Press release - 3 September 2013 14:14

Discovery business model delivers excellent financial performance

Discovery business model delivers excellent financial performance

3 September 2013 - Discovery Limited today announced its annual financial results to the investor community and the media. The Group’s business model delivered excellent results and Discovery Group Chief Executive Officer, Adrian Gore, analysed Discovery’s performance against the background of macro trends that are shaping the insurance and financial industries globally. Gore said, “Discovery’s business model, which is based on the use of behavioural structures to underpin insurance systems, is proving increasingly responsive and resilient in a world where the burden of chronic diseases of lifestyle is growing, healthcare costs continue to increase and risk-averse consumers are seeking greater certainty and protection.”

Gore believes that Discovery’s approach to insurance has resulted in innovative and sustainable products and services that not only offer increased value and protection to clients, but also significantly enhance the actuarial dynamics of the business. “Our focus on building insurance systems that integrate wellness, behaviour change and financial protection leads to strong actuarial dynamics across the business, with positive trends in both lapse rates and loss ratios.”

Key observations on Discovery’s performance during the past financial year include:

A strong financial performance, ahead of expectations. A focus on financial strength, performance and prudence delivered a robust set of results with new business annualised premium income increasing 15% to R10 799 million and normalised profit from operations increasing 18% to R4 052 million. Return on capital exceeded 20%.
The UK businesses’ excellent performance resulted in an upward revaluation of Prudential’s 25% shareholding and allowed for a restructuring of PruHealth’s capital portfolio in search of greater yield. This led to the further recapture of a portion of the outstanding reinsurance balance in PruHealth, resulting in a five-year interest saving of R52 million.
Discovery’s core businesses of Discovery Health, Discovery Life, Discovery Invest, PruHealth and PruProtect, which represent the most sophisticated manifestations of the integrated model, delivered strong results. These businesses and the potential for integration with other Discovery businesses provide the platform for Discovery’s future expansion strategy.
Discovery invested 12% of earnings in new growth initiatives, including in Discovery Insure and in AIA Vitality, its recently announced joint venture with AIA Group, the leading insurer in pan-Asia.
Discovery Insure continues to make progress and Discovery is optimistic about the potential of the business. To this end, Discovery decided to acquire the 25% Hollard stake in the business for R352 million. This transaction is subject to regulatory approval.

Gore commented on Discovery’s growth strategy and in particular its international expansion strategy, saying, “Based on our emerging success in replicating the Discovery business model in other markets, we continue to invest significantly in future growth initiatives and in partnering with best-of-breed international partners in their respective markets.”

Discovery’s success in the emerging behavioural insurance market is proving attractive for international insurers who are partnering with Discovery to inject an innovation and wellness approach to their product offerings. Discovery has important Joint Ventures with some of the world’s most prominent insurance companies, including Prudential plc in the UK market, Humana Inc in the USA, Ping An Group in China and AIA Group in Singapore.

Business-specific highlights of the results announcement include:

Discovery Health delivered an operating profit of R1 688 million after continued efficiencies were passed on to the Discovery Health Medical Scheme in the form of reduced administration fees. This marks an increase of 13% from the previous financial year. New business also increased 13% to R4 820 million. Importantly, the value Discovery Health creates for the Discovery Health Medical Scheme was validated by an independent review done by Deloitte Consulting. In addition, Discovery Health was recognised as the top and only recognised consumer brand in the medical scheme category of the 2013 Sunday Times Top Brands survey.

Discovery Life demonstrated strong performance over the period with new business increasing by 8% to R1 896 million and a 16% increase in operating profit to R2 106 million. A continued focus on product innovation and a dynamic underwriting model has contributed to Discovery Life’s position as the number one insurance writer in the broker risk market.

Discovery Invest further developed its integration model, enabling the business to offer uniquely-efficient long-term savings products combined with the flexibility and attractiveness of the open architecture environment. Several product and benefit enhancements were introduced to the market, all gaining considerable traction. This resulted in Discovery Invest delivering an operating profit of R221 million, a significant increase of 46% from the previous reporting period. Assets under management are now in excess of R30 billion.

PruHealth and PruProtect delivered exceptional results. Profit grew by 57% to R472 million and new business increased by 48% to R1 573 million, with the customer base measuring 710 000 lives. PruProtect experienced a 56% increase in operating profit to R326 million; strong new business growth, up 40% to R644 million; better-than-expected claims and lapse experience; and a 40% increase in in-force policies. PruHealth’s operating profit measured R146 million, a 60% increase, with strong growth in new business, up 54% to R929 million, and excellent performance on the key drivers of loss ratio and lapse rate.

Discovery Insure has made progress across all dimensions, providing compelling evidence for the success of the behavioural insurance model. New business increased by 53% to R366 million with a simultaneous improvement in quality – decreased loss ratios; improved claims management; lower accident frequency and severity due to improved driver behaviour; as well as excellent lapse dynamics.

