governance chairman’s introduction to governance 32 34 36 .../media/files/site-specific... · in...

31Bupa Annual Report 2015

Governance Report

Corporate Governance is what the Board of a Company does

and how it sets the values of the Company.

The UK Corporate Governance Code 2014 (the Code) sets

out a framework to facilitate effective, entrepreneurial and

prudent management that can deliver the long-term success

of the Company.

At Bupa we aim to comply with the same governance

standards as FTSE 100 companies.

Chairman’s introduction to governance 32

The Board of Directors 34The Executive Team 36Leadership 38Effectiveness 41 Engagement 43 Audit Committee Report 44 Risk Committee Report 47 Nomination & Governance Committee Report 49Medical Advisory Panel 50

Remuneration Report 51

Policy 52Implementation (audited) 56

Report of the Board of Directors 61

Statement of Directors’ Responsibilities 62

Governance


Governance Report

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

For example, revisions to the UK Corporate Governance Code (the Code) were published in 2014. Among the changes was the implementation of Lord Sharman’s recommendations on going concern and risk management. As a result, we have included in this year’s strategic report, for the first time, a longer-term viability statement using the three year timeline in our internal strategic planning process as a basis for an appropriate time frame. The statement helps our readers to understand how we manage going concern and liquidity risks to ensure Bupa’s long-term success. The Board recognises that a balanced risk appetite is essential for a successful organisation and receives regular recommendations and reports from the Risk Committee, including on our compliance with Bupa’s risk appetite statements (see page 48 for more details). Another response to the Code changes was the further strengthening and monitoring of Bupa’s internal control and risk management systems by the Audit Committee. The Audit Committee monitors this process, and the actions taken to address areas identified, on behalf of the Board.

In 2012, Bupa established our 2020 strategic vision outlining how we will fulfil our purpose: longer, healthier, happier lives (see inside front cover for more information). The Board tracks Bupa’s performance against eight key performance indicators, which are aligned with our vision, and the progress made against them this year is outlined on pages 16-17.

During the year, the Board oversaw the rearticulation of Bupa’s core values designed to create an extraordinary culture and organisation in order to fulfil our purpose and to help millions of people enjoy better health. For more information see page 15.

Bupa aligns its remuneration policy with performance and strategy by incentivising our Executive Directors and senior management to focus on the long term and fulfil our purpose. The Directors’ Remuneration Report on page 51 gives further detail on how this has been applied within Bupa.

Our governance arrangements continue to be reviewed in line with developments in best practice.

Board composition and succession planningGeorge Mitchell and John Lorimer retired from the Board at the conclusion of the AGM on 14 May 2015 and 30 June 2015 respectively. George Mitchell was also the Senior Independent Director (SID) and a member of the Audit, Nomination & Governance, Remuneration, and Risk Committees. Upon George’s departure, Lawrence Churchill was appointed to the position of SID. John Lorimer was the Chair of the Audit Committee and a member of the Risk Committee. He continues as a Non-Executive Director (NED) of a number of Bupa subsidiaries. The Board extends its gratitude to George Mitchell and John Lorimer for their years of service, and invaluable contribution.

Clare Thompson was appointed to the Board as a NED and as a member of the Risk and Audit Committees on 1 May 2015. She was appointed Chairman of the Audit Committee on 1 July 2015. She possesses deep experience from her executive career in professional services, latterly as a lead audit partner with PwC, specialising in the insurance sector.

Roger Davis was appointed on 16 July 2015 as a NED and as a member of the Audit and Risk Committees on 17 September 2015. He brings extensive business and international experience to the Board after a wide-ranging career in financial services.

The continued review, development and implementation of our succession plans will ensure an orderly refreshment of the Board and continuity when NEDs come to the end of their tenure.

During 2015, the Board considered its composition as part of its regular succession planning review. As part of our ongoing aim to broaden the diversity of experience, we also appointed Simon Blair and Janet Voûte as NEDs with effect from 12 January 2016. Their international experience and understanding of the insurance and health and care sectors complements the skill-set of existing Board members.

Rita Clifton will step down at the conclusion of the AGM on 11 May 2016 as she reaches the end of her tenure. The Board expresses its thanks to Rita for her six years of service as a NED, and as a member of the Remuneration and Nomination & Governance Committees, as a member of the Medical Advisory Panel and for her valued advice and perspectives.

We aim to operate to the same

standards required of FTSE 100 companies.

Lord LeitchChairman

Chairman’s introduction

to governance

Governance continued


Governance Report

Statement of complianceAs part of our commitment to excellence, we aim to operate to the same governance standards as required of UK FTSE 100 companies. We have applied the main principles and complied with all of the relevant provisions of the Code throughout 2015 except section C.3.7: Audit Committee and Auditors, where Bupa has not yet placed its audit out to tender, with KPMG having been in post for over 20 years. The Board was satisfied that KPMG continued to be independent and agreed that it would be likely to be disruptive to place the audit out to tender during 2015, at a time when Bupa was preparing for the implementation of Solvency II. Bupa is monitoring the impact of new legislation from the EU on compulsory auditor rotation and the Audit Committee will consider this during 2016.

The Corporate Governance Report on pages 32-50, together with the Remuneration Report on pages 51-60, describe how we have applied the main principles of the Code during the year.

Lord Leitch Chairman

Association MembersAt the end of 2015, there were 116 Association Members (AMs) whose role is to hold the Board to account. They fulfil a crucial oversight role, providing challenge to the Board on matters of strategy and performance. During the year, we appointed 24 new members, resulting in 21% of AMs now having extensive experience of operating outside of the UK. In doing so, the AMs are very well equipped to challenge the Board across the breadth of our business.

In the spirit of the Code, we provided a number of opportunities for AMs to engage with Bupa throughout the year. The CEO, Chairman and SID are also available to answer questions on an individual basis. We ensure that AMs are kept informed of Bupa’s strategy and performance and that their views are heard and communicated to the Board and to relevant teams throughout the business. For more information on how Bupa engages with our AMs please see page 43.

Diversity StatementWe are pleased to report, that at the year end, 33% of our Board was female. We have surpassed Lord Davies’ recommendation that by 2015, boards of FTSE 350 companies should aim for 25% female representation. Women are also well represented in management positions throughout the business, at 31% of the Executive Team at year end. We actively encourage initiatives within the organisation which seek to enhance the pipeline of women at senior levels. Gender is, however, only one measure and Bupa believes diversity should be considered more broadly. Our Board diversity policy can be found on bupa.com and is covered in more detail on page 40 of this report.


Governance Report

The Board of Directors


Rita Clifton, CBE Independent Non-Executive Director

N/Re Joined the Board in July 2010 and was a member of the Medical Advisory Panel during 2015. Rita is an expert in brand management, marketing, strategy and sustainability. Formerly Chief Executive and then Chairman of Interbrand UK, Rita is currently on the Board of Nationwide Building Society and ASOS Plc and is Chairman of Populus, the opinion pollster, and of BrandCap. Before this, she was Vice Chairman and Strategy Director at Saatchi & Saatchi. Previous board appointments have included Judge Business School in Cambridge, EMAP plc and Dixons Retail plc. She also served on the Sustainable Development Commission, is a Fellow of WWF-UK and a visiting Professor of Henley Business School. Rita will step down from the Board at the AGM on 11 May 2016.

Roger Davis Independent Non-Executive Director

A/Ri Joined the Board in July 2015. Roger has extensive business experience and an international mindset acquired during a wide-ranging career in financial services. He is Chairman of Gem Diamonds, Sainsbury’s Bank, Global RadioData Communications (GRC) and Future for Heroes. Roger is also a Non-Executive Director of Experian. He has extensive experience in the UK and Asia with previous positions including Managing Director of India for Jardine Fleming, Chief Executive Officer of BZW Asia Pacific, and Chairman and Chief Executive of Barclays Capital Asia Pacific. He left Barclays as Executive Director and Head of the UK Bank in 2005.

Lord Leitch, Chairman Non-Executive Chairman

N(Chair)/Re Joined the Board in May 2005; appointed Chairman in November 2006. Lord Leitch has a deep and broad knowledge of insurance and financial services gained over four decades as a senior executive in a number of major international businesses. Lord Leitch is currently Chairman of Intrinsic Financial Services, Chairman of FNZ (Group), Non-Executive Director of Old Mutual Wealth, and member of the House of Lords. Previously Deputy Chairman of Lloyds Banking Group plc, Chairman of Scottish Widows plc, Senior Independent Director at United Business Media plc, Chairman and Chief Executive Zurich Financial Services UK, Ireland, South Africa and Asia Pacific, and Chairman of the Association of British Insurers.

Stuart Fletcher, Chief Executive Officer Executive Director

N Appointed CEO in March 2012. He has over 25 years’ experience in senior management and a strong international track record having lived and worked in Japan, USA and Hong Kong. Stuart is accomplished in setting and executing growth strategies, developing strategic partnerships, embedding employee engagement, and leader and team capability development across complex and international businesses. He is currently an Advisory Board Member for the Wellcome Trust Centre for Human Genetics, Oxford University. Stuart joined from Diageo where, most recently, he was President, Diageo International. Other senior management positions at Diageo included Global Finance Director of Guinness. He previously held financial roles at Procter & Gamble and United Glass.

COMMITTEE KEY

A Audit Committee

N Nomination & Governance Committee

Re Remuneration Committee

Ri Risk Committee

Martin Houston Independent Non-Executive Director

Re(Chair)/A/Ri Joined the Board in January 2014. Martin brings extensive international business experience to the Board. He is Chairman of TPH International and Parallax Energy and is a Non-Executive Director of CC Energy Development. Previously Martin was Chief Operating Officer and Executive Director of BG Group plc where he spent 30 years. He is a Fellow of the Geological Society of London, is on the advisory board of the Royal Opera House of London and is a former Non-Executive Director of Severn Trent plc.


Governance Report

Clare Thompson Independent Non-Executive DirectorA (Chair)/Ri

Joined the Board in May 2015. Clare brings a wealth of experience, particularly in the areas of finance and insurance. She is also a Non-Executive Director of Direct Line Group and Retail Charity Bonds plc, a Non-Executive member of the Partnership Board of Miller Insurance Services LLP and a Trustee and Treasurer of the Disasters Emergency Committee. Clare was a Partner at PricewaterhouseCoopers (PwC) from 1988 until 2011. Whilst she was at PwC, she held several senior and high profile roles, particularly within the insurance sector. Clare is a Fellow of the Institute of Chartered Accountants in England and Wales.

Evelyn Bourke, Chief Financial Officer Executive Director

Appointed CFO in September 2012. Evelyn has a strong track record and extensive experience in financial services, risk and capital management, and mergers and acquisitions. A qualified actuary, she also holds an MBA from London Business School and is a Non-Executive Director of the IFG Group in Ireland. Evelyn joined from Friends Life where she was Chief Executive Officer of its Heritage division. Previously at Friends Provident, she was the Executive Director responsible for strategy, capital and risk and, before that, Chief Financial Officer.

Lawrence Churchill, CBE Senior Independent Director

Ri(Chair)/A/N/Re Joined the Board in July 2009 and became the SID on 14 May 2015. Lawrence brings considerable expertise from operating in large, complex organisations and has extensive knowledge of financial services, risk management, general management and public policy. Lawrence is Chairman of the Board of the Financial Services Compensation Scheme, Chairman of Applegate Marketplace Limited, Chairman of the Independent Governance Committee of Prudential Assurance Company and a Trustee of Prudential Corporate Trustee Limited. Previously Chairman of the NEST Corporation and the Pension Protection Fund, a member of the Board for Actuarial Standards, Chief Executive of Zurich Financial Services UK, Executive Chairman of UNUM and CEO of NatWest Life and Investments.

