Bupa ARA 2019 - Governance report/media/files/site-specific... · development at Sky TV, Avon,...

KeyEnvironmental Social and Governance (ESG) content contained in this section

Governance

43 Chairman’s introduction to governance

44 Board of Directors

46 Bupa’s system of governance

50 Leadership

61 Audit Committee report

66 Risk Committee report

68 Nomination and Governance Committee report

70 Directors’ remuneration report

86 Other statutory information

Governance

Chairman’s introduction to governance

Strong governance and risk management are key to achieving our vision of being the most trusted health insurer and provider. The Board’s role is to provide clear leadership in setting strategy and risk appetite, and to oversee management’s implementation of that strategy within a prudent and effective governance and risk management structure. The following pages explain how the Board and its Committees achieve this.

Board balance and diversityThe diversity and balance of skills, knowledge and experience on the Board bring different perspectives which challenge the ‘accepted view’. We have made a number of appointments to the Board during the year to maintain and broaden the Board’s diversity. Professor Melvin Samsom’s appointment ensures continued medical expertise on the Board following Sir John Tooke’s retirement. Cath Keers’ appointment adds experience of digital technology and marketing, which is important for the future growth of our business.

Getting to know our peopleIn my first year as Chairman, I have enjoyed getting to know our Association Members better and spending time at our locations around the world, meeting the people at the heart of our business. During my individual visits, and also when travelling with the full Board, I have spent time with our people, to understand the issues important to them. I will continue to do this in 2020. We are also further strengthening our engagement with the boards of key subsidiaries through cross-directorships, attendance at each other’s meetings and regular calls between Group and subsidiary board and committee chairs.

Challenges in 2019Bupa has faced significant challenges during the year in our Australian aged care and UK dental businesses. The Board and Committees have closely monitored these areas to ensure that the right actions are taken to address these issues in a sustainable way. The Audit Committee carefully considered the impairments of goodwill and intangible assets in our Australian aged care and UK dental care businesses, challenging management to ensure that the level of impairment was appropriate and the right actions are being taken to address the causes of the impairments. More detail on this can be found in the Audit Committee’s report on page 61.

Investing for the futureWe have continued to invest in technology capabilities, with the Risk Committee overseeing progress on managing these key risks. The Remuneration Committee has worked hard during the year to review the effectiveness of our Remuneration Policy and establish the new Group Performance Plan. The revised Remuneration Policy will be submitted to our Association Members for approval at this year’s Annual General Meeting (AGM). More details can be found in the Directors’ remuneration report on page 70.

Ensuring good governanceWe have applied the 2018 UK Corporate Governance Code (the Code) during the year and disclose in this report how we have met its requirements. The Board also conducted an externally facilitated evaluation of its effectiveness during the year which gave us some valuable insights and actions to work on during 2020. The results are summarised on page 59. During 2020, the Board will continue to focus on delivering our Five-Year Vision and strengthening our governance and risk management practices.

Roger Davis Chairman

“ Strong governance and risk management are key to achieving our Five-Year Vision and purpose.”

Roger DavisChairman

43

Strategic Report / Governance / Financial StatementsBupa Annual Report 2019

42

Board of Directors

Committee key

Committee Chairman BAudit A

Nomination and Governance N

Remuneration Re

Risk Ri

Board 11 Caroline Silver Non-Executive Director A/Re/Ri Caroline joined the Board in 2017, is Chairman of the Risk Committee and a member of the Audit and Remuneration Committees. She brings over 30 years of experience in international investment banking as well as extensive experience in advising clients and regulators across Europe.

She is a Managing Director at Moelis & Company, Chairman and Interim Executive Chairman of FMCG Group PZ Cussons plc, a Non-Executive Director of Meggitt plc and a Non-Executive Director and Senior Independent Director of M&G Plc. She is also a Trustee of the Victoria & Albert Museum.

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

12 Janet Voûte Non-Executive Director N/Re

Janet joined the Board in 2016 and is a member of the Nomination and Governance, and Remuneration Committees. She is also a member of our Corporate Responsibility and Sustainability Committee.

Janet brings an international perspective and experience gained in corporate strategy, the health and care sector and consumer-facing businesses. She is Chairman of the Creating Shared Value Council at Nestlé SA, a Council Member at SustainAbility, an ERM Group Company, and serves as an Ambassador of the International Integrated Reporting Initiative.

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

5 Paul Evans Non-Executive Director A/N/Ri

Paul joined the Board in 2018 and is a member of the Audit, Nomination and Governance, and Risk Committees. He also joined the boards of Bupa’s UK regulated entities in 2019 and chairs their audit committee.

Paul is a Chartered Accountant with over 30 years’ experience in the financial services industry. He is a Non-Executive Director of Swiss Re Europe SA, Swiss Re International SE and Anorak, a digital insurance business, and chairman of the board of trustees of Youth@Heart.

Paul spent 13 years with PricewaterhouseCoopers before joining AXA where he held a number of senior roles including Chief Financial Officer of AXA UK, CEO of AXA Life, Group CEO AXA UK and Group CEO of AXA’s global Life, Savings and Health businesses. He is a former Chairman of the Association of British Insurers.

6 Michael Hawker AM Non-Executive Director/Ri

Michael joined the Board in 2019, is a member of the Risk Committee and is Deputy Chairman of Bupa’s Australian and New Zealand business.

Michael brings extensive knowledge and experience of financial services gained over a long career in the banking and insurance industries, in both executive and non-executive roles in Europe, Asia and Australia.

Michael is Lead Independent Director at Washington H Soul Pattinson Pty and Company Ltd and a Non-Executive Director of Macquarie Group Ltd and Macquarie Bank Ltd where he chairs the Remuneration Committee. He was awarded the General Division of the Order of Australia for services to the community.

7 Cath Keers Non-Executive Director/ReCath joined the Board in 2019 and is Chairman of the Remuneration Committee. Cath brings substantial digital consumer expertise to the Bupa Board, with over three decades of professional and leadership experience across the retail, consumer, digital and technology sectors.

She is Chairman of Ustwo, a digital product and games studio, and a Non-Executive Director of Sage Group plc and Funding Circle Holdings plc.

Previously, Cath was a Non-Executive Director of Royal Mail, LV=, Telefonica Europe, TalkTalk Telecom Group plc and Home Retail Group Limited. She has held a number of commercial roles, including marketing and business development at Sky TV, Avon, Next, and O2, and was Chairman of Tesco Mobile.

8 Nicholas Lyons Non-Executive Director

A/N/Re

Nicholas joined the Board in 2018 and is a member of the Audit, Nomination and Governance, and Remuneration Committees. He is also the Chair of our Corporate Responsibility and Sustainability Committee.

Nicholas brings substantial experience from his executive career and non-executive roles at financial services and insurance companies. He is currently Chairman of Phoenix Group Holdings plc and Clipstone Industrial REIT plc and a Non-Executive Director of Convex Group.

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

He was previously the Chairman of Miller Insurance Services LLP, Senior Independent Director and Chairman of the Remuneration Committee of Pension Insurance Corporation plc, Senior Independent Director and Audit Committee Chairman of Catlin Group Limited, and a Non-Executive Director of Temple Bar Investment Trust, Friends Life Group Limited and Friends Life Holdings plc. Nicholas is also an Alderman of the City of London Corporation and is involved with a number of educational and charitable organisations.

9 Matías Rodríguez Inciarte Non-Executive Director/Ri

Matías joined the Board in 2019, and is a member of the Risk Committee and Deputy Chairman of Sanitas Seguros, Bupa’s Spanish insurance subsidiary.

Matías brings experience of Spanish financial services, risk management and government to the Board. He is Chairman of Unión de Créditos Inmobiliarios, S.A., E.F.C. and a Non-Executive Director of Financiera El Corte Inglés E.F.C., S.A, both credit institutions; and an Independent Director of Financiera Ponferrada SA Sicav, a Spanish investment fund. He is also Head of Santander Universities, a Department of Banco Santander in charge of Santander’s Programme with Universities.

His early career included roles in the Spanish civil service and as a Minister in the Spanish Government. He then held a number of executive roles at Banco Santander SA including Executive Vice President and Chief Financial Officer, and Vice Chairman and Head of Risk Management. He was also Head of the Princess of Asturias Foundation.

10 Professor Melvin Samsom Non-Executive Director/Ri

Melvin joined the Board in 2019 and is a member of the Risk Committee.

Melvin brings substantial clinical and management experience from his career in gastroenterology as both a consultant and researcher and more recently as a hospital chief executive. He is the Director of Health and Wellbeing and a member of the executive board of Neom, a proposed new, futuristic city in the north-west of Saudi Arabia.

Melvin began his clinical career at the University of Utrecht in the Netherlands and also worked at leading academic medical centres including the Royal Adelaide Hospital in Australia and the Mayo Clinic in the US. Melvin was formerly Chairman of the Supervisory Board of Stockholm Care AB, a Supervisory Board member for TIAS School for Business and Society, Chief Medical Officer and latterly Chief Executive of Radboud University Medical Center in The Netherlands and Chief Executive of Karolinska University Hospital in Sweden.

1 Roger Davis Chairman/N/Re

Roger was appointed as Chairman in 2019, having joined the Board in 2015. He is Chairman of the Nomination and Governance Committee and a member of the Remuneration Committee.

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

Roger is Chairman of Sainsbury’s Bank, Global RadioData Communications and Future for Heroes.

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. He was formerly a Non-Executive Director of Experian plc.

2 Evelyn Bourke Group Chief Executive

Officer

Evelyn was appointed as Group CEO in 2016 having joined Bupa as CFO in 2012. She is a member of our Corporate Responsibility and Sustainability Committee, a management advisory committee.

Evelyn is currently a Non-Executive Director of the Bank of Ireland Group plc and a member of their Audit and Nomination and Governance Committees and on the Board of London First.

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. Evelyn was previously a Non-Executive Director of the IFG Group in Ireland. Previously at Friends Life, she was Chief Executive Officer of its Heritage division, and at Friends Provident she was the Executive Director responsible for strategy, capital and risk and, prior to that, Chief Financial Officer.

3 Joy Linton Chief Financial Officer

Joy joined Bupa in 2011 and was appointed CFO in 2016. She is a member of our Corporate Responsibility and Sustainability Committee. Joy is also a director of two Bupa associated insurance businesses, Max Bupa in India and Bupa Arabia in Saudi Arabia. She was previously CFO of our Australian Health Insurance business, Finance and Commercial Director of Bupa ANZ and then Interim Chief People Officer and General Manager, Health Services, Bupa UK.

Joy brings over 30 years’ experience in financial and strategic roles in Australia and the UK. Prior to joining Bupa, she was CFO of National Foods, one of Australia’s largest food and beverage companies. She was also a Non-Executive Director of Bega Cheese Ltd, an ASX-200 listed company, serving as Chair of their Audit and Risk Committee.

4 Clare Thompson Senior Independent Director/N/A/Ri

Clare joined the Board in 2015 and is Senior Independent Director, Chairman of the Audit Committee and a member of the Nomination and Governance, and Risk Committees. She is also a member of our Corporate Responsibility and Sustainability Committee, a management advisory committee.

Clare brings a wealth of experience, particularly in finance and insurance, and is a Non-Executive Director and Chairman of the Audit Committee of M&G plc.

Her executive career at PricewaterhouseCoopers included 23 years as audit/lead partner on major financial services groups during which time she served as UK Insurance Lead. She was formerly a Non-Executive Director and Chairman of the Audit Committee of Bupa’s UK regulated insurance subsidiaries, a Non-Executive Director of Direct Line Insurance Group plc and Retail Charity Bonds plc and a Non-Executive Member of the Partnership Board of Miller Insurance Services. Clare is a Fellow of the Institute of Chartered Accountants in England and Wales.

1

8 97

32

10

4

11 12

5 6

Gender diversityNationality

1. Men (6)2. Women (6)

A. British (5)B. Australian (2)C. Other European (4)D. Other (1)

D

C

B

A

12

Non-Executive Directors’ skills and experience

Finance, Financial Services and Regulation

Health, Care, Medical

Strategy

Risk Management

IT, Information Security and Digital

Experience in our key markets

Customer and Marketing

Bupa Annual Report 2019

44 45

Strategic Report / Governance / Financial Statements

Key components of the Risk Management Framework

Risk Management Processes

ORSA, stress and scenario testing, ICRMA, Risk Assurance and Risk

Outcomes

Risk Governance – Committee

Structure

Risk Management Lifecycle

Identify, Assess, Manage, Monitor and Report

Risk Appetite and Enterprise

Policies

Bupa’s system of governance

System of governanceBupa’s governance structure is designed to enable the Board to lead within a framework of prudent and effective controls so that risk is effectively assessed and managed. As already stated in the Risks section, our system of governance includes a Risk Management Framework (RMF) implemented using a ‘three lines of defence’ approach. The RMF ensures that:

– all parts of the Group apply a consistent and robust approach to risk management

– current and emerging risks are identified and the potential consequences of them are understood

– clear risk appetites are set within which the business operates

– appropriate and effective steps are taken to mitigate and manage identified risks including using risk management information to make risk-based decisions

– there is clear ownership of, and accountability for risk, without fear of blame when communicating risk events

– the culture in all areas of the Group encourages and rewards appropriate risk behaviours and challenges and sanctions inappropriate risk behaviours.

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

Association Members (AMs)External oversight

Hold Board to account

Board Group oversight

Set strategy, risk appetite and cultureTake major decisions

GovernanceRisk Management Framework

GovernancePolicies, standards, internal controls

Our Board governance structure

Risk, Compliance and Clinical Governance

Test, monitor and challenge risk

governance

Group Internal Audit

Independent assurance of governance,

risk management and internal controls

Market Units and FunctionsImplement strategy

Identify, manage, monitor and report on risks

First line of defence Second line of defence Third line of defence

Australia and New Zealand

Europe and Latin America

Bupa Global and UK

Group CEOHas day-to-day authority to lead

and manage the business

Bupa Executive Team (BET)Supports the Group CEO in leading

the business and managing risk

Risk Committee Oversees risk management

See P66

Audit Committee Oversees the integrity

of the financial statements

Internal financial controls

Internal audit

External audit

See P61

Remuneration Committee

Sets remuneration policy

Rewards delivery of customer outcomes

and strategy

See P70

Nomination and Governance

Committee Board balance and

diversity

Association Members

Oversees corporate governance

See P68


46 47


Bupa’s system of governance continued

The roles of each line of defence are set out below together with a description of our ‘Speak Up’ whistleblowing process. The role and activities of the Board and Committees in our system of governance are described in the subsequent sections of this report.

The Board is ultimately responsible for the system of governance, RMF and setting policies.

Info

rmat

ion

flow

1st lineAll our people in Market Units and Functions

Identify, manage and report Identifying, assessing, controlling and mitigating risks to Bupa’s objectives; compliance with Enterprise Policies, laws and regulations; identifying, escalating and learning from incidents; reporting of risk positions, weaknesses and incidents.

Advise and support Advise on the application of Enterprise Policies and external regulations; set standards and provide advice on the design and testing of controls to support compliance.

Monitoring Monitor and test the effectiveness of controls and compliance with Enterprise Policies and external regulations.

2nd lineRisk, Compliance and Clinical Governance

Oversight and challenge Independent oversight and challenge (including testing and monitoring) of risk governance and risk management practices conducted by the first line of defence. Form an independent view on the quality and sufficiency of the business’ risk management activities and internal control environment.

Advise and support Designing the RMF through which the business manages risk; providing guidance and support to the first line of defence on how to embed the RMF. Aggregate risk information for analysis and onward reporting to the Risk Committee and Board.

3rd lineGroup Internal Audit

Independent assurance Examine and evaluate the adequacy and effectiveness of Bupa’s governance, risk management and internal control processes in relation to Bupa’s defined goals and objectives. Evaluate all Bupa processes including governance and risk management processes.

First line accountabilityAll our people are responsible for managing risk and ensuring compliance with relevant laws, regulation, best practice and Bupa policies and processes within their role. This ranges from care home employees following procedures to keep our residents safe, to senior managers ensuring that they have appropriate and up to date policies and procedures in place in their areas and that their people are following these and reporting any breaches or incidents quickly and fully.

To assist our people to understand their responsibilities we have the Bupa Code which sets out how we expect our people to behave every day, and mandatory training on key issues and role-specific training for frontline people. We also run regular internal communications campaigns on key issues to maintain awareness. Each Business Unit proposes target risk outcomes for the year which are reviewed at Market Unit and Group management risk committees, monitored by local management and the outcomes reported to the Risk Committee. The Internal Control and Risk Management Assessment (ICRMA) process assesses compliance with our Enterprise Policies and is carried out by the first line and challenged by the second line. It requires continuous monitoring of risk management controls and real-time escalation of identified issues or gaps against Enterprise Risk Policies. Each Market Unit CEO and Enterprise Policy Sponsor provides an annual confirmation or opinion of compliance with each Policy.

Second line assuranceRisk and Compliance Function The Chief Risk Officer (CRO) leads the Risk and Compliance Function and reports to the Group CEO. He has unfettered access to the Chairman and to the Chair of the Risk Committee, which has responsibility for approving the appointment (and removal) of the CRO. Each Market Unit has a CRO and a Risk and Compliance team.