Ping An Health continues to make steady progress with a deliberate strategy to move away from Fund and Service product markets towards higher-margin mid-end and high-end insurance products. These markets, while embryonic, are growing rapidly and total approximately RMB1 billion of premium income – of which Ping An Health has captured in the region of 30%. Insurance business was characterised by strong new business growth levels over the period (up 58%, excluding Ping An employees) and a low loss ratio in line with expectation. Ping An Health sustained its position as the number one writer of new business in the Group high-end market.

Topics

Finance

Discovery information

About Discovery Limited

Discovery Limited is a South African-founded financial services organisation that operates in the healthcare, life assurance, short-term insurance, savings and investment products and wellness markets. Founded in 1992 by the current Group Chief Executive Officer Adrian Gore, Discovery was guided by a clear core purpose – to make people healthier and to enhance and protect their lives. Underpinning this core purpose is the belief that through innovation Discovery can be a powerful market disruptor.

The company, with headquarters in Johannesburg, South Africa, has expanded its operations globally and currently serves over seven million clients across South Africa, the United Kingdom, the United States, China and Singapore. Vitality, Discovery’s wellness programme, is the world’s largest scientific, incentive-based wellness solution for individuals and corporates. The global Vitality membership base now exceeds 5.5 million lives in five markets.

Discovery is an authorised financial services provider. It is listed among South Africa’s Top 40 companies on the Johannesburg Securities Exchange and trades under the code “DSY”.

South African operations

Discovery Health

Launched in 1992, Discovery Health isSouth Africa’s largest healthcare funder and manager of medical schemes. It manages 14 medical schemes.
This includes the Discovery Health Medical Scheme, which has a 51% share in the open medical schemes market, making it South Africa’s largest open medical scheme.
Discovery Health covers 2.8 million lives (all schemes under management).
Discovery Health Medical Scheme is the only one in South Africa to enjoy an AA+ rating for its claims paying ability, the highest possible credit rating from international rating agency Global Credit Ratings. The Scheme has maintained this rating for 12 consecutive years.
The Discovery Health Medical Scheme holds over R8.2 billion in reserves.
Discovery Health pioneered consumer-driven healthcare in South Africa with the introduction of innovations like the Medical Savings Account and its wellness programme, Vitality.
Discovery Health is continuously innovating new products and tools to enhance the quality of care members receive, including HealthID, an iPad-based application for doctors launched in 2012. The HealthID application is also available on Android mobile devices.
Discovery Health was voted the top healthcare product supplier at the 2010, 2011 and 2012 Financial Intermediaries Association of Southern Africa (FIA) Awards.
In 2012, the PricewaterhouseCoopers fifth biennial Strategic and Emerging Issues in South African Insurance survey rated Discovery Health’s insurance products as the leader in the industry.
In 2013, Discovery Health was recognised as the leading medical aid brand in South Africa in the Sunday Times Brand Survey 2013, while in an independent review, Deloitte Consulting strongly endorsed the value provided by Discovery Health to Discovery Health Medical Scheme, as well as the Scheme’s governance structures and the integrated outsourcing relationship between the Scheme and Discovery Health.

Discovery Life

Discovery Life was launched in 2000 and is South Africa’s fastest growing major life assurer in the risk market, having captured 25% of the overall risk broker market.
Discovery Life has 371 248 individual policies
It was the first South African insurer to separate risk from investment, leading significant change in the industry.
Discovery Life addresses the problem of underinsurance through its unique integrated operating model that uses dynamic underwriting to give consumers more value.
Discovery Life was voted the top life assurer in the Sunday Times Top Brands survey from 2010 to 2013 (in the business category).
Discovery Life was voted the top risk and life assurance supplier at the 2010 Financial Intermediaries’ Association of Southern Africa (FIA) Awards and the top long-term insurer: recurring savings at the 2011 and 2012 FIA Awards.
In 2012, the PricewaterhouseCoopers fifth biennial Strategic and Emerging Issues in South African Insurance survey rated Discovery Life’s life products as the leader in the industry.

Discovery Invest

Discovery Invest was launched in 2007 and declared its maiden profit in 2010.
Discovery Invest combines the breadth and skill of the asset management industry with the existing research and development capabilities of Discovery Life.
The company offers consumers a unique and comprehensive product range that addresses the current gaps in the market by offering greater protection against poor investment choices.
With 90 758 policies, Discovery Invest now has more than R30 billion in assets under management.
Through Discovery Invest’s LISP platform, clients have access to over 329 local and 65 offshore investment funds.
In 2011, Discovery Invest received the Financial Intermediaries Association of Southern Africa (FIA) award for best recurring premium business.

Discovery Insure

Discovery Insure was launched in May 2011 and now has 33 251 policyholders.
It was voted the second most recognised and favourite brand in the short-term insurance category of the Sunday Times Top Brands survey for 2013
This pioneering product was created by leveraging the behavioural expertise developed in the Vitality programme with the latest telematics technology.
The unique Vitalitydrive programme encourages and rewards better driving behaviour and ensuring that vehicles are roadworthy.
At the heart of Vitalitydrive is the DQ-Track telematics device that measures and reports crucial aspects of driving behaviour.
Vitalitydrive tracks over 44 000 cars in real time
Drivers on the higher driver status have 34% fewer claims than average or poor drivers (as measured by Vitalitydrive)
Vitalitydrive provides up to 50% fuel rewards on clients’ monthly BP fuel spend.
Discovery Insure offers comprehensive vehicle, personal and household cover.

