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Discovery has already offered its new banking clients R900 million in credit

Sep 04 2019 10:29

Discovery reported a 12% fall in its headline earnings per share for the year to end-June, as it was hit by an unexpected spike in death claims from Discovery Life and the cost of establishing its new Discovery Bank.

Launched in June, Discovery Bank now has more than 22 000 clients, which have deposited R190 million (on average R8,600 each) with the bank. It has approved credit limits of R900 million for these clients, which works out to an average of R41,000 each.

“The quality of clients has been demonstrably excellent with high engagement levels and Vitality money statuses,” Discovery says. The costs to build and run the bank has been “largely” in line with expectation and the migration of existing Discovery Card clients from FirstRand Bank to Discovery Bank is now gaining momentum, Discovery says.

Discover Health, which has 3.5 million members and controls 40% of the medical scheme market in SA, saw new business grow by only 1% to  R6.6 billion. The Discovery Health Medical Scheme has a net surplus of R816 million. It is currently investing in digital technologies and process automation to cut costs, and focusing on rooting out fraud. In the past year, its fraud and forensics team saved the medical scheme R469 million.

Discovery Insure doubled its profit (to R155 million) for the year, but new business remained flat.

Discovery has doubled its spending on new initiatives to R1.3 billion – which is more than a fifth of its profit. This included its Vitality UK business, which has seen new business rose by 10% to £144 million (R2.6 billion), while covered lives exceeded 1.25  million, an increase of 21%. Its Chinese medical insurance business Ping An Health saw its total revenue increase by 74%.

This investment should lower to 10% of earnings, and profit growth is expected to return to its stated goal of inflation plus 10%, Discovery says.

Discovery, which has lost a fifth of its market value after the publication of the National Health Insurance (NHI) Bill earlier this month, says the legislation is not expected to have a material long-term impact on its Discovery Health business.

The NHI foresees the creation of a fund that will be a massive state-run medical scheme, and all South Africans will be members. This cast doubt over the future of private medical schemes. 

While Discovery has been relatively sanguine about the bill in recent weeks, it took a harder line in its results statement: 

"Limiting people from purchasing the medical scheme coverage they seek will seriously curtail the healthcare they expect and demand. This will erode sentiment, strip the country of skills, and impact the economy. Crucially, by preventing those who can afford it from using their medical scheme cover and forcing them into the NHI system is an approach that will also have the effect of increasing the burden on the NHI and will drain the very resources that must be used for people in most need."

Compiled by Helena Wasserman

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