Market volatility mars Discovery’s performance


Market volatility mars Discovery’s performance


Published Date: 2021-02-26 | Source: Stephen Gunnion | Author: Stephen Gunnion

Market volatility mars Discovery’s performance

The financial services group says it was affected by a stronger rand and higher interest rates as it raised Covid-19 provisions.

Discovery Holdings says its operational performance in the first six months of its financial year was solid. However, it has still reported a decline in earnings as a result of the negative impact of a stronger rand and higher interest rates.

The financial services group, which operates insurance and health insurance businesses, as well as Discovery Bank, takes currency hedges to make its offshore expansion more predictable. However, it said these could lead to short-term volatility, which they did, after the rand strengthened against the dollar towards the end of last year, resulting in a fair value loss of R207 million. It said the continued increase in real interest rates from the prior reporting period reduced the value of assets under insurance contracts by R493 million. However, it said this was excluded from its normalised earnings numbers.

Total new business API (annual premium income) increased by R582 million while total new business was up 8% to R10.9 billion. Normalised profit from operations increased by 19% to R4.51 billion and normalised headline earnings came in 1% lower at R2.28 billion. However, profit for the period fell 10% to R1.88 billion and headline earnings per share were down by the same margin at 280.3c. It hasn't declared an interim dividend due to the uncertain and potentially volatile economic environment caused by Covid-19.

The group said Discovery Life had provided an additional R153 million to cover potential claims on top of the Covid-19 provisions of R3.4 billion the group made at the end of its last financial year for the future effects of claims and lapses across its operations in SA and the UK. While the utilisation of the provisions was relatively low at the end of December, it said the second wave of the pandemic was likely to have a more significant impact on its target market than the first wave.

Discovery's shares fell 3.4% to R141 yesterday.


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