BUPA
FINANCE PLC
(Company No.
2779134)
DIRECTORS’ REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 202
1
Bupa Finance plc
Registered number: 2779134
1
Contents
Page
Directors and Officers 2
Strategic Report
3
Governance
25
Independent auditors’ report to the members of Bupa Finance plc
42
Financial Statements
50
Notes to the Financial Statements
56
Bupa Finance plc Company Accounts
118
Five
-year financial summary (unaudited)
138
Bupa Finance plc
Registered number: 2779134
2
Directors and Officers
Directors
S K Dolan
J A Lenton (appointed 16 November 2021)
J Linton (retired 4 March 2021)
G M Evans
M Potkins (appointed 1 January 2021, retired 31 December 2021)
G H Roberts
Company Secretary
C R Campbell
Registered Office
Auditors
PricewaterhouseCoopers LLP
Strategic Report
For the year ended 31 December 2021
3
Stra
tegic Report
The Directors present their Strategic Report for the year ended 31 December 2021 for Bupa Finance plc (the ‘Company’) and its
subsidiary companies (together, the ‘Group’). The immediate and ultimate parent of the Company is The British United Provident
Ass
ociation Limited (the ‘Parent’ or ‘Bupa’ and together with its subsidiaries, the ‘Bupa Group’).
Principal activities
The Company is a part of the Bupa Group, which is a leading international healthcare group. The principal activity of the Company
is
the provision of financing and treasury management of Bupa’s businesses, which are managed in three Market Unit
sia s
; APacific, Europe and Latin America and Bupa Global and UK.
About Bupa
Bupa's purpose is helping people live longer, healthier, happier lives and making a better world.
We are an international healthcare company serving over 38 million customers worldwide. With no shareholders, we reinvest
profits into providing more and better healthcare for the benefit of current and future customers.
We directly employ around 8
4,000
people, principally in the UK, Australia, Spain, Chile, Poland, New Zealand, Hong Kong SAR, Turkey, Brazil, Mexico, the US, Middle East and Ireland. We also have associate businesses in Saudi Arabia and India. For more
information, visit www.bupa.com.
Bus
iness model
Our businesses
What we do
Health insurance
•
%
of revenue
•
m
Insurance customers worldwide
•
small and medium-sized enterprises (SMEs) and for individual
customers.
•
businesses in the UK, Australia, Spain, Chile, Hong Kong
SAR
, Turkey, Brazil and Mexico and our associate businesses in
Saudi Arabia and India.
•
subscriptions and cash plans.
•
markets.
•
through our Bupa Global businesses, for customers wanting
access to quality healthcare, wherever and whenever they
need it.
•
Poland, Hong Kong, Brazil and through Bupa Global.
Health Provision
• 21% of revenue
• 370 health clinics
• 16.9
m pro
vision customers worldwide
• 1,000 dental centres
• Health clinics: Services include health assessments, GP
services, and physiotherapy. We also have outpatient and
speciality clinics.
• Digital provision: We offer digital provision services including
digital GP services, care triage and consultation, mental health
coaching and support, and chronic care management.
• Hospitals: We run hospitals in Spain, Chile and Poland and
one
in
the UK. • Dental: A wide network of around 1,000 dental centres.
Aged care
•
•
•
villages, day centres and homecare.
•
Spain.
Strategic Report
For the year ended 31 December 2021
4
Financial Headlines
• Revenue
1
of £12.9bn was up 8% at constant exchange rates (CER) (2020
2
: £12.0bn).
• Underlying profit
3
before taxation of £509m, was up 14% at CER (2020
4
: £447
m)
as the impact of reduced COVID-19
lockdowns meant our
health
provision and aged care businesses operated with fewer restrictions and customers were able to access services more easily offset by increased insurance claim levels resulting from
.
This wasreduced
disruption to elective procedures compared to 2020.
•
Statutory profit before taxation of £
537m was up
% 10
at AER (20
20
4
: £
488
reflecting higher underlying profit, and m),
gains made on acquisitions and divestments.
• Solvency II capital coverage ratio
5
remains strong at 179
% (20
20: 1
60%).
Business context
• insurance businesses
Full
year 202
1 results reflect
rong st
customer growth
across our
, improving
performance in
health provision and aged care as we emerge from the pandemic.
•
For health insurance, our largest business line, we undertook a range of actions to support our customers
including announcing eligible UK
plans to return
to Australian health insurance customers and processing payments to cash
Insurance customers following our 2020 return of premium pledge. In the UK, we were the first major health insurer to
make such payments.
•
The
re are major shifts in customer expectations and engagement, which have been accelerated by the pandemic,
particularly in digital healthcare. We have refreshed our purpose, set a new ambition and launched a new strategy to
address these changes. Our focus is on embedding this strategy and leveraging our strengths while we transform
Bupa.
Financial position
• Solvency II capital coverage ratio of 179
% (2020: 160%).
• Leverage
6
is
27.9
% (2020: 3
3.6%) when including IFRS 16 leases as liabilities. Excluding these
liabilities, the leverage
ratio is 20.4% (2020: 26.3
%).
•
Net cash generated from operating activities was £
939m,
down £532m on prior year
as a result of higher claims as
disruption to elective procedures reduced from 2020.
New Strategy
• Bupa launched a new business-wide strategy to drive Bupa Group’s transformation.
• Refreshed
purpose: helping people live longer, healthier, happier lives, and making a better world, and introduced an
ambition to be the world’s most customer
-
centric healthcare company. This
ambition reflects Bupa’s
commitment to excellent customer experience, through great service and value, frictionless access and quality healthcare.
• 3 ambition KPIs for Bupa
’s
strategy: o 40 % of our customers’ care touchpoints will be owned by Bupa through
it
s physical and digital provision o At least 60% of Bupa customers will fully interact with Bupa Group digitally
o Bupa’s Net Promoter Score will be 80, in line with the most customer-centric organisations in the world.
• Six strategic and enabling pillars define how Bupa
will fulfil
its purpose and achieve its ambition: o Customers: obsession with customer’s experience
o Growth: strong performance and governance
o Transformation: continuous innovation and preparation
o Sustainability: making a positive impact on the world
o Data: enhanced data-driven decision-making
o Agile Culture: the best, most diverse people and a great place to work
•
This
what is
is
calle
d the 3x6 strategy.
Other highlights
•
We successfully launched a new Restricted Tier 1 (RT1) subordinated bond offer to the market alongside the partial
buy-
back of a Tier 2 bond which matures in 2023. These transactions enable us to enhance Bupa’s capital base and
demonstrate the continued financial flexibility of the Group.
•
We confirmed our ambition to be a
net zero business across all emission scopes by 2040. We have set science
-based targets which are aligned to Bupa’s contribution to keep global warming to no more than 1.5°C.
1
Revenues from associate bu
-sinesses are excluded from reported figures. Customer numbers and economic share of post
tax profits from our
associate businesses are included.
2
2020 revenue has been restated
by £24m
for
the remeasurement of imputed revenue and interest in respect of in
terest
free refundable -
accommodation deposits received by the Group as payment for aged care units in Bupa Villages and Aged Care Australia. See Note 1.5 for further
detail.
3
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 profit before taxation, to facilitate year
-
on
-
year comparison.
These items include
impairment of intangible assets and goodwill a
rising 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
profit before taxation can be found in the notes to the condensed consolidated financial statements.
4
2020 underlying profit
and statutory profit have
been restated by
£(
14
following the quantification of historical underpayments)m
at AER
of
employee enti
tlements in Bupa
Asia Pacific Market Unit
and for
how
costs incurred in implementing a Software as a Service (SaaS) arrangement
are accounted for.
See Note 1.5 for further detail.
5
T
he 202
1 Solvency II capital coverage ratio is an estimate and unaudited.
6
Leverage is calculated based on gross debt (excluding RT1) divided by gross debt plus equity.
Strategic Report
For the year ended 31 December 2021
5
Outlook
Although several of our markets have reached the advanced stages of vaccine deployment, we are still navigating the medium
to long
-
term impact of COVID-
19 in all our business lines. As restrictions are increasingly being lifted across the world, the vaccine
rollout is progressing steadily
,
and economic activity is accelerating, we are positive about our future prospects. We know that the pandemic is not yet over and that conditions in some markets remain challenging
,
with the recruitment of healthcare workers
an ongoing sector
-
wide issue, and with rising inflation increasing costs for our businesses.
Specifically in Chile, we anticipate regulatory and political dynamics to affect our While Bupa does not have businesses in either Uk
I
sapre insurance business.raine
or Russia, the macro-economic and human consequences of the conflict in that region are uncertain.
By focusing on the pillars of the new 3x6 strategy
- customers, growth, transformation, sustainability,
enabled by agile culture and
data -
we are adapting well to the changing external environment and transforming Bupa to meet changing customer expectations.
Our digital transformation is continuing at pace so that we can offer more services where and when our customers need them.
We are well placed to navigate challenges and take opportunities because of our underlying financial strength, resilience and our
diversified business model. We are focused on embedding the new strategy, driving growth and transformation so that we can
run and change.
MARKET UNIT PERFORMANCE
Asia Pacific
Revenue
Underlying profit
2021
£5,49
8m
£249
m
2020
(AER)
7
,
8£5,249m
£157
m
% growth
5%
59
%
2020 (CER)
£5,292m
£
158
m % growth
4%
58
%
Health insurance
customers (m)
Healthcare provision
customers (m)
Aged care residents
2021
4.4
2.4
8,600
Performance
On 1 July 2021, we formed
the new
Bupa Asia Pacific Market Unit, comprising
our businesses in Australia, New Zealand and Hong Kong SAR.
The
results and comparatives are presented as the new Market Unit. se
Revenue increased by £20
6
m to £5,498m
at CER. Underlying profit was £249
m, an increase of 58
at CER mainly driven by %
volume growth across our businesses and the
non-
currence of the re
six
-month
deferral of the premium increase for Australian
Health Insurance customers
,
which was implemented
in 2020. We began to see the benefits of transformation programmes, with an enhanced focus on operational efficiency and investing in digital to support better customer outcomes.
P
rofitability increased as a result of changes in partially offset by COVID
product
and improved customer retention. This wasmix
-
19 re
strictions, temporary store and clinic closures in our Health Services business and the continued
re
bound
of claims in Hong Kong Health Insurance.
In Australian Health Insurance, revenue grew with
the non-
recurrence of the six-
month deferral of the premium increase implemented in 2020 - together with the delivery of
-
and the application
, therefore, of
a full year of premium rate increasesbusiness transformation initiatives. Underlying profit was up from a low base in 2020, driven by strong revenue,
margi
n
remediation initiatives from product migrations and better operational performance, including retention
.
During the pandemic we have provided over
AUD$315m of
support to customers,
which included premium deferral, discounts, financial assistance and poli
cy suspensions. We also announced plans to return £66m (AUD$120m) in cash
to around 3.5m customers. The combined
operating ratio (COR)
9
was 92%
10
(2020: 95%). We
launched our Apple Digital card, which more than 4
20,000 customers have
added to their digital wallets.
Health Services in Australia delivered revenue growth improved volumes, mainly in the Australian Defence Force contract
from
,
with volumes maintained in our dental and optical businesses
. U
nderlying profit declined significantly due to temporary COVID-
19 closures. Lockdowns and border closures reduced volumes and profitability in our Bupa Medical Visa Services business. In
December, we launched our new digital telehealth platform, Blua, which enables customers to attend appointments remotely with
health professionals. We also announced the sale of our portfolio of 22 dental practices in New Zealand,
previously managed
under the Australian Health Services business.
Revenue in reduced due to the sale of four homes and closure of a further five homes as part
our Australian aged c
are businessof planned portfolio optimisation initiatives. Underlying losses improved, driven by an increase in occupancy to 87% (2020: 8
5%),
7
2020 revenue and underlying profit have been restated
by £24m
in relation to the remeasurement of imputed revenue and interest in respect of interest
-
free ref
undable accommodation deposits received by the Group as payment for aged care units in Bupa Villa
ges and Aged Care Australia.
See Note 1.5 for further detail.
8
2020 underlying profit has been restated by £(
14
)
m
following the quantification of historical u
nderpayments
of in
employee entitlements
Bupa Asia
Pacific Market Unit and for how the costs
incurred in implementing a SaaS arrangement are accounted for. See Note 1.5 for further detail.
9
Combined operating ratio is an alternative performance metric for
insurance businesses. It is calculated based on incurred claims and operating
expenses divided by net earned premiums.
10
Bupa HI Pty Ltd (Australia): Based on S.05.01 Prudential Regulation Authority (SII) form (estimated and unaudited).
Strategic Report
For the year ended 31 December 2021
6
portfolio optimisation and operating efficiency initiatives undertaken as part of an overall business transformation programme that
began in 2019.
In our
New Zealand
aged c
are
business, revenue
improved, reflecting strong village sales
. Closing occupancy
was down to 88%
(2020: 91%)
due to
COVID-
19 restrictions.
The u
nderlying loss
re
flects
higher operating costs. As part of
our
portfolio optimisation,
we sold seven rehabilitation sites, one care home and announced the closure of three care homes.
In December, following an extensive proactive pay compliance review in Australia and New Zealand
, we
have quantified historical underpayments
of employee entitlements affecting some current and former employees
. Details are provided in
Note 1.5 of the
financial statements.
In Hong Kong , revenue reopening of s and improved volumes in both provision and
SAR
increased
driven by theervi
s ce
insurance. continued rebound of
The
claims
led to
overall underlying losses
in
Hong Kong
Insurance, partially offset by
the improved performance in Health Services from increased demand and the launch of new C
OVID
-19
-related services. Europe and Latin America
Revenue
Underlying profit
2021
£4,004
m
£185
m
2020 (AER)
£3,765m
£
207
m % growth/(decline)
6%
(
11
)% 2020
(CER)
£3,569m
£197
m
% growth/(decline)
12%
(6)%
Health insurance
customers (m)
Health
care provision
customers (m)
Aged care residents
2021
4.5
11.4
5,300
Performance
Revenue grew by 12% the normalisation of claims
with
underlying profit decreasing by 6
% at CER. Performance was
driven byafter exceptionally low levels in 2020 across all our insurance businesses, alongside challenges in our Chilean Isapre insurance
business. This was
offset by increased
insurance volumes as new business sales continued to grow
, as well as higher provision volumes with activity returning to historically normal levels.
Sanitas Seguros, our health insurance business in Spain, delivered good revenue growth driven by strong sales, with a net gain
of 121,000 while underlying profit as
new customers
, declined due to
the impact of higher claims
restrictions were
lifted and
COVID-
19 coverage was added to certain policies
. The COR for the full year
was 88%11
(2020: 84%). We continued to
enhance our digital offer with the launch of Conecta tu salud allowing customers to monitor their health through the Mi Sanitas
app.
There
was strong growth of 22% in video consultations through BluaU.
Our Dental business in Spain delivered good
results with r
evenue and underlying profit up,
driven by higher activity following the lifting of restrictions. Customer numbers increased b
y
26% compared to 2020 to 202,000. In our Hospitals and New Services business in Spain, revenue and underlying profit grew year on year
with
activity gradually returning
to normal levels
and government-related pricing uplifts. The number of video consultations increased to 2
4% of total
consultations. In August, following a strategic review we sold our fertility business, Ginemed.
In Sanitas Mayores, our aged care business in Spain, revenue was broadly in line with
2020
. Underlying profit was up driven by the recovery of occupancy post lockdown and closure of one
and
the sale of three
care homes. C
losing occupancy improved
to
87% (2020: 76%).
In Chile, there was good revenue growth due to
higher volumes and outpatient activity in our
health
provision business. Underlying
profit
was up
in health provision which was more than offset by increased underlying losses in our insurance businesses
. The performance of the Isapre
insurance
business was affected by regulatory
interventions
impacting the whole sector, which included
preventing premium adjustments and mandating regulatory
significant extension
s to cover.
the impact of theseTo
mitigate changes, we
restructured our
business and reduced our operating costs.
We expect the regulatory and political landscape t
o
continue adversely impacting
the Isapre business in 2022
and will continue to monitor
this closely
and engage with relevant
stakeholders.
We continued to enhance our digital offer
, enabling customers to access network
s of doctors and monitor their
health.
In Poland, LuxMed delivered
good
revenue growth from new corporate subscriptions
with increased u
nderlying profit as activity gradually returned to We opened four clinics,
historically
normal levels.one
imaging diagnostic facility and
one mental healthclinic
. We also acquired three healthcare providers, reinforcing our leading position in the market.
In Turkey, our health insurance business Bupa Acıbadem Sigorta, delivered
strong
revenue growth driven by increased customer
volumes
, with a net increase of more than
332,000 customers. We ended the year with around 986,000 customers.
Underlying losses
were driven from higher claim volumes.
Care
Plus in Brazil delivered
strong
revenue and customer growth while underlying profit was down due to the reduction of claims
disruption.
11
Sanitas S.A. de
Seguros (Spain): Prepared under local GAAP (unaudited).
Strategic Report
For the year ended 31 December 2021
7
Bupa Mexico’s revenue and underlying profit our first outpatient product distributed through
were up,
driven by the launch ofBBVA
,
as well as
a distribution agreement with HDI, higher volumes from Vitamedica, a
third-party administrator we acquired in
January 2021, and the reopening of provision services.
Bupa Global Latin Amer We expanded our digital
ica
made an underlying loss as the claims disruption seen in 2020 did not recur.offer with the launch of our app, Mi Bupa Latinoamérica and our first domestic insurance products in Ecuador.
Bupa Global and UK
Revenue
Underlying p
rofit
2021
£3,39
6m
£
78
m 2020 (AER)
£3,122m
£122
m
%
growth/(decline)
9%
(
36
)% 2020 (CER)
£3,098m
£122
m
% growth/(decline)
10%
(
36
)% Health insurance
customers (m)
Healthcare provision
customers (m)
Aged care residents
2021
2.8
2.9
6,100
Perfo
rmance
Revenue
was up 10% while underlying profit decreased by
36% at CER, driven by the insurance businesses
as claims activity
increased
compared to 2020
, with customers being able to access private healthcare
more easily
. This was exacerbated in Bupa
Global
, our IPMI business,
where pricing of experience
-rated products referencing the lower claims seen in 2020
led to reduced
profitability.
UK Insurance
reven
ue was up,
as we added 135,000 new customers in UK PMI,
Dental and Cash Plan, improving performa
nce year-on-
year. Underlying profit decreased due to
the reduced claims disruption arising from
-19, COVID
partly offset by
higher revenues
. We announced in March
2021 that eligible
health insurance customers would receive a share of
£125m12
in return of
pre
mium
following the pledge we made to pass back
any exceptional financial benefit
ultimately arising from the temporary
disruption to some medical treatments in 2020. To date, we have made cash payments to around 99% of eligible customers, the
first major health insurer to do so. We are yet to determine a final settlement as we continue to monitor claim patterns
and,
as at
31 December 2021
,
we continue to hold a premium provision of £71m. This consists of the net disruption to claims due to the impact of COV
ID-
19, including deduction of related costs and impact to profit, deferred claims we expect to rebound in the future and the payments we have already made. It represents the best estimate of exceptional financial benefits occurring from 23
March 2020 to 31
December 2021
. We extended our women’s health support by launching a new Menopause HealthLine
offering
advice from specially trained nu
rses
. We continued to expand our digital offer with almost 400,000 customers now registered on Bupa Touch, giving them online access to their cover and benefits.
In Bupa Global, revenue was
flat
and underlying losses occurred both from the reduced as COVID-19
claims
disruption restrictions eased lower claims seen in
,
and where experience-rated
products had been necessarily
priced by reference to the2020. We saw lower new business volumes, although th
is
was partially offset by strong retention. We launched Private Client, a new product wellbeing
tailored
for Ultra-
High Net Worth individuals, combining direct access to private medicalspecialists
, therapies and a dedicated concierge manager.
The COR for Bupa Insurance Limited, the UK
-
based insurance entity that underwrites both domestic and international insurance, worsened to 9
7%
13
due to reduced claims disruption in our PMI business and unfavourable claims experience
in our IPMI
business (2020: 92
%)
. In
UK Dental
, the underlying result improved
practices remained as our
fully open for the year compared to 2020. This allowed
us to increase the number of private and NHS pati
ents, although
productivity was still limited due to strict COVID-19 safety
me
asures
. We completed the rollout of a new IT infrastructure to
strengthen resilience across all practices in our network and
launched Dentally, a new practice management system.
Revenue
and underlying profit in UK Care Services w
up ere
due to a recovery in occupancy. Our closing occupancy rate was up
to 84% (2020: 82%). Our Richmond Villages have seen strong growth with both occupancy up and strong sales of our retirement
housing
. Our journey transforming aged care through digital innovation has continued with the launch of eCare, an electronic
care planning system, across Richmond Villages with the wider rollout to
c
in 2022. Sectorare
homes -
wide staffing pressures have continued, and we implemented the government regulation to mandate vaccines across all our care settings.
In Health Services, revenue and underlying profit increased, driven by higher
customer numbers
in clinics and increased demand for preventative wellbeing, alongside strong growth in mental health support services In our
and COVID-
19 testing services.c
linics we launched a Menopause Plan offering women access to specially trained GPs.
Cromwell Hospital continues to be
impacted from reduced international business, and increased costs due to the pandemic.
12
The £125m payment to customers comprises £110m of rebate payments under our pledge and £15m related to COVID
-
19 impacts within
contractual payments under risk and profit share arrangements.
13
Bupa I
nsurance Limited: Prepared under local GAAP. Excludes our associate Highway to Health
(GeoBlue).
Strategic Report
For the year ended 31 December 2021
8
Other businesses
Revenue
Underlying profit
2021
£5m
£45m
2020 (AER)
£6m
£54m
% (
decline)
(17
)%
(17
)%
2020 (CER)
£5m
£50m
% growth/(decline)
0%
(
10
)% Health insurance
customers (m)
Healthcare prov
ision
customers (m)
2021
9.4
0.2
Performance
On 1 July 2021, Hong Kong SAR entities were incorporated called Bupa Asia Pacific
into
a new Market Unit. The ‘Other
businesses’ segment now includes
our associate businesses Niva Bupa
(
formerly
known as Max Bupa)
in India,
and Bupa Arabia,
in Saudi Arabia. These results and comparatives are presented excluding the Hong Kong SAR entities.
In 2021, we saw increased customer volumes in both Niva Bupa and Bupa Arabia. Underlying profit was
£45m,
down 10
%
at
CER,
largely driven by
the higher claim volumes in both associate businesses as
COVID-19 continued to have an impact
throughout Saudi Arabia and India.
FINANCIAL REVIEW
Overview
Revenue was £12.9bn, up 8% (
2020: £12.0bn
14
at CER), and underlying profit wa
s £
509
m, up 14
% (
2020: £447m15
at CER). The
Group’s underlying results and improving results health
reflect strong
customer growth across our insurance businessesin
provision and aged care as we emerge from the pandemic. This is offset
by
increased insurance claim levels following reduced disruption to elective procedures compared to 2020.
Our statutory profit before taxation was £
537
m, up 10
% (2020: £488
m at AER), reflecting higher underlying profit, and gains made on acquisitions and divestments, including a one
-
off gain arising upon the transfer of customers from CS Healthcare into our UK Insurance business and divestment of
our
rehabilitation business in New Zealand, partially offset by a small number of goodwill and intangible impairments.
We generated cash from operating activities of £
939m, down £532m
, primarily as a result of higher claims as disruption to elective
procedures reduced from 2020.
Our Solvency II capital coverage ratio of
179
% at 31 December 2021 (2020: 160%) remains strong and is above
our target working range of 140-170%.
We
repaid a
£350m senior bond on its maturity in June 2021
and issued
a £300m R
estricted Tier 1 bond in September
, alongside
a successful £250m tender off on the 2023 £500m Tier 2 bond
er
. T
his enhanced our capital position
. Additionally, in December our £800m revolving credit facility (RCF) with a maturity in August 2022 was refinanced and replaced with a new facility
of £900m,
expiring in 2026, improving our liquidity position. As at 31 December 2021, the RCF was drawn down by £150m.
Revenue (CER)
Revenue was up 8% through portfolio growth and price rises in our insurance businesses, alongside increased activity in our
health provision businesses.
Insurance
customer growth year on year was
18% (6% year
-on-year growth when excluding our associate
businesses’
customers),
driven by our Europe and Latin America
Market Unit, especially in Spain
and Turkey
. Group insurance
re
venue grew
5%
16
as
a result of the customer growth, and premium rate increases
, including
in
Aus
tralia where an agreed change was
deferred by six months offset by our
in 2020.
This wasannouncement
in Australia Health Insurance to return £66m (AUD$120m) in cashto around 3.5m customers and a top-up to the return of premium pledge provision in UK Insurance.
Our health provision businesses saw revenue growth of 20% reflecting higher customer numbers as the impact of reduced
COVID-
19 lockdowns in 2021 meant our business
es operated with fewer restrictions than 2020 and customers were able to
access servi
ces more easily.
14
Balances have been restated
by £24m
for a gross up between other revenue and financial expense (included within central expenses and net
interest margin) in
relation to the remeasurement of imputed revenue and interest in respect of interest
-f
ree refundable accommodation deposits received by the Group as payment for aged care units in Bupa Villages and Aged Care Australia.
15
Underlying and statutory profit hav
)m e been restated
by £(
14
at AER
following the quantification of historical underpayme
nts
of
employee
entitlements in Bupa Asia Pacific Market Unit and for how
costs incurred in implementing
a Software as a Service (SaaS) arrangement are accounted
for. See
Note 1.5 for further details.
16
Revenues from associate businesses are excluded from reported figures. Customer numbers and economic share of post
-
tax profits from our
associate businesses are included.
Strategic Report
For the year ended 31 December 2021
9
In our
aged c
are businesses, revenue was broadly in line with 2020, with closing
occupancy rates 3.5 percentage points higher as restrictions eased and more residents were admitted to our homes. This was offset by some targeted disposals of homes as
part of portfolio management in Australia, New Zealand and Spain.
Underlying profit (CER)
Group underlying profit increased by
14
% to £509
m (2020: £447m
17
at CER),
reflecting the continued emergence of our
businesses from the pandemic. This has resulted in increased profits in health provision and aged care from reduced restrictions
across our partly offset by insurance profits reducing
Market U
nits as well as lower COVID-19-
related costs. This is
as strong
customer growth could not offset the return to normalised levels of claims versus the disruption seen in 2020.
For our largest line of business, health insurance, despite
good
revenue growth, underlying profit decreased as
insurance claim levels increased
following reduced disruption to elective procedures compar
ed to 2020
. Incurred claims are gradually returning
towards more normal some businesses
ised
levels, with a higher volume
of claims in; however,
the volume and timing of these varies by market.
In Australia, we continue to hold a deferred claims liability provision of £
163
at 31 December 2021 (2020: £m
171m
at AER).
Although broadly in line with the prior period, the provision was strengthened in the year due to the continued domestic claim
disruptions caused by the pandemic. This was offset by a release coinciding with the announcement on 6 October 2021
that we
would return £66m (AUD$120m) in cash to around 3.5m customers as a result of claim savings made. We will continue to monitor
claim patterns to assess the impact of any further disruption to claims.
In the UK, we announced in March
2021
that eligible health insurance customers would receive a share of £125m
in return of premium
following the pledge we made to pass back
any exceptional financial benefit
ultimately arising from the temporary
disruption to some medical treatments in 2020. To date, we have made cash payments to around 99% of eligible customers, the
first major health insurer to do so. We are yet to determine a final settlement as we continue to monitor claim pattern
s and as
at
31 December 2021
we
continue to hold a premium
provision of £71m
. This consists of the net disruption to claims due to the impact of COVID
-
19, including deduction of related costs and impact to profit, deferred claims we expect to rebound in the future and the payments we have already made to these customers. It represents the best estimate of exceptional financial benefits
occurring from 23 March 2020 to 31 December 2021.
We returned to profitability in our health provision businesses,
as
trictions in the majority of our markets reduced allowing res
customers to access these services. This is in contrast to
2020
when there were a number of temporary closures due to localised government restrictions.
The underlying loss in aged care reduced gnificantly year
si
-on-
year, with revenue and customer levels broadly in line, but with lower costs, as the cost of maintaining high standards of health and safety
and
the need for agency staff reduced
. We have taken targeted actions to optimise our care h
ome
portfolio with divestments in
Australia,
New Zealand and Spain, helping our occupancy
rates, which have increased by 3.5 percentage points from
2020
. As restrictions continue to ease, we expect the aged care business to move back towards profitability.
Central expenses and net interest margin of £
48
m were lower than prior year (2020: £80
m at CER) as higher investment returns, particularly in Turkey, were partly offset by the additional one-off
costs
for the partial buyback of a Tier 2 bond maturing in 2023. Statutory
p
rofit (AER)
Statutory profit before taxation was £
537
m up 10
(2020: £%
488m
17
). This reflects the increase in underlying profit signifying the
continued emergence of our businesses from the pandemic.
2021
£m
2020
£m
Asia Pacific
at CER
2
49
1
58
Europe and Latin America at CER
1
85
1
97
Bupa Global and UK at CER
78
1
22
Other businesses at CER
45
50
Underlying profit for reportable segments at CER
5
57
527
Central expenses and net interest margin at CER
(
48
) (80)
Consolidated underlying
profit before taxation at CER
509
447
Foreign exchange
re
-
translation on 2020 results (CER/AER)
-
19
Consolidated underlying profit before taxation at AER
509
466
Impairment of intangible assets and goodwill arising on business combinations
(18)
(12)
Net
gains/(losses)
on disposal of businesses and transaction costs on business combinations
13
(1)
Net property revaluation gains
16
26
Realised and unrealised foreign exchange
gains/(
losses
)
5
(2)
Other Market Unit non
-
underlying items
23
(7)
Group no
n-
underlying items (14)
3
Gains on return
-
seeking
assets, net of hedging -
3
15
Total non
-
underlying items28
22
Statutory profit before taxation at AER
537
488
In 2021, non key drivers for non
-
underlying items totall
ed £28
m profit, compared to a £22m profit in 2020. The
-
underlying items 17
Underlying and statutory profit have been restated
by £
(14
following the quantification of historical underpayments)m
at AER
of employee
entitlements in Bupa Asia Pacific Market Unit and for
how costs incurred in implementing
a
Software as a Service
(
SaaS
)
arrangement are accounted
for. detail.
See Note 1.5 for f
urther
Strategic Report
For the year ended 31 December 2021
10
in 2021 were property revaluation gains in our New Zealand retirement villages, gains made on the divestment of
our rehabilitation
business in New Zealand and a one
-
off gain on acquisition, arising upon the transfer of
customers from CS Healthcare into our UK Insurance business (£40m). This was partially offset by
an
impairment of intangible assets in Bupa Villages and Aged Care Australia in relation to unused bed licen
c
es following the government
announcement to deregu
late bed licenc
es from 2024 and
costs associated with the debt buyback earlier in the year.
Taxation
The Group’s effective tax rate for the period was
18
% (2020: 23
%), which is lower
than the current UK corporation tax rate of 19%.
This is due to a prior year credit of £43m following a favourable court decision in Spain. If this exceptional item was removed,
the Group’s effective tax rate would be 26%, due mainly to profits arising in jurisdictions with a higher rate of corporate i
ncome
tax than the UK. The change in the enacted UK tax rate from 19% to 25% (which applies from 1 April 2023) resulted in an increase
in the overall tax charge of £14m.
Cash
flow
Net cash generated from operating activities decreased by £
532
m to £939
primarily as a result of higher claims as disruption m
to elective procedures reduced from 2020.
Net cash used in investing activities decreased by £
641
m to £215
m in 2021 with lower deposits being made as a result of the increased claims activity. In addition, we have received a £34m dividend from Bupa Arabia, whereas in 2020 we made an
investment in Bupa Arabia to increase our holding by 4%.
Net cash used in financing activities increased by £
215
m to £600
m primarily due to
the repayment of a £350m senior bond upon maturity and partial buyback of £250m of Tier 2 bonds. This is partially offset by cash generation from the issuance of the
Restricted Tier 1 bonds.
Funding
The key developments in 2021 were the Restricted Tier 1 bond issuance and partial buyback of the Tier 2 bonds in addition to
the refinancing of the Group's RCF. A £350m senior bond was repaid on its maturity in June 2021.
At 31 December 2021, our £900m RCF was drawn by £150m (2020: £nil). During 2021, we also put in place a
€
30m bank facility in Spain to further support Group liquidity. This was fully undrawn at the year end.
We focus on managing our leverage in line with our credit rating targets. Leverage excluding operating leases at 31 December
2021 was 20.4% (2020: 26.3%). Leverage is 27.9% (2020: 33.6%) when IFRS 16 lease liabilities are taken into account.
Coverage of financial covenants, which reflect interest cover and debt/net worth, remains well within the levels required in
our
bank facility.
We
manage our funding prudently to ensure a strong platform for continued growth. A key element of our funding policy is to
target an A-/A3 senior credit rating for
the Company
, the main issuer of Bupa’s debt. The Company’s senior debt ratings are A3 (negative) by Moody’s and BBB+ (stable) by Fitch. Fitch and Moody’s reviewed Bupa’s
credit ratings during 2021 with no changes.
Solvency
Our solvency coverage ratio of 179% remains strong and
is
above our target working range of 140
-170%. The Group holds capital to cover its Solvency Capital Requirement (SCR), calculated on a Standard Formula basis, considering
all our risks, including those related to non
-
insurance businesses. As at 31 December 2021, the estimated SCR of £2.5bn is flat to 2020 and Own Funds of £4.5bn was £0.4bn higher when compared to 31 December 2020.
Our surplus capital was estimated to be £2.0bn, compared to £1.5bn at 31 December 2020, representing a solvency coverage
ratio of 179% (2020: 160%). Our business continued to generate capital through our underlying profitability. This capital
gener
ation wa
s largely offset by capital expenditure, debt financing activities and negative FX movements during the period as
sterling appreciated against some of our major currencies.
We have performed an analysis of the relative sensitivity of our estimated
solvency coverage ratio to changes in market conditions
and underwriting performance. Each sensitivity is an independent stress of a single risk and before any management actions.
The selected sensitivities do not represent our expectations for future market and business conditions. A movement in values of
properties that we own and lease continues to be the most sensitive item, with a 10% decrease having a
11
percentage point reduction to the solvency coverage ratio.
Our capital position is resilient in the face of the individual risks, illustrating the strength of our balance sheet.
Strategic Report
For the year ended 31 December 2021
11
Risk
s
ensitivities
Solvency II coverage
ratio
Solvency coverage ratio
179%
Property values
-
10%
168%
Loss ratio worsening by 2%
172%
Sterling depreciates by 20%
172%
Interest rate
-
100bps
177%
Group Specific Parameter (GSP)
18
+0.2%
177%
Pension risk +10%
179%
Credit spreads +100bps (no credit transition)
179%
Equity markets
-
20%
179%
We include a Group Specific Parameter (GSP) in respect of the insurance risk parameter in the Standard Formula. We apply a
premium recognition adjustment to the GSP loss ratio data to allow for the distorting impact of the COVID
-19
pandemic. The PRA have confirmed its approval of this approach.
18
G
roup Specific Parameter (GSP) is substituted for the insurance premium risk parameter in the standard formula, reflecting the
Group’s own loss
experience.
Strategic Report
For the year ended 31 December 2021
12
Section 172 statement
Promoting our long
-term success and sustainability
This statement sets out how the Board has acted in a way that promotes the success of the Company for the benefit of its sole
shareholder, Bupa, in achieving its purpose of helping people live longer, healthier, happier lives and making a better world.
When making decisions, the Board takes into account:
• The likely long-term impact of the decision
• The interests or concerns of, and impact on, our key stakeholders
• The impact of our decisions and operations on the communities in which we operate, and the environment
• The need to maintain a reputation for high standards of business conduct.
Engaging with our key stakeholders
We consider our Parent, customers, people, bond investors, suppliers and regulators to be our key stakeholder groups, and their
views and concerns are taken into account in developing our business model and strategy.
The Board endeavours to gain an understanding of the perceptions and attitudes of each stakeholder group and the weight they
give to different issues. Where the views of different stakeholder groups do not align, the Board must decide on the best course
of action to promote the Company’s and Bupa's long
-
term sustainability and success. It is important for all levels of the business to engage with stakeholder groups to gain a better understanding of their interests and concerns and the impact our decisions
have on them.
We set out below our key stakeholder groups and how we have engaged with them.
Customers
Our ambition is to be the world’s most customer
-
centric healthcare company and our three ambition KPIs all relate to our customers. This means a commitment to excellent customer experience, through great service and value, frictionless access and
quality healthcare. We are aligning our health funding and our health provision assets across the world to support this ambition.
Our
3x6
strategy focuses on
Customer experience through continuous innovation, a commitment to
Sustainability, and business
G
rowth underpinned by high standards of corporate governance. This puts customers at the core of everything we do and makes
them our most
important
stakeholder group. Customer needs and preferences are evolving rapidly as consumers become increasingly engaged with their own health and expect more from service providers in all aspects of their lives, including
healthcare.
Our customers are spread across the world and across our different lines of business in health insurance, health provision and
aged care. The interests of different customer groups will differ by type of business and geography. By providing both health
insurance and health provision we are well placed to understand the needs of customers throughout their interaction with
healthcare systems and to integrate our offering to best meet these needs.
We champion quality, medically evidenced treatment and care, and seek to deliver value for money, provide exceptional care,
keep our customers’ data safe and help customers navigate the complex world of healthcare.
The Bupa Board receives regular reports tracking key customer metrics, such as
NPS
, complaints and customer research, to track how we are performing for our customers. From these reports, the key issues that our customers raise include:
• Affordability of health insurance
• Quality products with broad coverage and high standards of care
• Greater personalisation of health products and services
• Quicker access to services, such as through digital applications.
The Bupa Board is regularly updated on matters affecting Bupa’s customers via the Group CEO’s reports, Market Unit
and
Business Unit updates and via specific customer performance updates. The pandemic has accelerated the adoption of digital
care delivery, and an increased level of digitalisation of the sector will continue over the longer-
term.
The health of our
plane
t can impact people’s health and the wider economy, in turn impacting the affordability of our products and services for customers. Many of our key stakeholders expect us to take action on ESG and sustainability mat
ters. Therefore,
we aim to address these through our strategy.
More
information can be found in the Communities and
the environment disclosure
below.
People
Our people are at the heart of our business, supporting our customers every day. We want our people to feel engaged and
empowered to deliver great outcomes for our customers, to feel that Bupa is a great place to work and to be healthier and happier
themse
lves. We operate several lines of business in numerous markets and the issues important to our people vary by market
and business. Our approach to engagement is therefore led locally, with all teams planning actions in the light of regular pe
ople
surveys,
and local boards and management teams engaging with their people on the issues important to them.
People issues are flowed up to the Bupa Board through regular reports from the Group CEO, and as part of Market Unit updates
to the Bupa Board. These included the impact of the ongoing pandemic on our people and actions taken to support them. In
additio
n, the Chief Sustainability and People Officer provided updates during the year on progress of the People strategy,
inclusion and diversity, talent and succession, gender pay gap and incentives. The Bupa Board also receives reports on issues
raised through the Speak Up whistleblowing service.
Strategic Report
For the year ended 31 December 2021
13
The Bupa Board discusses the results of the global employee survey (People Pulse which assesses engagement across the
),
Group, considers the trends they reveal and makes recommendations to management as necessary.
Pe
ople issues also flow through to the Bupa Risk Committee where regular reports from the Chief Risk Officer have included
monitoring risks to our people’s resilience due to the pandemic, and their capacity and capability to deliver the Group’s
transformatio
n objectives. In late 2021, the Bupa Nomination & Governance Committee reconsidered the Bupa Board’s approach
to engaging with the workforce and designated the Bupa Chairman and two Bupa Non
-
Executive Directors to meet regularly with representatives of Bupa’s people and Market Unit executives for the businesses in the UK, Australia and New Zealand, and
Spain. This recognises that a more structured means of gathering views from the workforce would be beneficial to the Bupa
Board in its decision
-
making. Less interaction has happened in 2021 than prior to the pandemic due to restrictions on travel preventing the Bupa Board from carrying out site visits in
-
person, and the changes to the way large parts of our business have had to operate to protect our customers and our people.
Regulators
The Bupa Group operates in highly regulated environments across both our health insurance and provision businesses. We are
subject to financial services regulatory regimes in our insurance businesses and care quality regulators in our provision and aged
ca
re
businesses.
As a bond issuer, the Company is regulated by the UK Listing Authority of the Financial Conduct Authority
(FCA) and complies with the relevant requirements of the FCA Handbook.
Regulators ultimately aim to make sure that we have the financial resources and the Risk Management Framework necessary to
protect customers and ensure that they receive high levels of care and are treated fairly. This clearly aligns with our strategy to
put our customers front and centre. Our regulators expect us to:
• Maintain sufficient capital, with specific requirements for reserves in our insurance businesses
• Provide high-quality, clinically robust services
• Ensure that we operate in a responsible and sustainable way
• Have robust and effective processes and controls in place to mitigate risks to protect our customers.
The Bupa Group is firmly committed to achieving high standards of compliance with our regulatory obligations in all of the markets
in which we operate. Increased levels of
regulation,
and liaison between regulators,
are a continuing international trend. Therefore, we take a proactive and coordinated approach to managing the regulatory risks to which we are exposed in order
to
reduce the risk of our customers suffering detri
ment,
and minimising any financial or reputational impact on Bupa. We have a Bupa Group
-
wide Regulatory Compliance Risk Policy in place to ensure high standards of compliance with the requirements of all r
elevant regulators.
We have a regular programme of interaction with the Bupa Group’s lead insurance regulator, the Prudential Regulation Authority
(PRA), and engage with them on key decisions of the Board and the Bupa Board. Senior members of the management team, the
Bupa Chairman and the Chairs of the Bupa Board’s standing committees have regular meetings with the PRA. We engage with
the FCA on relevant Board decisions. Relationships with other regulators are maintained at a local level by our Market Unit and
Business Unit management teams, with subsidiary board interaction with local insurance regulators, as appropriate.
Bond investors
The Company has a number of debt securities in issue and is therefore required to operate in accordance with the relevant UK
Listing Rules, the Disclosure Guidance and Transparency Rules and Market Abuse Regulation.
Briefing calls are held for bondholders to discuss the full year and half year results. This provides an opportunity for them
to
question management on the Company’s and the Bupa Group's financial performance and strategy. We hold roadshows for
bondholders annually, and other significant developments are communicated via regulatory announcements, press releases and
published on our website Group’s financial performance and strength and increasingly
,
bupa.com. Investors are interested in thein our wider ESG and sustainability activities.
Suppliers and partners
Our suppliers and partners represent our brand and are critical to delivering a high
-
quality service to our customers. The
y include
hospitals, medical consultants and other healthcare professionals, systems suppliers and suppliers of products to our hospitals,
clinics, dental centres and care homes.
We have a Group
-
wide Suppliers Risk Policy governing our processes for the selection, contracting and management of all
of
our suppliers to ensure that they represent our values and will not compromise the service we provide to our customers or how
we treat our people.
We are committed to:
• Treating our suppliers fairly
• Paying suppliers on time (as per contracted terms)
• Selecting suppliers without prejudice
• Working with our suppliers to support improvements in their social, environmental and ethical practices
• Maintaining a supply chain that reflects and aligns with our own standards of responsible business conduct.
We work with our suppliers to ensure that they have effective
processes
in place to protect our customers’ health and safety and the security and privacy of their data.
The Bupa Group also regularly engages with health and social care professionals and NGOs and works with other commercial
and non-profit organisations to make a positive impact on specific health issues.
Strategic Report
For the year ended 31 December 2021
14
Our
S
ustainability agenda includes a workstream on responsible business conduct with a key focus on responsible supply chain
mana
gement, including combating modern slavery. Our latest Modern Slavery
statement can be found on bupa.com together
with our Responsible Supply Chain statement.
Communities and the environment
Sustainability is reflected in
Bupa’s throug
refreshed purpose
h the
addition of the words ‘and making a better world’. This
demonstrates the broader role we expect to play the health of our customers and our
,
not only inpeople,
but also for
the health of our planet. Our contribution as a global healthcare company is mitigate the impact of healthcare on the environment and
to
build resilience into the healthcare system for our wider society.
For this reason
, we
are
build
ing climate risks and opportunities into our business: w
e are
demonstrating our climate goals through
our science 2040; while we also transform our business to
-
based targets and our ambition to become a Net Zero business byembed sustainability into all decision making. This is
Bupa Group’s
first year disclosing against the T
askforce on Climate-relate
d
Financial D
isclosures (
) recommendations. Bupa Group TCFD
will continue to develop the detail of our TCFD disclosures as we
complete further analysis and strengthen our strategies. please see pages
For f
urther details
, 28
of Bupa Group’s Annual Report and Accounts 2021.
We help to build healthier and more resilient communities and aim to have a positive impact on the environment. We have
dedicated Foundations in Australia, Spain and the UK to channel some of our investmen
t. D
uring the year this included: projects
to support people’s mental wellbeing in the UK; Bupa Contigo to support healthcare workers and businesses across Latin Americ
a
during the pandemic; and launching the Healthy Planet, Healthy People volunteering initiative in Australia with Conserva
tion
Volunteers Australia.
High standards of business conduct
Bupa has a robust system of governance and risk management in place and operates a
‘
three lines of defence’
model to identify, manage and mitigate risk
,
to ensure that we maintain high standards of business conduct. Bupa aims
, where appropriate, to operate to the same governance standards as are required of UK listed companies and the Company complies with rules relevant
to debt issuers.
These include governance processes around decision
-making;
risk appetite statements set by the Bupa Board and r
isk
policies
and s
tandards that are applied across the Group on areas including customer outcomes, people, capital management, supplier
management, risk, clinical governance, data quality, information security, and wellbeing, health and safety. Further information
on our principal risks and approach to risk management is on page 17.
All papers submitted to the Board are required to include a summary of key risks, how relevant stakeholders have been
co
nsidered in the proposals and the governance process undertaken prior to seeking Board approval to ensure that stakeholder
interests or concerns have been considered and that proposals have been through appropriate review and approval processes
prior to submission to the Board. This assists the Board in making well
-
informed decisions that promote the long-term,
sustainable, success of the business.
As mentioned above, our
S
ustainability agenda also includes a workstream on responsible business conduct management, to take a more proactive approach to ensuring that Bupa conducts its activities in a responsible way.
The Governance section commencing on page
25
describes the role of the Board;
Bupa’s system of governance, including the role of each of the three lines of defence
;
how we have complied with the UK
Corporate Governance Code 2018 (the Code)during the year; and the role and activities of the Bupa Audit and Risk Committees.
Strategic decisions and their impact on stakeholders
The table below sets out a number of decisions taken during the year and how stakeholder views were taken into account. Most
of these decisions were taken by the Bupa Board but impact the Group and are therefore relevant to the Company.
Bond issuance and related buyback -
customers, regulators and investors
The Board is responsible for promoting the
Company’s long
-
term sustainable success and
ensuring that the necessary resources are in place
to meet its objectives.
Maintaining a strong capital base and access to
liquidity
means that the Group has the reso
urces now,
and in the future
, to be able to maintain and
improve its offer to customers and to fund the
future growth of the business.
The Bupa Board monitors the Bupa Group’s
funding and liquidity position to ensure th
at we
have sufficient headroom in the level of liquidity we
hold above risk appetite.
Action
In September 2021, the Board approved the issue of a Restricted Tier 1
bond, and a partial buyback of a Tier 2 bond already in issue. This was
part of the Group’s proactive management of its funding and capital
structure and the issue was intended to increase our financial flexibility
by establishing access to the Restricted Tier 1 capital market and create
additional Tier 2 capital headroom.
Stakeholder considerations
Management discussed the proposals with HMRC and the PRA in
advance and sought their c
learance and approval respectively.
Management met with potential investors ahead of the issuance.
The Board considered other potential courses of action and felt that this
provided the best outcome
,
and that the novel (for the Company)
structure of the Restricted Tier 1 bond did not pose any risks to the
Bupa
Group’s strategy.
The issuance also offered a liquidity event for current holders of the bond
being partially bought back.
Strategic Report
For the year ended 31 December 2021
15
Long-term impact
The bond issuance enabled the Company to demonstrate to investors,
regulators and customers that we would continue to hold suffic
ient
capital reserves and could continue to comply with the relevant capital
adequacy regulations.
Companies that can demonstrate financial stability attract and maintain
support from a stable bond investor base and can secure more efficient
capital-
raisi
ng terms. The bond transactions attracted strong demand
from bond investors.
The
issuance and partial buyback has enabled the Company to enhance
its strong liquidity and capital positions and extend our debt maturity
profile, maintain our good standing in the bond market by meeting
investors’ expectations and
improve
our offer to our customers and to generate sustainable long-term growth.
Supporting our customers
–
customers, high standards of business conduct and regulatorsThe
COVID
-19
pandemic resulted in a number of
limitations being imposed on the provision of
medical services i
n Australia which materially
disrupted the private health insurance industry
there. In 2020, a provision was established for
deferred claims in our
Australian
Health Insurance business and a number of actions were taken to
support customers.
As a result of similar disruption to the UK private
health insurance market, the Board approved a
proposal in 2020 from our UK Health I
nsurance
business to pass on any e
xceptional financial
benefit ultimately arising from the pandemic to its
UK Health Insurance custo
mers.
Action
In September 2021, the
Bupa
, and the board of Board
our Australian
Health Insurance subsidiary, considered and endorsed a proposal from
this business to return £66m (AUD$120 million) in cash to around 3.5
million customers as a result of claims savings made during the period
of COVID
-
19 restrictions. This coincided with a release from the deferred c
laims liability provision made in 2020 (and which had been
strengthened in 2021).
In March 2021, the
Bupa Board
, and the board of our
UK Health
Insurance subsidiary, considered and endorsed a proposal from our UK
Health Insurance business that eligible health insurance customers
would receive a share of £125 million in return of premium,
following
the
pledge made in 2020 to pass back any exceptional financial benefit
ultimately arising from the temporary disruption to some medical
treatments in 2020. The business continues to monitor claims patterns
and, as at 31 December 2021, a premium provision of £71m is held in
respect of UK Health Insurance, rep
resenting the best estimate of
exceptional financial benefits occurring from 23 March 2020 to 31
December 2021.
A number of other actions were taken in response to the pandemic in all
our markets.
St
akeholder considerations
For both decisions, the
Bupa
Board and the relevant subsidiary boards,balanced customers’ desire for swift action with the impact of the rebate
on the
businesses’
current and forward-
looking capital and liquidity and the expected level of claims rebound going forward. The proposal for the
UK Health Insurance business was discussed in advance with the PRA
and FCA who were concerned with both maintaining sufficient c
apital
and treating customers fairly. The Australian Health Insurance proposal
was in line with guidance published by the local insurance regulator.
