BHSF Group LimitedAnnual Report and Accounts 2015

AnnualReportCover_0715.indd 1 10/02/2016 16:45

BHSF Group Limited

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Our history, from our foundation in 1873, is one of service to the community. An eminent Birmingham surgeon, Joseph Sampson Gamgee, proposed that in addition to the annual Hospital Sunday, when churches gave all their collections to the voluntary hospitals, there should also be a Hospital Saturday with special collections. In particular, he suggested that workers be invited to work overtime on one Saturday afternoon in the year, especially to donate their earnings to the Birmingham Hospital Saturday Fund for distribution to voluntary hospitals. From these modest beginnings, similar organisations sprang up in other cities and towns and there are now nearly four million people insured under schemes which began in this way.

The provision of funding for local hospitals continued until the arrival of the National Health Service in 1948.

Meanwhile, from 1892 until 2004 BHSF offered a convalescence service which enabled countless thousands of people to recover their health after illness or surgery, enabling them to return to their normal way of life much more quickly.

For very many years BHSF has been a leading provider of health cash plans and in more recent years has widened its scope to offer a range of employee benefits and a portfolio of HR support services, including occupational health.

BHSF acquired the business of The Health Scheme in 2001, Forester Health, re-named Cash4Health, in 2008, Network Insurance Brokers Limited in 2010, Abbott Burke Associates Limited and PTH Group Limited in 2012, Occupational Health Consultants Limited in 2013, the business of Libra Occupational Health in 2014 and both WellWork Limited and M3OH Services Limited in 2015.

Our History

To excel as a provider of healthcare insurance, HR support, occupational health services, and employee benefits.

Our Vision

• To maximise customer satisfaction, value and quality

• To encourage every team member to realise their full potential

• To achieve excellence in operations and business development

• To secure competitive advantage by innovation

Our Mission as a not-for-profit business

• We provide excellent value, consistent with prudence, and serve customers to an outstanding level

• We treat others properly in accordance with our Business Ethics Policy

• We recognise our obligations to all our stakeholders and we share our success through community action and support

Our Values

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Chairman’s Statement 3

Group Chief Executive’s Business Review 4

Strategic Report 7

Directors’ Report 9

Directors’ Profiles, Officers, Directors of SubsidiaryCompanies and Senior Management 11

Corporate Responsibility 13

Independent Auditor’s Report 15

Financial Statements 16

Business Ethics Policy 36

Contents

BHSF Group Limited is a “not-for-profit” company, limited by guarantee.Registered in England No. 4767689. Incorporated 16 May 2003.

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Chairman’s Statement

I was delighted that the board appointed me to be their Chairman in February 2016 and I look forward to using my experience in finance, insurance and the wider commercial world to help grow the business of the Group.

Paul Kanas

I wish to pay tribute, both personally and on behalf of the board, to my immediate predecessor.

Paul Kanas joined the Executive Council – the forerunner of today’s board – in 1987 and quickly became a wise and valued member, leading to his election as Vice Chairman in 1997 and as Chairman in 2000. Paul was only our ninth Chairman in 142 years and he carried out his role with integrity and professionalism as he skilfully steered through the board the acquisition of two insurance companies, an insurance brokerage and six occupational health businesses plus many other matters as part of a major development agenda. I understand Paul always shared the bigger vision, was enthusiastic and relished the excitement of achievement.

We are all delighted that the board appointed Paul as a Vice President of the Company, alongside his immediate predecessor, Sir David Perris, as a mark of the high esteem in which he is held.

Board Changes

• Both David Oxtoby and David Edmonds retired in 2015 after several years of service in each case and we thank them for the good contributions which they made and wish them well for the future.

• The board decided that the operating company boards need not have representation from non-executive directors, other than the Chairman. Both Bill Begg and Jill Bonehill who had given good service to the operating companies joined the Group board in November.

• The board appointed Gary Cowdrill as a non-executive director in December 2015. Gary brings a wealth of experience as a former finance director of the West Bromwich Building Society and deep knowledge of corporate governance matters from his role as Managing Director of Board Evaluation Limited.

• Dr Philip McCrea, Managing Director of BHSF Occupational Health Limited since February 2015, joined the Group board in January 2016.

• Geoff Guerin, already a member of the Group board as Business Improvement and Quality Director was appointed Managing Director of BHSF Limited in December 2015. This means that the Managing Directors of each of the three operating companies are represented around the Group board table.

• David Nuttall, previously Group HR and Insurance Operations Director, became Group HR Director in December.

The strengthening of the Group board by these changes will be very beneficial for the business going forward.

We have also said farewell to Mike Sims, Group IS Director, and to Chris Gunnell, Commercial Director of BHSF Limited and BHSF Employee Benefits Limited, and we wish them both well for the future.

The Group is fortunate to have high-calibre directors to drive our progress. While the executive directors run the Group’s businesses day-by-day, we have valuable and diverse talents and experience among our non-executive directors who provide challenge and advice, and who oversee performance. I look forward to working with them all in the years ahead.

Jane Dale23 March 2016 Chairman

Jane DaleChairman

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The Chairman

As a result of the retirement of Paul Kanas, a rigorous selection process was undertaken and the board was delighted to approve the appointment of Jane Dale as Chairman from February 2016.

Jane will bring high-level experience both to our two heavily-regulated companies and to our fast-growing OH division, and we are looking forward enormously to her input into our exciting agenda.

Results for the year

The UK economy continued to strengthen in 2015. This, and our ambitious agenda, gave us good opportunities to progress the business. The number of new insurance applications grew by 12% during the year and the growth in new annual premiums was almost 10%, both hitting new records. At our occupational health division, revenue was strongly ahead as a result of organic growth and the acquisition of two further businesses.

Total revenue grew by 6.2% to £39.6m and the Group’s total comprehensive

income for the year was £0.97m compared to total comprehensive expenditure of £0.21m in 2014.

Regulatory issues

BHSF Limited is well advanced with its preparations for Solvency II from 1 January 2016 and the business is very well capitalised. We lodged our second Own Risk and Solvency Assessment (ORSA) with the PRA in November 2015 and this is used regularly by the board in making decisions which might affect risk or our capital position.

The new Senior Insurance Managers’ Regime came into effect in the early weeks of 2016 and we have reviewed senior responsibilities in order to comply fully with this.

So much of the new regulatory emphasis is on risk and we put great focus on business risks and were reassured by the satisfactory outcome of an independent risk audit during 2015.

Insurance business

The Chancellor of the Exchequer announced an increase in the rate of insurance premium tax to 9.5% from 1 November 2015. In common with most

insurers, we increased premiums on the majority of policies from that date, with increases applying to other policies on the expiry of annual

contracts. A further increase of ½% has been announced to apply from 1 October 2016 but this will not lead to another general rise in premiums.

We successfully integrated Cash4Health into BHSF Limited in June 2015 after receiving the sanction of the High Court. Cash4Health, now a dormant company, will be liquidated during 2016.

Claims rates continue to be satisfactory and we increasingly pay claims by bank transfer with electronic notifications to clients. 90% of valid claims are settled within two days of receipt.

We continue to write a significant number of personal accident insurances and we now process PA claims in-house. We have developed good relations with our reinsurers, Beazley, and are pleased with the performance of this class of business.

It is also pleasing to see the rising trend in sales of our personal cancer insurance, Plan4Life.

Geoff Guerin became Managing Director of BHSF Limited in December 2015 and this will assist with leadership and the technical focus on what is the largest part of the Group’s business.

Occupational health

During 2015 we acquired WellWork Limited and M3OH Services Limited and began integrating them into our existing business. We are putting considerable effort into achieving uniformity of practice across the business, which now covers most of the UK. We have also implemented a new IT OH management system and teething troubles experienced in the early stages of roll-out are gradually being resolved.

We have seen big improvements in our clinical management over the past year and we have made great strides in preparing for the OH national quality benchmark, SEQOHS, which we hope to achieve in the second quarter of 2016.

A high level of new contract completions give us great optimism for 2016 when we hope that our efforts will begin showing good returns.

Group Chief Executive’s Business Review

Peter J MaskellGroup Chief Executive

The number of new insurance applications

grew by 12%

A high level of new OH contract

completions gives us great optimism

Other products and services

BHSF Employee Benefits Limited employs our sales team and this company markets our wider range of employee benefits and HR services where we often partner with external suppliers.

Our broader-range products include the shopping discount facility, Network Benefits, our term assurance plan, Care4, a simplified group life scheme for SMEs, salary sacrifice arrangements and a flexible benefits platform, Flexsme. Further important product developments are in the pipeline.

A major development has been the launch of BHSF Connect – a smart phone app offering a 24/7 range of health,

wellbeing and lifestyle tools including a GP helpline, surgical options, discounted gym membership, Network Benefits and EAP. The take up of this new product, either stand-alone or in association with the new Connect health cash plan, has been very encouraging.

Operational issues

We are planning a major enhancement of our IS systems and in 2016 we shall see the OH management system fully implemented, a new finance system installed and an advanced telephone system in place across the Group. Further work is planned on our CRM facility and we are working hard to improve our

resilience against cybercrime.

The regular surveys which we conduct of policyholders,

delegates and insurance

intermediaries continue to show high levels of

satisfaction.

Feedback from whatever source is taken very seriously and used to further enhance the offering under our continuous

improvement programme.

We have also identified “single points of performance” throughout the business and sought

solutions to ensure that the absence of any individual does not interfere with our efficient running.

Investments

UBS manage the investments of both BHSF Limited and of our closed final salary pension scheme and we monitor their performance against benchmarks. Investment conditions in 2015 have been particularly volatile and, sensibly, we maintain a high level of liquidity.

Actuarial

It is recognised that our closed final salary pension scheme is a significant risk which we monitor closely in liaison with the Trustees. It is pleasing that the significant FRS17 (now FRS 102) deficit which existed at the end of 2014 has now reduced considerably. The next triennial valuation of the fund is due on 31 March 2017.

In the Solvency II calculations for BHSF Limited, it is necessary to include the

pension scheme to take its risks into account.

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BHSF Connect - our smart phone app

Feedback from whatever source is taken very seriously

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Investment in excellence

We have continued a number of initiatives:

• Putting the customer first• Professionalism – raising the bar• Resource conscious• Enhancing employee engagement

In addition we put great focus on regular communications with all employees across the Group, wherever they may operate.

People

We continue to develop training programmes to ensure that all employees work to the highest standards.

In 2016 we look to increase significantly the number of colleagues at BHSF OH who participate in our pension arrangements under the auto-enrolment regulations.

We especially recognise colleagues whose performance has been outstanding by making achievement awards.

The worthy winners in 2015 were presented with commemorative goblets at our annual dinner:

• Above and Beyond the Call of Duty – Zoe Rossi, Assistant Manager, Finance

• Working to be the Best Team Player – Kate Styles, Assistant Company Secretary

• Achievement of Excellent Customer Service – Zoe Rossi, Assistant Manager, Finance

• Results Driven to Deliver Great Sales Performance – Mick Davies, Employee Benefits Adviser

• Development of People and/or Ideas – David Hollowell, Analyst Programmer

• The Angela Palmer Award for Clinical Excellence – Liz Downes, OH Nurse Specialist

We also congratulate Brian Hall, Managing Director of BHSF Employee Benefits Limited, on winning the West Midlands Director of the Year Award in May, and Luke Brown, Business Improvement Manager, who won the Birmingham Insurance Institute Young Achiever of the Year Award.

The steady expansion of the Group means we now employ 250 people in all parts of the UK and we aim to be an employer of choice. We have a solid growth plan and where we recognise that some people are finding the pace of change difficult, we work hard to ease the transition for them. I am grateful to all colleagues for everything they do to make BHSF the outstanding business which it certainly is.

Peter J MaskellGroup Chief Executive

23 March 2016

Achievement Award Winners 2015

Principal businessThe Company is a non-trading holding company. The Group provides outstanding-value health cash plans, other insurances, a range of employee benefits, a portfolio of HR support services and occupational health services to 3,100 client businesses and 240,000 policyholders plus their families, while not losing sight of its philanthropic roots.

