our report to you2006

where you can find it

our highlights 2006 01

who we are 03

where we are going 09

how we run Simplyhealth 13

helping our people deliver 19

supporting our communities 25

how our board helps 29

our financial performance 37

Value> Our customers received more value from

us for their medical claims and hospital bills than ever before. This year we paid out over £220m.

> Our screening vans can now deliver a comprehensive health check for under £100, a quarter of the price charged by most Private Medical Insurance companies.

Speed> Our speed of response to claims

payments is also improving for our customers across the whole Group. Cash plans in particular are averaging just two days.

Thoughtful> On entering hospital, our BCWA

customers are now receiving a washbag filled with items to make their stay more comfortable.

Progressive> We now book the appointment for our

customers going into hospital and help them select their surgeon.

Safe> We continue to apply high standards to

our governance of Simplyhealth to make sure it remains strong and safe for you for the future.

Community> We provided £2m (only £1m is so far

spent) to help national charities that support carers, Alzheimers sufferers and hospices. We made a genuine difference to our local communities through our staff and financial support.

Personal> We still answer every phone call in

person, we do not use ‘push button’ menus and all calls are answered in the UK, locally whenever possible.

Investments> With enormous effort we successfully

delivered PULSE, the new core computer system for the Simplyhealth Group, into HSA. This was the most difficult part of our five year project and it gives us a strong new capability for the future.

> We finished the building of our first 10 screening vans which are now tested and ready for their screening role.

> We put new systems into our occupational health business in order to improve the customer experience for our client company workforces.

People> We are a proud family of staff who work

for you. In 2006 Simplyhealth came 44th in the Sunday Times Best Companies to Work For. It means we are happy working for you and focused on doing just that.

Acquisitions> We bought Remedi, a medical

administration business, that will strengthen BCWA, helping to bring down our hospital costs through greater scale.

> In December we also acquired Totally Active which sells powered wheelchairs and mobility equipment to help our customers with more of their daily living needs.

What did Simplyhealth do for you in 2006? What happened behind the scenes?

01 02

“You guys are just so professional, I wouldn’t change you for the world!” Nancy Simbeye, HSA customer for four years

“Adastral Health has been providing airside driving and food handling medicals, management referrals and sickness and absence

management for us for six years. We selected Adastral for their excellent clinical reputation and have been very pleased with their service.”

Victoria Woodison, Senior HR Business Partner – UK & Ireland, Gate Gourmet London Ltd

our highlights2006

04

From voluntary hospitals to NHS – why we existDuring the 19th and 20th centuries voluntary hospitals were set up to help those people who were unable to afford to pay for medical care. Unfortunately, these hospitals were often forced to close due to lack of funds. As a result there then was a pressing need for financial support, and the first hospital contribution schemes were established. They of course included the Leeds Hospital Fund (LHF), the Manchester & Salford Hospital Saturday Fund (now HealthSure) and, later, the Hospital Saving Association (HSA).

In 1935, the Committee of the Bristol Medical Institutions Contributory Scheme met to agree that for a contribution of one penny a week, a family would receive one pound a week for the duration of the breadwinner’s stay in hospital, and from this BCWA was formed.

The birth of the NHS in 1948 led to a change of focus for these companies, but not a change in substance. Thereafter they helped customers by providing a payment for each night spent in hospital, in order to help offset any financial hardship incurred.

As the NHS has changed over the last fifty years, so have these organisations. Now we meet people’s healthcare needs in a host of different ways including dentistry, optics, alternative medicines and so forth.

By bringing our combined strengths together under one umbrella organisation, the Simplyhealth Group now helps over 2.5 million people with their healthcare needs. In Simplyhealth we have combined our heritage and purpose with strong business credentials thus allowing us to compete more vigorously and to provide new facilities to our customers. As separate organisations we would not have been able to do this. Just one example of this is the development of our new computer system PULSE. This is now live and operates in the service of over a million of our policyholders.

The traditionsSimplyhealth’s vision for today and tomorrow remains ‘to be the best healthcare company we can be’. Our purpose, the commitment that will deliver our vision, is easily recognised by most of our customers: ‘Together we can help more people feel better’. Our ethos is just as familiar: ‘It matters more how good we are than how much we make’.

The wording may vary, but these statements represent an unbroken link with our past that has served our customers well for decades.

Progress for you

We could help our customers with:

Cash plans

We can help our customers with:

Cash plans

Private Medical Insurance

Health screening

Occupational health

Mobility equipment

Daily living aids

03

who we areOur Chairman, Major General Brian Pennicott, explains how we are building our future on the foundations of the past

Last year I reported that 2006 should be an exciting year for the Simplyhealth Group and indeed it was. This was a year where progress was made in a number of areas, as you will read in this ‘Our Report to You’. Our challenge remains clear to us – to help more people with their healthcare needs in the future – and in spite of the remarkable pace of change going on around us, your Board feels very positive about the Simplyhealth Group’s ability to do this.

For me 2006 was also a time to recognise how much our purpose and vision for the years ahead owe to our collective heritage.

An unbroken link with our past:

05

About our futureI am most particular that any new products or services that come out from any part of the Simplyhealth Group, should be relied on by our customers for value, simplicity and quality. Therefore during 2007, we will be attaching the new Simplyhealth logo to all products and services provided by all of our companies. This ‘quality mark’ is intended to indicate to our customers a guarantee of quality products and service.

If you go to the Simplyhealth website (www.simplyhealth.co.uk), you will find information on all of our companies and products from daily living aids to powered wheelchairs. You will also find details of financial services from Cash plans and dental insurance to Private Medical Insurance, as well as medical services that include occupational health and screening. Our confidence in delivering a more broadly based healthcare organisation is growing and as our Chief Executive reports, I believe we are making appropriate and important investments in our future.

