Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018 results presentation
2018
Full year results presentation12 months ended 31 December 2018
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018 results presentation
Agenda
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Section 5
Questions
and answers
Section 1
OverviewSection 4
Outlook and
operating
priorities
Section 2
Market Unit
performance
Section 3
Financial
review
Joy Linton
Chief Financial Officer
Gareth Roberts
Group Financial Controller
Gareth Evans
Group Treasurer
Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Section 1
Overview
Joy LintonChief Financial Officer
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
2018 Group highlights
-19% AER
£502m
Statutory profit
before tax
180% FY 2017
191%
Solvency coverage
ratio1
Revenue flat, underlying profit down due to disposals and challenges in Australia. Growth in health insurance, including Spain and the UK
Excluding UK aged
care divestment
(CER)
25.3% FY 2017
23.5%
Leverage
-3% AER
0% CER
£11.9bn
Revenue
(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates
Moody’s senior debt
rating upgraded to
A3Fitch stable at
A-
-15% AER
-12% CER
£613m
Underlying profit
before tax
Revenue +3%
Underlying
profit -6%
180% FY 2017
191%
Solvency coverage
ratio1
Ratings
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
2018 Group highlights
Innovating and investing to meet customers’ evolving expectations
Australian customer
transformation
programme making
things easier and
faster for customers
Entered into the
Turkish health
insurance market
through the
acquisition
of Acıbadem Sigorta
Set up a new
insurance entity in
Ireland to maintain
service for IPMI
customers living in
the EU (but outside
the UK and Ireland)
after Brexit
Continued to invest in
the dental sector,
including acquiring
24 practices in the
UK and Ireland
Launched Business
Mental Health
Advantage in UK
health insurance
Increased our stake in
Bupa Arabia by 5% to
39.25%
Sanitas Seguros
enhanced our Blua
digital proposition in
Spain
In Spain, we acquired
Néctar Seguros and
Ginemed
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Section 2
Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Market unitperformance
Joy LintonChief Financial Officer
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Operating environment
− Australian and New Zealand economies remained subdued in 2018.
− In Australia, the government restricted health insurance sector price increases at a lower rate than claims inflation.
− Continued strong government interest in health insurance in Australia, with an expert committee looking at health insurance out-of-pocket costs.
− Australian Federal election to be held in the first half of 2019.
− Royal Commission into Aged Care Quality and Safety underway.
(2017 FY: £4,635m CER)
0% CER
-5% AER £4,656m
Revenue
(2017 FY: £344m CER)
-9% CER
-15% AER £313m
Underlying profit
Revenue by business
BUPA HEALTH INSURANCE82%
BUPA VILLAGES AND AGED CARE AUSTRALIA AND NEW ZEALAND11%
BUPA HEALTH SERVICES7%
Australia and
New Zealand
Stable revenue, underlying profit down, driven by challenges
in aged care and health insurance
Performance
− Affordability pressures and product changes impacted the profitability of our health insurance business.
− Progress made on health insurance customer transformation programme.
− Bupa Medical Visa Services contract renewed; selected as the health service provider for the Australian Defence Force from July 2019.
− Profit in our aged care business in Australia fell significantly, due to funding pressures, lower occupancy and higher costs.
− New Zealand profits up; portfolio reshaped.
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Steady growth driven by Spanish health insurance
and dental businesses
Operating environment
− The Spanish economy grew at 2.6% with stable inflation. Political uncertainty continues with General Elections in Spain announced for April.
− The Polish economy grew strongly, and consumer consumption increased due to a buoyant labour market.
− The Chilean economy grew at 4% in 2018. The Chilean Government is leading the Isapre(1) reform project engaging with all players in the sector.
Performance
− Good results in Spanish health insurance business, driven by partnerships and Blua. Acquired Néctar Seguros.
− Growth in dental insurance customers and in our dental centres.
− Acquired fertility services provider, Ginemed. Sold our stake in Torrejón Salud hospital.
− Strong performance in Sanitas Mayores, with high occupancy rate.
− In Poland, LUX MED grew organically and through acquisitions.
− In Chile, insurance business reserve strengthened. Health services customer numbers up. Opened Clinica Bupa Santiago hospital, a £140m investment.
