Chairman’s introduction - Bupa · 2019-04-01 · Strategic Report Governance Financial Statements 35 Chairman’s introduction Board composition, succession planning and diversity

Strategic Report Governance Financial Statements

35

Chairman’s introduction

Board composition, succession planning and diversityWe believe that a diverse and inclusive Board brings a range of perspectives and insights to challenge management and support good decision-making. By reflecting our customer base, it helps us to understand and meet customer and wider stakeholder needs.

The Board spent a significant amount of time in 2018 on succession planning to ensure that it retained a good mix of skills, knowledge and experience as it underwent a refresh of membership. These included the appointment of Nicholas Lyons, Paul Evans and Matías Rodríguez Inciarte as Non-Executive Directors (NEDs) to replace the financial services experience lost through Lawrence Churchill, Lord Leitch and Simon Blair’s retirements, and my own appointment as Chairman to succeed Lord Leitch at the end of his tenure. Matías also brings knowledge of the Spanish market as he is already a non-executive director of Sanitas S.A. de Seguros, our Spanish health insurance business. Professor Sir John Tooke will also be retiring from the Board in May 2019. Recruitment of a NED with medical expertise is ongoing to replace Sir John’s experience in this area.

Finally, Michael Hawker will join both the Board and the boards of our main subsidiaries in Australia with effect from 1 April 2019, replacing Simon Blair’s experience of the Australian financial services market.

Strong corporate governance is crucial to the success of any organisation. At Bupa, our Board plays a vital part in ensuring that this is in place throughout the Group, setting the cultural tone to do the right thing and put customers first.

Our Governance Framework ensures that key risks and issues are escalated appropriately and that we can effectively oversee how our strategy is put into practice. As we have no shareholders, we can take a long term view and manage the Group in a sustainable way for our customers.

Although we are a private company without shareholders, we choose, as far as possible, to comply with the UK Corporate Governance Code 2016 (the Code), and this report sets out how we apply its relevant principles and provisions.

We have maintained female representation on the Board above the minimum 33% set by the Women on Boards Davies Review. Following the publication of the Parker Report into the Ethnic Diversity of UK Boards, the Board has reviewed and refreshed our Board Diversity Policy, which is available on our website. This policy requires all Board appointments to be made on merit, using objective criteria reflecting the skills, knowledge and experience needed to ensure a rounded and effective Board. We remain focused on increasing diversity and aspire to having an appropriate proportion of directors reflecting different ethnic or social backgrounds together with direct experience of some of Bupa’s key markets. During the year, we signed up to the HM Treasury’s Women in Finance Charter and have committed to exceeding 35% female representation on both the Board and the Bupa Executive Team on a continuing basis.

Governing key decisionsThe acquisition of Acıbadem Saglik ve Hayat Sigorta A.S. (Acıbadem Sigorta), a specialist health insurance provider based in Turkey, was a significant decision for the Board during the year. The risks associated with entering this territory were also considered by the Risk Committee to help inform the Board’s decision. The acquisition was completed in January 2019, and we will be monitoring its integration into Bupa. See page 44 for further information on our governance process around major acquisitions.

Roger DavisChairman

“ Strong corporate governance is crucial to the success of any organisation.”Roger DavisChairman

Bupa Annual Report 2018

36

Board of Directors

> Full details of each Director are available on bupa.com/boardofdirectors

> See Board and Committee performance page 45> See Engagement with stakeholders page 46

Roger DavisChairman

SkillsRoger has extensive business experience and an international mindset acquired during a wide-ranging career in financial services.

External appointmentsRoger is Chairman of Sainsbury’s Bank, Global RadioData Communications (GRC), Experian Limited and Future for Heroes.

ExperienceRoger has extensive experience in the UK and Asia with previous positions including Managing Director of India for Jardine Fleming, Chief Executive Officer of BZW Asia Pacific, and Chairman and Chief Executive of Barclays Capital Asia Pacific. He left Barclays as Executive Director and Head of the UK Bank in 2005.

Evelyn BourkeGroup CEO

SkillsEvelyn has a strong track record and extensive experience in financial services, risk and capital management, and mergers and acquisitions. A qualified actuary, she also holds an MBA from London Business School.

External appointmentsEvelyn is currently a Non-Executive Director of the Bank of Ireland Group plc.

ExperienceEvelyn was previously a Non-Executive Director of the IFG Group in Ireland. She joined Bupa from Friends Life, where she was Chief Executive Officer of its Heritage division. Prior to that she was at Friends Provident as Executive Director responsible for strategy, capital and risk and, before that, Chief Financial Officer.

Re N

N

Nicholas LyonsNon-Executive Director

SkillsNicholas brings extensive experience from his executive career in financial services and non-executive roles at financial services and insurance companies.

External appointmentsNicholas is currently Chairman of Phoenix Group Holdings and Clipstone Logistics REIT plc.

ExperienceIn his executive career, Nicholas spent 12 years at JP Morgan working in Debt and Equity Capital Markets and Mergers and Acquisitions, and eight years at Lehman Brothers as a Managing Director in its European Financial Institutions Group, finishing his term at the bank as Global Co-Head of Recruitment with a focus on corporate culture, diversity and inclusion.

Roles prior to that include Chairman of Miller Insurance Services LLP, Senior Independent Director of Pension Insurance Corporation plc, Senior Independent Director of Catlin Group Limited, and a Non-Executive Director of Temple Bar Investment Trust, Friends Life Group Limited and Friends Life Holdings plc.

Matías Rodríguez InciarteNon-Executive Director

SkillsMatías brings wide experience of Spanish financial services, risk management and government to the Board.

External appointmentsMatías is Chairman of Unión de Créditos Inmobiliarios, S.A., E.F.C., a Non-Executive Director of Financiera El Corte Inglés E.F.C., S.A, both credit institutions, and an Independent Director of Financiera Ponferrada SA Sicav, a Spanish investment fund. He is also Head of Santander Universities, the arm of Banco Santander that operates Santander’s university engagement programme.

ExperienceMatías is a Non-Executive Director of Sanitas, S.A. de Seguros, Bupa’s Spanish health insurance business. Matías’ early career included roles in the Spanish civil service and as a Minister in the Spanish Government. He then held a number of executive roles at Banco Santander SA including Executive Vice President and Chief Financial Officer, and Vice Chairman and Head of Risk Management.

Based on Board composition at date of approval of accounts.

A. British (6)B. Irish (2)C. Australian (1)D. Swiss/American (1)E. Spanish (1)

A

B

C

D

ENationality

Committee key

Committee Chairman

Audit A

Risk Ri

Nomination & Governance N

Remuneration Re

Non-Executive Directors’ Skills and Experience

Financial Services & Regulations 4

Audit & Financial 5

2

4

Risk Management 5

6

1

Remuneration 5

5

8

Health

Strategy & Development

International

General Business

Digital

Consumer

A. Women (5)B. Men (6)

A

B

Gender Diversity

Ri A

Re


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Joy Linton Chief Financial Officer

SkillsJoy brings over 30 years’ experience in financial and strategic roles in Australia and the UK.

ExperienceJoy joined Bupa in March 2011 as Finance Director of Bupa’s Australian health insurance business, later becoming Finance and Commercial Director of Bupa Australia and New Zealand. She became Bupa’s Chief People Officer on an interim basis in 2015, prior to becoming General Manager, Health Services for Bupa UK. Previously, she was CFO of National Foods, one of Australia’s largest food and beverage companies. She was also a Non-Executive Director of Bega Cheese Ltd, an ASX-200 listed company, serving as Chair of the Audit and Risk Committee.

Clare ThompsonSenior Independent Director

SkillsClare brings a wealth of experience, particularly in the areas of finance and insurance. She is the Senior Independent Director and is a Non-Executive Director of Bupa Insurance Limited, Bupa’s UK regulated insurance subsidiary, and chairs its Audit Committee.

External appointmentsClare is a Non-Executive Director of Direct Line Insurance Group plc and formerly a Non-Executive Director of Retail Charity Bonds plc, Non-Executive Member of the Partnership Board of Miller Insurance Services LLP, and Trustee and Treasurer of the Disasters Emergency Committee.

ExperienceClare was a Partner at PricewaterhouseCoopers (PwC) between 1988 and 2011. While she was at PwC, she held several senior, high-profile roles, particularly within the insurance sector. Clare is a Fellow of the Institute of Chartered Accountants in England and Wales.

Paul EvansNon-Executive Director

SkillsPaul brings 30 years of experience in the financial services industry.

ExperienceA qualified Chartered Accountant, Paul spent 13 years with PricewaterhouseCoopers before joining AXA where he held a number of senior roles, over 17 years, including Chief Financial Officer of AXA UK, CEO of AXA Life, Group CEO AXA UK and Group CEO of AXA’s global life, savings and health businesses. Paul is a former Chairman of the Association of British Insurers.

Martin HoustonNon-Executive Director

SkillsMartin brings extensive international business experience to the Board and is a Non-Executive Director of Bupa Arabia for Cooperative Insurance Company, Bupa’s listed joint venture insurance company with the Nazer Group Holding Company Limited in Saudi Arabia.

External appointmentsMartin is Chairman of Moelis & Company’s Global Energy Group and Vice Chairman of Tellurian Inc. He is also a Non-Executive Director of CC Energy and Vice Chairman of Hakluyt North America.

ExperienceMartin was previously Chief Operating Officer and Executive Director of BG Group plc where he spent 32 years. He is a former Chairman of TPH International, and former Non-Executive Director of Severn Trent plc. Martin is a Fellow of the Geological Society of London, sits on the advisory board of the Royal Opera House of London, and is a member of the advisory board of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs in New York.

Re

N

A

N

Ri

A

Ri

Caroline SilverNon-Executive Director

SkillsCaroline brings over 30 years of experience in international investment banking as well as extensive experience in advising clients and of regulators across Europe.

External appointmentsCaroline is a Managing Director at Moelis & Company, Non-Executive Chairman of FMCG Group PZ Cussons plc, and a Trustee of the Victoria & Albert Museum.

ExperienceA qualified Chartered Accountant, Caroline was previously Vice Chairman of EMEA Investment Banking at Bank of America Merrill Lynch and spent 14 years at Morgan Stanley where she held a number of senior positions including Global Vice Chairman of Investment Banking and European Head of Financial Institutions.

Professor Sir John TookeNon-Executive Director

SkillsSir John brings 40 years of medical expertise to advise the Board on clinical governance and advances in healthcare practices and treatments.

External appointmentsA consultant physician, Sir John is a past President of the Academy of Medical Sciences. He chairs the Centre for the Advancement of Sustainable Medical Innovation, UCL, and is Executive Chairman of Academic Health Solutions Ltd.

ExperienceSir John was formerly Vice Provost (Health) and Head of the Medical School at UCL, and Academic Director of UCL’s Academic Health Science Centre, UCL Partners.

Janet VoûteNon-Executive Director

SkillsJanet brings an international perspective and experience gained in corporate strategy, the health and care sector, and consumer-facing businesses.

External appointmentsJanet is Chairman of the Creating Shared Value Council at Nestlé SA, Council Member at SustainAbility, an ERM Group company and serves as an Ambassador of the International Integrated Reporting Initiative.

ExperienceJanet previously served as Global Head of Public Affairs at Nestlé SA and was a member of the board of Bamboo Finance SA. She also served as Partnership Advisor at the World Health Organization in the area of non-communicable diseases and mental health and as CEO of the World Heart Federation. Janet was formerly Vice President and Managing Partner at Bain & Company Switzerland.

Julian SandersCompany Secretary

SkillsJulian was formerly Deputy Company Secretary, having joined Bupa in 1988.

ExperiencePrior to joining Bupa, Julian was a Supervisor in the Business Services Group at Coopers & Lybrand (now PwC).

Ri

A

Re

Ri

N

Re

N


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Bupa Executive Team

The Bupa Executive Team (BET) comprises the Group CEO, CFO, the CEOs of the four Market Units and Global Function Leaders.

The BET meets regularly throughout the year focusing on performance, risks, talent and the delivery of the strategic agenda. In particular, the BET focuses on:

– Bupa’s strategic framework;

– calibrating performance and generating opportunities;

– aligning on priorities, including business development and mergers and acquisitions;

– high-level resource and capital allocation;

– culture and talent management in the organisation; and

– key global strategic initiatives such as driving innovation and leadership development.

1 Evelyn Bourke Group CEO

2 Joy Linton Chief Financial Officer

3 Richard Bowden CEO, Australia and New Zealand (ANZ) (Richard will be retiring in April 2019)

4 Hisham El-Ansary CEO, Australia and New Zealand (ANZ) (From April 2019)

5 Iñaki Ereño CEO, Europe and Latin America (ELA)

6 David Hynam CEO, United Kingdom (UK)

7 Simeon Preston CEO, International Markets (IM)

8 Paul Zollinger-Read Chief Medical Officer

9 Alex Cole Chief Customer and Corporate Affairs Officer

10 Nigel Sullivan Chief People Officer and Interim Chief Information Officer

11 Penny Dudley Chief Legal Officer

12 David Fletcher Chief Risk Officer

> The biographies of BET members are available on bupa.com/bet

3

4

9

5

10

6

11

7

8

1

2

12


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Bupa’s System of Governance

Our Board governance structure

Board Group oversight

Set strategy and risk appetiteTake major decisions

Association Members (AMs)External oversight

Hold Board to account

Group CEOHas day-to-day

authority to lead and manage the business

Bupa Executive Team

Supports the Group CEO in leading the business

and managing risk

Market UnitsIdentify, manage,

monitor and report on risks

Remuneration Committee

Rewards delivery of customer outcomes

and strategy

Audit Committee Oversees the integrity

of the financial statements

Auditor performance

Internal controls

> See page 47

Risk, Compliance and Clinical GovernanceTest, monitor and

challenge risk governance

Second line of defence

Risk Committee Oversees risk management

> See page 51 > See page 57

Nomination & Governance

Committee Recommends Directors

and Association Members

Reviews governance structures

> See page 54

Global Internal Audit

Independent assurance of governance, risk

management and internal controls

Third line of defence First line of defence

GovernanceRisk Management Framework

GovernancePolicies, standards, internal controls


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An Internal Audit Charter is in place setting out the function’s role, authority and independence. The function operates in accordance with the Global Institute of Internal Auditors’ international standards. Following an annual review of the Internal Audit Charter by the Audit Committee in December 2018, the Board approved the revised Internal Audit Charter in February 2019 and this is available on bupa.com.

External AuditorIndependence and objectivityThe Audit Committee provides clear guidance to KPMG LLP (KPMG) on the Committee’s expectations of KPMG as External Auditor and held two meetings with KPMG during the year without management present to ensure that the audit personnel were given the opportunity to raise any concerns they may have and to ensure that they remain independent and objective.

