Period of exceptional growth for Discovery and considerable investment in new initiatives

21 February 2019 Discovery

Discovery today presented its half-year results for the period ended 31 December 2018; representing a period of exceptional growth, with a temporary decline in profits due to considerable investment in new initiatives, and volatility in large claims in Discovery Life, unique to this reporting period.

Adrian Gore, Group Chief Executive said, “We have made exceptional strides in our growth strategy across businesses. Our business model now touches 21.6 million lives, has a presence in 19 countries, and we are investing in technology to pursue further growth in various industries as we build the world’s largest and most sophisticated behavioural platform linked to financial services.”

Salient features:

• Group spend on new initiatives increased significantly to 21% of earnings as part of the planned investment in five new businesses. This spend is fully provided for in the capital plan, but impacted reported growth rates.
• Normalised profit from operations decreased 4% to R3 799 million.
• Normalised headline earnings decreased 16% to R2 376 million.
• Normalised headline earnings per share decreased 16% to 366.6 cents.
• Core new business API up 16% to R9 049 million.
• Gross inflows under management up 11% to R67 541 million.
• Embedded value up 13% to R68 025 million.
• All Discovery’s businesses had a strong operating performance.
• Discovery Life continued to perform well in new business sales and grow its market share in its target market, despite a spike in large mortality claims and its reinsurance structures have been altered to ameliorate large claims volatility going forward.
• Vitality Group, the business responsible for international expansion of Shared-Value Insurance, made excellent progress over the period by adding Sumitomo Life Vitality and AIA South Korea on its Vitality1 Platform, concluding a number of new partner opportunities and seeing strong growth in the more mature markets.
• The Discovery Bank test phase started in November 2018 and the phased public rollout is expected to commence in March 2019. Discovery Bank has finalised its restructure and new acquisitions and now owns 100% economic interest in the Discovery Card Join Venture, receiving 100% of the Discovery Card JV results.

Gore explained the temporary decline in profits, saying: “We expected our planned and significant investments in new initiatives, most notably the investment in Discovery Bank, to create a reduction in Group earnings. All businesses remain strongly positioned for growth and our responsive alteration of reinsurance structures will mitigate the effects of claims volatility in Discovery Life going forward for this business to regain target performance levels.”

Highlighting the Group’s substantial investment of 21% in new initiatives, Gore was excited about the significant prospects the business model offers for scale and growth. A key example is the development of the Vitality 1 Platform, a globally unified systems architecture enabling Vitality’s continued international expansion via the Vitality Group. This technology platform, available to partners in the Global Vitality Network, has grown to 800 000 active participants since its launch in August 2018 and will play a key role in the bold ambition Discovery has for the next five years.

“Our focus going forward will be to continue building value in all our businesses, while also leading a global movement around behaviour change and wellness. In November, we boldly committed along with our Vitality partners, who represent roughly 30% of the global insured population, to make 100 million people 20% more active by 2025. As insurers we have the ability to monetise risk and health, and combined with technology and behavioural science, we can provide support to address the global challenge of physical inactivity,” Gore said about the ambitious goal that ties to the Group’s Shared-Value model and its purpose of positively impacting society.

Looking ahead, Gore said that the Group is well capitalised and the established and emerging businesses are well positioned for growth.

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