Press release - 24 February 2015 15:40

Discovery delivers excellent financial results and accelerated global growth

Discovery Limited today presented a strong set of interim results for the six months ended 31 December 2014. The Group’s normalised profit from operations increased 19% to R2 824 million with combined new business growth up 17% on the back of continued robust investment in the business model.

“Over the period, Discovery’s shared-value insurance model delivered continued growth in the established and emerging businesses, with over 100% growth in annualised new business.” says Adrian Gore, Group Chief Executive of Discovery Limited.

Presenting the results to the analysts and investor community in Johannesburg, Gore explained that the model uses behavioural incentives to engage members to make better health and lifestyle choices, with Discovery integrating this engagement into clients’ insurance. “This shared-value insurance model leads to lower price points, the attraction of healthier lives, positive behaviour change, and lower lapse rates.” says Gore. “This creates value for members, the insurer, and broader society.”

The success of this model has made the Discovery brand and shared-value insurance model highly attractive and applicable globally, with expansion opportunities intensifying in international markets where the Group is well positioned to pursue further opportunities.

The Group announced a rights issue that will enable it to raise the additional capital required to facilitate its growing business in the UK as well as additional opportunities in South Africa.

“In order to ensure that Discovery is appropriately capitalised to pursue future growth objectives, R4 billion to R5 billion of capital will be raised by way of an underwritten, renounceable rights issue,” says Gore. The terms of the rights issue will be finalised by 10 March 2015. The capital raising will not exceed R5 billion.

South African Primary market

In the South African primary market, both established and new businesses delivered excellent results. Discovery Health, through a sophisticated healthcare system, exceeded expectations during the period, with an increase in normalised operating profit of 11% to R954 million. A newly-formed direct-to-consumer channel contributed 40% of individual new business, which increased off a significant base by 7% to R2 806 million.

Similarly, the Discovery Health Medical Scheme (DHMS), South Africa’s largest open medical scheme which is administered by Discovery Health, performed exceptionally well. The Scheme accelerated its market-leading position to 53% of the open schemes market, maintained low lapse rates at 4.6%, while reaching a solvency ratio of 25.8%, and reaching R11.6 billion in reserves for members.

In the protection market, Discovery Life delivered operating profit of R1 464 million, an increase of 17%, boosted by a sophisticated behavioural life insurance model. New business has increased 9% to R1 151 million with over R1 billion cash generated from existing business before investing in further growth.

“The integrated model in Discovery Life is the best manifestation of the Group’s shared-value insurance model, which results in better initial selection, ongoing positive behaviour change, and positive selective lapsation,” says Gore.

Discovery Invest’s operating profit experienced a 29% growth to R191 million, outperforming expectations. Driven by increased take-up of integrated products, market momentum and adviser support, assets under management increased to R45.6 billion, up 27% from the comparative period.

In the six-month period, DiscoveryCard, Discovery’s VISA credit card offering, enjoyed strong growth with cardholders now exceeding 250 000, pushing spend rate by 12.6% year-on-year while maintaining a low bad debt experience.

Discovery Insure continued its robust growth with new business growth up 57% to R403 million. During the period, Discovery Insure focused on raising brand awareness, harnessing advanced mobile tracking technology and transforming the member claims experience.

UK Primary market

In the UK primary market, performance was exceptional with normalised operating profit accelerating by 20% to R432 million and new business increasing 7% to R915 million. “The UK is a fundamental beachhead for Discovery’s strategy of internationalising our combined health and life insurance model,” says Gore. “This is especially relevant, given the UK’s lifestyle disease burden, an ageing population, a sizeable protection market, and commoditised offerings.”

Significant corporate activity also characterised the business in the six months under review, with a £155 million acquisition of Prudential’s remaining 25% shareholding in the UK JV, and subsequent restructuring of the UK business.

The UK businesses were rebranded VitalityLife and VitalityHealth. Building on an extensive network in the UK and integrating with the Discovery business model, the new brands performed well in the period under review. Normalised operating profit for VitalityLife was up 18% to R269 million and new business increased by 20% to R502 million. VitalityHealth, with a user-focused technology suite and innovative offerings, has seen normalised operating profit increase 24% to R163 million.

Partner markets

In the partner markets of China, US, Singapore, Australia and Europe, Discovery has joint ventures with leading insurers, which enables the Group to pursue global growth through the internationalisation of the business model. The strategy is to partner with leading global insurers in markets that are characterised by large life insurance industries, a high prevalence of non-communicable diseases, a strong intermediary presence, and product commoditisation. In addition, Discovery will soon announce a partnership with a large US life insurer. The Group is now in a position to serve eight out of the 10 largest protection markets globally.