The Group comprises BHSF Group Limited and its subsidiary companies, BHSF Limited, BHSF Employee Benefits Limited, BHSF Corporate Healthcare (Holdings) Limited and BHSF Occupational Health Limited. There are also several dormant companies.

Future planning and position of the businessBHSF’s core activity is the provision of health cash plans. However, this is a declining market and, according to market analysts Laing & Buisson, between 1998 and 2013 the number of health cash plans in the UK fell by 18% and the number of people covered by those plans fell by an estimated 42%. However, as one of the leading players in the market, BHSF saw its revenue over that period expand by over 207% by a mixture of acquisition and organic growth.

The margins on health cash plans are very narrow indeed. The market is very competitive and BHSF constantly strives to provide good value for money products to our customers.

There is also the risk that the Chancellor of the Exchequer will increase Insurance Premium Tax further than the recently announced increase to 10% and if he were to do so, it might make health cash plans and personal accident insurance, both discretionary purchases, less attractive.

Recognising all these issues in our core marketplace, we decided a few years ago to develop strategies to broaden our product offering and in recent times we have widened our range of:

• Employee benefits products and services

• HR support services

some of which have been manufactured within the Group and others that have been bought in from trusted suppliers which meet our high standards. We are becoming increasingly recognised as a provider of these products and services, and this area of the Group’s business is showing good growth.

As part of this strategy we also decided to develop a new strand to our business, BHSF Occupational Health Limited, which is integrating our acquired occupational health businesses, and where we put quality and value ahead of price. We acquired two further businesses in 2015 and we intend to seek further appropriate acquisitions which will give us nationwide coverage. We anticipate that this strategy will bring the Group long-term advantage in terms of revenue and profitability and will also provide a new distribution channel for our other products.

Risks and uncertaintiesThe Risk Committee advises the board on risk management and policy, including investment policy, risk appetite, risk tolerance and the implications of proposed strategic transactions.

It keeps under review the effectiveness of the Group’s risk management systems and the Business Continuity Plan, and it regularly reviews the risk register and ensures that appropriate systems of monitoring and control are in place.

The Group actively manages financial risk by using professional advisers to manage its investment portfolio and sets parameters within which they must operate. An investment policy has been decided upon which maintains a balanced investment portfolio retaining a minimum of 50% of the investments of BHSF Limited as either fixed-interest securities or cash deposits. The investments held in the Group and the investment strategy are subject to regular review through monthly investment reports and consideration at board meetings.

A large part of the Group’s activities is general insurance and there the taking of risks is part and parcel of business activity. Our premiums are based on the detailed analysis of historical claims statistics and we monitor claims rates and profitability closely and take action where necessary. Claims for health cash plans are generally low in value and short term in nature. Under the regulatory regime which applies to insurers, we also monitor carefully:

• Market risk• Liquidity risk• Operational risk• Insurance risk• Concentration risk• Reputational risk• Securitisation risk• Business risk• Interest rate risk• Pension obligation risk• Group risk• The risks associated with any further

increases in Insurance Premium Tax

and we do this by the regular review of our Own Risk and Solvency Assessment (ORSA).

Strategic Report

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Beyond that the Company is subject to many of the same risks as commercial bodies generally, including:

• Business continuity• Reliance on key people, suppliers and

counterparties• Changes in laws, taxation rates and

the requirements of our Regulators• Credit risks and cash flow risks,

including those associated with collecting premiums from corporate customers in arrears which we manage through credit control procedures.

• Cyber security• Safety issues

We have produced risk registers for the various parts of the Group’s business and these are kept under regular review in order to mitigate and manage the risks. Our Risk Committee meets regularly to monitor these and it reports to the Group board. The policy is also to have periodic independent re-evaluation of the Group’s risks and our management of them. We are confident that our risk regime will be found satisfactory for the purposes of Solvency II. Further analysis of risk is provided in the notes to the accounts.

PerformanceThe performance of the Group’s insurance businesses is set out in the financial statements and the board considers performance to have been very satisfactory. Some of the pressures on the health cash plan market have been referred to above and these have limited our operating profitability. Following a number of years when premium rates were held steady, many of our health cash plans had the premiums increased and benefits enhanced in 2014 and some more in 2015, and this should assist profitability. The solvency margins of BHSF Limited and the Group were again very strong.

In integrating a number of diverse OH businesses, we have not yet reached optimum performance financially but we are keen to see that as we work towards that point we continue to deliver the highest standards to our customers. We are confident that our OH division will produce a sound financial outcome in 2016.

Certain key performance indicators are regularly considered by the board to monitor the performance of the Group. Other metrics are reviewed by the boards of the subsidiary companies, others by senior management and still more by departmental managers.

Key performance indicators include:

2015 2014

Total revenue £39.6m £37.3m

Total revenue growth rate 6.2% 3.3%

Insurance claims ratio* 71.2% 73.2%

Insurance expense ratio* 24.9% 23.8%

Insurance underwriting result £1.36m £0.99m

Increase inpolicies underwritten 3.5% 1.8%

Solvency I margin: BHSF Limited 441% 301%

Non-insurance business margin £(1.4)m £(0.8)m

Investment income & net investment returns £0.6m £0.9m

* calculated as percentages of earned premiums.

Further information on the Group’s performance in 2015 and its future prospects is set out in the Group Chief Executive’s Review on pages 4 to 6, which forms part of this Strategic Report.

This report was approved by the board on 23 March 2016 and signed on its behalf by:

Charlotte M Taylor Company Secretary

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Directors’ ReportThe Directors have pleasure in submitting their annual report and audited financial statements for the year ended 31 December 2015

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Honorary officersThe Right Worshipful The Lord Mayor of Birmingham, Councillor Ray Hassall, kindly accepted the office of President in accordance with the tradition dating from 1873.

Sir David Perris, MBE, JP, Hon.LL.D continued as Vice-President, having been elected in 2000 and Dr Paul Kanas was elected Vice President in 2016.

CommitteesThere are three board committees:

Audit and Compliance Review Committee Neil Mackay (Chairman) Gary Cowdrill John Hardy

This committee monitors the adequacy of the Group’s internal control systems, accounting policies and financial reports, liaises with the external auditors and ensures that proper mechanisms are in place to ensure compliance with the requirements of the PRA and FCA. It is also available to receive and agree a course of action to deal with any routine report about the Group received from the PRA and FCA. (Non-routine reports and any expressions of concern which might arise are matters reserved to the board.)

Remuneration and Nomination Committee Neil Mackay (Chairman) Carol Coombes Andrew Milner Peter Maskell David Nuttall The responsibilities of this committee include recommending to the board candidates for appointment as Directors. It also approves the remuneration of Directors and terms of employment of members of the management.

Risk Committee John Hardy (Chairman) Jill Bonehill Gary Cowdrill Hilary D’Cruz Ian Galer Geoff Guerin Neil Mackay Peter MaskellThe role of this committee is set out in the Strategic Report on pages 7 and 8.

The boards and the board committees keep their effectiveness under regular review.

Directors’ Responsibilities StatementThe Directors are responsible for preparing the Strategic Report, the 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 the Directors have elected to prepare the financial statements in accordance with the new UK Generally Accepted Accounting Practice (FRS 102 and FRS 103).

The Lord Mayor, Councillor Ray Hassall, with Paul Kanas and Peter Maskell.

Non-executive Directors

Jane E Dale BSc, FCAChairman- appointed 24 February 2016

Dr Paul Kanas BM, BS, MRCP, FFOMChairman- retired 31 December 2015

William G Begg BSc- appointed 23 November 2015

Jill Bonehill- appointed 23 November 2015

Dr Carol Coombes OBE, D Univ

Gary T Cowdrill FCA- appointed 11 December 2015

Hilary D’Cruz LL.B(Hons)

David J Edmonds MBA, ACIB- retired 30 September 2015

John C Hardy B.Com, FIA

Neil Mackay BSc, FCA

Dr Andrew Milner LL.D, DMS, DipM, FIMgt, MCIM

David Oxtoby MBA- retired 30 July 2015

Executive Directors

Peter J Maskell FCII, Chartered InsurerGroup Chief Executive

Ian R Galer, BA(Hons), FCAGroup Finance Director

Geoff M W Guerin MBA, BA(Hons)Group Executive Director and Managing Director, BHSF Limited

Brian Hall FInstSMM, CDirGroup Executive Director and Managing Director, BHSF Employee Benefits Limited

Dr Philip A McCrea Mb, Bch, BAO, MD, MRCP (UK), FRCP (Glasg), MFOM, MFOM (RCPI)Group Executive Director and Managing Director, BHSF Occupational Health Limited- appointed 13 January 2016

David K Nuttall MBA, Chartered MCIPDGroup HR Director

Michael P Sims BSc(Hons), MBCSGroup IS Director - resigned 21 March 2016

Charlotte M Taylor MA, BA(Hons), ACIS, LLDip, Group Executive Director and Company Secretary

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 the Group and of the surplus or deficit of the Group 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 accounting estimates that are reasonable and prudent;

• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• Prepare the financial statements on the going-concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, to disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In addition, the Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

Directors’ IndemnitiesThe Group maintained throughout the year, and at the date of approval of this report, liability insurance for its Directors and Officers. This is a qualifying provision

for the purpose of the Companies Act 2006.

Political and charitable donationsThe Group donated £52,450 (2014: £66,367) by gift aid during the year. The Group made no political donations, during the year (2014: nil).

Statement regarding information given to the auditorSo far as each of the Directors is aware at the time the report is approved:• there is no relevant audit information

of which the Company’s auditor is unaware, and

• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Advisers• Principal Bankers - The Royal Bank of Scotland plc• Principal Solicitors - Weightmans LLP

and Integra Legal Limited• Investment Managers - UBS AG, London Branch• Property Advisers - Fisher German LLP• Pension Fund Actuary and actuarial

adviser to the Group - Quattro Pensions• Pension Advisers - Capita Employee

Benefits (Consulting) Limited• Solvency II Actuarial Advisers - OAC• PR Advisers - Willoughby Public

Relations Limited

StaffThe Group places great importance on the recruitment, training and development of its people, recognising the vital contribution made by colleagues at all levels of the business. This has culminated in the achievement of the Investor in People award in 2002, for which we have been re-accredited triennially. In 2004 we also achieved ISO 9001:2000, and we have been re-certified under ISO 9001:2008 to 2016.

The Group is committed to involving colleagues in the business and giving them the opportunity to contribute. There is a philosophy of open and two-way communication and information is shared and views sought through a number of feedback mechanisms. There are regular meetings of all colleagues in order to disseminate information and hear views expressed, and there is a monthly newsletter for colleagues and pensioners, The Star.

The Group is an equal opportunities employer and recruitment, training and promotion are solely on the basis of business needs and the ability of each individual to meet the job requirements. Full and fair consideration is given to applications from, and the continuing employment of, people with disabilities. The Group has put in place and observes a diversity policy and it also fully complies with the Working Time Directive.

Further, the Group is committed to providing a healthy and safe working environment for all employees and the Directors regularly review the assessments made.

AppreciationThe Directors record their thanks to the management and staff for their hard work during the year. The Directors also extend grateful thanks to all employers, administrators and Delegates for their support and practical assistance which has substantially assisted the service which the Group has provided to customers.

This report was approved by the Board on 23 March 2016 and signed on its behalf by;

Charlotte M TaylorCompany Secretary

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Jane Dale was appointed Chairman in February 2016. Her career has largely consisted of senior roles with a number of major insurers and financial institutions. Jane is currently a non-executive director of British Gas Services.

Peter Maskell joined BHSF at the beginning of 1999 and became Chief Executive in May of that year. He was appointed to the board of BHSF Limited in 2000 and of BHSF Group Limited in 2003.

