 2002. of the stake for £4m as part of the arrangements for the introduction of a new strategic partner. Defined contribution pension schemes (i) Summarised financial information for material associates The defined contribution pension schemes provide employees with a retirement fund accumulated through investment of contributions made by The tables below provide summarised financial information for those associates that are material to the Group. The information disclosed reflects Bupa and the employees. Members of the scheme use their funds to secure benefits at retirement. Benefits are not known in advance and the the amounts presented in the financial statements of the relevant associates, and not the Group’s share of those amounts. They have been investment and longevity risks are assumed solely by the members of the scheme. Contributions payable by the relevant sponsoring employers amended to reflect adjustments made by the Group when using the equity method, including fair value adjustments and modifications for are defined in the scheme rules or plan specifications and these contributions are recognised as an expense in the Consolidated Income Statement differences in accounting policy. as incurred. Bupa Arabia Highway to Health Max Bupa Defined benefit post-employment schemes 2019 2018 2019 2018 2019 2018 The defined benefit pension schemes provide benefits based on final pensionable salary. The Group’s net obligation in respect of defined benefit £m £m £m £m £m £m pensions and the post-retirement medical scheme is calculated separately for each scheme and represents the present value of the defined Revenue 1,956 1,626 157 177 11 71 benefit obligation less, for funded schemes, the fair value of scheme assets. The discount rate used is the yield at the balance sheet date on Cash and cash equivalents 61 97 1 73 109 2 high-quality corporate bonds denominated in the currency in which the benefit will be paid. When the calculation results in a benefit to the Group, Other current assets 806 611 66 63 10 12 the recognised asset is limited to the present value of any future refunds from the scheme or reductions in future contributions to the scheme. Current assets 879 672 175 160 12 13 Non-current assets 1,175 1,058 10 12 111 87 The charge to the Consolidated Income Statement for defined benefit schemes represents the following: current service cost calculated on the projected unit credit method, net interest cost, past service costs and administrative expenses. Current liabilities (1,436) (1,191) (97) (92) (40) (34) Non-current liabilities – – (3) (3) (50) (39) All remeasurements are recognised in full in the Consolidated Statement of Comprehensive Income in the period in which they occur. Net assets 618 539 85 77 33 27

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(i) Amount recognised in the Consolidated Income Statement Complete disclosure of these other defined benefit pension schemes is not practicable within this report but they are disclosed within the financial The amounts charged to other operating expenses for the year are: statements of the relevant sponsoring employer of each scheme. Unfunded schemes 2019 2018 £m £m Unfunded defined benefit pension arrangements exist for certain employees and former employees to provide benefits in addition to the funded Current service cost 10 11 pension arrangements provided by the Group. There are no separate funds or assets in the Consolidated Statement of Financial Position to Past service cost – 1 support the unfunded schemes; however, provisions included in the Consolidated Statement of Financial Position in respect of these liabilities and assets are ring-fenced to support these liabilities (see note 8). Net interest on defined benefit liability/asset (16) (13) Administrative expenses 1 2 The latest valuation of these arrangements was performed as at 31 December 2019 under IAS 19 by the Group’s independent actuary. The charge Gain on settlement (1) – to the Consolidated Income Statement in respect of these arrangements and the assessment of the related pension liability as at 31 December Total amount (credited)/charged to the Consolidated Income Statement (6) 1 2019 have been made in accordance with this latest valuation, which used the same principal assumptions as adopted at 31 December 2019 under IAS 19 for The Bupa Pension Scheme. The charge to other operating expenses in respect of cash contributions to defined contribution schemes is £42m (2018: £37m). Post-retirement medical benefit scheme (ii) Amount recognised directly in other comprehensive income The Group also provides unfunded post-retirement medical benefits for certain former employees. These benefits were granted under an The amounts credited directly to equity: agreement which closed to new entrants in 1992. The latest valuation of this scheme was carried out on 31 December 2019 by an actuary employed by the Group using the same key assumptions as adopted at 31 December 2019 under IAS 19 for The Bupa Pension Scheme. 2019 2018 £m £m (iii) Assets and liabilities of schemes Actual return less expected return on assets (170) 96 Post-retirement medical Pension schemes benefit scheme Total Loss/(gain) arising from changes to financial assumptions 166 (125) (Gain)/loss arising from changes to experience assumptions (4) 4 2019 2018 2019 2018 2019 2018 (Gain)/loss arising from changes to demographic assumptions (16) 4 £m £m £m £m £m £m Present value of funded obligations (1,574) – (1,574) Total remeasurement gains credited directly to equity (24) (21) (1,696) – (1,696) Fair value of scheme assets 2,338 2,166 – – 2,338 2,166 The cumulative amount of remeasurement losses recognised directly in equity is £66m (2018: £90m). Net assets of funded schemes 642 592 – – 642 592 Present value of unfunded obligations (45) (42) (9) (10) (54) (52) 7.1 Group post-employment benefit schemes Net recognised assets/(liabilities) 597 550 (9) (10) 588 540

Defined contribution pension schemes Represented on the Consolidated Statement of Financial Position: The principal defined contribution pension scheme in the UK is The Bupa Retirement Savings Plan. This scheme has been in effect since 1 October Net liabilities (62) (62) 2002 and is available to permanent employees of The British United Provident Association Limited and Bupa Insurance Services Limited to join on Net assets 650 602 a voluntary basis. There are several other contract-based defined contribution arrangements available to employees of other employers within the Net recognised assets 588 540 Group to join on a voluntary basis. The Group automatically enrols any eligible non-pensioned employees into the National Employment Savings Trust (‘NEST’). (iv) Present value of schemes’ obligations The movements in the present value of the schemes’ obligations are: Defined benefit post-employment schemes Defined benefit Post-retirement medical The principal defined benefit scheme in the UK is The Bupa Pension Scheme. Contributions by employees and by Group companies are paid into pension schemes benefit scheme Total separate funds administered by a corporate trustee. The scheme has been closed to new entrants since 1 October 2002, but its existing members continue to accrue pension entitlements. 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m The recognised surplus is limited to the present value of any future refunds from the scheme or reductions in future contributions to the scheme. At beginning of year 1,616 1,744 10 10 1,626 1,754 There are no minimum funding requirements in place and the Trustees do not have the unilateral power to trigger a wind up of the Scheme. Current service costs 10 11 – – 10 11 Contributions by Group companies to this scheme are made in accordance with the recommendations of the independent scheme actuary. Past service costs – 1 – – – 1 Interest on obligations 47 44 – – 47 44 The independent scheme actuary for The Bupa Pension Scheme performs detailed triennial valuations together with annual interim reviews. Loss/(gain) arising from changes to financial assumptions 166 (125) – – 166 (125) Both triennial and interim valuations use the attained age method, recognising the closure of the scheme to new entrants. (Gain)/loss arising from changes to experience assumptions (3) 3 (1) 1 (4) 4 At the most recent triennial valuation, as at 1 July 2017, the scheme’s independent actuary recommended payment of employer contributions at (Gain)/loss arising from changes to demographic assumptions (16) 4 – – (16) 4 the rate of 33.8% of member pensionable salaries. In addition to these employer contributions a payment equivalent to the employee contribution Benefits paid (68) (66) – (1) (68) (67) of 7% of pensionable salaries is paid as part of the Group’s salary sacrifice arrangement (known as PeopleChoice Pensions). There is a Settlement (8) – – – (8) – corresponding reduction in members’ wages and salaries as a result. Foreign exchange (3) – – – (3) – The expected contributions payable in 2020, with regards to the accumulation of future benefits, are £9m in respect of The Bupa Pension Scheme. At end of year 1,741 1,616 9 10 1,750 1,626 The most recent triennial valuation of the Bupa Pension Scheme showed that the scheme was in surplus on its Technical Provisions basis. The scheme was also in surplus on the more prudent actuarial basis which the trustees use to set their long-term funding target. As a result, no deficit reduction contributions are currently due. This position could change as a result of future valuations. There are several other smaller defined benefit pension schemes operated by UK and overseas subsidiaries. The defined benefit pension schemes are assessed by independent scheme actuaries in accordance with UK or local practice and under IAS 19 as at 31 December 2019 for the purposes of inclusion in the Group’s Consolidated Financial Statements.

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(v) Fair value of funded schemes’ assets (a) Actuarial assumptions underlying the valuation of obligations The movements in the fair value of the funded schemes’ assets are: The 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 2019 2018 gilts, with a deduction of 0.4% to reflect an inflation risk premium. £m £m The rate of increase in salaries is equal to the long-term expected annual average salary pay increase for the employees who are members of the At beginning of year 2,166 2,263 respective schemes. This assumption is set relative to the inflation rate assumption. Interest income 63 57 Return on assets excluding interest income 170 (96) The rate of increase to pensions in payment is the same as the inflation rate, with the exception of benefits which receive fixed increases in payment as defined under the respective scheme rules. Contributions by employer 15 9 Administration expenses (1) (2) The discount rate used to value scheme liabilities is the yield at the balance sheet date on high-quality corporate bonds of appropriate term. Benefits paid (67) (64) (b) Sensitivity analysis of the principal assumptions used to measure scheme liabilities Settlement (7) – Foreign exchange (1) (1) The sensitivity analysis provided below is based on a change in an assumption while holding all other assumptions constant. In practice, this is At end of year 2,338 2,166 unlikely to occur and experience variations for some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating the pension The market values of the assets of the funded schemes are as follows: liability recognised within the Consolidated Statement of Financial Position. The methods and types of assumption does not change. 2019 2019 2018 2018 Assumption Change in assumption Indicative impact on Scheme liabilities £m % £m % Discount rate Increase/decrease by 0.25% Decrease/increase £77m Pooled investment funds 1,000 43 877 40 Rate of inflation Increase/decrease by 0.25% Increase/decrease £68m Corporate bonds 774 33 770 36 Rate of increase in salaries Increase/decrease by 0.25% Increase/decrease £9m Government bonds 219 9 224 10 Rate of mortality Increase/decrease by one year Increase/decrease £51m Cash/other assets 181 8 115 5 Loans 145 6 165 8 (c) Mortality assumptions Equities 17 1 17 1 The trustees of The Bupa Pension Scheme undertook a scheme-specific mortality investigation as part of the 1 July 2017 triennial valuation. Property – – 1 – The trustees shared the conclusion drawn from this analysis with the Directors of the Company, who have adopted assumptions in line with this Derivatives 2 – (3) – analysis for the purposes of IAS 19 valuation as at 31 December 2019. Total market value of the assets of the funded schemes 2,338 100 2,166 100 The mortality tables adopted at 31 December 2019 are the S2PA year of birth mortality tables using the CMI 2018 projection model, with a No assets have a quoted market price. long-term rate of improvement of 1.5% p.a. adjusted by 97% (male non-pensioners); 96% (female non-pensioners); 92% (male pensioners) and In recent years the Group has taken steps to de-risk The Bupa Pension Scheme’s investment strategy. The main return-seeking asset class in the 94% (female pensioners). The average life expectancies at age 60 based on these tables for a male currently aged 60 is 27.3 years and for a female scheme is credit; there is minimal remaining market risk from equities or property. The scheme’s liabilities will fluctuate in line with interest rates and currently aged 60 is 29.2 years. The average life expectancies at age 60 based on these tables for a male currently aged 45 is 28.2 years and for inflation. However, the investment strategy aims to hedge the majority of the interest and inflation risk in the scheme, as measured on the long- a female currently aged 45 is 30.5 years. term funding basis agreed with the trustees. This hedging is achieved via a liability-driven investment strategy utilising a combination of gilts and swaps. As the scheme’s hedging assets will move in line with the scheme’s liabilities, the interest and inflation risk are substantially reduced. (d) Assumptions over duration of liabilities The weighted average duration of the defined benefit obligation is approximately 21 years. Given the scheme’s asset holdings, the key remaining risk in The Bupa Pension Scheme’s investment strategy is credit risk. This is managed via limits on credit quality of counterparties, collateral arrangements in the case of derivatives and repurchase agreements and regular monitoring of investment managers. The specific risks associated with the derivatives used in the hedging programme are managed via limits on leverage as well Note 8: Restricted assets Restricted assets in brief as stress testing of collateral arrangements. Restricted assets are amounts held in respect of specific obligations and potential liabilities and may be used only to discharge those obligations and potential liabilities 7.2 Actuarial assumptions if and when they crystallise. The responsibility for setting the assumptions underlying the IAS 19 valuations rests with Bupa’s Directors, having first taken advice from the Group’s independent actuary. 2019 2018 £m £m The key weighted average financial assumptions used when valuing the obligations of the post-employment benefit schemes under IAS 19 for the Non-current restricted assets 44 42 schemes within the Group are as follows: Current restricted assets 73 65 Funded schemes Unfunded schemes Total restricted assets 117 107

2019 2018 2019 2018 % % % % The non-current restricted assets balance of £44m (2018: £42m) consists of cash deposits held to secure a charge over the non-registered pension arrangement (see note 7). Included in current restricted assets is £72m (2018: £63m) in respect of claims funds held on behalf of corporate Inflation rate 2.8 3.2 2.8 3.2 customers. Rate of increase in salaries 3.3 3.7 3.3 3.7 Rate of increase to pensions in payment 2.7 3.1 2.7 3.1 Rate of increase to pensions in deferment 2.0 2.2 2.0 2.2 Discount rate for scheme obligations 2.1 3.0 2.1 2.9 Medical cost trend – – 4.4 4.0

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 9: Financial investments Financial investments in brief Fair value of financial investments The Group generates cash from its underwriting, trading and financing activities and Fair value is a market-based measurement for assets for observable market transactions where market information might be available. invests the surplus cash in financial investments. These include government bonds, The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the asset would corporate bonds, pooled investment funds and deposits with credit institutions. take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset). All financial investments are initially recognised at fair value, which includes transaction costs for financial investments not classified at fair value The fair values of quoted investments in active markets are based on current bid prices. The fair values of unlisted securities and quoted through profit or loss. Financial investments are recorded using trade date accounting at initial recognition. investments for which there is no active market are established by using valuation techniques corroborated by independent third parties. Financial investments are derecognised when the rights to receive cash flows from the financial investments have expired or where the Group has These may include reference to the current fair value of other investments that are substantially the same and discounted cash flow analysis. transferred substantially all risks and rewards of ownership. The fair value of financial investments are determined using different valuation inputs categorised into a three-level hierarchy. The different levels The Group has classified its financial investments into the following categories: at amortised cost, at fair value through profit or loss and at fair have been defined by reference to the lowest level input that is significant to the fair value measurement, as follows: value through other comprehensive income (‘FVOCI’). –– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Classification Criteria and treatment under IFRS 9 –– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) Fair value through Debt and Equity instruments where performance is managed and evaluated on a fair value basis and the objective is to realise cash flows through or indirectly (i.e. derived from prices) profit or loss the sale of the assets. The investments are carried at fair value, with gains and losses arising from changes in this value recognised in the Consolidated Income Statement in the period in which they arise. –– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) Amortised cost Non-derivative debt instruments where the contractual characteristics of the financial assets represent solely payments of principal and interest and the objective is to hold the instrument to collect cash flows over its life. Any disposals are expected to be infrequent or insignificant. The investments An analysis of financial investments by hierarchy level is as follows: are measured at amortised cost using the effective interest method, less any impairment losses. Any discount or premium on purchase is amortised Level 1 Level 2 Level 3 Total over the life of the investment through the Consolidated Income Statement. £m £m £m £m Fair value through other Non-derivative debt instruments where the contractual characteristics of the financial assets represent solely payments of principal and interest and 2019 comprehensive income the objective is to hold the instrument to collect cash flows and sell, with a greater frequency and value of sales than instruments at amortised cost. Fair value through profit or loss The investments are carried at fair value and fair value changes are recognised through the Consolidated Statement of Comprehensive Income, Corporate debt securities and secured loans except for interest and foreign exchange gains or losses and impairment gains and losses that are derived using the same methodology that is 18 317 – 335 applied to financial assets measured at amortised cost, which go through the Consolidated Income Statement. The cumulative gain or loss that was Government debt securities 52 – – 52 recognised in other comprehensive income is recognised in the Consolidated Income Statement when a financial asset at fair value through other Pooled investment funds 48 168 4 220 comprehensive income is derecognised. Deposits with credit institutions 1 – – 1 Under IFRS 9, impairment provisions for expected credit losses (‘ECL’) are recognised for financial investments measured at amortised cost and Other loans – – 5 5 FVOCI. An allowance for either 12-month or lifetime ECL is required, depending on whether there has been a significant increase in credit risk since Equities – – 13 13 initial recognition. However, an assumption can be made that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date (e.g. it is investment grade). The Group applies Fair value through other comprehensive income a 12-month ECL allowance, as all relevant financial investments are either investment grade or short term. Corporate debt securities and secured loans 31 – – 31 The measurement of ECL should reflect a probability-weighted outcome, the time value of money and the best available forward-looking Government debt securities 52 – – 52 information. An option pricing probability model is used as the basis for assessing ECL. An analysis of ECL provisions is provided in note 25.3. Amortised cost Financial investments are analysed as follows: Corporate debt securities and secured loans 629 2 – 631 Carrying Carrying Government debt securities 129 1 – 130 value Fair value value Fair value Deposits with credit institutions – 867 – 867 2019 2019 2018 2018 £m £m £m £m Other loans – 1 – 1 Fair value through profit or loss Total financial investments 960 1,356 22 2,338

Corporate debt securities and secured loans 335 335 310 310 Level 1 Level 2 Level 3 Total Government debt securities 52 52 44 44 £m £m £m £m Pooled investment funds 220 220 195 195 2018 Deposits with credit institutions 1 1 4 4 Fair value through profit or loss Other loans 5 5 9 9 Corporate debt securities and secured loans 26 284 – 310 Equities 13 13 20 20 Government debt securities 44 – – 44 Pooled investment funds 98 94 3 195 Fair value through other comprehensive income Deposits with credit institutions 4 – – 4 Corporate debt securities and secured loans 31 31 – – Other loans – – 9 9 Government debt securities 52 52 – – Equities – – 20 20

Amortised cost Amortised cost Corporate debt securities and secured loans 627 631 779 778 Corporate debt securities and secured loans 777 1 – 778 Government debt securities 129 130 183 185 Government debt securities 184 1 – 185 Deposits with credit institutions 865 867 805 807 Deposits with credit institutions 1 806 – 807 Other loans 1 1 1 1 Other loans – 1 – 1 Total financial investments 2,331 2,338 2,350 2,353 Total financial investments 1,134 1,187 32 2,353 Non-current 767 770 1,029 1,029 Current 1,564 1,568 1,321 1,324