My report to you would not be complete if I did not reflect the gratitude of my Board colleagues for the efforts of our employees this year. They have been monumental and as I reflect on what drives us forward in such uncertain times for healthcare, I am heartened that our people remain absolutely clear that they are here to serve you, our customers, and that they do this with such goodwill and endeavour. Could I also express our gratitude to Tony Clark who retired as a Non-Executive Director at the end of 2006. His contribution over many years has been immense, particularly in the areas of Finance and Audit.

who we are

06

who we are

For today:Vision – To be the best healthcare company we can be

Purpose – Together we can help more people feel better

Ethos – It matters more how good we are than how much we make

From yesterday:A successful business must let its values be known

A successful business must be progressive

A successful business must have a distinct personality

A successful business must deal fairly and squarely alike with allThe Contributor: the periodical of The Hospital Saving Association, February 1931

“The wording may vary, but these statements represent an unbroken link with our past that has served our customers well for decades”

Adastral Health provides high quality, flexible and cost effective occupational health services to 375 companies across the UK, who collectively have around 400,000 employees. Adastral works in partnership with employers to make management of their health issues more effective – this then helps to enhance the productivity of their business through the wellbeing of their staff. Adastral Health became part of the Group in June 2005 and is based in Reading, Berkshire.

BCWA offers a range of Private Medical Insurance (PMI) policies designed to meet the health and wellbeing needs of individuals, families, small companies and large corporate organisations throughout the UK. It currently has 120,000 customers, with the majority of policies being sold through a network of intermediaries. BCWA joined the Group in February 2005 and is based in Bristol, where it began in 1935.

BCWA Remedi was founded in Reading in 1985 to provide an alternative to the traditional insurance market. It provides bespoke solutions for large companies wishing to self-fund their corporate medical plans for employees. Remedi offers flexibility, innovation and a ‘partnership’ approach in order to ensure first rate client service.

HealthSure has a 130-year tradition of assisting people and companies with their healthcare needs and has historically focused on the North West, Northamptonshire and East Anglia. The core Cash plan has evolved with the changing needs of around 140,000 customers, and innovation in distribution means working with brokers, as well as directly with the public. Based in Manchester, HealthSure joined the Group in March 2005 and is totally committed to customer-orientated values.

HSA is dedicated to further developing a range of low-cost, affordable Health plans for individuals and companies across the UK. Originating in London, our home has been Andover in Hampshire for 26 years. HSA believes in delivering outstanding service to its 835,000 customers in order to secure their trust for many years to come.

LHF is living proof that society has a strong need for local companies that strive to understand and meet the demands of their community. With over 200,000 customers, LHF has helped a remarkably high proportion of the Yorkshire population, especially in Leeds, with healthcare Cash plans, for more than a century. LHF joined forces with HSA in 2002 to begin the creation of the Group.

Totally Active is a national retailer of high quality mobility and daily living aids. It has a comprehensive range of over 300 products. Service values of trust and reliability for its customers is critical, especially when selling products to people in their own homes. Totally Active joined Simplyhealth in 2006 and is based in Andover, Hampshire.

Your Health Screening is a high quality, convenient and affordable mobile health screening service and is Simplyhealth’s first ‘start-up’ business. It will help individuals self-manage their own wellbeing and provide peace of mind through recommended lifestyle changes. Trusted relationships with customers and other healthcare providers in the community will form the basis of its business. Your Health Screening was launched in Andover during October 2005.

Simplyhealth – built on the foundations of our past

10

In the UK, we were no exception, but we do have one much admired advantage and it is that our Health Service is an inclusive one. It is available to everybody, and that is something of which we should be enormously proud because in truth, that is still quite rare in the world.

Like all other countries however, our Health Service has to change to keep pace with the increasing demand of changing lifestyles, an ageing population and constantly improving technologies and drugs. In Britain, to help create good healthcare for the future, our old Health Service is being moved towards a new Health System, where the providers of healthcare will include some state owned and some privately owned organisations.

We think this is very positive and we believe standards will eventually rise because of it. We also believe Simplyhealth has an important role to play in the new Health System and, because of our purpose and heritage, in the years ahead, we will become an important and trusted part of that system.

Our hope is that we will be trusted because our staff ensure every day that customers know exactly who we are working for. It is for them. We will be trusted because we continually provide excellent value, together with a very human and empathetic service, which our customer satisfaction scores continue to reflect.

Similarly, our innovations within Simplyhealth will always be about what helps our customers. Last year, you asked us for better Internet access and we’re building it. You also asked us for a product to help with the increasing trend towards private dentistry and in October we launched it. In conversations with you, you asked for help finding the right hospital and clinician for treatment. We launched Service Plus from BCWA, that not only finds them for you but will even book you in, saving a great deal of hassle.

One thing you, our customers didn’t ask for, was a wash bag with some home comforts in it for your hospital stay but, because we are thinking about you, we created one, and it seems you were delighted. The paperless claims system for Private Medical Insurance has also been greeted very warmly.

We believe that there are still many more ways in which Simplyhealth can help people through outstanding quality and value. In order that everyone can see clearly that any product or service will live up to expectations, we have created the Simplyhealth ‘quality mark’. We will attach this to all our products and services, so when people see our logo, it will act as our reassurance to them that we have done our utmost to create the best value we can. Customers will know they can trust it.

of the NHS’s activity was contracted out to private organisations like DHL for logistics and Netcare for operations. This will continue to grow

The drugs bill was the fastest growing cost in the NHS, because of new drugs like Herceptin and because of the growing number of prescriptions for chronic conditions

09

where we are goingThe time to invest in our future is now so Des Benjamin, our Chief Executive, outlines what we have been doing in 2006

All over the world in 2006 governments and economies were struggling with the same issue, how to afford the increasing costs of healthcare.

Things to know about the NHS in 2006:

people employed by the NHS in 2006 and £88bn of taxpayers’ money was used

of dentistry was provided by private dentists and this number is increasing

12

The really important thing to realise is that the benefits of these and other investments will only materialise for our customers in the next few years. I am quite sure however, that without them we would soon become outdated and less able to help people. We would certainly not be able to take our place in the new Health System in any meaningful way.

With our focus on making sure our customers receive great value all the time and, at the same time, investing heavily and confidently in our future, it does mean that we are not reaching the financial returns that might be expected from a city institution. This was a deliberate choice taken by the Board – we have enough reserves for our needs today and we are doing what we believe is right for our customers now, and in the future. I expect our profitability to remain low for these reasons for a couple of years yet.