Long-term impact
Claims patterns continue to be monitored to assess the impact of any
further disruption
to claims.
Dividends – shareholder, investors, customers
The Board needs to manage the desire for its
Parent to receive
dividends with the funding
required by the business to achieve the Group’s
objectives, and the need to maintain the financial
strength of the Company.
Action
The Board approved an interim dividend.
Stakeholder considerations
The Board considered the expected level of funding required by its
subsidiaries to achieve the Bupa Group’s strategy and the financial
strength of the Company prior to approving and authorising the payment
of an interim dividend.
Surplus funds which are not distributed to the shareholder are reinvested
back into the business to help achieve the Group’s purpose and strategy.
Long-term impact
Prudent financial management supports the long
-
term success of the Company and its shareholder, Bupa, motivates management to deliver
strong and
sustainable business performance, and maintains the
strength of the Company’s creditworthiness rating as a bond issuer.
Strategic Report
For the year ended 31 December 2021
16
Trea
sury management
– customers, people
, shareholder and suppliers The Company needs to ensure that it, and its
subsidiaries, can meet their financial obligations.
Action
The Board took treasury management decisions during the year to
ensure that
the Company and the Bupa Group met their financial
obligations.
Stakeholder considerations
Stable performance and liquidity provides reassurance to suppliers that
they will be paid on a timely basis for the products and services they
provide, to employees that they will be paid on time and that investment
will be made to enhance working practices and systems, and to
customers that they are receiving products and services at a reaso
nable
cost and that Bupa will support their needs over the long-term.
Long-term impact
Managing the Company’s and the Group’s liquidity mitigates
operational, financial and reputational risk and thereby ensuring the
Bupa Group’s sustainability.
Financial statements – investors, regulator and high standards of business conduct
The Company’s and Group’s accounts must give
a true and fair view of the business and comply
with all relevant legislation and regulation.
Act
ion
The Board approved the Company’s 2021 Half
-
Year Results and 2021 Annual Report on the recommendation of the Bupa Audit Committee.
Stakeholder considerations
These ensure that investors have relevant information on the
Company’s performance which they
can use to base investments
decisions on. Results presentations are conducted for bondholders and
analysts to attend and ask questions.
Long-term impact
This pr
ovides assurance to investors of the Company’s ability to
maintain its obligations related to its listed debt securities.
Strategic Report
For the year ended 31 December 2021
17
Risk
Embedding a strong risk management culture is a strategic priority across Bupa supported by robust risk management
and controls.
This focus on culture is essential in order to respond to changing environments and evolving regulation. This means we can
better
foresee the potential risks of future changes that could affect our customers and our business, and to mitigate them.
Together
with our controls, ensuring a strong risk culture helps us to continue to serve our customers well and meet all of our
stakeholders’ expectations.
Our comprehensive risk management programme ensures that risk management comes as second nature to everyone at Bupa
and they are equipped to manage risk. We have tools in place to achieve this, including The Bupa Code, our code of conduct,
risk appetites, Enterprise Policies and our Speak Up whistleblowing process.
We are continuing to raise our standards and expectations in order to ensure the right outcomes for our customers, our markets
and our business.
Our local businesses are exposed to a wide range of political, regulatory, legal and economic risks. Our health insurance,
provision and aged care activities also carry different risk profiles including clinical risk.
We make sure we are in the best place to manage and diversify our risks, including emerging and strategic, by understanding
the factors behind the risk to each individual business and to our balance sheet, and by assessing how these risks interact.
Progress in 2021
We continued to strengthen our approach to risk management during the year and have further embedded this capability within
the business. Our approach is in line with the evolution of our business as a whole and the nature of how risks are evolving
globally.
While
we have continued to put risk management focus on the pandemic, with a particular emphasis on the safety and resilience
of our people and customers, we have ensured that we continue to focus on the wider risk management agenda throughout the
yea
r. With a new strategy and an enhanced purpose, we have also placed significant emphasis on the risks associated with the
new strategy, including:
• C
onducting in
-depth reviews of specific aspects of risk as they arise in the external environment and focusing on
specific areas of risk for our insurance and healthcare provision businesses
• R
eviewing recent experiences or events, including the pandemic, to assess what lessons could be learned and
implemented across the Group
• Review of our strategic and emerging risk profiles with a particular emphasis on how these are likely to be affected by
the pandemic
• R
eviewing our climate change risk profile and evaluating our approach to enhancing climate change risk management
and disclosures in Bupa
• Reviewing the risks associated with changing regulatory and political environments across the Group
• Reviewing and enhancing our liquidity risk appetite
• U
ndertaking a stress and scenario testing programme to improve our understanding of severe risks and how they may
affect the business plan in both our insurance and healthcare provision businesses
• Strengthening our clinical governance structures and approach
• R
eviewing the risks associated with our workforce relating to the resilience of our staff but also the strategic risks
asso
ciated with workforce availability
• C
ontinuing to improve our information security and privacy controls to respond to the ever
-evolving external
environment
• Continuing to improve our wider information technology and IT operational resilience controls.
Our
approach to
risk management
Governance
We have governance processes overseen by non
-
executive directors (NEDs)
at Group Board level and at subsidiary board level for our main insurance subsidiaries (more on our system of governance in the governance section
).
The
Board
Risk Committee receives reports from the Chief Risk Officer, Chief Medical Officer and other Bupa executives as
appropriate, and sees minutes from the major insurance subsidiary boards’ risk committees and the Group
-
level executive committee
. The
Bupa Enterprise Risk Committee (BERC)is responsible for the leadership and oversight of risk across the Group
and recommends risk appetite to the Board Risk Committee. The BERC is chaired by the Bupa Group CEO.
Each of our large insurance entities is overseen by a local Board Risk Committee, consisting mainly of independent NEDs who
oversee the Risk Management Framework. Our other businesses have formal governance structures in place appropriate to the
size, nature and complexity of the business. The subsidia
ry bo
ards receive regular reports from local management and Chief Risk Officers.
Approach and implementation
We use a ‘three lines of defence’ approach to risk management.
Strategic Report
For the year ended 31 December 2021
18
We manage risk across our health insurance, provision and aged care businesses in with our Board
line
-
approved Risk Management Framework. This sets out the principles behind a robust and continuous risk management system in our first line
of defence.
This ensures that:
• We identify current and emerging risks to the businesses and strategy and understand the potential consequences
• We have clear and established risk appetites within which we operate (these are discussed further below)
• We take appropriate and effective steps to mitigate and manage identified risks
• We use risk management information to help inform risk-based decisions across the business
• There is clear ownership of, and accountability for, risk.
We have a culture in which:
• Appropriate risk behaviours are encouraged and rewarded
• Inappropriate behaviours are challenged with appropriate consequences
• Risk events are communicated quickly without fear of blame.
We have well
-
established reporting systems in place to make sure that major risks to our businesses are identified, escalated, managed and mitigated. We carry out detaile
d
reviews and in-
depth analyses on particular risks where required, and have a stress and scenario testing programme for key risks.
Our risk management processes include explicit consideration of how future risks to our strategy might emerge or evolve and
what actions we should be taking now to mitigate these risks or to benefit from the opportunities they provide. This includes:
• Consideration of how technology may evolve;
• The future of health and healthcare and the impact of emerging and increasingly prevalent medical conditions;
• How society may evolve including the impacts of ageing populations; and
• Geopolitical and economic considerations.
We manage the risks to Bupa as a result of climate change using our risk management systems and structures as descr
ibed
above.
Our Enterprise Policies define the way we conduct business. The policies are reviewed annually and cover all key areas of
risk for our health insurance, provision and aged care businesses. These are implemented by our Market Units and in Group
Functions, and overseen by Group Functions to ensure compliance with the requirements in each Market and Business Unit.
Each policy has a designated owner with defined roles and responsibilities at both Enterprise and local levels.
Our annual Internal Co
n
trol and Risk Management Assessment (ICRMA) tests how effectively we put the Risk Management Framework into practice. Through this, we assess how well internal control and risk management practices and policy complianc
e
is embedded across Bupa. This is a self-assessment conducted by the first line of defence and reviewed and challenged by the
second and third lines, with the results presented to a joint Audit and Risk Committee.
The importance of risk management is reinforced by the effectiveness of our
r
isk management processes being a factor in remuneration, with defined outcomes for all Market Units.
Risk management life cycle
We adopt a risk management lifecycle to continually identify, assess, manage, monitor and report our risks.
Risk appetite
O
ur Board
approved risk appetite is a measure of the degree of risk we are prepared to accept in our work to deliver on our
strategy. Our core risk appetite statements focus on:
• The treatment of customers and employees
• Management of our financial strength
• The sustainability of our business
• Operational risk, including information security; privacy and clinical risks.
The risk
appetite statements are reviewed annually, with the Risk Committee recommending any changes to the statements to
the Board for approva
l.
Risk profile
We accept risk as part of our business. Some risks are avoidable while others are inherent in our business model. We have an
effective risk management system and internal controls in place to mitigate these risks.
We maintain significant as a means of mitigating certain inherent risks. This reflects the nature of our operations
economic capital
and the level of risk associated with them. These risks are set out in the table below in order of the solvency capital required to
mitigate them.
Strategic Report
For the year ended 31 December 2021
19
Risk
Description
Comment and outlook
Mitigating actions
Property
The risk of the volatility in
values or the devaluation of
properties held for own use
(including owned care
provision properties), or for
investment purposes, resulting
in adverse impacts.
This includes capital
associated with leased
properties
following the
introduction of IFRS 16.
We generally own rather than
rent property. This could leave
us exposed to falls in property
values.
Care home valuations are
based on their trading potent
ial
based on discounted cash flow
techniques.
By maintaining a geographic spread
of businesses across a number of
countries, we are able to diversify
exposure to national or regional
property markets and trading
conditions.
Insurance
Risks relating to our insurance
businesses. Risk of
inadequate pricing
and/or
underwriting of insurance
policies, and of claims
experience being materially
adversely different to
expectations.
Health insurance is short
-tailed
with lower outstanding claims
as a percentage of r
evenue
than most general insurers.
Insurance risk exposure will
grow in step with planned
growth in premium income of
the insurance businesses.
While absolute
claims across
the Group are higher than prior
year, there continues to be
reduced claims in som
e
markets from restrictions
causing short
-term
delays to elective healthcare. The
average cost of claims that
have been deferred could
increase, as a consequence of
the delay in treating progressive
illnesses.
The relatively short
-
tailed nature of Bupa’s
products allows us to
respond to market changes
quickly,
although this can be limited by
government-
set pricing controls in
some markets.
There is a relatively low exposure to
reserving risk compared to
underwriting risk due to the very
short-
term nature
of our claims
development patterns
We
have extensive control
mechanisms in place
, including
holding an appropriate prudence
margin,
to ensure
that reserves are
adequate to mitigate against the risk
of higher-than-
expected claims
costs.
The geographical diversity of Bupa
offers further mitigat
ion against
insurance risk.
Currency
Risk arising from changes in
the level or volatility of
currency exchange rates
impacting on cash flows and
assets held in currencies other
than sterling, and on the
financial statements.
As the net assets of
businesses
outside the UK grow, there will
be a corresponding increase in
currency risk in relation to
translation into sterling.
There is transaction risk relating
to policies for which premiums
and claims are in different
currencies.
Currency translatio
n risk i
s mitigated
through a
hedging programme to a
Board-approved level of risk.
We limit currency risk exposure
through asset liability matching in
local currencies.
Credit spread
and
c
ounter
pa
rty default
Risk of
a
in value of bond loss
assets and/or
that
a
counterparty fails to meet its
obligations in the face of
adverse economic conditions.
This also includes the risk of
a
loss in value of the bond
assets held within the pension
schemes.
Our health insurance
businesses
have modest
holdings of corporate and other
bonds.
These are exposed to the risk of
widening spreads and defaults.
There is banking counterparty
default risk in respect of
deposits.
Our bond portfolio is small in relation
to our other financial assets and the
majority is investment grade.
Counterparty exposure is managed
by dealing with highly
-rated
counterparties with exposure limits
defined by Group Treasury Policy.
Operational
(including
conduct risk
and clinical
risk)
Risk of loss arising from
inade
quate or failed in
ternal processes, or from personnel,
systems or external events.
This risk also includes conduct
risk (the risk that our
behaviours, actions or controls
result in detriment or unfair
outcomes for our customers),
and clinical risk (the risk of
injury, loss
or harm to
customers in receipt of
healthcare).
We are committed to managing
operational risks effectively.
This includes continued close
attention to management of
regulatory risk and proactive
engagement with regulators.
Maintaining internal control
pro
cesses and governance
frameworks, approving risk policies
and assessing compliance help to
mitigate this risk.
The Group Clinical Function, led by
the Group Chief Medical Officer, is
responsible for ensuring clinical
quality and governanc
e within the
busin
ess.
Strategic Report
For the year ended 31 December 2021
20
Other significant risks to Bupa, such as operational risk, cannot be effectively mitigated through holding capital alone, alt
hough
we do hold significant capital for operational risks. Our Market Unit Executive Risk Committees regularly review these residu
al
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 of the priority areas in which resources should be focused. The table
below reflects the themes of the most significant risks currently facing Bupa. Strategic and operational risks remained heightened
due to the pandemic and the launch of our new strategy.
Risk
Description
Comment and outlook
Mitigating act
ions
Information
security
including cyber
-
resilience
The risk of significant
financial and reputational
impacts due to a failure to
appropriately secure
information (including
personal information).
Businesses continue to be
targeted by cyber attacks.
Th
e
COVI
D-19 p
andemic and the
significant increase in staff
working from home has
increased certain aspects of
information security risk.
We have a detailed programme
of activities across Bupa to
appropriately mitigate this risk.
We are continuing to invest
in
actions to enhance security as
we further digitise customer
experience.
Privacy
The risk of adverse impacts
due to failure to handle
personal information fairly,
lawfully and securely.
Regulatory requirements and
expectati
ons in relation to privacy
continue to increase globally.
This is also true of customer
expectations as people become
increasingly more aware of the
value and risks associated with
personal information.
We continually review and
improve our controls over the
management and security
of
personal information.
We have appointed Data
Protection Officers and other
privacy experts as part of our
Enterprise-
wide privacy Risk
Management Framework
activities to help manage this
risk.
Changes in
government and
regulatory policy
The risk of failure to anticipate
or influence changes in
governmental and regulatory
environment which may
impact our customers and the
viability or profitability of our
business
Our health insurance, provision
and aged care businesses are
subject to government and
re
gulatory policy, including
insurance conduct rules,
minimum wage requirements,
prudential requirements,
changes to tax regimes and the
interpretation of existing tax
p
ractices, pricing controls in
some of our health insurance
businesses and clinical care
r
equirements for our provision
and aged care businesses.
The significant governmental and
regulatory responses to the
pandemic have shown that future
legislation, regu
lations and
government funding decisions
could have a material impact on
the Group. Any measures put in
place may improve or reduce the
attractiveness and affordability of
private health insurance.
All our markets have defined
key activities to make sure w
e
can continue to monitor and
assess the strategic
implications on our businesses
of any future changes in policy
or regulation, and advocate for
appropriate change in these
areas.
Social licence to
operate
The risk that reputational
damage could
impact our
social licence to operate and
therefore our ability to
achieve our strategic
objectives.
Like many global companies, we
face an increased risk of
stakeholder activism and greater
scrutiny of our record as a
socially responsible company on
topics
such as the environment
and climate change and other
issues which can be interpreted
as having
a ‘ethical’ dimension
including
executive and/or low
pay, Inclusion and
diversity,
treatment of suppliers,
governance, responsible
investment. Adverse comments
and unfavourable media
coverage can impact Bupa’s
reputation.
There is also a risk that
organis
ations will be judged in
In order to ens
ure that
issues in one business or Market Unit do
not spread and impact the trust
in our brand in another,
contagion risk remains
prominent in our operational
a
nd reputational risk
management agenda with a
focus on resolving and learning
from issues faced.
Strategic Report
For the year ended 31 December 2021
21
the future on how they have
responded to the pandemic. It is
more important now than ever
that we continue to deliver on our
purpose and serve and support
our customers, our people and
the communities we operate in.
Strategic
workforce risks
Risks associated with the
resilience of our own people,
particularly as a result of the
pandemic, including safety
and wellbeing and
capacity,
which impact on our
employee’s ability to deliver
for the customer. This also
include
s strategic risks
associated with workforce
availability.
The pandemic has presented
significant challenges to
workplace safety and employee
health and wellbeing including
the risk of infection to our people
in the course of their work.
Our people have had to adapt to
new ways of working as a result
of government restrictions, which
has been very challenging.
Our front
-
line staff, in particular our clinical staff, have been
under significant pressure
throughout the crisis and there is
a risk of staff fatigue and burnout
as the crisis continues.
In many markets we continue to
see strategic challenges
associated with workforce
availability which may impact our
ability to deliver services.
Considerable work has been
done to address the people
risks associat
ed with
COVID
-
19. This has been led by the
People Function with the
support of all functions and
businesses.
Th
ese pandemic-related
risks
will remain as long as the
pandemic continues and will
evolve as we go in and out of
various states of lockdown in
ou
r markets. We will continue to
take appropriate act
ions
support our people through this.
Workforce availability remains
a key area of focus for senior
management with a range of
activities underway in each
market to address challenges.
Technology and
resilience
The risk of failure to anticipate
and/or respond to changing
expectations in relation to
information technology and
resilience which could impact
the viability or profitability of
the business.
Changing consumer
expectations/ behaviors with
higher
expectations for
technological solutions t
o
improve interactions and the
need for businesses to ensure
appropriate IT capabilities and
operational resilience to deliver
for customers.
Customers have looked towards
digital offerings during the
pandemic and where these have
been available, they have been
well received. This has also
helped demonstrate value in
digital insurance offerings in a
period where people cannot
claim for physical procedures.
Operational resilience
capabilities tested around the
Group
during the crisis and
generally found to
be
performing well.
We have significantly increased
our digital offerings for
customers during the pandemic
and this will remain an area of
focus in the future.
Economic
conditions and
product value
The risk that depressed
economic conditions
further
exacerbate existing
challenges around
demonstrating value to
customers with reduced
spending power which could
impact the profitability or
viability of the business.
The macroeconomic
environment is challenging in
mo
st markets, and this will be
com
pounded by COVID
-19. It is
uncertain how severe the
impacts will be and how long they
will last but any reduction in
consumer or government
spending may impact our
businesses. In many markets we
are seeing heightened
inflationary pressures.
We manage any
macroeconomic, regulatory and
political uncertainty following the
UK’s exit from the EU as part of
our business as usual risk profile.
Weakened economic
environments are also likely to
compound the existing
affordability challenges in health
We regularly review our
products and offerings to
ensure that we continue to
provide value to our customers
despite the
economic
challenges.
Strategic Report
For the year ended 31 December 2021
22
insurance as premiums rise,
driven by medical inflation which
continues to increase at a higher
rate than inflation.
Transformation
execution risks
The risks associated with
failing to deliver effective and
timely transformation and
change.
This includes the
risks associated with
acquisition and disposal
decisions and their
implementation.
Our new strategy is focused on
addressing customer
expectations as they change,
particularly following the
pandemic.
All
Market U
nits have a range of
transformation activities
underway.
Transformation and strategy
execution are a key focus of
senior management.
Appropriate governance
structures are in place to
monitor the transformation
activities underway.
Geopolitical
uncertainty and
supply chain
disruption
The risks associated with
geopolitical uncertainty and
increasing nationalistic
policies across our
busin
esses and, in particular,
the impact of this on supply
chains.
This has been an emerging trend
for some time but has been
exacerbated by the pandemic.
While Bupa does not have
businesses in either Ukraine or
Russia, the global macro
-
economic risks and hum
an
consequences of the conflict are
uncertain and we will continue to
monitor any potential impacts on
Bupa’s businesses.
We are also seeing impacts as a
result of Brexit.
Throughout the pandemic we
have heightened our supplier
monitoring, management and
communications to help minimise
disruption.
For key product lines, we built up
Bupa owned or controlled stocks
to minimise supply chain delays
and avoid supply shortages.
Strategic Report
For the year ended 31 December 2021
23
Risk
Description
Comment and outlook
Mitigating actions
Environmental risks
and
Climate Change
The risk that our activities
cause harm to the
environment, and the risks
that climate change could
mean for our business.
We have identified our key
climate-
related risks over the
short, medium and long term.
The principal risks we have
id
entified are reputational and
regulatory compliance risk
(short term), acute and
chronic physical risk
impacting our property
portfolio and
aged care
businesses (medium to long
term), and transition risk
impacts in the wider economy
impacting affordability of our
products and services
(medium to long term). There
are also likely to be health
impacts from climate change
which will impact healt
h
insurance claims in the longer
term (long term). We do not
expect climate change to
have a material impact on our
i
nvestment and insurance risk
exposures in the short term.
Our businesses’ planning and
strategy process incorporates
the
consideration of these
risks
.
Climate change is a health
concern as well as an
environmental risk. We play
an active part in promotin
g
positive environmental
practices and we look for
opportunities to reduce waste
and conserve energy where
possible.
A ke
y focus is our
commitment to become a net
zero business by 2040,
across all our operations and
throughout our value chain,
underpinned
by our 1.5
degree aligned science
-
based targets.
We have integrated climate risk
management into our Group
-
wide R
isk
Management F
ramework which sets out how
we identify, assess, manage and
report on risks. We will continue
to focus on embedding climate
r
isk fully through the underlying
processes across the Group.
We have a Corporate
Responsibility and Sustainability
policy
which includes
environmental consideration and
is reviewed every two years. The
policy will be updated in Half 1
2022 to reflect our
new
sustainability strategy that is in
development. We have also
updated our policies for a range
of other key risks affec
ted by
climate change, such as our
M&A and procurement
policies, and will continue to
consider the impact on all other
policies as they are reviewed.
We have established a Group
-
w
ide Environment and Climate
Action programme to consider
and take appropriate action for
Bupa both in terms of managing
the risks climate change poses to
Bupa but also the risk Bupa
poses to the environment bas
ed
on our operations. In addition,
our Board Sustainability
Committee advises the Board
and Executive on the
environment and climate change
risk
.
The direct impacts of climate
change on health are uncertain
but these impacts are likely to
emerge over time and the short
-
tailed nature of our products
allows us to respond to these
developments, although this can
be limited by pricing controls in
some markets.
We have performed a range of
climate-
related stress testing,
including a 2 degree aligned
disorderly
transition scenario and
will continue to explore further
potential scenario analysis and
stress tests to perform,
including
4 degree aligned scenarios. The
results of these tests have
strengthened our understanding
of our risk profile and will form a
key
input into future strategic
decision-making.
Strategic Report
For the year ended 31 December 2021
24
There are further risks that capital cannot appropriately mitigate which remain a priority for management. These are detailed in
the table below.
Risk
Description
Comment and outlook
Mitigating actions
Liquidity risk
The risk that we hold
insufficient financial
resources to enable us to
meet
our obligations as they
fall due or to take advantage
of potential opportunities, or of
being able to secure such
resources only at excessive
cost, resulting in adverse
impacts.
Liquidity risk is addressed not
through capital but by holding
liquid assets and maintaining
appropriate controls.
Policyholder liabilities are
predominantly backed by
liquid assets, so our liquidity
risk exposure primarily relates
to the funding risk associated
with borrowings.
This is mitigated by the Treasury
function actively
managing
borrowings, for which the amount
and timing of outflows are known,
and by maintaining a portion of
the bank facility undrawn.
We have continued to de
-
risk our
liquidity and capital positions,
having issued Restricted Tier 1
bonds in
September 2021 and
settled a proportion of 2023
subordinated notes. However,
we continue to monitor the
markets to ensure that we
appropriately fund the Group.
We have reviewed and updated
our liquidity risk appetite during
the year.
By order of the Board
James Lenton
Director
7 March 2022
Governance
For the year ended 31 December 2021
25
Governance
The Company adheres to the policies and procedures adopted by the Bupa Group.
Bupa complies with the UK Corporate
Governance
Code 2018 (Code) and ensures that its governance responsibilities under the Code are enacted effectively with relevant provisions and principles being applied throughout the Bupa Group.
In addition, the Company complies with the Enterprise Policies issued by Bupa. These policies are designed to mitigate risks,
both internally and externally, and to ensure that the Company operates within the risk appetite set by the Bupa Board.
System o
f governance
Bupa’s governance structure is designed to enable the Board to lead within a framework of prudent and effective controls which
enables risks to be assessed and managed. As already stated in the Risk section, our system of governance includes
a Risk
Management Framework (RMF) implemented using a ‘three lines of defence’ approach. In addition, the External Auditor provides
further assurance to the Bupa Audit Committee and the Board in relation to the Group’s financial statements.
The RMF ensures that:
• All parts of the Group apply a consistent and robust approach to risk management
•
Current and emerging risks and climate
-related risks to the business are identified and their potential consequences
are understood
• Risk appetites are established within which the business operates
•
Appropriate and effective steps are taken to mitigate and manage identified risks including using risk management
information to make risk-based decisions.
•
There is clear ownership of, and accountability for, risk encouraging our people to communicate risk events without
fear of blame
•
A culture is encouraged in all areas of the Group to reward appropriate risk behaviours, and challenge and sanction
inappropriate risk behaviours.
Key components of the Risk Management Framework
The roles of each line of defence are set out below, together with a description of our Speak Up whistleblowing process.
The Bupa Board is ultimately responsible for establishing and monitoring Bupa’s system of governance, risk management and
control (via the RMF and three lines approach) and setting associated policies for implementation by management.
First-line accountability
All our people are responsible for managing risk and ensuring compliance with relevant laws, regulation, best practice and Bupa
policies and processes within their role. This ranges from care home employees following procedures to keep our residents safe
to senior managers ensuring that they have appropriate and up
-
date policies and procedures in place in their areas and that to
-their people are following these and reporting any breaches or incidents quickly and fully.
To help our people understand their responsibilities we have the Bupa Code (which sets out how we expect our people to behave
every day), mandatory training on key topics, and role
-
specific training for frontline people. We also undertake regular internal communications campaigns on key issues to maintain awareness and share relevant information. Each Business Unit sets target
risk outcomes for the year, which are reviewed and agreed with Market Unit management and Group management
risk
committees. These are subsequently monitored by local management and the outcomes reported to the Risk Committee. The
Internal Control and Risk Management Assessment (ICRMA) process assesses compliance with our
Risk
Policies. It is carried
out by the first line of defence and challenged by the second line (risk, compliance and clinical governance) and third line (internal
audit). It requires continuous monitoring of risk management controls and timely escalation of identified issues or gaps against
R
is
Pk
olicies. Each Market Unit CEO and Enterprise Policy Sponsor provides an annual confirmation or opinion of compliance
with each Policy.
Second-line assurance – Risk, Compliance and Clinical Governance
Risk and Compliance Function
Bupa’s Chief Risk Officer (CRO) leads the Risk and Compliance Function and reports to the Bupa Group CEO. The CRO has
unfettered access to Bupa’s Chairman and to the Chair of Bupa’s Risk Committee, which has responsibility for approving the
appointment (and removal) of the CRO. The Risk and Compliance Function operates across the Group and each Market Unit
has a chief risk officer.
The Group Risk Function is responsible for the consolidation of risks across Bupa and reporting them to management through
the Bupa Enterprise Risk Committee and to the Bupa Risk Committee. It has established the principles and framework that
support the processes and procedures to identify, assess, manage, monitor and report risks to which the Group is, or might be,
exposed.
The function provides oversight and challenge of risk governance and risk management carried out by the first
-
line and reports on the quality and sufficiency of these first
-
line activities to the Bupa Risk Committee. This includes providing a second-
line
opinion on the effectiveness of internal controls and the management of risks within appetite, which forms part of an integrated
Internal Control and Risk Management Report that sets out the opinion of all three lines of defence.
Further information on our approach to risk management together with details of the principal and other significant risks to the
Group are set out in the Risk section on page 17.
Governance
For the year ended 31 December 2021
26
Clinical Governance Function
The Clinical Governance (CG) Function, led by the Chief Medical Officer (CMO), is responsible for establishing and overseeing
Bupa’s Clinical Governance framework. The CG Function works closely with the Risk and Compliance Function to ensure clinical
risks
are effectively reported, with the CMO also providing risk reporting to the
Bupa
Risk Committee and the Bupa Board. The CMO reports directly to the Bupa Group CEO.
Third
-
Group Internal Audit (GIA)line assurance
- Purpose
GIA provides independent and objective assurance to Bupa’s Audit Committee over the effectiveness of Bupa’s systems of
govern
ance, risk management and internal control by establishing, undertaking and reporting on an approved assurance plan
each year. This helps the Group to accomplish its purpose, protect its assets, reputation and sustainability, and ensure that risks
to Bupa’s customers and businesses are managed appropriately, in line with the risk appetite set by the Bupa Board.
Independence and governance
To maintain the function’s independence and objectivity, the primary reporting line for the Chief Audit Officer (CAO) is to the Chair
of the Bupa Audit Committee, which has responsibility for approving the appointment (and removal) of the CAO. The CAO liaises
wi
th the Group CEO on day
-to-day operations. GIA has no direct operational responsibility or authority over any of
the business
activities, risks and associated internal controls that it assesses. GIA is primarily staffed internally, but co
-
source arrangements
are in place with external providers in order to access specialist audit capability when that is deemed neces
sary.
The CAO regularly reports to the Bupa Audit Committee on GIA’s activities as well as management’s progress in addressing
findings
from its assurance work, and all GIA reports are made available to Bupa Audit Committee members. The CAO regularly
atte
nds Bupa Risk Committee meetings, and other executive committee fora in order to ensure GIA’s work is adequately informed,
supported and communicated.
Further details of the activities of the Bupa Audit Committee in relation to GIA are set out in the Bupa Audit Committee report on
page 33.
An Internal Audit Charter is in place, setting out the function’s role, authority and
independence. GIA operates in accordance with
the Global Institute of Internal Auditors’ international standards and the UK Chartered Institute of Internal Auditors Financial
Services Code (FS Code). The Internal Audit Charter, which is reviewed annually, was approved by the Audit Committee in
September 2021 and is available on bupa.com.
Assurance activity in 2021
GIA undertakes risk
-
based assurance work in accordance with an assurance plan approved and monitored by the Bupa Audit Committee. During 2021, this included assurance activities over recurring key risks across Bupa’s
Business U
nits and functions and including prioritisation of coverage across the following four areas: organisational resilience; change management and
execution; risk governance; and
information s
ecurity. The assurance plan responded to ongoing areas of inherent risk facing Bupa’s business, but also took account of the impact of the ongoing pandemic, the establishment of Bupa’s new
3x6 strategy
,
and the amount of change inherent in Bupa’s plans.
Performance and quality assurance
GIA’s overall performance is measured against a balanced scorecard with target measures, approved by the Audit Committee,
encompassing GIA service delivery, functional development, stakeholder management and audit resource management. The
2021 balanced scorecard and associated quality assurance report has provided positive assurance over
GIA's ongoing
effectiveness.
GIA maintains a quality assurance and improvement programme which includes: continuous external quality assurance activity
undertaken by a third party; internal quality control monitoring; and annual self
-
evaluation against the UK Internal Audit Code of Practice and Financial Services Code. Quality assurance and improvement feedback is also gathered via stakeholder and
employee engagement surveys.
Focus of 2022 assurance activity
GIA’s assurance plan for 2022 has been developed to address core risks facing Bupa’s business and aligned with an agreed set
of risk priorities developed in conjunction with the second line and agreed with Bupa’s Audit and Risk Committees. Alignment
of
assurance goals relating to agreed risk priorities will help ensure that Bupa’s overall assurance activities are conducted more
effectively and efficiently than in previous periods. Assurance activity is being prioritised to address key risks relating t
o:
transformation, change and resilience; customer and conduct risks; Information security and data integrity; supply chain and
sustainability; core financial risks; and risk governance and control. GIA’s planned assurance will be delivered at a global,
Marke
t
Unit and Business Unit/local level. All audits will consider risks and controls associated with first/second line risk assurance, risk
culture, data, people and change.
Integrated reporting
An integrated report, which provides an overview and assessment of the Group’s systems of risk management and internal control
in 2021, combining inputs from each of Bupa’s three lines of defence, was presented to a joint meeting of Bupa’s Audit and Ri
sk
Committees in February 2022. The report enables the Board to assess the Group’s systems of risk management and control in
Governance
For the year ended 31 December 2021
27
a comprehensive and consistent way, and to consider relative strengths, weaknesses and future improvement opportunities. The
report also provides the basis on which the Board reports on Bupa’s compliance with associated aspects of the Code.
Whis
tleblowing
We foster an open and honest culture which includes encouraging and enabling our people to raise concerns of any malpractice
or wrongdoing at Bupa in a secure and anonymous way in cases where reporting directly to a manager is not appropriate or the
concern has not been fully addressed. We run regular internal campaigns to raise awareness of Speak Up, Bupa’s internal
whistleblowing process, and provide feedback on the action taken in response to concerns raised. All employees complete
mandatory
annual training and there are Speak Up
officers for each business. We use our engagement survey to test the level
of confidence our people have in Speak Up and invite feedback. The Audit Committee annually reviews the Speak Up policy to
ensure that it is robust and operating effectively and recommends it to the Bupa Board for approval. The Bupa Board receives
regular updates on issues reported through Speak Up during the year and on investigations and actions taken.
External Auditor
External audit provides independent assurance to our shareholder concerning the audited financial information in this Annual
Report and Accounts. PricewaterhouseCoopers LLP (PwC) was appointed at the 2021 AGM as our new External Auditor. The
lead audit partner, Jo Leeson, attends all meetings of Bupa’s Audit Committee and Risk Committee and provides regular reports
to Bupa’s Audit Committee.
PwC has internal procedures and controls to follow the Ethical Standards issued by the Auditing Practices Board and the FRC
for auditors to ensure that it remains independent. There are no contractual obligations restricting the Group’s choice of External
Auditor and there is no limitation of liability in relation to statutory audit activities in the terms of PwC’s appointment as External
Auditor of the Company. Bupa has an Audit and Non
-
Audit Services Policy, setting out the circumstances under which the Group’s External Auditor can be engaged for non
-
audit services, recruitment restrictions for candidates with employment experience with the External Auditor and monitoring and reporting requirements for Bupa employees, contractors and temporary staff with close
family members who are employed by the External Auditor.
The
policy is in line with the FRC’s Revised Ethical Standard 2019 on the integrity, objectivity and independence of external auditors. It sets out certain pre
-
approved services, permitted services requiring approval and prohibits all other services. Non
-audit
services are generally capped at 70% of the average Group statutory audit fees paid over the preceding three years. In practice, only pre
-
approved services or permitted services are allowed in exceptional circumstances. Depending on the value, permitted services must be approved in advance by the Group Financial
Controller
, Group CFO or Chair of the Audit Committee. For 2021, PwC’s first year as External Auditor, the level of non
-audit services is capped at 70% of the Group statutory audit fee agreed for 2021.
Information on the Bupa Audit Committee’s interaction with the External Auditor during the year can be found in the Audit
Committee report on page 34.
Our people
Culture and our people
The Bupa Board is responsible for ensuring that our culture is aligned with Bupa’s purpose, values and strategy at all levels of
th
e organisation. In order to do our best for our customers, we need to take care of our people, and this will lead to strong a
nd sustainable performance to enable us to deliver our purpose.
Our culture is shaped by our values and the Bupa Code, which sets out what we expect from our people to help them live our
values and achieve our purpose. During the year, the Bupa Board reviewed the Group’s values in the light of the new stra
tegy
and approved a revised set of values: brave, caring and responsible.
Seni
or managers across the Group were involved in formulating the revised values. The Bupa Board felt that the chosen values
link well with Bupa’s refreshed purpose and strategy and the tone of the culture that the Bupa Board aims to foster for the
organisatio
n as a healthcare company taking responsible actions and caring for its customers, people and the planet, and
embracing the innovation, change and challenge required to achieve its strategy. Our new strategy requires an evolution in our
culture to enable our people to drive continuous improvement and help us become a truly customer
-
centric organisation, while
preserving important aspects of our culture such as maintaining a control environment that supports our risk appetite.
In addition, Bupa has a number of leadership imperatives, endorsed by the Bupa Board, encompassing a set of competencies
specific to customers, people, performance and purpose. These competencies help our senior leaders across the business to
deliver performance through putting customers at the heart of everything we do and helping our people be at their best. All
employees are required to complete mandatory training on the Bupa Code and other areas including information security and
privacy, risk management, conflicts of interest and financial crime.
The Bupa Board monitors culture in a number of ways including direct workforce engagement (described further below) and
regular people-related items on its agenda including:
• M
easuring our people’s engagement level and how they embody Bupa’s values through our People Pulse survey tool,
and considering recommendations to management in response to the survey results
• C
onsidering bi
-annually the level of, and themes arising from, reports received through our Speak Up whistleblowing
process, and
receiving quarterly reports on the level and nature of customer complaints in our insurance and healthcare
provision businesses
• Leadership development, talent and succession, inclusion and diversity and employee wellbeing.
Governance
For the year ended 31 December 2021
28
Engaging our people
The Code requires boards to understand the views of companies’ key stakeholders and recommends a number of methods for
engaging with the workforce. When this requirement came into force in 2019, we set out why the Bupa Board’s workforce
engagement practices at that time were considered appropriate for Bupa, recognising that they were not one of the three
proscribed methods of engagement set out in Provision 5 of the Code. Bupa’s Nomination & Governance Committee has
monitored developing best practice in this area and considered other approaches to workforce engagement. In December 2021,
the Committee approved an enhanced approach and designated Roger Davis, Michael Hawker and Matias Rodriguez Inciarte
as the designated Directors to meet regularly with representatives of our workforce and to participate in workforce events in the
UK, Australia and New Zealand, and Spain
,
respectively. An annual programme of events is being developed for each Director
and each of the three Directors will regularly report back to the Bupa Board, with a view to enhancing the dialogue between the
Bupa Board and the wider workforce. The Bupa Nomination & Governance Committee will monitor the implementation and impact
of the revised approach during 2022. During the year, the Bupa Chairman has attended a UK and a global ‘town hall’ meeting
with our people and sent out a Christmas message to thank our people for their continued hard work.
Engagement methods during 2021 are described in more detail below.
Listening
Bupa listens to its people and promotes a positive, flexible working environment and an inclusive and diverse culture so everyone
can be their authentic selves at work. Our People Pulse survey tool provides sophisticated insights and benchmarking against
o
ther companies, so that we can learn and listen to what is of interest or concern to our people and act, where appropriate, on
what our people are telling us. We have also rolled out an interactive employee engagement platform which enables open
discussion for all of our people, including frontline health provision and aged care staff without a Bupa email address.
During the year the Bupa Board has considered the results of two People Pulse surveys, held two update sessions on the Speak
Up process, received an update on the People strategy and on health, safety and wellbeing, covering both employees and
customers.
We want our people to see the Bupa Board as accessible and approachable. In normal circumstances, site visits for the Bupa
Board as a whole, or for individual or small groups of Directors, would be scheduled on a regular basis. These visits provide an
invaluable opportunity for our people to ask questions directly to the Bupa Board and for the Directors to gain an insight into the
issues important to our people in various parts of the business. This helps enhance decision
-
making and consideration of the longer-
term impact of the Bupa Board’s decisions on our people. Given the continued restrictions on travel, these sessions
have been arranged virtually, so far as practicable.
The continuing pandemic meant that site visits were not possible during the year however, the Bupa Board continued to closely
monitor the health, safety, wellbeing and resilience of our people through regular reports from the Bupa Group CEO
,
which inc
lude
updates from the Market Unit CEOs, Group CRO and other functional leaders and in discussion with Market Unit CEOs when
they attended Board meetings. As set out in the relevant sections of this Annual Report, the Bupa Board Committees liaised
with
the relevant chairs of committees of our major insurance subsidiaries and met with senior managers for each
Market Unit
. Senior managers also held regular online meetings with their teams, including on the Group’s full year and half year results.
Th
e
Group CEO and Chief Sustainability and People Officer have also published a series of podcasts to our people on different
aspects of the 3x6 strategy.
The recent launch of the new employee engagement platform has further enhanced our ability to engage with employees, with
Executive Directors and senior management regularly posting content about initiatives or successes and can interact with our
people. Examples include asking staff to give ‘shout
-
outs’ to colleagues that they see living our values and going above and
beyond what is expected of them, to senior executives sharing their stories on topics such as mental wellbeing and resilience
.
Employee forums are also still in place for areas such as training and development, IT and security and for local office issues.
Inclusion and diversity
We aspire for all our people to feel valued, encouraged and supported to achieve, to be treated fairly and to feel that they
belong
at Bupa and can truly be themselves. We strive to be an inclusive and diverse organisation, embracing diversity in all its forms.
This is embedded in the 3x6 strategy, which aims for Bupa to have the best, most diverse people and be a great place to work.
We expect our leaders to demonstrate inclusive leadership and build diverse teams to reflect the customers and communities we
serve. During the year, the Bupa Board received an update on Bupa’s progress in this area and the planned activity for 2022
which includes improving our ability to capture meaningful data to measure progress, providing further training to our leaders and
making mentoring available more broadly to support diversity in our succession and talent pools.
The recruitment, training, career development and promotion of all employees is based on the skills, knowledge and experience
o
f the individual and takes no account of age,
disability, race, beliefs, gender, sexual orientation or other characteristics. Should
employees become disabled during employment, every effort is made to continue their employment and, if necessary, appropria
te
training is provided.
Our approach to inclusion and diversity is published on bupa.com. It focuses on creating inclusive cultures, leadership and
practices. It is globally set and locally owned, with each Market Unit having its own priority areas of focus. We believe that teams
of greater diversity provide us with the best opportunity to solve the business and social challenges that we face. We have n
o
tolerance for racism or discrimination of any kind. We measure progress in a number of ways, including by tracking our overall
employee engagement and our people’s sense of belonging in each country in which we operate through the People Pulse
surveys, and monitoring key data points in our senior leadership teams such as gender, ethnicity and disability wh
ere we are able
to.
Governance
For the year ended 31 December 2021
29
Our approach to inclusion and diversity supports our Sustainability and ESG agenda and is sponsored by two members of the
CEC who sit on our Inclusion & Diversity Steering Committee. The Bupa Board also has a Board Diversity Policy whi
ch is
available on bupa.com.
Senior succession and talent review
During the year, the Bupa Board considered a review of senior talent below CEC level and succession plans for each CEC
member. A mentoring programme
has
been put in place for Bupa NEDs to mentor senior leaders which has
been very well received and will be continued in 2022. Gender diversity had increased in the senior talent pool to around 50% women. As part
of routine succession planning, the Bupa Board also considered the succession plan for the Group CEO and the actions needed
to further develop individuals in the pipeline.
Complying with the UK Corporate Governance Code 2018
As the Company’s Parent chooses to apply the UK Corporate Governance Code (Code) to the extent applicable to a com
pany
without shares, the Company also chooses to apply certain Principles of the Code which it believes are appropriate for a larg
e,
wholly owned subsidiary company with a sole corporate shareholder and debt investors. The Company does not apply the
follow
ing Principles of the Code as they are applied by the Company’s Parent by the Bupa Board and its Committees and are not
considered relevant to the Company as a subsidiary:
Section 2 – Division of Responsibilities: Prin
ciples F
-H Section 3 – Composition, Succession and Evaluation: Principles J and L
Section 5 – Remuneration: Principles P-R
Throughout 2021, we applied the remaining Principles and complied with all the related provisions in the Code, to the extent
they
are applicable to a wholly owned subsidiary company. The Code is available on frc.org.uk.
The table below sets out how we have complied with the relevant Principles of the Code during 2021.
Principle
How we apply the principle
1. Board
leadership and company purpose
A.
The board’s role
A succ
essful company is led by an effective
and entrepreneurial board, whose role is to
promote the long-term sustainable success
of the company, generating value for
shareholders and contributing to wider
society.
The Board is responsible for the long
-
term sustainable success of Bupa for the benefit of its customers and wider stakeholders, now and in the future.
The Board works to achieve this by making decisions in line with Bupa’s
strategy within a prudent and effective governance structure, using a three
lines of defence model.
The Section 172 statement on page 1
2
provides examples of the types of decisions made by the Board during the year and how they relate to the
Company’s key stakeholders.
B.
Setting purpose, values and strategy
The board should establish the company’s
purpose, values and strategy, and satisfy itself
that these and its culture are aligned. All
directors must act with integrity, lead by
example and promote the desired culture.
The Bupa Board sets the values, strategy and culture for the Bupa Group in
line with its recently updated purpose of ‘
H longer,
elping people live
healthier, happier lives and making a better world
’. The Bupa Group’s
refreshed values and new 3x6 strategy are driven from this purpose.
The
Board assists in the execution of Bupa’s strategy through its decision
-
making. The Directors take decisions in line with Bupa’s values and culture
and ensure they make informed decisions on the areas within their remit.
C. Resourcing and risk manageme
nt
The board should ensure that the necessary
resources are in place for the company to
meet its objectives and measure performance
against them. The board should also establish
a framework of prudent and effective controls,
which enable risk to be
assessed and
managed.
The Bupa Board
annually approves the
Bupa Group’s annual budget and
base operating plan for the following three years ensuring that sufficient
resources are available to achieve the Company’s objectives
,
and receives
regular managemen
t information
on progress against
the annual operating
plan and a quarterly rolling forecast.
The Bupa
Board retains ultimate responsibility for risk management and
internal controls with detailed oversight carried out by the
Bupa Audit
Committee (which has been appointed to fulfil the role of the Company’s
audit committee for the purposes of DTR 7.1 and is comprised solely of
independent non-executive directors) and Risk Committees.
On the recommendation of the
Bupa
Risk Committee, the Bupa
Board sets the Group’s risk appetite and RMF. These set out the principal risks facing
the Group and the nature and extent of risk the Bupa Board is willing for the
Group to take in order to achieve the Group’s strategic objectives.
An integrated report on internal control and risk management giving
the
opinions of each of the three lines of defence is considered by a joint meeting
of the
Bupa
Risk and Audit Committees prior to the Board approving the statement on internal control and risk management in each Annual Report.
D. Stakeholder engagement
We are a customer
-
focused business reliant on our people to deliver great
service.
The Directors
consider the impact of decisions on relevant
Governance
For the year ended 31 December 2021
30
In
order for the company to meet its
responsibilities to shareholders and
stakeholders, the board should ensure
effective engagement with, and encourage
participation from, these parties.
stakeholders, as described further in the Section 172 statement. Across the
Group, there is an active pro
gramme of engagement with our key
stakeholders,
including our customers, our pe
ople, regulators and
bondholders.
Briefing calls with our bondholders on the Company’s half year
results and Annual Report are held, together with an annual roadshow. Other
sign
ificant developments are communicated via regulatory announcements,
press releases and Bupa’s website bupa.com.
E.
Workforce policies
The board should ensure that workforce
policies and practices are consistent with the
company’s values and support its lo
ng-term
sustainable success. The workforce should be
able to raise any matters of concern.
Bupa’s
People framework includes ensuring that the Group’s workforce
policies and practices are consistent with our values and support our long
-
term sustainable su
ccess. The
Bupa
Board receives regular updates on the issues reported through Speak Up, and on investigations and actions taken.
The
Bupa
Audit Committee annually reviews the Speak Up policy to ensure
that it is sufficiently robust and operating effectivel
y.
2. Division of responsibilities
I. The company secretary
The board, sup
ported by the company
secretary, should ensure that it has the
policies, processes, information, time and
resources it needs in order to function
effectively and efficiently.
The Group Company Secretary (who is also the Company’s company
secretary), and his team, advise the Board on company law and corporate
governance matters, including compliance with the Code. He works with the
Directors
to ensure that the right
matters are escalated to the Board at the
appropriate time and that papers are of a high quality.
He is responsible for the Group’s Subsidiary Governance Risk Policy
, which
sets minimum standards of corporate governance across the Bupa Group.
3. Composition, succession and
evaluation
K. Skills, experience and knowledge
The board and its committees should have a
combination of skills, experience and
knowledge. Consideration should be given to
the length of service of the board as a whole
and membership regularly refreshed.
In accordance with the relevant Bupa policy, an assessment of the require
d
skills, experience and knowledge is carried out in order to identify any new
appointment/changes to the composition of the Board. The Bupa Audit
Committee acts as the audit committee of the Company, and the members
of that Committee are recommended by the Bupa Nomination & Governance
Committee to the Bupa Board for approval. See the Bupa Audit Committee
report below for more information.
4.
Audit, risk and internal control
M.
Financial reporting integrity
The board should establish formal and
transpare
nt policies and procedures to ensure
the independence and effectiveness of
internal and external audit functions and
satisfy itself on the integrity of financial and
narrative statements.
The Board delegates detailed oversight of GIA and the External Auditor to
the Bupa
Audit Committee, together with oversight of the Group’s system of
internal controls to ensure the integrity of the Group’s full year and half year
results and the Annual Report and Accounts.
On the recommendation of the
Bupa
Audit Committee, the Board reviewed and approved the 2021 half year results and the 2021 Annual Report and
Accounts
and concluded that Bupa maintained a sound and effective system
of risk management and internal control with some weaknesses in internal
controls, which are being addressed by management.
N.
Fair, balanced and understandable
The board should present a fair, balanced and
understanda
ble assessment of the company’s
position and prospects.
The Bupa
Audit Committee
reviewed the 2021 Annual Report and Accounts in
early 2022 and was satisfied that it presents a fair, balanced and
understandable assessment of the Group’s position and prospects and
reported its findings to the Board.
O.
Risk management and internal control
The board should establish procedures to
manage
risk, oversee the internal control
framework, and determine the nature and
extent of the principal risks the company is
willing to take in order to achieve its long
-term
strategic objectives.
The Bupa Risk and Audit Committees monitor the Group’s
risk
appetite
which sets out the nature and extent of risk the Board are willing to take and
agrees the principal risks facing the business. A Risk Management
Framework is in place to identify, monitor, manage and assess risk.
Bupa operates a three lines of defence model and the
Bupa
Risk Committee oversees the principal risks facing the Group and the processes and plans
in place to mitigate or monitor those risks.
The
Bupa
Risk and Audit Committees monitor the Group’s risk management
and internal control systems on behalf of the Board on a continuous basis,
including monitoring emerging risks.
Bupa Audit Committee report
The Committee’s role and governance
Bupa’s Audit Committee also acts as the audit committee of the Company. The principal function of the Committee is to monitor
the integrity of Bupa’s and the Company’s financial statements, the effectiveness of our internal control systems, and to mon
itor
the effectiveness, performance, objectivity and independence of GIA and the External Auditor. The Committee also reviews
regulatory reporting and external disclosure requirements. A full description of the Committee’s role is set out in its Terms
of
Reference which are available on bupa.com.
