Discovery operating profit up
In what it described as a seminal year in which virtually all businesses had fired well, health insurer Discovery Holdings (DSY) on Thursday reported a 32% increase in its operating profit to 2.838 billion rand for the 12 months ended 30 June 2011.
Normalised headline earnings per share increased by 31% to 365.8 cents, with the group's embedded value per share growing 19% to 48.45 rand.
Gross inflows under management grew by 21% to over 50 billion rand.
The group declared a final dividend of 48 cents per share which, together with an interim dividend of 42 cents, brings the total dividend of the year to 90 cents.
“Discovery performed strongly during the past financial year. Despite economic uncertainty, considerable policy debates and volatile markets both locally and internationally, the year under review was a seminal one for Discovery - it achieved considerable success in the context of growth, innovation and quality across virtually all areas of the business.
“Not only did Discovery's businesses perform better than expected, but it also made significant progress in furthering the development of the Vitality framework and its alternate applications locally, and in translating Discovery's business model into a `repeatable' construct that underpins its expansion into new markets,” Discovery CEO Adrian Gore commented.
This manifested in a decisive year:
- Discovery acquired Standard Life HealthCare, the UK's fourth largest health insurer and began its integration into PruHealth.
- Discovery increased its shareholding in the Prudential plc joint venture from 50% to 75%.
- Discovery concluded the joint venture with the US health insurer Humana and launched HumanaVitality on 1 July 2011.
- Discovery launched Discovery Insure, its short-term insurance business.
- In addition, the period under review saw Discovery consolidating its capacity and potential for growth going forward.
“Discovery's capital base was strengthened by the issuing of 800 million rand of perpetual preference shares, placing the Group in a strong position to experience continued growth without recourse to additional capital,” Gore added.
“Discovery's existing businesses performed well. Its focus on quality manifested in strong embedded value growth, improved new business margins and significant positive experience variances. These outcomes illustrate how these businesses have outperformed the actuarial assumptions made.
“Discovery's emerging businesses (PruHealth, PruProtect, and Discovery Invest) performed better than expected, with all three generating profits and positioning themselves strongly for profitability going forward. The scale of these emerging businesses is demonstrated by the fact that their combined run rate of new business at the end of the financial year now accounts for almost a third of Discovery's new business,” Gore continued.
He added that Discovery's new international business, HumanaVitality - a joint venture with the US insurer Humana - has been exceptionally well received with over 480,000 members committed to Vitality in the United States.
“This brings the total committed Vitality membership in the United States to 680,000.”
According to Gore, Ping An Health, Discovery's joint venture with the Ping An Insurance Group of China, Ltd is showing early signs of the benefits of Discovery's health and wellness platform. Although still young, the business now covers 300,000 lives, generating 155 million rand revenue over the six-month period to June 2011.
Discovery's entry into the short-term insurance market with Discovery Insure exceeded expectation, with strong market receptivity of the business manifesting in a new business run rate in excess of one million rand per day in just 12 weeks since its launch in May this year.
“Underpinning Discovery's performance is its integrated business model of which Vitality forms the basis. During the period under review, Discovery made considerable advances in furthering its understanding of the effect of consumer engagement and wellness on health and life insurance.
“In both cases, the scientific evidence is clear: Vitality creates better selection, more accurate pricing, better mortality and morbidity, and superior selective lapsation. The effect of this in both health and life insurance is significant as it not only provides greater actuarial stability but also adds unique value to Discovery's customers.
“During the period under review, work was done on the Vitality model to ensure its repeatability in markets such as China, the United States and the United Kingdom. In addition, the model was used as the basis for Discovery Insure, applying the principles of behavioural economics to the science of driving, resulting in significant value for consumers. While still embryonic, this model forms the foundation for the internationalisation of Discovery's assets and business,” Gore stated.
Looking ahead, Gore added that the work done over the past financial year has ensured that the Discovery Group is both well positioned and capitalised for continued growth and profitability into the future. - I-Net Bridge