Finally my thanks to our staff whose resolve and goodwill delivered some fantastic work this year. My thanks also go to our customers. I know that some of them experienced a little service slip in the summer when we moved 750 million records across to PULSE, but you did stick with us and we were all delighted by your goodwill towards us.

Take care

hospitals became Foundation Trusts and a further 38 are awaiting approval. It is expected that all hospitals will be able to apply for Foundation Trust status by 2008

The NHS restructured itself from 33 to 10 Strategic Health Authorities and Primary Care Trusts were consolidated down from 308 to 152

where we are going

11

What was 2006 like for us?Well, it wasn’t all plain sailing. I have described it as a gritty year when we had to deliver some pretty complicated background stuff in order to build for our future. PULSE, our new core computer administration system went into HSA successfully in July, thanks to an enormous effort from many dedicated staff. It means we now have the ability to build new products in the future and deliver even better services for our customers than we can today. Add to that a new Internet platform and telephone system for the whole Group and as you can see, we are not going to lag behind as the future Health System unfolds.

Equally, true to our commitment to broaden our range of services to our customers, we completed the first build phase of our screening business. This has been designed to improve access opportunities to an annual ‘MOT’ for anyone who wants one. Needless to say, because it is a Simplyhealth company providing the screening, the quality is excellent and the price is remarkably affordable at less than £100. We’ve done this by focusing on the tests which really matter to our customers, such as a heart and lung check, bone density check and allergy testing.

The UK is ageing as a population. We are living longer. This means more costly healthcare for longer

where we are going

Bone density checkThe Simplyhealth logo

“When people see our logo it will act as our reassurance to them that we have done our utmost to create the best value we can. Customers will know they can trust it”

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In 2006 our customers and the Group began to realise some of the benefits that are now being created by working together.

We are already seeing our claims handling improve and become more cost effective by having BCWA look after all our customers’ Private Medical Insurance claims. BCWA have also been able to introduce Service Plus across the whole Group and although customers still ask how much this ‘extra service’ costs, it is free.

Our project team has been able to deliver PULSE into HSA this year and we can look forward to the other companies migrating on to it soon. Building this new system was beyond the capabilities of any of our companies individually and will benefit all the Simplyhealth Access companies for many years to come.

Joint working across the Group in different forums like marketing, customer service, compliance and HR have helped spread best practice and generate ideas such as the new Dental Plan that was launched in September. These forums also ensure that we keep the same high standards of customer focus and delivery across the organisation.

As we have been developing our occupational health and screening businesses, it became sensible to combine some of our administrative and management resources to run these organisations to better effect. We started this in December and expect to see the work of these two organisations becoming more complementary in the months and years ahead. This is also what our business and broker customers would like to happen as it helps them.

Joint working across the Group has also resulted in us presenting to potential new clients a complete service that looks after the wellbeing of their employees. From pre-employment screening to online health assessments; from company paid dental and optical benefits to full Private Medical Insurance and from health information to daily living aids, our ability to help look after a company’s work force is growing and becoming an ever more attractive way of helping them to meet their duty of care for their employees.

As we diversify and expand our business into an ever more complex healthcare market, we must make sure we have the best and consistent practices across the Group. In 2006 we formed a new sub-committee of the Board, the Clinical Governance Committee, to establish and advise on medical governance procedures.

13

how we run SimplyhealthRunning Simplyhealth as a Group to best effect

We believe there is no point in bringing all of our organisations together unless it is to serve our customers more efficiently and with greater capabilities than we could as separate businesses.

“As we diversify and expand our business into an ever more complex healthcare market, we must make sure we have the best and consistent practices across the Group. In 2006 we formed a new sub-committee of the Board, the Clinical Governance Committee, to establish and advise on medical governance procedures.”Jamie WilsonManaging Director, BCWA

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cut in stationery costs for Adastral who now use the Group stationery contract

financial promotions and items of Group wide marketing literature reviewed and approved for publishing by Group Compliance

how we run Simplyhealth

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This is particularly important as we increasingly have to make difficult decisions about what we should be providing customers and what we should not. Importantly, we must be in a position to explain to customers, clearly and with appropriate reason, why we will not provide a treatment or a drug. With increasing use of expensive drug treatments like Herceptin and a rise in cosmetic and plastic surgery, it is easy to see how crucial this committee will be in the future.

With 10 buildings across the country and an enormous demand for stationery, office supplies, utilities like telephones and electricity, travel costs and so on, we have been able to obtain better prices by centralising our purchasing and this feeds through into lower costs for the businesses.

Our central Group resources of Finance, Corporate Affairs, IT and HR are doing the work that was once done separately in each individual company. This is not only more cost effective but we can employ a higher calibre of skill in these departments from which everyone can and does benefit.

From our employees’ point of view, we have been able to harmonise their terms and conditions of employment. This helps create a sense of equality and fairness across the Group and leads in turn to ensuring the way we remunerate people is also appropriate to their task and that it does not adversely impact our customers.

All of this is of course planned and guided by the Executive Team and governed by the Board around the same single agenda. We are sure that this is crucial to the continued cohesion of the Group and its ability to build a more capable organisation that is better able to serve our customers.

increase in sales volumes in HSA over the last two years

new customers for LHF-HealthSure, a record year for customer growth

how we run Simplyhealth

“Adastral Health and Your Health Screening teams include professionally qualified occupational health specialists together with fully trained screeners. This brings a completely new range of experience, knowledge and skills to the Group. The existence of these companies significantly extends Simplyhealth as a healthcare company.”Jeremy GillardManaging Director, Adastral Health and Your Health Screening

“BCWA was used to managing a mass of administration from tax returns to compliance reports but when this was taken on centrally, it meant we could really concentrate on looking after customers and brokers. Being part of a Group generates real customer benefits for us.”Jamie Wilson Managing Director, BCWA

“Our central IT department was ultimately responsible for delivering PULSE into HSA last year. However, its success was reliant on massive effort from people across the Group pulling together as one team. It resulted in one of the most impressive projects we’ve seen for many years.”Chris HarrisonExecutive Director, Managing Director, HSA

86% 77% 38%% Claims paid within 2 days for HSA

2006 2005 2004

“Since the merger with HSA four years ago, LHF has been able to take advantage of the Group’s investments (for example in the screening vans and the new dental product) but still retains its unique identity. LHF is an integral part of the Leeds community and serves it to an exceptional standard.”Ian Maude Executive Director, IT and LHF-HealthSure

Having this bike has put Nicholas on a level with everyone else, but one step higher.