Professor Sir John Tooke Independent Non-Executive Director

Ri Joined the Board in July 2009. Sir John was Chairman of the Medical Advisory Panel during 2015. He brings his medical expertise, gained over 40 years, to advise the Board on clinical governance and advances in healthcare practices and treatments. A consultant physician, Sir John is immediate past President of the Academy of Medical Sciences. He chairs the Centre for the Advancement of Sustainable Medical Innovation, joint between UCL and Oxford University, and is Executive Chairman of Academic Health Solutions Ltd.

Simon Blair Independent Non-Executive Director

Joined the Board in January 2016. Simon brings international experience, particularly gained in Australia and New Zealand, and a strong understanding of the insurance and healthcare sectors. He is a Non-Executive Director of the Bank of Hangzhao, Sovereign Assurance, ASB Bank and BoCommLife. Simon was Group Executive International Financial Services for the Commonwealth Bank of Australia. He was previously Chief Operating Officer at Australian health insurer, Medibank, Lead Health Specialist for the World Bank, and CEO of Inner & Eastern Healthcare Network, then Australia’s largest public hospital group.

Janet Voûte Independent Non-Executive Director

Joined the Board in January 2016. Janet brings an international perspective and experience gained in corporate strategy and the health and care sector. She is Global Head of Public Affairs at Nestlé SA and Chairman of the Creating Shared Value Council focusing on nutrition, water and rural development. Janet is a board member of Bamboo Finance SA and the International Integrated Reporting Council. She previously served as Partnership Advisor at the World Health Organization in the area of non-communicable diseases and mental health and as CEO of the World Heart Federation. Janet was formerly Vice President and Partner at Bain & Company.


Governance Report

The Executive Team


Stuart Fletcher Chief Executive Officer

Stuart was appointed as CEO in March 2012. He has extensive experience of leading complex international organisations. Stuart was previously President, Diageo International between 2004-2011 and held various senior management roles with Diageo as well as financial roles with Procter & Gamble.

Evelyn Bourke Chief Financial Officer

Evelyn was appointed as CFO in September 2012. Evelyn is a qualified actuary with an MBA from London Business School with significant experience in financial services, including Standard Life, Friends Provident/Life plc, Chase de Vere Investments plc (an IFA) and Tillinghast-Towers Perrin.

Robert Lang Managing Director, Bupa Global

Robert joined Bupa in February 2013. Robert holds an MBA from London Business School and Economics and Arts (Hons) degrees from Monash University. Robert has extensive international experience in the insurance sector spanning Australia, Europe and Asia.

David Fletcher Managing Director, International Development Markets (IDM)

David joined as Chief Internal Auditor in March 2014 and has been Managing Director of IDM since September 2014. David has extensive international financial services experience, having held various senior positions in Nigeria, China, Hong Kong, Singapore, Indonesia and London.

The Bupa Executive Team (BET) is comprised of the CEO, who chairs the meetings, the CFO, the Managing Directors of the five Market Units and all Global Functional Directors.

The BET meets around nine times per year to focus on a global strategic agenda. This provides context to the specific responsibilities for performance and managing risk that each BET member has in their individual roles. In particular the BET spends time together on:

° The development of and alignment with Bupa’s strategy

° Calibrating performance and generating improved opportunities

° Aligning on priorities (including business development and M&A)

° High-level resource and capital allocation

° Organisation culture and talent management

° Key global strategic initiatives such as driving innovation and leadership development.

Paul Newton General Counsel

Paul joined Bupa as a legal adviser in 1987. He became Bupa’s General Counsel in 2005 and joined the Executive Team in 2013. Paul leads the legal functions globally for Bupa. Paul is a qualified solicitor. He will be retiring at the end of 2016 and will be succeeded as Chief Legal Officer by Penny Dudley, with effect from 1 April 2016. Paul will remain as General Counsel and as a member of the BET until his retirement.

Penny Dudley Chief Legal Officer

Penny will take up the position of Chief Legal Officer in April 2016, having joined Bupa in 2010. Penny has extensive international legal experience in regulated financial services, originally qualifying as a solicitor in Australia, and subsequently relocating to the UK where she has held in-house legal roles at Invesco, and Macquarie.


Governance Report

Iñaki Ereño Managing Director, Spain and Latin America Domestic (SLA)

Iñaki joined Sanitas in 2005 and has been Managing Director for SLA since October 2012. Iñaki formerly held senior positions at Acerinox, the Telefónica Group and Carrefour as well as founding an online start-up. He has a Degree in Law and an MBA from IESE.

Dean Holden Managing Director, Australia and New Zealand

Dean has been at Bupa for over 25 years, during which time he has overseen operations in Australia, Spain, Hong Kong, Saudi Arabia, Latin America and Thailand. He has also led Bupa’s development into new markets including China and India.Dean is a Chartered Certified Accountant.

Richard Bowden Managing Director, United Kingdom

Richard has 30 years’ experience in the health sector, having previously served as Managing Director for Bupa Australia for 15 years, under the ownership of Bupa for 10 years and 5 years with AXA Asia Pacific. Richard was also Chairman and President of Private Healthcare Australia.

Alex Cole Chief Corporate Affairs Officer

Alex joined Bupa in July 2014. She has over 20 years’ experience across communications and public affairs and was Corporate Affairs Director at J Sainsbury plc and Cadbury plc.

Paul Zollinger-Read Chief Medical Officer

Paul became Chief Medical Officer of Bupa in July 2012. Paul has led a distinguished medical career within the UK’s National Health Service, both as a GP and latterly as CEO of a number of Primary Care Trusts. Paul has previously been the Medical and Primary Care Advisor at the King’s Fund.

Elisa Nardi Chief People Officer

Elisa joined Bupa on 1 February 2015 and took over the role from Joy Linton, our Interim Chief People Officer, on 1 May 2015. Elisa’s broad international business experience includes being Chief People & Services Officer at Virgin Media and HR executive at Lloyds Bank and Marconi. She ran a consulting business for seven years.

Garry Fingland Chief Information Officer

Garry joined Bupa in September 2014. Garry has extensive experience in IT transformation on a global basis having held a number of senior IT leadership roles at both Serco and Diageo. He is a Chartered Accountant and holds an MBA from Strathclyde Business School.


Governance Report

Bupa’s Governance FrameworkBupa’s Board normally meets 11 times a year and on other occasions as required. It devotes its time to overseeing Bupa’s strategy, the approval of business plans and significant capital expenditure, acquisitions and disposals, as well as monitoring business performance. Minutes of all Board and Committee meetings are recorded and reflect the substance of the discussion as well as the decisions made.

Bupa has a schedule of matters reserved for the Board’s approval, which was updated in 2015, and all other items are delegated to the CEO. The matters reserved for the Board can be found on bupa.com. The levels of authority delegated to management are regularly reviewed and updated when appropriate. The roles of the Board, the Chairman, the CEO, the Senior Independent Director (SID) and the Non-Executive Directors (NEDs) are clearly defined and set out in detail on bupa.com. The roles of the Chairman and the CEO are clearly separated.

Bupa’s governance structure is designed to enable the Board to lead Bupa within a framework of prudent and effective controls which enables risk to be assessed and managed. All Board and Committee members are provided with sufficient resources to undertake their duties, including access to both internal and external specialist advice at Bupa’s expense. The directors individually and collectively act in accordance with their duties under the Companies Act 2006. Bupa has a directors’ and officers’ insurance policy in place as well as a deed of indemnification.

The role of the BoardThe Board is responsible for the oversight of the management of Bupa, including:

° Agreeing Bupa’s long-term direction and objectives;

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

° Oversight of Bupa’s operations;

° Setting Bupa’s values and standards;

° Appointment and retention of the Executive Directors, and ensuring that succession plans are in place;

° Ensuring that the appropriate and necessary financial and people resources are in place to meet Bupa’s objectives;

° Providing constructive challenge to the Executive Directors and senior management; and

° Responsibility for ensuring that the highest standards of both corporate and clinical governance are followed.

The role of the ChairmanThe Chairman is responsible for the leadership of the Board and is pivotal in the creation of the conditions necessary for overall Board and individual director effectiveness, both in and outside the boardroom, including:

° Embedding constructive relations between Non-Executive and Executive Directors;

° Ensuring clear, accurate and timely information is provided to the Board;

° Facilitating contributions from NEDs;

° Effective Board Governance;

° Succession planning and recruitment of NEDs;

° Setting agendas;

° Ensuring adequate time in meetings to discuss agenda items, in particular strategic items;

° Management of the CEO;

° Oversight of major subsidiary chairmen;

° Acting on board performance evaluation results;

° Ensuring effective communication with Association Members (AMs); and

° Chairing General Meetings.

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

The CEO leads the BET in driving the performance of the business and setting the overall strategic agenda. The BET is comprised of the CEO, who chairs the meetings, the CFO, the Managing Directors of the five Market Units and all Global Functional Directors. For more information about members of the BET, please see pages 36-37.

Leadership



Governance Report

The role of the Senior Independent DirectorThe role of the SID includes the following key elements:

° Acting as a sounding board for the Chairman and CEO on Board and AM matters;

° Leading the NEDs in the annual review of the Chairman’s performance;

° Being the focal point for Board members for any concerns regarding the Chairman, or the relationship between the Chairman and the CEO;

° Acting as a trusted intermediary for NEDs; and

° Being available to AMs.

The role of the Non-Executive DirectorsThe role of the NEDs has the following key elements:

° Constructively challenging and helping to develop proposals on longer-term direction and strategy;

° Scrutinising the performance of management in meeting agreed goals and objectives, and monitoring the reporting of performance;

° Satisfying themselves on the integrity of financial information, and that financial controls and systems of risk management are robust and defensible; and

° Having a prime role in appointing and, where necessary removing, Executive Directors, in executive succession planning, and determining appropriate levels of remuneration for those roles.

A copy of the standard NED Terms of Appointment, which set out their expected time commitment, is available on bupa.com, at Bupa’s registered office and is available for inspection before and during the AGM.

Board composition, tenure and diversityBupa’s Board consists primarily of Independent NEDs, who substantially outnumber the Executive Directors. The independence of NEDs from management and any other business or relationship which could materially interfere with their independence, is considered and confirmed on an annual basis. All directors offer themselves for annual re-election by the AMs, save for those retiring at the AGM.

The ChairmanLord Leitch, Bupa’s Chairman, who was independent on appointment, holds a small number of other appointments, none of which are considered to impede his role at Bupa. Details of his other appointments are set out in his biography on page 34.

Conflicts of interestAn annual review of all directors’ actual or potential conflicts of interest is undertaken. Any conflicts must be authorised and a director would abstain from discussions on any matter where they may be conflicted. Many of Bupa’s NEDs hold appointments at other organisations, as does the CEO and CFO, as set out in their profiles on pages 34 and 35. Each NED annually confirms that they are able to devote sufficient time to perform their role effectively. Stuart Fletcher, Evelyn Bourke,

Clare Thompson, Martin Houston, Roger Davis (2014:4)

Lawrence Churchill, Prof Sir John Tooke, Rita Clifton (2014:3)

Lord Leitch (2014:2)

1-3

4-6

7+

Length of tenure (years)*

5

3

1

% of Executive Directors % of Non-Executive Directors % of male Directors % of female Directors

The Executive Directors are the CEO and CFO

The Non-Executive Directors include the Chairman and SID

Board composition*

22%78%67%33%

Financial Services (2014:5)Clinical and Healthcare Systems (2014:1)Strategy and Development (2014:4)Brand and Marketing (2014:2)International Business (2014:3)

Sector experience*

5

1

2

3

4

* Data is at 31 December 2015


Governance Report

Succession plansFollowing the continual review by the Board of succession plans for NEDs, a phased replacement of NEDs coming to the end of their tenure has been agreed. This approach ensures continuity in the Board, as well as maintaining an appropriate balance of skills and experience on the Board and its committees. This is continually assessed and updated to meet the needs of the business.

