Update regarding the COVID-19 pandemic and trading statement for the year ended 30 June 2021
(Incorporated in the Republic of South Africa)
(Registration number 1999/007789/06)
Legal Entity Identifier: 378900245A26169C8132
JSE share code: DSY, DSYBP
DSY ISIN: ZAE000022331
DSBP ISIN: ZAE000158564
JSE bond company code: DSYI
(“Discovery” or “the Group”)
Update regarding the COVID-19 pandemic and trading statement for the year ended 30 June 2021
Discovery’s results for the full year ended 30 June 2021 (reporting year or year under review) were characterised by three
• A multifaceted focus on the impact of and response to the COVID-19 pandemic, which has been profound and tragic
over the period. In terms of the Group’s financial results, the notable material impact has been the effect of elevated
mortality in South Africa (SA) in Discovery Life.
• Notwithstanding the above, an excellent operational performance, with robust growth, retention and strong actuarial
experience across the Group.
• A pivot to growth by capitalising on the applicability of its Vitality Shared-Value model to ensure growth in local and
global markets, and excellent traction in Discovery’s new and emerging businesses.
1. COVID-19 impact on results
The financial year under review was framed by the COVID-19 pandemic, the year commencing during the first wave of the
pandemic and ending during the height of the third wave in SA. The epidemic in SA has been significantly worse than
anticipated at the end of June 2020. 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. In addition, SA suffered
a very significant third wave, driven by the Delta variant. By contrast, whilst the United Kingdom (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. On a risk adjusted basis, we believe that the South African epidemic has turned out to be
significantly more severe than the epidemic in the UK. In the UK, the extended lockdowns caused by the second and third
wave of infections did however cause further delays to elective medical procedures.
Despite these complex and varied dynamics (also refer discussion on VitalityHealth below), the Group was remarkably
resilient across all its businesses, with the notable material impact on operating profit being the effect of elevated mortality
in SA experienced within Discovery Life:
• At the end of the previous year, Discovery Life established a R2 billion provision for retail claims and lapses based on its
modelling at the time, which had a net impact of R1.1 billion on the profits after discretionary margins for the previous
year. During the current reporting year under review, this provision proved adequate for the retail business given
excellent lapse experience which mitigated the increased mortality. However, given the expected mortality claims from
the run-off of the third wave beyond the reporting year and expected claims arising from an anticipated fourth wave,
an additional retail provision was set up at the end of the year under review.
• Due to the short term contract boundaries of group life business, Discovery Life could not establish a provision for future
group life claims at the end of the previous year. As a result, the full impact of the high in-period group life COVID-19
claims caused further strain in the reporting year. At the end of the year under review, group life provisions have been
made to the extent that existing contracts are deemed to be onerous.
The combined impact on Discovery Life’s overall operating profit from the above factors was R2.4 billion for the year under
2. Summary of results
Discovery’s results for the full year ended 30 June 2021 were robust, summarised by the following:
• Normalised profit from operations is expected to increase between 5% and 10% for the year under review,
notwithstanding the R2.4 billion COVID-19 impact for Discovery Life as compared with the R1.1 billion for the year ended
30 June 2020 (the prior year) (see Table 1 below).
• New Business API (Annual Premium Income) increased by 11%, while retention levels across the group were excellent
and better than expected (see Table 2 below).
• Performance was robust across all the Established businesses, outside of the COVID-19 driven elevated mortality in
Discovery Life; Emerging businesses delivered particularly strong growth, with normalised profit from operations
expected to increase between 43% to 48%; and spend on new initiatives reduced between 5% to 10% while delivering
exceptional growth in new business, with new business API for new initiatives increasing 156%.
• Normalised Headline Earnings (NHE) are expected to decrease by between 5% and 15%, impacted by mark-to-market
foreign currency losses arising from a recovery of the Rand during the reporting year compared to a gain in the previous
• Headline Earnings (HE) are expected to increase between 900% and 920% as the stabilisation of long term interest rates
in SA and the UK resulted in materially lower economic basis changes than the prior year.
3. Breakdown of results
The following table demonstrates the expected contribution of key businesses to the growth in normalised profit from
operations, of between 5% and 10% compared to the prior year.