The kids all take it in turns to race each other on it and time themselves. For the first time in his life he was winning the race.Michaela Damin

”Nicholas Damin

Simplyhealth’s Group Image department are renowned for raising money for community causes. They met Nicholas, and Michaela his mother when they presented a cheque to the Barth Syndrome Trust, an illness that affects the heart and muscles and causes exhaustion. Nicholas has suffered with it since birth. He explained to them that he needed something like a scooter to help him get around and get to school. So Group Image took on the challenge and found that a mini electric quad bike was the perfect answer. For more information on Barth Syndrome visit www.barthsyndrome.org.uk

Simplyhealth story

20

The successes we describe this year have a common theme behind them – the character, personality and commitment of our people. They enable us to describe ourselves as a community. Without them our purpose and aspirations would never be more than a dream. Our 1,165 staff are the spirit that encourages the Group to be different, create new ideas and enter new business areas to benefit our customers. They are the embodiment of the Group’s values and our customers real experience of our brand.

Connected by purposeThrough expansion and acquisition a Simplyhealth community has been created which provides new career and geographical opportunities for all our staff.

However, we entered 2006 with a number of businesses that had their own people policies and programmes so it was important to ensure that all these came together to provide a consistent experience for all of our people.

In addition, delivering more broadly based healthcare services meant that we now needed to seek the talents of a new pool of potential employees and we were pleased to welcome into the organisation nurses, health-screeners and doctors, to name but a few.

Of course, with the Group becoming increasingly diverse in roles and location, it was important that we found the opportunities to talk to our staff to ensure we understood all their needs.

So in 2006, our HR teams worked across the Group to understand what was required for both the businesses and our people.

As a result, HR was restructured to deliver high standards across our businesses, while still retaining the flexibility to respond locally to customer needs. Group HR practices and Learning and Development programmes were aligned for all employees, and a centre of excellence was created to deliver new Simplyhealth Reward, Wellbeing and Employer Branding programmes.

Taking our own medicine (but no sugar required!)Simplyhealth continued to help keep our people fit and productive. Being in the wellbeing business, we are best placed to ensure we look after our staff. We take their wellbeing seriously and want to set a high standard for the healthcare market in the UK. During 2006 a new extended programme of health and wellbeing initiatives was developed in partnership with an external supplier. Staff across Simplyhealth were able to experience the delights of free fruit, massage, reflexology, and juice bars, as well as the ‘less enjoyable’ flu jabs and blood donation.

Rewarding our staff at the first Simplyhealth Sales Conference

Our fourth consecutive year of success

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helping our people deliverMark Day, Executive Director HR & PMI, explains why Simplyhealth people stand out from the crowd

22

“The Certificate in Management Studies has been of great value to me and I’ve been able to put a lot of the theories into practice. I would definitely recommend the course to others and have already done so.” Darren Moulds, LHF

Coaching and mentoring was also formally introduced across Simplyhealth as an effective way to empower staff to take ownership of their own development and focus on their particular role needs.

“I don’t look to my coach for answers. I look to them to navigate me towards finding my own solutions so I can do what I think is right. As a result I feel positive and confident about myself and the contribution I make, and pretty much ready for anything. Bring it on!” Charlotte Willis, Group HR

The 2006 annual Sales Conference delivered another business learning event and enabled our sales people to unite together, build knowledge and share best practice.

“While the Sales Conference presenters focused on different areas of the business, the evolution of Simplyhealth as a force in the healthcare market was clearly evident.” Mike Wagg, BCWA

Finally, seeking new ways to increase our understanding of healthcare, we undertook two distinctly different means to enhance knowledge. Firstly a senior management team stepped outside the familiar UK health scene to study and learn how China is responding to its healthcare provision issues. Secondly every one of our people received a folder with ‘recipe’ style information cards about specialist areas of healthcare policy and market trends.

And building towards the future2006 was another year of change for us and our people have continued to respond positively to our new challenges. It was a year when our people were required to unite as one Group; they have achieved this and so much more.

The groundwork has been set. However, 2007 will be the year of delivery as we further embed Simplyhealth practices across the Group through new reward, leadership and community activities. We also look forward to developing a Simplyhealth employer brand, improving the recruitment experience and creating a unified means to rewarding both the performance and behaviours of the people who deliver our success.

helping our people deliver

Staff ratio Male : Female31% : 69%

Age ratio -35yrs : +35yrs49% : 51%

Salary levels -£35k : +£35k89% : 11%

3.3% 2.56% 3.6%% Work days lost to sickness

2006 2005 2004

20.2% 24.8% 17%Staff attrition rates

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Proud to be one of the very best companies to work forFor the fourth year, we were very proud to be listed in the top 100 of the ‘Sunday Times Best Companies to Work For’. The reality of all of our changes was expressed in our position which had dropped back from the 2005 result. It is still a major achievement, given the challenges of the past 12 months.

“I enjoy the fact that I work for a Sunday Times Top 100 company. It makes me proud of who we are and helps with my HR recruitment work.” Audrey Higgins, LHF-HealthSure

The second annual Express Yourself employee survey once again showed that we are delivering an organisation which our staff truly believe in. The engagement of our employees was apparent with a massive 81% of staff completing the survey, compared to 60-70% in other UK high performing companies.

The perceptions of our staff were very positive and many already good results had improved from 2005; 86% of employees recommended Simplyhealth as a good place to work. As expected some areas required attention and action plans were drawn up in all of the businesses and Group functions to respond to our people’s needs. Reassuringly, four out of five of those surveyed felt management would carefully consider problems identified and it is now up to the management of Simplyhealth to live up to that perception.

