Discovery reports slower growth in operating profits

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Discovery reports slower growth in operating profits

Vitality's South African-based parent company Discovery grew operating profit by a 'lower than usual rate' of 7% in part due to investment in VitalityHealth's new systems, the insurer's interim results for the six months to 31 December 2015 have shown.

Operating profit increased by 7% to R3 015 million and earnings increased by 7% to R2 124 million.

In previous years Discovery had achieved double-digit growth - in 2014 operating profit was R2 82m, a 19% increase on 2013's six month figures. 

The group attributed this "lower than usual rate to the high cost of moving VitalityHealth to its own system infrastructure and to investment in new initiatives, including banking, international markets, and the launch of Vitality Active Rewards with Apple."

Adrian Gore, chief executive of Discovery Limited said:" The UK business remains fundamental for Discovery's strategy of internationalising our combined health and life insurance model."

In 2014 Discovery acquired the remaining stake of the UK health and life businesses from Prudential Health Holdings.

The UK business is now capitalised and VitalityLife received a life insurance licence in December 2015 with new business written from 1 January 2016.

The results said that VitalityLife "produced an excellent six-month performance" with new business sales up 28% to R643 million.

This resulted in a 28% increase in profit to R343 million over the period, Discovery said. 

During the six-month period, VitalityHealth transitioned to its own systems.

Discovery said "this resulted in exceptional costs, in the order of £5 million, predominately in the areas of IT development, administration and claims."

Despite a complex environment characterised by "aggressive new business pricing, increases in Insurance Premium Tax, and a less profitable corporate business channel", VitalityHealth saw new business annual premium income increase by 24% over the period.

The business also concluded a joint purchasing agreement with Aviva Health for the procurement of hospital services on behalf of the insurer, which should "positively support the loss ratio going forward", the insurer's statement said.

The rebranding of the UK businesses cost R199m, a spokesperson for Discovery said.

This week VitalityLife announced a revamp of its suite of protection policies. 

Last year also saw Discovery move into new areas - the South African launch of Vitality Active Rewards, an agreement with Manulife to bring Discovery's model to Canada in late 2016 and a framework with Generali so Vitality will be launched in Germany before the end of the financial year, followed by France.

Further reading 

Profits up and new business down for Vitality

VitalityLife introduces WOL to bridge ‘term assurance gap'

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