“your advisors are delightful, helpful and have great …...the launch of our simplyhealth...

“Your advisors are delightful, helpful and have great manners

It really is a pleasure to speak to genuinely positive and caring people”

Our report to you 2015

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“Kind, helpful and professional

To me and my family you are an amazing organisation”

Contents

Officers and professional advisers 3

Strategic report 4

Directors’ report 24

Directors’ responsibilities statement 26

Independent auditor’s report 27

Consolidated statement of comprehensive income 29

Consolidated statement of financial position 31

Company statement of financial position 33

Consolidated statement of changes in equity 34

Company statement of changes in equity 35

Consolidated cash flow statement 36

Notes to the financial statements 37

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Officers and professional advisers

Officers and professional advisers

DirectorsMrs R AbdinMr T BrookeMr M HallMr R HarrisMr B KentMr K PiggottMrs A Pike

SecretaryMr J Glover

Registered officeHambleden House Waterloo Court Andover Hampshire SP10 1LQ

BankersNational Westminster Bank plc Andover Bridge Street Branch 9 Bridge Street Andover Hampshire SP10 1BD

SolicitorsAddleshaw Goddard Sovereign House PO Box 8 Sovereign Street Leeds LS1 1HQ

Independent AuditorGrant Thornton UK LLP 30 Finsbury Square London EC2P 2YU

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Welcome to our 2015 Report to you.

This is the opportunity for your board to tell you about our successes and achievements for the year; how we have supported our customers and communities; how we have measured up against our responsibilities to our people; and to give you an insight into our ambitious plans for growth throughout the year ahead.

Simplyhealth has been helping people access the best affordable healthcare for 144 years. Today, we are proud to be the leading provider of health cash plans and dental payment and pet health plans.

We know that the landscape of health care and services is changing, as are peoples’ needs and expectations. Whilst the NHS is projected to suffer the effects of a £30 billion shortfall in the 5-year Forward View, in order to survive it will have to focus on treating more critical illnesses and serious health concerns. As a result, insights from our 2014 Strategic Review have told us that people want to take more control over,

and have more personal responsibility for, their health, over how they want to be supported and where they want to turn for advice. We have deepened our understanding of what our customers want and expect in order to meet their ‘everyday health’ needs.

Helping people make the most of life is at the heart of what we do; it’s our purpose, our commitment, our reason for being. Therefore, we decided it was time to try something new to support our customers in the best way possible. We decided to set a strategic direction moving away from a sole focus on healthcare funding towards a diversified health business offering ‘delivery,

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funding, advice and guidance’. Our new strategic approach has enabled us to take our business into our new space of ‘Everyday Health’; filling a gap in the market whilst empowering and supporting people with their ‘everyday health’ needs in order to make the most of life.

We are very proud of the fact that, as we have no owners or shareholders, every penny we earn is reinvested into supporting our customers and health related charities. This means we measure our success both in financial and non-financial terms. Our ethos drives the investment decisions that we make, challenging us to balance the need to make a profit and the desire to make a difference for our customers, our people and our communities.

Core to our purpose, our charitable giving will always remain at the heart of our organisation. I am particularly proud that as a result of our success in 2015, we were able to donate £1.6m to our charitable partners who all help people make the most of life. From now on, continuing our commitment to raising the bar, we pledge to donate 10% of our profits to charity every year.

We are committed to the continued growth and development of our organisation as a strong, trusted and sustainable business, delivering unrivalled excellence, not just with the products we offer but with the highest standards of personal service we provide.

On behalf of the Board, I would like to take this opportunity to thank Romana, our Leadership Team and all of our employees for their continued commitment to and support for our customers.

I would like to thank each of you – our valued customers and partners – for your continued confidence and trust in us. We truly value each and every one and hope to continue to support you in your everyday healthcare needs for many years to come.

Ken Piggott Chairman

Foreword from our Chairman

£1.6mdonated in 2015

We pledge to donate 10% of our profits to charity every year

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This is my third Annual Report as Chief Executive and I am pleased to share with you our new approach to our continued conversation with our key stakeholders.

Setting ourselves up for success

I am delighted to tell you that 2015 was a very successful year for Simplyhealth. We delivered upon our objectives and we learned a lot along the way about what has been working well and what we can do better to set ourselves up for long-term success. We ended with a retained profit of £12.6 million (up from £6.4 million the previous year). As a result, we were able to donate £1.6 million to health related charities, touching the lives of more than 825,000 people.

Using insights gained from our Strategy Review the previous year, 2015 was about refocusing our strategic direction. We set out on our new journey making strong, strategic decisions, moving away from a sole focus on healthcare funding towards a diversified health business offering ‘delivery, funding, advice and guidance’.

Our customers have told us that, to them, ‘good health’ is not about treating illness, it’s about managing wellness. It means doing the things they want and love to do, accessing the best ‘everyday health’ services and ‘being able to make the most of life’.

Ken spoke to you about the importance of our strategic review, our new approach and our reasons behind the evolution into our new space of ‘Everyday Health’.

As Ken explained, this has been a vital and pivotal step for us in terms of addressing a significant gap in the market whilst equipping our customers – existing and new – with the products, services and support they need to manage their ‘everyday health’ needs.

Our new space: Everyday Health

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Foreword from our Chief Executive

In order to deliver on this promise, 2015 was about making bold decisions across the organisation:

• We entered into an agreement to sell our private medical insurance (PMI) business to AXA PPP healthcare Limited (AXA PPP), securing its future with a company that is committed to the PMI market, while prioritising and aligning the development of our new business model in our new space of ‘Everyday Health’

• We started a pilot to launch 50/50 partnerships with private dental practices, taking a 50% stake in their businesses, working closely with our dental partners (to gain a deep understanding of the pressures they face as the move towards the end of their business life). This has given us the opportunity to collaborate with our dental partners whilst focusing on developing clinical delivery

• We made acquisitions that doubled our retail presence – helping people live independently through mobility products and daily living support

You will learn more about our Risk Management Review & internal control framework later in this report. Central to our culture and our decision making, this has enabled us to adopt a consistent approach for measuring, controlling, monitoring and reporting risk which I am pleased to say operated successfully and effectively in 2015.

Our customers

During 2015, we reviewed how we operate as a business, challenging ourselves to improve all aspects of our customer journey in order to be better connected to ensure the business meets our customers’ current and future needs.

To allow our customers to spend their quality time on themselves, as opposed to completing forms, we introduced online claiming, providing a streamlined, more efficient process for our customers with faster payment. We also developed new online applications for sales and service delivery that will transform the way in which we sell to and serve our customers.

We continue to review our business performance on a regular basis with the aim of ensuring the effective operation of the business and, most importantly, fair outcomes for our customers.

As a result of the improvements, we have made to our operating systems and customer experience excellence, I am delighted to say that 89% of our customers were completely satisfied with our service in 2015. 90% of customers also told us they would recommend Simplyhealth to friends and family. This year, we will strive to raise these satisfaction levels even further.

