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Solvency and Financial Condition Report

Bupa Insurance Limited31 December 2016

Bupa Insurance Limited Solvency and Financial Condition Report 2016

Contents

Summary ................................................................................................................................................. 3

A. Business and Performance................................................................................................................. 7

A.1 Business ........................................................................................................................................ 7

A.2 Underwriting performance ............................................................................................................. 9

A.3 Investment performance .............................................................................................................. 10

A.4 Performance from other activities ................................................................................................ 11

A.5 Any other information .................................................................................................................. 11

B. System of Governance ..................................................................................................................... 12

B.1 General information on the system of governance ...................................................................... 12

B.2 Fit and proper requirements ........................................................................................................ 14

B.3 Risk management system including Own Risk and Solvency Assessment ................................ 15

B.4 Internal control system ................................................................................................................ 18

B.5 Internal audit function .................................................................................................................. 18

B.6 Actuarial function ......................................................................................................................... 19

B.7 Outsourcing ................................................................................................................................. 19

B.8 Any other information .................................................................................................................. 20

C. Risk Profile ....................................................................................................................................... 21

C.1 Underwriting risk .......................................................................................................................... 21

C.2 Market risk ................................................................................................................................... 22

C.3 Credit risk .................................................................................................................................... 24

C.4 Liquidity risk ................................................................................................................................. 24

C.5 Operational risk ........................................................................................................................... 24

C.6 Other material risks ..................................................................................................................... 25

C.7 Any other information .................................................................................................................. 25

D. Valuation for Solvency Purposes ..................................................................................................... 27

D.1 Assets .......................................................................................................................................... 28

D.2 Technical provisions .................................................................................................................... 30

D.3 Other liabilities ............................................................................................................................. 33

D.4 Alternative methods for valuation ................................................................................................ 35

D.5 Any other information .................................................................................................................. 35

E. Capital Management ......................................................................................................................... 36

E.1 Own Funds .................................................................................................................................. 36

E.2 Solvency Capital Requirement and Minimum Capital Requirement ........................................... 38

E.3 Use of the duration-based equity risk sub-module in the calculation of the SCR ....................... 39

E.4 Differences between the standard formula and any internal model used ................................... 39

E.5 Non-compliance with the Minimum Capital Requirement and Solvency Capital Requirement ... 39

E.6 Any other information .................................................................................................................. 39

Directors’ responsibility statement ........................................................................................................ 40

Independent auditor’s opinion ............................................................................................................... 41

Glossary ................................................................................................................................................ 44

Annex - Reporting templates ................................................................................................................ 45

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Summary (Unaudited)

BUSINESS AND PERFORMANCE SUMMARY

Bupa Insurance Limited (BINS or “the Company”) is part of the Bupa Group (“the Group”). The ultimate parent

undertaking of the Company is The British United Provident Association Limited (“Bupa”).

Bupa’s status, as a company limited by guarantee with no shareholders, enables the Group to make customers its

absolute focus. This means the Group can reinvest its profits to provide more and better healthcare for current

and future customers.

As a service organisation, everything Bupa does for its customers relies on its people and partners, so being a

place where people love to work is critical to its success. Bupa employs 86,000 people principally in the UK,

Australia, Spain, Hong Kong, Poland, New Zealand, Chile, Brazil, Thailand, China, Saudi Arabia, India and the

U.S.

Around 70% of Bupa’s revenue is from health insurance, with the rest from health and care provision. Bupa funds

healthcare around the world and runs clinics, dental centres, hospitals, care homes and retirement villages in a

number of countries.

Bupa’s refreshed strategic framework is driving the next phase of the Group’s development in today’s digital age.

It has three core elements – Customers, People and Performance – underpinned by three operating principles,

with Bupa’s purpose and values guiding everything it does.

Bupa’s refreshed strategic framework:

BINS is Bupa’s UK short-term health, dental and travel insurance underwriter and reinsurer through which the

domestic UK Private Medical Insurance (UK PMI) and International Private Medical Insurance (IPMI) businesses

write insurance contracts.

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BINS strategic focus is to deliver great customer outcomes and long-term profitable growth. Our priorities include:

Customer experience, delivering great value and care.

Strengthened risk and compliance management.

Health risk management, assuring quality and supporting customer affordability.

Customer growth and retention, meeting the needs of different customer segments across our domestic UK

PMI and global IPMI markets.

Continued focus on operational efficiency ensuring value for money for all of our customers.

BINS is authorised by the Prudential Regulation Authority (PRA) and regulated by both the Financial Conduct

Authority (FCA) and the PRA.

SYSTEM OF GOVERNANCE SUMMARY

The Company recognises the importance of strong corporate governance and has established a well-defined

governance framework, system of control and committee structure.

BINS and Bupa Insurance Services Limited (BISL) are collectively known as the Regulated Entities. BISL is a

fellow Group company which provides operational services to BINS, including the provision of insurance

mediation and administrative services. The BINS and BISL Boards, collectively known as the Regulated Entities

Board (“the Board”), operate within the agreed strategy, risk appetite and policies of the Bupa Board.

The Regulated Entities Board Committee structure is as follows:

The Company employs a ‘three lines of defence’ governance model to ensure that risk management is effective,

appropriate decisions are made and best practice is implemented and maintained. Broadly the responsibility of

the three lines is as follows:

First line: business management is responsible for the identification and assessment of risks and controls, as

well as for developing and implementing mitigation plans where necessary.

Second line: risk functions provide support and challenge the completeness and accuracy of risk

assessments and the adequacy of mitigation plans.

Third line: internal audit provides independent and objective assurance on the robustness of the risk

management framework, and the appropriateness and effectiveness of internal controls.

RISK PROFILE SUMMARY

The Company’s principal activity is the provision and administration of domestic and international health insurance

providing cover to 2.9 million customers worldwide.

The Company’s product range covers a range of benefit choices and is available in the consumer, small and

medium enterprise (SME) and corporate markets.

Economic ‘Solvency capital’ is held to ensure that the Company can meet its obligations to policyholders as they

fall due in all but the most extreme circumstances, with the likelihood that it will be insufficient no more than once

every 200 years. The Solvency Capital Requirement (SCR) is calculated in accordance with the standard formula

specified in the Solvency II legislation. The Company has obtained approval from the PRA to substitute the

insurance premium risk parameter used in the standard formula with an undertaking specific parameter (USP)

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which reflects the Company’s own loss experience. The following charts show the composition of the Company’s

diversified SCR at 31 December 2016 and 31 December 2015:

The SCR profile of the Company has not changed materially over the past 12 months. Underwriting risk

represents the biggest risk to the Company, followed by operational risk.

Underwriting risk refers to the risk that premiums earned are not adequate to cover claims, expenses and profit

margin. It includes the risk that technical provisions for claims incurred prove to be insufficient in the light of later

events and claims experience. This risk is managed by a number of approaches including the regular review of

premium tariffs, effective claims risk management and the ongoing review of claims patterns.

Operational risk is the risk of loss arising from inadequate or failed internal processes, or from personnel, systems

or external events. Maintenance of robust internal control processes and governance frameworks, the approval of

risk policies, and the regular assessment of compliance help mitigate operational risk.

Market risk is the risk of adverse movements in the fair values of financial instruments, arising from fluctuations in

interest rates, foreign exchange rates, commodity prices, credit spreads and equity prices. The focus of the

Company’s long-term financial strategy is to facilitate growth without undue balance sheet risk. The majority of its

cash and investments are held with highly rated credit institutions.

VALUATION FOR SOLVENCY PURPOSES SUMMARY

Solvency II requires an economic market consistent approach to the valuation of assets and liabilities. A number

of assets and liabilities require different valuation methods to those used in the financial statements prepared

under UK Generally Accepted Accounting Practice (UK GAAP). The valuation differences are summarised as

follows:

2016 £m

2015 £m

UK GAAP equity attributable to shareholders 210 512

Valuation differences:

Assets 1 2

Technical provisions 121 124

Deferred tax liabilities (21) (23)

Subordinated liabilities (48) (46)

Solvency II excess of assets over liabilities 263 569

Section D includes information on the valuation basis adopted for each class of assets and liabilities and also

provides an explanation of valuation differences arising when moving from the valuation basis used in the

Company’s financial statements to the Solvency II valuation basis.

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CAPITAL MANAGEMENT SUMMARY

The Company’s capital management objective is to maintain sufficient capital to safeguard the Company’s ability

to continue as a going concern and to protect the interests of all of its customers, investors, regulators and trading

partners while also efficiently deploying capital and managing risk to sustain ongoing business development.

The Company has issued a £330m callable subordinated perpetual loan. This loan is accounted for as a liability in

the UK GAAP financial statements but, to the extent that it is eligible, is treated as solvency capital for regulatory

and management purposes.

The Company manages its capital resources in line with the Group's Capital Management Policy and the

Company’s risk appetite. As part of its capital management, during June 2016 the Company carried out a share

capital reduction to support a £200m dividend payment to Bupa Finance Plc, which followed the repayment of a

£200m loan to the Company by Bupa Finance Plc.

The SCR coverage ratio at 31 December 2016 was 160%.

Solvency II capital position 2016

£m 2015

£m

Eligible Own Funds 433 761

SCR 271 252

Surplus 162 509

Solvency ratio 160% 302%

The decrease in coverage during the year reflects the Company’s deliberate actions to improve balance sheet

efficiency, including eliminating the loan to Bupa Finance Plc.

The Company has maintained sufficient capital to exceed both the SCR and the Minimum Capital Requirement

(MCR) throughout the reporting period. Information on the SCR and the MCR is provided in section E.2: Solvency

Capital Requirement and Minimum Capital Requirement.

The Company’s capital position is kept under constant review and is reported monthly to the Board.

OTHER INFORMATION

In line with PRA requirements, sections D. Valuation for Solvency Purposes and E. Capital Management of the

SFCR have been subject to audit by the external auditor. Sections A. Business and Performance, B. System of

Governance and C. Risk Profile are unaudited.

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A. Business and Performance (Unaudited)

A.1 Business

A.1.1 Company information

The Company is incorporated in England and Wales under the company registration number 3956433. The

Company is a wholly owned subsidiary of Bupa Finance Plc, a company incorporated in England and Wales.

The ultimate parent undertaking of the Company is The British United Provident Association Limited (“Bupa”), a

company incorporated in England and Wales. Bupa is the parent company of the Bupa group of companies. Bupa

does not have shareholders. Governance over Bupa is exercised by approximately one hundred Association

Members who vote at an Annual General Meeting on director reappointments and adoption of the financial

statements. These Association Members are not entitled to any of the assets or income of Bupa. No individual

has 10% or more voting rights or any other mechanism of control of Bupa.

The Group supervisor is the PRA, Bank of England, 20 Moorgate, London, EC2R 6DA.

The Group supervisor is also the supervisor for the Company.

The Company’s external auditor is KPMG LLP, Chartered Accountants, 15 Canada Square, London, E14 5GL.

The Company’s Annual Report and Accounts, Bupa’s Annual Report and Accounts and Bupa’s Solvency and

Financial Condition Report (SFCR) are available on the Bupa website: bupa.com.

A.1.2 Business

The Company is the UK’s largest health insurer and a leading provider of international health insurance providing

medical cover to 2.9 million customers worldwide. It is wholly owned by the Bupa Group, an international

customer-focused health and care group employing 86,000 people, providing health insurance and running

clinics, dental centres, hospitals, care homes and retirement villages in a number of countries.

Bupa’s purpose is to help people live longer, healthier, happier lives. Bupa’s status, as a company limited by

guarantee with no shareholders, enables us to make our customers our absolute focus, reinvesting our profits to

provide more and better healthcare for current and future customers.

The Company is wholly driven by Bupa’s purpose. It provides consumer, SME and corporate health insurance, as

well as inward reinsurance and a small number of ancillary health insurance products, such as cash plans and

travel insurance.

The Company has two main segments:

UK PMI providing domestic health insurance in the UK market.

IPMI providing individual consumers and employees with international cover.

The principal operations take place in the UK, with further operations sited in Denmark, Cyprus, Malta and

Switzerland. Products underwritten by IPMI are sold in several markets including the United Arab Emirates, Hong

Kong, Singapore and Mexico. The Company reinsures part of its IPMI book of business with Bupa Insurance

Company, a fellow Group company. There are no material reinsurance arrangements external to the Bupa Group.

Operational services, including the provision of insurance mediation and administrative services, are provided by

BISL.

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A.1.3 Legal structure

The simplified chart below shows the position of BINS and BISL in the Group’s legal structure.

*BINS is the majority shareholder in Bupa Insurance (Bolivia) S.A (“Bupa Bolivia”), with the remaining shares being owned by

fellow Group companies. Bupa Bolivia was established in October 2008 as part of Bupa’s acquisition of IHI Denmark. As at

December 2016 Bupa Bolivia had direct written premiums of US dollar 8m per local statutory accounting rules and 3,814

members.

A.1.4 Bupa organisation structure

Bupa’s organisational structure consists of global functions at the Centre and four Market Units (Australia and

New Zealand, UK, Europe and Latin America and International Markets).

The BINS UK PMI business is distributed through and administered by the Bupa UK Insurance Business Unit

within the UK Market Unit. The BINS IPMI business is distributed through and administered by the Bupa Global

Business Unit within the International Markets Market Unit. BINS is supported by Bupa’s global functions in the

Centre, including Finance & Regulatory Reporting, Treasury and Actuarial.

A.1.5 Significant events in the year

As part of its effective capital management during June 2016 the Company reduced its share capital by £300m

and share premium by £69m transferring them to distributable reserves to support a £200m dividend payment to

Bupa Finance Plc. This followed the repayment of a £200m loan to the Company by Bupa Finance Plc.

Including the £200m described above, total dividends paid by the Company during the year amounted to £410m,

of which £61m was recognised as foreseeable as at 31 December 2015 for the purpose of calculating Own

Funds. A further dividend of £25m was approved by the Board on 28 February 2017 and is recognised as a

foreseeable dividend as at 31 December 2016.

