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Discovery delivers robust performance in tough environment

‘Ping An Health has been unbelievable,’’ and ‘there is great potential if we are successful with the bank,’ says Discovery CEO Adrian Gore.

NASTASSIA ARENDSE:  Discovery published their numbers for the year. I had a conversation with Adrian Gore, the chief executive at Discovery. Adrian, thanks so much for your time. You delivered numbers this morning. How did you do?

ADRIAN GORE:  We are very pleased with the numbers. The performance was very robust. I think the established businesses have performed remarkably well in pretty difficult times.

Our emerging businesses in China and here, our insure business and our global businesses of Vitality have done really well. The growth in these businesses is higher than I think in the past by a reasonable margin. So we are very pleased with the progress.

NASTASSIA ARENDSE:  When you look at the business-specific performances, let’s start off with South Africa, which part of the business stands out to you and has done really well?

ADRIAN GORE:  In reality they all have. Discovery Health off a clearly high base grew its new business by 18%. Discovery Life by 70%. Our investors in our long-term savings business I think did reasonably well in a very difficult climate. The markets have drifted sideways for a few years, so its 12% increase in operating profit is I think pretty good.

Discovery Insure here has had a tremendous evolution; it’s now turned profitable. The growth was absolutely staggering.

So the South African businesses have done well. I do think in difficult times there is a slide in quality, but we are grabbing market share. So it’s not easy out there, we know that, but we are working hard.

NASTASSIA ARENDSE:  What’s your assessment of our current operating environment here in South Africa?

ADRIAN GORE:  I think it’s difficult. Obviously the economy is fairly stagnant, people are battling. We know there is a lot of uncertainty and negativity so these things compound. It’s not a great operating environment. But we have to work hard and build. I think that’s critical.

NASTASSIA ARENDSE:  When you look at the UK business, there were concerns of a Brexit. There are still a bit here and there. How are you reading that market and how have the businesses within the UK performed?

ADRIAN GORE:  Well, the healthcare has performed really well. Its operating profit has nearly doubled. But the Life business is affected. One aspect of Brexit that for us is a lasting issue, especially the operating environment, is lower rates of interest. So long-term rates of interest, which are critical to a life insurer, are at record lows and we’ve had to really re-configure the business to make sure it is highly profitable in that kind of environment. I think the team did a great job. We’re feeling fairly good about where the business is. Its profits did decline in the year by 11%, but now I think it’s fit for purpose for a very low interest-rate environment, and if rates go up, and they should, we should be in a very strong position.

NASTASSIA ARENDSE:  I remember attending your results presentation and I’m quite fascinated by Ping An Health and what you’ve manged to do with it. How did that perform with these results?

ADRIAN GORE:  Ping An Health has been unbelievable. The kind of growth we are seeing there is something that a South African company doesn’t see. Its number of lives has kind of grown by 100s of percent, and this year, the year of the review, new business grew by 80%. So the rate of growth is staggering. At this stage the quality of business being done is superb. Claims levels, persistency levels, are very good. So Ping An Health is probably the star performer in many ways. I think we must have real expectations, it does exhibit rates of growth that are beyond what we’ve ever seen.

NASTASSIA ARENDSE:  In terms of your intention to enter the banking industry, what’s the progress made thus far?

Read: Discovery to enter banking sector

ADRIAN GORE:  We are pretty clear we’d like to be in the market by 2.2 2018. It’s a big endeavour. All work streams are on track, all systems are on track. We are busy in the regulatory process – that does take time. But at the moment we are on track and feeling good about it.

NASTASSIA ARENDSE:  I read in your results segment that you have strong support for the objectives proposed by the NHI. However, some of the people we’ve been speaking to on this show tend to bring out some of the issues around the NHI – a bit of uncertainty. They don’t know where it’s going. Some are worried that it might affect medical schemes. What’s your stance on the NHI at its current form?

ADRIAN GORE:  The NHI and a coordinated healthcare system are crucial. I think that’s clear and we are unequivocal about our support of it. We are supportive of it and we are trying our best to help where we can. I think there is a lot of complexity as to the interaction between medical schemes and the NHI. I think on the one hand there’s a sense that it should replace medical schemes. On the other hand pragmatically there isn’t the money to do so. These are the kind of debates that I think will play out in a pretty heated way over a number of years going forward.

My sense if that it will be difficult and inappropriate to damage private healthcare. I think perhaps sovereign risk, frankly. And I think ultimately we’ll end up with a system that hopefully works well. I still think the challenge is really getting a wealth-funded NHI to work, and hopefully we are part of that narrative and debate.

NASTASSIA ARENDSE:  Elsewhere in your presentation you talked about the technology you’ve had to implement in order to address medical scheme fraud. How big an issue is this for you, especially as Discovery?

ADRIAN GORE:  Medical scheme fraud is – there are many experts as to what its size is. I think we’ve got very, very strong forensic technology data ability that really is doing a pretty good job. It is unfortunately an endless problem with health insurance around the world. When you’ve got small transactions with a third-party player it is a problem. But I don’t believe it is a problem of epic proportions that can’t be solved, and in fact in this year we’ve put through a pretty low rate of increase by historical standards, trying our best to make sure healthcare is affordable.

So most things I think are getting traction, but we have to keep working at it.  We know that people battle with healthcare, so our fundamental mandate is clear to us.

NASTASSIA ARENDSE:  What are your prospects for growth, specifically in South Africa?

ADRIAN GORE:  If I look at the big businesses, Discovery Health and Discovery Life are pretty dominant and successful. I think they can grow. New businesses in South Africa like Discovery Insure I think, and Discovery Invest, which is relatively small in its market share, have tremendous potential.   

There is great potential if we are successful with the bank. I think we hopefully will be; that’s our intent. That obviously opens a whole new wing of potential growth. So I think the market offers great potential for us.

NASTASSIA ARENDSE:  Alright, Adrian, thanks so much for your time.

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