Europe and
Latin America
(2017 FY: £2,865 CER)
£3,041m
Revenue
(2017 FY: £179m CER)
£182m
Underlying profit
Revenue by business
+6% CER+6% AER
+2% CER+2% AER
SANITAS SEGUROS37%
BUPACHILE33%
SANITASHOSPITALESAND NEW SERVICES10%
LUX MED11%
SANITAS MAYORES5%
SANITAS DENTAL4%
8(1) Healthcare in Chile is provided by the government via Fondo Nacional de Salud (FONASA) and by private insurers via Instituciones de Salud Previsional (ISAPREs)
Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Reshaping and investing in the UK to focus on changing
customer needs
Operating environment
− Uncertainty remains around the full implications of Brexit. Low economic growth.
− Continuing pressure on the NHS with government commitment to increase future funding.
− Dental market remains competitive with a UK-wide review of NHS orthodontic contracts that will continue into 2019, and a shortage of dentists.
− In aged care, demand for local authority-funded beds continues to increase but public funding remains constrained.
Performance
− Profit growth in our health insurance business driven by improved claims performance. Launched new mental health, cancer and digital services.
− Further acquisitions in dental, strengthening our market position to c.480 centres.
− The sale of 132 care homes in December 2017 and February 2018, reflected in aged care revenue and profit
United
Kingdom
2017 FY: £2,807m)
-10% £2,537m
Revenue
(2017 FY: £199m)
-22%£156m
Underlying profit
Revenue by business
BUPA UK INSURANCE61%
BUPA HEALTH SERVICES6%
BUPA CARE SERVICES16%
BUPA DENTAL CARE17%
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Strategic investment in rapidly-developing and growing
markets
Operating environment
− International Private Medical Insurance market remained competitive
− Saudi Arabia operating environment remained challenging with increasing regulation and intense competition
− Hong Kong’s economy expanded moderately. Risks are increasing due to US-China relations
− India remained one of the world’s fastest growing economies; health insurance sector is increasingly competitive
− Growth in the Turkish economy slowed due to geopolitical tensions; health insurance remains an attractive long-term market
Performance
− Bupa Global IPMI business stabilised, with progress in customer retention and customer satisfaction. Post-Brexit arrangements established.
− Integration of Care Plus in Brazil continues to progress well.
− Increased our stake in Bupa Arabia associate business to 39.25%. Signed third-party administration services agreement with Saudi Aramco.
− Hong Kong grew revenue. Heath services opened four medical centres and first Bupa-branded dental centre.
− Announced a new partner (True North) for Max Bupa associate business in India, subject to regulatory approval.
− Entered the Turkish health insurance market with the acquisition of Acıbadem Sigorta in January 2019.
International
Markets
(2017 FY: £1,581m CER)
£1,626m
Revenue
(2017 FY: £36m CER)
£36m
Underlying profit(1)
Revenue by business(2)
+3% CER
+1% CER-7% AER
BUPA GLOBAL55%
BUPA ARABIA25%
MAX BUPA (INDIA)2%
HONG KONG18%
(1) Revenues from our associates and joint ventures are excluded from our reported figures. The appropriate share of profit from these businesses are included in our reported figures.
(2) Chart includes our share of revenues from associates to give a sense of scale. 10
-1% AER
Section 3
Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Financial Review
Gareth RobertsGroup Financial Controller
Gareth EvansGroup Treasurer
[Image to come]
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Financial highlightsFY 2018 Financial Overview
£808mDown 13% on 2017
Net cash flow
generated from
operating activities
23.5%
Leverage ratio
191%(1)
Solvency capital
coverage
(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates and unaudited
2017: 25.3%
2017: 180%
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018 Financial Overview
HY 2017 91%
Underlying profit before tax(1)Revenue
• Revenue was flat at £11.9bn, but improved by
3% excluding the UK aged care divestments
• Insurance revenue grew by 2% compared to
2017
flat at CER
-3% at AERFY 2018
FY 2017 (CER)
£11.9bn
£11.9bn
• Underlying profit decreased by 12%
• Excluding the impact of the UK care home
disposals, underlying profit decreased by
6% on a like-for-like basis at CER
-15% at AERFY 2018
FY 2017 (CER)
£613m
£698m
(1) Underlying profit is a non-GAAP financial measure which means it is not comparable to other companies. Underlying profit reflects our trading performance and excludes a number of items otherwise included in statutory profit, to facilitate year-on-year comparison. These items include the impairment of intangible assets
and goodwill arising on business combinations, as well as market movements such as gains or losses on foreign exchange, on return-seeking assets, on property revaluations and other material items not considered part of trading performance.
