Johannesburg - Discovery Holdings, the country’s largest health insurer, has projected that its medical scheme would accumulate a surplus of approximately R1.3 billion in 2013 because it had managed to keep its medical inflation lower than the industry’s average.
Last year, the Discovery Health Medical Scheme accumulated a surplus of R789 million and had total reserves of R8bn.
Group chief executive Adrian Gore said the medical scheme managed to keep its medical inflation at 3 percentage points above the consumer price index (CPI) rate while industry-wide inflation had been between 4 points and 5 points above CPI.
With this, the scheme had managed to offer benefits that were between 12 percent and 15 percent cheaper, which was why it was accumulating surpluses in an environment of high health-care cost increases.
Discovery Holdings reported a 20 percent increase in normalised headline earnings to R2.787bn in the year to June. It attributed most of the growth to Discovery Health’s performance, which Gore labelled as “exceptionally remarkable”.
The division increased new business by 13 percent to R4.8bn, adding to the insurance group’s total new business of R10.8bn in the period under review.
The entire group grew its new business by 15 percent but Gore said Discovery Health’s growth was remarkable because it was achieved off an already high base.
The Discovery Health Medical Scheme grew lives under management to 2.76 million and its operating profit increased by 13 percent to R1.7bn. The scheme’s efficiencies were passed on to its members through a reduction in administration fees.
“Now what we have to deal with in the industry is the stubborn cost of health care,” Gore said. South Africa was no exception to other countries when it came to medical inflation outstripping the CPI rate.
While high health-care costs were a function of scarce resources, technology also played a major role in driving up costs globally, he said.
Other Discovery businesses – Discovery Life, Discovery Invest, Discovery Insure and UK joint venture PruHealth and PruProtect – posted strong performances.
Discovery Life grew its new business by 8 percent to R1.9bn and its operating profit increased by 16 percent to R2.1bn.
Discovery Invest posted an operating profit of R221m, which was 46 percent higher than the year before. The division increased assets under management by 20 percent to R30bn.
Short-term insurance business Discovery Insure grew new business by 53 percent to R366m as more people became aware of its products. Discovery has decided to acquire Hollard’s 25 percent stake in this business for R352m but the transaction is still subject to regulatory approval.
The UK joint venture grew profits by 57 percent to R472m.
But Discovery Holdings reported a 4 percent decline in full-year profit to R2.1bn from R2.2bn reported last year due to one-off costs related to investment in new initiatives.
The decline was also the result of the acquisition of a further 5 percent stake in Chinese health insurer Ping An Health from an initial 20 percent stake.
The group’s diluted normalised headline earnings a share increased in line with the normalised earnings to R4.96, a 19 percent increase from R4.169 last year. The earnings growth was achieve despite Discovery investing 12 percent more in new initiatives during the year.
Before headline earnings were normalised by taking off one-off items, they decreased by 3 percent to R2bn from R2.1bn.
Discovery’s embedded value grew by 18 percent to R35.7bn and return on capital exceeded 20 percent. Cash generated from operations increased by 45 percent.
Discovery’s share price rose 3.2 percent to close at R87 on the JSE yesterday. - Business Report