Discovery Limited · JSE:DSY
Discovery — FY2023 Earnings Presentation
74 slides from Discovery's earnings presentation, 2023
Slide 1: Audited Results for the year ending 30 June 2023
AUDITED RESULTS For the year ending 30 June 2023
Slide 2: Group results headline metrics
Discovery Health Discovery Insure Discovery Invest Discovery Bank Discovery Life Vitality Health Vitality Life USA Normalised Core new Headline Normalised operating profit business earnings headline earnings +24% +12% +5% +32% to R11 661m to R22 788m to R5 490m to R7 678m Excluding discontinued prod
Slide 3: Growing quality earnings with a robust balance sheet
1 Growing quality earnings with a robust balance sheet +12% New business +24% Operating 64% Cash 20% FLR profit conversion 2 A clear strategy per composite, intensifying focus on key initiatives and ceasing those with 10.6% Investment in New marginal benefits excl discontinued UK 3 Evolving the Vita
Slide 4: Macroeconomic and actuarial environment
Global growth Central bankers remaining cautious Volatile exchange Actuarial dynamics under pressure despite inflation cooling globally rates remain robust Real GDP growth1 CPI inflation rates2 Central bank policy USD/ZAR and GBP/ZAR New business (YoY), rates3 exchange rates claims and lapses AvE 9%
Slide 5: Operating profit and new business by segment
R11 661m R22 788m R4 940m +24% +12% +44% ZARm Operating profit New business1 Non-insurance income Health 3 854 +7% 8 678 +19% 1 201 +10% Life 4 807 +19% 2 838 +12% Invest 1 560 +30% 3 050 +4% Insure 62 +138% 1 249 +0% Bank -767 -23% 1 517 +60% Other SA initiatives -312 +28% 631 -25% Central costs -1
Slide 6: Operating profit, core new business and non-insurance income
Operating profit Core new business API Total income from non-insurance business lines R11 661m R22 788m R4 940m 12,000 New COVID-19 COVID-19 5,000 22,500 10,000 20,000 4,000 17,500 8,000 15,000 3,000 12,500 6,000 10,000 2,000 4,000 7,500 5,000 2,000 1,000 2,500 - - - FY19 FY20 FY21 FY22 FY23 6
Slide 7: Decreased investment in New Initiatives going forward
Decreased investment in New Initiatives Going forward Investment in New Initiatives (%) 10.6% • Discovery Bank due to reach operational break-even in FY24 13.6% incl. discontinued UK initiatives 25% • Africa Health merged into Discovery Health to provide focused health expertise to 20% multinational
Slide 8: 13.2% return on embedded value
Positive variances 13.2% RoEV Operational EV Economic and other Positive non- R98 711m economic experience R98 176m variances (Rm) Health1 703 Economically driven R86 258m Life 521 VitalityHealth 555 VitalityLife 819 Total 2 598 Opening EV Value of new Unwind of risk Non-economic Operational EV Econ
Slide 9: Capital, liquidity and cash conversion
Highly liquid across the FLR within target Strongly capitalised Sufficient liquidity Group Liquid assets across the Group1, Centre liquidity4 , R millions R millions FLR Jun 22 Jun 23 20,000 Cover Cover 3,000 18,000 30% Life 1.7x 1.9x 2,500 16,000 28% 28% 14,000 Insure 1.2x 1.6x 26% 2,000 12,000 24%
Slide 10: Normalised operating profit to headline earnings
12 months 12 months Rm ended ended % Jun 2022 Jun 2023 Normalised profit from operations before economic assumptions 9 384 11 661 +24% adjustments Economic assumptions adjustment DL -651 -2 811 1 Economic assumptions adjustment VL 567 147 Time value of swaption -454 -204 The sharp rise in both nomin
Slide 11: SA yield curves and UK hedging impact on earnings
Significant movements in SA yield curves UK hedging strategy led to lower IFRS 4 impacted Discovery Life earnings earnings volatility in VitalityLife Nominal rate curve Economic assumptions UK 25-year SONIA rate Economic assumptions 16% adjustments (Rm)1 adjustments (Rm)1 14% 12% First hedge Hedges
Slide 12: Dividend declaration and earnings reconciliation
12 months 12 months Rm ended ended % Jun 2022 Jun 2023 Normalised profit from operations before economic assumptions 9 384 11 661 +24% adjustments Economic assumptions adjustment DL -651 -2 811 1 Economic assumptions adjustment VL 567 147 Time value of swaption -454 -204 The sharp rise in both nomin
Slide 13: IFRS 17 impact summary
1 2 3 4 Value is largely IFRS 17 margins Discovery’s Volatility of future unchanged increase by cR15bn earnings are earnings buffered with a concomitant approaching by CSM and the cR12.5bn reduction cross-over use of OCI in shareholder equity 13
Slide 14: IFRS 17 impact by business
Main businesses Impact resulting from IFRS 17 1 No change in underlying value nor underlying economics Health Not applicable • No direct change to cash flows, Life (Individual) Significant underlying risk and reward of contracts. Tax cash flow impact expected to be Life (Group) Minimal immaterial In
