Revenue2 of £7.4bn was up 9% (HY 2022: £6.8bn) at Constant Exchange Rates (CER) with period-on-period growth across all lines of business and Market Units driven by:
- Customer volume growth with insurance customers increasing by over four million, provision customers increasing by one million and occupancy rates in aged care 4ppt higher period-on-period.
- The impact of pricing action, as we seek to balance continued high inflation, remaining competitive for customers and maintaining discipline in our underwriting of insurance risk.
This half year report for 2023 marks our first set of results reporting on the new IFRS 17 accounting standard for insurance contracts which does not impact the overall economics of our business or strategy, but does change the presentation of our results and specifically the following:
- Under the new accounting rules, we are no longer able to hold certain provisions3 in Australia related to the COVID-19 pandemic. The absence of these provisions has led to significant fluctuations in both our restated H1 2022 and H1 2023 reported profits.
Underlying profit4 before taxation of £254m was down 22% at CER (HY 2022: £324m). This was principally driven by Australian health insurance where:
- In the first half of 2022 we experienced lower claims frequency and higher margins due to the impact of COVID-19.
- In the first half of 2023, costs associated with returning claims savings to customers increased to £231m (HY 2022: £109m).
Profits in our other Market Units grew significantly driven by higher investment returns, customer volume growth and the impact of premium rate changes in the Chile Isapre business reducing losses.
Statutory profit before taxation of £241m increased by 5% at AER (HY 2022: £231m) with the reduction in underlying profit offset by favourable movements in non-underlying items.
Solvency II capital coverage ratio remains strong at 171%5 (FY 2022: 181%) with leverage (excluding IFRS 16 lease liabilities) of 19.4% (FY 2022: 18.7%).
Market Unit and other Businesses underlying profit percentages are derived from reportable segments (which excludes central expenses and net interest margin). Revenues from associate businesses are excluded from reported figures. Customer numbers and economic share of post-tax profits from our associate businesses are included.
Business context
Our performance is driven by continued good customer volume growth in health insurance, increased activity in health provision and higher occupancy rates in aged care leading to period-on-period revenue growth in all lines of business.
The announcement of a further return of £175m (A$320m) claims savings to Australian Health insurance customers in June takes the total financial impact of claims savings returned in H1 2023 to £231m (HY 2022: £109m).
The global macro-economic, political and regulatory environment within which we operate remains uncertain, with high and more persistent levels of inflation than expected. Interest rates have risen in response as central banks have sought to tackle inflation. Through these challenging times we are committed to keeping our pricing as competitive as possible for our customers, maintaining a tight focus on efficiencies across the Group.
Iñaki Ereño, Group CEO, commented:
“These results reflect continuing good organic growth across our health insurance businesses, increased activity in our health provision businesses to meet growing customer demand and improving occupancy rates in aged care. We continue to be encouraged by the overall performance of the Group as we become an increasingly digital business while navigating market challenges.
"We are confident for the future and there is positive momentum behind our strategy and our ambition to be the world’s most customer-centric healthcare company. We are seeing the results of our 3x6 strategy which continues to inspire our people in the delivery of great customer service alongside high standards of care. There is much to do, but we are well positioned to meet our customers' healthcare needs. We also remain focused on our purpose, as we support wider communities where we can while tackling environmental issues."
Market performance (all at CER)
Bupa Asia Pacific: Revenue increased by 1% to £2,773m. Excluding the financial impact of returning claims savings to customers, revenues increased by 5% to £3,004m. This was driven by pricing action, customer growth in Australian health insurance, higher occupancy in aged care and revenue growth in our Hong Kong6 business with higher volumes in health services. On a reported basis, underlying profit reduced by 84% to £41m as an increase in revenues was offset by a margin reduction in Australia Health insurance, following higher claims frequency and the cost of returning COVID-19 claims savings to customers.
Europe and Latin America: Revenue grew by 16% to £2,552m with every business unit delivering growth period-on-period driven by customer growth and pricing to keep pace with rates of inflation. Underlying profit increased by 105% to £145m in the year, driven by revenue growth and higher investment returns. In Bupa Chile, the regulator-approved GES7 pricing increases in the Isapre business in October 2022 significantly reduced reported losses. However, the outlook for this business remains uncertain as regulatory interventions and legislative and judicial decisions remain unclear around the Isapre insurance sector (see note on Chile in the Financial Review section for further detail).
Bupa Global and UK: Revenue grew by 10% to £2,063m driven by higher customer volumes in insurance. Underlying profit increased by 105% to £140m driven by revenue growth and higher investment returns in UK Insurance and continued delivery of the turnaround in Bupa Global, our international private medical insurance (IPMI) business. UK Insurance profit was temporarily increased by the release of the return of premium provision (£59m) in response to deferred claims costs, a significant proportion of which are now expected to arise later in 2023 and into 2024 following evidence of increased deferred claims in the first half of 2023. UK Dental underlying losses also reduced as delivery of the turnaround strategy commenced.
Other businesses: Our businesses in Saudi Arabia and India have delivered significant growth, with underlying profit increasing by 112% to £43m largely driven by increased customer volumes in both businesses.
Financial position
Solvency II capital coverage ratio remained strong at 171% (FY 2022: 181%).
Leverage ratio is 27.2% (FY 2022: 26.5%) when including IFRS 16 lease liabilities. Excluding these liabilities, the leverage ratio is 19.4% (FY 2022: 18.7%). In the first half of the year we repaid £250m of maturing Tier 2 debt, drawing down on our revolving credit facility to finance the repayment.
Net cash generated from operating activities increased by £163m period-on-period to £823m, driven by higher revenue and profitability across market units partly offset by higher claims frequency in Australia.
Other highlights
We launched Viva, a package of Group-wide health and well-being initiatives which will give all of Bupa's workforce access to health benefits by the end of 2023. Viva amounts to £26m of extra investment in our people’s health each year and will help us to both recruit new employees and retain existing employees.
We scaled up our Healthy Cities programme to help us reach our goal of supporting one million people each year, an initiative that aims to improve peoples’ health through the regeneration and restoration of nature.
We held our first Bupa Healthcare Symposium in May, a major clinical conference for leaders across the healthcare sector to discuss the challenges and opportunities we face together.
We hosted our Bupa eco-Disruptive Live event in July, an immersive experience showcasing our sustainability strategy alongside many of the start-ups from our eco-Disruptive programme (which is now in its third year) who are working to tackle the threat of climate change.
Following the devastating earthquake in Türkiye in February, we approved a funding package of £3m for humanitarian aid and healthcare through our local business, Bupa Acibadem Sigorta.
Our LUX MED team in Poland are maintaining their support for Ukrainian refugees who have been forced to flee the war. To date, we have provided 388,000 free treatments to over 217,000 people and have employed 271 healthcare workers from Ukraine.
Note on Chile
As stated in the Full Year results for 2022, the Isapre insurance industry in Chile continues to be negatively impacted by judicial and regulatory action. The Chilean Supreme Court has significantly shifted its interpretation of Isapre pricing in recent years, with the cumulative effect of restricting the previously permitted, and generally accepted, pricing/rate-setting approach. In December 2022, the Supreme Court issued a ruling which requires Isapres to use a statutory risk factor table with retrospective effect – meaning product coverage is not matched by the ability to increase rates to reflect the cost of such coverage. The situation remains as described in the Full Year results for 2022, other than that the date by which the relevant regulator has to implement it has been extended from May 2023 to November 2023. The potential short- and long-term implications for Isapre Cruz Blanca are highly uncertain. Further details regarding the potential retrospective financial implications of these developments are included in the Financial Review.