Philip Smart became the audit partner in 2017 and it is intended that he will remain in this role until Bupa rotates audit firms to ensure a smooth handover. This is in accordance with Financial Reporting Council (FRC) standards on lead audit partner rotation. As part of the evaluation of the External Auditor, the Directors confirmed that they were satisfied that the External Auditor had maintained its independence during the year and to the date of this report.

KPMG has internal procedures and controls and follows the FRC’s Ethical Standard for auditors to ensure it remains independent. There are no contractual obligations restricting the Company’s choice of External Auditor and there is no limitation of liability in the terms of KPMG’s appointment as External Auditor of the Company. The Company prohibits the recruitment of any person that has been involved in the Group’s audit for the current or previous financial year without prior approval from the CFO and the Audit Committee Chairman or any person that has been otherwise employed by the External Auditor in the preceding 12 months without prior approval from the CFO.

WhistleblowingWe foster an open and honest culture which includes encouraging and enabling our people to raise concerns of any malpractice or wrongdoing at Bupa in a secure and anonymous way in cases where reporting directly to a manager is not appropriate or the concern has not been fully addressed. We run regular internal campaigns to raise awareness of ‘Speak Up’, Bupa’s internal whistleblowing process, in addition to mandatory annual training. The Audit Committee annually reviews the policy to ensure its adequacy and security and recommends it to the Board for approval. The Board receives regular updates on issues reported through ‘Speak Up’ during the year and on investigations and actions taken.

Global Internal AuditPurpose and independenceGlobal Internal Audit (GIA) provides independent and objective assurance to the Audit Committee over the effectiveness of governance, risk and internal controls throughout the Group. It reviews the effectiveness of controls by undertaking an agreed schedule of internal audits each year.

GIA is the third line of defence and supports Bupa in accomplishing its purpose by helping the Board to protect the assets, reputation and sustainability of the Group, and to ensure risks to our customers and businesses are appropriately managed in accordance with the risk appetite set by the Board. It reports its findings to the Audit Committee and assists both the Board and management in improving the effectiveness of governance, risk management and internal controls.

To maintain the function’s independence and objectivity, the primary reporting line for the Chief Internal Auditor (CIA) is to the Chair of the Audit Committee, liaising with the Group CEO in day-to-day operations. GIA has no direct operational responsibility or authority over any of the activities audited. Where specific skills are not available in-house, the CIA and the Chairman of the Committee may procure the services of expert external advisers to deploy additional expertise and insights in delivering the annual GIA Plan.

Bupa’s System of Governance continued

System of GovernanceBupa’s governance structure is designed to enable the Board to lead within a governance framework of prudent and effective controls which enables risk to be assessed and managed. As already stated in the Risk section, our System of Governance includes a ‘three lines of defence’ approach to risk management, being:

– First line – management – responsible for identifying and reporting risks and managing risks within the risk appetite set by the Board, through documented policies, processes and controls;

– Second line – Risk function – provides assurance over first line activity, provides oversight, challenge and support to the first line; and

– Third line – Global Internal Audit – provides independent assurance.

The diagram on the preceding page shows how each of the ‘three lines’ reports to the Board or its Committees.

In addition, the External Auditor provides further assurance to the Audit Committee and the Board in relation to the Group’s financial statements.

The roles of Global Internal Audit and the External Auditor are set out below together with a description of our ‘Speak Up’ programme which is an important tool to encourage our people to report incidents. The role and activities of the Board and Committees in our system of governance are described in the subsequent sections of this report.

Further information on how the first line manage risk and how the second line provide risk assurance is on pages 30 to 34.


41

Leadership

Lord Leitch was independent on appointment as Chairman and retired from the Board on 31 December 2018. During the year he held a small number of external appointments, none of which were considered to impede his role at Bupa.

Roger Davis was appointed as Chairman from 1 January 2019, having been an independent Non-Executive Director since July 2015. The Board was satisfied that Roger met the independence criteria in the Code at appointment. Roger has a number of external appointments which the Board considers do not prevent him from providing sufficient time to his duties at Bupa. Details of his other appointments are set out in his biography on page 36.

Bupa’s governance framework and the role of the BoardThe Board is responsible for the long term success and sustainability of Bupa for the benefit of its customers now and in the future. It does this by providing clear leadership in setting strategy and risk appetite and by overseeing management’s implementation of strategy within a prudent and effective governance structure. The diagram on page 39 shows how the Board and its Committees oversee the business through the ‘three lines of defence’ model. The Board delegates certain activities to its Committees to ensure that there is sufficient time to discuss and provide challenge in these areas, and to allow the Board to focus on key strategic decisions. In turn, the Board is held to account by the Association Members (AMs) as set out in more detail in the Engagement with stakeholders section.

There is a schedule of matters reserved for the Board which includes strategy and management; structure and capital; financial reporting and controls; internal control and risk management; M&A; and material contracts and various corporate governance matters. The schedule is reviewed annually and is available on bupa.com. All other matters are delegated to the Group CEO, who has put in place a Delegated Authority Framework to cascade levels of authority through the business. This is regularly reviewed and updated.

The Chairman and the Group CEOThe roles of the Chairman and the Group CEO are separate with distinct accountabilities.

The Chairman is responsible for leading the Board and focusing it on strategic matters, overseeing the Group’s business and setting high governance standards. He plays a pivotal role in fostering the effectiveness of the Board and individual Directors, both inside and outside the board room. The Chairman is also responsible for ensuring that there is effective communication with the AMs, acting as a sounding board for the Group CEO and representing the Group externally. With the support of the Company Secretary, he ensures that the Board receives accurate, timely and clear information.

The Group CEO is responsible for the day-to-day leadership and management of the business, in line with the strategic framework, risk appetite and annual and long term objectives approved by the Board. The Group CEO may make decisions in all matters affecting the operations, performance and implementation of strategy of Bupa’s businesses, except for those matters reserved for the Board or specifically delegated by the Board to its Committees, executive committees or subsidiary company boards.

The Group CEO leads the BET in driving the performance of the business and setting the overall strategic agenda.

Board changesThe following table shows how the balance of skills, knowledge and experience required on the Board is being maintained and developed through the recent changes in its composition:

Outgoing Incoming

Lord Leitch – Chairman– financial services and regulation;– strategy and development;– international and general business experience;– IT; and– brand, marketing and consumer.

Roger Davis – Chairman– financial services and regulation;– remuneration;– strategy and development;– international and general business experience; and

– consumer business experience.

Lawrence Churchill– financial services and regulation;– risk management;– strategy and development;– international business experience; and– consumer business experience.

Paul Evans– financial services and regulation;– audit and financial;– risk management;– strategy and development; and– international and consumer business experience.

Simon Blair– financial services and regulation;– risk management;– healthcare;– strategy and development;– international business experience, including

Australia and New Zealand; and– consumer business experience.

Nicholas Lyons– financial services and regulation;– audit and financial;– remuneration;– strategy and development; and– consumer business experience.

Matías Rodríguez Inciarte– financial services and regulation;– audit and financial;– risk management;– international and general business experience; and– consumer business experience.


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committed to maintaining a target of at least 35% female representation on both the Board and the BET. To further enhance diversity at employee level, Bupa has also joined INvolve, the leading inclusion network, which has initiatives to improve inclusion in the workplace for ethnic minorities and LGBT+ people and to drive gender equality in business. Further information on INvolve can be found on their website at involvepeople.org.

Conflicts of interestEach Director is required to notify the Company as soon as possible of any actual or potential conflicts of interest, and this requirement has been adhered to during the year. In addition, the Company Secretary carries out an annual review of all Directors’ actual or potential conflicts of interest and any such potential conflicts were recorded and authorised. Should a conflict arise, the relevant Director agrees to abstain from discussions on any matter in which they may be conflicted. Many of our NEDs hold appointments externally, but each has confirmed that they are able to devote sufficient time to perform their role effectively.

The Nomination & Governance Committee has examined the link between Martin Houston and Caroline Silver at Moelis & Company, at which Caroline is a Managing Director and Martin chairs the Global Energy Group. This potential conflict has been cleared by the Committee.

Board training and development Each of the Directors is required to keep up to date on matters potentially affecting the business, and we arrange regular briefings for them over and above any training they may receive outside of Bupa. During the year, Directors attended sessions on the EU General Data Protection Regulation, public policy, the UK Senior Manager & Certification Regime and cybersecurity.

Committee members also receive training as necessary on specific technical topics. For example, in 2018, the Audit Committee received awareness training on new IFRS requirements and actuarial reserving. The 2018 Board evaluation has identified a number of potential areas for Board development during 2019, and training will be considered and scheduled as appropriate.

Board diversity and succession planningSuccession plans are regularly reviewed by the Board and the Nomination & Governance Committee, and we plan a phased replacement of NEDs coming to the end of their tenure. This approach is designed to ensure continuity on the Board, to maintain an appropriate balance of skills and experience on the Board and its Committees and to ensure we have a strong pipeline of executive talent within the business. The Nomination & Governance Committee Report on page 54 sets out in more detail the process adopted for changes to the Board during the year.

Bupa has had a Board Diversity Policy in place since 2012. Following publication of the Parker Report into the Ethnic Diversity of UK Boards, the Board has reviewed and refreshed the Board Diversity Policy, which is available on bupa.com. The Policy requires all Board appointments to be made on merit, employing objective criteria reflecting the skills, knowledge and experience required to ensure a rounded and effective Board. The Board is focused on increasing diversity and aspires to achieving an appropriate proportion of Directors reflecting different ethnic or social backgrounds who have direct experience of some of Bupa’s key markets. At Bupa, the concept of diversity includes race, social, educational and professional background, disability, gender, sexual orientation, religion, belief and age, as well as culture, personality, work style and cognitive and personal strengths. Diversity also includes a diversity of perspectives on what motivates and interests Bupa’s existing and potential customers. We do not believe that setting explicit targets to improve diversity in a particular area would be the right approach for Bupa. Instead, we aim to ensure that candidates for the Board and senior management are taken from as wide a pool as possible and the firms that assist us in our recruitment are all signatories to the Voluntary Code of Conduct for Executive Search Firms.

We maintained female representation on the Board above the minimum 33% set by the Women on Boards Davies Review, and we currently have 36% female representation on the BET. During the year, we signed up to the HM Treasury’s Women in Finance Charter, a UK initiative to increase female representation in senior finance roles. The Board is taking a global approach to the Charter and has

The role of the Senior Independent DirectorClare Thompson was appointed as Senior Independent Director (SID) in May 2018 following Lawrence Churchill’s retirement. Her role is to serve as a conduit for AMs and Directors who may have concerns that have not been resolved through other channels, to act as a sounding board for the Chairman and Group CEO on Board and AM matters and to lead the annual review of the Chairman’s performance.

The role of the Non-Executive Directors and independenceOur NEDs provide an external and independent view on the running of our business, governance and boardroom best practice. They oversee and constructively challenge management in its implementation of strategy within the Group’s system of governance and the risk appetite set by the Board. The Board considers each of the current NEDs to be independent of character and judgement and that there are no relationships or circumstances which are likely to affect, or could appear to affect, each of their judgement. The Board is clear in its view that Professor Sir John Tooke remains independent of character and judgement despite having served on the Board for over nine years, and that he makes an important contribution to the Board on medical matters. John has confirmed that he will retire from the Board in May 2019.

The Board comprises a majority of independent NEDs, and all Directors offer themselves for annual re-election by the AMs. NEDs are appointed for an initial three-year term, and any term beyond six years is subject to particularly rigorous review. A copy of the standard NED Terms of Appointment, setting out their expected time commitment, is available on bupa.com and at Bupa’s registered office, and is also available for inspection before and during the AGM. During the year, four meetings of the NEDs were held without management present, one of which was led by the Senior Independent Director in the absence of the Chairman and Chairman Designate.

Leadership continued


43

Regulatory engagementDuring the year, the Group received its regular Periodic Summary Review from the Prudential Regulatory Authority (PRA) and Firm Evaluation Letter from the Financial Conduct Authority (FCA) in relation to the UK insurance subsidiary. These are regular assessments by the regulators setting out any matters of interest to them generally in the sector or specifically to Bupa in relation to our insurance business, governance and capital management or their expectations in these areas. The Board invited members of the FCA and PRA to the meetings at which these letters were discussed and is closely monitoring the actions being taken to address the issues raised.

StrategyOur annual strategy meeting was held in June and considered a number of presentations on topics including the future of healthcare and health insurance; how Bupa is responding to disruptors in health insurance; strategic and emerging risks; and areas for growth. The objectives we set to achieve our strategy are constantly evolving, and further detail on our strategy and business model can be found in our Strategic Report on pages 1 to 34. Updates on progress against our strategy are received throughout the year.

Information security and privacy We take the security of our customers’ data very seriously. During the year, we commissioned an independent assessment of the maturity of the Group’s controls on information security against a global standard. The Board and the Risk Committee considered the results of this assessment and set a target maturity level to raise the maturity of the Group’s systems and controls on information security through a specific programme over the next two years. In addition, action has been undertaken during the year to ensure we comply with the EU General Data Protection Regulation. In particular, a new risk appetite statement on information security risk was approved by the Board. The Risk Committee report on pages 51 to 53 includes more detail on information security and privacy risk.

How the Board spends its timeThere were 11 scheduled Board meetings during the year and four ad hoc meetings to discuss specific matters, for example: Chairman succession, Solvency II reporting, regulatory matters and the acquisition of Acıbadem Sigorta.

The table below shows some of the matters considered by the Board during the year. Key issues are discussed in more detail below.

Topic Key issues

Governance, risk and regulatory

– half-yearly Chief Risk Officer (CRO) reports

– annual Medical Advisory Council report

– approval of Risk Management Framework and risk appetite statements

– ‘Speak Up’ reporting update

– PRA and FCA letters and presentations

– Committee minutes and verbal updates

– Solvency II returns

Performance and business updates

– Full and Half Year Results

– Group CEO reports

– CFO reports

– quarterly reports on business performance (including the Customer dashboard)

– MU updates

M&A – acquisition of Acıbadem Sigorta (Turkey)

– increase of stake in Bupa Arabia

– disposal of stake in Torrejón Salud (Spain)

– acquisition of Ginemed, fertility provider (Spain)

Strategy – ongoing strategy

– approval of three-year plan

– MU strategy updates

People – Chairman succession

– NED recruitment and Committee membership

– People Pulse results

– senior executive succession planning and talent management

Other – information security programme

– GDPR and privacy

– Brexit planning

– site visits to businesses in Hong Kong, Australia and Poland

– corporate responsibility and sustainability updates


44

Leadership continued

Board successionIn 2018, we appointed three new NEDs and the successor to Lord Leitch as Chairman. In addition, Michael Hawker will join the Board as a NED on 1 April 2019. The Board and Nomination & Governance Committee’s work in these areas is set out in that Committee’s report on page 54.