The Group Risk function is responsible for the consolidation of risks across Bupa, and reporting them to management, through the Bupa Enterprise Risk Committee, and to the Risk Committee. It has established the principles and framework that support the processes and procedures to identify, assess, manage, monitor and report risks that the Group is, or might be, exposed to.

The Function provides oversight and challenge of risk governance and risk management carried out by the first line and reports on the quality and sufficiency of these first line activities to the Risk Committee. This includes providing an opinion on the effectiveness of internal controls and the management of risks within appetite. Further information on our approach to risk management and details of the principal and other significant risks to the Group are set out in the Risks section on page 37.

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

GIA supports Bupa in accomplishing its purpose by helping the Board to protect the assets, reputation and sustainability of the Group. It ensures that risks to our customers and businesses are appropriately managed in accordance with the risk appetite set by the Board. GIA reports its findings to the Audit Committee and assists both the Board and management in improving the effectiveness of Bupa’s governance and internal control systems.

To maintain the function’s independence and objectivity, the primary reporting line for the Chief Audit Officer (CAO) is to the Chair of the Audit Committee, which has responsibility for approving the appointment (and removal) of the CAO. For administrative purposes, the CAO liaises with the Group CEO. GIA has no direct operational responsibility or authority over any of the activities audited. Co-source arrangements are in place with external providers in order to access specialist audit capability when that is deemed necessary.

An Internal Audit Charter is in place setting out the function’s role, authority and independence. GIA operates in accordance with the Global Institute of Internal Auditors’ international standards and the UK Chartered Institute of Internal Auditors Financial Services Code (FS Code). Following an annual review, the Internal Audit Charter was approved by the Audit Committee in December 2019 and is available on bupa.com.

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

External AuditorExternal audit provides independent assurance to Association Members to provide confidence over the audited financial information in this Annual Report and Accounts. KPMG LLP (KPMG) is our current External Auditor. The Audit Committee provides clear guidance to KPMG on the Committee’s expectations of KPMG as External Auditor. The lead audit partner, Philip Smart, attends all meetings of the Audit Committee and Risk Committee and provides regular reports to the Audit Committee.

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

KPMG has internal procedures and controls, and follows the FRC’s Ethical Standard for auditors to ensure that it remains independent. There are no contractual obligations restricting the Group’s choice of External Auditor and there is no limitation of liability in relation to statutory audit activities in the terms of KPMG’s appointment as External Auditor of the Company. Bupa has an Audit and Non-Audit Services Policy, setting out the circumstances under which the Group’s External Auditor can be engaged for non-audit services, recruitment restrictions for candidates with employment experience with the External Auditor and monitoring and reporting requirements for Bupa employees, contractors and temporary staff with close family members who are employed by the External Auditor.


48 49


The Nomination and Governance Committee Report on page 68 sets out in more detail the process adopted for changes to the Board during the year.

Bupa’s Board Diversity Policy is available on bupa.com. The Policy requires all Board appointments to be made on merit, employing objective criteria reflecting the skills, knowledge and experience required to ensure a rounded and effective Board. The Board is focused on increasing diversity and aspires to achieve an appropriate proportion of Directors reflecting different ethnic and social

Board diversity, skills and succession planningSuccession plans are regularly reviewed by the Board and the Nomination and Governance Committee, and we plan a phased replacement of NEDs who are coming to the end of their tenure. This approach is designed to ensure continuity on the Board and to maintain an appropriate balance of skills and experience on the Board and its Committees. The Board reviews succession plans for senior executives to ensure that we have a strong pipeline of executive talent within the business.

backgrounds who have direct experience of some of Bupa’s key markets. At Bupa, the concept of diversity includes race, social, educational and professional background, disability, gender, sexual orientation, religion, belief and age, as well as culture, personality, work style, and cognitive and personal strengths.

Diversity also includes a diversity of perspectives on what motivates and interests Bupa’s existing and potential customers. We aim to ensure that candidates for the Board and senior management are taken from as wide a pool as possible and the firms that assist us in our recruitment are all signatories to the Voluntary Code of Conduct for Executive Search Firms. As at the date of this report, 50% of the Board, and 42% of the BET, are women. 36% of the direct reports of the BET are women.

The appointments of Professor Melvin Samsom and Cath Keers during the year, and the skills they bring to the Board, are discussed in the Nomination and Governance Committee Report.

Given the focus on technology capabilities, the Board engaged an independent cyber adviser during the year to provide expert advice and to assist the Board in challenging management on information security matters. In particular, he has advised on the appropriateness of management’s plans to further enhance information security and related assurance activity across the Group, and whether the plans are likely to achieve the desired outcomes.

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

Q&A with Professor Melvin Samsom “Bupa’s values resonated with me.”Melvin joined the Board in April 2019 as a NED and is a member of the Risk Committee. Nearly one year in, we asked Melvin for his thoughts on Bupa.

Q What attracted you to Bupa and what do you bring to the Board?

Melvin: Bupa’s values resonated with me and align to my personal values. It is a customer and people-focused organisation that feels very supportive, with everyone working together to achieve Bupa’s purpose. The Five-Year Vision gives Bupa clear objectives that support the purpose.

The mix of health insurance and provision across the Group is very important to the future development of healthcare due to the speed of medical developments and their cost, and the ability of governments to fund healthcare. This mix is also important to meeting different customer needs around the world.

I have a medical background and have run university hospitals in The Netherlands and Sweden and so I bring medical and patient-

focused experience as well as leadership skills and I work at the forefront of innovation in healthcare. I have also worked in Australia and the United States and am currently based in Saudi Arabia and so I bring knowledge of different markets. I am building my knowledge of the health insurance products we offer across the Group.

Q What are your first impressions of Bupa?

Melvin: This is the first single-tier board (with management and NEDs on the same governing body) I have joined and it gets you much closer to the business with more frequent interaction with management. The level of induction provided has also been really good, with site visits long enough to spend time with our frontline people which is how you can get a good sense of the culture. The Board has good discussions on both current issues and forward-looking strategic matters and the Directors work well together with plenty of debate and challenge.

Q What do you think will be key focus areas for Bupa in 2020 and beyond?

Melvin: Boards can be tempted to focus on current issues but they need to continuously monitor risks and opportunities and ensure that the business is on track to achieve its objectives. A key area for me is the speed with which medical advances are being made and how we can take advantage of that to continue to offer our customers the best products and services at affordable prices. In particular, digitalisation will provide alternative communication methods with our customers and new ways for customers to monitor their own health and we will need to take advantage of these.

Leadership

Bupa’s governance framework and the role of the BoardThe Board is responsible for the long-term success and sustainability of Bupa for the benefit of its customers, now and in the future. It does this by providing clear leadership in setting strategy and risk appetite and by overseeing management’s implementation of strategy within a prudent and effective governance structure and ensuring that Bupa’s culture is aligned to our purpose, values and strategy. The diagram on page 46 shows how the Board and its Committees oversee the business through the three lines of defence model. The Board delegates certain activities to its Committees to ensure that there is sufficient time to discuss and provide challenge in these areas, and to allow the Board to focus on key strategic decisions. In turn, the Board is held to account by the AMs as set out in more detail in the Engagement with stakeholders section on page 34.

There is a schedule of matters reserved for the Board, which includes: strategy and management; Group structure and capital; financial reporting and controls; internal control and risk management; mergers and acquisitions and material contracts; and various corporate governance matters. The schedule is reviewed annually and is available on bupa.com. All other matters are delegated to the Group CEO, who cascades authority to the business and Group Functions through a Delegated Authority Framework.

The Chairman has reviewed the frequency, timing and content of Board meetings in 2020 to ensure that sufficient time is devoted to strategic matters; regular site visits are held across the Group to deepen the Directors’ understanding of the business and build relationships with local management and for the Board to hear directly from our people through local ‘town hall’ meetings.

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

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

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

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

Roger Davis was appointed as Chairman from 1 January 2019, having been an independent Non-Executive Director since July 2015. The Board was satisfied that Roger met the independence criteria in the Code at the time of his appointment as Chairman. Roger has a number of external appointments which the Board considers do not prevent him from providing sufficient time to his duties at Bupa. Details of his other appointments are set out in his biography on page 44.

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

Non-Executive Directors (NEDs)Our NEDs provide an independent view on the running of our business, governance and boardroom best practice. They oversee and constructively challenge management in its implementation of strategy within the Group’s system of governance and the risk appetite set by the Board. The Board considers each of the current NEDs to be independent in character and judgement and that there are no relationships or circumstances which are likely to affect, or could appear to affect, the judgement of each of them.

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


50 51


Leadership continued

agreed to simplify the Group’s structure to accelerate organic growth, strengthen governance and increase efficiency. From the second half of the year onwards, the Group has been structured into three Market Units: Australia and New Zealand, Europe and Latin America, and Bupa Global and UK. The businesses that made up the former International Markets Market Unit have either been aligned to the appropriate remaining Market Units or are now overseen directly from the Group centre. In addition, the role of Group Functions was clarified to focus on statutory and governance oversight activity with operational tasks being moved to the Market Units. The changes have also achieved cost reductions.

Aged care in AustraliaThe Board and the Risk Committee have closely monitored the improvement programme commenced in 2018 to identify and implement enhancements across all our Australian care homes and to undertake specific remediation activity in those homes under sanction by the Australian Aged Care Quality and Safety Commission. The improvement programme is having an impact, with the number of care homes under sanction reducing. The Board will continue to monitor the progress of the programme in 2020.

In addition, the ongoing Royal Commission into Aged Care Quality and Safety, which commenced in 2018 and is due to issue its final report in late 2020, will be monitored.

External audit tenderDuring the year, the Board approved the appointment of PricewaterhouseCoopers LLP (PwC) as the Group’s External Auditor from 2021 following a tender process led by the Audit Committee. EU Audit Regulations require the Group to rotate its audit firm by 2021. Details of the tender process and decision are set out in the Audit Committee Report on page 61.

Workforce engagementCulture and our peopleThe Board is responsible for establishing Bupa’s purpose, values and strategy and ensuring that our culture is aligned to these at all levels of the organisation. In order to do our best for our customers, we need to take care of our people and this will lead to strong and sustainable performance for the benefit of our

purpose of helping people live longer, healthier, happier lives.

Our culture is shaped by our values and the Bupa Code which sets out what we expect from our people to help them live our values and achieve our purpose. As part of our Five-Year Vision, the Board has also recently agreed a number of leadership imperatives, a set of competencies specific to customer, people, performance and purpose. These will help our senior leaders across the business to deliver performance through putting customers at the heart of everything we do and helping our people be at their best. All employees are required to complete mandatory training on the Bupa Code and other areas including information security and privacy, risk management, conflicts of interest and financial crime.

The Board monitors behaviours in a number of ways including:

– measuring our people’s engagement level through our People Pulse survey tool semi-annually

– considering semi-annually the level of, and themes arising from, reports received through our ‘Speak Up’ whistleblowing process and customer complaints

– taking into account how our people have lived our values and followed the Bupa Code in achieving their performance goals.

Engaging our peopleThe Code requires boards to understand the views of companies’ key stakeholders and recommends a number of methods for engaging with our people. We believe that our existing people engagement mechanisms and channels, as enhanced during the year, provide an effective means of engaging with our people. Our existing engagement methods are described in more detail below.

ListeningThe Company listens to its people and promotes a positive, flexible working environment and a diverse and inclusive culture so everyone can be their authentic selves at work. Our People Pulse survey tool provides sophisticated insights and benchmarking with other companies, so we can learn and listen to what is of interest or concern to our people and act, where appropriate, on what our people are telling us. The survey is run twice a year, and 70% of our people took part in the survey conducted in November 2019. The Board receives reports

on the results of each survey and challenges management on the level of participation and action taken to address key themes arising from the results. Overall, the Group’s engagement score has stayed constant at 78 out of 100.

As part of the detailed quarterly management information which the Board receives, people and culture issues in each of our Market Units are highlighted during the year. The Board has considered people issues such as the shortage of dentists in the UK and the turnover of general managers and nurses in our aged care business in Australia. We want our people to see the Board as accessible and approachable and therefore regularly schedule site visits for the Board as a whole or for individual Directors. During the year, the Board has held ‘town hall’ meetings with employees at our offices in Madrid, Manchester and London, which provided an opportunity for our people to meet the Board and to ask questions and raise matters of interest. Going forward, these meetings will form an integral part of the Board’s site visits. Directors also regularly visit our frontline operations and talk to our people. During the year this has included visits by a number of Directors to call centres and a clinic in the UK and a hospital, dental centre and multi-service clinic in Spain.

These visits are an invaluable opportunity for our people to ask questions directly to the Board and for the Directors to gain an insight into the issues important to our people in different parts of the business. This helps enhance decision-making and consideration of the longer-term impact of the Board’s decisions on our people.

Senior managers also regularly hold ‘town hall’ meetings across sites or for their own teams, including on the Group’s Full-Year and Half-Year results and strategy. There is a proactive programme of internal communications via email, the intranet, presentations, and internal social media platforms. We also have employee forums for areas such as training and development, IT and security and for local office issues.

Diversity and inclusionOur approach to diversity and our philosophy is based on inclusion for all. DiverCity, our employee network in the UK raises awareness and understanding of all areas of diversity and

Board training and knowledge buildingEach of the Directors is required to keep up to date on matters potentially affecting the business, and we arrange regular briefings for them over and above any training they may receive outside of Bupa. During the year, briefings have included competition law and IFRS 17 Insurance Contracts and demonstrations during site visits on our mental wellbeing and resilience offering and customer experience.

Committee members also receive training as necessary on specific technical topics. For example, in 2019, the Audit Committee held a deep dive on cost of capital methodology.

Key activities in 2019Setting our Five-Year VisionAt the Board’s annual strategy offsite meeting in 2019, the Group CEO and members of the BET set out the opportunities and challenges the Group faces and proposed a refreshed, focused Strategic Framework developed in response to these issues. The Board had already provided input and guidance to the BET as the proposed Strategic Framework was developed over the preceding months.

The Board considered the global healthcare trends of rising demand, ageing populations, increasing prevalence of lifestyle-related diseases, the high cost of developments in medical technology and clinical practice, and the funding challenges that result from those trends. Social attitudes are also changing with the public, governments and regulators seeking to hold companies to account for their role in society.

With this in mind, the Board discussed how best the Group can address these opportunities, challenges and the proposed Five-Year Vision. It agreed a clear vision to be the ‘most trusted health insurer and provider’.

Achieving this relies on delivering outstanding experiences and outcomes for our customers and we have set clear objectives to achieve by 2024 through our existing strategic pillars of Customers, People and Performance. More detail on our Five-Year Vision is set out on page 10.

The Board will receive regular updates on progress against these objectives throughout 2020 and will provide review and challenge as specific initiatives are developed, as well as keeping the Strategic Framework itself under

review. In particular, a session on global dental strategy was held in September 2019.

Investing in technology capabilitiesDuring the year, we have invested a significant amount in a multi-year strategic investment programme in technology capabilities across the Group to enhance security and privacy, and to digitise the customer experience. Information security and cyber-resilience is a significant risk for the Group given the sensitive data we hold about our customers, and the sophistication of malicious attempts to access information held by businesses is increasing. Therefore, investing to keep ahead of these threats is a priority for us. Customers also expect to interact with us in a more digital way.

An information security uplift programme has been in progress throughout the year. The Risk Committee has overseen this activity from a risk management perspective. The Board has received regular updates on the progress of the project and approved the budget for the work required, as well as receiving regular updates from the Chief Information Officer. In December 2019, the Risk Committee held a meeting, with all other Board Directors present, to assess progress on reducing information security and technology risk. Further information can be found in the Risk Committee’s report on page 66.

Governance Effectiveness ReviewDuring 2018, the Board asked the Group Risk function to undertake a review of the effectiveness of governance across the Group and appointed a sub-committee of the Board, chaired by Clare Thompson, to oversee the project. The review aimed to assess whether governance and risk management activities carried out across the Group are appropriate and effective in delivering the right risk and control outcomes. To ensure that the review was objective, an external consultant was engaged to review and comment on the approach taken and the reasonableness of the findings.

We felt that the review was required given the external environment in which Bupa operates, with increasing regulation and compliance risks, and recent external high-profile corporate governance failures globally. These have highlighted the key role an effective governance structure plays in ensuring the ongoing strength and stability of organisations.

The review looked at four areas: governance; accountability; risk management; and culture. The review was carried out through a review of key documents, sample testing processes and interviews with members of the Board, BET, directors of major Group subsidiaries and members of senior management at Group, Market Unit and Business Unit level.

The review findings were presented to the Board in early 2019 and no material weaknesses in the Group’s approach to governance were found. However, a number of recommendations were proposed to further enhance Group governance. The Board accepted the findings and agreed a number of short and long-term actions as well as taking a number of themes forward for further exploration during the year.