Two branches were closed during 2016, namely Bupa Insurance Limited, French Branch and Bupa Insurance

Limited, Surcusal en España (registered in Spain).

During the year the Company announced its intention to sell a freehold property. As at 31 December 2016, the

property was reported within property, plant and equipment on the Company’s Solvency II balance sheet, valued

at £69m, pending the sale being completed during 2017.

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A.2 Underwriting performance

A.2.1 Overview

Presented below is the Company’s underwriting performance as reported in its financial statements.

Underwriting performance 2016

£m

Premiums:

Gross premiums written 2,378

Outward reinsurance premiums (106)

Premiums written, net of reinsurance 2,272

Change in the net provision for unearned premiums 5

Net insurance premiums earned 2,277

Other technical income, net of reinsurance 5

Claims:

Gross claims paid 1,728

Reinsurers’ share of claims paid (93)

Change in the net provision for claims 15

Net claims incurred 1,650

Net operating expenses 522

Total claims and expenses 2,172

Profit before investment income and expense and tax 110

The Company’s profit before investment income and tax of £110m represents a 38% decrease when compared to

the 2015 profit of £176m. The decrease is driven by an increase in the insurance agency fee recharge from BISL,

which is due to the impact of movements in foreign exchange rates on operating expenses, impairment to

intangible assets and increased governance and compliance costs as the Company strengthens its conduct

environment.

Total revenues increased by 5% in the year despite a challenging market with affordability of health insurance a

key concern for customers. In UK PMI revenue increased across both corporate and SME segments with new

business growth in the consumer segment. This was against a backdrop of a 0.5% increase in the rate of

insurance premium tax. The Company continues to work across the sector to stimulate reform in the private

health care industry and improve affordability for customers. Focus is on containing healthcare costs, particularly

those charged by private hospitals, which make up the majority of total costs.

In the IPMI segment, underlying revenue has reduced due to a fall in customer numbers following the decisions to

exit non-strategic markets and contractions in the corporate and SME business. However, the Company’s

revenue benefited from the devaluation of sterling against the US dollar leading to a slight increase in overall IPMI

revenue.

A.2.2 Underwriting performance by line of business

2016

Medical expense

£m

Assistance

£m Total

£m

Net insurance premium earned 2,233 44 2,277

Net insurance claims incurred 1,561 25 1,586

Expenses 568 15 583

Underwriting profit 104 4 108

The assistance line of business is constituted from benefits sold as part of cash plans and travel insurance.

The information by line of business is presented in accordance with the Solvency II Quantitative Reporting

Template (QRT) S.05.01.02 ‘Premiums, claims and expenses by line of business’ (refer to attached Annex). The

underwriting profit of £108m differs from the £110m profit reported in the financial statements due to minor

differences in the classification of technical expenses and revenues between the financial statements and

Solvency II reporting.

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Claims handling costs of £64m are included within expenses on the QRT, in compliance with Solvency II reporting

requirements, but are included in claims in the financial statements.

Expenses

A summary of expenses is provided below:

Operating expenses 2016

£m

Commission and other acquisition costs 145

Expenses payable to Bupa Group companies 349

Staff costs 3

Net loss on foreign exchange transactions 22

Reinsurers share of expenses (11)

Changes in deferred acquisition costs (1)

Other operating expenses 15

Net operating expenses per financial statements 522

Claims handling cost 64

Classification differences between Solvency II and the financial statements (3)

Underwriting expenses 583

A.2.3 Underwriting performance by geographical area

2016 UK £m

United Arab

Emirates £m

Hong Kong

£m Singapore

£m Denmark

£m Others

£m Total

£m

Net insurance premium earned1 1,615 154 51 34 28 395 2,277

Net insurance claims incurred 1,194 111 34 25 14 208 1,586

Expenses2 331 63 16 12 11 150 583

Underwriting profit / (loss) 90 (20) 1 (3) 3 37 108

1. Premiums earned are allocated across geographical areas on a sold-in basis.

2. Expenses include impact of foreign exchange revaluation on the statutory results.

The information is presented in accordance with the QRT S.05.02.01 ‘Premiums, claims and expenses by

country’.

A.3 Investment performance

A.3.1 Investment income

Investment income for the year was as follows:

Investment income 2016

£m

Income from Bupa Group undertakings:

Interest receivable 2

Rental income 6

Income from deposits with credit institutions 7

Realised capital gains on investments 5

Realised foreign exchange gains 8

Investment income as reported in the Company’s profit and loss account 28

Unrealised gains on investments 46

Realised foreign exchange losses as reported in investment expenses (26)

Total investment income 48

A large proportion of the Company’s investments are in cash or cash-like instruments. The Company has also

invested in a limited portfolio of non-cash assets (return seeking asset portfolio), principally bonds, properties,

loans, collective investment undertakings and segregated funds. Hedging instruments were used to manage the

foreign exchange risks from non-sterling investments.

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Investment income by Solvency II asset class is presented in the table below.

Investment income by asset class 2016

£m

Government bonds 10

Corporate bonds 18

Collective investment undertakings 3

Cash and deposits 18

Mortgages and loans 14

Property 5

Hedging instruments (20)

Total investment income 48

A.3.2 Investment expenses

Investment expenses in the year amounted to £1m, covering investment management fees and other costs

relating to investment related activities.

A.3.3 Gains/losses recognised directly in equity

For the year ended 31 December 2016, there were no material gains or losses reported directly in equity.

A.4 Performance from other activities

Financial expense

Interest on borrowings in the year amounted to £23m, comprising £21m payable to Bupa Finance Plc in respect of

the subordinated liabilities which are classified as Own Funds for Solvency II purposes and other interest payable

of £2m.

Leasing arrangements

BINS leases part of an owned office building to other entities in the Group. Rental income of £6m was received by

BINS during 2016 and is included in investment income in the Company’s income statement. During the year the

company announced its intention to sell the property which provides the rental income (refer section A.1.5

Significant events in the year). There are no other material operating lease arrangements.

BINS had no finance leases during 2016.

A.5 Any other information

There is no other material information to be disclosed.

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B. System of Governance (Unaudited)

B.1 General information on the system of governance

B.1.1 Board responsibilities

The role of the Board

The Board comprises an independent Non-Executive Chairman, three other Non-Executive Directors (NEDs) and

three Executive Directors. It normally meets six times a year and at other times as required. Minutes of all Board

and Committee meetings are recorded and reflect the substance of the discussion, as well as the decisions made.

The Board closely monitors developments in corporate governance and assesses how these can be applied to

BINS. The Company’s governance arrangements continue to be reviewed in line with developments in best

practice. The Board believes the existing structure is appropriate for the size and complexity of BINS.

The Board is responsible for the oversight of the management of BINS, including:

Agreeing BINS long-term directions and objectives.

Developing and maintaining BINS business model and aligning the BINS business model with the Bupa

Group strategy, while ensuring that local regulation, legislation or market practice is also met.

Determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives

and setting the risk appetite.

Oversight of BINS operations.

Ensuring the appropriate and necessary financial and human resources are in place to meet BINS objectives.

Providing constructive challenge to the executive directors and senior management.

Ensuring the highest standards of governance are followed.

Developing BINS culture.

The role of the Chairman

The Chairman is responsible for the leadership of the Board and is pivotal in the creation of the conditions

necessary for overall Board and individual director effectiveness, both in and outside the boardroom, including:

The leadership of the Board and ensuring its effectiveness on all aspects of its role.

Ensuring effective Board governance.

Setting agendas.

Ensuring that members of the Board receive accurate, timely and clear information.

Managing the Board to ensure sufficient time is allowed for discussion of key risks and issues.

Facilitating contributions from NEDs.

Considering and addressing the development needs (induction, training and professional development) of

individual directors and the Board as a whole.

The role of the Non-Executive Directors

The role of the NEDs includes the following key elements:

Constructively challenging and helping to develop proposals on longer term direction and strategy.

Scrutinising the performance of management in meeting agreed goals and objectives and monitoring the

reporting of performance.

Satisfying themselves on the integrity of financial information, and that financial controls and systems of risk

management are robust and effective.

The role of the Chief Executive Officer

The Chief Executive Officer (CEO) manages the Regulated Entities in accordance with the business plans

approved by the Board and in accordance with the overall Bupa Group strategy and plans. The CEO leads the

setting and execution of the Regulated Entities business strategy and is accountable for:

Ensuring that the Regulated Entities remain legally solvent at all times and that customers are treated fairly.

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Ensuring that the Regulated Entities are compliant with all law and regulations affecting their businesses, their

policyholders and their staff, including fulfilling all relevant obligations as required under the Senior Insurance

Managers Regime.

Managing the Regulated Entities risk profile, in line with the extent and categories of risk identified as

acceptable by the Board.

Approving the apportionment and allocation of roles and responsibilities of the executive management team of

the Regulated Entities.

Approving all capital and revenue transactions, including acquisitions and disposals, not specifically reserved

to the Board.

Embedding BINS culture in the day to day management of BINS.

B.1.2 Board Committee responsibilities

Urgency Committee

The Urgency Committee considers routine matters in the ordinary course of business which are urgent but not

significant such that they require full Board approval.

Nomination Committee

The Nomination Committee is responsible for nominating NEDs for appointment to the Board or Board

Committees.

Risk Committee

The Regulated Entities Risk Committee (RERC) is responsible for monitoring the nature, extent and effective

management of the risks across the business.

Investment Committee

The Investment Committee is responsible for setting, monitoring and reporting investment strategy within the

parameters set by the Board.

Audit Committee

The principal role of the Regulated Entities Audit Committee (REAC) is to monitor the integrity of the financial

statements and the effectiveness of the systems of internal controls, and to monitor the effectiveness,

performance, objectivity and independence of the internal and external auditors. The Committee also reviews

regulatory reporting.

All Committee Terms of Reference state the scope of delegated responsibilities and each is reviewed annually to

ensure that each Committee fulfils its function and is aligned to BINS’ business strategy and operations. A review

of the effectiveness of the Board, the REAC and the RERC is performed annually.

B.1.3 Key functions

The Solvency II mandated key functions within the system of governance are risk management, compliance,

internal audit and the actuarial function. The roles and responsibilities of these functions are described in sections

B.3 Risk management system, B.4 Internal control system, B.5 Internal audit function and B.6 Actuarial function.

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B.1.4 Remuneration policy and practices

Bupa’s remuneration policy is designed to deliver market competitive reward to help attract, retain and motivate

high calibre employees, and promote a prudent approach to risk.

The Bupa Remuneration Committee has responsibility for setting remuneration policy, approving the design of the

annual bonus scheme, the management bonus scheme and long-term incentive plan, choosing an appropriate

balance of performance measures and setting appropriate targets and maximums for all such incentive schemes.

The Bupa Remuneration Committee has worked closely with its advisers and with management in developing

these plans and the Group’s remuneration policy, reflecting a shared agenda in how Bupa rewards future

performance, with customers and risk management at the heart of what Bupa does. The Bupa Remuneration

Committee reviews annually the ongoing appropriateness and relevance of the remuneration policy. In doing so, it

takes into account all relevant factors including regulatory requirements, the provisions and recommendations of

the UK Corporate Governance Code and associated guidance, the views of Bupa’s Association Members and

other stakeholders, the risk appetite of Bupa and input from the Bupa Risk Committee. It also takes independent

external advice. The Bupa Remuneration Committee itself comprises independent board directors. There is cross

membership between the Bupa Risk Committee and the Bupa Remuneration Committee.

In determining incentive outcomes, the Bupa Remuneration Committee considers if results have been achieved in

a way that aligns with our values, underlying business performance and approach to risk management, which

includes consideration of risk assessments summarised in annual letters from the Group Risk Committee and

from the Chair of the RERC to the Remuneration Committee. For 2017, all incentive payments are additionally

subject to a risk adjustment which allows for downward adjustments in the event of poor risk decision-making or

risk management, including any breaches of Bupa’s risk appetite.

While BINS did not have a separate remuneration committee during 2016, such a committee is currently in the

process of being established. Formal terms of reference, to be approved by the Board, will ensure that the

responsibilities of this committee are clear, including how it interacts with the Bupa Remuneration Committee.

The Company’s only employees are employed by the Danish branch. All other staff, including the Directors, are

remunerated and employed through the Company’s service company, BISL, with costs recharged to the

Company.

The Remuneration Report on pages 42 to 52 of the 2016 Bupa Annual Report includes detailed information on:

the remuneration policy of the Bupa Group, the components of remuneration and performance criteria on which

entitlements are based. BINS’ remuneration policy is consistent with the Bupa Group policy.

Remuneration in the year for the BINS Directors was as follows:

2016 2015 Directors’ remuneration £m £m

Emoluments 2 2

Amounts receivable under long-term incentive schemes 1 1

3 3

No Director had any material interest in any contracts with Group companies at 31 December 2016 (2015: £nil) or

at any time during the year.

B.2 Fit and proper requirements

BINS implements policies and procedures to ensure persons who effectively run the undertaking or have other

key functions are fit and proper to do so. Before appointment, and on an annual basis, directors and senior

managers are assessed with reference to the specific requirements of their particular role. Certain individuals

holding roles of significant influence are required to have received prior approval from the PRA and/or FCA before

they can perform their role. Individuals holding key functions are also separately notified to the PRA.

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An individual’s fitness to perform their role refers to their competence and capability including skills, knowledge

and expertise applicable. Assessments of fitness are tailored to the individual’s particular role, including the

individual’s knowledge and understanding of:

The markets in which they operate (i.e. insurance/financial services and/or care provision).

Business strategy and business model.

System of governance.

Financial and, where relevant, actuarial analysis.

Regulatory framework and requirements.

Individuals are required to maintain their fit and proper status which would include arranging for further

professional training as necessary, so that the individual is also able to meet changing or increasing requirements

of their particular responsibilities.

Appointments are subject to background screening checks, which include verification of ID, previous employment

including references and relevant qualifications; directorship searches; screening against publicly available

information such as the global watch list; disclosure and barring service check; credit checks; and adverse media

searches.

Individuals are regularly monitored to ensure that they maintain fit and proper for their role. This includes

performance management and annual screening checks.

