Discovery takes UK hit

Discovery is expected to report a mixed performance for its 2024 financial year. While its South African and Vitality Global divisions performed well, its UK operations took a significant hit.

Discovery announced its expectations for its 2024 financial year through June 2024 via SENS on Thursday.

The company expects new business to increase by 18% and its normalised profit to grow by between 15% and 20%.

Normalised headline earnings are expected to increase by between 12% and 17%, while headline earnings are expected to grow by between 4% and 9%.

This growth was largely driven by the company’s Discovery SA division, which will see its headline earnings increase by between 13% and 18%.

This division’s insurance segment performed exceptionally well, with earnings growth of over 100%.

Discovery Bank was the only drawback in this segment, with the bank expected to report an operating loss.

However, the company said Discovery Bank exceeded expectations, with excellent progress across all metrics. It said the acquisition of quality clients continued to accelerate, resulting in strong revenue growth.

Discovery’s Vitality Global division performed exceptionally well this year, with an expected earnings increase of between 54% and 59%.

In particular, Ping An Health Insurance – Discovery’s Chinese partner – delivered an excellent operating result, with a reduction in the combined ratio and strong cash generation. 

Notably, Ping An Health Insurance commenced the payment of dividends at a payout ratio of 30% of 2023 calendar year distributable profits.

The global Vitality Network generated strong profit and membership growth, with improving margins.

“Vitality Health International represents a key growth area for the group, with investment made over the period to capitalise on the opportunity,” Discovery said.

However, a significant drag on Discovery’s performance was its UK operations, as Vitality UK is expecting to report an earnings decrease of between 11% and 16%.

Discovery said this division achieved strong growth in customers, new business and earned premiums. 

However, its normalised operating profit was impacted by two specific issues: claims experience in VitalityHealth and a basis strengthening for the back book under VitalityLife

VitalityHealth’s membership reached 1 million during the reporting year, having grown strongly from the increased demand for private medical insurance (PMI) given the backlogs experienced by the UK’s National Health Service (NHS). 

There was a concomitant increase in claims during the reporting period, which negatively impacted earnings by £30 million, given the lag of premium increases. 

VitalityHealth has significantly increased prices in response to the higher claims, in line with the market, with little impact on observed lapse rates. 

Discovery explained that, following the reporting period, claim levels are in line with actuarial expectations. As such, margins are expected to recover strongly in the 2025 financial year.

In addition, it said VitalityLife’s underlying performance was robust with new business value generation improving in the second half of the reporting year. 

In light of continued lower lapses than expected for a block of whole of life business within the Prudential Assurance Company (PAC) book, VitalityLife strengthened the lapse basis resulting in a negative impact on earnings of £12.5 million for the period. 

While VitalityLife has contractual service (CSM) and risk adjustment (RA) margins in excess of £400 million, these margins are not applicable to this particular cohort, resulting in the basis change directly impacting this segment’s earnings. Discovery said this is not expected to recur.

Discovery intends to report its annual 2024 financial results on 19 September 2024.