89% of our customers were completely satisfied

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Simplyhealth Everyday Health Tracker

Following on from my report to you last year, where I talked about fully understanding what our customers want and need, and delivering genuine, personalised healthcare, 2015 also saw the launch of our Simplyhealth Everyday Health Tracker. Created in partnership with YouGov, this gives us the opportunity to understand the attitudes and behaviours that UK consumers have towards their everyday health and wellbeing, providing an overview of overall health, diet and exercise, and future health concerns.

This consistent analysis and insight will enable us to not only better understand consumers’ health concerns and needs, but also to tailor our product innovation and services, built specifically to meet the needs of the consumer into the future.

Our people

Just as helping our customers is important to us, we are passionate about being a great employer. With nearly 1,400 employees across the UK, we strive to create a supportive, motivating culture, nurturing talent, and helping people succeed while supporting them with their own everyday health and wellbeing.

We began 2015 by sharing our new strategic direction with our people and launching our ‘Doing Things Differently’ programme. We focused on how we leverage our strengths and skills to

ensure every bit of our business is set up to be as efficient and effective as possible and can deliver outstanding products and services to our customers, this gave us the opportunity to work with over 80 people from across the business – all experts in their fields - to fully understand what matters most to our employees, empowering them to deliver our strategic ambition whilst retaining our core values and spirit.

Our charitable giving

As our Chairman mentioned, helping people make the most of life is our sole purpose and absolute reason for being. Giving back is a vital part of the Simplyhealth culture.

I am delighted that in 2015 we were able to donate £1.6 million to our charitable causes supporting 25 different charities including Revitalise, Music in Hospitals, Brainwave Centre, British Lung Foundation and Rainbow Trust and touching the lives of nearly 825,000 people across the UK.

As Ken has already said, part of my role is to ensure our performance enables us to deliver our ongoing pledge to donate 10% of our profits to charity ever year, focusing our efforts on supporting health related charities that are aligned to our strategy and purpose and dedicated to helping people with everyday health conditions to make the most of life.

£1.6 million

825,000 people

25 charities

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A bright future

Having successfully delivered our objectives in 2015, I am confident that Simplyhealth is well placed to achieve and exceed an ambitious plan for 2016.

We will continue to listen to our customers, understanding and meeting their needs by continuing to offer a broader range of the very best value ‘everyday health’ products and services, supported with the highest standard of customer experience.

My goal is to ensure Simplyhealth is viewed as a thought leader and opinion former in ‘everyday health’, because it is not just about responding to our customers’ needs now, it is also about shaping our business so we can be agile and ready to respond to the healthcare needs of the future.

We are embarking on an exciting year during which we are committed to delivering our strategic goals and bringing to life our new business model, as well as our new ‘brand concept’ which we look forward to revealing to you very soon.

I am both delighted and proud that, today, we help over 3.5 million people in the UK with their ‘everyday health’ needs, enabling them to access the best affordable products, services and support to ensure they can make the most of everyday life.

However, it is time to raise the bar. To be bold. To be brave. To push forward with higher standards and courageous innovation for our customers.

We look forward to making this journey with you all.

Romana Abdin Chief Executive, Simplyhealth

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Today, Simplyhealth is comprised of three principal companies: Simplyhealth Access, Denplan Limited and Simplyhealth Wellbeing Limited. Simplyhealth Access operates within the financial services sector and offers affordable and efficient access to a range of health plans for both our individuals and corporate customers.

Underwritten by Simplyhealth Access, our Denplan Limited business enables the dental profession and member dentists to offer their patients’ affordable dental healthcare payment plans as well as to the veterinary profession and pet owners alike.

In January 2015, we also increased our presence in the veterinary market through the acquisition of The Animal Healthcare Company Limited (AHC), now managed by Denplan.

In preparing these financial statements the Company has adopted Financial Reporting Standard 102 “The Financial Reporting Standard Applicable in the UK and the Republic of Ireland” (‘FRS 102’) and Financial Reporting Standard 103 “Insurance Contracts” (‘FRS 103’). The Directors have considered the need to restate the comparative figures on the basis of the necessary changes in the Company’s accounting policies and have concluded there is no material effect on the results of the Company in the current or prior period arising from the adoption.

As you will see, the results for our 2015 Financial Report to you are shown in the consolidated statement of comprehensive income on page 29. The Group result for the year was a profit after tax of £12.6m (2014: profit of £6.4m).

Business performance 2015

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Simplyhealth’s strategic objective is to generate a sustainable profit from our businesses through our new strategic approach, moving away from a sole focus on healthcare funding towards a diversified health business offering ‘delivery, funding, advice and guidance.’ This new strategic approach has enabled us to take our business into our new space of ‘Everyday Health’; fulfilling a gap in the market whilst empowering and supporting people with their ‘everyday health’ needs in order to make the most of life. This is subject to regulatory capital reserves, and our retained earnings are available to invest in the development of the business for the benefit of our customers present and future. We also need to build sufficient reserves to pursue new opportunities, and to ensure we retain a secure balance sheet and solvency position.

As part of this strategy, on 1 August 2015 the Company sold the fixed assets, goodwill and other trading assets and reinsured 100% of the insurance liabilities and net premiums of its PMI business under two separate agreements with AXA PPP, securing its future with a company that is committed to the PMI market, whilst prioritising and aligning the development of our new strategic business model. The sale resulted in Simplyhealth receiving proceeds of £50.0m, resulting in a profit before tax of £12.7m net of transaction costs of £1.4m.

Simplyhealth have agreed to provide AXA PPP with ongoing transitional support services under a Transitional Services Agreement for up to two and a quarter years. Under the reinsurance agreement, Simplyhealth, as the primary insurer of the PMI policies has transferred all of the insurance and commercial risk to AXA PPP from completion of the transaction. Simplyhealth and AXA PPP are operating under a clear framework of roles and responsibilities and are working closely to ensure a smooth transition for PMI customers. The full impact of the transaction on our financial statements is set out in notes 13 and 14 to the financial statements.

Strategic Report

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Strategic Report

2015 Performance

Simplyhealth Group’s financial performance in 2015 includes the impact of the sale of our PMI business on 1 August 2015. The Group retained a profit of £12.6m (2014: £6.4m profit),

increasing reserves to £277.5m (2014: £264.9m). This increase in reserves of £12.6m includes the performance of the PMI operation up to completion of the transaction, and also reflects the exceptional profit of £12.7m realised on the sale of the PMI operation.

The Group manages its business performance based on key financial and other performance indicators which are as follows:

2015 2014

Continuing operations

discontinued operations Total


discontinued operations Total

Change Continuing operations

Customer numbers ‘000 3,119 100 3,219 2,833 105 2,938 286

Total technical income £m 256.2 | 74.3 330.5 257.7 127.1 384.8 (1.5)

Loss ratio % 66.8 77.0 69.1 66.3 81.0 71.2 (0.5)

Business operating profit*

£m 13.2 2.9 16.1 13.9 1.3 15.2 (0.7)

Retained profit £m 0.2 12.4 12.6 1.9 4.5 6.4 (1.7)

*Business operating profit represents the return on operations that are within the Company’s control. It is defined as profit on ordinary activities before tax and disposals excluding investment returns, amortisation of goodwill, donations and impairment of tangible assets and buildings.