Brexit planningTo enable us to continue to serve international health insurance customers living in the EU, but outside the UK and Ireland, once the UK leaves the EU, the Board approved the establishment of a new regulated subsidiary in Ireland to renew business into post-Brexit. This company received Irish regulatory approval in December 2018. In addition, the Board has considered the potential impact of a no-deal Brexit both on our businesses in the UK and elsewhere in the EU, and this has been factored into the Group’s 2019-2021 Plan.

Australian transfer pricing disputeIn March 2019, Bupa Australia announced that it had reached an in-principle agreement with the Australian Taxation Office (ATO) to settle a number of disputed matters, including a transfer pricing issue relating to the funding of its Australian acquisitions in 2007 and 2008. Throughout 2018, the Board monitored progress on this matter and approved management’s proposed approach.

Acquisition of Acıbadem SigortaDuring the year, the Board approved the acquisition of Acıbadem Sigorta, a specialist health insurance provider which had gross written premiums of TRY913m (c£132m) in 2017 and represents a long term strategic investment for Bupa. The acquisition was agreed in August 2018 and completed in January 2019, and the Board will oversee its integration into the Group.

The diagram opposite shows the governance process followed for material acquisitions in accordance with the requirements of the M&A, Joint Ventures and Strategic Partnerships Policy, one of the Enterprise Policies approved by the Board to manage risk within the risk appetite set by the Board from time to time.

Target identified Negotiations and due diligence carried out

BoardApproves non-binding indicative offer

Risk CommitteeReviews: key risks and mitigation; fit with risk appetite; integration plan

Depending on value of transaction and entry into new geographic or product market

Governance in action: acquisition process

BoardConsiders: strategic rationale and value creation; due diligence; risks and

mitigation; financing; integration plan

Approves binding offer

Completion

IntegrationApproves integration plan

Post-acquisition reviewReviews process; assesses performance delivery; lessons learned

Less

ons

lear

ned


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Agreed actions from 2018 Board evaluation

Topic Agreed action Linkage to strategy

Considering the big trends

Enhancing the content of Board papers to include future trends in more detail.

Inviting contributions from external experts to challenge the Board’s thinking.

Putting our customers front and centre.

Information security

Closely monitor the information security programme.

Digital transformation and continuous improvement.

Progress against actions from the 2017 Board evaluationThe Board reviewed progress against the 2017 evaluation actions during the year and a summary of progress made is set out in the table below.

Topic Agreed action Progress made

Clarity on long term strategy

Keep Bupa’s long term ambitions and strategy under review.

The Board held a two-day strategy session in June 2018 and additional strategic matters have been considered by the Board throughout the year.

Focus on Non-Executive Director succession planning

Finalise appointment of new Chairman. Commence process to recruit NEDs with international financial services and medical expertise respectively.

Roger Davis was appointed as Chairman from 1 January 2019.

Four NEDs with financial services experience have been recruited, one with existing experience of our Spanish business, and one with experience of the Australian financial services market.

Recruitment of a NED with medical expertise is ongoing.

BET leadership succession

Significant focus on further strengthening of succession planning in a number of specific areas agreed by the Board in December 2017.

An executive talent session was held by the Board in September 2018. In particular, the Board endorsed the appointment of Hisham El-Ansary as CEO, Australia and New Zealand to succeed Richard Bowden who will be retiring later this year.

Board and Committee performanceThis year, we carried out an internal questionnaire-based evaluation of the Board and its Committees. The questionnaire was undertaken using an online tool provided by Independent Audit Limited, who carried out our last externally facilitated evaluation in 2016. An external evaluation will be commissioned in 2019. The questionnaires were completed by all Directors on the Board at 31 December 2018 except Paul Evans and Nicholas Lyons (exempted since they only joined the Board on 1 November 2018). In addition, a number of standing attendees were asked to complete the appropriate Committee questionnaires. The Board and each Committee analysed the results of the questionnaires and agreed appropriate actions to further enhance effectiveness during 2019.

The Board concluded that, overall, the Board and Committees had operated effectively during the year. In particular, it was found that Board members work well together with an open and trusting atmosphere and have a good mix of skills, knowledge and experience. The Board clearly sets and contributes to the execution of strategy, focusing on people as a lever to delivery. The Board also has a clear picture of the key risks and uncertainties facing the business.

Lord Leitch led the evaluation of each Director’s performance in 2018 and concluded that each Director had carried out their duties effectively during the year and contributed to the Board’s performance, devoting sufficient time to the Company’s business and constructively challenging management.

Lord Leitch’s performance during the year was also assessed and the Board agreed that he was an excellent Chairman who led inclusive discussions.

The agreed actions from the 2018 Board evaluation are set out in the adjacent table and progress against these will be reported on in the 2019 Annual Report and Accounts. The results of each Committee’s evaluation are set out in the respective Committee reports within this Governance Report.


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CustomersWe have a customer centric culture and the Board endeavours to understand the views of our customers through visits to operational sites, including call centres, care homes and hospitals as well as reviewing regular customer updates and metrics. Customers are at the heart of our decision-making at all levels of the organisation, facilitated by our Customer Excellence Framework and human-centred design. See ‘Our customers’ on page 8 for further information on how we are planning to meet our customers’ future needs and how we measure our performance based on customer feedback.

PeopleOur people are the backbone of our organisation and one of our strategic pillars is for our people to love working at Bupa and making a difference for our customers. During the year, the Board oversaw the development of a new People strategy and considered the results of our new People Pulse survey. The Board also receives reports on issues raised through the ‘Speak Up’ process and engages with our people during site visits. The Board sets an open and inclusive culture that empowers our people to deliver and to be themselves at work and welcomes Bupa’s work with the organisation INvolve and other activities to increase diversity at all levels of our workforce. More information can be found under ‘Our people’ on page 12. We are considering our approach to the new Code requirements regarding engagement with employees.

Other stakeholdersAcross our markets, we engage regularly with policymakers and regulators, health and social care professionals, consumer groups and other stakeholders. This enables us to champion issues that matter to our customers and contribute to policy debates. Beyond that, as part of our corporate responsibility and sustainability strategy, we play an active role in the communities we work in, connecting with other commercial and non-profit organisations to make a positive contribution to wider society, particularly in health. Our business model on page 4 shows how we create value for customers, employees and other stakeholders. Our approach to the role we play in our communities is available on page 18.

asked at the Annual General Meeting and other forums are circulated to all AMs, the Board and the BET, a practice that ensures that the views of AMs are well communicated and understood within the business.

Briefing calls are held with the AMs following the publication of the Group’s annual and half-year financial results each year, together with briefing sessions later in the year. In 2018, these sessions focused on strategy, 2018 developments, top risks, digital innovation, privacy and information security and our entry into the Turkish market. In addition, the AMs receive regular communications on key changes and developments within Bupa, such as major acquisitions and changes to the Board and BET. The Group CEO, Chairman, Senior Independent Director and Company Secretary are available to the AMs throughout the year. To help the AMs keep fully informed, they also have access to a secure website containing useful information and updates, along with regular media briefings and a calendar of forthcoming events.

BondholdersBupa has a number of debt securities in issue through its subsidiary company, Bupa Finance plc, and is therefore required to operate in accordance with the relevant UK Listing Rules, Disclosure and Transparency Rules and the EU Market Abuse Regulation in respect of its announcements of financial results and operations.

Briefing calls are held for bondholders to discuss the Annual and Half Year results. This provides an opportunity for them to question management on the financial performance and strategy of Bupa. Our CFO and Group Treasurer hold roadshows for bondholders at least annually and bondholders are kept up to date on significant developments at Bupa by email.

Association MembersBupa maintains a register of around 100 AMs, including all Board Directors, who perform the kind of key governance role ordinarily undertaken by shareholders. AMs normally serve for an initial term of ten years which can be extended for further terms of five years. AMs have no equity holding in Bupa and, consequently, no right to dividends, only receiving reasonable expenses for travelling to meetings or events. They are eminent individuals in their own field, coming from a diverse range of sectors, including health and social care, business, regulatory, academia, charities and the public sector. Their expertise enables them to challenge the Board on matters of performance and strategy. The Board can also draw upon their skills, knowledge and experience to help inform future strategy and development. Fundamentally, the role of AMs is to hold the Board to account in delivering on Bupa’s purpose of helping people live longer, healthier, happier lives. AMs are selected using criteria including recent and relevant experience in their field, independence from Bupa, the capacity to make a contribution and experience in the key overseas markets in which Bupa operates.

As set out in the Nomination & Governance Committee Report on page 54, we are in the process of recruiting additional AMs with the aim of increasing the number of those with knowledge of the key markets within which Bupa operates.

Bupa’s AMs have various opportunities to engage with the entire Board. The key event each year is the Annual General Meeting (AGM), which is well-attended and is combined with a seminar to provide an in-depth view of a particular aspect of the business and a further opportunity to ask relevant questions. In 2018, the topic of the seminar was the future of health insurance. A summary of the questions

Engagement with stakeholders

Governance in action: In 2018, our Board visited our businesses in Australia, Hong Kong and Poland.

These visits are an opportunity for our Directors to meet with local executives, to strengthen knowledge of Bupa’s global operations and how they are enabled locally.


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In 2018, the Committee monitored management’s progress on improving IT access controls and the External Auditor has also carried out testing in this area, noting improvements made during the year compared to 2017. In addition, management commissioned an independent assessment of the maturity of our current information security controls across the Group.

During the year, the Company has continued with its Finance Development Programme and extended the scope of this project to include creating an improved Solvency II reporting process, and delivery of IFRS 16 and IFRS 17 reporting. The Committee received regular reports on the progress of the Programme and supported management’s decision to go live with a new consolidation system for the 2018 year end. Both the Risk function and GIA provided assurance over the design and implementation of the new system and the controls put in place.

The Committee received training during the year on IFRIC 23 – Uncertainty Over Income Tax Treatments, as issued by the International Accounting Standards Board, and on actuarial reporting within Bupa.

Ahead of the Half and Full Year 2018 results, the Committee considered various accounting issues where a high degree of judgement was required to determine their treatment under relevant accounting policies. These included reviewing management’s assessment of goodwill and intangible assets, outstanding claims provisions and pension scheme assumptions including the Guaranteed Minimum Pension.

In March 2019, Bupa Australia announced that it had reached an in-principle agreement with the ATO to settle a number of disputed matters, including a transfer pricing issue relating to the funding of its Australian acquisitions in 2007 and 2008. The Committee received regular reports from management on the progress of the matter during the year and liaised with the External Auditor, the audit committee of the Australian business and external counsel to consider the accounting impact of the matter.

Significant issues and areas of judgement in respect of the 2018 reporting period and the way these were addressed are detailed in the table on pages 48 to 49.

The Committee’s role and governanceThe principal function of the Committee is to monitor the integrity of Bupa’s financial statements, the effectiveness of our internal control systems, and to monitor the effectiveness, performance, objectivity and independence of the internal and External Auditors. The Committee also reviews regulatory reporting and disclosure requirements.

A full description of the Committee’s role is set out in its Terms of Reference on bupa.com. The Group CEO, CFO, Corporate Controller, Chief Internal Auditor, Chief Risk Officer and External Auditor are routinely invited to attend meetings. The Committee meets at least annually with each of the External Auditor, Chief Internal Auditor and Chief Actuary in the absence of management. All of the Committee members have recent and relevant financial experience.

Key activities in 2018The Committee examined the key issues and judgements relating to the Group’s Half and Full Year Results 2018, Solvency Financial Condition Report and Regular Supervisory Report. In particular, the Committee asked management to clarify, simplify and improve the alignment and comparability of the Alternative Performance Measures (APM) used in external reporting. The Committee accepted management’s proposed approach to implementing IFRS 16 Leases and IFRS 17 (Insurance Contracts), and particularly its view of the potential impact of IFRS 16 on Solvency II capital requirements.

Audit Committee Report

The remit of the Committee extends beyond examining the integrity of the financial statements and, with regulators raising the bar in the UK and elsewhere, the Committee has an increasingly important task in overseeing management’s actions in relation to the Committee’s areas of responsibility. During the year, the Committee closely monitored the management programme to improve IT access controls in line with the increasing importance of information security across the Group. It also focused on the Finance Development Programme that included moving to a new IFRS consolidation platform in time for the production of the 2018 financial results.

I would like to thank Simon Blair for his contribution to the Committee during his tenure and also welcome Paul Evans and Nicholas Lyons to the Committee.

Under EU Regulations, Bupa is required to rotate its audit firm at the next appointment on or after 17 June 2020. The Committee has decided to hold a tender to appoint a new audit firm for the audit of the 2021 financial year. It is anticipated that the new External Auditor will be selected by mid-2019. “ In 2018, the Audit

Committee intensified its work in overseeing the quality and integrity of our internal financial statements and internal financial controls.”

Clare ThompsonCommittee Chair


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Financial reportingThe Committee reviewed the appropriateness of the Half and Full Year 2018 financial statements, with both management and the External Auditor. This review considered the following areas:

Fair, balanced and understandableIn assessing whether the Annual Report was fair, balanced and understandable, the Committee found as follows:

– The narrative reporting in the Strategic Report is consistent with the financial statements, providing challenge and feedback throughout the compilation of the Annual Report and Accounts;

– The key judgements referred to in the narrative reporting and the significant issues reported in this Audit Committee report are consistent with the financial statements;

– Statutory and adjusted measures, such as underlying profit, have been given equal prominence and are clearly explained;

– Key Performance Indicators reflect those used to measure business performance and management is able to explain their relevance in assessing the results;

– Clear, simple explanations are given of the business model, Bupa’s strategy and accounting policies;

– Key messages are clearly highlighted with

consistent wording throughout the Annual Report; and

– The layout and presentation are clear with appropriate language used throughout.

Going concern and longer-term viabilityThe Committee also reviewed the going concern assumptions and underlying principles in the longer-term viability statement on page 29. Overall, the Committee is satisfied that the assumptions and principles on which these are based are appropriate and reasonable.

The Committee also made an assessment as to whether the requirements of the risk management and internal control section of the Code were satisfied.

Audit Committee Report continued

Significant issues and areas of judgement

Key issue Committee response

Goodwill and intangible asset valuationsSignificant levels of goodwill and intangibles are held in respect of prior acquisitions. Impairment reviews are inherently complex and require a high level of judgement to be applied due to the uncertainty involved in forecasting future cash flows, the appropriateness of discount rates used and future growth rates of the respective business.

