Discovery highlights Covid-19 dilemma
South Africa’s largest private medical insurer, Discovery on Monday (15 June), updated the market on its financial position amid the Covid-19 pandemic, showing a substantial decline in headline earnings.
In a trading statement for the year ending June 2020, Discovery said that over the past four months, Covid-19 has caused significant disruption to lives and economies worldwide.
As at 14 June 2020, total infections and deaths climbed to over 65,000 and 1,400 respectively in South Africa; 290,000 and 40,000 in the
United Kingdom; and two million and 110,000 in the US.
“In addition to its health impacts, the pandemic has driven extreme market volatility, as evidenced by interest rates and equity market movements.
“For insurers specifically, Covid-19 has created a uniquely-complex operating and economic environment, with pressure on new business, lapse rates, and potential future claims; and volatility in interest rates and investment returns,” it said.
Headline earnings, the group said, will be affected by the significant rise in interest rates in South Africa due to Covid-19 and the ratings
downgrade, and the historically low rates in the UK.
“Given basic and headline earnings include this effect, these measures are very difficult to predict with a reasonable degree of certainty, and could potentially result in a decline of those measures between 70% to 90% compared to the prior year,” it said.
It said that Vitality Group recorded a temporary slow-down of insurance partner sales due to Covid-19 lockdowns.
“The business is well diversified across geographies, with a significant part of its earnings being USD based, and revenue arrangements are a blend of fixed and performance-based fees.”
The group stressed that new initiatives remain a key strategic focus, despite revenue growth expected to be more challenging in the period.
Discovery said it remains confident about the potential of new initiatives having taken some strategic shifts to allow for the different market conditions over the next few periods.
It’s high profile shift towards commercial banking, Discovery Bank continues to attract new clients with over 177,000 clients and 330,000 accounts.
Financial performance
• New business increased 4% for the eleven months ended 31 May 2020 compared to the prior corresponding period.
• Normalised profit from operations before providing for potential future Covid-19 impacts for the year ending 30 June 2020 is expected to be between 15% to 25% higher excluding the results of Discovery Bank, and between 5% to 15% higher including the results of Discovery Bank.
• Approximately R3.3 billion will be provided for potential future Covid-19 impacts.
• Normalised profit from operations is expected to be between 18% and 28% lower than the prior year, after including the potential future Covid-19 impacts.
• Normalised headline earnings is expected to be between 20% and 30% lower than the prior year.
Discovery anticipates reserving R3.3 billion for the potential claims and lapse impact of Covid-19 that are projected to emerge in future periods.
Read: Discovery launches new healthcare cover for domestic workers – here’s how it works
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