The Board received regular updates on management’s progress to implement the agreed actions. All the short and long-term recommendations were completed by the end of 2019 with some of the themes for further exploration remaining in progress. Implementing the recommendations has ensured that Bupa’s practices remain fit for purpose in a rapidly changing environment. One of the key recommendations was to review the Group’s Operating Model. This activity has also been completed and more detail is provided below. Other actions taken include requiring a Deputy Chairman or Senior Independent Director to be appointed by each of our major insurance subsidiaries, to enhance the channels of communication between the Group and subsidiary boards. We have also arranged for the Chairs of these subsidiaries to attend a Board meeting at least annually to provide a report on their respective businesses, including their governance arrangements.

The Board agreed in December 2019 that the recommendations involved a programme of continuous improvement and asked the Chief Risk Officer to continue to monitor the recommendations and report to the Board semi-annually on progress. In addition, the Board is considering how board and executive governance of the Group’s healthcare provision businesses could be enhanced.

Revised Operating ModelFollowing the recommendation in the Governance Effectiveness Review to review the Group’s Operating Model, the Board


52 53



Complying with the UK Corporate Governance Code 2018We aim, where appropriate, to operate to the same governance standards as are required of UK FTSE 100 companies and therefore we choose to apply the UK Corporate Governance Code 2018 (the Code). We have applied the UK Corporate Governance Code for a number of years, prior to the new requirement for large private companies to report which corporate governance code they follow, if any. We applied the Principles and complied with all the Provisions, to the extent they are applicable to a company without shares, in the Code throughout 2019. The Code is available at frc.org.uk.

The table below sets out how we have complied with the Principles of the Code during 2019.Principle How we apply the Principle Further information

1. Board leadership and company purpose

A. The board’s role A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

The Board is responsible for the long-term sustainable success of Bupa for the benefit of its customers and wider stakeholders, now and in the future.The Board works to achieve this by: – providing clear leadership in setting the Group’s strategy, culture and risk

appetite to achieve its purpose – overseeing management’s implementation of strategy within a prudent and

effective governance structure using a three lines of defence model as described on page 46

– receiving regular management information on customers and their views of the Group and our products

– reviewing the results of employee surveys and interacting with our people through site visits and ‘town hall’ meetings.

During 2019, the Chairman reviewed the frequency, timing and content of Board meetings for 2020 to ensure that sufficient time is devoted to strategic matters; regular site visits are held to deepen the Directors’ understanding of the business and build relationships with local management; and to hear directly from our people.

See Leadership on P52 for more information on the Board’s activities during the year

The Board has a schedule of matters reserved to it for approval which is reviewed annually and which is available on bupa.com

B. Setting purpose, values and strategyThe board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.

The schedule of matters reserved to the Board includes: – ensuring that Bupa’s culture is aligned with its purpose, values and strategy – setting the Group’s strategic aims and reviewing management’s performance.

The Board holds an annual strategy meeting with updates on progress and Market Unit deep dives taking place throughout the year.During the year, the Board approved an updated Strategic Framework, with the vision to be the most trusted health insurer and provider, and set objectives to achieve this over the next five years. A new Corporate Responsibility and Sustainability Committee was established in late 2019 as a management advisory committee. It will have visibility of culture through the People and Responsible Business Conduct pillars of the CRS strategy.

See the following for more information:

Leadership on P50

Five-Year Vision on P10

Corporate Responsibility and Sustainability Committee on P22

C. Resourcing and risk managementThe board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.

The Board annually approves the Group’s annual budget and base operating plan for the following three years ensuring that sufficient resources are available to achieve objectives.The Board retains ultimate responsibility for risk management and internal controls, with detailed oversight carried out by the Audit and Risk Committees. On the recommendation of the Risk Committee, the Board sets the Group’s risk appetite and RMF. These set out the principal risks facing the Group and the nature and extent of risk the Board is willing for the Group to take in order to achieve the Group’s strategic objectives.The Group’s enterprise risk policies are approved by the Board or relevant Committee and overseen by the Risk Committee. During the year, revised risk appetite statements were approved in relation to information technology and security, and investment risk. A revised risk appetite statement for clinical risk was also approved in early 2020 with improved risk indicators and reporting.


Risks on P37

System of governance on P46

report of the Risk Committee on P66

inclusion with groups focusing on topics including gender, ethnicity, LGBTQ+, mental wellbeing, ability, faith and working families. We are also working with INvolve to harness LGBTQ+, ethnic minority and female talent and help drive positive cultural change and increase diversity at all levels of our workforce and in the talent pipeline.

We are also members of Business Disability International which helps companies and individuals to adapt the workplace and challenge attitudes to disability. The recruitment, training, career development and promotion of all employees is based on the skills, knowledge and experience of the individual and takes no account of age, disability, race, beliefs, gender, sexual orientation or other characteristics. Should employees become disabled during employment, every effort is made to continue their employment and, if necessary, appropriate training is provided.

Having a diverse workforce and an inclusive, accessible working environment, brings fresh views to the table and reflects the customers we serve and communities within which we operate. The People pillar of our corporate responsibility and sustainability (CRS) strategy aims to promote diversity and inclusion during 2020 by further embedding a culture that gives our people the freedom to be their whole selves at work, empower diverse and high-performing teams and ensure that our people practices and policies support our people. See the People section on page 16 for more information on diversity and inclusion.

Mental health and wellbeingOur approach to mental health focuses on raising awareness, creating supportive workplaces, encouraging open conversations and providing access to support and care. We

are raising awareness of mental wellbeing in the workplace, encouraging open conversations and providing access to support and care through regular internal communications campaigns such as for World Mental Health Day, online information, our Performance Energy resilience programme and training mental health first aiders.

Corporate responsibility and sustainabilityCRS is a key focus for the Board. Embedding CRS in order to create shared value is an important element of how the Group will continue to fulfil our purpose as well as achieve strong and sustainable performance. The Board sets the Group’s current approach to CRS matters as part of its approval of the Group’s refreshed Strategic Framework during 2019, including strengthening the nature and impact of our activities for the community by developing new community guidelines and making mental wellbeing and resilience a particular focus. Further details of the Group’s CRS activities are set out on page 22.

In order to enhance the governance of our CRS activities, the Corporate Responsibility and Sustainability Committee was set up in late 2019 as an advisory committee to management on CRS issues. The Committee held its first meeting in December 2019 and will receive updates on activity under each of the five pillars of our CRS strategy and provide guidance to management. The People pillars of our Strategic Framework and CRS framework are sponsored by the Chief People Officer and are focused on making Bupa a place where people love to work and can make a difference. The priorities are leadership and talent, employee engagement, employee health and wellbeing, health and safety, and diversity and inclusion. The Committee also provides a more focused forum for the consideration by senior management and

members of the Board of workforce engagement issues, which are escalated through the People pillar. This will be a focus of the Committee as its work develops in 2020. The Board will receive the minutes of each meeting and the Committee may make recommendations to management.

The interests of employees are taken into account in decision-making. See the Engaging our stakeholders section on page 34 for an example of this in relation to employees.


54 55



Principle How we apply the Principle Further information

1. Board leadership and company purpose continued

D. Stakeholder engagementIn order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.

We are a customer-focused business reliant on our people to deliver great service. The Board receives regular management information and considers the impact of decisions on relevant stakeholders. There is an active programme of engagement with our key stakeholders: our customers; our people; regulators; Association Members; and bondholders.


the Customers, People and Engaging with stakeholders sections of the Strategic Report on P12, P16 and P36

Workforce engagement on P53

E. Workforce policiesThe board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concerns.

The Board receives detailed quarterly management information which includes metrics on people and culture issues.During the year, the Board approved revised people and CRS strategies. These include ensuring that the Group’s workforce policies and practices are consistent with our values and support our long-term sustainable success. The Board receives regular updates on the issues reported through Speak Up, and on investigations and actions taken. The Audit Committee annually reviews the Speak Up policy to ensure that it is sufficiently robust and operating effectively.


the People section on P16

Workforce engagement on P53

Whistleblowing on P49

2. Division of responsibilities

F. Chair leadershipThe chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure, and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.

Roger Davis leads the Board in an open and transparent manner, encouraging debate and challenge. He plays a pivotal role in fostering the effectiveness of the Board and the individual directors both in and outside the board room.The Chairman works with the Group Company Secretary to ensure that sufficient time is available to discuss agenda items for each Board meeting and to ensure that papers are of a high standard and circulated in a timely manner.

See the Board evaluation disclosure on P59 for information on the annual evaluation of the Chairman

G. Balance of the BoardThe board should include an appropriate combination of executive and non-executive (and, in particular, independent non-executive) directors, such that no one individual or small group of individuals dominates the board’s decision-making. There should be a clear division of responsibilities between the leadership of the board and the executive leadership of the company’s business.

The Board comprises the Group CEO, CFO, Chairman (who was independent on appointment), and nine independent NEDs. The roles of the Chairman and Group CEO are separate with distinct accountabilities set out in their role profiles. The Group CEO is responsible for the day-to-day leadership and management of the business, in line with the Strategic Framework, risk appetite and annual and long-term objectives approved by the Board. The Group CEO cascades her authority through a delegated authority framework which is approved by the Board annually.The NEDs provide an independent view on the running of our business, governance and boardroom best practice. They oversee and constructively challenge management in its implementation of strategy within the Group’s system of governance and the risk appetite set by the Board.

The roles of the Board are set out in more detail in the Leadership section on P50

H. NEDs’ role and time commitmentNon-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account.

Prior to his or her appointment as a director, the Board considers whether each NED has sufficient time to devote to their role at Bupa. This is re-assessed by the Nomination and Governance Committee annually and in light of any changes to a NED’s external commitments during the year.

The roles of the Board are set out in more detail in the Leadership section on P50


2. Division of responsibilities continued

I. The Company SecretaryThe board, supported by the company secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently.

The Group Company Secretary advises the Board on company law and corporate governance matters, including compliance with the Code. He works with the Chairman and Committee chairs to ensure that the right matters are escalated to the Board and Committees at the appropriate time and that sufficient time is devoted to strategic matters.The Group Company Secretary works with management to ensure that the Board receives papers of a high quality in a timely manner. He arranges Directors’ induction and ongoing training and supports the succession planning for NEDs and the recruitment of new NEDs. He is responsible for the Group’s Subsidiary Governance Enterprise Risk Policy which sets minimum standards of corporate governance across the Group. He also facilitates communication with our AMs and ensures that due regard is given to their interests. The appointment (and removal) of the Group Company Secretary is a matter reserved to the Board.

3. Composition, succession and evaluation

J. Board appointmentsAppointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained for board and senior management. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.

The Nomination and Governance Committee regularly reviews the balance, structure and composition of the Board and its Committees and leads the process for appointments to the Board and Board succession planning. Succession planning for senior management is carried out by the Board.All Board recruitment takes into account the Board Diversity Policy.

The Nomination and Governance Committee’s report on P68 sets out the Committee’s role in the recruitment of Directors and the process followed in relation to the appointments of Professor Melvin Samsom and Cath Keers during the year

See P51 of the Leadership section for more information on the Board Diversity Policy which is available in full at bupa.com

K. Skills, experience and knowledgeThe board and its committees should have a combination of skills, experience and knowledge. Consideration should be given to the length of service of the board as a whole and membership regularly refreshed.

The Nomination and Governance Committee regularly reviews the balance, composition and structure of the Board, including reviewing the skills of each NED against a skills matrix. This identifies the key skills, knowledge and experience relevant to the markets in which Bupa operates and for the effective operation of the Board and leadership of the Group.The Nomination and Governance Committee keeps the length of service of each Board member under review, recommends the re-appointment of the NEDs and any extensions to their term. It ensures that Board recruitment is commenced in a timely manner to regularly refresh the membership of the Board.

See the Board diversity, skills and succession planning disclosure in the Leadership section on P51

See the report of the Nomination and Governance Committee on P68

L. Board evaluationAnnual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively.

The annual Board evaluation considers the composition and diversity of the Board and how effectively members work together.In 2019, an externally facilitated Board evaluation was carried out which assessed the effectiveness of the Board and its Committees. The Chairman separately led an evaluation of each Director, with the Senior Independent Director leading the evaluation of the Chairman.

See P59 for a summary of the externally facilitated Board evaluation conducted in 2019


56 57


External Board evaluation process

Nomination and Governance Committee

agree longlist and criteria

Sub-committee evaluate shortlist through

presentations and identify preferred

provider

Board engages Boardroom Review

Boardroom Review attend Board and

Committee meetings and interview Directors

Preliminary findings discussed with Chairman

and Group CEO

Report issued and discussed at Board

Actions for 2020 agreed

Action monitoring to take place

Selection

Evaluation

Outcomes and implementation

Board and Committee performanceIn 2019, a review of the effectiveness of the Board and its Committees was conducted by an independent external evaluator, Boardroom Review Limited (Boardroom Review), which was appointed following a selection process conducted by members of the Nomination and Governance Committee and which is summarised in that Committee’s report.

The evaluation involved observation by Dr Tracy Long of meetings of the Board and each of its Committees, and interviews with all current Directors, except Cath Keers who joined the Board following the conclusion of the evaluation process, and some members of senior management. Martin Houston was included in the interviews. An initial meeting to discuss the findings was held with Roger Davis prior to the final report being circulated to the Board and presented at the December 2019 Board meeting. Roger Davis and Clare Thompson then proposed specific actions for the Board’s approval and the final actions to be taken forward in 2020 were agreed at the February 2020 Board meeting.

The Board concluded that, overall, the Board and Committees had operated effectively during the year. In particular, it was found that the balance of skills, knowledge and experience on the Board and each Committee was appropriate and that the changes to the Board’s composition over the last year had ensured continued expertise on the Board in key areas. The appointment of an independent cyber adviser during the year had also proved beneficial to address an area where the Board had less experience. The Board and Committees work well together and challenge management effectively. While time was devoted to the Five-Year Vision during the year, more could be done to build on this further in 2020. In addition, greater interaction with key subsidiaries, both through, and outside of, Board and Committee meetings would further strengthen governance oversight.

Roger Davis evaluated the performance during 2019 of each NED through individual meetings covering topics such as commitment to the role, contribution and feedback from other Directors. In addition, all Directors completed an annual assessment of their fitness and propriety in accordance with UK insurance regulatory requirements and these assessments were reviewed and approved by Roger, with Clare Thompson reviewing Roger’s assessment.

Martin Houston was not included in this individual evaluation as he retired from the Board on 31 December 2019. Roger Davis’ evaluation of each of the other Directors concluded that each Director had carried out their duties effectively during the year by:

– constructively challenging management and building good relationships with management

– adding value through diversity of perspective and deep areas of knowledge

– demonstrating Bupa’s values and setting the tone on culture and risk management.

Each NED has sufficient time to commit to the role and remains independent and ‘fit and proper’ to carry out their role. The Board and the membership of its Committees have been substantially refreshed over the last two years, and the overall level of the Board’s skills, knowledge and expertise has been enhanced. No further changes to the composition of the Board and its Committees are planned at this time as a result of the evaluation and to ensure stability and continuity of corporate knowledge. The Nomination and Governance



4. Audit, risk and internal control

M. Financial reporting integrityThe board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial and narrative statements.

The Board delegates detailed oversight of GIA and the External Auditor to the Audit Committee, together with oversight of the Group’s system of internal controls to ensure the integrity of the Group’s Full-Year and Half-Year Results and the Annual Report and Accounts.On the recommendation of the Audit Committee, the Board reviewed and approved the 2019 Half-Year and Full-Year Results and the 2019 Annual Report and Accounts and was satisfied that the Group’s system of internal controls had operated effectively during the year.

See System of governance on P46 for details of the role of GIA and the External Auditor

See the Audit Committee’s report on P61 for details of that Committee’s activities during the year to provide assurance to the Board on the integrity of Bupa’s Full-Year and Half-Year Results and this Annual Report and Accounts

N. Fair, balanced and understandableThe board should present a fair, balanced and understandable assessment of the company’s position and prospects.

The Audit Committee reviewed the 2019 Annual Report and Accounts in early 2020 and was satisfied that it presents a fair, balanced and understandable assessment of the Group’s position and prospects. It reported its findings to the Board.

See the Audit Committee’s report on P61 for details of its assessment of the 2019 Annual Report and Accounts

Statement of Directors’ Responsibilities on P87

O. Risk management and internal controlThe board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.

The Risk and Audit Committees monitor the Group’s risk management and internal control systems on behalf of the Board on a continuous basis and the Risk Committee reviews the Group’s principal risks and recommends any changes to risk appetite to the Board.An annual assessment of compliance with the enterprise risk policies is undertaken by management, overseen by the Risk function and reported on to the Audit and Risk Committees.During the year, the Risk Committee has carried out a robust assessment of the Group’s principal and emerging risks and recommended appropriate changes to risk appetite statements to the Board which has approved these. Emerging risks are continually monitored by the Risk function and regularly reported to the Risk Committee for consideration.

See the reports of the Audit and Risk Committees on P61 and P66 for further information

See the Risks section of the Strategic Report on page 37 for a description of principal and emerging risks and how they are being mitigated

The directors’ assessment of the Group’s emerging and principal risks and risk management and internal control systems is on P87

5. Remuneration

P. Supporting strategy and long-term sustainable successRemuneration policies and practices should be designed to support strategy and promote long-term sustainable success. Executive remuneration should be aligned to company purpose and values, and be clearly linked to the successful delivery of the company’s long-term strategy.