132 133 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

During the year certain pooled investment funds in Brazil have been reclassified from level 1 to level 2 in the fair value hierarchy in the absence of an Note 11: Deferred taxation Deferred taxation assets and liabilities in brief active market locally. assets and liabilities Deferred taxation is an amount which recognises the differences between the carrying The Group currently holds level 3 investments totaling £22m. The majority of investments are unlisted equities and convertible notes valued at the amounts of assets and liabilities for financial reporting and the amounts used for recent subscription value and conversion price, which are deemed to be unobservable inputs. Reasonably possible changes to the valuation taxation purposes. assumptions applied could result in a change in fair value of plus or minus £1m. The table below shows movement in the level three assets measured at fair value: An example is the variance between the carrying value of equipment due to depreciation being charged for financial reporting purposes and 2019 2018 written down allowances being applied for the relevant tax authorities. Level 3 £m £m Deferred taxation is recognised in full using the balance sheet liability method, providing for temporary differences between the carrying amounts Opening balance 20 32 of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Additions 17 11 Net decrease in fair value (17) – The following temporary differences are not recognised: goodwill not deductible for taxation purposes and the initial recognition of an asset or Disposals (9) – liability in a transaction that is not a business combination and which, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Foreign exchange (1) 1 At end of year1 22 32 The amount of deferred taxation recognised is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using taxation rates enacted or substantively enacted at the balance sheet date. 1 All gains and losses are recognised in the Consolidated Income Statement in net financial expense. Deferred taxation is recognised on temporary differences arising on investments in subsidiary companies, except where the timing of the reversal The Group uses a market interest curve as at the balance sheet date to discount financial instruments, borrowings and derivatives, where the fair of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. value cannot otherwise be found from quoted market values. The range of interest rates used is as follows: A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can 2019 2018 be utilised. % % Deferred taxation assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and when the Group can Sterling assets and liabilities 0.8-1.1 1.1-1.3 settle its current taxation assets and liabilities on a net basis. Australian dollar assets and liabilities 0.9-1.0 1.9-2.0 Euro assets and liabilities (0.6)–(0.5) (0.6)–(0.4) Recognised deferred taxation assets and liabilities US dollar assets and liabilities 1.6-2.4 2.6-2.8 Deferred taxation assets and liabilities are attributable to the following: Assets Liabilities Net Note 10: Derivatives Derivatives in brief 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m A derivative is a financial instrument whose value is based on one or more underlying Accelerated capital allowances 27 16 (45) (60) (18) (44) variables. The Group uses derivative financial instruments to hedge its exposure to Post-employment benefit liability 1 1 (101) (92) (100) (91) foreign exchange and interest rate risk. Derivatives are not held for speculative Revaluation of properties to fair value 3 – (89) (94) (86) (94) reasons. Employee benefits (other than post-employment) 28 31 – – 28 31 Provisions 53 49 – – 53 49 Derivatives that have been purchased or issued as part of a hedge that subsequently do not qualify for hedge accounting are accounted for at fair Taxation value of losses carried forward 38 47 – – 38 47 value through profit or loss. See note 25.2.1 for details on how the Group accounts for derivatives that qualify for hedge accounting. Goodwill and intangible assets 6 4 (173) (182) (167) (178) Derivative financial instruments are initially recognised and subsequently measured at fair value. Other 9 51 (56) (74) (47) (23) Deferred taxation (before allowable netting) 165 199 (464) (502) (299) (303) Fair values are obtained from market observable pricing information including interest rate yield curves. The value of foreign exchange forward contracts is established using listed market prices. Allowable netting of deferred taxation (121) (147) 121 147 – – Deferred taxation – net 44 52 (343) (355) (299) (303) Fair values have been calculated for each type of derivative as follows: –– The fair value of currency forward contracts, swaps and options is determined using forward exchange rates derived from market sourced data Unrecognised deferred taxation assets at the balance sheet date, with the resulting value discounted back to present value. As at 31 December 2019, the Group had deductible temporary differences relating to intangible assets of £nil (2018: £5m), trading losses of £88m –– The fair value of interest rate swaps is determined as the present value of the estimated future cash flows based on observable yield curves. (2018: £109m) and capital losses of £71m (2018: £74m) for which no deferred taxation asset was recognised due to uncertainty of utilisation of those temporary differences. Valuation inputs are classified as level 2 in the fair value hierarchy. 2019 2018 £m £m Derivative assets Non-current 5 21 Current 54 7 Total derivative assets 59 28

Derivative liabilities Non-current – (19) Current (34) (28) Total derivative liabilities (34) (47)

134 135 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Movement in net deferred taxation (liabilities)/assets (c) Deferred acquisition costs Recognised in Recognised Acquisitions Transfer Acquisition costs represent commissions payable and other expenses related to the acquisition of insurance contract revenues written during the At Consolidated in other through Disposal of to/from beginning Adoption Income comprehensive business subsidiary assets held Foreign At end of financial year. Acquisition costs that have been paid that relate to subsequent periods are deferred and recognised in the Consolidated Income of year of IFRS 16 Statement income combinations undertaking for sale exchange year Statement in the relevant period on a straight-line basis. £m £m £m £m £m £m £m £m £m The movement in deferred acquisition costs is as follows: 2019 Accelerated capital allowances (44) 13 15 – (1) – – (1) (18) 2019 2018 £m £m Post-employment benefit liability (91) – (4) (4) – – – (1) (100) At the beginning of the year 139 117 Revaluation of properties to fair value (94) – 4 (3) – – – 7 (86) Acquisition costs deferred 374 241 Employee benefits (other than post-employment) 31 – – (1) (2) – – – 28 Acquisition costs released to Consolidated Income Statement (348) (220) Provisions 49 – 14 – (5) – – (5) 53 Foreign exchange (5) 1 Taxation value of losses carried forward 47 – (8) – 1 – – (2) 38 At end of year 160 139 Goodwill and intangible assets (178) – 10 – (8) – – 9 (167) Other (23) – (28) – 1 – 2 1 (47) (d) Medicare rebate Total (303) 13 3 (8) (14) – 2 8 (299) In Australia, the government provides an income tested rebate to help people meet the cost of private health insurance. Where customers have elected to receive the rebate as a premium reduction through the private health insurer, the amounts are recovered from the government. Rebates 2018 due from the government but not received at the balance sheet date are recognised in assets arising from insurance business. Accelerated capital allowances (77) – 32 – – – – 1 (44) Post-employment benefit liability (85) – (3) (3) – – – – (91) Revaluation of properties to fair value (92) – 6 (9) (1) – – 2 (94) Note 13: Inventories Inventories in brief Employee benefits (other than post-employment) 34 – (2) – – – – (1) 31 Provisions 24 – 26 – – – – (1) 49 Inventories comprise drugs, prostheses, consumables and housing stock utilised in the course of our care, health and dental operations. Taxation value of losses carried forward 41 – 4 – 4 (1) – (1) 47 Goodwill and intangible assets (142) – (26) – (12) – – 2 (178) Other (7) – (12) (10) – 5 – 1 (23) Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in first-out method, or methods that Total (304) – 25 (22) (9) 4 – 3 (303) approximate this and includes costs incurred in acquiring the inventories and in bringing them to their current location and condition. Inventories relating to drugs, prostheses, consumables and housing stock were £98m (2018: £109m). There were £nil inventory write-downs made during the year (2018: £nil). The Group consumed £178m (2018: £151m) of inventories, which are recognised within other operating expenses in the Note 12: Assets arising from Assets arising from insurance business in brief Consolidated Income Statement. insurance business Financial assets arising from insurance business, excluding reinsurers’ share of insurance provisions, are held at amortised cost. The valuation of reinsurers’ share of Note 14: Trade and other Trade and other receivables in brief insurance provisions is discussed in note 19. receivables Trade and other receivables arise in the ordinary course of business.

2019 2018 Note £m £m 2019 2018 Insurance debtors (a) 1,143 1,092 Note £m £m Ceded insurance provisions (b) 24 23 Trade receivables (a) 279 249 Deferred acquisition costs (c) 160 139 Other receivables (a) 141 144 Medicare rebate (d) 73 71 Service concession receivables (b) – 69 Risk Equalisation Special Account recoveries 16 23 Prepayments (c) 100 95 Total assets arising from insurance business 1,416 1,348 Accrued income 62 13 Non-current 27 24 Investment receivables and accrued investment income 7 7 Current 1,389 1,324 Total trade and other receivables 589 577 Non-current 33 36 The above balance is stated net of provision for impairment losses. Information regarding the ageing of insurance debtors, Medicare rebate and Current 556 541 Risk Equalisation Special Account recoveries is shown in note 25.3. Trade and other receivables are carried at amortised cost net of provisions for ECLs. Trade receivables relate to consideration due from customer (a) Insurance debtors contracts. Other receivables relate to consideration due from contracts that are outside of the scope of IFRS 15 e.g. rental receivables. Information In certain jurisdictions, such as the UK and Spain, where the amount payable under an insurance contract is payable in instalments over the term, regarding the ageing of trade and other receivables is shown in note 25.3. All trade receivables and service concession receivables are classified as a debtor and corresponding unearned premium provision is established at inception for the total premiums receivable over the whole period receivables under IFRS 15, as a receivable is an entity’s right to consideration that is unconditional i.e. only the passage of time is required before of cover. payment is due. The carrying value of trade and other receivables is a reasonable approximation of fair value. (b) Reinsurers’ share of insurance provisions The recoverables due from reinsurers are shown within assets arising from insurance business and are assessed for impairment at each balance sheet date. Reinsurers’ share of insurance provisions are further analysed in note 19.

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(a) Impairment of financial assets Assets and liabilities classified as held for sale Financial assets comprise trade and other receivables and financial investments. Refer to note 9 for financial investments. 2019 2018 £m £m All receivables are measured net of lifetime ECL. Where appropriate, a provision matrix is used to estimate ECL. Assets held for sale Under a provision matrix, receivables are grouped into customer segments and further divided into categories by age. Historical credit loss Property, plant and equipment 7 3 experience and any relevant forward-looking information is then used to establish the ECL provision for each category. An analysis of ECL Investment property – 4 provisions for trade and other receivables is disclosed in note 25.3. All impairment losses are recognised in the Consolidated Income Statement Financial investments 6 – within net impairment loss on financial assets. Impairment losses on trade receivables under IFRS 9 of £8m have been recognised in the period Deferred taxation assets 1 – (2018: £7m). Inventories 4 – Trade and other receivables 42 – (b) Service concession receivables Cash and cash equivalents 218 – Previously recognised service concession receivables have been reclassified as held for sale (see note 16). Total assets classified as held for sale 278 7 (c) Prepayments Liabilities associated with assets held for sale Included within prepayments are set up costs incurred to fulfil contracts with customers. These are amortised on a straight-line basis over the Other interest bearing liabilities (18) – contract period. Lease liabilities (2) – Deferred taxation liabilities (3) – Note 15: Cash and cash Cash and cash equivalents in brief Trade and other payables (170) – Total liabilities classified as held for sale (193) – equivalents Cash and cash equivalents comprise cash balances, call deposits and other short-term highly liquid investments (including money market funds) with original maturities of Net assets classified as held for sale 85 7 three months or less which are subject to an insignificant risk of change in value. Within the Europe and Latin America segment, certain provision businesses have been classified as held for sale. Both sales are expected to be 2019 2018 completed in 2020 following the completion of due diligence and receipt of regulatory approval. £m £m Cash at bank and in hand 807 1,147 Expected sales proceeds are lower than the carrying amount of the net assets classified as held for sale and consequently a write down of £26m has been recognised in other income and charges prior to classification as held for sale (see note 2.4). Short-term deposits 427 461 Total cash and cash equivalents 1,234 1,608 Additionally, £4m in respect of a retirement village is classified as held for sale in Bupa Villages and Aged Care – New Zealand.

Bank overdrafts of £1m (2018: £1m) that are repayable on demand are reported within other interest bearing liabilities on the Consolidated Statement of Financial Position, although are considered as a component of cash and cash equivalents for the purpose of the Consolidated Note 17: Borrowings Borrowings in brief Statement of Cash Flows. The Group has various sources of funding including subordinated bonds, senior unsecured bonds and loans. Note 16: Assets and liabilities Assets and liabilities held for sale in brief Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, they are stated at amortised held for sale Non-current assets or disposal groups comprising assets and liabilities are classified cost, with any difference between the initial recognition value and redemption value being recognised in the Consolidated Income Statement as held for sale if it is highly probable that they will be recovered primarily through over the period of the borrowings on an effective interest basis. The Group uses interest rate swaps to manage its interest rate risk on certain sale rather than continuing use and a sale within twelve months is considered to be borrowings. These meet the criteria for hedge accounting as the derivative acts as a hedge against future fair value movements in the debt. Both highly probable. the hedged risk and the associated derivative are recognised at fair value, with the carrying value of borrowings being adjusted for the gain or loss on the effective element of the hedged risk. Changes in the fair value of these derivatives are recognised in financial expenses and will offset to the Classification as held for sale extent the hedging relationship is effective. 2019 2018 Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Subsequent to initial classification as held Note £m £m for sale, any impairment losses and gains or losses on remeasurement are recognised in profit or loss. Subordinated liabilities On classification as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated. Callable subordinated perpetual guaranteed bonds 336 336 Fair value adjustment in respect of hedged interest rate risk 9 21 Callable subordinated perpetual guaranteed bonds (a) 345 357 5.0% subordinated unguaranteed bonds due 2023 and 2026 (b) 900 898 Total subordinated liabilities 1,245 1,255 Other interest bearing liabilities Senior unsecured bonds (c) 695 698 Fair value adjustment in respect of hedged interest rate risk 3 (4) Bank loans and overdrafts (d) 407 357 Finance lease liabilities1 – 4 Total interest bearing liabilities 1,105 1,055

Total borrowings 2,350 2,310 Non-current 1,679 2,073 Current 671 237

1 On transition to IFRS 16, finance lease liabilities have been reclassified from other interest bearing liabilities to lease liabilities.

138 139 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Other interest Fair value of financial liabilities Subordinated liabilities bearing liabilities Total The fair value of a financial liability is defined as the amount for which a financial liability could be exchanged in an arm’s-length transaction 2019 2018 2019 2018 2019 2018 between informed and willing parties. Fair values disclosed in the table below have been calculated as follows: £m £m £m £m £m £m –– Subordinated liabilities – quoted price if available or discounted expected future principal and interest cash flows At beginning of year 1,255 1,303 1,055 1,170 2,310 2,473 Adoption of IFRS 16 Leases (note 1.5.1) – – (4) – (4) – –– Senior unsecured bonds – quoted price Business combinations – (36) 2 (21) 2 (57) –– Secured loans – quoted price. Net proceeds/(repayments) – – 83 (87) 83 (87) The fair values of quoted liabilities in active markets are based on current offer prices. The fair values of financial liabilities for which there is no Interest payments (65) (65) (22) (25) (87) (90) active market are established using valuation techniques corroborated by independent third parties. These may include reference to the current Accrued interest and amortisation 67 67 23 26 90 93 fair value of other instruments that are substantially the same and discounted cash flow analysis. Fair value adjustment in respect of hedged risk (12) (14) 7 (2) (5) (16) Transfer to liabilities associated with assets held for sale – – (18) – (18) – Financial liabilities are categorised into a three-level hierarchy. A description of the different levels is detailed in note 9 along with the market Foreign exchange – – (21) (6) (21) (6) interest rates used to discount financial liabilities, where the fair value cannot otherwise be found from quoted market values. At end of year 1,245 1,255 1,105 1,055 2,350 2,310 An analysis of borrowings by fair value classification is as follows: 2019 2018 (a) Callable subordinated perpetual guaranteed bonds Level 1 Level 2 Total Level 1 Level 2 Total In December 2004, Bupa Finance plc issued £330m of callable subordinated perpetual guaranteed bonds, which are guaranteed by Bupa £m £m £m £m £m £m Insurance Limited. Interest is payable on the bonds at 6.125% per annum. The bonds have no fixed maturity date, but a call option is exercisable Subordinated liabilities 1,279 – 1,279 1,294 – 1,294 by Bupa Finance plc to redeem the bonds on 16 September 2020. In the event of the winding up of Bupa Finance plc or Bupa Insurance Limited, Senior unsecured bonds 661 46 707 659 51 710 the claims of the bondholders are subordinated to the claims of other creditors of these companies. Bank loans – 407 407 – 357 357 The total hedged fair value of the callable subordinated perpetual guaranteed bonds, net of accrued interest, is £345m (2018: £357m). The Finance lease liabilities – – – – 4 4 valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap contracts in place to hedge Total 1,940 453 2,393 1,953 412 2,365 this risk. The Group does not have any level three financial liabilities. (b) 5.0% subordinated unguaranteed bonds due 2023 and 2026 On 25 April 2013, Bupa Finance plc issued £500m of unguaranteed subordinated bonds which mature on 25 April 2023. Interest is payable on the bonds at 5.0% per annum. In the event of the winding up of Bupa Finance plc the claims of the bondholders are subordinated to the claims of Note 18: Lease liabilities Leases in brief other creditors of that company. Leases are contracts that convey the right to use an asset for a period of time in On 8 December 2016, Bupa Finance plc issued £400m of unguaranteed subordinated bonds which mature on 8 December 2026. Interest is exchange for consideration. The majority of the Group’s leases relate to properties. payable on the bonds at 5.0% per annum. In the event of winding up of Bupa Finance plc the claims of the bondholders are subordinated to the claims of other creditors of that company. As a lessee (c) Senior unsecured bonds The Group’s leases primarily relate to hospitals, care homes, clinics and office buildings. Lease terms are negotiated on an individual basis and On 30 June 2012, Cruz Blanca Salud S.A., now Bupa Chile, issued UF1.6m (£46m) (Unidad de Fomento – an inflation-linked currency commonly contain a wide range of different terms and conditions. Property leases will often include extension and termination options, open market rent used in Chile) of inflation-linked senior unsecured bonds which mature on 30 June 2033. reviews, indexation uplifts or fixed uplifts. On 17 June 2014, Bupa Finance plc issued £350m of senior unsecured bonds, guaranteed by the Company, which mature on 17 June 2021. Interest The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using is payable on the bonds at 3.375% per annum. the individual lessee company’s incremental borrowing rate taking into account the duration of the lease. The lease liability is subsequently measured at amortised cost using the effective interest method, with the finance cost charged to profit or loss over the lease period so as to On 5 April 2017, Bupa Finance plc issued £300m of senior unsecured bonds, guaranteed by the Company, which mature on 5 April 2024. Interest produce a constant periodic rate of interest on the remaining balance of the liability. It is remeasured when there is a change in future lease is payable on the bonds at 2.0% per annum. The total hedged fair value of the £300m senior unsecured bonds, including accrued interest, is payments arising from a change in index or rate, or if the Group changes its assessment of whether it will exercise an extension or termination £302m (2018: £295m). The valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap option. The lease liability is recalculated using a revised discount rate if the lease term changes as a result of a modification or re-assessment of contracts in place to hedge this risk. an extension or termination option. (d) Bank loans and bank overdrafts The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made Bank loans are £407m (2018: £357m), which includes a portfolio of loans held in Bupa Chile totalling £137m (2018: £135m). The tri syndicated loan at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore properties to their original condition, held by a provision business in the Europe and Latin America segment of £18m (2018: £22m) is now classified under liabilities held for sale (note 16). less any lease incentives received. The right-of-use asset, excluding restorations costs, is typically depreciated on a straight-line basis over the lease terms. In addition, the right-of-use asset may be adjusted for certain remeasurements of the lease liability, such as indexation and market rent The Group maintains an £800m revolving credit facility which matures in August 2022. The facility was drawn down by £230m at 31 December review uplifts. Restoration costs included in the right-of-use asset are amortised over the same term as the corresponding provision, which may 2019 (2018: £170m). be longer than the IFRS 16 contractual lease term. The movement of the right-of-use asset is disclosed in note 4. Drawings under the £800m facility are guaranteed by the Company. The overdraft facilities are subject to cross guarantees within the Group. The Group has elected not to recognise the right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less or The bank loans and overdrafts bear interest at commercial rates linked to LIBOR, or EURIBOR, or at a commercial fixed rate. leases that are of low value (£4,000). Lease payments associated with these leases are expensed on a straight-line basis over the lease term. The £30m bilateral loan facility matured in November 2019 and was refinanced with a two year £40m bilateral loan facility, which was fully drawn down at the year end (2018: £30m).