Governance
For the year ended 31 December 2021
31
The Committee comprises independent NEDs, all of whom are considered to have recent and relevant financial experience
gained through their executive and non
-
executive careers. Three of the four Committee members are chartered accountants. There are cross
-
memberships between the Committee, the Bupa
Risk Committee and the Bupa
Remuneration Committee to oversee risk management and internal control, ensure an integrated approach to risk management and assurance between
Group Risk and GIA, and to provide input on the quality of the Group’s financial results to aid remuneration decisions.
The Bupa Group CEO, Group CFO, Group Financial Controller, CAO, CRO and lead partner of the External Auditor are routinely
invited to attend meetings. The Committee meets at least annually with each of the External Auditor, CAO and Chief Actuary in
the absence of management.
I am preparing to hand over my role as Committee Chair as I am due to retire from the
Bupa
Board on 30 April 2022. The Bupa
Board has identified an internal candidate to succeed me as Committee Chair, subject to regulatory approval.
Key activities in 2021
During the year, the Committee considered the following regular items of business:
• R
egular reports from management on key issues and judgements impacting the Group’s statutory and regulatory
financial results
• The
appropriateness of the going concern basis of accounting for the Group’s and Bupa Group’s half year and full year
financial results and the longer-term viability statement in the 2021 Annual Report
• Reports from the CAO on the internal control environment
• Reports from the Chief Actuary on insurance claims reserving
•
The
annual letter to management on internal control from KPMG, the outgoing External Auditor • T
he transition to the incoming External Auditor, PwC’s audit plan, engagement letter and audit progre
ss and
conclusions.
Key issues the Committee considered during the year included:
• The ongoing impact of the
COVID
-19 pandemic on the Bupa Group’s IFRS and Solvency II insurance reserves • Overseeing the transition to PwC as External Auditor
• Management’s proposed approach to implementing IFRS 17 Insurance Contracts
• T
he representations and disclosures associated with the bond issuance and partial buyback that completed in
September 2021
• T
he Department for Business, Energy and Industrial Strategy
consultation on Restoring Trust in Audit and Corporate
Governance,
which could impose additional responsibilities on companies and audit committees in relation to corporate
governance, internal controls and external audit requirements.
Further
information on some of these topics is set out below.
Insurance claims reserving
Bupa continued to hold additional technical provisions during the year where constructive obligations relating to the pandemi
c
required such liabilities to be recognised.
A deferred claims provision continued to be held throughout the year in respect of the health insurance business in Australia,
where the Australian prudential regulator (APRA) continued to mandate the need to provide for the rebound of claims following
the
COVID
-19 disruption to
private medical services, creating a constructive obligation for the Group to pay claims in relation to
the disrupted business.
As a result of similar disruption to the UK private health insurance market, the
Bupa
Board approved a proposal in 2020 from our
UK Health Insurance business to pass on any exceptional financial benefit ultimately arising from the pandemic to its eligibl
e UK
Health Insurance customers (as reported in
Bupa’s
2020 Annual Report) and a r
eturn of p
remium provision was established. A
provision remains in place at 31 December 2021.
The Committee has continued to monitor the impact of COVID and Solvency II insurance reserves,
-
19 on the Group’s IFRSparticularly in relation to the judgements and calculations of the deferred claims provision estimates held in the Australian Health
Insurance business and the business. The estimates were refreshed
r
remium provision held in the UK Health Insuranceeturn of
pregularly during the year with reference to the latest claims experience and other factors influencing the recognition and estimation
of these reserves. The Committee considered the appropriateness of the overall level of insurance reserves, including the level
of prudential margin. In reviewing and approving the insurance reserves, the Committee also took into consideration the External
Auditor’s report to the Committee.
It considered updates on the
r
eturn of p
um provision for UK Health Insurance customers and the deferred claim liability remi
provision held by the Australian Health Insurance business and agreed that these were appropriate.
Bond issuance
In September 2021, the Board approved the issuance of a Restricted Tier 1 bond and partial buyback of an existing senior bond.
The Committee was satisfied with the results of management’s analysis that there were no recent developments in the business
which would impact the transactions or require additional disclosure in the offering document and noted considered the External
Auditor comfort process.
Governance
For the year ended 31 December 2021
32
IFRS 17 Insurance Contracts
IFR
S 17 Insurance Contracts (IFRS 17) comes into effect for the Company’s 2023 financial year. During the year, the Committee
recei
ved several updates on the progress of the project to implement IFRS 17 and reviewed the detailed technical accounting
papers pr
epared by management.
The Committee challenged
the significant judgements in the papers, particularly in relation to
onerous contracts and fulfilment cash flows. External Auditor also presented its views on the key judgement
The
s
. The Bupa
Group’s final IFRS 17 policy will be approved during 2022.
IT general controls
Management have been undertaking a remediation programme to uplift information security and IT general controls for some
time. KPMG’s annual letter to management of observations arising from the 2020 audit, and internal audit reports, raised a
number of points in relation to Bupa’s IT control environment. The Committee noted that these were issues common to many
companies and should be considered in the context of the improvements made to IT controls across the Group over sever
al
years. The Committee requested regular updates from management on IT general controls
,
setting out the planned activity to remediate the points raised and the timescale for completing this work. The first update was considered in September 2021 with
goo
d progress noted in embedding the IT general controls required under the Group’s Technology Risk Policy and supporting
standards, and the introduction of an IT general controls risk and control self
-
assessment process (RCSA). The Committee noted that the RCSA process had assisted management in assessing progress and noted that GIA had resource aligned
with the Market
Units and prioritised technology risks in its audit plan.
Impairments
Management’s analysis of goodwill impairment assessments across the Group’s cash
-
generating units (CGUs) was subject to enhanced scrutiny by the Committee again at half year 2021 and ahead of approval of the 2021 Annual Report
.
Particular focus was given to the impairment tests for UK Care
Services, Bupa Dental
Care UK, Bupa Chile and Bupa Villages and
Aged Care Australia. The Committee agreed with management’s assessment that no impairments are required for these CGUs.
Liaison with other Board Committees
The Committee has worked closely with the Bupa Risk Committee during the year, holding a joint meeting in early 2021 and one
in early 2022 to consider an integrated assurance report giving the opinions of all three lines of defence on the Group’s control
environment in relation to the 2020 and 2021 financial years respectively. A further joint meeting was held in December 2021 and
included a deep dive on material fraud risk and consideration of the aligned assurance plan for 2022 from the second and third
lines of defence.
In early 2022, the Committee Chair attended a meeting of the Bupa Remuneration Committee to provide a view on the quality of
Bupa’s earnings in 2021 to aid the Bupa Remuneration Committee’s decision on the appropriateness of the financial performance
data used in connection with the calculation of the bonuses potentially payable under the incentive schemes within the Bupa
Remuneration Committee’s remit.
Significant issues and areas of judgement
Key issue
Committee response
Goodwill and intangible assets
Significant levels of goodwill and
intangibles are held in respect of prior
acquisitions. Impairment reviews are
inherently complex and require a high
level of judgement to be applied due to the
uncertainty involved in forecasting future
cash flows and judging the
appropriateness of discount rates used
and future growth rates of the respective
businesses. The level of additional
uncertainty presented by the pandemic
has reduced from that at the prior period
end for most businesses. However, the
continued recovery from the pandemic and
the uncertainty regarding any longer-
term
impact further increase the level of
judgement inherent in this assessment.
The Committee critically reviewed and discussed management’s reports
outlining the key assumptions within impairment assessments for our most
sensitive CGUs and challenged the results in the light of business
performance and the external environment. The continued recovery from the
pandemic for a number of the Group’s businesses, both during the year and
forecast through the 2022-2024 plan period, has been a key area of focus
within management’s analysis and judgements. Consistent with the prior year,
the most sensitive CGUs continue to be UK Dental, BVAC Australia, Bupa
Care Services UK and Bupa Chile.
The Committee also considered the appropriateness of disclosures regarding
impairment testing results, the related key assumptions and the headroom
sensitivities. The Committee also received from the External Auditor a report
of their views on the assessments performed by man
agement. The
Committee is satisfied that the assumptions applied were reasonable and the
carrying value of goodwill and other intangible assets is appropriate.
Insurance reserves
Calculation of the outstanding claims
provision is based on assumptions
including claims development, margin of
prudence, claims costs inflation, and
medical trends and seasonality, which
require a high level of judgement and
actuarial expertise.
The Committee considered the appropriateness of the overall level of
insurance reserves held at key reporting dates. The Committee received a
report from the Chief Actuary setting out estimates of the IFRS insurance
reserves, including the consolidated margin of prudence, as well as the result
of the annual review of compliance with Bupa’s Claims Reserving and Liability
Adequacy Standards. The Committee also took into consideration the
External Auditor’s report to the Committee.
Throughout the year, the Committee was presented with a number of updates
specifically focused on the judgements and calculations of the deferred claims
provision estimates held in Australia and the r
eturn of
premium provision held 
Governance
For the year ended 31 December 2021
33
Bupa continued to hold additional
insurance reserves during the year where
constructive obligations relating to the
pandemic required such liabilities to be
recognised. Where these exist, the
amount and timing of in-scope deferred
claims that are expected to rebound
continue to be a key judgement.
in the UK.
The Committee
concluded that the best estimate insurance reserves held at 31 D
ecember 2021 were appropriate.
Property valuations
Bupa has a significant portfolio of care
homes, villages and hospital properties
which are revalued to fair value on a
periodic basis, with external valuations
undertaken at least triennially.
In valuing care home property, a
judgement is made on the highest and
best use of the property. The underlying
assumptions involved in the valuations,
including profitability, occupancy levels
and capitalisation rates and discount rates,
are subject to a high level of judgement.
The Committee received the results from the external valuations undertaken
as part of the triennial property review, primarily across the Spanish
properties, and also Directors’ valuations performed in other Market Units.
The Committee also reviewed reporting from the new External Auditor
addressing the valuations to assess their reasonableness and considered the
appropriateness of disclosures made.
The Committee is satisfied that the revaluation exercise undertaken by
management is sufficiently robust and that the resultant movements in fai
r
value across the Group's property portfolio is appropriate.
Pension assets and liabilities
Bupa’s principal defined benefit scheme in
the UK is The Bupa Pension Scheme.
Significant judgement is exercised in
determining the actuarial assumptions
used in valuing the pension obligations,
which include the discount rate, rates of
inflation, salary increases and mortality.
The Committee reviewed the assumptions used in the valuation of the related
pension assets and liabilities performed by the independent scheme actuary
at both the half year and full year. The new External Auditor provided the
Committee with benchmarking assessments across the assumptions used in
the valuation of pensions liabilities.
The Committee concluded that managements IAS 19 valuation exercise was
sufficiency robust and prudent, with appropriate disclosure made within the
financial statements.
Financial reporting
The Committee reviewed the half year and full year 2021 financial statements with both management and the Exter
nal Auditor.
Fair, balanced and understandable
In assessing whether the 2021 Annual Report was fair, balanced and understandable, the Committee found as follows:
• T
he narrative reporting in the Strategic Report is consistent with the financial statements, providing challenge and
feedback throughout the compilation of the 2021 Annual Report
• T
he key judgements referred to in the narrative reporting and the significant issues reported in this Audit Committee
report are consistent with the financial statements
• S
tatutory and alternative performance measures, such as underlying profit, have been given equal prominence and
are clearly explained
•
Key Performance Indicators reflect those used to measure business performance, and management
are
able to explain
their relevance in assessing the results
• Clear, simple explanations are given of the business model, Bupa’s strategy and accounting policies
• Key messages are clearly highlighted with consistent wording throughout the 2021 Annual Report
• The layout and presentation are clear with appropriate language used throughout.
Going concern and longer-term viability
Management presented
their
going concern assessment to the Committee ahead of the Board’s approval of the Group’s 2021 half year results and 2021 Annual Report. This included analysis of the impact of a number of stress scenarios and the Group’s
base plan for the period 2022
-
2024 and their impact on the Company’s solvency, liquidity, borrowings and trading profitability. It further considered contingent liabilities, guarantees and commitments and the Group’s current risk management policies and
procedures. The Committee agreed with management’s conclusion that in each plausible scenario the testing provided comfort
that Bupa would remain a going concern.
Group Internal Audit (GIA)
The assurance provided by GIA is an important part of the Committee’s consideration of Bupa’s overall control environment.
GIA’s annual assurance plan is aligned with an assessment of risk across the Group and to the RMF. Further details on the role
of GIA and its work during the year are available in the Bupa’s system of governance section, and information on the Group’s
RMF can be found in the Risk section. During 2021, the Committee interaction with GIA included:
• R
eviewing and approving GIA’s risk
-based 2022 Global Assurance Plan and budget (2022 Plan). The Committee was
satisfied that GIA has the appropriate resources and ways of working to achieve its 2022 Plan
• R
eviewing regular reports from the CAO covering GIA’s progress towards completing its 2021 Global Assurance Plan,
findings from GIA assurance activity and the effectiveness of management’s actions in responding to these findings,
and insights relating to root causes of findings and thematic issues which help the Committee to monitor the
effectiveness of risk management and culture across the Group
Governance
For the year ended 31 December 2021
34
• R
eviewing the Group’s integrated report on the ongoing effectiveness of Bupa’s systems of internal control and risk
management, including the CAO’s opinion
• A
ssessing
GIA’s effectiveness, including through independent quality assurance. The latest assessment was provided
in January 2022 and the Committee was satisfied that:
o
GIA has remained effective as Bupa’s third
-line function, providing appropriate assurance, evidenced by
independent quality assurance programme, across the Group’s key businesses
o
GIA’s assurance work has appropriately informed the Committee’s assessment of the Group’s systems of
risk management and control, and influenced improvements via management action
o
GIA generally conforms to the requirements of the Global Institute of Internal Auditors Standards and the UK
Institute of Internal Auditors Financial Services Code.
GIA is appropriately structured, resourced, managed and positioned to operate as an effective third line function, as evidenced
by its performance against an established balanced scorecard, including stakeholder and employee assessment.
Chief Audit Officer
The Committee is responsible for the appointment and removal of the CAO and, through the Chair, sets the CAO’s objectives
and reviews their performance, taking into account the views of the Group CEO. The CAO has access to the Committee Chair
and Bupa Board Chairman as required and is directly accountable to the Committee. The current CAO has been in role since
August 2019. The Committee Chair held regular meetings with the CAO throughout the year, and the CAO met in private with
the full Committee twice without management being present.
External Auditor
During the year, the Committee assessed the performance of KPMG, the outgoing External Auditor, in conducting the audit of
the 2020 Annual Report.
T
he assessment was carried out using a questionnaire sent to Committee members and members of management. It considered the overall quality of service, timeliness of the resolution of issues, the quality of the audit resource
and whether the audit plan was followed, and it was conducted through surveys sent to Committee members, the Group CEO,
Group CFO, CAO and Group Financial Controller, and senior finance management across the Group. The Committee was
satisfied with KPMG's performance and the quality of the audit.
In the interest of safeguarding the independence of the External Auditor, Bupa complies with the relevant regulatory requirements
and the FRC’s Ethical Standards for auditors, relating to the provision of non
-
audit services by the External Auditor. During the year, the Committee reviewed the extent of non
-
audit services provided by both KPMG (up to th
eir retirement as external auditor) and PwC as appropriate and was satisfied with management’s actions to ensure the independence of both was preserved.
The Committee holds regular meetings with the lead audit partner without management present to ensure that they had the
opportunity to raise any concerns, particularly in relation to each Annual Report and Solvency Financial Condition Report, an
d to
assist the Committee in ensuring that the External Auditor remains independent and objective. In 2021, an a
d
ditional private meeting was held with the lead audit partner of PwC to seek PwC’s initial views as External Auditor. The Committee Chair held
regular meetings with the lead audit partners of KPMG and PwC, as appropriate, throughout the year and the Commi
ttee received
regular updates from both management and PwC on the transition to PwC as External Auditor. The lead audit partner from PwC
attended Committee meetings from December 2020 and PwC undertook certain transition activities, including attending key
governance meetings during the 2020 financial reporting process.
The Committee approved the external audit plan and audit fee for the audit of the 2021 Annual Report. The Committee
will
consider the effectiveness, independence, objectivity and the quality of service provided by PwC in Q2 2022 following completion
of the 2021 year-end audit.
PwC provided external assurance in relation to the financial information published in connection with the bond issue which was
completed in September 2021. For information on other non-audit services provided by PwC during the year see Note 2.3.3.
The Committee agreed with the FRC and PwC that the Bupa Group and the BGUK Market Unit would take part in an FRC pilot
programme on engagement level audit quality indicators (AQIs), quantitative and qualitative metrics about the audit process used
to provide more in
-
depth information about factors that influence external audit quality. The Committee agreed the AQIs with PwC in areas important to an effective audit
,
and updates on the AQIs have been reported by PwC to the Committee at meetings throughout the course of the audit. A final report will be provided to the Committee in Q2 2022. The FRC will hold feedback
sessions with the Committee Chair and PwC. The output will help inform an FRC best practice guide on how to use AQIs.
The Committee has recommended to the Board that PwC be re
-
appointed as the Group’s External Auditor at the 2022 AGM andconfirms that the recommendation is free from influence by any third party, and that no contractual terms have been imposed on
the Company restricting the AMs’ choice of External Auditor. The Group intends to tender the External Auditor appointment at
lea
st every ten years. More information on the role of the External Auditor and how
PwC maintains its independence from Bupa
is set out in Bupa’s system of governance section.
Subsidiary governance
Despite the pandemic preventing the Committee members from travelling during the year, links with the audit committees of
Bupa’s major insurance subsidiaries have been maintained through calls and virtual attendance as follows:
Governance
For the year ended 31 December 2021
35
Group to subsidiary
Subsidiary to Group
Bupa Insurance, UK
–
Clare Thompson attended a meeting of the
audit committee
–
Clare Thompson and Caroline Silver held
calls with the finance director and internal
audit director
–
Paul Evans, a member of the
Committee and chair of the Bupa
Insurance, UK audit committee,
provided regular updates to the
Committee
Bupa Health Insurance,
Australia
–
Clare Thompson and Caroline Silver attended
a meeting of the audit committee and held
calls with the finance director, internal audit
director and incoming audit chair
–
the subsidiary
commit
tee chair attended a Committee meeting and
provided an update
Sanitas de Seguros,
Spain
–
Clare Thompson met with the committee
chair in December 2021
–
Clare Thompson and Caroline Silver held
calls with the chief financial officer and
internal audit director
–
the subsidiary committee chair
attended a Committee meeting and
provided an update
–
Matias Rodriguez Inciarte, a
Committee member and a member
of the Sanitas de Seguros audit
committee, provided regular updates
to the Committee
Bupa Chile
–
the subsidiary committee chair
attended a meeting and provided an
update
The Committee also received summaries and minutes of the meetings of the major insurance subsidiary audit committee
meetings that took place during the year.
Committee effectiveness review
Good progress has been made against the actions agreed from the 2020 internal evaluation of the Committee’s effectiveness
with the Committee overseeing a Finance
F
unction change programme, the requested aligned assurance report from the three lines of defence on Bupa’s control environment being implemented and a process established to improve the Committee’s
interaction with the Bupa Remuneration Committee for the year
-
end reward process. The quality of papers submitted to the Committee has
shown some improvement following training provided by the Group Company Secretary’s team to regular paper
authors, although further improvements could be made.
The results of the internally facilitated review of the Committee’s performance during 2021 were discussed in December and the
Committee was satisfied that it was operating effectively. Key themes and proposals for 2022 included: further understanding the
capabilities of Bupa’s Finance
F
unction, assessing the overall fit of Bupa’s assurance functions and strengthening interaction with the audit committees of Bupa’s major insurance subsidiaries.
Focus for 2022
Duri
ng 2022, the Committee will focus on implementing IFRS 17 Insurance Con
tracts; further strengthening the Group’s system
of internal control; overseeing assurance over non
-
financial information, including sustainability and ESG disclosures;and the
impact on Bupa of the outcome of the Department for Business, Energy and Industrial Strategy consultation on Restoring Trust
in Audit and Corporate Governance when known.
Clare Thompson
Audit Committee Chair
Governance
For the year ended 31 December 2021
36
Bupa
Risk Committee report
The
Committee’s role and g
overnanceThe principal role of the Committee is to assist the Bupa Board in articulating and developing its risk management strategy a
nd
providing oversight of risk across Bupa. This includes understanding current and future risk exposures, recommending
overall
risk appetite to the Bupa Board, reviewing the consistency of corporate strategy with Bupa’s risk appetite, reviewing the RMF
,
considering the risk aspects of major transactions, and promoting a risk
-
aware culture throughout Bupa. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com. A detailed description of the principal risks to Bupa’s bu
siness
and the Group’s approach to, and implementation of, risk management systems and controls is set out in the Risk section.
The Committee members are all independent NEDs whose collective experience and knowledge ensures that the Committee
can provide the Bupa Board with ongoing risk management oversight and advice on strategic risk matters. Clare Thompson, Paul
Evans, Michael Hawker and Caroline Silver bring additional technical experience from their extensive history within the
accountancy, insurance and financial services sectors. Matías Rodríguez Inciarte has similar experience and he and Mi
ke
ar
e
NEDs on the boards of the Group’s Spanish insurance and Australian businesses respectively, while Paul is a NED on the boards
of Bupa’s UK insurance businesses, bringing to the Committee direct insight into our key markets. Professor Melvin Samsom has
an
extensive medical background, which is especially relevant when considering clinical risks, while his recent experience in
Saudi Arabia offers insight into one of Bupa’s growth markets.
The Bupa Group CEO, Group CFO, CRO, CMO, CAO and the lead partner of the External Auditor are invited to attend all
meetings. The CRO has unrestricted access to all members of the Committee and has regular private meetings with the
Committee, in the absence of management, to ensure that there is an opportunity for the CRO to raise any concerns he may
have. The Committee Chair is also a member of the Bupa Remuneration Committee, to assist with ensuring that risk management
and culture are a factor in remuneration decisions. Each year, the Committee considers whether to make any recommendations
to
the Bupa Remuneration Committee on making risk adjustments to variable remuneration outcomes for that year. For 2021,
having regard to the executive performance evaluation process in place, the Committee did not recommend any Group
-wide
adjustments to remuneration.
Key activities in 2021
Different risks pose a higher or lower threat to the performance and longer
-
term sustainability of our business at different times and the Committee adapts its focus accordingly to ensure that new and emerging risks are identified, that the profile of exis
ting
risks is monitored, and appropriate mitigating action is taken by management. This has been particularly important during 202
1
with the continued impact of the pandemic and the fast pace of change throughout the business driven by our new 3x6 strategy
.
See the Risk section on page 17 for details of the principal risks to the Group.
Risks to the 3x6 strategy
Our new strategy is ambitious and requires Bupa to become more agile and move at pace to transform the business. The strategy
has an impact on the Group’s risk profile and the Committee is monitoring the emerging risks from the strategy and ensuring that
management maintains a strong control environment. In particular, the impact of the strategy on information security, privacy,
clinical and workforce risks is being monitored closely.
C
OVID
-19-related risks The CRO and CMO provided regular reports on the pandemic, Bupa’s response and the pandemic’s impact on the Group’s risk
profile. The Committee was satisfied that the Group’s provision businesses had managed their clinical response to the pandemic
well and had shared lessons learned from the first wave of the pandemic enabling them to be better prepared for subsequent
waves and for potential similar events to occur in future. However, the pandemic continues to give rise to risks to our business
through its impact on the economy, our people, our supply chains, the performance of our businesses and longer
-term
government and regulatory responses to the pandemic. The Committee is therefore closely monitoring these risks and
management’s response to them.
The Committee also carefully considered whether Bupa should mandate vaccination for all staff, discussing the legal, ethical and
reputational issues and risks, and the need to balance the safety of customers with the right of individuals to choose whether, or
not to be vaccinated. The Committee concluded that it was supportive of the approach taken by government vaccination
programmes and it was appropriate to encourage and support our people to be vaccinated but not to mandate vaccination, unless
this was a local legal or regulatory requirement for roles. Bupa encouraged all its employees to be vaccinated as soon as possible
and worked to address vaccine hesitancy in staff, such as in UK Aged Care where vaccination was mandated by government.
Environment and climate change risks
Climate risk management has been integrated into Bupa’s RMF and policies. During the year, the Committee has overseen the
development of a climate change stress testing framework. Stress tests were performed on a range of climate-related scenarios
including a longer
-
term scenario based on the PRA’s 2021 Climate Biennial Exploratory Scenarios (CBES). These stress tests
deepened the Committee’s understanding of the Group’s risk profile and will assist the Board in future strategic decision
-making.
The Committee has also considered the reputational risk from Bupa’s ambitious target to be a net zero business by 2040.
Information security, technology and operational resilience risks
The Committee has continued to closely monitor technology, information security and privacy risk during the year to ensure th
at
the Group protects the data of its customers, partners, employees and suppliers, and that the Group’s technology systems remain
resilient. The Committee has also focused on the embedding of requirements under the Group’s Operational Resilience Policy
that came into force in January 2021. Operational resilience was identified as an increasing risk in light of the continued pandemic
and the level of change required across the Group to achieve the new 3x6 strategy.
Governance
For the year ended 31 December 2021
37
The Committee received regular updates from the Chief Information Officer on IT general controls, information security and
operational resilience and the activities undertaken to further strengthen and embed the policies, controls and reporting that had
been put in place. The Committee was pleased to note the increased transparency in the control environment through a Risks
and Controls
Self-
Assessment Framework (RCSA), which had been key to mitigating information security and technology risks, and the identification by first
-
line management of technology risks to the new strategy, and that these were being addressed. Updates were also received on privacy ri
sk
,
and the Committee discussed the need to proactively consider emerging privacy risks
, such as around increased digitalisation of products and the use of artificial intelligence.
Clinical risks
Clinical risk is an operational risk that the Committee monitors closely to ensure that the risk of injury, loss or harm to customers
is appropriately and effectively mitigated. This risk is not only relevant to our provision businesses
,
where we treat customers,
but also to our health insurance businesses,
which
are working to improve the information received on the quality of care provided
by third
-
party providers funded by our health insurance businesses. The Committee receives regular reports from the CMO including
management information
on incidents within our provision businesses and continuous improvements in clinical
governance. The Clinical Governance Policy was further strengthened during the year and, at the Committee’s request, the
practices and outcomes considered to comprise good or excellent clinical governance have been documented to drive awareness
and consistency of the standards of clinical governance expected across Bupa.
Aged care in Australia
Following the improvement programme in our Australian aged care business following the imposition of sanctions on a number
of our care homes from the local aged care regulator in 2019 (which have now been resolved), the Committee has continued to
monitor the business and has considered lessons that have been learned through the programme. It was pleased at the positive
cultural change in the business and the improvements made to prevent similar issues arising again. The Committee received an
update from management on the final report issued by the Royal Commission into Aged Care Quality and Safety and the actions
being taken as a result. However, the availability, capability and remuneration of the workforce in this sector remains a key
issue
and could impact clinical risk. This continues to be monitored.
Liaison with other Committees
The Committee works closely with the Bupa Audit Committee, holding a joint meeting in December 2021
which
included a deep dive on material fraud risk and consideration of the aligned assurance plan for 2022 from the second and third lines of defen
ce.
In early 2022 another joint meeting was held to consider an integrated assurance report giving the opinions of all three lines of
defence on the Group’s internal control environment in relation to the 2021 financial year.
In early 2022, the Committee Chair attended a meeting of the Bupa Remuneration Committee to provide a view on whether any
Group
-
wide adjustments should be made to discretionary remuneration for risk factors during 2021, to aid the Bupa Remuneration
Committee’s decision on the appropriateness of the financial performance data used in connection with the calculation of the
bonuses potentially payable under the incentive schemes within the Remuneration Committee’s remit. No Group
-
wide
adjustments were recommended.
Other
In addition, the Committee has carried out other business as required under its Terms of Reference including: reviewing and
recomme
nding the Group’s ORSA to the Bupa Board for approval; reviewing the Group’s insurance cover; reviewing the
modelling of economic capital as part of the Group’s annual ORSA process; and approving or recommending to the Bupa Board
(in line with the agreed policy approval schedule of delegation), refreshed Enterprise Policies and risk appetite statements.
Subsidiary governance
During the year
,
the Committee has maintained links with Bupa’s major insurance subsidiaries through: calls between the Committee Chair, Clare Thompson and the chief risk officers of each major insurance subsidiary; the chair of each of their bo
ard
risk committees attendi
ng a meeting of the Committee; and providing an update on matters considered by their respective
committees and the Committee Chair and Clare Thompson attending a meeting of the UK major insurance subsidiary board risk
committee and the Committee Chair attending a meeting of the Australia major insurance subsidiary risk committee.
The Committee also received summaries and minutes of the meetings of the major insurance subsidiary risk committee meetings
that took place during the year.
Committee effectiveness review
There has been good progress on the key themes identified in the 2020 internal review of the Committee’s effectiveness with:
regular discussions on the management of clinical risks with improved reporting from the CMO revised Clinical
;
approval of theGo
vernance Policy; and enhancement to Bupa’s approach to lessons learned from issues or incidents that occur to ensure that
lessons are shared across the Group, including to different business lines. Lessons learned have been reviewed from a number
of issues including the information security uplift programme and the issues previously experienced in Bupa Villages
and Aged
Care Australia. With the approval and implementation of the new 3x6 strategy, the Committee has had the risks arising from the
strategy at the forefront of its mind and will continue to focus on them in 2022. Collaborative reporting from each of the three lines
of defence concerning the assessment of the effectiveness of the Group’s systems of internal control and risk management has
been enhanced and is providing valuable insight to the Committee.
The results of the internally facilitated review of the Committee’s performance during 2021 were discussed by the Bupa Board in
December and the Committee was satisfied that it was operating effectively. The discussion drove identification of some of the
key areas of focus for 2022 set out below.
Governance
For the year ended 31 December 2021
38
Focus for 2022
In 2022, the Committee will continue to focus on:
• The impact of the 3x6 strategy on the Group’s risk profile
• Climate change risks to our health insurance and provision businesses and how management are addressing these
• Further strengthening clinical risk management
• Continuing our work on risk management maturity.
Governance
For the year ended 31 December 2021
39
Other statutory information
Insurance
and indemnities
Bupa has a directors’ and officers’ insurance policy in place, together with indemnities for the Directors and certain senior
managers, to the extent permitted by English law and the Company’s Articles of Association. These have been in place throughout
2021 and to the date of this Annual Report.
These cover all losses arising out of, or in connection with, the execution of their powers, duties, and responsibilities, as
Directors
of the Company or of any of its subsidiaries. There are no other qualifying third
-
party indemnity provisions or pension indemnity provisions in place.
Disclosure compliance
The Strategic Report and the audited financial statements are presented on pages
1-24
and from page 50
, respectively. The Governance report on pages 25–41 comprises the Directors’ report.
The following disclosures required to be contained in the Directors’ report are set out on the pages referred to below and
incorporated by reference into this Directors’ report:
Disclosure
Location
Financial instruments
Note 10 page 88
Risk management objectives and policies
Note 26 page 105
Likely future business developments
Strategic Report page 4
Acquisitions and disposals
Note 24 page 102
Financial performance
Page 5
Relationships with suppliers, customers, and others
Section 172 statement page 12
Going concern
The Directors confirm that they are satisfied that the Company and the Group have adequate resources to continue in operation
for the next 12 months. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The
goi
ng concern assessment in Note 1: Basis of Preparation includes information on the Directors’ detailed assessment of the
Group’s status as a going concern.
Longer
-term viability
Bupa’s Directors have examined the outlook for Bupa and the Bupa Group as required by provision 31 of the Code, assessing
the Group’s ability to operate and meet its liabilities as they fall due over a three-year period.
The new 3x6 Strategy introduced in early 2021 is the driving force behind Bupa’s transformation agenda and planning process.
Bupa chose a three
-
year assessment period because it ties in with the internal planning process. The planning considers all important financial and regulatory measures over the period and stresses the key risks facing individual business units, as well
as global risks that could impact Bupa as a whole. Scenarios considered included a delay of six to nine months in the development
of COVID
-
19 herd immunity following delayed vaccine roll outs and the emergence of vaccine-
resistant variants; plus
an additional
1% claims inflation for insurance businesses and 1% expense inflation for all businesses on top of base case expectations.
This
process shows the Group remains robust over the current three-year plan period, even under the stressed scena
rios examined.
Bupa also conduct ‘reverse stress testing’ at the Group level which aims to identify hypothetical circumstances that might re
sult
in Bupa’s business model failing and helps our Directors to better understand the Group’s risks. The Group remains most exposed
to failure through a lack of liquidity at the Group centre.
As part of their assessment of Bupa’s viability, Bupa’s Directors looked at the Bupa Group’s financial performance, capital
management, cash flow, solvency and future outlook. Bupa is well capitalised and is expected to remain so over the plan period.
The insurance businesses generate cash and are therefore expected to be able to settle liabilities as they fall due. The liqu
idity
position of the Group is expected to remain strong across the three
-
year period. The forecast assumes that the remaining £250m portion of the subordinated bond maturing in 2023 is repaid from available liquidity. The forecast also assumes that a £300m
senior bond maturing in
2024 is refinanced with a similar instrument upon or before maturity. While this provides some uncertainty,
there is a considerable period of time before maturity to plan for refinancing. The Group’s liquidity position has also been
considered under stres
sed scenarios. Whilst the forecast liquidity position reduces, only the most severe scenarios would require
further management actions which include reducing expenditure, obtaining additional funding or divesting investments or
businesses.
Bupa Group’s most recent Own Risk and Solvency Assessment (ORSA), which brings together the outcomes of risk management
and financial management processes, considers the level of regulatory capital required to remain financially stable over the
planning period given the nature of the risks we currently face, our strategy and our risk appetite. It takes into account the
quantification of the Bupa Group’s current risks as defined by the Solvency II Directive and considers the impact of potentia
l
stressed scenarios which are aligned to the risk profile. This assessment concluded that we expect to have sufficient capital
assets to continue to meet regulatory requirements over a three-year period.
Following a review of the key risks and uncertainties set out in the Risk section, the Directors are satisfied that the Company and
the Group have appropriate risk management and governance procedures in place to manage and mitigate these risks over the
Governance
For the year ended 31 December 2021
40
three-
year period. We also identify and report on emerging risks to ensure that they are properly understood and are considered
in our future strategic decisions.
The Directors’ assessment considered both current expectations, and reasonably plausible severe scenarios, including those
arising from the further impact of COVID
-
19 on the Bupa Group. Whilst cont
inuing uncertainty exists as a result of the ongoing pandemic, most notably in respect of the short to medium term impacts on the Bupa Group’s provision businesses and the longer
term global economic impacts, the Bupa Group’s diversified business model has allowed for strong financial performance since
the start of the pandemic and continues to support the viability of the Group over the period considered.
Based on this analysis and our regular risk and capital reporting processes, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they fall due throughout the three
-
year planning period up to 31 December 2024.
Assessment of emerging and principal risks
The principal and significant risks to the Group, and how they are being mitigated, are set out in the Risk section on
page 17.
The
Risk section also describes the Risk Management Framework, which sets out Bupa’s process for the ongoing identification and
manag
ement of these risks and emerging risks. This process has been in place throughout the year and to the date of this report
and is regularly reviewed by the Bupa Risk
Committee.
These are reported to the Bupa Risk Committee on a regular basis through r
eport
s from the CRO, and any proposed changes in risk appetite are reviewed by the Bupa Risk Committee and approved by the Bupa Board. The Bupa Risk Committee’s report on page
36
explains its activities in relation to emerging risks during the year.
Effectiveness of risk management and internal control systems
In line with the principles set out in the UK Corporate Governance Code, the Board completed an annual review of the Group’s
systems of risk management and internal controls in 2021, covering t
he Group’s
material controls including financial, operational and compliance, and the impact of COVID
-
19 on the control environment. This review took into consideration the work of the Board’s Audit and Risk committees during the year, including reports provided to those Committees from the first, second and
third lines of defence. In making its assessment, the Board received and reviewed an integrated assurance report which set ou
t
an overall assessment of the Group’s systems of risk management and internal control in 2021. The Board recognised the
progress made by Bupa, detailed in the Risk section on page
17
, including resilience in dealing with COVID
-
19, and has concluded that Bupa has a sound system of risk management and internal control, with some weaknesses which are being
addressed by management and monitored by the Risk and Audit Committees.
Political donations
Our policy is not to make donations to political parties or to independent election candidates. We confirm that we do not bel
ieve
that we have made any political donations, nor incurred any political expenditure within the definition contained in Section 364 of
the Companies Act 2006, during 2021.
Dividends
The Company paid an interim dividend of £52 million
(2020: £175 million)
during the year. No final dividend is proposed. Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Accounts and the Group and Parent Company financial
statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. Under that law they have elected to prepare the Group and the Parent
Company financial statements in accordance with IFRS in conformity with the Companies Act 2006.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and
fair
view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of
the Group and Parent Company financial statements, the Directors are required to:
–
Select suitable accounting policies and then apply them consistently
–
Make judgements and estimates that are reasonable, relevant, and reliable
–
State whether they have been prepared in accordance with IFRS as adopted by the UK
–
Assess the Group and Parent Company’s ability to continue as a going concern
–
U
se the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease
operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors consider that the Annual Report and financial statements taken as a whole are fair, balanced, and underst
andable
and provide the information necessary for the shareholder to assess the Group’s position and performance, business model and
strategy.
Governance
For the year ended 31 December 2021
41
The Directors have decided to prepare, voluntarily, a Corporate Governance Statement as if the C
o
mpany was required to comply with the UK Listing Rules, Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in relation to those
matters.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of information to the External Auditor
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there
is n
o relevant audit information of which the Company’s External Auditor is unaware; and each Director has taken all the steps
which they ought to have taken as a Director to make themselves aware of any relevant audit information, and to establish that
the Company’s External Auditor is aware of that information.
External Auditor appointment
A resolution to re
-appoint
PricewaterhouseCoopers LLP as External Auditor will be put to the forthcoming AGM of the Company.By order of the Board
James Lenton
Direc
tor
7 March 2022
Company number: 2779134
Independent auditors’ report to the members of Bupa Finance plc
42
Report on the audit of the financial statements
Opinion
In our opinion:
●
Bupa Finance plc’s Group financial statements and Company financial statements (the “financial statements”)
give a true and
fair view of the state of the Group’s and of the Company’s affairs as at 31
December
2021 and of the Group’s profit and the Group’s cash flows for the year then ended;
● the G
roup financial statements have been properly prepared in accordance with UK
-adopted international accounting
standards;
● the C
ompany financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”,
and
applicable law); and
● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Directors’ Report and Financial Statements (the “Annual Repo
rt
”),
which comprise:
● the Consolidated Statement of Financial Position and Company Balance Sheet as at 31 December 2021;
●
the Consolidated Income Statement; the Consolidated Statement of Comprehensive Income; the Consolidated
Statement of Cash Flows; and the Consolidated and Company Statements of Changes in Equity for the year then
ended; and
● the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial state
ments
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the
G
roup in accordance with the ethical requirements that are relevant to our audit of the financial st
atements in the UK, which includes the FRC’s Ethical Standard, as applicable to
listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non
-
audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in Note 2.3.3, we have provided no non-audit services to the Company or its controlled undertakings
in the period under audit.
Our
audit approach
Context
Bupa Finance plc (Bupa Finance) is part of the Bupa Group, which is an international healthcare group, providing health
i
nsurance, health provision and aged care services. Bupa Finance is an intermediate holding company,
providing financing and
treasury management for the Bupa Group’s businesses and has issued listed debt as part of these activities. These financial
statements are consolidated, incorporating the four reportable segments of the Bupa Group: Bupa Asia Pacific; Europe an
d Latin
America; Bupa Global and UK; and Other businesses, which includes investments in associates.
The year ended 31 December 2021 is our first year as the external auditors of Bupa Finance and its subsidiaries (together “
the
Group
”)
. Follow
ing the external audit tender in 2019, we undertook certain transition activities, including attending key governance
meetings during the 2020 financial reporting process. In planning for our first year audit, we met with the Audit Committee a
nd
me
mbers of management across the Group to discuss and understand the businesses and any significant changes during the
year, and to understand their perspectives on associated business risks. We used this insight, in addition to our understandi
ng
of the previous auditors’ approach, when forming our own views regarding the audit risks and as part of developing our planned
audit approach to address those risks. Given the activities of the Group, we have built teams with the relevant industry expe
rience
in all significa
nt locations in which the Group operates.
The COVID
-
19 pandemic has continued to have a significant global impact throughout 2021. In planning our audit, we have considered the impact of the pandemic on the Group’s business and the financial statements. Where necessary, we have utilised
virtual technologies and collaborative workflow tools to obtain sufficient, appropriate audit evidence whilst working in this
hybrid
environment.
We have also considered the potential impact of climate change related factors in our audit, including challenging management
on their assessment of how climate change related risks and opportunities impact the financial statements.
Independent auditors’ report to the members of Bupa Finance plc
43
Overview
Audit scope
●
The Group has four reportable segments, in addition
to the Group Centre activities. Each reportable segment includes a
number of reporting components across different locations and service lines.
●
We conducted audit testing over 39
components. These were selected based on our assessment of inherent risk and
their financial significance to the consolidated financial results.
● 20 components were subject to an audit of their complete financial information.
● Specific audit procedures were performed on certain balances and transactions for a further 19 components.
● Our audit scope provided coverage of 99% of IFRS Profit before taxation expense.
Key audit matters
● Valuation of provisions arising from insurance contracts (Group)
● Impairment of goodwill (Group)
● Valuation of freehold property and investment property (Group)
● Recoverability of Company’s investment in subsidiaries (Parent)
Materiality
● Overall group materiality: £26.9m based on 5% of Profit before taxation expense.
● Overall company materiality: £24.2m based on 1% of Total assets, capped at 90% of group materiality.
● Performance materiality: £20.2m (Group) and £18.1m (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matt
ers
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whethe
r or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This
is not a complete list of all risks identified by our audit.
Key audit matter
How
our audit addressed the key audit matter
Valuation of
p
rovisions arising from insurance contracts
(Group)
Refer to Audit Committee Report, and Note
1
9.1 (for accounting
policy and
financial disclosures)
Provisions arising from insurance contracts compri
ses
provisions
for unearned premiums,
p
rovisions for claims and l
ife insurance contract liabilities.
We consider the valuation of the
p
rovisions for claims, including
the deferred claims liability, and the return of premium provision
within the
provision
s for unearned premiums, as key areas of audit
focus given the magnitude and inherent uncertainty involved in
these estimates.
Provisions for claims
£1,093m (2020: £1,083m)
The calculation of the outstanding claims provision is based on
certain key ass
umptions, including expected claims development
patterns, a margin for prudence, claims inflation and expected
trends in medical
costs and treatments.
The COVID
-
19 pandemic has disrupted the claims profile across
the Group, increasing the level of judgement required to estimate
claims provisions.
Deferred
c
rovision laims
p£163m (2020: £171m)
Government restrictions affected insurance customers’ ability to
access treatment in private healthcare facilities and make claims,
particularly for elective procedures. In Australia, a deferred claims
provision is held due to regulatory commitments which give rise to
a constructive obligatio
n to fund the deferred medical service, even
if the service were to postdate a customer’s contract period.
This deferred clai
m provision is held on a best estimate basis (plus
a margin for prudence) and represents the estimated cost of claims
The work performed to address the valuation of provisions for
claims included the following procedures:
●
Understood and evaluated the processes and controls in
place to determine the provisions for claims;
●
Tested the design and operating effectiveness of controls in
place over provisions for claims, including those covering
the approval of assumptions and com
pleteness and
accuracy of data used;
●
Using our actuarial specialist team members,
we
:
○ A
pplied our industry knowledge and experience and
comp
ared the methodology, models and assumptions
used against recognised actuarial practices;
○
Evaluated the key assumpti
ons used in the valuation of
provisions for claims for reasonableness compared to
historic experience and the estimated impact of COVID
-
19;
○
Performed independent re
-projections for a number of
business units, comparing our estimated provisions to
those boo
ked by management, and investigated
differences, where material;
○
Where independent projection was not performed,
evaluated the methodology
and assumptions applied by
management, or performed a diagnostic check to
identify and investigate any anomalies;
● Ev
aluated the methodology and assumptions used by
management in calculating the deferred claims provision,
including the assumed rebound facto
r applied, by
comparison to experience to date and available market data;
●
Assessed the appropriateness of manageme
nt’s
methodology to calculate the return of premium in the UK
and in particular challenged management on the critical
Independent auditors’ report to the members of Bupa Finance plc
44
that are expected to rebound. The key assumption used to
calculate the deferred claims provision is the rebound (or deferral)
factor appli
ed to the estimated claims shortfall.
Return of
p
remium
p
rovision£71m (2020: £145m)
In the UK, management has provided for the
estimated cost of their
commitment to pass back any exceptional financial benefit
ultimately arising as a result of the COVID
-1
9 pandemic to its
policyholders by establishing a ‘return of premium’ provision within
their provision for unearned premiums. The
provision has been
calculated based on estimating the ultimate net reduction in claims
costs attributable to COVID
-
19, adjuste
d to take into account
incremental costs and profit impacts attributable to COVID
-
19 and deducting the estimated costs of deferre
d claims expected to
rebound. The return of premium provision has reduced during the
period following settlements made to polic
yholders.
assumptions, tested th
e application of their methodology,
performed sensitivity analysis on the calculations and tested
payments made;
●
Ass
essed whether the disclosures related to insurance
contract liabilities, including the deferred claims provision
and the return of premium provision, are compliant with the
applicable financial reporting standards.
Based on the procedures performed and the evidence obtained, we
consider the valuation of the insurance contract liabilities to be
appropriate.
Impairment of
g
oodwill (Group)
Refe
r to Audit Committee Report and Note
3
(for accounting policy and financial disclosures)
Goodwill is initially recognised on business combinations and
subsequently tested for impairment on an annual basis. The
assessment of whether impairment losses sho
uld be recognised is
based on calculating the recoverable amount for the related Cash
Genera
ting Unit (CGU), which is usually its value in use,
determined by using discounted cash flow projections.
Estimating and discounting the cash flow projections req
uires
significant judgement. The key assumptions vary by CGU and
include the discount rate,
and the forecast cash flows including the
impact of
terminal growth rate, retention rates for dentists
and
occupancy levels.
We identified the following CGUs as ha
ving a higher risk of
impairment due to their lower headroom
being
the recoverable
amount over carrying value
,
and sensitivity to alternative
reasonable assumptions:
●
Bupa Dental Care UK
- Goodwill £467m (2020:
£
467
m);
●
Bupa Care
Services
UK
-
Goodwill £90m (2020: £
90
m);
●
Bupa Chile
- Goodwill £130m (2020: £152m); and
●
Bupa Villages and Aged Care Australia
- Goodwill
£99m (2020: £111m).
There is inherent uncertainty in estimating and discounting the
cash flow projections, with a range of potential outcom
es greater
than our materiality from plausible alternative assumptions, some
of which could result in impairment.
For goodwill impairment, we performed the following procedures:
Discount rates
●
Used our valuation experts to assess the
appropria
teness of management's methodology for
computing the Weighted Average Cost of Capital used
for discounting projected cash flows in the Value in Use
calculation.
●
For the four CGUs identified as having a higher risk of
impairment, we used our valuation exper
ts to
independently compute the discount rates with
reference to external comparable market information,
compared the calculated rates to those used by
management and investigated any differences.
Model integrity
●
Verified the discounted cash flow
models i
ncluding
validating the numerical accuracy of and the mechanics
of the models and the application of the discount rates.
Cash flows
●
Agreed cash flow forecasts to internal supporting
documentation, including approved Business Plans.
●
Compared cash
flow for
ecasts used in the review to
historical performance, and challenged where forecasts
indicated performance that deviated significantly from
historical performance.
●
Challenged key assumptions in the cash flow
projections, such as expected occupancy
rates, cl
inician
hours and dentist retention and the terminal growth
rates applied, and obtained supporting internal or
external information.
●
Performed sensitivity analyses on the key assumptions.
Disclosure
●
Assessed the appropriateness of the relevant
disclosu
res to confirm compliance with the applicable
financial reporting standards.
Based on the procedures performed and the evidence obtained, we
consider the conclusion that no impairment of goodwill is required to
be supportable.
Valuation of
f
reehold
p
roperty rope
irty and
nvestment
p(Group)
Refer to Audit Committee Report and Notes 4 and 5 (for
accounting policy and financial disclosures).
The Group holds freehold property (see Note 4 Property, plant and
equipment) and investment property (see Note 5 I
nvestment
p
roperty). We consider the valuation of freehold property and
investment property as key areas of audit focus given the
magnitude and inherent uncertainty involved in these estimates.
Freehold
p
roperty
Freehold properties of £2,248m (2020: £2,4
23m) comprise care
homes, care villages, clinics, hospitals and offices across a number
of locations.
For valuat
ion of freehold property and investment property, we
performed the following procedures:
●
Assessed the appropriateness of the valuation
methodology applied and whether this is in accordance
with the requirements of the relevant standards;
●
Obtained the mos
t recent external valuation reports and
critically assessed the qualifications and experience of
the external valuers to determine whether they have the
knowledge required to perform the valuations;
Independent auditors’ report to the members of Bupa Finance plc
45
The properties are held under the revaluation model and are
subject to periodic and at least triennial valuations performed by
external independent valuers. The valuations are conducted by
valuation experts and performed in accordance with relevant
industr
y guidelines. The properties have been valued as fully
equipped operational entities having regard to the trading potential
reflecting the specialised na
ture of the facilities. A capitalised
maintainable earnings or discounted cash flow model is used,
assu
ming a reasonably efficient operator of the facility.
The valuation is judgemental and involves estimation uncertainty.
The significant assumptions inc
lude occupancy levels, estimated
net earnings, capitalisation rates and discount rates. There is also
j
udgement in the allocation of the fair value of the facility between
its constituent parts, including the property.
Where an external valuation has not been obtained, valuations are
performed by the Directors to support the carrying value of the
prop
erty.
Investment
p
roperty
Investment properties of £666m (2020: £627m) relate
predominantly to retirement villages in New Zealand. The
properties are leased to third parties to generate rental income.
The properties are held at fair value and subject to an independent
external valuation annually. The valuation is based on discounted
cash flow projections and uses subjective assumptions including
the dis
count rate and expected rental yields.