William Begg was appointed to the boards of our subsidiaries in 2008 and joined the Group board in 2015. Having retired after a career in the automotive industry, he still retains a number of business interests in the UK and abroad.

Jill Bonehill has had substantial general insurance experience and now works for the Chartered Institute of Payroll Professionals. She became a director of BHSF Limited and BHSF Employee Benefits Limited in May 2014 and joined the Group board in 2015.

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Directors’ Profiles

Officers, Directors of Subsidiary CompaniesPresident The Right Worshipful the Lord Mayor of Birmingham

Vice PresidentsDr Paul Kanas BM, BS, MRCP, FFOMSir David A Perris MBE, JP, Hon.LL.D

Life MembersStephen G Hall FIPPMAlbert HarrisonDr Paul Kanas BM, BS, MRCP, FFOM Sir David A Perris MBE, JP, Hon.LL.DDavid J Read JP, FFA, FICM, FIAB

Susan J Burke MA, BSc, SCPHN, MIOSH, RGN was a principal at Abbott Burke Associates, an occupational health provider, until its purchase by BHSF in 2012. She joined the board of BHSF Occupational Health Limited in September 2012 and became Clinical Director in April 2014.

Geoff Guerin joined BHSF on our Graduate Programme in 2006. He has held a number of positions, becoming Managing Director of BHSF Limited in December 2015. He joined the board of BHSF Group Limited in 2014.

Brian Hall Group Executive Director and Managing Director, BHSF Employee Benefits Limited, has been with BHSF since 2001 and was elected to the board of BHSF Limited in 2001 as Sales and Marketing Director and of BHSF Group Limited in 2003.

John Hardy became a director of BHSF Group Limited in 2014. A fellow of the Institute of Actuaries, he spent most of his career up until retirement at the head office of Britannic Assurance.

Neil Mackay had many years of successful accountancy, commercial and banking experience before founding Advantage Business Angels, an equity funding business in 2003. He retired from full-time work in 2015 but still retains a number of part-time directorships. He was appointed to the board of BHSF Group Limited in 2009.

Carol Coombes runs her own business, Cracking Leadership, following senior roles with Citizens Advice Bureaux, Common Purpose and Caret. She joined the board of BHSF Group in 2014.

Gary Cowdrill is a Chartered Accountant and has spent most of his career in financial services. He was Group Finance Director of the West Bromwich Building Society and more recently he is Managing Director of Board Evaluation Limited. He joined the board of BHSF Group Limited in 2015.

Hilary D’Cruz became a director of BHSF Group Limited in 2014. She is a Partner and Head of Corporate Law at Ansons, a firm of solicitors in Staffordshire.

Ian Galer joined BHSF in 2013 after many years with BDO Binder Hamlyn and Wesleyan Assurance. He was appointed Group Finance Director in 2014.

Philip McCrea is an eminent occupational health physician and former owner of OHC which BHSF acquired in 2013. He became Medical Director of BHSF Occupational Health Limited in October 2014 and Managing Director in February 2015. He joined the Group board in 2016.

Andrew Milner is an experienced local authority chief officer and NHS director and company director. He was previously a director of BHSF from 2001 to 2009 and he was reappointed to the Group board in 2013.

David Nuttall joined BHSF as Company Secretary in 2002, and became Customer Service Manager in 2003. He served several of our operating companies as Customer Service Director from 2008 and HR and Operations Director from 2010. He joined the board of BHSF Group Limited in 2014.

Charlotte Taylor joined BHSF as Assistant Company Secretary in 2005. She became Company Secretary in 2008 and was in addition appointed a director of all the Group’s operating companies in 2012. She joined the board of BHSF Group Limited in 2014.

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Senior Management

Melanie Tavener BA(Hons), MSc, Chartered MCIPDHead of HR

Jim Winter CMgr, FCMI, ACSI Head of Field Sales

Shelley Rowley BSc, MScHead of Marketing

Mike Tresham BCom, CMgrHead of Insurance Operations

Steve Munday CIRMHead of Technical, Risk and Compliance

Richard Evanson BScHead of IS

Paul Brady Head of Contact Centre

Tom Ross MMath(Hons), ACA Head of Finance

SR Partners

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Corporate ResponsibilityFor BHSF, corporate responsibility (CR) means many things. It means trading responsibly, aiming to ensure that, in everything we do, we meet the highest standards of business conduct. It means making the most effective use of valuable resources like water and electricity, and respecting the environment. It means giving something back to the communities in which we operate and to those less fortunate than ourselves. It means promoting healthy lifestyle choices for our customers and our employees. And it means providing an environment where we can attract and retain

the best people who work hard to provide the high levels of service for which BHSF is renowned. It is being a good corporate citizen. These pages provide information to a wide audience which is interested in understanding how BHSF is performing on these important issues.

Trading responsiblyWe aim to ensure that, in everything we do, we meet the highest standards of business conduct.• We are required to be compliant with all

legal requirements under the Financial

Services and Markets Act 2000 and ensure that all customer-facing staff meet the standards through our competency-testing programme

• We publish a Business Ethics Policy – see page 34

• Our approach to constructive feedback and complaints ensures excellence through continuous improvement

• Our operations are conducted to the highest of standards through our recognition as an Investor in People and ISO 9001 quality accreditation

Healthy choicesWe recognise that, as a healthcare insurance provider, we have a key role to play in promoting healthy eating and active lifestyles. • Our products range from encouraging

lifestyle assessment and change to preventative care and support

• We provide colleagues with a variety of healthy options, including subsidised

lunches, free fruit, reduced gym memberships and smoking-cessation programmes

• Activities such as the St Basil’s Walk and the Global Corporate Challenge encourage many colleagues to increase their fitness levels and eat healthier diets

• A variety of sporting competitions, many generating charitable monies, are entered,

from five-a-side football to ten-pin bowling and we have a good share of success!

A great place to workTo be successful in business we aim to be an employer of choice and thus create an environment that attracts and retains the right people.

Acorns Children’s Hospice provides care and support for life-limited and life-threatened West-Midlands children, young people and their families. We sponsored Acorns’ inaugural ‘Keep Dancing’ event, two colleagues helped at Acorns’ Aston Villa day by selling raffle tickets, and a team of colleagues assisted at the Selly Oak hospice, re-painting garden furniture and cleaning footpaths ready for the summer fete.

Two colleagues cycled from London to Paris as part of a team which raised £10,000 and we supported the Selly

Oak Hospice’s Christmas lights switch-on, attended by families, staff and volunteers. Laura, a child cared for at the

Walsall hospice, won the competition to design the Company’s 2015 Christmas card.

The Ladywood Project focuses on anti-poverty and family-orientated initiatives in one of the UK’s most deprived suburbs. We helped finance the Project’s Easter party for local children, plus funding furniture and decorations for the Project’s base. We donated picnic and outdoor play equipment for children attending the summer drop-in sessions, and supported the Project’s Holiday Hunger Scheme for children entitled to free term-time school meals.

Colleagues wrapped 160 presents for children attending the Project’s Christmas party and we helped finance a festive trip to Hatton Country World for the Project’s ‘Wrigglers’ group.

St Basils works with Midlands’ 16-25 year-olds who are homeless or at risk of homelessness. 12 colleagues walked the 26-mile ‘Staffordshire Challenge’ whilst those from across the Company donated household items to make up starter packs for young people moving into their first accommodation.

Other colleagues participated in ‘Bake for St Basils’ whilst nine braved the elements to sleep in cardboard shelters at sponsored sleep-outs in Coventry and Birmingham.

Colleagues in Bromsgrove donated useful items such as clothing to their local St Basils accommodation unit.

BHSF also donated a Christmas tree and decorations for the Bromsgrove accommodation unit.

London to Paris Cyclists Handover of Staffordshire Challenge Sponsorship

Refurbishing the facilities

BHSF Group Limited

14

• We are actively involved with appropriate professional and market bodies including the CBI, IoD, CIPD, RoSPA, Greater Birmingham Chamber of Commerce and the Birmingham Insurance Institute.

Respect for the environmentWe recognise our responsibility to reduce the direct impact of our operations on the environment. Our priority is to minimise our environmental impacts by reducing the carbon intensity of our activities by good business practices.

• We recycle whatever we can, from cans, paper and glass to old mobile phones.

• We purchase recycled paper and donate old IT equipment to local charities

• Our car fleet is sourced on the basis of low emissions

• We operate an energy-management system at Gamgee House.

Social Responsibility (SR)We believe strongly that businesses like ours should act in an ethical and socially-responsible way, and that we should put

something back into society as part and parcel of our business operations. We aim to make a positive impact by contributing to the wellbeing of our seven SR partners and others through a Community Action programme involving funding and the time and expertise of our employees. A cash grant is made annually to each of our SR partners.

Under a rotational programme, Birmingham Rathbone, with which we had worked for many years, was replaced by Alzheimer’s Society during 2016. The following gives an overview of our support.

Our people are a vital asset and we provide a working atmosphere in which our employees can develop and achieve their full potential.• We promote a healthy work-life balance for

colleagues• Our social committee regularly organises

quiz nights, charitable and sporting events

• The Investors in People accreditation recognises our dedicated approach to the training and development of those who work for us, with many colleagues attaining professional and vocational qualifications through our support and funding

• Our talent management programme allows colleagues to grow within the business to

enhance valuable skills, experience and knowledge

• We expect our team to work hard, and in return we reward them well and provide them with secure employment.

The Oratory RC Primary School and St John’s and St Peter’s Primary Academy are close to Gamgee House. Colleagues supported the children in literacy both individually and in the classroom. Others judged World Book Day competitions and attended presentations and services at the schools. BHSF also donated six picnic benches and gardening tools to The Oratory, whilst St John’s and St Peter’s was presented with outdoor playground equipment and books.

Marie Curie provides care and support for people living with any terminal illness and their families. BHSF’s Group HR Director and two friends cycled 427 miles across Ireland, raising over £20,000 of sponsorship. BHSF sponsored the running costs of the West Midlands Hospice on 7 November, the anniversary of Marie Curie’s birth, and a small party from BHSF visited the hospice for a conducted tour of the facilities. BHSF also supported the charity’s Birmingham Brain Game and colleagues volunteered to act as hosts and markers for the prestigious quiz which raised £125,000. Colleagues also sold daffodils for the charity’s annual Daffodil Appeal in March.

Other good causes supported include:

• Alzheimer’s Society• Aspire Spinal Cord Charity• Asthma UK• Birmingham Central Foodbank• Business in the Classroom• Cancer Research UK• Children in Need• Children’s Liver Disease Foundation• Comic Relief• Diabetes UK• Enabling Enterprise• Guide Dogs for the Blind• Little Hearts Matter• Macmillan Cancer Support• Make-A-Wish UK• MIND• Save the Children• SENSE• St John’s and St Peter’s Church• Water Aid• West Midlands Air Ambulance• World Cancer Research Fund

Presentation of benches at the Oratory Students from Perry Beeches II College who won our Business in the Classroom Challenge

Sponsored cyclists

BHSF Group Limited

15

Independent Auditor’s Report

Independent Auditor’s Report to the Members of BHSF Group Limited

We have audited the financial statements of BHSF Group Limited for the year ended 31 December 2015 which comprise the Income Statement, the Statement of Total Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

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 auditorAs explained more fully in the Directors’ responsibilities statement, 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 Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion the financial statements:

• give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 December 2015 and of the Group’s surplus for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe 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.