B.3 Risk management system including Own Risk and Solvency Assessment

B.3.1 Risk management framework

Our Risks

BINS’ geographic reach exposes it to a wide range of political, legal and economic contexts. The risks to BINS are

managed by understanding the risk drivers for the business and the balance sheet and by assessing how they

interact. By understanding the risks faced, the Company seeks opportunities to benefit from risk diversification, to

identify emerging risks and to understand and manage any risk concentrations.

BINS accepts risks as part of its business operation. Some risks are avoidable (e.g. certain financial risks) and

others are an accepted consequence of BINS’ business model (e.g. operational risks). The Company has an

effective risk management system and appropriate internal controls in place to mitigate these risks.

BINS maintains significant economic capital as a mitigant against certain inherent risks, reflecting the nature of

the Company’s operations and the level of risk associated with them. The most significant are:

Risks relating to BINS insurance businesses, including the risk of inadequate pricing or underwriting of

insurance policies and the risk of claims experience being materially adversely different to expectations.

Operational risks.

There are certain risks where holding capital is one mitigating action, but there are also other more effective

methods of mitigation. These are significant risks to BINS. The RERC regularly review the residual risks arising

and the mitigating actions in place to reduce the levels of residual risk. This provides management with a view of

the areas of priorities to focus resources. These risks include customer and conduct related risks and specific

operational risks including those related to cybersecurity.

There are also other risks where capital is not an appropriate mitigant and even though they are not highlighted

above they are always a priority issue for management. These include: strategic risks, liquidity risk and

reputational risks.

Further information on BINS’ risk profile is provided at section C: Risk Profile.

Risk governance

The Company adopts a three lines of defence approach for the governance of risk management which is set out

in the Risk Management Framework.

16


The first line of defence encompasses management and staff in Bupa’s individual Business Units and at the

Centre, who are responsible for the identification and management of risks. In each Business Unit an executive

risk committee, chaired by the Business General Manager scrutinises the risk profile and generates mitigating

actions where necessary. This process culminates in the BINS CEO chairing an executive committee, the

Executive Risk Committee (RE ERC), which brings the whole picture together.

The second line of defence comprises compliance and risk management professionals both at the Centre and

within Bupa’s Business Units. The BINS Risk Function is led by the Chief Risk Officer (CRO). Their role is to

advise, challenge and oversee the first line risk management activities and to collate reports for management and

the Board on their independent views on risk issues.

The RERC is composed entirely of independent NEDs to oversee the execution of the risk management

framework. The RERC receives reports from the BINS CRO and other BINS executives as appropriate. The

RERC is accountable for the Board’s oversight and recommends risk appetite to the Board for approval.

The third line of defence is internal audit. Internal audit provides independent and objective assurance on the

robustness of the risk management framework, and the appropriateness and effectiveness of internal controls.

Information on the Company’s internal audit function is provided in section B.5.

Risk appetite

The Board risk appetite expresses the degree of risk the Company is prepared to accept as it works to deliver on

its strategy. The core risk appetite statements are focused on:

management of financial strength

the treatment of customers and employees

the sustainability of the business

operational risk.

The risk appetite statements are a key consideration in the Company’s business planning process and are a

central reference point for key decisions. These statements are not intended to automatically prevent activity

outside of BINS’ risk appetite, but rather to help identify any such instances in a timely manner so that the Board

can consider an appropriate response. There is regular reporting against risk appetite statement limits to the RE

ERC and RERC.

Risk appetite statements are reviewed on an annual basis, with the RERC recommending any changes to the

statements to the Board for approval.

Risk management framework

The Company manages risks according to a Board approved Risk Management Framework. This sets out the

principles underpinning a robust and continuous risk management system for the first line. This ensures:

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

understood.

There are clear and established risk appetites within which the Company operates.

Appropriate and effective steps are taken to mitigate and manage identified risks.

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

There is clear ownership of, and accountability for, risk.

There is a culture in which:

o appropriate risk behaviours are encouraged and rewarded

o inappropriate behaviours are challenged and sanctioned

o risk events are communicated as quickly as good news without fear of blame.

Well-established regular reporting mechanisms are in place to ensure that all relevant top risks are appropriately

identified and escalated. These processes also ensure that strategies to manage and mitigate the risks to

acceptable levels are identified and executed.

17


The BINS Enterprise Policies define the way the Company does business. The policies cover all key areas of risk

and are implemented in the Business Units, which monitor compliance against the requirements. These policies

all have designated ownership at both the Company and Business Unit levels with defined roles and

responsibilities. The policies are reviewed on an annual basis.

The processes used to identify, measure, manage, monitor and report risks include a programme of stress and

scenario testing. Specific detailed reviews and deep dives on particular risks are undertaken when considered

necessary.

The effectiveness of the implementation of the Risk Management Framework is tested through the Internal

Control and Risk Management Assessment (ICRMA). This provides a mechanism to assess how well internal

control and risk management practices and policy compliance are embedded across BINS. This is a first line of

defence self assessment, subject to review and challenge by the second and third lines. This assessment is

conducted on an annual basis and the results are presented to the RERC.

Information on the Company’s risk profile is provided at section C. Risk Profile.

Risk management function

The BINS CRO leads the BINS Risk and Compliance function and reports to the Bupa CRO on a day to day

basis. The BINS CRO provides reports directly to the RERC and the Board, and has a direct right of access to the

Chairman of the Board and the Chairman of the RERC. The CRO also attends the REAC by invitation.

The function is split across the Bupa Business Units and a Centre team. Each Business Unit has a Risk and

Compliance Director who is responsible for the operation of the function within the Business Unit. The Risk and

Compliance Directors in the UK Insurance Business Unit and the Bupa Global Business Unit each have a solid

line reporting into the BINS CRO as well as into local Business Unit management.

B.3.2 Own Risk and Solvency Assessment

BINS’ Own Risk and Solvency Assessment (ORSA) comprises the series of activities by which it assesses all the

risks inherent in its business and determines the corresponding capital needs. It therefore includes the following

activities:

The projection of Own Funds and future capital requirements as part of the three-year business plan

presented to the Board for approval annually.

The Economic Capital Assessment (ECA) in which the Company 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

BINS’ actual risk profile. The ECA is presented to the RERC for approval on an annual basis.

The annual review of risk appetite which is approved by the RERC.

Regular BINS risk profile and risk appetite reporting as part of the CRO report to the RERC.

Stress and scenario testing and reverse stress testing carried out at least annually and approved by the

RERC.

The outputs of the above activities are set out in papers and reports to the Board or relevant Board Committee

and summarised in the annual ORSA report which is approved by the Board. The conclusions of the ORSA are a

key input into the Board strategy sessions.

The process for carrying out the ORSA is reviewed following the strategy sessions to take account of decisions

made there and also to consider any other enhancements that can be made to the ORSA process. Proposed

changes to the ORSA process are considered by the RERC and then subsequently incorporated into the ORSA

Policy which is approved by the Board.

BINS determines its own solvency needs by reference to the projected Own Funds and future capital

requirements reflecting the risk profile of the Company, its policy of maintaining a substantial buffer over the

18


capital requirements, potential acquisitions and disposals which might take place over the planning horizon and

the availability of management actions.

B.4 Internal control system

B.4.1 Internal control system

In line with the three lines of defence governance model, internal controls are the responsibility of business

management. Internal controls are implemented as part of the embedding of the suite of Enterprise Policies and

also:

Promote the effectiveness and efficiency of operations.

Ensure the reliability of financial reporting.

Are designed to ensure BINS operates to industry best practice and complies with applicable laws and

regulations.

Enable the Board and RERC to validate that BINS is operating within its risk appetite.

Support the embedding of a strong risk culture throughout the business.

B.4.2 Compliance function

The Compliance function operates within the second line of defence and is concerned with financial services

legislative and regulatory requirements and expectations, including:

Customer outcome standards, e.g. customer fair treatment, training and competence.

High level controls, e.g. governance, skills and competency, systems and controls, conflicts of interest,

regulatory relationships, record keeping, complaints management, strategic risk, market conduct.

Solvency and capital (EU, UK and individual territory prudential requirements).

Regulatory processes, e.g. authorisations and licensing, individual approvals, fines and litigation, breach

management.

B.5 Internal audit function

Bupa has a Global Internal Audit function which is led by the Chief Internal Auditor (CIA). In order to maintain the

function’s independence and objectivity, the primary reporting line for the CIA is to the Chair of the Bupa Group’s

Audit Committee, who is also the Chair of the REAC. Bupa’s internal auditors have no direct operational

responsibility or authority over any of the activities audited.

The CIA has appointed a Bupa UK Market Unit & BINS Audit Director who oversees the execution of the BINS

approved audit plan. The Bupa UK Market Unit & BINS Audit Director reports to the CIA on a day to day basis;

has direct access to the Chair of the REAC as required to maximise independence and objectivity; and attends

the REAC and RERC, by invitation.

The Internal Audit function provides assurance over the effectiveness of governance, risk management and

internal controls. It reviews the effectiveness of controls by undertaking an agreed schedule of internal audits

each year. As the third line of defence, Internal Audit supports BINS in accomplishing its responsibilities by

helping the Board to safeguard the assets, reputation and sustainability of the organisation, and ensure risks to

the customer and the BINS business are appropriately managed. It reports its findings to the REAC and assists

both the Board and management to improve the effectiveness of governance, risk management and internal

controls.

Where specific skills are not available in house, the CIA and the Chair of the Committee have the ability to

procure the services of expert external advisers. During the year, PwC were appointed as Bupa’s first internal

audit co-sourcing provider.

The function acts in accordance with the Global Institute of Internal Auditors’ International standards. In addition to

a regular external assessment of the effectiveness of the function, the internal audit function maintains a quality

assurance and improvement programme that includes an evaluation of the function’s adherence to these

standards.

19


B.6 Actuarial function

BINS has implemented an Insurance Risk Policy. BINS’ actuarial function activities are conducted by qualified

actuaries in Bupa’s Centre Actuarial function, under the leadership of the Chief Actuary. The Actuarial function

has authority to review all areas of BINS and has full, free and unrestricted access to all activities, records,

property and personnel necessary to complete its work.

Key activities (including all mandatory tasks prescribed under Solvency II) are as follows:

Coordinating and consolidating UK PMI and IPMI technical provisions (for UK GAAP and Solvency II

reporting).

Assessing the appropriateness of technical provision methodology and assumptions used.

Setting methodologies and ensure consistency of use.

Ensuring that data quality and information technology systems meet the required standards.

Reporting to the RERC on the adequacy of technical provisions, the overall underwriting policy and adequacy

of reinsurance arrangements.

Contributing into risk management activities by undertaking the SCR calculation, periodic monitoring and

annual calculation of the USP for premium risk and validation of standard formula appropriateness through

development of the ECA.

Coordinating actuarial community development activity such as leading and sharing actuarial best practices,

and contributing to risk management practices.

An actuarial function report containing the Chief Actuary’s opinions, recommendations and an account of key

activities is prepared and provided to the RERC annually.

The Chief Actuary for BINS and Bupa’s Centre Actuarial team are independent of the Chief Actuaries in the

Business Units and their teams. This independence effectively eliminates any potential conflicts of interest arising

from the commercial responsibilities of Business Unit actuarial functions.

B.7 Outsourcing

BINS has implemented an Enterprise External Suppliers Policy. The purpose of this policy is to ensure that the

Company has effective processes for the selection, contracting and management of all suppliers, allowing the

risks posed by suppliers to be managed throughout the supplier relationship lifecycle. The policy is based on four

main principles; knowing our suppliers, selecting our suppliers, contracting with suppliers and managing our

suppliers. The policy applies to the suppliers of intra-group outsourcing arrangements as well as to suppliers who

are external to the Group.

All key, critical or important outsourced arrangements are required to be identified and managed with additional

rigour. The appointment of these arrangements must follow supplier selection criteria, with appropriate due

diligence and robust contracts in place following legal terms. Contingency measures must be in place and the

relationships managed by a named supplier relationship manager. The arrangements are reported to the local risk

and compliance team to assess the need for regulatory notification.

BINS chooses to outsource services where it is in the best interest of the Company, it conforms to its regulatory

standards and ensures the correct customer outcomes. BINS’ strategy is to form long-term strategic partnerships

with suppliers who share the same values, focus on customer service and have an understanding of the current

regulatory and risk landscape.

BINS continues to assess the need for outsourcing on an ongoing basis. Each outsourced activity is viewed on its

own merits against in-house capability, activity already outsourced and activity being undertaken. This allows

BINS to leverage the relevant external expertise to undertake the activity efficiently and effectively. With robust

oversight (systems & controls) this ensures the correct customer outcomes are achieved with reduced risks and

cost to serve.

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Each outsourced supplier has a named supplier relationship manager. This individual is responsible for the

oversight of the arrangement and relationships ensuring appropriate safeguards are in place, such as termination

clauses, continuity plans and agreed service levels. The relationship manager is also responsible for holding

regular meetings to manage the relationship. Comprehensive dashboards have been created to manage the

outsourced suppliers.

Intra-group outsourcing

BINS outsources insurance administration and mediation activities to BISL via an agreement for services. BISL

outsources certain of these services to third parties, including claims processing to a provider located in India.

Where it has outsourced to third parties BISL is responsible for the oversight and management of these

relationships. BISL is required to comply with the Group’s Enterprise External Suppliers Policy, which is also the

basis of the BINS policy.

BISL services all UK PMI and a large proportion of the IPMI contracts that are written by BINS. The Latin America

book of business, and the IPMI business serviced primarily in Denmark are serviced through outsourcing

arrangements with Bupa Worldwide Corporation and USA Medical Services Corporation, and Bupa Denmark

Services A/S respectively.

BINS also outsources elements of its risk management, finance and governance, compliance, internal audit,

information technology, actuarial, treasury and people functions to fellow Group companies: BISL, Bupa Finance

Plc and Bupa.

External outsourcing

BINS has chosen to outsource some of its operational functions and activities to external providers, including

investment management in the UK and customer servicing to an outsource provider in Malta.

