Bupa Insurance Limited. Annual Report and Accounts for the financial year ended 31 December 2014

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Bupa Insurance Limited

Annual Report and Accounts

for the financial year ended

31 December 2014

Registered Office: Bupa House 15 – 19 Bloomsbury Way London WC1A 2BA Registered number: 3956433

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Registered number: 3956433

Strategic report

for the financial year ended 31 December 2014

The Directors present their annual report and the financial statements of Bupa Insurance

Limited (“the Company”) for the financialyear ended 31 December 2014.

Principal activities

Bupa Insurance Limited (“the Company”) is the UK’s largest health insurer, with 2.9 million members in the UK; and a leading provider of international health insurance providing medical cover to customers worldwide.

The Company provides personal, corporate and small business health insurance, as well as inward reinsurance and ancillary health insurance products, such as cash plans and travel insurance. The Company also has outward reinsurance arrangements in order to manage risk. The principal operations take place in the UK, with further operations in Denmark and branches in Malta, Cyprus, Spain and France.

Key performance indicators

2014 2013

Net premiums earned £2,127.6m £2,126.1m

Profit before taxation £182.5m £166.3m

Loss ratio 72% 68%

Insured lives ‘000s1 2,857 2,947

Solvency position (Pillar 1)2 174% 187%

1

Excludes the Scandinavian business which is in run-off.

2

The solvency position is disclosed in the Company’s PRA return.

Results

The Company achieved a 9.7% growth in profit before taxation year on year supported by our focus on improving operational efficiency and gains in net financial income, which was up 125% in the year to £19.6m (2013: £8.7m) driven by strong performance of our investments. The UK health insurance sector continues to be challenging, although during the year we saw customer growth in our SME business and we are beginning to see early signs of growth in our corporate business. In 2014 our corporate customers in the UK domestic business experienced some of the lowest premium increases on record. As a direct result of our work to contain costs, we were able to reduce or hold premiums level for over half our renewing corporate customers.

In our International Private Medical Insurance (“IPMI”) business growth in revenue was supported by several major corporate account wins, however we were impacted by higher claims costs on certain large corporate accounts. We have reviewed, re-priced and in some cases decided to discontinue these accounts, whilst also strengthening our claims provision. The regulatory solvency coverage reduced by 13% to 174% (2013: 187%) following the payment of a £672.8m dividend during the year. The dividend was part funded from a partial settlement of the £792.8m loan to Bupa Finance plc, our immediate parent undertaking, which reduced the outstanding balance to £400m. The remainder was funded from deposits with credit institutions.

Development

We remain committed to meeting our customers’ changing needs and making quality healthcare more affordable and accessible. During 2014, we have continued campaigning to reform the healthcare sector in the UK and drive greater transparency for patients on the cost and quality of private healthcare, as well as better value for money. As part of this we continue our ongoing drive to reduce healthcare costs, including those charged by hospitals, for the benefit of customers. We signed a new long-term agreement with Spire Hospitals, with prices agreed for six years and a framework to further improve quality of care. This

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Strategic report (continued)

provides a solid base to address the affordability of private healthcare and we will look to work with others in a similar way going forward.

In the IPMI business we saw a continued trend during the year towards mandatory health cover regimes in a number of countries in which we operate around the world. We continue to monitor such developments closely to ensure that our products remain a distinctive, premium and international alternative, addressing more than minimum local cover requirements and providing competitive advantage.

We also began the transformation of our IPMI business during the year, as we regionalised our operations to better serve our customers in their own language, culture and time zone, delivering operational efficiencies and focusing on strategic partnerships. In the UK we launched our first range of tiered products – Bupa Global Select, Premier, Elite and Ultimate Health Plans. These products allow customers to tailor their level of cover to their healthcare needs and expectations, with similar propositions to be rolled out in a number of priority markets in 2015.

Future Outlook

In 2015 we will continue to innovate and develop products and services to meet the changing needs of our customers. In the UK our focus is on growth through making private healthcare more accessible and affordable for more people. We will do this by focusing on operational efficiency and leading sector reform to deliver better value to our customers. We will also launch a three year investment programme, which will include development of new products, services and online tools to respond to our customers changing needs and to engage more people in their health and wellbeing.

Our transformation of our IPMI business will also continue in 2015 as we implement our regionalisation strategy, focusing in particular on building our new regions, and we will launch our tiered products in a number of priority markets, including Hong Kong and Mexico, to offer customers greater choice and access to quality healthcare.

Principal risks and uncertainties

Both the business performance and operations are subject to a number of risks and uncertainties. The Directors consider that the key risks and uncertainties relate to market conditions, insurance risk, regulatory risk and operational risk.

Market Conditions

The continuing challenging economic conditions, particularly in the UK, are likely to present a challenge to businesses and consumers in the Company’s markets. This could make customer retention, new business acquisition, and profitability more difficult to achieve. The Company has expanded its level of business development monitoring so as to identify adverse trends and manage such risks as effectively as possible.

PMI markets are highly competitive with companies seeking to attract customers through new products and additional benefits. There is also demand for innovation to meet the disparate needs of corporate customers and individuals. The Company keeps its competitive position in each of its markets under continuous scrutiny, and regularly reviews strategic and tactical objectives. Performance is monitored by the Board and senior management using operational, financial and other data.

Insurance customers benefit from services procured from a wide range of providers including hospitals and consultants. In the face of inflationary pressures, there is a risk that increasing provider charges and medical inflation will lead to substantial increases in premium rates and customer dissatisfaction. The Company’s policy is to work with its providers to maintain and improve quality while managing ‘benefit spend’ - the cost of procuring medical services. This includes, where possible, the use of contracts, preferred supplier arrangements and case management techniques.

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Strategic report (continued)

There is a risk of change to healthcare businesses in key markets as a result of political decisions: such change may have positive or adverse consequences for the Company. The Company’s activities are central to many people’s lives and therefore it is inevitable that its services will also be high on political agendas.

