Interim results for the six months ended 31 December 2015:

• Normalised headline earnings up 7% to R2 124 million
• Normalised profit from operations up 7% to R3 015 million
• Embedded value increased 24% to R56.5 billion
• New business growth of 27% to R8 435 million

Discovery Limited today presented its latest set of results for the six months ended 31 December 2015. New business at a Group level displayed excellent growth of 27% to R8 435 million, higher than the 10-year compound annual growth rate of 15%. The Group continued its focus on refining its shared value insurance model, developing the science and chassis of Vitality, and on its capital structure to support new initiatives and its organic local and global growth strategy.

“Over the period, considerable work was done to develop a scalable business model that is aligned with our core purpose and with emerging trends. There is increasing awareness around the behavioural nature of insurance risk, the role of technology, and the growing social responsibility of insurers to offer meaningful benefits and protection,” says Adrian Gore, Chief Executive of Discovery Limited.

“The way Discovery is structured, through geographic and industry diversification and product design that links to economic factors to accurately match price to risk, makes it possible to achieve growth and remain resilient,” says Gore. “The efficacy of the business structure was especially evident over the period, with robust new business and earnings growth in an environment of increasing interest rates, a depreciating currency, weak equity market sentiment and other non-economic stresses playing a role.”

Both normalised profit from operations and normalised headline earnings increased 7% to R3 015 million and R2 124 million respectively. The Group attributed these lower than usual rates to the high cost of moving Vitality Health Insurance in the UK to its own system infrastructure, and to its accelerated and substantial investment in new initiatives, including banking, international markets, and the launch of Vitality Active Rewards in collaboration with Apple.

The South African launch of Vitality Active Rewards saw unprecedented success rates. In the first four months, over 160 000 Vitality members have activated and engaged in Vitality Active Rewards, making it Vitality’s most successful benefit to date. “These exceptional results are encouraging for the global business, given the planned roll-out in North America in March 2016 and in Discovery’s other markets over the course of 2016,” says Gore.

South African primary market

The South African primary market businesses delivered excellent results.

During the period, Discovery Health’s innovation proved instrumental in building assets to deliver healthcare cost savings, enable administrative efficiencies and continue its move towards digital healthcare. Direct delivery of medicine and Discovery HomeCare are both services that reduce costs and improve quality of care. With an increase of 11% in operating profit to R1 061 million and new business annualised premium income (excluding Bankmed) increasing off a significant base by 36% to R3 826 million, Discovery Health exceeded performance expectations.

In the long-term protection market, Discovery Life grew normalised operating profit by 13% to R1 658 million (excluding the impact of the FinRe cash injection in 2014). The new business market share grew to a notable 28% over the period, with continued investment in a strong tied adviser force. “The Group’s shared value insurance model most clearly manifests in Discovery Life. The health profiles, premium savings, and life expectancy of those actively participating in Vitality and the benefits of having more than one Discovery product are significant when compared with other Life Plan policyholders over time,” says Gore.

Discovery Invest experienced a 17% increase in new business year-on-year and grew its operating profit by 25% to R238 million. Driven by product innovation and a suite of investment options that cater for additional retirement savings, assets under management exceeded R56 billion.

Discovery Insure won the “Most Innovative New Digital Product” at the Gartner Annual symposium in Barcelona in November 2015. Continuing its progression to becoming an emerging Discovery business, new business was maintained at a high rate and the six-month period saw growth in gross premiums and cumulative in force (active) policies. The focus remained on quality, and on pioneering technology in claims and telematics. Vitalitydrive continued to deliver superior actuarial dynamics. Gore says, “What’s particularly exciting is that an analysis of Discovery Insure clients revealed they have a better risk profile by a minimum of 19% when comparing the cause of an accident through claims data with the rest of the industry.”

UK primary market

Gore says,” The UK business remains fundamental for Discovery’s strategy of internationalising our combined health and life insurance model.” The business is now capitalised and Vitality Life Insurance received a life insurance licence in December 2015 with new business being written from 1 January 2016. Vitality Life Insurance produced an excellent six-month performance, with new business sales up 28% to R643 million. This resulted in a 28% increase in normalised profit to R343 million over the period.

During the six-month period, Vitality Health Insurance transitioned to its own systems. This resulted in exceptional costs, in the order of £5 million, predominately in the areas of IT development, administration and claims. Despite a complex environment characterised by aggressive new business pricing, increases in the Insurance Premium Tax, and a less profitable corporate business channel, Vitality Health Insurance saw new business API increase by 24% over the period. The business also concluded a joint purchasing agreement with Aviva Health for the procurement of hospital services on behalf of the insurer, which should positively support the loss ratio going forward.

The extensive re-branding of the UK businesses has started showing return in terms of brand recall and social presence. An integrated Health and Life Vitality platform has been developed and success is evident in the take up of Vitality Active Rewards.

Partner markets

In the partner markets of China, United States, Singapore, Australia and Europe, Discovery has joint ventures with leading insurers pursuing its global growth through the internationalisation of the business model. Gore says, “The markets comprise significant global operations, with limited capital deployment. Over the period, there was continued growth across markets, and expansion within the Asia-Pacific region and new markets.”

In the US, the shared value pricing structure and investments in the distribution support channel saw a positive response from the large Employee Benefits broking houses. The Vitality Group’s client McKesson also won the C. Everett Koop National Health Award – in recognition of the effectiveness of the Vitality programme in improving the health of its employees.

From the perspective of John Hancock, early traction in the market reflected support for shared value products. Another development over the period was Discovery entering into an agreement with John Hancock’s parent company, Manulife. The agreement will bring Discovery’s model to Canada in late 2016.

In the period, a framework agreement was reached with Generali and Generali Vitality will be launched in Germany before the end of the financial year, followed by France. In the Asia-Pacific region, AIA Vitality has launched in Australia, Singapore, Hong Kong and the Philippines.
Over the period, Ping An Health had an impressive performance, realising total new business sales of R752 million, an increase of 77% from the corresponding period in 2014. The strategic focus will be to grow and expand the Group mid-market product.

“The progress made over the past six months, specifically the substantial investment in new initiatives and the associated capital restructuring to support this, positions Discovery positively for long-term growth,” says Gore