The Committee critically reviewed and discussed management reports outlining the basis of the assumptions used for our most sensitive Cash Generating Units (CGUs) and challenged the results in the light of business performance and the external environment, in particular noting the impairment in respect of Bupa New Zealand which has been recognised in the consolidated income statement. The Committee challenged management on the elements included in the Weighted Average Cost of Capital methodology and the terminal growth rates for the CGUs. The Committee also received from KPMG a report of their views on the assessments performed by management. The Committee is satisfied that the assumptions applied were reasonable and the carrying value of goodwill and other intangible assets is appropriate.

Claims provisioningCalculation of the outstanding claims provision is based on assumptions including claims development, margin of prudence, claims costs inflation, medical trends and seasonality, which require a high level of judgement and actuarial expertise.

The Committee received a report from the Chief Actuary setting out estimates of the technical provisions, including the margin of prudence held by each insurance entity, as well as the result of the annual review of compliance with Bupa’s Claims Reserving and Liability Adequacy Standards. The Committee sought justification for the appropriateness of the overall level of insurance technical provisions proposed, including the level of prudential margin, in view of historic reserve development patterns and the reserve strengthening undertaken during the year in some businesses. The Committee considered the appropriateness of the overall level of insurance technical provisions, including the level of prudential margin. In reviewing and approving the insurance technical provisions, the Committee also took into consideration the auditor’s report to the Committee.

Property valuationsBupa has a significant portfolio of care homes, villages and hospital properties which are revalued to fair value on a periodic basis, with external valuations undertaken at least triennially.

The underlying assumptions involved in the valuations, including earnings, profitability, occupancy levels and future trends are subject to a high level of judgement.

The Committee received the results from the external valuations in Spain and Chile, undertaken as part of the triennial property review, and Directors’ valuations performed in other Market Units. The Committee also reviewed reporting from the External Auditor addressing the valuations to assess their reasonableness and considered the appropriateness of disclosures made. The Committee is satisfied that property values and disclosures for all properties, including those held for sale, are in compliance with financial reporting requirements and are appropriate.

Pension assets and liabilitiesBupa’s principal defined benefit scheme in the UK is The Bupa Pension Scheme. Significant judgement is exercised in determining the actuarial assumptions used in valuing the pension asset/liability.

The Committee considered the appropriateness of the assumptions used in the valuation of the related pension assets and liabilities performed by the independent scheme actuary and is satisfied that the assumptions used in the valuation are appropriate. The Committee also noted the equalisation allowance in the consolidated income statement in respect of Guaranteed Minimum Pensions following the recent High Court judgement. The Committee received information from KPMG benchmarking the assumptions used in the valuation of pensions liabilities. The Committee concluded that the pension assumptions were appropriate.


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The assessment carried out during 2018 considered areas such as the overall quality of service, timeliness of the resolution of issues, the quality of the audit resource and whether the audit plan was followed. The Committee requested and reviewed the external audit plan, ahead of its approval to provide an opportunity to challenge the plan and ensure that the External Auditor allocated sufficient resources in order to meet the plan. The Committee is satisfied that KPMG continues to provide an effective audit service and recommends its re-appointment at the 2019 AGM.

The Committee reviews non-audit services provided by KPMG and other audit firms quarterly to assess any potential independence issues. The External Auditor’s remuneration for the year ended 31 December 2018 is shown in Note 2.3.3.

EffectivenessIn liaison with executive management, the Committee annually assesses the scope, fee, objectivity, independence and effectiveness of the external audit process and the performance of the External Auditor against agreed criteria at the outset of that year’s audit. This includes considering the results of the auditor satisfaction survey sent to senior finance management across the Group and the auditor evaluation survey sent to the Committee members along with the Group CEO, CFO, Chief Internal Auditor and the Corporate Controller.

External AuditorFees and non-audit servicesTo further safeguard the External Auditor’s objectivity and independence, Bupa has an Audit and Non-Audit Services Policy setting out the services which the External Auditor is prohibited from providing and the approval process for those non-audit or audit-related services that may be provided. The policy is reviewed and approved by the Committee annually. In 2018, the policy was updated to revise the absolute cap on the total value of non-audit engagements that may be contracted with the External Auditor prior to any approval by the Committee for subsequent non-audit engagements. This starts at a fixed financial amount and is capped at 50% of the average Group statutory audit fees paid in the last three years.

Significant issues and areas of judgement continued

Key issue Committee response

Acquisitions and disposalsDuring 2018, Bupa completed the acquisition and disposal accounting for an increase in its holding of Bupa Arabia, the disposal of Torrejón Salud in Spain and the acquisition of Ginemed, a Spanish health group.

The Committee considered the proposed accounting for the respective acquisition balance sheets, including the valuation of acquired customer relationship intangible assets, and the disposal. The Committee challenged management and concluded that the approach and assumptions used were appropriate. Proposed disclosures were also presented to the Committee.

Provisions and contingent liabilities

The Group has contingent liabilities arising in the ordinary course of business, including losses which might arise from litigation, disputes, and interpretation of tax law.

During the year, the Committee received reports from management setting out the rationale applied to the consideration of the recognition and disclosure of provisions and contingent liabilities, including those in relation to a number of disputed matters with the ATO. The Committee challenged the assumptions made and the conclusions reached requesting further details where they felt necessary. After due consideration and discussion, the Committee concluded that management’s assumptions were appropriate regarding the need or otherwise for accounting provisions and that the proposed disclosure in the financial statements was appropriate.

Alternative Performance Measures The Group uses an APM, underlying profit, for its segmental reporting to explain trading performance externally. This was refined in 2018 with 2017 comparators restated.

The Committee reviewed several proposed adjustments to the definition of underlying profit, based on FRC guidance, with the objective of including recurring items and reducing the number of differences between this measure and statutory profit. The key change was the decision to include amortisation of acquired intangible assets within underlying profit. More detail can be found in Note 2.

IFRS 16 LeasesThe requirements of the standard have been assessed in advance of application on 1 January 2019.

The Committee considered the key policy recommendations for IFRS 16 in respect of lease term, discount rate, transition options and valuation under Solvency II. The Committee challenged management and concluded that key policy recommendations made by management were appropriate.


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Internal Control and Risk Management Assessment As noted in the Risk section on pages 30-34, Bupa has an ongoing process for the identification and management of its principal risks and conducts an Internal Controls and Risk Management Assessment (ICRMA) annually to ensure that the internal controls and risk management processes are operating effectively.

The latest ICRMA process was conducted in late 2018 and the results reported to the Committee and the Risk Committee in early 2019.

Subsidiary governanceThe Committee has maintained its links with the audit committees of Bupa’s major insurance subsidiaries. The Committee Chairman also chairs the audit committee of the UK major insurance subsidiary. During the year she attended a meeting of the Spanish audit committee and has held calls or meetings with the chairs of the Australian and Miami audit commitees.

In addition, the minutes of the meetings of the audit committees of the major insurance subsidiaries are received to gain an insight into concerns at a local level.

Committee effectiveness reviewThe Committee considered the results of the 2018 review of its effectiveness and concluded that it had operated effectively throughout the year. The Committee members were found to work well together in questioning management assumptions in relation to external reporting, were focused, held good discussions on issues and had a good relationship with both the internal and External Auditor.

In 2019, the Committee has agreed to further strengthen its linkage with the Remuneration Committee and requested further improvements to papers submitted to the Committee to aid it in making informed decisions.

Audit Committee Report continued

access controls over data and quality of management information and documentation. Several thematic audits were also carried out covering risk culture, user access management and the quality of management information and documentation. The Committee approved a half year refresh of the 2018 Plan, based on a renewed risk assessment in line with the GIA methodology, in June 2018.

The CIA regularly reports to the Committee on GIA activity as well as management’s progress in addressing audit findings and all GIA reports are made available to the Committee members.

External quality assessmentInternal Audit maintains a quality assurance and improvement programme that includes an annual evaluation of the function’s adherence to the relevant standards. In 2018, the Committee commissioned an external quality assessment of GIA to assess its effectiveness relative to international standards. The assessment concluded that GIA generally conforms to the Global Institute of Internal Auditors’ international standards. The assessment also highlighted further work required to enhance the function’s effectiveness into the future, including to meet the best practices recommended in the UK FS Code. The Committee has reviewed the plans proposed by GIA to implement these recommendations.

Chief Internal AuditorThe Committee is responsible for the appointment and removal of the CIA, setting the CIA’s objectives and reviewing their performance, taking into account the views of the Group CEO. The CIA has access to the Committee Chairman and Board Chairman as required and is directly accountable to the Committee. During the year, the Committee held one private meeting with the CIA in the absence of management.

Following the issuance of their annual assessment of Bupa’s governance, risk management and controls in January 2019, the CIA has moved into a new role within Bupa. The Committee is satisfied that the CIA maintained their independence and objectivity throughout their tenure. An external successor to the CIA has been found and will join the business during the second half of 2019. Additional third-party resource has been engaged to support the Committee Chairman and GIA in the interim.

The FRC’s Audit Quality Review team (AQR) monitors the quality of the audit work of the major UK audit firms by inspecting a sample of their audit files and procedures each year. In 2018, the AQR reviewed KPMG’s audit of the Group’s 2017 financial statements. The Committee discussed the report with KPMG and noted that no significant areas for improvement had been identified and were satisfied with KPMG’s planned approach for the 2018 audit.

External Audit tenderKPMG has been Bupa’s External Auditor since 1985, during which time Bupa has not put the audit out to tender. Under new EU Audit Regulation transitional arrangements, Bupa is required to rotate its audit firm at the next appointment on or after 17 June 2020. As stated in the 2017 Report, the Committee has decided to hold a tender to appoint a new audit firm for the audit of the financial year ending 31 December 2021. The Committee has now agreed a process and timescale for the tender which will be led by a sub-Committee. EY, PwC and Deloitte have each confirmed that they could reach a position of independence at appointment and will be asked to take part in the tender which we expect to launch shortly. Medium-tier audit firms were also considered but they agreed that they would not be able to provide the service that an organisation of Bupa’s scale and geographic diversity requires. It is anticipated that the new External Auditor will be selected by mid-2019. The new firm will shadow KPMG during their audit of Bupa’s 2020 year-end, taking over as auditor from the beginning of 2021.

The Company intends to tender the External Auditor appointment at least every 10 years.

Global Internal AuditAnnual PlanThe assurance provided by GIA was a crucial part of the Committee’s consideration of Bupa’s overall control environment during the year. GIA’s Annual Plan is developed using a risk-based methodology that includes input from senior management and the Board. The 2018 GIA Annual Plan and budget were approved by the Committee in December 2017 and were driven by the output of a detailed risk assessment and discussion with the second line Risk function. The Plan included a focus on


51

2018 activitiesThe Committee’s focus in 2018 was to continue to monitor Bupa’s risk profile; creating a stronger link between the Group’s risk appetite and strategy by refreshing the emerging and strategic risk analysis; reviewing the Risk Appetite Framework and statements; gaining insights into a number of areas of the business through presentations from management; and overseeing management’s actions to mitigate key risks such as information security and privacy risk.

Monitoring Bupa’s risk profileThe Committee receives regular reports from the CRO on the Group’s risk profile and from the Chief Medical Officer on clinical risk governance. The Committee also engages with the risk committees of Bupa’s major insurance subsidiaries. The UK’s decision to leave the EU continues to lead to uncertainty for Bupa. We have put contingency plans in place to address a range of Brexit scenarios, including establishing a regulated entity in Ireland to allow us to continue to provide for our customers following changes to cross-border financial services regulation. In summary, our risk profile ends the year somewhat raised as improvements in internal capability are continually challenged by growing external threats.

Information security and privacy riskThe risk posed to our customers’ information has continued to be a key focus for the Committee throughout 2018. As we deliver on our digital aspirations, it is essential that we can protect the data we are given by our customers, partners, employees and providers. The Committee has continued to work to improve its understanding of information security risk, and to develop suitable controls to mitigate this risk. Bupa operates in a variety of geographies, but the cyber domain is global. During the year, the Committee has overseen a detailed global review of our information security systems and controls.

With the implementation of GDPR in May 2018, privacy risk has been another key area of focus during the year. The Committee has closely monitored management’s ongoing actions to meet GDPR requirements. A number of these are reliant on information security systems and required changes have been built into the information security actions. See overleaf for more information on how we protect information.

The Committee’s role and governanceThe principal role of the Committee is to assist the Board in its leadership and oversight of risk across Bupa. This includes understanding current and future risk exposures, recommending overall risk appetite and tolerance to the Board, reviewing the consistency of corporate strategy with the Company’s risk appetite, reviewing the Risk Management Framework, considering the risk aspects of major transactions, and promoting a risk awareness culture throughout Bupa. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com and a detailed description of Bupa’s risks are set out on pages 30 to 34 in the Strategic Report.

The Committee comprises independent Non-Executive Directors (NEDs). The Group CEO, CFO, Chief Risk Officer (CRO), Chief Medical Officer, CIA and the External Auditor are invited to attend all meetings. The CRO has unrestricted access to all members of the Committee and regular private meetings of the Committee with the CRO, in the absence of management, are held during the year to ensure an opportunity for the CRO to raise any concerns he may have. The Committee Chairman has recently been appointed as a member of the Remuneration Committee to ensure that risk management and culture are taken into account in remuneration decisions. Each year, the Committee provides a letter to the Remuneration Committee stating whether the Committee believes that variable remuneration should be reduced to reflect risk or control concerns.

Risk Committee Report

I would like to start by thanking Simon Blair for his inclusive and clear chairmanship of the Committee over the last year and to welcome Paul Evans and Matías Rodríguez Inciarte to the Committee. During the year, the ongoing role of the Committee has been to assess the Group’s compliance with the Board’s risk appetite. We have recommended new risk appetite statements on information security and privacy risk, strengthened our enterprise risk policies, considered the key risks of major transactions and received a series of ‘deep-dive’ presentations into specific risks.

As a provider of both health services and health insurance, we hold sensitive personal data on our customers and take their privacy and the security of their data extremely seriously. Key areas of focus for the Committee have been overseeing an independent assessment of the maturity of our current information security infrastructure, and preparations to comply with the EU General Data Protection Regulation (GDPR), which came into force during the year. We will continue to focus on these areas in 2019.

The Committee has also monitored the key risks associated with the acquisition of Acıbadem Sigorta in Turkey, the potential impact of various Brexit scenarios on the Group and enhanced regulatory scrutiny over our Australian Aged Care business and assessed the effectiveness of the Risk function.

