FANews
FANews
RELATED CATEGORIES

Rather pleasing

27 February 2004 Angelo Coppola

The Discovery Group recorded a 'pleasing' 87% increase in operating profit, while attributable profit climbed 57%, with diluted headline earnings per share increasing 22%, despite a 36% in the number of shares in issue, following the capital raising exerc

[Health warning: these are unaudited figures.]

Discovery Group has a market cap of R6bn, and is the 40th largest business listed on the JSE.

The group reported that Discovery Health had a robust performance, but there was a reduction in new business. Discovery Life on the other hand showed continued growth and increased profitability. Destiny Life saw some positive movement.

Operating profits segmentally paint an interesting picture:

* The Discovery Health business grew 20% in operating profit (R215m)

* The Discovery Life business grew 526% (R105m), off a low base

* Vitality grew 177% (R20m)

* Destiny Health grew 13% (-R79m) - broke even in February - outside the period.

* Investment income grew 4% (64m)

New business also reveals some interesting numbers

Discovery Health contracted 20% (to R935m)

Vitality grew 20% (R26m)

Discovery Life grew 35% (R290m) - annualised

Destiny Health grew 19% (R222m)

There is a drive to diversify the income streams and Gore says that this is starting to happen.

Discovery Health

According to Gore the decrease in new business in Discovery Health is due to underwriting open enrolment, which was introduced in the previous period.

Production was not as the same period at the end of 2002. There shouldn't be another major spike in this category D business.

On the premium increase, Gore says that they have maintained their corridor of certainty and kept it at 13%, a substantial amount of that increase is revenue that is allocated to the reserves, as dictated by the Council of Medical Schemes.

In terms of the environment Gore says that there have been three key developments. Firstly there was the broadening medical scheme net due to mandatory cover, if it occurs, there will be a large number of new members.

Secondly the need to ensure stability of the medical scheme environment. This will happen if there is responsible implementation, prospective mechanism, application to prescribed minimum benefits only.

Thirdly there was the fact that healthcare costs are being driven down by drug price regulations. Gore is sceptical though that the exit prices will come down by as much as the anticipated 50%, which should result in an overnight drop in premiums of 14%. "That amount of money will be made up elsewhere, so any reduction in premiums will be less than anticipated."

Discovery Health reports that the annual lapse rate has reduced marginally to 3.3%, while membership numbers climbed 11% to over 1.5 million people.

The businesses reserves also appear to be in a healthy state, far outstripping their nearest competitor Bonitas and MediHelp. They were pegged at 15% (R1.7bn) in 2003 and targeting 25% (R2.7bn) at the end of 2004.

Discovery Life

Change the way life assurance is bought and sold. This is now a mainstream business. The niche is one. They focus on risk.

The environment here has been challenging. Industry net premiums have decreased from R175bn to R149bn. This as the market has become more sceptical of the returns that can be earned on insurance products.

The fundamental view is that it is the leader, and almost a market maker, taking one of its main competitors - Momentum - with it.

 

There has also been increased competition form unit trusts, banks, and structured product providers.

New business is up 35% (R290m)

Revenue is up 96% (R384m)

Operating profit is up 526% (R105m)

Value of the in-force book increased by 89% (R946m) - quality is exceptional.

The number of policy holders have increased from well below 10 000 in 2001, to over 100 000 in January, while the value of the in-force has climbed from under R300m in June 2002 to just under R1bn in December.

Gore is bullish on the prospects for the business. The Discovery Health business will see organic growth, with the right positioning for environmental changes.

Destiny Life

This Illinois business broke even outside of the reporting period - almost on track, in February - A huge amount of work, effort and money went into this business. New business is up, membership is up, and the operating loss has been reduced.

Staff levels were frozen, costs were attacked and reduced. The back office is moving towards the Johannesburg space, while the brains trust, including marketing will remain in the USA. Aiming at a membership of 50 000 by January.

On another tack, the Guardian and Tufts relationships are just beginning, says Gore.

BEE

They will not be announcing anything in terms of the 10% direct ownership, in terms of the Financial Services Charter (FSC). They do not expect to announce anything for between six and 12 months. They currently have a 10% indirect ownership. "It's taking a lot longer than we anticipated," concludes Gore.

Quick Polls

QUESTION

How do you help your clients to maintain perspective when they get overwhelmed by today’s doom and gloom headlines?

ANSWER

Focus on long-term goals
Highlight global innovation
Reinforce diversification
Still figuring it out
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now