(2) Combined Operating Ratio is an alternative performance metric for insurance businesses. It is calculated based on incurred claims and operating expenses divided by net earned premiums. Combined operating ratios are calculated based on local reporting requirements: Group: S.05.01 Prudential Regulation Authority (SII)
form (unaudited); BUPA HI Pty Ltd (Australia): HRF 602 Australian Prudential Regulation Authority quarterly returns (unaudited).; Sanitas S.A. de Seguros (Spain): Annual Report and Accounts; Bupa Insurance Limited (UK): Annual Report and Accounts.
Insurance regulated entities
Group
Combined operating ratios (2)
Bupa HI Pty Ltd
(Australia)
Bupa Insurance
Ltd (UK)
Sanitas S.A. de
Seguros
(Spain)
FY 2018
FY 2017
FY 2018
FY 2017
FY 2018
FY 2017
92%
92%
93%
94%
88%
88%
FY 2018
FY 2017
93%
93%
Group results impacted by challenges in Australia; with growth in health insurance in Spain and the UK
-12% at CER
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018
£m
FY 2017 (AER)
£m
Underlying profit before tax 613 719
Impairments of intangible assets and goodwill
arising on business combinations(36) (16)
Net (losses)/gains on disposal of businesses and transaction costs on
business combinations(36) 34
Net property revaluation gains/(losses) - (111)
Realised and unrealised foreign exchange gains/(losses) (8) (24)
Other material non-underlying items (30) -
(Losses)/gains on return seeking assets, net of hedging (1) 18
Total non-underlying items (111) (99)
Statutory profit before tax 502 620
Statutory profit down 19%Statutory profit
• Lower statutory profit reflects the reduced
trading profitability on prior year, with the
quantum of non-underlying items comparable,
but slightly higher than 2017.
-19% at AERFY 2018
FY 2017 (AER)
£502m
£620m
Statutory profit before tax
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Solvency coverage ratio remains well within capital risk appetite
Solvency1
(1) The FY18 Solvency II capital position, SCR and coverage ratio are estimates
Solvency II coverage ratio
FY 2018 191%
180%FY 2017
Solvency Capital Requirement £2.1bn
FY 2018
Own Funds
Surplus £1.8bn
£3.9bn
• Estimated value of both lease assets and liabilities to be
recognised on the solvency II balance sheet at 1
January 2019 is £1.0bn; solvency coverage ratio
reduces by 16 percentage points.
• Acibadem Sigorta acquisition completed January 2019,
reduced coverage ratio 6 percentage points
• Proforma solvency coverage ratio estimated to be
169%, well within capital risk appetite.
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Movement in Solvency II capital surplus from FY 2017 to FY 2018 £210m
Solvency1
(1)The FY 2018 Solvency II capital position, SCR and coverage ratio are estimates
(2)Operating capital includes comprehensive income of £251m adjusted to reflect changes in the SII valuation, including removing amortisation and impairment of goodwill and intangibles
(3)Other includes the effect of market movements including FX
1,656
1,866
656
9
50
107
134
264
SolvencySurplusFY 2017
Operating Capital Cost of debtfinancing
Net capex Propertyrevaluations
M&A activity Other inc.market & FX
SolvencySurplusFY 2018
23
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
IFRS 16 will apply from 1st January 2019 – will impact metricsIFRS16
• Expect to recognise both lease assets and liabilities on the IFRS balance
sheet of £1.1bn, because of our substantial property assets including
hospitals, clinics and care homes.
• Rating agencies already factor in leases although headline leverage figures
may increase.
• Group solvency coverage at 2018 year-end estimated to be 16 percentage
points lower under IFRS 16.