Stephen Hale (Senior statutory auditor)

for and on behalf of BDO LLP, Statutory auditor

Birmingham24 March 2016

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

2015 2014 Notes £000 £000

283 707 10 684 (921)

967 (214)

TECHNICAL ACCOUNT PREMIUMS Gross premiums writtenOutward reinsurance premiums Change in the provision for unearned premiums Earned premiums net of reinsurance ALLOCATED INVESTMENT RETURN TRANSFERRED FROM THE NON-TECHNICAL ACCOUNT

CLAIMS Gross amount Reinsurers’ share Change in the provision for outstanding claims: Gross amountReinsurers’ share

Claims incurred net of reinsurance

NET OPERATING EXPENSES BALANCE ON THE TECHNICAL ACCOUNT FOR GENERAL BUSINESS NON-TECHNICAL ACCOUNT BALANCE ON THE TECHNICAL ACCOUNT FOR GENERAL BUSINESS Investment income Unrealised (losses)/gains on investments Allocated investment return transferred to the general business technical account Investment expenses and charges Other incomeOther charges Net interest (cost)/return on pension scheme liability SURPLUS ON ORDINARY ACTIVITIES BEFORE TAXATION

Tax charge on surplus on ordinary activities SURPLUS FOR THE FINANCIAL YEAR

All the above amounts relate to continuing operations.The notes on pages 20-34 form part of these financial statements. Group Other Comprehensive Incomefor the year ended 31 December 2015

Surplus for the financial year Actuarial gains/(losses) net of deferred tax TOTAL COMPREHENSIVE INCOME/(EXPENDITURE) FOR THE FINANCIAL YEAR

All the above amounts relate to continuing operations.The notes on pages 20-34 form part of these financial statements.

1,396 1,033 5 692 759 (11) 207

(41) (40) (108) (98) 6 4,172 3,114 7 (5,554) (3,991) (37) 5

509 989

12 (226) (282)

8 283 707

2015 2015 2014 2014 Notes £000 £000 £000 £000

2 35,412 34,183 (341) (513) 35,071 33,670 (65) 50 35,006 33,720

41 40

(25,081) (24,703) 145 184 (24,936) (24,519)

59 (267) (37) 86 22 (181) (24,914) (24,700)

10,133 9,060

4 (8,737) (8,027)

1,396 1,033

BHSF Group Limited

Group Income Statementfor the year ended 31 December 2015

Technical and Non-technical Accounts – General Business

16

ASSETS

INTANGIBLE ASSETS Goodwill Other intangibles INVESTMENTS Land and buildings Investment in subsidiaries Other financial investments

REINSURER’S SHARE OF TECHNICAL PROVISIONS

DEBTORS Debtors arising out of direct insurance operations Amounts due from group undertakings Other debtors OTHER ASSETS Tangible fixed assets Cash at bank and in hand

PREPAYMENTS AND ACCRUED INCOME TOTAL ASSETS LIABILITIES ACCUMULATED FUND TECHNICAL PROVISIONS Provision for unearned premiums Provision for claims PROVISION FOR OTHER RISKS - PROVISION FOR PENSIONS AND SIMILAR OBLIGATIONS Pension scheme liability Other provisions

CREDITORSOther creditors including taxation and social security ACCRUALS AND DEFERRED INCOME TOTAL LIABILITIES

The notes on pages 20-34 form part of these financial statements.

The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 23 March 2016.

Peter J Maskell, Group Chief Executive

2015 2015 2014 2014 2015 2014 Note £000 £000 £000 £000 £000 £000

13 1,114 1,172 - - 13 22 - - - 1,136 1,172 - - 14 1,740 1,740 - - 15 - - 2,766 2,630 16 21,437 21,582 - - 23,177 23,322 2,766 2,630

152 188 - - 17 2,131 1,843 - - - - 200 7 18 1,117 744 - - 3,248 2,587 200 7

19 560 408 - - 6,961 6,957 817 1,145 7,521 7,365 817 1,145 295 229 - -

35,529 34,863 3,783 3,782

30,241 29,274 3,464 3,769

20 350 285 - - 1,805 1,865 - - 2,155 2,150 - -

10 203 1,016 - - 20 22 - - - 225 1,016 - -

21 2,085 1,689 300 -

823 734 19 13

35,529 34,863 3,783 3,782

BHSF Group Limited

17

Group Company(number 4767689)

Statements of Financial Positionfor the year ended 31 December 2015

BHSF Group Limited

18

BALANCE AT 1 JANUARY 2014 29,488 4,364 CHANGES IN EQUITY FOR THE YEAR ENDING 31 DECEMBER 2014 Surplus for the financial year 707 (595)Other comprehensive income for the financial year (921) -

Total comprehensive income for the financial year (214) (595) BALANCE AT 31 DECEMBER 2014 29,274 3,769 CHANGES IN EQUITY FOR THE YEAR ENDING 31 DECEMBER 2015 Surplus for the period 283 (305)Other comprehensive income for the financial year 684 -

Total comprehensive income for the financial year 967 (305) BALANCE AT 31 DECEMBER 2015 30,241 3,464

The notes on pages 20-34 form part of these financial statements.

Group Accumulated Fund £000Note

Company Accumulated Fund £000

Statements of Changes in Equityfor the year ended 31 December 2015

CASH FLOWS FROM OPERATING ACTIVITIES Surplus for the financial year before tax 509 989Adjustments for:Depreciation and amortisation 8 898 808Realised losses on sale of investments 5 19 32Unrealised investment losses/(gains) 11 (192)Revaluation gains on land and buildings - (15) Other non-cash items of comprehensive income 95 33Increase in insurance debtors (252) (191)Increase in trade and other debtors excluding tax (320) (150)Increase in insurance creditors 5 179Decrease in trade and other creditors excluding tax and pension scheme (183) (302)Non-cash movements on provisions (26) -Defined benefit pension contributions 10 (22) (148)Investment portfolio purchases (11,869) (8,360)Investment portfolio sales 10,643 8,986Corporation tax recovered - 8Corporation tax paid (338) (376)

NET (OUT)/INFLOW FROM OPERATING ACTIVITIES (830) 1,301

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of tangible fixed assets (234) (188)Net cash outflow on purchase of subsidiary undertakings 15 (245) - NET OUTFLOW FROM INVESTING ACTIVITIES (479) (188) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,309) 1,113 Cash and cash equivalents at 1 January 8,363 7,250Effect of exchange rate fluctuations on cash balances (30) - CASH AND CASH EQUIVALENTS AT 31 DECEMBER 24 7,024 8,363

The notes on pages 20-34 form part of these financial statements.

2015 2014 Note £000 £000

Group Statement of Cash Flowsfor the year ended 31 December 2015

BHSF Group Limited

19

BHSF Group Limited

20

1. BASIS OF PREPARATION

The accounts have been prepared in accordance with the provisions of SI 2008 No 410 Schedule 3 of the Companies Act 2006, and the following financial reporting standards (FRS) issued by the Financial Reporting Council:

• FRS 102 The Financial Reporting Standard Applicable in the UK and Ireland

• FRS 103 Insurance Contracts

This is the first year in which these standards have been applied. The effective date of transition to the new standards is 1 January 2014. See note 27 for details of the impact of adopting these standards.

The financial statements cover the year ended 31 December 2015. The comparative figures cover the year ended 31 December 2014.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Group’s accounting policies.

In preparing the separate financial statements of the Company and Group, advantage has been taken of the following disclosure exemptions available under FRS 102:

• No cash flow statement nor financial instrument disclosures have been presented for the Company; and

• No disclosure has been given for the aggregate remuneration of the key management personnel of the Company as their remuneration is included in the totals for the Group as a whole.

Compliance with FRS 102 requires departure from the requirements of the Companies Act 2006 relating to depreciation and an explanation of the departure is given in the accounting policy note relating to land and buildings.

1A Accounting policies

The following key accounting policies are applied in the preparation of the accounts.

a) Basis of consolidation The group financial statements combine the results of the

Company and all its subsidiaries after eliminating intra-group transactions. The results of subsidiaries acquired have been included from the date of acquisition.

Goodwill on consolidation, representing the excess of the fair value of the consideration given over the fair value of the net assets acquired, in respect of acquisitions is capitalised and is amortised over its estimated useful life.

No Company total comprehensive income statement account has been included in these financial statements as permitted by section 408(3) of the Companies Act 2006.

b) Premiums Gross premiums written are health cash plan and personal

accident premiums excluding insurance premium tax.

Earned premiums, all of which arise in the United Kingdom, represent premiums from policyholders for the year, excluding insurance premium tax, and include an estimate of amounts due but not received at 31 December. Provision is made for premiums received but not earned at the statement of financial position date calculated on a time-apportioned basis.

c) Claims Claims payable are recognised in the accounting period in

which the insured event occurs.

Claims paid consist of claim payments and the internal and external costs of settling those claims.

Provision is made for the estimated cost of claims incurred up to the statement of financial position date. The provision is based on claims settled after the statement of financial position date together with an estimate of claims incurred by the statement of financial position date but not settled or notified based on statistical methods. Included within the provision is an estimate of the claims handling costs that will be incurred in settling outstanding claims.

d) Tangible fixed assets Tangible fixed assets are stated at cost.

Depreciation is calculated to write down the cost of tangible fixed assets by equal annual instalments over their expected useful lives.

The rates generally applicable during the year were: Furniture and equipment 10% Computer equipment 20% Laptops 33% PC software 50% Medical equipment 15%

e) Land and buildings Land and buildings other than those occupied by the

Group, are treated as investment properties and are valued at open market value as determined by independent professional advisors every three years.

Notes to the Financial Statementsfor the year ended 31 December 2015

BHSF Group Limited

21

In the intervening years these valuations are updated by the Directors with the assistance of independent professional advice as necessary. The last professional valuation of all such group properties was carried out at 31 December 2014 by Fisher German LLP (Chartered Surveyors).

Land and buildings occupied by the Group for its own purposes are included at market value as determined by independent professional advisors every three years. In the intervening years these valuations are updated by the Directors with the assistance of independent professional advice as necessary. The last professional valuation of the Group headquarters, Gamgee House, was carried out at 31 December 2014 by Sellers (Chartered Surveyors).

Under the Companies Act 2006 fixed assets are required to be depreciated to their estimated residual value over their expected useful economic lives. In respect of investment properties, this requirement conflicts with the generally accepted accounting principle set out in FRS 102 that no depreciation should be provided in respect of such investments. The Group considers that to depreciate the investment properties would not give a true and fair view and accordingly the provisions of FRS 102 have been adopted.

Depreciation is provided on freehold buildings used by the Group for its own purposes so as to write-off the valuations less their estimated residual value over their estimated lives. However, given the Group’s policy of formally revaluing the property every three years, any charges for depreciation would be immaterial in relation to the financial statements. The Directors review the carrying value of the property for impairment on an annual basis.

f) Investments Investment balances represent the value of the investment

portfolio of BHSF Limited and includes equities, corporate bonds, government bonds and investments in collective investment funds. Investments are recognised when BHSF Limited becomes contractual owner of the instrument and are recognised initially at their cost to BHSF Limited.

Whilst held, BHSF Limited values equity investments and investments in units of collective investment funds at fair value through profit and loss, where fair value is taken to be the bid price of the instrument at the statement of financial position date. BHSF Limited makes use of the accounting policy choice available under section 11.14(b) of FRS 102 to also designate corporate and government bond instruments as fair value through profit and loss. See section 1B for further information.

Investments are de-recognised when BHSF Limited ceases to be the contractual owner of the instrument or, where applicable, when the instrument matures and contractual rights expire.

Investments in subsidiary undertakings are included at cost, less provision for permanent diminution in value.

g) Investment income Investment income comprises interest, dividends, rents

and realised gains. Dividends are recorded on the date on which the shares are quoted ex-dividend and interest, rents and expenses are accounted for on an accruals basis. All investment income is initially recognised in the non-technical account.

An allocation of the investment return is made between the non-technical and technical accounts for general business so as to reflect the investment return on investments supporting technical provisions.