Building hearts and mindsIf our people are to maintain their excellence in customer service in the years ahead, we need to ensure we keep abreast of unfolding developments in healthcare; balancing attitude, behaviours, skills and knowledge.

We recognised that all of our people are individual and have very different roles and development needs. We sought to find new and different ways to develop them and it was important that everything we delivered continued to embed our ‘Be yourself’ ethos.

To ensure everyone in the Group was fully aware of our future plans and the way we want to develop a consistent reputation, Des Benjamin presented the Simplyhealth vision and facilitated discussion in a series of road shows at each location across the country.

“This afternoon’s talk from Des was both informative and inspirational. It really does feel like we are working towards some long term goals, and the whole idea of becoming a healthcare organisation in the widest sense is quite uplifting.” Chris Rice, Group Business Solutions

Professional development was the aim behind a number of courses, including the Certificate and Diploma in Management Studies, leading to accredited qualifications.

helping our people deliver

All staff kept abreast of healthcare market developments

Staff participate in launch of Recommend a Friend scheme

2006 2005 2004

People Measures for 2006

“I star ted life as a teacher

Linda Hatswell, Head of Customer Service Operations, HSA

together we’ll work out how you get there’. I’m convinced that a Simplyhealth coaching culture can only be a positive thing, where every relationship is improved through better listening and more personal responsibility. Being a coach, and being coached, really

develops your professional and personal skills and can help clarify a lot of work issues and things at home for you too – it certainly made a real difference to me, both as a manager and a person.

”

and trainer, so I didn’t think that coaching would be very different from how I have always approached management – it should be what a good manager does anyway. But there is a real shift in terms of ‘I’m not going to tell you what to do, I’m asking you what you want to achieve, and

Simplyhealth story

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Frankly it is what makes us so passionate about the work we do as we all feel we can make a real difference.

Our approach towards healthcare is about doing the right thing and doing it the right way. We work hard at enabling our people to be themselves – the best person they can be in their service to you, our customers.

As a business we recognise our role as an employer, a consumer, an insurer, an educator and an investor. The role we play in society is for better wellbeing all around and it is important that we do not just believe this, but we actually do something about it.

Lofty ambitions or a grounded reality?In 2006 we started to set out a simple framework for our community engagement focusing on four areas: the marketplace, the workplace, the community and the environment.

Marketplace – this means treating our customers fairly and honestly, with courtesy and respect; making sure that we always meet, or exceed the requirements of our regulatory authority; engaging regularly with our customers and listening to what they have to say; dealing speedily and appropriately with our business partners and suppliers.

We are always looking to refresh our understanding of our customers’ needs, and this year we undertook some research to find out more about how our customers are using the Internet and what they expect from us in this area. Our campaign was so well received that we were awarded ‘Runners Up’ at the Research Excellence and Effectiveness Awards. More importantly, we learned a lot and are building our web capabilities in line with these findings.

This year we also appointed a Member Engagement Manager to provide a dedicated point of contact. We let our members know about this via a new newsletter called ‘together’.

We also want to maintain our reputation of treating our suppliers fairly and be recognised as an organisation that pays its bills on time. Smaller businesses in particular, suffer when they are paid late and this can affect the quality of service they provide. Our payment record is reflected in our Dunn & Bradstreet payment rating and shows that Simplyhealth Access pays their suppliers within term.

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supporting our communitiesHelping others is what we are committed to

We view helping our customers, business partners and communities as part and parcel of how we do business. In fact helping others is our lifeblood and it is how we focus everyone’s activity. We see a seamless connection between the values we apply in our business activities and relationships, and those we adopt with the communities in which we live and work.

LHF supports St. John Ambulance

Our newsletter for members

“Finishing the London to Paris ride brings feelings of immense pride – it’s fantastic to be part of something that will make a huge difference, both to everyone who took part and those who will benefit from the work funded by Action Medical Research.”Jeremy Nelson-Smith, Group Corporate Affairs

“Helping others is our lifeblood”

LHF donated Christmas toys to help under-privileged children

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Simplyhealth has a committed charitable fund of £2m every year, up to and including 2008. To lead this, the Simplyhealth Charitable Committee was set up in 2006 to make annual donations and oversee the distribution of these funds. In 2006, £450k was divided amongst four national charities: The Princess Royal Trust for Carers, Help the Hospices, The Alzheimer’s

Society and Bullying Online. An additional £500k was divided across the Group to support local community activities.

A further sum of £1m has been set aside to fund a specific national charitable project which unfortunately did not commence in 2006 and so this sum will be added to our charitable funding in 2007.

Environment – this means that we continually strive for ways to lessen the impact our businesses have on the environment.

For example, in 2006 we switched the petrol and diesel generators in our Your Health Screening vans to LPG (liquid petroleum gas). We also installed an Energy Management System into

our Andover offices, which is designed to reduce energy use by up to 25% from 2007 onwards.

Simplyhealth will continue to be passionately committed to our community work – it is part of who we are.

allocated to support local community health-related activities

of staff recommend Simplyhealth as a good place to work

supporting our communities

27

Workplace – this means creating an environment for staff that encourages personal growth, a strong sense of purpose and a feeling that each person makes a difference to the wellbeing of our customers. Achieving this will undoubtedly mean better service and a greater customer focus.

We have already mentioned the effort and initiatives that go into good employment practice within the Simplyhealth Group but it tells only part of the story. Our work in the areas of Health and Safety, employment discrimination and guidance on personal safety issues is all designed to reinforce our goal of creating the best and most productive working environment for our staff. Many of them are actively engaged in designing these policies with us through our Staff Consultative Committees.

Community – this means we actively encourage our people to get out and about in the areas in which they live and work and involve themselves in all sorts of community projects. This benefits both the communities and the staff themselves – most will testify to the great personal reward that comes from helping others.

A number of days of staff time are made available for community activities, such as BCWA creating an outdoor space at a local school. Other projects have bigger aspirations. For instance ‘Andover Vision’, led by the Chief Executive has involved staff in an ambitious scheme with local authorities, government agencies, schools and other businesses to help regenerate the town.