Slide 15: Three conceptual value drivers under IFRS 17
Three conceptual value drivers Total value the same but reallocated 1 1 BEL is similar in nature and size to Risk adjustment NEFCF (RA) PV Compulsory future margin Margins profits 2 Total value the same Contractual meaning that value Discretionary service margin Net margin shifts between equity Best
Slide 16: IFRS 4 versus IFRS 17 changes
Concentrated in long-term whole of life business Change in expense recognition and recognising with large upfront acquisition costs onerous contracts Vitality Discovery 1 IFRS 4 Under Discovery’s application IFRS 17 IFRS 17 is much more specific on Life Life of IFRS 4 all acquisition what is non-dir
Slide 17: Margin and equity illustration
Simplified illustration Layering on new business Run-off of an individual cohort Discovery’s life businesses on Earnings Margin transition from IFRS 4 to IFRS 17: Margin balance Annual profit 2 IFRS 17 1 Shareholder equity always IFRS 17 decreases IFRS 4 2 Margins always increase 3 𝑩 3 Annual…
Slide 18: Discovery Life margin and equity change
Drivers of the margin and equity change Group is approaching cross-over Deferred tax EFCF diff IFRS 4 RA margins R10bn CSM Non-attributable Onerous: Annual profit R34bn expenses: R3.5bn IFRS 17 Discovery Life R6.5bn R4.5bn pre- Vitality Life IFRS R9.0bn pre-tax tax equity R53.5bn Other: R1.0bn IFRS
Slide 19: On transition to IFRS 17
On transition to IFRS 17: The value stays largely the same IFRS 17 margins will increase by cR15bn (gross of tax) and shareholder equity will reduce by a concomitant cR12.5bn (net of tax) Overall, on transition to IFRS 17, Discovery is approaching the cross-over point, at which point earnings will b
Slide 20: Focus areas and FY23 outcomes
Focus areas and FY23 outcomes 503m (+15%) >3m (>2m) R13.7bn (+20%) 41m (+2%) 1 Making people healthier Healthy activities recorded1 Life years saved2 Shared-value dividend3 Lives impacted Lowest 18.5% Discovery Green 2 Restoring the climate and environment Carbon emitter4,5 Lower carbon emissions5 R
Slide 21: Advancing the shared value model
CLAIMS AND EXITS UNDERWRITING PREMIUMS Acquistion iad Befecnalicea tated Sales and Underwriting Assessment _ ia Berenvon Advancing the shared value model
Slide 22: Shared-value model key variables
Provides opportunity to impact 1 2 3 the following key variables: CLAIMS AND UNDERWRITING PREMIUMS EXITS Product competitiveness and the rate of sales Acquisition and Underwriting Dynamic Risk Assessment Personalised Engagement Dynamic Pricing Sales and Retention 𝑞𝑥 The rate of mortality Life…
Slide 23: Traditional vs shared-value life insurance models
Traditional life insurance models Acquisition, underwriting and Claims pricing Shared-value life insurance models Acquisition, Dynamic risk Engagement and Dynamic Pricing Claims underwriting assessment behaviour change 1 2 Digital Data Personalised Risk Actuarial, Hyper- Next Best Ingestion and Algo
Slide 24: Shared-value model in health
Shared-value model in health Acquisition, Dynamic Risk Engagement and Value based care Claims and retention underwriting Assessment behaviour change Health USA Africa Health Insurance Joint venture developing a data science platform with AI- driven personalised health recommendations 24
Slide 25: Newly diagnosed Type 2 diabetic member example
Newly diagnosed Type 2 diabetic, female, age 50, no other co-morbidities Up to 40 actions for this member Walk Walk 10 00 Increase in physical 10 000 steps steps activity reduces healthcare costs by R4 200 p.a. 6 Moves Visit your Regular pathology testing doctor (HBa1C and Lipogram) reduces costs by
Slide 26: The three market-specific strategies
The three market-specific strategies
Slide 27: Perfect composite model strategies
Perfect composite model, #1 in our chosen segments in every industry, and the Bank pivoting to growth as the composite-maker within SA • Scaling the Bank to profit and positioning it as the face of the composite • Ensuring each business is market leader in terms of market share, margin, product and
Slide 28: Discovery Bank
Discovery Health Discovery Life Discovery Invest Discovery Insure Discovery Bank 28
Slide 29: Discovery Bank results
Total Total clients accounts Net income Retail deposits Advances Operating result +49% +59% +67% +36% +22% -R767m to >700k to 1.6m to R1.2bn to R14.3bn to R5.2bn Rm 2019 2020 2021 2022 2023 0 -200 -400 -600 -800 -1,000 -1,200 -1,400 May-20 Jan-22 Jul-19 May-20 Oct-20 Nov-22 Dec-19 Jul-19 Oct-20 Dec-