As part of the strategic planning process, analysis is performed of the impact of possible political change on its business model. The Company also seeks to maintain a constructive dialogue with governments in its main areas of operation, promoting the benefits of high-quality, private healthcare alongside public provision. This risk is also mitigated by the international diversification of its operations. However, the geographic diversification of the Company’s operations and customer base significantly increases its exposure to localised business disruption due to natural or human events.

Insurance Risk

There is also risk that the frequency, size or timing of claims on insurance policies varies from that expected, leading to variations in financial returns. By virtue of being in the medical insurance business, the Company is exposed to a number of factors affecting its insurance risk, including macroeconomic trends, medical inflation, shifts in demographics, changes in population health, developments in healthcare delivery and technology, catastrophes and statistical fluctuation. Each of these factors could affect product pricing, reserving, claim risk accumulation, as well as the lapse and persistency behaviour of its current and prospective customers.

Insurance risks are managed in a variety of ways, including the use of advanced analytic models of products and pricing. In addition, business units operate controls on underwriting and claims settlement as well as utilising internal and external actuarial, business and strategic reviews. A significant mitigating factor is that the vast majority of business written is for short-term risks, which enable regular re-pricing in the event of changes in claims trends.

Regulatory Risk

The Company seeks to comply with all regulatory standards and to maintain an awareness of, and where possible, anticipate regulatory change. Its principal financial regulators are the UK’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), with which the Board and senior managers maintain a close supervisory relationship. The risk that the Company may fail to meet regulatory requirements is mitigated through the effective operation of the governance framework, and in particular the identification and management of all relevant requirements and associated risks

Operational Risks

The Company has detailed Business Continuity Plans for all businesses with dedicated specialised resource in place to ensure appropriate operation of key processes and controls. Business continuity issues are reported to the Executive Risk Committees of the Company’s business units, with significant issues being escalated to the Company’s Board Risk Committee which is responsible for ensuring appropriate controls are in place to mitigate potential risks. As a result of the governance structures and controls in place, there was no significant impacted business disruption event during 2014.

The services provided by the Company are underpinned by information technology systems and infrastructure that enable the delivery of core processes and products. Failure of these systems may reduce the ability of the Company to deliver products and services to its customer base or increase the risk of information security breaches. The Company’s IT services are provided by Bupa Insurance Services Limited, which has a number of dedicated IT teams who are responsible for the development, maintenance and monitoring

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Strategic report (continued)

of IT services. A programme of work is in place to ensure the continued development and enhancement of all IT services to provide the levels of services required by the business and adequately protect sensitive customer and business data.

Solvency II and regulatory change

In the Company we seek to apply both the letter and spirit of new and changing regulation. Solvency II drives a programme of change that goes well beyond pure capital and solvency measures, and we are using this as a catalyst to enhance and embed strong governance and control in the Company.

Solvency II will bring a significantly enhanced regulatory regime for European insurers. We support the additional stability and safeguards that the enhancements are intended to bring and will work with the regulator on implementation of the changes to deliver the best outcomes for customers, markets and the Company.

Forthcoming financial reporting requirements

In 2012 the Financial Reporting Council (FRC) issued FRSs 100, 101 and 102, which set out the choice of accounting framework applicable in the UK and Republic of Ireland to replace existing UK GAAP. These new standards become effective for accounting periods beginning on or after 1 January 2015. As the Company is a wholly owned subsidiary undertaking of Bupa, a group whose accounts are publicly available and prepared under IFRS, the Company qualifies for application of FRS 101.

FRS 101 uses the recognition and measurement bases of IFRS, while allowing exemptions from a number of disclosures required by full IFRS. Adoption of FRS 101 is not expected to have a material impact on the Company.

Registered Office: Bupa House 15 – 19 Bloomsbury Way London WC1A 2BA 3 March 2015 R T Bowden

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Directors’ report

Results and dividends

The profit for the financial year after taxation amounted to £160.3m (2013: £128.8m). During the year the Directors declared total dividends of £672.8m (£1.88 per ordinary share) in respect of the year ended 31 December 2014 (2013: £nil).

Impact of Companies (Audit, Investigations and Community Enterprise) Act 2004

As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors, to the extent permitted by 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.

Directors

Details of the present Directors and any other persons who served as a Director during the financial year are set out below:

R T Bowden (Chief Executive)

R A Phipps (Chairman) (appointed 1 January 2015)

G E Mitchell (Chairman) (resigned 31 December 2014)

G K Aslet E B Bourke L Churchill

S R Fletcher (resigned 29 April 2014)

R A Lang J H Lorimer

D V Marmion (resigned 29 April 2014)

D J Pollard (resigned 29 April 2014)

The Company Secretary is T Crosier who was appointed 17 September 2014 following the

resignation of J P Sanders on the same date.

Employees

Details of the number of person’s employed and gross remuneration are contained in note 5 to the financial statements.

Every effort is made by the Directors and management to inform, consult and encourage the full involvement of staff on matters concerning them as employees and affecting the Company’s performance.

Employment of disabled persons

The Company is committed to providing equal opportunities to employees. The employment of disabled persons is included in this commitment; and 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 would be made to continue their employment and, if necessary, appropriate training would be provided.

Employment policy

The Company continues to regard communication with its employees as a key aspect of its policies. Information is given to employees about employment matters and about the financial and economic factors affecting performance through management channels. Employees are encouraged to discuss operational and strategic issues with their line management and to make suggestions aimed at improving performance.

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Directors’ report (continued)

Disclosure of information to auditors

The Directors who held office at the date of approval of this Directors’ report confirm that:

• so far as that each Director is aware, there is no relevant audit information of which

the Company's auditor is unaware, and

• each Director has taken all the steps that ought to have been taken as a Director in

order to be aware of any information needed by the Company's auditors in connection with preparing their report and to establish that the Company's auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Auditors

Pursuant to Section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and KPMG LLP will therefore continue in office.