The Remuneration Committee proposes the Group’s remuneration policy to the Board and AMs for approval and the Directors’ remuneration report is put to an advisory vote at the AGM, in line with listed company practice. The Remuneration Policy is structured to promote the long-term success of the Group and link reward to Bupa’s strategic goals and purpose.To assist the Remuneration Committee in setting discretionary reward outcomes in relation to each financial year, the Risk Committee considers whether to make any recommendations to the Remuneration Committee on making risk adjustments to variable remuneration outcomes for that year. For 2019, no risk adjustment was made to variable remuneration outcomes.

See the DIrectors’ remuneration report on P70 for more information

Q. Remuneration PolicyA formal and transparent procedure for developing policy on executive remuneration and determining director and senior management remuneration should be established. No director should be involved in deciding their own remuneration outcome.

The Remuneration Committee has recommended a revised Remuneration Policy to the Board for approval at the 2020 AGM. The revised policy aims to promote the long-term success of the Group and motivate management to deliver strong and sustainable business performance aligned with Bupa’s purpose. This includes a new Group Performance Plan to replace the Long-Term Incentive Plan.The schedule of matters reserved to the Board requires that no Director may be involved in deciding their own remuneration outcome.

See the Directors’ remuneration report on P70 for more information

R. Independence of remuneration outcome decisionsDirectors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances.

The Remuneration Committee comprises solely independent NEDs, and the Committee takes advice from external remuneration consultants. The Committee has robust discussions on remuneration outcomes for the Group and senior executives, taking into account all relevant internal and external factors to ensure that any exercise of the Committee’s discretion is suitable and justifiable.

See the Directors’ remuneration report on P70 for more information

Committee regularly reviews the composition of the Board and each Committee.

The Chairman has regular meetings with the Group CEO and CFO on Company matters and includes feedback on their performance during these meetings.

The Remuneration Committee also takes the Group CEO’s and CFO’s individual performance into account when agreeing their discretionary remuneration each year.

Clare Thompson, as Senior Independent Director, led an initial assessment of the Chairman’s effectiveness following his first few months of tenure in 2019 and provided feedback. A further evaluation will be carried out by June 2020.

The Board has agreed a number of actions to take forward during 2020 including in the areas of strategy and governance as detailed in the table below.


58 59


Audit Committee report

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

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

Key activities in 2019During the year, the Committee considered regular reports from management on key issues and judgements impacting the Group’s statutory financial results; the External Auditor’s audit plan, engagement letter, annual letter to management, audit progress and conclusions; reports from the CAO on the internal control environment; and reports from the Chief Actuary on insurance reserving. Ad hoc matters included an update on the control environment in the Group’s Hong Kong business, reviewing changes to the Group’s Alternative Performance Measures, and the planning and conduct of the external audit tender.

Weighted Average Cost of CapitalDuring the year, management refreshed its methodology for calculating the Weighted Average Cost of Capital (WACC), which is used for goodwill impairment testing, investment appraisals and to risk adjust the performance of each business. The review

included a refresh of the inputs used in the calculation and a review of the peer group comparators. The External Auditor reviewed the proposed methodology and substantively tested it during the audit of the 2019 Full Year results. The Committee was satisfied that the revised methodology was appropriate.

Goodwill impairmentsManagement proposed recognition of significant goodwill impairments in 2019 in relation to our UK dental care and Australian aged care businesses. The Committee discussed the causes of the proposed impairments in detail and reviewed the underlying calculations and proposed disclosures. The Committee was satisfied that the level of impairments proposed was appropriate given the performance of these businesses during the year and the risks and sensitivities in their plans for 2020 and beyond.

Alternative Performance MeasuresIn 2018, the Committee had asked management to clarify, simplify and improve the alignment of the Alternative Performance Measures used in internal performance reporting and external reporting. During the year, management presented its revised simpler approach to be used across internal performance reporting and external reporting. The Committee considered how the new methodology had been tested and how it compared with that used by the Group’s peers and the External Auditor’s view of the appropriateness of the new methodology. The Committee was satisfied that the new methodology was robust and appropriate.

“ The principal role of the Committee is to monitor the integrity of the financial statements and the effectiveness of our systems of internal control.”

Clare ThompsonCommittee Chair

Clare Thompson Committee Chair

Q How does the Committee oversee the control environment?

Clare: The Committee receives regular updates from management on key issues and judgements and approves any material changes to accounting policies. It agrees GIA’s annual plan and receives regular reports from the CAO on the outcome of audits which highlight weaknesses in the control environment.

The Committee reviews the results of the annual ICRMA process which gives a view from all three lines of defence on the Group’s control environment. The Committee also receives regular reports from GIA on the outcome of audits which highlight weaknesses in the Group’s control environment and discusses the proposed remdiation with relevant management.

Q What was the most significant accounting judgement this year?

Clare: The Committee challenged management on the goodwill impairments in our UK dental care business and Australian aged care businesses. The Committee discussed the methodology used to calculate the value of goodwill in each of our businesses and requested additional detailed supporting analysis where judgements have been significant.

The Committee felt that the level of impairments was appropriate and reflected the current risks and sensitivities in these businesses.

Q What are the key areas of focus for the Committee in 2020?

Clare: IFRS 17 Insurance Contracts is a major new accounting standard and we will be reviewing management’s proposed accounting policies during the year.

We will also closely monitor the transition of the External Auditor from KPMG to PwC and any proposed new regulations arising from the Brydon Review into the quality and effectiveness of external audit.

The Board has agreed a number of actions to take forward during 2020 including in the areas of strategy and governance.

Agreed actions from 2019 Board evaluationTopic Agreed action By

Strategy Build on the Five-Year Vision to define what success looks like

Board

Hold more frequent deep dives into the competitive environment and customer engagement

Board

Governance Continued focus on succession planning for the Board’s senior roles

Board/Nomination and Governance Committee

Do more ‘lessons learned’ sessions to bring risk to life

Board/Risk Committee

Further strengthen interaction with and oversight of key subsidiaries including through more site visits for Directors outside of Board meetings

Board/Committees/Directors

Progress against actions from the 2018 Board evaluationThe Board reviewed progress against the 2018 evaluation actions during the year.Topic Agreed action Progress made

Considering the big trends

Enhancing the content of Board papers to include future trends in more detail.Inviting contributions from external experts to challenge the Board’s thinking.

The Board holds deep dives with the senior management team of each Market Unit once a year, and the strategic and market context of each Market Unit is now a key element of this.

Information security

Closely monitor the information security programme.

Regular updates on the Group-wide information security programme have been discussed at the Risk Committee, and the Board throughout the year to monitor progress on risk reduction.A joint meeting of the Risk Committee and the Board to assess progress on information security was held in December 2019.The Board has strengthened its knowledge of information technology and security matters through the appointment of Cath Keers as a NED and an independent cyber adviser.See the Risk Committee’s report on page 66.



60 61


Key drivers of audit coverage

Bus

ines

s ris

ks

Business performance Regulatory develop

ments

Insurance

IT Risk

Provision

People Clinical

Outcom

es from the past Strategic initiativ

es

Significant issues and areas of judgementKey issue Committee response

Goodwill and intangible asset valuations

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

The Committee critically reviewed and discussed management reports outlining the basis of the assumptions used for our most sensitive cash generating units (CGUs) and challenged the results in the light of business performance and the external environment, particularly in respect of the goodwill impairments in Australian aged care, UK dental care and Bupa Cromwell Hospital in the UK. The Committee challenged management on the elements included in the WACC methodology, the forecast cash flows and the terminal growth rates for the CGUs. The Committee also considered the appropriateness of the proposed disclosures.The Committee also received from KPMG a report of their views on the assessments performed by management. The Committee is satisfied that the assumptions applied were reasonable and the carrying value of goodwill and other intangible assets, following impairments recognised in certain CGUs, is appropriate.

Claims provisioning

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

The Committee received a report from the Chief Actuary setting out estimates of the technical provisions, including the margin of prudence held by each insurance entity, as well as the result of the annual review of compliance with Bupa’s Claims Reserving and Liability Adequacy Standards. The Committee considered the appropriateness of the overall level of insurance technical provisions, including the level of prudential margin. In reviewing and approving the insurance technical provisions, the Committee also took into consideration the External Auditor’s report to the Committee.

Property valuations

Bupa has a significant portfolio of care homes, villages and hospital properties which are revalued to fair value on a periodic basis, with external valuations undertaken at least triennially.The underlying assumptions involved in the valuations, including earnings, profitability, occupancy levels and future trends are subject to a high level of judgement.

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

Pension assets and liabilities

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

The Committee considered the appropriateness of the assumptions used in the valuation of the related pension assets and liabilities performed by the independent scheme actuary and is satisfied that the assumptions used in the valuation are appropriate. The Committee received information from KPMG benchmarking the assumptions used in the valuation of pensions liabilities. The Committee concluded that the pension assumptions were appropriate.

Acquisitions and disposals

During 2019, Bupa completed the acquisition of Acıbadem Sigorta in Turkey. Assessing whether the sale of businesses is sufficiently probable to require classification as ‘held for sale’ can require significant judgement.

The Committee considered the proposed accounting for the acquisition balance sheet in relation to the acquisition of Acıbadem Sigorta, including the valuation of acquired customer relationship, distribution channels and brand intangible assets.The Committee critically reviewed and discussed management’s judgements in respect of the held for sale assessments for potential disposal groups. The Committee challenged management and concluded that the approach and assumptions used were appropriate.

Provisions and contingent liabilities

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

The Committee received reports from management setting out the rationale applied to the consideration of the recognition and disclosure of provisions and contingent liabilities. The Committee concluded that management’s assumptions were appropriate regarding the need or otherwise for accounting provisions and that the proposed disclosure in the financial statements was appropriate.

Operating segments During 2019, the Group announced changes to its organisation structure. This required reassessment of the external reporting structure as required by IFRS 8 Operating Segments.

The Committee considered the proposed changes to the Group’s operating segments and concluded that the approach and disclosures were appropriate.

IFRS 16 Leases As discussed in the 2018 Annual Report and Accounts, the requirements of the standard have been assessed and applied from 1 January 2019.

The Committee considered the application of key policy recommendations for IFRS 16, including the transitional impacts and disclosures on adoption of the standard and judgements in respect of lease term and discount rates. The Committee concluded that the application of key policy recommendations and proposed disclosures made by management were appropriate.

Audit Committee report continued

Financial reportingThe Committee reviewed the Half-Year and Full-Year 2019 financial statements with both management and the External Auditor. This review considered the following areas:

Fair, balanced and understandableIn assessing whether the 2019 Annual Report was fair, balanced and understandable, the Committee found as follows:

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

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

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

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

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

– key messages are clearly highlighted with consistent wording throughout the Annual Report

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

Group Internal AuditDetails of the role of GIA is set out in Bupa’s system of governance section on page 49.

Annual PlanThe assurance provided by GIA is an important part of the Committee’s consideration of Bupa’s overall control environment during the year. GIA’s annual plan is aligned to an assessment of risk across the Group and to the RMF, and also covers emerging risks. A significant proportion of the plan covers operational risk, reflecting Bupa’s exposure in this area. The 2019 GIA annual plan and budget were approved by the Committee in December 2018. It included two global audits in relation to the Solvency

Financial Condition Report and Regular Supervisory Report under Solvency II and the technology capabilities programme, which reflect issues prevalent throughout the Group where a global audit could provide deeper insight. Data governance and the maturity of the three lines of defence risk management model were also agreed as themes for coverage in all audits planned for 2019. The Committee approved a half year refresh of the 2019 plan, based on a renewed risk assessment in line with the GIA methodology, in June 2019.

The 2020 GIA annual plan and budget were approved by the Committee in late 2019 and aim to provide the Committee with assurance over key risks. Global audits will be carried out in a number of areas including clinical governance, financial reporting, whistleblowing and embedding risk management. The themes of risk culture, three lines of defence maturity and data governance will be built into all audits. The diagram below shows the key drivers of audit coverage across the business.

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

Quality assuranceGIA maintains a quality assurance and improvement programme that includes an annual evaluation of the function’s adherence to the relevant external standards. The external quality assessment carried out in 2018 highlighted further work to enhance the function’s effectiveness and meet the best practices recommended in the FS Code. These have been implemented through a GIA development programme including changes to audit methodology, adopting function-wide objectives and developing the function’s people, scale and capability. The Committee has received regular updates on the progress of the programme and is satisfied with the steps taken and that GIA conforms to the FS Code.

In 2019, GIA has assessed the nature, quality and quantity of its work through ongoing quality assurance activity carried out by PwC, stakeholder feedback and the employee engagement survey. The results were considered by the Committee who concluded that GIA operates effectively. Grant Thornton have been appointed to carry out quality assurance work in 2020. A more formal internal assessment of GIA’s effectiveness is in progress and will be reported to the Committee during 2020, and the outcome will be disclosed in the next Annual Report.


62 63


Chief Audit OfficerThe Committee is responsible for the appointment and removal of the CAO, setting the CAO’s objectives and reviewing his performance, taking into account the views of the Group CEO. The CAO has access to the Committee Chair and Board Chairman as required and is directly accountable to the Committee. The previous Chief Internal Auditor moved to a new role within Bupa in early 2019 and the current CAO joined during the year following appointment by the Committee. A contractor from PwC was engaged as interim CAO to support the Committee Chair and GIA until the current CAO joined. During the year, the Committee held one private meeting with the outgoing Chief Internal Auditor, one private meeting with the Interim CAO and one private meeting with the new CAO. Management did not attend these meetings.

External AuditorDuring the year, the Committee assessed the performance of the External Auditor in conducting the audit of the 2018 Annual Report and Accounts. This assessment considered the overall quality of service, timeliness of the resolution of issues, the quality of the audit resource and whether the audit plan was followed and was conducted through surveys sent to Committee members, the Group CEO, CFO, CAO and Group Financial Controller, and senior finance management across the Group. The Committee was satisfied with the External Auditor’s performance and the quality of the audit.

The Committee approved a revised Audit and Non-Audit Services Policy to comply with a revised Ethical Standard issued by the FRC for auditors relating to the provision of non-audit services which aims to safeguard the External Auditor’s independence. The changes place stronger restrictions on the engagement of the External Auditor for non-audit services and start with the principle that other providers will be used unless there is a clear and exception-based rationale for engaging the External Auditor. The Group has an annual cap on the value of non-audit engagements which aligns to the revised FRC Ethical

Standard and EU regulations which come into force during 2020. The Committee has regularly reviewed the non-audit services provided by KPMG and other audit firms to assess any potential independence issues and the Committee also agreed KPMG’s terms of engagement and remuneration for the 2019 audit. KPMG’s remuneration for the year ended 31 December 2019 is shown in note 2.3.3.

The Committee held two meetings with the lead audit partner during the year without management present to ensure that he had the opportunity to raise any concerns and to assist the Committee in ensuring that KPMG remains independent and objective.

The Committee approved the external audit plan for the audit of the 2019 Annual Report and Accounts and remains satisfied with the quality of service that KPMG provide, and accordingly recommends their re-appointment at the 2020 AGM.

Subsidiary governanceThe Committee has maintained its links with the audit committees of Bupa’s major insurance subsidiaries. Paul Evans, a Committee member, also chairs the audit committee of the UK major insurance subsidiary and provides regular verbal updates to the Committee. The Committee met with members of the risk committee of the Spanish insurance subsidiary, Sanitas Seguros, during the Board’s annual strategy meeting held in Madrid in 2019. In addition, the CEO and audit chair of the Group’s business in Hong Kong attended a Committee meeting to discuss management actions and their audit committee’s oversight of these in relation to improvements to the control environment.

During the year, the Committee Chair attended a meeting of the audit committee of the Bupa ANZ Board and has held calls or meetings with the chairs of the audit committee of each major insurance subsidiary.

A programme of attendance at Committee meetings by the chairs of the audit committees of each major insurance subsidiary in the Group is being arranged for 2020.

Committee effectiveness reviewAs already disclosed, the 2019 evaluation of the effectiveness of the Board and its committees was externally facilitated by Boardroom Review and the results of the evaluation, including actions for the Committee, are set out on page 59.

In terms of addressing the actions arising from the Committee’s evaluation of its performance in 2018, the Group Company Secretary’s team has provided training for regular authors of Board and Committee papers to improve the quality of papers to help the Board and Committees make informed decisions. To aid the Remuneration Committee’s consideration of discretionary remuneration in the annual reward cycle, the Committee looked at the quality of the Group’s underlying performance and the Committee Chair provided feedback to the Chair of the Remuneration Committee.

Focus for 2020During 2020, the Committee will focus on the transition to PwC as the Group’s External Auditor, the project to implement accounting for IFRS 17 Insurance Contracts, further improvement to the Group’s control environment and greater engagement with the audit committees of the Group’s major insurance subsidiaries.