●
For both external and Directors’ valuations, we
challenge
d the key assumptions relating to operating
cash flows, such as occupancy rates and discount rates,
as well as reviewing capitalisation rates and the useful
lives of existing facilities. In critically asse
ssing the key
assumptions, we have utilised our own
valuation
experts, and considered external benchmarks and
forecasts as well as reports from external chartered
surveyors;
●
For Directors' valuations, we have also challenged
adjustments to the valuation mo
del, with reference to
the most recent external val
uation obtained; and
●
Assessed whether the disclosures in relation to the
valuation of freehold and investment properties are
compliant with the relevant financial reporting
requirements.
Based on the procedures performed and the evidence obtained, we
consider the valuation of freehold property and investment property
to be appropriate.
Recoverability of Company’s investment in subsidiaries
(
Parent
) Refer to Audit Committee Report, Company accounting
policy (
j) and Note
C
(for financial disclosures).
The Company holds investments in subsidiaries with a carrying
value of £4,961m (2020: £5,9
51
m).
For certain entities, the carrying amount of the investment exceeds
the investee's net assets, i
ncluding associated goodwill. This gives
rise to an indicator of impairment. To determine if an impairment is
required, management compares the carrying value t
o a
recoverable amount, based on discounting estimated future
cashflows from
board approved
budg
ets.
There is inherent uncertainty in forecasting trading conditions and
discounting the future cash flows used in the budgets, with a
potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole.
We performed the following procedures related to the recoverability
of the Company’s investment in subsidiaries:
•
Assessed the reasonableness and appropriatenes
s of
the assumptions used in the cash flows included in the
budgets based on our knowledge of th
e entities
,
the
markets in which the subsidiaries operate
and cash flow
forecasts used elsewhere, for example in the goodwill
impairment testing
;
•
Assessed the reasonableness of the budgets by
considering the historical accuracy of the previous
forecasts a
nd agreeing cash flow forecasts to internal
supporting documentation, including approved Business
Plans;
•
Reviewed the methodology used in determining the
discount rate applied, including engaging our valuation
experts to assess the appropriateness of the inputs into
the discount rate; and
•
Assessed the
adequacy of the Company’s disclosures in
respect of the associated impairment.
Based on the work performed and the evidence obtained, we
consider the carrying amount of the Company’s investment in
subsidi
aries to be appropriate
.
How we tailored the a
udit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
G
roup and the C
ompany, the accounting processes and controls,
and the industry in which they operate.
For the Group audit we defined a component as being a single reporting pack within the Group’s consolidation process. Based
on the output of our risk assessment, along with our understanding of the Bupa Group structure, we identified 20 components for
which a full scope audit of their financial information has been performed. This was determined by assessing those components
considered to be financially significant and with reference to our risk assessment.
We identified a further 19 components where specific audit procedures were performed on certain balances and transactions to
provide sufficient and appropriate audit coverage over individual financial statement line items.
The components where we performed audit procedures included some operating in each of the Group’s Market Units and covered
over 91% of Group Revenue, 99
%
of Group Profit before taxation expense and 85% of Group Total assets. 
Independent auditors’ report to the members of Bupa Finance plc
46
We also performed audit procedures over the Group Centre functions, including the consolidation process and certain treasury
and payroll processes.
For the remaining components we performed analysis to assess whether our planning assumption that there was no risk of
material misstatement remained appropriate.
As the Group audit team, we determined the level of involvement required at those components to be able to conclude whether
sufficient and appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements
as a whole. In our role as Group auditors, we exercised oversight of the work performed by auditors of the components includi
ng
performing the following procedures:
●
Issued Group instructions outlining areas requiring
additional audit focus, including the key audit matters included
above;
● Held a global planning workshop with in scope components;
● Maintained an active dialogue with reporting component audit teams throughout the year;
● Attended meetings with local management;
●
Reviewed reporting requested from component teams, including those areas determined to be of heightened audit risk;
and
● Reviewed component team detailed working papers, where relevant.
Due to the impact of COVID
-
19, we were unable to visit overseas component teams in person. However we performed a detailed review of key audit working papers at all in-
scope components remotely.
For the Company audit, based on the outputs of our risk assessment, we identified one financially significant component being
the holding company operations.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiali
ty.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements
-
Group
Financial statements
-
Company
Overall materiality
£26.9m
£24.2m
How we determined it
5% of Profit be
fore
taxation expense
1% of Total assets
capped at 90% of group
materiality
Rationale for benchmark applied
In determining our materiality, we have considered
the financial metrics which we believed to be
relevant, and concluded that Group Profit before
t
axation expense was the most appropriate
benchmark. The Group is profit
-
orientated and
Profit before taxation expense is a key
performance metric used by the Directors’ and
other users of the financial statements.
In determining our materiality, we consid
e
red
the financial metrics which we believed to be
relevant and concluded that Total assets
was the most appropriate benchmark.
We
have applied a 90% cap of
g
roup materiality
given the shareholders are a key user of the
consolidated financial statements an
d
we
therefore consider this to be a level which
they would consider material.
For each component in the scope of our
G
roup audit, we allocated a materiality that is less than our overall g
roup materiality. The range of materiality allocated across components was £1.
3
to £1m
7.3
m. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope o
f
our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £20.2m for the
Group
financial statements and £18.1m for the Company financial statements.
In determining the performance materiality, we considered a number of factors
–
the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls
-
and concluded that an amount in the middle of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.
2m (Group
audit) and £
1.1
ompany audit) as well as misstatements below those amounts that, in our view, warranted reporting for m (
Cqualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the
G
roup's and the Company’s
ability to continue to adopt the going concern basis of accounting included:
Independent auditors’ report to the members of Bupa Finance plc
47
●
Obtaining the Directors’ going concern assessment and challenging the rationale for downside scenarios adopted and
material assumptions made using our knowledge of the Group’s business performance, review of regulatory
correspondence and obtaining further corroborating evidence;
● Conside
ring management’s assessment of the
Bupa Group’s regulatory solvency coverage and liquidity position in the
forward looking scenarios considered;
● Assessment of the impact of severe, but plausible, downside scenarios;
●
Assessing liquidity of the Group and Company, including the Group’s ability to pay customers, suppliers and creditors as
amounts fall due;
● Assessing the ability of the Group to comply with covenants;
●
Enquiring and understanding the actions taken by management to mitigate the impacts of COVID
-19, including
attendance at all Group Audit Committee and Group Risk Committee meetings; and
●
Reviewing the disclosures included in the financial statements in relation to going concern, including the Basis of
Preparation.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
G
roup's and the C
ompany’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the
G
roup's and the Company's ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors cons
idered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
repor
t thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’
report for the year ended 31
December
2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the
G
roup and Comp
any and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report.
Co
rporate governance statement
ISAs (UK) require us to review the Directors’ statements in relation to going concern, longer
-
term viability and that part of the corporate governance statement relating to the
Company’s
compliance with the provisions of the UK Corporate Governance Code, which the Listing Rules of the Financial Conduct Authority specify for review by auditors of premium listed companies. Our
additional responsibilities with respect to the corporate governance statement as other information are described in the
reporting
on other information section of this report.
Independent auditors’ report to the members of Bupa Finance plc
48
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement, included within the Governance Report is materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
● The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
● The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
●
The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern
basi
s of accounting in preparing them, and their identification of any material uncertainties to the
Group’s and
Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
●
The Directors’ explanation as to their assessment of the
Group's and
Company’s prospects, the period this assessment
covers and why the period is appropriate; and
● The Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the lo
nger-
term viability of the G
roup was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that
the
statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the
G
roup and C
ompany and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the
audit:
● The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the Group’s and Company's position, performance,
business model and strategy;
● The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
● The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the
Company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Lis
ting
Rules for review by the auditors.
Responsibilities for the
financial stateme
nts and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of
the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financia
l
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the
G
roup’s and the C
ompany’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
G
roup or the C
ompany or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of th
e
financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered materia individually or
l if,
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non
-
compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the
G
roup and industry, we identified that the principal risks of non-
compliance with laws and regulations related to certain Group activities where non
-
compliance with the related laws and regulations could result in fines or litigation, or loss of the Group’s licence to operate. We consider the areas most likely to have such an effect would be in relation
to financial conduct regulation, healthcare provision conduct regulation and regulatory capital and liquidi
ty re
quirements. In addition, risks arise from the Group’s required compliance with related taxation legislation (including VAT and payroll taxes
)
and the requirements of the FCA Handbook in relation to its listed debt and we considered the extent to which
non-
compliance might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act
2006.
We evaluated management’s incentives and opport
uniti
es for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to management bias in accounting estimates
and judgmental areas of the financial statements,
inclu
ding those shown in our Key Audit Matters. The
G
roup engagement team Independent auditors’ report to the members of Bupa Finance plc
49
shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response t
o
such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors included:
●
Discussions with the Board, management, Internal Audit, senior management involved in the Risk and Compliance
functions and the Group and Company’s legal function, including consideration of known or suspected instances of non
-
compliance with laws and regulation and fraud;
●
Evaluation and testing of the operating effectiveness of management’s controls designed to prevent and detect
irregularities;
●
Assessment of matters reported on the Group and C
ompany’s whistleblowing helpline and fraud register and the results of
management’s investigation of such matters;
●
Reading key correspondence with the relevant regulators in all significant locations, including the Prudential Regulation
Authority (“PRA”) and the Financial Conduct Authority in the UK;
●
Reviewing relevant meeting minutes including those of the Board of Directors, Remuneration and Disclosure Committees
and attending all Audit Committee and Risk Committee meetings;
● Identifying and testing journal entries based on risk criteria;
● Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
● Testing transactions entered into outside of the normal course of the Group and Company’s business; and
● Reviewing the Group’s register of litigation and claims, Internal Audit reports, and Chief Medical Officer’s Reports in so far
as they related to non-compliance with laws and regulations and fraud.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non
-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial state
ments.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete popu
lations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the
C
ompany’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assum
e
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
● we have not obtained all the information and explanations we require for our audit; or
●
adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
●
cert
ain disclosures of Directors’ remuneration specified by law are not made; or ● the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Foll
owing the recommendation of the Audit Committee, we were appointed by the members on 12
May
2021 to audit the financial statements for the year ended 31
December
2021 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
Other
matter
Bupa Finance has voluntarily adopted Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, and
these financial statements form part of the ESEF
-
prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report
provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in
the ESEF RTS.
Joanne Leeson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 March 2022
Consolidated Income Statement
for the year ended 31 December 20
21
50
Note
2021
£m
2020
restated
1
£m
Revenues
Gross insurance premiums
2.1
Premiums ceded to reinsurers
2.1
(102 )
(95 )
Net insurance premiums earned
Care,
health and other customer contract revenue
2.1
Other revenue
2.1
Total revenues
Claims and
e
xpenses
Insurance claims incurred
2.2
(7,294 )
(6,712 )
Reinsurers' share of claims incurred
2.2
Net
insurance claims incurred
(7,215 )
(6,655 )
Share of post
-
taxation results of equity accounted investments6
Impairment of goodwill and intangible assets
3
(27 )
(18 )
Oth
er operating expenses
2.3
(5,123 )
(4,933 )
Other income and charges
2.4
Total claims and expenses
(12,274 )
(11,549 )
Profit before financial income and expense
Financial income and expense
Financial income
2.5
Financia
l expense
2.5
(185 )
(182 )
Net impairment loss on financial assets
(4 )
(15 )
Net financial expense
(92 )
(105 )
Profit before taxation expense
Taxation expense
2.6
(99 )
(112 )
Profit for the year
Attributable to:
Shareholder of Bupa Finance plc
Non
-
controlling interests
Profit for the year
1.
Refer to
n
ote 1.
5 for details of the restatements
.
Notes 1-29 form part of these financial statements.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 20
21
51
Note
2021
£m
2020
restated
1
£m
Profit for the
year
Other comprehensive income/(expense)
Items that will not be reclassified to the Income Statement
Unrealised losses on revaluation of property
4
(26 )
(5 )
Remeasurement
gains/(
losses)
on pension schemes
7
(5 )
Taxation credit on income and expenses recognised directly in other comprehensive income
2.6
Items that may be reclassified subsequently to the Income Statement
Foreign
exchange translation differences on goodwill
3
(126 )
Other
foreign exchange translation differences
(240 )
Net gain
/(loss)
on hedge of net investment in overseas subsidiary companies(62 )
Share of other comprehensive income of equity accounted investments
Change in fair value of financial investments through other comprehensive income
(6 )
Realised loss on disposal of
financial investments at fair value through other comprehensive income
Change in cash flow hedge
reserve
(21 )
Taxation credit
on income and expenses recognised directly i
n other comprehensive income2.6
Total other comprehensive (expense)
/
income
(341 )
Comprehensive income for the year
Attributable to:
Shareholder of Bupa Finance plc
Non
-
controlling interests
Comprehensive income
for the year
1.
Refer to
n
ote 1.
5 for details of the restatements
.
Notes 1-29 form part of these financial statements.
Consolidated Statement of Financial Position
as at 31 December 20
21
52
Note
2021
£m
2020
restated
1
£m
Assets
Goodwill and intangible assets
3
Property, plant and eq
uipment
4
Investment property
5
Equity accounted investments
6
Post
-
employment benefit net assets
7
Restricted assets
8
Financial investments
9
Derivative assets
10
Deferred taxation assets
11
Current taxation assets
Assets arising from insurance business
12
Inventories
13
Trade and other receivables
14
Cash and cash equivalents
15
Assets held for sale
16
Total assets
Liabilities
Subordinated liabilities
17
(997 )
(1,247 )
Other interest
-
bearing liabilities17
(822 )
(1,191 )
Lease liabilities
18
(915 )
(1,010 )
Post
-
employment benefit net liabilities
7
(9 )
(12 )
Provisions arising from insurance contracts
19.1
(3,233 )
(3,212 )
Derivative liabilities
10
(35 )
(77 )
Provisions for liabilities and charges
20
(270 )
(273 )
Deferred taxation liabilities
11
(171 )
(169 )
Current taxation liabilities
(55 )
(134 )
Other liabilities arising from insurance business
19.2
(213 )
(162 )
Trade and other payables
21
(2,170 )
(2,151 )
Liabilities associated with assets held for sale
16
(4 )
(1 )
Total liabilities
(8,894 )
(9,639
)
Net assets
Equity
Share capital
23
Property revaluation reserve
Income and expenditure reserve
Cash flow hedge reserve
Foreign exchange translation reserve
(13 )
Equity
attributable to shareholder of Bupa Finance plc
Restricted Tier 1 notes
22
N
on
-controlling interest
s 29
Total equity
1.
Refer to
n
ote 1.
5 for details of the restatements
.
Approved by the Board of Directors and signed on its behalf on 7 March 2022 by
James Lenton
Director
Notes 1-29 form part of these financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 Dece
mber 20
21
53
No
te
2021
£m
2020
restated
1
£m
Operating activities
Profit before taxation expense
1
Adjustments for:
Net financial expense
1
Depreciation, amortisation and impairment
1
Other non
-
cash items
1
(128 )
(90 )
Changes
in working capital and provisions:
Increase in provisions and other liabilities arising from insurance contracts
(I
ncrease)
/decrease
in assets arising from insurance business
(73 )
Funded pension scheme employer contributions
(1 )
(1 )
(I
ncrease)
/decrease
in trade and other receivables, and other assets
(29 )
(Decrease)/
Increase in trade and other payables, and other
liabilities
1
Cash generated from operations
Income taxation paid
(215 )
(153 )
Increase in c
ash held in restricted assets
8
(9 )
(32 )
Net cash generated from operating activities
Cash flow from
investing activities
Acquisition of subsidiary companies, net of cash acquired
(19 )
(25 )
Investment in equity accounted investments
6
(14 )
(109 )
Dividends received from associates
Disposal of subsidiary companies and other
businesses, net of cash
disposed of
Divestment
in
equity accounted investments
Purchase of intangible assets
1
3
(88 )
(107 )
Purchase of property, plant and equipment
4
(193 )
(176 )
Proceeds from sale of property, plant and equipment
Purchase of investment property
5
(37 )
(59 )
Disposal of investment property
Purchases of financial investments, excluding deposits with credit
institu
tions
1
(1,070 )
(1,609
)
Proceeds from sale and maturities of financial investments,
excluding
deposits with credit institutions
Net
withdrawals from/(investments into)
deposits with credit institutions
(224 )
Interest received
Net
cash used in investing activities
(215 )
(856 )
Cash flow from
financing activities
Proceeds from issue of Restricted Tier 1 notes
22
Proceeds from issue of interest
-
bearing liabilities and drawdowns on other borrowings
Repayment
of interest
-
bearing liabilities and other borrowings
(983 )
(578 )
Principal repayment of lease liabilities
(130 )
(126 )
Repayment of interest on lease liabilities
(47 )
(54 )
Interest paid
1
17
(83 )
(103 )
Net r
eceipts on settlement of hedging instrument
s
Dividends paid
3
(52 )
(175 )
Dividends paid to
non
-
controlling interests
(1 )
(1 )
Net cash used in financing activities
(600 )
(385 )
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate changes
(91 )
Cash and cash equivalents at end of year
4
15
1.
Refer to
n
ote 1.
5 for details of the restatements
.
2.
Includes other bank fees and charges of £2 m (2020
:
£3 m).
3.
Dividends paid of £175 m for year ended 31 December 2020 have been reclassified from net cash used in investing activities to net cash used in financing a
ctivities.
4.
Includes bank overdrafts of £1 m (2020: £1 m) which are not considered as a component of cash and cash equivalents within note 15 and cash balances classified
as held for sale of £
nil
(2020: £nil).Notes 1-29 form part of these financial statements.
Consolidated Statement of Changes in Equi
ty
for the year ended 31 December 20
21
54
Share capital
Property
revaluation
reserve
Income and
expenditure
reserve
Cash flow hedge
reserve
Foreign exchange
trans
lation reserve
Total attributable
to shareholder of
Bupa Finance plc
Restricted Tier 1
notes
N
on
-
controlling
interests
Total equity
Note
£m
£m
£m
£m
£m
£m
£m
£m
£m
2021
Balance as at 1 January 2021
Profit for the
year
Other
comprehensive income/(expense)
Unrealised loss on revaluation of property
4
(26 )
(26 )
(26 )
Realised revaluation profit on disposal of property
(4 )
Remeasurement gain
on pension schemes
7
Foreign exchange translation differences on
goodwill
3
(126 )
(126 )
(126 )
Other foreign exchange translation differences
(20 )
(6 )
(211 )
(237 )
(3 )
(240 )
Net gain on hedge of
net investment in overseas
subsidiary companies
Share of other comprehensive income of equity
accounted investments
Change in fair value of financial investments
through other comprehensive income
(6 )
(6 )
(6 )
Realised loss on disposal of financial investments
at fair value through other comprehensive income
Change in cash flow hedge reserve
(21 )
(21 )
(21 )
Taxation credit/(charge) on income and expense
recognised
direc
tly in other comprehensive
income
2.6
(1 )
Other comprehensive (expense)/income for
the year, net of taxation
(44 )
(21 )
(276 )
(338
)
(3 )
(341 )
Total comprehensive (expense)/income for
the year
(44 )
(21 )
(276 )
Issue of Restricted Tier 1 notes
22
Dividends to equity holder of the Company
(52 )
(52 )
(52 )
Dividends paid to non
-
controlling interests(1 )
(1 )
Balance as at 31 December 2021
(13 )
Notes 1-29 form part of these financial statements.
Consolidated Statement of Changes in Equity (continued)
for the year ended 31 December 20
21
55
Share capital
Property revaluation
reserve
Income and
expenditure reserve
Cash flow hedge
reserve
Foreign exchange
translation reserve
Total attributable to
shareholder of Bupa
F
inance plc
N
on
-
controlling
interests
Total equity
Note
£m
£m
£m
£m
£m
£m
£m
£m
2020
Balance as at 1 January 2020
, as previously
reported
Opening balance adjustment
s
1
(35 )
(35 )
(35 )
Balance as at 1 January 2020, as restated
Profit for the
year
1
Other comprehensive income/(expense)
Unrealised loss on revaluation of property
4
(5 )
(5 )
(5 )
Real
ised revaluation profit on disposal of
property
(8 )
Remeasurement loss on pension schemes
7
(5 )
(5 )
(5 )
Foreign exchange translation differences on
goodwill
3
Other foreign exchange translation differences
(1 )
Net loss on hedge of net investment in overseas
subsidiary companies
(62 )
(62 )
(62 )
Share of other comprehensive income of equity
accounted investments
Change in fair value of financial investments
thro
ugh other comprehensive income
Taxation credit on income and expense
recognised directly in other comprehensive
income
2.6
Other comprehensive income for the year,
net of taxation
Total co
mprehensive income for the year
Dividends to equity holder of the Company
(175 )
(175 )
(175 )
Dividends paid to non
-
controlling interests(1 )
(1 )
Balance as at 31 December 2020
1.
Refer to
n
ote 1.
5 for details of the restatements
.
Notes 1-29 form part of these financial statements.
Notes to the Consolidated Financial Statements
for the year ended 31 December 20
21
56
1
Basis of preparation
This
section describes the to the
significant
accounting policies and accounting estimates and judgements that relatefi
nancial
statements and notes as a whole. Where accounting policies relate to a note, the applicable accounting policies and
specific
estimates are contained within the note.
1.1 Basis of preparation
‘Group’
) is an international healthcare business, providing health insurance, treatment in clinics, dental centres and hospitals, and
operating care homes. The immediate and ultimate parent of the Company is The British United Provident Association Limited
(the ‘Parent’ or ‘Bupa’ and together with its subsidiaries, the ‘Bupa Group’).
Both the Company Financial Statements and the Group’s Consolidated Financial Statements have been prepared in accordance
with UK
-
adopted international accounting standards, in conformity with the requirements of the Companies Act 2006. The change, on 1 January 2021, from International Financial Reporting Standards (IFRS) as adopted in the European Union, to UK
-adopted
IFRS, was a change in accounting framework, in line with the requirements of UK company law, not a change in accounting
policy. There was no impact on recognition, measurement or disclosure from this change in framework.
The financial statements were approved by the Board of Directors on 7 March 2022. The Directors have reviewed and approved
the Group’s accounting policies which have been applied consistently to all the years presented, unless otherwise stated.
The financial statements are prepared on a going concern basis and under the historical cost convention, modified by the
revaluation of property, investment property, and financial investments at fair value.
The presentation of line items within the Consolidated Statement of Financial Position is broadly in order of liquidity.
Current assets and liabilities disclosed in the notes to the accounts are those expected to be recovered or settled in less than one
year.
1.2 Basis of consolidation
The Consolidated Financial Statements for the year ended 31 December 2021 comprise those of the Company and its subsidiary
companies and the share of results of equity accounted investments.
Subsidiaries are those entities over which the Group has control. The Group controls an entity when it has power over it, is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. The Group considers all relevant facts and circumstances when determining whether control exists and
makes a reassessment whenever those facts and circumstances change.
The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control
commences to the date that control ceases.
A
ccounting policies of subsidiaries are aligned on acquisition to ensure consistency with Group policies.
The Group applies the purchase method in accounting for business combinations
. Th
e Group recognises identifiable assets, liabilities and contingent liabilities at fair value,
a
nd any non-
controlling interests
in the acquiree. Non-
controlling interests in the net assets of subsidiaries are identified separately from the Group’s equity. Non
-
controlling interests consist of the amount of those interests at the date of the original acquisition and the non
-
controlling shareholder’s share of changes in equity since this date. Intra
-
group related party transactions and outstanding balances are eliminated in the preparation of the Consolidated Financial Statements of the Group.
The Consolidated Financial Statements are presented in sterling, which is the Group’s presentational currency. Unless otherwi
se
noted, the amounts shown in these financial statements are in millions of pounds sterling (£m). Functional currencies are
identified
at a
statutory entity level. These vary across the Group and include sterling, Australian dollar, euro, New Zealand dollar and US
dollar. Each Group entity then translates its results and financial position into the Group’s presentational currency, sterling
.
1.3
Accounting estimates and judgements
The preparation of financial statements requires the use of certain accounting estimates and assumptions that affect the repo
rted
assets, liabilities, income and expenses. It also requires management to exercise judgement in applying the Group’s accounting
policies.
The areas involving a higher degree of judgement or complexity, or where assumptions are significant to the Consolidated
Financial Statements, are set out below and in more detail in the related notes.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
57
Area
Details
Note
Goodwill and
intangible assets
Goodwill and intangible assets are recognised on
acquired business
based on fair values at the es
date of
acquisition
.
Goodwill and intangible assets
with indefinite lives
are tested
for impairment on an annual basis
,
or when there are indicators of impairment.
Other intangible assets are tested for impairment when there are
indicators of impairment.
Sources of estimation uncertainty
Annual impairment tests include a number of source
s of estimation uncertainty as the key assumptions used
when modelling the recoverable amount include estimating the discount rate, terminal growth rate and the
forecast cash flows. Estimation uncertainties within these cash
flows
vary
by CGU. For aged car
e this
includes occupancy rates, fee rates, staff costs and operating expenses
;
for provision business, available
clinician hours, fee rates and operating expenses
;
and for
insurance business, future insurance premium
rises, claims volatility and claims in
flation.
The Group is still navigating the medium to long
-
term impact of COVID
-
19 across the different business lines
and as such there is significant estimation uncertain
ty in the above assumptions. This includes the impact of
the timing of the recovery
of business cash
flows as well as determining appropriate discount rates and
terminal growth rates in light of associated market volatility.
During 2021 a change has been
made to the estimation technique used for modelling forecast cash flows to
remove th
e financing costs from future lease cash flows. This has not impacted the carrying value of goodwill
and intangible assets in the current or prior year.
Accounting judgeme
nts
Judgement is applied to determine whether there is an indication of impairment t
o intangible assets. In making
this judgement, the Group considers current trading and future plans associated with each of the assets in
order to assess whether a full imp
airment assessment is required.
3
Property valuations
The Group has a significant portfolio of care home, hospital and office properties. These are subject to
periodic and at least triennial valuations performed by external independent valuers, with directors’ valuations
performed in intervening years.
Sources of estimation uncertaint
y
Significant assumptions for freehold properties are
normalised earnings, average occupancy and
capitalisation rates, whereas for investment property key assumptions are discount and capital growth rates
.
Accounting judgements
In valuing care home prope
rty, a judgement is made on the highest and best use o
f the property. In the
majority of cases this leads to the property being valued as part of a group of assets making up a going
-
concern business using market
-
based assumptions. The business is valued on
a fair maintainable trade
basis with the fair value t
hus calculated being allocated to plant and equipment and bed licences where
applicable at net book value (as a proxy for fair value), with the residual value being allocated to property.
4,5
Claims
provisioning
Estimates included in the provisions arising from insurance contracts include expected claims payments and
expenses required to settle existing insurance contract obligations.
A deferred claim provision
continues to be held within the outsta
nding claims
provision in respect of health
insurance business in Australia, where the Australian prudential regulator (APRA) has mandated the need to
provide for the rebound of claims following the COVID
-
19 disruption, triggering a constructive obligationfor
the Grou
p to pay claims in relation to the disrupted business. The provision has been calculated based on
the central estimate of the present value of expected future payments required to settle claims deferred as a
result of COVID
-
19 restrictions, to
gether with r
elated claims handling costs and an additional risk margin.
Sources of estimation uncertainty
The key assumptions used in the calculation of the outstanding claims provision include claims development,
margin of prudence, claims costs inflati
on, medical trends and seasonality.
In respect of the deferred claim
provision
significant assumptions include
forecasting the insurance claims that remain deferred at the
reporting date following periods of significant COVID
-
19 disruption and the percentage of
those claims which
are likely to rebound in future
.
19
Unearned premium
provisioning
The unearned premium provision includes a return of premium provision in respect of the UK Private Medical
Insurance (PMI) business. In April 2020, Bupa Insurance
Limited made a
to pass back pledge
to customers
any exceptional financial benefits experience
d by the UK PMI business that ultimately arise as a result of
COVID
-
19. The provision has been calculated based on estimating the ultimate net reduction in claims
costs
attributable to COVID
-
19, adjusted to take into account incremental costs and profit im
pacts attributable to
COVID
-
19, and deducting the estimated costs of deferred claims expected to rebound and COVID
-
19 related
claims inflation.
Sources of estimat
ion uncertainty
Significant assumptions include
forecasting the insurance claims that remain
deferred at the reporting date
following COVID
-
19 disruption, including the timing and amount of claims that are expected to rebound
and
in
calculating the excepti
onal financial benefits that are expected to be experienced by the business,
including
the identification of incremental costs and profit impacts attributable to COVID
-
19.
19
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
58
1.4
Going
concern
Following a detailed assessment of the Group’s going concern status based on its current position and forecast results, along
with scenario
-
based stress testing and reverse stress testing, the Directors have concluded that the Group has adequate resources
to operate for at least the next 12 months from the approval of these financial statements. This assessment considered
forecast and reasonably possible adverse changes to the Group’s liquidity, regulatory solvency, access to funding and trading
profitability over the next 12 months.
The assessment identified the risks and uncertainties most likely to impact the Group and considered the impact to the Group’s
businesses under a number of reasonably plausible severe scenarios. Scenarios considered included a delay of six to nine
months in the development of COVID
-19
herd immunity following delayed vaccine roll outs and the emergence of vaccine-
resistant variants; and an additional 1% claims inflation for insurance businesses and 1% expense inflation for all businesses on
top of base case expectations. Under such scenarios, significant short
-
term reductions in profitability arise, however the Group would still remain within its risk appetites for liquidity and regulatory solvency. Additionally, the Group has access to a £
900m
revolving credit facility (RCF) as described in note 17(c). The Group expects to remain compliant with the RCF’s covenants under
stressed scenarios and may further draw down on the RCF in order to meet liquidity needs. Additional management actions would
allow downside impacts to be further mitigated by reducing expenditure, obtaining additional funding or divesting investments or
businesses.
Details of the Group’s business activities, together with the factors likely to affect its future development, performance an
d p
osition
are set out in the Strategic Report on pages 3-24. The financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Financial Review on pages
8-11
Directors’ assessment of the Group’s longer. The
-
term
viability over a three-year period is described on pages 39-40.
1.5
Restatements and changes
in accounting policies
Except for the changes detailed in (a) to (
f
) below, the Group has consistently applied its accounting policies to all periods presented in these Consolidated Financial Statements.
The impacts of the restatements to the published 31 December 2020 figures and at 1 January 2020 are set out below:
As published
Restatements
As restated
31 December 2020
£m
£m
£m
Total revenues
12,118
24
12,142
Total claims and
expenses
(11,537)
(12)
(11,549)
Net financial expense
(79)
(26)
(105)
Taxation expense
(117)
5
(112)
Total impact on profit for the year
(9)
Goodwill and intangible assets
3,820
(14)
3,806
Provisions for liabilities and charges
(222)
(
51)
(273)
Deferred taxation liabilities
(187)
18
(169)
Total impact on net assets
(47)
Income and expenditure reserve
5,542
(44)
5,498
Foreign exchange translation reserve
266
(3)
263
Total impact on equity
(47)
As published
Restatements
As restated
1 January 2020
£m
£m
£m
Goodwill and intangible assets
3,786
(10)
3,776
Provisions for liabilities and charges
(176)
(38)
(214)
Deferred taxation
liabilities
(277)
13
(264)
Total impact on net assets
(35)
Income and expenditure reserve
5,310
(35)
5,275
Total impact on equity
(35)
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
59
(a) Underpayment of employee entitlements
During the year, the Group has been able to quantify historical underpayments of employee entitlements affecting some current
an
d former employees, following an extensive proactive pay compliance review carried out in Australia and New Zealand
. Comparative periods have been restated resulting in the impacts shown in the table below.
31 December 2020
£m
Opening income and
e
xpenditure
reserve
(27)
Other operating expenses
–
employee costs (note 2.3)
(8)
Financial expense (note 2.5)
(
2)
Taxation expense (note 2.6)
4
Total impact on profit for the year
(6)
Closing income and expenditure reserve
(
33
) Foreign exchange movement in the period
(3)
Total impact on equity
(
36
) 31 December 2020
£m
Provisions for liabilities and charges
(51)
Deferred taxation liabilities
15
Total impact on net assets
(
36
) As at 31 December 2021 the Group is holding a provision of £62m (2020: £51m) in respect of future remediation payments. Refer
to note 20 for further details.
(b) Refundable Accommodation Deposits (RADs)
The Group receives interest
-
free RADs in respect of payments for aged care units in Bupa Villages and Aged Care Australia. Revenue
is recognised for the
imputed interest on RADs, reflecting the Group's position as lessor.
The Group has determined
that the use of the Maximum Permissible Interest Rate (MPIR) is most appropriate to determine the imputed revenue and interest
amounts. The MPIR is a rate set by the
Australian
Government and is used to calculate the Daily Accommodation Payment to applicable residents. Previously the Group used the overnight funding rate to determine imputed revenue and interest.
The impact of this change in measurement is shown in the table below. Comparative periods have been restated for the change.
31 December 2020
£m
Other revenue (note 2.1)
24
Financial
expense (note 2.5)
(24)
Total impact
on profit for the year
-
(c) Market Unit restructure
In 2021, the Group announced an update to the organisational structure transferring Bupa Hong Kong from Other businesses
into the Australia and New Zealand Market Unit to form Bupa Asia Pacific. 2020 results by operating segment have been restated
to reflect this change. The amounts related to Bupa Hong Kong which have been restated between segments are shown below.
Bupa Hong Kong
31 December 2020
£m
Gross insurance premiums
382
Premiums ceded to re
insurers
(3)
Internal reinsurance
(48)
Net
insurance premiums earned
331
Care, health and other customer contract revenue
151
Other revenu
e
6
Total revenues for reportable segments
488
Bupa Hong Kong
31 December 2020
£m
Underlying profit for r
eportable segments
6
Non
-
underlying items:
Impairments of intangible assets and goodwill arising on business combinations
(11)
The restructure had no impact to the Consolidated Statement of Financial Position or Consolidated Income Statement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
60
(d) IFRS Interpretations Committee decision ‘Configuration or Customisation Costs in a Cloud Computing
Arrangement (IAS 38 Intangible Assets)’
In April 2021, the IFRS Interpretations Committee (IFRS IC) published its final agenda decision ‘Configuration or Custo
misation
Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets)’. This agenda decision considered how an entity should
account for configuration and customisation costs incurred in implementing a Software as a Service (SaaS) arrangement. The
IFR
S IC concluded that such costs should be expensed unless the criteria for recognising a separate asset are met. The G
roup
has reviewed the historic capitalisation of SaaS costs which has led to certain assets being derecognised
where capitalisation is
judg
ed to have been non
-compliant with the new guidance. The impact of this agenda decision has been recognised on a full
y
retrospective basis resulting in the impacts shown below
.
Comparative periods have been restated to reflect the change in accounting policy resulting from the new guidance.
31 December 2020
£m
Opening income and expen
diture
reserve
(8)
Other operating expenses
–
depreciation (note 2.3)3
Other operating expenses
–
other (note 2.3)(
7)
Tax
ation expense
1
Total imp
act on profit for the year
(
3)
Closing income and expenditure reserve
(11)
Total impact on equity
(11)
31 December 2020
£m
Goodwill and intangible assets
(
14)
Deferred taxation liabilities
3
Total impact on net assets
(11)
(e)
Financial asset classification
Following an internal review of financial asset classification, as at 31 December 2020, £169m of assets have been restated from
deposits with credit institution
s
at amortised cost to corporate debt securities and secured loans at amortised cost.
In addition,
£186m of deposits with credit institutions and £14m of cash and cash equivalents have been restated from BB+ and below (below
investment grade) to AA- to AA+.
These restatements had no impact to the Consolidated Statement of Financial Position.
(f) IFRS 9, IAS 39, IFRS 7 and IFRS 16 interest rate benchmark reform
In response to reforms of benchmark interest rates, ‘Interest Rate Benchmark Reform
-
Phase 2’ amended requirements in IFRS 9
Financial Instruments, IAS 39
Financi
al Instruments: Recognition and Measurement, IFRS 7
Financial Instruments: Disclosures,
IFRS 4 Insurance Contracts and IFRS 16 Leases relating to: changes in the basis for determining contractual cash flows of
financial assets, financial liabilities and le
ase liabilities;
and hedge accounting. These amendments were effective from 1 January
2021
. The Group has made use of exemptions provided by the amendments in relation to financial instruments and hedge
accounting and there was no recognition or measurement impact as a result of eligible transition activity. The amendments also
require additional disclosures related to interest rate benchmark reform. These disclosures are provided in No
n
ote 26.2.3.restatements were required as a result of adopting these amendments.
(g)
Othe
r A number of became applicable for the current reporting period. The Group did not
other
amended standards and interpretationshave to change its accounting policies or make retrospective adjustments as a result of adopting these amendments.
1.6
Forthcoming financial reporting requirements
A number of financial reporting standards, amendments and interpretations have been issued but are not effective for the year
ended 31 December 2021 and have not been early adopted by the Group. These include:
(a)
IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts was issued in May 2017 as a replacement for IFRS 4 Insurance Contracts, with amendments to
IFRS 17 issued in June 2020. The final standard will be effective for annual periods beginning on or after 1 January 2023
IFRS 17 requires a current measurement model where estimates are remeasured each reporting period. Under the general
measurement model, contracts are measured using the building blocks of discounted probability
-
weighted cash flows, an explicit
risk adjustment, and a contractual service margin (CSM) representing the unearned profit of the contract which is recognised as
revenue over the coverage period. However, an optional, simplified premium allocation approach, similar in nature to the Group’s
existing measurement basis, is permitted for eligible short-
duration contracts.
The detailed application of IFRS 17 is currently being evaluated by the Group. It is expected that the simplified premium allo
cation
approach option will be available for the majority of the Group’s insurance contracts, so a significant change in the measur
ement
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
61
basis is not anticipated. The presentation and disclosure requirements of IFRS 17 will, however, differ considerably compared
to
the current approach.
In December 2021 the IASB issued ‘Initial Application of IFRS 17 and IFRS 9
–
Comparative Information’, providing a transition option for entities initially adopting IFRS 17 and IFRS 9 Financial Instruments at the same time. As Bupa has already adopted
IFRS 9 the amendment is not expected to have any impact on the Group.
(b) IAS 1 amendments
In February 2021, the IASB issued ‘Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)’ to
help improve accounting policy disclosures for the primary users of financial statements. Entities must disclose material
accountin
g policies, rather than the current requirement to disclose significant accounting policies, and the concept of materiality
in the context of accounting policies is further defined. The amendments are effective from 1 January 2023. These amendments
are expected to impact Group disclosures but have no impact on recognition or measurement.
(c) IAS 8 amendments
‘
Definition of Accounting Estimates (Amendments to IAS 8)’
was issued by the IASB in February 2021.
The amendments introduce
the definition of accounting estimates and include
further
amendments to help entities distinguish changes in accounting estimates from changes in accounting policies. The amendments are effective
from
1 January 2023. These amendments are not expected to have a material impact on
the Group.
(d) IAS 12 amendments
In May 2021 the IASB issued ‘Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to
IAS 12)’ removing an existing deferred tax recognition exemption for transactions that give rise to equal taxable an
d deductible
te
mporary differences on initial recognition. A lessee’s recognition of assets and liabilities on inception of a lease is poten
tially
such a transaction, depending on applicable tax law. The amendments are effective from 1 January 2023.
These amendments
are not expected to have a material impact on the Group.
(e)
Other
A number of other amendments to standards and interpretations have been issued and are not yet effective for the year ended
31 December 2021. None of these is expected to have a material impact on
the Group.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
62
2
Operating segments
The organisational structure of the Group is managed through three Market Units based on geographic locations and customers
.
The Group announced an update to the organisational structure in 2021, with the incorporation of Bupa Hong Kong into th
e
previous
Australia and New Zealand Market Unit to form Bupa Asia Pacific. The three Market Units are now Bupa Asia Pacific
;
Europe and Latin America; and Bupa Global and UK of the Market Units separately
.
Management monitors the operating resultsto assess performance and make decisions about the allocation of resources. Bupa China and the Group’s associate investments,
Bupa Arabia and
Ni
Bupa are reported within Other businesses. The segmental disclosures below are reported consistently va
with the way the business is managed and reported internally.
Comparative information has been restated to reflect the change in organisational structure. Refer to note 1.5 for further details.
Reportable segments
Services and pro
ducts
Bupa Asia Pacific
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.
Bupa Villages and Aged Care Australia: Nursing, residential and residential villages
,
respite care.
Bupa Villages and Aged Care New Zealand: Nursing, residential, respite care and residential
villages.
Bupa Hong Kong: Domestic health insurance, primary healthcare and day care clin
ics including diagnostics.
Europe and Latin America
Sanitas Seguros: Health insurance and related products in Spain.
Sanitas Dental: Insurance and dental
services through clinics and third
-
party networks in Spain.Sanitas Hospitales and New Services: Mana
gement and operation of hospitals and health clinics in Spain.
Sanitas Mayores: Nursing, residential and respite care in care homes and day centres in Spai
n.
LuxMed: Medical subscriptions, health insurance, and the management and operation of diagnostics,
health
clinics and hospitals in Poland.
Bupa Acıbadem Sigorta: Domestic health insurance in Turkey.
Bupa Chile: Domestic health insurance and the managem
ent and operation of health clinics and hospitals
in Chile.
Care Plus: Domestic health insurance in Brazil.
Bupa Mexico: Domestic health insurance in Mexico.
Bupa Global Latin America: International health insurance.
Bupa Global and UK
Bupa UK Insurance: Domestic health insurance, and administration services for Bupa health trusts.
Bupa Dental Care UK: Dental services and related products.
Bupa
Care Services: Nursing, residential, respite care and care villages.
Bupa Health Services: Clinical se
rvices, health assessment related products and management and
operation of a private hospital.
Bupa Global: International health insurance to individuals, small businesses and corporate customers.
Associate: Highway to Health (United States of America)
(op
. erating as GeoBlue)
Other businesses
Bupa China: Clinical services.
Associates: Bupa Arabia (Kingdom of Saudi Arabia) and
Niva
Bupa (India): Health in
surance.
A key performance measure of operating segments utilised by the Group
is underlying profit. This measurement basis
distinguishes underlying profit from other constituents of the IFRS reported profit before taxation not directly related to the trading
performance of the business.
Underlying profit
The following items are excluded from underlying profit:
• Impairment of intangible assets and goodwill arising on business combinations – these impairments are considered to
be one-off and not reflective of the in-
ye
ar trading performance of the business. •
Net gains/losses on disposal of businesses and transaction costs on business combinations
– gains/losses on disposal
of businesses that are material and one part of the continuing
-
off in nature to the reportable segment are not consideredbusiness. Transaction costs that relate to material acquisitions or disposals are not related to the ongoing trading
performance of the business.
•
Net property revaluation gains/losses
– fluctuations which would distort underlying trading performance. Includes
unrealised gains or losses on investment properties, deficit on revaluations and property impairment losses.
•
Realised and unrealised foreign exchange gains/losses
– fluctuations outside of management control, which would
distort underlying trading performance.
•
Gains/losses on return
-seeking assets, net of hedging
– fluctuations on investments that are not considered to be
directly related to underlying trading performance.
•
Other Market Unit/Group non
-underlying items
– includes items that are considered material to the reportable segment
or Group and are not reflective of ongoing trading performance.
This includes items such as restructuring costs and
profit or loss amounts related to changes to strategic investments.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
63
The
total underlying profit of the reportable segments is reconciled below to profit before taxation expense in the Consolidated
Income Statement.
(i) Revenues
Bupa Asia Pacific
Europe and
Latin America
Bupa Global
and UK
Other
businesses
Total
2021
£m
2020
restated
1,
2
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
restated
1
£m
2
021
£m
2020
restated
2
£m
Gross insurance premiums
4,241
4,050
2,663
2,658
2,323
2,200
-
-
9,227
8,908
Premiums ceded to reinsurers
(5)
(3)
(22)
(24)
(75)
(68)
-
-
(102)
(95)
Internal reinsurance
(53)
(48)
-
-
53
48
-
-
-
-
Net insurance premiums
earned
4,183
3,999
2,641
2,634
2,301
2,180
-
-
9,125
8,813
Care, health and other
customer contract revenue
1,264
1,174
1,354
1,124
1,
081
932
-
-
3,699
3,230
Other revenue
51
76
9
7
14
10
5
6
79
99
Total revenues for
reportable segment
s
5,498
5,249
4,004
3,765
3,396
3,122
5
6
12,903
12,142
Consolidated total revenues
12,90
3
12,142
1.
2020 amounts have been restated to report Bupa Hong Kong as part of the Bupa Asia Pacific Market Unit. Refer to note 1.5c for details of the restatement.
2.
Refer to note 1.5b for details of the restatement.
(ii) Segmental result
Bupa Asia
Pacific
Europe and
Latin
America
Bupa Global
and UK
Other
businesses
Total
2021
£m
2020
r
estated
1,2
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
r
estated
1
£m
2021
£m
2020
restated
2
£m
Underlying profit for reportable
segments
3
249
1
57
185
207
78
122
45
54
557
5
40
Central expenses and net interest
margin
2
(48)
(
74
) Consolidated underlying profit
before taxation expense
509
4
66
Non
-
underlying items:
Impairments of intangible assets
and goodwill arising on business
combinations
(18)
(11)
-
(1)
-
-
-
-
(18)
(12)
Net gain/(loss) on disposal of
businesses and transaction costs
on business combinat
ions
4
8
-
3
26
2
(27)
-
-
13
(1)
Net property revaluation gain/(loss)
17
30
-
-
(1)
(4)
-
-
16
26
Realised and unrealised foreign
exchange
(loss)/gain
5
-
-
(3)
-
7
(2)
1
-
5
(2)
Other Market Unit non
-
underlying
items
6
-
-
(9)
-
32
(7)
-
-
23
(7)
Group
non
-
underlying items
7
(14)
3
Gain on return
-
seeking assets, net of hedging
3
15
Total non
-
underlying items28
22
Consolidated profit before taxation
expense
537
488
1.
2020 amounts have been restated to report Bupa Hong Kong as part of the Bupa Asia Pacific Market Unit. Refer to note 1.5c for details of the restatement.
2.
Refer to note 1.5 for details of the restatement.
3.
Underlying profit for reportable segments includes share of post
-
taxation results of equity accounted investments. Other businesses includes Bupa Arabia and
Niva
Bupa. Bupa Global and UK includes Highway to Health. For further information please refer to
no
te 6.
4.
2020 net gain/(loss) on disposal and restructuring of businesses includes
a
£26m gain relating to the reclassification of a provision business in the Europe and
Latin America segment out of held for sale and losses of £26m in Bupa Global and UK relating to ongoing completion costs in respect of the disposal of UK care
homes.
5.
Includes the
foreign exchange
impact of treating unearned premiums and deferred acquisition costs as
non
-
monetary item
s. 6.
£32m within the Bupa Global and UK segment includes a £40m net gain on the acquisition of the membership and business of CS Healthcare (see note 24) and
restructuring costs
.
7.
Includes £18m loss recognised following the early redemption of £250m of unguaranteed subordinated bonds during the year
.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
64
(iii) Other information
The Market Unit segmental results set out in table (ii) above include the following material non-cash items:
Bupa Asia
Pacific
Europe and
Latin America
Bupa Global
and UK
Other
businesses
Total
2021
£m
2020
restated
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
restated
£m
2021
£m
2020
restated
£m
Amortisation and
depreciation
costs for reportable segments
1
(16
3)
(1
60
) (184)
(182)
(12
6)
(130)
-
-
(473)
(472)
Unrealised gain on investment
property
26
25
1
-
-
-
-
-
27
25
Su
rplus/(deficit) on revaluation of
property
(8)
5
(1)
-
(1)
(4)
-
-
(10)
1
S
hare of
profits/(losses) from
associates
-
-
-
-
(3)
1
45
55
42
56
1.
Refer to note 1.5c and 1.5d for details of the restatement.
(iv) Geographical information
The following information has been provided based on the geographical location of the business:
Australasia
United Kingdom
Spain
Rest of the world
Total
2021
£m
2020
restated
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
restated
£m
Total reven
ues
1
5,
023
4,761
3,161
2,868
1,77
6
1,722
2,94
3
2,791
12,90
3
12,142
Consolidated non
-
current
assets
2
3,281
3,569
3,32
7
3,331
69
1
842
1,575
1,719
8,874
9,461
1.
Refer to note 1.5b for details of the restatement.
2.
Consolidated non
-
current assets excludes financial investments, restricted assets, assets arising from insurance business, deferred taxation assets and post
-
employment benefit net assets.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
65
2.1 Revenues
The Group generates revenues from its underwriting activities (
i
nsurance premiums), trading activities through the provision of healthcare and insurance management
services (
c
are, health and other customer contract revenue) and rental income and other fees (other).
Revenue stream
Recognition policy
Insurance
premiums
Gross
insurance pr
emiums
Gross insurance premiums represent the premiums earned relating to risk exposure for the reported financial year. They
comprise gross premiums written, adjusted for the change in provision for unearned premiums that relates to periods of
risk in sub
sequent financial years. Premiums are shown gross of commission payable and net of insurance premium
taxes that may apply in certain jurisdictions.
In circumstances where a return of premiums is likely to be due to policyholders, a
provision for the retur
n of premium is
established within the provision for unearned premiums
based on the best estimate of future cash flows. The return of
premium is treated as an adjustment to the initial premium, reducing gross insurance premiums.
Premiums ceded to reinsur
ers
Premiums ceded to reinsurers represent reinsurance premiums payable for contracts entered into that relate to risk
mitigation for the reported financial year. These comprise written premiums ceded to reinsurers, adjusted for the
reinsurers’ share of the mov
ement in the gross provision for unearned premiums.
Premiums, losses and other amounts relating to reinsurance treaties are recognised over the period from inception of a
treaty to expiration of the related business on a strai
ght
-
line basis.
Care, health
and
other customer
contract revenue
The Group generates income from fees receivable from the operation of its care homes, hospitals, dental centres and
other healthcare and wellbeing centres. In instances where Bupa is acting as an agent and another party
is primarily
responsible for fulfilling the contract, revenue is 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, bea
rs the
inventory and credit risk and has discretion in establishing prices are considered.
The
se
revenue streams typically relate to short
-
term services that have fixed, rather than variable, transaction prices and
there are
no significant judgement
s
req
uired when considering the time pattern of revenue recognition. Payment terms
vary from
on
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 Hospi
tale
s 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 fr
om t
he 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 f
or t
he 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 cust
omer
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 administra
tion
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
amo
rtised cost.
Other
Other revenue
comprises:
-
rental income and amenities fees from Occupation Right Agreements, which is recognised on a straight
-
line basis over
the term of the arrangement.