140 141 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Lease liabilities Note 19: Provisions arising Provisions arising from insurance contracts and other liabilities 2019 £m from insurance contracts arising from insurance business in brief At the beginning of the year – and other liabilities arising The provisions arising from insurance contracts and other liabilities arising from Adoption of IFRS 16 Leases (note 1.5.1) 1,101 from insurance business insurance business arise from the Group’s underwriting activities. The provisions Additions 126 mainly relate to unearned premiums, which are deferred revenues that relate to future Remeasurement (3) periods; and claims, where an estimate is made of the expense required to settle Interest on lease liabilities 57 existing insurance contract obligations. The other liabilities primarily consist of Repayments (171) obligations to repay deposits and commissions payable. Transfer to liabilities associated with assets held for sale (2) Foreign exchange (40) 19.1 Provisions arising from insurance contracts At end of year 1,068 Non-current 951 Unearned premiums Current 117 The unearned premium provision represents premiums written that relate to periods of risk in future accounting periods. It is calculated on a straight-line basis, which is not materially different from a calculation based on the pattern of incidence of risk. See note 25.4 for maturity analysis of lease liabilities. Provision for claims Expenses The gross provision for claims represents the estimated liability arising from claims episodes in current and preceding financial years which have The Consolidated Income Statement includes expenses relating to short term leases of £1m and expenses relating to leases of low value assets of not yet given rise to claims paid. The provision includes an allowance for claims management and handling expenses. £1m for 2019. Depreciation of right-of-use assets are reported in note 4. Interest on lease liabilities are reported as financial expenses (see note 2.5). The gross provision for claims is estimated based on current information and the ultimate liability may vary as a result of subsequent information Extension options and events. Some property leases in the Group contain extension options exercisable by the lessee before the end of the non-cancellable contract period. Adjustments to the amount of claims provision for prior years are included in the Consolidated Income Statement in the financial year in which The period covered by extension options are only included in the lease term if the lessee is reasonably certain to exercise the option. At lease the change is made. In setting the provisions for claims outstanding, a best estimate is determined on an undiscounted basis and then a margin commencement an assessment is performed of whether it is reasonably certain to exercise the extension options, taking into account factors of prudence is added such that there is confidence that future claims will be met from the provisions. The level of prudence set is either one like future timing of options, economic incentives for the lessee to exercise the option or lessee’s past practice. The Group reassesses whether required by regulation or one that provides an appropriate degree of confidence. it is reasonably certain to exercise the extension option if there is a significant event or change in circumstances within its control. Provision is made for unexpired risks when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claims As at 31 December 2019, potential discounted future cash outflows of £280m have not been included in the lease liability because it is not and administrative expenses. The expected claims are calculated having regard only to contracts commencing prior to the balance sheet date. reasonably certain that the option to extend will be taken. The methods used and estimates made for claims provisions are reviewed regularly. 2019 2018 Termination options A number of lease contracts in the Group contain termination options. The period covered by termination options are only included in the lease Gross Reinsurance Net Gross Reinsurance Net £m £m £m £m £m £m term if the lessee is reasonably certain not to exercise the option. General insurance business As at 31 December 2019, potential discounted future cash outflows of £34m have not been included in the lease liability because it is not Provisions for unearned premiums 1,937 (15) 1,922 1,845 (14) 1,831 reasonably certain that the option to terminate will not be taken. Provisions for claims 865 (9) 856 875 (8) 867 Future lease commitments Long-term business The Group is committed to leases that have not yet commenced to the value of £33m at 31 December 2019. Life insurance contract liabilities 34 – 34 33 (1) 32 Variable lease payments Total insurance provisions 2,836 (24) 2,812 2,753 (23) 2,730 Some leases, predominantly of care home properties in Spain, contain variable lease payments that are based on earnings. The future potential cash flows arising from variable lease payments not included in the lease liability is estimated at £9m. Non-current 57 – 57 33 (1) 32 Current 2,779 (24) 2,755 2,720 (22) 2,698

(i) Analysis of movements in provisions for unearned premiums 2019 2018

Gross Reinsurance Net Gross Reinsurance Net £m £m £m £m £m £m At beginning of year 1,845 (14) 1,831 1,728 (10) 1,718 Additions through business combinations 114 – 114 – – – Premiums deferred 9,097 (78) 9,019 8,913 (66) 8,847 Deferred premiums released to income (9,077) 79 (8,998) (8,791) 62 (8,729) Foreign exchange (42) (2) (44) (5) – (5) At end of year 1,937 (15) 1,922 1,845 (14) 1,831

142 143 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(ii) Analysis of movements in provisions for claims 19.2 Other liabilities arising from insurance business 2019 2018 Other liabilities arising from insurance business consist of payables to insurance creditors other than policyholders. Gross Reinsurance Net Gross Reinsurance Net 2019 2018 £m £m £m £m £m £m £m £m At beginning of year 875 (8) 867 877 (7) 870 Reinsurers' deposits 6 6 Additions through business combinations 35 (1) 34 2 – 2 Reinsurance creditors 77 77 Increase for current year claims 7,381 (54) 7,327 7,020 (45) 6,975 Commissions payable 26 23 Cash paid to settle claims (7,316) 56 (7,260) (6,985) 44 (6,941) Other insurance payables 37 38 Decrease for prior year claims (62) (2) (64) (25) – (25) Total other liabilities arising from insurance business 146 144 Transfers – – – (1) – (1) Foreign exchange (48) – (48) (13) – (13) At end of year 865 (9) 856 875 (8) 867 Note 20: Provisions for Provisions for liabilities and charges in brief Assumptions for general insurance business liabilities and charges A provision is recognised when the Group is expected to make future payments as a result of a past event. The process of recognising liabilities arising from general insurance entails the estimation of future payments to settle incurred claims and associated claims handling expenses, as well as assessing whether additional provisions for unexpired risk are required. The principal assumptions in the estimation of the liability relate to the expected frequency, severity and settlement patterns of insurance claims, which are expected to be These payments can result from a legal obligation or a constructive obligation, where an expectation has been set by the Group. A provision consistent with recently observed experience and trends. The aim of claims reserving is to select assumptions and reserving methods that will is made where an outflow of resources is probable and where the payments can be reliably estimated. If the effect is material, provisions are produce the best estimate of the future cash outflows for the subject claims; it is an uncertain process which also requires judgements to be made. determined by discounting the estimated future payments at a pre-taxation rate that reflects current market assessments of the time value The resulting provisions for outstanding claims incorporate a margin for adverse deviation, over and above the best estimate liability, the quantum of money and, where appropriate, the risks specific to the liability. of which reflects the level of this uncertainty. Although provisions are made where payments can be reliably estimated, the amounts provided are based on a number of assumptions which Claims development patterns are analysed in each of the Group’s insurance entities. Where distinct sub-portfolios with different claims cost and are inherently uncertain and therefore the amount that is ultimately paid could differ from the amount recorded. development characteristics exist, further analysis is undertaken to derive assumptions for reserving that are appropriate and can be applied to Customer relatively homogeneous groups of policies. Such sub-portfolios may be defined by product line, risk profile, geography or market sector. Various Long service Deferred and remediation Property and annual contingent and legal Insurance Unoccupied restoration Regulatory established reserving methods for general insurance are considered, typically basic chain ladder, Bornhuetter-Ferguson and pure risk cost leave consideration provisions provisions property provision provisions Other Total methods. Additional consideration is given to the treatment of large claims, claim seasonality, claims inflation and currency effects, for which £m £m £m £m £m £m £m £m £m appropriate adjustments to assumptions and methods are made. At beginning of year 67 25 13 11 1 – – 61 178 While there is some diversity in the development profile of health insurance claims across the Group, such claims are generally highly predictable Acquisition through business combinations 4 12 3 – – – – – 19 in both frequency and average amount, and claims are settled quickly following the medical event for which benefit is claimed. Medical expense Interest on obligations – – – – – 1 – – 1 claims are, typically, substantially fully-settled within just a few months. Charge for year 44 10 4 7 – 23 5 9 102 Released in year – (5) (5) – (1) (1) – (4) (16) Insurance provisions are inevitably estimates. Actual experience of claims costs and/or administrative expenses may vary from that anticipated Utilised in year – cash (35) (9) (1) (7) – – (5) (34) in the reserving estimates. (91) Foreign exchange (3) (1) (1) – – – – (1) (6) The following table shows the impact on profit before tax, and consequently equity, of reasonably possible variations in assumptions used Total provisions for liabilities and charges 77 32 13 11 – 23 – 31 187 to calculate the carrying value of insurance contract liabilities at the end of the reporting period:

Increase in claims Increase in expenses Non-current 21 18 5 8 – 23 – 6 81 2019 Current 56 14 8 3 – – – 25 106 Change in variable 5% 10% Reduction in profit net of reinsurance before taxation £26m £2m Long service and annual leave 2018 (restated) The long service leave provision relates to territories where employees are legally entitled to substantial paid leave after completing a certain length Change in variable 5% 10% of qualifying service. Uncertainty around both the amount and timing of future outflows arises as a result of variations in employee retention rates, Reduction in profit net of reinsurance before taxation £20m £2m which may vary based on historical experience. The annual leave provision relates to territories where the annual entitlement of leave is not required to be taken within a predetermined time nor does it expire. Therefore, uncertainty exists around the timing of future outflows as well as Improvements to the sensitivity methodology have been made for 2019, to reflect that variances from expectations can firstly be absorbed by around the amount of future outflows due to wage inflation. profit and prudence margins in the insurance contract liabilities, prior to the total carrying value of insurance contract liabilities being affected. Comparative information has been restated accordingly. Provisions for contingent consideration These variances would reduce the amount of profit that would otherwise emerge in subsequent periods. Contingent consideration is a financial liability largely related to earn-out payable on acquisitions of dental practices in the UK, Poland and Australia, as well as business combinations in Chile. This balance is reviewed at each reporting period and any fair value adjustments are recorded The Group’s long-term insurance business does not form a core part of its operations. in the Consolidated Income Statement. Liability adequacy tests Customer remediation and legal provisions Liability adequacy tests are performed for the Group’s insurance entities. For short-duration contracts, a premium deficiency is recognised if the Customer remediation provisions relate to the costs of compensating customers for losses or damages associated with a failure to comply with sum of expected costs of future claims and claim adjustment expenses, capitalised deferred acquisition costs, and maintenance expenses exceeds regulations or to treat customers fairly. Legal provisions relate to potential and ongoing legal claims and represent the discounted fair value of total the corresponding unearned premiums while considering anticipated investment income. Such a deficiency would be immediately recognised in estimated liabilities. Due to the nature of these provisions, the timing and potential cost is uncertain. the Consolidated Income Statement.

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Insurance provisions (c) Deferred income and deferred revenue 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 The total balance of £93m includes £64m of deferred revenue under IFRS 15, related primarily to care home government funding received damage to property, business interruption and medical, employee or public liability. Any outflows relating to this provision are dependent on the in advance. The liability is released and recognised as revenue as the services are provided and the performance obligations are satisfied. frequency and value of claims submitted as well as the excess amount specified within individual policies with insurers. The fund is actuarially Significant changes in the contract liabilities balances during the period are as follows: assessed twice a year to ensure that the provision is adequate. Deferred revenue from care, health and other customer Property restoration provisions contract revenue Property restoration provisions relate to the estimate of costs to be incurred by the Group in its capacity as a lessee, when dismantling and 2019 removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms £m and conditions of the lease. Due to potential future renewals of leases, the timing and potential cost is uncertain. At beginning of year 52 Revenue recognised in the period (159) Regulatory provisions Deferred revenue in the period 173 Regulatory provisions relate to levies payable to customer protection bodies by the Group’s various regulated entities. Such levies are generally Foreign exchange (2) determined on a ‘capped percentage of revenues’ basis. Payments are normally made annually, although the frequency may be increased or At end of year 64 decreased at the discretion of the customer protection bodies. Revenue recognised in the period includes £52m of revenue that was deferred at the beginning of the year. £54m of revenue deferred at Other 31 December 2019 will be recognised during 2020 as the performance obligations are satisfied. £10m of revenue deferred at 31 December 2019 Other provisions primarily include a provision for clawbacks on NHS contracts within Bupa Dental Care UK. will be recognised over the remaining contract period.

Note 21: Trade and other Trade and other payables in brief Note 22: Entities in which the Entities in which the Group holds less than 100% equity interest Group holds less than 100% in brief payables Trade and other payables arise in the ordinary course of business. equity interest Additional information is provided for entities which are consolidated where the Group 2019 2018 does not hold a 100% interest. Note £m £m Accruals 528 635 (i) Consolidation of entities in which the Group holds less than 50% equity interest Accommodation bond liabilities (a) 555 596 Eurocredit Investment Fund 1 plc Trade payables 184 170 Other payables 215 205 Eurocredit Investment Fund is a structured entity set up for the purpose of investing in primary and secondary secured loans. Bupa is the only Occupational right agreement liabilities (b) 194 189 investor in the issued debt of the entity and is exposed to the risks and rewards of the fund. Deferred income and deferred revenue (c) 93 83 (ii) Non-controlling interests (‘NCI’) Social security and other taxes 49 45 The Group has no subsidiaries whose non-controlling interest is material on the basis of their share of equity or profit or loss. Total trade and other payables 1,818 1,923 Non-current 39 62 (iii) Equity accounted investments Current 1,779 1,861 Details of equity accounted investments, where the Group has significant influence are included in note 6. Trade and other payables (excluding deferred revenue) are carried at amortised cost. The carrying value of the trade and other payables is a reasonable approximation of the fair value. Information regarding the maturity of trade Note 23: Business Business combinations and disposals in brief payables, other payables, accommodation bond liabilities and accruals is shown in note 25.4. combinations and disposals A business combination refers to the acquisition of a controlling interest in a business, (a) Accommodation bond liabilities which is further defined as an integrated set of activities and assets that is capable of Accommodation bonds are non-interest bearing deposits paid by some residents of care homes held in Bupa Aged Care Australia as payment for being conducted and managed for the purpose of providing economic benefits to the a place in the care home facility. These deposits are repayable at any time when the resident leaves the facility and are therefore not discounted. owners. A disposal refers to the sale of a subsidiary. The bonds are recorded as the proceeds received, net of retention and any other amounts deducted at the election of the bondholder. Business combinations are accounted for using the acquisition method. Identifiable assets and liabilities acquired and contingent liabilities assumed (b) Occupational right agreement liabilities in a business combination are measured initially at their fair values at the acquisition date. Any non-controlling interests are recognised as a Occupational right agreement liabilities represent the amount payable to a resident on termination of the resident’s occupation rights to an proportionate share of the acquiree’s net identifiable assets. independent living unit in a retirement village in New Zealand. The liability varies according to the agreement with the resident. Changes in The identification and valuation of intangible assets arising on business combinations is subject to a degree of estimation and judgement. the value of the liability are recorded as an expense in the profit or loss. Residents have the right to cancel their residency agreement with the We engage independent third parties to assist with the identification and valuation process. In valuing these intangible assets, market accepted Group at any time. As such, the liability is not discounted (based on the expected date of settlement) but is recognised as a current liability in methodologies have been applied. Customer relationships are valued using methodologies such as the Multi-period Excess Earnings Method the Consolidated Statement of Financial Position. Occupational right agreement liabilities are stated net of deferred management fees and (where the value of an intangible asset is equal to the present value of the after-tax cash flows attributable only to that intangible asset). Brands amenities fees receivable. and trademarks are valued using methodologies such as the Relief from Royalty method (applying an estimated royalty rate to the projected sales relating to each asset over the economic life). The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable assets acquired is recorded as goodwill. Acquisition accounting must be completed within 12 months of the transaction date. Costs related to the acquisition are expensed as incurred.