B.8 Any other information


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C. Risk Profile (Unaudited)

General information

BINS’ risk profile is a key driver of the SCR. The distribution of the Company’s quantifiable risks, as reflected in

the SCR, is as follows:

Analysis of the SCR % of diversified SCR

2016

Underwriting risk 57%

Market risk 17%

Credit risk 4%

Operational risk 22%

100%

Information on each of the risk categories is provided in sections C.1 to C.5 below. Information is also provided on

liquidity risk in section C.4. Liquidity risk does not form part of the standard formula SCR and is therefore not

included in the above table.

Information on the calculation of the SCR is provided in section E.2 Solvency Capital Requirement and Minimum

Capital Requirement.

Risk Mitigation

As noted in section B.3.1 risks are managed according to a Board approved Risk Management Framework and

the effectiveness of our implementation of the Risk Management Framework is tested through the ICRMA.

Specific risk mitigations are identified in section C.1 to C.6 where relevant.

C.1 Underwriting risk

Underwriting risk affects future cash flows of the Company. It can be subdivided into pricing risk, claims risk and

reserving risk.

Pricing risk

Pricing risk arises from routine revisions to premium tariffs and from the processes, in certain cases, to set

bespoke premiums for large corporate health insurance customers. The adequacy of pricing rests on thorough

actuarial analysis of past and most recent claims levels, combined with forward projections of the most recent

observed trends. Pricing risk affects only future cash flows since new tariffs impact on levels of premium earned

when health insurance contracts renew.

The Company’s dominant product style is of an annually renewable health insurance contract. The annual

renewability feature permits tariff revisions to be made in response to changes in claim experience. This is a

significant mitigant to pricing risk. The Company underwrites no material business that commits it to cover risks at

premiums fixed beyond a twelve month period from inception or renewal.

Claims risk

Claims risk is the risk of failure to manage BINS exposure to claims inflation and fluctuations in claims leading to

losses. This can be driven by an adverse fluctuation in the amount and incidence of claims incurred, higher than

expected future claims on existing policies, and external factors such as medical inflation.

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 Company depending on local conditions and practice.

Generally, the Company’s health insurance contracts contain terms and conditions that provide for the

reimbursement of incurred medical expenses for treatment related to acute medical conditions. The contracts do

22


not provide for capital sums or indemnified amounts. Therefore claims experience is necessarily underpinned by

prevailing rates of illness. Additionally, claims risk is generally mitigated by the Company running control

processes to ensure that both the treatments and the consequent reimbursements are appropriate.

Reserving risk

Reserving risk is the risk that technical provisions for claims incurred prove to be insufficient in light of later events

and claims experience. There is a relatively low exposure to reserving risk due to the short-term nature of claims

development patterns. The short-tail nature of the Company’s insurance contracts means that movements in

claims development assumptions are generally not significant. The development patterns are kept under constant

review to maintain the validity of the assumptions and hence, the validity of the estimation of recognised technical

provisions.

The amount of claims provision at any given time that relates to potential claims payments that have not been

resolved within one year is not material. Also, of the small provisions that do relate to longer than one year, it is

possible to predict with reasonable confidence the outstanding amounts.

Other risks related to underwriting health insurance business

Claims provisions are not discounted. The premiums provisions are discounted but their short-term nature means

that changes in interest rates have no material impact on reserving risk. In addition, the future premium income

and claims outflows of health insurance premium liabilities are not affected directly by changes in interest rates.

However, changes to inflationary factors such as wage inflation and medical provider cost inflation can affect the

financial soundness of health insurance business.

The Company only uses reinsurance in selected circumstances. Reinsurance contracts give rise to credit risk

which is described further in section C.3.

Concentrations of risk

Although the majority of the Company’s activities are single line health portfolios, the Company does not have

significant concentrations of insurance risk for the following reasons:

Product diversity between domestic PMI and expatriate IPMI, and individual and corporate health insurance.

A variety of claims type exposures across diverse medical providers - consultants, nursing staff, clinics,

individual hospitals and hospital groups.

The Company is exposed to the risk that a single event occurs in a location which would result in a large number

of claims. This is mitigated by writing a diverse portfolio of business, in particular group policies, both within and

across geographies.

Catastrophe risk

Either a natural disaster or a man-made disaster could potentially lead to a large number of claims and thus

higher than expected claims costs. In the majority of jurisdictions BINS is not liable for claims relating to these

risks. Bupa’s Centre Risk function oversees the risk management of this risk exposure, and Bupa’s Centre

Actuarial function oversees and implements strategic improvements to ensure overall adequacy of these

arrangements.

Underwriting risk sensitivity

For the year ended 31 December 2016 a £23m increase in claims would have resulted in a 1% increase in the

loss ratio and a reduction in the solvency coverage ratio from 160% to 151%.

C.2 Market risk

Market risk is the risk of adverse financial impact due to changes in fair values of financial instruments, arising

from fluctuations in interest rates, foreign exchange rates, commodity prices, credit spread and equity prices. The

focus of the Company’s long-term financial strategy is to facilitate growth without undue balance sheet risk.

23


The Company actively manages price risk by ensuring that the majority of its cash and investments is held with

highly rated credit institutions. For the portion of surplus cash invested in a limited portfolio of return seeking

assets (principally corporate bonds and loans), the Company uses a value at risk analysis to quantify risk, taking

account of asset volatility and correlation between asset classes. At year end 2016 BINS had loan assets of £66m

on its Solvency II balance sheet, primarily reflecting its investments in a loans portfolio as part of its return seeking

assets. The loans portfolio is managed by an external fund manager under an investment management

agreement set by BINS.

The approach to investment decision making is governed by the Board and its Investment Committee. The Board

determines the overall investment risk appetite for BINS which is articulated through the risk parameters

contained in the Treasury Policy and its Statement of Investment Principles. BINS’ Investment Committee is

responsible for setting the investment strategy and asset allocation, within the Board approved investment risk

appetite and the Treasury Policy. The day to day management of BINS’ financial investments is done by the

Group’s Centre Treasury function.

Foreign exchange risk

The Company is exposed to foreign exchange risks arising from commercial transactions and from recognising

assets, liabilities and investments in overseas operations. The majority of the foreign exchange exposures arise in

the IPMI business as a result of trading in non-sterling currencies. The IPMI business receives premiums in US

dollar and euro as well as sterling. Claims are primarily paid in these currencies but also in a range of other

currencies such as UAE dirham, South African rand, Hong Kong dollar and Singapore dollar.

In order to reduce the foreign exchange exposure generated by the IPMI business the Company has a hedging

programme in place to manage a large proportion of its material foreign currency economic balance sheet

exposures. This seeks to reduce the impact of foreign exchange risk on the Company’s economic balance sheet

and its capital position.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of

changes in market interest rates.

The Company is exposed to interest rate risk arising from fluctuations in market rates. This affects the return on

floating rate assets and the balance sheet value of its investment in fixed rate bonds. The Company’s interest rate

duration is agreed by the Investment Committee as part of strategic asset allocation, taking into account the short

interest rate duration of the Company’s liabilities and its investment risk appetite.

The Company’s sole interest bearing financial liability is the £330m subordinated loan from Bupa Finance Plc,

which is treated as capital under Solvency II reporting. This is a fixed interest liability which has no repayment

date, but BINS has an option to call it in 2020. If BINS does not exercise the call option, the interest rate will be

reset in 2020.

Market risk sensitivities

The following analysis shows the relative sensitivities of the Company’s estimated solvency coverage ratio as at

31 December 2016 to a variety of market conditions. These sensitivities are all independent stresses to a single

risk and do not take into account management actions or represent the Company’s expectation of future market

conditions.

Sensitivity analysis Coverage ratio post stress

Base case solvency coverage ratio 160%

Interest rate +/-100bps 160%

Credit spreads +100bps (assuming no credit transition) 160%

Equities market -20% 160%

Property values -10% 157%

Sterling appreciates by 10% 162%

24


Credit spreads are the differences between the risk free rates and the yields achieved on both corporate and

sovereign bonds.

Interest rate and credit spread sensitivities do not impact the solvency coverage ratio materially due to the strong

matching of assets and liabilities and the fact that investments are held with highly rated credit institutions.

C.3 Credit risk

Credit risk is the risk that the Company will suffer a financial loss as a result of a counterparty failing to meet all or

part of their contractual obligations. Bupa’s Centre Treasury function manages the Company’s credit risk under

the guidance of the Investment Committee.

Investment exposure with external counterparties is managed by ensuring there is a sufficient spread of

investments and that all counterparties are rated at least A by two of the three key rating agencies used by the

Company (unless specifically approved by the Investment Committee). Other factors are also considered

including credit default swap levels and counterparty specific information. All rating movements are reported to the

Investment Committee, which reviews the suitability of the counterparty for continued investment.

C.4 Liquidity risk

Liquidity risk is the risk that the Company will not have available funds to meet its liabilities when they fall due.

The Company’s liquidity risk is addressed by holding liquid assets and through controls.

The Company enjoys a strong liquidity position and adheres to strict liquidity management policies as set by its

Investment Committee. The liquidity management policy is reviewed at least annually.

Liquidity is managed by currency and by considering the segregation of accounts required for regulatory

purposes.

Expected profit included in future premiums

Under Solvency II, expected profit included in future premiums is included in Own Funds, recognised in the

calculation of technical provisions. Expected profit included in future premiums does not form part of the liquidity

position as 31 December, but is taken into consideration when assessing the Company’s future liquidity. Expected

profit included in future premiums amounted to £129m at 31 December 2016 (31 December 2015: £112m).

C.5 Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, or from personnel, systems

or external events. This includes conduct risk which is the risk that BINS’ behaviour or actions result in unfair

outcomes or detriment for customers.

The Company is committed to managing operational risk effectively. This includes continued close attention to

management of regulatory risk and proactive engagement with regulators. Maintenance of robust internal control

processes and governance frameworks, the approval of risk policies, and the assessment of compliance help

mitigate this risk.

The services provided by the Company are underpinned by information technology systems and infrastructure

that enable the delivery of core processes and products. Failure of these systems may reduce the ability of the

Company to deliver products and services to its customer base or increase the risk of information security

breaches.

The Company’s information technology services are provided by BISL, which has dedicated information

technology teams responsible for the development, maintenance and monitoring of information technology

services.

25


The Company has detailed business continuity plans for all businesses with dedicated specialised resource in

place to ensure appropriate operation of key processes and controls. Business continuity issues are reported to

the RE ERC, with significant issues being escalated to the RERC, which is responsible for ensuring appropriate

controls are in place to mitigate potential risks. As a result of the governance structures and controls in place,

there was no significant business disruption event during 2016.

Operational Risk does not lend itself to sensitivity analysis. Operational risk scenario analysis exercises are

conducted to provide an understanding of the specific risks that BINS faces on a daily basis, the likelihood of them

occurring and the severity of the impact if they were to occur. This understanding allows for a more focused

allocation of resources targeted at mitigating or controlling the more material exposures.

C.6 Other material risks

The Company is also exposed to strategic risk, being the risk of an inability to design or implement appropriate

business plans and strategies, make decisions, allocate resources, or adapt to changes in the business

environment. The political and economic backdrop to BINS’ business is uncertain, with powerful global social

trends. Populations are ageing, public health solutions are continuously evolving, governments are facing funding

issues in healthcare and aged care, and competition is intense, both from traditional and non-traditional players.

In order to effectively manage strategic risk, the Company has refreshed its strategy, and remains focused on

delivering great customer outcomes and long-term profitable growth. Through the identification and assessment of

emerging risks the Board is able to react to issues in a timely and appropriate manner.

C.7 Any other information

C.7.1 Prudent person principle

BINS investments operate in accordance with the prudent person principle. BINS approach to investment is as

follows:

The Board is responsible for setting the overall investment risk appetite for BINS which is articulated through

the risk parameters contained in the Treasury Policy and its Statement of Investment Principles. The Board

approves the expected investment return as part of the annual operating plan process and monitors

investment performance against plan on a monthly basis.

The BINS Investment Committee is responsible for setting investment strategy and asset allocation, within the

Board approved risk parameters contained within the Treasury Policy and the Statement of Investment

Principles. The Investment Committee reviews and monitors the key risk indicators for the investments

including the performance against targets, the value at risk, counterparty exposures, overall credit rating

exposures and liquidity levels.

C.7.2 Stress and scenario testing

A key part of BINS’ risk management framework involves identifying the scenarios that could adversely impact the

Company and assessing its ability to withstand them. The stress and scenario testing evaluates the impact of

adverse scenarios on the Company’s business plans, including an assessment of whether the Company will

continue to have sufficient capital resources to cover both its own assessment of risks and regulatory capital

requirements as well as the liquidity implications of the scenarios.

There are two parts to the scenario testing performed by BINS, one exercise which considers impacts of a

scenario specific to BINS and a second Group wide exercise, which applies consistent stress and scenario tests

across the Group, including BINS.

The scenarios are calibrated to reflect a 1-in-20 year probability and are carried out in accordance with standard

stress testing methodology used across the insurance industry. The 2016 scenarios considered the impact of

significant adverse regulatory or governmental changes in our key insurance markets, in the context of depressed

economic conditions. The BINS specific scenario testing included consideration of a short-term restriction to

distribute through intermediaries combined with an accelerated increase in Insurance Premium Tax.

26


Under each of the scenarios tested, the Company continues to have a surplus in excess of its SCR over the

business planning period without the need for management actions, the first of which would be to reduce dividend

payments.

BINS also conducts reverse stress testing which starts at the point of failure of the BINS business model and aims

to identify a scenario that may result in such a failure.

The results of the stress and scenario testing are reviewed by the RERC as part of the business planning process

and are a key element of the ORSA.