-
imputed interest on interest
-
free refundable accommodation deposits (RADs) in respect of payments for aged care
units in Bupa Villages and Aged Care Australia. Revenue is recognised for the imputed interest on RADs, reflecting the
Group's position as lesso
r. Use of the Maximum Permissible Interest Rate (MPIR) is conside
red most appropriate to
determine the imputed revenue and interest amounts. The MPIR is a rate set by the Australian Government and is
used to calculate the Daily Accommodation Payment to applicable residents.
-
government funding received in response to CO
VID
19, most notably in Bupa Health Services, Australia, Bupa Villages -
and Aged Care Australia and Hong Kong. Such funding is recognised when it is considered reasonably certain that the
fund
ing will be received and all necessary conditions have been compl
ied with.
Revenue for the year has been analysed at Business Unit level, reflecting the nature of services provided by geography that is
reported internally to management.
From 2021, Bupa Hong Kong has been reallocated from Other businesses to the Bupa Asia Pacific Market Unit. Comparatives
have been restated accordingly.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
66
Care, health and
other customer
contract revenue
Net insurance
premiums
earned
Other revenue
Total revenues
202
1
£m
2021
£m
2021
£m
2021
£m
Bupa Health Insurance
8
3,876
1
3,885
B
upa Health Services
626
-
1
627
Bupa Villages and Aged Care Australia
317
-
34
351
Bupa Villages and Aged Care New Zealand
146
-
14
160
Bupa
Hong Kong
167
307
1
475
Bupa Asia
Pacific
1,264
4,183
51
5,498
Sanitas Seguros
8
1,228
2
1,238
Sanitas Dental
110
70
3
183
Sanitas Hospitales and New Services
221
-
-
221
Sanitas Mayores
130
-
-
130
LuxMed
470
13
1
484
Bupa Acıbadem Sigorta
-
166
-
166
Bupa Chile
392
674
2
1,068
Care Plus
3
178
-
181
Bupa Mexico
8
46
-
54
Bupa Global Latin America
12
266
1
279
Europe and Latin America
1,354
2,641
9
4,004
Bupa UK Insurance
18
1,576
4
1,598
Bupa Dental Care UK
493
-
-
493
Bupa Care Services
401
-
-
401
Bupa
Health Services
168
-
1
169
Bupa Global
1
725
9
735
Bupa Global and UK
1,081
2,301
14
3,396
Other
-
-
5
5
Other businesses
-
-
5
5
Consolidated total revenues
3,699
9,125
79
12,903
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
67
Care, health and
other
customer
contract revenue
Net insurance
premiums earned
Other revenue
Total revenues
2020
restate
d
1
£m
2020
restated
1
£m
2020
restated
£m
2020
restated
1
£m
Bupa Health Insurance
6
3,668
-
3,674
Bupa Health Services
562
-
23
585
Bupa Villages and
Aged Care Australia
1
313
-
35
348
Bupa Villages and Aged Care New Zealand
142
-
12
154
Bupa Hong Kong
1
151
331
6
488
Bupa Asia Pacific
1
1,174
3,999
76
5,249
Sanitas Seguros
8
1,203
1
1,212
Sanitas Dental
82
66
2
150
Sanitas Hospitales and
New Services
220
-
1
221
Sanitas Mayores
136
-
-
136
LuxMed
407
12
1
420
Bupa Acıbadem Sigorta
-
179
-
179
Bupa Chile
259
687
1
947
Care Plus
1
176
-
177
Bupa Mexico
-
15
-
15
Bupa Global Latin America
11
296
1
308
Europe and Latin America
1,124
2,634
7
3,765
Bupa UK Insurance
16
1,430
4
1,450
Bupa Dental Care UK
3
89
-
-
389
Bupa Care Services
389
-
-
389
Bupa Health Services
138
-
1
139
Bupa Global
-
750
5
755
Bupa Global and UK
932
2,180
10
3,122
Other
-
-
6
6
Other businesses
-
-
6
6
Consolidated total revenues
3,230
8,813
99
12,142
1.
Refer
to
note 1.
5
for details of the restatements
.
Analysis of net insurance premiums earned
2021
£m
2020
£m
Gross premiums written
9,353
8,909
Change in gross provisions for unearned premiums
(126)
(1)
Gross insurance premiums
9,227
8,908
Gross pre
miums written ceded to reinsurers
(109)
(97)
Reinsurers
’
share of change in gross provisions for unearned premiums
7
2
Premiums ceded to reinsurers
(102)
(95)
Net insurance premiums earned
9,125
8,813
2.2 Insurance claims
Insurance claims relate to the Group’s insurance underwriting activities. Insurance claims incurred are amounts payable under
insurance contracts arising from the occurrence of an insured claims episode. A claims episode is an insured medical service
that the Group has an obligation to fund, which could be consultation fees, diagnostic investigations, hospitalisation or treatment
costs. This includes amounts in relation to claims episodes that have not taken place by the reporting date where the Group has
a constructive obligation to fund deferred medical services, due to regulatory or other public commitments following periods of
severe service disruption, as has been the case with COVID-19 in some markets.
Insurance claims incurred comprise insurance claims paid during the year together with related handling costs, the movement in
the gross provision for claims in the period (which includes a deferred claims provision in respect of the Australian health
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
68
insurance business
)
and the Risk Equalisation Special Account levy for the Australian health insurance business. See n
ote 19
for details of the claims provision.
Private health insurers in Australia provide private health insurance cover through a community rated scheme. To avoid advers
e
selection and ensure the Australian private health insurance scheme is sustainable, a risk equalisation mechanism operates to
subsidise insurers with higher risk policyholders.
Reinsurers’ share of claims incurred
Reinsurers’ share of claims incurred represents recoveries from reinsurers on claims paid, adjusted for the reinsurers’ share of
the change in the gross provision for claims.
See note 12 for the related balance sheet item.
2021
£m
2020
£m
Insurance claims paid
7,267
6,576
Change in gross provisions for claims
1
88
206
Risk Equalisation Special
Account levy (net of recoveries)
(61)
(70)
Insurance claims incurred
7,294
6,712
Recoveries from reinsurers on claims incurred
(77)
(58)
Reinsurers’ share of change in gross provisions for claims
(2)
1
Reinsurers' share of claims incur
red
(79)
(57)
Net insurance claims incurred
7,215
6,655
1.
Change in gross provisions for claims includes £
1m
in respect of the deferred claims provision recognised at 31 December 2021 (2020: £163m).2.3
Other operating expenses
Other operating expenses include staff costs, medical supplies, overheads, depreciation, amortisation of intangible assets, and
gains or losses on foreign exchange transactions incurred as a consequence of operating our business
es
. Costs in relation to handling claims ar
e included within insurance claims.
Operating expenses exclude insurance claims, finance costs and taxation.
Other operating expenses
Note
2021
£m
2020
restated
1
£m
Staff costs
2.3.1
2,239
2,194
Acquisition costs
2.3.2
427
447
Medical supplies and
fee
s
1,186
997
Property costs
242
239
Lease rentals and other expenses
2
23
16
Marketing costs
107
107
Catering and housekeeping costs
57
57
Consultancy fees
112
117
Net
gain
on foreign exchange transactions
(4)
-
Amortisation of intangible asset
s
3
149
138
Depreciation expense
4
324
332
Other operating expenses (including auditors’ remuneration)
2.3.3
261
289
Total other operating expenses
5,123
4,933
1.
Refer to
n
ote 1.
5 for details of the restatements
.
2.
Includes short
-
term and low
ue lease rentals, and other lease expenses.-val
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
69
2.3.1 Staff costs
The below table represents the total employee benefit expenses incurred by the Group during the year.
2021
£m
2020
restated
1
£m
Wages and salaries
2,222
2,177
Social security costs
121
124
Contributions to defined contribution schemes
43
37
Other pension costs
4
7
Total staff costs
2,390
2,345
Staff costs relating to claims handling reported in claims
(151)
(151)
Staff costs in
operating expenses
2,239
2,194
Employee numbers
The average number of employees, including Executive Directors, employed by the Group during the year was:
2021
2020
restated
1
Bupa Asia
Pacific
17,290
18,351
Europe and Latin America
40,636
37,154
Bupa Global and UK
21,615
22,076
Other businesses
4
5
Total average employee numbers
79,545
77,586
1.
2020 employee numbers have been restated to report 1,635 Bupa Hong Kong employees as part of the Bupa Asia Pacific Market Unit following the
updated
organisational structure implemented during 2021. Bupa Hong Kong was previously reported under Other businesses.
Directors' remuneration
2021
£’000
2020
£’000
Emoluments
2,510
1,893
Company contributions to defined contribution pension sc
hemes
29
42
Amounts receivable under long
-
term incentive schemes
776
706
Total
3,315
2,641
The remuneration of the highest paid Director was:
Emoluments
1,003
507
Amounts receivable under long
-
term incentive schemes
-
299
Total
1,003
806
There are no Directors who are members of a Bupa defined benefit pension scheme (2020: nil).
2.3.2
Acquisition costs
2021
£m
2020
£m
Commission for direct
insurance
367
355
Other acquisition costs paid
67
69
Changes in deferred acquisition co
sts
(7)
23
Total acquisition costs
427
447
The movement in the deferred acquisition costs asset is detailed in note 12.
1.
Refer to not
e 1.5a for details of the restatement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
70
2.3.3 Auditors’
remuneration
All services provided by PwC during the year were in compliance with the Group’s non
-aud
it services policy, the FRC Ethical Standard and approved by the Audit Committee. Audit services were provided by KPMG for the year ended 31 December 2020.
2.4
Other income and charges
Other income and charges comprise income or expenses that are related to the investing and divesting activities of the Group.
Note
2021
£m
2020
£m
Gain on acquisition of businesses
1
42
-
Net
gain/(
loss
)
on disposal and restructuring of businesses
2
13
(1)
(D
eficit)
/surplus
on revaluation of property
4
(10)
1
Net gain on disposal of property, plant and equipment
4
1
Total other income and charges
49
1
1.
G
ain on acquisition of
businesses
includes a £
42m
gain in relation to the acquisition of the membership and business of CS Healthcare (see note
2
4). This is gross of
related transaction costs of £2m.
2.
2020 n
et gain/(loss) on disposal and restructuring of businesses
includes
a
£26m gain relating to the reclassification of a provision business in the Europe and
Latin America segment out of held for sale and losses of £26m in Bupa Global and UK relating to ongoing completion costs in respect of the disposal of UK care
h
omes.
2.5
Fin
ancial income and expenseFinancial income and expenses are earned/(incurred) from the Group’s financial assets and liabilities, and non
-fi
nancial assets such as investment property
.
Financial income
Interest income is recognised in the Consolidated Income Statement, using the effective interest method.
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 the asset is held. Upon derecognition of these assets, the cumulative unrealised gains or losses are reversed
and a realised gain or loss is recognised.
Changes in the value of debt instruments at fair value through other comprehensive income are recognised in ot
her
comprehensive income as an unrealised gain or loss. The cumulative gain or loss recognised in the income and expenditure
reserve is reclassified to realised gains or loss in the Consolidated Income Statement when the financial asset is derecognised.
Note
2021
£m
2020
£m
Interest income:
Investments at fair value through profit or loss
42
21
Investments at fair value through other comprehensive income
12
2
Investments at amo
rtised cost
18
28
Net realised gains/(losses):
Net
realised gains
/(losses)
on investments at fair value through
profit or loss
3
(3)
Net realised
(losses)/
gains on financial investments at fair value through other comprehensive income
(1)
5
Net
increase in fair value:
Investments at fair
value through profit or loss
-
13
Investment property
5
27
25
Net foreign exchange translation (losses)
/gains
(4)
1
Total financial income
97
92
I
ncluded within financial income is a net
gain
, after economic hedging, on the Group’s
return-seeking asset portfolio of £
3m (2020:
net gain £15m).
2021
£m
2020
£m
Audit fees for audit of Company's annual accounts
0.
5
0.1
Fees payable to the Company's auditor and
its associates for:
Audit fees for audit of Company's subsidiaries required by legislation
6.9
6.9
Audit fees for audit
-
related assurance services
1.
2
1.0
Audit fees to the Company's auditors
8.6
8.0
Fees payable to the Company's auditor and its ass
ociates for other services:
All other non
-
audit services
0.
2
0.2
Total non
-
audit fees
0.
2
0.2
Total auditors
’
remuneration
8.8
8.2
Financial Statements
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
71
Financial expense
Interest payable on borrowings is calculated using the effective interest method.
Finance charges in respect of leases and restoration provisions are charged to the Consolidated Income Statement over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
2021
£m
2020
restated
1
£m
Interest expense on financial liabilities at amortised cost
92
98
Finance charges in respect of leases and restoration provisions
48
55
Other financial expenses
1
45
29
Total financial expenses
185
1
82
1.
Refer to note 1.5 for details of the restatement.
Other financial expenses includ
es £23m
(2020: £24m) of imputed
financial expenses in relation to interest-free refundable
accommodation deposits received by the Group in respect of payment for
aged care units
in Bupa Villages and Aged Care Australia.
A loss of £18m was recognised
in ot
her financial expenses following the early redemption of £250m of unguaranteed subordinated bonds during the year. The bonds were originally due to mature on 25 April 2023.
2.6 Taxation expense
Taxation expense on the profit for the year comprises current and deferred taxation and considers foreign taxation, double
taxation relief and absorbs 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
dire
ctly in other comprehensive income, in which case it is recognised directly in the Consolidated Statement of Comprehensive
Income.
(i) Recognised in the Consolidated Income Statement
Current taxation is the expected taxation payable on the taxable profit for the year, using taxation rates enacted or substantively
enacted at the balance sheet date, and any adjustments to taxation payable in respect of previous years.
The Group is subject to taxation audits in the territories in which it operates and considers each issue on its merits when deciding
whether to hold a provision against the potential tax liability that may arise. However, the amount that is ultimately paid c
ould
differ from the amount initially recorded and this difference is recognised in the period in which such a determination is made.
2021
£m
2020
restated
1
£m
Current taxation expense
UK taxation on income for the year
13
21
UK taxation adjustments in respect of prior periods
(12)
5
Total UK current taxation expense
1
26
Double taxation r
elief
(6)
(8)
Foreign taxation on income for the year
179
209
Foreign taxation adjustments in respect of prior years
2
(
45
) (15)
Total foreign current taxation expense
134
194
Total
current taxation
129
212
Deferred taxation income
Origi
nation and reversal of temporary differences
(53)
(114)
Adjustments in respect of prior periods
9
10
Changes in taxation rates
14
4
Total deferred taxation
income
(30)
(100)
Taxation expense
99
112
1.
Refer to note 1.5 for details of the restatement
.
2.
A favourable decision of the Spanish Supreme Court resulted in
the release of a provision
of £43m for the year ended 31 December 2021.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
72
(ii) Reconciliation of effective taxation rate
2021
£m
2020
restated
1
£m
Profit before taxation expense
537
488
U
K corporation taxation rate
19%
19%
Tax at the UK corporation taxation rate
102
93
Effects of recurring taxation reconciliation items:
Different taxation rates in foreign jurisdictions
34
25
Deductions not allowable for taxation purposes
25
27
I
ncome not taxable or taxable at concessionary rates
(11)
(12)
Property
revaluation
not included as a temporary difference
(7)
(5)
Results of associates
(9)
(12)
Changes in taxation rates
14
4
Movement in d
eferred taxation asset not recognised
2
1
48
28
Effects of non
-
recurring taxation reconciliation items:
Taxation adjustments in respect of prior periods
2
(
48
) -
(Profit)/loss on disposal and acquisition of business
(4)
(2)
Other
1
(7)
(
51
) (9)
Taxation expense at the effective rate of
18
2020: 23%)% (
99
112
1.
Refer to note 1.5 for details of the
restatement
.
2.
A favourable decision of the Spanish Supreme Court resulted in
the release of a provision
of £43m for the year ended 31 December 2021.
All UK deferred taxation balances were revalued following the change in the enacted UK taxation rate from 19% to 25% (which
applies from 1 April 2023), resulting in an increase in the overall tax charge of £14m.
(iii) Current and deferred taxation recognised directly in other comprehensive income
202
1
£m
2020
£m
Deferred taxation
credit/(charge) in respect of:
Unrealised loss
es
on revaluation of property6
4
Remeasurement
(gains)/
losses o
n pension schemes
(1)
1
Other items including foreign exchange translation differences
-
2
Taxation credit
on income and expenses recognised directly
in other comprehensive income
5
7
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
73
3 Goodwill and 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 the 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 held 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 recognised at fair value which
represents cost at acquisition and are subsequently held at cost less accumulated amortisation and impairment. Intangible assets
acquired separately are held 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 softw 2-10 years
are
• Brand and trademarks 3 years-indefinite
• Customer relationships 3-20 years
• Technology and databases 10 years
• Distribution networks 10-14 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.
Intangible assets with an indefinite useful life, or not yet available for use, are subject to annual impairment reviews.
In other intangibles, the Group holds bed licences, with a carrying value of £83m (2020: £110m), within the Bupa Villages and
Aged Care Australia CGU. Following the Australian Government’s announcement of the deregulation of bed
licences
from 1 July 2024, the Group has reviewed the amortisation term and reduced it from being an indefinite useful economic life to cover the
period from 1 October 2021 to 1 July 2024. The Group has recognised £8m of amortisation in respect of Australian bed licences
at 31 December 2021. In addition an impairment loss of £10m was recognised in respect of bed licences no longer in use.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
74
Goodwill
Computer
software
1
Brands/
Trademarks
Customer
rela
tionships
Other
2
Total
£m
£m
£m
£m
£m
£m
2021
Cost
At beginning of year
3,440
906
336
918
333
5,933
Assets arising on business combinations
28
-
1
29
4
62
Additions
-
88
-
-
-
88
Disposals
(52)
(
56
) (13)
-
(8)
(1
29
) Transfer to assets
held for sale
(17)
-
-
-
-
(17)
Other
(25)
3
-
1
(1)
(22)
Foreign exchange
(141)
(
30
) (32)
(24)
(23)
(2
50
) At end of year
3,233
91
1
292
924
30
5
5,665
Amortisation and impairment loss
At beginning of year
798
6
09
165
403
152
2,127
Amor
tisation for year
-
69
9
56
15
149
Impairment loss
6
9
-
-
12
27
Disposals
-
(
53
) (2)
-
(4)
(
59
) Other
(5)
2
-
-
-
(3)
Foreign exchange
(15)
(16)
(13)
(17)
(8)
(69)
At end of year
784
6
20
159
442
16
7
2,172
Net book value at end of year
2,449
291
133
482
138
3,493
Net book value at beginning of year
(restated)
1
2,642
297
171
515
181
3,806
2020
Cost
At beginning of year (as previously
reported)
3,352
815
333
915
329
5,744
Opening balance adjustmen
t
1
-
(11)
-
-
-
(11)
Assets
arising on business
combinations
13
-
-
-
-
13
Additions
-
1
02
-
1
4
107
Disposals
(5)
(
14
) -
-
(4)
(23)
Other
-
4
-
-
-
4
Foreign exchange
80
10
3
2
4
99
At end of year
(restated)
1
3,440
90
6
336
918
333
5,933
Amortisation and impairment lo
ss
At
beginning of year
(as previously
reported)
781
556
152
340
129
1,958
Opening balance adjustment
1
-
(1)
-
-
-
(1)
Amortisation for year
-
60
11
57
10
138
Impairment loss
-
7
-
-
11
18
Disposals
-
(14)
-
-
-
(
14
) Other
-
(3)
-
-
-
(3)
Fo
reign exchange
17
4
2
6
2
31
At end of year
(restated)
1
798
6
09
165
403
152
2,127
Net book value at end of year
(restated)
1
2,642
297
171
515
181
3,806
Net book value at beginning of year
(restated)
1
2,571
249
181
575
200
3,776
1.
Refer to no
te
1.5d for details of the restatement.
2.
Predominantly comprises bed licences, distribution networks and licences to operate care homes.
Intangible assets of £3,493m (2020: £3,806m) include £753m (2020: £867m) which is attributable to other
intangible assets
arising on business combinations, comprising customer relationships, brand and trademarks and other in the above table.
Computer software assets of £291m (2020: £297m) includes £233m (2020: £242m) attributable to capitalised
internal
development costs. £72m of costs (2020: £82m) were capitalised in the period.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
75
Impairment testing of goodwill and indefinite life intangible assets
Goodwill and intangible assets with indefinite useful lives are tested at least annually for impairment by comparing the net carrying
value with the recoverable amount, using value in use calculations.
In arriving at the value in use for each CGU, key assumptions have been made regarding future projected cash flows, discount
rates and terminal growth rates. The key business drivers of the cash flow forecasts vary by CGU. For aged care, key drivers are
occ
upancy rates, fee rates, staff costs and operating expenses. For provision business the cash flows are driven by available
clinician hours, fee rates and operating expenses. For insurance business, key drivers
are
assumed future insurance premium rate
rise
s, claims volatility and claims inflation.
Cash flow projections have been calculated from management operating profit
projections for a five
-
year period. These are based on the three-
year plan which has been approved by the Board with further projections added for years four and five.
During 2021 a change
was made to
the estimation technique used for modelling estimated future cash flows to remove financing
costs from future lease cash
flows. While
this has not impacted the carrying value of goodwill and intangible assets in the current
or prior y
ears, this has led to an increase in the value in use of some CGUs with significant leasing portfolios.
Taxation has been applied to the pre-
taxation management operating profits based on the statutory
taxation rates in the country of operation.
Forecast future post
-
taxation cash flows have been discounted at post
-
taxation discount rates. Discount rates have been derived
using a weighted average cost of capital (WACC) methodology, representing the minimum return a business must earn on its
asset base to satisfy providers 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 associated with each CGU, as well as external factors. These include the market
assessment of the time value of money and the risks inherent in the relevant country where the cash flows are generated.
Cash flow projections beyond the forecast periods have been extrapolated by applying a terminal gr
owth rate between 2.0% and
6.6% (2020: 2.5% 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 the future and past growth rates and external sources of data, such as forecast GDP growth
rates, inflation and long-term consumer price index rates.
The values assigned to the key assumptions are based on past experience of the CGUs and assessment of future trends in the
relevant industry.
The following table summarises the pre-taxation discount rates used for impairment testing for the main CGUs:
2021
%
2020
%
Bupa Australia Health Insurance
7.4
7.7
Bupa Health Services A
ustralia
9.3
9.7
Bupa Villages and Aged Care Australia
9.8
10.0
Bupa Chile
11.5
12.3
LuxMed
8.2
8.9
Sanitas Seguros
8.6
9.4
Sanitas Mayores
8.0
8.9
Bupa Acıbadem Sigorta
17.7
23.8
Care Plus
13.1
15.4
Bupa Care Services UK
7.0
6.9
Bupa Dental Care
UK
7.8
7.5
Bupa Global
11.2
10.2
Hong Kong
10.0
10.4
The annual testing undertaken determined the recoverable amount of all CGUs to be higher than their respective carrying value,
resulting in no impairments to goodwill.
During the year an impairment loss of £6m was recognised in relation to goodwill, of which £4m related to goodwill associated
with bed licences no longer in use and £2m relating to Bupa Villages and Aged Care Australia care homes prior to transfer to held
for sale.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
76
The following table summarises goodwill by CGU as at 31 December:
2021
£m
2020
£m
Bupa Asia Pacific
Bupa Australia Health Insurance
821
894
Bupa Health Services Australia
288
311
Bupa Villages and Aged Care Australia
99
111
Hong Kong
115
112
Europe and Latin Amer
ica
Bupa Chile
130
152
LuxMed
246
251
Sanitas Seguros
46
101
Sanitas Mayores
21
22
Bupa Acıbadem Sigorta
24
41
Care Plus
26
19
Other
5
-
Bupa Global and UK
Bupa Care Services UK
90
90
Bupa Dental Care UK
467
467
Bupa Global
68
68
Other
3
3
Total
2,449
2,642
Sensitivity to changes in key assumptions
Sensitivities have been provided below for those CGUs where a reasonably probable change to the discount rate, terminal growth
rate or cash flows could give rise to an impairment in the future or where the Group considers there to be business uncertainty
due to recent local pressu
res.
Other than as disclosed below, management believes that no reasonably probable change in any of the key assumptions would
cause the carrying value of any goodwill or intangible asset with an indefinite useful life to exceed its recoverable amount.
H
eadroom
£m
Discount
rate
%
Terminal
growth rate
%
Reduction
in
headroom
from 0.5%
increase in
discount
rate
£m
Reduction
in
headroom
from 0.5%
reduction in
terminal
growth rate
£m
Reduction
in
headroom
from 10%
reduction in
cash
flows
£m
Bupa Dental Care
UK
95
7.
8
2.
1
(
98
) (
85
) (92)
Bupa Care Services UK
73
7.0
2.
1
(
121
) (
106
) (107)
Bupa Villages and Aged Care Australia
61
9.
8
3.0
(34)
(28)
(45)
Bupa Chile
54
11
.5
3.0
(46)
(37)
(63)
Key assumptions underpinning the cash flows differ across the CGUs. For Bupa Dental Care UK, cash flows are highly sensitive
to available clinician hours during the forecast period. For Bupa Care Services UK and Bupa Villages and Aged Ca
re Australia,
key cash flow drivers are the recovery of occupancy rates and the controlling of operating expenses. For Bupa Chile, future cash
flows are sensitive to local regulatory approval of assumed future insurance premium rate rises, claims volatility and the wider
political and regulatory environment the business operates in.
Imp
airment of other intangible assets
As at 31 December 2021, other intangible assets with indefinite useful lives were tested for impairment with no impairment ari
sing
in the current year (2020: £nil).
A review of intangible assets that are subject to amortisation resulted in impairments of £11m (2020: £19m), of which £9m related
to computer software assets and £2m to other intangibles. In 2020 this primarily related to a £10m impairment of a distributi
on
rights asset in Hong Kong and an £8m impairment of computer software assets.
In addition, following the Australian Government’s announcement of the future deregulation of bed
licences
from 1 July 2024, the Group assessed that bed licences no longer in use were impaired. This resulted in the recognition of a £10m impairment in the
current year (2020: £nil).
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
77
4
Property, plant and equipment
Property, plant and equipment are the physical assets or rights to use the leased assets which are utilised by the Group to carry
out business activities and generate revenues and profits.
The majority of assets held relate to care homes, hospital properties and equipment, and office buildings.
Freehold properties
Freehold properties comprise care homes, care villages, clinics, hospitals and offices and are initially measured at cost and
subsequently at revalued amount less accumulated depreciation and impairment losses. These properties are subject to periodic
and at least triennial valuations performed by external independent valuers. Borrowing costs relating to the acquisition or
construction of qualifying assets are capitalised as part of the cost of that asset.
Equipment
Equipment (including leasehold improvements) is held at historical cost less subsequent depreciation and impairment losses.
Depreciation
Freehold land and assets under construction, included within freehold properties, are not depreciated. Depreciation on other
items of property, plant and equipment is calculated using the straight
-
line method to allocate cost or revalued amount less residual value over estimated useful lives, as follows:
• Freehold property 50 years
• Right-of-use property lease term
• Leasehold improvements shorter of useful life or lease term
• 3-10 years
Owned equipment
• Right-of-use equipment lease term
Impairment
Impairment reviews are undertaken where there are indications that the carrying value of an asset may not be recoverable. An
i
mpairment loss on assets carried at cost is recognised in other income and charges to reduce the carrying value to the
recoverable amount. An impairment loss on assets carried at the revalued amount is recognised in the revaluation reserve, except
where an
asset is revalued below historical cost, in which case the loss on historical cost is recognised in the Consolidated Income
Statement within other income and charges.
For information regarding leased (right-of-use) assets, see note 18.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
78
Freehold
property
Right
-
of
-use
asset
property
Leasehold
improvements
Owned
equipment
Right
-
of
-use
asset
equipment
Total
£m
£m
£m
£m
£m
£m
2021
Cost or
valuation
At beginning of year
2,458
1,180
307
1,388
16
5,349
Assets arising on business
combinations
17
2
-
2
-
21
Additions
33
48
20
140
4
245
Transfer to assets held for sale
(12)
(5)
(2)
(10)
-
(29)
Disposals
(43)
(42)
(15)
(60)
(5)
(165)
Revaluations
(60)
-
-
-
-
(60)
Remeasurements
-
42
-
-
-
42
Other
3
(5)
1
(6)
-
(7)
Foreign exchange
(100)
(55)
(14)
(65)
-
(234)
At end of year
2,296
1,165
297
1,389
15
5,162
Depreciation and impairment loss
At beginning of year
35
270
131
792
6
1,234
Depreciation charge for year
40
139
24
117
4
324
Transfer to
assets held for sale
-
(2)
(1)
(6)
-
(9)
Disposals
(1)
(32)
(12)
(48)
(4)
(97)
Revaluations
(24)
-
-
-
-
(24)
Impairment loss
-
4
1
1
-
6
Other
-
-
-
(5)
-
(5)
Foreign exc
hange
(2)
(15)
(6)
(37)
-
(60)
At end of year
48
364
137
814
6
1,369
Net book value at end of year
2,248
801
160
575
9
3,793
Net book value at beginning of year
2,423
910
176
596
10
4,115
2020
Cost or valuation
At beginnin
g of year
2,450
1,123
272
1,275
13
5,133
Assets arising on business
combinations
-
4
-
9
-
13
Additions
43
45
21
112
1
222
Transfer to assets held for sale
(7)
(2)
-
-
-
(9)
Disposals
(53)
(14)
(5)
(28)
(2)
(102)
Revaluations
(55)
-
-
-
-
(55)
Remeasurements
-
1
-
-
4
5
Other
2
(1)
12
(15)
-
(2)
Foreign exchange
78
24
7
35
-
144
At end of year
2,458
1,180
307
1,388
16
5,349
Depreciation and impairment loss
At beginning of year
49
133
100
677
4
963
Depreciation charge for year
39
14
3
22
124
4
332
Transfer to assets held for sale
-
(1)
-
-
-
(1)
Disposals
(3)
(13)
(4)
(25)
(2)
(47)
Revaluations
(51)
-
-
-
-
(51)
Impairment loss
-
5
4
1
-
10
Other
-
-
6
(7)
-
(1)
Foreign exchange
1
3
3
22
-
29
At end of year
35
270
131
792
6
1,234
Net book value at end of year
2,423
910
176
596
10
4,115
Net book value at beginning of year
2,401
990
172
598
9
4,170
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
79
Revaluation of properties
External valuations are performed every three years. To ensure that the carrying value does not differ significantly from fair value
at the balance sheet date, in years where a full external valuation is not scheduled to be completed, a directors’ valuation is
conducted, based on updated cash flows and other market variables. Consideration is also given to whether there are any factors
which indicate an out of cycle external revaluation is required.
In 2021, the external triennial revaluation of properties in Spain was performed independently by Alia Tasaciones S.A. Directors’
property valuations have been performed across all other geographies.
In valuing care home property, a judgement is made on the highest and best use of the property. In the majority of cases this
leads to the property being valued as part of a group of assets making up a go
ing-
concern business using market valuations. The business is valued on a fair maintainable trade basis with the fair value thus calculated being allocated to plant and equipm
ent
and bed licences applicable at net book value (as a proxy for fair value), with the residual value being allocated to property.
The valuations of care homes across the Group
(
and hospitals in Spain and Poland)
determined based on a are
therefore capitalisation of earnings approach. 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 assumes a reasonably efficient operator of the facility.
The valuations of hospitals and clinics in Chile are determined based on discounted future cash
f
low projections. The discount rate is determined according to the time value of money, the level of risk of the industry and the corresponding premium risk.
Unobservable inputs include the capitalisation or discount rate and, for all properties except those in Poland and Chile, the average
occupancy.
All other properties are valued by external valuers based on observable market values of similar properties. Due to the level of
judgement and adjustments required to the observable inputs used in the valuation methodologies, a Level 3 classification is
considered appropriate for all properties in the Group.
At each revaluation date, accumulated depreciation is eliminated against the gross carrying amount of the asset.
Sensitivity analysis
The significant assumptions used in the calculation of the fair values of the material Level 3 freehold properties in the Group
are:
Freehold properties
Australia
New
Zealand
UK
Spain
Chile
Poland
Valuation assumptions: average
occupancy rate
94.2%
90.9%
83.4%
81.0%
N/A
N/A
Valuation assumptions: average
capitalisation/discount rate
14.0%
13.5%
10.9%
15.0%
6.9%
10.8%
Valuation assumptions: average price
per square metre
N/A
N/A
£3,977
£2,022
N/A
N/A
Valuation assumptions: average yield
N/A
N/A
5.5%
5.0%
N/A
N/A
The valuations are most sensitive to changes in capitalisation rate assumptions and a reasonably possible increase/decrease of
0.5% in capitalisation rates would decrease/increase the total carrying value of freehold properties by
£(96)m/£100m (2020:
£(90)m/£101m).
The table below shows the date at which freehold properties held as at 31 December 2021 were last subject to external valuation.
2021
£m
Valuation
–
December 202
1
236
Valuation
–
December 2020
939
Valuation
–
December 2019
979
Assets held at cost
1
142
Cost or valuation
2,296
1.
Primarily relates to assets under construction and initial fair val
ue of additions.
Gains and losses on revaluation are recognised in the property revaluation reserve, except where an asset is revalued below
historical cost, in which case the deficit is recognised in the Consolidated Income Statement. Whe
n
a revaluationreverses losses
taken to the Consolidated Income Statement in prior years, the credit is recognised in the Consolidated Income Statement.
In the current year, a £
26
m net revaluation deficit (2020: £5m deficit
) has been recognised in the property revaluation reserve, with a revaluation
loss of £10
m (2020 gain: £1m)
charged to the Consolidated Income Statement within other income and charges
(see note 2.4).
Recognised in the carrying amount of freehold property is property in the course of
£70m
(2020: £100m) in relation to freeholdconstruction.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
80
Historical cost of the
Group's revalued freehold property assets
2021
£m
2020
restated
1
£m
Historical cost of revalued assets
2,128
2,204
Accumulated depreciation based on historical cost
(423)
(380)
Historica
l cost net book value
1,705
1,824
Depreciation charge for the year on historical cost
43
44
5
Investment property
Investment properties are physical assets that are not occupied by the Group and are leased to third parties to generate rental
income. Most investment properties held by the Group relate to a portfolio of retirement villages in New Zealand.
Investment properties are initially measured at cost and subsequently at fair value, determined individually, on a basis appropriate
to the purpose for which the property is intended and with regard to recent market transactions for similar properties in the same
location. Investment property is revalued annually with any gain or loss arising from a change in fair value recognised in the
Consolidated Income Statement within financial income and expense.
In an active market, the portfolio is valued annually by an independent valuer, holding a recognised and relevant professional
qualification, and with recent experience in the location and category of investment property being valued.
In Australia and New Zealand, the retirement village market is fragmented as each village is unique due to building conf
iguration
and location. As there are no directly comparable sales from which values can be derived, the fair value of investment proper
t
y
is determined using inputs that are unobservable. Therefore the Group has categorised investment property as
L
evel 3 under the fair value hierarchy in accordance with IFRS 13 Fair Value Measurement
.
These properties are valued using discounted cash flow projections based on reliable estimates of future cash flows.
Note
2021
£m
2020
£m
At beginning of year
627
522
Addi
tions
37
59
Disposals
-
(1)
Increase in fair value
2.5
27
25
Reclassification from property, plant and equipment
1
-
Foreign exchange
(26)
22
At end of year
666
627
In the current year, a revaluation surplus of £27m (2020: £25m) was credited to the Consolidated Income Statement.
The carrying value of investment properties primarily consists of the Group's portfolio of retirement villages in New Zealand of
£604m (2020: £564m) and Australia of £50m (2020: £51m). These were valued by management using internally prepared
discounted cash flow projections, supported by the terms of any existing lease and other contracts. Discount rates are used to
reflect current market assessments of the uncertainty in the amount or timing of the cash flows. During the year an independent
valuation of the New Zealand portfolio was performed by Jones Lang LaSalle, and this valuation, also based on a discounted
cash flow model was in line with management’s valuation.
The historical cost of investment properties is £440m (2020: restated to £423m, an increase of £99m
).
COVID-
19 has heightened uncertainty around underlying assumptions, in particular short
-term growth rates. Significant
assumptions used in the valuation include:
Australia and New Zealand
Discount rate
1
3.0%
-15.5%
Capital growth rate
0.0%
-
3.5%
Turnover in apartments and villas
4-
6 years
1.
A correction has been made to the 2020 historical cost net book value, reducing the balance by £469m
.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
81
The sensitivity analysis below considers the impact on the year end valuation of Level 3 investment properties and is based on a
reasonably possible change in assumption while holding all other assumptions constant. In practice, changes in assumptions
may be correlated.
Australia and New Zealand
0.5% absolute increase
0.5% absolute decrease
Discount rate
£10m decrease
£11m increase
Capital growth rate
£15m incre
ase
£14m decrease
Retirement villages
During the year ended 31 December 2021, the Group’s retirement village portfolio in Australia and New Zealand generated
£21
m
(2020: £16m) of income which was recognised as revenue in the Consolidated Income Statement. Total direct operating
expenses
of these retirement villages amounted to £16m (2020: £12m).
6 Equity accounted investments
Equity accounted investments comprise associated companies and joint ventures in which the Group has significant influence,
but not control.
Associated companies include those entities in which the Group has significant influence, but no right to direct the activities
which
determine the variable returns it receives from the entity.
Associated companies are accounted for using the equity method and are initially recognised at cost. The cost of the investment
includes transaction costs. The carrying value of the investment is adjusted for the Group’s share of any post acquisition pr
ofi
ts
or losses of the associated entity.
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 interests that, in substance, form part of the Group’s net investment), is reduced to £nil. In addition, the recognition of further losses is discontinued except to the extent that the Group has an obligation to make payments on behalf of
the equity accounted investment.
Associates
The Consolidated
Fi
nancial 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 sig
nificant
influence commences until the date that significant influence ceases.
The carrying amount of equity accounted investments is £
905
m (2020: £868m). All equity accounted investments are included based on coterminous accounting periods.
The Group’s principal equity accounted investments are:
Business
activity
Share of
issued capital
Principally
operates in
Co
untry of
incorporation
Bupa Arabia for Cooperative Insurance Company
Insurance
43.25%
Saudi Arabia
Saudi Arabia
Highway to Health, Inc.
Insurance
49.00%
USA
USA
Niva
Bupa Health Insurance Company Limited
1
Insurance
44.75
%
India
India
During the year the Group received dividends of £34m (2020: £nil) from Bupa Arabia for Cooperative Insurance Company (Bupa
Arabia).
I
n March 2021, the Group increased its shareholding from 44.42% to 44.75%
for a consideration of £1m
in Niva Bupa. During the
year, the Group made fu Distributions to shareholders are currently
rther c
apital injections in Niva Bupa of £13
m (2020: £5m).restricted by local regulatory requirements which are reassessed on a regular basis.
1.
Niva
Bupa Health Insurance Company Limited (Niva Bupa), previously known as Max Bupa Health Insurance Company Limited, was rebranded in the year.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
82
(i) Summarised financial information for material
associates
The tables below provide summarised financial information for those associates that are material to the Group. The information
disclosed reflects the amounts presented in the financial statements of the relevant associates, and not the Group's share of
those amounts. They have been amended to reflect adjustments made by the Group when using the equity method, including
fair value adjustments and modifications for differences in accounting policies.
Bupa Arabia
Highway to Health
Niva
Bupa
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Reve
nue
2,058
2,229
157
168
154
112
Cash and cash equivale
nts
89
123
80
106
4
2
Other current assets
1,658
1,532
95
54
20
13
Current assets
1,747
1,655
175
160
24
15
Non
-
current assets
694
586
8
9
213
142
Current liabilities
(1,623)
(1,480)
(94)
(79)
(71)
(57)
Non
-
current liabilities
-
-
(3)
(3)
(96)
(60)
N
et assets
818
761
86
87
70
40
Reconciliation to carrying amounts
Bupa Arabia
Highway to Health
Niva
Bupa
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Opening net assets
761
618
87
85
40
33
Profit/(loss) for the year
115
150
(5)
3
(15)
(1)
Other
comprehensive income
14
29
-
-
-
-
Dividends paid
(79)
-
-
-
-
-
Other reserve movements
7
(36)
4
(1)
45
8
Closing net assets
818
761
86
87
70
40
% Ownership
43.25%
43.25%
49.00%
49.00%
44.75%
44.42%
Reporting entity’s share
1
354
329
42
43
24
18
Goo
dwill
274
274
175
171
20
16
Carrying amount
628
603
217
214
44
34
Reporting entity's share of
profit/(loss)
2
49
55
(3)
1
(7)
-
(ii)
Individually immaterial
equity accounted investments
In addition to the interests in associates disclosed above, the Group also has interests in a number of individually immaterial
associates and joint ventures that are accounted for using the equity method. The aggregate carrying amount of these associates
and joint ventures is £16m (2020: £17m). The Group’s share of profit recognised during the year for these is £3m (2020: £nil).
7
Post
-employment benefits
The Group operates several funded defined contribution and defined benefit pension schemes for the benefit of employees.
The principal defined contribution pension scheme during the year was the My Bupa LifeSight Plan.
The National Employment Savings
Trus
t (NEST) has been used to meet the Group’s automatic enrolment duties for UK employees.
Defined contribution pension schemes
The defined contribution pension schemes provide employees with a retirement fund accumulated through investment of
contributions made by Bupa and the employees. Members of the scheme use their funds to secure benefits at retirement. Benefits
are not known in advance and the investment and longevity risks are assumed solely by the members of the scheme.
Contributions payable by the relevant sponsoring employers are defined in the scheme rules or plan specifications and these
contributions are recognised as an expense in the Consolidated Income Statement as incurred.
1.
Reported entity’s share excludes subordinated debt recorded under equity for Niva Bupa as the Group has no rights over the
debt.
2.
2
020 share of profits in Bupa Arabia are based on a share of ownership of 39.25% to 30 August 2020 and 43.25%
thereafter.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
83
Defined benefit post
-
employment schemesThe defined benefit pension schemes provide benefits based on final pensionable salary. The Group’s net obligation in respect
of defined benefit pensions is calculated separately for each scheme and represents the present value of the defined benefit
obligation less the fair value of scheme assets. The discount rate used is the yield at the balance sheet date on high
-quality
corporate bonds denominated in the currency in which the benefit will be paid. When the calculation results in a benefit to the
Group, the recognised asset is limited to the present value of any future refunds from the scheme or reductions in future
contributions to the scheme.
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.
All remeasurements are recognised in full in the Consolidated Statement of Comprehensive Income in the period in which they
occur.
(i) Amount
s recognised
in the Consolidated Income StatementThe amounts charged to other operating expenses for the year are:
2021
£m
2020
£m
Current service cost
-
1
Total amount charged to the C
onsolidated Income Statement
-
1
The charge to other operating expenses in respect of cash contributions to defined contribution schemes is £43m (2020: £37m).
(ii)
Amount
s recognised directly in other comprehensive income The amounts (credited)
/charged direct
ly to equity are: 2021
£m
2020
£m
Actual return less expected return on assets
-
(6)
(Gain)/l
oss arising from changes to financial assumptions
(3)
11
(Gain)/l
oss arising from changes to experience assumptions
(1)
1
Gain arising from changes to demogr
aphic assumptions
-
(1)
Total remeasurement
(gains)/
losses
(credited)/
charged directly to equity
(4)
5
7.1
Group post
-employment benefit schemes
Defined contribution pension schemes
The principal defined contribution pension scheme in the UK during the yea
r was
LifeSight Plan. All other existing the
My
Bupa defined contribution arrangements in the UK, including The Bupa Retirement Savings Plan, which was in effect from 1 October
2002
to 31 December 2020 and several other contract
-based defined contribution
arrangements, were all
closed to future
contributions on 31 December 2020, being replaced by the My Bupa LifeSight Plan from 1 January 2021. The Group automatically
enrols any eligible non-pensioned employees into the National Employment Savings Trust (NES
T).
Defined
benefit post
employment schemes-
The principal defined benefit scheme in the UK is The Bupa Pension Scheme, which has been closed to new entrants since
1 October 2002 and closed to future accrual on 31 December 2020. The British Unite
d
Provident Association Limited is the principal sponsoring employer for The Bupa Pension Scheme. The Company (which is not an employer in respect of the scheme)
had entered into a legally binding and irrevocable guarantee for the benefit of the trustee in
r
espect of the payments due from Bupa. Please see the 2021 Bupa Annual Report and Accounts for full details.
There are several other smaller defined benefit pension schemes operated by UK and overseas subsidiaries. The defined
benefit pension schemes are asse
ss
ed by independent scheme actuaries in accordance with UK or local practice and under
IAS 19 as at 31 December 2021 for the purposes of inclusion in the Group’s Consolidated Financial Statements.
Scheme trustees are appointed for each scheme as determined by the respective trust documentation and trustees are required
ir
to act in the best interests of the schemes’ beneficiaries. The long
-
term investment objectives of the trustees and the employers are to limit the risk of the assets failing to meet the liabilities of the schemes over the long term, and to maximise returns consistent
with an acceptable level of ris
k.
Complete disclosure of these other, smaller
defined benefit pension schemes is not practicable within this report but they are
disclosed within th
e financial statements of the relevant sponsoring employer of each scheme.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
84
(a) Assets and liabilities of schem
es
Defined benefit funded
pension
schemes
Section
2021
£m
2020
£m
Present value of funded obligations
(b)
(82)
(88)
Fair value of
scheme assets
(c)
74
77
Net recognised liabilities
(8)
(11)
In
the Consolidated Statement of Financial Pos
ition:
Net liabilities
(9)
(12)
Net assets
1
1
Net recognised liabilities
(8)
(11)
(b) Present value of funded schemes
’
obligationsThe movements in the present value of the schemes’ obligations are:
Defined benefit funded
pension schemes
202
1
£m
2020
£m
At beginning of year
88
78
Current service costs
-
1
Interest on obligations
1
1
(Gain)/l
oss from
changes to financial assumptions
(3)
11
(Gain)/l
oss from changes to experience assumptions
(1)
1
Gains from changes to demographic assumpti
ons
-
(1)
Benefits paid
(3)
(4)
Foreign exchange
-
1
At end of year
82
88
(c) Fair value of funded schemes’ assets
The movements in the fair value of the funded schemes’ assets are:
2021
£m
2020
£m
At beginning of year
77
73
Interest income
1
1
Ret
urn on assets excluding interest income
-
6
Contributions by employer
1
1
Benefits paid
(4)
(4)
Foreign exchange
(1)
-
At end of year
74
77
The market values of the assets of the funded schemes are as follows:
2021
£m
2021
%
2020
£m
2020
%
Pooled
investment funds
34
46
34
45
Government bonds
17
23
18
23
Cash/other assets
7
9
12
14
Equities
10
14
8
10
Loans
3
4
3
4
Corporate bonds
3
4
2
4
Total market value of the assets of the funded schemes
74
100
77
100
Aside from equities in the table above, no other assets have a quoted market price.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
85
7.2 Actuarial assumptions
The responsibility for setting the assumptions underlying the IAS 19 valuations rests with Bupa's Directors, having first tak
en
advice from the Group’s independent actuary.
The key weighted average financial assumptions used when valuing the obligations of the post
-
employment benefit schemes under IAS 19 for the schemes within the Group are as follows:
Defined benefit funded pension schemes
2021
%
2020
%
Inflation rate
3.4
3.0
Rate of increase in salaries
3.0
3.3
Rate of increase to pensions in payment
3.0
2.9
Rate of increase to pensions in deferment
3.0
2.9
Discount rate for scheme assets and obligations
1.7
1.3
(a) Actuarial assumptions underlying the valuation of obligatio
ns
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 gilts, with a deduction of 0.2% to reflect an inflation risk premium.
The rate of increase in salaries equal to the long
is
-
term expected annual average salary pay increase for the employees who are members of the respective schemes. This assumption is set relative to the inflation rate assumption.
The rate of increase of pensions in payment is the same as
th
e inflation rate, with the exception of benefits which receive fixed increases in payment as defined under the respective scheme rules.
The rate of increase of pensions in deferment is set relative to the inflation rate assumption and adjusted for any r
ele
vant caps or collars.
The discount rate used to value scheme liabilities is the yield at the balance sheet date on high
-
quality corporate bonds of appropriate term.
(b) Mortality assumptions
The mortality tables adopted year of birth mortality tables using the CMI
as
at 31 December 2021 are the S3PA2020 projection
model, with a long
-
term rate of improvement of 1.5% p.a. adjusted by 95%
(male non-pensioners); 94%
(female non
-pensioners);
90%
(male pensioners) and
92% (female pensioners). The average life e
xpectancy at age 60 based on these tables for a male
currently aged 60 is
27.9
years and for a female currently aged 60 is 29.6
years. The average life expectancy
at age 60 based on these tables for a male currently aged 45
is
28.7 years and for a female currently aged 45 is 30.8 years. Assumptions over duration of liabilities
The weighted average duration of the defined benefit obligation is approximately 15 years.
8 Restricted assets
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 if and when they crystallise.
2021
£m
2020
£m
Non
-
current restricted assets
45
48
Current restricted assets
113
101
Total restricted assets
158
149
The non
-
current restricted assets balance of £45
m (2020: £48m) consists of cash deposits held to secure a charge over the unfunded pension
scheme obligations
(held in the Parent). Included in current restricted assets is £
111
m (2020: £101m) in respect of claims funds held on behalf of corporate customers.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
86
9 Financial investments
The Group generates cash from its underwriting, trading and financing activities and invests the surplus cash in financial
investments. These include government bonds, corporate bonds, pooled investment funds and deposits with credit institutions.
All financial investments are initially recognised at fair value, which includes transaction costs for financial investments
not
classified at fair value through profit or loss. Financial investments are recorded using trade date accounting at initial recognition.
Financial investments are derecognised when the rights to receive cash flows from the financial investments have expired or
where the Group has transferred substantially all risks and rewards of ownership.
The Group
has classified its financial investments into the following categories: at fair value through profit or loss, at fair value
through other comprehensive income (FVOCI) and at amortised cost.
Classification
Criteria and treatment under IFRS 9
Fair value
throu
gh profit or
loss
Debt and
e
quity instruments where performance is managed and evaluated on a fair value basis and the objective is to
realise cash flows through the sale of the assets. The investments are carried at fair value, with gains and losses
arisi
ng
from changes in this value recognised in the Consolidated Income Statement in the period in which they arise.