Slide 30: Discovery Bank client growth and engagement
Accelerating growth in Increasing engagement Rapid growth in revenue High NIR compared to client base over time the market Average sales per work day NIR by duration NII and NIR per month NIR per customer 1,200 200 140 180 177 120 1,000 160 55% 1,963 1,842 100 CAGR 140 800 1,528 120 1,398 80 1,262 6
Slide 31: Credit quality and home loans
Stable credit losses R250bn in home loan Expanding credit Superior credit quality despite rate hikes balances offerings Volume distribution Credit loss ratio2 Discovery Bank clients’ of existing accounts1 advances as at Aug 23 (Rbn) Discovery Bank Big 4 Q4 9% Subprime 23 2023 8% Near prime 48 Staff
Slide 32: Bank expense efficiencies and breakeven
Expense efficiencies realised as Operating leverage as more Reaching breakeven earlier than the Bank continues to scale products are added expected Fixed and variable costs over time Expenses and income per customer Profit before new business acquisition costs 120 Access Home facilities loans 100 80
Slide 33: Discovery portfolio and banking products
Banking Discovery New lending portfolio Portfolio products Discovery portfolio is linked directly to Vitality Health, Vitality Drive and Vitality Money behavioural platforms Banking portfolio underpinned by Rewards monetised in Discovery Miles Shared digital payments Value currency capabilities Inte
Slide 34: Discovery Health
Discovery Health Discovery Life Discovery Invest Discovery Insure Discovery Bank 34
Slide 35: Discovery Health results
Operating profit New business Membership Non-scheme growth +7% +19% >3.8m >321k to R3 854m to R8 678m Lives under Lives administration R1.5bn Revenue Mar-22 Jun-18 Dec-20 Sep-19 Feb-20 May-21 Oct-21 Aug-22 Jan-23 Jun-23 Jan-18 Nov-18 Apr-19 Jul-20 2003 2001 2005 2009 2011 2021 2007 2023 1997 2015 20
Slide 36: Membership, satisfaction, lapses and solvency
Membership Customer satisfaction Lapses Solvency Less members are changing their Gross activations vs withdrawing 57.8% market share plans: lives over the last 24 months, with R26.9bn unaudited reserves lapses remaining stable: 4% 97% 30.2% unaudited solvency No plan changes AAA credit rating 3% ~30
Slide 37: NHI position and Section 33
Status quo is unsustainable, universal healthcare is crucial and NHI a remedy Discovery’s position: NHI is not workable without private sector collaboration A change to Section 33 is required to enable private sector collaboration “33. Once National Health Insurance has been fully implemented as det
Slide 38: Private sector scale and value
The private sector has significant scale And is delivering exceptional value for members Outstanding Meeting the highest While remaining cost comprehensive cover, international standards effective in a challenging with excellent outcomes environment Cost of cover (PPP adjusted) >96% Readmission rate
Slide 39: Funding NHI through tax increases
However, funding the additional required spend through tax increases on a small base is not sustainable 31% increase in personal income tax or; R200bn 6.5% increase in VAT (from 15% to 21.5%) or; Additional funding required per annum, as indicated by the National Department of Health 10x increase in
Slide 40: Healthcare funding per person under NHI
For the population using the public sector For the medical scheme population Healthcare funding available per person remains insubstantial: Significant reduction in healthcare funding: 2500 2500 R2 346ppm – 71% 2000 2000 1500 1500 1000 1000 R684ppm R684ppm 500 R425ppm 500 0 0 Current funding for unc
Slide 41: Countries with private healthcare insurance
Countries without a private Countries with a private healthcare insurance market healthcare insurance market 169 countries 17 countries Algeria Central African Republic Gambia Lebanon Oman South Sudan Afghanistan Andorra Chad Georgia Liberia Pakistan Spain Angola Chile Germany Lithuania Palau Sri La
Slide 42: NHI position and Section 33
Status quo is unsustainable, universal healthcare is crucial and NHI a remedy Discovery’s position: NHI is not workable without private sector collaboration A change to Section 33 is required to enable private sector collaboration “33. Once National Health Insurance has been fully implemented as det
Slide 43: Discovery Life
Discovery Health Discovery Life Discovery Invest Discovery Insure Discovery Bank 43
Slide 44: Discovery Life results