Table 1: Forecast change in normalised profit from operations over prior year
Normalised profit from operations % change
12 months ended 30 June 2021 to 12 months ended 30 June 2020
Discovery Health 5% to 10%
Discovery Life Lower by 52% to 57%
Discovery Invest 28% to 33%
VitalityHealth 12% to 17%*
VitalityLife 335%-340% (reversal of prior year loss)**
Profit from Established businesses -3% to 2%
Discovery Insure 0% to 5%
Vitality Group 33% to 38%
PingAn Health 123% to 128%
Total Emerging businesses 43% to 48%
New initiatives (Excluding Bank) Spend reduced by 5% to 10%
Discovery Bank Spend reduced by 5% to 10%
Normalised Profit from operations 5% to 10%
* For VitalityHealth, a key feature of the UK health market in the financial year has been the continued delay in claims catch-
up relating to elective medical procedures with the second and third wave of infections. Vitality Health has modelled the
expected catch-up in claims into future periods and is managing the underlying claims experience over time in the following
two ways. Firstly, a £14 million unearned premium reserve (UPR) has been established at the end of the reporting year to
cover delayed claims that are anticipated within the short-term contract boundaries. Most anticipated claims are however
expected to transpire over a much longer period and mostly well beyond the short-term nature of the insurance contract
boundaries; this presented the business with an opportunity to accelerate the repayment terms of its existing reinsurance
programme in the reporting year, with a net in period cost of £40 million, which results in better matching the underlying
claims experience expected from the catch-up in claims in future years. VitalityHealth’s robust operating profit in the table
above is after the effect of these factors.
** VitalityLife performed better than expected over the financial year both in terms of mortality and lapses and a relatively
immaterial additional provision is deemed necessary to cover the potential effects of a possible 4th wave in the UK.
The following table demonstrates the contribution from the businesses to the 11% growth in new business API (9% core
new business growth) over the reporting year.
Table 2: New business annualised premium income for the Group for the twelve months ended 30 June 2021
New business % change
Business (Rm) 12 months ended 30 June 2021 to 12 months ended 30 June 2020
Discovery Health, including new closed scheme 6%
Discovery Life -1%
Discovery Invest 3%
Discovery Insure 18%
PingAn Health (25% interest) 10%
Other new businesses 156%
New business API of Group including New Closed Schemes 11%
Core new business API of Group 9%
4. Trading statement
As part of the Group’s interim reporting, shareholders and noteholders were advised that Discovery’s earnings per share
(basic) and headline earnings per share (basic), for the year ended 30 June 2021, were expected to be at least 20% higher
than that reported for the year ended 30 June 2020. Shareholders and noteholders are now further advised that:
• Earnings per share (basic) are expected to be between 3135% and 3155% higher (to between 478.8 cps and 481.7 cps
compared to reported 14.8 cps for the prior year).
• Headline earnings per share (basic) are expected to be between 900% and 920% higher (to between 450.0 cps and
459.0 cps compared to reported 45.0 cps for the prior year).
• Normalised headline earnings per share (NHEPS) (basic) will be between 5% and 15% lower (to between 485.0 cps and
542.1 cps compared to reported 570.6 cps for the prior year).
Earnings per share additionally benefited from a material unrealised gain of R537 million from the transaction in which
Cambridge Mobile Telematics (CMT) acquired TrueMotion through an issuance of shares, as announced by CMT on 16 June
5. Capital and liquidity
The Group is robust under high stress scenarios, with sufficient solvency and liquidity to weather uncertain conditions
brought about by COVID-19. Capital ratios remain resilient and the liquidity buffer is expected to remain within the target
range. These ensure Discovery is well placed to capitalise on the increasing importance of health, wellness, and resilience
and the growing global relevance of its Shared-Value Insurance model.
Discovery intends to report its full year 2021 results on 2 September 2021. The information contained in this announcement,
including any forecast financial information on which this trading statement is based, is the responsibility of the board of
directors of Discovery and has not been reviewed and reported on by Discovery's external auditors.
27 August 2021
Sponsor and Debt Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 27-08-2021 09:00:00
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