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Strategic Report

Performance across key indicators in 2015 reflects the sale of the PMI business. The income and claims of continuing operations reflect a stable operating performance.

The £6.2m increase in retained profit reflects the following:

• Technical income fell by £54.3m (14.1%) (2014: £15.9m) primarily due to the sale of the PMI business on 1 August 2015 and the reinsurance of the PMI policies by AXA PPP from that date

• The profit of discontinued operations of £2.9m before the profit on the disposal of operations and tax was £3.9m lower in 2015 than in 2014. The PMI business was owned for seven months in 2015, compared with a full year of ownership in 2014, leading to a £52.8m (41.5%) reduction in revenue, £7.0m (29.0%) reduction in gross margin, offset by a higher reduction of £9.4m (37.8%) in operating costs, leading to net increase in business operating profit of £2.4m

• The sale of the PMI operations resulted in a pre-tax profit on disposal of £12.7m in 2015 of which £5.0m arose in the technical account and £7.7m arose in the non-technical account

• Operating costs of continuing operations decreased by £2.3m, mainly due to cost efficiencies, offset by the costs of an advertising campaign to support the Denplan brand together with the impact of annual salary inflation

• Investment income fell by 75% to £0.6m (2014 £2.4m), reflecting the falls in investment markets during the year. While the FTSE100 fell by 4.9% in 2015 (2014 2.7%), the Group’s prudent investment strategy enabled us to generate an average return on financial assets of 0.8%

• Retained profit from discontinued operations in 2014 includes the positive impact of a revaluation of the Group’s Bristol property in 2014 of £5.6m

• Group reserves increased by 4.8% to £277.5m (2014 £264.9m), due principally to the profit on the sale of the PMI operation

• Overall customer numbers grew to 3.2m, an increase of 9.6% (2014 2.9m). Customer numbers rose by 281,000, as the number of pet health plans rose strongly through organic growth and the acquisition of AHC, offset by falls in the PMI business

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The following graphs summarise our five year performance in respect of financial and performance metrics that are used

to monitor business trends and affect the Group’s profitability.

Total technical incomeThe total amount of earned premiums net of reinsurance premium ceded

450

250

350

150

50

Retained profitProfit generated by the company that are either reinvested in the business or kept as a reserve for specific objectives

15

5

10

0

-5

Customer numbersThe number of unique active policies on our products at the end of each financial year

3,500

1,500

2,500

500

Lapsed customersThe number of unique policies that have cancelled their contract with Simplyhealth within the year

0

500

300

400

200

100

Total claims incurredThe total amount of paid claim net of reinsurance recovered

450

250

350

150

50

ReservesThe Group’s reserve consists only of accumulated profits

450

250

350

150

50

New customersThe number of unique policies that have been joined Simplyhealth through various sales channels within the year

0

500

300

400

200

100

Fairness 500 indexAn internal monitoring and reporting mechanism to measure fair treatment of our customers based on a series of criteria

0

500

300

400

200

100

2011

2011

2011

2011

2011

2011

2011

2011

2012

2012

2012

2012

2012

2012

2012

2012

2013

2013

2013

2013

2013

2013

2013

2013

2014

2014

2014

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

2015

2015

2015

Strategic Report

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Risk management

The role of risk managementWe consider risk management to be a fundamental part of good management practice and a significant aspect of corporate governance; therefore this responsibility is taken very seriously. We take measures to embed risk management principles throughout our organisation, business and brands. The effective management of risk is central to our culture and our decision making and provides an essential contribution towards the achievement of our strategy and objectives.

Like all organisations, we operate in an uncertain market which means taking risks to run and grow our business. In order to deliver our strategic objectives we adopt a responsible and balanced approach to risk taking so that all significant risks are identified and managed. This supports our long term sustainability and growth and enables us to respond dynamically to strategic opportunities, while maintaining an appropriate and proportionate approach to running the business.

We work to maintain effective management oversight so that overall risk-taking occurs within agreed appetites. We continually work to identify, assess and take steps to manage both the risks and the opportunities that might affect the future development of our business.

Risk management frameworkSimplyhealth maintains a risk management framework which establishes how risk management operates across the business. This framework links together our operating environment, business strategy, decision making and capital management, alongside defined risk appetites, so that there is an appropriate forward looking view of the risks facing our business. This includes the adoption of the “Three Lines of Defence” operating model for defining risk management within roles and responsibilities. This operating model supports strong alignment between risk management, accountability, decision making and reward.

The framework is used to provide a comprehensive and consistent approach for identifying, measuring, controlling, monitoring and reporting risk, for establishing risk appetite and for managing capital. The framework sets out the processes involved in the identification, assessment, analysis, management and mitigation of risk, required to meet the Group’s commercial, strategic and regulatory objectives, including the requirements of the UK financial services regulators and the Solvency II Directive.

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Risk governanceThe Board is responsible for determining the nature and extent of the principal risks we as a business are willing to take in achieving our strategic objectives which comprise our overall risk appetite. The Board delegates oversight of risk management to a Board sub-committee, the Risk and Capital Committee. The purpose of this Committee is to:

1. Oversee, understand and review Simplyhealth’s risk profile, advising the Board on principal risk exposures and future risk strategy, including recommendation of the risk appetite of the business and changes to this;

2. Ensure that capital held is sufficient to support the risk profile of the business and meets current and future solvency requirements;

3. Oversee the effectiveness of the risk management culture and framework across the business;

4. Day to day oversight and challenge of our risk management and reporting processes rests with the Risk Management Function. The consolidated risk report produced by this function is firmly embedded in our reporting. This report enables the monitoring of risk taking versus agreed risk limits, using a suite of Key Risk Indicators, linked to risk appetite

The risk management function reports quarterly to the Risk and Capital Committee on the effectiveness of our organisation’s risk management and on principal and emerging risks. This enables management and the Board to identify potential stress points, both within the organisation and the external

environment. Principal and emerging risks are presented together with the actions being taken to reduce the impact that these stress points might have on the business, should they materialise, or indeed to reduce the likelihood of them materialising.

The function also oversees the framework that drives good decision-making and solvency management, including the use of the Own Risk and Solvency Assessment. Throughout the year we regularly reviewed our risk and solvency position to inform decisions on a number of strategic opportunities, including the decision to withdraw from the PMI market.

Independent assessment of the effectiveness of the risk management and internal control framework is assessed as part of the programme of activity carried out by the Internal Audit Function in the third line of defence, the results of which are reported to the Audit Committee.

Principal risks and uncertaintiesThe Simplyhealth Group manages its exposure to risk through regular reviews by management and its Risk and Capital Committee. Our Directors have considered the principal and emerging risks and uncertainties facing the business and these are described below.