Realised gains or losses represent the difference between net sales proceeds and purchase price or market value if held at the previous statement of financial position date and are initially recognised in the non-technical account.

h) Unrealised gains and losses Unrealised gains or losses represent the difference

between the valuation of investments at the statement of financial position date and their purchase price if acquired during the year and the market value at the previous statement of financial position date for investments held throughout the year. All unrealised gains or losses are initially recognised in the non-technical account.

i) Acquisition costs The costs of acquiring new business which are incurred

during the financial year are deferred to the extent that they relate to unearned premiums at the statement of financial position date. During the current and preceding financial years such deferred costs were not material and therefore not separately disclosed.

j) Leases Operating lease rentals are charged to the income

statement on a straight line basis over the period of the lease.

k) Current and deferred tax The tax expense for the period comprises current and

deferred tax. Tax is recognised in the income statement, except that a change attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

Notes to the Financial Statements (continued)for the year ended 31 December 2015

BHSF Group Limited

22

Deferred balances are recognised in respect of all timing differences that have originated but not reversed by the statement of financial position date, except:

• The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and

• Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met.

Deferred tax balances are not recognised in respect of permanent differences.

The current income tax charge and deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

l) Pension costs The Group made contributions to two different pension

schemes during the year.

Defined benefit scheme: The difference between the fair value of the assets held

in the Group’s defined benefit pension scheme and the scheme’s liabilities measured on an actuarial basis using the projected unit method are recognised in the Group’s statement of financial position as a pension asset or liability as appropriate. The carrying value of any resulting pension scheme asset is restricted to the extent that the Group is able to recover the surplus either through reduced contributions in the future or through refunds from the scheme.

Defined contribution scheme: The contributions to a group personal pension scheme

have been charged to both the technical and non-technical accounts as appropriate in the year to which they relate.

m) Reinsurance The Group partially reinsures the personal accident risk

under a reinsurance agreement. Reinsurance premiums are accounted for in the technical account. Similarly reinsurance recoveries on claims payable are accounted for in the technical account.

Reinsurance assets represent amounts receivable from the reinsurer for ceded insurance liabilities.

n) Liability adequacy test The Group performs a liability adequacy test at each

statement of financial position date. This test estimates all future cash flows on insurance contracts in force at the statement of financial position date, including premiums received, claims incurred, and related claims processing and other expenses. If the test identifies any shortfall

in the carrying value of insurance liabilities, the shortfall is recognised and an extra charge taken to the income statement.

No such charges have arisen in the current or prior financial years.

o) Other financial instruments The Group holds cash and debtor assets and long and

short-term creditor liabilities which are classed as financial assets and liabilities. Cash balances are recorded at the statement of financial position date at their face value. Debtors and creditors are measured at their amortised cost using the effective interest rate where durations are longer than one year. Where duration is shorter than one year, which is the case for all debtors and all creditors, financial assets and liabilities are measured at their cash settlement value.

p) Aquisitions The financial statements incorporate the results of

business combinations using the purchase method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the statement of comprehensive income from the date on which control is obtained.

1B Critical judgements in the application of accounting policies

In preparing these financial statements under the above policies, the directors have made the following critical judgements:

a) Financial instrument classifications (note 16) The financial statements include £21,374k (2014:

£20,176k) in respect of financial instruments which are measured at fair value through profit and loss. This is based on the judgement that the default amortised cost measurement basis under FRS 102 for the £8,846k (2014: £8,589k) of investments in debt instruments, including corporate and government bonds, does not provide as relevant information to the users of these financial statements as fair value does because these investments are managed and monitored by the Group on the basis of their market value.

b) Indicators of impairment in assets The directors exercise significant judgement in assessing

whether there are indications of impairment in assets and, in particular, in those assets that represent investments in subsidiaries. Factors taken into account when determining whether or not to impair assets include the economic viability and expected future financial performance of the asset and, where it is a component of a larger

BHSF Group Limited

23

cash-generating unit, the viability and expected future performance of that unit.

1C Key sources of estimation uncertainty

In preparing these financial statements, the directors have made the following significant estimates:

a) Technical provisions – claims provision (note 20) The financial statements include £1,805k (2014: £1,865k)

in respect of technical provision liabilities for claims. These provide for the estimated costs of claims incurred up to the statement of financial position date and outstanding at that date.

Technical provisions for health cash plans and personal accident products are projections based on recent historic claims experience and hence there is a risk that the actual claims that will be made by policyholders in respect of events incurred up to the statement of financial position date will differ significantly from the projections based on historic data. The amount of reinsurance recoverable on personal accident claims is estimated based on the projection of claims payments made here.

Technical provisions for cancer cover are based on recent historic rates of cancer incidence published by the Office for National Statistics. Hence there is a risk that the actual claims that will be made by policyholders in respect of events incurred up to the statement of financial position date will differ significantly from the patterns suggested by the historic statistics.

Significant changes to actual claims experience over the next financial year could result in significant changes to the carrying value of technical provisions over the next financial year.

b) Defined benefit pension scheme liability (note 10) The financial statements include a net defined benefit

pension scheme liability of £203k (2014: £1,016k), comprising assets of £11,277k (2014: £10,946k) and liabilities of £11,480k (2014: £11,962k). These liabilities represent the costs expected to be incurred in making pension payments to current or past employees who are members of the scheme.

The valuation of the pension scheme liability is determined on an actuarial basis using the projected unit method and are discounted at a rate using the current rate of return on high quality corporate bonds of equivalent term and currency to the liability. Assumptions are also made about the mortality of the beneficiaries of the pension scheme, and future rates of inflation. The assumptions underlying this calculation are discussed in more detail in note 10.

Significant changes to the assumptions underlying these calculations over the next financial year could result in significant changes to the carrying value of the pension scheme liability.

c) Property valuations (note 14) The financial statements include properties valued at

£1,740k (2014: £1,740k). The valuation of both of these properties is a significant estimate. In order to arrive at a reliable estimate, the directors make use of professional valuation experts as described in accounting policy e) above. However, significant changes to assumptions underlying the experts’ calculations over the next financial year, or significant changes in market conditions could result in significant changes to the carrying value of property over the next financial year.

d) Investments in subsidiaries and goodwill (notes 13 and 15)

Investments in subsidiaries within the Company are measured at cost less accumulated impairment. Goodwill balances within the Group represent the excess over net asset value paid for the acquisition of subsidiary companies. Goodwill is measured at cost less accumulated amortisation and accumulated impairment.

In both cases, impairment is judged on the basis of the present value of future cash flows expected to flow from the acquired business, based on approved budgets and forecasts. Differences between the forecasts used to arrive at the net present value and actual outturn could result in significant changes to the carrying value of investment or goodwill balances over the next 12 months.

2. GROSS PREMIUMS WRITTEN

Total insurance premiums 37,685 36,200Less insurance premium tax (2,273) (2,017)

Gross premiums written 35,412 34,183

3. SEGMENTAL REVENUE ANALYSIS

The Group’s revenue is generated in the following business segments:

Health cash plans including Personal Accident 35,412 34,183Insurance broking 341 319Employee benefits and employer-support services 366 274Occupational health 3,465 2,521

Total revenue 39,584 37,297

All revenue is generated in the UK with the exception of some occupational health services delivered in the Republic of Ireland.

Notes to the Financial Statements (continued)for the year ended 31 December 2015

2015 2014 £000 £000

2015 2014 £000 £000

BHSF Group Limited

24

Occupational health revenue is divided into the following geographic segments:

United Kingdom 3,307 2,293Republic of Ireland 158 228 Total occupational health revenue 3,465 2,521

4. NET OPERATING EXPENSES

Business acquisition costs 3,483 3,103 Administration expenses 5,254 4,924

8,737 8,027

5. INVESTMENT INCOME

Income from land and buildings 8 7 Income from other investments 703 784 Loss on the realisation of investments (19) (32)

692 759

6. OTHER INCOME Insurance broking 341 319 Employee benefits and employer-support services 366 274Occupational health 3,465 2,521

Total revenue 4,172 3,114

7. OTHER CHARGES

Cost of sales 2,397 1,713Administration expenses 2,459 1,579Goodwill amortisation 646 632 5,502 3,924Charitable donations 52 67

5,554 3,991

8. SURPLUS ON ORDINARY ACTIVITIES BEFORE TAXATION

The surplus on ordinary activities before taxation is arrived at after charging the following: Depreciation 188 176 Amortisation of goodwill 646 632Amortisation of of other intangibles 64 -Operating leases - motor vehicles 222 204 - properties 156 45 Commissions payable 515 653

Auditor’s fees: Fees payable in respect of the audit of the Company’s accounts 16 10Other services provided by the Company’s auditor: Audit fees for the Company’s subsidiaries pursuant to regulation 68 60

Fees for other services pursuant to regulation 8 17 Tax services 40 47 Services relating to corporate finance and compliance 25 20

All fees payable in respect of the audit of the Group’s accounts are approved by the Audit and Compliance Review Committee.

An additional amount of £88,000 (2014: £18,000) has been paid to the Group’s auditors in respect of corporate finance fees relating to acquisitions.

9. INSURANCE RISK MANAGEMENT

The Group accepts insurance risk through the contracts it writes for its three main insurance product lines:

• Health cash plans, where policyholders are reimbursed for all or part of their spend on a variety of everyday healthcare needs;

• Personal accident insurance, where policyholders are given cash settlement on the event of various types of accidental injury; and

• Plan4Life cancer cover, where policyholders are given cash settlement on the event of diagnosis of various types of cancer.

9A. Impact on these financial statements

The writing of insurance contracts is the Group’s primary business and therefore amounts directly related to insurance contracts appear throughout these financial statements. In particular:

• Note 1A (b) describes the accounting for the premium income arising from insurance contracts which appears in the income statement and note 2.

• Note 1A (c) describes the accounting for claims costs that appear in the income statement. Claims are discussed in further detail in section 9B below.

• Note 1A (m) describes the accounting for reinsurance which appears in the income statement and statement of financial position as part of insurance debtors (note 17).

• Note 1C (a) describes the estimation techniques used in the calculation of the technical provisions balances included in the statement of financial position and disclosed in more detail in note 20.

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

• Note 2 discloses the amount of insurance premium tax paid on premiums arising from insurance contracts.

• Note 4 discloses costs incurred in acquiring insurance business. • Note 8 discloses the commissions paid in respect of insurance

contracts. • Note 17 discloses the amounts receivable from insurance

policyholders and reinsurers at the statement of financial position date.

• Note 20 discloses the movements in insurance technical provisions over the last 12 months.

The majority of these figures are of certain timing and amount. The only areas of uncertain timing and amount are technical provisions and the related reinsurance recoverables. The methods for estimating the value of these items is discussed in greater detail in note 1C (a).

9B. Risks arising from insurance contracts

Insurance risk is the risk that fluctuations in claims or premiums impact the income statement. This includes catastrophic events that lead to short-term spikes in claims.

As a medium-sized health cash plan provider, the business and hence the insurance risk is concentrated within one country of operations – the UK – and a single sector of insurance – general health insurance. In addition, within this, concentration occurs within the largest group customers. These are companies that have a significant number of their employees as BHSF policyholders and hence are likely to be more concentrated geographically than the general population.

As a not-for-profit Group, the pricing of products is an important factor in managing insurance risk. An actuarial quote engine is used to price many products, with senior executive involvement in other pricing decisions where necessary.

The profitability of products is monitored in order to ensure that products do not become unviable and an appropriate level of surplus is being generated to maintain the solvency of the business. Premium and claims levels are monitored on a monthly basis in order to identify trends.

The nature of the Group’s core health cash plan business which makes up over 90% of the Group’s premium income is such that claims are of high volume, covering dental or optical appointments and other day-to-day treatments that can be burdensome for individuals but are of relatively low value for the Group. There is limited scope for a claim to be incurred which would be material to these financial statements.

Additionally, insurance risk is mitigated in part by the terms of the health cash plan policies. These state that claims must generally be made within three months of the date the claim event occurred. This reduces the volatility in claims and reduces the risk of sudden large historic claims that could significantly harm the Group’s solvency. This also means that the significant majority of claims are resolved within one year of the date the claim event occurred and hence that the value of claims for which there is uncertainty about the timing and amount extending beyond the next 12 months is not material.

