Discovery said on Monday its full-year profits could fall by up to 90%, hit by a R3.3 billion ($191 million) provision to cover the potential impact on claims and policy lapses due to the coronavirus.
It also said it would not pay an annual dividend, with the payouts to be considered when appropriate, sending its shares down 5.5% before recouping some losses.
The company said the hefty provision covered the potential impact on claims and anticipated policy lapses as stretched customers stop paying, while the outlook also covered the impact of long-term interest rates.
It warned its headline earnings per share – the main profit measure in South Africa – for the year to June 30 were expected to be between 70% and 90% lower than the 789 cents reported a year earlier, though it said the final outcome was subject to a high degree of volatility.
“Discovery is confident that the group is strong under high stress scenarios, with sufficient liquidity and solvency to weather uncertain conditions,” it said, adding capital ratios and cash buffers were expected to remain within or above target.
The provision, Discovery said, was intended so that all of the currently expected impact of the novel coronavirus as far ahead as 2022 was carried in this financial year.
Changes to interest rates in South Africa after the government lost its final investment-grade credit rating earlier this year, and historically low interest rates in the United Kingdom where it has a unit, were expected to have a further substantial impact on performance.
Discovery’s profits have been falling in recent years as it ploughed money back into new businesses including a hefty investment in launching a digital bank, which it said now has 177 000 clients and R2.1 billion in retail deposits.
So far, lapses in most of its businesses had been low, it said, while new business annualised premium income was up 4% for the 11 months to May 31.
Read the full Sens announcement here.