“ Effective risk management is key to running a sustainable business.”Caroline Silver Committee Chair


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Risk Committee Report continued

Solvency capital implications of IFRS 16 LeasesIFRS 16 Leases applies to Bupa from 1 January 2019. The change in accounting will bring approximately £1.0bn of both lease assets and liabilities onto the Group Solvency II balance sheet. The associated property and interest rate risk charges will impact our solvency coverage by 16 percentage points. Our view is that the additional Solvency Capital Requirement is not reflective of the economic risks to which the Group is exposed through its leasing arrangements. The Committee has discussed several potential options for mitigating the capital impact. Further information can be found in Note 1.

Australia Care HomesOur Australian aged care business is operating in a challenging market, with a Royal Commission into Aged Care Quality and Safety being called in September 2018. Tough commercial and regulatory conditions are impacting the business. Nine Australian care homes have received sanctions notices from the Australian Aged Care Quality Agency. An improvement programme has commenced to identify and implement enhancements across all care homes and specific remediation work is being undertaken at sanctioned care homes. The Committee challenged management’s operating model for this business and will monitor the improvements being implemented to ensure that our residents continue to be cared for in a responsive, compassionate way, to a consistently high standard and to ensure that lessons learnt are applied across all markets.

Risk Management Framework and risk appetiteDue to their importance to the Group, information security risk and privacy risk have been separated from operational risk into separate Risk Appetite Statements. Also, the Enterprise Risk Policies have been redesigned to include minimum controls that all parts of the Group must comply with and to embed risk limits to make them more tangible to the business. The annual ICRMA process was carried out in late 2018 by the first line and was subject to challenge from the second and third line and the results considered by the Committee.

Emerging and strategic risksThe Committee regularly considers emerging and strategic risks, both internal and external, in the context of the current business and market environments in which we are operating. These inform future strategy discussions and they can present strategic opportunities as well as threats to be mitigated. The risks considered include the impact of significant governmental or regulatory changes, changes in customer behaviours and expectations, significant changes in medical treatment or the way care is provided, and digital disruption. There is significant linkage between these risks and it is unlikely that one risk would emerge in isolation.

BrexitThe Committee has monitored the potential impact of Brexit, including a no-deal Brexit on our businesses in the UK and the rest of the EU. While this scenario would be disruptive and expose Bupa to heightened risk in some areas, we do not anticipate an immediate material negative impact on the Group’s risk profile.

Management are examining an extensive list of issues and working through steps to protect Bupa’s position in these areas. In particular, the Committee is closely monitoring:

– financial market volatility in the short term;

– the approach to regulation of cross-border financial services;

– the UK’s future EU immigration system, including the impact of Brexit on our ability to attract and retain clinical staff;

– the impact of Brexit on the clinical supply chain in the UK, and;

– the impact of Brexit on the UK economy.

See the box opposite for further information on how Bupa is preparing for Brexit.

Information security and privacyWhy information security and privacy are important to BupaAs a health insurance and healthcare provider, we hold data on our customers and they expect us to respect the privacy of their information and deal with it appropriately. Any data loss could erode customers’ trust in us and have a significant impact on Bupa’s reputation. We therefore aim to ensure that we have systems and controls in place and operating effectively to mitigate the risk of loss or misuse of our customers’, partners’, employees’ or providers’ information and to ensure compliance with relevant data protection legislation.

How we protect the information we hold – we help our people understand the role they play in protecting information and handling it appropriately through mandatory training and regular internal communications to raise awareness;

– we have processes and controls in place to prevent information being accessed by unauthorised persons and that we only use information in appropriate ways; and

– we regularly review our processes and controls to ensure that they remain fit for purpose and strengthen them as needed to keep pace with new developments in technology, legislation or threats to information security.


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OtherIn addition, the Committee has carried out other business as required under its terms of reference including: recommending the Group’s ORSA to the Board for approval; reviewing the annual insurance compliance plan; reviewing the results of reverse stress testing of Bupa’s business model; reviewing the modelling of economic capital as part of our annual ORSA process; and approving, or recommending to the Board, refreshed enterprise risk policies.

Committee effectiveness reviewAs part of the last Committee effectiveness review, the Committee agreed to take a more strategic approach to defining the type of risk the Group is willing to take, to develop a clearer picture of the controls and risk management at Bupa and manage the bandwidth across the Group. As set out above, the Group’s Risk Appetite Framework and statements have been refreshed and new risk thresholds introduced to clearly set out the level of risk that the Board is prepared to take. The ICRMA process has become more robust and the reporting of risk and control information to the Committee has continued to evolve.

The 2018 review of the Committee’s effectiveness concluded that, overall, the Committee works effectively and is particularly strong at involving the Board as appropriate and setting the right tone with management. The mix of skills and personalities on the Committee provides a good balance and allows meetings to be focused with a good level of debate and challenge.

The Committee agreed a number of areas to focus on in 2019, including:

– monitoring the progress of the information security programme and wider IT risk management;

– monitoring the continued maturity of privacy risk management;

– further developing the Group’s risk and control culture, embedding risk management in the first line of defence; and

– continuing to strengthen the links between risk and strategy.

Stress and scenario testingManagement carries out stress and scenario tests annually to test the impact of various scenarios on the Group’s capital strength, liquidity and profitability. The Committee agreed the scenarios to be tested during the year and reviewed the results of the tests. The scenarios are designed to test the strength of our three-year operating plan and also form part of the Group’s Own Risk Solvency Assessment (ORSA).

Acquisition risksPrior to the Board’s decision in July 2018 to acquire Acıbadem Sigorta the Committee considered the key risks relating to this project with a particular focus on those associated with entering the Turkish market and the impact on the Group’s risk profile. Carrying out risk reviews such as these is crucial to the long term sustainability of our business, ensuring that the full range of risks is appropriately considered and proposals which would potentially introduce excessive or inappropriate risks are either rejected or fully understood and mitigated to bring them within the Group’s agreed risk appetite to the extent possible. See the diagram on page 44 for more information on how the Company governs decisions on major acquisitions.

Subsidiary governanceThe Committee has maintained its links with the risk committees of Bupa’s major insurance subsidiaries. The chairmen of the Australian and UK board risk committees each attended a meeting of the Committee in 2018 to provide their view of the key risks in their markets and management’s actions to mitigate key risks. The current Committee Chairman also attended a meeting of the Spanish insurance subsidiary’s risk committee and meetings were held with Chairman of the Australian risk committee.

In addition, the minutes of the meetings of the risk committees of the major insurance subsidiaries are received to gain an insight into the risks and concerns at a local level.

Brexit preparationsThe political uncertainty relating to Brexit and related uncertainty on market access, trade, free movement of people and the UK’s economic outlook could affect financial and operating results.

We have hedging programmes in place to mitigate the risk of potential FX volatility and liquidity risk. As already disclosed, we have established a new entity in Ireland to provide continuity for our Bupa Global customers within the European Economic Area. We are closely monitoring the approach to regulation of financial services, the UK’s future EU immigration system and the impact of Brexit on the UK economy.

We do not expect immediate interruption in workforce supply but do expect an impact in the medium-term, particularly on availability of clinical staff.

Our UK provision businesses have strategies for the attraction and retention of key clinical skills. There is a lack of clarity on how clinical supply chains might be impacted and we continue to monitor government guidance whilst identifying the key risks within our own supply chain, such as access to isotopes and pharmaceuticals with short shelf lives.

The impact of Brexit on the UK economy, and in turn our UK-based business, has been considered as part of our planning and forecasting activities and stress testing. For all other issues under review, we have monitoring and risk management plans in place to protect Bupa’s position from a customer, people and performance perspective, whilst recognising that the impacts of Brexit are likely to crystallise over time at an operational level and will be dependent on a range of political and economic factors.


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Chairman successionAt our 2017 AGM, Lord Leitch announced his intention to retire at the end of 2018. As previously disclosed, Lawrence Churchill, as Senior Independent Director, led the process of identifying a suitable successor to the role of Chairman. The Board agreed the key attributes required, taking into account the views of the Prudential Regulatory Authority and Financial Conduct Authority. Following pitches from two executive search firms, Russell Reynolds was appointed to carry out an initial desktop search for potential candidates and to benchmark internal candidates against the key attributes.

A detailed role specification was drawn up and potential candidates were considered by the Committee. Of the initial list of external candidates considered, 50% were women. Four external candidates and one internal candidate were shortlisted for interview by all non-conflicted Committee members. Feedback was considered by the Committee and, following discussion, a recommendation was made to the Board that Roger Davis was the most suitable candidate; he’s had a clear vision for Bupa, and that his skillset would complement that of the Group CEO. The Board considered and approved Roger’s appointment as Chairman and agreed that a handover process be set up to ensure a smooth transition from Lord Leitch. Neither Roger nor Lord Leitch took part in Chairman succession discussions or decisions.

The Committee’s role and governanceThe Committee reviews the balance, structure and composition of the Board and its Committees and leads the Board appointments process, making recommendations to the Board. It regularly considers succession planning to ensure that the Board has the skills and expertise it needs to lead and manage the Company in the future. The Committee also takes the Board Diversity Policy into account in both succession planning and recruitment. It leads the selection and appointment of AMs and approves the appointment of non-executive directors and non-executive chairmen of major subsidiaries in the Group. Further information on the Board Diversity Policy can be found on page 42 and the Policy is available in full on bupa.com.

The Committee keeps Bupa’s corporate governance arrangements under review and makes appropriate recommendations to ensure that, where appropriate, Bupa’s arrangements are consistent with best practice. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

The Committee comprises the Chairman, CEO and four independent NEDs. The CFO and Chief People Officer regularly attend Committee meetings.

Nomination & Governance Committee Report

2018 was a busy year for the Committee. Activity included the Chairman succession process that concluded with my appointment and the successful recruitment of three new NEDs. Michael Hawker’s appointment as a NED was announced in January and he will join the Board on 1 April 2019. He brings significant international insurance expertise, including in Australia.

The Committee also oversaw changes in corporate governance both internally and externally, and will continue the process to add international experience to our body of AMs.

The Committee plays a vital role in ensuring that the right candidates are proposed for appointment to the Board. This is not just about an individual’s skills, knowledge and experience but also about their mindset, how they would complement the existing Board members’ skills and the potential dynamics between Board members.

Corporate governance is a growing area of focus for the Group as a whole, and the Committee monitors corporate governance developments internationally and in the UK to ensure that we hold ourselves to the highest standards. “ We have refreshed

the Board to ensure continued balance of knowledge, skills and experience.”Roger Davis Committee Chair


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Association Member recruitmentFollowing the 2017 effectiveness review, the Committee agreed to further internationalise the pool of AMs. It was subsequently agreed to identify additional potential AMs and Russell Reynolds was retained to identify suitable candidates, with support from the Company Secretary. It was agreed that candidates should be:

– independent of Bupa;

– able to contribute;

– supportive of Bupa’s aims and objectives;

– able to act as an ambassador for Bupa; and

– complementary to the existing AMs.

In addition, experience of Bupa’s key markets was strongly desirable. This recruitment is ongoing.

Ridgeway Partners to lead on the recruitment of the insurance directors and Russell Reynolds to lead on the recruitment of a director with healthcare and clinical expertise. The initial focus was on the recruitment of directors with insurance experience given the experience that would be lost from the Board when Lord Leitch and Lawrence Churchill retired. The diagram below shows the process followed which resulted in the appointment of Paul Evans and Nicholas Lyons as NEDs with insurance experience from 1 November 2018 and the appointment of Matías Rodríguez Inciarte, with international financial services experience, particularly in Spain, as a NED from 1 January 2019. Matías is already a NED of Sanitas S.A. de Seguros, Bupa’s Spanish insurance business and was recruited through an expedited process, given Bupa’s existing relationship with him. Michael Hawker’s appointment has also been agreed with effect from 1 April 2019. He brings significant international insurance expertise, particularly in Australia and will also join the boards of Bupa’s key Australian insurance subsidiaries. The process to recruit a new NED with medical expertise is well advanced.

Ridgeway Partners provide executive and non-executive search services to Bupa, and have an employee health insurance scheme provided by Bupa. Russell Reynolds provide services to recruit NEDs and to identify potential AMs. They also have employee health insurance schemes provided by Bupa. They are both signatories to the Enhanced Voluntary Code of Conduct for Executive Search Firms.

NED successionLawrence Churchill retired from the Board at the AGM on 16 May 2018 following the successful conclusion of the Chairman succession process. Clare Thompson was appointed as Senior Independent Director from that date following a recommendation from the Committee to the Board. To help with continuity while the Chairmanship transitioned, the Committee recommended to the Board that Lawrence Churchill be retained on a consultancy basis to provide ad hoc support and advice to the Chairman and Group CEO until the end of 2018. In preparation for Simon Blair’s retirement from the Board on 11 January 2019, Caroline Silver was appointed as Chairman of the Risk Committee from 3 October 2018. Simon remained a member of the Risk Committee until his retirement from the Board.

A key focus for 2018, identified in the 2017 Committee effectiveness review, was to commence succession planning for those NEDs due to retire within the following 18 months. The Committee considered the key skills, knowledge and experience required in new Board members as succession plans progressed. It was agreed to recruit at least two NEDs with insurance experience and one with healthcare and clinical expertise. Knowledge of, and expertise in, Bupa’s key markets was also important as the Board agreed to ensure representation on the boards of Bupa’s key insurance subsidiaries by a current or recent Director. The Board appointed

Non-Executive Director recruitment process

Succession planning Identified need to recruit to maintain Board continuity and agreed insurance and healthcare or clinical expertise required as priorities.

Recruitment Executive search firms appointed to target each area of expertise and internal candidates considered. Detailed role specifications agreed.

Selection The Committee considered longlists taking into account each candidate’s executive and non-executive experience, fit with the role specification and fit with the Board’s existing skills, knowledge and experience and Board dynamics.

Board approvalShortlisted candidates initially interviewed by the Chairman, Chairman Designate and Group CEO.

Preferred candidates met with the remaining members of the Committee and the Committee recommended their appointment to the Board.


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Nomination & Governance Committee Report continued

Committee effectiveness reviewThe annual Committee effectiveness review agreed that the Committee was working well and had operated effectively during the year. In particular, the Committee felt that there had been strong improvement in oversight of subsidiary governance during the year, the level of challenge and discussion in meetings was good and the balance of skills, knowledge and experience on the Board had been maintained through the recruitment of new Non-Executive Directors. The Committee agreed to focus on the following areas in 2019:

– strengthening the Board’s knowledge of information security and IT;

– continuing the programme to recruit new AMs; and

– enhancing the Committee’s oversight of corporate governance.

