Discovery business model validated by strong financial performance

21 February 2013 – Discovery Limited (DSY) today announced the company's interim financial results for the six months ended 31 December 2012.

The highlights include: 

·  Normalised profit from operations up 21% to R1 973 million

·  Normalised headline earnings up 20% to R1 349 million

·  Embedded value up 18% to R33.4 billion

·  New business annualised premium income up 12% to R5 106 million

·  Discovery’s business model is proving to be repeatable and scalable internationally

Adrian Gore, Discovery CEO and founder, remarked, “Our financial performance over the past six months has been solid and is tracking well against our long-term objectives. What we are most excited about is the validation and applicability of the unique Discovery business model not only in South Africa, but also globally.”

Discovery has built behavioural structures around its products that result in a unique competence of bolstering actuarial dynamics across the business. The experience for the period under review reflect real progress with Discovery's products impacting positively on people’s lives and progressing society in a critical area: that of wellness and chronic diseases of lifestyle. “Vitality has been recognised internationally for its success in changing complex health behaviour that contributes to the high incidence of chronic diseases of lifestyle. It offers an attractive solution for employers, healthcare funders and economies grappling with the financial and economic impact of increasing healthcare costs,” Gore said. Supporting this is a growing movement to shape policy environments towards encouraging wellness.

There are further emerging macro trends that validate Discovery’s business model. Gore explained; “The increasing cost of healthcare will remain a significant challenge locally and internationally. Organisations that have the ability to manage this risk and in fact bend the cost curve will be well positioned to add significant value for their members and society”. 

 Another important trend that Gore identified was that of innovation increasingly becoming critical for growth and sustainability – even for those industries not used to seeing innovation. This is highly relevant for the protection and insurance industry which is well-positioned to deliver greater certainty to consumers in an increasingly volatile environment.

“For Discovery, this translates into an opportunity to build innovative protection products for consumers that encourage positive behaviour change, offers them more value and improves the risk for the business.” Gore said. 

 “These trends bear out our robust business approach and we are well positioned for continued growth in South Africa and internationally,” concluded Gore.

Business highlights for the period under review:

Discovery Health

·  The performance of Discovery Health and the Discovery Health Medical Scheme was excellent in every respect, with growth in quality new business, a strong operating surplus, and continued stability of the base.

·  Discovery Health posted an operating profit of R762 million, up 12%, after a reduction in administration fees of R70 million for the Discovery Health Medical Scheme.

·  The Discovery Health Medical Scheme grew significantly by 6% off a high base, driven by quality new business and record-low lapses; as well as positive net plan movements. The result is an excellent financial performance of the Scheme, with a strong surplus recorded in 2012, and R8.2bn in reserves.

·  Discovery Health made further progress in building a more efficient health system for all South Africans, through its continued support for the emerging National Health Insurance, its involvement in the Social Compact with the Health Ministry and its own Discovery Foundation which funds specialist training in the public health sector.

Discovery Life

·  Discovery Life demonstrated excellent selection, mortality and morbidity experience – operating profit increased by 17% and new business by 7%.

·  While the in-force business was highly cash generative, reinvestment took place in profitable new business. The experience variances were the highest in the company’s history on a 6-monthly basis.

Vitality

·  Vitality performed remarkably well and is forming the basis of a global, scalable business.  Local Vitality membership grew to 1 667 362 lives with new business increasing by 42%. Internationally, The Vitality Group and HumanaVitality generated new business of R113 million.

·  During the period, progress was made in globalising the Vitality capabilities in terms of shared technologies, such as the HealthyFood benefit structure, which was extended to Woolworths in South Africa, and rolled out to Wal-Mart in the US.

·  Discovery’s partners - Humana, Ping An and the Prudential - invested significantly in marketing Vitality as part of their new business approach. Global membership currently stands in excess of 5 million lives.

Discovery Invest

·  Performance was excellent with operating profit of R99 million posted by Discovery Invest with assets under management increasing to R26.6 billion, up 42%.

Discovery Insure

·  New business generated for Discovery Insure reached R184 million.

·  The efficacy of the model was evidenced by the improved driver behaviour of the base, lower relative accident frequency, and positive selective lapsation.

The UK

·  The UK businesses grew profit by 99% to R283 million and new business grew by 46% to R727 million. The customer base stood at just under 700,000 lives at December 2012.

·  The Discovery JV with Prudential performed remarkably well, as Discovery furthered its ambition to build the best protection business in the UK.

China

·  Ping An Health lives under management grew to 636 123.

·  The company progressed on all fronts, with systems in place; actuarial and clinical risk management tools established; products set up for group and individual markets; and Vitality launched and actively marketed.

·  Due to the success of Ping An Health, Discovery will increase its shareholding from 20% to 24.99%. This is subject to regulatory approval.

ENDS