Normalised Strong capital Maintained leading Strong cashflow operating profit New business and liquidity market share position generation +19% +12% Quarter ending Life and Invest cash flow June 2023 > 30% of net of tax SCR Liquidity normalised earnings coverage coverage 30.2% to R4 807m to R2 838m R
Slide 45: Discovery Life embedded value and VNB margin
VNB margin impacted by Positive operating variances Strong EV growth yield movements Improvements in mortality & morbidity experience vs H1 Discovery Life Ltd variances (Rm) +8.1% RoEV VNB margin (%) +11% 5.7% R42 609m +7% IRR above R41 145m 120% R1 064m R38 433m 7% 6.34% RFR Non- 6% 100% Economic e
Slide 46: Discovery Invest
Discovery Health Discovery Life Discovery Invest Discovery Insure Discovery Bank 46
Slide 47: Discovery Invest results
Normalised Assets under Positive dynamics from operating profit New business administration Shared-value model +30% +4% +15% Withdrawal rates by boost (relative to no boost)1 to R1 560m to R3 050m to R140bn (R153bn including Umbrella Funds) 62% +14% excl. 160 100% once-offs 90% lower 140 80% 120 70%
Slide 48: Discovery Insure
Discovery Health Discovery Life Discovery Invest Discovery Insure Discovery Bank 48
Slide 49: Discovery Insure results
Normalised Gross written premium Gross new business Vehicles insured operating profit +10% +0% -2% +138% to R5.3bn to R1 249m to 289 963 to R62m 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 49
Slide 50: Insure loss ratio and margin recovery
Recovered from COVID Improvement in loss Model leading to Margin continues to under-pricing ratio positive dynamics recover Average cost vs premium Total loss ratio (rebased) Loss ratio by status Operating profit margin (rebased) (relative to blue) 8% 6% COVID MTIs Post- 130 Pre-COVID COVID MTIs 100
Slide 51: Vitality Life and Vitality Health
Vitality Health Vitality Life 51
Slide 52: UK Composite results
UK Composite Normalised Financial strength operating profit Earned premiums Lives covered New business and brand +14% +11% +11% +19% Insurer Financial Strength Rating of 'A’ Fitch ratings to £83.4m to £989.2m to 1.72m lives to £176m UK financially self sufficient, no further funding needed from Disc
Slide 53: VitalityHealth results
VitalityHealth Normalised operating profit Earned premiums Lives covered New business -9% +11% +13% +12% to £59.9m to £623.6m to 959k lives to £96.3m GBP millions GBP millions GBP millions 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 53
Slide 54: A changing UK healthcare landscape
A changing healthcare landscape Challenges in accessing Increased demand for Increased utilisation Pressures in the NHS1 care and treatment health insurance post-COVID Lack of capital investment NHS waiting lists at their highest People covered by health 27% increase in The UK’s long-standing minima
Slide 55: Vitality transforming the role of health insurance
Vitality is transforming the role of health insurance Moving from a supplementary product to holistic cover Driving significant growth Prioritising prevention Expansive Primary Care Proven track record of The first insurer to offer Vitality has grown at a 4x faster through the Vitality and the first
Slide 56: VitalityLife results
VitalityLife Normalised operating profit Earned premiums Lives covered New business +47% +10% +9% +30% to £48.5m to £365.6m to 765k lives to £80.3m GBP millions GBP millions GBP millions 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 56
Slide 57: VitalityLife new business growth and market share
Outstanding new business growth supported by positive experience variances Outstanding growth in challenging market conditions Positive lapse experience amid cost-of-living crisis Annual sales growth (all channels) Annualised lapse rate VitalityLife 32% Market (excl. VL) 5% 100 VitalityLife Market S
Slide 58: Offsetting impacts from rise in interest rates
Offsetting impacts from rise in interest rates Interest rates have VNB margin materially impacted High inflation driving in-force increased by interest rates premium increases UK 25-year SONIA rate VNB margin (%) Total in-force index-linked premiums First hedge Hedges Hedge 4% 115 +13.7% 15% Annual
Slide 59: USA
USA 59
Slide 60: Vitality Global
Vitality Global Vitality Global Operating result Vitality Vitality Health +49% +74% Network International to $44m to R777m Vitality Health International Vitality Network USA HEALTH Strong underlying growth, driven by deepened partner relationships, broadening the reach of FY19 FY20 FY21 FY22 FY23 Vi
Slide 61: Vitality Network
Vitality Network Integrated API by Insurance partners insurance partners Revenue Operating profit membership -1% +16% +3% +20% +8% +26% +23% to $1.4bn* to R25.2bn to $69.5m to R1.2bn to $23.1m to R411m to 3.7m FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21