Corporate governance oversightThe Committee receives regular updates on corporate governance developments across the Group’s key markets to ensure that it is maintaining high standards of corporate governance throughout the Group. Bupa chooses to comply with the Code. This, and the accompanying Board Effectiveness Guidance, were updated and reissued by the Financial Reporting Council in July 2018, and came into effect for Bupa on 1 January 2019. We intend to report in accordance with the revised Code in the 2019 Annual Report and Accounts. We are also considering the impact of new UK reporting regulations which will require enhanced disclosure in the 2019 Annual Report and Accounts of how the statutory directors’ duty to promote the success of the company has been taken into account in decision-making. The 2019 report will also provide details of the Board’s engagement with UK employees and stakeholders.

As set out in the Leadership section of this report on page 42, the Board Diversity Policy was refreshed during the year to take account of the recommendations of the Parker Report into the Ethnic Diversity of UK Boards. The Committee considered the Parker Report’s recommendations and endorsed the revised Board Diversity Policy for the Board’s approval.

Subsidiary governance In the 2017 Annual Report we set out the key recommendations from a subsidiary governance review performed in that year. These recommendations have now been implemented through updates to Bupa’s Subsidiary Governance Enterprise Risk Policy, which is approved by the Committee annually.

To enhance the relationship between the Group Board and the boards of our four major insurance subsidiaries, we now require a current or recent Group Board Director to be appointed to the boards of our major insurance subsidiaries. John Lorimer, a former NED, is a NED of our Australian insurance subsidiary in both the Healthcare and Health Insurance businesses and Michael Hawker will also be joining this board on 1 April 2019. Simon Blair was appointed as chairman of our major insurance company in Chile in January 2019. Matías Rodríguez Inciarte also serves on the board of Sanitas S.A. de Seguros and Clare Thompson serves on the board of Bupa Insurance Limited, our major UK insurance subsidiary. Additionally, in October 2018, Martin Houston was appointed as a non-executive director of Bupa Arabia, Bupa’s associate insurance company with the Nazer Group in Saudi Arabia and the Committee also approved the appointment of a number of other non-executive directors to key subsidiary boards during the year.

A further requirement is for the Group’s major insurance subsidiaries to carry out a board evaluation annually with an externally facilitated evaluation at least once every three years. To date, the Spanish, Australian and UK entities have carried out board evaluations, with the UK and Australian evaluations being externally facilitated. The results will be submitted to the Committee for review.


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Dear Association Members

Remuneration Report

Part 1: Committee Chairman’s letter

Key items covered at scheduled meetings

8 FebruaryBET annual reward review, Committee effectiveness review

21 February2015-17 LTIP outcome and approval of 2018-20 LTIP targets, annual reward review for Designated Individuals, terms of reference review

12 June HM Treasury’s Women in Finance Charter

18 July Review of Committee advisor, remuneration governance including requirements for insurance undertakings in the Republic of Ireland, 2018 incentive plan rules, review of approach to subsidiary NED fees, BET remuneration terms for CEO ANZ

9 October Pay comparator groups, approach to identifying UK Designated Individuals and remuneration standard, revised remuneration policy, approach to 2019 incentives, regulatory update

13 December Committee effectiveness review, Gender Pay Gap disclosures, Remuneration Policy Statement, 2019-21 LTIP targets, 2019 incentive plan rules, overview of general workforce

Part 1: Committee Chairman’s letter

Part 2: Policy

Part 3: Implementation

“ This year the Committee continued to ensure its governance of remuneration across Bupa was effective.”Martin Houston Committee Chair

On behalf of the Board and the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for 2018.

Role of the CommitteeThe Committee is responsible for ensuring that Bupa adheres to high standards of governance and best practice in remuneration matters. We have structured the remuneration policy to promote the long term success of the Company and link reward to Bupa’s strategic goals and purpose. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

I am delighted to welcome Nicholas Lyons who joined the Committee in November 2018, and I would like to thank Lawrence Churchill for his contribution as a Committee member to May 2018. I would also like to recognise the always invaluable, measured and thoughtful contributions of Lord Leitch, who retired in December 2018.

Directors’ remuneration policyIn 2018, the Committee ensured all elements of remuneration complied with the Directors’ remuneration policy, which was adopted at the 2017 AGM. As you may recall, one of the key changes was the introduction of a balanced scorecard for both the Management Bonus Scheme (MBS) and the Long Term Incentive Plan (LTIP), reflecting a unified approach to how Bupa rewards future performance that places customers and risk management at the heart of what we do.

For 2019, we are proposing an updated remuneration policy, to be voted on by Association Members at the 2019 AGM, which we believe better reflects Bupa’s strategic goals as well as developments in our external environment. We propose to change the weighting of performance measures for the MBS and LTIP, adjusting the minimum weighting of financial measures in these incentive schemes from 75% to 60%. The change provides additional scope for the Committee to increase the emphasis on customer outcomes, culture and behaviours, reinforcing placing customers at the heart of what we do.

A second change relates to executive pensions. Employer pension contributions for newly appointed Executive Directors on or after 1 January 2019 will be reduced from 30% of base salary to 18% of base salary, recognising wider concerns over the level of executive pension contributions.

Other smaller policy changes include removing the entitlement to a company car and driver for the Chairman and allowing reimbursement for spouse/partner travel expenses in exceptional circumstances for Executive Directors and Non-Executive Directors.

2018 activitiesIn addition to the review of our remuneration policy, we focused on a number of key areas in 2018.

Measurement of performanceWe have taken a fresh look at our approach to measuring performance for the MBS in 2019. To simplify and assist in the alignment, administration and communication of the MBS, the Risk Adjusted Profit (RAP) measure will be removed, with its 10% weighting distributed equally to Customer and Group profit. The Long Term Incentive Plan was identified as a key area for review in 2019.

Governance and developmentsFollowing the establishment of our Irish insurance entity regulated under Solvency II, the Committee approved the extension of its remit and the remit of Bupa’s Remuneration Standard for Designated Individuals to this entity.

Executive appointmentsFollowing the departure of our Chief Information Officer (CIO) in April 2018, the Chief People Officer assumed BET level CIO responsibility until a permanent appointment is made.

Wider employee contextBupa is committed to ensuring that remuneration across the organisation is appropriate and fair for all employees. The Committee assessed the UK Gender Pay Gap disclosure and in 2018, we


58

with Australian tax law and the settlement will involve no admission of liability by Bupa Australia. On this basis, given the historic nature of the matters, and in line with the Committee’s approach of applying discretion to previous plans, the impact of this settlement was removed from the determination of MBS payments.

Customer performance continued to make good progress, reflecting the high level of operational focus on customer needs across Bupa.

Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management behaviours. Assisted by contributions from the Risk Committee and the Risk Review Panel, the Committee, after considerable discussion and debate, determined this year that a number of individual bonuses should be adjusted, including individuals within the scope of the Committee, to take account of underperformance for risk management behaviours. The Committee also determined the Group had achieved the required performance within risk appetite and no business-wide risk adjustments would apply.

The individual performance multipliers for the Group CEO and CFO, based on their performance during the year, were 115% for both Directors. The Committee approved bonuses of 45.3% of maximum bonus opportunity for both the Group CEO and CFO.

Long Term Incentive PlanIn reviewing the 2016-2018 LTIP vesting in the context of the overall business performance, the Committee exercised discretion to remove the impact of the in-principle agreement Bupa Australia reached with the Australian Taxation Office. The Committee also applied an adjustment for the impact of the Australian Government’s Restriction of health insurance price increases at a lower rate than claims

signed HM Treasury’s Women in Finance Charter as part of our ongoing efforts to ensure that there is gender diversity across the business, including within the senior leadership team. We reviewed the outcomes from a new global employee engagement survey to obtain detailed insight into what our employees are saying and we discussed with management the insights from this survey. We also reviewed which employee metrics the Committee will use to assess workforce remuneration consistent with the requirements of the revised UK Corporate Governance Code 2018.

Performance and pay in 2018SalaryFor 2019, the Committee has approved increases to the Group CEO and CFO of 2.9% and 2.7% respectively, to reflect performance in the role and the general market. The increases are consistent with the budget applied for average increases in the annual pay review for other Bupa employees in the UK.

Management Bonus SchemeOur business performance across the Group was mixed, reflecting challenging market conditions. Our results were impacted by the divestment of part of the UK aged care business and challenges in our Australian aged care and health insurance businesses. Health insurance, our largest business line, delivered revenue growth and stable underlying profit, with good performance in Spain and the UK. We continued to invest in our services to customers especially in digital, new propositions and information technology infrastructure. In March 2019, Bupa Australia announced that it had reached an in-principle agreement with the Australian Taxation Office (ATO) to settle a number of disputed matters, including a transfer pricing issue relating to the funding of its Australian acquisitions in 2007 and 2008. Bupa Australia considers the positions it adopted were in accordance

Remuneration ReportPart 1: Committee Chairman’s Letter continued

> For more information please see page 63

2018 single total figure of remuneration (£000) (Audited)

Joy Linton

Evelyn Bourke

Management Bonus SchemeBase Salary Pension Other benefits

561 168 17 384 68

838 251 770 166

Total£000

1,198

2,078

Long Term Incentive Plan

53

inflation. The Committee agreed this latter adjustment should also apply to the current LTIPs. As per last year, the impact of some legacy strategic acquisitions were adjusted for as well.

As with the MBS, the Committee also reviewed risk management behaviours across Bupa and determined that no adjustment was required.

Over the three year period, profit after tax (PAT) performance was just above threshold, revenue performance was slightly above target and customer was on target. Based on overall performance, the 2016-18 LTIP vested at 15.5% of maximum.

Committee evaluationWe undertook an internally-facilitated evaluation to examine the Committee’s performance in 2018. The evaluation concluded that the Committee had performed satisfactorily, with positive improvements in the understanding of risk culture and the collective strength of the Committee, although the report also provided a number of areas for further development and improvement, including:

– Further work is needed to ensure that the LTIP aligns to strategy, is easy to understand and acts both as an incentive and as a retention tool for management; and

– The link between risk and executive reward is an area to be reviewed to ensure a clear and demonstrable impact on reward.

Voting on remunerationThe annual report on remuneration and the Directors’ Remuneration Policy will be subject to an advisory vote at this year’s AGM.

We welcome the input of Association Members, and I am happy to discuss any aspect of Bupa remuneration with them.

Martin Houston Committee Chairman


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Remuneration Report

Part 2: Policy

The aim of Bupa’s Remuneration Policy is to promote the long term success of the Company and motivate management to deliver strong and sustainable business performance aligned with Bupa’s purpose: helping people live longer, healthier, happier lives. The policy is intended to deliver a level and mix of remuneration competitive with companies of a similar scale and complexity.

Remuneration Policy table – Executive Directors

Base Salary Management Bonus Scheme

Long Term Incentive Plan

Pension Benefits

Purpose and link to strategy

Core element of remuneration set to attract and retain Executive Directors, reflecting their role and contribution.

To drive behaviour and to promote focus on the business priorities for the year.To motivate and incentivise delivery of performance over the annual operating plan.

To motivate and incentivise delivery of sustained performance over the long term aligned to Bupa’s strategic objectives.

To provide an income after retirement, healthcare security and family protection benefits.

To attract and retain Executive Directors by providing health and wellbeing benefits and providing security for families.

Operation

Salary levels are reviewed annually with any changes becoming effective in April.Factors taken into account include: – level of skill, experience and scope of responsibilities of the individual;

– overall business performance, scarcity of talent, economic climate and market conditions;

– general increases across Bupa; and

– external market data.

Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support the business strategy.Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year.Typically, 50% of any bonus awarded will be deferred for a period of up to three years, with the remaining 50% paid immediately in cash. To account for any loss in value over time, a modest uplift will be applied to the deferred amount.

As Bupa cannot provide incentives based on equity participation, it provides a Long Term Incentive Plan (LTIP) in the form of a deferred cash incentive that is broadly reflective of equity-based plans in comparable companies.Awards are usually made on an annual basis and relate to performance over a three-year period.Vesting of awards is based on the extent to which the performance targets set and assessed by the Committee are achieved.Any payments are made at the end of the performance period and a portion may be deferred for up to two years.

For the current Executive Directors and new appointments, the Company operates a defined contribution pension scheme.Executive Directors have the option to take any employer contribution as a cash allowance or a combination of pension contribution and cash allowance.

Executive Directors are entitled to a number of benefits which may include private health cover for themselves and their family, an annual health assessment for themselves and their partner, life insurance, income protection, car allowance (or alternatively for the CEO, the use of a company car and driver) and 30 days’ annual holiday. The benefits offered may be changed from time to time to reflect changing circumstances.Authorised travel expenses are reimbursed along with the additional tax and NIC incurred where these are treated as taxable income and, in exceptional circumstances, where spouses or partners are required to travel for business purposes, travel and subsistence expenses are reimbursed along with the additional tax and NIC.

Maximum opportunity

Salary increases are normally in line with those of the Bupa employee population. Larger increases may be given under certain circumstances, such as when a new recruit has been appointed on lower than market rate salary with the expectation of phased increases to bring it up to market level.The Committee does not consider it appropriate to set a maximum salary level.

The maximum bonus opportunity will not exceed 200% of base salary.

The maximum award will not exceed 275% of base salary.

Current Executive Directors receive employer contributions of up to 30% of base salary. Executive Directors newly appointed on or after 1 January 2019 receive employer contributions of up to 18% of base salary.

There is no specific maximum benefit spend.

Performance metrics

None Management Bonus Scheme (MBS) payments are based on the achievement of challenging financial and non-financial objectives.No less than 60% of the annual bonus will be subject to the achievement of financial measures which will be aligned to the strategic priorities of the business.

Vesting of awards is based on performance against a combination of financial and non-financial measures.Threshold performance results in a payment of 15% of the maximum.No less than 60% of the LTIP will be based on financial measures, with the remainder based on measures linked to the key strategic priorities of the business.

None None


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Illustrations of the application of the Remuneration PolicyBupa aims to provide a balance of fixed and variable compensation that provides stability while also incentivising superior business performance. At target, over 50% of the Executive Directors’ remuneration is based on individual and Company performance.

This graph illustrates the potential remuneration outcomes variation for different levels of performance using the incumbents’ salaries as at 1 April 2019 to calculate the MBS values.

Performance measures and target settingMeasures and targets for the MBS are aligned to delivery of Bupa’s annual operating plan and may include personal objectives that change from year to year.

Measures and targets for the LTIP are set by the Committee, taking into account internal and external reference points which include historic Bupa performance, internal forward-looking plans and broader market trends. Targets are set for vesting at threshold, on-target and outperformance levels.

Malus and clawbackMalus and clawback provisions may be operated at the discretion of the Committee in respect of awards granted under the MBS and LTIP. Malus (under which awards may be reduced, cancelled or made subject to additional conditions) may be applied prior to the payment of the award. Clawback (requiring a repayment of cash which has been delivered) may be operated for up to three years following payment of the non-deferred element of the MBS and five years from grant of the LTIP.