9C. Sensitivity analysis

Sensitivity analysis is performed to illustrate the vulnerability of the financial statements to different changes. Three sensitivities are presented:1. A 5% increase/decrease in claims;2. A 5% increase/decrease in operating expenses; and3. A one-off catastrophe giving rise to claims of £1,000k.These sensitivities are considered to be reasonably possible changes in a single factor based on past experience for the business, as well as calculations of catastrophe risk done as part of preparatory work for the Solvency II regulatory regime which became effective on 1 January 2016.

Before sensitivities 509 989 30,241 29,274

After applying claims ratio sensitivity - 5% increase in claims (736) (246) 29,245 28,286- 5% decrease in claims 1,756 2,224 31,238 30,262 After applying expense ratio sensitivity - 5% increase in operating expenses 73 587 29,892 28,953- 5% decrease in operating expenses 947 1,390 30,591 29,595 After applying one-off claims shock sensitivity - £1,000k additional claims (491) (11) 29,441 28,474

10. EMPLOYEE COSTS AND NUMBERS

a) Employee costs: Wages and salaries 7,318 6,270Social security costs 760 655Pension costs 586 484

8,664 7,409

The pension costs disclosed above are the costs incurred in respect of the defined contribution pension scheme available to employees of the Group. Costs in respect of the defined benefit pension scheme are discussed in note 10c).

b) The average number of employees during the year was:

Sales and marketing 62 60Registration, claims and helpdesk 37 41Management and administration 91 78Occupational health practitioners 46 35

236 214

Notes to the Financial Statements (continued)for the year ended 31 December 2015

BHSF Group Limited

25

2015 2014 2015 2014 £000 £000 £000 £000

Surplus/(Deficit)before tax

Accumulated fund

2015 2014 £000 £000

2015 2014 Number Number

c) Pension commitments:

The Group provides retirement benefits to some of its former and current employees through a defined benefit pension scheme. The scheme closed to future accrual on 31 October 2012. The pension scheme assets are held in a separate trustee-administered fund to meet the long-term pension liabilities of these past and present employees. The administration of the scheme is determined by the scheme’s Trust Deed. It provides that the level of retirement benefit is based upon the highest annual salary earned in any one of the three years preceding retirement.

The amounts recognised in the consolidated statement of financial position are as follows:

Present value of scheme liabilities (11,480) (11,962) Fair value of scheme assets 11,277 10,946 Deficit in the scheme (203) (1,016)

The amounts recognised in the income statement are as follows:

Current service cost - -Interest on net liability (37) 5Past service cost (included in net operating expenses) (23) (45)

Total charge (60) (40)

The amounts recognised in other comprehensive income are as follows:

Actuarial gain/(loss) on scheme liabilities 569 (1,350)Actuarial gain on scheme assets 282 118Deferred tax (charge)/credit on actuarial adjustments (167) 203Additional credit due to actuarial surplus not recognised in prior year - 108

Total net actuarial gain/(loss) 684 (921)

Changes in the present value of the scheme liabilities are as follows:

Opening scheme liabilities 11,962 10,389Interest cost 425 451Actuarial (gain)/loss (569) 1,350Past service cost 23 45Benefits paid (361) (273)

Closing scheme liabilities 11,480 11,962

Changes in the fair value of scheme assets are as follows:

Opening fair value of scheme assets 10,946 10,497Interest income on scheme assets 388 456Actuarial gain 282 118Contributions by employer 22 148Benefits paid (361) (273)

Closing fair value of scheme assets 11,277 10,946

The Group expects to contribute nil to its defined benefit scheme deficit in 2016. The contributions above relate to inflation payments for pensions in payment.

The most recently-completed triennial actuarial valuation of the defined benefit scheme was performed by an independent actuary at 31 March 2014.

The major categories of scheme assets as a percentage of total scheme assets are as follows:

Equities 55% 57%Bonds 37% 37%Annuities 1% 1%Cash 7% 5%

The principal actuarial assumptions used at the statement of financial position date (expressed as weighted averages) are:

Discount rate 3.90% 3.60%RPI Inflation 3.20% 3.05%CPI inflation 2.20% 2.05%LPI pension increases 2.20% 2.05%Proportion of members taking early retirement - -Statutory increases in deferment 3.00% 3.00%Mortality base table S2PA S2PA YOB YOB CMI CMIAllowance for future improvements 2014 2014 1.25% 1.25% As part of the actuarial valuation carried out at 31 March 2014 the mortality experience of the scheme was reviewed. The mortality rate assumptions have been reviewed again this year and under the mortality tables adopted the assumed life expectancy at age 65 is as follows:

Longevity at age 65 for current pensionersMales 22.4 22.3Females 24.4 24.3

Longevity at age 65 for future pensioners, now aged 45Males 24.1 24.0Females 26.3 26.2

BHSF Group Limited

Notes to the Financial Statements (continued)for the year ended 31 December 2015

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014

2015 2014

26

Amounts for the current and previous four years are as follows:

Defined benefit obligation (11,480) (11,962) (10,389) (10,325) (9,401)Scheme assets 11,277 10,946 10,497 9,563 8,862

Surplus/(deficit) (203) (1,016) 108 (762) (539)

Experience adjustment on scheme liabilities 25 (8) (4) (34) 10Experience adjustment on scheme assets 261 45 547 332 125

There are no commitments in respect of the defined contribution scheme at the year end (2014: nil).

11. DIRECTORS’ EMOLUMENTS AND BENEFITS

Directors’ emoluments including benefits in kind 1,038 980 Contributions to a defined contribution scheme 128 109

1,166 1,089

Highest paid Director: Remuneration 259 250

The Group made contributions on behalf of Directors to the following pension scheme during the year:

Defined contribution scheme 6 7

12. TAXATION

a) Analysis of charge for the year:

Corporation tax at 20% (2014: 21%):Current tax charge 215 259Deferred tax charge 11 23

Taxation charge 226 282

b) Factors affecting the tax charge for the year: The tax assessed for the year is more (2014: more) than would be expected by multiplying the surplus on ordinary activities by the standard rate of corporation tax in the UK of 20% (2014: 21%). The differences are explained below:

Surplus on ordinary activities before taxation 509 989

Surplus on ordinary activities before taxation multiplied by the standard rate of corporation tax at 20% (2014: 21%) 102 208

Effects of:Gains and losses not subject to corporation tax 112 4Equity dividends not subject to corporation tax (88) (97)Goodwill deduction not subject to corporation tax 129 133Timing differences (16) 25Other differences (13) 9

Total tax charge 226 282

The aggregate current and deferred tax relating to items recognised in other comprehensive income is a charge of £167k (2014: credit of £203k).

Deferred taxThe Group has deferred tax assets as follows:

Accelerated capital allowances - 12Short-term timing differences 1 1Deferred tax asset on pension scheme liability 37 203 38 216

The deferred tax asset at 31 December 2015 and 31 December 2014 is carried forward within other debtors.

The movement on the deferred tax asset is as follows:

As at 1 January 216 13Movement through total comprehensive income (178) 203

As at 31 December 38 216

The Group has deferred tax liabilities as follows:

Fixed asset timing differences 33 8Deferred tax on acquisition fair value adjustments 11 -Deferred tax on investment property revaluations 64 71

108 79

Notes to the Financial Statements (continued)for the year ended 31 December 2015

BHSF Group Limited

27

2015 2014 2013 2012 2011 £’000 £’000 £’000 £’000 £’000

2015 2014 £000 £000

2015 2014

Number Number

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

The deferred tax liability at 31 December 2015 and 31 December 2014 is carried forward within other creditors.

The movement on the deferred tax liability is as follows:

As at 1 January 79 56Arising on acquisition 29 -Movement through total comprehensive income - 23

108 79

(c) Factors that may affect future tax charges

The main rate of corporation tax in force at the statement of financial position date was 20%. With effect from 1 April 2017, the main rate of UK corporation tax will be 19%. The reduction to 19% will occur in the year after the next financial year.

With effect from 1 April 2020, the main rate of UK corporation tax will be 17%. Deferred taxation assets and liabilities expected to crystallise over the long term have been calculated at 18%, the enacted long term rate as at the statement of financial position date.

13. INTANGIBLE ASSETS

Group Cost: At 1 January 2015 7,137 - 7,137Acquistion additions 542 86 628Increase in purchase consideration 46 - 46

At 31 December 2015 7,725 86 7,811

Amortisation:At 1 January 2015 5,965 - 5,965Charge for the year 646 64 710

At 31 December 2015 6,611 64 6,675

Net book value:At 31 December 2015 1,114 22 1,136

At 31 December 2014 1,172 - 1,172

All amortisation charged for the year is reflected in other charges in the non-technical account.

Goodwill arising on the Group’s acquisitions is amortised to the income statement in equal instalments over its estimated useful life.

In the year to 31 December 2015 there were two new acquisitions made by the Group - WellWork Limited and M3OH Limited. These resulted in the additions to goodwill disclosed above. For further detail on these acquisitions, see note 15.

The analysis above shows movement on goodwill balances from acquisitions, amortised as follows:

Occupational Health Consultants Limited - 4 years finishing on 2 October 2017

WellWork Limited - 4 years finishing on 9 April 2019

M3OH Services Limited - 4 years finishing on 10 June 2019

14. LAND AND BUILDINGS

At market value: At 1 January 2015and 31 December 2015 1,100 640 1,740

At cost:At 1 January 2015 and 31 December 2015 2,103 20 2,123

15. SUBSIDIARY UNDERTAKINGS15A. Summary of all subsidiary undertakings

The activities of the subsidiary companies during 2015 are below:

BHSF Limited (limited by guarantee) - provider of health cash plans

Cash4Health Limited (limited by guarantee) - provider of health cash plans

(non-trading)

BHSF Employee Benefits Limited - insurance broker and provider of employee benefits and employer-support services

Network Insurance Brokers Limited - dormant company

BHSF Corporate Healthcare (Holdings) Limited - holding company

BHSF Occupational Health Limited - provider of occupational health services

WellWork Limited - provider of occupational health services (non-trading)

M3OH Services Limited - provider of occupational health services (non-trading)

Occupational Health Consultants Limited - dormant company

Abbott Burke Associates Limited - dormant company

BHSF Group Limited

Notes to the Financial Statements (continued)for the year ended 31 December 2015

28

2015 2014 £000 £000

Other Goodwill Intangibles Total £000 £000 £000

Owner occupied freehold Investment property property Total £000 £000 £000

The investment in Cash4Health Limited is held by BHSF Limited. The trade and assets of Cash4Health Limited were hived-up into BHSF Limited on 1 June 2015 following successful application to the High Court to transfer the policies within Cash4Health Limited to BHSF Limited by a Part VII transfer. Cash4Health Limited is no longer trading. Application has been made to Companies House to have Cash4Health Limited struck off the register and dissolved.

The investment in Network Insurance Brokers Limited is held by BHSF Employee Benefits Limited. The company was dormant for the whole period.

The investments in BHSF Occupational Health Limited and Abbott Burke Associates Limited are held by BHSF Corporate Healthcare (Holdings) Limited. Abbott Burke Associates Limited was dormant for the whole period.

The investments in Occupational Health Consultants Limited, WellWork Limited, and M3OH Services Limited are held by BHSF Occupational Health Limited. Occupational Health Consultants Limited was dormant for the whole period. WellWork Limited and M3OH Services Limited were both acquired during the year. They subsequently had their trades and assets transferred to BHSF Occupational Health Limited and ceased to trade.

In the case of each subsidiary, BHSF Group Limited is the sole ultimate shareholder or member. All subsidiary companies are incorporated in and operate in England and Wales, other than Occupational Health Consultants Limited which is incorporated in Northern Ireland.

Company Cost and provisions against investments Cost: At 1 January 3,350Additions 1,125

At 31 December 4,475

Accumulated impairment provisionAt 1 January 720Impairments recognised during the year 989

At 31 December 1,709

Net book valueAt 31 December 2,766

At 1 January 2,630

The impairment loss recognised in the year was £989,000 (2014 – £720,000) and is included in operating expenses in the parent company income statement. It mostly arose as a result of the acquisitions where the investment has been written down to its recoverable amount being the higher of the fair value less costs to sell and value in use.