Our overall risk profile is influenced by:

• The environment in which we do business, in particular developments in the healthcare market, regulatory changes and the economic environment;

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• The business strategy, which continues to develop existing businesses and build new business opportunities, which in turn changes the mix of our business;

• The sale of our PMI business and the continuing and transitional arrangements with AXA PPP

The overall contribution that different categories of risk make to the overall risk profile has changed during 2015. Financial risk which includes insurance risk and market risk remains the most significant category but operational risk has increased as we progress with our organisational change programme. Insurance risk has reduced following the sale of the PMI business and the associated re-insurance agreement with AXA. Market risk has also reduced as a result of the sale of the Bristol property as part of the PMI transaction.

Credit riskOur credit risk is primarily attributable to our reinsurance agreement with AXA PPP, established as part of the PMI transaction. This risk is mitigated through a combination of a claims float that covers our liability to pay claims on behalf of the reinsured business supported by a guarantee issued by AXA S.A., the ultimate parent of AXA PPP. The reinsured claims are settled on a monthly basis in arrears by AXA PPP and we can use the claims float to cover timing differences which adversely affect its cash flow.

AXA S.A. is a publically listed French société anonyme subject to regulation by both the Autorité des marchés financiers, which is the French financial market regulator, and the Autorité de Contrôle Prudentiel et de Résolution which is the principal French insurance regulator.

The credit risk on liquid funds and other financial instruments is limited because the counterparties are banks with acceptable credit ratings that are assigned by international credit rating agencies and are monitored on an ongoing basis.

Operational, conduct & reputational riskOur strategic intentions have created an increased risk of failure to manage the overall type, volume and pace of change, particularly in relation to the sale of the PMI business and the organisational change programme. Increasingly challenging demands on resources and skills within the business could negatively affect the operational capacity and capability of our business and the resilience of our operational systems and processes. This could lead to financial loss, customer detriment, reputational damage and potentially failure to meet regulatory expectations. The management and governance culture of our business continues to be enhanced specifically to address this challenge.

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During the year there have been no material operational risk losses or incidents that require disclosure.

Insurance riskSimilar to credit and market risk, insurance risk has also reduced as a result of the sale of our PMI business. Our continuing insurance risk is managed through regular underwriting reviews. These reviews ensure that benefits and prices are matched in a way that delivers competitive products, providing tangible benefits to our customers, while delivering a sustainable financial return for our business and organisation.

We apply a prudent approach to our management of potential exposure to risks arising from its insurance contracts. Further details relating to the management of these risks are set out in note 23 to the financial statements.

Market riskOur market risk is primarily attributable to our investment portfolio and investment properties. In relation to investment properties this risk has reduced, following the sale of the Bristol office as part of the PMI transaction.

The investment strategy is set by the Board and management makes investment decisions in line with this. The investment portfolio is managed by an external investment manager, who receives instructions from management on the types of investments and levels of exposure that Simplyhealth considers appropriate. The Risk and Capital Committee reviews the

investment portfolio and ensures that investments are maintained in line with the investment strategy.

Liquidity riskLiquidity risk is the risk that the business will encounter difficulties in meeting obligations associated with financial liabilities or insurance contract liabilities when they fall due. Simplyhealth is exposed to daily calls on its available cash resources from claims arising from insurance contracts and to settle its financial liabilities. We have robust processes in place to manage liquidity risk and have available cash balances and other readily marketable assets in case of exceptional need. Our risk policies are designed to manage the risks associated with asset and liability matching.

Going concern

In the course of preparing Simplyhealth’s annual financial statements, our Directors have assessed whether the Group is a going concern. The Solvency II regime for measuring and monitoring regulatory capital came into effect on 1 January 2016. Consequently the Directors’ assessment of future capital sufficiency is based on Solvency II requirements.

As part of this review, our Directors have carefully considered the extent to which both the risks associated with the wider economic environment, and the operational risks that Simplyhealth has identified, might affect the preparation of the financial statements on a going concern basis. Based on this

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assessment, our Directors consider that our business is maintaining an appropriate level of capital and liquidity, sufficient to meet both the normal demands of the business and the requirements which might arise in stressed circumstances. In addition, our assets are assessed for recoverability on a regular basis. If these assets are not already carried at fair market value, an additional provision is made.

On this basis, our Directors have a reasonable expectation that the Group has sufficient capital and liquidity facilities to ensure that it will continue in operational existence for the foreseeable future and are satisfied that it is appropriate to prepare our 2015 financial statements on a going concern basis.

Our customers

This year we have reviewed how we operate as a business, challenging ourselves to improve all aspects of the experience we provide, putting in place both short and long term plans to deliver improvements in operational effectiveness and customer experience. Our aim is to better connect Simplyhealth’s people with our customers to ensure we continuously meet our customers’ current and future needs.

For our cash plan customers, we have continued to roll out online claiming. Our Denplan dental insurance business continues to achieve high levels of automation in claims processing, enabling a fast response to customers.

As part of our commitment to delivering an enhanced but efficient customer experience, we have developed new online applications for sales and service delivery across the business that will transform the way that we sell and serve our customers. This gives Simplyhealth additional capability to exploit opportunities for improved sales and service performance.

In 2015 we continued to invest in improving how we run our business by embarking on a new core operating system for Denplan to enable the business to develop new products, bring them to market quicker and serve healthcare professionals and their patients more effectively.

This has been achieved while continuing to offer good value products and excellent customer service. The high standard of customer service we have achieved through our programme of investment is reflected in our customer satisfaction and fairness scores. The scores have remained high at 84.2% in line with 2014. Through 2016 and beyond, we will continue to listen to our customers, aiming for further improvements to our products, services and their experience.

During 2015 we continued to review how fairly we treat our customers in the business’s monthly governance meeting which is attended by both members of the Leadership and Senior Management team. This forum monitors and reviews business performance with the aim of ensuring the effective operation of the business and fair outcomes for our customers. Simplyhealth also

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explores the external market to identify opportunities, to develop our offering further. The fair treatment of customers is of significant importance to us. Our Fairness 500 score was 90% in 2015 (2014: 93%).

Our people

Just as helping our customers is important to us, we are passionate about being a great and supportive employer.

We began 2015 by sharing our new strategic direction with our people. We took the opportunity to bring every employee together in one place to share our new purpose, direction and plans for Simplyhealth. We invested significant time in sharing insights gathered through our strategy review and exploring our ambition to help people make the most of life. The health landscape is constantly changing, as are the needs of our customers and so it is important that our people fully understand our role in supporting these changing needs.

2015 has seen a significant change in the number of customers managing their claims digitally and choosing to chat to us online. Our people have adapted and delivered to our customers’ changing needs and through regular feedback, we see that our customers appreciate these changes.

We involved over 80 people in our “Doing Things Differently” programme looking at how we make the most of our strengths and skills, developing new ways of working together to improve our business and enhance our proposition and services to our customers.

We moved away from a traditional employee survey approach to one that gives more time to meet with and listen to our people. We have done this in a range of ways, including informal “connecting cafes”, pop in “find out more” sessions and independently facilitated focus groups. This has given us a rich picture of what matters most to our people, what they want and expect of their leaders and how they want to hear news and updates on our business performance.