Registered Office: Bupa House 15 – 19 Bloomsbury Way London WC1A 2BA 3 March 2015 R T Bowden Director

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Statement of Directors' responsibilities

The Directors are responsible for preparing the strategic report, Directors' report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). 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 company and of the profit or loss of the company for that period. In preparing these 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 applicable UK Accounting Standards have been followed, subject to

any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate

to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

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.

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Independent auditor’s report to the shareholders of Bupa

Insurance Limited

We have audited the financial statements of Bupa Insurance Limited for the financial year

ended 31 December 2014 set out on pages 10 to 43. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditors

As explained more fully in the statement of Directors’ responsibilities set out on page 7, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the Company's affairs as at 31 December

2014 and of its profit for the financial year then ended;

• have been properly prepared in accordance with UK Generally Accepted Accounting

Practice; and

• have been prepared in accordance with the requirements of the Companies Act

2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic report and in the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial

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Independent auditor’s report to the shareholders of Bupa

Insurance Limited (continued)

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit

have not been received from branches not visited by us; or

• the financial statements are not in agreement with the accounting records and

returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Karen Orr (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants 15 Canada Square London

E14 5GL 3 March 2015

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The accounting policies and notes on pages 14 to 43 form part of these financial statements.

Profit and loss account

All profits are derived from continuing operations.

2014 2013

TECHNICAL ACCOUNT Note £’000 £’000

Gross premiums written 2 2,217,126 2,298,983

Outward reinsurance premiums (119,250) (193,685)

Premiums written, net of reinsurance 2 2,097,876 2,105,298 Change in the gross provision for unearned premiums 19 32,066 (22,193) Reinsurers’ share of change in the gross provision for

unearned premiums (2,355) 42,995

29,711 20,802

Net premiums earned 2 2,127,587 2,126,100

Other technical income net of reinsurance 6,388 5,302

Total technical income 2,133,975 2,131,402

Gross claims paid (1,621,503) (1,597,275)

Reinsurers’ share of claims paid 87,848 93,681

Gross claims paid net of reinsurance (1,533,655) (1,503,594) Gross change in the provision for claims 19 15,733 35,132

Reinsurers’ share of change in provision (3,334) 16,433

12,399 51,565

Net claims incurred 2 (1,521,256) (1,452,029)

Underwriting contribution 612,719 679,373

Net operating expenses 4 (449,872) (521,790)

Balance on the technical account 162,847 157,583

NON-TECHNICAL ACCOUNT

Balance on the technical account 162,847 157,583

Investment income 6 38,266 34,692

Unrealised gains on investments 9,718 5,603

Investment expenses 7 (25,246) (23,450)

Unrealised losses on investments (3,113) (8,114)

Net financial income _19,625 _8,731

Profit on ordinary activities before tax 8 182,472 166,314 Taxation on profit on ordinary activities 9 (22,140) (37,531)

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The accounting policies and notes on pages 14 to 43 form part of these financial statements. 11

Balance sheet

as at 31 December 2014 2014 2013 ASSETS Note £’000 £’000 Investments

Land and buildings 10 54,833 36,407

Investments in subsidiary undertakings 11 2,559 2,559

Financial investments 12 1,252,819 1,798,064

1,310,211 1,837,030 Reinsurers' share of technical provisions

Provision for unearned premiums 42,842 43,194

Claims outstanding 12,683 17,702

55,525 60,896 Debtors

Debtors arising out of direct insurance operations:

Policyholders 566,953 619,304

Intermediaries 929 985

Debtors arising out of reinsurance operations 12,200 13,966

Deferred taxation 13 438 586

Other debtors 14 42,802 63,722

623,322 698,563

Cash at bank and in hand 15 330,112 289,140

Prepayments and accrued income

Deferred acquisition costs 50,749 52,841

Other prepayments and accrued income 13,674 12,940

64,423 65,781

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The accounting policies and notes on pages 14 to 43 form part of these financial statements.

Balance sheet (continued)

as at 31 December 2014

2014 2013

EQUITY and LIABILITIES Note £’000 £’000

Capital and reserves

Called up share capital 16 357,209 357,209

Share premium account 17 68,561 68,561

Revaluation reserve 17 17,756 2,967

Profit and loss reserve 17 264,641 778,453

Total capital and reserves 708,167 1,207,190

Subordinated liabilities 18 330,000 330,000

Gross technical provisions

Provision for unearned premiums 19 943,141 982,691

Claims outstanding 19 234,377 249,402

1,177,518 1,232,093

Provisions for other risks 20 11,087 27,114

Deposits received from reinsurers 2,085 162

Creditors

Creditors arising out of direct insurance operations 16,980 13,522 Creditors arising out of reinsurance operations 6,018 5,899

Other creditors 21 107,107 106,742

130,105 126,163

Accruals and deferred income 24,631 28,688

Total liabilities 1,675,426 1,744,220

Total equity and liabilities 2,383,593 2,951,410

These financial statements were approved by the Board of Directors on 3 March 2015 and were signed on its behalf by:

E B Bourke R T Bowden

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The accounting policies and notes on pages 14 to 43 form part of these financial statements. 13

Statement of total recognised gains and losses

2014 2013

£’000 £’000

Profit for the financial year 160,332 128,783

Foreign exchange translation differences (1,333) (1,023)

Total recognised gains relating to the financial year 158,999 127,760

Note of historical cost profits and losses

2014 2013

£’000 £’000 Reported profit on ordinary activities before taxation 182,472 166,314

Revaluation gain for the year (4,052) -

Difference between historical cost depreciation charge and the

actual depreciation charge for the financial year (155) (155) Historical cost profit on ordinary activities before taxation 178,265 166,159 Historical cost profit retained for the financial year after

taxation 156,125 128,628

Reconciliation of movements in shareholders’ funds

2014 2013

£’000 £’000

Opening shareholders’ funds 1,207,190 1,079,430

Profit for the financial year 160,332 128,783

Dividend paid in the year (672,811) -

Revaluation reserve 14,789 -

Foreign exchange translation differences (1,333) (1,023)

Net (withdrawal) / addition to shareholders' funds (499,023) 127,760

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Accounting policies

The principal accounting policies are summarised below. They have been applied consistently throughout the financial year.