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

(a) 2019 acquisitions (b) 2019 disposals A number of acquisitions were made in the year ended 31 December 2019, the most significant being: There were no material disposals during the year ended 31 December 2019. Date of acquisition Percentage of holdings (c) 2018 acquisitions Australia and New Zealand Dental Corporation – dental centres Various 100% Significant acquisitions during 2018 included the 70% acquisition of Ginemed, a gynaecological and reproductive medical services provider in Spain for £51m as well as the continued acquisition of dental centres in the UK for £61m and the purchase of Nectar Seguros de Salud, a Spanish Europe and Latin America health insurance company, for consideration of £36m. Full details of all acquisitions during 2018 are included in the financial statements for the year LuxMed – hospitals, clinics and dental centres Various 100% ended 31 December 2018. Acıbadem Sağlık ve Hayat Sigorta A.S. and its subsidiary Acıbadem Grubu Sigorta Aracılık Hizmetleri AŞ 17 January 2019 100% Bupa Global and UK (d) 2018 disposals Bupa Dental Care – dental centres Various 100% In December 2018, the Group completed the sale of Torrejón Salud S.A. for cash proceeds received of £54m (€61m), realising a net loss on disposal On 17 January 2019, Bupa acquired 100% of the ordinary share capital of Turkish company, Acıbadem Sağlık ve Hayat Sigorta A.S., the holding of £22m (€25m). There were no other material disposals during the year ended 31 December 2018. company of Acıbadem Grubu Sigorta Aracılık Hizmetleri AŞ (together ‘Acıbadem’), for cash consideration of £138m. Acquired intangible assets of £42m comprise key direct customer relationships and distribution channels (relationships with agents and brokers) of £34m, brand of £5m and software of £3m. The associated goodwill of £57m reflects expected future synergies from the integration of Acıbadem into the Bupa Group. Note 24: Capital management Capital management in brief During the period, Bupa Dental Care UK (formerly Oasis Dental Care) has continued to expand through the acquisition of 23 further dental centres Bupa is a company limited by guarantee, has no shareholders and is funded through for a total consideration of £83m, of which £9m is deferred and contingent. Identified intangible assets include customer relationships of £45m retained earnings and borrowings. The Group’s capital management objective is and goodwill of £40m has been recognised which represents the continued future growth expected to be achieved through the development to maintain sufficient capital to protect the interests of its customers, investors, of Bupa’s dental insurance business. regulators and trading partners while deploying capital efficiently and managing risk to enable Bupa to continue to deliver its purpose in a sustainable manner. All profits Further minor acquisitions across the Group include the acquisitions of hospitals, clinics and dental centres in Poland which generated further are therefore reinvested to develop the Group’s business for the benefit of current goodwill of £11m and the continued expansion in dental centres in Australia generating goodwill of £10m. and future customers. Acquisition transaction costs expensed in the year ended 31 December 2019, within other operating expenses, total £4m. Included in the Group Consolidated Statement of Comprehensive Income is revenue of £604m and a profit before taxation of £55m in relation The Group is subject to the requirements of the Solvency II Directive and must hold sufficient capital to cover its Group Solvency Capital to those businesses acquired in the year. If the acquisition date of the businesses acquired during the year had been 1 January 2019, revenue Requirement (‘SCR’), which takes account of all the risks in the Group, including those related to non-insurance businesses. The Group SCR is of £12,385m and a loss before taxation of £66m would have been recorded by the Group for the year ended 31 December 2019. calculated in accordance with the Standard Formula specified in the Solvency II legislation. Bupa has obtained approval from the Prudential Regulation Authority (‘PRA’) to substitute the insurance premium risk parameter in the Standard Formula with a Group Specific Parameter (‘GSP’) Fair value which reflects the Group’s own loss experience. Acıbadem Other Total £m £m £m The capital position of the Group and its main regulated insurance entities are kept under constant review and are reported quarterly to the Board. Intangible assets 42 46 88 The Group’s capital resources are managed in line with the Group Capital Management Policy. While the Group is subject to the Solvency II Property, plant and equipment 1 14 15 requirements at a consolidated level, all regulated entities within the Group maintain sufficient capital resources to meet any minimum capital Financial investments 91 – 91 requirement required by respective local regulators. In addition, the Group and individual regulated entities maintain a buffer over the regulatory Current taxation 1 – 1 minimum requirements in line with their capital risk appetites. During the year, the Group and its subsidiaries complied with all externally imposed Inventories – 1 1 capital requirements to which they were subject. The ability of the Group’s insurance subsidiaries to transfer funds to the Group is subject to local Trade and other receivables 84 4 88 solvency requirements. Cash and cash equivalents 29 3 32 The Group has target ranges for solvency, leverage and interest cover ratios with a view to maintaining an A-/A3 long-term senior credit rating for Other interest bearing liabilities – (2) (2) Bupa Finance plc. The Bupa Group as a whole is not rated by any rating agency. Individual debt issues and certain subsidiaries within the Group Provisions arising from insurance contracts (149) – (149) have public ratings. Provisions for liabilities and charges (6) (1) (7) At least annually, the Group carries out an Economic Capital Assessment (‘ECA’) in which it makes its own quantification of how much capital is Deferred taxation liabilities (5) (9) (14) required to support its risks. The ECA is used to assess how well the Standard Formula SCR reflects the Group’s actual risk profile. Trade and other payables (3) (7) (10) Other liabilities arising from insurance business (4) – (4) The ECA forms part of the Own Risk and Solvency Assessment (‘ORSA’) which comprises all the activities by which the Group establishes the level Net assets acquired 81 49 130 of capital required to meet its solvency needs over the planning period given the Group’s strategy and risk appetite. The conclusions from these activities are summarised in the ORSA report which is reviewed by the Risk Committee, approved by the Board and submitted to the PRA at least Net assets acquired 81 49 130 annually. Goodwill 57 61 118 The Group’s eligible Own Funds include the Group IFRS net assets (£7,009m) valued on a Solvency II basis, together with eligible subordinated Consideration 138 110 248 liabilities, subject to adjustments for non-available assets and non-controlling interests. Consideration satisfied by: At 31 December 2019, the Group’s eligible Own Funds, determined in accordance with the Solvency II valuation rules, were £3.9bn1 (2018: £3.9bn), Cash 138 98 236 which was in excess of the Group estimated SCR of £2.4bn1 (2018: £2.1bn). This represented a solvency coverage ratio of 159%1 (2018: 191%). Deferred and contingent consideration – 12 12 1. The Solvency II Capital Position (eligible Own Funds, SCR and coverage ratio) is estimated and unaudited. Total consideration paid 138 110 248

Purchase consideration settled in cash 138 98 236 Acquisition of non-controlling interest in subsidiary – 2 2 Cash acquired on acquisition (29) (3) (32) Net cash outflow on acquisition 109 97 206 Settlement of deferred and contingent consideration – 9 9 Net cash outflow associated with acquisitions 109 106 215

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Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 25: Risk management Risk management in brief Generally, the Group’s health insurance contracts provide for the reimbursement of incurred medical expenses, typically in-hospital for treatment related to acute, rather than chronic, medical conditions. The contracts do not provide for capital sums or indemnified amounts. Therefore, claims The Bupa Risk Committee has responsibility to the Board for the oversight of risk. experience is underpinned by prevailing rates of illness events giving rise to hospitalisations. Claims risk is generally mitigated by having processes It recommends to the Board a risk appetite that reflects Bupa’s purpose and expresses to ensure that both the treatments and the resulting reimbursements are appropriate. the degree of risk Bupa should accept in delivering on its strategy. (iv) Reserving risk Bupa operates a ‘three lines of defence’ approach to the governance of risk management. Reserving risk is the risk that provisions made for claims prove to be insufficient in light of later events and claims experience. There is a relatively 1. Business management and employees are responsible for the identification and assessment of risks and controls. low exposure to reserving risk compared with underwriting risk due to the very short-term nature of our claims development patterns. The short-term nature of the Group’s general insurance contracts means that movements in claims development assumptions are generally not 2. Risk, compliance and clinical governance functions provide support and challenge the completeness and accuracy of risk assessments and the significant. The development claims settlement patterns are kept under constant review to maintain the validity of the assumptions and, hence, the adequacy of mitigation plans. validity of the estimation of recognised general insurance liabilities. 3. Internal Audit provides independent and objective assurance on the robustness of the risk management framework, and the appropriateness The amount of claims provision at any given time that relates to potential claims payments that have not been resolved within one year is relatively and effectiveness of internal controls. small in the context of the Group. The small provisions that relate to longer than one year can be calculated with reasonable confidence. The operations of the risk management framework and current principal risks of the Group and how they are mitigated are described on pages 37 (v) Other risks related to underwriting health insurance business to 41. Claims provisions are not discounted and their short-term nature means that changes in interest rates have no impact on reserving risk. In addition, The Group has adopted a risk management strategy that endeavours to mitigate these risks, which is approved by the Board. In managing these the future premium income and claims outflows of health insurance premium liabilities are largely unaffected by changes in interest rates. However, exposures, the Corporate Finance Executive Committee reviews and recommends changes to the management of insurance and investment risks. changes to inflationary factors such as wage inflation and medical cost inflation affect the value of future claims outflows. The Group has exposure to a number of risks associated with its insurance business and from its use of financial instruments. These have been None of the Group’s general insurance contracts contain embedded derivatives so the contracts do not give rise to interest rate risk. categorised into the following types of risk, and details of the nature, extent, and how the Group has managed these risks is described below: The Group is exposed to foreign currency risk through some of the insurance liabilities which are settled in a local currency. Where possible these –– Insurance risk liabilities are matched to assets in the relevant currency to hedge this exposure. –– Market risk The majority of the Group’s general insurance activities are single line health portfolios. Even though only one line of business is involved, the Group –– Credit risk does not have significant concentration of insurance risk for the following reasons: –– Liquidity risk –– broad geographical diversity across several markets – across the UK, Spain, Australia, Latin America, Turkey, the Middle East and Hong Kong –– product diversity between domestic and expatriate, and individual and corporate health insurance 25.1 Insurance risk –– a variety of claims type exposures across diverse medical providers: consultants, clinics, individual hospitals and hospital groups. Insurance risk only affects the insurance entities in the Group. It consists of underwriting and pricing risks which relate to the potential inadequacy The Group as a whole, and its principal general insurance entities, are well diversified in respect of insurance risk. Only in selected circumstances of insurance premiums, as well as reserving risk which relates to the potential inadequacy of claims provisions. does the Group use reinsurance. The reinsurance used does not give rise to a material counterparty default credit risk exposure for the Group. Restrictions are in place on the credit quality and amount of reinsurance ceded to individual counterparties. (i) Underwriting risk Underwriting risk refers to the potential deviation from the actuarial assumptions used for setting insurance premium rates which could lead to (vi) Catastrophe risk premium inadequacy. Underwriting risk is therefore concerned with both the setting of adequate premium rates (pricing risk) and the A natural disaster or a manmade disaster could potentially lead to a larger than expected number of claims being received over a short period of management of claims (claims risk) for insurance policies underwritten by the Group. time, resulting in higher than expected claims costs. In the majority of jurisdictions Bupa is not contractually liable for such claims. Risks are further reduced by excess of loss insurance by third party insurers. Bupa’s Group Actuarial function oversees and implements strategic improvements to (ii) Pricing risk ensure overall adequacy of these arrangements. Pricing risk relates to the setting of adequate premium rates taking into consideration the volume and characteristics of the insurance policies issued. External influences on pricing risk include (but are not limited to) competitors’ pricing and product design initiatives, and regulatory environments. The level of influence from these external factors can vary significantly between regions and largely depend on the maturity of 25.2 Market risk health insurance markets and the role of the regulator. Actuarial analysis performed on a regular basis combined with an understanding of local 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 market dynamics and the ability to change insurance premium rates when necessary are effective risk mitigations. interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the Group’s long-term financial strategy is In every general insurer in the Group, the dominant product or policy category is an annually renewable health insurance contract. This permits to facilitate growth without undue balance sheet risk. insurance premium rate revisions to respond quickly to changes in customer risk profiles, claims experience and market considerations. In order to reduce the risk of assets being insufficient to meet future policyholder obligations, the Group actively manages assets using an The ability to review premium rates is a significant mitigant to pricing risk. The Group does not underwrite material general insurance business that approach that balances duration, quality, diversification, liquidity and investment return. commits it to cover risks at premiums fixed beyond a 12-month period from inception or renewal. The Group invests in a limited portfolio of return-seeking assets (principally bonds and loans) via our regulated entities in the UK and Australia. These assets totaled £490m as at 31 December 2019 (2018: £452m). These entities use value at risk analysis (‘VaR’) to quantify risk, taking account (iii) Claims risk of asset volatility and correlation between asset classes. Claims risk is the risk of claims exceeding the amounts assumed in the premium rates. This can be driven by an adverse fluctuation in the amount and incidence of claims incurred and external factors such as medical inflation. In addition to local VaR analysis, the Group’s overall cash and investment portfolio is managed by limiting the contribution of the combined investment risk charge to a maximum percentage of the Group’s solvency capital requirement (‘SCR’). Claims risk is managed and controlled by means of pre-authorisation of claims, outpatient benefit limits, the use of consultant networks and agreed networks of hospitals and charges. Specific claims management processes vary across the Group depending on local requirements, market environment and practice. Adverse claims experience, for example, which is caused by external factors such as medical inflation, will affect cash flows after the date of the financial statements. Recent adverse claims experience is reflected in these financial statements in claims paid and in the movement in the claims provisions.

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25.2.1 Foreign exchange risk (b) Cash flow hedges The Group is exposed to foreign exchange risks arising from commercial transactions and from recognising assets, liabilities and investments in Where a derivative financial instrument hedges the change in cash flows related to a recognised asset or liability, a firm commitment or a highly 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 probable forecast transaction, it is accounted for as a cash flow hedge. profits may be impacted by movements in foreign exchange rates. The latter arises from translating the financial statements of a foreign operation The effectiveness of a cash flow hedge is the degree to which the cash flows attributable to a hedged risk are offset by changes in the cash flows into the Group’s functional currency. of the hedging instrument. The effective portion of any gain or loss on the hedging instrument is recognised directly in other comprehensive The results and financial position of the Group’s foreign entities that do not have a functional currency of sterling are translated into sterling as income until the forecast transaction occurs e.g. when a hedged interest payment is recognised in the Income Statement, the related hedging gain follows: or loss is also recycled to the Consolidated Income Statement, and when a hedged business combination is recognised, the hedging gain or loss is also recycled to goodwill in the Consolidated Statement of Financial Position. The ineffective portion of the gain or loss is always recognised in the –– assets and liabilities at the exchange rate at the balance sheet date Consolidated Income Statement. –– income and expenses at average rates for the period. If the hedged cash flow is no longer expected to take place, all deferred gains and losses are released to the Consolidated Income Statement All foreign exchange differences arising on translation are recognised initially in the Consolidated Statement of Comprehensive Income, and are immediately. If the hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative only subsequently reclassified to the Consolidated Income Statement in the period in which the entity is eventually disposed. gain or loss at that point remains in other comprehensive income and is recognised in accordance with the above policy when the transaction occurs. Foreign currency transactions in the Group’s subsidiary companies are measured using the functional currency of the subsidiary company, which is based on the primary economic environment in which the subsidiary operates. The transactions are translated into the functional currency at the The impact of cash flow hedging activity is set out below. exchange rate ruling at the date of the transaction. 2019 2018 £m £m Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate ruling at the Notional amounts – (95) balance sheet date; the resulting foreign exchange gain or loss is recognised in operating expenses, except where the gain or loss arises on financial Carrying amount – Assets – – assets or liabilities, when it is presented in financial income or financial expense as appropriate. Carrying amount – Liabilities – (1) Non-monetary assets and liabilities denominated in a foreign currency at historical cost are translated using the exchange rate at the date of the Financial statement line item Derivatives Derivatives transaction; therefore, no exchange differences arise. Change in value used for calculating hedge ineffectiveness – (1) Non-monetary assets and liabilities denominated in a foreign currency at fair value are translated using the exchange rate ruling at the date that Hedging loss recognised in other comprehensive income – (1) the fair value was determined. Transactional foreign exchange differences are recognised in operating expenses. Hedge effectiveness recognised in profit or loss – – Transactional exposures arise as a result of differences between the currency of local revenues and claims. The currency exposures are deemed to Income statement line item (for ineffectiveness) Financial Financial expense expense be acceptable but are kept under review by management. Amount reclassified from cash flow hedge reserve 1 – The following significant exchange rates applied during the year: Financial statement line item (for reclassifications) Financial Average rate Closing rate Goodwill expense Change in value used for calculating hedge ineffectiveness 1 (1) 2019 2018 2019 2018 Amounts in reserves for continuing hedges – (1) Australian dollar 1.8366 1.7860 1.8865 1.8097 Brazilian real 5.0339 4.8674 5.3216 4.9461 In 2018, foreign currency swap contracts of USD120m (£95m) were entered into to hedge the cash outflows in relation to the acquisition of Bupa Chilean peso 898.4664 855.7769 995.5442 884.3577 Acıbadem Sigorta, completed in 2019. Danish krone 8.5154 8.4245 8.8196 8.3107 At 31 December 2019, the cash flow hedge reserve amounts to £21m (2018: £20m). Euro 1.1399 1.1303 1.1803 1.1131 Hong Kong dollar 10.0032 10.4642 10.3124 9.9831 (c) Net investment hedging Mexican peso 24.5752 25.6624 25.0303 25.0650 The Group applies hedge accounting to its foreign currency exposure on a net investment basis. By designating opposing instruments in the same New Zealand dollar 1.9379 1.9289 1.9664 1.8990 currency, the net exposure to currency fluctuations is reported. The Group uses foreign currency forward and swap contracts, and foreign Polish zloty 4.9004 4.8162 5.0221 4.7743 currency borrowings to hedge its net investment foreign exchange risk. Turkish lira 7.2492 6.4365 7.8782 6.7417 These hedging relationships are documented and tested as required by IFRS 9. All foreign currency forward contracts and collar options are US dollar 1.2767 1.3351 1.3240 1.2746 accounted for on a fair value basis. The Group hedges significant exposures in order to manage translation risk and reduce the Solvency II foreign currency risk charge. Foreign exchange hedging activities The Group manages its exposure to foreign exchange risk by entering into hedging transactions using derivative financial instruments. The Group applies fair value, cash flow and net investment hedge accounting. The hedging relationship between a hedging instrument and a hedged item is formally documented. Documentation includes the risk management objectives and the strategy in undertaking the hedge transaction.

(a) Fair value hedges Where a derivative financial instrument hedges the change in fair value of a recognised asset or liability or an unrecognised firm commitment, any gain or loss on remeasurement of the hedging instrument at fair value is recognised in the Consolidated Income Statement. The hedged item is fair valued for the hedged risk with any adjustment being recognised in the Consolidated Income Statement.

152 153 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Effect of foreign exchange hedging transactions The impact of a hypothetical strengthening/weakening of sterling against the currencies below, with all other variables constant, would have The impact of net investment currency hedging activity is set out below. increased/(decreased) equity and profit by the amounts shown below. These tables consider both translation and transaction risk. 2019 2018 Strengthening 10% Weakening 10% £m £m Gains/(losses) included in Gains/(losses) included in Notional amounts 1,202 1,488 Consolidated Income Gains/(losses) Consolidated Income Gains/(losses) Statement Included in Equity Statement included in Equity Carrying amount – Assets 28 7 £m £m £m £m Carrying amount – Liabilities (6) (20) 2019 Financial statement line item Derivatives Derivatives Australian dollar (2) (172) 2 210 Change in value used for calculating hedge ineffectiveness 51 1 Euro 10 (21) (12) 25 Hedging gains recognised in other comprehensive income 51 1 New Zealand dollar 1 (24) (1) 29 Hedge effectiveness recognised in profit or loss – – Polish zloty 2 (45) (2) 54 Income statement line item (for ineffectiveness) Financial Financial Chilean peso (4) (36) 5 44 expense expense Hong Kong dollar 1 (32) (2) 39 Amount reclassified from foreign currency translation reserve to the Consolidated Income Statement – – US dollar (1) 16 1 (20) Income statement line item (for reclassifications) Financial Financial expense expense Brazilian real 2 (10) (2) 12 Change in value used for calculating hedge ineffectiveness 51 1 Singapore dollar – (6) 1 8 Amounts in reserves for continuing hedges 22 1 Turkish lira 3 (14) (4) 17 Amounts in reserves for discontinued hedges 29 – Other 1 (5) (2) 8 Total sensitivity 13 (349) (16) 426 In the consolidated financial statements, where a loan between Group entities results in an exchange gain or loss, then it is recognised in the Consolidated Statement of Comprehensive Income to the extent that it relates to the Group’s net investment in overseas operations. Strengthening 10% Weakening 10% Gains/(losses) included in Gains/(losses) included in The Group has exposure to foreign exchange risk arising from its overseas operations. Currency exposures as at 31 December are as follows: Consolidated Income Gains/(losses) Consolidated Income Gains/(losses) Statement Included in Equity Statement included in Equity Net currency exposure £m £m £m £m Net currency exposure Currency contracts including hedges £m £m £m 2018 2019 Australian dollar (22) (181) 27 222 Australian dollar 2,319 (426) 1,893 Euro (12) (21) 14 26 Euro 857 (629) 228 New Zealand dollar 1 (23) (1) 28 New Zealand dollar 504 (240) 264 Polish zloty (1) (45) 2 55 Polish zloty 490 – 490 Chilean peso 2 (43) (2) 52 Chilean peso 395 – 395 Hong Kong dollar (2) (35) 2 43 Hong Kong dollar 310 38 348 US dollar 3 1 (4) (1) US dollar 303 (482) (179) Brazilian real (1) (10) 1 12 Brazilian real 110 (4) 106 Singapore dollar – (6) – 7 Singapore dollar 35 33 68 Bahraini dinar – (1) – 1 Turkish lira 30 120 150 Other (1) (11) 1 14 Other (26) 100 74 Total sensitivity (33) (375) 40 459 Total foreign denominated net assets 5,327 (1,490) 3,837 Percentage of Group net assets 76% 55% 25.2.2 Interest rate risk Net currency exposure Net currency exposure Currency contracts including hedges 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. £m £m £m The Group is exposed to interest rate risk arising from fluctuations in market rates. This affects the return on variable rate assets, the cost of variable 2018 rate liabilities and the balance sheet value of its investment in fixed rate bonds. Variable rate assets represent a natural hedge for variable rate Australian dollar 2,607 (610) 1,997 liabilities. Euro 875 (644) 231 The net balance on which the Group is exposed as at 31 December 2019 was £2,318m (2018: £2,710m). The rate at which maturing deposits are New Zealand dollar 504 (252) 252 reinvested represents a significant potential risk to the Group, in currencies such as sterling and Australian dollar where the Group has a significant Polish zloty 493 – 493 variable rate net asset exposure. Chilean peso 467 – 467 Hong Kong dollar 347 39 386 The Group has also used interest rate swaps to manage interest rate exposure whereby the requirement to settle interest at fixed rates has been US dollar 204 (216) (12) swapped for variable rates. This increases the ability to match variable rate assets with variable rate liabilities. Brazilian real 105 3 108 Singapore dollar 33 35 68 Bahraini dinar 12 – 12 Other 6 121 127 Total foreign denominated net assets 5,653 (1,524) 4,129 Percentage of Group net assets 75% 55%

