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Discovery continues to track on strong growth path

23 February 2012 Discovery
Adrian Gore, Chief Executive Officer of Discovery

Adrian Gore, Chief Executive Officer of Discovery

Discovery Holdings Limited (Discovery) today announced strong interim results for the six months ended December 2011. The company posted an excellent performance across its established, emerging and developing businesses. Some of the key highlights for t

• Solid financial performance with operating profit up 22% to R1 629 million on the comparable period last year and normalised headline earnings up 20%

• Established businesses: Discovery Health, Discovery Life, Discovery Vitality and Discovery Card – new business of R3.1 billion and operating profit R1.5bn

• Developing businesses: PruHealth, PruProtect and Discovery Invest – new business of R1 billion and combined profit of R243 million

• New businesses: Discovery Insure, The Vitality Group (US) and Ping An Health (China) – 1.8 million unique members and new business of R0.5 billion

Commenting on the results, Adrian Gore, Chief Executive Officer of Discovery, said: “Discovery’s results for the six months to December last year is excellent. We are extremely pleased with the way we are tracking against our strategic objectives across all businesses. These results reflect a continuation of our strategy of making a profound impact on the lives of those we serve. We are delighted to report strong results especially in light of an operating environment which, although it has eased slightly over the past 12 months, is still tough“

Discovery Health’s performance over the period exceeded expectations with the company posting an increase in profits of 10%. Both the Discovery Health Medical Scheme and the other medical schemes Discovery Health administers, showed significant growth and increased efficiencies that enabled the company to pass these efficiencies onto its medical scheme members, with a R100 million saving in administration fees. Gore explains that administration fees have been the only part of the medical scheme’s expenses that have been reducing in real terms over the past five years, “While medical inflation has averaged 10.5%, the reduction in administration fees have had a deflationary effect of 4% for the past five years,” Gore says.

Discovery Life, with its continued focus on leading the market through product innovation, also performed exceptionally. The company continued with its strategy of growing its market leadership through continuous product innovation, the quality of new business and mortality and morbidity experience. These strategies have resulted in strong new business growth and importantly, a return on capital since inception of more than 27%.

Discovery Vitality remains the foundation for all Discovery’s businesses, proving to be a key differentiator for Discovery. Says Gore, “Vitality has a profound impact on the mortality and morbidity experience of all Discovery’s members. These are two of the key factors that drive profitability and sustainability in the Health and Life businesses. For Discovery clients, Vitality is increasingly popular as members engage more with the programme: more than 20 million gym visits were recorded, over 750 000 flights booked with kulula.com and more than half of Discovery members doing preventive health checks. The success of the model has enabled Discovery to build a unique capability that has allowed the organisation to grow significantly in South Africa and to transpose and scale its business model into other applicable markets.

Discovery’s UK businesses had a particularly successful six months with combined profitability turning from a loss of R5 million to a profit of R162 million. This positions Discovery very strongly to achieve its vision of building a Discovery-like capability in the United Kingdom.

Gore continues: “PruProtect, in the period under review, was undoubtedly the star of the show. Virtually every aspect of the business made outstanding progress which manifested in profit turning from a loss of R40 million to a profit of R115 million. The business comfortably exceeded all capital hurdles for new business written during the period and we are well on our way to achieving our vision of replicating the Discovery business model in the UK, together with the Prudential plc.”

PruHealth also made significant progress during the period despite a difficult economic environment which has led to a weakened private medical insurance market, and dealing, at the same time, with the integration of the Standard Life Healthcare and PruHealth businesses. Against this backdrop, PruHealth continued with its focus on quality business and ensuring loss ratios were stable and robust.

Launched in May last year, Discovery Insure tracked well against targets set with new business since inception passing the R140 million Annualised Premium Income mark. Gore said that it was particularly exciting to note two things in the early results from this new business. Firstly, the kind of client attracted to Discovery Insure is typically also attracted to Discovery’s other products with over 60% of Discovery Insure’s clients having three or more other Discovery products. Secondly, he indicated that reports already show that driver’s using VitalityDrive™ are already enjoying the savings in fuel costs that accrue to them as a result of their improved driving. Gore said that this translates into a real opportunity to not only build a very successful business, but to impact society positively through the creation of better drivers and safer roads.

Discovery’s partnership strategy in the United States has begun to bear real fruit. Discovery’s partnership with the US’ fourth-largest insurer Humana, presents Discovery with the opportunity to apply its learning into a large US Health insurer. During the last six months of 2011, HumanaVitality was successfully rolled out, with great results in a short space of time. New business of more than R174 million was achieved, with 1, 4 million lives covered in the US by February 2012.

Ping An Health also made significant strides during the period with new business of R211 million, the quality of the new book exceeding expectations, and over 430000 lives being covered by the end of the period, positioning Discovery well to build a leading health insurance company in China.

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