• Impacts both the phasing and presentation impact in the income statement.
• Lease assets attract a property risk charge under the SCR Standard
Formula. Together with interest rate risk on the associated liability, it is
estimated to increase the SCR charge by c. £230m.
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Lower cash generation in line with reduction in operating profitCash flow
Net cash generated from operating activities
FY 2018
FY 2017 (AER)
£808m
£929m
-13% at AER
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Leverage down since FY 2017Funding
• Leverage reduced to 23.5%
(HY 2018: 24.5%)
• Drawings under the revolving credit
facility reduced to £170m at 31
December 2018 (FY17: £220m)
• Moody’s senior debt rating upgraded
to A3. Fitch stable at A-
Leverage(1)
22.6%
30.2%
25.3%
24.5%
23.5%
FY 2017
HY 2017
FY 2016
HY 2018
FY 2018
(1) Gross debt (including hybrid debt) / gross debt plus equity
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Investments remain conservatively managed
• £4.1bn cash and financial investments
• Approximately 85% of portfolio held in investments rated at least A-/A3
• £452m return-seeking assets (externally-managed bond and loan funds) held in UK and Australian regulated entities
• Mark-to-market losses in FY 2018 from bond and loan portfolio of £1.0m (FY 2017 gains of £18m)
• Low yield environment continues to provide a challenging investment backdrop
Cash and Financial Investments
Cash and investment portfolio
FY 2018
Cash and cash-like instruments
(e.g. deposits, liquidity funds, covered bonds)
Return seeking assets
FY 2017
£4.1bn
£3.8bn
FY 2018 Cash and investments by credit rating (%)
AAA7%
<BBB-/NR8%
BBB7%
A35%
AA43%
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
Section 4
Outlook and operating priorities
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Joy LintonCFO
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
• Conditions in some of our key markets will continue to be challenging, given the economic and political environments. In Australia, our businesses will continue to manage headwinds.
• We are focused on:• Improving customer experience, including harnessing digital and
enhancing propositions.• Continuing to strengthen risk management, privacy and information
security• Being more cost efficient.• Looking for further opportunities to grow.
• Our balance sheet remains strong. This financial strength, and our status, enables us to balance short-term and long-term decision making and invest for sustainable growth.
Outlook and operating priorities
Challenging market conditions continue. We are focused on the customer experience and delivering sustainable performance
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018 results presentation
Q&A
Section 5
Questions
and answers
Section 1
OverviewSection 4
Outlook and
operating
priorities
Section 2
Market Unit
performance
Section 3
Financial
review
Joy Linton
Chief Financial Officer
Gareth Roberts
Group Financial Controller
Gareth Evans
Group Treasurer
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Section 1 Section 2 Section 3 Section 4 Section 5 Bupa Full year results presentation 2018
FY 2018 results presentation
Further information
One-to-one
investor
meetings
We are planning one-to-one
meetings with interested
investors in the coming
weeks.
Please email [email protected]
for further information
Information
For further information
email:
Results
All financial results and
Solvency and Financial
Condition Reports are
available on:
www.bupa.com/Corporate/
our-performance
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Bupa Full year results presentation 2018
Appendix
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25
Bupa Full year results presentation 2018
(1)
Risk sensitivities2Solvency1
191%
190%
190%
191%
180%
187%
190%
188%
182%
Solvency Coverage Ratio
Interest rate +100bps
Credit spreads +100bps (assuming no credit transition)
Equity markets -20%
Property values -10%
Sterling appreciates by 10%
Pension risk +10%
Group Specific Parameter (GSP) 3 + 0.2%
Loss Ratio worsening by 2%
(1) The 2018 solvency II capital position, SCR and coverage ratios are estimates and unaudited
(2) While this table only shows the impact of individual stresses, it is a helpful illustration of the relatively low risk inherent in our capital base
(3) Group Specific Parameter (GSP) is substituted for the insurance premium risk parameter in the standard formula, reflecting the Group’s own loss experience.
