Discovery saw “robust” new business growth in the six months to December 31, which with better lapse and mortality experience resulted in good earnings growth.
Normalised headline earnings increased by 30% to R3 75 billion. Core new business annualised premium income (API) grew by 15% to R11.06bn, excluding products in rundown.
Strong cash generation and good earnings growth meant the plan to raise R1.5 billion equity capital to fund a contribution injected into Ping An Health in October 2021, was terminated. “The group has decided this contribution will rather be absorbed within the existing capital plan,” said CEO Adrian Gore.
He said in a statement the strong operating performance demonstrated how well the Vitality shared-value business model was working, despite economic challenges across each of its three composites, South Africa, UK and Vitality Global.
He said good progress was made in organic new business growth, as the cost of new initiatives fell and was now close to the group’s guidance of 10% of normalised operating profit. Over the last few years investment spend has been much higher than guidance, given the build of Discovery Bank.
“Following a cycle of significant investment, Discovery is now capitalising on growth opportunities, while ensuring that operational resilience is maintained,” said Gore.
In the interim period the South Africa Composite - Discovery Health, Discovery Life, Discovery Invest, Discovery Insure, Discovery Bank and Discovery Vitality - grew its operating performance 23% with core new business API increasing by 15%
Normalised operating profit for the UK Composite = VitalityHealth and VitalityLife - increased by 15% and core new business API of these businesses increased by 34%.
Vitality Global’s normalised operating profit grew by 33%, despite challenging operating and investment marketing conditions in China for Ping An Health.
Gore said there remained macro-economic challenges. China’s lifting of the Zero Covid-19 policy resulted in a wave of infections. The Ukraine war dragged out, with inflationary pressures and economic volatility within some of the group’s markets.
In South Africa, energy constraints had caused lower economic growth.
He said Discovery’s focus has been on four key strategies: ensuring the efficacy of the Vitality shared-value insurance model, generating strong growth in quality earnings without recourse to capital, financial prudence and insulating the business against volatile interest rates, and creating a platform for strong future growth.
Discovery had a strategy to ensure that interest movements had little impact on the group. Vitality Life in the UK implemented an interest rate hedge in the 2020 financial year and UK life insurance arm continued to perform effectively in the face of significant interest rate movements.
In South Africa, interest rate movements create volatility in Discovery’s headline earnings, but had little impact on solvency, liquidity, and cash flows and had no impact on the operations of the group.
Subsequently, Discovery normalises the impact of interest rate movements in the presentation of normalised headline earnings.
This mainly explained a difference between the 9% decline in headline earnings per share (basic) to 453.6 cents, compared with the 30% growth in normalised headline earnings per share (basic) to 570.2 cents.
Cash generation across the group continued to improve following a reduction in Discovery Life’s Covid-19 mortality claims. Cash was used to repay debt, resulting in a commensurate reduction in Discovery’s financial leverage ratio.
BUSINESS REPORT