Discovery’s profits hit by spike in mortality claims

SA’s largest private-health insurer Discovery said on Wednesday that an unexpected spike in mortality claims and costs related to the establishment of Discovery Bank hit its profit margin in the year to end-June.

Normalised profit from operations fell 3% to R7.7bn during the period, with normalised headline earnings per share (HEPS) slipping 12% to 789c per share.

An unexpected rise in mortality claims reduced Discovery Life’s operating profit 9% to R3.2bn, although those losses were concentrated in the first half of the company’s financial year.

The group’s spend on new initiatives also jumped 114% to R1.31bn during the period — representing 21% of group earnings, although this was budgeted for.

Discovery said on Wednesday that its spend on new businesses is expected to decrease towards its long-term goal of 10% of earnings over the next few years. The most notable new business venture is Discovery Bank, which had its public roll-out in June, following beta testing in November.

The bank currently has 22,000 clients, with more than 50,000 accounts. This has resulted in R190m in deposits, with R900m in credit limits approved.

Discovery’s share price was flat at R115.01 on Wednesday morning. It slipped 12.95% in July, under pressure from the government’s announcement that it was pressing ahead with the implementation of the National Health Insurance (NHI) scheme.

Discovery said on Wednesday that it remains supportive of NHI and would work closely with relevant policy makers.

Discovery’s report said, “The bill is not expected to have a material, long-term impact on the Discovery Health business and may, in fact, present new opportunities for growth and product innovation.” 

gernetzkyk@businesslive.co.za

Correction: September 4 2019

An earlier version of this article referred to Discovery Health, and Discovery Health Medical Schemes, when in fact the reporting was in reference to the Discovery group. Business Day regrets the error.