Fair value
through other
comprehensive
income
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 and sell, with a greater frequenc
y
and value of sales than instruments at amortised cost. The investments are carried at fair value and fa
ir value changes
are recognised through the Consolidated Statement of Comprehensive Income, except for interest and foreign exchange
gains or losses and impairment gains and losses that are derived using the same methodology that is applie
d to financial
as
sets measured at amortised cost, which go through the Consolidated Income Statement. The cumulative gain or loss
that was recognised in other comprehensive income is recognised in the Consolidated Income Statement when a financial
asset at
fair value throu
gh other comprehensive income is derecognised.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 t
he instrument to
collect cash flows over its life. Any disposals are
expected to be infrequent or insignificant. The investments are measured at amortised cost using the effective interest
method, less any impairment losses. Any discount or premium on purc
hase is amortised
over the life of the investment
through the Consolidated Income Statement.
Under IFRS 9, impairment provisions for expected credit losses (ECL) are recognised for financial investments measured at
amortised cost and FVOCI. An allowance for either
a 12-m
onth or lifetime ECL is required, depending on whether there has been a significant increase in credit risk since initial recognition. However, an assumption can be made that the credit risk on a
financial
instrument has not increased sign
ificantly since i
nitial 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 a 12
-
month ECL allowance to all assets, as no significant increases in credit risk since initial recognition have been identified.
The measurement of ECL should reflect a probability
-
weighted outcome, the time value of money and the best available forward-
looking information. An analysis of ECL provisions is provided in note 26.3.
Financial investments are analysed as follows:
Carrying value
2021
£m
Fair value
2021
£m
Carrying value
2020
restated
1
£m
Fair value
2020
restated
1
£m
Fair value through profit or loss
Corporate debt securities and secured loans
334
334
342
342
Government debt securi
ties
45
45
47
47
Pooled investment funds
386
386
301
301
Deposits with credit institutions
-
-
1
1
Other loans
7
7
8
8
Equities
13
13
12
12
Fair value through other comprehensive income
Corporate debt
securities and secured loans
66
66
85
85
Government debt securities
30
30
38
38
Amortised cost
Corporate debt securities and secured loans
1
774
776
785
791
Government debt securities
211
214
103
106
Deposits with credit
institutions
1
1,044
1,045
1,142
1,149
Other loans
1
1
1
1
Total financial investments
2,911
2,917
2,865
2,881
Non
-
current831
833
945
951
Current
2,080
2,084
1,920
1,930
1.
Refer to
n
ote 1.
5e
for
details of the restatement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
87
Fair value of financial investments
Fair value is a market
-
based measurement for assets for observable market transactions where market information might be available. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to
transfer the asset would take place between market participants at the measurement date under current market conditions (i.e.
an exit price at the measurement date from the perspective of a market participant that holds the asset).
The
fair values of quoted investments in active markets are based on current bid prices. The fair values of unlisted securities and
quoted investments for which there is no active market are established by using valuation techniques corroborated by independ
ent
third parties. These may include reference to the current fair value of other investments that are substantially the same and
discounted cash flow analysis.
The fair values of financial investments are determined using different valuation inputs categorised into a three
-
level hierarchy. The different levels
are
defined by reference to the lowest level input that is significant to the fair value measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
•
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
An analysis of the fair value of financial investments by hierarchy level is as follows:
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
2021
Fair value through profit or loss
Corporate debt
securities and secured loans
36
297
1
334
Government debt securities
27
18
-
45
Pooled investment funds
96
277
13
386
Deposits with credit institutions
-
-
-
-
Other loans
-
-
7
7
Equities
-
-
13
13
Fair value through other
comprehensive income
Corporate debt securities and secured loans
63
3
-
66
Government debt
securities
30
-
-
30
Amortised cost
Corporate debt securities and secured loans
523
253
-
776
Government debt securities
109
105
-
214
Deposits with credit institutions
-
1,045
-
1,045
Other loans
-
1
-
1
Total financial investments
884
1,999
34
2,917
Level 1
£m
Level 2
restated
1
£m
Level 3
£m
Total
restated
1
£m
2020
Fair value through profit or loss
Corporate debt securities and secured loans
36
306
-
342
Government debt securities
47
-
-
47
Pooled investment funds
1
35
158
8
301
Deposits with credit institutions
1
-
-
1
Other loans
-
-
8
8
Equities
-
-
12
12
Fair value through other
comprehensive income
Corporate debt securities and secured loans
85
-
-
85
Government debt securities
38
-
-
38
A
mortised cost
Corporate debt securities and secured loans
1
621
170
-
791
Government debt securities
105
1
-
106
Deposits with credit institutions
1
-
1,149
-
1,149
Other loans
-
1
-
1
Total financial investments
1,068
1,785
28
2,881
1.
Refer to
n
ote 1.
5e
for details
of the restatement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
88
Transfers between fair value hierarchy levels
The Group’s policy is to determine whether transfers have occurred between fair value hierarchy levels at the end of a report
ing
period. Classification is reassessed based on the lowest level input that is significant to the fair value measurement as a whole.
£
48m of government debt securities and corporate debt securities and secured loans have been transferred from Level 1 to Level
2 following a review of the level of market activity and readily available quoted prices in those investments. In addition, there were
transfers
of £13m from L
evel 2 to Level 1 and £1m from Level 2 to Level 3. There were no transfers between fair value hierarchy
levels for the year ended 31 December 2020.
The Group currently holds Level 3 investments tota
lling £34
m. The majority of Level 3 investments are unlisted equities and convertible notes valued at the recent subscription value and conversion price, which are
considered
to be unobservable inputs. Reasonably possible changes to the valuation assumptions applied could result in a change in fair value of plus or minus £2
m.
The table below shows movement in the Level 3 assets measured at fair value.
Level 3
2021
£m
2020
£m
Opening bal
ance
28
22
Additions
2
6
Net
increase
in fair value
4
-
Transfer between levels
1
-
Foreign exchange
(1)
-
At end of year
1
34
28
Transfers into Level 3 financial assets reflected changes in the availability of observable inputs used in the valuation of those
assets.
The Group uses a market interest curve as at the balance sheet date to discount financial assets, borrowings and derivatives,
where the fair value cannot otherwise be found from quoted market values. The range of interest rates used is as follows:
2021
%
2020
%
Sterling assets and liabilities
0.9
-
1.1
0.0
-
0.6
Australian dollar assets and liabilities
0.3
-
1.4
0.0
-
0.2
Euro assets an
d
liabilities
(0.7)
-
0.2
(0.7)
-
(0.1)US dollar assets and liabilities
0.4
-
1.9
0.1
-
1.7
10 Derivatives
A derivative is a financial instrument whose value is based on one or more underlying variables. The Group uses derivative
financial instruments to hedge
it
s exposure to foreign exchange and interest rate risk. Derivatives are not held for speculative reasons.
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 val
ue
through profit or loss. See note 26
for details on how the Group accounts for derivatives that qualify for hedge accounting. Derivative financial instruments are initially recognised and subsequently measured at fair value.
Fair values are obtained from market observable pricing information including interest rate yield curves.
Fair values have been calculated for each type of derivative as follows:
•
The fair value of currency forward contracts, swaps and options is determined using forward exchange rates
derived from
market sourced data at the balance sheet date, with the resulting value discounted back to present value.
•
The fair value of interest rate swaps is determined as the present value of the estimated future cash flows based on
observable yield cu
rv
es. Valuation inputs are classified as Level 2 in the fair value hierarchy.
1.
All
gains and losses are recognised in net financial expense in
the Consolidated Income Statement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
89
2021
£m
2020
£m
Derivative assets
Non
-
current5
8
Current
36
53
Total derivative assets
41
61
Derivative liabilities
Non
-
current(18)
(18)
Current
(17)
(59)
Total
derivative liabilities
(35)
(77)
11 Deferred taxation assets and liabilities
Deferred taxation is an amount which recognises the differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for taxation purposes. An example is the variance between the carrying value of
equipment due to depreciation being charged for financial reporting purposes and written down allowances being applied for th
e
relevant tax authorities.
Deferred taxation is recognised in full using the balance sheet liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not recognised: goodwill not deductible for taxation purposes and the initial recognition of an
asset or liability in a transaction that is not a business combination and which, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss. The amount of deferred taxation recognised is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using taxation rates enacted or substantively enacted at
the balance sheet date.
A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will be available again
st
which the asset can be utilised. Deferred taxation assets and liabilities are offset when they relate to income taxes levied by
the
same taxation authority and when the Group can settle its current taxation assets and liabilities on a net basis.
Recognised deferred taxation assets and liabilities
Deferred taxation assets and liabilities are attributable to the following:
Assets
Li
abilities
Net
2021
£m
2020
restated
1
£m
2021
£m
2020
restated
1
£m
2021
£m
2020
restated
1
£m
Accelerated capital allowances
47
25
(28)
(36)
19
(11)
Post
-
employment benefit
s 3
3
(1)
(1)
2
2
Revaluation of properties to fair value
2
2
(104)
(91)
(102)
(8
9)
Employee benefits (other than post
-
employment)
43
47
-
-
43
47
Provisions
143
131
(8)
-
135
131
Taxation value of losses carried forward
44
38
-
-
44
38
Goodwill and intangible assets
9
9
(
207)
(203)
(198)
(194)
Other
14
-
(39)
(44)
(25)
(44)
Defe
rred taxation (before allowable netting)
30
5
255
(
387)
(375)
(82)
(120)
Allowable netting of deferred taxation
(
216)
(206)
21
6
206
-
-
Deferred taxation
–
net
89
49
(171)
(169)
(82)
(120)
1.
Refer to
n
ote 1.
5 for details of the restatements
.
Unreco
gnised deferred taxation assets
As at 31 December 2021, the Group had deductible temporary differences relating to trading losses of £100m (2020: £100m)
and capital losses of £69m (2020: £59m) for which no deferred taxation asset was recognised due to uncertainty of utilisation of
those temporary differences.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
90
Movement in net deferred taxation (liabilities)/assets
At beginning of
year
Recognised in
Consolidated
Income
Statement
Recognised in
other
comprehensive
income
Acquisitions
through
business
comb
inations
Disposal
s
Transfer from
assets held for
sale
Foreign
exchange
At end of year
£m
£m
£m
£m
£m
£m
£m
£m
2021
Accelerated capital allowances
(11)
30
-
(1)
-
-
1
19
Post
-
employment benefit
s 2
-
(1)
1
-
-
-
2
Revaluation of properties to fair value
(89)
(23)
6
-
-
-
4
(102)
Employee benefits (other than post
-
employment)
47
-
-
-
-
-
(4)
43
Provisions
1
31
16
-
1
-
-
(13)
135
Taxation value of losses carried
forward
38
10
-
-
-
-
(4)
44
Goodwill and intangible assets
(19
4)
(13)
-
(2)
-
-
11
(
198
) Other
(44)
10
-
-
4
-
5
(25)
Total
(1
20
) 30
5
(1)
4
-
-
(82)
2020
Accelerated capital allowances
1
(21)
6
6
-
-
-
(2)
(11)
Post
-
employment benefit
s 1
-
1
-
-
-
-
2
Revaluation of properties to fair value
(86)
5
(2)
-
-
-
(6)
(89)
Employee benefits (other than post
-
employment)
24
19
-
-
-
-
4
47
Provisions
1
63
54
-
-
-
-
14
131
Taxation value of losses carried
forward
38
2
-
-
-
-
(2)
38
Goodwill and intangible assets
(192)
6
-
-
-
-
(8)
(194)
Other
(47)
8
2
-
-
(2)
(5)
(44)
Total
(2
20
) 100
7
-
-
(2)
(5)
(120)
1.
Refer to
n
ote 1.
5 for details of the restatements
.
12 Assets arising from 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 insurance provisions is discussed in note 19.
Note
2021
£m
2020
£m
Insurance debtors
(a)
1,116
1,087
Reinsurers’ share of
insurance provisions
(b)
33
24
Deferred acquisition costs
(c)
143
138
Medic
are rebate
(d)
73
76
Risk Equalisation Special Account Recoveries
9
20
Total assets arising from insurance
business
1,374
1,345
Non
-
current7
11
Current
1,367
1,334
The above balance is held net of provision for impairment losses of £27m (2020: £27m). Information regarding movement in the
provision and the ag
e
ing of insurance debtors, Medicare rebate and Risk Equalisation Special Account R
ecoveries is shown in note 26.3.
a)
Insurance debtors
In certain jurisdictions, such as the UK and Spain, where the amount payable under an insurance contract is payable in
instalments
over the term, a debtor and corresponding unearned premium provision is established at inception for the total premiums
receivable over the whole period of cover.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
91
b) Reinsurers’ share of insurance provisions
The recoverables due from reinsurers are shown within assets arising from insurance business and are assessed for
recoverability
at each balance sheet date. Reinsurers’ share of insurance provisions are further analysed in note 19.
c)
Deferred acquisition co
sts
Acquisition costs represent commissions payable and other expenses related to the acquisition of insurance contract revenues
written during the financial year. Acquisition costs that have been paid are deferred and recognised in the Consolidated Income
Statement in the period in which the benefit is recognised, on a straight-line basis.
The movement in deferred acquisition costs is as follows:
2021
£m
2020
£m
At beginning of the year
138
160
Acquisition costs deferred
38
0
380
Acquisition costs released to Consolidated Income Statement
(
373
) (403)
Foreign exchange
(2)
1
At end of year
143
138
Acquisition costs released to the Consolidated Income Statement include £
19
m (2020: £21m) of deferred acquisition costs writtenoff due to deficiencies being identified in technical provisions as a result of liability adequacy testing. Further details on liability
adequacy testing
are
included within note 19. d) Medicare rebate
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 due from the government but not received at the balance sheet date are recognised in
assets arising from insurance business.
13 Inventories
Inventories comprise drugs, prostheses, consumables and housing stock utilised in the course of our care, health and dental
operations.
Invento
ries are stated at the lower of cost and net realisable value. Cost is determined using the first
-in first
-out method, or
methods that approximate this and includes costs incurred in acquiring the inventories and in bringing them to their current
location and condition.
Inventories were £93m (2020: £126m). Inventory write
-
downs of £1m were made during the year (2020: £1m). The Group consumed £
221
m (2020: £240m) of
inventories, which are recognised within other operating expenses in the Consolidated Income Statement.
14 Trade and other receivables
Trade and other receivables arise in the ordinary course of business.
Note
2021
£m
2020
£m
Trade receivables
(a)
319
263
Amounts owed by Parent
24
25
Other receivables
(a)
122
1
21
Service concession receivabl
es
(b)
30
38
Prepayments
71
78
Contract costs
(c)
5
6
Accrued income
47
72
Total trade and other receivables
618
603
Non
-
current12
25
Current
606
578
Trade and other receivables are carried at amortised cost net of provisions for ECLs. Trade receivables relate to consideration
due from customer contracts. All trade receivables and service concession receivables are classified as receivables under IFR
S
15, as a receivable is an entity’s right to consideration that is unconditional
, i.e
e passage of time is required before . only th
payment is due. Other receivables relate to consideration due from contracts that are outside of the scope of IFRS 15
,
e.g. rental
receivables. Information regarding the ageing of trade and other receivables is shown in note 26.3.
The carrying value of trade and other receivables is a reasonable approximation of fair value.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
92
(a)
Impairment of financial assets
Financial assets comprise trade and other receivables and financial investments. Refer to note 9 for financial
investments.
All receivables are measured net of lifetime ECL. Where appropriate, a provision matrix is used to estimate ECL.
Under a provision matrix, receivables are grouped into customer segments and further divided into categories by age. Historical
cr
edit loss experience and any relevant forward
-
looking information is then used to establish the ECL provision for each category. An analysis of ECL provisions for trade and other receivables is disclosed in note 2
6
.3. All impairment losses are recognised in
the Consolidated Income Statement within net impairment loss on financial assets. Impairment losses on trade receivables of
£8m have been recognised in the period (2020: £9m).
(b) Service concession receivables
The Group has recognised service concession receivables in respect of the public private partnership arrangements. A financia
l
asset is recognised to the extent that Bupa has an unconditional contractual right to receive cash at the direction of the granto
r
for both
the
construction and operational services and the grantor has little, if any, discretion to avoid payment. This financial asset is carried at amortised cost (with an effective interest rate) less ECL provisions.
In respect of operational services provided, revenue is recognised based on the average operating margin for the life of the
contract. The operating margin is based on historic performance plus projections and this margin is reassessed based on changes
in expected performance, with an adjustment made to the current year results to bring the contract performance to date in line
with the revised margin. As revenue is based on an expected margin, with some potential variability, revenue is only ever
recognised to the extent that it is highly probable a significant reversal will not occur when the uncertainty is resolved.
(c) Contract costs
Contract costs comprise set
-
up costs incurred to fulfil contracts with customers. These are amortised on a straight-
line basis over the contract period.
15 Cash and cash 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 three months or less which are subject to an insignificant risk of change in value.
2021
£m
2020
£m
Cash at bank and in hand
1,247
1,279
Short
-
term deposits
492
427
Total cash and cash equivalents
1,739
1,706
Bank overdrafts of £ that are repayable on demand are reported within other interest
1m (
2020: £1m)-
bearing liabilities i
n the Consolidated Statement of Financial Position, although are considered as a component of cash and cash equivalents for the
purpose of the Consolidated Statement of C
ash Flows.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
93
16 Assets and liabilities held for sale
Non-
current assets or disposal groups comprising assets and liabilities are classified as held for sale if it is highly probable
that they will be recovered primarily through sale rather than continuing use and a sale within twelve months is considered to
be highly
probable.
Classification as held for sale
Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Subsequent to init
ial
classification as held
for sale, any impairment losses and gains or losses on remeasurement are recognised in the Consolidated
Income Statement.
On classification as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated.
Assets and liabilities classified as held for sale
2021
£m
2020
£m
Assets
h
eld for sale
Goodwill and intangible assets
17
-
Property, plant and equipment
20
8
Trade and other receivables
1
-
Total assets classified as held for sale
38
8
Liabiliti
es associated with assets held for sale
Lease liabilities
(2)
(1)
Provisions for liabilities and charges
(1)
-
Trade and other payables
(1)
-
Total liabilities classified as held for sale
(4)
(1)
Net assets classified as held for sale
34
7
Net
assets held for sale as at 31 December 2021 predominantly comprise the Dental Corporation New Zealand business, Dental
Corporation Australia's ‘Dental Lounge’ business and a number of care homes and assets within Bupa Villages and Aged Care
Australia. Net
assets held for sale as at 31 December 2020 primarily comprised the rehabilitation business within Bupa Villages
and Aged Care New Zealand.
17
Borrowings
The Group has various sources of funding including subordinated bonds, senior unsecured bonds and loans.
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, they are
held
at amortised cost, with any difference between the initial recognition value and redemption value being recognised in the
Consolidated Income Statement 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 borrowings. These meet the criteria for hedge
accounting as the der
ivative
acts as a hedge against future fair value movements in the debt. Both 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 extent the hedging relationship is effective.
Note
2021
£m
2020
£m
Subordinated liabilities
Subordinated unguaranteed bonds
(a)
997
1,247
Total subordinated liabilities
997
1,247
Other interest
-
bearing liabilities
Senior unsecured bonds
(b)
642
997
Fair value adjustment in respect of hedged interest rate risk
(16)
12
Bank loans and
overdrafts
(c)
196
182
Total other interest
-
bearing liabilities
822
1,191
Total borrowings
1,819
2,438
Non
-
current1,623
2,000
Current
196
438
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
94
Subordinated
liabilities
Other interest
-
bearing
liabilities
Total
2
021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
At begin
ning of year
1,247
1,245
1,191
1,105
2,438
2,350
Arising on business
combinations
-
-
2
1
2
1
Net
(repayments)/proceeds
(250)
20
(322)
50
(572)
70
Interest payments
(58)
(72)
(25)
(28)
(83)
(100)
Accrued interest and amortisation
58
63
24
28
82
91
Fai
r value adjustment in respect of hedged risk
-
(9)
(28)
9
(28)
-
Transfer from liabilities associated with assets held
for sale
-
-
-
18
-
18
Foreign exchange
-
-
(20)
8
(20)
8
At end of year
997
1,247
822
1,191
1,819
2,438
(a)
S
ubordinated unguaranteed bondsThe total carrying value of subordinated unguaranteed bonds, net of accrued interest, capitalised issue costs and discounts w
as
£997m (2020: £1,247m).
On 24 September 2021, the Company early redeemed £250m of £500m unguaranteed subordinated bonds originally due to
mature on 2
5
April 2023. Maturity of the remaining £250m portion is unchanged and interest is payable on the bonds at 5.00% per annum. In the event of the winding up of the Company the claims of the bondholders are subordinated to the claims of other
creditors of the Company.
On 25 June 2020, the Company issued £350m of unguaranteed subordinated bonds which mature on 14 June 2035. Interest is
payable on the bonds at 4.125% per annum. In the event of the winding up of the Company
the
claims of the bondholders are subordinated to the claims of other creditors of
the Company
. On 8 December 2016, the Company issued £400m of unguaranteed subordinated bonds which mature on 8 December 2026.
Interest is payable on the bonds at 5. the claims of the bondholders
0
0% per an
num. In the event of winding up of the Companyare subordinated to the claims of other creditors of the Company.
(b
) Senior unsecured bonds
On 17 June 2
021
,
the Company repaid
£350m of senior unsecured bonds. Interest was pay
able on the bonds at 3.375% per annum.
On 25 June 2020, the Company issued £300m of senior unsecured bonds which mature on 14 June 2027. Interest is payable on
the bonds at 1.750% per annum. The total hedged fair value of these £300m senior unsecured bonds, including accrued interest,
capitalised issue costs and discounts, is
£284m
(2020: £300m). The valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap contracts in place to hedge this risk.
On 5 April 2017, the Company issued £300m of senior unsecured bonds, guaranteed by the
Parent
, which mature on 5 April 2024. Interest is payable on the bonds at 2.0
0
% per annum. The total hedged fair value of these £300m senior unsecured bonds, including
accrued interest, capitalised issue costs and discounts, is
£298m (2
020: £310m). The valuation adjustment is the
change in value arising from interest rate risk which is matched by the fair value of swap contracts in place to hedge this r
isk.
On 30 June 2012, Cruz Blanca Salud S.A., now Bupa Chile, issued UF1.6m (£
44m
nidad de Fomento) (U
–
an inflation-linked
currency commonly used in Chile) of inflation-linked senior unsecured bonds which mature on 30 June 2033.
(c
) Bank loans and overdrafts
Bank loans are £
a
nd overdrafts196
m (2020: £182m), which includes a portfolio of loans held in Bupa Chile totalling £38
m (2020: £128m) and a tri syndicated loan held in Especializada y Primaria L’Horta
-
Manises S.A.U. (part of Sanitas Hospitales and New Services) of £8m (2020: £14m).
In December 2021 the Group entered into a new with two,
£900m
revolving credit facility which has a
maturity of December 2026one-
year extension options.
The facility replaced an £800m revolving credit facility (2020: undrawn) and a separate £
40
m bilateral facility
(2020: fully drawn down)
new . The
facility was drawn down by £150m as at 31 December 2021.
Drawings under the
£900m facility are guaranteed by the The bank
Parent
. The overdraft facilities are subject to cross guarantees within the Group.loans and overdrafts bear interest at commercial rates linked to Sterling Overnight Index Average (SONIA) or
for
sterling equivalent for other currencies.
During the period the Group put in place a
€
30m bank facility in Spain, maturing in May 2022 which remains undrawn as at 31 December 2021.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
95
Fair value of financial liabilities
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 between informed and willing parties. Fair values
of subordinated liabilities and senior unsecured bonds are calculated
based on quoted prices.
The fair values of quoted liabilities in active markets are based on current offer prices. The fair values of financial liabi
lities
for
which there is no active market are established valuation techniques corroborated by independent third parties. These may
using
include reference to the current fair value of other instruments that are substantially the same and discounted cash flow an
alysis.
Financial liabilities are categorised into a th
ree
-
level hierarchy. A description of the different levels is detailed in note 9 along with the market interest rates used to discount financial liabilities, where the fair value cannot otherwise be found from quoted market
values.
An analysis of borrowings by fair value classification is as follows:
2021
2020
Level 1
Level 2
Total
Level 1
Level 2
Total
£m
£m
£m
£m
£m
£m
Subordinated liabilities
1,104
-
1,104
1,424
-
1,424
Senior unsecured b
onds
608
44
652
983
49
1,032
Bank loans and
overdrafts
-
196
196
-
182
182
Total
fair value
1,712
240
1,952
2,407
231
2,638
The Group does not have any Level 3 financial liabilities.
18 Leases
Leases are contracts that convey the right to use an asset for a period of time in exchange for consideration. The majority of the
Group’s leases relate to properties.
The Group’s leases primarily relate to hospitals, care homes, clinics and office buildings. Lease terms are negotiated on an
individual basis and contain a wide range of different terms and conditions. Property leases will often include extension and
termination options, open market rent reviews, indexation uplifts or fixed uplifts.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the individual lessee company’s incremental borrowing rate taking into account the duration of the lease. Th
e
lease liability is subsequently measured at amortised cost using the effective interest method, with the finance cost charged to
the Consolidated Income Statement over the lease period so as to 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 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 option. The lease liability is
recalculated using a revised discount rate if the lease term changes as a result of a modification or reassessment of an extension
or termination option.
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 at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore
properties to their original condition, less any lease incentives received. The right
-of-
use asset, excluding restoration costs, is typically depreciated on a st In addition, the right
raight-
line basis over the lease term.-of-
use asset may be adjusted for certain remeasurements of the lease liability, such as indexation and market rent review uplifts. Restoration costs included in the r
ight-
of-
use asset are amortised over the same term as the corresponding provision, which may be longer than the IFRS 16 contractual
lease term where occupancy of the property is expected to be longer than the existing contract. The movement of the right
-of-
use asset is disclosed in note 4.
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 leases that are of low value (£4,000 or less). Lease payments associated with these leases are expensed on
a straight-line basis over the lease term.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
96
Lease liabilities
2021
£m
2020
£m
At beginning of the year
1,010
1,062
Additions arising on business combinations
2
2
Additions
50
47
Disposals
(10)
-
Remeasurement
39
5
Interest on lease
liabilities
47
54
Repayments
(177)
(180)
Transfer to liabilities associated with assets held for sale
(2)
(1)
Foreign exchange
(44)
21
At end of year
915
1,010
Non
-
current788
885
Current
127
125
See note 26.4 for maturity analysis of lease liabilities.
Expenses
The Consolidated Income Statement includes expenses relating to short
-
term leases of £5m (2020: £nil
) and expenses relating to leases of low reported in note 4. Interest on lease
-
value assets of £1
m (2020: £1m). Depreciation of right-of-
use assets is
liabilities
is
reported as financial expenses (see note 2.5).
Extension options
Some property leases in the Group contain extension options exercisable by the lessee before the end of the non
-cancellable
contract period. 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 commencement an assessment is performed of whether it is reasonably certain to exercise the
extension options, taking into account factors like future timing of options, economic incentives for the lessee to exercise the
option or
the
lessee's past practice. The Group reassesses whether it is reasonably certain to exercise the extension option if there is a significant event or change in circumstances within its control.
As at 31 December 2021, potential discounted future cash outflows of £
347
m (2020: £368m) have not been included in the lease liability because it is not reasonably certain that the extension option will be exercised.
T
ermination options
A number of lease contracts in the Group contain termination options. The period covered by termination options are only incl
uded
in the lease term if the lessee is reasonably certain not to exercise the option.
As at 31 December 2021, potential discounted future cash outflows of £
52
m (2020: £51m) have not been included in the lease liability because it is not reasonably certain that the termination option will not be exercised.
Future lease commitments
The Group is committed to leases that have not yet commenced to the value of £26m as at 31 December 2021 (2020: £26m).
Variable lease payments
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 estimated at £
are
14
m (2020:
£13m).
19 Provisions arising from insurance contracts and other liabilities arising from insurance business
The provisions arising from insurance contracts and other liabilities arising from insurance business arise from the Group’s
underwriting activities. The provisions mainly relate to unearned premiums, which are deferred revenues that relate to future
periods; and claims, where an estimate is made of the expense required to settle existing obligations to insurance customers.
The other liabilities primarily consist of obligations to repay deposits and commissions payable.
19.1 Provisions arising from insurance contracts
Unearned premiums
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.
In circumstances where a return of premiums is due to policyholders, a provision for the return of premium is established within
the provision for unearned premiums. The return of premium provision is treated as an adjustment to the initial premium, redu
cing
gr
oss premium income. A provision was established in 2020 in
respect of Bupa Insurance Limited making a commitment to pass
back
to eligible customers any exceptional financial benefits experienced by the UK PMI business that ultimately arise as a result
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
97
of C 2021, the return of premium provision held is £
OVID
-
19. At 31 December71
m (2020: £145m). The net
reduction in the provision
reflects a
£110m payment of rebates to eligible customers
and an increase of £36m
due to an increase in the best
estimate of except
ional financial benefit
during the year. The return of premium provision reflects the best estimate of exceptional financial benefit ultimately arising from COVID
-
19 during the period 23 March 2020 to 31 December 2021. It is calculated by estimating the ultimate net reduction in claims costs due to
the disruption caused by COVID
-
19, adjusted to take account of incremental costs and profit impacts attributable to COVID-19
and the estimated costs of deferred claims expected to rebound after the reporting date. The key assumption in determining the
return of premium provision is the estimated costs of deferred claims and COVID
-
19 related claims inflation expected to be incurred (£ cost of healthcare and customer
61m)
. The assumed level of deferred claims within the rebate is sensitive to thebehaviour.
A reasonably possible increase or decrease in this assumption
results in a decrease of £
/increase
in the provision14m
and an increase/decrease in profit before taxation by the same amount.
Unexpired risk provision
Liability adequacy tests are performed for the Group’s insurance entities. For short
-
duration contracts, a premium deficiency is recognised if the sum of expected costs of future claims including claims that may have been deferred as a result of COVID
-1
9
disruption and claim adjustment expenses, capitalised deferred acquisition costs, and maintenance expenses exceeds the
corresponding unearned premiums while considering anticipated investment income. Any identified deficiency is charged to the
Consolidat
ed Income Statement, initially by writing off deferred acquisition costs, and subsequently by establishing an unexpired
risk provision for losses arising in excess of deferred acquisition costs.
As at 31 December 2021, an unexpired risk provision of £22
m
has been recognised (2020: £5m). Provision for claims
The gross provision for claims represents the estimated liability arising from claims episodes in current and preceding finan
cial
years which have not
yet given rise to claims paid. A claims episode is
an insured medical service that the Group has an obligation
to fund which could be consultation fees, diagnostic investigations, hospitalisation or treatment costs. The provision includes an
allowance for claims management and handling expenses. The gross provision for claims also includes a deferred claims
provision for claims episode
s
that have not taken place by the reporting date where the Group has a constructive obligation to fund deferred medical services, due to regulatory or other public commitments following periods of severe service disruption, as
has been the case with COVID-19.
The gross provision for claims across the
G
roup is set in line with Bupa’s Claims Reserving standards, at a level to achieve an appropriate probability of sufficiency and is estimated based on current information and the ultimate liability may vary as a result
of subsequent information and events.
Adjustments to the amount of claims provision for prior years are included in the Consolidated Income Statement in the finan
cial
year in which the change is made. In setting the provisions for claims outstanding, a best estimate is determined on an
undiscounted basis and then a margin of prudence is added such that there is confidence that future claims will be met from t
he
pro
visions. The level of prudence is set based on the historic accuracy of initial estimation to ultimate claims, in order to mitigate
the degree of uncertainty attached to the underlying provision to an appropriate degree of confidence. The level of prudence
is
set at a Group level, allowing the
G
roup to benefit from a diversification benefit on the prudence margin held by the individual insurance entities in the Group.
The expected claims are calculated having regard only to contracts commencing prior to the balance sheet date. The methods
used and estimates made for claims provisions are reviewed regularly.
A deferred claims provision of £163m has been recognised as at 31 December 2021 (2020: £171m) in respect of the health
insurance business in Australia, where the Australian prudential regulator (APRA) has mandated the need to provide
for the
rebound of claims following the COVID-19 disruption, creating a constructive obligation for the Group to pay claims in relation to
the disrupted business. The estimated cost of claims expected to rebound after the reporting date has been calculated
as a
proportion (the deferral factor) of the observed shortfall in incurred claims, compared
to
19 expectations. This has pre
-COVID
-been recognised on based on the central
estimate
, together with an allowance for claims handling costs and an additional risk margin. The deferred claims provision is expected to be materially fully utilised over the next 12 months.
The key assumption in determining the deferred claims is the assumed deferral rate. An increase in the deferral rate by
10%
would reduce profit before taxation by £47m.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
98
2021
2020
Gross
Reinsurance
Net
Gross
Reinsurance
Net
£m
£m
£m
£m
£m
£m
General insurance business
Provisions for unearned premiums
2,
104
(24)
2,080
2,094
(17)
2,077
Provisions for claims
1,093
(9)
1,084
1,083
(7)
1,076
Long
-
term business
Life insurance contract liabilities
36
-
36
35
-
35
Total insurance provisions
3,233
(33)
3,200
3,212
(24)
3,188
Non
-
current50
-
50
52
-
52
Current
3,183
(
33
) 3,150
3,160
(24)
3,136
Reinsurers’ share of insurance provisions is included within note 12.
(i)
Analysis of movements in provisions for unearned premiums
2021
2020
Gross
Reinsurance
Net
Gross
Reinsurance
Net
£m
£m
£m
£m
£m
£m
At beginning of year
2,094
(17)
2,077
1,937
(15)
1,922
Additions
arising on
business combinations
9
-
9
-
-
-
Premiums deferred
9,354
(109)
9,245
8,909
(97)
8,812
Movement in return of premium
provision
(
74
) -
(
74
) 145
-
145
Deferred pre
miums released to income
(9,228)
102
(9,126)
(8,908)
95
(8,813)
Increase in unexpired risk provision
19
-
19
5
-
5
Foreign exchange
(70)
-
(
70
) 6
-
6
At end of year
2,104
(
24
) 2,08
0
2,094
(17)
2,077
(ii)
Analysis of movements in provisions for claims
202
1
2020
Gross
Reinsurance
Net
Gross
Reinsurance
Net
£m
£m
£m
£m
£m
£m
At beginning of year
1,083
(7)
1,076
865
(9)
856
Additions
arising on
business combinations
3
-
3
-
-
-
Increase for current year claims
7,386
(79)
7,307
6,639
(56)
6,583
Cash pai
d to settle claims
(7,266)
76
(7,190)
(6,576)
58
(6,518)
Decrease for prior year claims
(33)
1
(32)
(32)
(1)
(33)
Movement in d
eferred claims provision
1
-
1
171
-
171
Foreign exchange
(81)
-
(81)
16
1
17
At end of year
1,093
(9)
1,084
1,083
(7)
1,076
Assumptions for general insurance business
The process of recognising liabilities arising from general insurance entails the estimation of future payments to settle inc
urred
claims and associated claims handling expenses, as well as assessing
whether add
itional provisions for unexpired risk are required. The principal assumptions in the estimation of the liability relate to the expected frequency, severity and settlem
ent
patterns of insurance claims, which are expected to be consistent with recently observed experience and trends. The aim of
claims reserving is to select assumptions and reserving methods that will produce the best estimate of the future cash outflo
ws
for the subject claims; it is an uncertain process which also requires judgements to be made. The resulting provisions for
outstanding claims incorporate a margin for adverse deviation, over and above the best estimate liability, the quantum of whi
ch
reflects the level of this uncertainty.
Claims development patterns are analysed in each of the Group’s insurance entities. Where distinct sub
-
portfolios with different claims cost and development characteristics exist, further analysis is undertaken to derive assumptions for reserving that ar
e
appropriate and can be applied to relatively homogeneous groups of policies. Such sub
-
portfolios may be defined by product line, risk profile, geography or market sector. Various established reserving methods for general insurance are considered, typical
ly
basic chain ladder, Bornhuetter-Ferguson and pure risk cost methods. Additional consideration is given to the treatment of large
claims, claim seasonality, claims inflation and currency effects, for which appropriate adjustments to assumptions and method
s
are made.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
99
While there is some diversity in the development profile of health insurance claims across the Group, such claims are generally
highly predictable in both frequency and average amount, and claims are settled quickly following the medical event for which
benefit is claimed. Medical expense claims are, typically, substantially fully-settled within just a few months.
Insurance provisions are inevitably estimates. Actual experience of claims costs and/or administrative expenses may vary from
that anticipated in the reserving estimates. Deferred claims provisions that have been recognised because the Group has a
constructive obligation to reserve for deferred claims are calculated separately from the base outstanding claims provision.
The following table shows the impact on profit before tax
ation
asonably possible variations in assumptions in the carrying of re
value of insurance contract liabilities at the end of the reporting period:
Increase in claims
Increase in expenses
2021
Change in variable
5%
10%
Reduction in profit net of reinsurance before taxation
1
£32m
£2m
2020
Change in variable
5%
10%
Reduction in profit net of reinsurance before taxation
1
£28m
£2m
1.
The deferred claims provision of £163m (2020: £171m) has been excluded from
this sensitivity.
These variances would reduce the amount of profit before taxation that would otherwise emerge in subsequent periods.
The Group’s long-term insurance business does not form a core part of its operations.
19.2 Other liabilities arising from insurance business
Other liabilities arising from insurance business consist of payables to insurance creditors.
2021
£m
2020
£m
Reinsurers' deposits
8
8
Reinsurance creditors
61
67
Commissions payable
39
31
Other
insurance payables
105
56
Total
other liabilities arising from insurance b
usiness
213
162
Included within other insurance payables is £
57m
related to the return of COVID-
19 savings to customers of Bupa Health Insurance, Australia. It is expected that these payments will have been made by the end of February 2022.
20 Provisions for liabilities and charges
A provision is recognised when the Group is expected to make future payments as a result of a past event.
These payments can result from a legal obligation or a constructive obligation, where an expectation has been set by the Group.
A provision is made where an outflow of resources is probable and where the payments can be reliably estimated. If the effect is
material, provisions are determined by discounting the estimated future payments at a pre
-
taxation rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Although provisions are made where payments can be reliably estimated, the amounts provided are based on a number of
assumptions which are inherently uncertain and therefore the amount that is ultimately paid could differ from the amount recorded.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
100
Long service and
annual leave
Deferred and
contingent
consideration
Customer
remediation and
legal provisions
Provision for
underpayment of
employee
entitlement
1
Property
restoration
provision
NHS dental
contract
clawb
ack
provision
Other
Total
£m
£m
£m
£m
£m
£m
£m
£m
At beginning of year
(restated)
1
95
16
27
51
26
22
36
273
Interest on obligations
-
-
-
-
1
-
-
1
Charge for year
48
2
10
14
3
21
79
1
77
Released in
year
-
(4)
(8)
-
(2)
(8)
(7)
(
29
) Utilised in
year
(39)
(6)
(12)
-
(1)
(14)
(
66
) (
138
) Transfer to liabilities held for sale
(1)
-
-
-
-
-
-
(1)
Foreign exchange
(8)
-
(1)
(3)
-
-
(1)
(13)
Total provisions for liabilities and
charges
95
8
16
62
27
21
41
270
Non
-
current23
1
5
-
25
1
21
76
Current
72
7
11
62
2
20
20
19
4
1.
Refer to note 1.5a for details of the restatement.
Long service and annual leave
The long service leave provision relates to territories where employees are legally entitled to substantial paid leave after
completing a certain length of qualifying service. Uncertainty around both the amount and timing of future outflows arises as
a
result of variations in employee retention rates, which may vary based on historical experience. The annual leave provision rela
tes
to territories where the annual entitlement of leave is not required to be taken within a predetermined time nor does it expi
re.
Therefore, uncertainty exists around the timing of future outflows as well as around the amount of future outflows due to w
age
inflation.
Deferred and
contingent consideration
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 in the Consolidated Income Statement.
Customer remediation and legal provisions
Customer remediation provisions relate to the costs of compensating customers for losses or damages associated with a failure
to comply with regulations or to treat customers fairly. Legal provisions relate to potential and ongoing legal claims and represent
the discounted fair value of total estimated liabilities. Due to the nature of these provisions, the timing and potential cost is
uncertain.
Provision for underpayment of employee entitlement
A provision has been established in respect of underpayments of employee entitlements affecting some current and former
employees, following an extensive proactive pay compliance review carried out in Australia and New Zealand
. Remediation
payments are expected to be completed by the end of 2022.
Property restoration provisions
Property restoration provisions relate to the estimate of costs to be incurred by the Group in its capacity as a lessee, when
dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to
the
condition required by the terms and conditions of the lease. Due to potential future renewals of leases, the timing and potential
cost is uncertain.
NHS dental contract clawback provision
A provision is held in respect of amounts that are expected to be deducted from future NHS contracts held by Bupa Dental Care
UK, as a result of not meeting required treatment targets set by the NHS in the current contract period.
Other
Other provisions include
r
egulatory provisions relating
to levies payable to the Group’s various regulators, provision
for ongoing costs relating to businesses disposed of in prior years
and
restructuring costs, and a refund liability relating to an Australian book
of insurance business.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
101
21 Trade and other payables
Trade and other payables arise in the ordinary course of business.
Note
2021
£m
2020
£m
Accruals
678
683
Refundable accommodation deposits
(a)
449
503
Amounts owed to Parent
100
103
Trade payables
242
216
Other payables
229
247
Occupational right agreement liabilities
(b)
302
230
Defe
rred income and deferred revenue
(c)
116
109
Social security and other taxes
54
60
Total trade and other payables
2,170
2,151
Non
-
current36
11
Current
2,134
2,140
Trade and other payables (excluding deferred revenue) are carried at amortised cost.
The carrying value of trade and other payables is a reasonable approximation of the fair value. Information regarding the mat
urity
of trade payables, other payables, refundable accommodation deposits and accruals is shown in note 26.4.
(a)
Refundable a
ccommodation depositsRefundable accommodation deposits are non
-interest-
bearing deposits paid by some residents of care homes held in Bupa Aged Care Australia as payment for a place in the care home facility. These deposits are repayable at any time when the resident
leaves the facility and are therefore not discounted. The deposits are recorded as the proceeds received, net of amounts dedu
cted
at the election of the resident.
(b) Occupational right agreement liabilities
Occupational right agreement liabilities represent the amount payable to a resident on termination of the resident's occupation
rights to an independent living unit in a retirement village in New Zealand or Australia. The liability varies according to t
he
agreement with the resident. Changes in the value of the liability are recorded as an expense in the Consolidated Income
Statement. Residents have the right to cancel their residency agreement with the 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 the Consolidated Statement of
Financial Position. Occupational right agreement liabilities are held net of deferred management fees and amenities fees
receivable.
(c) Deferred income and deferred re
venue
The total balance of £116m (2020: £109m) includes £81m (2020: £74m) of deferred revenue under IFRS 15, related primarily to
care home government funding received in advance. The liability is released and recognised as revenue as the services are
pro
vided and the performance obligations are satisfied.
Changes in the contract liabilities balances in respect of deferred revenue from care, health and other customer contracts du
ring
the period are as follows:
2021
£m
2020
£m
At
beginning of year
74
64
Revenue recognised in the period
(155)
(144)
Deferred revenue in the period
165
151
Foreign exchange
(3)
3
At end of year
81
74
Revenue recognised in the period includes £65m (2020: £64m) of revenue that was deferred at the beginning of the year. £75
m
(2020: £65m) of revenue deferred as at 31 December 2021 will be recognised during 2022 as the performance obligations are
satisfied. £6m (2020: £9m) of revenue deferred as at 31
December 202
1 will be recognised over the remaining contract period. 
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
102
22 Restricted Tier 1 (RT1) notes
The RT1 notes meet the classification of equity and are presented as a separate category of equity in the Consolidated Statem
ent
of Financial Position at an amount equal to the proceeds of issue less transaction costs. RT1 coupons are recognised directly in
the Consolidated Statement of Changes in Equity, net of tax, upon payment.
2021
£m
2020
£m
Restricted Tier 1 notes
297
-
On 2
4 September 2021, the Company issued £300m of RT1 notes with a fixed coupon of 4.000% paid semi-annually in arrears.
Transaction costs of £3m were recognised in respect of the issue. The total coupon paid during the year was £nil.
The RT1 notes are perpetual with no fixed maturity or redemption date. The note
s have
a first call date of 24 March 2032 and
interest is payable at the sole and absolute discretion of the Company, with cancelled interest providing no rights to the holder of
the notes nor being considered a default. The RT1 notes are therefore treated as equity. The notes are convertible to share
capital of the Company on the occurrence of certain trigger events.
23
Equity
2021
£m
2020
£m
Allocated, called up and fully paid
200,050,000 ordinary shares of £1 each
200
200
24 Business combinations and disposals
A business combination refers to the acquisition of a controlling interest in a business, which is further defined as an integrated
set of activities and assets that is capable of being conducted and managed for the purpose of providing economic benefits to
the owners. A disposal refers to the sale of a subsidiary.
Business combinations are accounted for using the acquisition method. Identifiable assets and
liabilities acquired, and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any non
-controlling
interests are recognised
as a proportionate share of the acquiree’s net identifiable
assets. The identification and valuation of intangible assets arising on business combinations is subject to a d
egree of estimation and
judgement. We engage independent third parties to assist with the identification
and valuation process. In valuing these i
ntangible assets, market
-
accepted methodologies have been applied. Customer relationships are valued using methodologies such as the Multi-
period Excess Earnings Method (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 and trademarks are valued using methodologies suc
h as the Relief from
Royalty method (applying an estimated royalty rate to the projected sales relating to each asset over the economic life).
Th
e excess of the cost of acquisition over the fair value of the Group’s share of the identifiable assets acquired
is recorded as
goodwill.
Acquisition accounting must be completed within 12 months of the transaction date.
Costs related to the acquisition are expensed as incurred.
(a) 2021 acquisitions
During the period the Group made acquisitions for a total consideration of £48m, recognising net assets on acquisition of £62m.
In January 2021, the Group acquired Vitam
e
dica, a health insurance provider in Mexico for a consideration of £16m. Net assets of £1
2
m and resulting goodwill of £4
recognised on acqm were
initially
uisition; however, they
were revised to £11m and £5m respectively following finalisation of the acquisition balance sheet in the second half of 2021.
In addition, the Group acquired the business and membership of Civil Service Healthcare Society Limited (CS Healthcare) in
January 2021 for £nil consideration. Intangible assets consisting of customer relationships totalling £26m and other net
assets
totalling £1
6
m have been recognised as part of the business combination. The resulting gain of £42m
y £41m(initiall
, adjusted
upon finalisation of the acquisition balance sheet in the second half of 2021
)
has been recorded as a gain on acquisition of
businesses within other income and charges (see note 2.4). This is gross of related transaction costs of £2m.
Fu
rther acquisitions were made in Poland for a total consideration of £32m of which £10m is deferred, largely to expand the
Group’s
presence in outpatient clinics, diagnostic centres and hospitals
. These included the acquisition of Citomed, an operator
of ou
tpatient facilities, diagnostic laboratories
and a multi-specialist hospital
in October, for a consideration of £19m; as well as
t
he acquisition in September of an 88.7% controlling interest in Swissmed, a multi
-specialist hospital for consideration of £11
m.
Total net assets of £9m were recognised for these acquisitions, with associated goodwill of £23m.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
103
There was no adjustment to goodwill in respect of prior period acquisitions.
Included in the Group Consolidated Income profit before taxation of £
Statement
is revenue of £37
m and a5
m in relation to those businesses acquired in the year. If the acquisition date of the businesses acquired during the year had been 1 January 2021,
revenue of £12,919m and a profit before taxation of £538m would have been recorded by the Group for the year ended 31
December 2021.
The following table summarises acquisitions recognised during the year:
Fair value
£m
Intangible assets
34
Property, plant and equipment
21
Financial investments
2
Cash and cash equi
valents
25
Trade and other receivables
12
Current tax asset
1
Restricted assets
1
Other interest
-
bearing liabilities(4)
Deferred taxation liabilities
(1)
Trade and other payables
(17)
Provisions under insurance contracts issue
d
(12)
Net assets acquired
62
Net assets acquired
62
Goodwill
28
Gain arising on
acquisition
(42)
Consideration
48
Consideration satisfied by:
Cash
38
Deferred and contingent consideration
10
Total consider
ation paid
48
Purchase consideration settled in cash
38
Cash
acquired on acquisition
(25)
Net cash outflow on acquisition
13
Settlement of deferred and contingent consideration
6
Net cash outflow associated with acquisitions
19
(b) 2021 disposals
On 4 August 2021, the Group completed the sale of its 70% stake in Ginemed, a provision business in Spain for consideration of
£51m, with a loss on disposal of £1m recognised.
During the year the Group completed the sale of its re
habilitation business in
New Zealand, realising a gain on disposal of £5m and realised a £3m gain on disposal of an equity accounted investment in Australia.
Within aged care, the Group disposed of care homes businesses in Sanitas Mayores for a consideration of £11m resulting
in a
gain on disposal of £
3
m, while Bupa Villages and Aged Care Australia disposed of care homes for a consideration of £33
m,
realising a gain on disposal of £1m.
(c) 2020 acquisitions
Minor acquisitions were made in the year ended 31 December 2020 in Australia & New Zealand, Europe and Latin America and
Bupa Dental Care in Bupa Global and UK.
Acquisitions of a hospital, clinics and dental centres in LuxMed generated goodwill of £4m, with the acquisition of a small IVF
clinic in Spain generating a further £1m of goodwill. Continued expansion of dental clinics in Australia, Spain and the UK
generated further goodwill of £8m.
Included in the Group Consolidated Income Statement for the year ended 31 December 2020 is revenue of £5m and a loss before
taxation of £1m in relation to those businesses acquired in
2020
. If the acquisition date of the businesses acquired during the year had been 1 January 2020, revenue of £12,145m and a profit before taxation of £588m would have been recorded by
the
Group for the year ended 31 December 2020.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
104
(d) 2020 disposals
During 2020
the Group disposed of three care home businesses in Australia for cash consideration of £23m, realising a net gain
on disposal of £2m.
25
Capital management
The P
arent, Bupa, is a company limited by guarantee, with no shareholders. It is funded through retained earnings and
borrowings. Bupa’s capital management objective is to maintain sufficient capital to protect the interests of its customers,
investors, regulators and trading partners while deploying capital efficiently and managing risk to enable Bupa to continue to
deliver its purpose in a sustainable manner.
All p
rofits are reinvested to develop the Bupa’s business for the benefit of current and future customers.
In the EU the Solvency II framework governs insurance industry regulation and prudential capital requirements. In the UK the
Prudential Regulation Authority
(PRA)
continues to apply the Solvency II framework, following the end of the Brexit transition period on 31 December 2020.
Bupa is subject to the requirements of the Solvency II
framework
and it must hold sufficient capital to cover its Group Solvency Capital Requirement (SCR), which takes account of the risks in Bupa, including those related to non-insurance busine
sses.