27


D. Valuation for Solvency Purposes (Audited)

Solvency II requires an economic market consistent approach to the valuation of assets and liabilities. A number

of assets and liabilities require different valuation methods to those used in the financial statements included in

BINS’ Annual Report and Accounts for the year ended 31 December 2016. The financial statements are prepared

under UK GAAP. The Company applies UK Financial Reporting Standard 101, where the measurement

requirements of International Financial Reporting Standards, as adopted by the EU, are applied. The table below

provides a summary of the Solvency II and the UK GAAP valuation of assets, based on the Solvency II balance

sheet headings and the Solvency II approach to classifying assets and liabilities. An explanation of the Solvency II

valuation methods is provided in the following sections.

Solvency II UK GAAP Difference

Assets

Section

2016 £m

20151

£m 2016

£m 2015

1

£m 2016

£m 2015

1

£m

Deferred acquisition costs D.1.1 - - 58 55 (58) (55)

Property, plant and equipment D.1.2 89 70 89 70 - -

Investments D.1.3 894 1,130 687 1,062 207 68

Loans and mortgages D.1.4 66 202 65 201 1 1

Reinsurance recoverables D.1.5 43 48 50 48 (7) -

Insurance and intermediaries receivables D.1.6 122 53 671 608 (549) (555)

Reinsurance receivables D.1.6 3 17 3 17 - -

Receivables (trade, not insurance) D.1.7 82 62 82 62 - -

Cash and cash equivalents D.1.8 120 81 243 79 (123) 2

Any other assets, not elsewhere shown D.1.9 74 37 74 37 - -

Total assets 1,493 1,700 2,022 2,239 (529) (539)

Liabilities

Technical provisions D.2 542 499 1,277 1,224 (735) (725)

Provisions other than technical provisions 5 5 5 5 - -

Deposits from reinsurers 6 3 6 3 - -

Deferred tax liabilities D.3.1 26 29 5 6 21 23

Derivatives (liabilities) D.3.2 84 70 - 2 84 68

Reinsurance payables D.3.3 9 18 9 18 - -

Insurance and intermediaries payables D.3.4 35 - 35 8 - (8)

Payables (trade, not insurance) D.3.5 47 61 47 61 - -

Subordinated liabilities in BOF D.3.6 384 382 336 336 48 46

Any other liabilities, not elsewhere shown D.3.7 92 64 92 64 - -

Total liabilities 1,230 1,131 1,812 1,727 (582) (596)

Excess of assets over liabilities 263 569 210 512 53 57

1. The 2015 comparative data presented in section D. Valuation for Solvency Purposes and section E. Capital Management is unaudited.

The overall difference in the excess of assets over liabilities is due to the following valuation differences:

Valuation differences

2016 £m

2015 £m

Assets

Financial investments 1 2

Liabilities

Technical provisions 121 124

Deferred tax liabilities (21) (23)

Subordinated liabilities (48) (46)

Total valuation differences 53 57

Other differences between the UK GAAP and Solvency II value of individual asset and liability classes relate to

reclassifications, as noted in the respective sections below.

28


D.1 Assets

D.1.1 Deferred acquisition costs

Acquisition costs represent commissions payable and other expenses related to the acquisition of insurance

contract revenues written during the financial year. These are not permissible under Solvency II, therefore the

deferred acquisition costs and deferred ceding commissions balances are valued at nil.

D.1.2 Property, plant and equipment

Property, plant and equipment held for own use are the physical assets used by the Company to carry out

business activities and generate revenues and profits.

In the UK GAAP financial statements, properties are held using the revaluation method under IAS 16, which is

consistent with Solvency II valuation principles. Hence no adjustment is required from UK GAAP to Solvency II.

D.1.3 Investments

The Company generates cash from its underwriting, trading and financing activities and invests the surplus cash

in financial investments. These include government bonds, corporate bonds, pooled investments funds and

deposits with credit institutions.

2016 2015 Investments – Solvency II values £m £m

Participations 3 2

Government bonds 26 32

Corporate bonds 305 267

Collective investments undertakings 141 233

Derivative assets 86 68

Deposits other than cash equivalents 332 526

Other investments 1 2

Total Investments 894 1,130

Financial investments are recognised in the Solvency II balance sheet at fair value. Fair values are calculated as

follows:

Debt securities, shares and other variable yield securities: quoted price if available (or, if not, quoted prices of

similar assets) or discounted expected future principal and interest cash flows based on observable data in

active market.

Derivatives: fair values are obtained from market observable pricing information including interest rate yield

curves.

The value of foreign exchange forward contracts is established using listed market prices. Fair values have been

calculated for each type of derivative as follows:

The fair value of currency forward contracts, swaps and options is determined using forward exchange rates

derived from market sourced data at the balance sheet date, with the resulting value discounted back to

present value.

The fair value of interest rate swaps is determined as the present value of the estimated future cash flows

based on observable yield curves.

The fair values of quoted investments in active markets are based on current bid prices. A market is considered

active when there are listed prices publicly available at which trades can be made without significant delay and

when transactions take place with sufficient frequency and volume to provide pricing information on an ongoing

basis.

The fair values of unlisted securities, and quoted investments for which there is no active market, are established

using valuation techniques. At 31 December 2016 and 31 December 2015 the Company did not hold financial

investments for which such valuation techniques were required.

29


In the UK GAAP financial statements, the Company has classified its financial investments into the following

categories: available for sale, at fair value through profit and loss, held to maturity and loans and receivables.

Financial investments classified as available for sale and at fair value through profit and loss are held at fair value.

The UK GAAP fair value measurement principles are considered to be consistent with Solvency II requirements

and therefore no adjustments are made for Solvency II reporting.

Financial investments classified as held to maturity and loans and receivables are measured in the UK GAAP

financial statements at amortised cost calculated using the effective interest method, less impairment losses. In

the Solvency II balance sheet the carrying value of these assets is adjusted to fair value.

Classification differences exist between Solvency II and UK GAAP for certain financial investment balances.

Derivative assets and liabilities held in segregated funds are reported separately as assets and liabilities for

Solvency II purposes, whereas under UK GAAP derivatives are presented net where the right to offset exists.

Cash and cash equivalents are classified differently between UK GAAP and Solvency II. Under UK GAAP an

investment qualifies as a cash and cash equivalent only when it has a short maturity of, say, three months or less

from the date of acquisition whereas under Solvency II assets are classified by means of a Complementary

Identification Code based upon an asset’s characteristic. Money market funds and deposit less than 90 days are

classified as cash and cash equivalents under UK GAAP, however, they are classified as collective investments

undertakings and deposits other than cash equivalents for Solvency II reporting, respectively.

D.1.4 Loans and mortgages

Under UK GAAP, loans are measured at amortised cost calculated using the effective interest method, less

impairment losses, whereas under Solvency II these are measured at fair value. The fair value of loans and

mortgages is established using discounted expected future principal and interest cash flows.

D.1.5 Reinsurance recoverables

Reinsurance recoverables represent the reinsurer’s share of technical provisions. Refer to Section D.2 for further

details on technical provisions.

D.1.6 Insurance and intermediaries receivables, reinsurance receivables

As required in the Solvency II guidance the portion of premiums receivable, recognised as an asset on the UK

GAAP balance sheet, that are not yet due are transferred to technical provisions in the Solvency II balance sheet.

Overdue premium debtors are not reclassified to technical provisions and remain within ‘insurance and

intermediaries receivables’ on the balance sheet.

Under UK GAAP receivables are valued at undiscounted amortised cost less any adjustment for expected default.

Given the short-term maturity of these assets, the UK GAAP valuation policy is considered to be a close

approximation to fair value, and therefore no adjustments are made for Solvency II reporting purposes.

D.1.7 Receivables (trade, not insurance)

Under UK GAAP receivables are valued at undiscounted amortised cost less any adjustment for expected default.

Given the short-term maturity of these assets, the UK GAAP valuation policy is considered to be a close

approximation to fair value, and therefore no adjustments are made for Solvency II reporting purposes.

D.1.8 Cash and cash equivalents

Cash and cash equivalents in the Solvency II balance sheet consist of deposits that can be exchanged for

currency on demand at par value and are valued at their par value. There is therefore no difference between the

value of cash and cash equivalents in the Solvency II balance sheet and the value of cash in hand and at bank in

the UK GAAP balance sheet.

Cash and cash equivalents are classified differently between UK GAAP and Solvency II. Refer to D.1.3 for

additional information.

30


D.1.9 Any other assets, not elsewhere shown

Any other assets are made up of the following items:

2016 2015

Solvency II balance sheet £m £m

Prepayments 6 6

Amounts owed by Bupa Group undertakings 59 23

Other assets 9 8

Total 74 37

BINS values other assets at undiscounted amortised cost less any adjustment for expected default. Given the

short-term maturity of these assets, this is considered to be a close approximation to fair value. Therefore no

adjustment is required for Solvency II purposes.

D.1.10 Assumptions and judgements

Judgements made by management in applying the Company’s valuation policies that have a significant effect on

the balance sheet, and estimates with a significant risk of material adjustment in subsequent periods, are set out

in the related sections:

Property valuations (D.1.2)

Financial investments (D.1.3).

D.2 Technical provisions

D.2.1 Summary

The technical provisions for solvency purposes are an estimate of the cost at which insurance contracts could be

transferred to another knowledgeable insurer in an arm’s length transaction. The value of technical provisions for

solvency purposes, as at 31 December 2016 and 31 December 2015, were as follows:

2016

Technical provisions

Gross medical

expense £m

Gross assistance

£m

Re- insurance

£m Net £m

Claims provision – health (similar to non-life) 255 7 (15) 247

Premium provision – health (similar to non-life) 254 12 (28) 238

Risk margin 14 - - 14

Technical provisions 523 19 (43) 499

2015

Technical provisions

Gross medical

expense £m

Gross assistance

£m

Re- insurance

£m Net £m

Claims provision – health (similar to non-life) 232 3 (12) 223

Premium provision – health (similar to non-life) 246 5 (36) 215

Risk margin 13 - - 13

Technical provisions 491 8 (48) 451

The technical provisions are not calculated as a whole but are calculated as the sum of the best estimate liability

and a risk margin. The best estimate liability comprises a claims provision (for claims and expenses incurred prior

to the valuation date) and a premium provision (for claims and expenses expected to be incurred between the

valuation date and the contract boundary).

BINS’ gross technical provisions for medical expense insurance business calculated at 31 December 2016 were

£523m (2015: £491m). The main reasons for the increase are a combination of a weakening of sterling against

other major currencies for IPMI business and an increase in reported but not settled UK PMI claims due to the

timing of batch payments to providers in December, partially offset by an increase in the adjustment to remove

expected profits.

31


BINS also writes a small amount of assistance business, with gross technical provisions of £19m at 31 December

2016 (2015: £8m). The increase is mainly due to a refinement made in the methodology to value cash flows for

assistance business separately.

BINS’ medical expenses business comprises UK PMI and IPMI business. The latter includes both direct insurance

and proportional reinsurance accepted from other Bupa entities and local insurance partners.

BINS actively manages its health insurance claims cost, the impact of which is reflected in the assumptions used

to set the technical provisions. Implicitly, the effectiveness of such management actions is assumed to apply to all

future claims anticipated in the technical provisions.

The technical provisions calculations do not apply the matching adjustment, volatility adjustment or transitional

measures referred to in Articles 77 (b),(d) and 308(c),(d) of Directive 2009/138/EC.

D.2.2 Claims provision

The claims provision represents the estimated cost of claims incurred but not settled as at the balance sheet date.

The provision includes an allowance for claims management and claims handling expenses.

The ultimate cost of outstanding claims is estimated using a range of standard actuarial claims projection

techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. The key assumption for these

methods is that past claims settlement patterns are an appropriate predictor of expected future claims settlement

patterns. This assumption is adjusted where appropriate, using expert judgement.

The methods and data for the claims provision are the same as those used for the outstanding claims provision

(OCP) reported in the financial statements under UK GAAP, with a small difference arising from the exclusion of a

prudence margin (£6m). Under UK GAAP, a best estimate is determined on an undiscounted basis and then a

margin of prudence is added such that there is confidence that future claims will be met from the provisions. The

Solvency II claims provision is also undiscounted. Almost all outstanding claims are settled within a year, hence

the impact of discounting would be immaterial.

BINS’ OCP processes are subject to annual review against the Group’s claims reserving standards. The year end

2016 review concluded that the OCP was appropriate and that the processes, including documentation, met the

standards in all material respects.

D.2.3 Premium provision

The premium provision represents the estimated cost of future claims and expenses arising from current and

bound insurance contracts, net of future premium receipts. The premium provision is the expected present value

of all future cashflows relating to risk exposure after the valuation date.

Under Solvency II, UK GAAP balances that relate to future claims exposure are adjusted to the best estimate of

future cashflows. The following adjustments are applied:

Deferred acquisition costs are not recognised.

Not overdue insurance receivables are recognised as a future cashflow in technical provisions rather than as

a separate asset in the balance sheet.

The UK GAAP unearned premium provision and any unexpired risk provision are adjusted to remove future

profits in excess of deferred acquisition costs.

The cost of future claims and expenses is estimated using actuarial projections of members covered by current

insurance contracts and assumptions for expected claims and expenses incurred per member. These

assumptions are based on current year experience appropriately adjusted for trends, inflation and discounting.

Where relevant, the projection of future cash flows allows for the expected lapse behaviour of members (mid-term

lapses and non-renewal lapses) in the period until the contract boundary.

32


A pure risk cost assumption is used to project claims expected to be paid. Expected claims are derived for the

claim cost per member for each homogeneous risk group and appropriately adjusted for claims inflation and any

expected changes in the mix of business.

Future claims are expected to increase in line with claims inflation.

The allowance for expenses in the technical provision is on a going concern basis, indirect overhead expenses

are allocated on the assumption that the entity continues writing new business and volumes continue at the same

level. Expense allowance includes:

claims management and handling expenses for future claims

commission

administrative expenses incurred in the servicing of policies

overheads, including central costs.

New business costs that are incurred before the contract recognition date are excluded, e.g. general marketing,

lead generation and medical underwriting costs.

Claims management expenses are expressed as a percentage of projected paid claims amounts. The percentage

will be consistent with the claims provision calculation.

D.2.4 Reinsurance recoverables

The Company has a portfolio transfer reinsurance contract with Bupa Insurance Company, domiciled in Florida.

