Discovery Holdings Reports Jump in 2010 Profits.
By Thomas | Published February 23, 2011
South Africa’s Discovery Holdings has reported a jump in net earnings for the six month period ending on 31st December 2010 to total ZAR 941 million (US$132 million), representing a 25 percent increase on the previous six monthly period.
Normalized operating earnings in the period increased by 28 percent to ZAR 1.33 billion (US$ 186 million), excluding the one-off cost of the take-over of UK’s Standard Life Healthcare which amounted to ZAR 6 billion rand (US$223.4 million).
There was a 15 percent growth in new business to reach ZAR 3.7 billion (US$ 519 million) with embedded value up by 15 percent to total ZAR 24 billion (US$ 3.3 billion).
Speaking on the insurer’s 6 months earnings, Adrian Gore, Discovery’s Chief Executive Officer, said: “While the period under review has been complex, impacted by both the lingering effects of the financial crisis and the considerable policy debates that affect the markets in which Discovery operates, we are satisfied with the overall performance and continue to focus on providing our customers with high quality, innovative and relevant products.”
Discovery performed well in its domestic market, South Africa, with new business growing by 10 percent helping operating profits to increase from ZAR 555 million (US$ 77 million) to ZAR 619 million (US$ 86 million), reflecting a 12 percent increase over the 6 month period.
The Discovery Health Insurance business in South Africa now has 2.5 million members enrolled in private medical schemes managed by the insurer, following a 12 percent increase in numbers between June and December 2010.
Membership of the largest scheme in South African medical insurance – the Discovery Healthy Medical Scheme – grew by 10 percent, with client renewals of health policies amounting to almost 98 percent.
The Discovery Health business is working on improving access to private healthcare in South Africa for low-income sectors of the population in a bid to increase overall membership in the country.
Also, within Discovery’s domestic market, the health insurer said it remains committed to working in unison with the National Health Insurance system in South Africa which is currently in a transition period with reform implementation expected next year. The South Africa planned National Health Insurance system is being set-up in order for the country to provide universal healthcare coverage for the core population.
The Johannesburg-based insurer’s life insurance business – Discovery Life – performed well, with an increase of 14 percent over the 6 month period to generate operating profits of ZAR 768 million (US$ 107 million) up from ZAR 675 million (US$ 94 million); the growth being due to improvements in mortality and morbidity policy rates.
Discovery’s joint venture in the UK with PruHealth was boosted in 2010 with the acquisition of Standard Life Healthcare, which helped leverage its position in the UK private health insurance market. The Discovery and PruHealth insurance business covers over 674,000 lives within the UK, and is one of the major players in the private medical insurance (PMI) market in Britain; the United Kingdom operating profit for Discovery was ZAR 35 million (US$ 4.9 million) during the last six month trading period.
“The quality of the Standard Life Healthcare business surpassed our expectations, with the loss ratio, levels of lapses and profitability levels exceeding our expectation. The combination of the management action undertaken within PruHealth, and the acquisition of Standard Life Healthcare, has created a business with strong fundamental drivers of value and one that represents significant prospects for Discovery.” Mr.Gore said on the PruHealth venture.
In China’s thriving insurance sector, Discovery’s Ping An Health business received local regulatory approval from the Chinese Insurance Regulatory Commission (CIRC) to commence operating in a market which has becoming increasingly important for global health insurers. The Ping An Health venture was initiated in 2009, with the South African based insurer buying a 20 percent stake in the Chinese business.
Speaking on the Chinese health business Mr.Gore said: “From a product perspective, significant work has taken place to tailor Discovery’s capabilities to the Chinese market. We remain excited by the potential of the Chinese private health insurance market in the long-term.”
Discovery will be seeking other opportunities to enhance its global operations in the future in order to continue its planned growth and, following the announcement of Discovery’s last 6 month results, the insurer has reported that it has entered into an agreement with American insurer Humana to offer wellness and loyalty scheme programmes to 10 million of the US insurers customers. Discovery’s link will give Humama’s members the opportunity to purchase discounted gym memberships and other health incentive benefits.
Humana is the fourth largest health insurer in the USA and has agreed to invest ZAR 107 million (US$15 million) in Discovery’s Vitality Group subsidiary – a wellness programme provider. The deal means the South African group increases its exposure in the US health insurance sector, as the US health insurer seeks new opportunities for developing client incentives and the promotion of healthier living.
The Discovery and Humana partnership will see the South African insurer offering incentives for Humana’s 10 million clients to live healthier lifestyles, and comes at a time when concerns are growing about rising medical costs and the increase of chronic diseases among Americans; these factors having caused a hike in healthcare premiums within the USA health insurance market. The South African and US venture is designed to offer US clients incentives to take-up healthy activities such as regular gym work-outs to improve their long term health.
Discovery’s core health business in South Africa has been growing in recent years, mainly due to the buoyant economy driven by the burgeoning mining and agricultural sectors. With a significant proportion of the South African population enjoying middle to upper middle class status, private health insurance has expanded rapidly. Discovery offers a series of health plans under the branding of executive, comprehensive, priority, saver, core and keycare, which have helped the Johannesburg based insurer become the leading healthcare insurer in South Africa.
Insurance Companies Mentioned:
Discovery is a financial services provider based in Johannesburg, South Africa, and was founded in 1992. Discovery offers health and life insurance in different markets as well as investment services and credit cards. They also have a joint venture life and health insurance companies with Prudential called PruHealth and PruProtect, which are structured under the PruProtection banner.
PruHealth is part of a joint venture named Prudential Health Holdings Limited, between Prudential Assurance Company of the UK and Discovery Holdings. The joint venture was started in 2004 and offers private medical insurance in the United Kingdom. Currently Discovery Holdings owns a 75 percent stake in the joint venture while Prudential Assurance holds the remaining 25 percent.
Humana is based in Louisville and is one the leading US health insurers, with approximately 10.2 million medical members. Humana is a full-service benefits and well-being solutions company, offering a wide array of health, pharmacy and supplemental benefit plans for employer groups, government programs and individuals, as well as primary and workplace care through its medical centers and worksite medical facilities.