Discovery Holdings says Covid-19 mortality was worse in SA than in the UK and underscores the urgency and critical role of an effective vaccination rollout initiative to curb the virus.
In a trading update on Friday, Discovery, which runs SA’s largest private health insurer, said the UK’s early vaccination programme limited deaths during the third wave of infections. The Financial Times reported last week that the programme saved more than 100,000 lives there.
By Friday, at least 90.1-million Covid-19 vaccine doses had been administered in the UK, which is 67.4% of the population, according to Bloomberg Covid-19 tracker. In SA, 11.6-million doses had been given by Friday to 11.7% of the population.
Discovery has exposure to the UK market through its Vitality UK business, which has more than 1.4-million members for life, health and investment offerings. The business generates about a fifth of its annual operating profit of more than R8.4bn.
Life insurers in SA have had to stockpile billions of rand in reserves to absorb Covid-19 death claims in SA, where more than 81,500 people have died.
Discovery ramped up its Covid-19 provisions at its life insurance segment by R2.4bn in the year to end-June as it braced for claims stemming from the third and possibly fourth wave of infections in SA.
“This business has a lot of moving parts, and clearly a lot of them are operating at the Covid coalface,” said Craig Pheiffer, chief investment strategist at Absa Stockbrokers & Portfolio Management.
“From a societal point of view, the company is doing just what you want it to do in these crisis times, and making good on life payouts and medical claims.
“During these times, shareholders may not experience the returns they are used to as the company makes greater provisions for those potential future payouts,” said Pheiffer.
“With the group being in a strong financial position, it can manage those payouts and drive up goodwill and potentially future earnings and profits. The shine is off a little at the moment, but shareholders can take heart that the company has and is managing the crisis well.”
Discovery joins Old Mutual, Momentum Metropolitan and Liberty Holdings in beefing up reserves in the latest reporting cycle. Insurers are bracing themselves for more pain as the vaccination drive in SA has yet to reach critical mass. The government’s target is to get at least 70% of the population inoculated by December, in time for an expected new surge of cases.
Old Mutual lined up R2bn more in reserves earlier in August, after Momentum and Liberty trawled into their coffers for R1.6bn and R1.2bn in provisions, respectively.
The market reacted to Discovery’s trading update by knocking the share price down 1.94% to R126.50 by the close of the JSE on Friday.
Discovery’s normalised profit from operations is expected to rise 5%-10% year on year.
“The epidemic in SA was significantly worse than expected at the end of June 2020,” Discovery said in a statement.
“At that time, Discovery projected a severe second wave for SA, but the actual second wave experience was still somewhat worse than expected due to the emergence of the Beta variant.
“SA suffered a very significant third wave, driven by the Delta variant. While the UK also experienced a severe second wave, it has largely avoided any negative mortality impact in its third wave due to its extraordinarily effective and early vaccine campaign.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.