Simplyhealth continues to provide a healthy, productive and supportive work environment for all of our employees, through the culture we create the support we provide and through our employee benefits and wellbeing offerings. Our policies and practices promote equality, fair treatment and a supportive working environment. In 2015 this included help with healthy eating and diet, fitness and activity, personal awareness workshops such as ‘know your numbers’ to understand weight/BMI, blood pressure, blood glucose and cholesterol levels. This year has also seen the first full year of our new “My Discounts” benefit – enabling our employees to access discounts and special offers in many elements of their life, from gym membership and high street shopping to holidays and leisure activities. This has been a very popular addition to our benefits offering.

While our strategic ambition and the way we work are changing, our values and spirit remain. Simplyhealth is, as ever, committed to being a fair employer and considers fully and equally applications for employment by disabled persons, bearing in mind the abilities

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of the applicant concerned. Disabled employees are consulted to ensure all reasonable workplace adjustments are considered and implemented to enable them to perform their work safely and effectively. In the event of an employee becoming disabled, we will make every effort to provide appropriate support, retraining, equipment and facilities to assist the employee in their work. It is Simplyhealth’s policy that the training, career development and promotion of disabled persons should, as far as practicable, be identical to that of other employees.

Our social & charitable giving

Helping people make the most of life is not just a strapline for us. It’s our sole purpose, our reason for being, and a vital part of the Simplyhealth culture. Our charitable giving is and will always remain at the heart of our organisation.

We are very proud that in 2015, we donated £1.6m (2014: £1.4m) to 25 charities and community projects, touching the lives of nearly 825,000 people that were selected by our Charitable Committee in 2015.

From the total, £1.1m (2014: £0.9m) was donated to charities that support healthcare needs. Larger donations were given to Revitalise, Music in Hospitals, Brainwave Centre, Muscular Dystrophy, Cystic Fibrosis Trust, Rays of Sunshine, Disability Challengers, MedEquip4Kids, Designability, British

Lung Foundation, Rainbow Trust, Action on Elder Abuse, together with a number of smaller donations. A further £0.5m (2014: £0.5m) was donated towards community initiatives that do good work in our principal locations.

Simplyhealth will continue to support charitable causes and community initiatives in 2016, with an increasing focus on healthcare charities dedicated to helping people make the most of life. From now on, we pledge to donate 10% of our profits to charity every year.

Our outlook for 2016

Having successfully delivered our objectives for 2015, Simplyhealth is well placed to achieve an ambitious 2016 plan. We remain committed to developing a different kind of business, which is resilient and sustainable in a challenging market place.

Having embarked on our ‘Doing Things Differently’ programme, we will continue to move this forward, embedding our new strategic approach and new ways of working more closely together as one organisation this will mean we can meet the demands of our markets and customers.

We are continually developing and improving our products and services to ensure these remain relevant to our customers, and to maximise potential future opportunities.

Strategic Report

22

The overall economic picture remains one of weak growth. Consumer spending has been growing slowly and incomes have begun to rise slightly. Inflation and interest rates have remained very low, and government spending remains constrained.

The combination of funding constraints and demographic trends has meant the NHS and especially social care face significant financial pressure. As a result service levels are falling, leaving an increasing gap between consumer demand and state provision. Consumer awareness of these challenges is evident, and 56% of those surveyed in our Everyday Health Tracker recognised that the NHS would not be able to fund all healthcare needs. Employers are taking up some of the shortfall, with health and wellness benefits becoming more commonplace. This in turn has helped support the continuing growth of the corporate paid health cover market.

The NHS will continue to make tough choices and will need to focus more and more on treating patients with serious health conditions and illnesses. Times are changing, people are changing and healthcare is changing. People will need to take more personal responsibility for their everyday health concerns and employers will need to take more responsibility for the health and wellbeing of their employees. Our review also told us that 90% of people want to be more informed and in control of their health and their healthcare needs. What’s more, they are prepared to pay for these services.

Therefore, as we embark on our journey in 2016, we will remain committed to helping our existing and future customers, specifically shaping our business, products and support services around the insights we gain from our Everyday Health Tracker and what our customers are telling us. We will continue to listen to our customers, understanding their needs and responding accordingly by continuing to develop a broader range of the very best value ‘Everyday Health’ products and services, supported with the highest standards of customer experience.

We will use our wealth of knowledge, experience, insight and consumer research to be a thought leader and opinion former in ‘Everyday Health’, setting the tone of debate and conversations around Government, NHS and social care issues, whilst shaping our business to be agile and ready to respond to the healthcare needs of the future.

With ambitious and rapid plans for growth within the retail market, we will continue to turn our strategy into action with the expansion of our ‘Store of the Future’ programme, offering the latest lifestyle and product innovations enabling our customers to make the most of life. Alongside this, we will continue to explore new, exciting and profitable markets that will enable us to grow our business offering, whilst empowering and supporting our customers with even more of their ‘everyday health’ needs.

Strategic Report

23

2016 is also the year we unveil our exciting and inspiring new brand and visual identity which will bring to life our new strategic direction and engage our consumers with our organisation’s refreshed new look and feel.

We are embarking on an exciting year at Simplyhealth, during which we are committed to delivering our strategic goals and bringing to life our new business model, and look forward to revealing our new brand concept to you very soon.

Approved by the Board of Directors and signed on behalf of the Board

Romana Abdin, Chief Executive 22 March 2016

Strategic Report

24

Directors

The directors who served during the year and up to the date of approval of these financial statements were:

Mr K Piggott Non-executive Chairman

Mr T Brooke Non-executive

Mr M Hall Non-executive

Mr R Harris Non-executive

Mrs A Pike Non-executive (appointed 24 March 2015)

Mrs R Abdin Chief Executive

Mr B Kent Executive

Mr J Wilson Executive (resigned 10 March 2015)

Mr J Glover served as Company Secretary throughout the year and up to the date of approval of these financial statements.

The Company has arranged indemnity insurance on behalf of the Directors and Officers.

Directors’ report

25

Directors’ report

Directors’ report disclosures

The Strategic Report contains disclosures otherwise required to be contained in the Directors’ Report in respect of disabled employees and employee involvement.

The Group’s financial instruments comprise its financial investments, cash, and various items arising directly from operations such as insurance and other debtors, technical provisions and creditors. The main risks arising from these financial instruments are credit risk, market risk, and insurance risk. The Group’s approach to management of these risks is disclosed in the Strategic Report.

Disclosure of information to the auditor

In the case of each of the persons who are Directors of the Company at the date when this report was approved:

• So far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company’s auditor is unaware; and

• Each of the Directors has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information (as defined) and to establish that the Company’s auditor is aware of that information

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Independent auditor

Grant Thornton UK LLP has expressed its willingness to continue in office.

Approved by the Directors and signed on behalf of the Board.