Bupa
’s
SCR is calculated in accordance with the Standard Formula specified in the Solvency II
framework. Bupa has obtained
approval from the
PRA
to substitute the insurance premium risk parameter in the Standard Formula with a Group Specific Paramet
er (GSP) wh
ich reflects Bupa’s own loss experience. A data adjustment was applied in the calculation of 2020 loss
experience in light of the exceptional volatility in claims experienced as a result of COVID
-
19. The adjustment methodology has been approved by the PRA.
The capital positions of Bupa and its regulated insurance entities are kept under constant review and these are reported quar
terly
to the Bupa Board.
Bupa’s capital resources are managed in line with Bupa’s Capital Management Policy. While Bup
a is subjec
t to the Solvency II requirements at a consolidated level, all regulated entities within the Group maintain sufficient capital resources to meet a
ny
minimum capital requirement required by respective local regulators. In addition, Bupa and its regulated entities maintain a buffer
over the regulatory minimum requirements in line with their capital risk appetites. During the year, Bupa and its regulated e
ntities
complied with all external capital requirements. The ability of the Group’s regulated entities to transfer funds to parent entities
is
subject to local solvency requirements.
Bupa has target ranges for solvency, leverage and interest cover ratios with a view to maintaining a
strong long-
term senior credit rating for the Company with Fitch and Moody’s. Bupa as a whole is not rated by any rating agency. Individual debt issues and
certain subsidiaries within the Group have public ratings.
At least annually, Bupa carries out an Economic Capital Assessment (ECA) in which it makes its own quantification of how much
capital is required to support its risks. The ECA is used to assess how well the Standard Formula SCR reflects Bupa’s actual
risk
profile.
The ECA forms part of the Own Risk and Solvency Assessment (ORSA) which comprises Bupa
all
the activities by whichestablishes the level of capital required to meet its solvency needs over the planning period given Bupa’s strategy and risk
appetite. The conclusions from these activities are summarised in the ORSA report which is reviewed by the Bupa Ri
sk
Committee, approved by the Bupa Board and submitted to the PRA annually.
Bupa’s eligible Own Funds include the Group IFRS net assets (£
7.1bn
) and standalone net assets of the Parent valued on a Solvency II basis, together with eligible subordinated
lia
bilities, subject to adjustments for non-
available assets and non-controlling
interests.
As at 31 December 2021, Bupa’s eligible Own Funds, determined in accordance with the Solvency II valuation rules, were £
4.5bn
¹
(2020: £4.0bn), which was in excess of the Group estimated SCR of
£2.5
¹ (2020: £2.5bn). This represented a solvency bn
coverage ratio of 179%¹ (2020: 160%).
1.
The Solvency II Capital Position (eligible Own Funds, SCR and coverage ratio) is estimated and unaudited
.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
105
26 Risk
management
T
he Bupa Risk Committee has responsibility to the Board for the oversight of risk. It recommends to the Board a risk appetite
that reflects Bupa’s purpose and expresses the degree of risk Bupa should accept in delivering on its strategy.
The Group operates a ‘three lines of defence’ approach to the governance of risk management.
1. Business management and employees are responsible for the identification and assessment of risks and controls.
2.
Risk,
C
ompliance and
Clinical
Governance functions provide support and challenge the completeness and accuracy of risk
assessments and the adequacy of mitigation plans.
3.
Internal Audit provides independent and objective assurance on the robustness of the risk management framework, and
the appropriateness and effectiveness of internal controls.
The operations of the risk management framework and current principal risks of the Group and how they are mitigated are
described on pages 17-24.
The Group has adopted a risk management strategy that endeavours to mitigate these risks, which is approved by the Board. In
managing these exposures, the Corporate Finance Executive Committee reviews and recommends changes to the management
of insurance and investment risks.
The Group has exposure to a number of
financia
risks associated with its insurance business and from its use of financial l
instruments. These have been categorised into the following types of
financial
risk, and details of the nature, extent, and how the Group has managed these risks is described below.
- Insurance risk
- Market risk
- Credit risk
- Liquidity risk
26.1 Insurance risk
Insurance risk only affects the insurance entities in the Group. It consists of underwriting risks which relate to the potent
ial
inadequacy of insurance premiums as well as reserving risk which relates to the potential inadequacy of claims provisions.
(i) Underwriting risk
Underwriting risk refers to the potential deviation of claims experience from the actuarial assumptions used for setting insurance
premium rates which could lead to premium inadequacy. Underwriting risk is therefore concerned with both the setting of
adequate premium rates (pricing risk) and the management of claims (claims risk) for insurance policies underwritten by the
Group.
Pricing risk
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 prod
uct
design initiatives, ts. The level of influence from these external factors can vary significantly between
and regulatory environmen
regions and largely depend
s
on the maturity of health insurance markets and the role of the regulator. Actuarial analysis performed on a regular basis combined with an understanding of local market dynamics and the ability to change insurance
premium rates when necessary are effective risk mitigations.
The direct impacts of climate change on health are unclear but these impacts are likely to emerge over time and the short
-tailed
nature of our products allows us to respond to these developments, although this can be limited by pricing controls in some
markets.
In every general insurer in the Group, the dominant product or policy category is an annually renewable health insurance contract.
This permits insurance premium rate revisions to respond quickly to changes in customer risk profiles, claims experience and
market considerations.
The ability to review premium rates is a significant mitigant to pricing risk. The Group does not underwrite material general
insurance business that commits it to cover risks at premiums fixed beyond a 12-month period from inception or renewal.
Claims risk
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.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
106
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 movements in the provisions for claims.
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 experience is underpinned by prevailing rates of illness events giving rise to
hospitalisations. Claims risk is generally mitigated by having processes to ensure that both the treatments and the resulting
reimbursements are appropriate.
(ii) Reserving risk
Reserving risk is the risk that provisions made for claims prove to be insufficient in light of later events and claims exper
ience.
There is a relatively low exposure to reserving risk compared with underwriting risk due to the very sh
ort
-
term nature of our claims development patterns. The short
-
term nature of the Group’s general insurance contracts means that movements in claims development assumptions are generally not significant. The development claims settlement patterns are kept u
nder constant
review to maintain the validity of the assumptions and, hence, the validity of the estimation of recognised general insurance
liabilities.
The amount of claims provision at any given time that relates to potential claims payments that have not been resolved within
one year is relatively small in the context of the Group. The small provisions that relate to longer than one year can be cal
culated
with reasonable confidence.
In the early stages of the pandemic, government restrictions across many of our markets affected insurance customers’ ability to
access treatment in private healthcare facilities and make claims, particularly for elective procedures. A proportion of the
resultant
shortfall in claims is expected to rebound over time and this could result in the cost of claims increasing in the long run, due to
the deferred costs of treating undiagnosed or under
-
treated illnesses. The Group has established reserves for the deferred claims
where a constructive obligation exists. As with any reserve of this nature, there is inherent uncertainty in the key judgements,
which may impact future results.
(iii) Other risks related to underwriting health insurance business
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 future premium income and claims outflows of health insurance premium liabilities are largely unaffected by
ch
anges in interest rates. However, changes to inflationary factors such as wage inflation and medical cost inflation affect the
value of future claims outflows.
None of the Group’s general insurance contracts contain embedded derivatives so there are no additional financial risks, including
interest rate risk, arising from the contracts.
The Group is exposed to foreign currency risk through some of the insurance liabilities which are settled in a local currency
.
Where possible these liabilities are matched to assets in the relevant currency to hedge this exposure.
The majority of the Group’s general insurance activities are single
-
line health portfolios. Even though only one line of business is involved, the Group does not have significant concentration of insurance risk for the following reasons:
•
broad geographical diversity across several markets
– 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
•
a variety of claims type exposures across diverse medical providers: consultants, clinics, individual hospitals and
hospital groups.
The Group as a whole, and its principal general insurance entities, are well diversified in respect of insurance risk. Only in selected
circumstances 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.
(iv) Catastrophe risk
A natural disaster or a man-made disaster could potentially lead to a larger than expected number of claims being received over
a short period of 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
-party re
insurance provided by thirdre
insurers. Bupa’s Group
Actuarial function oversees and implements strategic improvements to ensure the overall adequacy of these arrangements.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
107
26.2 Market risk
Market risk is the risk of adverse financial impact due to changes in fair values or future cash flows of financial instruments from
fluctuations in interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the Group’s
long-term financial strategy is to facilitate growth without undue balance sheet risk.
In order to reduce the risk of assets being insufficient to meet future policyholder obligations, the Group actively manages
assets
using an approach that balances duration, quality, diversification, liquidity and investment return.
The Group invests in a limited portfolio of return
-
seeking assets (principally bonds and loans) via the
regulated entities in the UK and Australia. These
assets
totalled £632m as
at 31 December 2021 (2020: £559m). These entities use value at risk analysis (VaR) to quantify risk, taking account of asset volatility and correlation between asset classes.
In addition to local VaR analysis, the Group applies an aggregate VaR limit to all cash and investments within the regulated
insurance entities. The Group also limits the contribution of the combined investment risk charge from all cash and investments,
in both insurance and provision businesses, to a maximum percentage of the Group
’s solvency capital requirement (SCR).
26.2.1 Foreign exchange risk
The Group is exposed to foreign exchange risks arising from commercial transactions and from recognising assets, liabilities
and
investments in overseas operations. The Group is exposed to both transaction and translation risk. The former is the risk that
a
company’s cash flows and realised profits may be impacted by movements in foreign exchange rates. The latter arises from
translating the financial statements of a foreign operation into the Group’s presentational currency.
The results and financial position of the Group’s foreign entities that do not have a functional currency of sterling are translated
into sterling as follows:
• assets and liabilities at the exchange rate at the balance sheet date
• income and expenses at average rates for the period.
Al
l foreign exchange differences arising on translation are recognised initially in the Consolidated Statement of Comprehensive
Income, and are only subsequently reclassified to the Consolidated Income Statement in the period in which the entity is
eventually disposed.
Foreign currency transactions in the Group’s subsidiary companies are measured using the functional currency of the subsidiar
y
company, which is based on the primary economic environment in which the subsidiary operates. The transactions are tr
anslated
into the functional currency at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate
ruling at the balance sheet date; the resulting foreign exchange gain or loss is recognised in operating expenses, except where
the gain or loss arises on financial assets or liabilities, when it is presented in financial income or financial expense as appropriate.
Non-
monetary assets and liabilities denominated in a foreign currency at historical cost are translated using the exchange rate
at the date of the transaction; therefore, no exchange differences arise.
Non-
monetary items include unearned premiums and
deferred acquisition costs.
Non-monetary assets and liabilities denominated in a foreign currency at fair value are translated using the exchange rate ruling
at the date that the fair value was determined. Transactional foreign exchange differences are recognised in operating e
xpenses.
Transactional exposures arise as a result of differences between the currency of local revenues and claims, typically in the case
of international private medical insurance. e currency exposures are deemed to be acceptable but are kept under review by
Th
management.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
108
The following significant exchange rates applied during the year:
Average rate
Closing rate
2021
2020
2021
2020
Australian dollar
1.83
1.86
1.86
1.77
Brazilian real
7.42
6.61
7.54
7.10
Chilean peso
1,045.64
1,015.49
1,152.93
971.08
Danish krone
8.65
8.38
8.84
8.33
Euro
1.16
1.12
1.19
1.12
Hong Kong dollar
10.69
9.96
10.55
10.60
Mexican peso
27.90
27.53
27.74
27.19
New Zealand dollar
1
.95
1.97
1.98
1.90
Polish zloty
5.31
4.99
5.46
5.10
Saudi
r
iya
l 5.16
4.82
5.08
5.13
Turkish lira
12.22
9.03
17.97
10.17
US dollar
1.38
1.28
1.35
1.37
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
commitme
nt, 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 gain or loss on remeasurement being recognised in the
Consolidated Income Statement.
(b) Cash flow hedges
Where a derivative financial instrument hedges the change in cash flows related to a recognised asset or liability, a firm
commitment or a highly probable forecast transaction, it is accounted for as a cash flow hedge.
The effectiveness of a cash flow hedge is the degree to which the cash flows attributable to a hedged risk are offset by changes
in the cash flows of the hedging instrument. The effective portion of any gain or loss on the hedging instrument is recogni
sed
directly in other comprehensive income until the forecast transaction occurs
,
e.g. when a hedged interest payment is recognised in the Consolidated Income Statement, the related hedging gain 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 Consolidated Income
Statement.
If the hedged cash flow is no longer expected to take place, all deferred gains and losses are released to the Consolidated Income
Statement immediately. If the hedging instrument or hedge relationship is terminated but the hedged transaction is
still expected
to occur, the cumulative gain or loss at that point remains in other comprehensive income and is recognised in accordance with
the above policy when the transaction occurs.
During the year, a correction to the cash flow hedge reserve of
£2
has been recognised. The cash flow hedge reserve related 1m
to
hedging of acquisitions
and should have been reallocated to goodwill (£20m)
and investments in associates (£1m) on initial
application of IFRS 9 Financial Instruments.
As at 31 December 2021, the cash flow hedge reserve amounts to £
nil
(2020: £21m).(c) Net investment hedging
The Group hedges appropriate levels of its net asset exposures after taking into consideration key regulatory and financial
metrics. To hedge the currency risk, the group designates the forward element of foreign currency forward and swap contracts
as hedging instruments. The Group hedges the net investments only to the extent of the notional amount of the foreign exchang
e
leg of the hedging derivative.
Changes in the fair value of the hedging instrument are initially recognised in other comprehensive income to the extent that the
hedge is effective. Exchange differences arising on the consolidation of these net assets are deferred in equity until the fo
reign
operation is disposed of or liquidated, when the differences are then recognised in the Consolidated Income Statement as part
of the gain or loss on disposal.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
109
To assess hedge effectiveness, the group determines the economic relationship between the hedging instrument and the hedged
items by comparing changes in the fair value of the hedging derivative with changes in the fair value of a hypothetical deriv
ative.
An amount equal to the excess of the cumulative change in the fair value of the hedging derivative over the cumulative change
in the fair value of the hypothetical derivative, is recorded in the
Consolidated Income S
tatement as ineffectiveness. Ineffective
ness is expected to arise from the effect of counterparty and the Group’s credit risk on the fair value of the de
rivative which is not reflected in the hypothetical derivative. Ineffectiveness could also arise from currency basis, which is present in the
hedging derivative but excluded from the hypothetical derivative.
Effect of foreign exchange hedging transaction
s
The table below shows the notional amounts and carrying values of the currency contracts held by the group to hedge its net
investment in foreign operations as at the end of the year, along with the impact of net investment currency hedging activity.
2
021
£m
2020
£m
Notional amounts
1,479
1,312
Carrying amount
–
Assets
29
14
Carrying amount
– Liabilities
(5)
(33)
Financial statement line item
Derivatives
Derivatives
Change in value used for calculating hedge ineffectiveness
63
(62)
Hedgin
g gains
/
(losses) recognised in other comprehensive income
62
(62)
Hedge
in
effectiveness recognised in Consolidated Income Statement
1
-
Consolidated Income Statement line item (for ineffectiveness)
Financial
expense
Financial expense
Amount reclassified from foreign
exchange
translation reserve to the Consolidated Income Statement
-
-
Consolidated Income Statement line item (for reclassifications)
Financial
expense
Financial expense
Change in value used for calculating hedge ineffectiveness
63
(62)
Amounts in reserves for continuing hedges
63
(
62
) In the
Consolidated Financial S
tatements, 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.
The Group has exposure to both translational and transactional foreign exchange risk arising from its overseas operations.
Currency exposures as at 31 December are as follows:
Net currency exposure
£m
Currency contracts
£m
Net
currency exposure
including hedges
£m
2021
Australian dollar
2,402
(552)
1,850
Euro
909
(529)
380
New Zealand dollar
593
(242)
351
US dollar
271
(320)
(49)
Other
1,345
17
2 1,51
7 Total foreign denominated net assets
5,
520
(1,471)
4,
049
Percentage of Group net assets
78%
58%
Net currency exposure
£m
Currency contracts
£m
Net currency exposure
including hedges
£m
2020
Australian dollar
2,487
(527)
1
,960
Euro
938
(481)
457
New Zealand
dollar
600
(252)
348
US dollar
319
(398)
(79)
Other
1,365
228
1,593
Total foreign denominated net assets
5,709
(1,430)
4,279
Percentage of Group net assets
85%
64%
The impact of a hypothe
tical
strengthening/weakening of sterling against the currencies below, with all other variables constant, would have (decreased)
/
increased equity and profit by the amounts shown below. These tables consider both translation and transaction risk.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
110
Strength
ening 10%
Weakening 10%
(
Losses
)/gains
included in
Consolidated Income
Statement
£m
(
Losses
)/gains
included in Equity
£m
Gains
/(losses)
included in
Consolidated
Income Statement
£m
Gains
/(losses)
included in Equity
£m
2021
Australian dollar
(17)
(
168)
21
205
Euro
(14)
(35)
17
42
New Zealand dollar
(2)
(32)
2
39
US dollar
1
4
(1)
(5)
Other
(2)
(1
38
) 3
1
69
Total sensitivity
(34)
(3
69
) 42
4
50
Strengthening 10%
Weakening 10%
L
osses included in
Consolidated Income
S
tatement
£m
(Losses)
/
gainsincluded in
Equity
£m
Gains included in
Consolidated Income
Statement
£m
Gains/(losses)
included in
Equity
£m
2020
Australian dollar
(10)
(178)
12
218
Euro
(15)
(42)
19
51
New Zealand dollar
(2)
(32)
2
39
US dollar
(3)
7
3
(9)
Other
(7)
(144)
9
176
Total sensitivity
(37)
(389)
45
475
26.2.2 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates.
The Group is exposed to interest rate risk arising from fluctuations in market rates. This affects the return on variable
-
rate assets, the cost of variable
-
rate liabilities and the balance sheet value of its investment in fixed rate bonds. Variable-
ssets represent rate a
a natural hedge for variable-rate liabilities.
The net
asset
balance on which the Group is exposed as at 31 December 2021 was £
2,002
m (2020: £2,184m). The rate at which maturing deposits are reinvested represents a significant potential risk to the Group, in currencies such as sterling and Australian
dollar where the Group has a significant variable-rate net asset exposure.
The Group has also used interest rate swaps to manage interest rate exposure whereby the requirement to settle interest at fixed
rates has been swapped for variable rates. This increases the ability to match variable-rate assets with variable-
rate liabilities.
Variable loans are repriced at intervals of between one and six months. Interest is settled on all loans in line with agreements
and is settled at least annually.
The impact of a hypothetical rise of 100 bps in interest rates at the reporting date, on an annualised basis, would have decreased
equity by £7m and profit by £6m (2020: decrease of £5m and £4m respectively). The impact of a fall of 100 bps in interest rates,
on an annualised basis, would have the inverse effect. This calculation is based on the assumption that all other variables, in
particular foreign exchange rates, remain constant.
Interest rate hedg
ing activities
The Group applies fair value hedges and cash flow hedges to hedge its exposure to interest rate risk on its borrowings.
As a
t 31 December 2021 interest rate swaps totalling £600m have been entered into, to swap the fixed rate coupon on two
£300m
senior unsecured bonds to a variable rate. These interest rate swaps are designated as fair value hedges of the underlying
interest rate risk on the debt. The fair value movement in the bonds attributable to the hedged risk for the year ended 31 Dec
ember
2021 amounted to a gain of £28m (2020: £nil). The fair value movement on the interest rate swaps amounted to a loss of £28m
(2020: £nil) and the fair value and carrying value of this derivative is a £16m liability (2020: £12m asset).
26.2.3 IBOR ref
orm
Interbank Offered Rates (IBORs), including the London Interbank Offered Rate
(LIBOR
are widely accepted benchmark interest ),
rates that represent the cost of unsecured short
-
term borrowing between large banks. IBORs are commonly referenced
in loans, de
riva
tives and other financial instruments, as well as being used by entities in their internal accounting processes. 
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
111
A number of IBORs, in particular LIBOR, are subject to reform. The FCA announced that LIBOR rates would no longer be availabl
e
beyond 31 December 2021. In 2019, Bupa constituted a project team to assess
Bupa
’s exposure to those IBOR rates subject to reform. Actions were subsequently
taken
to remediate exposures prior to the withdrawal of reference rates. At 31 December 2021 the following milestones had been achieved:
•
All exposures relating to IBORs subject to reform have been transition
ed to alternative risk
-free rates
(Alternative RFRs
).
These include exposures to financial investments, derivatives, external debt and intra-group borrowings. •
Alt
ernative RFRs are now used within actuarial processes. • Alternative RFRs are now used in the calculation of incremental borrowing rates used for lease accounting.
During the year, the Group transitioned the swaps used as hedging instruments in its £600m fair value interest rate hedges from
a LIBOR basis to a Sterling Overnight Index Average
(SONIA
basis. As the changes made relate only to IBOR reform, this did )
not result in the discontinuation of existing hedging relationships or the designation of a new h
edging relationship.
26.3 Credit risk
Credit risk is the risk that those that are in debt to the Group default on their obligation
s
. Examples of credit risk would be non-
payment of a trade receivable or a corporate bond failing to repay the capital sum and related interest.
Investment exposure with external counterparties is managed by ensuring that there is a sufficient spread of investments and
that all cash and investment counterparties are rated at least A by two of the three key rating agencies used
by
the Group (unless specifically approved by the Corporate Finance Executive Committee, for example as a result of local regulatory requirements).
The investment profile (including financial investments, restricted assets and cash and cash equivalents) a
s
at 31 December is as follows:
2021
£m
2020
restated
1
£m
Investment grade counterparties
4,209
4,221
Non
-
investment grade counterparties
599
499
Total
4,808
4,720
1.
Refer to note 1.5
e
for details of the restatement.
Investment grade counterparties include restricted assets of £158m (2020: £149m). Non
-
investment grade counterparties are those rated below BBB
-
/Baa3, and mainly comprise corporate bonds, government bonds, deposits with credit institutions and pooled investment funds of £488m (2020: £432m restated), and cash and cash equivalents of £92m (2020: £73m restated).
Assets pledged as security include £158m (2020: £149m) of cash held in restricted access deposits.
Information regarding the credit risk exposure for financial assets held at fair value through other comprehensive income and
amortised cost is provided below.
Government
debt securities
£m
Corporate debt
securities and
secured loans
£m
Deposits with
credit
institutions
£m
Other loans
£m
Restricted
assets
£m
Cash and cash
eq
uivalents
£m
2021
AAA
75
196
-
-
1
76
AA-
to AA+
41
176
527
-
-
604
A-
to A+
-
378
449
-
155
908
BBB-
to BBB+
61
11
20
-
2
58
BB+ and below
(below
investment grade)
66
79
49
1
-
93
Total
243
840
1,045
1
158
1,739
Loss allowance
1
(2)
-
(1)
-
-
-
Carrying amount
241
840
1,04
4 1
158
1,739
1.
In
addition a provision for
expected credit losses on financial investments at FVOCI of £2m has been recognised.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
112
Government
debt securities
£m
Corporate debt
securities and
secured loans
restated
1
£m
Deposits with
credit
institutions
restated
1
£m
Other loans
£m
Restricted
assets
£m
Cash and cash
equivalents
1
£m
2020
AAA
29
197
-
-
-
12
AA-
to AA+
26
206
511
-
-
560
A-
to A+
-
339
578
-
149
915
BBB-
to BBB+
20
15
3
-
-
146
BB+ and below (below
investment grade)
68
114
54
1
-
73
Total
143
871
1,146
1
149
1,706
Loss allowance
2
(2)
(1)
(4)
-
-
-
Carrying amount
141
870
1,142
1
149
1,706
1.
Refer to note 1.5
e
for details of the restatement.
2.
In
addition a provision for expected credit losses on financial investments at FVOCI of £4m has been recognised.
Information regarding the ageing and impairment of financial and insurance assets is shown below.
Not past
due
£m
0-
3 months
£m
3-
6 months
£m
6 months
-
1 year
£m
Greater than
1 year
£m
Total carrying
va
lue
£m
2021
Insurance debtors gross value
1,076
97
24
14
14
1,225
Bad debt provision
(2)
(8)
(6)
(5)
(6)
(27)
Insurance debtors net value
1
1,074
89
18
9
8
1,198
Trade and other receivables gross
value
228
156
46
50
67
547
ECL
(3)
(3)
(4)
(4)
(1
5)
(29)
Trade and other receivables net
value
2
225
153
42
46
52
518
Not past
due
£m
0-
3 months
£m
3-
6 months
£m
6 months
-
1 year
£m
Greater than
1 year
£m
Total carrying
value
£m
2020
Insurance debtors gross value
1,033
117
22
23
15
1,210
Bad
debt provision
(1)
(7)
(2)
(9)
(8)
(27)
Insurance debtors net value
1
1,032
110
20
14
7
1,183
Trade and other receivables gross
value
250
145
31
35
61
522
ECL
(2)
(3)
(1)
(5)
(17)
(28)
Trade and other receivables net
value
2
248
142
30
30
44
494
1.
Comprises
insurance debtors, Medicare rebate and Risk Equalisation Special Account recoveries detailed in note 12.
2.
Comprises trade receivables, other receivables, service concession receivables and accrued income detailed in note 14.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
113
Information regarding the Expected Credit Loss allowance by class of financial investments held at fair value through
other
comprehensive income and amortised cost is shown below.
Government
debt
securities
Corporate
debt
securities and
secured loans
D
eposits
with credit
institutions
Other loans
Trade and
other
receivables
1
Other
insurance
debtors
2
Restricted
assets
Cash and
cash
equivalents
Gross
ECL
Gross
ECL
Gross
ECL
Gross
ECL
Gross
ECL
Gross
Bad debt
provision
Gross
ECL
Gross
ECL
202
1
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At beginning of
year
143
(6)
871
(1)
1,146
(4)
1
-
522
(28)
1,210
(27)
149
-
1,706
-
Recognition and
settlement
103
-
(23)
1
(62)
3
-
-
66
(4)
56
(1)
9
-
125
-
Transfer from
assets held for
sale
-
-
-
-
-
-
-
-
(2)
-
-
-
-
-
-
-
Foreign
exchange and
other
(3)
2
(8)
-
(39)
-
-
-
(
39
) 3
(41)
1
-
-
(92)
-
At end of year
243
(4)
840
-
1,045
(1)
1
-
547
(29)
1,225
(27)
158
-
1,739
-
Government
debt
securities
Corporate
debt
securities and
secured loans
Deposits
with
credit
institutions
Other loans
Trade and
other
receivables
1
Other
insurance
debtors
2
Restricted
assets
Cash and
cash
equivalents
Gross
ECL
Gross
ECL
Gross
ECL
Gross
ECL
Gross
ECL
Gross
Bad debt
provision
Gross
ECL
Gross
ECL
restated
3
restated
3
2020
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At beginning of
year
182
(4)
659
(1)
866
(1)
1
-
534
(45)
1,250
(18)
117
-
1,234
-
Recognition and
settlement
(31)
(2)
216
-
251
(3)
-
-
(85)
18
(41)
(9)
32
-
219
-
Write backs
-
-
-
-
-
-
-
-
26
-
-
-
-
-
-
-
Transfer from
assets held for
sale
-
-
-
-
6
-
-
-
45
(1)
-
-
-
-
228
-
Foreign
exchange and
other
(8)
-
(4)
-
23
-
-
-
2
-
1
-
-
-
25
-
At end of year
143
(6)
871
(1)
1,146
(4)
1
-
522
(28)
1,210
(
27
) 149
-
1,706
-
1.
Compris
es 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.
3.
Refer to note 1.5e fo
r details of the restatement.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
114
Offsetting financial assets and financial liabilities
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar
agreements:
Related amounts not set
o
ff in the balance sheet
2021
Gross amounts of
recognised
financial
assets
/(liabilities)
£m
Gross amounts of
recognised
financial liabilities
set off in the
balance sheet
£m
Net amounts of
financial assets/
liabilities
presented in the
balance sheet
£m
Fi
nancial
instruments
£m
Cash
collateral
received
£m
Net
amount
£m
Derivative financial assets
41
-
41
(15)
(19)
7
Derivative financial liabilities
(35)
-
(35)
15
3
(17)
Cash and cash equivalents
1,939
(200)
1,739
-
-
1,739
Total
1,945
(200)
1,745
-
(16)
1,729
Related amounts not set
off in the balance sheet
2020
Gross amounts of
recognised
financial
assets/(liabilities)
£m
Gross amounts of
recognised
financial liabilities
set off in the
balance sheet
£m
Net amounts of
financial assets/
liabili
ties
presented in the
balance sheet
£m
Financial
instruments
£m
Cash
collateral
received
£m
Net
amount
£m
Derivative financial assets
61
-
61
(37)
(2)
22
Derivative financial liabilities
(77)
-
(77)
37
18
(22)
Cash and cash equivale
nts
2,009
(303)
1,706
-
-
1,706
Total
1,993
(303)
1,690
-
16
1,706
The Group also mitigates credit risk in derivative contracts by entering into collateral agreements where appropriate. The am
ount
of collateral received or posted is shown in the table above.
For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each
agreement 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 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 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 part
y.
26.4
Liquidity risk
Liquidity risk is the risk that the Group will not have available funds to meet its liabilities when they fall due.
The Group’s main source of
short-
term funding is via a £9
00m revolving credit facility which has a
maturity of December 2026
with two, one
-
year extension options.The facility replaced an £800m revolving credit facility (2020: undrawn) and a separate
£40m bilateral facility (2020: fully drawn down)
. The
new facility was drawn down by £150m as at 31 December 2021. During the period the Group put in place a
€
30m bank facility in Spain, maturing in May 2022 which remains undrawn as at 31 December 2021.
The Group monitors funding risk as well as compliance with existing financial covenants within
the
banking arrangements. There were no concerns regarding bank covenant coverage in 2021 and that position is not expected to change in the foreseeable
future.
The Group holds a strong liquidity position and adheres to strict liquidity management policies as set by the Bupa Risk Committee
as well as adhering to liquidity parameters for the Group’s regulated entities. Regular stress testing is conducted to assess
liquidity
risk.
The contractual maturities of financial liabilities and the expected maturities of insurance liabilities including estimated interest
payments of the Group are as follows:
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
115
Subordinated
liabilities
£m
Other
interest
-
bearing
liabilities
£m
Lease
liabilities
£m
Provision
s
arising
from
insurance
contracts
£m
Other
liabilities
arising from
insurance
business
£m
Trade and
other
payables
1
£m
Derivative
liabilities
£m
Total
£m
As at 31
December 2021
2022
(46)
(205)
(164)
(3,183
)
(213)
(1,
993)
(17)
(5,
8
21)
2023
(291)
(15)
(147)
(
50
) -
(5)
-
(
508
) 2024
(35)
(312)
(125)
-
-
(1)
(2)
(475)
2025
(35)
(9)
(107)
-
-
(1)
-
(152)
2026
(435)
(9)
(95)
-
-
-
-
(539)
2027
-
2031(72)
(321)
(341)
-
-
-
(16)
(750)
After 2031
(400)
(8)
(226)
-
-
-
-
(634)
Total
(1,314)
(879)
(1,205)
(3,233)
(213)
(
2,0
00) (35)
(8,
8
79)
Carrying value in
the Consolidated
Statement of
Financial Position
(997)
(822)
(915)
(3,233)
(213)
(
2,0
00) (35)
(8,
2
15)
Subordinated
liabilities
£m
Other
interest
-
bearing
liabilities
£m
Lease
liabilities
£m
Provi
sions
arising
from
insurance
contracts
£m
Other
liabilities
arising from
insurance
business
£m
Trade and
other
payables
1
£m
Derivative
liabilities
£m
Total
£m
As at 31
December 202
0
2021
(59)
(4
55
) (172)
(3,160)
(162)
(1,971
)
(59)
(
6,038
) 2022
(60)
(
23
) (161)
(52)
-
(7)
-
(303)
2023
(547)
(23)
(144)
-
-
(2)
(18)
(73
4)
2024
(35)
(319)
(124)
-
-
(1)
-
(479)
2025
(34)
(17)
(107)
-
-
-
-
(158
)
2026
-
2030(492)
(369)
(391)
-
-
(1)
-
(1,253)
After 2030
(415)
(36)
(264)
-
-
-
-
(715)
Total
(1,642
)
(1,242
)
(1,363)
(3,212)
(162)
(1,982
)
(77)
(9,680
)
Carrying value in
the Consolidated
Statement of
Financial Position
(1,247)
(1,191)
(1,010)
(3,212)
(162)
(1,982
)
(77)
(8,881
)
1.
Comprises trade payables, other payables, occupational rights agreemen
t
liabilities, refundable accommodation deposits, amounts due to Parentand accruals
detailed in note 21.
Interest payments are included in the cash flows for subordinated liabilities and other interest-bearing liabilities.
Maturity profile of financial as
sets
The majority of assets arising from insurance business and trade and other receivables fall due within one year as detailed i
n
notes 12 and 14 respectively. The maturity profile of other financial assets (excluding ECLs), which are also available to
f
und the repayment of liabilities as they crystallise, is as follows:
Cash and cash
equivalents
£m
Deposits with
credit
institutions
£m
Government debt
securities
£m
Corporate debt
securities and
other loans
£m
Pooled
investment
funds
£m
Total
£m
As at
31
December 2021
2022
1,739
997
20
6
506
373
3,82
1
2023
-
43
33
169
-
245
2024
-
-
12
115
-
127
2025
-
5
1
95
-
101
2026
-
-
4
178
8
190
2027
-
2031-
-
20
109
5
134
After 2031
-
-
12
23
-
35
Total
1,739
1,045
2
88
1,195
386
4,65
3
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
116
Cash and c
ash
equivalents
£m
Deposits with
credit institutions
restated
1
£m
Government
debt securities
£m
Corporate debt
securities and
other loans
restated
1
£m
Pooled
Investment
funds
£m
Total
£m
As at 31
December 2020
2021
1,706
888
109
541
301
3,545
2022
-
255
15
206
-
476
2023
-
4
15
167
-
186
2024
-
-
8
98
-
106
2025
-
-
1
80
-
81
2026
-
2030-
-
31
127
-
158
After 2030
-
-
11
15
-
26
Total
1,706
1,147
190
1,234
301
4,578
1.
Refer to note 1.5
e
for details of the restatement.
27 Related party
transactions
Related party transactions
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 associate
d 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.
T
here 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 as at 31 December 2021 (2020: £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:
2021
£’000
2020
£’000
Short
-
term employee benefits
4,332
3,489
Long Term Incentive Plan awards
2,749
3,551
Post
-
employment benefits
101
11
8
Total
7,182
7,158
The total remuneration of key management personnel is included in staff costs (see note 2.3).
28
Commitments, contingencies and guarantees
A commitment is future expenditure that is committed to as at 31 December 2021. 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 as at 31 December 2021 but for which no provision has been made in the financial
statements, amounted to £ this, £
68
m
(20
20
: £112m). Of67m
: £111m) relates to aged care facility and retirement village(20
20project commitments in Australia and New Zealand and care homes in the UK; specifically
, £29
: £m (20
2037
m) in relation to
property, plant and equipment and £
38
: £74m) in relation to investment property. A further £m
20(20
1m (2020: £
nil)
commitment relates to computer software projects, to other refurbishment projects across the
with
£nil (2020: £1m) committed
in relationGroup
.
ii) Contingent assets and liabilities
The Group currently has no contingent assets.
The Group has contingent liabilities arising in the ordinary course of business and in relation to a limited number of histor
ic
business disposals. These include losses which might arise from litigation, consumer matters,
other disputes, regulatory
compliance (including data protection) and interpretation of law (including employment law and 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.
Notes to the Consolidated Financial Statements
(continued)
for the year ended 31 December 20
21
117
iii)
Defined benefit post
-employment schemes
The Company has entered into a legally binding and irrevocable guarantee for the benefit of the trustee of the principal defi
ned
benefit scheme in the UK, The Bupa Pension Scheme, in respect of the payments due from the Parent.
29
Entities in which the Group holds less than 100% equity interest
(i) Consolidation of entities in which the Group holds less than 50% equity interest
Eurocredit Investment Fund 1 plc
Eurocredit Investment Fund is a structured entity set up for the purpose of investing in primary and secondary secured loans.
Bupa is the only investor in the issued debt of the entity and is exposed to the risks and rewards of the fund.
(ii) Non
-controlling interests (‘NCI’)
The Gro
up has no subsidiaries whose non-controlling interest is material on the basis of their share of equity or profit or loss.
Company Primary Statements and Associated Notes
for the year ended 31 December 20
21
118
Balance Sheet
as at 31 December 2021
Note
2021
£m
2020
(restated)
1
£m
Assets
Property, plant and equipment
B
32
35
Investment
in subsidiaries
C
4,961
5,951
Restricted assets
D
45
48
Derivative assets
E
29
22
Deferred taxation asset
s
F
5
4
Trade and other debtors
G
66
47
Cash and cash equivalents
H
13
108
Total assets
5,151
6,215
Liabilities
Borrowings
I
(1
,727)
(2,246)
Lease liabilities
J
(30)
(33)
Derivative liabilities
E
(24)
(34)
Trade and other creditors
K
(2,718)
(3,446)
Total liabilities
(4,499)
(5,759)
Net assets
652
456
Equity
Called up share capital
L
200
200
Profit and lo
ss account
155
256
Total attributable to ordinary shareholder
355
456
Restricted Tier 1 notes
M
297
-
Total equity
652
456
1.
Refer to
part (b) of the Company accounting policies
for
details of the restatement.Approved by the Board of Directors and signed on its behalf on 7
March
2022 by James Lenton
Director
Registered number 2779134
Notes A-P form the associated notes to the Company financial statements.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
119
Statement of Changes in Equity
for the year ended 31 December 2021
Called up
share
capital
Profit and loss
account
Total
equity
attributable to
shareholder
Restricted
Tier 1 notes
Total equity
£m
£m
£m
£m
£m
Balance as at 1 January 2021
200
256
4
56
-
456
Comprehensive
loss
for the year
Loss
for
the year
-
(49)
(49)
-
(49
)
Total comprehensive
loss
for the year-
(49)
(49)
-
(49)
Transactions with owners, recorded directly
in equity
Dividends
-
(52)
(52)
-
(52)
Total distributions to owners
-
(52)
(52)
-
(52)
Issue of Restricted Tier 1 notes
-
-
-
297
297
Balance as at 31 December 2021
200
155
355
297
652
Balance as at 1 January 2020
200
735
935
-
935
Comprehensive loss for the year
Loss for the year
(restated)
1
-
(3
04
) (
304
) -
(
304
) Total comprehensive loss for the year
(restated)
1
-
(
304
) (
304
) (
304
) Transactions with owners, recorded directly
in equity
Dividends
-
(175)
(175)
-
(175)
Total distributions to owners
-
(175)
(175)
-
(175)
Balance as at 31 December 2020
200
256
456
-
456
1.
Refer to
part (b) of the Company accounting policies
for
details of the restatement.Notes A-P form the associated notes to the Company financial statements.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
120
Bas
is of preparation
Bupa Finance plc (the ‘Company’), is a company incorporated in England and Wales. The
Company’s
immediate and ultimate parent undertaking is The British United Provident Association Limited (the ‘Parent’ or ‘Bupa’).
These financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101). In preparing these financial statements, the Company applies the recognition, measurement and
disclosure requirements of International Financial Reporting standards (‘IFRS’) as adopted by the UK and makes amendments
where necessary in order to comply with the Companies Act 2006. The Company has set out below where
advantage of the FRS
101 disclosure exemptions has been taken.
The Company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual profit
and loss account. As the consolidated financial statements of the Group include the equivalent disclosures, the Company has
also taken the exemptions under FRS 101 available in respect of the following disclosures:
• Cash Flow Statement and related notes;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of compensation of key management personnel;
•
Certain disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided apart
from those which are relevant for the financial instruments which are held at fair value and are not held as either part of a
trading portfolio or derivatives;
• IAS 24 - Exemption for related party transactions entered into between two or more members of a group, provided that any
subsidiary party to the transaction is wholly owned by such a member.
Company
a
ccounting p
olicies
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in th
ese
financial statements.
(a) Accounting estim
ates and judgements
The impairment review of investments in subsidiaries is a source of significant estimation uncertainty. Annual impairment tests
include a number of sources of estimation uncertainty as the key assumptions used when modelling the recoverable amount
include estimating the discount rate, terminal growth rate and the forecast cash flows. Changes to these assumptions could
materially change the calculation of the recoverable amount.
(b) Restatements and changes in accounting policies
Following th
e restatement detailed below, the Company has consistently applied its accounting policies to all periods presented
in these Financial Statements.
During the year, the Company identified an error in the comparative year calculation of recoverable amount for certain investments
in subsidiaries. The calculation has been reperformed using a corrected methodology. This indicated that impairments should
have been recognised in the comparative year. The comparative year has been restated for the error resulting in the impacts
shown in the table below.
As published
Restatements
As restated
31 December 2020
£m
£m
£m
Loss for the year
(
63
) (
241
) (
304
) Total impact on
loss
for the year
(
241
) Investment in subsidiaries
6,192
(
241
) 5,9
51
Total impact on net assets
(2
41
) Profit and loss account
497
(
241
) 256
Total impact on equity
(
241)
(c) Going concern
The Directors have a reasonable expectation that the Company has access to adequate resources to continue in operational
existen
ce for at least the next 12 months from the approval of these financial statements. They continue to adopt the going
concern basis of accounting in preparing the annual financial statements.
(d) Foreign currency
The financial statements are presented in sterling, which is the currency of the primary economic environment in which the
Company operates (its functional currency). Transactions in currencies other than the functional currency are recorded at the
rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are reported at the rates of exchange prevailing at that date. Non
-
monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
121
• Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which
are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency
borrowings; and
• Exchange
differences on transactions entered into to hedge certain foreign currency risks (see below under financial
instruments/hedge accounting).
(e) Financial income and expense
Financial income comprises interest receivable, realised gains and losses on investments, foreign exchange gains and losses,
dividend income on equity investments and changes in the fair value of items recognised at fair value through profit or loss.
Interest income, except in relation to assets classified as at fair value through profit or loss, is recognised in the profit and loss
account as it accrues, using the effective interest method.
Changes in the value of financial investments at fair value through the profit and loss account are recognised within financial
income as an unrealised gain or loss while the asset is held. Upon realisation of these assets, the change in fair value since the
last valuation is recognised within financial income as a realised gain or loss.
Financial expense includes interest payable on borrowings, calculated using the amortised cost method, and other financial
expense.
(f) Classification of financial instruments issued by the Company
Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions:
•
Th
ey include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and
•
Where the instrument will or may be settled in the Company’s own equity instruments, it is either a non
-derivative that
includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be
settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.
Where a financial instrument that contains both equity and financial liability components these components are separated and
accounted for individually under the above policy.
(g) Non
-
ancial instrumentsderivative fin
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other debtors, cash and cash
equivalents, loans and borrowings, and trade and other creditors.
(h)
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and recognised impairment losses.
Depreciation is charged to the profit and loss on a straight-line basis over its expected useful life, as follows:
Right-of-use property Lease term
Equipment 3 to 10 years
Useful lives, depreciation method and residual values are reviewed at each balance sheet date.
No depreciation is charged on assets in the course of construction. Assets classified as work in progress are reviewed for
impairment at each balance sheet date or when an indication of impairment arises.
Impairment reviews are undertaken where there are indicators that the carrying value may not be recoverable. An impairment
loss is recognised in the profit and loss account to reduce the carrying value to the recoverable amount.
(i)
Leases of property
The lease liability is initially measu
red at the present value of the lease payments that are not paid at the commencement date,
discounted using the 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 to 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 payments arising from a change in index or rate, or if the Company changes
its assessment of whether it will exercise an extension or termination 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 an extension or termination option.The
leases currently held by the Company do not contain any extension or terminations options.
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 at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
122
properties to their original condition, 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 review uplifts. Restoration costs included in the right
-
of-
use asset are amortised over the same term as the corresponding provision, which may be longer than the IFRS 16 contractual
lease term.
The Company has elected not to recognise the right
-of-u
se assets and lease liabilities for short-
term leases that have a term of 12 months or less or 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.
(j) Investments in subsidiary undertakings
Investments in subsidiary undertakings are stated at cost less impairment. Investments are reviewed annually to test whether
any indicators of impairment exist. Where there is objective evidence of such an asset being impaired, the investment is impaired
to its recoverable value and any unrealised loss is recorded in the profit and loss account.
When any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased, the
recoverable amount of an investment is assessed. Should the recoverable value exceed the carrying value an
impairment reversal
is recognised in the profit and loss account, up to the value of previously recorded impairments.
Dividends received from subsidiaries are recognised in profit or loss when the right to receive is established.
All loans and receivables to and from subsidiary undertakings are shown at cost less amounts written off where deemed
irrecoverable.
(k) Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised
immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss
depends on the nature of the item being hedged (see below).
Derivative fair value
Fair values of derivative instruments are obtained from market observable pricing information including interest yield curves. The
value of foreign exchange forward contracts and swaps is established using listed market prices.
Hedge accounting
The Company applies fair value hedge accounting. The Company formally documents the hedging relationship between a
hedging instrument and a hedged item. Documentation includes the risk management objectives and the strategy in undertaking
the hedge transaction.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability,
or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is r
ecognised
directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in profit or loss.
Fair value hedges
Where a derivative financial instrument is designated as a hedge of the variability in fair value of a recognised asset or liability or
an unrecognised firm commitment, all changes in the fair value of the derivative are recognised immediately in profit or loss. The
carrying value of the hedged item is adjusted by the change in fair value that is attributable to the risk being hedged (even
if it is
normall
y carried at cost or amortised cost) and any gains or losses on remeasurement are recognised immediately in profit or
loss (even if those gains would normally be recognised directly in reserves).
(l) Trade and other debtors
Trade and other debtors are recognised initially at fair value. They are subsequently measured at amortised cost using the
effective interest method, less any expected credit impairment losses.
Provision for expected credit losses for debtors are measured at lifetime ECL. Where appropriate, a provision matrix is used to
estimate ECL. Under a provision matrix, receivables are grouped into customer segments and further divided into categories by
age. Historical credit loss experience and any relevant forward looking information is then used to establish the ECL provision for
each category.
(m) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
(n) Trade and other creditors
Trade and other creditors are recognised initially at fair value. They are subsequently measured at amortised cost using the
effective interest method.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
123
(o) Interest-
bearing borrowings
Interest-
bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest
-
bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.
(p) Restricted Tier 1 (RT1) debt
The
RT1 notes meet the classification of equity and are presented as a separate category of equity in the Balance Sheet at an
amount equal to the proceeds of issue less transaction costs. RT1 coupons are recognised directly in the Statement of Changes
in Equity, net of tax, upon payment.
(q) Intra
-
group financial instrumentsWhere the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.
(r) Taxation including deferred taxation
Taxation on the profit or loss for the year comprises current and deferred taxation. Taxation is recognised directly in equity to the
extent that it relates to items recognised directly in equity or other comprehensive income.
Current taxation is the expected taxation payable or receivable on the taxable income or loss for the year, using taxation ra
tes
enacted or substantively enacted at the balance sheet date, and any adjustment to taxation payable in respect of previous years.
Deferred taxation is provided on temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the
initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable
profit other
than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not
reverse in the foreseeable future. The amount of deferred taxation provided 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.
A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the temporary difference can be utilised.
(s) Provisions
A provision is recognised in the Statement of Financial Position when the Company has a present legal or constructive obligat
ion
as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required
to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre
-
tax rate that reflects risks specific to the liabil
ity.
Profit/loss attributable to the Company
The loss
within the accounts of the Company is £
304m 49
(2020: loss of £m
(as restated, see note 1(b)). In accordance with the
exemption granted under Section 408 of the Companies Act 2006, a separate profit and loss account for the Company has not
been presented.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
124
Notes to the Financial Statements
A. Directors and employees
The Company employed no employees during 2021 (2020: nil) and had
four Directors
as at 31 December (2020: four). During
the year six individuals served as Directors (2020: four). Details of Directors serving during the year can be found on page 2.
Directors’ remuneration
Remuneration paid to the Directors is borne by the Company or other Group companies and is disclosed in note 2.3.1.
B.
Property, plant and equipment
2021
2020
Right
-
of
-use asset
property
Leasehold
improvements
Equipment
Total
Right
-
of-
use asset
property
Leasehold
improvements
Equipment
Total
£m
£m
£m
£m
£m
£m
£m
£m
Cost or
valuation
At beginning of year
32
9
2
43
32
9
2
43
Disposals
-
-
(1)
(1)
-
-
-
-
At end of year
32
9
1
42
32
9
2
43
Depreciation and impairment loss
At beginning of year
5
2
1
8
2
2
1
5
Depreciation charge for
year
2
1
-
3
3
-
-
3
Disposals
-
-
(1)
(1)
-
-
-
-
At end of year
7
3
-
10
5
2
1
8
Net book value at end
of year
25
6
1
32
27
7
1
35
Net book value at
beginning of year
27
7
1
35
30
7
1
38
C. Investment in subsidiaries
At beginning
of year
Provision
Additions
Redemptions/
Repayments
Foreign
exchange
revaluation
At end of
year
2021
£m
£m
£m
£m
£m
£m
Group undertakin
gs:
Shares in subsidiary undertakings
5,943
-
616
(850)
(121)
5,588
Loans to Group companies
795
-
9
(617)
-
187
6,738
-
625
(1,467)
(121)
5,775
Provision for impairment
(
787
) (27
) -
-
-
(
814
) Net book value
5,
9
51(27)
625
(1,467)
(121)
4,961
At beginning of
year
Provision
(restated)
1
Additions
Redemptions/
Repayments
Foreign
exchange
revaluation
At end of
year
(restated)
1
2020
£m
£m
£m
£m
£m
£m
Group undertakings:
Shares in subsidiary undertakings
5,512
-
323
-
108
5,943
Loans to Group companies
1,057
-
74
(336)
-
795
6,569
-
397
(336)
108
6,738
Provision for impairment
(restated)
1
(514)
(
273
) -
-
-
(
787
) Net book value
(restated)
1
6,055
(
273
) 397
(336)
108
5,951
1.
Refer to
n
ote 1
(b) for
details of the restatement.
During the year the Company capitalised £616m of loans to Group companies to shares in subsidiary undertakings. In addition,
the Company redeemed £850m of preference shares subsidiary undertakings. Loans to Group companies comprise loan
in
facilities of a fixed amount and a long
-
term maturity date, with the movements in the year driven principally by capitalised interest and the loan capitalisation during the year.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
125
During
2021 an additional
£24m provision was reco
gnised in relation to the shareholding in Bupa Care Homes (CFG) plc
and an
additional £3m provision was recognised in relation to Bupa Care Homes Investments (Holdings) Limited.