Under this arrangement, 100% of the insurance risk relating to a closed book of Latin American business is

transferred to Bupa Insurance Company. The value of reinsurance share of technical provisions ceded to Bupa

Insurance Company reported on the Solvency II basis is taken to be the same as the value on the UK GAAP

basis, as any difference would not be material.

D.2.5 Risk margin

The risk margin of £14m was estimated using the Solvency II ‘cost of capital’ approach, which is intended to

reflect the total consideration (when included with the best estimate liability) that would be required by a third party

insurer to take over the full liability. This was estimated by applying a 6% cost-of-capital charge to the sum of the

present value of projected unhedged SCR in each future year until the liabilities have been discharged. The rate

of 6% is prescribed in the Solvency II regulations.

A risk margin is added to the best estimate provisions to allow for the inherent uncertainty of future cashflow

projections. This uncertainty generally relates to the risk that past claims trends may not apply in the future, for

example, as a result of changes in public healthcare provision, economic conditions or claims management

procedures.

D.2.6 Methodology and assumption changes

There have been no material changes in the methodology to calculate technical provisions during the reporting

period. The actuarial models to calculate the premium provision have been refined further to more accurately

reflect the intended methodology. These model changes resulted in a reduction of the premium provision by

£17m.

The assumptions to project future claims and expense have been updated to reflect the current year experience

together with expected changes in trends and inflation.

D.2.7 Reconciliation to financial statements

The key differences in the valuation of insurance contracts for solvency purposes relate to the use of best

estimate assumptions compared with the use of prudent assumptions under UK GAAP. In addition, UK GAAP

insurance receivables are not recognised as assets in the solvency balance sheet but are instead netted off

against the value of technical provisions for solvency purposes.

33


2016

Reconciliation to UK GAAP financial statements

Medical Expense

£m

Assistance

£m

Total

£m

Technical provisions for financial statements – net of reinsurance 1,207 20 1,227

Deferred acquisition costs (57) (1) (58)

Technical provisions for financial statements – net of reinsurance and deferred acquisition cost 1,150 19 1,169

Reclassification of future premium:

Insurance and intermediary receivables (not overdue) (547) (2) (549)

Fair value adjustments:

Removal of future profit from premium provision (131) 2 (129)

Removal of UK GAAP prudence margin – claims provision (6) - (6)

Risk margin 14 - 14

Technical provisions for solvency – net of reinsurance 480 19 499

D.2.8 Level of uncertainty

Technical provisions are calculated using actuarial models that include the use of key assumptions based on

historical and current year experience. Future claims payments, related expenses and lapse rates are subject to

random fluctuations and trends, which may lead to actual experience differing from that implied by these

assumptions.

The inherent uncertainty of future cash flows is low, which is reflected in the level of risk margin held. This low

level of uncertainty reflects the short-tailed nature of BINS’ insurance business, and the relatively predictable

claims pattern.

D.3 Other liabilities

D.3.1 Deferred tax liabilities

Deferred tax is calculated on the difference between the values ascribed to certain assets and liabilities

recognised and valued for Solvency II purposes and the values ascribed to assets and liabilities as recognised

and valued for tax purposes. The valuation of deferred tax assets and liabilities is based on the principles

prescribed by IAS 12, whereby a deferred tax asset or liability can be recognised on temporary difference where it

is probable that they will reverse in future periods.

Deferred tax is calculated by applying the UK tax rate to the relevant Solvency II balance sheet adjustments to

arrive at an Own Funds deferred tax position.

2016 2015 Deferred Tax £m £m

UK GAAP deferred tax liability 5 6

Increase in deferred tax liability 21 23

Solvency II deferred tax liability 26 29

D.3.2 Derivatives

Derivatives liabilities are recognised and subsequently measured at fair value (refer to section D.1.3 for details).

No adjustment is made for any changes to the Company’s own credit standing.

The total balance of derivative assets and liabilities at 31 December 2016 is due within 12 months. The level of

uncertainty in the valuation of derivative liabilities is considered low as it is based on quoted market prices or

executable broker quotes.

For Solvency II purposes, derivative assets and liabilities held in segregated funds are reported separately as

assets and liabilities, whereas under UK GAAP derivatives are presented net where the right to offset exists. At 31

December 2016 this resulted in a £84m classification difference between investments and derivative liabilities

when comparing UK GAAP and Solvency II.

34


D.3.3 Reinsurance payables

Under UK GAAP reinsurance payables are held at amortised cost. Given the short-term maturity of these

liabilities, this is considered to be a close approximation to fair value.

All material reinsurance payables are due within 12 months.

D.3.4 Insurance and intermediaries payables

Insurance and intermediaries payables relate to creditors arising out of direct insurance operations. Under UK

GAAP insurance and intermediary payables are held at amortised cost. Given the short-term maturity of these

liabilities, this is considered to be a close approximation to fair value.

All material reinsurance payables are due within 12 months.

D.3.5 Payables (trade, not insurance)

The UK GAAP trade payables are carried at amortised cost using the effective interest method. Given the short-

term maturity of these liabilities, this is considered to be a close approximation to fair value. Therefore no

adjustment is required from UK GAAP to Solvency II.

All material trade payables are due within 12 months.

D.3.6 Subordinated liabilities in Basic Own Funds (BOF)

BINS’ subordinated liabilities are those which exhibit similar characteristics to equity: perpetual in nature, deferral

of interest payments and their place in the order in which creditors are paid in the case of the Company being

wound up. As these liabilities would only be redeemed after meeting the needs of the customer and settling trade

related payables, the subordinated liabilities were classified as upper tier 2 under the Solvency I regime and by

virtue of the Solvency II transitional provisions qualify as Own Funds for Solvency II purposes.

The Company has a £330m subordinated loan from Bupa Finance Plc which has been classified as tier 1

restricted Own Funds. As at 31 December 2016 the Solvency II fair value of the subordinated loan is £384m

(2015: £382m). Further details on the subordinated loan are provided in section E.1.3 Subordinated perpetual

loan.

Subordinated liabilities are included in the Solvency II balance sheet at fair value. Fair value is calculated on a

discounted projected cash flows basis, using a market yield adjusted to remove the effects of any change in the

Company’s credit standing. In the UK GAAP balance sheet they are valued at amortised cost using the effective

interest method. The valuation requires an assumption to be made with respect to the portion of the yield to

maturity that relates to the Company’s credit risk, derived by comparing the yield to maturity to that of government

bonds of similar duration and currency. The level of valuation uncertainty arising from this method is considered

low on the basis that there is an active market for government bonds against which reference can be made.

D.3.7 Any other liabilities, not elsewhere shown

Any other liabilities are made up of the following items:

2016 2015

Solvency II balance sheet £m £m

Accruals 6 2

Amounts owed to Bupa Group undertakings 44 28

Other payables 17 11

Deferred Income 25 23

Total 92 64

Other liabilities are held at amortised cost under UK GAAP. Given the short-term maturity of these liabilities, this is

considered to be a close approximation to fair value. Therefore no adjustment is required for Solvency II

purposes. All material liabilities included in this balance are due within 12 months.

35


D.3.8 Contingent liabilities

Contingent liabilities are recognised in the Solvency II balance sheet when they are material. They are measured

at fair value, using probability weighted cash flow calculations, discounted where the impact of discounting would

be material. In the UK GAAP balance sheet contingent liabilities are not recognised. When it is more probable

than not that there will be an out flow of economic benefits a provision is recognised. At 31 December 2016 the

Company did not have any material contingent liabilities.

D.4 Alternative methods for valuation

There are no material assets or liabilities for which alternative valuation methods are used, other than the

valuation of subordinated liabilities as described in section D.3.6.

D.5 Any other information

The Company has no material off balance sheet liabilities.

Information on leasing arrangements is provided in Section A.4.


36


E. Capital Management (Audited)

E.1 Own Funds

E.1.1 Summary of Own Funds

The Company’s Own Funds represent net assets valued on a Solvency II basis, together with eligible

subordinated liabilities.

Own Funds Section 2016

£m 2015

£m

Assets D.1 1,493 1,700

Liabilities D.3 (1,230) (1,131)

Net assets 263 569

Foreseeable dividend (25) (61)

Subordinated liabilities E.1.3 384 382

Available Own Funds E.1.2 622 890

Capital tiering restriction E.1.2 (189) (129)

Eligible Own Funds E.1.2 433 761

The foreseeable dividend of £25m is the dividend approved by the Board on 28 February 2017. Under Solvency II

this dividend is recognised as a deduction from Own Funds as it was foreseeable at 31 December 2016. The

dividend was not recognised as a liability in the financial statements as it had not been approved by the Board

prior to 31 December 2016. Dividends paid during 2016 included a dividend of £61m which was approved by the

Board in March 2016 and was recognised as a foreseeable dividend at 31 December 2015.

E.1.2 Capital structure

Capital structure 2016

£m 2015

£m

Share capital 57 357

Share premium - 69

Reconciliation reserve 181 82

Total equity 238 508

Subordinated loan 384 382

Available Own Funds 622 890

Capital tiering restriction (189) (129)

Eligible Own Funds 433 761

Solvency II distinguishes between basic Own Funds and ancillary Own Funds. BINS’ eligible Own Funds are all

basic Own Funds.

The Company manages its capital resources in line with the Group's Capital Management Policy and the

Company’s risk appetite. As part of its effective capital management, during the year the Company reduced its

share capital by £300m and share premium by £69m transferring them to distributable reserves, to support a

£200m dividend payment to Bupa Finance Plc. This followed the repayment by Bupa Finance Plc of a loan from

the Company of £200m.

Capital tiering restriction

The Solvency II rules restrict the extent to which subordinated liabilities can be counted towards the SCR. There

are two eligibility rules relevant to BINS’ subordinated loan:

Restricted tier 1 cannot make up more than 20% of total tier 1 (this is equivalent to a limit of 25% of

unrestricted tier 1).

The portion in excess of the restricted tier 1 limit can be counted as tier 2 but is in turn subject to the tier 2 and

tier 3 limit of 50% of the SCR.

37


The effect of the eligibility rules is that £189m (2015: £129m) of the subordinated perpetual loan is ineligible, as

indicated in the following table:

Eligibility limits 2016

£m 2015

£m

Maximum tier 2 and tier 3 (50% of SCR) 136 126

Maximum restricted tier 1 (25% of unrestricted tier 1) 59 127

Maximum eligibility 195 253

Subordinated loan - tier 1 384 382

Excess of subordinated loan over eligibility limits 189 129

Own Funds by tier

Eligible Own Funds to meet the SCR of £433m as at 31 December 2016 comprise £238m unrestricted tier 1,

£59m restricted tier 1 and 136m tier 2. Eligible Own Funds to meet the MCR are subject to a further restriction in

that the eligible amount of tier 2 items shall not exceed 20% of the MCR. Eligible Own Funds to meet the MCR as

at 31 December 2016 are £322m, comprising £238m unrestricted tier 1, £59m restricted tier 1 and £25m tier 2.

E.1.3 Subordinated perpetual loan

BINS’ available Own Funds include a £330m perpetual subordinated loan with a Solvency II fair value of £384m

(2015: £382m). The subordinated loan is payable to Bupa Finance Plc, a fellow Group company. The loan has no

fixed repayment date but BINS has an option to call it on 16 September 2020. Interest is payable at 6.25% per

annum to the first call date of 16 September 2020 and thereafter at a fixed spread over the relevant benchmark

gilt. The movement in the fair value of the loan during the year is due to changes in market interest rates.

The subordinated loan was classified as upper tier 2 under the Solvency I regime and by virtue of the Solvency II

transitional provisions qualifies as restricted tier 1 under Solvency II.

Bupa Finance Plc has issued £330m of callable perpetual guaranteed bonds on the London Stock Exchange.

BINS acts as guarantor on the issue, irrevocably guaranteeing the bonds on a subordinated basis. Were BINS to

repay part or all of the guaranteed bonds, the amount paid would be deducted from balances owed to Bupa

Finance Plc.

E.1.4 Comparison with UK GAAP equity

The following table provides an explanation of the differences between UK GAAP equity and the Solvency II

excess of assets over liabilities:

Section

2016 £m

2015 £m

UK GAAP equity attributable to shareholders 210 512

Valuation differences:

Assets D.1 1 2

Technical provisions D.2 121 124

Other liabilities D.3 (69) (69)

Solvency II excess of assets over liabilities 263 569

The valuation differences at 31 December 2016 are as follows:

Assets: within financial investments, loans and receivables together with held to maturity investments are

carried at amortised cost under UK GAAP but are adjusted to fair value under Solvency II giving rise to a £1m

valuation difference.

Technical provisions: under UK GAAP technical provisions include an outstanding claims provision, an

unearned premium provision and, if required, an unexpired risk provision. Solvency II technical provisions are

made up of future best estimate cash flows (claim payments, expenses and future premiums) in relation to the

insurance and/or reinsurance obligations, discounted to the present term using risk-free rates of interest.

Solvency II technical provisions also consist of a risk margin which is the balance over and above the best

estimate liabilities that another insurer would require to take over the liabilities as at the valuation date. The

net impact of applying the different bases is £121m.

Liabilities: under UK GAAP BINS holds the subordinated loan at amortised cost on an effective interest basis.

This is adjusted to fair value under Solvency II, excluding BINS’ credit risk, giving rise to a £48m increase in

38


liabilities. Deferred tax is calculated on the temporary differences between tax base values and UK GAAP

balances. Adjustments from UK GAAP to Solvency II give rise to a £21m increase in deferred tax liabilities.

E.1.5 Change in Own Funds

The movement in Own Funds during 2016 is analysed below:

Eligible Own Funds 2016

£m

At beginning of year 761

Profit for the year as reported in the Company’s financial statements 108

Movement in valuation differences (4)

Increase in fair value of subordinated liabilities 2

Dividends paid during the year (410)

Foreseeable dividends - 2015 61

Foreseeable dividends - 2016 (25)

Increase in tiering adjustment (60)

At end of year 433

The £328m decrease in Own Funds is mainly driven by dividends paid of £410m, offset by the profit for the year

of £108m. The dividend payments and the reduction in Own Funds are consistent with the Board risk appetite and

the Company’s approved dividend policy. The 2015 foreseeable dividend of £61m is included in the dividends

paid during the year of £410m.