154 155 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

The anticipated repayment profile of interest bearing financial liabilities is as follows: 25.3 Credit risk Variable Fixed Total Credit risk is the risk that those that are in debt to the Group default on their obligation. Examples of credit risk would be non-payment of a trade £m £m £m receivable or a corporate bond failing to repay the capital sum and related interest. 2019 2020 (622) (49) (671) Investment exposure with external counterparties is managed by ensuring that there is a sufficient spread of investments and that all cash and 2021 (2) (350) (352) investment counterparties are rated at least A by two of the three key rating agencies used by the Group (unless specifically approved by the 2022 (3) (1) (4) Corporate Finance Executive Committee, for example as a result of local regulatory requirements). 2023 (4) (504) (508) The investment profile (including financial investments, restricted assets and cash and cash equivalents) at 31 December is as follows: 2024 (306) (6) (312) 2019 2018 2025-2029 (32) (421) (453) £m £m After 2029 (28) (22) (50) Investment grade counterparties 3,286 3,746 Total (997) (1,353) (2,350) Non-investment grade counterparties 396 319 Total 3,682 4,065 Variable Fixed Total £m £m £m Investment grade counterparties include restricted assets of £117m (2018: £107m). Non-investment grade counterparties are those rated below 2018 BBB-/Baa3, and mainly comprise corporate bonds, government bonds and pooled investment funds of £290m (2018: £210m), and cash and cash 2019 (228) (25) (253) equivalents of £69m (2018: £92m). 2020 (358) (4) (362) 2021 (8) (350) (358) Assets pledged as security include £117m (2018: £107m) of cash held in restricted access deposits. 2022 (10) (2) (12) Information regarding the credit risk exposure for financial assets held at amortised cost is provided below: 2023 (7) (504) (511) Corporate debt Deposits with 2024-2028 (327) (424) (751) Government securities and credit Restricted Cash and cash After 2028 (37) (26) (63) debt securities secured loans institutions Other loans Assets Equivalents £m £m £m £m £m £m Total (975) (1,335) (2,310) 2019 Variable loans are repriced at intervals of between one and six months. Interest is settled on all loans in line with agreements and is settled at least AAA 72 178 – – – 3 annually. AA- to AA+ – 269 311 – 117 643 The impact of a hypothetical rise of 100 bps in interest rates at the reporting date, on an annualised basis, would have increased equity and profit A- to A+ 20 152 540 – – 467 by £2m (2018: £9m). The impact of a fall of 100 bps in interest rates, on an annualised basis, would have the inverse effect. This calculation is based BBB to BBB+ – 15 6 – – 52 on the assumption that all other variables, in particular foreign exchange rates, remain constant. BBB- and below (below investment grade) 38 14 9 1 – 69 Total 130 628 866 1 117 1,234 Interest rate hedging activities Loss Allowance (1) (1) (1) – – – The Group applies fair value hedges and cash flow hedges to hedge its exposure to interest rate risk. Carrying amount 129 627 865 1 117 1,234

Interest rate swaps totalling £630m have been entered into to swap the fixed rate coupon on the £330m callable subordinated perpetual Corporate debt guaranteed bonds and the £300m senior unsecured bonds to a variable rate. These interest rate swaps are designated as fair value hedges of the Government securities and Deposits with Restricted Cash and cash debt securities secured loans credit institutions Other loans Assets Equivalents underlying interest rate risk on the debt. In the year ended 31 December 2019, the fair value movement in the bonds attributable to the hedged risk £m £m £m £m £m £m amounted to £5m gain (2018: £17m gain). The fair value movement on the interest rate swaps amounted to £5m loss (2018: £17m loss). 2018 The impact of fair value hedging of interest rate risk is detailed below: AAA 58 164 – – – 13 AA- to AA+ 27 317 341 – 107 871 (i) Fair value hedges A- to A+ 64 275 436 – – 582 2018 2019 BBB to BBB+ – 12 5 – – 108 £m £m BBB- and below (below investment grade) 35 11 24 1 – 35 Notional amounts 630 630 Total 184 779 806 1 107 1,609 Carrying amount – Assets 12 21 Loss allowance (1) – (1) – – (1) Carrying amount – Liabilities – (7) Carrying amount 183 779 805 1 107 1,608 Financial statement line item Derivatives Derivatives Change in value used for calculating hedge ineffectiveness (5) (17)

2019 2018 £m £m Carrying amount – Liabilities (630) (630) Accumulated hedge adjustments included in the carrying amount of the hedged item (12) – Financial statement line item Borrowings Borrowings Change in value used for calculating hedge ineffectiveness 5 17

156 157 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Information regarding the ageing and impairment of financial and insurance assets is shown below. Offsetting financial assets and financial liabilities 0-3 3-6 6 months – Greater than Total carrying The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements: Not past due months months 1 year 1 year value £m £m £m £m £m £m Gross amounts Related amounts not set off 2019 of recognised Net amounts in the balance sheet financial of financial Insurance debtors gross value 1,075 107 32 19 17 1,250 Gross amounts liabilities set assets/liabilities Bad debt provision – (6) (1) (5) (6) (18) of recognised off in the presented in the Financial Cash collateral 1 financial assets balance sheet balance sheet instruments received Net amount Insurance debtors net value 1,075 101 31 14 11 1,232 2019 £m £m £m £m £m £m Trade and other receivables gross value 263 121 30 52 62 528 Derivative financial assets 59 – 59 (15) (1) 43 ECL (2) (2) (1) (3) (38) (46) Derivative financial liabilities (34) – (34) 15 10 (9) 2 Trade and other receivables net value 261 119 29 49 24 482 Cash and cash equivalents 1,474 (240) 1,234 – – 1,234 1. Comprises insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in note 12. Trade and other receivables 589 – 589 – (10) 579 2. Comprises trade receivables, other receivables, service concession receivables and accrued income detailed in note 14. Trade and other payables (1,818) – (1,818) – 1 (1,817) 0-3 3-6 6 months – Greater than Total carrying Total 270 (240) 30 – – 30 Not past due months months 1 year 1 year value £m £m £m £m £m £m 2018 Related amounts not set off in the balance sheet Insurance debtors gross value 995 156 23 20 9 1,203 Gross amounts Bad debt provision – (7) (2) (4) (4) (17) of recognised Net amounts Insurance debtors net value1 995 149 21 16 5 1,186 financial of financial Gross amounts liabilities set assets/liabilities Trade and other receivables gross value 183 156 65 39 73 516 of recognised off in the presented in the Financial Cash collateral ECL (6) (3) (1) (3) (28) (41) financial assets balance sheet balance sheet instruments received Net amount 2018 £m £m £m £m £m £m Trade and other receivables net value2 177 153 64 36 45 475 Derivative financial assets 28 – 28 (17) – 11 1. Comprises insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in note 12. Derivative financial liabilities (47) – (47) 17 17 (13) 2. Comprises trade receivables, other receivables and service concession receivables detailed in note 14. Cash and cash equivalents 2,175 (567) 1,608 – – 1,608 Trade and other receivables 577 – 577 – (17) 560 Information regarding the Expected Credit Loss allowance by class of financial investments at amortised cost is shown below: Trade and other payables (1,923) – (1,923) – – (1,923) Corporate debt Total 810 (567) 243 – – 243 Government debt securities and Deposits with Trade and other Other insurance Cash and cash 1 2 securities secured loans credit institutions Other loans receivables debtors Restricted assets equivalents The Group also mitigates credit risk in derivative contracts by entering into collateral agreements where appropriate. The amount of collateral Bad debt received or posted is shown in the table above. Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL Gross provision Gross ECL Gross ECL 2019 £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement At beginning of year 184 (1) 779 – 806 (1) 1 – 516 (41) 1,203 (17) 107 – 1,609 (1) between the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities where both elect to settle on a net Recognition and basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis; however, each party to the master netting settlement (49) – (134) (1) 88 – – – 115 (9) 80 (2) 10 – (86) 1 agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Write offs – – – – – – – – (32) – – – – – – – Transfer to assets held for sale – – – – (6) – – – (42) – – – – – (218) – Foreign exchange and other (5) – (17) – (22) – – – (29) 4 (33) 1 – – (71) – At end of year 130 (1) 628 (1) 866 (1) 1 – 528 (46) 1,250 (18) 117 – 1,234 –

1. Comprises trade receivables, other receivables, service concession receivables and accrued income detailed in note 14. 2. Comprises insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in note 12.

Corporate debt Government debt securities and Deposits with Trade and other Other insurance Cash and cash securities secured loans credit institutions Other loans receivables1 debtors2 Restricted assets equivalents Bad debt Gross ECL Gross ECL Gross ECL Gross ECL Gross ECL Gross provision Gross ECL Gross ECL 2018 £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m At beginning of year 99 (1) 284 – 887 (1) 1 – 680 (37) 1,110 (15) 76 – 1,521 – Recognition and settlement 82 – 488 – (65) – – – (155) (5) 82 (2) 31 – 90 (1) Write offs – – – – – – – – (2) – – – – – – – Foreign exchange and other 3 – 7 – (16) – – – (7) 1 11 – – – (2) – At end of year 184 (1) 779 – 806 (1) 1 – 516 (41) 1,203 (17) 107 – 1,609 (1)

1. Comprises trade receivables, other receivables, service concession receivables and accrued income detailed in note 14. 2. Comprises insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in note 12. The Group additionally recognised a provision for expected credit losses on its financial investments at FVOCI to the amount of £3m in 2019.

158 159 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

25.4 Liquidity risk Maturity profile of financial assets Liquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due. The maturity profile of financial assets (excluding ECLs) as at 31 December, which are available to fund the repayment of liabilities as they crystallise, is as follows: The Group’s main source of short-term funding is via an £800m revolving credit facility which was drawn down by £230m (2018: £170m) at Deposits Corporate debt Pooled 31 December 2019. This facility matures in 2022. Cash and cash with credit Government securities and investment equivalents institutions debt securities other loans funds Total The Group monitors funding risk as well as compliance with existing financial covenants within the banking arrangements. There were no concerns £m £m £m £m £m £m regarding bank covenant coverage in 2019 and that position is not expected to change in the foreseeable future. 2019 The Group holds a strong liquidity position and adheres to strict liquidity management policies as set by the Bupa Risk Committee as well as 2020 1,234 781 180 386 220 2,801 adhering to liquidity parameters for the Group’s regulated entities. Regular stress testing is conducted to assess liquidity risk. 2021 – 86 21 182 – 289 The contractual maturities of financial liabilities and the expected maturities of insurance liabilities including estimated interest payments of the 2022 – – 3 158 – 161 Group as at 31 December are as follows: 2023 – – 2 117 – 119 2024 – – 6 52 – 58 Other Other Provisions liabilities 2025-2029 – – 10 92 – 102 interest arising from arising from Trade and After 2029 – – 12 26 – 38 Subordinated bearing Lease insurance insurance other Derivative liabilities liabilities liabilities contracts business payables1 liabilities Total Total 1,234 867 234 1,013 220 3,568 £m £m £m £m £m £m £m £m Deposits Corporate debt Pooled 2019 Cash and cash with credit Government securities and investment 2020 (395) (339) (157) (2,779) (146) (1,645) (34) (5,495) equivalents institutions debt securities other loans funds1 Total £m £m £m £m £m £m 2021 (45) (364) (151) (57) – (15) – (632) 2018 2022 (45) (11) (141) – – (8) – (205) 2019 1,609 683 156 432 195 3,075 2023 (533) (16) (129) – – (5) – (683) 2020 – 123 8 134 – 265 2024 (20) (314) (113) – – (1) – (448) 2021 – – 1 288 – 289 2025-2029 (440) (57) (421) – – (2) – (920) 2022 – – 1 57 – 58 After 2029 – (48) (342) – – – – (390) 2023 – – – 147 – 147 Total (1,478) (1,149) (1,454) (2,836) (146) (1,676) (34) (8,773) 2024-2028 – 4 62 41 – 107 Carrying value in the Consolidated Statement of Financial Position (1,245) (1,105) (1,068) (2,836) (146) (1,676) (34) (8,110) After 2028 – – – 20 – 20 1,609 810 228 1,119 195 3,961 Other Total Other Provisions liabilities interest arising from arising from Trade and 1. Pooled investment funds maturity has been restated to reflect that it is payable on demand. Subordinated bearing Lease insurance insurance other Derivative liabilities liabilities liabilities contracts business payables1 liabilities Total £m £m £m £m £m £m £m £m 2018 2019 (65) (260) – (2,720) (144) (1,258) (28) (4,475) 2020 (395) (29) – (33) – (180) (4) (641) 2021 (45) (377) – – – (163) – (585) 2022 (45) (18) – – – (137) – (200) 2023 (545) (19) – – – (12) (15) (591) 2024-2028 (460) (363) – – – (40) – (863) After 2028 – (63) – – – (5) – (68) Total (1,555) (1,129) – (2,753) (144) (1,795) (47) (7,423) Carrying value in the Consolidated Statement of Financial Position (1,255) (1,055) – (2,753) (144) (1,795) (47) (7,049)

1. Comprises trade payables, other payables, occupational rights agreement liabilities, accommodation bond liabilities and accruals detailed in note 21. Interest payments are included in the cash flows for subordinated liabilities and other interest bearing liabilities.

160 161 Bupa Annual Report 2019

Notes to the Consolidated Financial Statements for the year ended 31 December 2019 continued

Note 26: Related party Related party transactions in brief transactions These are transactions between the Group and related individuals or entities by nature of influence or control. The Group has such relationships with its key management personnel, equity accounted investments and associated pension arrangements. The disclosure of transactions with these parties in this note enables readers to form a view of the impact of related party relationships on the Group.

All transactions with related parties are conducted on an arm’s-length basis. Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, provision for expected claims is made on an incurred basis. There were no material transactions during the year with any related parties, as defined by IAS 24 Related Party Disclosures, other than those disclosed in this note.

(i) Transactions with key management personnel The key management personnel are the Group’s Directors and the Chief Executive Officers of the Group’s Market Units. No Director had any material interest in any contracts with Group companies at 31 December 2019 (2018: £nil) or at any time during the year. The remuneration of the Group’s Directors is disclosed in note 2.3. The total remuneration of the Market Unit Chief Executive Officers is as follows: 2019 2018 £’000 £’000 Short-term employee benefits 5,028 4,277 Long Term Incentive Plan awards 2,658 383 Post-employment benefits 91 – Total 7,777 4,660

The total remuneration of key management personnel is included in staff costs (see note 2.3).

(ii) Transactions in relation to the non-registered pension arrangements The Company has made pension commitments to certain current and former Executive Directors and key management personnel through a non-registered pension arrangement which mirrors the terms of The Bupa Pension Scheme (see note 7). These unfunded benefits are governed by The Law Debenture Pension Trust Corporation Plc which is the trustee of the non-registered pension arrangement and is secured by a charge over £44m (2018: £42m) of cash deposits (see note 8).

Note 27: Commitments and Commitments and contingencies in brief contingencies A commitment is future expenditure that is committed to as at 31 December 2019. These relate to contracted capital expenditure. Contingent liabilities are those that are considered possible at year end, whose existence will be determined by an uncertain future event or, a present obligation that is not sufficiently probable or cannot currently be measured with sufficient reliability to give rise to a provision.

(i) Capital commitments Capital expenditure for the Group contracted at 31 December 2019 but for which no provision has been made in the financial statements, amounted to £268m (2018: £176m) related to aged care facility and retirement village project commitments in Australia and New Zealand and care homes in the UK. £96m (2018: £66m) related to property, plant and equipment, £172m (2018: £109m) related to investment property and £nil (2018: £1m) related to intangible capital expenditure.

(ii) Contingent assets and liabilities The Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, disputes, regulatory compliance (including data protection) and interpretation of tax law. It is not considered that the ultimate outcome of any contingent liabilities will have a significant adverse impact on the financial condition of the Group. In April 2019 the European Commission published its state aid decision on the Group Financing Exemption in the UKs controlled foreign company tax legislation. Between 2013 and 2016 Bupa had arrangements that may be impacted by this decision, like many other multinational groups who acted in accordance with the UK law in force at the time. The UK government has appealed against the decision to the European Union’s General Court. The final outcome remains uncertain and the Group has assessed that no provision is required. The maximum potential tax liability is £17m.

162 Strategic Report / Governance / Financial Statements

Financial Statements of the Company

Statement of Financial Position as at 31 December 2019 2019 2018 Note £m £m Intangible assets A 83 65 Property, plant and equipment B 27 19 Investment in subsidiaries C 200 200 Post-employment benefit net assets D 648 599 Trade and other receivables E 162 115 Current taxation assets 26 24 Cash and cash equivalents – 55 Total assets 1,146 1,077

Lease liability F (6) – Post-employment benefit net liabilities D (55) (52) Provisions for liabilities and charges G (11) (12) Deferred taxation liabilities H (93) (84) Trade and other payables I (232) (263) Total liabilities (397) (411)

Net assets 749 666

Equity Income and expenditure reserve 749 666 Total equity 749 666

Approved by the Board of Directors and signed on its behalf on 4 March 2020 by

Roger Davis Joy Linton Chairman Chief Financial Officer

Notes A-L form the associated notes to the Company financial statements. The Company accounting policies are aligned with those of the Group, described in notes 1-27. The adoption of IFRS 16 Leases on 1 January 2019 resulted in the recognition of a £6m right-of-use asset and corresponding £6m lease liability. For further information see note F.

