Discovery’s performance fuelled by strong new business growth and recession-friendly innovation for consumers
Highlights
- Operating profit +32% to R1.7 billion
- New business annualised premium income, excluding Destiny Health, + 20% to R5 775 million
- Total dividend for the year +31% to 58.5 cents
- Diluted embedded value per share + 12% to R35.83
Discovery Holdings Ltd posted positive results for the financial year ending 30 June 2009, despite the impact of the economic recession.
Chief executive, Adrian Gore said: “I believe the group’s strong performance is a reflection of our commitment to client-centric innovation, quality and financial prudence. These attributes are especially relevant in recessionary times when consumers tend to seek out quality and financial strength. Coupled with our unique distribution capability, they have served to drive strong new business growth for Discovery in the period.”
Discovery Health, leading medical scheme manager and administrator of the largest open medical scheme in the market, performed beyond expectation. The Discovery Health Medical Scheme grew its reserves by over R700 million, projected to reach R6 billion by the end of the calendar year, and added 45 000 lives to its membership base.
Gore says Discovery Health has a challenging task – it operates in a complex environment marked by continuous regulatory and policy changes, and in areas of absolute need. In these conditions, he believes, the only way to remain relevant is to offer consumers affordable and sustainable cover.
On that front, Gore is pleased with the performance: the Discovery Health Medical Scheme’s contributions have grown in line with the Regulator’s target of consumer price inflation plus 3% and benefits have grown at a rate higher than inflation. Discovery Health’s network arrangements expanded during the year, with its GP Network covering nearly 80% of members and its direct payment arrangements with specialists growing to cover 85%. He also cites the Delta Plans and enhancements to the KeyCare Plans for lower income earners, implemented in January 2009, which have unlocked major savings on the cost of healthcare cover for consumers.
On the issue that has dominated healthcare headlines of late, the proposed implementation of a National Health Insurance System, Gore says Discovery Health supports the initiative and is determined to play a constructive role in the process to the benefit of all South Africans. “. The NHI will require the constructive and creative co-operation of all stakeholders to make it work. We’ll continue to contribute our resources and expertise.”
Life assurance arm, Discovery Life delivered excellent results with profits growing by 20% and new business by 31%. The company launched further innovations to meet consumer needs and focused on building its distribution channel. Its strategy of innovation through product integration produced well-received enhancements to the Discovery Life product offering. Policyholders bought additional life cover to the value of R30 billion through the new Cover Integrator, while the Lifetime Benefit technology increased the take-up of core benefits such as the Severe Illness Benefit by 10%, the Capital Disability Benefit by 5% and the Income Continuation Benefit by 10%.
While lapses did increase somewhat during the period, this was in line with expectation. Gore says: “Lapse rates tend to increase in recessionary cycles, but Discovery Life’s lapse rates remained below the assumptions used in the reserving basis. So we’ve been able to maintain margins, and with excellent new business growth, have been able to offset the impact.”
Discovery Invest, the company’s investment subsidiary, made sound progress with assets under management growing to R4.2 billion. Despite depressed market conditions, which started just as the company launched in late 2007, new business growth has been pleasing. Discovery Invest continues building its capability and capacity, especially in terms of new product innovation and distribution.
Discovery Vitality, the foundation of Discovery’s product integration capability, continues to play an important role in creating value for clients to improve persistency and changing consumer behaviour to improve selection and risk experience for the Group. During the past financial year, Vitality focused on understanding the science behind Vitality, and measuring the clinical and actuarial effects of Vitality on mortality, morbidity and persistency.
Says Gore: “It’s important for us to understand the impact of Vitality. It’s precisely this understanding that allows us to develop further the integration capabilities of Discovery’s products across the Group, and their ability to offer more value for our clients.”
The Vitality HealthyFood™ benefit with Pick n Pay, says Gore, is an excellent example. It has performed well, with Vitality members buying over 715 000 trolleys of HealthyFood in the first four months.
In the UK, Pruhealth and PruProtect achieved strong new business, despite the deep recession in that market. PruHealth’s membership grew strongly by 20% to cover 212 000 lives and PruHealth ranks fifth overall in terms of market share in the UK. The recessionary environment had an impact on PruHealth’s loss ratio – as it has elsewhere in the UK’s private medical insurance market. But this is likely to be a short-term phenomenon and loss ratios will improve as the economic picture improves. Meanwhile, according to Gore, the opportunities in the market remain – especially given the UK health insurer’s acknowledged product leadership and the power of the Vitality concept. PruHealth has implemented initiatives to take advantage of these opportunities and manage profitability. The company continues to focus on generating strong new business, growing the in-force book, and managing its loss ratio.
Because of its product innovation and market receptivity, distribution capability and capital efficiency, Discovery remains optimistic about PruProtect’s potential in the UK market. Gore said: ‘We are pleased with PruProtect’s progress. In the past year, we focused on enhancing the product range; making sure that it’s appropriate for the UK market. The PruProtect team also focused on building a substantial distribution capability. The result of this is that we are already seeing a significant increase in new business levels and quality.’In the US, the wind-down of Destiny Health is going according to plan, with membership reducing from 60 000 lives to 600, and the cost base being realigned to support the smaller scale of the business.
