Discovery says profit will plunge as low UK interest rates hit VitalityLife
Normalised profit at VitalityLife, which provides insurance to the UK market, is expected to fall 145% in the six months to end-December
SA’s largest private health insurer Discovery said on Monday normalised profit from operations could fall by double digits in its six months to end-December, as its VitalityLife business grapples with low interest rates in the UK.
Normalised profit from operations could fall by as much as 10% to R3.41bn, with normalised profit at VitalityLife plunging 145% during the period, the company said in a trading update.
VitalityLife has implemented an interest-rate hedge structure to mitigate exposure to further lowering of UK interest rates.
“This, combined with a generally difficult operating environment in the UK, resulted in VitalityLife recording an operating loss for the period, which is a key factor in the higher effective tax rate as compared with the prior period,” the company said.
Discovery has said previously that low interest rates in the UK was weighing on its business there, with VitalityLife re-engineering itself for the low interest-rate environment with all new business repriced, and with changes to its business mix.
The company said in November the “risk of a further decline in interest rates is beyond our risk appetite”, noting that UK’s long-term interest rates decreased to their lowest level on record during October 2019.
The company said that its other businesses produced “robust operating results”, with Discovery Life growing normalised profit from key operations 25% during the period.
The group’s normalised diluted headline earnings a share are expected to fall by between 10% and 15% to between 330c and 311c.
Discovery is expected to release its interim results on Thursday.
At 1.35pm on Monday Discovery’s share price was down 1.23% to R123.75.
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