Board diversity policyBupa’s policy of ensuring that there is broad experience and diversity on the Board was adopted by the Board in 2012. Diversity in Bupa embraces knowledge and understanding of relevant diverse geographies, peoples and their backgrounds, including race, disability, gender, sexual orientation, religion, belief and age, as well as culture, personality and work-style. In particular, Bupa’s Board is focused upon increasing Board diversity without compromising on the calibre of directors. Appointments to the Board are based on merit as well as complementing and expanding the skills, knowledge and experience of the Board as a whole. Within this context the Board aspires to have an appropriate proportion of directors who have direct experience of some of Bupa’s key markets. Our Board diversity policy can also be found on bupa.com.

Board training and developmentBoard and Committee members receive specific training and development on topics which are of relevance during the year. This can take the form of Bupa-led presentations on specific markets from leading academics and economists to more detailed training on forthcoming regulatory developments. During 2015 this included, for example, the implementation of Solvency II regulations and a session on the future of medical research and technology. NEDs also undertake training independently to ensure that they maintain their skills and knowledge required for the role. Topics covered were Financial Crime, Cyber Risk, Competition Law and Health & Safety.

Non-Executive Director Inductions 2015Following any appointment to the Board, a personalised induction programme is drawn up, which includes Bupa-led knowledge building, site visits to Bupa’s businesses in both the UK and overseas and discussion on strategy and development plans for the business.

As new members of the Board appointed during 2015, Clare Thompson and Roger Davis both commenced extensive induction programmes during the year, including meetings with the heads of various businesses within Bupa. Site visits were arranged to care homes and call centres in the UK in the first instance, in order to enable the new directors to experience first-hand the way Bupa cares for its customers. Visits to the Sanitas office in Madrid took place during the year, with Clare specifically focusing on risk and audit issues.

Roger commented that he was impressed with the “passion, forward thinking attitude and professional competence” of the Sanitas team in Madrid and commented that he “had gained some great insights into the Sanitas business, both in respect of their current activities and future plans.”

Clare visited two UK care homes, both with very different facilities. She commented that she was, “struck by the consistent quality of Bupa employees who were passionate about providing high quality care to residents in their charge.”

Clare and Roger also attended one of the Association Member briefing sessions in October 2015 at which attendees are encouraged to ask the CEO, CFO and Chairman any questions in relation to strategy and performance. In addition to gaining further knowledge about Bupa, the briefing session presented an opportunity for Clare and Roger to engage with other AMs to learn more about issues of interest to them at an early stage in their directorships.

Leadership



Governance Report

In 2014 and 2015 we undertook internally facilitated board effectiveness reviews, using the online facility developed by Independent Audit Limited. The 2015 review concluded that Bupa’s Board continued to operate effectively in an open and transparent manner, providing support and challenge to executive management.

A number of key positive themes were identified as follows:

° High quality Non-Executive Directors had been recruited to the Board;

° Bupa’s Talent Management had been significantly enhanced; and

° Great progress had been made on engagement of, communication with and breadth of experience among Association Members.

Board performance and evaluationThe last externally facilitated performance evaluation was conducted by Dr Tracy Long, CBE, of Boardroom Review in 2013.

Boardroom Review has no connection with Bupa, other than having facilitated the external reviews in 2010 and 2013.

The next triennial externally evaluated review will take place in 2016.

The results from the 2015 action plan and achievements against the goals set are outlined in the table below.

Priorities arising from the 2015 evaluation are set out at the bottom of the page and once again the Nomination & Governance Committee will monitor performance against these priorities during the year. We will report on progress in the 2016 Annual Report.

Board performance evaluation action plan 2015 (from the 2014 Board evaluation)

Categories Board action plan for 2015 Achievements against action plan during 2015

Strategic focus Introduce more freeform discussions, taking advantage of the extensive experience within the Board

An outline of the annual strategy session was agreed in advance and more discursive time on strategy and the future environment was facilitated. A three-year plan was created to assess company performance against.

Risk management Focus on upskilling and reshaping the organisation Focus was on strengthening the Risk team, risk and control frameworks, disposing of businesses and fully embedding Solvency II ahead of implementation in 2016.

Customers, competition and external developments

Focus increased attention on customers, competitors and factors affecting markets

The Board considered a paper on global competition and market specific competitive challenges were discussed during each Market Unit update. The role of the Net Promoter System (NPS) in informing a better understanding of customers’ needs was discussed.

Clarity of purpose Further demonstrate how Bupa is addressing and fulfilling its purpose

At the June annual strategy session, the Board considered a paper on how Bupa’s operation as a commercial, purposeful business best served delivery of its purpose.

2016 goals arising from the 2015 Board evaluation

Categories Board action plan for 2016

Strategic Focus Continue to balance the number of strategic and operational agenda items. Explore risk appetite in relation to long-term strategy. Board submissions to be amended slightly to balance the amount of operational and strategic issues discussed

Customers, competition and external developments

Further discuss the activities of Bupa’s competitors and external perspectives on Bupa’s markets. Monitor and oversee further implementation of NPS across Bupa

Board impact Set aside time to ensure there is real clarity about the expectations of the value that the Board can bring to Bupa, once the four new NEDs have been in the role for six months

Effectiveness


Governance Report

Attendance at Board meetings during 2015 The Board held 11 scheduled meetings during the year (both in the UK and overseas) and the Board attended an annual two-day strategy offsite session in June 2015. The tables below show the attendance levels and key strategic items discussed at Board meetings during the year.

February March April May June July August September October November December

Lord Leitch

Stuart Fletcher

Evelyn Bourke

George Mitchell1 – – – – – – –

Lawrence Churchill

Rita Clifton2 A

Roger Davis3 – – – – – A

Martin Houston

John Lorimer4 – – – – – –

Clare Thompson5 – – – A

Professor Sir John Tooke6 A

1 George Mitchell stepped down from the Board on 14 May 2015.2 Rita Clifton was unavailable to attend the June Board due to a conflicting board meeting.3 Roger Davis joined the Board on 16 July 2015. He was unavailable to attend the August Board due to a conflicting commitment.4 John Lorimer stepped down from the Board on 30 June 2015.5 Clare Thompson joined the Board on 1 May 2015. She was unavailable to attend the October Board due to a conflicting board meeting.6 Professor Sir John Tooke was unavailable to attend the August Board due to a conflicting commitment.A Apologies

Examples of key strategic items covered included:

February 2014 Outturn & Impact on 2015-17 Plan/Measuring Value Creation/Global Competition Paper

July Follow-up from June Board Strategy Off-Site/Project Updates

March(meeting held in Barcelona)

IT Update/Approval of 2014 Annual Report & Accounts/Solvency II Update

August Half Year Results

April Market Opportunities/Net Promoter System Update September Bupa ANZ Business Update/Cyber Risk/Approval of Bupa’s 2015 ORSA

May Key Strategic Partnership Updates/Strategic Review/Review of a number of M&A opportunities

October Financial Performance Calibration/Key Strategic Partnership Update/UK Market Unit Business Update/Global Brand/Talent to Deliver Bupa 2020

June(meeting held in West Sussex)

Bupa UK Strategy & Performance Update/Clinical Quality Update/Board Strategy Off-Site

November 2016-2018 Plan Overview/Bupa Global Market Unit Business Update/Health & Safety & Employee Health & Wellbeing Update/Clinical Risk Governance Proposal

December Internal Board Evaluation

Effectiveness



Governance Report

Calendar of events 2016

March Financial Results Briefing Call

Briefing call with the CEO and CFO following the announcement of financial results allows the AMs to understand and challenge financial and operational performance.

May Annual General Meeting The AGM is preceded by a seminar update in respect of one of Bupa’s business areas. In 2015, the Seminar was led by Bupa UK and focused on Strategy, Performance, Customers, Quality and Our People. 50% of AMs attended the 2015 AGM (2014: 54%). The number of attendees increased in 2015 but comprised a smaller percentage of the total number of AMs. This was due to the increase in the number of AMs following the extensive 2015 appointment exercise.

At the AGM, Bupa proposes a resolution on each substantially separate issue, including a resolution on the Annual Report and Accounts and the Remuneration Report and Policy. Voting at the AGM is conducted on a show of hands. The questions raised by AMs at the 2015 meeting covered a broad range of areas such as Cyber Security, Customer Satisfaction Measurement, Directors’ Remuneration, Internationalising the Association Membership, Strategic Partnerships and Solvency II.

July New AMs Induction Session This is an opportunity for newly appointed AMs to gain a further understanding of Bupa, our strategy, their role in our governance and how they can assist Bupa to achieve its purpose.

59% of the newly appointed AMs attended the induction session in 2015.

August Half Year Results call As for the Financial Results Briefing Call (above).

October AMs Briefing Sessions This is another opportunity for engagement with representatives of the Board on matters of strategy and performance. These sessions encourage rigorous challenge and questioning by the AMs.

Four briefing sessions were held with a total of 46 AMs in attendance during 2015. A short presentation on Bupa’s performance and development was followed by an in-depth Q&A at each session.

BondholdersBupa also has a number of debt securities in issue by subsidiary companies and is therefore required to operate in accordance with the UK Listing Rules, Disclosure Rules and Transparency Rules in respect of its announcements of financial results and operations. Bupa’s bondholders and other interested parties are formally made aware of the Half Year and Full Year results via briefing calls, and have the opportunity to question management on the financial performance and strategy of Bupa.

Other stakeholdersAcross our markets, we engage regularly with policymakers and regulators, health and care professionals, consumer groups, NGOs and other key stakeholders. This engagement enables us to contribute to the health policy debate and to build an understanding of issues relevant to our customers and to healthcare generally.

We also partner with a number of other commercial organisations and NGOs, to address and positively impact on specific health issues as part of our commitment to help more people access better healthcare.

Engagement

Association membersBupa maintains a register of around 100 Association Members (AMs) (116 as at 31 December 2015) who perform a key governance role ordinarily undertaken by shareholders. AMs generally serve for a period of ten years. AMs have no equity interest and, consequently, no right to dividends.

AMs are eminent individuals in their own field, coming from a diverse range of sectors, including health and social care, business, regulatory, academia, as well as charities and the public sector. Their expertise enables them to provide challenge to the Board on matters of performance and strategy, and furthermore, to draw upon their skills, knowledge and experience to help inform future strategy and development. Fundamentally, their role is to hold the Board to account in delivering on our purpose of longer, healthier, happier lives.

A number of steps were taken during 2015 to appoint new AMs with greater experience of the key overseas markets in which Bupa operates. A professional search firm was retained to help identify potential candidates with experience of geographies where Bupa operates.

Bupa’s AMs have a number of opportunities to engage with the entire Board, including at the AGM which is traditionally well attended. A summary of the questions asked at many of the events is circulated to all AMs, the Board and the Bupa Executive Team which ensures that the views of AMs are well communicated and understood within the business.

