(The following statement was released by the rating agency) LONDON, September 27 (Fitch) Fitch Ratings has affirmed Bupa Insurance Ltd's (BIL) Insurer Financial Strength (IFS) rating at 'A+' and Long-Term Issuer Default Rating at 'A', with Stable Outlooks. Fitch has also affirmed Bupa Finance plc's Long-Term IDR at 'A' and senior and subordinated debt issue ratings. Bupa Finance Plc is BIL's immediate holding company and the main holding company of Bupa's non-insurance operations. BIL is Bupa's main insurance operating entity in the UK. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS The affirmation reflects Bupa's strong business profile, sound capitalisation and proven track record of delivering stable earnings. The ratings are constrained by the concentration of earnings in private medical insurance (PMI) and associated companies. Bupa's strong franchise and market position are major advantages. The group has a market-leading position in PMI in a number of countries, including the UK, Australia and Spain. Bupa is also the world's largest provider of expatriate health insurance. Bupa's vertically integrated value chain of care homes, hospitals and primary care centres complements the main PMI business. Fitch views positively Bupa's focus on the group's chosen markets, but the lack of diversification by insurance business line, evident in the strong reliance on PMI as a source of income, constrains the ratings. PMI made up around 70% of Bupa's revenue and profits in 2016. Bupa aims to allocate excess capital in growth initiatives aligned to its core business model. In 2016, Bupa increased its stake in Max Bupa Health Insurance Company in India to 49% from 26% and acquired Care Plus, a leading health insurer in Brazil, expanding its presence in Latin America. In 2017, the company has increased its stake in Bupa Arabia, a leading health insurer in Saudi Arabia, to 34.25% from 26.25% and reshaped its UK portfolio through the acquisition of Oasis Dental Care and disposal of the part of its care homes portfolio. The acquisition of Oasis Dental Care makes Bupa the second-largest dental provider in the UK. Fitch views these transactions as positive for Bupa's business profile, supporting its strategy of selective geographical expansion and providing further earnings diversification. Bupa is a private company limited by guarantee, without share capital and without shareholders. Despite a significant amount of goodwill on Bupa's balance sheet equivalent to 37% of equity at end-2016, Fitch views the capitalisation of the group as a whole as strong. Fitch's Prism FBM score for Bupa is 'Extremely Strong', which reflects the low-risk, short-tail nature of its business. Solvency II Solvency Capital Requirement coverage was 160% at 1H17, down from 204% at YE16, with a reduction due to the completion of the acquisition of Oasis Dental Care in February 2017. Bupa's financial leverage increased in 1H17 to 30% from 23% at YE16 as the group issued a GBP300 million senior bond and used its credit facilities to part fund the acquisition of Oasis Dental Care and an increase in the stake in Bupa Arabia in 1H17. Fitch expects financial leverage to remain stable or marginally reduce by YE17 as Bupa repays some of its borrowings. In addition, if the disposal of the UK care homes portfolio also completes in the period, borrowings will be further reduced. In 1H17, the group's net income was strong at GBP169 million, up from 1H16's GBP104 million. All units delivered growth and strong results in 1H17, despite difficult operating conditions in many markets, although profitability of the International Markets market unit was lower, impacted by Bupa Global's planned exits from non-strategic markets. The Fitch-calculated loss ratio for the group was stable at 81% in 1H17 (1H16: 80%). RATING SENSITIVITIES An upgrade is unlikely in the medium term given the company's earnings concentration in PMI and associated operations. A downgrade could result from an increase in financial leverage over 35% (1H17: 30%), or deterioration in operating performance as evidenced by a decrease in the net income return on equity to below 4% for an extended period. A material reduction in the non-insurance business's profitability for a sustained period could also lead to a downgrade of Bupa Finance Plc's ratings. FULL LIST OF RATING ACTIONS Bupa Insurance Limited --IFS Rating affirmed at 'A+'; Outlook Stable --Long-Term IDR affirmed at 'A'; Outlook Stable Bupa Finance Plc --Long-Term IDR affirmed at 'A'; Outlook Stable --Short-Term IDR affirmed at 'F1' --GBP330 million subordinated debt issued by Bupa Finance Plc and guaranteed by Bupa Insurance Limited affirmed at 'BBB+' --GBP350 million senior unsecured debt due 2021 affirmed at 'A-' --GBP300 million senior unsecured debt due 2024 affirmed at 'A-' --GBP500 million subordinated debt due 2023 affirmed at 'BBB' --GBP400 million subordinated debt due 2026 affirmed at 'BBB' Contact: Primary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Willem Loots Senior Director +44 20 3530 1808 Committee Chairperson Stephan Kalb Senior Director +49 69 76807 6118 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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