E1.6 Capital management policy and processes

The Company’s capital management objective is to maintain sufficient capital to safeguard the Company’s ability

to continue as a going concern and to protect the interests of all of its customers, investors, regulators and trading

partners while also efficiently deploying capital and managing risk to sustain ongoing business development. The

Company maintains a prudent buffer over the SCR.

The Company manages its capital resources in line with the Group’s Capital Management Policy, which is

reviewed on an annual basis.

At least annually, the Company carries out an ECA in which it makes its own quantification of how much capital is

required to support its risks and each year the Company produces a medium-term capital management plan for

the following three years. The plan includes projections of Own Funds and SCR, with consideration of the ECA,

over the planning period.

The Company’s capital position is kept under constant review and is reported monthly to the Board.

Other than disclosed above there have been no changes to what is managed as capital or to the Company’s

capital management objectives, policies or procedures during the year.

E.2 Solvency Capital Requirement and Minimum Capital Requirement

The table below shows the breakdown of the BINS SCR by the standard formula risk modules.

SCR by risk module 2016

£m 2015

£m

Market risk 91 91

Underwriting risk 216 211

Credit risk 32 21

Basic SCR before diversification 339 323

Diversification (86) (78)

Basic SCR after diversification 253 245

Operational risk 72 67

Loss absorbency of deferred tax (54) (60)

Total SCR diversified 271 252

39


The BINS SCR has been calculated using the standard formula specified in the Solvency II legislation, modified

by a USP for determining premium risk SCR. BINS has obtained approval from the PRA to substitute the

insurance premium risk parameter with a USP which reflects BINS’ own loss experience. The PRA allows the

impact of USPs to not be publicly disclosed during a transitional period which includes the year ended 31

December 2016.

The Solvency II SCR is held to protect against an instantaneous 1-in-200 year loss. In the same way that a large

profit typically creates a tax liability, a large loss could potentially create a tax asset. In the context of Solvency II,

this is called a notional deferred tax asset and can be used to reduce the SCR for BINS. The reduction to the SCR

arising from the recognition of this notional deferred tax asset is referred to as loss absorbency of deferred tax. At

present, BINS allows for the deferred tax liabilities and the amount of paid taxes that can be recovered from

carrying back losses. However, no allowance is made for the notional amount of deferred tax assets that can be

carried forward and offset against taxes on anticipated future profits.

BINS does not use simplification calculations as allowed for under the Solvency II Directive in determining the

standard formula SCR.

The BINS SCR has increased by £19m since December 2015, from £252m to £271m. The main driver of the

increase is movement in foreign exchange rates. Over the year sterling has weakened against other major

currencies. This has increased the underlying sterling value of overseas exposures, with a corresponding

increase in the premium and currency risk charges.

The determination of the MCR relies on the following four main calculation steps:

absolute minimum floor of £3.3m

a proportion of the best estimate liabilities and written premiums net of reinsurance

a floor of 25% of SCR

a cap of 45% of SCR.

For BINS the biting constraint of the MCR is 45% of the SCR.

2016 £m

2015 £m

MCR

122 113

The increase in the MCR during the year is driven by the increase in the SCR. The MCR coverage ratio at 31

December 2016 was 264%, with eligible Own Funds to meet the MCR of £322m.

E.3 Use of the duration-based equity risk sub-module in the calculation of the SCR

BINS does not use the duration-based equity risk sub-module.

E.4 Differences between the standard formula and any internal model used

This section is not applicable to BINS. The SCR has been calculated using the standard formula specified in the

Solvency II legislation, modified by a USP for determining premium risk SCR.

E.5 Non-compliance with the Minimum Capital Requirement and Solvency Capital Requirement

The Company has maintained sufficient capital to exceed both the SCR and the MCR throughout the reporting

period.

E.6 Any other information


40


Directors’ responsibility statement

We acknowledge our responsibility for preparing the SFCR in all material respects in accordance with the PRA

Rules and the Solvency II Regulations.

We are satisfied that:

a) throughout the financial year in question, the Company has complied in all material respects with the

requirements of the PRA Rules and the Solvency II Regulations applicable to the Company; and

b) it is reasonable to believe that the Company has continued to so comply subsequently and will continue to so

comply in future.

F.Harris

Director

17 May 2017

41


Independent auditor’s opinion

Report of the external independent auditor to the Directors of Bupa Insurance Limited (‘the Company’) pursuant to Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook applicable to Solvency II firms

Except as stated below, we have audited the following documents prepared by Bupa Insurance Limited as at 31

December 2016:

The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Solvency and Financial

Condition Report of Bupa Insurance Limited as at 31 December 2016, (‘the Narrative Disclosures subject to

audit’); and

Company templates S02.01.02, S17.01.02, S23.01.01, S25.01.21, S28.01.01 (‘the Templates subject to

audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred to as the

‘Relevant Elements of the Solvency and Financial Condition Report’.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion on the Other

Information which comprises:

The ‘Business and performance’, ‘System of governance’ and ‘Risk profile’ sections of the Solvency and

Financial Condition Report;

Information relating to 31 December 2015 voluntarily disclosed by the Company in the ‘Valuation for solvency

purposes’ and ‘Capital management’ sections of the Solvency and Financial Condition Report;

Company templates S05.01.02, S05.02.01, S19.01.21;

The written acknowledgement by the Directors of their responsibilities, including for the preparation of the

Solvency and Financial Condition Report (‘the Responsibility Statement’).

Respective responsibilities of directors and auditor

As explained more fully in the Responsibility Statement, the Directors are responsible for the preparation of the

Solvency and Financial Condition Report in accordance with the financial reporting provisions of the PRA rules

and Solvency II regulations which have been modified by the modifications, and supplemented by the approvals

and determinations made by the PRA under section 138A of FSMA, the PRA Rules and Solvency II regulations

on which they are based.

The Directors are also responsible for such internal control as they determine is necessary to enable the

preparation of a Solvency and Financial Condition Report that is free from material misstatement, whether due to

fraud or error.

Our responsibility is to audit, and express an opinion on, the Relevant Elements of the Solvency and Financial

Condition Report in accordance with applicable law and International Standards on Auditing (UK and Ireland)

together with ISA (UK) 800 and ISA (UK) 805. Those standards require us to comply with the Auditing Practices

Board’s Ethical Standards for Auditors.

Scope of the audit of the Relevant Elements of the Solvency and Financial Condition Report

A description of the scope of an audit is provided on the Financial Reporting Council’s website at

www.frc.org.uk/auditscopeukprivate.

Opinion on the Relevant Elements of the Solvency and Financial Condition Report

In our opinion, the information subject to audit in the Relevant Elements of the Solvency and Financial Condition

Report of Bupa Insurance Limited as at 31 December 2016 is prepared, in all material respects, in accordance

with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based, as

modified by relevant supervisory modifications, and as supplemented by supervisory approvals and

determinations.

http://www.frc.org.uk/auditscopeukprivate

42


Emphasis of Matter - Basis of Accounting

We draw attention to the ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Solvency

and Financial Condition Report, which describe the basis of accounting. The Solvency and Financial Condition

Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II

regulations, and therefore in accordance with a special purpose financial reporting framework. The Solvency and

Financial Condition Report is required to be published, and intended users include but are not limited to the

Prudential Regulation Authority. As a result, the Solvency and Financial Condition Report may not be suitable for

another purpose. Our opinion is not modified in respect of these matters.

Matters on which we are required to report by exception

In accordance with Rule 4.1 (3) of the External Audit Chapter of the PRA Rulebook for Solvency II firms we are

required to consider whether the Other Information is materially inconsistent with our knowledge obtained in the

audit of Bupa Insurance Limited’s statutory financial statements. 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 in this regard.

The purpose of our audit work and to whom we owe our responsibilities

This report of the external auditor is made solely to the Company’s directors, as its governing body, in accordance

with the requirement in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and the terms of our

engagement. We acknowledge that the directors are required to submit the report to the PRA, to enable the PRA

to verify that an auditor’s report has been commissioned by the Company’s directors and issued in accordance

with the requirement set out in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and to facilitate the

discharge by the PRA of its regulatory functions in respect of the Company, conferred on the PRA by or under the

Financial Services and Markets Act 2000.

Our audit has been undertaken so that we might state to the Company’s directors those matters we are required

to state to them in an auditor’s report issued pursuant to Rule 4.1(2) and for no other purpose. To the fullest

extent permitted by law, we do not accept or assume responsibility to anyone other than the Company through its

governing body, for our audit, for this report, or for the opinions we have formed.

KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

17 May 2017

The maintenance and integrity of Bupa Insurance Limited’s website is the responsibility of the directors; the

work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors

accept no responsibility for any changes that may have occurred to the Solvency and Financial Condition

Report since it was initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of Solvency and Financial

Condition Reports may differ from legislation in other jurisdictions.

43


Appendix – relevant elements of the Solvency and Financial Condition Report that are not subject to audit Solo standard formula The Relevant Elements of the Solvency and Financial Condition Report that are not subject to audit comprise:

The following elements of template S.17.01.02

Rows R0290 to R0310 – Amount of transitional measure on technical provisions

Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

44


Glossary

Definitions

BINS or the Company Bupa Insurance Limited

the Board The Regulated Entities Board

Bupa The British United Provident Association Limited

the Bupa Group or the Group

The British United Provident Association Limited and subsidiaries

the Regulated Entities Collectively Bupa Insurance Limited and Bupa Insurance Services Limited

Solvency II Directive Directive 2009/138/EC of the European Parliament and of the Council

Abbreviations

BISL Bupa Insurance Services Limited

CEO Chief Executive Officer

CIA Chief Internal Auditor

CRO Chief Risk Officer

ECA Economic Capital Assessment

FCA Financial Conduct Authority

ICRMA Internal Control and Risk Management Assessment

IPMI International Private Medical Insurance

MCR Minimum Capital Requirement

NED Non-Executive Director

OCP Outstanding Claims Provision

ORSA Own Risk and Solvency Assessment

PRA Prudential Regulation Authority

QRT Quantitative Reporting Template

REAC Regulated Entities Audit Committee

RERC Regulated Entities Risk Committee

RE ERC Regulated Entities Executive Risk Committee

SCR Solvency Capital Requirement

SFCR Solvency and Financial Condition Report

SME Small and Medium Enterprise

UK GAAP UK Generally Accepted Accounting Practice

UK PMI UK Private Medical Insurance

USP Undertaking Specific Parameter

45


Annex - Reporting templates

The following QRTs are included within this Annex:

S.02.01.02 Balance sheet

S.05.01.02 Premiums, claims and expenses by line of business

S.05.02.01 Premiums, claims and expenses by country

S.17.01.02 Non-life technical provisions

S.19.01.21 Non-life insurance claims

S.23.01.01 Own Funds

S.25.01.21 Solvency Capital Requirement – for undertakings on standard formula

S.28.01.01 Minimum Capital Requirement – only life or only non-life insurance or reinsurance activity

General information

Undertaking name Bupa Insurance Limited

Undertaking identification code 549300INUTLX8PYTQR63

Type of code of undertaking LEI

Type of undertaking Non-life undertakings

Country of authorisation GB

Language of reporting en

Reporting reference date 31 December 2016

Currency used for reporting GBP

Accounting standards The undertaking is using local GAAP (other than IFRS)

Method of Calculation of the SCR Standard formula

Matching adjustment No use of matching adjustment

Volatility adjustment No use of volatility adjustment

Transitional measure on the risk-free interest rate No use of transitional measure on the risk-free interest rate

Transitional measure on technical provisions No use of transitional measure on technical provisions

List of reported templates

S.02.01.02 - Balance sheet

S.05.01.02 - Premiums, claims and expenses by line of business

S.05.02.01 - Premiums, claims and expenses by country

S.17.01.02 - Non-Life Technical Provisions

S.19.01.21 - Non-Life insurance claims

S.23.01.01 - Own Funds

S.25.01.21 - Solvency Capital Requirement - for undertakings on Standard Formula

S.28.01.01 - Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

S.02.01.02

Balance sheet

Solvency II

value

Assets C0010

R0030 Intangible assets 0

R0040 Deferred tax assets 0

R0050 Pension benefit surplus 0

R0060 Property, plant & equipment held for own use 20,248

R0070 Investments (other than assets held for index-linked and unit-linked contracts) 962,875

R0080 Property (other than for own use) 68,500

R0090 Holdings in related undertakings, including participations 2,904

R0100 Equities 0

R0110 Equities - listed 0

R0120 Equities - unlisted 0

R0130 Bonds 332,276

R0140 Government Bonds 25,919

R0150 Corporate Bonds 305,337

R0160 Structured notes 196

R0170 Collateralised securities 823

R0180 Collective Investments Undertakings 141,428

R0190 Derivatives 86,390

R0200 Deposits other than cash equivalents 331,377

R0210 Other investments 0

R0220 Assets held for index-linked and unit-linked contracts 0

R0230 Loans and mortgages 66,364

R0240 Loans on policies 0

R0250 Loans and mortgages to individuals 0

R0260 Other loans and mortgages 66,364

R0270 Reinsurance recoverables from: 42,773

R0280 Non-life and health similar to non-life 42,773

R0290 Non-life excluding health 0

R0300 Health similar to non-life 42,773

R0310 Life and health similar to life, excluding index-linked and unit-linked 0

R0320 Health similar to life 0

R0330 Life excluding health and index-linked and unit-linked 0

R0340 Life index-linked and unit-linked 0

R0350 Deposits to cedants 0

R0360 Insurance and intermediaries receivables 121,624

R0370 Reinsurance receivables 3,490

R0380 Receivables (trade, not insurance) 82,378

R0390 Own shares (held directly) 0

R0400 Amounts due in respect of own fund items or initial fund called up but not yet paid in 0