These more formal sessions are combined with regular correspondence on key changes and developments within Bupa, such as major acquisitions. The CEO, Chairman, SID and Company Secretary are available to the AMs throughout the year. To ensure that the AMs are kept fully informed, they also have access to a secure website containing useful information and updates, as well as daily media briefings and a calendar of forthcoming events.


Governance Report

Attendance

Feb 2 Mar 31 Mar Jun Jul Aug Sep Oct Dec

Clare Thompson1 – – –

John Lorimer2 – – – – –

Lawrence Churchill A

Roger Davis3 – – – – – – –

Martin Houston A A

George Mitchell4 – – – – – –

1 Clare Thompson joined the Committee on 1 May 2015 and was appointed as Chair on 1 July 2015.2 John Lorimer stepped down from the Committee as Chair on 30 June 2015.3 Roger Davis joined the Committee on 17 September 2015.4 George Mitchell stepped down from the Committee on 14 May 2015.A Apologies

Key Items covered included:

February Key Accounting Issues and Areas of Judgement/Financial Highlights/Audit Committee Effectiveness/Insurance Business Reserving

2 March Annual Report/Review of Systems of Internal Control and Risk Management/KPMG Audit Highlights

31 March SII Phase 1 Balance Sheet Review

June Key Accounting Issues and Areas of Judgement/Internal Audit Plan H2 2015 Solvency II Pillar 3 reporting/KPMG Audit Plan/Engagement Letters and Audit Fees

July Key Accounting Issues for Half Year Report

August Half Year Report Approval/Internal Control and Risk Management Assessment Half Year 2015

September Longer-Term Viability Statement/Solvency II Basis Of Preparation/KPMG Assurance on December 2014 SII Balance Sheet/Review of EU Audit Reform/Report of Non-Audit Fees

October Internal Audit 2016 Plan Outlook/Changes to ICRMA Process/Speak Up Update/Assurance Update for Solvency II/Quantitative Reporting Template

December 2016 Global Internal Audit Plan/Accounting & Reporting Issues for Year End/Review and Discussion of Draft Longer-Term Viability Statement/EU Audit Reform/Insurance Business Reserving Update/Solvency II Update/KPMG Update/Review of Committee Terms of Reference

Audit Committee Report


The remit of the Audit Committee includes monitoring the integrity of Bupa’s financial statements, the effectiveness of internal control systems and reviewing the effectiveness, performance and objectivity of the internal and external auditors.

All members of the Committee are Non-Executive Directors (NEDs) and this applied throughout the year. George Mitchell and John Lorimer stepped down from the Committee on 14 May 2015 and 30 June 2015 respectively after their retirement from the Board. Clare Thompson joined the Committee as a member on 1 May 2015 and as Chairman on 1 July 2015. Roger Davis joined the Committee on 17 September 2015.

The biographies of members can be found on pages 34 and 35

The CEO, CFO, Corporate Controller, Chief Internal Auditor, Chief Risk Officer and external auditors are routinely invited to attend meetings. The Committee regularly holds separate discussions with the external auditor, the Chief Internal Auditor

and Chief Commercial Actuary without management present. In compliance with the Code, at least one of the members of the Committee has recent and relevant financial experience.

A copy of the Committee’s Terms of Reference is available on bupa.com.

2015 activitiesIn discharging its responsibilities, the Committee met nine times during the year. The increase in the number of meetings was in part due to Solvency II preparation. In addition to ensuring the integrity of the financial results and monitoring the results of the Internal Audit reviews, the Committee was also active throughout the year in other key areas.

During 2015, the Committee:

° Reviewed the full year preliminary announcement, Annual Report and Half Year results announcement, including the going concern statements and the draft longer-term viability statement for the full year 2015;

° Reviewed Solvency II Pillar 3 reporting;

° Continued the review of the policy on the engagement of the external auditor to provide non-audit services and expanded the routine analysis of fees paid for non-audit services by other audit firms;

° Approved the audit plans for the external auditor;

2015 was a year of managing change for Bupa’s Audit

Committee, including preparation for the new Solvency II regime and

challenging our strategic plans in order to conclude on the

longer-term viability of Bupa.

Clare ThompsonCommittee Chair


Governance Report

° Considered reports from the external auditors reviewing any accounting or judgemental issues requiring its attention, as well as any other matters the external auditors wished to bring to the Committee’s attention;

° Approved the Internal Audit Charter, Plans, resourcing and budget and; considered reports from the Chief Internal Auditor on the results of internal audit reviews, significant findings, management action plans, and timeliness of resolution;

° Reviewed the Company’s Enterprise Policies and internal financial controls;

° Met with internal and external auditors and the Chief Commercial Actuary without the executives;

° Monitored and reviewed the effectiveness of the internal audit activities, and reviewed the independence and performance of the external auditors;

° Discussed the results of the Committee effectiveness review; and

° Reported to the Board on how it had discharged its responsibilities.

Financial reportingThe Committee reviewed the appropriateness of the Half Year and Annual financial statements, which it carried out with both management and the external auditors and included:

° Whether the Annual Report represented a fair, balanced and understandable view of the information;

° The clarity and sufficiency of disclosures and compliance with financial reporting; and

° The material areas in which significant judgements have been applied.

In carrying out the review, the Committee regularly considered papers from the Corporate Controller and the external auditors highlighting any significant areas of risk or judgement that have arisen in the period.

The significant areas of judgement raised in these reports for 2015 and how they were addressed is detailed below:

° Goodwill valuations: In relation to goodwill impairment testing, the Committee reviewed and discussed management reports outlining the basis of the assumptions used for our most sensitive Cash Generating Units (CGUs)

and considered these in light of business performance, with particular focus on the ongoing funding pressures and the impending impact of the National Living Wage on the Care Services business in the UK, the current valuations of comparable companies and any other relevant external information available. Reporting from the external auditors was also considered. In November 2015, the Committee held a specific discussion and familiarisation/training session on goodwill impairment testing approaches to better equip themselves when coming to any conclusions. This session was led by the Corporate Controller, with the external auditors providing an independent view.

° Claims provisioning: The Committee received reports from management detailing claims reserving methodologies and reviewed and approved the approach to claims reserving. In particular, the Committee reviewed and approved the assessment of margins of prudence, with a focus into areas where there were changes in methodology or practice. In making these judgements, the Committee also considered reports from the external auditor.

° Property valuations: The Committee considered the results from the external valuations and discussed these with management in light of current trading performance of the businesses in which the properties are used and the external environment. The Committee considered directors’ valuations in periods where no external valuation had been carried out and received information from management about any potential write downs identified as in the case of Care Services UK. The Committee also reviewed reporting from the external auditors addressing the valuations.

° Pension assets and liabilities: The principal defined benefit scheme in the UK is The Bupa Pension Scheme. The Committee considered the appropriateness of the assumptions used in the valuation of the related pension assets and liabilities performed by the independent scheme actuary. The Committee reviewed internal management reports to determine their conclusions; supported by detailed triennial valuations with annual interim reviews produced by the independent scheme actuary.

External auditorsIn relation to Bupa’s external auditors, KPMG, the Committee assesses the scope, fee, objectivity and effectiveness of the audit process annually. In assessing the effectiveness of the audit process, prior to making any recommendation on the appointment or reappointment of the external auditors, the Committee reviewed the effectiveness of their performance against criteria which it agrees, in liaison with executive management, at the outset of each year’s audit. In so doing, the Committee assesses KPMG’s effectiveness during Committee meetings and also considers feedback on the prior year’s external audit obtained through a satisfaction survey. The Committee considers a number of areas such as the overall quality of service, timeliness of the resolution of issues, the quality of the audit resource and whether the audit plan was followed. The Committee is satisfied that KPMG continues to provide an effective audit service.

KPMG has been Bupa’s auditor since 1985. The latest rotation of audit partner was made after the conclusion of the 2013 audit. After consideration of cost, effectiveness and KPMG’s independence, and taking account of the rotation of the lead audit partner, the Committee was satisfied that KPMG continued to be independent and agreed that it would likely be disruptive to place the audit out to tender during 2015, at a time when Bupa was preparing for the implementation of Solvency II from 1 January 2016.

The Committee monitors the developments in the new EU Audit Regulation. Under the transitional arrangements, the Company will be required to rotate audit firm at the next appointment after 17 June 2020. In 2016, the Committee will review Bupa’s tendering options and decide when to place the external audit out to tender.

To ensure that KPMG’s objectivity and independence is safeguarded, the Committee has a formal policy on Bupa’s relationship with the external auditors, which includes financial approval limits for non-audit services and restrictions on the nature of work that can be performed. The Committee reviews non-audit services provided by KPMG and other audit firms to assess any potential conflicts of interest.


Governance Report

As part of the evaluation of the external auditors, the directors confirmed that they were satisfied that the external auditors had maintained their independence. In addition, KPMG also annually reports on whether and why it deems itself to be independent. Fees paid to KPMG for non-audit services are shown in Note 2.3 to the Accounts.

Internal control and risk management assuranceThe Board has overall responsibility for ensuring Bupa’s system of internal control and risk management is maintained and for reviewing its effectiveness. Such a system is designed to manage or mitigate, rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute, assurance against material misstatement or loss. There is an ongoing process for identifying, evaluating and managing principal risks faced by Bupa. This process was in place throughout the year under review and up to the date of approval of the Annual Report and Accounts, and accords with guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

The Committee carried out reviews of the effectiveness of the systems of internal control and risk management in place at both the half and full year, which considered all material internal controls relevant to the preparation of the financial statements. The Internal Control and Risk Management Assessment is a first line of defence self assessment, subject to review and challenge by the second and third lines, and includes the results of the work of internal audit; the operation of material controls (financial, operational and regulatory compliance) and Enterprise Policy compliance.

During these reviews, the Committee identified a number of weaknesses, however, none of these were determined to be significant to the preparation of the financial statements. The Committee noted the steps that had already been, and were planned to be, taken by management, to address those areas identified, and the plans to further enhance the internal control systems and strengthen risk management.

During the year, the approach to the Internal Control and Risk Management Assessment was further enhanced. This sought to provide a more detailed assessment of the levels of compliance with Bupa’s relaunched Enterprise Policy Suite and was subject to rigorous review and challenge by management.

Internal auditInternal audit provides assurance over adequacy in the operation of internal controls, reviews their effectiveness by undertaking an agreed schedule of internal audits each year in accordance with the approved Global Internal Audit Plan and reports its findings to management and the Committee regularly. During 2014 an enhanced approach to internal audit, within a three lines of defence model, was adopted. The objective of this was to design and draw out thematic issues and areas for governance, risk and control development. Additional internal audit resourcing was reviewed and approved to facilitate the revised approach. The implementation of key developments including recruitment for key positions, system and methodology enhancements were made throughout 2015.

Bupa’s internal audit team acts in accordance with the Global Institute of Internal Auditors’ professional standards and the Chief Internal Auditor has a direct reporting line to the Chairman of the Committee. Where specific skills are not available in-house, the Chief Internal Auditor and Committee Chairman have the ability to procure the services of expert external advisers. The Committee annually reviews and recommends the Internal Audit Charter to the Board for approval and approves the Internal Audit budget.

Plans for 2016In 2016, the Committee plans to focus on:

° Assessing the implementation of the EU Audit Reform regulations and the approach to and timing of placing the external audit out to tender;

° The further development of the Internal Control and Risk Management Assessment system to ensure its continued effectiveness; and

° Developing the assurance process in respect of IT systems development and digital media.

