Discovery reveals the impact of Covid-19


Discovery reveals the impact of Covid-19

Published Date: 2020-09-17 | Source: Stephen Gunnion | Author: Stephen Gunnion

Discovery reveals the impact of Covid-19

The financial services group has held back on a dividend and says payments will only resume when appropriate.

Discovery Holdings has reported a slump in full-year earnings after making provisions for Covid-19 claims and policy lapses and due to volatility in long-term interest rates. However, it says its underlying operating performance was resilient as it grew core new business.

The health insurer and financial services group created a R3.4 billion reserve to cover provisions for the expected impact of Covid-19 through to the end of next year. This had a R2.3 billion impact on full-year profit. As it managed the implications and economic uncertainty caused by the pandemic, there were also significant movements in interest rates during the period, affecting policy values of Discovery Life in SA and VitalityLife in the UK. However, while they had a R4.8 billion pre-tax impact on headline earnings, Discovery said the interest rate movements had no bearing on its operating performance, including cash flows, solvency or capital in SA; and little impact in the UK since the implementation of a hedge strategy in VitalityLife.

Despite the effects of Covid-19 and volatile interest rates, normalised operating profit increased by 9% to R8.41 billion - before the provision for Covid-19-related impacts - and decreased to R6.07 billion after the provision. Core new business rose 5% to R19.2 billion. Including the economic assumption changes due to long-term interest rates, headline earnings per share (HEPS) fell 94% to 45c and earnings per share declined by 99% to 14.8c. Normalised HEPS were down 26% at 507.7c. It hasn't declared a dividend due to the uncertain and potentially volatile economic environment and said it would consider the reintroduction of dividends when appropriate.

Discovery said it had opened more than 489,000 bank accounts at Discovery Bank during its first year of operation. All migrations onto the platform had been completed and by 13 September it had taken deposits of R3.7 billion, enabling the bank to fully fund its credit book with deposits.

Discovery's shares fell 3.8% to R129.80 yesterday.

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