R0410 Cash and cash equivalents 119,630

R0420 Any other assets, not elsewhere shown 73,665

R0500 Total assets 1,493,047

S.02.01.02

Balance sheet

Solvency II

value

Liabilities C0010

R0510 Technical provisions - non-life 541,819

R0520 Technical provisions - non-life (excluding health) 19,113

R0530 TP calculated as a whole 0

R0540 Best Estimate 18,938

R0550 Risk margin 176

R0560 Technical provisions - health (similar to non-life) 522,706


R0580 Best Estimate 508,838

R0590 Risk margin 13,868

R0600 Technical provisions - life (excluding index-linked and unit-linked) 0

R0610 Technical provisions - health (similar to life) 0


R0630 Best Estimate 0

R0640 Risk margin 0

R0650 Technical provisions - life (excluding health and index-linked and unit-linked) 0



R0680 Risk margin 0

R0690 Technical provisions - index-linked and unit-linked 0



R0720 Risk margin 0

R0740 Contingent liabilities 0

R0750 Provisions other than technical provisions 4,537

R0760 Pension benefit obligations 0

R0770 Deposits from reinsurers 5,696

R0780 Deferred tax liabilities 25,846

R0790 Derivatives 84,213

R0800 Debts owed to credit institutions 0

R0810 Financial liabilities other than debts owed to credit institutions 0

R0820 Insurance & intermediaries payables 35,310

R0830 Reinsurance payables 8,700

R0840 Payables (trade, not insurance) 47,398

R0850 Subordinated liabilities 384,308

R0860 Subordinated liabilities not in BOF 0

R0870 Subordinated liabilities in BOF 384,308

R0880 Any other liabilities, not elsewhere shown 92,256

R0900 Total liabilities 1,230,086

R1000 Excess of assets over liabilities 262,961

S.05.01.02

Non-life

Medical expense

insuranceAssistance

C0010 C0110 C0200

Premiums written

R0110 Gross - Direct Business 2,064,301 41,826 2,106,127

R0120 Gross - Proportional reinsurance accepted 270,387 1,831 272,218

R0130 Gross - Non-proportional reinsurance accepted 0

R0140 Reinsurers' share 105,886 702 106,588

R0200 Net 2,228,802 42,955 2,271,757

Premiums earned





R0300 Net 2,232,716 43,950 2,276,667

Claims incurred





R0400 Net 1,561,074 24,647 1,585,721

Changes in other technical provisions

R0410 Gross - Direct Business 0 0 0

R0420 Gross - Proportional reinsurance accepted 0 0 0


R0440 Reinsurers' share 0 0 0

R0500 Net 0 0 0

R0550 Expenses incurred 567,256 15,240 582,496

R1200 Other expenses 63

R1300 Total expenses 582,558

Premiums, claims and expenses by line of business

Line of Business for: non-life insurance

and reinsurance obligations (direct

business and accepted proportional

reinsurance)

Total

S.05.02.01

Premiums, claims and expenses by country

Non-life

C0010 C0020 C0030 C0040 C0050 C0060 C0070

R0010 AE HK SG MX DK

C0080 C0090 C0100 C0110 C0120 C0130 C0140

Premiums written

R0110 Gross - Direct Business 1,638,855 1,253 8,323 16,051 29,295 28,549 1,722,324

R0120 Gross - Proportional reinsurance accepted 0 158,690 45,278 16,879 0 0 220,847

R0130 Gross - Non-proportional reinsurance accepted 0 0 0 0 0 0 0

R0140 Reinsurers' share 23,622 8,045 1,467 151 23,042 708 57,035

R0200 Net 1,615,232 151,897 52,134 32,778 6,253 27,841 1,886,136

Premiums earned





R0300 Net 1,614,886 153,540 50,982 34,248 6,896 28,268 1,888,820

Claims incurred





R0400 Net 1,193,751 110,614 34,134 25,182 0 14,110 1,377,791

Changes in other technical provisions

R0410 Gross - Direct Business 0 0 0 0 0 0 0

R0420 Gross - Proportional reinsurance accepted 0 0 0 0 0 0 0


R0440 Reinsurers' share 0 0 0 0 0 0 0

R0500 Net 0 0 0 0 0 0 0

R0550 Expenses incurred 330,847 62,616 16,212 12,347 5,145 10,816 437,982

R1200 Other expenses 63

R1300 Total expenses 438,045

Home Country

Top 5 countries (by amount of gross premiums written) -

non-life obligations

Top 5 countries (by amount of gross

premiums written) - non-life

obligations Total Top 5 and

home country

S.17.01.02

Non-Life Technical Provisions

Medical

expense

insurance

Assistance

C0020 C0120 C0180

R0010 Technical provisions calculated as a whole 0 0 0

R0050

Total Recoverables from reinsurance/SPV and Finite Re after

the adjustment for expected losses due to counterparty

default associated to TP calculated as a whole

0 0 0

Technical provisions calculated as a sum of BE and RM

Best estimate

Premium provisions

R0060 Gross 253,778 11,767 265,546

R0140

Total recoverable from reinsurance/SPV and Finite Re

after the adjustment for expected losses due to

counterparty default

27,731 0 27,731

R0150 Net Best Estimate of Premium Provisions 226,048 11,767 237,815

Claims provisions

R0160 Gross 255,059 7,170 262,230

R0240

Total recoverable from reinsurance/SPV and Finite Re

after the adjustment for expected losses due to

counterparty default

15,042 0 15,042

R0250 Net Best Estimate of Claims Provisions 240,017 7,170 247,188

R0260 Total best estimate - gross 508,838 18,938 527,776

R0270 Total best estimate - net 466,065 18,938 485,003

R0280 Risk margin 13,868 176 14,044

Amount of the transitional on Technical Provisions

R0290 Technical Provisions calculated as a whole 0 0 0

R0300 Best estimate 0 0 0

R0310 Risk margin 0 0 0

R0320 Technical provisions - total 522,706 19,113 541,819

R0330

Recoverable from reinsurance contract/SPV and

Finite Re after the adjustment for expected losses due to

counterparty default - total

42,773 0 42,773

R0340Technical provisions minus recoverables from

reinsurance/SPV and Finite Re - total479,934 19,113 499,047

Direct business and accepted

proportional reinsurance

Total Non-Life

obligation

S.19.01.21

Non-Life insurance claims

Total Non-life business

Z0010 Accident year / underwriting year

Gross Claims Paid (non-cumulative)

(absolute amount)

C0010 C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0110 C0170 C0180

Year

0 1 2 3 4 5 6 7 8 9 10 & +

R0100 Prior 0 0 0

R0160 N-9 0 0 0 0 0 0 0 0 0 0 0 0

R0170 N-8 0 0 0 0 0 0 0 0 0 0 0

R0180 N-7 0 0 0 0 0 0 0 0 0 0

R0190 N-6 0 0 0 0 0 0 0 0 0

R0200 N-5 0 0 0 0 0 0 0 0

R0210 N-4 0 0 0 0 0 0 0

R0220 N-3 0 0 0 1,427 1,427 1,427

R0230 N-2 0 0 6,746 6,746 6,746

R0240 N-1 0 200,860 200,860 200,860

R0250 N 1,481,076 1,481,076 1,481,076

R0260 Total 1,690,110 1,690,110

Gross Undiscounted Best Estimate Claims Provisions

(absolute amount)

C0360

C0200 C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0290 C0300

Year

0 1 2 3 4 5 6 7 8 9 10 & +

R0100 Prior 0 0

R0160 N-9 0 0 0 0 0 0 0 0 0 0 0

R0170 N-8 0 0 0 0 0 0 0 0 0 0

R0180 N-7 0 0 0 0 0 0 0 0 0

R0190 N-6 0 0 0 0 0 0 0 0

R0200 N-5 0 0 0 0 0 0 0

R0210 N-4 0 0 0 0 0 0

R0220 N-3 0 0 0 354 354

R0230 N-2 0 0 6,449 6,449

R0240 N-1 0 6,751 6,751

R0250 N 242,018 242,018

R0260 Total 255,571

Accident Year

Development year In Current

year

Sum of years

(cumulative)

Year end

(discounted

data)

Development year

S.23.01.01

Own Funds

Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 2015/35 TotalTier 1

unrestricted

Tier 1

restrictedTier 2 Tier 3

C0010 C0020 C0030 C0040 C0050

R0010 Ordinary share capital (gross of own shares) 57,209 57,209 0

R0030 Share premium account related to ordinary share capital 0 0 0

R0040 Initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings 0 0 0

R0050 Subordinated mutual member accounts 0 0 0 0

R0070 Surplus funds 0 0

R0090 Preference shares 0 0 0 0

R0110 Share premium account related to preference shares 0 0 0 0

R0130 Reconciliation reserve 180,752 180,752

R0140 Subordinated liabilities 384,308 384,308 0 0

R0160 An amount equal to the value of net deferred tax assets 0 0

R0180 Other own fund items approved by the supervisory authority as basic own funds not specified above 0 0 0 0 0

R0220 Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds 0

R0230 Deductions for participations in financial and credit institutions 0 0 0 0

R0290 Total basic own funds after deductions 622,269 237,961 384,308 0 0

Ancillary own funds

R0300 Unpaid and uncalled ordinary share capital callable on demand 0

R0310 Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand 0

R0320 Unpaid and uncalled preference shares callable on demand 0

R0330 A legally binding commitment to subscribe and pay for subordinated liabilities on demand 0

R0340 Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC 0

R0350 Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC 0

R0360 Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0

R0370 Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC 0

R0390 Other ancillary own funds 0

R0400 Total ancillary own funds 0 0 0

Available and eligible own funds

R0500 Total available own funds to meet the SCR 622,269 237,961 384,308 0 0

R0510 Total available own funds to meet the MCR 622,269 237,961 384,308 0

R0540 Total eligible own funds to meet the SCR 433,172 237,961 59,490 135,722 0

R0550 Total eligible own funds to meet the MCR 321,881 237,961 59,490 24,430

R0580 SCR 271,443

R0600 MCR 122,149

R0620 Ratio of Eligible own funds to SCR 159.58%

R0640 Ratio of Eligible own funds to MCR 263.51%

Reconcilliation reserve C0060

R0700 Excess of assets over liabilities 262,961

R0710 Own shares (held directly and indirectly) 0

R0720 Foreseeable dividends, distributions and charges 25,000

R0730 Other basic own fund items 57,209

R0740 Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds 0

R0760 Reconciliation reserve 180,752

Expected profits

R0770 Expected profits included in future premiums (EPIFP) - Life business

R0780 Expected profits included in future premiums (EPIFP) - Non- life business 129,040

R0790 Total Expected profits included in future premiums (EPIFP) 129,040

S.25.01.21

Solvency Capital Requirement - for undertakings on Standard Formula

Gross solvency capital

requirementUSP Simplifications

C0110 C0080 C0090

R0010 Market risk 91,410

R0020 Counterparty default risk 31,638

R0030 Life underwriting risk 0

R0040 Health underwriting risk 198,056Standard deviation for NSLT

health premium risk

R0050 Non-life underwriting risk 17,785 None

R0060 Diversification -86,092

R0070 Intangible asset risk 0

R0100 Basic Solvency Capital Requirement 252,796

Calculation of Solvency Capital Requirement C0100

R0130 Operational risk 71,676

R0140 Loss-absorbing capacity of technical provisions 0

R0150 Loss-absorbing capacity of deferred taxes -53,029

R0160 Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC 0

R0200 Solvency Capital Requirement excluding capital add-on 271,443

R0210 Capital add-ons already set 0

R0220 Solvency capital requirement 271,443

Other information on SCR

R0400 Capital requirement for duration-based equity risk sub-module 0

R0410 Total amount of Notional Solvency Capital Requirements for remaining part 0

R0420 Total amount of Notional Solvency Capital Requirements for ring fenced funds 0

R0430 Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios 0

R0440 Diversification effects due to RFF nSCR aggregation for article 304 0

S.28.01.01

Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

Linear formula component for non-life insurance and reinsurance obligations C0010

R0010 MCRNL Result 133,832

Net (of

reinsurance/SPV) best

estimate and TP

calculated as a whole

Net (of reinsurance)

written premiums in

the last 12 months

C0020 C0030

R0020 Medical expense insurance and proportional reinsurance 466,065 2,228,802

R0030 Income protection insurance and proportional reinsurance 0 0

R0040 Workers' compensation insurance and proportional reinsurance 0 0

R0050 Motor vehicle liability insurance and proportional reinsurance 0 0

R0060 Other motor insurance and proportional reinsurance 0 0

R0070 Marine, aviation and transport insurance and proportional reinsurance 0 0

R0080 Fire and other damage to property insurance and proportional reinsurance 0 0

R0090 General liability insurance and proportional reinsurance 0 0

R0100 Credit and suretyship insurance and proportional reinsurance 0 0

R0110 Legal expenses insurance and proportional reinsurance 0 0

R0120 Assistance and proportional reinsurance 18,938 42,955

R0130 Miscellaneous financial loss insurance and proportional reinsurance 0 0

R0140 Non-proportional health reinsurance 0 0

R0150 Non-proportional casualty reinsurance 0 0

R0160 Non-proportional marine, aviation and transport reinsurance 0 0

R0170 Non-proportional property reinsurance 0 0

Linear formula component for life insurance and reinsurance obligations C0040

R0200 MCRL Result 0

Net (of

reinsurance/SPV) best

estimate and TP

calculated as a whole

Net (of

reinsurance/SPV) total

capital at risk

C0050 C0060

R0210 Obligations with profit participation - guaranteed benefits

R0220 Obligations with profit participation - future discretionary benefits

R0230 Index-linked and unit-linked insurance obligations

R0240 Other life (re)insurance and health (re)insurance obligations

R0250 Total capital at risk for all life (re)insurance obligations

Overall MCR calculation C0070

R0300 Linear MCR 133,832

R0310 SCR 271,443

R0320 MCR cap 122,149

R0330 MCR floor 67,861

R0340 Combined MCR 122,149

R0350 Absolute floor of the MCR 3,332

R0400 Minimum Capital Requirement 122,149

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