Remuneration ReportPart 2: Policy continued

Circumstances in which the operation of these provisions may be considered include:

– misstatement of results;

– an error in assessing any relevant performance metric or in the information or assumptions on which the MBS or LTIP is determined;

– serious reputational damage to Bupa or a relevant business unit;

– a scenario in which significant risk has been taken which is outside of Bupa’s or a relevant business unit’s risk appetite;

– gross misconduct or material breach of employment contract; and

– any other circumstance which the Committee in its discretion considers to be similar in nature or effect to the above.

Remuneration at various levels of performance (£000)Evelyn Bourke, Group CEO

Maximum2

On target1

Fixed pay

Joy Linton, CFO

Maximum2

On target1

Fixed pay

Base Salary Pension Benefits

875

875

875

263

263 875 1,169

263 1,750 2,338

3,235

1,191

5,279

53

Management Bonus Scheme Long Term Incentive Plan

Base Salary Pension Benefits

580

580

580

174

174 435 706

174 870 1,413

1,912

771

3,054

17

Management Bonus Scheme Long Term Incentive Plan

Total£000

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

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


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Approach to Remuneration Policy on recruitment of an Executive DirectorOur approach to remuneration on recruitment is to pay no more than is necessary and appropriate to attract the right talent to the role.

The Remuneration Policy table on page 59 sets out the various components which would be considered for inclusion in the remuneration package for the appointment of an Executive Director. Typically, a new appointment will have (or be transitioned onto) the framework that applies to other Executive Directors as set out in the policy table. Salary would reflect the skills and experience of the individual, and may be set at a level to allow future salary progression to reflect performance in the role.

It would be expected that the structure and quantum of the variable pay elements would reflect those set out in the policy table.

The Committee reserves the right to make any remuneration payments or payments for loss of office where the terms of the payment were agreed (i) before the Remuneration Policy came into effect, or (ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company.

To facilitate recruitment, the Committee may make compensatory payments and/or awards for any remuneration arrangements subject to forfeit on leaving a previous employer. We will seek to replicate, as far as practicable, the potential value and time horizon of such remuneration, as well as performance conditions that may apply.

In some circumstances, it may also be necessary to set up additional or alternative arrangements including but not limited to:

– relocation-related expenses; and

– international assignment allowances and expenses.

Remuneration Committee discretion The Committee has ultimate discretion over all incentive plans relating to the Executive Directors and other individuals within its remit. This includes, but is not limited to:

– determining the size of the award/payment;

– determining whether minimum levels of performance have been met or underlying performance is satisfactory before determining the vesting of any awards;

– determining whether the management of risk has been acceptable, or whether any downward adjustments are required;

– selecting or adjusting performance measures within the Remuneration Policy and the plan rules;

– determining whether individuals are ‘good leavers’ for incentive plan purposes, based on plan rules; and

– making one-off adjustments in exceptional circumstances.

In the case of internal promotions, any commitments made before appointment may be honoured unless an alternative approach, more closely aligned to the prevailing policy, is agreed by the Committee.

Any special joining arrangements may include malus and/or clawback; for example, tied to leaving within a pre-defined period.

Differences between the Remuneration Policies for Executive Directors and other employeesThe Remuneration Policy for the Executive Directors is designed to be broadly similar to the policy applicable to Bupa employees to ensure that they are both aligned to delivering sustainable business performance. Although the size of the opportunity varies, the underlying principles of the salary review cycle, MBS and LTIP are the same for the senior employee population.

A small number of senior managers across Bupa participate in the LTIP, based on the same framework as the Executive Directors, with award levels calculated as a percentage of salary based on their level of seniority and accountability. Vesting of the awards is dependent on performance against specific financial and non-financial measures over a three-year performance period. Junior employees are not eligible for LTIP awards.

In some cases, additional flexibility has been introduced for the Executive Directors and senior employees (e.g. providing the option to receive cash in lieu of pension contributions) to allow for personal circumstances.


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Policy Committee response

Notice period and compensation for loss of office in service contracts

– 12 months’ notice from the Company to the Executive Director.

– Up to 12 months’ base salary (in line with the notice period). Notice period payments will either be made as normal (if the Executive Director continues to work during the notice period or is on ‘gardening leave’) or at the termination date for any unexpired notice period.

Treatment of MBS on loss of office under plan rules

– The Committee may make an MBS payment for the year of cessation depending on the reason for leaving. Typically, the Committee will take into consideration the period served during the year and the individual’s performance up to cessation. Any such payment is at the discretion of the Committee.

– Any MBS will be paid at the normal time following the end of the performance year.

Treatment of LTIP on loss of office under plan rules

– An Executive Director’s award will vest in accordance with the terms of the plan and satisfaction of performance conditions measured at the normal completion of the performance period if the reason for leaving is redundancy, pre-agreed retirement, early retirement on the grounds of ill health, death or any other special circumstance agreed by the Committee. In these cases, final awards will be pro-rated based on completed months of service. The period of active employment excludes any period of ‘gardening leave’ or other such period when the Executive Director was legally employed but not required to actively carry out their duties. For any other reason, they will not be eligible for an LTIP payment.

– Any LTIP payment will be paid at the normal time, e.g. in April following the end of the performance period, or two years later for any deferral.

Pension and benefits

– Generally, pension and benefit provisions will continue to apply until the termination date.

Policy on payments for loss of office The table summarises the key elements of our policy on payment for loss of office in compliance with the relevant plan rules and local employment legislation.

Any payments made due to loss of office may take into account malus or clawback provisions as set out on page 60.

Service contracts for Executive Directors Executive Directors have a 12-month rolling employment contract. The notice requirement is 12 months from both the Company and the individual, which may be payable in lieu. These contracts also include specific post-termination restrictions. Executive Directors are usually permitted, subject to approval, to have one external Non-Executive Director role and to accept and retain the fee for this appointment. This is on the condition that any external appointment does not give rise to a conflict of interest.

Remuneration ReportPart 2: Policy continued

Service contracts for Non-Executive DirectorsThe terms of engagement for the Non-Executive Directors (NEDs) of Bupa set out the fees and benefits to which they are entitled as well as the expectation of the time commitment required to effectively perform their role. Copies of the standard terms of engagement are available on bupa.com.

The table describes the Remuneration Policy as it applies to the Chairman and NEDs.

Remuneration Policy table – Non-Executive Directors

ElementPurpose and link to strategy Operation

Fees To attract and provide stability, reflecting the complexity of the role and time commitment required

The Chairman receives an all-inclusive fee.

NEDs receive a fixed basic fee. Additional fees are paid for chairing or membership of Board Committees and/or additional work in relation to subsidiaries, and for the Senior Independent Director role.

Fees are reviewed annually by the Board with any changes implemented in July. Key factors taken into account include:

– overall business performance;

– scope and responsibility of the role;

– appropriate market data; and

– the fact that NEDs are not eligible for any form of variable pay.

Benefits To provide health and wellbeing benefits aligned with Bupa’s purpose

During their time in office, NEDs are entitled to private health cover for themselves and their family and an annual health assessment for themselves and their partner (subject to availability of a Bupa domestic private health product). These benefits are taxable. Authorised travel expenses are reimbursed along with the additional tax and NIC incurred where these are treated as taxable income and, in exceptional circumstances, where spouses or partners are required to travel for business purposes, travel and subsistence expenses are reimbursed along with the additional tax and NIC.


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This section sets out the details of the Executive Directors’ and Non-Executive Directors’ remuneration, showing how the Remuneration Policy has been implemented in 2018 and how it will be applied for 2019. As well as disclosing remuneration figures for the Executive Directors, it includes details on how well performance targets have been met and the resulting level of MBS payout and vesting of LTIP. Certain disclosures of the detailed information about the Director’s remuneration set out below have been audited by the Group’s independent auditor, KPMG LLP.

Set out below is a table showing a single total figure of remuneration (audited) for each Executive Director in 2018. Comparable figures for 2017 are also shown.

Director YearSalary£000

Benefits£000

MBS1

£000 LTIP1

£000 Pension2

£000 Total

£000

Evelyn Bourke3, Group CEO(appointed 25 July 2016)

2018 838 53 770 166 251 2,078

2017 800 48 1,020 403 240 2,511

Joy Linton, CFO(appointed 25 July 2016)

2018 561 17 384 68 168 1,198

2017 550 132 504 169 165 1,520

1. MBS refers to bonus payments earned during that year, and LTIP refers to payouts from the performance period which ended in that year including any deferred element. MBS is calculated for the full year on the 1 April 2018 salary.

2. Pension figures reflect a cash allowance paid to Executive Directors in lieu of company contributions into a pension scheme.

3. Evelyn Bourke’s benefits figure includes certain travel and subsistence expenses that are treated as taxable, grossed up to meet the costs of the additional tax. She is a Non-Executive Director of the Bank of Ireland and received fees of €49,076 in respect of her position, which are not disclosed in the table above.

2018 MBS measures and performanceFor 2018, the Group CEO’s target bonus opportunity was 100% of salary, with a maximum of 200%. The CFO’s target bonus opportunity was 75% of salary with a maximum of 150%.

The performance measures used to determine the 2018 annual bonus for our Executive Directors were as follows:

– Group profit (50% of award) – similar to underlying profit before taxation, with the most significant differences being the inclusion of restructuring and transaction costs in acquisitions and disposals;

– Risk adjusted profit (10% of award) – this is a measure which looks at the profits of the business less a risk adjusted capital charge;

– Group revenue (10% of award), including Bupa’s proportionate share of revenue from associates and joint ventures, which is not included within reported revenue;

– Cost efficiency (10% of award) – this is a measure focused on ensuring we are running the business efficiently, calculated as overhead costs divided by revenue; and

– Customer (20% of award) – this measure includes both improving our customer delivery and our customer insights.

Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management behaviours across Bupa, assisted by contributions from the Risk Committee, the Group CEO and the Risk Review Panel.

As detailed in the Committee Chairman’s letter, the Committee removed the impact of an in-principle agreement Bupa Australia reached with the Australian Taxation Office from the MBS.

The Group CEO received an individual multiplier of 115% based on her 2018 performance,

including handling of risk matters during the year. Key achievements included delivering resilient financial performance despite ongoing challenges, continuing to drive customer experience and digital innovation and improvement in relationships with regulators. The Group CEO demonstrated her leadership capability on strategic matters with the board. The Group CFO received an individual multiplier of 115% based on her 2018 performance, including handling of risk matters during the year. Key achievements included moving forward with acquisitions and divestments linked to strategy, delivering a material improvement in the control environment, driving the Finance Development Programme to deliver fit for purpose reporting and continuing to strengthen the depth and quality of current and future finance and control teams across Bupa.

The financial targets for the 2018 MBS and actual performance are set out in the table below.

2018 MBS payout (audited) Threshold performance

level £m or % if indicated

On-target performance


Stretch performance


Actual performance

level£m or % if indicated

Evelyn Bourke1 Joy Linton2

Max bonus% of

salary

Actual payout% of

salary

Max bonus% of

salary

Actual payout% of

salary

Group profit 693.7 770.8 847.9 753.5 100% 44.6% 75% 33.5%

Risk adjusted profit 43.9 48.8 53.7 (62.2) 20% 0% 15% 0%

Group revenue 12,440.3 13,822.5 15,204.8 13,877.2 20% 11.5% 15% 8.6%

Cost efficiency 14.5% 13.2% 11.9% 13.1% 20% 11.5% 15% 8.6%

Customer 90% 100% 110% 101.5% 40% 23.0% 30% 17.3%

Total 200% 90.6% 150% 68.0%

1. The actual payout figures include an adjustment to the whole bonus for personal performance. Evelyn Bourke‘s individual multiplier for 2018 was 115%. The multiplier is awarded on a range between 0% and 160% for individual performance.

2. The actual payout figures include an adjustment to the whole bonus for personal performance. Joy Linton’s individual multiplier for 2018 was 115%. The multiplier is awarded on a range between 0% and 160% for individual performance.

Remuneration Report

Part 3: Implementation


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Within the LTIP scorecard, profit after tax growth is weighted 60% and Return on Capital Employed (ROCE) is weighted 20%. The remaining 20% weighting for the LTIP is based on Customer. For any LTIP payout to be made, profit after tax growth must at least achieve threshold performance.

The table below shows the 2018-20 LTIP metrics.

Interests awarded during 2018 (audited)During the year, LTIP awards for the 2018-20 Plan were made to the Executive Directors. The Plan covers the three-year performance period to 31 December 2020. Subject to the performance targets being met, up to 50% of the award maybe paid in April 2021 with any excess being deferred for a further two years.

2016-18 LTIP vesting (audited)The 2016-18 LTIP vesting was based on performance against profit after tax (PAT) (75% weighting), revenue (10% weighting) and Customer (10% weighting).

As per policy, the Committee calculated vesting of the 2016-18 LTIP using an equal balance of actual and constant exchange rates. On an actual exchange rate basis, profit after tax performance was above threshold but below target while revenue was above target. On a constant exchange rate basis financial performance did not meet threshold.

As detailed in the Committee Chairman’s letter, the Committee removed the impact of an in-principle agreement Bupa Australia reached with the Australian Taxation Office as well as the impact of the Australian Government’s restriction of health insurance price increases at a lower rate than claims inflation. The 2016-18 LTIP vested at 31.0% of target.

Customer performance over the performance period was broadly on target, with the increased focus on customer driving progress in line with expectations across Bupa, taking into account the 3-year performance of each Market Unit and its overall size and impact on the Group.

As with the MBS, the Committee also reviewed risk management across Bupa using contributions received from the Risk Committee and the Risk Review Panel, and determined that no business-wide adjustment was required this year.

Overall financial and non-financial performance led to a calculated payout of 15.5% of the maximum award.

Remuneration ReportPart 3: Implementation continued

Financial targets 2018-20 LTIP (80% weighting)2018-20 targets

Profit after taxWeighted 60%

ROCEWeighted 20%

Below threshold performance 0% vesting < 4.5% p.a. < 6%

Threshold performance 15% vesting 4.5% p.a. 6%

On-target performance 50% vesting 7% p.a. 6.5%

Out-performance 100% vesting 10% p.a. 7%

Notes

Profit after tax growth measures the compound annual growth rate.

ROCE measures average, annual ROCE over the three-year period.

Straight-line vesting occurs between the discrete levels of achievement.

Customer targets 2018-20 LTIP (20% weighting)Vesting determined by the Remuneration Committee based on three-year improvement in the Customer and Brand Dashboard.

The table below shows the detail of the LTIP awards made to the Executive Directors in the year.