James Glover, Secretary 22 March 2016

Hambleden House Waterloo CourtAndover Hampshire SP10 1LQ

26

Directors’ report

Directors’ responsibilities statement

The Directors are responsible for preparing the Strategic Report, Directors’ Report, and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 Company and Group and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and accounting estimates that are reasonable and prudent;

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

• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business

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

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

27

Independent auditor’s report

Independent auditor’s report to the members of Simplyhealth Group Limited

We have audited the financial statements of Simplyhealth Group Limited for the year ended 31 December 2015 which comprise the consolidated statement of comprehensive income, the consolidated and parent company statements of financial position, the consolidated and parent company statements of changes in equity, the consolidated cash flow statement, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

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

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

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

Opinion on financial statementsIn our opinion the financial statements:

• Give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2015 and of the group’s profit for the year then ended;

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

• Have been prepared in accordance with the requirements of the Companies Act 2006

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Independent auditor’s report

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

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• The parent company financial statements are not in agreement with the accounting records and returns; or

• Certain disclosures of directors’ remuneration specified by law are not made; or

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

Simon Jones, Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 22 March 2016

29

2015 2014

NoteContinuing operations

Discontinued operations

TotalContinuing operations

Discontinued operations

Total

Earned premiums, net of reinsurance

Gross premiums written 255.8 122.9 378.7 258.5 125.6 384.1

Outward reinsurance premiums - (42.2) (42.2) - - -

Premiums earned as a reinsurer - - - (0.1) - (0.1)

Gross change in the provision for unearned premiums

23 0.4 3.4 3.8 (0.7) 1.5 0.8

Reinsurer’s share of the change in the provision for unearned premiums

23 - (9.8) (9.8) - - -

Total technical income 256.2 74.3 330.5 257.7 127.1 384.8

Claims paid

Gross claims paid (170.9) (103.4) (274.3) (171.1) (103.0) (274.1)

Reinsurer’s share of claims paid - 44.9 44.9 0.3 - 0.3

Change in the provision for outstanding claims

Gross 23 (0.3) 5.8 5.5 - - -

Reinsurer’s share 23 - (4.5) (4.5) - - -

Total claims incurred (171.2) (57.2) (228.4) (170.8) (103.0) (273.8)

Change in deferred acquisition costs

20 (0.2) (0.8) (1.0) - 1.3 1.3

Net operating expenses before goodwill amortisation

4 (49.5) (14.0) (63.5) (52.0) (25.1) (77.1)

Amortisation of goodwill 8 - (0.7) (0.7) - (1.1) (1.1)

Total operating expenses (49.7) (15.5) (65.2) (52.0) (24.9) (76.9)

Total technical charge (220.9) (72.7) (293.6) (222.8) (127.9) (350.7)

Balance on the general business technical account

35.3 1.6 36.9 34.9 (0.8) 34.1

Consolidated statement of comprehensive income

Year ended 31 December 2015

30

2015 2014

NoteContinuing operations

Discontinued operations Total


Discontinued operations Total

Balance on the general business technical account

35.3 1.6 36.9 34.9 (0.8) 34.1

NON TECHNICAL ACCOUNT

Investment returns

Income from other investments 6 3.0 - 3.0 3.4 - 3.4

Gains on realisation of investments

4.8 - 4.8 0.5 - 0.5

Unrealised loss on investments (6.7) - (6.7) (0.9) - (0.9)

Other investment charges and expenses

(0.5) - (0.5) (0.6) - (0.6)

Other income and charges

Other income 19.2 2.6 21.8 14.8 4.4 19.2

Other charges 4 (41.3) (1.3) (42.6) (35.7) (2.3) (38.0)

Reversal of impairment of tangible fixed assets and buildings

10 & 18

0.7 - 0.7 - 5.6 5.6

Donations (1.6) - (1.6) (1.3) (0.1) (1.4)

Amortisation of goodwill 8 (12.7) - (12.7) (12.2) - (12.2)

Profit on ordinary activities before tax and disposal of operations

0.2 2.9 3.1 2.9 6.8 9.7

Profit on disposal of operations 4 - 12.7 12.7 - - -

Profit on ordinary activities before tax

0.2 15.6 15.8 2.9 6.8 9.7

Tax charge on profit on ordinary activities

7 - (3.2) (3.2) (1.0) (2.3) (3.3)

Profit and total comprehensive income for the financial year

0.2 12.4 12.6 1.9 4.5 6.4

The Company has no recognised items of other comprehensive income other than those included above, and therefore no separate statement of other comprehensive income has been presented.

The accounting policies and notes on pages 37 to 90 form an integral part of these financial statements.

Consolidated statement of comprehensive income

Year ended 31 December 2015

31

Consolidated statement of financial position

As at 31 December 2015

ASSETS 31 December 201531 December

2014

Note £m £m

Intangible assets

Goodwill 8 77.4 88.3

Negative goodwill 8 (1.7) (1.7)

Other intangible assets 9 8.2 5.0

83.9 91.6

Investments

Land and buildings 10 12.3 29.1

Other financial investments 15 172.8 145.9

Reinsurers’ share of technical provisions

Reinsurers’ share of provision for unearned premiums

23 53.3 -

Reinsurers’ share of provision for claims outstanding

23 14.4 -

Debtors

Debtors arising out of direct insurance operations 43.9 58.5

Deferred taxation 19 2.1 2.5

Other assets

Tangible assets 18 1.3 2.0

Stock 0.3 0.7

Cash and cash equivalents 16 57.7 83.8

Prepayments and accrued income

Accrued interest 0.2 0.6

Other debtors 17 11.0 6.8

Deferred acquisition costs 20 4.6 5.6

Total assets 457.8 427.1

32

31 December 2015

31 December 2014

Note £m £m

Liabilities

Capital and reserves

Profit and loss account 21 277.5 264.9

Technical provisions

Provision for unearned premiums 23 72.0 75.8

Provision for claims outstanding 23 32.2 37.7

Creditors: Amounts falling due within one year

Other creditors including tax and social security 22 58.9 30.4

Accruals and deferred income 13.0 18.3

Reinsurers’ share of deferred acquisition costs 20 4.2 -

Total liabilities 457.8 427.1

The accounting policies and notes on pages 37 to 90 form an integral part of these financial statements. These financial statements were approved by the Board of Directors and authorised for issue on 22 March 2016.

Signed on behalf of the Board of Directors

Romana Abdin, Chief Executive Ben Kent, Finance Director

Consolidated statement of financial position (continued)


33

Company statement of financial position


31 December 2015

31 December 2014

Note £m £m

Fixed assets

Investments in group undertakings 11 144.3 120.8

Debtors

Amounts due from group undertakings - 0.7

Other assets

Cash at bank and in hand 1.1 2.0

Total assets 145.4 123.5

Capital and reserves

Profit and loss account 21 144.8 122.6

Creditors: Amounts falling due within one year

Amounts due to other group undertakings 0.5 -

Accruals 0.1 0.9

Total liabilities 145.4 123.5


These financial statements were approved by the Board of Directors and authorised for issue on 22 March 2016.