Clare ThompsonAudit Committee Chair

External audit tender

The Audit Committee conducts the process to select the External Auditor and recommends their appointment, re-appointment or removal to the Board for approval by our Association Members at each Annual General Meeting (AGM). As disclosed in last year’s report, the Committee agreed to put the external audit out to tender to comply with EU Audit Regulation (Regulation 537/2014/EU) transitional arrangements, which require the Group to rotate its audit firm at the time of next appointment on or after 17 June 2020.

The tender process ran from January to June 2019 and was run in compliance with statutory requirements that apply to a number of our UK subsidiaries and guidance issued by the FRC. The recommendations from the Competition & Markets Authority’s study on the statutory audit services market, published during the tender process, were taken into account.

Audit tender process and timeline

– Agreed to tender

– Agreed firms to invite

2018 Jan 2019 March 2019 Apr-May 2019 Jun 2019 2020 2021

– Issued independence assessments

– Issued request for proposal

– Set up data room

– Meetings with stakeholders

– Presentations

– Recommendation to Audit Committee and Board

– Decision made and communicated to firms

– Debriefs held

– ‘Cooling-in’ period

– PwC shadow 2020 Full-Year audit

– PwC appointed and commence role

ShortlistThe three eligible ‘Big Four’ firms were invited to tender and all three submitted proposals. Medium-tier audit firms were considered ahead of commencing the formal tender process but the Committee concluded that they would not be able to provide the expertise and seamless service that an organisation of Bupa’s complexity, scale and geographic diversity requires.

ProcessThe tender was led by a sub-committee comprising Nicholas Lyons, Clare Thompson, the CFO, Group Financial Controller and Corporate Development Director. Nicholas acted as chair of the sub-committee to mitigate any potential conflict of interest arising from Clare’s former position as a partner of PwC. Appropriate members of management attended meetings as required.

The firms were given access to a data room providing information to help them understand our business and the scope of the audit and a period to ask questions to assist in preparing their submissions. Each firm was required to meet with specific stakeholders across the Group including the chairs of the audit committees of each of our major insurance subsidiaries. This included introducing the proposed senior team members for the audit of each business to relevant senior stakeholders.

Each firm submitted a written proposal and technology presentation and gave a presentation to the sub-committee who then asked questions. Separate submissions were requested outlining proposed fees; however, this did not form part of the key decision criteria.

Assessment criteriaEach firm was assessed on the following criteria using a scorecard with an overarching criteria of audit quality:

– team and professional fit

– demonstrating understanding of the business

– value-add

– market/industry experience including regulatory experience

– seamless transition.

Recommendation and decisionThe Committee held an additional meeting in June 2019 to discuss the assessment of each firm against the agreed criteria and the feedback received from management during meetings with the firms. The Committee recommended two firms to the Board with PwC identified as the first choice. The Board noted that PwC:

– could provide the high quality of audit required

– clearly demonstrated deep insurance expertise and strong expertise in relevant markets

– demonstrated high levels of competence, experience and a clear quality focus

– clearly understood Bupa’s business in some depth

– had good experience of transitioning audits and good potential value-add.

Therefore, the Board agreed to appoint PwC as the Group’s External Auditor from 1 January 2021, subject to AM approval at the 2021 AGM. This recommendation was made free from any influence by a third party and there are no contractual terms imposed on the Group of the kind mentioned in Article 16(6) of the EU Audit Regulation.

TransitionPwC will shadow KPMG during their audit of Bupa’s 2020 Annual Report and Accounts, and the Non-Audit Services Policy applied to PwC from 1 January 2020 to ensure their independence at appointment. The lead PwC audit partner attended a Committee meeting following selection, to outline the firm’s progress on reaching independence from Bupa and the firm’s approach to transition. The Company intends to tender the External Auditor appointment at least every ten years.

Audit Committee report continued


64 65


Risk Committee report

The Committee’s role and governanceThe principal role of the Committee is to assist the Board in articulating and developing its risk management strategy and providing oversight of risk across Bupa. This includes understanding current and future risk exposures, recommending overall risk appetite and tolerance to the Board, reviewing the consistency of corporate strategy with the Company’s risk appetite, reviewing the RMF, considering the risk aspects of major transactions, and promoting a risk awareness culture throughout Bupa. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com and a detailed description of the principal risks to Bupa’s business are set out in the Risks section on page 37.

The Committee comprises solely independent NEDs. The Group CEO, CFO, CRO, Chief Medical Officer, CAO and the lead partner of the External Auditor are invited to attend all meetings. The CRO has unrestricted access to all members of the Committee and has regular private meetings with the Committee, in the absence of management, to ensure that there is an opportunity for the CRO to raise any concerns he may have. The Committee Chair is also a member of the Remuneration Committee, to assist with ensuring that risk management and culture are taken into account in remuneration decisions. Each year, the Committee considers whether to make any recommendations to the Remuneration Committee on making risk adjustments to variable remuneration outcomes for that year. For 2019, having regard to the executive performance evaluation process in place, the Committee did not recommend any further individual or Group-wide adjustments to remuneration.

Matías Rodríguez Inciarte, Michael Hawker and Professor Melvin Samsom joined the Committee during the year. Melvin ensures continued medical expertise on the Committee. Matías and Michael are NEDs of our Spanish insurance and Australian businesses respectively, and bring to the Committee direct insight into our key markets.

2019 activitiesInformation security and technology risk and privacy risk have been a continued focus for the Committee during 2019.

We have increased focus on clinical governance during the year, and the ongoing compliance and service issues in our Australian aged care business remain a priority.

During the year, the Committee received regular updates on our preparedness for a ‘No-deal’ Brexit. Climate change is a risk that the Committee has increased focus on and will continue to develop its thinking on, and approach to, during 2020.

Information technology and securityDuring the year, the Board approved a multi-year strategic investment programme in the Group’s technology capabilities. The Committee has placed significant emphasis on information technology, security and privacy risks during the year to ensure that we protect the data of our customers, partners, employees and suppliers and that our systems are resilient. The Committee received regular updates from the Chief Information Officer during the year on the progress of the technology investment programme. Second line assurance was provided by the Information Security and Technology Chief Risk Officer and the Board’s independent cyber adviser also attended the majority of Committee meetings. The Committee held a series of private meetings with the Board’s independent cyber adviser, without management being present.

The Committee challenged management to ensure continuous improvement and uplift in controls by addressing risk culture, resourcing and the target outcomes of the programme during the year. The Committee is satisfied that the programme is progressing to plan, and that there is now evidence of risk reduction. The Committee remains focused on ensuring that the benefits are sustainable, with documented policies, controls and reporting in place.

First line accountability for risk managementManagement continues to embed risk management in the first line of defence. The CRO provides updates at each meeting of the Committee which include his view of management’s progress in this area, and the Committee asked members of management to present on key risk issues during the year. In addition, each business sets annual risk objectives to focus on which are validated and monitored by the Risk function and reported to the Committee. The Committee is satisfied that senior managers across the Group understand the need to manage risk well but acknowledge that there is further work to do to fully embed this at all levels of the Group.

The Committee has also considered the capability and capacity of the Risk function during the year to ensure that it has the right quality and quantity of resource to effectively carry out its assurance role. The Committee was pleased to see activity moving to the first

Caroline Silver Committee Chair

Q What are the most material risks facing Bupa?

Caroline: The most significant risks we face remain: changes in government and regulatory policy in the markets where we operate; clinical risks; cyber and privacy risk; and increasingly, climate change risk. In addition, the risk to reputation, particularly in a global group, remains ever present. Bupa is well placed relative to many of its competitors to understand these risks and benefit from the opportunities they also present. Through our people, processes and actions, we must ensure that we understand and mitigate these risks from the frontline through to the leadership team.

Q Why is first line accountability for risk management so important?

Caroline: Our people are the first line in our ‘three lines of defence’ model of risk management. They know the most about our business and how it operates so are best placed to identify areas where risk could be managed better. Making sure our people understand risk management and embed it as a matter of course in their ways of working will ensure we make the best decisions for our customers, and our business.

Q How do you think climate change will impact Bupa?

Caroline: Climate change is likely to impact negatively on health trends, and so could challenge our operational resilience and business model. Short-term, we must be prepared to deal with more extreme events, such as the Australian bushfires, which saw three of our care homes needing to be evacuated. Longer-term, we must assess the impact on both our health insurance and provision businesses, in terms of our customer needs, our people and future financial profile. the Committee will continue to consider this throughout the coming year.

line of defence. Increasing the capacity and capability of the Risk function will continue to be important in the coming year.

Aged care in AustraliaOur Australian aged care business continues to operate in a challenging market. During 2019, 15 homes operated under regulatory sanction from the Australian Aged Care Quality and Safety Commission and this has now decreased to 5. The Committee received regular reports on the progress of the improvement programme during the year, including through an update from the chair of the risk committee in Australia.

The Royal Commission into Aged Care Quality and Safety, an industry-wide review, continued during the year and issued its interim report in October 2019.

Clinical governance riskThe Group’s approach to overseeing clinical governance risk was refreshed by the new Chief Medical Officer in late 2019. This was based on our recent experience of issues in this area such as in our Australian care homes and informed by our previous experiences in the UK aged care business. The Group’s Clinical Governance Enterprise Risk Policy and clinical risk appetite statement have recently been revised and improved clinical risk indicators and reporting agreed. The Committee is satisfied that clinical governance is appropriately positioned within the Group’s overall RMF.

Political riskPolitical risk is increasing and the Committee held a deep dive on political risk during the year focusing on the risks associated with changes of government in Bupa’s key markets and the activities in place to mitigate these risks. This links to regulatory risk with governments introducing stricter regulatory regimes and regulators being given more powers to hold businesses to account.

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

We have assessed the potential impact of climate change in a number of risk categories. Liability risk is the impact on health, which we see as a medium-term risk, which we are well placed to consider given our healthcare expertise. Exposure to physical risk is mainly in our provision businesses, and we have recently seen the impact of this with the bushfires in Australia. There is also risk associated with the transition to lower-carbon economies and different ways of working which will have associated cost and will therefore put pressure on affordability. This could impact short-term economic growth but is an area all businesses must focus on.

Stress and scenario testingManagement carries out stress and scenario tests annually to test the impact of various scenarios on the Group’s capital strength, liquidity and profitability. The Committee agreed the scenarios to be tested during the year and reviewed the results of the tests. The scenarios are designed to test the strength of our three-year base operating plan and also form part of the Group’s Own Risk and Solvency Assessment (ORSA). The Committee noted that the Group operates in a more volatile external environment than was previously the case due to increasing political and regulatory risk and the public’s changing expectations of our products and services, as well as increasing expectations of the standards of corporate behaviour. The Committee was satisfied that, while these scenarios would have a significant impact on the Group, Bupa could withstand them, with recovery within a reasonable timescale and with appropriate management actions being taken.

Subsidiary governanceThe Committee has strengthened links with subsidiaries with a rolling programme of attendance by subsidiary risk committee chairs

now in place to provide an update on the areas of focus of their respective committees, as well as details of any specific concerns they wished to raise with the Committee.

In addition, the Committee met with members of the Spanish insurance subsidiary’s risk committee during the Board’s annual strategy meeting held in Madrid in 2019. There is cross-membership between the Committee and the risk committees of our major insurance subsidiaries in Australia, the UK and Spain. The Committee Chair has regular calls with her local counterparts and the Committee receives summaries and minutes of the meetings of the risk committees of the major insurance subsidiaries. She also attended a meeting of the risk committee of the UK major insurance subsidiary during the year.

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

Committee effectiveness reviewAs already disclosed, the 2019 evaluation of the effectiveness of the Board and its committees was externally facilitated by Boardroom Review and the results of the evaluation, including actions for the Committee, are set out on page 59.

In terms of addressing the actions arising from the Committee’s evaluation of its own performance in 2018, the Committee has continually challenged management to further embed risk management in the first line of defence and is satisfied with management’s progress during the year.

Focus for 2020In 2020, the Committee will continue to focus on:

– maturing risk management accountability in the first line of defence

– overseeing the Group’s continued investment in technology capabilities

– affordability of our products and services

– risks to achieving Bupa’s strategy.

Caroline SilverRisk Committee Chair

“ Bupa’s more significant risks include changes in government and regulatory policy, clinical, cyber and climate change risks.”

Caroline SilverCommittee Chair


66 67


Nomination and Governance Committee report

The Committee’s role and governanceThe Committee reviews the balance, structure and composition of the Board and its committees and leads the process for appointments to the Board. It considers succession planning to ensure that the Board has the skills and expertise it needs to lead and manage the Company in the future. The Committee takes the Board Diversity Policy into account in both succession planning and recruitment. As at the date of this report, 50% of the members of the Board are women, including both Executive Directors. Succession planning for the BET and other senior executives is done by the Board. The Committee also leads the process for the selection and appointment of AMs and approves the appointment of non-executive directors to subsidiary boards. Further information on the Board Diversity Policy can be found on page 51 and the full policy is on bupa.com.

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

The Committee currently comprises the Chairman and four independent NEDs including the Senior Independent Director. The Group CEO was a member of the Committee until 1 April 2019. Janet Voûte joined the Committee on 1 January 2019, and Nicholas Lyons and Paul Evans were appointed to the Committee in June. Martin Houston stepped down from the Committee on 31 December 2019 when he retired from the Board. The Group CEO, CFO and Chief People Officer regularly attend Committee meetings.

NED successionProfessor Sir John Tooke retired from the Board at the AGM on 15 May 2019 and Martin Houston retired from the Board on 31 December 2019. Sir John agreed to join the board of Bupa Chile, the holding company of our insurance subsidiary in Chile, following his retirement, and Martin remains on the board of Bupa Arabia for Cooperative Insurance Company, our associate business in Saudi Arabia. The Board appointed Russell Reynolds to lead on the recruitment of a Director with healthcare and clinical expertise to replace Sir John. This process resulted in the appointment of Professor Melvin Samsom on 11 April 2019,

on the Committee’s recommendation, following interviews with all Committee members. Melvin brings extensive international clinical and management expertise to the Board from his career in gastroenterology as both a consultant and researcher, as well as clinical leadership experience, and also serves on the Risk Committee.

Cath Keers joined the Board on 1 November 2019, and succeeded Martin Houston as Chair of the Remuneration Committee on 1 January 2020. Cath has over three decades of professional and leadership experience across the retail, consumer, digital and technology sectors. Cath was identified by the Committee as being able to enhance the Board’s digital and consumer expertise, which had been recognised by the Committee as an area where the Board’s collective expertise needed to be bolstered. In addition, she has the skills to replace Martin Houston as the Chair of the Remuneration Committee, having previously performed this role at other companies. Cath was appointed by the Board on the Committee’s recommendation, having been interviewed by all Committee members.

Russell Reynolds provides services to recruit NEDs and to identify potential AMs, and has an employee health insurance scheme provided by Bupa. Russell Reynolds is a signatory to the Enhanced Voluntary Code of Conduct for Executive Search Firms.

Matías Rodríguez Inciarte and Michael Hawker also joined the Board as NEDs during the year. Their appointments were disclosed in more detail in the 2018 Annual Report and Accounts.

The Committee reviewed succession planning for the Board throughout the year. It also reviewed the composition of the Board and its Committees and recommended the changes in Committee membership described above.

“ During the year we appointed deputy chairmen to the boards of our major insurance subsidiaries to enhance communication channels between these and the Bupa Board.”

Roger DavisCommittee Chair

Roger Davis Committee Chair

Q Why is good corporate governance important for Bupa?

Roger: Strong corporate governance is crucial to the sustainable long-term success of any organisation. At Bupa, our Board plays a vital part in ensuring that the tone for the Group’s values and culture is set from the top. Culture is at the centre of good governance – doing the right thing and putting customers first, in order to achieve our purpose of helping people live longer, healthier, happier lives.

Q What skills have the new directors brought to the Board?

Roger: Michael Hawker and Professor Melvin Samsom joined the Board and the Risk Committee in April 2019. Michael brings significant international insurance expertise, particularly in Australia, and is the deputy chairman of our business there. Melvin brings extensive clinical and management experience to the Board. We welcomed Cath Keers to the Board and to the Remuneration Committee in November 2019, and she brings strong digital and consumer expertise, as well as experience of chairing the remuneration committees of listed companies.

Q How does the Board ensure oversight of its subsidiaries across the world?

Roger: We have a governance framework which is applicable throughout the Group, and compliance with that framework is overseen by the Board. We have three NEDs on the Board who are also NEDs of the major insurance subsidiaries in the Group. This year we have also approved the appointment of deputy chairmen of these companies to enhance the communication channels between the Board and subsidiary boards.

Other Board mattersThe Committee reviewed the Directors’ other commitments for potential conflicts of interest and for threats to their independence, such as Caroline Silver’s and Clare Thompson’s roles as NEDs of M&G plc. The Committee concluded this did not compromise their independence, and re-confirmed that they were able to meet the time commitment required as a NED of Bupa. Subsequently, Caroline Silver has announced that she will retire from the Board of M&G plc in May 2020. The Committee also identified topics to be covered in Board development and training sessions during the year.

Corporate governance oversightThe Committee reviewed the Company’s compliance with the Code during the year, and a statement of compliance is included on page 55. The Code sets out three ways in which companies can engage with the workforce but allows companies to adopt alternative arrangements. Bupa’s approach to employee engagement, and why it is considered effective, is set out on page 53. The Committee will continue to keep this approach under review in 2020.

