Discovery to partner with Prudential plc

Following the success of their existing joint venture partnership, Prudential plc, a leading UK insurance group, and leading South African life and health insurer, Discovery, have announced their intention to substantially enhance their relationship throu

This will be achieved by consolidating their joint venture into a new protection company, jointly owned by Discovery and Prudential, which provisionally will be called PruProtection. It will house two distinct businesses, PruHealth and a newly-formed life assurance company, PruLife. The latter will market life assurance products in the UK based on those of Discovery Life.

As 50/50 partners in PruProtection, Discovery and Prudential will make equal capital contributions to the venture. Discovery expects to contribute capital of around R1 billion over a 5-year period. The amount of capital will be proportional to the success of the venture. Further funding will be provided in the form of financial reinsurance by Hannover Re. This in effect means Discovery will earn 50% of profits while providing less than 50% of the required capital, which it will fund from its existing and internally-generated cash resources.

According to Discovery CEO Adrian Gore, a pilot life assurance product has already been launched in the UK, with an excellent response and strong support for the benefit design. Further development of this protection product will now be possible under PruProtection, and introduce to the UK market the consumer-engaged model that has made Discovery Life so successful in South Africa in recent years.

"The life assurance market in the UK has become very commoditised, with little differentiation in terms of price or benefits", says Gore. "The market is very similar in this way to the PMI market we encountered in the UK before PruHealth was launched in 2004."

Gore says the integrated approach will offer more differentiation in both price and benefits, as well as offering rewards for policyholders who take steps to improve their health through Vitality.

"UK consumers can look forward to benefits that address their needs, with broad claims definitions and objective claims criteria, he says, Pricing will also be more competitive with flexible funding structures that reflect ones health status."

Gore says this is an exciting opportunity for Discovery. "The current UK protection market is about 3.5 times larger than the South African market, with new business API of R11 billion," he says. "We have seen with PruHealth the extent of interest in new generation insurance and the Discovery model, with over 100 000 lives on the books in its first two years."

Gore adds that the real excitement comes through the integration possibilities, already proven in Discovery Lifes experience in South Africa, and through the links with Vitality, Discoverys market-leading wellness programme. "Our experience reveals better loss ratios, lapse rates and benefit take up, as well as improvements in disability and morbidity, he says, All of this while giving cheaper cover to consumers."

In addition to Discoverys unique product design capabilities, PruProtection will also have access to Discoverys back-office servicing and administrative capabilities in South Africa.

Prudential will provide a strong distribution capability as well as its established market presence and brand name to the venture. Prudential is the UKs largest insurer, and regularly scores highly in brand recognition and customer satisfaction surveys.

The transaction is subject to FSA and SA Reserve Bank approval.

Shaun Matisonn, currently CEO of PruHealth, will retain his position while also taking the reins as CEO of PruProtection. A CEO for the life assurance business will be appointed in due course.