Audit Committee Report



Governance Report

The principal role of the Committee is to assist the Board in its leadership and oversight of risk across Bupa.

This includes:

° Understanding and, where appropriate, optimisation of current and future risk exposures;

° Reviewing and recommending overall risk appetite and tolerance to the Board;

° Reviewing the consistency of corporate strategy and risk appetite;

° Reviewing the risk management framework including Enterprise Policies, process and controls;

° Receiving and considering reports on all categories of risk; and

° Promoting a risk awareness culture throughout Bupa.

In making this report, the Committee does not wish to duplicate the detailed description of Bupa’s Risks and Uncertainties which are set out on pages 26-29 and forming part of the Strategic Report.

Committee governanceA copy of the Committee’s Terms of Reference is available on bupa.com.

The Chief Risk Officer continues to have unrestricted access to all members of the Committee.

Clare Thompson and Roger Davis joined the Committee on 1 May 2015 and 17 September 2015 respectively. Sir John Tooke was appointed to the Committee on 1 January 2016 to further strengthen the clinical membership. George Mitchell and John Lorimer stepped down on 14 May 2015 and 30 June 2015 respectively. Members of the Committee are all Non-Executive Directors; the CEO, CFO, Chief Risk Officer, Chief Medical Officer and Chief Internal Auditor are routinely invited to attend meetings. Representatives from the external auditors, KPMG, are also invited to attend meetings. The biographies of members can be found on pages 34 and 35.

Attendance

Mar Apr May July Sep Oct Nov

Lawrence Churchill

Roger Davis1 – – – – –

Martin Houston A

John Lorimer2 A – – – –

George Mitchell3 A – – – –

Clare Thompson4 – – A

1 Roger Davis joined the Committee on 17 September 2015. 2 John Lorimer stepped down from the Committee on 30 June 2015.3 George Mitchell stepped down from the Committee on 14 May 2015.4 Clare Thompson joined the Committee on 1 May 2015. A Apologies

Key items covered included:

March Approach to Country Concentration Risk

April Solvency II Planning Report/Financial Crime Risk and Controls Assessment/ Risk Appetite Review/Risk Scenarios: Group Stress & Scenario Testing 2014/15 and Discussion of Risk Scenarios 2015/16

May Approval of USP Application/Geographical Risk Assessment

July Information Governance Risk/2015 Group ORSA Draft Report/Risk Appetite Framework/Country Risk Assessment Proposal/Risk Maturity Framework

September Group ORSA 2015/Developments to Bupa’s Risk Framework and Capability/Terms of Reference Review

October Cyber Risk Project Implementation Update/Insurance Programme

November Emerging Risks/Stress and Scenario Testing/System of Governance Review/ 2016 Risk Outcomes and Plan

Risk Committee Report

During the year the Committee strengthened Bupa’s Risk

Management, embedding a robust risk framework

throughout the business and monitoring our response to Solvency II requirements.

Lawrence ChurchillCommittee Chairman


Governance Report

Assessment, which is a report from the CEO, supported by both the Risk and Audit functions. In the most recent review, the Committee noted significant improvement in Spain, high standards of performance in Australia and continued evolution required in the UK and developing markets.

Risk appetite ° The Chief Risk Officer led a significant

review of how Bupa expresses Risk Appetite (as reported on page 109). At this stage we have well quantified assessments of Financial Strength, Financial Stability and Conduct Risks. We are continuing to improve our measurement of risk in all areas.

Strengthening linkages with subsidiary risk committees ° Progress was made in strengthening

linkages with major subsidiaries. Bupa’s suite of 29 Enterprise Policies was adopted by the Boards of our major subsidiaries and deployment throughout the business commenced. The Chairman attended the Risk Committee of Sanitas during the year and held meetings with the newly appointed Chair of Sanitas’ Board Risk Committee and the CRO for Spain and Latin America domestic business. Bupa’s first ever global Risk Summit was held with attendance of Board Risk Committee Chairs, the CRO and Risk Directors from around the world and guests from the Internal Audit function and from KPMG.

During 2015, the Committee also considered the following:

Policies review and approval ° In line with the Matters Reserved for the

Board, the Committee considered and approved a number of policies such as the Insurance Risk and Solvency II Data Quality Policies which were implemented as a result of the Solvency II planning process.

Stress and scenario testing ° The Committee reviewed the results of

the stress and scenario testing which would form part of the 2015 and 2016 ORSAs. The scenarios considered a number of macro and microeconomic impacts on the business such as an economic slowdown in China, Greek exit from the EU and the impact on the Eurozone such as a weakening Euro, a strengthening of the US economy and the US Dollar and rising interest rates.

2015 activitiesAs set out in last year’s report, the Committee’s focus for 2015 was the programme of thematic risk reviews, overseeing the implementation of Solvency II within Bupa, implementation of the three lines of defence, development of the articulation and measurement of risk appetite and strengthening linkages with major subsidiary risk committees.

Thematic reviews ° The programme of thematic reviews

included consideration of Organisational Capacity and Capability, Clinical Governance and Information Security. These themes will continue into 2016. Major improvements were made in consistency of standards and reporting of Clinical Governance and a multi-million pound programme has been initiated to strengthen Information Security.

Solvency II ° Solvency II was a major focus and

force for good in strengthening Risk Management. The Risk Management Framework and System of Governance has been improved and the Senior Insurance Management Regime implemented. A great deal of time was devoted to determining the Undertaking Specific Parameter for insurance premium risk (replacing the Standard Formula parameter with Bupa’s own) which was approved by the Prudential Regulation Authority and reduces Bupa’s Solvency Capital Requirement commensurate with its risk. The production of the ORSA has provided the organisation with a comprehensive analysis of current and future risk exposures across Bupa.

Three lines of defence ° The Committee encouraged

management to continue to strengthen the first line of defence, where the Bupa Enterprise Risk Committee plays a leading role as the first line committee. In conjunction with the Audit Committee, the Committee monitors progress through scrutiny of crystallised risks and by reviewing the Internal Controls and Risk Management

Risk Committee effectiveness review ° Overall, the Committee considered that

it was effective during 2015 and noted actions that were being undertaken to address areas for development such as more fully embedding the risk management framework throughout the business, articulation of risk appetite, as well as improvements in risk governance.

New market entry risk assessments ° Throughout the year, the Committee

considered the risks associated with Bupa’s expansion plans and those associated with each proposed major acquisition. These reviews included the consideration of whether new market opportunities were within risk appetite and the impact on Bupa’s solvency position arising from growth through acquisition.

Risk and remuneration oversight ° During the year, the Risk Committee

Chairman provided a formal report as part of the Remuneration Committee’s assessment of the Company’s performance throughout the calendar year.

Plans for 2016In 2016, the Committee plans to:

° Oversee the embedding of Solvency II procedures and requirements as part of everyday activity;

° Monitor enhancements to risk policies and culture embedding in the first line;

° Monitor a strengthening of our Information Security systems;

° Dynamically monitor changing patterns of risk exposure; and

° Integrate the oversight of Clinical Governance previously carried out by the Medical Advisory Panel.

Risk Committee Report



Governance Report

2015 activitiesDuring 2015, the Committee considered the following:

Board succession The Committee undertook significant work on Board recruitment during 2015. The Zygos Partnership and Ridgeway Partners LLP were retained to recruit a successor to John Lorimer as Audit Committee Chairman and new NEDs with international experience respectively. Both recruitment firms have also provided other search and recruitment services to Bupa.

The Committee considered shortlists of candidates and the specifications for each role. This was followed by a formal and rigorous interview process of shortlisted candidates, against set objective criteria. As a result of this work, four new NEDs were appointed in a 12-month period. Clare Thompson and Roger Davis were appointed to the Board during 2015 with Simon Blair and Janet Voûte appointed on 12 January 2016.

Committee effectivenessThe Committee discussed the results of the internally facilitated effectiveness review. Overall, the Committee considered that it was effective during 2015 and noted areas for development.

The Committee leads the process for Board appointments and makes recommendations together with reviewing the balance of skills, experience, knowledge, structure and composition of the Board and its Committees.

The Committee keeps Bupa’s governance structures under review and makes appropriate recommendations to ensure that Bupa’s arrangements are, where appropriate, consistent with best practice governance standards. The Committee also identifies and selects suitable AM candidates.

A copy of the Committee’s Terms of Reference is available on bupa.com.

All members of the Committee are non-executive, apart from Stuart Fletcher as CEO. Members’ biographies can be found on pages 34 and 35. The Chief People Officer and CFO are invited to attend meetings where considered appropriate. George Mitchell stepped down from the Committee on 14 May 2015 following his retirement from the Board.

Lawrence Churchill was appointed as Senior Independent Director on 14 May 2015.

Association member recruitment The process for the identification and selection of new AMs was also a key activity for the Committee during 2015, with 24 new AMs appointed during the year. This exercise, which has now been concluded, formed a major part of the programme of the AM refreshment. Odgers Berndtson was retained to assist with the process of identifying potential AMs with international experience in one or more of Bupa’s key markets.

The Committee also monitored Bupa’s compliance with the UK Corporate Governance Code and continued to develop the governance arrangements of Bupa’s major subsidiary companies.

Plan for 2016In 2016, the Committee plans to focus on Board succession planning, including identifying the key skills, knowledge and experience that the Board requires for the future and the recruitment of new NEDs to replace current NEDs coming to the end of their tenure.

Attendance

Jan 12 Feb 24 Feb Apr Sep Oct Dec

Lord Leitch

Lawrence Churchill

Rita Clifton

Stuart Fletcher

George Mitchell1 – – –

1 George Mitchell stepped down from the Committee on 14 May 2015.


January Recruitment of new Audit Committee Chairman

February 12 NED Recruitment Update/Board Succession and Board & Committee Membership/Association Members’ Update

February 24 Bupa’s Annual Report & Accounts 2014: Corporate Governance Report/Subsidiary NED Fees

April Association Member Recruitment Update/NED Recruitment Update

September NED Recruitment Update/Association Members Update/High Level Review of Governance Arrangements for Bupa’s Provision Subsidiaries/Board & Committee Evaluation Process for Coming Year/Review of Committee’s Terms of Reference

October NED Recruitment Update

December NED Update/Association Members Update/UK Corporate Governance Code Compliance/Committee Evaluation

Nomination & Governance

Committee Report

In 2015, the Committee recruited four new Non-Executive Directors and

significantly enhanced the international experience of the

Association Membership.

Lord LeitchChairman


Governance Report

2015 activitiesIn 2015, the Panel continued to develop Bupa’s Clinical Governance and Quality Strategy which was approved in 2013. This strategy underpinned Bupa’s journey to excellence in the delivery of care either through direct provision by Bupa or through Bupa’s network of approved hospitals.

In discharging its responsibilities during 2015, the Panel oversaw the following:

° Critical Clinical Incident Review: The Panel reviewed research conducted on the definition and reporting of Critical Clinical Incidents in relation to Bupa’s core list and discussed whether the terminology used was globally appropriate.

° Clinical Risk Framework: The Panel reviewed the Clinical Risk Framework (the CRF) which was designed to improve the way Bupa manages clinical risk in order to support the 2020 vision of making quality healthcare accessible and affordable. The Panel made various recommendations including on further improvement of information management and engagement of staff to improve clinical risk management. The CRF was agreed at the Bupa Enterprise Risk Committee and its implementation commenced in January 2016.

The principal role of the Medical Advisory Panel (the Panel) during 2015 was to advise the Board on clinical governance, professional standards, quality of care and the development of Bupa’s medical policy. The Panel provided oversight of Bupa’s clinical governance arrangements and reported to Bupa’s Risk Committee on matters relating to clinical risk and advised Bupa’s Risk Committee on risk appetite in this area.