In addition, Simplyhealth has a Public Duties policy, whereby staff are given time off to serve their communities perhaps as a local councillor, or a school governor.

supporting our communities

committed to charitable giving

given in total to The Princess Royal Trust for Carers, Help the Hospices, The Alzheimer’s Society and Bullying Online

90.8 74.15 Tonnes of paper recycled

2006 2005

598,674 447,343 Plastic cups recycled

2006 2005

HSA parachute jump raises £1k for charity

BCWA collect Easter eggs for children’s hospital

HSA charity football match raises £650

“Our approach is about doing the right thing and doing it the right way”

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The strength of our BoardFor me, the strength of our Board comes from two things. Firstly, the quality of the individuals who make up that Board – both their experience and their shared belief in what Simplyhealth stands for – and secondly, the role that we give to that Board – at the heart of our accountability to our customers.

Team of many talentsThe Simplyhealth Board is a unique blend of people with a wide range of expertise. In 2006, we recognised the need to make sure that its members have the right balance of knowledge and expertise for a healthcare organisation, not just a financial services company.

This means that we now have eight Non-Executive Directors who outnumber the five Executive Directors. Their common ground is a belief in our purpose, vision and ethos and they also each bring specific strengths to Simplyhealth. Terry Hardy and James Barnard, for example, are former Chairmen of LHF and HealthSure respectively, both with passionate commitment to the Group’s Cash plan heritage. Our Non-Executive Board members also include two former Chief Executives of major corporate organisations, Ian Much from De La Rue and Ken Piggott from Boots, and Kerry Richardson, previously a Board member of the AA.

New to the Board are Elisabeth Buggins, Chair of the West Midlands Strategic Health Authority and Abhai Rajguru who brings senior level experience in financial services and corporate governance, from service on the boards of other organisations.

Major General Brian Pennicott continues to chair the Board with the authority and clear sightedness of a career soldier and the benefit of having overseen Simplyhealth’s growth and development over the past eight years.

The Board’s role – being accountable This is a one-tier Board with one agenda: it oversees the development and execution of our strategy to ensure we achieve our purpose of helping more people feel better.

We believe that central to that oversight role is the direct involvement by Non-Executives in Simplyhealth and their work, particularly in new businesses where their experience is invaluable. By way of example, Ken Piggott’s extensive retail experience from many years at Boots has been able to provide direct input to our recent acquisition of Totally Active. Kerry Richardson, through his IT background, has provided guidance and counsel to project PULSE. These are just two examples of how the Board can help to look after our customers’ interests, not just from the comfort of the boardroom, but out there at the coalface.

Our Chairman at the AGM

Chris Harrison presenting a charitable donation

Des Benjamin opening a new screening van

29

how our board helpsRomana Abdin, our Company Secretary, explains how our Board ensures we help more people feel better

The Simplyhealth Group Board has a vital role to play in shaping the organisation for the future. That means making sure that it is accountable for the way in which our actions impact on customers. By using the experience of our individual members, it takes the lead in overseeing Simplyhealth’s strategy and challenges the way it is implemented to make sure it is consistent with our purpose and vision.

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The learning BoardAs well as having a clear understanding of the Simplyhealth businesses, our Directors need to understand the changing business environment if their expertise is to be applied. So the Board continued its ‘Knowledge Transfer’ programme in 2006, inviting expert speakers to help them to learn about key issues:

> February – the Board was briefed on eStrategy with an update on how Internet developments can help our customers.

> April – Nick Bosanquet, Professor of Health Policy at Imperial College, London, described the future of NHS funding.

> June – Dr Patricia Oakley, Teaching and Research Fellow at King’s College, London, presented on the NHS and social care reforms. The Board also studied how risk management could be used as an effective tool to inform decision making.

Review of StrategyOne of the biggest challenges for the board is really understanding the healthcare market and the threats and opportunities that it may bring. As part of the development of our strategy, we examined the different sectors of the market and applied a series of strategic filters to them, with a view to identifying those sectors where we should concentrate our resources.

Collectively, the Board were able to apply their own experiences to these areas and, with the customer in mind, pinpoint a number of different areas, which have resulted in several initiatives being undertaken.

Maintaining this proactive approach is the responsibility of the Board and you can be assured we are not resting on our laurels.

“I have a particular interest in healthcare. I have sought to find better ways of listening to members or patients and responding to their wishes. Simplyhealth is striving to make continuous improvements to develop its expertise in providing healthcare. I am very pleased to be a part of its exciting ambitions.”Elisabeth Buggins

how our board helps

31

As Brian, our Chairman puts it: “I always say to the Non-Executive Directors: ‘Remember you are not here to run the business’. But it’s a lot easier to rein back enthusiastic Board members than it would be to encourage a Board that didn’t see deep involvement in the organisation as important. It’s also easier to perform good governance and ask the demanding questions if you have first hand knowledge of the business.”

Just as important are our Executive Directors who are full-time employees of Simplyhealth. Led by the Chief Executive, they run the business on a day to day basis and each of them has accountability to the Board for individual areas of the business in addition to their functional roles. Mark Day, for example, is responsible for Human Resources across the Group, but he also reports to the Board on the BCWA business and Private Medical Insurance in general. Ian Maude is Executive Director for IT and for the LHF and HealthSure businesses.

Committees that make a differenceThe Board’s work in providing accountability for Simplyhealth’s actions is wide-ranging and time-consuming. To ensure that all areas receive sufficient focus it has a number of Committees; for example the Audit, Risk and Chairman’s Committees, which have the necessary time to get under the skin of some of the key issues that face Simplyhealth in the implementation of its strategy and use that time to make sure that an appropriate level of oversight and challenge is given to our actions.

The Audit Committee’s principal responsibility is to oversee Simplyhealth’s review of its controls both by our internal audit function and the external auditors. These controls include financial reporting, compliance with regulatory requirements and whether our internal management controls are adequate and appropriate. The Committee’s understanding of the business is key to its effectiveness in this area. In 2006 it enabled the Committee to play a key part in overseeing the integration of businesses acquired in 2005 and the ongoing development of PULSE.