The value in use has been calculated using discounted cash flow projections using a discount rate of 14% (2014 – 14%) over an initial 3 year period, which is based on management’s most recent business forecast, and then into perpetuity.

15B. Summary of acquisitions during the year

On 9 April 2015, BHSF Occupational Health Limited acquired the entire share capital of WellWork Limited, a provider of occupational health services registered in England and Wales. Fair value adjustments were applied to the acquired assets and liabilities as follows:

Tangible 63 39 102Intangibles - 86 86Debtors 223 - 223Creditors Due within one year (662) (25) (687) Net assets acquired (376) 100 (276)

On 10 June 2015, BHSF Occupational Health Limited acquired the entire share capital of M3OH Services Limited, a provider of occupational health services registered in England and Wales. The book value of the net assets acquired was deemed to be equal to their fair value.

The fair value of assets acquired on both of the above acquisitions, along with the goodwill arising on each acquisitions is as follows:

Net assets acquired Fixed assets: Tangible 102 4 106Intangible 86 - 86 Current assets: Debtors 223 56 279Cash at bank and in hand - 283 283 Total assets 411 343 754 Creditors: Due within one year (687) (40) (727) Fair value of net assets acquired (276) 303 27 Goodwill 491 51 542 Total consideration (including expenses) 215 354 569 Settled in cash in prior year 18 - 18Settled in cash in the current year 174 354 528To be settled in future periods 23 - 23 Total consideration(including expenses) 215 354 569 Acquisition cash flow during the year Cash in subsidiary acquired - 283 283Less: settled in cash in the current year (174) (354) (528) Cash outflow on acquisition (174) (71) (245)

BHSF Group Limited

Notes to the Financial Statements (continued)for the year ended 31 December 2015

29

2015 £000

M3OH WellWork Services Ltd Ltd Total Fair Value Fair Value Fair Value £000 £000 £000

Fair Value Book Value adjustment Fair Value £000 £000 £000

BHSF Group Limited

30

Notes to the Financial Statements (continued)for the year ended 31 December 2015

In each case, the goodwill acquired has been estimated to have a useful life of four years, being the estimated time to fully integrate the acquired businesses, and is amortised to the income statement evenly over that useful life.

In the period since the acquisitions took place, the acquired companies have contributed the following amounts to the group income statement:

Period from acquisition to 31 December Revenue 1,018 85 1,103

(Loss)/profit for the period (185) 16 (169)

16. FINANCIAL INSTRUMENTS, FINANCIAL RISK AND CAPITAL MANAGEMENT

A financial instrument is a contract that gives rise to a right to a financial asset of one entity and a financial liability or equity instrument of another entity. The Group has financial assets on its statement of financial position which give rise to income and expenditure in the income statement (e.g. interest and dividends) as well as gains and losses as the market values of those items valued at fair value through profit or loss change over time. In addition, the Group has financial assets and liabilities in the form of the debtors, creditors, and cash balances that are a normal part of doing business.

16A Impact of financial instruments on financial statements

16A.1 Financial assets – statement of financial position analysis

The Group holds financial assets valued in the statement of financial position as follows:

Financial asset investments held at fair value Corporate bonds 5,370 5,248 4,473 4,507Equities 7,928 8,753 8,155 9,040Government gilts 3,414 3,598 3,659 4,082Collective investment funds 3,883 3,775 2,367 2,547

Total financial assets held at fair value 20,595 21,374 18,654 20,176Cash held in investment portfolio 63 63 1,406 1,406

Total investment portfolio 20,658 21,437 20,060 21,582

Debtors held at amortised cost 3,291 3,291 2,559 2,559Cash held outside investment portfolio 6,961 6,961 6,957 6,957

Total financial assets 30,910 31,689 29,576 31,098

All financial assets held at fair value are valued using valuations taken from the active markets in which the assets are traded on the statement of financial position date.

16A.2 Financial liabilities – statement of financial position analysis

The statement of financial position contains creditors totalling £2,703k (2014: £2,173k). Besides the provisions covered in more detail in note 20 and the pension scheme deficit covered in note 10, these are the only financial liabilities the Group holds. All creditors are valued using the amortised cost method. There were no write-offs, write-downs, revaluations or other adjustments of creditors that gave rise to income statement credits or charges over the previous 12 months.

16A.3 Financial assets – income statement analysis

Financial assets measured at fair value Dividend and interest income from investment portfolio 703 784Realised losses on assets held in investment portfolio (19) (32)Unrealised (losses)/gains on assets held in investment portfolio (11) 207Rental income earned on investment properties 8 7

Total income from financial assets measured at fair value 681 966

Interest earned on cash balances outside investment portfolio 23 9

Total income statement credit 704 975

Amount recognised in technical account 41 40Amount recognised in non-technical account 663 935

Total income statement credit 704 975

16B. Financial risk management

The principal financial risks arising from the Group’s normal activities are credit risk, liquidity risk, and market risk, which is comprised primarily of interest rate risk and equity risk. Below, the Group’s exposure to and management of each risk is covered in more detail.

M3OH WellWork Services Ltd Ltd Total £000 £000 £000

2015 2015 2014 2014 Cost Fair Cost Fair Value Value £000 £000 £000 £000

2015 2014 £000 £000

16B.1 Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.

The Group is directly exposed to credit risk in the categories of financial asset in which the default of the other party to the instrument would result in a loss to the Group. The categories of financial asset in which such counterparty default gives rise to a risk of loss at BHSF, including aging and impairment information where applicable, can be analysed as follows:

Corporate bonds 5,248 4,507 Government gilts 3,598 4,082Cash at bank or with investment managers 7,024 8,363

DebtorsCurrent 2,656 2,007Between 1 and 3 months overdue 454 537More than 3 months overdue 263 34

Total debtors before provisions 3,373 2,578

Provisions against overdue balances (82) (19)

Net debtors balance 3,291 2,559

Total credit risk exposure in the statement of financial position 19,161 19,511

The Group is also indirectly exposed to credit risk through holdings in collective investment bond funds. Such funds generally contain a large number of different bond assets and hence the impact of default of any one bond issuer on the value of the assets in the Group is limited. Total holdings in such funds were £1,860k (2014: £1,072k).

The Group manages the risk of default through investment and operational policies.

The investment policy for directly held corporate bonds insists on high-quality counterparties – only those with at least an investment-grade credit rating, and places a cap on the losses that could occur by limiting the holding against any one counterparty.

Debtors are actively managed on a day-to-day basis, with regular contact established with policyholders or corporate customers in order to arrange payment of amounts overdue. The credit risk in this category is small because the amounts owed by any one debtor do not amount to a material figure.

Cash at bank is held only in major UK banks, the solvency of which are regularly reported in the media and monitored by the Group.

Debtors are considered to be impaired when they are more than three months overdue and without a payment plan in place or there are other indications of impairment. Debtors are presented in the statement of financial position net of impairment for debts which are bad or doubtful. There were no other impairments recognised against any other classes of financial asset in either the current or prior year.

16B.2 Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

The Group is exposed to liquidity risk in meeting operating costs as represented by the trade and other creditor figures on the statement of financial position totalling £2,703k (2014: £2,173k), and in meeting policyholder claims, represented on the year-end statement of financial position by the technical provision balances totalling £2,155k (2014: £2,150k). Both of these exposures are due within 12 months of the statement of financial position date, and in particular the large majority of claims represented by the technical provisions are generally settled within three months.

The risk of difficulties in meeting these obligations is managed by maximising the liquidity of investment balances by restricting investment to only those entities with an investment-grade credit rating or higher, as well as investing in government gilts. In addition to this, the Group seeks to mitigate liquidity risk further by holding cash reserves which at any one time enable financial liabilities to be met for several months.

16B.3 Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk, and other prices risk.

16B.3.1 Currency risk

The Group’s insurance operations are conducted almost entirely within the UK, with relatively small operational exposure to currency risk. The Group’s investment policy does not allow direct investment in foreign currency assets and hence the Group’s exposure to currency risk is restricted to foreign currency assets that are part of collective investment funds. Collective investment funds containing large proportions of foreign currency assets totalled £1,968k (2014: £1,164k) at the statement of financial position date.

Under the Solvency II insurance regulatory regime, insurers using a standard formula approach must hold capital to cover a 25% increase or decrease in relevant exchange rates. A 25% increase in the value of pound sterling relative to all foreign currencies would result in a loss of £492k (2014: £291k) being made due to negative movements in the value of investments. Meanwhile a 25% decrease in the value of pound sterling relative to all foreign currencies would result in a gain of £492k (2014: £291k) being made due to positive movements in the value of investments.

16B.3.2 Interest rate risk

Interest rate risk is the risk that asset fair values or future cash flows will fluctuate as a result of changes to interest rates. Interest rate risk affects the value of the Group’s investments in corporate and government bonds, and also affects the value of pension scheme assets and long-term liabilities, thus affecting the level of the defined benefit scheme deficit in the statement of financial position.

The Group’s internal sensitivity analysis for interest rate risk utilises the approach of the Solvency II insurance regulatory regime. This applies duration-based shocks to bond yields which range from 0.7% to 3.3% and indicates that a shock to corporate bond yields in terms of the risk-free rate could reduce the Group’s assets by £976k according to the most recent exercise performed.

BHSF Group Limited

31

Notes to the Financial Statements (continued)for the year ended 31 December 2015

2015 2015 2014 2014 £000 £000 £000 £000

BHSF Group Limited

32

Notes to the Financial Statements (continued)for the year ended 31 December 2015

16B.3.3 Other prices (equity) risk

Equity risk is the risk that asset fair values will fluctuate due to changes in equity prices.

Equity risk is managed by the Group through the implementation of an investment policy which limits losses through the application of caps on the exposure to any one company as well as an overall limit on the proportion of the investment portfolio that can be held in equities.

The Group stress tests its exposure to equity prices by modelling a 50% fall in the value of equity investments, based on historical market crash data, and ensuring the company holds sufficient capital to withstand such a shock. This analysis shows that such a fall would reduce the company’s assets by £4,377k (2014: £4,520k).

16C. Capital management

As a not-for-profit company limited by guarantee, BHSF Group Limited has limited scope for raising additional capital. As such, the only capital resource generally available to management is the accumulated fund balance of £30,241k (2014: £29,274k). The statement of changes in equity discloses information about the changes in the accumulated fund over the last 12 months.

Until 1 January 2016 the Group had been subject to capital requirements imposed by the Bank of England’s Prudential Regulation Authority (PRA) under Europe-wide solvency regulations. The capital requirement for BHSF Group Limited was determined through formula-driven calculations imposed by the regulations. The Group’s capital was managed against this level, with the business aiming to generate sufficient surplus to maintain capital at or above 200% of its capital resources requirement (CRR). BHSF Group Limited had been compliant with all capital requirements imposed for the entire period of account, and as at the year end held capital at a level over 400% of its CRR.

On 1 January 2016, the new Solvency II regulations came into force. This regime replaced the CRR with a new solvency capital requirement (SCR). This is similarly formula-driven in its calculation, though the formula used is more rigorous and risk-focused than the former regime. It is expected that the SCR will be significantly higher than the previous CRR due to the increased depth of the calculations and the fact it includes the assets and liabilities of the BHSF pension scheme, which were not included in the previous regulations. Under the new regulations, management will still aim to maintain capital to a level that exceeds the regulatory requirement by at least 50%.

Major investment, product, or other decisions that will impact on regulatory capital requirements or the level of capital available to meet those requirements, must be modelled and stress tested as part of the approval process for these decisions, including within subsidiary companies subject to regulatory capital requirements on an individual level the decision to make a dividend payment. This enables senior management and the Board to effectively manage capital levels within the Group’s risk appetite.