This advice was underpinned by a framework that measured, monitored and improved the safety and quality of all clinical services, promoting optimal customer health outcomes and clinical excellence.

The Panel comprised two Bupa Non-Executive Directors, four independent members and the CEO. Anita Donley was appointed as an independent panel member on 1 March 2015. The independent members, highly respected individuals drawn from clinical practice, health and care management and academia, provide invaluable input into the clinical governance standards and strategy at Bupa. The Panel was supported by the Chief Medical Officer who attended all Panel meetings and the Chief Nurse. The Chief Risk Officer also attended Panel meetings.

° Annual Clinical Quality Report: The Panel reviewed the draft Annual Clinical Quality Report 2014, the purpose of which is to inspire and support Bupa’s employees and to drive continuous safety and quality improvement. The Panel agreed the Report for appropriateness ahead of internal publication.

° Approach to clinical risk and governance: As part of a wider review of Bupa’s clinical governance arrangements, the role and purpose of the Panel was reviewed by the Board and it was agreed that the aims and objectives of the Panel would be more effectively achieved through a different approach.

As a result:

° The clinical membership of the Risk Committee was strengthened by the appointment of Professor Sir John Tooke;

° The Executive Global Clinical Governance and Quality Steering Committee was enhanced by the appointment of two independent members; and

° A new Medical Advisory Council was established which will meet at least twice a year to advise on health horizon scanning and give advice to Bupa on key risks and opportunities relevant to delivering on Bupa’s purpose.

Medical Advisory Panel


The Panel sought to ensure that Bupa inspired and led a culture of innovation and excellence to achieve the very best in care for all our customers, patients

and residents.

Sir John TookePanel Chairman

Attendance

Mar Jun Sep Nov

Professor Sir John Tooke

Rita Clifton CBE A

Stuart Fletcher

Tessa Green CBE

Professor Gillian Leng CBE

Baroness Mary Watkins A

Anita Donley OBE1 A A

1 Anita Donley was appointed on 1 March 2015.A Apologies


March Conflicts of Interest/Bupa Chile – Clinical Governance Quality Audit/Global Quality Performance Report Q4/Clinical Governance Annual Review Report 2014/ Terms of Reference

June Conflicts of Interest/Bupa’s Clinical Risk Framework/Global Quality Performance and Risk Report Q1/Annual Clinical Quality Report 2014

September Bupa’s Clinical Risk Framework/Global Quality & Risk Quarterly Report/New Governance Structure

November Clinical Academic Partnership/Bupa’s Clinical Risk Framework/Global Quality Performance & Risk Report (Q3)/Enterprise Clinical Governance policy


Governance Report

Our principal role is to devise and govern remuneration systems and packages that drive sustainable, long-term performance, with a clear link to Bupa’s strategic goals and purpose.

Our remuneration policy was approved at the 2015 AGM and remains unchanged.

We are committed to being open and transparent with our Association Members and as usual, our Annual Report on Remuneration will also be tabled for an advisory vote at the 2016 AGM.

Performance and pay in 2015As summarised in the CEO’s statement from page 14, 2015 has been a steady but challenging year for Bupa. We focused on meeting the needs of customers across our diversified geographic footprint, maintained strong market positions, grew revenue and customer numbers whilst delivering solid profit performance.

The annual bonus for 2015 and the 2013-2015 LTIP payout reflect this performance. The 2015 bonus was based on stretching profit and revenue targets, and also reflected the achievement of personal and strategic objectives including the strengthening of talent and succession pipelines, focus on risk and governance and growing the impact and reputation of Bupa externally. The Committee approved bonuses of 92.6% and 71.4% of salary for the CEO and CFO respectively although these were lower, by some measure, than 2014 reflecting the headwinds Bupa faced this year. As highlighted in last year’s report, partial mandatory deferral of the annual bonus was introduced to strengthen the alignment of the remuneration framework and the long-term nature of our strategic goals. As a result, 50% of these bonuses were deferred for three years and are subject to malus provisions over this period. More details are provided on page 53.

The 2013-2015 LTIP was based on three-year growth in reserves and risk adjusted profit, and vested at 38.4% of target. In determining the vesting outcome, the Committee took into account the significant decline in the Australian dollar versus Sterling over the performance period and its impact on the achievability of the targets set at the start of the cycle. The Committee agreed that vesting would be calculated using an equal balance of actual and constant exchange rates to ensure the LTIP outcome reflects both actual results and controllable performance. The Committee, having debated the various approaches in these

circumstances, is satisfied that this outcome is fair to participants and will use the same approach going forward, noting that exchange rate movements could have the effect of adjusting the results both up or down.

Plans for 2016The Committee has considered the implications of Solvency II on the governance of pay at Bupa and we have refined our Terms of Reference to ensure they are consistent with the legislation, including strengthening the level of input from the Risk Committee and the Chief Risk Officer in considering how risk management should impact pay. We have also reviewed how the regulations might impact the structure of pay.

We decided to award salary increases of 2.5% to the CEO and the CFO, effective from April 2016. These increases are in line with the average for the wider workforce.

The annual bonus for 2016 is based on broadly the same structure as that in 2015 with modest changes to the non-financial metrics around customer, people, risk and cost efficiency. This move towards a balanced scorecard approach will be fully reflected in the 2017 annual bonus which is under review this year. The 2016-2018 LTIP awards continue to be based on stretching three-year profit, revenue and non-financial metrics, the structure of which was first introduced for the 2014-2016 awards. The target will be set each year for the three years of the plan. More details can be found on page 59.

We appointed Mercer as our new advisors in 2015, following a competitive tendering process. Mercer attend Committee meetings and provide advice on all remuneration matters. They have already made a very positive impact and through 2016 will be helping to review the structure of the annual bonus and LTIP to ensure they reflect best practice, incorporate features as required by Solvency II, and reinforce the appropriate behaviours. Any changes to the plans will be disclosed in the 2016 Directors’ Remuneration Report and become effective in 2017.

Martin Houston Committee Chairman

2 March 2016

On behalf of the Board, the Remuneration Committee is pleased to present the Directors’ Remuneration Report for 2015. In last year’s Remuneration Report, we set out some principles which guide our decisions and we believe it is appropriate to state them once again:

1. We follow best FTSE practice;

2. In all but exceptional cases, we follow UK corporate governance regulations, guidelines, codes and rules as though we were a FTSE listed company; and

3. We must have the right processes in place for determining executive pay, for engaging in robust challenge and debate and, as a result, ensuring we pay for performance.

Remuneration Report

Martin HoustonCommittee Chairman

This year the Committee focused on improving overall

remuneration governance, the effectiveness of the

Committee and preparing for the Solvency II regime.


Governance Report

Policy

Remuneration report continued

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

Pay policy table – Executive Directors

ElementPurpose and link to strategy Operation Maximum opportunity Performance metrics

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

Salary levels are reviewed annually with any changes becoming effective in April. Factors taken into account include:

° Level of skill, experience and scope of responsibilities of the individual;

° Overall business performance, scarcity of talent, economic climate and market conditions;

° Increases across Bupa; and

° External market data.

Salary increases are normally in line with those of the Bupa employee population.

Larger increases may be given in certain circumstances including where a new recruit has been appointed on lower than market rate salary with the expectation of phased increases to bring it up to market level.

The Committee does not consider it appropriate to set a maximum salary level.

None

Annual bonus To drive behaviour and to promote focus on the business priorities for the year.To motivate and incentivise delivery of performance over the one-year operating cycle.

Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support the business strategy.

Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year.

Typically 50% of any bonus awarded will be deferred for a period of up to three years, with the remaining 50% paid in cash. To account for any loss of value over time, a modest uplift will be applied to the deferred amount.

The maximum bonus opportunity will not exceed 150% of base salary.

Annual bonus payments are based on the achievement of challenging financial, non-financial and personal objectives.

No less than 75% of the annual bonus will be subject to the achievement of financial measures which will be aligned to the strategic priorities of the business.

Long-term incentive plan

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

As Bupa cannot provide incentives based on equity participation, it provides an LTIP in the form of a deferred cash incentive that is broadly reflective of equity-based plans in comparable companies.

Awards are usually made on an annual basis and relate to performance over a three-year period.

Vesting of awards is based on the extent to which performance targets, set and assessed by the Committee, are achieved.

Any payments will be made at the end of the performance period and a portion may be deferred for up to two years.

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

Vesting of awards is based on performance against a combination of financial and non-financial measures.

Threshold performance results in a payment of 15% of the maximum.

No less than 75% of the LTIP will be based on financial measures with the remainder based on measures linked to key strategic priorities of the business.

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

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

Although the Company has closed its UK defined benefit scheme (The Bupa Pension Scheme) to new members, a small number of current employees continue to accrue benefits under this plan.

Executive Directors who are eligible to be members of The Bupa Retirement Savings Plan receive employer contributions of up to 30% of base salary.

Members of The Bupa Pension Scheme accrue benefits in line with their contractual terms up to a maximum of 1/30th accrual.

None

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

Executive Directors are entitled to a number of taxable benefits which may include private health cover for themselves and their family, an annual health assessment for themselves and their partner, life assurance, income protection insurance, car allowance and 30 days’ annual holiday. The CEO is also entitled to the use of a car and driver.

The benefits offered may need to be changed from time to time to reflect changing circumstances.

There is no specific maximum benefit spend. None


Governance Report

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

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

° Misstatement of results;

° An error in assessing any relevant performance metric or in the information or assumptions on which the annual bonus or LTIP is determined;

° Serious reputational damage to Bupa or a relevant business unit;

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

° Gross misconduct or material breach of employment contract; and

° Any other circumstance which the CEO or the Remuneration Committee in its discretion considers to be similar in nature or effect to the above.

Remuneration Committee discretionThe Remuneration Committee has ultimate discretion in relation to payments to Executive Directors under the Company’s incentive plans. With respect to the annual bonus, if the Committee determines that a minimum level of performance has not been achieved, no bonus will be payable; and with respect to the LTIP, the Committee may adjust the level of vesting to ensure that it is aligned to the underlying performance of the business.

Pay policy table – Executive Directors

ElementPurpose and link to strategy Operation Maximum opportunity Performance metrics

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

Salary levels are reviewed annually with any changes becoming effective in April. Factors taken into account include:

° Level of skill, experience and scope of responsibilities of the individual;

° Overall business performance, scarcity of talent, economic climate and market conditions;

° Increases across Bupa; and

° External market data.

Salary increases are normally in line with those of the Bupa employee population.

Larger increases may be given in certain circumstances including where a new recruit has been appointed on lower than market rate salary with the expectation of phased increases to bring it up to market level.

The Committee does not consider it appropriate to set a maximum salary level.

None

Annual bonus To drive behaviour and to promote focus on the business priorities for the year.To motivate and incentivise delivery of performance over the one-year operating cycle.

Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support the business strategy.

Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year.

Typically 50% of any bonus awarded will be deferred for a period of up to three years, with the remaining 50% paid in cash. To account for any loss of value over time, a modest uplift will be applied to the deferred amount.

The maximum bonus opportunity will not exceed 150% of base salary.

Annual bonus payments are based on the achievement of challenging financial, non-financial and personal objectives.

No less than 75% of the annual bonus will be subject to the achievement of financial measures which will be aligned to the strategic priorities of the business.