The Risk Committee focused on business continuity in 2006 as well as the new capital requirements regulations that support the Group’s insurance business. It also looked at the clinical governance framework as the Group begins to develop new healthcare products and services, particularly in the Wellbeing area. That led to the creation of a separate Clinical Governance Committee, where Elisabeth Buggins’ NHS experience is helping to form an appropriate team of specialist advisers. The Chairman’s Committee has specific responsibility for Board appointments, but has also played an important role in ensuring that when deciding to acquire Remedi and Totally Active, proper account was taken of how these businesses would benefit customers in a better and more joined up way.

how our board helps

“I believe passionately that the mutual sector can make a contribution that ‘corporates’ and the state sector cannot, and feel that we have a duty to focus on the tremendous value we can deliver to our members.”Abhai Rajguru

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Des Benjamin Chief Executive

“I am determined that we do not follow some of the more disappointing business practices that diminish the value of the service we provide to our customers. Examples are not difficult to find, such as overseas call centres and push button telephones where it is hard to speak to a person who can actually help you. Not in Simplyhealth, no thank you.”

Ian Maude Executive Director, IT and LHF-HealthSure

“I have the great privilege of helping decide which worthwhile organisations should benefit from a Charitable Committee donation. In 2006 we awarded £50k to Bullying Online, which helps nearly 10,000 children a year. Meeting with them and hearing about the difference our donation would make, made me feel very humble, yet very proud.”

Keith Blacker Executive Director, Group Finance

“Caring for our customers is an integral part of the way we do business. The investments that we make across the Group are done with the customer in mind because we know that is the right thing to do. I aim to make our customers feel better by reassuring them that they are part of a Group which is financially secure and which is investing in the things that really matter to them.”

Ken PiggottNon-Executive Director

“Chairing the Charitable Committee gives me a privileged position to help select causes where you just know you are doing a power of good for people. I’m on the boards of some specific charities, so I try to bring experience of how our money can be spent most beneficially.”

Abhai RajguruNon-Executive Director

“Being Chairman of the Audit Committee gives me responsibility for ensuring we use our resources as well as we can. We have to be tough on ourselves in order to bring most help to others.”

Romana AbdinCompany Secretary and Group Corporate Affairs Director

“I try to remember to apply our purpose each time I approve a piece of marketing literature or take part in a boardroom discussion. It’s a simple question of judging every decision according to whether it is likely to make people feel better.”

James BarnardNon-Executive Director

“I hope I’ve helped focus the Board on trying to understand our customers better. It’s critical for us to meet customers directly much more, and that’s my personal aim for the future.”

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Chris HarrisonExecutive Director, Managing Director, HSA

“I lead the management team at HSA, which means developing staff, emphasising our vision, and encouraging them to listen to our customers and treat them with respect. I try to emphasise that it’s often about being willing to go the extra mile that makes people happy.”

Ian MuchNon-Executive Director

“Mentoring some of the Group’s younger managers contributes to developing the next generation of decision makers. In the end, quality decision making helps people inside and outside the Group.”

Mark Day Executive Director, HR & PMI

“People sometimes ask me how our HR policies benefit customers. I hold the simple view that you can’t expect employees to treat customers well unless they are treated well themselves. If you can inspire them, and give them confidence to give of their best, they will help more people feel better.”

Elisabeth BugginsNon-Executive Director

“I’m working to help assure the clinical consequences of the decisions the Group takes. Essential to making people feel better is the recommendation of high quality providers for PMI customers. It’s even more important as we get into healthcare services ourselves.”

Kerry RichardsonNon-Executive Director

“I’m very proud to have been the Board sponsor of a piece of technology that really will make a difference to our customers. PULSE will deliver higher service levels, even faster telephone responses – especially for people with more than one question to ask – and it’s highly reliable.”

Major General Brian PennicottChairman

“I hope I have been able to steer the decisions and the strategy of the Board consistently to ensure that the customer is at the heart of every discussion we have. That is my purpose.”

Terry HardyNon-Executive Director

“Knowledge and experience of Cash plans keeps me determined that we continue to offer top quality products at competitive prices, with first class customer service.”

Vicki Hughes, manager of two London-based coffee shops

Vicki’s fears were realised as her gynaecologist advised her that an urgent hysterectomy was required.

There was a genuine sense of urgency – BCWA made a snap decision, and it felt as though they were really working on my behalf.

Looking back, I was so worried by the situation, and the outstanding customer service

I received from BCWA made the experience eminently more tolerable. Nothing was too much trouble, and the only thing I had to concentrate on was getting myself better. BCWA even found time to call me before my operation to make

sure I was happy with the process and to wish me luck. That was a nice touch.

Two months after her operation, Vicki was given the ‘all clear’ by her doctor.

”

Simplyhealth story

38

Last year I presented our complicated profit and loss account in a simplified format so that it is easier to see how the Simplyhealth Group performed from a financial point of view. I have repeated this format in the table above for 2006.

If we look in more detail, there are two main indicators that we use to measure how well we have performed.

First of all, our operating loss of £2.7m is smaller than we forecast at the beginning of the year.

The second indicator we use is our retained profit of £14.8m. This was a very positive result given our challenges

and was helped by the stock market investments we have made in the Simplyhealth Group.

However, some of the figures when compared to 2005 show large variances which I will explain further.

Expenses – the increase in expenses was mainly in the area of staff costs. There are three main reasons for this. The first is because in 2006 we have a complete year of costs for the businesses that we bought in 2005. The second relates to the investments that we made in the health screening and occupational health businesses, like the additional people we recruited to run these services.

2006 2005

£m £m

Income The amount we receive from our customers 302.5 276.9

Claims The amount we pay back to our customers (231.1) (212.6)

Expenses The amount it costs to run the businesses on a day to day basis (74.1) (62.8)

Operating profit/(loss) before non-recurring items (2.7) 1.5Investment returns The amount we receive from our investments

in the stock market and government securities 19.2 25.5

Donations The amount of charitable donations we make (0.7) (1.6)

Profit before tax & non-recurring items 15.8 25.4 Tax The amount we pay to / reclaim from the taxman 0.3 (4.2)

Restructuring costs The amount it cost us to undertake restructuring across the Group including integrating the businesses that we acquired (0.7) (2.3)

Other non-recurring items For 2005 this amount related to the pension schemes that we are closing 0 (1.7)

Goodwill The amount of goodwill that we can write off. Goodwill is the difference between the value of the businesses that we acquired and the price that we paid (0.6) 22.5

Retained profit 14.8 39.7

Note: This information is compiled from the Group’s audited financial statements, which set out a full account of the consolidated profit and loss account.