Over the period, Ping An Health in China built on its leading position in the high-end market. This saw explosive growth in individual sales with a current rate of over 800 cases sold per day on the back of Ping An Life’s extensive distribution capability.

“The opportunity within the Chinese private health insurance sector remains robust,” says Gore, “This is driven by a significant proportion of out-of-pocket medical spend, a rapidly expanding middle class, the increased use of technology to provide access to private healthcare, and government’s policy that strongly supports the development of commercial health insurance.”

In Singapore and Australia where AIA Vitality is growing its footprint, initial market roll-outs are underway with excellent market interest in the integrated products offered, which have won top industry awards. As a result, 52% and 33% of all sales of current products with integrated options in Singapore and Australia, respectively, are Vitality integrated products.

In the lucrative US market – characterised by big healthcare spend and the world’s largest wellness and protection market – The Vitality Group has bolstered its numbers to 700 000 members across 50 states. This reflects the attractiveness of the business model.

Gore says that during the period, the model’s capability was endorsed in this highly competitive market with excellent health participation rates and member engagement.

Topics

Finance

Categories

Interim Results

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, 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 4.4 million clients across South Africa, the United Kingdom, the United States, China, Singapore and Australia. Discovery recently announced a joint venture with Generali, a leading insurer in Europe. 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 three million lives in five markets.

Discovery is an authorised financial services provider and trades under the code “DSY” on the Johannesburg Securities Exchange.

Discovery Health

Launched in 1992, Discovery Health is South Africa’s largest healthcare funder and manager of medical schemes. It manages 15 medical schemes.

This includes the Discovery Health Medical Scheme, which has a 53% share in the open medical schemes market, making it South Africa’s largest open medical scheme.

Discovery Health covers over 2.9 million lives (all schemes under management).
Discovery Health Medical Scheme is the only scheme 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 Discovery Health Medical Scheme holds over R11.6 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 has consistently been voted the top healthcare product at the Financial Intermediaries Association of Southern Africa (FIA) Awards.

Discovery Life

Discovery Life was launched in 2000 and is South Africa’s fastest growing pure risk writer in South Africa in the intermediary channel.
It has captured 25% of the South African protection market share with over 700 000 p
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 and through innovative product development.

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.
It is South Africa’s number one writer of endowment and voluntary purchase annuities.
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 140 000 policies, Discovery Invest now has more than R45.6 billion in assets under management.

Discovery Insure

Discovery Insure was launched in 2011.
It is the fastest-growing general insurer in the personal lines insurance market with over 100 000 cars tracked in real-time through telematics technology.
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 ensures that vehicles are roadworthy.
At the heart of Vitalitydrive is the DQ-Track telematics device that measures and reports crucial aspects of driving behaviour.
Discovery Insure offers comprehensive vehicle, personal and household cover.
Young adults between 18 and 25 can receive further discounts of up to 25% on their motor premiums.
Discovery Insure was voted second in the Short-term Insurance (Consumer Category) at the 2013 and 2014 Sunday Times Top Brands Awards.

Discovery Vitality

Launched in 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 three million lives. Vitality encourages healthy behaviours that reduce long-term healthcare costs by rewarding members for improving their health.
There are now more than 1.7 million people engaged in Vitality in South Africa.
Vitality is accredited by the Sports Science Institute of South Africa.
The Vitality value offering is enhanced by 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. There are now over 250 000 primary cardholders.

International operations

United Kingdom

In the UK, Discovery has 100% ownership of VitalityHealth and VitalityLife. The new brands, previously PruHealth and PruProtect, offer healthcare cover and protection products.

VitalityHealth

Launched in 2004 as PruHealth, the health insurer has been rebranded as VitalityHealth at the end of 2014 following Discovery’s transition to full ownership of the UK joint venture with Prudential plc.
Through an existing network and capacity, VitalityHealth is the fourth largest Private Medical Insurer in the UK and the only one that rewards people for leading a healthy lifestyle.
It offers consumer-directed products linked to the Vitality wellness programme.
PruHealth, now VitalityHealth, has won several awards for its product innovations.

VitalityLife

PruProtect, now also rebranded as VitalityLife, was launched in 2007 to market consumer-engaged life assurance products in the UK.
The company’s products integrate with those of VitalityHealth to unlock added value and significant premium savings for clients.
VitalityLife has received multiple industry recognitions in the UK.

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 100% share in The Vitality Group.
The Vitality Group now covers over 700 000 members in 50 states across the US.
The Vitality Institute was launched in the US in 2013 and provides a platform for thought leadership in wellness.

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 over 80 million families.
Vitality was launched in China through Ping An Health in 2012.

Singapore

AIA Vitality

AIA Vitality was launched in Singapore in 2013 and in Australia in 2014, 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.