Long-term incentive plan

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

As Bupa cannot provide incentives based on equity participation, it provides an LTIP in the form of a deferred cash incentive that is broadly reflective of equity-based plans in comparable companies.

Awards are usually made on an annual basis and relate to performance over a three-year period.

Vesting of awards is based on the extent to which performance targets, set and assessed by the Committee, are achieved.

Any payments will be made at the end of the performance period and a portion may be deferred for up to two years.

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

Vesting of awards is based on performance against a combination of financial and non-financial measures.

Threshold performance results in a payment of 15% of the maximum.

No less than 75% of the LTIP will be based on financial measures with the remainder based on measures linked to key strategic priorities of the business.

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

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

Although the Company has closed its UK defined benefit scheme (The Bupa Pension Scheme) to new members, a small number of current employees continue to accrue benefits under this plan.

Executive Directors who are eligible to be members of The Bupa Retirement Savings Plan receive employer contributions of up to 30% of base salary.

Members of The Bupa Pension Scheme accrue benefits in line with their contractual terms up to a maximum of 1/30th accrual.

None

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

Executive Directors are entitled to a number of taxable benefits which may include private health cover for themselves and their family, an annual health assessment for themselves and their partner, life assurance, income protection insurance, car allowance and 30 days’ annual holiday. The CEO is also entitled to the use of a car and driver.

The benefits offered may need to be changed from time to time to reflect changing circumstances.

There is no specific maximum benefit spend. None


Governance Report

The remuneration policy table on pages 52 and 53 sets out the various components which would be considered for inclusion in the remuneration package for the appointment of an Executive Director. Typically a new appointment will have (or be transitioned onto) the same framework that applies to other Executive Directors as set out in the policy table. Salary would reflect the skills and experience of the individual, and may be set at a level to allow future salary progression to reflect performance in the role.

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

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

To facilitate recruitment, the Committee may make compensatory payments and/or awards for any remuneration arrangements subject to forfeit on leaving a previous employer. We will seek to replicate, as far as practicable, the potential value and time horizon of such remuneration, as well as performance conditions that may apply. In some circumstances, it might also be necessary to set up additional or alternative arrangements including but not limited to:

° Relocation-related expenses; and

° International assignment allowances and expenses.

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

Any special joining arrangement payments may include clawback tied to leaving within a certain period.

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

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

Targets for the LTIP are set by the Remuneration Committee taking into account a number of internal and external reference points which include historic Bupa performance, internal forward-looking plans and broader market trends. Targets are set for vesting at threshold, ‘on-target’ and out-performance levels.

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

The graphs illustrate the possible variation for different levels of performance. The percentages represent each element as a percentage of base salary.

Approach to remuneration policy Our approach to remuneration on recruitment is to pay no more than is necessary and appropriate to attract the right talent to the role.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Potential maximumOn targetFixed pay Potential maximumOn targetFixed pay

LTIP Annual bonus Other benefits Pension Salary

100%

137.5%

275%

150%

100%

200%

112.5%75%

Remuneration at various performance levels (£’000)

Chief Executive Ocer Chief Financial Ocer

Policy



Governance Report

Policy on payments for loss of officeIn the table to the right, we summarise the key elements of our policy on payment for loss of office, which will comply with the relevant plan rules and will consider local employment legislation.

Any payments made due to loss of office may include malus or clawback provisions as described under malus and clawback on page 53.

Differences in remuneration policy for Executive Directors compared with other employeesThe Remuneration Policy for the Executive Directors is designed to be broadly similar to the policy applicable to Bupa employees to ensure that they are all aligned to delivering sustainable business performance. Although the size of the opportunity varies, the underlying principles of the salary review cycle, annual bonus and LTIP remain the same for the senior employee population.

Junior employees are not eligible for LTIP awards, although most have an annual bonus opportunity. In some cases, additional flexibility has been introduced for the Executive Directors and senior employees (e.g. to provide the choice to receive cash in lieu of pension contributions) to allow for personal circumstances.

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

The table to the right describes the pay policy as it applies to the Chairman and Non-Executive Directors.

Policy on payments for loss of office

Provision Policy

Notice period and compensation for loss of office in service contracts

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

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

Treatment of annual bonus on loss of office under plan rules

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

° If an Executive Director leaves the Company after the end of the financial year but before the bonus payment date, for reason of redundancy, pre-agreed retirement, death, or as part of the sale of a Bupa business, they will be eligible for a bonus payment for the previous financial year. For any other reason, they will not be eligible for a bonus payment.

° Any bonus will be paid at the normal time following the end of the bonus year.

Treatment of LTIP on loss of office under plan rules

° An Executive Director’s award will vest in accordance with the terms of the plan and satisfaction of performance conditions measured at the normal completion of the performance period if the reason for leaving is redundancy, pre-agreed retirement, early retirement on the grounds of ill health, death or any other special circumstance agreed by the Committee. In these cases, final awards will be pro-rated based on completed months of service, in 36ths for the actual period of active employment during the plan performance period. The period of active employment excludes any period of garden leave or other such period when the Executive Director was legally employed but not required to actively carry out their duties. For any other reason, they will not be eligible for an LTIP payment.

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

Pension and benefits

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

Pay policy table – Non-Executive Directors

ElementPurpose and link to strategy Operation

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

The Chairman receives an all inclusive fee.NEDs receive a fixed basic fee. Additional fees are paid for chairing and membership of Board Committees and/or additional work in relation to subsidiaries, and for the Senior Independent Director role.Fees are reviewed annually by the Board with any changes implemented in July. Key factors taken into account include:

° Overall business performance;

° Scope and responsibility of the role; and

° Appropriate market data.

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

During their time in office, NEDs are entitled to private health cover for themselves and their family and an annual health assessment for themselves and their partner. The Chairman is also entitled to the use of a car and driver. All benefits are taxable.


Governance Report

Executive Directors: single total figure of remuneration (£’000)

Stuart Fletcher Evelyn Bourke

2015 2014 2015 2014

Salary 730 711 523 484

Benefits 48 43 16 13

Annual bonus 681 882 382 464

LTIP 403 963 215 219

Pension 219 213 157 145

Total 2,081 2,812 1,293 1,325

Notes

Annual bonus refers to bonus payments earned during that year, and LTIP refers to payouts from the performance period which ended in that year.

Stuart Fletcher’s salary was £735,000 from 1 April 2015 and he received cash in lieu of a pension.

Evelyn Bourke’s salary was £535,000 from 1 April 2015 and she received cash in lieu of a pension. Her 2013-2015 LTIP award includes an additional on-target award of £85,000 which was a contractual commitment made at the time of her appointment in September 2012. She is a Non-Executive Director of IFG and received a fee of £32,666 in respect of her position, which is not disclosed in the table above.

2015 Annual bonus payout

CEO CFO

On Target Performance

Level (£m)

Actual Performance

Level (£m)

Max bonus (% of

salary)

Actual payout

(% of salary)

Max bonus (% of

salary)

Actual payout

(% of salary)

Group profit 671.3 666.2 75.0% 46.2% 56.3% 34.7%

Group revenue 11,216.9 11,094.6 37.5% 22.3% 28.1% 16.7%

Key personal objectives 37.5% 24.1% 28.1% 20.0%

Total 150.0% 92.6% 112.5% 71.4%

Financial targets are assessed at constant exchange rates, set at the start of the year.

The Committee assessed the profit and revenue elements against the targets set at the start of the year and are comfortable that the amounts earned reflect Bupa’s underlying financial performance.

The financial targets for the annual bonus, and actual performance of the Company are shown in the table above. For both Executive Directors, their achievement against key personal objectives was assessed independently by the Committee.

The payout reflects the steady progress that has been made in the face of challenging economic conditions and political and regulatory changes in a number of our markets. By focusing on meeting the needs of customers across our diversified geographic footprint covering health and care provision as well as health insurance, we maintained strong market positions and grew revenue by 6% at CER and customer numbers by 12% in 2015.

We delivered underlying profit growth across most of Bupa, however, group underlying profit has declined by 2% at constant exchange rates, reflecting the impact of a change in sentiment towards private participation in public healthcare in Spain which has led to a significant change in outlook for our PPPs.

Performance assessment for the CEO and CFO includes the consideration of achievement against financial, non-financial and personal objectives. For the CEO, calibration of delivery of personal objectives included those covering executive leadership development, strengthening of talent and succession pipelines, digital development, focus on risk and governance and growing the impact and reputation of Bupa externally. For the CFO, consideration was given to the drive for cash delivery, capital management, readiness for Solvency II and Senior Insurance Managers Regime regulation implementation, business development along with management of risk, control and governance.

Detail of performance against metrics for variable awardsFor 2015, the CEO’s target bonus opportunity was 100% of salary with a maximum of 150% of salary. The CFO’s target bonus opportunity was 75% of salary with a maximum of 112.5% of salary. The performance measures used to determine the 2015 annual bonus for our Executive Directors were as follows:

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

° Group revenue (25% of award) – includes Bupa’s proportionate share of revenue from associates and joint ventures, which is not included within reported revenue; and

° Key personal objectives (25% of award).

The Implementation Report sets out details of Executive Directors’ pay and shows how the Executive Directors’ remuneration policy has been implemented in 2015 and how it will be applied for 2016. As well as disclosing remuneration figures for the Executive Directors, it includes details on the degree to which performance targets have been achieved and the resulting level of annual bonus payout and vesting of long-term awards.

Set out to the right is a table showing a single total figure of remuneration for each Executive Director in 2015. Comparable figures for 2014 are also included in this table.

Implementation (audited)



Governance Report

2013-2015 LTIP vestingVesting of the 2013-2015 LTIP is based on performance over the three-year period ending 31 December 2015. Performance is assessed against targets for growth in the income and expenditure reserve (75% weighting) and risk adjusted profit (25% weighting).

In determining the vesting outcome, the Committee took into account the significant decline in the Australian dollar versus Sterling over the three-year period and its impact on the achievability of the targets set at the start of the cycle. The Committee agreed that vesting would be calculated using an equal balance of actual and constant exchange rates to ensure the LTIP outcome reflects both actual results and controllable performance. The Committee, having debated the various approaches in these circumstances, is satisfied that this outcome is fair to participants.

Over the performance period, the income and expenditure reserve grew to a total of £1,488.5m compared to the target of £1,604.7m. Risk adjusted profit grew to a total of £104.5m compared to the target of £161.2m.

Overall, this led to a calculated payout of 38.4% of the target award, 29.5% of the maximum award. The Committee determined this was an appropriate payout level.

Interests awarded during 2015During the year, LTIP awards for the 2015-2017 Plan were made to the Executive Directors. The Plan covers the three-year performance period to 31 December 2017. Subject to the achievement of performance conditions, up to 50% of the award may be paid in April 2018 with any excess being deferred for a further two years. Deferred awards are subject to an uplift equivalent to the Bank of England base rate.

Approximately 250 senior managers across Bupa participate in the plan, based on the same framework as the Executive Directors, with award levels calculated as a percentage of salary which is scaled down based on their level of seniority and accountability. Vesting of the awards is dependent upon performance against specific financial and non-financial measures over a three-year performance period.

Profit after tax is weighted at 75% and revenue is weighted at 15%. In order for any level of payout to occur for revenue performance achievement, a performance gateway applies in that the profit after tax threshold must be achieved. The remaining 10% weighting for the LTIP is based on the achievement of quality and sustainability measures (non-financial measures) which cover key customer, people and culture, and sustainability measures.

The targets and weightings for both the financial and non-financial measures comprising the 2015 awards are set out in the tables above.