During 2019, the Committee approved the establishment of the CRS Committee. The CRS Committee has initially been established as an advisory committee to the Group CEO. The Committee will monitor the CRS Committee’s activities and development, including whether it should, over time, be constituted as a standing committee of the Board.

The Committee receives regular updates on corporate governance developments across the Group’s key markets to ensure that the Group continues to maintain high standards of governance.

Subsidiary governance In 2019, the Committee approved a new requirement for our major insurance subsidiaries in the UK, Australia, Spain and Chile, to appoint a deputy chairman or senior independent director, who must be approved by the Committee in advance; new requirements for director training; and for the major insurance subsidiaries to maintain a board skills matrix and to consider succession planning at least annually. These requirements are contained in the revised Group Subsidiary Governance Enterprise Risk Policy, which is approved and overseen by the Committee. In line with the revised policy, the Committee approved the appointment of deputy

chairmen or senior independent directors for each of the four major insurance subsidiaries. In June 2019 the Committee approved the appointment of Bryan Mogridge ONZM, who was already a non-executive director of Bupa Australia and New Zealand, as Chairman of our business there, following the resignation of the Hon Nicola Roxon. Bryan brings substantial experience, having served on the boards of a number of private and public companies in Australia and New Zealand over many years.

The Committee also reviewed the evaluations of effectiveness undertaken during the year by the boards of our major insurance subsidiaries in the UK, Australia and Spain.

Board and Committee effectiveness As already disclosed, the 2019 evaluation of the effectiveness of the Board and its Committees was externally facilitated by Boardroom Review and the results of the evaluation, including actions for the Committee are set out on page 59.

A longlist of providers was considered by the Committee and a sub-committee comprising the Chairman, Senior Independent Director and Group CEO then compiled a shortlist. The Committee agreed the key factors that the shortlisted providers should demonstrate, being:

– experience of undertaking evaluations in large, global companies, including regulated financial services organisations

– ability to provide quality insight and recommendations

– ability to provide insight into the Board’s oversight of its global operations.

The three shortlisted providers then presented to the sub-committee and were assessed using a pre-agreed scoring system that included the provider’s methodology and approach, cultural fit and the experience, capability and capacity of the evaluation team, which resulted in Boardroom Review being identified as the preferred supplier. The Committee recommended Boardroom Review’s engagement to the Board who endorsed the engagement. Boardroom Review has no other connection with the Group or individual Directors.

In terms of addressing the actions arising from the Committee’s evaluation of its own performance in 2018, the Board’s knowledge of information technology and security has been strengthened through the appointment of Cath Keers who has strong digital

consumer experience and by the appointment of an independent cyber adviser to the Board. The oversight of corporate governance matters across the Group was enhanced through the introduction of the requirement for our major insurance subsidiaries to appoint a deputy chairman or senior independent director.

The Committee continues to keep the composition of the body of AMs under review. There was no active programme of recruitment of new AMs in place during 2019, although the Committee has refined its approach to recruiting and engaging with AMs in future.

Focus for 2020In 2020, the Committee plans to continue its work on strengthening the governance arrangements for the Group’s subsidiaries, to refine the Board’s skills matrix as part of its ongoing succession planning work and to re-start a selective programme of recruitment of new AMs.

Roger DavisNomination and Governance Committee Chair


68 69


Part 1: Committee Chair’s letter

Dear Association MembersI am pleased to introduce my first Directors’ Remuneration Report as Chair of the Remuneration Committee (the Committee). I would like to thank Martin Houston for his stewardship of the Committee over the last six years and thoughtful guidance on handover.

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

Committee membership was stable throughout 2019. Caroline Silver joined the Committee in January 2019. I joined the Committee on 1 November 2019 and succeeded Martin Houston as Committee Chair from 1 January 2020.

New Group Performance Plan (GPP)As a key initiative for 2019 and as disclosed in the 2018 Remuneration Report, the Company committed to undertake a redesign of the Long Term Incentive Plan (LTIP) to ensure that it remained effective.

The LTIP was not fully achieving its key objectives of motivating, retaining and incentivising our people and did not have a clear line of sight between performance of the senior team and the LTIP outcome.

The 2019-21 LTIP grant was put on hold by the Committee in February 2019 until the review and redesign had been finalised and approved, with the intention of granting participants a 2019 award under a new plan.

Through the course of the year the Committee met to discuss and design the new incentive. There were four key design principles:

– attract, motivate and retain senior leaders;

– capture a broad range of financial and non-financial measures to incentivise strong and sustainable performance;

– improve line of sight for participants to the LTIP measures and thereby improve the ability to influence the performance outcome; and

– simplify the scheme to allow participants to understand how the scheme works and how the payout is calculated.

The GPP applies to Bupa’s senior leaders and Executive Directors and will work as follows:

– an individual will be invited to join the scheme at the beginning of the one-year performance period, subject to a minimum individual performance level;

– at the end of the one-year performance period, the Committee will assess Bupa’s performance using a balanced scorecard capturing financial and non-financial measures;

– the Committee will take a view of the overall performance of the Group, based on the performance of these measures and the scorecard outcome, and make a judgement on the overall level of payout;

– payout will be confirmed to participants after the one-year performance period and then deferred in full for three years; and

– the deferred award is subject to malus and clawback for a further three years.

Key GPP design featuresBalanced scorecardThe Committee identified that Bupa’s remuneration approach could be strengthened further by having performance measures for variable remuneration appropriately weighted and a better balance between financial and non-financial performance weighted at 60% and 40%, respectively.

All the measures in the GPP scorecard are derived from key strategic reports the Board receives through the year so are linked to the regular performance updates the Board receives. We strongly believe that an assessment on these measures will provide a sound assessment of how Bupa has performed. The performance measures are open to review each year, and as with all good incentive schemes, will evolve where necessary.

Performance periodA one-year performance period under the GPP replaces the three-year LTIP performance period.

Financial planning over a three-year period is subject to uncertainty in a period of significant regulatory intervention, investment and restructuring, which means setting appropriate targets against this timeframe is challenging, and participants across Bupa feel that they do not have much opportunity to influence the outcome of the performance measures nor the ability to track the forecast outcomes through the course of the plan.

Cath Keers Committee Chair

Key items covered at scheduled meetings in 2019

7 February2018 MBS outcome, BET annual reward review.

20 February2016-18 LTIP outcome, review of 2019-21 LTIP targets resulting in decision to undertake an LTIP redesign, annual reward review for Group Designated Individuals below BET level.

15 MayReview of alternative LTIP designs.

16 July Review of Committee adviser, overview of general workforce, approval of 2019 Group Performance Plan, regulatory update, subsidiary NED fees.

10 October Pay comparator groups, control function bonus design, Group Performance Plan implementation update.

12 December Committee effectiveness review, Terms of Reference review, gender pay gap disclosures, Remuneration Policy Statement, remuneration standard, sales incentive principles, control function bonus performance assessment, 2020 incentive scheme rules.

In the Directors’ remuneration report

Part 1: Committee Chair’s letter

Part 2: Implementation

Part 3: Policy

Rather than set absolute targets, as Bupa did under the previous LTIP, listed companies often use relative measures to determine payout, such as performance against an index or comparator group.

However, as we do not have a share price, the range of substitute relative performance measures is limited. In addition, given Bupa’s mix of business and geographies, it is challenging to find suitable companies to compare ourselves with.

For these reasons, the Committee decided to use a balance of financial and non-financial measures against a single year’s performance, reflecting Bupa’s wide range of stakeholders, with the Committee retaining overall governance over the assessment of the outcomes. This is combined with a three-year deferral to be able to take account of any issues which might surface over a longer period.

The 2019 transition arrangementMoving from the previous LTIP with a potential payout in year 4 of the award schedule, to the GPP with potential payout in year 5 of the award schedule, has created a payment gap with no award payout possible in 2022. To rectify this, a transitional one-off arrangement applies for 2019 only (the 2019 Transition Award):

– for the first cycle of the scheme only, two awards will be made to deliver potential payouts in 2022 and 2023 (with each award being equivalent to participants’ normal annual award opportunity);

– the payout will be communicated to participants once it has been determined by the Committee;

– the 2019 Transition Award, equivalent to a normal annual award opportunity, will be paid in 2022 after the second deferral year; and

– the 2019-22 GPP award will be payable in 2023 after the third deferral year.

The 2019 Transition Award is timed to mirror the payout schedule of the previous LTIP, had a 2019-21 award been made. The 2019-22 GPP award moves participants onto the new payment schedule, which has three years of deferral. Further awards will be made on the basis of this latter schedule. The diagram below shows the timings of the GPP and LTIP.

Group Performance Plan (GPP)

GPP scorecard

Category Measures

Financial (60%) Group profit (40%)

Revenue (10%)

Cost efficiency (10%)

Customer (15%) Basket of measures e.g. Net Promoter Score (NPS), customer complaints etc.

People (10%) Basket of measures based on employee engagement e.g. overall engagement score relative to benchmark

Risk (15%) Basket of measures e.g. risk appetite indicators, feedback from regulators, clinical and provision risk, ESG, etc.

LTIP, GPP and Transition Award timeline

2017 2018 2019 2020 2021 2022 2023 2024

2017-19 LTIP Performance Year 1

Performance Year 2

Performance Year 3

Payment Year

2018-20 LTIP Performance Year 1

Performance Year 2

Performance Year 3

Payment Year

2019 Transition Award

Performance Year 1

Deferral Year 1

Deferral Year 2

Payment Year

2019-22 GPP Performance Year 1

Deferral Year 1

Deferral Year 2

Deferral Year 3

Payment Year

2020-23 GPP Performance Year 1

Deferral Year 1

Deferral Year 2

Deferral Year 3

Payment Year

Directors’ remuneration report


70 71


Part 1: Committee Chair’s letter continued

Our executive remuneration at a glance

2019 remuneration (£000)Total

£000

Evelyn Bourke

869 261 55 175 1,143

2,503

Joy Linton

576 173 18 116 691

1,574

The chart to the left is representative of the ongoing implementation of the Directors’ Remuneration Policy.

The chart shows salary, pension and benefits paid in 2019, the total payout of the 2019 MBS, 50% of which is deferred until March 2023, and the 2019-22 GPP award, payment of which is deferred until March 2023.

2019 MBS outcomeMeasure Outcome

Group profit (55% weighting) – The Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion and reduce the bonus payments of the Executive Directors down to 20% of salary.Revenue (10% weighting)

Cost efficiency (10% weighting)

Customer (25% weighting)

2017-19 LTIP outcomeMeasure Outcome

Profit after tax (60% weighting) – Threshold for PAT was not met and therefore ROCE and Customer performance measures do not vest.

ROCE (20% weighting)

Customer (20% weighting)

2019-22 GPP outcomeMeasure Outcome

Financial (60% weighting) – Around target level performance (49.4% of max), taking account of the response to challenges faced during the year and quality of the underlying performance within Bupa’s main businesses.

Customer (15% weighting) – Around target level performance (49.5% of max). Bupa made positive progress across all customer measures throughout the year.

People (10% weighting) – Slightly above target level performance (52.5% of max). Positive set of employee surveys, tracking upwards.

Risk (15% weighting) – Slightly below expectations (43.9% of max). Despite considerable progress, the Australia Aged Care business issues were taken into account.

Directors’ Remuneration PolicyFor 2020, we are proposing an updated Remuneration Policy, to be voted on by AMs at the 2020 AGM, which incorporates the new GPP design features discussed. The Board are supportive of the updated policy.

The Company consulted with AMs in October 2019 regarding the GPP and its impact on the Executive Directors’ Remuneration Policy.

A second change proposed for the Directors’ Remuneration Policy is in respect of Executive Director pensions, with employer pension contributions for current Executive Directors to be reduced from 30% of base salary to 25%. This recognises the current external focus on the alignment of Executive Director pension contributions (as a percentage of salary) with those for the majority of the wider workforce. During 2020, a plan will be developed to equalise the pension contributions as a percentage of salary of the incumbent Executive Directors, to the majority of the workforce by 2022.

2019 activitiesIn addition to designing the new Group Performance Plan incentive and reviewing our Remuneration Policy, the Committee focused on a number of other areas during 2019.

Control functions Management Bonus Scheme (MBS)The Committee reviewed the approach to measuring performance for the 2020 MBS and future awards for control functions (risk, compliance, audit and actuarial) in our insurance businesses across Bupa, responding to regulatory challenges to strengthen functional independence while still maintaining a link to financial affordability.

As a result of the review, the Committee has adjusted the metrics for staff in control functions to ensure that they are more consistent and weighted towards the achievement of objectives linked to their function. This is an area we will be keeping under review, adopting an evolutionary approach.

Executive appointmentsThere were four key changes at BET level with the appointments of the new CEO in ANZ, Chief Information Officer, Chief Strategy Officer and Chief Medical Officer. A new Company Secretary was also appointed during the year. The Committee carefully considered the terms for all individuals and used external benchmarking in setting the levels of remuneration.

Wider employee contextBupa is committed to ensuring that remuneration across the organisation is appropriate and fair for all employees.

We reviewed the outcomes from our two global employee engagement (People Pulse) surveys, launched in May and November 2019, to obtain detailed insight into what our employees are saying, and we discussed with management the insights from these surveys.

We also reviewed general workforce metrics in order to take into consideration the remuneration of the general workforce, related policies, and the alignment of incentives and rewards with culture, when setting the policy for Executive Director remuneration. Reward is managed on a local basis with benchmarking usually conducted on an annual basis to ensure that our overall reward package remains in line with relevant local market practice.

Members of the Committee have attended workforce events throughout the year including town hall meetings with the Board in a number of Bupa’s locations.

Performance and pay in 2019SalaryThe Committee has approved increases to the Group CEO and CFO of 2.9%, to reflect performance in the role and general market, and this was consistent with budgets applied for other employees in the UK.

Management Bonus SchemeGroup profit performance was below target, driven principally by adverse performance within the aged care business in Australia and the UK dental business. This is offsetting favourable performance across other parts of the business.

Revenue and cost efficiency were both around target.

All markets continued to make good progress on customer performance metrics, reflecting the high level of operational focus on delivery for customers across the Group, and the impact of the robust mid-year review process, which ensured that action was taken in several areas that required further focus.

Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management. Assisted by contributions from the Risk Committee and the Risk Review Panel (an advisory panel to the Group CEO, chaired by the Group CRO, which supports consideration of the impact of risk behaviours

on incentive schemes), the Committee determined no business-wide risk adjustments would apply in respect of 2019.

The individual performance multipliers for the Group CEO and CFO, based on their performance during the year, were 100% and 110% respectively.

Despite the MBS performance outcomes discussed above, 2019 was a particularly challenging year and the Group reported a loss on an after-tax basis. While this does not feature explicitly as a measure in MBS, the Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion, reducing the bonus payments of the Executive Directors down to 20% of salary. This is a reduction of £476,527 for the Group CEO and £240,532 for the Group CFO. As per the plan rules, deferral, malus and clawback will apply to the bonus payments.

Long Term Incentive PlanThe performance measures of the 2017-19 LTIP are based on profit after tax (PAT), return on capital employed (ROCE) and customer. While performance under the ROCE and customer measures would have resulted in a payout, the PAT threshold was not met despite the inclusion of previously agreed adjustments such as the Australian Government’s restriction of health insurance price increases to a lower rate than claims inflation. Therefore, under the rules of the scheme, no payout was achieved, leading to the LTIP awards of 137.5% of salary for the CEO and 125% of salary for the CFO, made at the beginning of 2017, not vesting.

Group Performance PlanFor the 2019 Transition Award and 2019-22 GPP award, the payout is based on Bupa performance assessed against a scorecard measured over the 2019 financial year. The scorecard is made up of 18 measures assessed at Group level, sitting within four broad categories: financial 60%; customer 15%; people 10%; and risk 15%.

Financial (60%)Financial performance metrics are closely linked to the 2019 MBS financial performance measures discussed above in the Management Bonus Scheme section. The Committee assessed the overall underlying financial performance at around target level of performance, taking account of the response to challenges faced during the year and the quality of the underlying performance within Bupa’s main businesses.

Base salary Pension Other benefits Management Bonus Scheme Group Performance Plan

Customer (15%)The Committee assessed the performance on customer measures to be strong, while recognising the need for continued focus, for example in our Australian aged care business where we have had particular challenges. Good progress has been made in improving NPS scores across our key markets in 2019.

During the course of the year, Bupa made positive progress across the Group on reducing complaints. Overall in insurance we are seeing an improvement in complaints ratios (complaints per 1,000 customers) and in provision and aged care; all businesses that have consistently tracked complaints

throughout 2019 have seen a fall in the number of complaints.

Customer numbers have increased year-on-year in insurance and provision, although residents in our care homes at the end of December 2019 are down compared with December 2018.

We have made good progress embedding the Customer Outcomes Policy across the Group through the year.

Health insurance brand awareness and consideration has remained largely stable through the year across the Group, with small increases in Spain and the UK where our brand continues to outperform competitors.

