How Discovery’s initiatives are paying off
Discovery poured more than R500m into new initiatives over the year to June, as its emerging businesses — Discovery Insure, Ping An Health and Vitality Group — grew at a rapid rate.
Despite uncertainty in its two largest markets, SA and the UK, the group spent 8% of its R7bn operating profit (R577m) on initiatives, including its bank in SA and VitalityInvest in the UK. This compared with R823m spent in 2016.
Discovery plans to have its long-awaited retail bank operational by the second quarter of 2018. The emerging businesses had stronger growth potential than initially thought, CEO Adrian Gore said on Monday.
Discovery, which Gore founded 25 years ago during a politically volatile time in SA and in a market dominated by incumbents, has grown to become SA’s third-largest life insurer by market value.
Discovery Health Medical Scheme is by far the biggest medical aid scheme with 2.76-million members.
"I’m a firm believer that in difficult times is when you should build; in difficult times, opportunities are underpriced," said Gore. SA’s economic and political situation was one of his major concerns. The others were low interest rates in the UK and the effects of Brexit, which affected Discovery’s life and health businesses in that market, as well as general geopolitical risks that could create a "black swan of considerable proportion", he said.
China’s Ping An Health grew new business net premium 103% to 1.6-billion renminbi (R3.2bn), narrowing its operating loss 66% to R33m.
Discovery Insure grew gross written premium 32% to R2.1bn over the period, delivered its maiden operating profit of R9m in the second half. It posted a full-year loss of R21m, an 86% improvement on the previous year and largely caused by Knysna fire claims.
"Discovery Insure has emerged stronger than I initially thought [it would]," Gore said.
Discovery is in discussions with global property and casualty insurers interested in adopting the Discovery Insure model, which rewards policyholders for safe driving behaviour. Discovery has exported its rewards programme, Vitality, which rewards customers for healthy lifestyle choices, to global markets. Vitality Group’s operating result improved 34% to an $8.5m loss. It is expected to be profitable within the next financial year.
"Investors are coming round to the fact that the potential of Discovery’s business is not sitting in SA. The scalability of the [Vitality] model is being proven in the partner markets," said Warwick Bam, an insurance analyst at Avior Capital Markets.
Projected R300m-R500m annual profit from the Vitality Group in the next three to five years was conservative.