Discovery quits US retail market

Health insurer Discovery's US firm Destiny Health is to leave the American retail insurance market over the next few weeks and axe staff after losing R1,1bn in six years, CEO Adrian Gore said on Tuesday.

This came as SA's biggest short-term insurer, Santam, said yesterday it had quit its European operations after the units incurred R168m in losses, also over six years. Discovery took the decision to quit the US retail insurance market because Destiny was paying a much higher price for the healthcare of its members than its competitors.

However, Gore said the company would continue to market its Vitality product to employer groups and health plans on a standalone basis.

“The shift to focusing on wellness and the uniqueness of the Vitality approach has meant that Discovery will continue to offer the Vitality programme in the US, but will do so on a standalone basis, by wrapping it around other health plans and employer groups,” he said.

Destiny would transfer its insured block of business to an unnamed health insurance carrier, which would start operating it in April.

“The new carrier will assume operating the Destiny Health business from April 1 and, as policies reach their renewal date, they will be transferred to an appropriate replacement health plan,” Gore said.

“Destiny Health will continue to carry the risk of these members until the transfer has taken place. The approach is a favourable one for all stakeholders, protecting members and freeing Destiny up to pursue other strategies.”

The company's 90 US staff would be reduced significantly, with Destiny estimating a provisional cost of $25m to $30m to “run off” the business over the next 18 months

Discovery yesterday reported a 14% rise in diluted headline earnings per share of 74,9c for the half-year to December. The company's share price surged 7,74% to R25,75 in heavy trade on the JSE yesterday as analysts described Discovery's plan to run down the US business as a good move.

The company said net income rose to R541m, or 98,4c share, from R403m, or 72,1c, a year earlier

Discovery had boosted health and life policy sales in Britain through a joint venture with Prudential, the UK's largest insurer by market value.

Operating profit at its life unit rose 46% to R479m in the first half, overtaking the health-administration business for the first time. New life sales rose 31% to R627m.

Discovery Health, the administration business, had a 4% increase in the number of lives under management to 2,05-million. It cut costs by signing agreements with doctors, clinics and hospitals to charge lower fees to its members, helping to boost operating profit 14% to R389m.

Discovery's investment business, Discovery Invest, which was launched during the year, exceeded expectations.

“The strategy behind Discovery Invest is to harness the significant sophistication of the investment markets — as evidenced by the breadth and skill of the asset management industry — while adding value from an insurance-structural product perspective,” Gore said.

None of Discovery's businesses will require extra cash to fund growth.

Source: Business Day

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