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Bupa Full year results presentation 2018
Organisation structure: Market Units
Australia and New Zealand
• Bupa Health Insurance
• Bupa Health Services
• Bupa Villages and Aged
Care Australia and New
Zealand
Europe and Latin America
• Sanitas Seguros
• Sanitas Dental
• Sanitas Hospitales and
New Services
• Sanitas Mayores
• LUX MED (Poland)
• Bupa Chile
International Markets
• Bupa Global
• Care Plus (Brazil)
• Acıbadem Sigorta (Turkey)
• Bupa Hong Kong
• Bupa Arabia
• Max Bupa (India)
• Bupa China
United Kingdom
• Bupa UK Insurance
• Bupa Dental Care
• Bupa Care Services
• Bupa Health Services
(1) In January 2019, we completed the acquisition of Acıbadem Sigorta
(1)
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Bupa Full year results presentation 2018
Bupa’s footprint and participation
(1) Bupa Arabia in Saudi Arabia and Max Bupa in India are associate businesses
(2) Global international insurance available in most countries. Includes 49% stake in Highway to Health (GeoBlue) in the US
(3) Domestic insurance and clinics in Brazil
(4) In addition to care homes and villages, New Zealand also has a brain rehabilitation business
(5) In Spain we also have day centres
(6) In January 2019, we completed the acquisition of Acıbadem Sigorta
Funding
Health insurance
Pay-as-you-go
Dental insurance
Travel insurance
Clinics
Hospitals
Dental centres
Optical and audiology
Healthcare
provision
Care homes
Retirement villagesAged care
provision
International
Markets
Australia and
New ZealandUK
Europe and
Latin America
AustraliaNew
Zealand(4)
Bupa
GlobalChina
Saudi
Arabia(1) India(1)Hong
KongUKPolandSpain Chile Turkey(6)
(2)
(3)
(5)
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Bupa Full year results presentation 2018
(1)
Solvency1
FY 2018
£m
HY 2018
£m
FY 2017
£m
Borrowings under £800m bank facility(1) 170 210 220
Acquisition facility - - 49
£330m perpetual hybrid bond (guaranteed by Bupa Insurance Ltd) 357 374 371
£350m senior bond due 2021 349 349 349
£500m subordinated bond due 2023 502 501 501
£300m senior bond due 2024 295 293 296
£400m subordinated bond due 2026 396 396 395
Bupa Chile borrowings 188 201 205
Other 53 84 87
Total borrowings 2,310 2,408 2,473
(1) Excludes outstanding letters of credit (FY 2018: £nil, HY 2018: £nil, FY 2017: £6m)
Breakdown of borrowings
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Disclaimer: Cautionary statement concerning forward-looking statements
This document may contain certain ‘forward-looking statements’. Statements that are not historical facts, including statements about the beliefs and expectations of The British United Provident Association Limited (Bupa) and Bupa’s directors or management, are forward-looking statements. In particular, but not exclusively, these may relate to Bupa’s plans, current goals and expectations relating to future financial condition, performance and results.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur, many of which are beyond Bupa’s control and all of which are solely based on Bupa’s current beliefs and expectations about future events. These circumstances include, among others, global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, the impact of competition, the timing, impact and other uncertainties of future mergers or combinations within relevant industries. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual future condition, results, performance or achievements of Bupa or its industry to be materially different to those expressed or implied by such forward-looking statements. Other than as required by law, Bupa expressly disclaims any obligations or undertakings to release publicly any updates or revisions to any forward-looking statements to reflect any change in the expectations of Bupa with regard thereto or any change in events, conditions or circumstances on which any such statement is based. To the fullest extent possible by receipt of, and using, this document, you release Bupa and each of its affiliates, advisers, directors, employees and agents, in all circumstances (other than fraud) from any liability whatsoever and howsoever arising from your use of this document. In addition, no responsibility of liability or duty of care is or will be accepted by Bupa or its respective affiliates, advisers, directors, employees and agents, for updating the document (or any additional information), correcting any inaccuracies in it or providing any additional information to any person. Accordingly, none of Bupa or its affiliates, advisers, directors, employees or agents shall be liable (save in the case of fraud) for any loss (whether direct, indirect or consequential) or damage suffered by any person as a result of relying on any statement in, or omission from, the document.
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