RATINGS RATIONALE

The rating affirmation reflects Moody's view of the continued strong franchise, market position and financial performance of BINS (with net income of GBP 116m and a 2011 5-year average return on capital of 9%). The Bupa Group as a whole reported a 2011 surplus before tax of GBP 220m (YE2010: GBP 118m), notwithstanding the adverse impact of the significant goodwill and intangible asset impairments of GBP 300m in 2011 and GBP 267m in 2010. Furthermore, following the various acquisitions (MBF, DCA and Health Dialog) since 2007, the Group has also substantially expanded its geographic profile, with over 60% of its revenues coming from non-UK operations, compared with less than 30% in 2004. Moody's regards this development positively, as it helps insulate the Group from adverse developments in any one market and in particular its historical UK base.

However the rating agency noted that the current low interest rate environment has resulted in a decrease in overall profitability compared to pre-crisis levels and the Group's three main geographies present relatively challenging operating environments, adding some uncertainty to future profitability expectations. Firstly, given the weak economic conditions the demand for private health insurance in the UK may come under pressure as customer budgets become increasingly stretched and local authority settlements to care homes remain largely flat given government spending cuts. Second, in Australia the newly introduced (July 2012) means testing of the tax rebate on private health insurance could decrease renewals across the health insurance industry, although to date, this has yet to occur. Finally, the economic situation in Spain could lead to lower bed occupancy levels, albeit to date this has remained above 90%.

Historically, financial flexibility has been a rating constraint for Bupa although adjusted financial leverage has improved considerably from around 46% in 2006 to 23% at YE2011. Less positively, capitalisation of BINS remains, in Moody's opinion, only adequate for the current rating level, with a regulatory coverage ratio of 165% (Capital Resources Requirement Coverage) at YE2011 (compared to 236% at YE2004). Whilst the figure improved slightly in 2011, this decline versus historical levels is explained, in part, by the increase in loans to BUPA Finance Plc. Whilst repayable on demand, these loans are largely disallowed for regulatory solvency purposes. Moody's long-term expectations are of a continuation of this policy of repatriating capital to the Group.

Commenting on what could lead to positive rating pressure in the future, Moody's noted these would include modest further improvements in the profitability metrics (e.g. RoC above 10% for the Bupa Group) and financial leverage below 25%. Further positive rating pressure could arise from a material improvement in BINS' market position or a sustained improvement in capitalisation, with a BINS regulatory solvency ratio consistently above 175%. Conversely, Moody's noted that negative rating action could occur if financial leverage exceeded 40%, Bupa Group consistently delivers RoC below 5%, the regulatory capital coverage fell below 130% or if there were material negative implications to BINS' franchise as a result of political decisions on the operations of the private health insurance market.

BINS is a UK private health insurer, owned by the Bupa group and headquartered in London, UK. As at 31 December 2011, BINS reported total assets of GBP 2.64bn (YE2010: GBP 2.56bn) and shareholders' equity of GBP 960m (2010: GBP 843m). The Bupa group reported total revenues of GBP 8.0bn (YE2010: GBP 7.6bn), a surplus before financial income and expenses of GBP 200m (YE2010: GBP 99m), adversely impacted by GBP 300m (YE2010: GBP 267m) of goodwill and intangible asset impairments. Total equity increased to GBP 4.44bn (YE2010: GBP 4.40bn).

The following ratings were affirmed with a stable outlook:

Bupa Insurance Limited IFSR: A2

Bupa Finance Plc guaranteed subordinated debt: Baa1(hyb)

Bupa Finance Plc senior unsecured debt: Baa2

Moody's most recent rating action on Bupa was on 25 June 2009, when Moody's assigned a Baa2 rating with a stable outlook to the senior unsecured debt issued by Bupa Finance plc.

METHODOLOGY USED

The methodologies used in these ratings were Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010 and Moody's Guidelines for Rating Insurance Hybrid Securities and Subordinated Debt published in January 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

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