Discovery has a hidden powerhouse

Discovery’s investment in Chinese insurance giant Ping An is reaping rewards, contributing R424 million to the South African company’s operating profit for the past six months. 

This was revealed in Discovery’s interim results for the six months ended 31 December 2024, in which the financial services giant posted a profit growth of 32% year over year. 

Much focus was given to the role of the company’s South African businesses in driving this growth as the largest and most mature of Discovery’s offerings. 

In particular, lower claims drove strong performance in its health and insurance businesses, while its bank shot the lights out and reached profitability ahead of schedule. 

However, Discovery’s global businesses also performed strongly, matching the growth of the established South African businesses. 

CEO Adrian Gore also explained in an interview with Daily Investor that these businesses are expected to drive Discovery’s faster growth in the coming five years. 

As part of its scaled organic growth phase, Discovery expects normalised profit growth of between 15% and 20% a year. 

To achieve this ambitious target, Discovery’s global businesses are tasked with growing at around 18% per annum, compared to its South African businesses, excluding the bank, which are growing at 10%. 

A key part of the growth of its international businesses is Chinese insurance giant Ping An, in which Discovery first acquired a 24.99% stake in 2009. 

The company has grown strongly in recent years as demand for private insurance has skyrocketed in the world’s second-largest economy. 

Given the country’s strict foreign ownership regulations, Gore explained that Discovery was lucky to get this investment in the Chinese company. 

To get the deal over the line, Discovery agreed that Ping An would have access to the South African company’s intellectual property over time. 

“We have got teams in China that work with Ping An on all the stuff that we do, including Vitality, our health systems, risk management – they have access to all of that stuff,” Gore said. 

“So, it is a shareholding, but it is a very active one and one in which we are working very closely with them as a partner.” 

When Discovery invested in 2009, Ping An was the second-largest insurer in China and had a market cap of only R319 billion. 

The company’s market cap is now over R1 trillion, as the company has undergone tremendous growth in recent years.

In the most recent six-month period, Ping An Health generated R2.3 billion in operating profit, with Discovery’s share worth R565 million. After-tax, this is reduced somewhat to R424 million. 

Ping An Health’s operating profit increased by 57% in rand terms, with premiums growing by 13% to R20.7 billion and new business increasing 6% to R4.4 billion. 

One challenge that Ping An faces and Discovery is aware of is a slowing Chinese economy that will impact the demand for increased health insurance premiums. 

The rise of Ping An has been closely tied to the increased disposable income of Chinese citizens and the creation of a large middle class. 

The inadequate coverage of the Chinese Social Health Insurance system and greater individual wealth in China effectively created a demand for private medical insurance.

Ping An exploited this to create the first company in China that was founded solely on insurance. 

Effectively, Discovery’s investment in the company was a bet on the Chinese economy, which has grown tremendously over the past 15 years. 

However, there are fears that this growth story is coming to an end as the world’s second-largest economy slows amid increased trade tensions with the US and slowing consumer demand. 

China has targeted GDP growth of around 5% for 2025, as its government has unveiled a raft of stimulus measures to boost its economy and support its property market. 

This is slightly below the economy’s growth rate over the past decade but is still significant for a country of its size and maturity. 

Gore said the slowing growth is not a major concern yet. Rather than completely changing Ping An’s prospects, it may just prevent it from reaching its potential growth rate. 

There is still strong demand for private health insurance and this is expected to continue as the Chinese population ages and chronicity increases. 

“Our sense is that demand for private health insurance is likely to grow. It will grow faster if consumers have more money and the economy is stronger.” 

“The economy in China is now going through some tough times, and I think that might limit some growth in Ping An, but the potential is still there.” 

“Health insurance is growing nicely, but if China were to get back to those high levels of growth rates, you would see a much more accelerated growth rate with Ping An.”