Long Term Incentive Plan2018-20 Long Term Incentive Plan

Evelyn Bourke Joy Linton

Basis of award 275% of base salary 250% of base salary

Face value of award (100% of award) £2,200,000 £1,375,000

Amount that would vest at on-target performance (50% of award) £1,100,000 £687,500

Amount that would vest at threshold performance (15% of award) £330,000 £206,250

Date performance period ends 31 December 2020

Payment due date April 2021, and April 2023 (for any deferred amounts)


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Year Group CEO

Single figure of total

remuneration £000

Management Bonus Scheme payout against maximum opportunity

%

Long Term incentive vesting rates against

maximum opportunity %

2018 Evelyn Bourke 2,078 45% 16%

2017 Evelyn Bourke 2,511 64% 41%

2016 Evelyn Bourke1 1,837 56% 44%2

2016 Stuart Fletcher3 1,315 46% 44%2

2015 Stuart Fletcher 2,081 62% 30%

2014 Stuart Fletcher 2,812 82% 71%

1. Evelyn Bourke was appointed Group CEO on 25 July 2016.

2. Figure corrected from 2016 Annual Report.

3. Stuart Fletcher left Bupa on 31 May 2016, his annual bonus payment reflects a pro-rated payment.

HistoricalThe table to the right shows levels of payout to the Group CEO against the maximum incentive opportunity for the last five years.

Percentage change in remuneration of the Group CEO (audited)The table on the right shows the change in salary, benefits and short term incentives (annual bonus) for the Group CEO in 2018 compared to 2017 alongside a corresponding average figure for the Bupa employee comparator group. The UK salaried population has been chosen by the Committee as the most appropriate comparison, as the Group CEO is located in the UK.

Group CEO Employees1

Salary 6.3% 2.3%

Benefits (excluding pension) 10.4% no material change

Short term incentives -24.5% 22.3%

1. Employees refers to the UK salaried population, being the UK-based permanent employees whose records are held on the HR database.

Relative importance of spend on pay (audited)The table to the right shows the relative importance of spend on pay. Given that Bupa does not have shareholders and therefore does not pay dividends, cash flow used in investing activities has been shown as an alternative measure.

2018 £m

2017 £m

Difference2018-2017

£m

Remuneration paid to all employees 1,994 2,115 -121

Cash flow used in investing activities 543 995 -452

Payments to former Directors (audited)There were no payments for loss of office agreed for Executive Directors in 2018.

In accordance with the arrangements agreed in 2016 at the time of his leaving Bupa, Mr Fletcher received ‘good leaver’ treatment under Bupa’s Long Term Incentive Plan (LTIP), with pro rata vesting based on his employment ending on 31 May 2016 and awards remaining subject to the rules of the plans (including, for example, the satisfaction of any applicable performance conditions, and malus, clawback and deferral provisions).

For the 2016-18 LTIP, Mr Fletcher received £36,986 in March 2019 for the period worked in the performance period.


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Statement of Implementation of Remuneration Policy in 2019 The remuneration of the Group CEO and CFO for 2019 was reviewed by the Committee for 2019, in the context of the Remuneration Policy as described on pages 59-62. Having reviewed their salaries, the Committee approved salary increases for the Group CEO and CFO of 2.9% and 2.7% respectively, to reflect their performance in the role and position against external market practice.

Salary (effective from 1 April) Management Bonus Scheme

Evelyn Bourke Group CEO

£875,000 (2.9% increase) – Target opportunity – 100% salary – Maximum opportunity – 200% salary

Joy Linton CEO

£580,000 (2.7% increase) – Target opportunity – 75% salary – Maximum opportunity – 150% salary

For 2019, the Committee plans to undertake a redesign of the Long Term Incentive Plan, based within the parameters of the policy set out on page 59. Following this, awards will be made later in 2019 with the award values still in line with policy. Full details of the awards will be provided in the 2019 Directors Remuneration Report.

Strategic Pillar Measure MBS scorecard

Strong and sustainable performance Profit Group profit – 55%

Revenue 10%

Cost efficiency 10%

Loved as a true customer champion in health and care Customer 25%

In addition to these measures, the MBS is subject to an overall adjustment based on risk management across Bupa. The Committee has the discretion to adjust any payment down to nil if required. The MBS also has an individual multiplier based on personal performance during the year against agreed objectives. This may also be adjusted for risk.

As stated in the policy, the underlying principles for reward remain the same for the senior employee population. As a result, the Management Bonus Scheme is cascaded down through Bupa, the only change being the level of opportunity.

Chairman and Non-Executive Director fees (audited)During 2018, the fee for the Chairman was reviewed by the Committee and the fees for the Non-Executive Directors were reviewed by the Chairman and the Executive Directors. The Chairman’s fee was increased by 3.7% and the Non-Executive Director basic fee was increased by 2.2%, both with effect from 1 July 2018. No changes were made to the other fees.

The current fee levels are set out in the table on the right.

Remuneration ReportPart 3: Implementation continued

2018 Fee

Chairman fee £425,000

Non-Executive Director basic fee £68,500

Senior Independent Director fee £17,000

Committee chairmanship Audit Committee £25,000

Remuneration Committee £25,000

Risk Committee £25,000

Committee membership Audit Committee £8,000

Remuneration Committee £8,000

Risk Committee £8,000

Nomination & Governance Committee £4,500


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Non-Executive Directors: Single total figure of remuneration (audited)Fees

£000 Benefits1

£000 Total

£000

2018 2017 2018 2017 2018 2017

Lord Leitch (Chairman) 393 380 39 50 432 430

Roger Davis 97 82 6 5 103 87

Lawrence Churchill2 42 129 6 23 48 152

Clare Thompson3 189 174 2 0 191 174

Simon Blair 97 82 228 8 325 90

Paul Evans4 14 – 5 – 19 –

Martin Houston 107 96 92 52 199 148

Nicholas Lyons5 14 – 0 – 14 –

Caroline Silver 88 11 0 – 88 11

Prof Sir John Tooke 108 107 2 2 110 109

Janet Voûte 90 88 30 28 120 116

Total 1,239 1,149 410 168 1,649 1,317

1. Travel and subsistence expenses for attending meetings at Bupa’s head office are treated as taxable income. All Non-Executive Director expenses in relation to this are grossed up to meet the costs of the additional tax and NIC. The benefits figures reflect this approach.

2. Since stepping down as a Non-Executive Director with Bupa, Lawrence continued to provide services to Bupa under a consultancy arrangement. The single consolidated fee for consultancy services for the period 16 May 2018 to 31 December 2018 was £70,500.

3. The 2018 fees for Clare Thompson include £73,500 (2017: £70,437) in respect of her services as a Non-Executive Director of Bupa Insurance Limited and Bupa Insurance Services Limited.

4. Paul Evans was appointed as a Non-Executive Director on 1 November 2018.

5. Nicholas Lyons was appointed as a Non-Executive Director on 1 November 2018.

Committee governanceMartin Houston has chaired the Committee since 11 June 2014.

In addition to the Company Secretary, regular attendees at the Committee meetings who provided comment and advice were the Group CEO, the CFO, the Chief People Officer and the Performance and Reward Director.

Mercer was appointed by the Remuneration Committee as its independent advisor in 2015. Such an appointment is reviewed every year and was confirmed in July 2018. The Committee is of the view that Mercer provides independent remuneration advice to the Committee and does not have any connections with Bupa that may impair its independence. Mercer is a member of the Remuneration Consultants’ Group and voluntarily operates under the Group’s code of conduct when providing advice on executive

remuneration in the UK. Mercer’s fees for services to the committee in 2018 was £127,500 on a time and materials basis. During the year, Mercer advised on market practice, corporate governance and regulations, incentive target setting and performance conditions, remuneration benchmarking and other matters that the Committee were considering.

The Terms of Reference for the Committee were reviewed in February 2018 and adopted by the board in March 2018. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.


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Insurance and indemnitiesBupa has a directors’ and officers’ insurance policy in place together with indemnities for the Directors and certain senior managers, to the extent permitted by English law and the Company’s Articles of Association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as Directors of the Company or any of its subsidiaries. There are no other third-party qualifying indemnity provisions or pension indemnity provisions in place.

Disclosure complianceThe Strategic Report and the audited financial statements are presented on pages 1-34 and from page 71 respectively. The Governance Report on pages 35-70 comprises the Directors’ Report.

Board attendance in 2018

Scheduled Board meetings Audit Committee

Nomination & Governance Committee

Remuneration Committee

Risk Committee

Name

Lord Leitch1 10/11 – 6/6 7/8 –

Evelyn Bourke 11/11 – 6/6 – –

Joy Linton 11/11 – – – –

Lawrence Churchill2 2/4 2/3 1/2 2/4 1/2

Simon Blair3 11/11 6/7 – – 6/6

Roger Davis4 10/11 5/7 4/5 5/8 –

Paul Evans5 2/2 1/1 – – 1/1

Martin Houston6 11/11 – 5/6 8/8 –

Nicholas Lyons7 2/2 1/1 – 1/1 –

Caroline Silver8 10/11 7/7 – – 5/6

Clare Thompson 11/11 7/7 6/6 – 6/6

Professor Sir John Tooke9 11/11 – 5/6 – 5/6

Janet Voûte10 11/11 – – 7/8 6/6

1. Lord Leitch was unable to attend one Board meeting and one Remuneration Committee meeting due to ill health. As Senior Independent Director, Clare Thompson chaired the Board meeting on this occasion.

2. Lawrence Churchill retired from the Board and Committees on 16 May 2018. He was unable to attend several Board and Committee meetings in the run up to his retirement due to prior commitments.

3. Simon Blair was unable to attend one Audit Committee meeting due to a prior commitment.4. Roger Davis was unable to attend several Board and Committee meetings due to prior commitments.5. Paul Evans was appointed to the Board on 1 November 2018 and as a member of the Audit and Risk Committees on 15 November 2018.6. Martin Houston was unable to attend a Nomination & Governance Committee meeting due to a prior commitment.7. Nicholas Lyons was appointed to the Board on 1 November 2018 and as a member of the Audit and Remuneration Committees on 15 November 2018.8. Caroline Silver was unable to attend one Board meeting and one Risk Committee meeting due to prior commitments. The Risk Committee absence was prior to her being appointed as

Chairman of that Committee.9. Professor Sir John Tooke was unable to attend one Nomination & Governance and one Risk Committee meeting due to prior commitments.10. Janet Voûte was unable to attend one Remuneration Committee meeting due to a prior commitment.

Other statutory information

The following disclosures required to be contained in the Directors’ Report are set out on the pages referred to below and incorporated by reference into this Directors’ Report:

Disclosure Location

Financial instruments > Note 10 page 118

Greenhouse gas emissions > Strategic Report pages 16-17

Risk management objectives and policies

> Note 24 page 134

Likely future business developments > Strategic Report page 3

Acquisitions and disposals > Note 22 page 131

Financial results > Financial Performance Summary page 1


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Statement of Directors’ responsibilitiesIn respect of the Annual Report and the financial statements the Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they have elected to prepare the Group and the Parent Company financial statements in accordance with IFRS as adopted by the EU and applicable law.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

– select suitable accounting policies and then apply them consistently;

– make judgements and estimates that are reasonable and prudent;

– state whether they have been prepared in accordance with IFRS as adopted by the EU; and

– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for:

– assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

– using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company, or to cease operations, or have no realistic alternative but to do so.

Post balance sheet eventsThe acquisition of Acıbadem Sigorta completed on 18 January 2019. Details can be found in Note 1.7.

BranchesThe Company has an inactive branch in Cyprus.

Articles of AssociationBupa is a company limited by guarantee and as such has no share capital nor any traded securities. The AMs each have one vote on business at general meetings. The Company’s Articles of Association require all Directors to be AMs. The Directors have the authority to exercise all the powers of the Company. A Director may be appointed by ordinary resolution or by a decision of the Directors. A Director’s appointment ceases in a variety of circumstances including resignation, becoming prohibited from being a director by law, bankruptcy, ceasing to be an AM, incapacity or being removed from a medical register if a qualified medical practitioner, being requested to resign in writing by at least three-quarters of the other Directors, or by ordinary resolution given on special notice.

Corporate governance statementAs part of our commitment to excellence, we aim, where appropriate, to operate to the same governance standards as are required of UK FTSE 100 companies. We applied the main principles and complied with all the provisions, relating to a company without shareholders, in the Code throughout 2018. The Code is available at frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code. The Company’s assessment of the Group’s internal control and risk management systems is set out on page 52.

Going concernThe Directors confirm that they are satisfied that the Company and the Group have adequate resources to continue in operation for the next 12 months. Accordingly, they continue to adopt a going concern basis in preparing the financial statements.

Political contributionsNo political donations were made, nor any political expenditure incurred.

Charitable donationsDuring the year, the Group donated a total of £6m to charitable causes with £1.3m being donated to charitable causes in the UK. Of the UK donations, £868k was donated to the Bupa UK Foundation, £53k to match fundraising by our employees, £21.5k related to community grants, £9k in relation to volunteering activities, £4.5k to disaster relief and £346k to various charities. Further information on our charitable and community activities can be found in the Corporate responsibility and sustainability section on page 16.

Employment policiesBupa considers clear communication with employees about employment issues to be essential. To ensure accessibility by all, information is provided to employees through a wide range of channels on employment matters and on the financial and economic factors affecting the Company’s performance.

Bupa is committed to offering an inclusive workplace for all our people in which we recognise diversity by providing equal opportunities to all. The employment of disabled persons is included in this commitment and is reflected in our membership of Business Disability International. The recruitment, training, career development and promotion of disabled persons is based on the aptitudes and abilities of the individual. Should employees become disabled during employment, every effort is made to continue their employment and, if necessary, appropriate training is provided.

More details can be found in the People section on page 12.


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Other statutory information continued

Disclosure of information to the External Auditor The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s External Auditor are unaware; and each Director has taken all the steps which they ought to have taken as a Director to make themselves aware of any relevant audit information, and to establish that the Company’s External Auditor is aware of that information.

External Auditor re-appointmentA resolution to re-appoint KPMG LLP as External Auditor will be put to the forthcoming Annual General Meeting of the Company.

By order of the Board.

Julian Sanders Company Secretary

13 March 2019

Company number: 432511

The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and to enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

They also have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors consider that the Annual Report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for AMs to assess the Group’s position and performance, business model and strategy.

The Directors have decided to prepare, voluntarily, a Directors’ Remuneration Report in accordance with Schedule 8 to The Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those requirements were to apply to the Company.

The Directors have also decided to prepare, voluntarily, a Corporate Governance Statement as if the Company was required to comply with the UK Listing Rules, Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in relation to those matters.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Documents

Chairman’s introduction - Bupa · 2019-04-01 · Strategic Report Governance Financial Statements 35 Chairman’s introduction Board composition, succession planning and diversity