163 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial Statements of the Company continued

Income Statement and Statement of Comprehensive Income Statement of Changes in Equity for the year ended 31 December 2019 for the year ended 31 December 2019 The profit for the financial year recorded within the accounts of the Company, The British United Provident Association Limited (‘Bupa’), is £62m Income and expenditure Total (2018: loss of £11m). In accordance with the exemption granted under Section 408 of the Companies Act 2006, a separate Income Statement and reserve equity Statement of Comprehensive Income for the Company have not been presented. The average number of full-time equivalent employees, including Note £m £m Executive Directors, employed by the Company during the year was 1,873 (2018: 1,845). 2019 Balance as at 1 January 2019 666 666 Statement of Cash Flows Profit for the financial year 62 62 for the year ended 31 December 2019

2019 2018 Other comprehensive income/(expense) Note £m £m Remeasurement gain on pension schemes D 26 26 Operating activities Taxation charge on income and expense recognised directly in other comprehensive income H (5) (5) Profit/(loss) before taxation expense 42 (33) Other comprehensive income for the year, net of taxation 21 21

Adjustments for: Total comprehensive income for the year 83 83 Depreciation, amortisation and impairment 20 16 Balance as at 31 December 2019 749 749 Other non-cash items 12 1 Income and expenditure Total Changes in working capital and provisions: reserve equity Funded pension scheme employer contributions D (13) (8) Note £m £m Decrease in provisions for liabilities and charges (8) (9) 2018 (Increase)/decrease in trade and other receivables, and other assets (25) 21 Balance as at 1 January 2018 662 662 (Decrease)/increase in trade and other payables, and other liabilities (39) 88 Cash (used in)/generated from operations (11) 76 Loss for the financial year (11) (11)

Cash flow from investing activities Other comprehensive income/(expense) Purchase of intangible assets A (32) (39) Remeasurement gain on pension schemes D 18 18 Purchase of property, plant and equipment B (12) (9) Taxation charge on income and expense recognised directly in other comprehensive income H (3) (3) Proceeds from sale of property, plant and equipment – 11 Other comprehensive income for the year, net of taxation 15 15 Net cash used in investing activities (44) (37) Total comprehensive income for the year 4 4 Net (decrease)/increase in cash and cash equivalents (55) 39 Balance as at 31 December 2018 666 666 Cash and cash equivalents at beginning of year 55 16 Cash and cash equivalents at end of year – 55

Notes A-L form the associated notes to the Company financial statements. Notes A-L form the associated notes to the Company financial statements. The Company accounting policies are aligned with those of the Group, described in notes 1-27 The Company accounting policies are aligned with those of the Group, described in notes 1-27

164 165 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial Statements of the Company continued

A. Intangible assets C. Investment in subsidiaries Intangible assets and goodwill are non-physical assets held by the Company and consist of computer software only. A list of all investments in subsidiaries held by the Company is disclosed after the Company financial statements. 2019 2018 £m £m Carrying value of investment in subsidiaries Cost Investments in subsidiary companies are carried at cost less impairment in the Company’s accounts. Dividends received from subsidiaries are At beginning of year 145 119 recognised in the Income Statement when the right to receive the dividend is established. Additions 32 39 As at 31 December 2019, the Company held investments in subsidiaries of £200m (2018: £200m). In accordance with Section 409 of the Disposals (1) (13) Companies Act 2006 a full list of subsidiaries, associated undertakings and significant holdings in undertakings other than subsidiary undertakings, At end of year 176 145 the registered addresses and the effective percentage of equity owned, as at 31 December 2019, is disclosed after the Company financial statements. Amortisation and impairment loss At beginning of year 80 75 D. Post-employment benefits Amortisation for year 13 10 Disposals – (5) The Company operates a defined benefit and a defined contribution pension scheme for the benefit of employees and Directors, in addition to an At end of year 93 80 unfunded and post-retirement medical benefit scheme. The defined benefit scheme is The Bupa Pension Scheme which was closed to new entrants from 1 October 2002. The principal defined Net book value at end of year 83 65 contribution pension scheme is The Bupa Retirement Savings Plan. Net book value at beginning of year 65 44 The Company is the sponsoring employer for The Bupa Pension Scheme, the unfunded pension scheme and post-retirement medical benefit scheme described in note 7. The actuarial assumptions underlying the valuation of obligations are detailed in note 7.2.

B. Property, plant and equipment (i) Assets and liabilities of schemes Property, plant and equipment are the physical assets utilised by the Company to carry out business activities and generate revenues and profits. The assets and liabilities in respect of the defined benefit funded pension scheme, unfunded pension scheme and post-retirement medical benefit The majority of the assets held relate to office buildings, IT and other office equipment. scheme are as follows: 2019 2018 Post-retirement medical Pension schemes benefit scheme Total Right-of- Right-of- use asset Leasehold Owned use asset Leasehold Owned 2019 2018 2019 2018 2019 2018 property improvements equipment Total property improvements equipment Total Note £m £m £m £m £m £m £m £m £m £m £m £m £m £m Present value of funded obligations (ii) (1,619) (1,482) – – (1,619) (1,482) Cost or valuation Fair value of scheme assets (iii) 2,266 2,081 – – 2,266 2,081 At beginning of year – 20 53 73 – 19 54 73 Net assets of funded schemes 647 599 – – 647 599 Adoption of IFRS 16 Leases (note F) 6 – – 6 – – – – Present value of unfunded obligations (ii) (45) (42) (9) (10) (54) (52) Additions – 2 10 12 – – 9 9 Net recognised assets/(liabilities) 602 557 (9) (10) 593 547 Disposals – (4) (1) (5) – – (4) (4) Other – 1 (6) (5) – – (3) (3) Represented on the Statement of Financial Position: At the end of the year 6 18 59 83 – 20 53 73 Net assets 648 599 Net liabilities (55) (52) Depreciation and impairment loss Net recognised assets 593 547 At beginning of year – 16 38 54 – 14 40 54 Depreciation charge for year – 1 6 7 – 2 4 6 (ii) Present value of the schemes’ obligations Disposals – (4) (1) (5) – – (4) (4) The movement in the present value of funded and unfunded schemes’ obligations are: Impairment – – – – – – (2) (2) Post-retirement medical – 16 38 54 At the end of the year – 13 43 56 Pension schemes benefit scheme Total

Net book value at end of year 6 5 16 27 – 4 15 19 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m Net book value at beginning of year – 4 15 19 – 5 14 19 At beginning of year 1,524 1,644 10 10 1,534 1,654 Current service costs 9 9 – – 9 9 Past service costs – 1 – – – 1 Interest on obligations 45 41 – – 45 41 Losses/(gains) arising from changes to financial assumptions 157 (120) – – 157 (120) (Gains)/losses arising from changes to experience assumptions (4) 4 (1) 1 (5) 5 (Gains)/losses arising from changes to demographic assumptions (15) 5 – – (15) 5 Benefits paid (62) (60) – (1) (62) (61) Transfers in 10 – – – 10 – At end of year 1,664 1,524 9 10 1,673 1,534

166 167 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial Statements of the Company continued

(iii) Fair value of funded scheme’s assets: F. Lease liability The movement in the fair value of the funded scheme’s assets are: The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using 2019 2018 the Company’s incremental borrowing rate taking into account the duration of the lease. The weighted average lessee’s incremental borrowing £m £m rate applicable to the lease liability on 1 January 2019 was 2.863%. At beginning of year 2,081 2,171 2019 Interest income 61 54 £m Return on assets excluding interest income 163 (92) At the beginning of the year – Contributions by employer 13 8 Adoption of IFRS 16 6 Administration expenses (1) (2) At end of year 6 Benefits paid (60) (58) Non-current 6 Transfers in 9 – Current – At end of year 2,266 2,081

The market value of the assets of the funded scheme is as follows: G. Provisions for liabilities and charges 2019 2018 £m £m Provisions for liabilities and charges are amounts that require settlement in the future as a result of a past event. Pooled investment funds 989 866 Insurance Other Total £m £m £m Corporate bonds 772 768 At beginning of year 11 1 12 Government bonds 196 201 Charge for year 7 – 7 Loans 141 162 Utilised in year – cash (7) (1) (8) Cash/other assets 166 87 At end of year 11 – 11 Derivatives 2 (3) Non-current 8 – 8 Total market value of the assets of the funded schemes 2,266 2,081 Current 3 – 3 (iv) Amounts recognised in the Income Statement The amounts charged/(credited) to other operating expenses for the year are: H. Deferred taxation assets and liabilities 2019 2018 £m £m Deferred tax is an adjustment to recognise the differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for taxation purposes. Current service cost 9 9 Past service cost – 1 Recognised deferred taxation assets and liabilities Net interest on defined benefit liability/asset (13) (16) Deferred taxation assets and liabilities are attributable to the following: Cost in relation to transfers in 1 – Assets Liabilities Net Administrative expenses 1 2 Total amount credited to the Income Statement (5) (1) 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m (v) Amounts recognised directly in other comprehensive income Accelerated capital allowances 3 4 – – 3 4 Post-employment benefit liability – (92) (92) The amounts credited directly to equity are: – (101) (101) Employee benefits (other than post-employment) 4 4 – – 4 4 2019 2018 Provisions – – – £m £m 1 – 1 Deferred tax (before allowable netting) 8 (92) (84) Actual return less expected return on assets (163) 92 8 (101) (93) Allowable netting of deferred tax (8) 8 – Loss/(gain) arising from changes to financial assumptions 157 (120) (8) 8 – – (84) (84) (Gain)/loss arising from changes to experience assumptions (5) 5 Net deferred taxation liability – (93) (93) (Gain)/loss arising from changes to demographic assumptions (15) 5 Total remeasurement gains credited directly to equity (26) (18) Recognised deferred taxation assets Deferred taxation assets relating to the carry forward of employee benefits, other provisions, unused taxation losses and other deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against which the deferred taxation assets can E. Trade and other receivables be utilised. Trade and other receivables are carried at amortised cost less impairment losses. 2019 2018 £m £m Amounts owed by subsidiary companies 142 97 Other receivables 1 1 Prepayments 19 17 Total trade and other receivables 162 115 Non-current – 2 Current 162 113

168 169 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Financial Statements of the Company continued

Movement in net deferred taxation (liabilities)/assets K. Related party transactions Recognised Recognised in other These are transactions between the Company and individuals, or entities related by nature of influence or control. The Company has such At beginning in Income comprehensive At end relationships with its subsidiaries, key management personnel and associated pension arrangements. The disclosure of transactions with these of year Statement income of year parties enables readers to form a view about the impact of related party relationships on the Company. £m £m £m £m 2019 The Company has a related party relationship with its key management personnel and with its subsidiary companies (refer to Related Accelerated capital allowances 4 (1) – 3 Undertakings on pages 172 to 178). Post-employment benefit liability (92) (4) (5) (101) (i) Transactions with key management personnel Employee benefits (other than post-employment) 4 – – 4 Provisions – 1 – 1 The key management personnel for the Company are the same as for the Group. These transactions are disclosed in note 26. Total (84) (4) (5) (93) The total remuneration of key management personnel is included in staff costs (see note 2.3). 2018 Accelerated capital allowances 5 (1) – 4 (ii) Transactions in relation to the non-registered pension arrangements Post-employment benefit liability (88) (1) (3) (92) These transactions are disclosed in note 26. Employee benefits (other than post-employment) 4 – – 4 (iii) Transactions and balances with subsidiary companies Total (79) (2) (3) (84) 2019 2018 £m £m I. Trade and other payables Income Statement Management charges received 231 204 Trade and other payables are carried at amortised cost. Expenses paid (including rental expense £2m (2018: £2m) (11) (11) 2019 2018 Dividends received 154 79 £m £m Amounts owed to subsidiary companies 170 186 Transactions during the year Balance at 31 December Other payables – 3 Accruals 62 74 2019 2018 2019 2018 £m £m £m £m Total trade and other payables 232 263 Statement of financial position Non-current 19 13 Amounts owed by subsidiary companies 45 5 142 97 Current 213 250 Amounts owed to subsidiary companies 16 (90) (170) (186)

The above outstanding balances arose during the ordinary course of business and are on substantially the same terms, including interest rates, J. Risk management as for comparable transactions with third parties. The Board is responsible for identifying, evaluating and managing risks faced by the Company and considers the acceptable level of risk, the likelihood of these risks materialising, how to reduce the risk and the cost of operating particular controls relative to the benefit from managing the related risks. L. Commitments and contingencies Commitments to future expenditure at the balance sheet date primarily consist of contracted capital expenditure. Contingent liabilities include The Group’s risk management strategy is outlined in detail within note 25. The risks of the parent company are considered to be the same as those bank loan and bond issue guarantees. of the Group. The maximum credit risk exposure of the Company is £20m (2018: £73m). The Company believes amounts owed to it by subsidiary companies (i) Capital Commitments carry no credit risk. The contractual maturity of financial liabilities, held by the Company, fall due within one year. Capital expenditure for the Company contracted as at 31 December 2019 but for which no provision has been made in the financial statements amounted to £nil (2018: £1m).

(ii) Contingent assets and liabilities The Company has given guarantees in respect of the £350m and £300m senior unsecured bonds issued by Bupa Finance plc in 2014 and 2017 respectively. The Company is party to an £800m revolving credit facility. The revolving credit facility was drawn down by £230m at 31 December 2019 (2018: £170m, including £5m standalone letters of credit). The Company has joint and several liability for all obligations under the agreement.

170 171 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Related Undertakings

In compliance with Section 409 of the Companies Act 2006, disclosed Bermuda Denmark Hong Kong below is a list of related undertakings of the Company as at 31 Name Share Classes Name Share Classes Name Share Classes December 2019, comprising subsidiaries, joint ventures, associated Crawford House, 4th Floor, 50 Cedar Avenue, Hamilton, HM11, Bermuda Palaegade 8, 1261 Copenhagen K, Denmark 18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong undertakings and other significant holdings, together with the country Amedex Insurance Company (Bermuda) Bupa Denmark Services A/S DKK100.00 Ordinary Bupa (Asia) Limited HKD10.00 Ordinary of incorporation, registered office address, each share class held by the Limited BMD1.00 Ordinary 4 Company or the Group and the proportion of the nominal value of the Bupa International Limited HKD1.00 Ordinary Bupa Limited HKD1.00 Ordinary shares of that class represented by those shares. Dominican Republic Bolivia 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Name Share Classes Hong Kong Name Share Classes Wholly Owned Related Undertakings Av. Gustavo Melia Ricart, No. 81, Terre Profesional Biltmore II, Suite 1007, Piantini, Allied Medical Practices Guild Limited HKD1.00 Ordinary Guapomo Street 2005, Spazio Building, 1st Floor, Offices 201-202-2013, Santa Cruz Santo Domingo, Dominican Republic DB Health Services Limited HKD1.00 Ordinary Unless otherwise stated, the related undertakings listed below are de la Sierra, Bolivia wholly owned by the Company with 100% of the nominal value of each Amedex Medical Group, S.R.L. Eplushealth Limited HKD1.00 Ordinary Bupa Insurance (Bolivia) S.A BOB100.00 Ordinary (In Liquidation)1 DOP1,000.00 Ordinary share class held by Group subsidiaries. Great Option Limited HKD1.00 Ordinary Av. Winston Churchill, corner with Rafael Augusto Sanchez, Plaza Acropolis, Apt. Jadeast Limited HKD1.00 Ordinary P2-D, Santo Domingo, Dominican Republic Brazil Jadefairs International Limited HKD1.00 Ordinary Australia Bupa Dominicana, S.A. DOP1,000.00 Ordinary Name Share Classes Jadison Investment Limited HKD1.00 Ordinary Name Share Classes Av. das Nações Unidas, 12,901, Unidade 901, Torre Oeste, Bloco C, Centro Jadway International Limited HKD1.00 Ordinary Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Empresarial Nações Unidas, Brooklin Paulista, São Paulo, SP, Brazil Ecuador Marvellous Way Limited HKD1.00 Ordinary Australia Fair Dental Care Pty Ltd AUD Ordinary Personal System Serviços Médicos e Megafaith International Limited HKD1.00 Ordinary Name Share Classes Bupa Aged Care Australasia Pty Limited AUD Ordinary, AUD Preference Odontológicos Ltda BRL1.00 Quotas Quality HealthCare Dental Services Limited HKD1.00 Ordinary Av. Republica de El Salvador N34-229, 4th Floor, Quito, Ecuador Bupa Aged Care Australia Holdings Pty Ltd AUD Ordinary Av. Sagitário, 138, 19º andar –, (conjuntos 1905, 1906, 1907, 1908, 1913, 1914) e 20º Bupa Ecuador S.A. Compania de Seguros2 USD1.00 Capital Stock Quality HealthCare Medical Centre Limited HKD100.00 Ordinary andar, Condomínio Alpha Square Torre 2, The City, Alphaville, Barueri, SP, Brazil Bupa Aged Care Australia Pty Ltd AUD Ordinary Quality HealthCare Medical Services Bupa Aged Care Holdings Pty Ltd AUD Ordinary Care Plus Medicina Assistencial Ltda BRL1.00 Quotas Limited HKD1.00 Ordinary Bupa Aged Care Property No.2 Trust Trust Interest Care Plus Negócios Em Saúde Ltda. BRL1.00 Quotas Egypt Quality HealthCare Nursing Agency Bupa Aged Care Property No.3 Trust Trust Interest Limited HKD10.00 Ordinary Name Share Classes Bupa Aged Care Property No.3A Trust Trust Interest Quality HealthCare Physiotherapy Services British Virgin Islands Building 55, Street 18, Maadi, Cairo, Egypt Limited HKD1.00 Ordinary Bupa Aged Care Property Trust Trust Interest Name Share Classes Bupa Egypt Insurance S.A.E. EGP10.00 Ordinary Quality HealthCare Professional Services Bupa ANZ Finance Pty Ltd AUD Ordinary Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, Bupa Egypt Services LLC EGP100.00 Ordinary Limited HKD1.00 Ordinary Bupa ANZ Group Pty Ltd AUD Ordinary Virgin Islands, British Quality HealthCare Psychological Services Bupa ANZ Healthcare Holdings Pty Ltd AUD Ordinary Altai Investments Limited HKD1.00 Ordinary, USD1.00 Ordinary Limited HKD1.00 Ordinary Bupa ANZ Insurance Pty Ltd AUD A Preference, AUD Ordinary Berkshire Group Limited USD1.00 Ordinary Gibraltar Room 901B-03A, 9th Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Bupa ANZ Property 1 and 2 Limited AUD Ordinary Kowloon, Hong Kong Dynamic People Group Limited USD1.00 Ordinary Name Share Classes Quality Healthcare TPA Services Limited HKD1.00 Ordinary Bupa ANZ Property 3 and 3A Pty Ltd AUD Ordinary 5-9 Main Street, Gibraltar Bupa Care Villages Australia Pty Ltd AUD Ordinary Bupa Malta Investments No. 1 Limited3 £1.00 Ordinary Bupa Dental Corporation Limited AUD Ordinary Chile Bupa Malta Investments No. 2 Limited3 £1.00 Ordinary Bupa Disability Services Pty Ltd AUD Ordinary Name Share Classes Macau Bupa Foundation (Australia) Limited Guarantee Membership Interest Av. Departamental N° 01455, Comuna La Florida, Region Metropolitana, Chile Name Share Classes Bupa Health Services Pty Ltd AUD Ordinary Inmobiliaria Y Constructora CBS S.A. CLP Ordinary Guatemala Rua De Xangai No. 175 Edif., Associacao Comercial De Macau, 11 Andar, K, Macau Quality EAP (Macau) Limited MOP1.00 Ordinary Bupa HI Holdings Pty Ltd AUD Ordinary Avenida Departamental 1455, Comuna La Florida, Chile Name Share Classes Quality Healthcare Medical Services Bupa HI Pty Ltd AUD Ordinary Bupa Servicios Clínicos S.A. CLP Ordinary Quinta avenida número cinco guión cincuenta y cinco, Zona catorce de esta ciudad, (Macau) Limited MOP1.00 Ordinary Bupa Innovations (ANZ) Pty Ltd AUD Ordinary Servicios De Personal Clinico CBS Dos S.A. CLP Ordinary Edificio Europlaza World Business Center, Torre III, undécimo nivel, área corporativa número un mil, Guatemala Bupa Medical (GP) Pty Ltd AUD Ordinary Cerro Colorado 5240, torre II Piso 11, Las Condes, Chile Bupa Guatemala, Compania de Seguros, Bupa Medical Services Pty Limited AUD Ordinary Bupa Inversiones Latam S.A. CLP Ordinary S.A. GTQ1.00 Ordinary Mexico Bupa Optical Pty Ltd AUD Ordinary Cerro Colorado N° 5420, Piso 11, Comuna Las Condes, Region Metropolitana, Chile Name Share Classes Bupa Telehealth Pty Ltd AUD Ordinary Bupa Chile S.A. CLP Ordinary Montes Urales, No. 745, Piso 1, Colonia Lomas de Chapultepec I Seccion, C.P. 11000, Bupa Wellness Pty Limited AUD Ordinary Grupo Bupa Sanitas Chile Uno, SpA CLP Ordinary Guernsey Mexico City DC Holdings WA Pty Ltd AUD Ordinary Inversiones Clinicas CBS S.A. CLP Ordinary Name Share Classes Bupa Mexico, Compania de Seguros, S.A. MXN1,000.00 Capital Stock Series E Dental Care Network Pty Ltd AUD Ordinary de C.V. (fixed), MXN1,000.00 Capital Stock Series PO Box 34, St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU, M (variable) Dental Corporation Australia Fair Pty Ltd AUD Ordinary Channel Islands Bupa Servicios Administrativos de Salud, S. Dental Corporation Cox Pty Ltd AUD Ordinary China Bupa Holdings (Guernsey) Limited £1.00 Ordinary de R.L. de C.V. (In Liquidation)1 US$1.00 Ordinary Dental Corporation Gerber Pty Ltd AUD Ordinary Name Share Classes Bupa LeaseCo Holdings Limited £1.00 Ordinary Bupa Servicios de Evaluacion Medica, S. de Dental Corporation Holdings Limited AUD Ordinary Room 07-08, 3rd floor, Building 1, 21st Century Plaza, 40A Liangmaqiao Road, Bupa LeaseCo. (Guernsey) Limited £1.00 Ordinary Chaoyang District, Beijing, 100125, China R.L. de C.V. US$1.00 Ordinary Dental Corporation Levas Pty.Ltd. AUD Ordinary UK Care No. 1 Limited £1.00 Ordinary Bupa Consulting (Beijing) Co. Ltd. HKD1.00 Ordinary Bupa Servicios Ejecutivos de Salud, S. de Dental Corporation Petrie Pty.Ltd. AUD Ordinary R.L. de C.V. (In Liquidation)1 US$1.00 Ordinary Unit 03, 13/F, No.604 RenMin North Road, Yuexiu District, Guangzhou, China Dental Corporation Pty Ltd AUD Ordinary Guangzhou Bupa Hospital Management Dr Chris Hardwicke Pty.Ltd. AUD Ordinary Company Limited CNY1.00 Ordinary Gerber Dental Group Pty Ltd AUD Ordinary Unit 305A -305, 3/F, GT Land Autumn Plaza, No.11, 13 ZhuJiang East Road, Larry Benge Pty Limited AUD Ordinary ZhuJiang New Town, Tianhe District, Guangdong Province, China Scott Petrie (Dental) Pty Ltd AUD Class E, AUD Class F, Guangzhou Bupa Quality HealthCare AUD Ordinary General Outpatient Department Company Limited CNY1.00 Ordinary 172 173 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Related Undertakings continued