(a) Basis of preparation

The financial statements of the Company have been prepared under UK Generally Accepted Accounting Principles (UK GAAP) and the historical cost convention modified to include the revaluation of investments including land and buildings. The financial statements also comply with the appropriate provisions of the Companies Act 2006 and the December 2005 Statement of Recommended Practice (as amended in December 2006) issued by the Association of British Insurers.

The financial statements were approved by the Board of Directors on 3 March 2015. The Directors have reviewed and approved the Company’s accounting policies, which have been applied consistently to all the years presented, unless otherwise stated. The British United Provident Association (Bupa), the ultimate parent undertaking of the Company, has prepared Group accounts in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The Company is not required to report under IFRS and therefore these accounts are prepared in accordance with applicable UK accounting standards and the accounting policies are aligned to those of the Bupa Group to the extent that UK GAAP is consistent with IFRS.

The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report on pages 1 to 4 and the Directors’ report on pages 5 to 6. The financial position of the Company, its liquidity position and borrowing facilities are described in note 23. In addition, the Directors’ report and notes 22 to 24 to the financial statements include details of the Company's financial instruments; its financial risk management objectives and its exposures to various categories of risk; and its objectives, policies and processes for managing its capital.

The financial statements are presented in Sterling, which is the Company’s functional currency.

New financial reporting requirements

There were no changes to UK GAAP during 2014 that were applicable to the Company.

Accounting estimates and judgements

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of certain accounting estimates and assumptions that affect the reported assets, liabilities, income and expenses. It also requires the Directors to exercise judgement in applying the Company’s accounting policies. The estimates and assumptions are based on historical experience and other related variables, updated to reflect current trading performance. The estimates and assumptions are reviewed on an ongoing basis and are considered to be appropriate but actual results may differ from these estimates.

Judgements made by management in applying the Company’s accounting policies that have a significant effect on the financial statements, and estimates with a significant risk of material adjustment in subsequent periods, are set out below and in more detail in the related notes.

• Insurance accounting (note 19)

• Property valuations (note 10)

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Accounting policies (continued)

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(b) Going concern

The Company has sufficient financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. After making suitable enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Strategic report, Directors’ report and financial statements.

(c) Exemption from consolidation

The Company is exempt by virtue of Section 400 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information about the Company as an individual undertaking and not about it as a group.

(d) Related party transactions

As the Company is a wholly owned subsidiary undertaking of Bupa, a company registered in England and Wales, which publishes consolidated accounts, the Company has pursuant to paragraph 17 of FRS 8: Related Party Disclosure not included details of transactions with other Bupa Group companies which are subsidiary undertakings of the Bupa Group. There were no other related party transactions.

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, provision for expected claims is made on an incurred basis.

(e) Cash flow statement

Under FRS 1: Cash Flow Statements (revised 1996) the Company is exempt from the requirement to prepare a cash flow statement on the grounds it is a wholly owned subsidiary undertaking of Bupa, whose Annual Report and Accounts contain a consolidated cash flow statement for the Bupa Group.

(f) Foreign currencies

Foreign operations

The assets and liabilities of foreign operations held in functional currencies other than Sterling are translated from their functional currency into Sterling at the exchange rate at the balance sheet date. Income and expenses are translated at average rates for the period, provided that the average rate approximates the rates ruling at the date of the transactions. Foreign exchange differences arising on translation are recognised initially in the statement of recognised gains and losses.

Foreign transactions

Transactions in foreign currencies other than the functional currency of the Company are translated at the rates of exchange ruling at the date of the transaction. Realised exchange differences arising on transactions of foreign currency amounts are recorded in the profit and loss account.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate ruling at the balance sheet date; the resulting foreign exchange gain or loss is recognised in operating expenses, except where the gain or loss arises on financial assets or liabilities and then it is presented in financial income or expense as appropriate. Non-monetary assets and liabilities denominated in a foreign currency at historic cost are translated using the exchange rate at the date of the transaction; no exchange differences therefore arise. Non-monetary assets and liabilities denominated in a foreign currency at fair value are translated using the exchange rate ruling at the date that the fair value was determined.

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Accounting policies (continued)

(g) Basis of accounting for underwriting activities

Underwriting activities are accounted for on an annual “accident year” basis.

Technical Income

Technical income arises from insurance contracts entered into with customers. Contracts that result in the transfer of significant risk to the Company are accounted for as general insurance contracts under Part 3 of the ABI SORP section 82 and Appendix C of FRS 26. Income from contracts that do not result in the transfer of significant risk are included in other technical income as required by ABI SORP section 1.5 and Appendix C of FRS 26.

Net premiums earned

Net premiums earned represent the premiums earned relating to risk exposure for the reported financial year. They comprise gross premiums written, net of reinsurance, adjusted for the change in the gross provision for unearned premiums during the financial year.

The unearned premium provision represents the proportion of premiums written in the financial year that relate to periods of risk in future accounting years.

Premiums are shown gross of commissions payable and net of insurance premium taxes that may apply in certain jurisdictions.

Outward reinsurance premiums

Outward reinsurance premiums represent the reinsurance premiums payable for contracts entered into that relate to risk mitigation for the reported financial year. These comprise written premiums ceded to reinsurers, adjusted for the reinsurers’ share of the movement in the gross provision for unearned premiums.