Financial targets 2015-2017 LTIP (90% weighting)

Profit after tax Weighted 75%

Revenue Weighted 15%

Below threshold performance 0% vesting

< 7% p.a. < 5% p.a.

Threshold performance 15% vesting

7% p.a. 5% p.a.

On-target performance 50% vesting

10% p.a. 8% p.a.

Out-performance 100% vesting

20% p.a. 17% p.a.

Growth is measured as a compound annual growth rate.

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

Non-financial targets 2015-2017 LTIP (10% weighting)

0% vesting Outcomes and improvements are significantly below expectations

30% – 70% vesting Outcomes and improvements are broadly in line with expectations

70% – 100% vesting Outcomes and improvements are significantly above expectations

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

Long-Term Incentive Plan

Scheme type 2015-2017 Long-Term Incentive Plan

CEO CFO

Basis of award 275% of base salary 200% of base salary

Face value of award (100% of award) £1,963,500 £973,750

Amount that would vest at on-target performance (50% of award)

£981,750 £486,875

Amount that would vest at threshold performance (15% of award)

£294,525 £146,063

Date performance period ends 31 December 2017

Payment due date April 2018, and April 2020 (if applicable)


Governance Report

Historical payout tableThe table to the right shows levels of payout to the CEO against the maximum opportunity for the last five years.

Historical payout

Year CEO

Single figure of total

remuneration (£’000)

Annual bonus payout against

maximum opportunity %

Long-term incentive vesting

rates against maximum

opportunity %

2015 Stuart Fletcher 2,081 62% 30%

2014 Stuart Fletcher 2,812 82%1 71%

2013 Stuart Fletcher 1,703 71% N/A2

20123 Stuart Fletcher 1,670 100% N/A2

20123 Ray King 1,797 67% 83%

2011 Ray King 3,099 67% 83%

1 Annual bonus payout against maximum opportunity for 2014 has been corrected. The previously disclosed figure, 124%, was the actual payout as a percentage of salary.

2 Stuart Fletcher did not receive payouts from these plans. However, the payment to other eligible participants was 83% in 2012 and 84% in 2013.

3 Stuart Fletcher joined Bupa on 1 March 2012 and Ray King retired on 30 June 2012.

Percentage change in remuneration of the CEO

CEO Employees

Salary 2.9% 2.7%

Benefits (excluding pensions) 11.6% No material change

Short-Term Incentives (22.8%) 7.1%

* The UK salaried population refers to the UK-based permanent employees whose records are held on the HR database.

Relative importance of spend on pay

2015 (£m)

2014 (£m)

Difference (£m)

Remuneration paid to all employees 1,653.7 1,562.0* 91.7

Cash flow used in investing activities 695.3 372.7 322.6

* 2014 Remuneration paid to all employees has been restated. Please refer to Note 2.3 to the Financial Statements.

Percentage change in remuneration of the CEOThe table to the right shows the change in salary, benefits and short-term incentives (annual bonus) for the CEO in 2015 compared to 2014 alongside a corresponding average figure for the Bupa employee comparator group. The UK salaried population* has been chosen as the comparator group as the market trends and economic environment are most closely aligned to a UK-based CEO.

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




Governance Report

Statement of implementation of remuneration policy in 2016In the current financial year (2016) Bupa intends to implement the remuneration policy as described in the Pay Policy Table on pages 52-53.

The CEO and CFO’s salaries were reviewed by the Committee and they have determined that with effect from 1 April 2016 their new annual base salaries will be £753,375 (2.5% increase) and £548,500 (2.5% increase) respectively. Both salary increases are in line with the average increase for the wider workforce.

The annual bonus was reviewed during 2015 to ensure it remained aligned with Bupa’s strategy and best practices from the Listed market. The revised plan will operate from 1 January 2016. The main changes for the Executive Directors were to introduce non-financial metrics based on customer, people, risk and cost efficiency.

The target and maximum individual opportunities remain unchanged (i.e. the CEO's target bonus is 100% of salary and the CFO’s is 75% of salary, both with a maximum of 150% of the target opportunity). The financial performance measures and weightings remain unchanged for the CEO and CFO.

The LTIP for 2016-2018 remains similar to the plan for 2015-2017. It is intended that an award of £2,021,250 (275% of salary at the time of award) is made to the CEO and an award of £1,070,000 (200% of salary at the time of award) is made to the CFO. The fair (on-target) value of these awards is £1,010,625 (137.5% of salary) for the CEO and £535,000 (100% of salary) for the CFO.

Performance targets for growth in profit after tax and revenue are set annually and performance will then be assessed based on three-year performance at the end of the three-year period.

Due to the commercially sensitive nature of these annual targets, the figures will be disclosed at the end of the performance period.

Non-Executive Directors: single total figure of remuneration (£’000)

Fees Benefits1 Total

2015 2014 2015 2014 2015 2014

Lord Leitch (Chairman) 345 330 40 45 385 375

Lawrence Churchill 150 118 16 1 166 119

Rita Clifton 70 66 6 1 76 67

Roger Davis2 31 1 32

Martin Houston 87 73 56 1 143 74

John Lorimer3 65 117 5 1 70 118

George Mitchell4 32 169 9 1 41 170

Prof Sir John Tooke 84 79 2 1 86 80

Clare Thompson5 86 – 86

Total 950 952 135 51 1,085 1,003

1 Travel and subsistence expenses for attending meetings at Bupa House are treated as taxable income, all Non-Executive Director expenses in relation to this are grossed up to meet the costs of the additional tax and NIC. The benefits figures for 2015 reflect this revised approach.

2 Roger Davis was appointed as a Non-Executive Director on 16 July 2015. 3 John Lorimer ceased to be a Non-Executive Director with effect from 30 June 2015.4 George Mitchell ceased to be a Non-Executive Director with effect from 14 May 2015.5 Clare Thompson was appointed as a Non-Executive Director on 1 May 2015.


Governance Report

Attendance

12 Feb 24 Feb Jul Sep Dec

Martin Houston

Lawrence Churchill1 – –

Rita Clifton

Lord Leitch

George Mitchell2 – – –

1 Lawrence Churchill was appointed to the Committee on 1 July 2015.2 George Mitchell stepped down from the Committee on 14 May 2015.

Items covered included:

February Annual Reward Review – CEO, CFO and BET/LTIP Payout Level for 2012-2014

July 2015 Management Bonus Scheme and 2015-17 LTIP Rules/Subsidiary Non Executive Director Fees

September 2016 Management Bonus Scheme Design/Appointment of New Committee Advisors/Solvency II

December Review of committee effectiveness/Regulatory Update/Committee Terms of Reference Review/CEO, CFO and Bupa Executive Team benchmarking

Plans for 2016During 2016, we intend to review our annual bonus scheme and long-term incentive plan, with consideration given to linking the measures more closely to Bupa’s strategic measures.

Voting at the Annual General MeetingThe Association Members will be invited to vote at the Annual General Meeting on 11 May 2016 on the Implementation Report.

Remuneration CommitteeMartin Houston has chaired the Committee since 11 June 2014.

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

The Committee reviews the quality and independence of their advisors on a regular basis. Deloitte acted as our independent advisors for the first part of 2015, with the Committee appointing a new advisor, Mercer, from September 2015 who attended the Remuneration Committee meetings from December 2015.

Mercer is a member of the Remuneration Consultants’ Group and voluntarily operates under their code of conduct when providing advice on executive remuneration in the UK. The total fees paid to Deloitte for the provision of independent advice to the Committee in 2015 were £26,950, charged on a time and materials basis. The total fees paid to Mercer for the provision of independent advice to the Committee in 2015 were £84,888, charged on a time and materials basis.

The Terms of Reference for the Committee were reviewed by the Committee in December 2015 and adopted by the Board in February 2016. A copy of the Committee’s Terms of Reference is available on bupa.com.



34-35. Clare Thompson and Roger Davis were appointed as Non-Executive Directors with effect from 1 May and 17 July 2015 respectively. Simon Blair and Janet Voûte were appointed on 12 January 2016. George Mitchell stepped down from the Board at the AGM on 14 May 2015 and John Lorimer retired from the Board on 30 June 2015.

As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the directors and certain senior managers, to the extent permitted by law and the Company’s articles of association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as directors of the Company or any of its subsidiaries.

Going concernThe directors confirm that they are satisfied that the Company and the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements.

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

Employment policiesBupa continues to regard communication with its employees as a key aspect of its policies. Information is given to employees about employment matters and about the financial and economic factors affecting the Company’s performance through a wide range of channels to ensure accessibility by all. Employees are encouraged to discuss operational and strategic issues with their line manager and to make suggestions aimed at improving performance. Appropriate channels are available to employees to raise or escalate concerns confidentially. Every effort is made by the directors and management to inform, consult and encourage the full involvement of staff on matters concerning them as employees and affecting the Company’s performance and schemes exist to incentivise, recognise and reward performance.

Bupa is committed to providing equal opportunities to employees. The employment of disabled persons is included in this commitment; and the recruitment, training, career development and promotion of disabled persons is

The Strategic Report and the audited Financial Statements are presented on pages 1-30, and from page 63, respectively. The Governance Report on pages 31-60, including the Remuneration Report on pages 51-60 all form part of this report.

The directors have chosen, in accordance with section 414C(11) of the Companies Act 2006, to set out in the Strategic Report on pages 1-30 the following information which would otherwise be required by Schedule 7 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 to be disclosed in the Directors’ Report: Disclosures concerning Greenhouse Gas Emissions.

Financial resultsThe results of the Group for 2015 are reported on pages 63-134. The profit for the financial year of £278.3m (2014: profit £522.8m) has been transferred to equity.

Acquisitions and disposalsDetails of the acquisitions and disposals made during the year are shown in Note 4.0.

Board of DirectorsThe Board is responsible for the good standing of the Company, the management of its assets, including the management of risk and the strategy for its future development. There are 11 Board meetings each year and other meetings are convened as needed.

Biographical details of the Non-Executive Chairman, two Executive Directors and six Non-Executive Directors who held office at the end of the year, are set out on pages

based on the aptitudes and abilities of the individual. Should employees become disabled during employment, every effort would be made to continue their employment and, if necessary, appropriate training would be provided.

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

AuditorsA resolution to reappoint KPMG LLP as auditors will be put to the forthcoming Annual General Meeting of the Company.

Health and safetyThere were 6,954 employee incidents in total for 2015. This equates to 8.1 incidents per 100 employees, a 2% reduction compared to the 2014 employee incident rate. In the UK, there were 78 RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013) reportable incidents in 2015, a 10% decrease from 2014. During 2015 we have been implementing lost-time injury reporting across Bupa to further strengthen our ability to understand the causes and impact of harm to our people and businesses. Going forward we will be using the lost-time injury frequency rate to report our performance in the annual report.

By order of the Board.

Julian Sanders Company Secretary

2 March 2016

Company number: 432511

The directors of The British United Provident Association Limited (‘Bupa’) present their

reports and the financial statements for the year

ended 31 December 2015.

Report of the Board of Directors


Governance Report

In respect of the annual report and the financial statementsThe directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law they have elected to prepare the Group and the Parent Company financial statements in accordance with IFRS as adopted by the EU and applicable law.

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

° Select suitable accounting policies and then apply them consistently;

° Make judgements and estimates that are reasonable and prudent;

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

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

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

The directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Association Members to assess the Group’s position and performance, business model and strategy.

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

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

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

Statement of Directors’

Responsibilities


Governance Report

governance chairman’s introduction to governance 32 34 36 .../media/files/site-specific... · in...

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