People (10%)Results over three People Pulse employee surveys across all markets and businesses confirm our people are eager to have a voice, with encouraging levels of participation and employee sentiment trending upwards.

Employee engagement globally remains stable at 78 points, with an increase in participation to 70% of our people, against an ambitious global benchmark based on the top 10% of global companies.

The Committee assessed overall People performance as good, particularly given the challenges faced by a number of our people in the period.

Directors’ remuneration report


72 73


Risk (15%)Good risk management is a key component of Bupa’s Strategic Framework and critical to achieving our Five-Year Vision. The Committee has assessed that considerable progress has been made across both the first line of defence and the second line following increased investment in capability in 2019. This investment is delivering improved leadership, which is ensuring suitable attention and prioritisation is given to the management of top risks and the maturity of our control environment. While good progress has been made, considerable effort is required to ensure that risk management practices are consistent across all our businesses.

In terms of top risks, good progress was made in cyber security, although further effort is required and planned for 2020.

Regarding clinical and regulatory performance, over the last 18 months, the aged care business in Australia went from a position of having never previously had sanctions imposed on any of its 72 homes to 15 homes being sanctioned at some point during this period. As of 31 December 2019, 5 homes remained under sanction. There has been considerable management commitment and focus to address issues highlighted by the regulators, and good progress has been made, although the challenges will persist into 2020 and need continued focus.

Overall, the Committee was pleased in its risk performance assessment about the pace of progress and delivery of management actions.

OutcomePayout of the GPP is determined based on the Committee’s judgement taking into account the performance across the measures. In applying its judgement across the four broad categories discussed above, the Committee assessed GPP performance at 48.9% of maximum.

The Committee considered exercising discretion on the GPP payout for the Executive Directors, but recognised that the GPP is retention focused and believes the 2019 MBS reduction outlined earlier is substantial and a sufficient adjustment to the level of incentive pay.

Committee evaluationAs already disclosed, the 2019 evaluation of the effectiveness of the Board and its Committees was externally facilitated by Boardroom Review and the results of the evaluation, including actions for the Committee, are set out on page 59.

Focus for 2020As a newly appointed Chair of the Committee, I would like to take the opportunity to ensure that our Remuneration Policy and incentive arrangements continue to support our overall strategy. As such, focus areas for 2020 include a review of Remuneration Policy and a detailed assessment of the new GPP to ensure that it remains fit for purpose and continues to meet its design principles, as well as a review of the incentive adjustment principles and framework that is currently in place.

Voting on remunerationThe annual report on remuneration and the Directors’ Remuneration Policy will both be subject to an advisory vote at this year’s AGM, although the Board intends to act as though bound by the Remuneration Policy as approved by the Association Members.

Cath KeersCommittee Chair

Part 2: Implementation

This section sets out the details of the Executive Directors’ and NEDs’ remuneration, showing how the Remuneration Policy has been implemented in 2019 and how it will be applied in 2020. As well as disclosing remuneration figures for the Executive Directors, it includes details on how well performance targets have been met and the resulting level of MBS and GPP payout as well as the vesting of the LTIP. Certain disclosures of the detailed information about the Directors’ remuneration set out below have been audited by the Group’s independent auditor, KPMG LLP.

Single total figure of remuneration 2019 – Executive Directors (audited)

Director YearSalary£000

Benefits£000

MBS1

£000

2019 Transition

Award2

£000GPP2

£000 LTIP3

£000 Pension4

£000 Sub-total5

£000Total

£000

Total fixed remuneration

£000

Total variable remuneration

£000

Evelyn Bourke6 Group CEO

2019 869 55 175 1,143 1,143 0 261 2,503 3,646 1,185 2,4612018 838 53 770 0 0 166 251 – 2,078 1,142 936

Joy Linton7 Group CFO

2019 576 18 116 691 691 0 173 1,574 2,265 767 1,4982018 561 17 384 0 0 68 168 – 1,198 746 452

1. MBS refers to incentive earned in respect of 2019 performance with 50% deferred until March 2023.2. The 2019 Transition Award and the 2019 GPP are determined based on the GPP rules, based on 2019 performance. The Transition Award is payable in March 2022 and the GPP award

is payable in March 2023. 3. LTIP refers to the vesting of the 2017-19 scheme. 4. Pension figures reflect a cash allowance paid to Executive Directors in lieu of company contributions into a pension scheme.5. The sub-total figure shows the sum of salary, benefits, MBS, GPP and pension and is representative of the ongoing implementation of the Directors’ Remuneration Policy.6. Evelyn Bourke’s salary from January to March 2019 was £850,000 and increased on 1 April 2019 to £875,000. Her benefits figure includes certain travel and subsistence expenses that are

treated as taxable, grossed up to meet the costs of the additional tax. She is a NED of the Bank of Ireland and received fees of €78,750 in respect of this position, which are not disclosed in the table above.

7. Joy Linton’s salary from January to March 2019 was £565,000 and increased on 1 April to £580,000. Her benefits figure includes certain travel and subsistence expenses that are treated as taxable, grossed up to meet the costs of the additional tax.

2019 MBS measures and performanceFor 2019, the Group CEO’s target MBS opportunity was 100% of salary, with a maximum of 200%. The CFO’s target MBS opportunity was 75% of salary, with a maximum of 150%.

The performance measures used to determine the 2019 MBS for our Executive Directors were as follows:

– Group profit (55% of award) – this is similar to underlying profit before taxation, with the most significant differences being the inclusion of restructuring and transaction costs and acquisitions and disposals.

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

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

– Customer (25% of award) – this measure includes both improving our Customer Excellence Framework and NPS scores.

Alongside the measures that make up the MBS scorecard, the MBS outcome is subject to an overall adjustment relating to risk management across Bupa as determined by the Committee, assisted by contributions from the Risk Committee and the Risk Review Panel. As set out in more detail in the Committee Chair’s letter, the Committee decided that no business-wide risk adjustments should apply.

The Group CEO received an individual performance multiplier of 100% based on her 2019 performance, demonstrating energetic and determined leadership in a challenging year for Bupa. Key achievements include:

– strengthening and streamlining the Bupa organisation;

– simplifying the Group into three Market Units, and optimising ways of working;

– continued investment in culture to improve and maintain customer-centricity at both a practical and strategic level with good progress made in embedding and improving customer Net Promoter Scores across our key markets in 2019;

– strengthening risk management in the first line and information security in all our businesses; and

– setting a clear vision and strategy for Bupa.

The CFO received an individual performance multiplier of 110% based on her 2019 performance, including:

– leadership of the development of the Strategic Framework underpinning the Five-Year Vision of being ‘the most trusted health insurer and provider’;

– providing focus on Group and Global Functions to be more effective and efficient, including strengthening governance and control accountabilities and streamlining advisory activities; and

– leading significant advances in finance delivery processes.

The financial targets and actual performance for the 2019 MBS are set out in the table on the next page. Based on a formulaic outcome of the MBS, the payout for the Group CEO would have been £651,527, representing an actual payout of 74.9% of salary and the payout for the CFO would have been £356,532, representing an actual payout of 61.8% of salary. As detailed in the Committee Chair’s letter, the Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion to reduce the MBS payments of the Executive Directors to 20% of salary.

Part 1: Committee Chair’s letter continuedDirectors’ remuneration report Directors’ remuneration report


74 75


2017-19 LTIP vesting (audited)The 2017-19 LTIP vesting was based on performance against PAT, ROCE and customer metrics and included a PAT threshold gateway for any measure to pay out. While performance under the ROCE and customer measures would have resulted in a payout, the PAT threshold was not met. Therefore, under the rules of the scheme, the 2017-19 LTIP did not vest.

Interests awarded during 2019 (audited)During the year, awards for the 2019 Transition Award and the 2019-22 GPP were made to the Executive Directors. The plans cover the annual performance period to 31 December 2019. Subject to the application of malus, the Transition Award may be paid in March 2022 and the 2019-22 GPP paid in March 2023.

The table to the right shows the 2019 Transition Award and 2019-22 GPP performance measures.

2019 Transition Award and 2019-22 Group Performance Plan (GPP) measures and performance The 2019 Transition Award has the same design, measures and award levels as the 2019-22 GPP, with the exception of a two-year rather than a three-year deferral. The Group CEO’s target 2019-22 GPP award is 137.5% of salary, with a maximum of 275% and the CFO’s target annual award is 125% of salary with a maximum of 250%. Payout of the 2019-22 GPP will be made in 2023.

For both awards, the payout for our Executive Directors is based on the Committee’s assessment of Bupa performance based on performance against a scorecard for the 2019 financial year, details of which are set out in the table below.

As detailed in the Committee Chair’s letter and displayed in the Our executive remuneration at a glance section, the Committee took a view of the overall performance of the company based on the performance of the

GPP measures and made a judgement on the overall level of payout being 48.9% of maximum award.

Payout of both the 2019 Transition Award and the 2019-22 GPP is confirmed to participants after the one-year performance period. The 2019 Transition Award is deferred for two years and the 2019-22 GPP is deferred for three years with payments subject to malus and clawback.

2019-22 GPP scorecard1

Performance measures within each category of the scorecard are weighted equally (except for financial measures). All performance measures are measured on Group performance. Where performance measures are not tracked at a Group level, Market Unit or Business Unit level performance will be collated and reviewed on a Group basis.Category No. Performance measure

Financial (60%)

1 Group profit (40%)

2 Revenue (10%)

3 Cost efficiency (10%)

Customer (15%)

4 Customer NPS

5 Customer complaints

6 Customer numbers

7 Customer outcomes

8 Brand position

People (10%)

9 Employee engagement score

10 People Pulse participation level

11 Employee sentiment

Risk (15%)

12 Risk appetite indicators – financial, conduct, H&S, information security and privacy

13 Relationship with primary regulators

14 Feedback from regulators

15 Clinical and provision risk

16 Operational resilience

17 Cyber security

18 Environmental Social and Governance (ESG)

1. The scorecard above also applies to the 2019 Transition Award.

2019 MBS payout (audited)

Threshold performance

level £m or % if indicated

On-target performance


Stretch performance


Actual performance

level£m or % if indicated

Evelyn Bourke1 Joy Linton1

Max bonus% of

salary

Actual payout% of

salary

Max bonus% of

salary

Actual payout% of

salary

Group profit 559.0 621.1 683.3 592.2 110% – 82.5% –Group revenue 12,438.0 13,820.0 15,202.0 13,822.9 20% – 15% –Cost efficiency 16.1% 14.6% 13.2% 14% 20% – 15% –Customer 90% 100% 110% 104.6% 50% – 37.5% –Total 200% 20% 150% 20%

1. The Committee decided to look past the formulaic outcome of the MBS and chose to exercise discretion and reduce the of MBS down to 20% of salary.

CEO pay ratioNew regulations for listed companies require them to report on the pay ratio of the Group CEO to UK employees. While Bupa is not obliged to comply with these regulations, the Committee has chosen to adopt them and provide full disclosure. The regulations allow for three potential approaches in calculating the pay ratio and the Committee has agreed to adopt Option B, which entails using the most recent gender pay gap information to identify and select employees at the 25th, 50th and 75th percentile. This method was chosen as it is made up of all UK employees

from Bupa’s insurance, corporate and provision businesses. To ensure that the results are representative of the employee population’s pay and benefits at those quartiles, Bupa has chosen to use a median value of the pay and benefits for the 15 employees above and below, and including, the individual at the given quartile. This approach was taken to allow for any leavers through the year given Bupa’s large and diverse workforce.

In considering the pay ratios presented, the Committee noted that the remuneration of the Group CEO has a higher proportion of variable

pay, linked to corporate performance, in comparison with the employee population, and for 2019, the one-off 2019 Transition Award has inflated the total remuneration figure considerably. By excluding the one-off Transition Award and using the sub-total figure from the Single total figure of remuneration table, the resultant ratio of 98:1 is more reflective of a normal year’s remuneration. A further point of note is that the employee population of Bupa is largely made up of our people in provision businesses and pay is reflective of that industry, rather than the insurance sector.

Year Method 25th percentile ratio 50th percentile ratio 75th percentile ratio

2019 Option B Total pay and benefits 167:1 143:1 116:1Salary only 43:1 37:1 29:1

In the table above, the Committee has chosen to provide additional information relating to salary in addition to the total remuneration calculations. As incentive pay can vary significantly year-on-year, the Committee determined that the salary ratio provides helpful context beyond that of the single figure.

UK employees 25th percentile 50th percentile 75th percentile

Salary £20,325 £23,543 £29,914Total pay and benefits £21,899 £25,412 £31,468

Part 2: Implementation continuedDirectors’ remuneration report

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.

2019 £m

2018 £m

Difference 2019-2018

£m

Remuneration paid to all employees1 2,133 1,994 139Cash flow used in investing activities 565 543 22

1. Remuneration paid to all employees includes staff costs relating to wages and salaries as found in Note 2.3.1 (page 113).


76 77


Percentage change in remuneration of the Group CEOThe table to the right shows the change in salary, benefits and short term incentives (annual bonus) for the Group CEO in 2019 compared with 2018 alongside a corresponding average figure for the Bupa employee comparator group. The UK salaried population has been chosen by the Committee as the most appropriate comparison, as the Group CEO is located in the UK. The percentage change in salary for the employee population is a view of 1 April 2019 increases only and does not reflect increases awarded through the year.

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

Group CEO Employees1

Salary 2.9% 2.3%Benefits (excluding pension) 3.8% no material changeShort term incentives -77.3% 27.1%

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

Year CEO

Single figure of total

remuneration (£000)

Annual bonus payout against

maximum opportunity

%

Long term incentive vesting

rates against maximum

opportunity %

GPP vesting rates against

maximum opportunity %

GPP Transition Award vesting

rates against maximum

opportunity %

2019 Evelyn Bourke 3,646 10% 0% 49% 49%2018 Evelyn Bourke 2,078 45% 16% – –2017 Evelyn Bourke 2,511 64% 41% – –2016 Evelyn Bourke1 1,837 56% 44%2 – –2016 Stuart Fletcher3 1,315 46% 44% – –2015 Stuart Fletcher 2,081 62% 30% – –

1. Evelyn Bourke was appointed Group CEO on 25 July 2016.2. Figure corrected from 2016 Annual Report.3. Stuart Fletcher left Bupa on 31 May 2016; his annual bonus reflects a pro-rated payment.

Statement of implementation of Remuneration Policy in 2020The remuneration of the Group CEO and CFO for 2020 was reviewed by the Committee, in the context of the Remuneration Policy as described on pages 81-85. Having reviewed their salaries, the Committee approved salary increases for the Group CEO and CFO of 2.9%, to reflect their performance in the role and position against external market.

Salary (effective from 1 April 2020)

Pension (effective from 1 January 2020) Management Bonus Scheme1 Group Performance Plan2

Evelyn Bourke Group CEO

£900,000 (2.9% increase) 25% salary(down from 30% salary in 2019)

Target opportunity – 100% salaryMaximum opportunity – 200% salary

Target opportunity – 137.5% salary (£1,203,125)Maximum opportunity – 275% salary (£2,406,250)

Joy Linton Group CFO

£597,000 (2.9% increase) 25% salary(down from 30% salary in 2019)

Target opportunity – 75% salaryMaximum opportunity – 150% salary

Target opportunity – 125% salary (£725,000)Maximum opportunity – 250% salary (£1,450,000)

1. Based on salary earned in 2020.2. GPP award based on salary as at 1 March 2020.

For 2020 onwards, the MBS and GPP have been designed, in line with the Remuneration Policy, to support Bupa’s Strategic Framework. The targets and the weighting of these were carefully considered to ensure the right balance of financial and non-financial measures in the short term and the long term.Our pillars Measure Management Bonus Scheme Group Performance Plan

Strong and sustainable performance Profit 55% 40%Revenue 10% 10%Cost efficiency 10% 10%Risk –1 15%2

Passionate about our customers Customer 25% 15%People make the difference People – 10%

1. The MBS outcome is subject to an overall adjustment relating to risk. 2. Risk is a specific measure in the GPP scorecard, as well as being applied to the GPP as an overall adjustment.

Payments to former Directors (audited)There were no payments for loss of office agreed for Executive Directors for 2019. Those NEDs who stepped down during the year did not receive any payment for loss of office.

Chairman and Non-Executive Director feesDuring 2019, the fee for the Chairman was reviewed by the Committee and the fees for the Non-Executive Directors were reviewed by the Chairman and the Executive Directors. The Chairman’s fee was not increased this year and the Non-Executive Director basic fee was increased by 2.9% with effect from 1 July 2019. The Senior Independent Director fee was aligned with the Committee Chair fee on the basis that the amount of work and the accountability is similar, resulting in an increase in the fee from £17,000 to £25,000 (47.1%).

The current fee levels are set out in the table on the right. Please note that membership of the CRS Committee does not attach a fee.