In cases where the Company cedes reinsurance for the purpose of limiting its net loss potential, the arrangements do not relieve the Company of its direct obligations under insurance policies written.

Premiums, losses and other amounts relating to reinsurance treaties are recognised over the period from inception of a treaty to expiration of the related business. The actual profit or loss is therefore recognised not at inception but as such profit or loss emerges. Any initial reinsurance commission is recognised on the same basis as the acquisition costs incurred.

Net claims incurred

Net claims incurred comprises direct insurance claims, net of reinsurance, paid during the financial year, together with the movement in the gross technical provision for claims in the period and the related handling costs. In 2013 the related claims handling costs were included in net operating expenses.

The gross technical provision for claims represents the estimated liability arising from claims episodes in current and preceding financial years which have not yet given rise to claims paid. The provision includes an allowance for claim management and handling expenses. The gross technical provision for claims is estimated based on current information and the ultimate liability may vary as a result of subsequent information and events. Adjustments to the amount of claims provision for prior years are included in the technical account in the financial year in which the change is made.

In setting provisions for claims outstanding, the Company determines best estimate on an undiscounted basis and then adds a margin of prudence, such that there is confidence that future claims will be met from the provisions. The margin of prudence is set at a 75% confidence level.

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Accounting policies (continued)

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Provision is made for unexpired risks where the claims and administrative expenses likely to arise after the end of the financial year, in respect of contracts commencing before that date, are expected to exceed the related unearned premiums, less related deferred acquisition costs. The methods used and estimates made for claims provisions are reviewed regularly.

Reinsurers’ share of claims

Reinsurers’ share of claims incurred represents recoveries from reinsurers on claims paid, adjusted for the reinsurers’ share of the change in the gross technical provision for claims. The recoverables due from reinsurers are assessed for impairment at each balance sheet date. Impairments are accounted for within the technical account on an incurred loss basis.

Acquisition costs

Acquisition costs included within net operating expenses, represent commissions payable and other expenses related to the acquisition of insurance contract revenues written during the financial year. Acquisition costs that have been paid that relate to subsequent periods are deferred and recognised in the technical account across the period in which the benefit has been recognised, on a straight line basis.

Other technical income net of reinsurance

A number of contracts written by the Company do not result in the transfer of significant insurance risk to the Company. Other technical income, net of reinsurance represents the surplus receivable on such contracts and is recognised as the services are provided

(h) Investment income and expenses

Investment income comprises interest receivable, realised gains and losses on investments, changes in the fair value of items recognised at fair value through profit and loss, changes in the fair value of derivatives and foreign exchange gains and losses. Interest income except in relation to assets classified as fair value through profit or loss, is recognised in the non-technical account as it accrues, using the effective interest method.

Investment expenses include interest payable on borrowings, changes in the fair value of items recognised at fair value through profit and loss, changes in the fair value of derivatives and other investment expenses.

Changes in the value of financial assets designated as at fair value through profit or loss are recognised within investment income as an unrealised gain or loss while the asset is held. Upon realisation of these assets, the change in fair value since the last valuation is recognised within investment income as a realised gain or loss.

(i) Taxation and deferred taxation

The taxation expense on the profit for the year comprises current and deferred taxation. Deferred taxation is provided in full on all timing differences that have originated, but not reversed, at the balance sheet date which result in an obligation to pay more, or a right to pay less or to receive more taxation benefits, with the following exceptions:

• Provision is made for taxation on gains arising from the revaluation of property to its

market value, the fair value adjustment of fixed assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date there is a binding agreement to dispose of the assets concerned and without it being possible to claim rollover relief. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold.

(20)

Accounting policies (continued)

• Provision is made for deferred taxation that would arise on remittance of the retained

earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable.

• Deferred taxation assets are recognised only to the extent that it is considered more

likely than not that there will be suitable taxable profits from which the underlying timing differences can be deducted.

Deferred taxation is measured on an undiscounted basis at the taxation rates that are expected to apply in the periods in which timing differences reverse, based on current taxation rates and laws.

Trading losses surrendered to other Bupa Group subsidiary undertakings are made on a full payment basis.

(j) Financial investments

The Company has classified its financial investments into the following categories: at fair value through profit or loss, held to maturity and loans and receivables. The Directors determine the classification of all financial investments at initial recognition and when they are recorded at fair value. Financial investments are derecognised when the rights to receive cash flows from the financial investments have expired or where the Company has transferred substantially all risks and rewards of ownership.

Financial investments at fair value through profit or loss

Financial investments designated at fair value through profit or loss consist of investments or instruments where management makes decisions based upon their fair value.

The investments are carried at fair value, with gains and losses arising from changes in this value recognised in the profit and loss account in the period in which they arise. The fair values of quoted investments in active markets are based on current bid prices.

Derivatives are held at fair value through profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial investments with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a borrower or customer with no intention of trading the receivable. Loans are recognised when cash is advanced to the borrowers. Loans and receivables are carried at amortised cost calculated using the effective interest method, less impairment losses.

Held to maturity investments

Held to maturity investments are similar to loans and receivables but where the Company has a positive intention and ability to hold investments to maturity. This is assessed at each reporting date. Held to maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.

Any discount or premium on purchase is amortised over the life of the investment through the profit and loss account.

(21)

Accounting policies (continued)

19

(k) Land and buildings

Freehold and leasehold properties comprise offices. These properties are shown at fair value based on periodic, but at least triennial valuations performed by external independent valuers, less subsequent depreciation and impairment losses. The valuations are performed with sufficient regularity to ensure that the carrying value does not differ significantly from fair value at the balance sheet date. Directors’ valuations are performed in interim years where impairment indicators exist. Valuations of office buildings are on a market value basis. Borrowing costs relating to the acquisition or construction of qualifying assets are capitalised as part of the cost of that asset.