Slide 62: Shared-Value insurance with partner in 4th largest life market
Shared-Value insurance supporting positive outcomes for our partner in the 4th largest life insurance market globally Strong book growth driven by High level of sustained Positive actuarial dynamics driven by increasing distribution force engagement Shared Value model $1.3bn Vitality ANP Relative mo
Slide 63: Shared-Value insurance with partner in largest life market
Shared-Value insurance supporting positive outcomes for our partner in the largest life insurance market globally Sales uplift Election rate Healthy Outcomes Annual Vitality Plus Sales Improved Vitality PLUS election rates Compared to the prior year, members reported the following on their Vitality
Slide 64: Key strategic focus areas
Key strategic focus areas Vitality Vitality Health Network International Revenue growth through deepening of 1 existing insurance partnerships and starting to participate in emerging profits Targeted pursuit of new insurance 2 partnerships, with a focus on expanding in the US USA Unlock geared profi
Slide 65: Vitality Health International
VHI leverages the success of the mature PAHI to invest into high potential health markets Vitality Health International Revenue Operating result VHI excluding PAHI Including PAHI equity earnings Year of launch or investment by VG +64% +137% +177% VHI – PAHI 2009 *section follows on slide to $55.5m t
Slide 66: VHI growth in healthtech and insurance ventures
VHI | Growth in high potential healthtech & insurance ventures PAHI remains resilient and is supported by strong business fundamentals including a strong balance sheet with a comprehensive solvency ratio of 267% 28m lives and 45% growth in operating profit Digital health solutions have been establis
Slide 67: Product footprint
Product footprint 5 major products Broad footprint Chronic disease Pipeline: Committed: • FWA management (CDM) • Private Medical • OCR Insurance (PMI) • Provider Validates health risks and diagnosis, supports product builder self-management, and incentivises behaviour Management • Provider modificat
Slide 68: PAHI operating results
PAHI’s operating Discovery’s operating PAHI licence New results pre-tax result after tax Written premium1 business1 +31% +39% +63% +76% +2% +11% -9% -1% to RMB1.3bn to R3.4bn to RMB234m to R596m to RMB19.6bn to R50.1bn to RMB3.4bn to R8.7bn (RMB328m DSY’s (R849m DSY’s share) share) +22% PAHI licence
Slide 69: PAHI pivot to health and wellness model
Successful pivot to a Robust core capabilities positively Superior profit Growth in net asset health & wellness model impacting performance margins value Combined ratio1 Persistency1 2022 profit margin2 Net asset value (RMBm)3 Assessments, reports, and 95% 100% 83% 84% 8 000 actionable 91% 92% 89% 7
Slide 70: PAHI new business and channels
Low economic growth, decrease in PAL agents, and New products and Initial new business COVID-19 impacted new business in last 2 years growing channels slump recovered Significant decrease in Red door sales impacted New products launched YTD cumulative new number of PAL agents by COVID-19 in 2023 bus
Slide 71: China middle class, ageing and healthcare insurance
Middle class & affluent Percentage older than Healthcare insurance to increase 80m by 2030 65 to double by 2050 increasingly important Strong policy support Population by income Population by age band2 (m) Healthcare expenditure Policy commitment to public provision of healthcare and Social Health b
Slide 72: Perfect composite model strategies
Perfect composite model, #1 in our chosen segments in every industry, and the Bank pivoting to growth as the composite-maker within SA • Scaling the Bank to profit and positioning it as the face of the composite • Ensuring each business is market leader in terms of market share, margin, product and
Slide 73: Growing quality earnings with a robust balance sheet
1 Growing quality earnings with a robust balance sheet +12% New business +24% Operating 64% Cash 20% FLR profit conversion 2 A clear strategy per composite, intensifying focus on key initiatives and ceasing those with 10.6% Investment in New marginal benefits excl discontinued UK 3 Evolving the Vita
Slide 74: Discovery Group
Discovery Group Copyright 2023 Discovery Limited is the licensed controlling company of the designated Discovery Insurance Group. Registration number: 1999/007789/06. Companies in the Group are licensed insurers and authorised financial services providers. 1 Discovery Place, Sandton, 2196 | www.disc