17. DEBTORS ARISING OUT OF DIRECT INSURANCE OPERATIONS

Amounts receivable from policyholders and policyholder groups 1,988 1,843Amounts receivable from reinsurers 143 - 2,131 1,843

18. OTHER DEBTORS

Deferred taxation 38 216Trade and other debtors 1,079 528

1,117 744

19. TANGIBLE FIXED ASSETS

Cost:At 1 January 2015 788 1,038 1,826Additions relating to acquisitions 62 44 106Other additions 172 62 234 Disposals (4) - (4)

At 31 December 2015 1,018 1,144 2,162

Depreciation: At 1 January 2015 608 810 1,418Charge for the period 106 82 188Disposals (4) - (4)

At 31 December 2015 710 892 1,602

Net book value: At 31 December 2015 308 252 560

At 31 December 2014 180 228 408

20. TECHNICAL PROVISIONS

As at 31 December 2014 285 1,865 - 2,150

Provisions added 350 11,675 46 12,071Provisions utilised (285) (11,735) (24) (12,044)

As at 31 December 2015 350 1,805 22 2,177

Unearned premiums provisions represent the amount of premiums received from policyholders in respect of future periods.

2015 2014 £000 £000

2015 2014 £000 £000

Total £000

Computerequipment

and software£000

Furnitureand

equipment£000

Unearned Premiums Claims Other Total £000 £000 £000 £000

BHSF Group Limited

33

Claims provisions represent an estimate of the amount the Group will have to pay to policyholders in respect of claims incurred prior to the statement of financial position date that are yet to be paid. The precise value and timing of claims payments is uncertain due to their reliance on factors outside the Group’s control, such as the specific nature of the medical services that policyholders opt for, and when they opt to use those services.

It is expected that the significant majority of the claims represented by the provision balance as at the statement of financial position date will be paid within the first three months of the next financial year.

Of the total claims provision, it is estimated that £152k (2014: £188k) will be recoverable from our reinsurer. A receivable equal to this amount is recognised on the statement of financial position.

Other provisions represent the remaining net liability under an onerous lease agreement and dilapidations on former leased property.

21. OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY

Due within one year 1,981 1,493Due after more than one year 104 196

2,085 1,689

22. LEASE OBLIGATIONS

The Group had commitments to make future payments under non-cancellable operating leases which fall due as follows:

Not later than one year - buildings 177 82Not later than one year - other 218 150Later than one year and not later than five years - buildings 49 92Later than one year and not later than five years - other 238 225 682 549

23. CAPITAL COMMITMENTS

The Group had commitments to make payments of £42,000 (2014: £21,000) during the next 12 months in respect to capital asset purchases.

24. CASH AND CASH EQUIVALENTS

The statement of cash flows discloses the movement in all cash and cash equivalents. The statement of financial position distinguishes between cash that is on hand or in the bank and cash that is held within the investment portfolio by the investment managers. The following reconciles the statement of financial position cash balance to the statement of cash flows cash balance.

Closing cash at bank per statement of financial position 6,961 6,957Cash held in investment portfolio 63 1,406

Closing cash and cash equivalents per statement of cash flows 7,024 8,363

25. LEGAL FORM

BHSF Group Limited is a company limited by guarantee incorporated in England and Wales with company registration number 4767689. BHSF Group Limited’s registered office is Gamgee House, 2 Darnley Road, Birmingham, B16 8TE.

26. RELATED PARTY TRANSACTIONS

Compensation of key management personnel of the Group totalled £1,475k (2014: £1,389k).

During the year £125,000 was paid to Dr Philip McCrea in deferred consideration for the acquisition of Occupational Health Consultants Limited. Dr Philp McCrea became a director of BHSF Group Limited on 13 January 2016. The statement of financial position includes creditors totalling £220,000, representing the present value of deferred consideration payments outstanding.

There were no other related party transactions other than those between members of the Company’s group.

27. FIRST TIME ADOPTION OF FRS 102

As previously stated 29,462 895 29,316

Transitional adjustments(a) Investments valued at bid price (28) (4) (32)(b) Deferred tax on revaluations (48) (23) (71)(c) Deferred consideration

at amortised cost 102 (41) 61d) Net interest on pension deficit - (120) -

As stated under FRS 102 29,488 707 29,274

Notes to the Financial Statements (continued)for the year ended 31 December 2015

2015 2014 £000 £000

2015 2014 £000 £000

2015 2014 £000 £000

Equity as at 31

December 2014£000

Equity as at 1

January 2014£000

Surplus for the year

ended 31 December

2014£000

BHSF Group Limited

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a. Under former UK GAAP BHSF Limited’s investment portfolio was measured at mid-market prices. Under new UK GAAP, investments measured at fair value are required to be valued using their bid price. The bid price is lower than the mid-market price and therefore there has been a decrease in equity as a result of this transitional change.

b. New UK GAAP requires that deferred tax be recognised on property revaluations in order to reflect corporation tax that could potentially fall due if the property were sold. A deferred tax liability has been recognised in respect of investment property which is currently valued above its cost price. The recognition of this additional liability has reduced equity. Due to the inherent uncertainty in deferred tax of this nature, we have not recognised any deferred tax assets as a result of freehold property that is currently valued below cost price.

c. Under former UK GAAP the Group’s long-term deferred consideration liability was measured at cash settlement value. Under new UK GAAP, long term liabilities such as these with no interest attached must initially be measured at net present value, and subsequently recorded at amortised cost using market interest rates for equivalent lending.

d. Under former UK GAAP interest income on pension scheme assets was calculated separately to interest on pension scheme liabilities using a ‘return on assets’ rate. Under FRS 102 this is replaced by a single interest rate (equal to the discount rate on scheme liabilities) applied to the net deficit. This has reduced the surplus recognised in 2014 but has no impact on equity overall because an equal and opposite adjustment is made to other comprehensive income to maintain the pension deficit at its previously reported level.

BHSF Group Limited

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BHSF Group Limited

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1. PREAMBLE • In all the Group’s operations, it is important to

retain a set of core values and approaches to the process of doing business.

• The Group recognises that it has obligations to all those with whom it has dealings - customers, employees, suppliers, competitors and the wider community.

• The reputation of the Group and the trust and confidence of those with whom it deals are vital.

• The Group demands and maintains the highest ethical standards in carrying out its business activities. Corrupt practices of any sort will not be tolerated. The Group will monitor ethical performance regularly.

2. RELATIONS WITH CUSTOMERS • The Group believes that integrity in

dealings with customers is a prerequisite for a successful and sustained business relationship. This principle governs all aspects of the Group’s approach to its customers.

• The Group will aim to provide products which give good value and consistent quality. It will not give deliberately inadequate or misleading descriptions of products.

• In all advertising and other public communications, untruths, concealment and deliberate overstatement will be avoided.

• The Group will aim to provide a high standard of service in its efforts to maintain customer satisfaction and co-operation.

• No employee may give money or any gift of significant value to a customer, nor may any gift or service be given which could be reasonably construed as being intended as a bribe.

• The Group’s policy on gifts and hospitality from contacts is contained in the Staff Handbook. It is designed to preserve the integrity of the relationship between the Group and its business contacts and to safeguard the reputation of the Group. Employees are expected to comply with this policy and to raise with their Team Leader if there is any doubt about the acceptability of a gift or the offer of hospitality.

• The Group will avoid practices which seek to increase sales by any other means than legitimate merchandising efforts.

• The Group will maintain the confidentiality of customer information.

3. RELATIONS WITH MEMBERS • The Group’s accounting statements and

associated reports will be true and timely. • Whenever the Group communicates its

business policies, achievements and prospects it will do so honestly.

4. RELATIONS WITH EMPLOYEES • Relations with employees are based on

respect for the dignity of the individual. • The Group will recruit and promote employees

in accordance with its Equal Opportunities Policy which is set out in the Staff Handbook.

• The Group aims to provide secure jobs and will therefore plan recruitment responsibly, in the light of information available at the time, and inform employees, as far as it is able, on employment prospects.

• The Group will seek to provide a clean, healthy

and safe work environment in line with best practice. The Group and all employees will observe the Health and Safety Policy, which is set out in the Staff Handbook.

• In recognition of the efforts of the individual in helping to create the success of the Group, the Group will seek to maintain a framework of fair and just remuneration policies and structures. Pay systems will seek to recognise both the contribution of individuals and the performance of the sector of the business in which they work.

• The Group will seek to encourage and help employees at all levels to develop relevant skills and progress their careers within the Group.

• The Group will seek to explain the purpose of its activities and individual jobs, foster effective communication and involve employees in improving their work and that of the enterprise as a whole.

• Employees will not use for personal gain or any purpose except that for which it is given information received by them in the course of business dealings and will maintain the confidentiality of confidential information relating to the Group or in respect of which the Group owes an obligation of confidence to any third party.

• Any personal interest that an employee of the Group or a member of his or her immediate family has in relation to the Group’s business must be disclosed to the Group by the employee.

• The Group will not tolerate any sexual, physical, verbal or mental harassment of its employees.

• Whilst the Group endeavours to maintain the fullest communication with each employee as an individual, it recognises the need to develop effective processes for communication and consultation with employees in the natural groupings in which they work and, where appropriate, for individuals to be suitably represented in discussions.

5. RELATIONS WITH SUPPLIERS • The Group will aim to develop relationships

with its suppliers based on mutual trust. • The Group will use all reasonable efforts to pay

its suppliers on time and according to agreed terms of trade.

• The purchasing power of the Group will never be used unscrupulously.

• Employees will observe the Group’s policy on gifts and hospitality from business contacts, which is set out in the Staff Handbook.

• The Group will maintain the confidentiality of confidential information concerning the relationship between the Group and a supplier.

6. RELATIONS WITH THE GOVERNMENT AND THE LOCAL COMMUNITY

• The Group will seek to be a good corporate citizen. It will aim to serve the community by providing products and services efficiently and profitably, and by providing good employment opportunities and conditions.

• Employees are encouraged to participate in community and civic affairs.

• The Group will support the community by

charitable donations and by the voluntary efforts of its people.

• The Group will not knowingly evade tax obligations.

• The Group will record and report all transactions, including those where payment is made in cash.

• All taxable perquisites to which employees are entitled will be listed by the Group and declared for tax purposes.

• During the course of their work all employees are required to comply with all relevant legislation and the rules of any relevant regulatory organisation. Any employee who has any doubts about compliance matters should immediately seek the advice of his or her manager.

7. RELATIONS WITH COMPETITORS • The Group will compete vigorously, but

honestly and will not seek to damage the reputation of competitors.

• In any contacts with competitors, employees will avoid disclosing proprietary or confidential information.

• The Group will not attempt to acquire information regarding a competitor’s business by disreputable means.

• The Group will not engage in restrictive trade practices or abuse any position of market dominance.

8. THE ENVIRONMENT • The Group is concerned with the conservation

of the environment, and recognises that certain resources are finite and must be used responsibly.

• Surplus furniture, equipment and computers will be offered to suitable organisations for re-use. Recycling will be practiced wherever possible.

9. DATA SECURITY AND CONFIDENTIALITY

• The Staff Handbook gives guidance on the need to keep certain information confidential and employees are required to comply with this.

• The Group publishes a computer policy statement, which is contained in the Staff Handbook, and breaches of it will be regarded as a disciplinary offence.

10. COMPLIANCE AND VERIFICATION • The Group expects all employees to adhere to

the provisions of this Policy. • The Group aims to create the climate and

opportunities for employees to voice genuinely- held concerns about behaviour or decisions that they perceive to be unethical.

• The Group Human Resource Director is responsible for initiating and supervising the investigation of all reports of breaches of this Policy and ensuring that appropriate disciplinary action is taken when required.

• The Group’s auditors may be asked to report on any practice they discover in the course of their work which appears to breach the Policy.

Business Ethics Policy

BHSF Group Limited

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BHSF Group LimitedGamgee House 2 Darnley Road Birmingham B16 8TE

Telephone: 0121 454 3601 Fax: 0121 454 7725E-mail: info@bhsf.co.uk

www.bhsf.co.uk

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