Gains and losses on revaluation are recognised in the revaluation reserve except where an asset is revalued below historical cost, in which case the deficit is recognised in the profit and loss account. Where a revaluation reverses deficits taken to the profit and loss account in prior years, then it is credited to the profit and loss account.

Freehold land, included within freehold or leasehold properties as appropriate, are not appreciated. Depreciation on property is calculated using the straight line method to allocate costs or revalued amount less residual value over estimated useful life as follows.

• Freehold land No depreciation

• Freehold property 50 years

• Leasehold property Over the period of the lease

Impairment reviews are undertaken where there are indications that carrying value of the asset may not be recoverable. An impairment loss on land and buildings carried at cost is recognised in the profit and loss account to reduce the carrying value to the recoverable amount. An impairment loss on land and buildings carried at revalued amount is recognised in the revaluation reserve, except where an asset is revalued below historical cost, in which case the deficit is recognised in the profit and loss account.

(l) Investments in subsidiaries

Investments in subsidiary undertakings are carried at cost less impairment.

(m) Debtors

Debtors, including insurance debtors are carried at amortised cost less impairment losses.

(n) Impairment of financial assets

Financial assets comprise financial investments and trade and other debtors. If they are not already held at fair value, financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered impaired if objective evidence indicates that one or more events that have occurred since the initial recognition of the asset have had a negative impact on the estimated future cash flows of that asset.

An impairment loss in respect of a financial investment measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the effective interest rate at the date the investment was made.

Significant financial assets are tested for impairment on an individual basis. All impairment losses are recognised in the profit and loss account.

(o) Subordinated liabilities

Subordinated liabilities are stated at amortised cost using the effective interest method. The coupon payable on the loan is recognised as an investment expense.

(22)

Accounting policies (continued)

(p) Provisions for other risks

A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation that can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Although provisions are made where payments can be reliably estimated, the amounts provided are based upon a number of assumptions that are inherently uncertain and therefore the amount that is ultimately paid could differ from the amount recorded.

(q) Creditors

Insurance Premium Taxation (IPT) payable is accounted for under the standard ‘cash received’ method and is reported and remitted to HM Revenue & Customs by reference to the date when the premium is paid. In prior years IPT was accounted for using the ‘special accounting scheme’ and was paid in full on the entire written premium at the contract start date.

All creditors are carried at amortised cost.

(r) Derivative financial instruments

FRS 25 (Financial instruments: presentation) and FRS 26 (Financial instruments: recognition and measurement) and FRS 29 (Financial instruments: disclosures) have been applied as noted below.

Derivative financial instruments consist of currency forward contract and swaps. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the profit or loss account when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes there in are recognised immediately in the profit and loss account. The value of derivative financial instruments is established using listed market prices. Subsequent to initial recognition, they are re-measured at fair value within other debtors or creditors.

The fair value of a financial instrument is defined as the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties.

(23)

21

Notes to the financial statements

1. Immediate and ultimate parent company

The immediate parent undertaking of the Company is Bupa Finance plc, a company incorporated in England and Wales.

The ultimate parent undertaking of the Company, and the largest group into which these financial statements are consolidated, is The British United Provident Association Limited (Bupa), a company incorporated in England and Wales. The smallest group into which these financial statements are consolidated is that headed by Bupa Finance plc.

Copies of the accounts of both companies can be obtained from The Registrar of Companies, Cardiff, CF14 3UZ.

2. Analysis of underwriting results

(i) Analysis by class

Premiums written Premiums earned Claims incurred £’000 £’000 £’000 2014

Direct insurance: accident and health 2,021,505 2,035,192 (1,393,312)

Inward reinsurance 195,621 214,000 (212,458)

Outward reinsurance (119,250) (121,605) 84,514

2,097,876 2,127,587 (1,521,256) 2013

Direct insurance: accident and health 2,095,559 2,103,311 (1,426,905)

Inward reinsurance 203,424 173,479 (135,238)

Outward reinsurance (193,685) (150,690) 110,114

2,105,298 2,126,100 (1,452,029)

(ii) Analysis by type

Gross premiums written 2014 2013

£’000 £’000

Group 1,107,069 1,090,178

Individual 1,110,057 1,208,805

(24)

Notes to the financial statements (continued)

2. Analysis of underwriting results (continued)

(iii) Segmental analysis of gross written premiums

Gross premiums written Technical account £’000 £’000 2014 United Kingdom 2,190,715 157,689

Rest of the world 26,411 5,158

2,217,126 162,847 2013

United Kingdom 2,274,375 151,503

Rest of the world 24,608 6,080

2,298,983 157,583 Geographical analysis is based on where the business is written.

(iv) Segmental analysis of net assets

2014 2013

£’000 £’000

United Kingdom 689,216 1,190,381

Rest of the world 18,951 16,809

708,167 1,207,190

3. Prior year’s claims provisions

The over provisions for claims at the beginning of the year, compared to payments and provisions at the end of the year in respect of prior years claims is £13,808k (2013: £46,022k).

4. Net operating expenses

2014 2013

£’000 £’000

Commission and other acquisition costs 39,379 77,875

Changes in deferred acquisition costs 1,872 (366)

Staff costs (see note 5) 4,614 4,705

Net (gain) / loss on foreign exchange transactions (6,037) 3,463

Expenses payable to Bupa Group companies 404,464 440,654

Reinsurers share of expenses (13,855) (17,521)

Other operating expenses 19,435 12,980

449,872 521,790 Expenses payable to Bupa Group companies mainly comprises of service fees payable to Bupa Insurance Services Limited, for the provision of insurance mediation and administrative services to the Company.

(25)

Notes to the financial statements (continued)

23

5. Staff costs and Directors' remuneration

All of the Company’s employees are employed by the Danish business. All other staff are remunerated and employed through the Company’s service company, Bupa Insurance Services Limited.