During 2020 a provision of £ for details
273
was recognised (as restated, m
r
efer to part (b) of the Company accounting policies)
in relation to shareholdings in Bupa Care Homes (CFG) plc, Cromwell Health Group Limited, Bupa Care Homes Investments
(Holdings) Limited and Bupa Care Homes (Holdings) Limited.
The subsidiary undertakings of the Company as at 31 December 2021 are listed in note P.
D. Restricted assets
2021
£m
2020
£m
Restricted assets
45
48
The restricted assets balance of £
45m
(2020: £48m) consists of cash deposits held to secure a charge over the
unfunded pension
scheme obligations held in the Parent.
E. Derivative assets and liabilities
A derivative is a financial instrument whose value is based on one or more underlying variables. The Company uses derivative
financial instruments to hedge its exposure to foreign exchange and interest rate risk. Derivatives are not held for speculat
ive
reasons.
The fair value of non
-
current derivative assets relate to interest rate swaps which are recognised at fair value. The interest rate swaps are held to hedge the 2024 £300m and 2027 £300m unsecured bonds issued by the Company.
Derivatives are held at fair value through profit or loss, and therefore the carrying value is equal to the fair value.
2021
£m
2020
£m
Derivative assets
Non
-
current5
8
Current
24
14
Total derivative assets
29
22
Derivative liabilities
Non
-
current(18)
-
Current
(6)
(34)
Tot
al derivative liabilities
(24)
(34)
Valuation techniques and assumptions applied for the purposes of measuring fair value
Derivatives that have been purchased or issued as part of a hedge that subsequently do not qualify for hedge accounting are
accounted for at fair value through profit or loss.
Fai
r values are obtained from market observable pricing information including interest rate yield curves.
F. Deferred taxation assets
2021
£m
2020
£m
Taxation value of losses carried forward
5
4
G.
Trade and other debtors
2021
£m
2020
£m
Amounts owed by
subsidiary companies
25
25
Other t
rade and other debtors
41
22
Total trade and other debtors
66
47
All balances are current.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
126
H. Cash and cash equivalents
2021
£m
2020
£m
Cash at bank and in hand
1
1
Sh
ort
-term deposits
12
107
Cash and cash
equivalents
13
108
I.
Borrowings
Note
2021
£m
2020
£m
Subordinated liabilities
Subordinated unguaranteed bonds
(a)
997
1,247
Total subordinated liabilities
997
1,247
Other interest
-
bearing liabilities
Sen
ior unsecured bonds
(b)
582
960
Bank loans
(c)
148
39
Total other interest
-
bearing liabilities
730
999
Total borrowings
1,727
2,246
Current
148
390
Non
-
current1,579
1,856
a)
Subordinated unguaranteed bonds
The total carrying value of subordinated unguaranteed bonds, net of accrued interest, capitalised issue costs and discounts was
£997m (2020: £1,247m
).
On 24 September 2021, the Company early redeemed £250m of £500m unguaranteed subordinated bonds originally due to
mature on 2
5
023. Maturity of the remaining £250m portion is unchanged and interest is payable on the bonds at 5.00% April 2
per annum. In the event of the winding up of the Company the claims of the bondholders are subordinated to the claims of other
creditors of the Company.
On 25 June 2020, the Company issued £350m of unguaranteed subordinated bonds which mature on 14 June 2035. Interest is
payable on the bonds at 4.125%. In the event of the winding up of the Company the claims of the bondholders are subordinated
to the claims of other creditors of the Company.
On 8 December 2016, the Company issued £400m of unguaranteed subordinated bonds which mature on 8 December 2026.
Interest is payable on the bonds at 5.0 of the bondholders
0
% per annum. In the event of winding up of the Company the claims
are subordinated to the claims of other creditors of the Company.
The Company has not had any defaults of principal, interest or other breaches with respect to subordinated liabilities during
2021
or 2020.
b) Senior unsecured bonds
The
total senior unsecured bonds balance of £
582
m (2020: £960m) is net of initial issue costs, discount on issue,
accrued interestand, where hedged, a fair value adjustment in respect of hedged interest rate risk.
On 17 June 2021, the Company senior unsecured bonds. Interest
repaid
£350m ofwa
s payable on the bonds at 3.375% per annum.
On 25 June 2020, the Company issued £300m of senior unsecured bonds which mature on 14 June 2027. Interest is payable on
the bonds at 1.750% per annum. The total hedged
fair v
alue of these £300m senior unsecured bonds, including accrued interest, capitalised issue costs and discounts, is £
284
m (2020: £300m). The valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap contracts in place to hedge this risk.
On 5 April 2017, the Company issued £300m of senior unsecured bonds, guaranteed by the Parent, which mature on 5 April
2024. Interest is payable on the bonds at 2.
00
% per annum. The total hedged fair value of these
£300m senior unsecured bonds, including accrued interest, capitalised issue costs and discounts, is £
298
m (2020: £310m). The valuation adjustment is the change in value arising from interest rate risk which is matched by the fair value of swap contra
cts in
place to hedge this risk. c) Bank loans
Bank loans of £ of £
148
m (2020: £39m) include drawings, net of
issue costs150
m (2020: £nil) under a new £9
00m revolving credit facility, maturing
December 2026,
which replaced an £800m revolving credit facility (2020: undrawn)
and a separate £40m
bilateral loan facility (2020: fully drawn down).
The drawings under the £900m facility are guaranteed by the Parent. The overdraft facilities are subject to cross guarantees.
The bank loans and overdrafts bear interest at commercial rates linked to SONIA for sterling or equivalent for other currencies.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
127
J. Lease liabilities
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement da
te,
discounted using the Company’s incremental borrowing rate taking into account the duration of the lease.
2021
£m
2020
£m
At beginning of the year
33
35
Interest on lease liability
1
1
Repayments
(4)
(3)
At end of year
30
33
Current
3
3
Non
-
current27
30
K.
Trade and other creditors
2021
£m
2020
£m
Amounts owed to subsidiary undertakings
2,714
3,436
Other creditors
4
10
Total trade and other creditors
2,718
3,446
All balances are current.
L. Called up share capital
2021
£m
2020
£m
Allocated, called up and fully paid
200,
050,000 ordinary shares of £1 each
200
200
M. Restricted Tier 1 (RT1) notes
The RT1 notes meet the classification of equity and are presented as a separate category of equity in the Balance Sheet at an
amount equal to the proceeds of issue less transaction costs. RT1 coupons are recognised directly in the Statement of Changes
in Equity, net of tax, upon payment.
2021
£m
2020
£m
Restricted Tier 1 notes
297
-
On 24 September 2021, the Company issued £300m of RT1 notes with a fixed coupon of 4.000% paid semi-annually in arrears.
Transaction costs of £3m were recognised in respect of the issue. The total coupon paid during the year was £nil.
The RT1 notes are perpetual with no fixed maturity or redemption date and interest is payable at the sole and absolute discretion
of the Company, with cancelled interest providing no rights to the holder of the notes nor being considered a default. The RT1
notes are therefore treated as equity. The notes are convertible to share capital on the occurrence of certain trigger events.
N.
Commitments, contingencies and guarantees
Pension contributions
The Company has given a legally binding and irrevocable guarantee for the benefit of the trustees of The Bupa Pension Scheme,
in respect of payments that the Parent is obliged to make between 31 December 2020 and 31 December 2021 to The Bupa
Pension Scheme.
Contingent liabilities
Under a Group registration the Company is jointly and severally liable for Value Added Tax due by certain other companies in
the Group.
Guarantees
As at 31 December 2021, the Company was party to a £900m multi
-
currency revolving credit facility. The C
ompany has joint and several liability for all obligations under the multi The revolving cre
-
currency revolving credit facility described in note I(c).d
it facility
was drawn down by £150m as at 31 December 2021 (2020: £800m facility which was undrawn).
The Company has provided guarantees to certain other Group undertakings. These are either as part of the Group banking
arrangements in respect of the over
d
rafts, or, if called on to do so, to provide or procure necessary support to enable certain other Group undertakings to meet their liabilities as they fall due.
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
128
O.
Ultimate Parent
The Company’s immediate and u
ltimate p
arent undertaking is The British United Provident Association Limited which includes the Company in its consolidated financial statements. The consolidated financial statements of The British United Provident
Association Limited are prepared in accordance with International Financial Reporting Standards and are available to the public.
Copies of the accounts of The British United Provident Association Limited can be obtained from The Registrar of Companies,
Cardiff, CF14 3UZ.
P. Related Undertakings
In compliance with Section 409 of the Companies Act 2006, disclosed below is a list of related undertakings of the Company as
at 31 December 202
1
, comprising subsidiaries, joint ventures, associated undertakings and other significant holdings, together with the country of incorporation, registered office address, each share class held by the Company and the Group and the
proportion of the nominal value of the shares of that class represented by those shares.
Wholly Owned Related Undertakings
Unless otherwise stated, the related undertakings listed below are wholly owned indirectly by the Company with 100% of the
nominal value of each share class held by Group subsidiaries.
Name of Undertaking
Share Class
Australia
Level 16, 33
Exhibition Street, Melbourne VIC 3000, Australia
Australia Fair Dent
al Care Pty Ltd
AUD Ordinary
Benefit Pocket Pty Ltd
AUD Ordinary
Bupa Aged Care Australasia Pty Limited
AUD Ordinary
Bupa Aged Care Australia Holdings Pty Ltd
AUD Ordinary
Bupa Aged Care Australia Pty Ltd
AUD Ordinary
Bupa Aged Care Holdings
Pty Ltd
AUD Ordinary
Bupa Aged Care Property No.2 Trust
Trust Interest
Bupa Aged Care Property No.3 Trust
Trust Interest
Bupa Aged Care Property No.3A Trust
Trust Interest
Bupa Aged Care Property Trust
Trust Interest
Bupa ANZ Finance Pty Ltd
AUD
Ordinary
Bupa ANZ Group Pty Ltd
AUD Ordinary
Bupa ANZ Healthcare Holdings Pty Ltd
AUD Ordinary
Bupa ANZ Insurance Pty Ltd
AUD A Preference, AUD Ordinary
Bupa ANZ Property 1 and 2 Limited
AUD Ordinary
Bupa ANZ Property 3 and 3A Pty Ltd
AUD O
rdinary
Bupa Care Villages Australia Pty Ltd
AUD Ordinary
Bupa Dental Corporation Limited
AUD Ordinary
Bupa
Foundation (Australia) Limited
Guarantee Membership Interest
Bupa Health Services Pty Ltd
AUD Ordinary
Bupa HI Holdings Pty Ltd
AUD Or
dinary
Bupa HI Pty Ltd
AUD Ordinary
Bupa Innovations (ANZ) Pty Ltd
AUD Ordinary
Bupa Medical (GP) Pty Ltd
AUD Ordinary
Bupa Medical Services Pty Limited
AUD Ordinary
Bupa Optical Pty Ltd
AUD Ordinary
Bupa Telehealth Pty Ltd
AUD Ordinary
Bupa Wellness Pty Limited
AUD Ordinary
DC Holdings WA Pty Ltd
AUD Ordinary
Dental Care Network Pty Ltd
AUD Ordinary
Dental Corporation Australia Fair Pty Ltd
AUD Ordinary
Dental Corporation Cox Pty Ltd
AUD Ordinary
Dental Corporation Gerb
er Pty Ltd
AUD Ordinary
Dental Corporation Holdings Limited
AUD Ordinary
Dental Corporation Levas
Pty.Ltd.
AUD Ordinary
Dental Corporation Petrie Pty.Ltd.
AUD Ordinary
Dental Corporation Pty Ltd
AUD Ordinary
Dr Chris Hardwicke Pty.Ltd.
AUD O
rdinary
Gerber Dental Group Pty Ltd
AUD Ordinary
Larry Benge Pty Limited
AUD Ordinary
Scott Petrie (Dental) Pty Ltd
AUD Class E, AUD Class F, AUD Ordinary
Bermuda
Crawford House, 4th Floor, 50 Cedar Avenue, Hamilton, HM11, Bermuda
Amedex
Insurance Company (Bermuda) Limited
BMD1.00 Ordinary
Bolivia
Guapomo Street 2005, Spazio Building, 1st Floor, Offices 201
-
202
-2013, Santa Cruz de la Sierra, Bolivia
Bupa Insurance (Bolivia) S.A
BOB100.00 Ordinary
Brazil
Alameda Mamoré, no.
678, 11th floor, room 1104, Alphaville, Zip Code
06454
-
040, in the City of Barueri, São Paulo, Brazil
Care Plus Negócios Em Saúde Ltda.
BRL1.00 Quotas
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
129
Name of Undertaking
Share Class
Alameda Mamoré, no. 687, 12th floor, rooms 1201, 1202, 1203 and
1204, Alphaville, Zip Code 06454
-
040, in the
city of Barueri, São
Paulo, Brazil
Care Plus Medicina Assistencial Ltda
.
BRL1.00 Quotas
Av. das Nações Unidas, 12,901, Unidade 901, Torre Oeste, Bloco C, Centro Empresarial Nações Unidas, Brooklin Paulis
ta, São
Paulo, SP, Brazil
Personal
System Serviços Médicos e Odontológicos Ltda
.
BRL1.00 Quotas
Chile
Avenida Departamental 1455, comuna La Florida, Chile
Servicios De Personal Clinico CBS Dos S.A.
CLP Ordinary
Cerro Colorado N° 5240, Piso 11, Comuna Las Condes, Region Metropolitana, Chile
Bupa Administracion y Servicios SpA
CLP Ordinary
Bupa Chile S.A.
CLP Ordinary
Bupa Compania de Seguros de Vida S.A.
CLP Ordinary
Bupa Inversiones Latam S.A.
CLP Ordinary
Clinica Bupa Santiag
o S.A.
CLP Ordinary
Grupo Bupa Sanitas Chile Uno, SpA
CLP1,000.00 Ordinary
Inversiones Clinicas CBS S.A.
CLP Ordinary
Denmark
Palaegade 8, 1261 Copenhagen K, Denmark
Bupa Denmark Services A/S
1
DKK100.00 Ordinary
Dominican Republic
Av
.
Winston Churchill, corner with Rafael Augusto Sanchez, Plaza Acropolis, Apt. P2
-
D, Santo Domingo, Dominican Republic
Bupa Dominicana, S.A.
DOP1,000.00 Ordinary
Ecuador
Av. Republica de El Salvador N34
-
229, 4th Floor, Quito, Ecuador
Bupa Ecuador
S.A. Compania de Seguros
2
USD1.00 Capital Stock
Egypt
Building 55, Street 18, Maadi, Cairo, Egypt
Bupa Egypt Insurance S.A.E.
3
EGP10.00 Ordinary
Bupa Egypt Services LLC
EGP100.00 Ordinary
Guatemala
Quinta avenida número cinco
guión cincuen
ta y cinco, Zona catorce de esta ciudad, Edificio Europlaza World Business Center, Torre III, undécimo nivel, área corporativa número un mil, Guatemala
Bupa Guatemala, Compania de Seguros, S.A.
4
GTQ1.00 Ordinary
Guernsey
PO Box
155, Mill Court, La
Charroterie, St Peter Port, GY1 4ET, Guernsey
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Bupa Holdings
(
Guernsey) L
imitedBupa
L
easeCo H
oldings L
imited5
Bupa
L
easeCo. (
Guernsey) Li
mited1
UK Care No
.
1
imited L
Ireland
1st Floor, 9 Exchange Place, I.F.C.S, Dublin 1, Ireland
GK Medical and Dental Services Limited
€1.00 Ordinary
Hugh Bradley Limited
€1.00 Ordinary
Oasis Healthcare Holdings Ireland Limited
€1.00 Ordinary
Woodquay Dental Limited
€1.00 Ordinary
Xeon Dental Services Limited
€0.01 Ordinary
Second Floor, 10 Pembroke Place, Ballsbridge, Dublin, 4, Ireland
Bupa Global Designated Activity Company
€1.00 Ordinary
Mexico
Av. Xola 535, Piso 17, Col. Del Valle, Mexico City, CP 03100, Mexico
Corporativo Vitamedica, S.A. De C.V.
MXN10.00 Ordinary
Servicios Vitamedica, S.A. De C.V.
MX
N10.00 Ordinary
Vitamedica Administradora, S.A. De C.V.
MXN Class I, Series A (Fixed), MXN Class I, Series B
(Fixed), MXN Class II, Series A (Variable)
1
Held directly by the Company
2
0.000025% held by nominee
3
0.017% held directly b
y the Company
4
1% held directly by the Company
5
Strike off requested
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
130
Name of Undertaking
Share Class
Montes Urales, No. 745, Piso 1, Colonia Lomas de Chap
ultepec I Seccion, C.P. 11000, Mexico City
Bupa Mexico, Compania de Seguros, S.A. de C.V.
MXN1,000.00 Capital Stock Series E (fixed),
MXN1,000.00 Capital Stock Series M (variable)
Montes Urales, No. 745, Piso 2, Colonia Lomas de Chapultepec I Seccio
n, Miguel Hidalgo Distrito Federal 11000, Mexico City
Bupa Servicios de Evaluacion Medica, S. de R.L. de C.V.
1
MXN Ordinary, MXN Ordinary (Variable)
New Zealand
Bupa House, Level 2, 109 Carlton Gore Road, Newmarket, Auckland, 1023, New Zealand
Bu
pa Care Services NZ Limited
NZD Ordinary
Bupa Retirement
Villages Limited
NZD Ordinary
Level 4, 1 Walton Leigh Avenue, Porirua, 5022, New Zealand
Dental Corporation (NZ) Limited
NZD Ordinary
Panama
Prime Time Tower, Floor 25, Office 25 b
La Rotonda Ave, Costa del Este, Panama
Bupa Panama S.A.
US$1,000.00 Ordinary
Bupa Servicios Panama, S.A.
US$1.00 Common
Peru
Av. Guardia Civil N° 664, Comuna San Isidro, Region Lima, Peru
Integramedica Peru S.A.C.
PEN Ordinary
Poland
28
Czerwca 1956 R, 135/147 Street, 61
-
545, Poznan,
Poland
Diagnostic
-
Med. Centrum Diagnostyki Radiologicznej Sp. z.o.o.
PLN500.00 Ordinary
Brzeska 12 Street, 03
-
737, Warsaw, Poland
Centrum Edukacji Medycznej Sp. z.o.o.
PLN100.00 Ordinary
Curie
-
Sklodowskiej 73 Street, 87
-
100, Torun,
Poland
Citomed Sp. z.o.o.
PLN1,000.00 Ordinary
Lecznice Citomed Sp. z.o.o.
PLN50.00 Ordinary
Czapliniecka 93/95, 97
-
400, Belchatow, Poland
Megamed Sp. z.o.o.
PLN1,000.00 Ordinary
Goszczyńskiego 1 St
reet, 02
-
616, Warsaw, Poland
Platinum Hospitals S.A.
PLN4.00 Ordinary
-
A, PLN4.00 Ordinary
-B, PLN4.00
Ordinary
-
C, PLN4.00 Ordinary
-
D, PLN4.00 Ordinary
-
E
Szpital sw. Elzbiety
-
Mokotowskie Centrum Medyczne Sp. z.o.o.
PLN50.00 Ordinary
Kuznicka 1 St
reet, 72
-
010, Police,
Poland
Medika Uslugi Medyczne Sp. z.o.o.
PLN50.00 Ordinary
Partyzantow 76, 80
-
254, Gdansk, Poland
Projekt Usmiech Bis Sp. z.o.o.
PLN500.00 Ordinary
Podleśna 61, 01
-
673, Warszawa, Poland
Centrum Medyczne Mavit Sp. z.o.o.
PLN100.00 Ordinary
Pory 78 Street, 02
-
757 Warsaw, PolandPory 78 Sp. z.o.o.
PLN100.00 Ordinary
Sport Medica S.A.
PLN1.00 Ordinary
-
A, PLN1.00 Ordinary
-B, PLN1.00
Ordinary
-
C, PLN1.00 Ordinary
-
D, PLN1.00 Ordinary
-
E,
PLN1.00 Ordinary
-
F, PLN1.00 Ordi
-nary
G, PLN1.00
Ordinary
-
I, PLN1.00 Ordinary
-J
Pulawska 48, 05
-
500 Piaseczno, Poland
Silver Dental Clinic Sp.
z.o.o.
PLN50.00 Ordinary
Rowninna 6 Street
, 87
100 Torun, Poland-
Citomed Sp. z.o.o. Sp. k.
Partnership Interest
Szamocka 6 Street, 01
-
748, Warsaw, PolandLux Med Onkologia Sp. z.o.o.
PLN50.00 Ordinary
ul. Elblaska 135, 80
-
718,
Gdansk, Poland
Centrum Opieki Medycznej Comed Sp. z.o.o.
PLN500.00 Ordinary
1
0.03% held directly by the Company
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
131
Name of Undertaking
Share Class
ul. Postepu 21 C Street
, 02
-
676, Warsaw, PolandElblaska Sp. z.o.o.
PLN50.00 Ordinary
LUX MED Foundation Dr. Joanny
Perkowicz
Founder Contribution
LUX MED Sp. z.o.o.
PLN500.00 Ordinary
LUX
-
MED Investment S.A.
PLN50.00 Series A, PLN50.00 Series B, PLN50.00
Series C
ul. Stefana Batorego 17/19, 87
-
100 Torun, Poland
Tomograf Sp. z.o.o.
PLN500.00 Ordinary
Wladyslawa Broniewskiego 3, 01
-
785, Warszawa, Poland
Klinika Optimum Sp. z.o.o.
PLN50.00 Ordinary
Zygmunta Slominskiego, 5/U05 Street, Warsaw, Poland
Smi
le Design Clinic Sp. z.o.o.
PLN100.00 Ordinary
Saint Kitts
and Nevis
Amory Building, Victoria Road, Basseterre, St. Kitts, Saint Kitts and Nevis
Amedex Services Ltd.
US$1.00 Capital Stock
Singapore
600, North Bridge Road, #05
-
01 Parkview S
quare, 188778, Singapore
Bupa Singapore Holdings Pte Ltd
SGD Ordinary
Spain
Avda Marcelo Celayeta, 144
-
Pamplona (31014), Spain
Sanitas Mayores Navarra S.L.
€60.10 Ordinary
Avenida Generalitat Valenciana no 50, Valencia, Spain
Especializa
da y Primaria L'Horta
-
Manises, S.A.U.
€1.00 Ordinary
c/ Eguskiaguirre no.8, 48902, Baracaldo, Bilbao, Spain
Sanitas Mayores Pais Vasco S.A.
€120.00 Ordinary
Calle Ribera Del Loira, 52, 28042, Madrid, Spain
Elegimosalud S.L.U
€1.00 Ordinary
Grupo Bupa Sanitas S.L.U.
€100.00 Ordinary
Sanitas Emision S.L.U.
€1.00 Ordinary
Sanitas Holding, S.L.U.
€1.00 Ordinary
Sanitas Mayores S.L.
€651.28 Ordinary
Sanitas Nuevos Negocios S.L.U.
€1.00 Ordinary
Sanitas S.L. de Diversificacion S.U
.
€6.02 Ordinary
Sanitas, S.A. de Hospitales S.U.
€6.01 Ordinary
Sweden
Box 27093, 102 51, Stockholm, Sweden
LMG Forsakrings AB
€1,000.00 Ordinary
Turkey
Küçükbakkalköy Mah. Basar Sok, No: 20 Atasehir, Istanbul, 34750, Turkey
Acibadem
Grubu Sigorta Aracilik Hizmetleri A.S.
TRY1.00 Ordinary
Bupa Acibadem Sigorta A.S.
TRY1.00 Ordinary
United Arab Emirates
Unit C1204, Level 12, Burj Daman, DIFC, PO Box 507019, Dubai, United Arab Emirates
Bupa Global Middle East (DIFC) Limited
US$1.00 Ordinary
United Kingdom
1 Angel Court, London, EC2R 7HJ, United Kingdom
£0.01 Ordinary
£0.10 Ordinary
£1.00 Ordinary
£0.50 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary, £1.00 Special Share
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.25 Ordinary
€0.000001 Redeemable Preference, £1.00 Ordinary
ANS
20
03 L
imited1
ANS
Li
mitedBede Limited
V
illage M
anagementBelmont
C
are Limited1
Bridg Investments
e
Health Li
mited1
Bupa Care Homes (AKW) Limited
Bupa Care Homes (ANS) Limited
Bupa Care (Bedfordshire) Limited
H
omesBupa Care Homes (BNH) Limited
Bupa Care Homes (CFCHomes) Limited
Bupa Care Homes (CFG) plc
1
Bupa Care Homes
(CFHCare)
Li
mitedBupa Care Homes (Developments) Limited
£1.00 Ordinary
1
Held directly by the Company
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
132
Name of Undertaking
Share Class
£1.00 Ordinary
£1.
00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.20 Ordinary
Guarantee Membership Interest
€1.00
Ordinary, €0.01 Ordinary, £1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
AUD1.00 Redeemable Preference, CLP1.00
Redeemable Preference, £1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.01 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
-
A
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary, £1.00 Redeemable Preference
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordina
ry
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Bupa Care Homes (GL) Limited
Bupa Care Homes (HH Bradford) Limited
Bupa Care Homes (HH Hull) Limited
Bupa Care Homes (HH Leeds) Limited
Bupa Care Homes (HH Northumberland) Limite
d
Bupa Care Homes (HH Scunthorpe) Limited
Bupa Care Homes (HH) Limited
Bupa Care Homes
(Holdings)
L
imited1
Bupa Care Homes (Partnerships) Limited
Bupa Care Homes (PT Lindsay Prop) Limited
Bupa
Care Homes (PT Lindsay) Limite
d
Bupa Care Homes (PT Links Prop) Limited
Bupa Care Homes (PT Links) Limited
Bupa Care Homes (PT) Limited
Bupa Care Homes Investments
(Holdings)
L
imited
1
Bupa Care Services (Commissioning) Limited
Bupa Care
S
ervices Li
mited1
Bupa Foundation
Bupa Holdings
G
lobal L
imited Bupa Health at Work Limited
Bupa Healthcare
S
ervices L
imited1
Bupa
H
ome
Healthcare
Pension Scheme Trustee Limited
1
Bupa Insurance Limited
1
Bupa Insurance Services Limited
1
Bupa International M
arkets
L
imited Bupa Investments Limited
1
Bupa Investments Overseas Limited
1
Bupa
L
imited Bupa Health
O
ccupational L
imited Bupa Limited
P
ension S
cheme T
rustees1
Bupa
S
ecretaries L
imited Bupa
Trustees
L
imited Bupa Wellness Group Limited
1
Calverguild
L
imited Cromwell Hospital Retirement Plan Trustee Limited
1
Ebbgate Nursing
H
omes (
London) L
imited Ebbgate Nursing
H
omes L
imited Healt
h
Dialog UK Limited
Occupational
H
ealth Care
Limited Per
sonal Effectiveness Centre Limited
Richmond Care Villages
(
Property) L
imited Richmond Car
e
Villages
H
oldings L
imited1
Richmond Coventry Limited
Richmond
L
etcombe Limited Richmond Nantwich Developments
L
imited Richmond
Nantwich Limited
Richmond Nantwich Properties
Li
mited Richmond Northampton Limited
Ric
hmon Management
d
Northampton Li
mited Richmond Painswick Management Company Limited
Richmond Villages Operations Limited
Watertight Investments Limited
£1.00 Ordinary
13 Queens Road, Aberdeen, Abe
rdeenshire, AB15 4YL, United Kingdom
Hillington Park Dental Practice Limited
£1.00 Ordinary
Martin and Martin Dental Care Limited
£1.00 Ordinary
MFM Community Limited
£1.00 Ordinary
Partick Dental Ltd.
£0.01 Ordinary
39 Victoria Road, Glasg
ow, G78 1NQ
Bupa Care Homes (Carrick) Limited
£1.00 Ordinary
Bupa Dental Care, Vantage Office Park, Old Gloucester Road, Hambrook, Bristol, BS16 1GW, United Kingdom
A4 Health Group Limited
£1.00 Ordinary
Aesthetic Dental Laboratory Limited
£1.00
Ordinary
Apex Dental Care Limited
£1.00 Ordinary
Archway Dental Practice Limited
£1.00 Ordinary
Arnica Dental Care Limited
£1.00 Ordinary
Avsan Cove Limited
£1.00 Ordinary
Avsan Dental Edinburgh Limited
£1.00 Ordinary
Avsan Ferryburn Lim
ited
£1.00 Ordinary
1
Held directly by the Company
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
133
Name of Undertaking
Share Class
Avsan Fife Limited
£1.00 Ordinary
Avsan Fleet Limited
£1.00 Ordinary
Avsan Gloucester Limited
£1.00 Ordinary
Avsan Halstead Limited
£1.00 Ordinary
Avsan Knebworth Limited
£1.00 Ordi
nary
Avsan Kseat
Limited
£1.00 Ordinary
Avsan Queenscross Limited
£1.00 Ordinary
Avsan Queensroad Limited
£1.00 Ordinary
Avsan Visage Limited
£1.00 Ordinary
B Dental Limited
£1.00 Ordinary
BASDAC (2011) LLP
Partnership Interest
BE White
Ltd
£1.00 Ordinary
Bupa Dental Services Limited
£1.00 Ordinary
Caring Dentistry Ltd
£1.00 Ordinary
Cheshire Cat Orthodontics Limited
£1.00 Ordinary
Clock Tower Dental Care Limited
£1.00 Ordinary
Colchester Dental Referral Centre Limited
£1.0
0 Ordinary
Croft Dental Care Limited
£1.00 Ordinary
Den Dental Group Practice LLP
Partnership Interest
Dencraft (Leicester) Ltd
£1.00 Ordinary
Dencraft (South Yorkshire) Limited
£1.00 Ordinary
Dental Confidence Limited
£1.00 Ordinary
Dental
Excellence -
Harewood Practice LLP
Partnership Interest
Dentalign Colwyn Bay Ltd
£1.00 Ordinary
Dentalign Eastbourne Ltd
£1.00 Ordinary
Dentalign Orthodontics Limited
£1.00 Ordinary
Dentalign Orthodontics LLP
Partnership Interest
Dentalign Wrex
ham Ltd
£1.00 Ordinary
Derwent House Orthodontics Limited
£1.00 A Ordinary
Devon Smiles Limited
£1.00 Ordinary
Deysbrook Dental Surgery Limited
£1.00 Ordinary
Diamond House Dental Practice Limited
£1.00 Ordinary
Eckington Dental Practice Lim
ited
£1.00 Ordinary
Eurodontic Limited
£1.00 Ordinary
Fairfield Dental Surgery Limited
£1.00 Ordinary
Freshdental Practice Limited
£1.00 Ordinary
Future Drilling Limited
£1.00 Ordinary
G & M Moynes Ltd
£1.00 Ordinary
Goodteeth Dental Surg
eries Limited
£1.00 Ordinary
Grosvenor Orthodontic Clinic (Beckenham) Limited
£1.00 Ordinary
Harbour Way Surgery Limited
£1.00 A Ordinary
Haven Green Clinic Limited
£1.00 Ordinary
Highland Dental Care Limited
£1.00 Ordinary
Highwoods and St
Johns Limited
£1.00 Ordinary
Highworth Dental Care Limited
£1.00 Ordinary
Hope Dental Practice Limited
£1.00 Ordinary, £1.00 Ordinary B
Hospital Lane Dental Clinic L
imited
£1.00 Ordinary
Iosis Clinic Limited
£1.00 Ordinary
J & M Dental Care
Ltd
£1.00 Ordinary
J A Jordan & Associates Limited
£1.00 Ordinary
J.J. Thompson (Orthodontic Appliances) Limited
£1.00 Ordinary
James Taylor and Partners
Limited
£1.00 Ordinary
JDH Holdings Limited
£0.10 Ordinary
Kidson Orthodontics Limited
£1.00 Ordinary
King Lane Dental Care Limited
£1.00 Ordinary
KN Wellness Ltd
£1.00 Ordinary
Lab 53 Limited
£1.00 Ordinary
Lawrence Street Dental
Practice Limited
£1.00 Ordinary
Linden Dental Centre Limited
£1.00 Ordinary
Luke Barnett Clin
ic Limited
£1.00 Ordinary
Luke Barnett Limited
£1.00 Ordinary
Mainestream Dental Care Limited
£1.00 Ordinary
Mark Fazakerley (VHO) Limited
£1.00 Ordinary
MCM (Dental Services) Limited
£1.00 Ordinary
MDANZ Holdings Limited
£1.00 Ordinary
M
DANZ Limited
£1.00 Ordinary
Metrodental Limited
£1.00 Ordinary
Milehouse Dental Care Limited
£1.00 Ordinary
Mojo
-
D Limited
£1.00 Ordinary
MZINC Limited
£0.01 Ordinary
Nigel Reynolds Limited
£1.00 Ordinary
NM Jones Ltd
£1.00 Ordinary
No
rth Devon Orthodontic Centre Limited
£1.00 Ordinary
North Lakeland Ltd
£1.00 Ordinary
Oasis Dental Care (Central)
Limited
£1.00 Ordinary
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
134
Name of Undertaking
Share Class
Oasis Dental Care (Southern) Holdings Limited
£0.10 B Ordinary, £1.00 Ordinary A, £1.00 Ordinary B,
£0.10 Ordinary C, £0.10 Ordinary D, £0.10 Ordinary E
Oasis Dental Care (Southern) Limited
£1.00 Ordinary
Oasis Dental Care Limited
£1.00 Ordinary
Oasis Healthcare Limited
£0.01 Ordinary
Oral Implantology Limited
£1.00
Ordinary
Ortho 2008 Limited
£1.00 Ordinary
Orthoscene Limited
£1.00 Ordinary
Oswestry Dental Laboratory Limited
£1.00 Ordinary
Peter Baldwin (VHO) Limited
£1.00 Ordinary
Priors Croft
Dental Practice Limited
£1.00 Ordinary
Private Dental
Services Ltd
£1.00 Ordinary
Quantum Ortho Limited
£1.00 Ordinary
Quest Dental Care LLP
Partnership Interest
Raglan Suite Limited
£1.00 Ordinary
Ratcliffe Dental Limited
£1.00 Ordinary
Richley Dental Ceramics Limited
£1.00 Ordinary
Rise Park Dental Practice Limited
£0.10 Ordinary A, £0.10 Ordinary B
Roberts
-
Harry Clinic Ltd
£1.00 Ordinary
Shaw & Associates Dental Surgeons Ltd
£1.00 Ordinary
Silverwell Surgery Ltd
£1.00 Ordinary
Siobhan Owen Limited
£1.00 Ordinary
Smile Dental C
are Ltd
£1.00 Ordinary
Smile Lincs Limited
£1.00 Ordinary
Steeple Grange Smiles Limited
£1.00 Ordinary
Stob Dearg Limited
£1.00 Ordinary
Stop the
Clock Dental Care Limited
£1.00 Ordinary
Synergy Ceramics Ltd
£1.00 Ordinary
TDK Dental Limit
ed
£0.50 Ordinary A
The Adams and Lee Dental Practice Ltd
£1.00 Ordinary
The Bramhope Dental Clinic Limited
£1.00 Ordinary
The Clinic Dental
Facial Limited
£1.00 Ordinary
The Dental Solutions Centre Ltd
£0.02 Ordinary
The Exeter Dental Centre Limited
£1.00 Ordinary
The Facial Aesthetics & Dental Centre Ltd
£1.00 Ordinary
The Oasis Healthcare Group Limited
1
£1.00 Ordinary
The Spire Halifax Limited
£1.00 Ordinary
The Tutbury Dental Practice Limited
£1.00 Ordinary
Tidge and Lou Li
mited
£1.00 Ordinary
Tooth Fixer Limited
£1.00 Ordinary
Total Orthodontics Limited
£1.00 Ordinary
Wessington Way Limited
£0.10 Ordinary
Whole Tooth Limited
£1.00 Ordinary
Wimborne Total Dental Care Limited
£1.00 Ordinary
Windslade Limited
£1.00 Ordinary
Winning Smiles (Gillingham) Limited
£1.00 Ordinary
Wylde Green
Orthodontics LLP
Partnership Interest
Wylye Valley Dentistry Limited
£1.00 Ordinary
Xeon Smiles UK Limited
£1.00 Ordinary
Cromwell Hospital, Cromwell Road, London, SW5 0TU
£1.00 A Ordinary
Cromwell Health
G
roup L
imited1
Medical
S
ervices I
nternational L
imited£1.00 Ordinary
Mind Your Business (Ni) Ltd, 1 Elmfield Avenue, Warrenpoint, Newry, County Down, BT34 3HQ, Northern Ireland
Belfast
Orthodontic Clinic Ltd
£1.00 Ordinary
Blueapple Dental and Implant Team Limited
£1.00 Ordinary
Cranmore Excellence in Dentistry Limited
£1.00 Ordinary
DE (Belmont Road) Ltd
£1.00 Ordinary
Fortwilliam and Ballymena Specialist Dental
Clinics Limited
£1.00 Ordinary
Smiles Dental Practices North Limited
£1.00 Ordinary
United States
17901 Old Cutler Road, Suite 400, Palmetto Bay FL 33157, United States
Bupa Insurance Company
US$1.25 Capital Stock
Bupa Inves
tment
Corporation, Inc.
US$1.00 Capital Stock
Bupa U.S. Holdings, Inc.
US$0.01 Common Stock
Bupa Worldwide Corporation
US$5.00 Capital Stock
U.S.A. Medical Services Corporation
US$5.00 Capital Stock
1
Held directly by the Company
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
135
Other Undertakings
The related undertakings listed below are not wholly owned by the Company. The proportion of the nominal value of each share class held i
ndirectly
by the Company is shown below, unless otherwise stated.
Name
Share Classes
Actual % of share class
held
Australia
Level 16, 33 Exhibition Street, Melbourne VIC 3000, Australia
Mobile Dental Pty Ltd
AUD Ordinary
49.00
Bahrain
Flat 207, Building 743, Road 831, Block 408, Sanabis, Bahrain
Bupa Middle East Holdings Two W.L.L.
BHD50.00 Ordinary
75.00
Briti
sh Virgin Islands
Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, Virgin Islands, British
Altai Investments Limited
HKD1.00 Ordinary, USD1.00
Ordinary
100.00
Chile
Anabaena N° 336,
Comuna Viña del Mar, Region Valpa
raiso, Chile
Clinica Renaca S.A.
CLP Ordinary
100.00
Desarrollo E Inversiones Medicas S.A.
CLP Ordinary
97.59
Promotora De Salud S.A.
CLP Ordinary
67.03
Sociedad Medica Imageneologia Clinica Renaca
Limitada
CLP Social Rights
80.00
Av. Matta
No 1868, Comuna Antofagasta, Region Antofagasta, Chile
Sociedad Medico Quirurgica De Antofagasta S.A.
CLP Ordinary
100.00
Cerro Colorado N° 5240, Piso 11, Comuna Las Condes, Region Metropolitana, Chile
Isapre Cruz Blanca S.A.
CLP Ordinary
99.75
Dr. Juan Noe N° 1370, Comuna Arica, Region Arica y Parinacota, Chile
Corporacion Medica de Arica S.A.
CLP Ordinary
68.97
Sociedad De Inversiones Pacasbra S.A.
CLP Ordinary
100.00
Los Militares N° 4777, Torre I, Piso 8, Comuna de Las Condes,
Region Metropolitana, Chile
Bupa Servicios de Salud SpA
CLP Ordinary
100.00
Examenes De Laboratorio S.A.
CLP Ordinary
100.00
Integramedica S.A.
CLP Ordinary
99.99
Recaumed S.A.
CLP Ordinary
58.40
Sonorad II S.A.
CLP Ordinary
100.00
Ma
nuel Antonio Matta N° 1868, Comuna Antofagasta, Region Antofagasta, Chile
Inmobiliaria Centro Medico Antofagasta S.A.
CLP Ordinary
99.99
Manuel Antonio Matta N° 1945, Comuna Antofagasta, Region Antofagasta, Chile
Centro Medico Antofagasta S.A.
CLP
Ordinary
100.00
Inversiones Clinicas Pukara S.A.
CLP Ordinary
88.95
Servicios Y Abastecimiento A Clinicas S.A.
CLP Ordinary
100.00
Sociedad De Resonancia Magnetica Del Norte S.A.
CLP Ordinary
100.00
Sociedad Instituto De Cardiologia Del Norte
Limitada
CLP Social Rights
50.00
Pedro Aguirre Piso 5, Cerda N° 843, Comuna Arica, Region Arica y
Parinacota, Chile
Centro De Diagnostico Avanzado San Jose S.A.
CLP Ordinary
100.00
Centro De Imagenes Medicas Avanzadas San Jose S.A.
CLP Ordinary
70.00
China
Suite 07
-
2, 08, 4F Fortune Financial Center, No 5 Dongsanhuan Zhong Road, Chaoyang District
, Beijing, 100020, China
Bupa Consulting (Beijing) Co. Ltd.
HKD1.00 Ordinary
100.00
Unit 03, 13/F, No.604 RenMin North Road, Yuexiu District, Guangzhou, China
Guangzhou Bupa Hospital Management Company Limited
CNY1.00 Ordinary
100.00
Unit 305A
-
305, 3/F, GT Land Autumn Plaza, No.11, 13 ZhuJiang East Road, ZhuJiang New Town, Tianhe District, Guangdong
Province, China
Guangzhou Bupa Quality HealthCare General Outpatient Department
Company Limited
CNY1.00 Ordinary
100.00
Hong Kong
18/F Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong
Bupa (Asia) Limited
HKD10.00 Ordinary
100.00
Bupa International Limited
HKD Ord
inary
99.99
Bupa Limited
HKD1.00 Ordinary
100.00
Horizon Health and Care Limited
HKD Ordinary
100.00
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
136
Name
Share Classes
Actual % of share class
held
3rd Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong
Allied
Medical Practices Guild Limited
HKD1.00 Ordinary
100.00
Alpha Medical MRI (TST) Limited
HKD10,000.00 Ordinary
65.00
Central Medical Diagnostic Centre Limited
HKD1.00 Ordinary
74.49
Central MRI Centre Limited
HKD1.00 Ordinary
100.00
Central PET/
CT Scan Centre Limited
HKD1.00 Ordinary
100.00
DB Health Services Limited
HKD1.00 Ordinary
100.00
Eplushealth Limited
HKD1.00 Ordinary
100.00
Jadeast Limited
HKD1.00 Ordinary
100.00
Jadison Investment Limited
HKD1.00 Ordinary
100.00
Jadway
I
nternational Limited
HKD1.00 Ordinary
100.00
Megafaith International Limited
HKD1.00 Ordinary
100.00
Quality Healthcare Chinese Medicine Services Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Dental Services Limited
HKD1.00 Ordinary
100.00
Quality Healthcare Group Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Medical Centre Limited
HKD100.00 Ordinary
100.00
Quality Healthcare Medical Diagnostic & Imaging Services Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Medical Servi
ces Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Nursing Agency Limited
HKD10.00 Ordinary
100.00
Quality HealthCare Physiotherapy Services Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Professional Services Limited
HKD1.00 Ordinary
100.00
Quality HealthCare Psychological Services Limited
HKD1.00 Ordinary
100.00
Room 901B
-
03A, 9th Floor, Skyline Tower, 39 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong
Quality Healthcare TPA Services Limited
HKD1.00 Ordinary
100.00
Ind
ia
C-
98 Lajpat Nagar, Part 1, New Delhi, 11002, India
Niva Bupa Health Insurance Company Limited
INR10.00 Ordinary
44.75
Macao
Rua De Xangai No. 175 Edif.,
Associacao Comercial De Macau, 11 Andar, K, Macau
Quality EAP (Macau) Limited
MOP1.0
0 Ordinary
100.00
Quality Healthcare Medical Services (Macau) Limited
MOP1.00 Ordinary
100.00
Peru
Av. Guardia Civil N° 664, Comuna San Isidro, Region
Lima, Peru
Anglolab S.A
PEN Ordinary
-
A
100.00
PEN Ordinary
-
B
50.00
MediPeru S.A.C
PE
N Ordinary
99.97
Poland
Goszczyńskiego 1, 02
-
616, Warsaw, Poland
Hifu Clinic Sp. z.o.o.
PLN50.00 Ordinary
70.16
Marszalkowska 99 A lok. 5B
Street, 00
-
693, Warsaw, Poland
Centrum Edukacyjne Medycyny Sportowej Sp. z.o.o.
PLN50.00 Ordinary
50.00
Porebskiego 9 Street, 81
-
185, Gdynia, Poland
Niepubliczny Zaklad Opieki Zdrowotnej Przychodnia Lekarska "POGORZE"
Sp. z.o.o.
PLN200.00 Ordinary
95.80
ul. Dluga 43, 05
-
510 Konstancin Jeziorna, Poland
Lux Med Tabita Sp. z.o.o.
PLN100.00
Ordinary
88.00
Wileńska, 44 Stree
t
, 80
-215, Gdańsk
Fundacja Promedicine
Founder Contribution
100.00
Swissmed Centrum
Zdrowia S.A.
PLN10.00 Ordinary
66.00
Swissmed Nieruchomosci Sp. z.o.o.
PLN500.00 Ordinary
100.00
Swissmed Opieka Sp. z.o.o.
PLN1,000.00 Ordinary
99.24
Saudi Arabia
7764, Prince Sultan Street, Al Mohammediyah district, Jeddah, Saudi
Arabia
My Clinic International Medical Company Limited
SAR100.00 Ordinary
100.00
Al
-
Khalidiyah-
Nour Al Ehsan 3538, Unit 1 Jeddah 7505
-23423, P.O. Box 23807, Jeddah, 21436, Saudi Arabia
Bupa Arabia For Cooperative Insurance Company
SAR10.00
Ordinary
43.25
Prince Sultan St, Al Mohammediyah Dist., PO Box 260, Jeddah, 21411, Saudi Arabia
Nazer Bupa Medical Equipment Company Limited
SAR1,000.00 Ordina
ry
50.00
Company Primary Statements and Associated Notes
for the y
ear ended 31 December 20
21
137
Name
Share Classes
Actual % of share class
held
Spain
Calle Ribera Del Loira, 52, 28042, Madrid, Spain
Fundacion Sanitas
1
€1.00 Contribution
100.00
Sanitas S.A. de Seguros
€0.68 Ordinary
99.91
United Kingdom
1 Angel Court, London, EC2R 7HJ, United Kingdom
Fulford Grange Medical Centre
Limited
£1.00 'A' Ordinary
100.00
4th Floor, 167 Fleet Street, London, EC4A 2EA
Healthbox Europe 1 LP
Partnership Interest
37.
04
Swan Court, Waterman's Business
Park, Kingsbury Crescent, Staines, Surrey, England, TW18 3BA, United
Kingdom
Healthcode Limited
2
£1.00 A Ordinary
100.00
£1.00 E Ordinary
20.00
Wilson House Waterberry Drive, Waterlooville, Hampshire, PO7 7XX, United Kingdom
London Oncology and Wellbeing Centre Limited
£1.00 B Shares
100.00
£1.00
Ordinary
17.91
United States
933 First Avenue, King of Prussia PA 19406, United States
Highway to Health, Inc
US$0.01 Ordinary
49.00
HTH Re, Ltd
US$1.00 Ordinary
100.00
HTH Worldwide, LLC
U
S$1.00 Ordinary
100.00
Worldwide Insurance
Services, LLC
US$1.00 Ordinary
100.00
1
The Sanitas Foundation
2
Held directly by the Company
138
Five-year financial s
ummary
(unaudited)
The five-year financial summary is presented to better understand trends.
2021
£m
2020
(restated)
1
,2
£m
2019
(restated)
1
£m
2018
(restated)
1
£m
2017
(restated)
1
£m
Revenue
–
segmental analysis
Bupa Asia Pacific (restated)
1
,2
5,498
5,249
5,136
5,069
5,326
Europe and Latin America
4,004
3,765
3,853
3,499
3,346
Bupa
Global and U
nited Kingdom
3,396
3,122
3,323
3,288
3,537
Other
b
(restated)usinesses
2
5
6
4
4
41
Net reclassifications to other expenses or financial income
and expenses
-
-
-
(1)
(1)
Consolidated total revenues
12,903
12,142
12,316
11,859
12,249
Claims and expenses
Operating expenses (including claims)
(12,296)
(11,532
)
(11,733)
(11,112)
(11,399)
Impairment of goodwill
(6)
-
(422)
(35)
(1)
Impairment of other intangible assets arising on business
combinations
(21)
(18)
(21)
(4)
(16)
Other income and charges
49
1
(42)
(53)
(99)
Total claims and expenses
(12,274)
(11,549
)
(12,218)
(11,204)
(11,515)
Profit before financial income and expense
629
5
93
98
655
734
Net financial expense
(restated)
2
(92)
(
105
) (63)
(41)
(8)
Profit before tax
ation
expense
537
488
35
614
726
Taxation expense
(restated)
2
(99)
(11
2)
(154)
(211)
(155)
Profit/(loss) for the year
438
3
76
(119)
403
571
Attributable to:
Shareholder of Bupa Finance plc
435
3
74
(121)
397
567
Non
-
controlling interests
3
2
2
6
4
Profit/(loss) for the year
438
3
76
(119)
403
571
Equity
Share capital
200
200
200
200
200
Property revaluation reserve
6
55
699
692
700
796
Income and expen
diture
reserve
(restated)
2
5,884
5,498
5,310
5,640
5,221
Cash flow hedge reserve
-
21
21
20
22
Foreign exchange translation reserve
(restated)
2
(13)
26
3
237
464
558
Equity attributable to shareholder of Bupa Finance plc
6,726
6,681
6,460
7,024
6,797
Restricted Tier 1 notes
297
-
-
-
-
N
on
-controlling interests
17
18
17
20
30
Total equity
7,040
6,699
6,477
7,044
6,827
1.
Revenues have been restated to report Bupa Hong Kong as part of the Bupa Asia Pacific Market Unit following the updated organisational structure
implemented
during 2021.
2.
Refer to
n
ote 1.
5 for details of the restatements
.
Disclaimer: Cautionary statement concerning forward
-
looking statements Bupa undertakes no obligation to update the forward looking statements in this report or any other forward
-
looking statements we may make. For
ward
looking statements in this report are current only as of the date on which such statements are made. This report has -
been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, its directors, employees, agents or advisers do not accept
or assume responsibility to any other person to who this document is shown or into whose hands it may come, and any such resp
onsibility or liability is expressly disclaimed.
Neither the content of Bupa’s website nor the content of any other website accessible from hyperlinks on Bupa’s website is incorporated into, or forms part of, this document.