37

our financial performanceGroup Finance Director, Keith Blacker looks at how we managed our finances in 2006

As the Chief Executive has reported to you, 2006 was a gritty year. We had to focus on integrating the new businesses we acquired during 2005. It was the first full year of operation for our Wellbeing businesses. We also implemented the PULSE system, and a number of other significant initiatives. So I am delighted to report to you that our finances remain in good health and that we finished the year very much in line with our financial forecasts.

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One of Remedi’s most important financial assets cannot be shown in our accounts: the medical spend that they manage as a result of pooling their clients’ funds. This figure is approaching £60m per annum. When combined with the spend from our other Private Medical Insurance businesses, the aggregate gives us a total annual medical spend for the Group approaching £125m – an important level of scale in this part of the healthcare market.

The liabilities side of the balance sheet shows a number of reductions. ‘Other creditors’ which are amounts that we owe to third parties, reduced principally because, based on our adjusted profit, we have no corporation tax to pay. As a result of efforts made in removing loss-making contracts within the BCWA book of business, the unexpired risk provision of £1m was utilised during the year. Finally, we have written off the £3.7m deferred consideration for the Adastral Health business acquired in 2005. This amount was payable to the previous owners of the business and was dependent upon the performance of Adastral Health over a five year period. The business has not performed in line with our expectations and, by mutual consent, the previous owners have now left the Group and there is no longer a liability.

Finally, I am pleased to report that we have almost cleared the pension liabilities that we inherited with the previous year’s acquisitions. In fact, with the deferred tax asset in place, at the 31st December 2006, we were holding a net pension asset of £0.9m on the balance sheet.

Looking forward to 2007There is little doubt that 2007 will be another financially challenging year for the Simplyhealth Group. We have set our financial and non-financial targets and we are ready to deliver against them, with the important provision that we will not compromise on the value or quality of what we deliver to our customers.

Simplyhealth will continue to grow, expand and consolidate its position. This strategy is not without risk particularly as we look to move into areas outside of our core financial services business. Our financial resources must be used wisely and there will be increasing pressure to continue to do the right thing for our customers in an efficient and economic way. For 2007, I see our key financial challenges in the following four areas:

1. Supporting the non-financial services businesses as they begin to use the infrastructures that they have built to drive income growth;

2. Investing in appropriate opportunities offered by the new Health System;

3. Reaping the financial rewards of the cross-selling opportunities that now exist;

4. Maintaining and fine-tuning a culture which supports prudent financial management.

By moving forward in this direction I remain confident that we will continue to enhance the value that we give to our customers by providing them with more services, more products and ultimately more choice to help them feel better.

our financial performance

INCOMEDeveloping top line performance

2000 2001 2002 2003 2004 2005 2006

£m

300

250

200

150

100

50

0

RESERVESBuilding up our security

2000 2001 2002 2003 2004 2005 2006

£m

300

250

200

150

100

50

0

OPERATING PROFITAchieving our targeted figures

2000 2001 2002 2003 2004 2005 2006

£m

21

18

15

12

9

6

3

0

-3

-6

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The third resulted from an increase in our salary costs following an extensive and across the board review of our rewards package in relation to prevailing market conditions. We are confident that our reward package is now set at a level where we can recruit and retain the right people needed to achieve our longer-term objectives.

Donations – the reduction in donations is because we did not identify a suitable charitable project to benefit from our special annual £1m fund. We have, therefore, carried the £1m forward to 2007 and next year you will see our donations rise to nearly £3m accordingly.

Investment returns – the reduction in our investment returns resulted from the performance of our investment portfolio and of course the stock market. At the end of 2006 we had lower unrealised gains in the portfolio when compared to the end of 2005.

Goodwill – the reduction in goodwill resulted from the one-off negative goodwill figure which flowed through the profit and loss account in 2005 following the merger with HealthSure.

Collectively, all of these factors impacted to reduce our retained profit figure to £14.8m.

However, the key to our financial stability, and to the comfort of our customers, is the state of our reserves. They grew by £12.5m to £258.5m during 2006 and so we continue to maintain a strong balance sheet position which will enable us to be financially ready for the challenges ahead.

Financial highlightsOne year’s financial results only tell a one-dimensional story of course. To put our performance into a five year context, we have grown turnover by 111%, our reserves by nearly £99m and the number of businesses within the Simplyhealth Group has gone from two to seven.

Let me now turn to the statutory accounts, as presented in ‘Our Financial Report to You’ and guide you through some of the figures in more detail. Our turnover in the Simplyhealth Access businesses broke through the £300m barrier for the first time in 2006. We achieved a breakeven position of £0.1m. We also recorded net gains on the financial markets of £9m and earned investment income of over £10m. Our investment strategy will remain cautious and alert so that we do not jeopardise this important source of profit for the Group.

The loss of £3.5m in our non-financial services businesses was in line with our forecast as we invested in new opportunities aimed at providing value for our customers in the longer term. We will continue to invest in these Wellbeing businesses and provide financial support for their development.

One of the main changes in the balance sheet is the increase in the goodwill figure, most of which is represented by the acquisition of Remedi. The profit generated by the business in the year prior to acquisition was £1.4m, and we are confident that this figure will improve.

our financial performance

The graphs illustrate how the business has performed in five key areas since 2000. They show a group that has grown and expanded whilst maintaining a good solid financial performance*

CLAIMSSatisfying the needs of our customers

2000 2001 2002 2003 2004 2005 2006

£m

250

200

150

100

50

0

STAFF NUMBERSGrowing our talent bank

2000 2001 2002 2003 2004 2005 2006

£m

1200

1000

800

600

400

200

0

*2002 was a 17-month accounting period