New Zealand Poland continued Turkey United Kingdom continued Name Share Classes Name Share Classes Name Share Classes Name Share Classes Bupa House, Level 2, 109 Carlton Gore Road, Newmarket, Auckland, 1023, ul. Stefana Batorego 17/19, 87-100 Torun, Poland Küçükbakkalköy Mah. Basar Sok, No: 20 Atasehir, Istanbul, Turkey Bupa Insurance Limited £1.00 Ordinary New Zealand Tomograf Sp. z.o.o. PLN500.00 Ordinary Acıbadem Grubu Sigorta Aracilik Bupa Insurance Services Limited £1.00 Ordinary Bupa Care Services NZ Limited NZD Ordinary Wladyslawa Broniewsiego 48, 43-300, Bielsko – Biala, Poland Hizmetleri A.S. TRY1.00 Ordinary Bupa International Markets Limited £1.00 Ordinary Bupa Retirement Villages Limited NZD Ordinary Nzoz Ultramedic Centrum Medyczne Sp. Bupa Acıbadem Sigorta A.S. TRY1.00 Ordinary Bupa Investments Limited £1.00 Ordinary Level 4, 1 Walton Leigh Avenue, Porirua, 5022, New Zealand z.o.o. PLN1,000.00 Ordinary Bupa Investments Overseas Limited AUD1.00 Redeemable Preference, Dental Corporation (NZ) Limited NZD Ordinary Wladyslawa Broniewskiego,3, 01-785, Warszawa, Poland CLP1.00 Redeemable Preference, Klinika Optimum Sp. z.o.o. PLN Ordinary United Arab Emirates €1.00 Redeemable Preference, Name Share Classes £1.00 Ordinary, Panama Unit C1204, Level 12, Burj Daman, DIFC, PO Box 507019, Dubai, United Arab PLN1.00 Redeemable Preference, US$1.00 Redeemable Preference Name Share Classes Republic of Ireland Emirates Bupa Limited £1.00 Ordinary Prime Time Tower, Floor 25, Office 25 b La Rotonda Ave, Costa del Este, Panama Name Share Classes Bupa Global Middle East (DIFC) Limited US$1.00 Ordinary Bupa Occupational Health Limited £1.00 Ordinary Bupa Panama S.A. US$1,000.00 Ordinary 10 Anglesea Street, Temple Bar, Dublin 2, Ireland GK Medical and Dental Services Limited €1.00 Ordinary Bupa Pension Scheme Trustees Limited £1.00 Ordinary 1st Floor, 9 Exchange Place, I.F.C.S, Dublin 1, Ireland United Kingdom Bupa Secretaries Limited £1.00 Ordinary Peru Hugh Bradley Limited €1.00 Ordinary Name Share Classes Bupa Trustees Limited £1.00 Ordinary Name Share Classes Oasis Healthcare Holdings Ireland Limited €1.00 Ordinary 1 Angel Court, London, EC2R 7HJ, United Kingdom Bupa UK Foundation Guarantee Membership Interest Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru Woodquay Dental Limited €1.00 Ordinary ANS 2003 Limited £0.01 Ordinary Bupa Wellness Group Limited £0.01 Ordinary Integramedica Peru S.A.C. PEN Ordinary Xeon Dental Services Limited €0.01 Ordinary ANS Limited £0.10 Ordinary Calverguild Limited £1.00 Ordinary Second Floor, 10 Pembroke Place, Ballsbridge, Dublin, 4, Ireland Bede Village Management Limited £1.00 Ordinary Ebbgate Nursing Homes (London) Limited £1.00 Ordinary-A Bupa Global Designated Activity Company €1.00 Ordinary Belmont Care Limited £0.50 Ordinary Ebbgate Nursing Homes Limited £1.00 Ordinary Poland Bridge Health Investments Limited £1.00 Ordinary Health Dialog UK Limited £1.00 Ordinary Name Share Classes Bupa Care Homes (AKW) Limited £1.00 Ordinary Occupational Health Care Limited £1.00 Ordinary, £1.00 Redeemable Saint Kitts and Nevis Preference 28 Czerwca 1956 R, 135/147 Street, 61-545, Poznan, Poland Bupa Care Homes (ANS) Limited £1.00 Ordinary, £1.00 Special Share Name Share Classes Diagnostic – Med. Centrum Diagnostyki Bupa Care Homes (Bedfordshire) Limited £1.00 Ordinary Personal Effectiveness Centre Limited £1.00 Ordinary Radiologicznej Sp. z.o.o. PLN500.00 Ordinary Amory Building, Victoria Road, Basseterre, St. Kitts, Saint Kitts and Nevis Bupa Care Homes (BNH) Limited £1.00 Ordinary Richmond Care Villages (Property) Limited £1.00 Ordinary Amedex Services Ltd. (St Kitts) US$1.00 Capital Stock Brzeska 12 Street, 03-737 , Warsaw, Poland Bupa Care Homes (BNHP) Limited £1.00 Ordinary Richmond Care Villages Holdings Limited £1.00 Ordinary Centrum Edukacji Medycznej Sp. z.o.o. PLN100.00 Ordinary Bupa Care Homes (CFCHomes) Limited £1.00 Ordinary Richmond Coventry Limited £1.00 Ordinary Czapliniecka 93/95, 97-400, Belchatow, Poland Singapore Bupa Care Homes (CFG) plc £0.25 Ordinary Richmond Letcombe Limited £1.00 Ordinary Megamed Sp. z.o.o. PLN1,000.00 Ordinary Bupa Care Homes (CFHCare) Limited €0.000001 Redeemable Preference, Richmond Nantwich Developments Name Share Classes Limited £1.00 Ordinary Kuznicka 1 Street, 72-010, Police, Poland £1.00 Ordinary 600, North Bridge Road, #05-01 Parkview Square, 188778, Singapore Medika Uslugi Medyczne Sp. z.o.o. PLN50.00 Ordinary Bupa Care Homes (Developments) Limited £1.00 Ordinary Richmond Nantwich Limited £1.00 Ordinary Bupa Singapore Holdings Pte Ltd SGD Ordinary Richmond Nantwich Properties Limited £1.00 Ordinary Partyzantow 76, 80-254, Gdansk, Poland Bupa Care Homes (GL) Limited £1.00 Ordinary Projekt Usmiech Bis Sp. z.o.o. PLN500.00 Ordinary Bupa Care Homes (HH Bradford) Limited £1.00 Ordinary Richmond Northampton Limited £1.00 Ordinary Richmond Northampton Management Podleśna 61, 01-673, Warszawa, Poland Spain Bupa Care Homes (HH Hull) Limited £1.00 Ordinary Limited £1.00 Ordinary Centrum Medyczne Mavit Sp. z.o.o. PLN100.00 Ordinary Name Share Classes Bupa Care Homes (HH Leeds) Limited £1.00 Ordinary Richmond Painswick Management Bupa Care Homes (HH Northumberland) Pory 78 Street, 02-757 Warsaw, Poland Avda Marcelo Celayeta, 144 – Pamplona (31014), Spain Company Limited £1.00 Ordinary Limited £1.00 Ordinary Pory 78 Sp. z.o.o. PLN100.00 Ordinary Sanitas Mayores Navarra S.L. €60.10 Ordinary Richmond Villages Operations Limited £1.00 Ordinary Bupa Care Homes (HH Scunthorpe) Sport Medica S.A. PLN1.00 Ordinary-A, PLN1.00 Ordinary-B, Avenida Generalitat Valenciana no 50, Valencia, Spain Limited £1.00 Ordinary Watertight Investments Limited £1.00 Ordinary PLN1.00 Ordinary-C, PLN1.00 Ordinary-D, Especializada y Primaria L’Horta-Manises, 13 Queens Road, Aberdeen, Aberdeenshire, AB15 4YL, United Kingdom PLN1.00 Ordinary-E, PLN1.00 Ordinary-F, S.A.U. €1.00 Ordinary Bupa Care Homes (HH) Limited £1.00 Ordinary PLN1.00 Ordinary-G, PLN1.00 Ordinary-I, Bupa Care Homes (Holdings) Limited £1.00 Ordinary Christopher F. Stafford Holdings Limited £1.00 Ordinary c/Eguskiaguirre no.8, 48902, Baracaldo, Bilbao, Spain PLN1.00 Ordinary-J Hillington Park Dental Practice Limited £1.00 Ordinary Sanitas Mayores Pais Vasco S.A. €120.00 Ordinary Bupa Care Homes (Partnerships) Limited £1.00 Ordinary Pulawska 48, 05-500 Piaseczno, Poland Bupa Care Homes (PT Lindsay Prop) Martin and Martin Dental Care Limited £1.00 Ordinary Calle Ribera Del Loira, 52, 28042, Madrid, Spain Silver Dental Clinic Sp. z.o.o. PLN100.00 Ordinary Limited £1.00 Ordinary MFM Community Limited £1.00 Ordinary Clinica Londres, S.L. €10.00 Ordinary ul. Elblaska 135, 80-718, Gdansk, Poland Bupa Care Homes (PT Lindsay) Limited £1.00 Ordinary Partick Dental Ltd. £0.01 Ordinary Elegimosalud S.L.U. €1.00 Ordinary Centrum Opieki Medycznej Comed Sp. Bupa Care Homes (PT Links Prop) Limited £1.00 Ordinary 39 Victoria Road, Glasgow, G78 1NQ z.o.o. PLN500.00 Ordinary Grupo Bupa Sanitas S.L.U. €100.00 Ordinary Bupa Care Homes (PT Links) Limited £1.00 Ordinary Bupa Care Homes (Carrick) Limited £1.00 Ordinary ul. Gen. Augusta Emila Fieldorfa “Nila” 40, Warszawa, 04-125, Poland Sanitas Emision S.L.U. €1.00 Ordinary Bupa Care Homes (PT) Limited £1.00 Ordinary Bupa Dental Care, Vantage Office Park, Old Gloucester Road, Hambrook, Bristol, Magodent Sp. z.o.o. PLN50.00 Ordinary Sanitas Holding, S.L.U. €1.00 Ordinary Bupa Care Homes Investments (Holdings) BS16 1GW, United Kingdom ul. Postepu 21 C Street, 02-676, Warsaw, Poland Sanitas Mayores S.L. €651.28 Ordinary Limited £1.00 Ordinary A4 Health Group Limited £1.00 Ordinary Elba 1 Sp. z.o.o.1 PLN50.00 Ordinary Sanitas Nuevos Negocios S.L.U. €1.00 Ordinary Bupa Care Services Limited £0.20 Ordinary Aesthetic Dental Laboratory Limited £1.00 Ordinary Elblaska Sp. z.o.o. PLN50.00 Ordinary Sanitas S.L. de Diversificacion S.U. €6.02 Ordinary Bupa Europe Limited £1.00 Ordinary Andrew Greenwood Ltd £1.00 Ordinary Lux Med Lodz Sp. z.o.o.1 PLN50.00 Ordinary Sanitas, S.A. de Hospitales S.U. €6.01 Ordinary Bupa Finance plc5 £1.00 Ordinary Archway Dental Practice Limited £1.00 Ordinary LUX MED Sp. z.o.o. PLN500.00 Ordinary Bupa Global Holdings Limited €1.00 Ordinary, €0.01 Ordinary, £1.00 Apex Dental Care Limited £1.00 Ordinary LUX-MED Investment S.A. PLN50.00 Series A, PLN50.00 Series B, Ordinary Apex Holding Limited £1.00 Ordinary PLN50.00 Series C Sweden Bupa Health at Work Limited £1.00 Ordinary Aqua Dental Spa Limited £1.00 Ordinary Name Share Classes Bupa Healthcare Services Limited £1.00 Ordinary Arnica Dental Care Limited £1.00 Ordinary Box 27093, 102 51, Stockholm, Sweden LMG Forsakrings AB €1,000.00 Ordinary

174 175 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Related Undertakings continued

