Discovery’s long-term and short-term insurance arms delivered contrasting performances in the group’s 2022 financial year, with Discovery Life’s normalised operating profit surging by 200% and Discovery Insure’s tanking 165%, driven mainly by the KwaZulu-Natal floods and motor-part inflation.
Discovery Insurer’s slump comes a week after Santam, South Africa’s biggest short-term insurer, announced that its half-year net operating profit slumped 51%, from R1.2 billion to R429 million. Santam also cited the KZN floods and higher inflation, as well as market volatility, for the weaker results.
Discovery Insure recorded an operating loss of R162m, a 165% decrease from the prior year’s operating profit, according to the group’s results for the year to 30 June, released yesterday.
Discovery Insure, which has about 213 453 policyholders, paid gross claims of R2.27bn in its 2022 financial year.
The unit recorded a “claims overrun” of R369m, driven by a longer-than-normal rainy season, the floods in KZN in April, and “considerable” supply-side inflation in motor vehicle repairs and parts. Another factor was an increase in claims related to power surges.
In respect of the KZN floods, gross personal lines claims exceeded R150m and business lines claims came in at R47m. Discovery said the impact on profit or loss after reinsurance recoveries and reinstatement premiums was R78m.
Discovery Insure recorded an increase of 13% in gross written premiums (GWP) to R4.762bn, despite a 3% decline in new business to R1.246bn.
Santam, which has more than a million policyholders, paid gross claims of R14.2bn in the six months to June this year – almost R4bn higher than in the same period last year.
The KZN floods alone cost Santam R4.4bn in gross claims, although it said reinsurance will limit the net impact to R566m, including reinstatement premiums.
The significant rise in claims saw Santam’s net underwriting margin for conventional insurance fall to 2.3% from 6.7% in June 2021, well below the group’s target range of 5% to 10%. This was despite the 7% growth in GWP and the reduction in the provisions for Covid-19-related contingent business interruption (CBI) claims.
By June, Santam had made gross CBI payments of R4.3bn, which equated to more than 70% of projected eligible claims. Santam reduced its net provision for CBI claims by R397m.
Life insurance recovers
Discovery Life made a strong recovery from the prior period, with normalised earnings of R4bn, up 200%, driven by new business growth and “prudent” expense management.
The South African life insurance unit paid out more than R11.9bn (R8.1bn net of reinsurance) in claims and policyholder benefits last year.
Discovery Life paid R3.7bn in Covid-19-related claims, gross of reinsurance, which were covered by its “sufficient” Covid provision of R2.3bn during the period.
New business increased by 12% to R2.543bn, driven by contribution increases.
However, the value of new business (VNB) fell 11%, from R411m to R365m, and the VNB margin declined from 5.7% to 5.3%, due to higher interest rates and lower volumes.
Normalised headline earnings up 71%
Discovery reported its highest normalised headline earnings in its history, according to its annual results.
Normalised operating profit increased by 45% to R9.384bn and normalised headline earnings increased by 71% to R5.816bn, beating its 2021 performance of R3.4bn, R3.75bn in 2020, R5.04bn in 2019 and R5.4bn in 2018.
Normalised headline earnings strip out impairments, one-off items, irregular events, and income or expenses not considered part of normal operations.
The group once again decided not to declare an ordinary dividend, citing a “volatile global macro-economic environment”.
Significant growth from Discovery’s South African and British businesses saw core new business annualised premium income (API) increase by 6% to R21.7bn.
The group’s 2022 results included the third wave, with the highly contagious and lethal Delta variant of Covid-19, and the infectious, but less virulent, Omicron variant, in the fourth wave. Discovery said Covid-related claims decreased substantially during the second half of the 2022 financial year.
The easing of lockdown restrictions helped the group to normalise its results in most of its markets, excluding Asia, “which was greatly affected by several strict lockdowns and restrictions”.
In 2010, Discovery acquired a stake in one of China’s biggest insurance companies, Ping An Health. In February this year, Discovery announced a joint venture, Amplify Health, with AIA, offering digital health solutions across the Asia-Pacific region.
Medical scheme increases its market share slightly
Discovery Health Medical Scheme (DHMS), South Africa’s largest open medical scheme, added more than 24 000 lives (net) over the full financial year, growing DHMS’s market share by almost a percentage point to 57.6% of open scheme beneficiaries. Most of the growth (57%) came from employer groups.
Discovery said the scheme’s new-joiner profile has been healthier, with a lower average age (26.1 years versus 27.6) and a lower chronic condition ratio (6.5% versus 9.3%) than the rest of the open industry.
DHMS’s unaudited solvency ratio was 36% in June. Its decision to defer members’ contribution increases resulted in reserves falling from more than R35bn in 2021 to R28.3bn (unaudited) in June.
Administrator Discovery Health saw new business API increase by 20% to R7.29bn, and its normalised operating profit increased by 5% to R3.6bn.
The unit now administers more than 3.7 million lives – a combination of DHMS, restricted medical schemes and non-scheme retail products (FlexiCare, gap cover and Healthy Company).
Revenue from non-scheme products increased by 7% to R1.224bn and non-scheme lives covered rose by 37% to about 263 000.
Strong growth in Discovery Bank clients
Discovery Bank reduced its operating loss for the financial year by 10% to R990 million.
The bank grew its client base by 42%, from 331 000 to 470 220, and the number of accounts by 58%, from 649 000 to 1 023 790.
Discovery Bank reports adding more than 800 clients on average a day, putting it on track to achieving its target of 1 000 sales a day and one million clients by 2026.
Retail deposits grew by 30% to R10.6bn and advances grew by 14% to R4.3bn.
New business up 7% at Discovery Invest
Discovery Invest’s normalised operating profit increased by 11% to R1.204bn and new business increased 7% to R2.92bn.
Total assets under administration (AuA) grew by 4% to R122bn and assets under management increased by 7% to R81.1bn.
Net flows increased by 2% to R5.75bn, with growth constrained by higher-than-anticipated guaranteed plan maturities and lower market levels over the second half of the reporting period, resulting in a 4.6% reduction in AuA from December 2021 to June 2022.