Discovery Vitality

Launched in October 1997, Vitality is Discovery’s science-based wellness programme that underpins each of the Discovery businesses and is an international brand in its own right.
It is the largest programme of its kind in the world, with a global membership base of over five million.
Vitality encourages healthy behaviours that reduce long-term healthcare costs by rewarding members for improving their health.
There are now more than 1.6 million people engaged in Vitality in South Africa.
Vitality is accredited by the Sports Science Institute of South Africa.
The HealthyLiving benefit offers Vitality members up to 25% cash back on HealthyCare products at Clicks, HealthyGear at adidas and TotalSports stores, and HealthyFood items at Pick n Pay and/or Woolworths.
Vitality now has the ability to integrate into over 100 fitness tracking technologies.
The Vitality value offering is enhanced by the DiscoveryCard, Discovery’s unique Visa credit card which gives members real cash back.
Launched in October 2004, the DiscoveryCard is South Africa’s largest non-bank new generation credit card in issue, with a 9.26% share of point-of-sales spend. There are now 243 593 primary cardholders.

International operations

United Kingdom

In the UK, Discovery has a 75% shareholding in a joint venture with Prudential plc. Through PruHealth and PruProtect, the company offers healthcare cover and protection products. The Vitality Advisory Board was launched in the UK in 2013.

PruHealth

Launched in April 2004, PruHealth is the fourth largest Private Medical Insurer in the UK and the only one that rewards people for leading a healthy lifestyle.
PruHealth now covers 553 388 lives.
It offers consumer-directed products linked to the Vitality wellness programme.
In 2010, Discovery acquired Standard Life Healthcare, thereby leveraging the significant assets of both companies and resulting in greater scale for PruHealth.
PruHealth has won several awards for its product innovations.

PruProtect

PruProtect, which was launched in September 2007, markets consumer-engaged life assurance products in the UK market.
The company’s products integrate with those of PruHealth and Vitality to unlock added value and significant premium savings for clients.
The company has become a major player in the UK protection market. There are currently 153 671 policies in force
PruProtect has received industry recognition, including awards in four categories at the 2011 Defacto Awards. The company was also named Best Individual Protection Provider in 2011 by Professional Adviser, and walked off with the Innovation Award at the 2011 Protection Review.

United States

The Vitality Group

The Vitality Group was launched in 2007 and offers a stand-alone version of the Vitality programme to self-insured, large employer groups and to healthcare carriers.
Discovery holds a 75% share in The Vitality Group, 25% being held by Humana Inc.
The Vitality Group has entered into a partnership with Wellness and Prevention, a subsidiary of Johnson&Johnson, the world’s premier consumer health company.
The Vitality Group recently announced a partnership with ADP, one of the world’s largest providers of payroll and employee benefits administration solutions.
In 2011, the group was awarded the C Everett Koop National Health Award for its work with Alcon Laboratories, a highly prestigious award recognising outstanding workplace health improvement programmes.
The Vitality Institute was launched in the US in 2013. Founded by Discovery as part of its commitment to health promotion and wellness programmes that advance social good, the Institute aims to advance knowledge about the evolving science of prevention and health promotion.

HumanaVitality

· Launched in February 2011, HumanaVitality is a joint venture between Humana Inc and Discovery (through The Vitality Group) that makes Vitality available to Humana clients with commercial medical plans.
· Discovery holds a 25% share in HumanaVitality.
· Humana is the third largest US insurer, based on revenue. Humana has approximately 11.8 million medical members and 7.7 million specialty members.
· HumanaVitality now has more than 2.7 million Vitality members.
· In 2013, Vitality’s HealthyFood benefit structure was rolled out to Wal-Mart in the US.

China

Ping An Health

Ping An Health was launched in China in 2009, after Discovery acquired a 25% share in Ping An Health Insurance Co of China Ltd, a wholly-owned subsidiary of Ping An Insurance (Group) Company of China.
Ping An Insurance is China’s leading insurer and the second largest insurer in the world.
The joint venture will see Discovery’s product innovation and consumer-engaged model exported to a potential market of 83 million families.

Singapore

AIA Vitality

AIA Vitality was launched in Singapore in July 2013, after a strategic joint venture between AIA Group Limited and Discovery Limited that aims to introduce Discovery’s successful wellness-based life insurance model to the Asia-Pacific region.
AIA Group Limited and its subsidiaries comprise the largest independent publicly listed pan-Asian life insurance group and holds leading positions across the majority of its markets. It has operations in 17 markets in Asia-Pacific and has operated in Singapore for more than 80 years.
AIA serves the holders of more than 25 million individual policies and over 13 million participating members of group insurance schemes.
The investment to be made in AIA Vitality by Discovery is expected to fall within Discovery’s strategic framework of less than 5% of pre-tax profits for new business development.