(i) Staff costs

The average monthly number of employees was as follows:

2014 2013

74 70

Their aggregate remuneration comprised:

2014 2013

£’000 £’000

Wages and salaries 3,718 3,883

Social security costs 545 502

Pension costs 351 320

4,614 4,705

(ii) Directors’ remuneration

2014 2013

£’000 £’000

Emoluments 2,281 851

Amounts receivable under long-term incentive schemes 539 333 Company contributions to defined contribution pension schemes - - 2,820 1,184 There is 1 (2013: 3) Director who is a member of a defined benefit pension scheme.

The remuneration of the highest paid Director was:

2014 2013

£’000 £’000

Emoluments 1,095 555

Amounts receivable under long-term incentive schemes 238 312

(26)

Notes to the financial statements (continued)

6. Investment income

2014 2013

£’000 £’000 Income from Bupa Group undertakings

Interest receivable 12,267 12,520

Rental income 5,936 5,252

Income from deposits with credit institutions 9,944 11,461

Realised capital gains on investments 7,603 5,221

Realised foreign exchange gains on investments 2,516 238

38,266 34,692

7. Investment expenses

2014 2013

£’000 £’000 Interest payable to Bupa Group undertakings 20,625 20,625

Realised foreign exchange losses on investments 795 404

Investment management expenses payable to Bupa Group undertakings 1,451 1,264

Other interest payable 2,375 1,157

25,246 23,450

8. Profit on ordinary activities before taxation

Profit on ordinary activities before taxation is stated after charging:

2014 2013

£’000 £’000

Depreciation of land and buildings – owned (415) (416)

Net revaluation gain for the year (4,052) -

Fees payable to the Company's auditors for the audit of the Company's

annual accounts (364) (375)

Fees for the audit of the Company represent the amount receivable by the Company's auditors. Fees paid to the Company's auditors, KPMG LLP, and its associates for services other than the statutory audit of the Company are not disclosed in these accounts since the consolidated accounts of Bupa, the ultimate parent undertaking, disclose non-audit fees on a consolidated basis

(27)

Notes to the financial statements (continued)

25

9. Taxation on profit on ordinary activities

(i) Analysis of taxation charge in the financial year

2014 2013

£’000 £’000 Current tax

UK corporation taxation on profit for the financial year 38,275 38,563

Double taxation relief (2,135) (3,102)

Foreign taxation on income for the financial year 2,493 2,917 38,633 38,378 Adjustments in respect of prior periods

- UK corporation taxation (17,066) (1,105)

- Foreign taxation 425 328

Total current taxation 21,992 37,601

Deferred tax

Origination and reversal of timing differences 69 146

Changes in taxation rate - 161

Adjustments in respect of prior periods 79 (377)

Total deferred taxation 148 (70)

Total taxation on profit on ordinary activities 22,140 37,531 The taxation expense of £22.1m (2013: £37.4m) represents a headline effective tax rate of 12.13%. The reduction from 2013 is largely due to the release of prior year tax provisions following the settlement of historical matters, amounting to £16.6m (2013: £0.7m). Excluding the prior year credits, the current year effective tax rate of 21.17% is in line with the UK tax rate for the period of 21.5%.

(ii) Factors affecting the taxation charge

The differences between the total current taxation charge shown above and the amount calculated by applying the standard rate of UK corporation taxation to the profit before taxation is as follows:

2014 2013

£’000 £’000 Profit on ordinary activities before taxation 182,472 166,314 Taxation on profit on ordinary activities at standard UK

corporation taxation rate of 21.5% (2013: 23.25%) 39,219 38,662 Effects of:

Fixed asset difference 31 97

Non taxable income (919) -

Expenses not deductible for taxation purposes - 76

Transfer pricing adjustment (71) (79)

Accelerated capital allowances (37) (35)

Deferred taxation on short-term and other timing differences (37) (135)

Other permanent timing differences 89 -

Foreign exchange on timing differences - (23)

Different taxation rates on foreign jurisdictions 358 (185) Adjustments to taxation charge in respect of prior periods (16,641) (777) Total current taxation charge for the year 21,992 37,601

(28)

Notes to the financial statements (continued)

10. Land and buildings

Freehold property- Land Freehold property- Buildings Long leasehold property Total 2014 £’000 £’000 £’000 £’000 Cost or valuation At beginning of year 16,400 20,600 168 37,168 Revaluation 13,000 5,000 (143) 17,857 At end of year 29,400 25,600 25 55,025 Depreciation At beginning of year - (740) (21) (761)

Charge for the year - (412) (3) (415)

Revaluation - 960 24 984

At end of year - (192) - (192)

Net book value at end of year 29,400 25,408 25 54,833 Net book value at beginning of year 16,400 19,860 147 36,407

Historical cost of the Company’s revalued assets

2014 2013 £’000 £’000

Historical cost of revalued assets 43,571 43,571

Accumulated depreciation based on historical cost (7,792) (7,377)

Historical cost net book value 35,779 36,194

Of the historical cost of £43.6m, £43.2m relates to freehold property, and £0.4m relates to leasehold property.

The Company’s properties are held at fair value based on periodic but at least triennial, valuations performed by external independent valuers, less subsequent depreciation and impairment losses. The valuations are performed with sufficient regularity to ensure that the carrying value does not differ significantly from fair value at the balance sheet date.

Two of the Company’s properties were revalued on 30 November 2014. These valuations were carried out independently by Knight Frank, Chartered Surveyors using an Existing Use Value basis of valuation in accordance with the requirements of the RICS Valuation Professional Standards (incorporating the International Valuation Standards). The valuer's opinion of Existing Use Value was primarily derived using comparable recent market transactions on arm's length terms and using appropriate valuation techniques including both Market and Income approaches

(29)

Notes to the financial statements (continued)

27

11. Investments in subsidiary undertakings

2014 2013

£’000 £’000

At beginning of year 2,559 1,476

Addition - 1,083

At end of year 2,559 2,559

The investment in subsidiary undertaking, relates solely to Bupa Insurance (Bolivia) SA, an insurance company incorporated in Bolivia, in which the Company holds a 100% investment of ordinary shares.

