Discovery posts excellent results; repeatable business model continues to yield strong growth

Discovery Limited today presented a strong set of financial results for the six months ended 31 December 2013 to the analyst and investor community. Normalised profit from operations increased to R2 383 million, up 21% from the comparable 2012 period and new business Annual Premium Income is up 19% to R 5 883 million. Adrian Gore, Group CEO, commented; "We are pleased with the performance across Discovery’s businesses over the past six months. The period reflects the increasing relevance and efficacy of the Discovery business model; especially in the light of the global impact of chronic diseases of lifestyle, the challenge of rising healthcare costs and consumers turning to protection products to mitigate uncertainty.”

Gore gave details in his presentation of how Discovery’s business model, which centres around making people healthier, contributes to the Group’s ability to build robust insurance systems, "Behavioural economics is the catalyst that enables us to develop next generation insurance products. Understanding the triggers of behaviour change and designing the appropriate incentives to achieve long-term change not only creates value for consumers, but also enables us to achieve lower mortality and morbidity rates, better lapse rates and claims experience. In addition, our clients benefit from the additional value of product integration across the Discovery businesses.”

Discovery continued its deliberate strategy of investing in the further development of the model to ensure that it can be replicated across South African businesses, international markets and adjacent industries. Gore said; "We continued to invest significantly in building out the underlying capabilities that support our approach to insurance – clinical and behavioural research that can be applied to product design, health and wellness tools, digital platforms and data analytics. This will remain a key strategy going forward,”

Discovery’s South African businesses of Discovery Health, Discovery Life, Discovery Invest and newest member Discovery Insure, posted pleasing results. Discovery Health increased its new business by 15% to R2 623 million and operating profit by 13% to R860 million. Discovery Health Medical Scheme managed by Discovery Health, performed equally well: membership is up 4%, loss ratios declined and lapses and plan downgrades remained low, while achieving a R1.4 billion surplus and solvency reserves of R9.7 billion. Gore commented on Discovery Health, "We did considerable work on enhancing the entire member journey, including service initiatives that are rated best-in-industry, collaboration with stakeholders in the healthcare system to improve healthcare quality outcomes and building out our network of healthcare professionals; all of which translates into lowest-in-industry healthcare costs.”

Discovery Life experienced strong earnings growth of 21%, driven by strong new business, continued positive lapse and claims experience, and excellent expense management. Important is the positive impact of Vitality engagement on mortality and morbidity, as well as on lapse rates.

 

Discovery Invest’s performance exceeded expectation with assets under management increasing by 35% to R36 billion, and new business increasing by 26% to R652 million.

 

Discovery Insure continued its strong performance across all aspects of the business. Gore commented, "Discovery Insure’s potential remains exciting for us. During the review period, we focused on further product innovation, building the distribution capability, service innovation and enhancing the value of the Vitalitydrive model. All this activity has contributed to Discovery Insure’s position as the fastest-growing short-term insurer in South Africa.”

In the UK, Discovery’s combined businesses of PruHealth and PruProtect grew their combined profit by 27% to R359 million, and new business by 35% to R982 million with a client base at 774 000 lives. A critical development in the UK market has been the implementation of Discovery-based product integration across PruHealth and PruProtect. The significant investment in the Vitality programme as well as in the Vitality brand in the UK, has resulted in higher new business levels, strong loss ratio and lapse rate performance, and product innovation opportunities that create further competitive advantage.

Discovery’s foray into China with Ping An Health is gaining traction. New business has doubled over the period to R138 million and is predominantly driven by Group Insurance sales where Ping An Health is the dominant player. Gore added; "In October last year we launched the Comprehensive Health Protector 2.0 as well as a revamped Vitality offering, which saw a marked increase in individual sales and fantastic future potential.”

Gore concluded with observations on Vitality’s role and impact in a global setting through The Vitality Group in the US and the recent joint venture with AIA Group in Singapore and Australia, "The US remains the centre of wellness research and adoption, and Discovery leads the intellectual property development through The Vitality Group.” The Vitality Group steers the development of wellness solutions for large employer groups, including multinationals, and is recognised by broker houses as the preferred wellness provider. In the AIA joint venture, Vitality is incorporated into an integrated life assurance product, and a pilot has been rolled out in Singapore.