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Discovery announces strong financial performance

24 February 2010 Discovery
Adrian Gore, Discovery?s Chief Executive Officer

Adrian Gore, Discovery?s Chief Executive Officer

Highlights for the six months ended 31 December 2009

Discovery today announced strong growth in its interim results, thanks to a rigid focus on financial prudence and the pursuit of new opportunities.

The highlights include:

· Profit from operations up 49%

· New business annualised premium income increased by 16%

· Headline earnings increased by 54%

· Interim dividend of 33 cents per share declared.

Adrian Gore, Discovery’s Chief Executive Officer, said: “An intensive focus on product innovation and delivering client value buoyed new business during a complex and volatile period.”

“Discovery’s established health and life assurance businesses performed well, despite a difficult economic environment, and start-ups Discovery Invest and PruProtect in the UK made significant progress. The combination fueled strong earnings growth.”

Discovery Health

Discovery Health’s performance during the period exceeded expectations, with the company focusing on strengthening its operational, clinical and actuarial assets and business capabilities.

“Discovery Health worked hard at enhancing members’ benefits, closing gaps in coverage and forging closer ties with healthcare providers.” Gore said.

New business levels accelerated with total new business production the highest in Discovery Health’s history. Despite the affordability challenge for members, 98% of members maintained or enhanced their benefit choices for 2010.

The Scheme reported a record-low lapse rate of 3.1%, illustrating its competitive ability.

The Discovery Health Medical Scheme is in excellent health with reserves of R6 billion, exceeding the 25% statutory solvency requirement.

On a social level Discovery Health remains committed to assisting the healthcare reform process towards building a healthcare system that is more inclusive and equitable for all South Africans.

“We take our leadership role seriously. We must build a robust healthcare system while at the same time providing access to high quality healthcare for our members.” Gore says.

Discovery Life

Discovery Life’s operating profit grew by 21% to R782 million (2008: R648 million) in a pressurised economic environment for consumers.

Gore said: “Discovery Life enhanced its competitive position in the market with a 24% market-share of all broker business, and a 26% market share in the large policies market – a key focus area for Discovery.”

The core individual risk new business grew by 16%.

Discovery Life further ensured that the business model was capital efficient and cash flow generative. The company achieved this by largely removing the lapse risk from emerging negative reserve assets generated by the sale of new business, and using these to back guaranteed capital bonds, sold through Discovery Invest.

Discovery Life thereby enhanced liquidity and covered its Capital Adequacy Requirement by 8.6 times.

Discovery Invest

“Discovery Invest’s performance was exceptional in all respects, despite difficulties experienced by the long-term savings industry as a result of the economic climate.” Gore said.

The business developed its assets and capabilities, with a specific emphasis on enhancing its distribution footprint and penetration. The result has been significant growth in assets under management to more than R6.5 billion and good progress towards reaching a break-even position. Compared to the same period in 2008, Discovery Invest reduced its losses by 75%.

New business API grew by 74% over the comparative period while still maintaining margins. Discovery Invest is currently attracting approximately 8% of industry inflows in the retail linked investment product market.

Discovery Vitality

Discovery Vitality continues to form the primary point of integration and product differentiator across all businesses for Discovery.

Gore said: “The roll-out of the Vitality HealthyFoodTM benefit has been very successful. Since its launch over 180 000 members have activated the Vitality HealthyFoodTM benefit, buying over 3 million trolleys of HealthyFoodTM worth over R275 million.”

In 2010, Vitality will continue to roll-out products that allow members to utilise the cashbacks on HealthyFoodTM spend for more significant health or investment benefits.

PruProtect and PruHealth

PruProtect grew new business by 245% to R100 million and reduced operating losses by 58%.

“Notably, the quality of PruProtect’s new business exceeded expectation with average premiums and the take-up of additional benefits higher than expected,” Gore said.

PruHealth’s performance reflected the negative effects of the economy and the impact of negative business mix changes which saw a drop in the proportion of individual members.

Despite this, the business has made good progress with lives covered growing by 15% to 219 000 and operating losses reducing by 13% to R53 million.

“Most importantly, during this period we restructured PruHealth and PruProtect to more effectively replicate Discovery’s integrated business model in South Africa.” Gore said.

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