Signed on behalf of the Board of Directors

Romana Abdin, Chief Executive Ben Kent, Finance Director

34

Consolidated statement of changes in equity


Profit and loss account

£m

At 31 December 2013 as previously stated 258.5

Changes on transition to FRS 102 (see note 27) -

At 1 January 2014 as restated 258.5

Total comprehensive income for the year 6.4

At 31 December 2014 264.9

At 1 January 2015 264.9



35

Company statement of changes in equity


Profit and loss account

£m

At 31 December 2013 as previously stated 128.6

Changes on transition to FRS 102 (see note 27) -

At 1 January 2014 as restated 128.6

Total comprehensive income for the year (6.0)


At 1 January 2015 122.6



36

Consolidated cash flow statement

Year ended 31 December 2015 31 December 201531 December

2014

Note £m £m

Net cash flows from operating activities 24 28.7 9.9

Cash flows from investing activities

Acquisition of trade and assets - (0.2)

Acquisition of subsidiary (3.1) (2.0)

Disposal of business and subsidiary undertakings, net of cash transferred

(18.6) -

Purchase of tangible fixed assets (0.5) (2.6)

Purchase of intangible assets (3.7) (2.1)

Purchase of shares and other variable yield securities

(0.1) (2.2)

Purchase of debt securities and other fixed income securities

(414.9) (150.8)

Proceeds on disposal of shares and other variable yield securities

20.8 8.3

Proceeds on disposal of debt securities and other fixed income securities

365.3 122.1

Net cash flows from investing activities (54.8) (29.5)

Net decrease in cash and cash equivalents (26.1) (19.6)

Cash and cash equivalents at beginning of year

83.8 103.4

Cash and cash equivalents at end of year 57.7 83.8

Reconciliation to cash at bank and in hand

Cash at bank and in hand 57.7 83.8

Cash equivalents - -

Cash and cash equivalents 57.7 83.8


37

Notes to the financial statements

1. Accounting policiesThe Group is incorporated in the United Kingdom under the Companies Act, registration number 05445654. The address of the registered office is detailed on page 3. The nature of the Group operations and its principal activities are set out in the Strategic Report.

The principal accounting policies are summarised below.

During the year the Group and the Company adopted Financial Reporting Standard 102 “The Financial Reporting Standard Applicable in the UK and Republic of Ireland” (‘FRS 102’) and Financial Reporting Standard 103 “Insurance Contracts” and issued by the Financial Reporting Council, which are mandatory for accounting periods beginning on or after 1 January 2015.

Basis of accounting

The financial statements have been prepared under the historical cost convention, modified to include certain items at fair value, and in accordance with FRS 102 and FRS 103.

The prior year financial statements were restated for material adjustments on adoption of FRS 102 and FRS 103 in the current year. For more information see note 27.

The functional currency of the Group and the Company is considered to be pounds sterling because that is the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in pounds sterling.

The Company meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions available to it in respect of its separate financial statements, which are presented alongside the consolidated financial statements. Exemptions have been taken in relation to financial instruments, presentation of a company cash flow statement and remuneration of key management personnel of the Company.


38


1. Accounting policies (continued)

Basis of consolidation

The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn up to 31 December each year. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed.

Business combinations are accounted for under the purchase method. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. In accordance with FRS 102, no restatement has been applied in these financial statements in respect of business combinations effected prior to the date of transition (see note 27).

Going concern

The Directors have considered in detail the Group’s forecast performance, as well as its capital and liquidity resources. On this basis the Directors have a reasonable expectation that, despite uncertain market conditions, the Group has sufficient capital and liquidity facilities to ensure that it will continue in operational existence for the foreseeable future. Accordingly the Directors have adopted the going concern basis in preparing these financial statements.

Goodwill

Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and amortised through the profit and loss account on a straight-line basis over its expected useful economic life, which the Directors consider to be between five and ten years. The gain or loss on subsequent disposal of a subsidiary will take account of any attributable, unamortised goodwill, which is derecognised on the disposal of the associated business.

Negative goodwill is similarly included in the statement of financial position and is credited to the profit and loss account in the periods in which the acquired non-monetary assets are recovered through depreciation or sale. Negative goodwill in excess of the fair values of the non-monetary assets acquired is credited to the profit and loss account in the periods expected to benefit.

The carrying value of goodwill is assessed at each annual reporting date for any impairment.

39


Other intangible assets

Brands, customer relationships and licensesIntangible assets are recognised on acquisition of subsidiary undertakings and businesses where the Directors believe that it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group and the cost or value of the asset can be measured reliably.

Intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged so as to allocate the cost of intangibles through the profit and loss account on a straight-line basis over their expected useful economic life, which the Directors consider to be between five years for intangibles recognised in relation to retail services and ten years for those recognised for capitation plans and insurance products.

The carrying values of intangible assets are assessed at each annual reporting date for any impairment.

Research and developmentResearch expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is capitalised as an intangible asset and amortised in stages over the period during which the Group is expected to benefit, from the date that the asset is available for use.

Computer softwarePurchased computer software is carried at historical cost less accumulated amortisation and amortised over a useful life of between two and four years, on a straight-line basis.

Internally developed computer software is amortised over a period of seven years.

In cases of staged live implementations, costs relating to the expected benefits of the relevant modules are reclassified from development expenditure to software and depreciated over a period of seven years. The carrying value of the asset and its expected future cash flows are assessed annually for impairment.

40


Tangible fixed assets

Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets, other than freehold land, at rates calculated to write off the cost or valuation of each asset on a straight-line basis over its expected useful life, as follows:

Freehold buildings 50 years

Leased assets over the term of the lease

Motor vehicles 4 years

Computer hardware 2 to 4 years

Fixtures, fittings and office equipment 4 to 10 years

The expected useful lives of the assets to the business are reassessed periodically in the light of experience.

Assets in the course of construction are not depreciated and are reviewed annually for indicators of impairment.

Revaluation of properties

Individual freehold properties are revalued to fair value every year. Where the fair value of an individual property exceeds historical cost, the surplus is credited to a revaluation reserve and recognised as other comprehensive income. If a deficit is identified which exceeds a previously recognised surplus relating to the same property, this deficit is charged to the income statement within the non-technical account. A reversal of such a deficit is credited to the income statement within the non-technical account.

Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.


41

(i) Financial assets and liabilitiesAll financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction.

Financial assets and liabilities are offset in the statement of financial position when, and only when, there a legally enforceable right exists to set off the recognised amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Debt instruments that are classified as payable or receivable within one year on initial recognition are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment.

Debt instruments due in more than one year, other than those designated at fair value through profit or loss as part of the Group’s trading portfolio, are subsequently measured at amortised cost using the effective interest method.

Financial assets are derecognised when and only when a) the contractual rights to the cash flows from the financial asset expire or are settled, b) the Group transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or c) the Group, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.

Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.

(ii) InvestmentsInvestments in non-convertible preference shares and non-puttable ordinary or preference shares (where shares are publicly traded or where their fair value is reliably measurable) are measured at fair value through profit or loss.

Investments in debt securities held by the Group as part of the trading portfolio have been designated by the Group as at fair value through profit or loss. This group of debt instruments is managed and its performance evaluated on a fair value basis in accordance with the Group’s investment strategy and information is provided internally on that basis to the Group’s key management personnel.