United Kingdom continued United Kingdom continued United Kingdom continued United Kingdom continued Name Share Classes Name Share Classes Name Share Classes Name Share Classes Avsan Cove Limited £1.00 Ordinary Harbour Way Surgery Limited £1.00 A Ordinary Perlan Limited £1.00 Ordinary Fortwilliam and Ballymena Specialist Avsan Dental Edinburgh Limited £1.00 Ordinary Haven Green Clinic Limited £1.00 Ordinary Peter Baldwin (VHO) Limited £1.00 Ordinary Dental Clinics Limited £1.00 Ordinary Avsan Ferryburn Limited £1.00 Ordinary Highland Dental Care Limited £1.00 Ordinary Priors Croft Dental Practice Limited £1.00 Ordinary Smiles Dental Practices North Limited £1.00 Ordinary Avsan Fife Limited £1.00 Ordinary Highwoods and St Johns Limited £1.00 Ordinary Private Dental Services Ltd £1.00 Ordinary Avsan Fleet Limited £1.00 Ordinary Highworth Dental Care Limited £1.00 Ordinary Quantum Ortho Limited £1.00 Ordinary Avsan Gloucester Limited £1.00 Ordinary Hope Dental Practice Limited £1.00 Ordinary, £1.00 Ordinary B Quest Dental Care LLP Partnership Interest United States Avsan Halstead Limited £1.00 Ordinary Hospital Lane Dental Clinic Limited £1.00 Ordinary Raglan Suite Limited £1.00 Ordinary Name Share Classes Avsan Holdings Limited £1.00 Ordinary In Store Dental Limited £1.00 Ordinary Ratcliffe Dental Limited £1.00 Ordinary 17901 Old Cutler Road, Suite 400, Palmetto Bay, FL 33157, United States Bupa Insurance Company US$1.25 Capital Stock Avsan Knebworth Limited £1.00 Ordinary Iosis Clinic Limited £1.00 Ordinary Richley Dental Ceramics Limited £1.00 Ordinary Bupa Investment Corporation, Inc. US$1.00 Capital Stock Avsan Kseat Limited £1.00 Ordinary J & M Dental Care Ltd £1.00 Ordinary Rise Park Dental Practice Limited £0.10 Ordinary A, £0.10 Ordinary B Bupa U.S. Holdings, Inc. US$0.01 Common Stock Avsan Queenscross Limited £1.00 Ordinary J A Jordan & Associates Limited £1.00 Ordinary Roberts-Harry Clinic Ltd £1.00 Ordinary Bupa Worldwide Corporation US$5.00 Capital Stock Avsan Queensroad Limited £1.00 Ordinary J.J. Thompson (Orthodontic Appliances) Shaw & Associates Dental Surgeons Ltd £1.00 Ordinary U.S.A. Medical Services Corporation US$5.00 Capital Stock Avsan Visage Limited £1.00 Ordinary Limited £1.00 Ordinary Silverwell Surgery Ltd £1.00 Ordinary B Dental Limited £1.00 Ordinary James Taylor and Partners Limited £1.00 Ordinary Siobhan Owen Limited £1.00 Ordinary 1. In liquidation BASDAC (2011) LLP Partnership Interest JDH Holdings Limited £0.10 Ordinary Smile Dental Care Ltd £1.00 Ordinary 2. 0.00025% held by nominee 3. In voluntary strike off BE White Ltd £1.00 Ordinary Kidson Orthodontics Limited £1.00 Ordinary Smile Lincs Limited £1.00 Ordinary 4. 0.000001% held directly by the Company King Lane Dental Care Limited £1.00 Ordinary Bupa Dental Services Limited £1.00 Ordinary Steeple Grange Smiles Limited £1.00 Ordinary 5. 100% held directly by the Company Caring Dentistry Ltd £1.00 Ordinary KN Wellness Ltd £1.00 Ordinary Stephen E B Jones Ltd £1.00 Ordinary Cheshire Cat Orthodontics Limited £1.00 Ordinary Lab 53 Limited £1.00 Ordinary Stob Dearg Limited £1.00 Ordinary Other Undertakings Clock Tower Dental Care Limited £1.00 Ordinary Lawrence Street Dental Practice Limited £1.00 Ordinary Stop the Clock Dental Care Limited £1.00 Ordinary The related undertakings listed below are not wholly owned by the Colchester Dental Referral Centre Limited £1.00 Ordinary Linden Dental Centre Limited £1.00 Ordinary Store Dental Care Limited £1.00 Ordinary Company. The proportion of the nominal value of each share class held Cranbrook Dental Practice Limited £1.00 Ordinary Luke Barnett Clinic Limited £1.00 Ordinary Synergy Ceramics Ltd £1.00 Ordinary indirectly by the Company is shown below. Creative Designs Dental Laboratory Luke Barnett Limited £1.00 Ordinary TDK Dental Limited £0.50 Ordinary A Limited £1.00 Ordinary Mainestream Dental Care Limited £1.00 C Ordinary, £1.00 Ordinary A The Adams and Lee Dental Practice Ltd £1.00 Ordinary Croft Dental Care Limited £1.00 Ordinary Mark Fazakerley (VHO) Limited £1.00 Ordinary The Bramhope Dental Clinic Limited £1.00 Ordinary Australia David Row Limited £1.00 Ordinary MCM (Dental Services) Limited £1.00 Ordinary The Dental Solutions Centre Ltd £0.02 Ordinary Name Share Classes Actual % held Den Dental Group Practice LLP Partnership Interest MDANZ Holdings Limited £1.00 Ordinary The Exeter Dental Centre Limited £1.00 Ordinary Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia Dencraft (Leicester) Ltd £1.00 Ordinary MDANZ Limited £1.00 Ordinary The Facial Aesthetics & Dental Centre Ltd £1.00 Ordinary Mobile Dental Pty Ltd AUD Ordinary 100.00 Dencraft (South Yorkshire) Limited £1.00 Ordinary Metrodental Limited £1.00 Ordinary The Oasis Healthcare Group Limited £1.00 Ordinary Level 3, 60-62 Clarence Street, Sydney NSW 2000, Australia Dental Confidence Limited £1.00 Ordinary Milehouse Dental Care Limited £1.00 Ordinary The Smile Centres Limited £1.00 Ordinary Whitecoat Holdings Pty Ltd AUD Ordinary 23.48 Dental Excellence – Harewood Practice Mojo-D Limited £1.00 Ordinary The Spire Halifax Limited £1.00 Ordinary Whitecoat Operating Pty Ltd AUD Ordinary 100.00 LLP Partnership Interest Morrison Shenfine Holdings Ltd £1.00 Ordinary The Tutbury Dental Practice Limited £1.00 Ordinary Dentalign Colwyn Bay Ltd £1.00 Ordinary MZINC Limited £0.01 Ordinary Tidge and Lou Limited £1.00 Ordinary Dentalign Eastbourne Ltd £1.00 Ordinary Nigel Reynolds Limited £1.00 Ordinary Tooth Fixer Limited £1.00 Ordinary Bahrain Dentalign Orthodontics Limited £1.00 Ordinary NM Jones Ltd £1.00 Ordinary Total Orthodontics Limited £1.00 Ordinary Name Share Classes Actual % held Dentalign Orthodontics LLP Partnership Interest North Devon Orthodontic Centre Limited £1.00 Ordinary Ultimate Smile Spa Ltd £1.00 Ordinary Flat 207, Building 743, Road 831, Block 408, Sanabis, Bahrain Dentalign Wrexham Ltd £1.00 Ordinary North Lakeland Ltd £1.00 Ordinary Victoria Oral Clinic Limited £1.00 Ordinary Bupa Middle East Holdings Two W.L.L. BHD50.00 Ordinary 75.00 Derwent House Orthodontics Limited £1.00 A Ordinary Oasis Dental Care (Central) Holdings Wessington Way Limited £0.10 Ordinary Devon Smiles Limited £1.00 Ordinary Limited £1.00 Ordinary Whole Tooth Limited £1.00 Ordinary Deysbrook Dental Surgery Limited £1.00 Ordinary Oasis Dental Care (Central) Limited £1.00 Ordinary Wimborne Total Dental Care Limited £1.00 Ordinary Chile Diamond House Dental Practice Limited £1.00 Ordinary Oasis Dental Care (Southern) Holdings £0.10 B Ordinary, £1.00 Ordinary A Windmill Dental Surgery Limited £1.00 Ordinary Name Share Classes Actual % held Duke Street Capital Oasis Acquisitions Limited £1.00 Ordinary B, £0.10 Ordinary C, Windslade Limited £1.00 Ordinary Anabaena N° 336, Comuna Viña del Mar, Region Valparaiso, Chile Limited £0.01 Ordinary £0.10 Ordinary D, £0.10 Ordinary E Winning Smiles (Gillingham) Limited £1.00 Ordinary Clinica Renaca S.A. CLP Ordinary 100.00 Duke Street Capital Oasis Midco Limited £0.01 Ordinary Oasis Dental Care (Southern) Limited £1.00 Ordinary Wylde Green Orthodontics LLP Partnership Interest Desarrollo E Inversiones Medicas S.A. CLP Ordinary 96.97 Duke Street Capital Oasis Orthodontics Oasis Dental Care Limited £1.00 Ordinary Wylye Valley Dentistry Limited £1.00 Ordinary Promotora De Salud S.A. CLP Ordinary 67.03 Holdings Limited £0.01 Ordinary Oasis Healthcare Bidco Limited £1.00 Ordinary Sociedad Medica Imageneologia Clinica Duke Street Capital Oasis Orthodontics Xeon Smiles UK Limited £1.00 Ordinary Oasis Healthcare International Limited £0.01 A Ordinary, £0.01 B Ordinary Renaca Limitada CLP Social Rights 80.00 Limited £0.01 Ordinary Cromwell Hospital, Cromwell Road, London, SW5 0TU Oasis Healthcare Limited £0.01 Ordinary Augusto D’halmar N° 1369, Comuna Arica, Region Arica y Parinacota, Chile Eckington Dental Practice Limited £1.00 Ordinary Cromwell Health Group Limited £1.00 A Ordinary Oasis Healthcare Midco 1 Limited £1.00 Ordinary Centro De Diagnostico Avanzado San Jose Eurodontic Limited £1.00 Ordinary Medical Services International Limited £1.00 Ordinary Oasis Healthcare Midco 2 Limited £1.00 Ordinary S.A. CLP Ordinary 100.00 Fairfield Dental Surgery Limited £1.00 Ordinary Mind Your Business (Ni) Ltd, 1 Elmfield Avenue, Warrenpoint, Newry, County Down, Oral Implantology Limited £1.00 Ordinary Av Libertador Bernardo O’Higgins N° 654, Comuna Santiago, Region Freshdental Practice Limited £1.00 Ordinary BT34 3HQ, Northern Ireland Ortho 2008 Limited £1.00 Ordinary Metropolitana, Chile Future Drilling Limited £1.00 Ordinary Belfast Orthodontic Clinic Ltd £1.00 Ordinary Orthoscene Limited £1.00 Ordinary Examenes De Laboratorio S.A. CLP Ordinary 100.00 Blueapple Dental and Implant Team G & M Moynes Ltd £1.00 Ordinary Integramedica S.A. CLP Ordinary 99.99 Oswestry Dental Laboratory Limited £1.00 Ordinary Limited £1.00 Ordinary Goodteeth Dental Surgeries Limited £1.00 Ordinary Av. Vicuña Mackenna N° 7255, Comuna La Florida, Region Metropolitana, Chile Paul Coulthard Ltd £1.00 Ordinary Cranmore Excellence in Dentistry Limited £1.00 Ordinary Grosvenor Orthodontic Clinic (Beckenham) Sonorad II S.A. CLP Ordinary 100.00 Limited £1.00 Ordinary Pembury TM Limited £1.00 Ordinary DE (Belmont Road) Ltd £1.00 Ordinary

176 177 Bupa Annual Report 2019 Strategic Report / Governance / Financial Statements

Related Undertakings Five-year financial summary continued

Chile continued Poland Five-year financial summary in brief Name Share Classes Actual % held Name Share Classes Actual % held The five-year financial summary provides a five-year time summary in order to better understand trends. Prior periods have been restated to Baquedano N° 298, Comuna Antofagasta, Region Antofagasta, Chile Al. Niepodleglosci 18, 02-653, Warsaw, Poland reflect the new operating segments. Sociedad Medico Quirurgica De Endoterapia PFG Sp. z.o.o. PLN50.00 Ordinary 40.00 2018 2017 2016 2015 Antofagasta S.A. CLP Ordinary 100.00 Marszalkowska 99 A lok. 5B Street, 00-693, Warsaw, Poland 2019 (restated) (restated) (restated) (restated) Bernarda Morin N° 495, Comuna Providencia, Region Metropolitana, Chile Centrum Edukacyjne Medycyny Sportowej £m £m £m £m £m Recaumed S.A. CLP Ordinary 58.40 Sp. z.o.o. PLN50.00 Ordinary 50.00 Revenue – segmental analysis Cerro Colorado N° 5420, Piso 12, Comuna Las Condes, Region Metropolitana, Chile Porebskiego 9 Street, 81-185, Gdynia, Poland Australia and New Zealand 4,652 4,656 4,927 4,360 3,648 Bupa Compania de Seguros de Vida S.A. CLP Ordinary 76.14 Niepubliczny Zaklad Opieki Zdrowotnej Europe and Latin America 3,853 3,499 3,346 2,754 2,307 Cerro Colorado N° 5420, Piso 4,5,7, Comuna Las Condes, Region Metropolitana, Przychodnia Lekarska “POGORZE” Sp. Bupa Global and UK 3,323 3,288 3,537 3,502 3,521 z.o.o. PLN200.00 Ordinary 88.15 Chile Other businesses 488 417 440 433 353 ul. Dluga 43, 05-510 Konstancin Jeziorna, Poland Isapre Cruz Blanca S.A. CLP Ordinary 99.73 Net reclassifications to other expenses or financial income and expenses – (1) (1) (1) (1) Lux Med Tabita Sp. z.o.o. PLN100.00 Ordinary 88.00 Coyancura N° 2270, Oficina 910, Comuna Providencia, Region Metropolitana, Chile Consolidated total revenues 12,316 11,859 12,249 11,048 9,828 Bupa Servicios de Salud SpA CLP Ordinary 100.00 Dr. Juan Noe N° 1370, Comuna Arica, Region Arica y Parinacota, Chile Saudi Arabia Claims and expenses Corporacion Medica de Arica S.A. CLP Ordinary 68.97 Name Share Classes Actual % held Operating expenses (including claims) (11,846) (11,224) (11,505) (10,436) (9,250) Sociedad De Inversiones Pacasbra S.A. CLP Ordinary 100.00 Al-Khalidiyah-Nour Al Ehsan 3538, Unit 1 Jeddah 7505-23423, P.O. Box 23807, Impairment of goodwill (422) (35) (1) – (114) Las Bellotas N° 200, Comuna Providencia, Region Metropolitana, Chile Jeddah, 21436, Saudi Arabia Impairment of other intangible assets arising on business combinations (21) (4) (16) (21) – Sonorad I S.A. CLP Ordinary 100.00 Bupa Arabia For Cooperative Insurance Other income and charges (42) (53) (99) (39) (41) Manuel Antonio Matta N° 1868, Comuna Antofagasta, Region Antofagasta, Chile Company SAR10.00 Ordinary 39.25 Total claims and expenses (12,331) (11,316) (11,621) (10,496) (9,405) Inmobiliaria Centro Medico Antofagasta Prince Sultan St, Al Mohammediyah Dist., PO Box 260, Jeddah, 21411, Saudi Arabia S.A. CLP Ordinary 99.99 Nazer Bupa Medical Equipment Company (Loss)/profit before financial income and expense (15) 543 628 552 423 Inmobiliaria Somequi S.A. CLP Ordinary 100.00 Limited SAR1,000.00 Ordinary 50.00 Net financial expense/income (63) (41) (8) (29) (49) Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile (Loss)/profit before taxation expense (78) 502 620 523 374 Centro Medico Antofagasta S.A. CLP Ordinary 100.00 Spain Taxation expense (133) (190) (134) (136) (96) Inversiones Clinicas Pukara S.A. CLP Ordinary 85.88 Name Share Classes Actual % held (Loss)/profit for the financial year (211) 312 486 387 278 Servicios Y Abastecimiento A Clinicas S.A. CLP Ordinary 100.00 Avenida República Argentina, Número 6, Entreplanta, Seville, Spain Sociedad De Resonancia Magnetica Del Attributable to: Norte S.A. CLP Ordinary 100.00 Clinicas Ginemed S.L. €6.02 Ordinary 70.00 Bupa (213) 306 482 382 278 Sociedad Instituto De Cardiologia Del Calle Arenal Numero 22, 3 Derecha, Madrid, Spain Norte Limitada CLP Social Rights 50.00 Foren Project S.L. €1.00 Ordinary 20.00 Non-controlling interests 2 6 4 5 – Pedro Aguirre Cerda N° 843, Comuna Arica, Region Arica y Parinacota, Chile Calle Ribera Del Loira, 52, 28042, Madrid, Spain (Loss)/profit for the financial year (211) 312 486 387 278 Centro De Imagenes Medicas Avanzadas Fundacion Sanitas2 €1.00 Contribution 100.00 San Jose S.A. CLP Ordinary 70.00 Sanitas S.A. de Seguros €0.68 Ordinary 99.91 Equity Property revaluation reserve 692 700 796 706 632 Hong Kong Income and expenditure reserve 6,059 6,306 5,882 5,230 4,798 United Kingdom Cash flow hedge reserve 21 20 22 15 21 Name Share Classes Actual % held Name Share Classes Actual % held Foreign currency translation reserve 237 464 558 595 (97) 3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, 1 Angel Court, London, EC2R 7HJ, United Kingdom Equity attributable to Bupa 7,009 7,490 7,258 6,546 5,354 Hong Kong Fulford Grange Medical Centre Limited £1.00 ‘A’ Ordinary 100.00 Equity attributable to non-controlling interests 17 20 30 31 70 Alpha Medical MRI (TST) Limited HKD10,000.00 Ground Floor, Bury House, 31 Bury Street, London, EC3A 5AR, United Kingdom Ordinary 65.00 Total equity 7,026 7,510 7,288 6,577 5,424 Healthbox Europe 1 LP Partnership Interest 37.00 Central Medical Diagnostic Centre Limited HKD1.00 Ordinary 74.49 Swan Court, Waterman’s Business Park, Kingsbury Crescent, Staines, Surrey, Central MRI Centre Limited HKD1.00 Ordinary 100.00 England, TW18 3BA, United Kingdom Central PET/CT Scan Centre Limited HKD1.00 Ordinary 100.00 Healthcode Limited £1.00 A Ordinary 100.00 £1.00 E Ordinary 20.00 India Wilson House Waterberry Drive, Waterlooville, Hampshire, PO7 7XX, United Kingdom Name Share Classes Actual % held London Oncology and Wellbeing Centre Limited £1.00 B Shares 100.00 Max House, 1, Dr Jha Marg, Okhla, New Delhi, 110020, India £1.00 Ordinary 42.15 Max Bupa Health Insurance Company Limited1 INR10.00 Ordinary 44.42 United States Peru Name Share Classes Actual % held Name Share Classes Actual % held 933 First Avenue, King of Prussia PA 19406, United States Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru Highway to Health, Inc US$0.01 Ordinary 49.00 Anglolab S.A PEN Ordinary-A 100.00 HTH Re, Ltd US$1.00 Ordinary 100.00 PEN Ordinary-B 50.00 HTH Worldwide, LLC US$1.00 Ordinary 100.00 MediPeru S.A.C PEN Ordinary 99.97 Worldwide Insurance Services, LLC US$1.00 Ordinary 100.00

1. Part held by nominees 2. The Sanitas Foundation

178 179 Bupa Annual Report 2019

International Financial Reporting Standards relevant to Bupa

International Financial Reporting Standards (IFRS) Interpretations IFRS 3 Business Combinations IFRIC 9 Reassessment of Embedded Derivatives IFRS 4 Insurance Contracts IFRIC 12 Service Concession Arrangements IFRS 5 Non-Current Assets Held for Sale and Discontinued IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Operations Requirements and their Interaction IFRS 7 Financial Instruments: Disclosures IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRS 8 Operating Segments IFRIC 21 Levies IFRS 9 Financial Instruments IFRIC 22 Foreign Currency Transactions and Advanced Consideration IFRS 10 Consolidated Financial Statements SIC 29 Service Concession Arrangements: Disclosures IFRS 11 Joint Arrangements SIC 32 Intangible Assets – Website Costs IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases

International Accounting Standards (IAS) IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events After the Reporting Date IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 27 Separate Financial Statements IAS 28 Investments in Associates and 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 40 Investment Property

180 Designed and produced by Friend www.friendstudio.com Print Pureprint Group This report has been printed on Image Indigo which is FSC® certified and made from 100% Elemental Chlorine Free (ECF) pulp. The mill and the printer are both certified to ISO 14001 environmental management system. Registered office For further copies of this document [email protected] 1 Angel Court London EC2R 7HJ Corporate [email protected]

Registered in England The British United Provident Association Limited is a company limited by guarantee. No. 432511 ‘Bupa’ and our logo are registered trade marks of The British United Provident Association Limited.

The awards and certifications we achieved in 2019

Canstar 2019 Health Cover Magazine Best in Inclusive Insurance Awards Excellence Awards Class Awards Companies Awards

‘Outstanding Value for 'Best private hospital Health Insurance’ 'Best Group Private in Spain' Bupa Australia Health Medical Insurer provider' Sanitas La Moraleja Hospital 'No.7 of top 50 companies' Insurance Bupa UK Insurance (Spain) Bupa Global and UK

Best CSR Insurance LinkedIn’s Top National Sports MercoTalento Company 2019, UK Workplaces Awards, Spanish Global Business Sports Council Outlook

‘Top companies to work ‘Inclusive Sports for in Spain and Chile’ No.5 top UK workplace programme’ Sanitas (Spain) and Bupa Arabia Bupa Global and UK Sanitas Foundation (Spain) Bupa Chile

Best Ideas, Actualidad Melbourne Design Dentistry Awards Care Home Economica magazine Award, Brand ID Professionals’ Leaders Evolution project in Care Award

Young Dentist of the Year Highly commended Virtual Psychological (Northern Ireland) in Provider of the Year Assistant Bupa Australia and Michael Crilly, Bupa Dental category Sanitas (Spain) New Zealand Care UK Bupa Care Services UK

NowTV BNC Biggest Investor Hong Kong Merco Empresas Leadership Business Award Insurance Awards Award

Outstanding Corporate Top companies with Medical Insurance Number 1 healthcare Social Responsibility Award best corporate reputation Award of Excellence company in Poland for Healthy Cities project in Spain Bupa Hong Kong LuxMed Bupa Hong Kong Sanitas (Spain)

Key Customer excellence Great employer Corporate citizen Innovation

Cover photos

Bupa UK ‘Is it normal?’ Sanitas ‘Smile’ health and Bupa Health Insurance Bupa Australia partners mental health wellbeing programme Australia support line for with Kids Helpline to campaign 2019 customers who are deliver the School worried about the mental Wellbeing programme health of their children