2019 Fee

Chairman fee £425,000Non-Executive Director basic fee £70,500Senior Independent Director fee £25,000Committee Chair fee Audit Committee £25,000

Remuneration Committee £25,000Risk Committee £25,000

Committee membership fee Audit Committee £8,000Remuneration Committee £8,000Risk Committee £8,000Nomination and Governance Committee £4,500

Part 2: Implementation continuedDirectors’ remuneration report


78 79


Single total figure of remuneration 2019 – NEDs (audited)Fees

£000Benefits1

£000Total

£000

2019 2018 2019 2018 2019 2018

Roger Davis (Chairman) 425 97 15 6 440 103Simon Blair2 3 97 0 228 3 325Paul Evans3 88 14 17 5 128 19Michael Hawker4 58 – 132 – 190 –Martin Houston5 99 97 38 92 137 199Cath Keers6 13 – 0 – 13 –Nick Lyons 88 14 1 0 89 14Matías Rodríguez Inciarte7 78 – 24 – 190 –Prof. Melvin Samsom8 60 – 38 – 98 –Caroline Silver 111 88 0 0 111 88Clare Thompson9 128 116 1 2 129 191Prof. Sir John Tooke10 41 108 1 2 42 110Janet Voûte 86 90 19 30 105 120Total 1,278 804 309 365 1,587 1,169

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

2. The 2019 fees for Simon Blair exclude EUR 85,000 in respect of his services as a NED of Bupa Chile S.A. He retired from the Board on 11 January 2019.3. The 2019 figures for Paul Evans exclude £64,250 of fees and £23,209 of benefits, in respect of his services as a NED of Bupa Insurance Limited and Bupa Insurance Services Limited.4. Michael Hawker was appointed as a NED on 1 April 2019. His 2019 fees exclude AUD 118,260 in respect of his services as Deputy Chairman of Bupa Australia and New Zealand.5. The 2019 fees for Martin Houston exclude SAR 260,000 (2018 figures exclude SAR 50,000) in respect of his services as a NED of Bupa Arabia for Cooperative Insurance Company,

an associate of Bupa. 6. Cath Keers was appointed as a NED on 1 November 2019. 7. Matías Rodríguez Inciarte was appointed as a NED on 1 January 2019. His 2019 fees exclude EUR 100,000 in respect of his services as NED of Sanitas, S.A. de Seguros.8. Prof. Melvin Samsom was appointed as a NED on 11 April 2019.9. The 2019 fees for Clare Thompson exclude £37,000 (2018 figures exclude £73,500) in respect of her services as a NED of Bupa Insurance Limited and Bupa Insurance Services Limited

from 1 January 2019 to 30 June 2019.10. The 2019 fees for Prof. Sir John Tooke exclude EUR 60,000 in respect of his services as a NED of Bupa Chile S.A. He retired from the Board on 15 May 2019.

A resolution is being put to the AGM in May 2020 to authorise an increase in the maximum amount per annum available for NED remuneration from £1,500,000 to £2,000,000. This restriction, which is contained in Bupa’s Articles of Association, takes into account the fees payable to NEDs by subsidiary companies.

Committee GovernanceMartin Houston has chaired the Remuneration Committee from 11 June 2014 until he stepped down on 31 December 2019. Cath Keer was appointed Chair of the Committee from 1 January 2020.

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

The Committee presented the 2018 DRR at the AGM in May 2019 and was approved by the AMs.

Mercer was appointed by the Remuneration Committee as its independent adviser in 2015. The appointment is reviewed every year and Mercer’s re-appointment was confirmed in July 2019. The Committee is of the view that Mercer provides independent remuneration advice to the Committee and does not have any connections with Bupa that may impair

its independence. Mercer is a member of the Remuneration Consultants’ Group and voluntarily operates under this group’s code of conduct when providing advice on executive remuneration in the UK. Mercer’s fees for services to the Committee in 2019 were £124,785 on a time and materials basis. During the year, Mercer advised on market practice, corporate governance and regulations, remuneration benchmarking and other matters that the Committee was considering.

The Terms of Reference of the Committee were reviewed by the Committee and adopted by the Board in December 2019. A full description of the Committee’s role is set out in its Terms of Reference on bupa.com.

Part 3: Policy

The aim of Bupa’s Remuneration Policy is to promote the long term success of the Company and motivate management to deliver strong and sustainable business performance aligned with Bupa’s purpose of helping people live longer, healthier, happier lives. The policy is intended to deliver a level and mix of remuneration competitive with companies of a similar scale and complexity. The proposed policy is subject to an advisory vote by AMs at the 2020 AGM in May 2020. If approved, it will apply immediately, for up to three years.

Remuneration Policy table – Executive DirectorsBase salary Management Bonus Scheme Group Performance Plan Pension Benefits

Purpose and link to strategy

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

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

To attract and retain senior leaders and incentivise strong and sustainable performance.

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

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

Operation

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

scope of responsibilities of the individual;

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

– general increases across Bupa; and

– external market data.

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

As Bupa cannot provide incentives based on equity participation, it provides a deferred cash incentive in the form of GPP.Awards are usually made on an annual basis and relate to performance over a one-year period.Vesting of awards is based on the extent to which performance, under four categories, is judged by the Committee.Payout would be determined at the end of the performance period. Payment is deferred for three years, subject to a further review by the Committee before payment is made.

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

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

Maximum opportunity

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

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

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

Executive Directors receive employer contributions of up to 25% of base salary.Executive Directors newly appointed on or after 1 January 2020 receive employer contributions in line with the rest of the workforce.

There is no specific maximum benefit spend.

Performance metrics

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

Vesting of awards is based on performance against a combination of financial and non-financial measures.No less than 60% of the GPP will be based on financial measures with the remainder based on measures linked to key strategic priorities of the business.

None. None.

Part 2: Implementation continuedDirectors’ remuneration report Directors’ remuneration report


80 81


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

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

or risk alignment of any awards under the Plan, including any deferred amount;

– an act or omission which justifies, or in the opinion of the Board would have justified, summary dismissal or service of notice of termination of employment on the grounds of misconduct on the part of an employee;

– gross misconduct or material breach of employment contract;

– new information presenting itself highlighting that performance (Company or eligible employee) was incorrectly assessed; and

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

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

– an employee enters into any hedging transaction or transactions that might undermine the intended performance and/

Remuneration at various levels of performance (£000)

Evelyn Bourke, Group CEOTotal

£000

Fixed pay

900 225 55

1,180

On target1 3,283

900 225 55 900 1,203

Maximum2 5,386

900 225 55 1,800 2,406

Joy Linton, Group CFOTotal

£000

Fixed pay

597 149 18

764

On target1 1,937

597 149 18 448 725

Maximum2 3,110

597 149 18 896 1,450

Base salary Pension Benefits Management Bonus Scheme Group Performance Plan

1. On-target figures have been calculated on the basis that Bupa achieves target financial and non-financial performance, and the individual performance multiplier is set at 100%.2. Maximum figures have been calculated on the basis that Bupa achieves maximum financial and non-financial performance, and the individual performance multiplier is set at 160%.

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

The Remuneration Policy table on page 81 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 be placed (or be transitioned) onto the framework that applies to other Executive Directors as set out in the policy table. Salary would reflect the skills and experience of the individual, and may be set at a level to allow future salary progression to reflect performance in the role.

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

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

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

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

– relocation-related expenses; and

– international assignment allowances and expenses.

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

Measures for the GPP are set by the Committee, taking into account internal and external reference points which include historic Bupa performance, internal forward-looking plans and broader market trends.

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

– determining the size of the award/payment;

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

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

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

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

– making one-off adjustments in exceptional circumstances.

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

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

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

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

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

Part 3: Policy continuedDirectors’ remuneration report


82 83


Policy Committee response

Notice period and compensation for loss of office in service contracts

– 12 months’ notice from the Company to the Executive Director. – Up to 12 months’ base salary (in line with the notice period). Notice

period payments will either be made as normal (if the Executive Director continues to work during the notice period or is on ‘gardening leave’) or at the termination date for any unexpired notice period.

Treatment of MBS on loss of office under plan rules

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

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

Treatment of GPP on loss of office under plan rules

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

– Any GPP will be paid at the normal time following the end of the deferral period.

Treatment of LTIP on loss of office under plan rules

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

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

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

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

Any payments made due to loss of office may take into account malus or clawback provisions as set out on page 82.

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

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

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

Remuneration Policy table – NEDs

Element Purpose and link to strategy Operation

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

The Chairman receives an all-inclusive fee.NEDs receive a fixed basic fee. Additional fees are paid for chairing or membership of Board Committees and/or additional work in relation to subsidiaries, and for the Senior Independent Director role.Fees are reviewed annually by the Board with any changes implemented in July. Key factors taken into account include: – overall business performance – scope and responsibility of the role – appropriate market data – the fact that NEDs are not eligible for any form of

variable pay.

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

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

Part 3: Policy continuedDirectors’ remuneration report


84 85


Other statutory information

Board and Committee attendance in 2019

Number of meetings held BoardAudit

Committee

Nomination and Governance Committee

Remuneration Committee

Risk Committee

Roger Davis 12/12 5/5 5/5

Evelyn Bourke1 12/12 1/1

Joy Linton 12/12

Paul Evans2 12/12 7/8 2/2 5/6

Michael Hawker3 8/10 4/5

Martin Houston4 12/12 5/5 5/5

Matías Rodríguez Inciarte5 12/12 5/6

Cath Keers6 2/2 1/1

Nicholas Lyons7 11/12 7/8 1/2 4/5

Prof. Melvin Samsom8 8/10 3/5

Caroline Silver9 9/12 4/8 5/5 6/6

Clare Thompson10 12/12 8/8 4/5 6/6

Prof. Sir John Tooke11 5/5 1/1 2/2

Janet Voûte12 11/12 5/5 4/5

1. Evelyn was a member of the Nomination and Governance Committee until 1 April 2019.2. Paul was appointed to the Nomination and Governance Committee on 13 June 2019 and was unable to attend one Audit and one Risk Committee meeting due to illness. 3. Michael was appointed to the Board and Risk Committee with effect from 1 April 2019 and was unable to attend two Board meetings and one Risk Committee meeting due to pre-existing

commitments.4. Martin retired from the Board on 31 December 2019.5. Matías was appointed to the Board and Risk Committee with effect from 1 January 2019 and was unable to attend one Risk Committee meeting due to a pre-existing commitment.6. Cath was appointed to the Board and Remuneration Committee with effect from 1 November 2019 and as Chairman of the Remuneration Committee from 1 January 2020.7. Nicholas was appointed to the Nomination and Governance Committee on 13 June 2019. He was unable to attend one Board meeting and one Remuneration Committee meeting due

to a pre-existing commitment and one Nomination and Governance Committee meeting due to an urgent matter relating to another company which he is a director of.8. Melvin was appointed to the Board and Risk Committee with effect from 11 April 2019 and was unable to attend one Board meeting due to a pre-existing commitment and one Board

and two Risk Committee meetings due to urgent matters which arose through his executive role outside of Bupa.9. Caroline was unable to attend three Board meetings and four Audit Committee meetings, including one ad hoc meeting, due to a number of pre-existing commitments, illness and one

urgent matter relating to another company which she is a director of.10. Clare was unable to attend one ad hoc meeting of the Nomination and Governance Committee due to a pre-existing commitment.11. Sir John retired from the Board on 15 May 2019.12. Janet was unable to attend one Board meeting and one Remuneration Committee meeting due to a pre-existing commitment.13. Simon Blair retired from the Board on 11 January 2019 and there were no Board or Committee meetings held during the year to that date.

Going concernThe Directors confirm that they are satisfied that the Company and the Group have adequate resources to continue in operation for the next 12 months. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The going concern assessment in Note 1: Basis of Preparation on page 102 includes information on the Directors’ detailed assessment of the Group’s status as a going concern based on its current position and forecast results.

Longer-term viability Our Directors have examined the outlook for the Company and the Group as required by provision 31 of the Code, assessing our ability to operate and meet our liabilities as they fall due over a three-year period.

The Strategic Framework continues to be the force behind our planning process. We chose a three-year assessment period because it ties in with our internal strategic planning process. Our planning considers all important financial and regulatory measures over the period and stresses the key risks facing individual business units, as well as global risks that could impact Bupa as a whole. This process shows the current three-year plan remains robust, even under the stressed scenarios examined.

We also conduct ‘reverse stress testing’ at the Group level which aims to identify hypothetical circumstances that might result in our business model failing and helps our Directors to better understand the Group’s risks.

Our most recent ORSA considers the level of regulatory capital we require to remain financially stable over the planning period given the nature of the risks we currently face, our strategy and our risk appetite. It takes into account the quantification of the Group’s current risks as defined by the Solvency II Directive and considers the impact of potential stressed scenarios. This assessment concluded that we expect to have sufficient capital assets to continue to meet regulatory requirements over a three-year period.

As part of their assessment of our viability, the Directors looked at our financial performance, capital management, cash flow, solvency and future outlook. Bupa is well capitalised and is expected to remain so over the plan period. The insurance businesses generate cash and are therefore expected to be able to settle liabilities as they fall due.

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

Disclosure complianceThe Strategic Report and the audited financial statements are presented on pages 1-41 and from page 89 respectively. The Governance Report on pages 42-88 comprises the Directors’ Report.

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

Financial instruments Note 10 page 134

Risk management objectives and policies Note 25 page 150

Likely future business developments Strategic Report page 1

Acquisitions and disposals Note 23 page 147

Financial results Financial performance page 21

Relationships with suppliers, customers and others Engaging with our stakeholders page 34

Although Bupa pays interest on its borrowings, it has no shareholders and there are therefore no dividends to pay. Instead, we can invest in growing organically and through acquisition.

Following a review of the key risks and uncertainties set out in the Risks section on page 37, the Directors are satisfied that we have appropriate risk management and governance procedures in place to manage and mitigate these risks over the three-year period. We also identify and report on emerging risks to ensure that they are properly understood and are considered in our future strategic decisions.

Based on this analysis and our regular risk and capital reporting processes, the Directors have a reasonable expectation that Bupa will be able to continue in operation and meet its liabilities as they fall due throughout the three-year planning period up to 31 December 2022.

Assessment of emerging and principal risksThe principal and significant risks to the Group, and how they are being mitigated, are set out in the Risks section on page 37. The Risks section also describes the RMF which sets out Bupa’s process for the ongoing identification and management of these risks and emerging risks. These are reported to the Risk Committee on a regular basis through reports from the CRO, and any proposed changes in risk appetite are reviewed by the Risk Committee and approved by the Board. The Risk Committee’s report on page 66 explains its activities in relation to emerging risks during the year.

Effectiveness of risk management and internal control systemsThe Risk and Audit Committees monitor the Group’s risk management and internal control systems on behalf of the Board on a continuous basis through regular reports from the CRO and CAO. This includes material financial, operational and compliance controls. An annual assessment of the Group’s risk management and internal control systems is undertaken by management through the ICRMA process which is reviewed by the Risk function. Management’s assessment during 2019 was that Bupa generally has a sound system of risk management and internal control, with some weaknesses in internal

controls which are being addressed by management and monitored by the Risk and Audit Committees. This view was broadly supported by the Risk function. The CAO also provides an annual opinion to the Audit Committee and the Board on the level of assurance that the Committee can place on the Group’s systems of internal control. In relation to 2019, the CAO’s opinion noted that there is generally a sound system of internal control, with improvements during the year on risk culture and awareness.

Political donationsOur policy is not to make political donations and we confirm that no political donations were made, nor any political expenditure incurred within the definition contained in Section 364 of the Companies Act 2006 (as amended). In line with many large companies, we are proposing a resolution at our 2020 AGM to authorise the Group to make political donations given the wide definition in Section 364 of what constitutes a political donation.

Charitable donationsDuring the year, the Group donated a total of £7.3m to charitable causes with £1.9m being donated to charitable causes in the UK. Of the UK donations, £1.7m was donated to the Bupa UK Foundation, £38,000 to match fundraising by our employees, £20,000 related to community grants, £27,000 in relation to volunteering activities and £186,000 to various charities. The total donations by the Company to the Bupa UK Foundation was £1.58m. Further information on our charitable and community activities can be found in the Corporate responsibility and sustainability section on page 22.

BranchesThe Company has an inactive branch in Cyprus.

Articles of AssociationThe Company is limited by guarantee and as such has no share capital nor any traded securities. The AMs have one vote each on business at general meetings. The Company’s Articles of Association require all Directors to be AMs. The Directors have the authority to exercise all the powers of the Company. A Director may be appointed by ordinary resolution or by a decision of the Directors.


86 87


A Director’s appointment ceases in a variety of circumstances including resignation, becoming prohibited from being a director by law, bankruptcy, ceasing to be an AM, incapacity or being removed from a medical register if a qualified medical practitioner, being requested to resign in writing by at least three-quarters of the other Directors, or by ordinary resolution given on special notice.

Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and Accounts 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, relevant and reliable

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

– assess the Group and Parent Company’s ability to continue as a going concern

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

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 enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and have general

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

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

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

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.

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

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

By order of the Board.

Colin CampbellGroup Company Secretary4 March 2020 Company number: 432511

Other statutory information continued


88

Bupa ARA 2019 - Governance report/media/files/site-specific... · development at Sky TV, Avon,...

Documents

Transcript of Bupa ARA 2019 - Governance report/media/files/site-specific... · development at Sky TV, Avon,...