There has been no impairment to date on the investment held in this subsidiary.

12. Financial investments

Carrying Carrying

value Fair Value value Fair Value

2014 2014 2013 2013

£'000 £'000 £'000 £'000

Non-current

Designated at fair value through the profit or loss

Debt securities – corporate bonds 154,129 154,129 105,253 105,253

Debt securities – government bonds 78,108 78,108 - -

Shares and other variable yield securities 54,938 54,939 138,275 138,275 Held to maturity

Medium term notes 30,000 30,575 50,000 50,120

Loans and receivables at amortised cost

Deposits with credit institutions 70,000 71,330 90,000 93,453 387,175 389,081 383,528 387,101

Current

Designated at fair value through the profit or loss

Shares and other variable yield securities 34,737 34,737 24,544 24,544 Held to maturity

Medium term notes 180,907 182,716 150,196 150,196

Loans and receivables at amortised cost

Loans to Bupa Group undertakings 400,000 400,000 792,811 794,097 Deposits with credit institutions _250,000 _250,460 _446,985 _452,712 865,644 867,913 1,414,536 1,421,549

(30)

Notes to the financial statements (continued)

12. Financial investments (continued)

The financial investments shown above comprise:

Carrying Carrying Value Value 2014 2013 £'000 £'000 Listed investments 89,675 162,819 Unlisted investments 843,144 1,098,260

Deposits with credit institutions 320,000 536,985

Total 1,252,819 1,798,064

13. Deferred taxation

The movement for the financial year in the net deferred taxation asset is as follows: 2014 £’000

2013 £’000

At beginning of year 586 516

(Charged) / credited to profit and loss account (148) 70

At end of year 438 586

Net deferred taxation asset is analysed as follows:

2014 2013

£’000 £’000 Depreciation in excess of capital allowances claimed 119 154

Other timing differences 319 432

Deferred taxation 438 586

14. Other debtors

2014 2013

£’000 £’000

Corporation tax receivable 22,604 -

Insurance premium taxation recoverable - 26,876

Trade debtors 57 653

Amounts owed by Bupa Group undertakings 10,847 12,083

Other debtors 8,232 22,939

Derivative assets 1,062 1,171

42,802 63,722 The carrying value of debtors is a reasonable approximation of the fair value.

(31)

Notes to the financial statements (continued)

29

15. Cash at bank and in hand

2014 2013

£’000 £’000

Cash at bank and in hand 329,059 288,436

Restricted access deposits 1,053 704

330,112 289,140 The restricted access deposits of £1.1m (2013: £0.7m) relate to claims funds held on behalf of corporate customers. These amounts may be used only to discharge those obligations and potential liabilities if and when they crystallise.

16. Called up share capital

2014 2013 £’000 £’000 Allotted, called up and fully paid

357,208,702 ordinary shares of £1 each 357,209 357,209

17. Reserves Share capital account Share premium account Revaluation reserve Profit and loss reserve Total 2014 £’000 £’000 £’000 £’000 £’000 At beginning of year 357,209 68,561 2,967 778,453 1,207,190

Profit for the year - - - 160,332 160,332

Dividend paid in the year - - - (672,811) (672,811)

Foreign exchange - - - (1,333) (1,333) Revaluation of property - - 14,789 - 14,789 At end of year 357,209 68,561 17,756 264,641 708,167 Share capital account Share premium account Revaluation reserve Profit and loss reserve Total 2013 £’000 £’000 £’000 £’000 £’000 At beginning of year 357,209 68,561 2,967 650,693 1,079,430

Profit for the year - - - 128,783 128,783

Foreign exchange - - - (1,023) (1,023)

(32)

Notes to the financial statements (continued)

18. Subordinated liabilities

2014 2013

£’000 £’000

Subordinated loan 330,000 330,000

The Company has a £330,000,000 subordinated loan from Bupa Finance plc (the Lender). The loan has no fixed repayment date but is callable on 16 September 2020. Interest is payable at the following rates:

• At 6.25% p.a. to the first call date of 16 September 2020.

• Subsequently at a rate per annum which is determined by the Lender to be the

aggregate of 1.725% and the gross redemption yield of the benchmark gilt in respect of that reset interest calculation period.

In the event of the winding up of the Company, the claims of the Lender are subordinated in right of payment to the claims of the other creditors of the Company.

The fair value of the subordinated loan is £330m (2013: £330m).

19. Gross technical provisions

Provision for unearned premiums Claims outstanding Total 2014 £’000 £’000 £’000 At beginning of year 982,691 249,402 1,232,093

Direct movement in the provision (13,470) (21,250) (34,720) Reinsurance movement in the provision (18,596) 5,517 (13,079)

Foreign exchange (7,484) 708 (6,776) At end of year 943,141 234,377 1,177,518 Provision for unearned premiums Claims outstanding Total 2013 £’000 £’000 £’000 At beginning of year 960,436 284,779 1,245,215

Direct movement in the provision (7,750) (54,178) (61,928) Reinsurance movement in the provision 29,943 19,046 48,989

Foreign exchange 62 (245) (183)

At end of year 982,691 249,402 1,232,093

Estimation techniques are used in the calculation of the claims outstanding which are valued at a point estimate. The claims outstanding comprises of the estimated costs of claims and claims handling expense for the two claims components as follows:

• Claims reported but not paid

• Claims incurred but not reported (IBNR)

Claims reported but not paid are computed from direct data extraction from claims administration and accounting systems.

Bupa Insurance Limited. Annual Report and Accounts for the financial year ended 31 December 2014