Where fair value cannot be measured reliably, investments are measured at cost less impairment.

Investments in subsidiaries are measured at cost less impairment.


42


(iii) Fair value measurementThe best evidence of fair value is a quoted price for an identical asset in an active market. When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If the market is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, the fair value is estimated by using a discounted cash flow valuation technique.

Impairment of assets

Assets, other than those measured at fair value, are assessed for indicators of impairment at each statement of financial position date. If there is objective evidence of impairment, an impairment loss is recognised in the statement of comprehensive income as described below.

Non-financial assetsIf there is an indication of possible impairment, the recoverable amount of the asset is estimated and compared with its carrying amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss.

Financial assetsFor financial assets carried at amortised cost, the recoverable amount is determined as the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost less impairment, the recoverable amount is the best estimate of the amount that would be received for the asset if it were to be sold at the reporting date.

If the estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss.


43

Reversal of impairment lossesIf an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but not in excess of the amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income.

Cash

Cash is defined as cash at bank and in hand. This includes funds held on behalf of third parties that are not available for use by the Group or Company. The offsetting liability is included in ‘Other creditors, including tax and social security’ in note 22.

Third party funds

Third party funds comprise cash held on behalf of customers to administer claims under service contracts and are maintained in separate bank accounts. Following generally accepted industry practice, these amounts are disclosed separately within cash, with a corresponding creditor disclosed. The inclusion of these funds on the statement of financial position therefore has no impact on the net assets of the Company or Group.

Foreign currencies

Monetary assets and liabilities held in foreign currencies at the statement of financial position date are expressed in sterling at rates ruling on that date. Income and expenditure denominated in foreign currencies are translated at rates ruling at the date on which the transaction occurs. All resulting exchange gains and losses are included within that part of the profit and loss account in which the underlying transaction is reported.

Premiums

The Group accounts for its insurance business on a monthly or annual basis depending on the period of cover provided by the contract. Claims are only payable where customers continue to pay premiums. Premiums are recognised as written on a receivable basis with an adjustment for any unearned element. Gross premiums are stated net of Insurance Premium Tax as applicable.


44


Reinsurance

The Group assumes and cedes reinsurance in the normal course of business as part of the management of business acquisitions and divestments.

Premiums on reinsurance assumed are recognised in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Outwards reinsurance premiums represent the reinsurance premiums payable for contracts entered into that relate to risk mitigation for the reported financial year. These comprise written premiums ceded to reinsurers, adjusted for the reinsurers’ share of the movement in the gross provision for unearned premiums. Outwards reinsurance premiums are accounted for in the same accounting period as the premiums for the related accepted insurance. Premiums assumed and claims reimbursed are presented on a gross basis.

Reinsurance assets primarily include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provisions or settled claims associated with the reinsured policies and in accordance with the relevant reinsurance contract.

Unearned premiums

Earned premiums represent gross premiums written after adjusting for changes in unearned premiums. The unearned premium provision represents the proportion of premiums written in the financial year that relate to periods of risk in future accounting years. It is calculated separately for each insurance contract and on a pro rata basis. The change in this provision is taken to profit or loss in order that revenue is recognised over the period of risk.


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Investment income

Investment income includes dividends, interest, gains and losses on the realisation of investments and unrealised gains and losses. Income from fixed interest securities together with interest, rents and associated expenses are accounted for in the year in which they accrue. Dividends are included in the profit and loss account when the securities are listed as ex-dividend. Realised gains and losses on investments are calculated as the difference between the net sale proceeds and original cost. Unrealised gains and losses on investments represent the difference between the valuation of investments at the statement of financial position date and their original cost or, if they have been previously valued the valuation at the previous statement of financial position date. The movement in unrealised gains and losses recognised in the year also includes the reversal of unrealised gains and losses recognised in earlier accounting periods in respect of investment disposals in the current year.

Other income

Other income is recognised on an accruals basis, net of any value added taxation.

Unexpired risk provision

An unexpired risk provision is made where necessary to cover any amount by which future claims and related acquisition costs on business in force at the statement of financial position date is expected to exceed the provision for unearned premiums at that same date. The amount provided is determined after considering the individual pattern and profile of specific homogeneous risk groups. Any provision for unexpired risks is included within the ‘Technical provisions’ in the statement of financial position.

Pension costs and other employee benefits

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Differences between amounts due in the year and amounts actually paid are shown as either accruals or prepayments in the statement of financial position.

Other long-term employee benefits are measured at the present value of the benefit obligation at the reporting date.


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Claims

Claims incurred comprises claims reported and settled during the year or awaiting settlement at the year end, an estimate for claims incurred but not yet reported and an allowance to cover expenses in connection with the settlement of the claims incurred. The provision for outstanding claims at the year end is based on claims experience and current expectations. Any over or under provision is adjusted as part of claims incurred in the following year.

Claims incurred and the provision for outstanding claims include direct, and an allocation of indirect, expenses connected with the settlement of claims. The allocation of indirect expenses is performed in a manner that fairly reflects the running of the business.

The provision for outstanding claims represents an estimate of the ultimate cost of settling all claims (including direct and indirect claims settlement costs) which have occurred up to the statement of financial position date. This includes a provision for claims incurred but not yet reported, the value of which based on a best estimate plus a provision for adverse development within a range of possible outcomes. These figures are based on the overall claims risk profile as measured by the cost, frequency, deviation from historic trends and sensitivity of claims to market factors and include a fixed level of prudence based on the Company’s risk appetite. The basis and calculation of both the estimates and the provision for adverse development are reviewed annually against claims experience.

Acquisition costs relating to insurance contracts

All costs of acquiring new business together with the associated initial processing costs are accounted for as acquisition costs in the profit and loss account in the year in which they were incurred. Similarly, the costs of monitoring existing business and the general running of the Group are treated as administrative expenses. The commission paid in respect of insurance contracts incurred during a financial year is deferred to the extent that it relates to unearned premiums at the statement of financial position date and amortised over the period in which the related revenues are earned. The reinsurers’ share of deferred acquisition costs is amortised in the same manner as the underlying asset.

Taxation

The Group is liable to taxation on its profit or loss on ordinary activities. Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date.


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Current tax assets and liabilities are offset only when there is a legally enforceable right to set off the amounts and the Group intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Deferred taxation

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the statement of financial position date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at that date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

When the amount that can be deducted for tax for an asset (other than goodwill) or liability that is recognised in a business combination is different from the value at which it is recognised, a deferred tax asset or liability is recognised for the additional tax that will arise in respect of that difference. The amount attributed to goodwill is adjusted by the amount of deferred tax recognised.

Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date that are expected to apply to the reversal of the timing difference.

Deferred tax assets and liabilities are offset only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Deferred tax assets and liabilities are not discounted.


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Leases

Payments in respect of operating leases are charged to the income statement on a straight-line basis over the term of the lease, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term.

Stock

Stocks are stated at the lower of cost and estimated selling price less costs to sell, which is equivalent to the net realisable value. Cost represents all expenses incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and delivery. Provision is made for obsolete, slow-moving or defective items where appropriate.


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2. Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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