Post on 08-Feb-2020
Unaudited interim results and cash dividend declaration
for the six months ended 31 December 2010
Adrian Gore, Chief Executive Officer
2
Strategic imperatives
In South Africa, focus on quality, scale and
innovation1
Bring about a step-change internationally to
provide scale, profitability and relevance2
Incubation. Continue to build and roll out
businesses based on our unique chassis3
3
25% 75%
Discovery corporate profile
100% 100% 100% 75% 75% 20%
Humana
Vitality
4
Observations during the period
Robust financial performance, with strong new business growth off
a high base, and an excellent operating result from both the local
and international businesses. The accounting has been complicated
by the acquisition of Standard Life Healthcare, which necessitated
the need for the determination of “normalised” earnings.
1
5
Overview of performance:
South African operations
Strong growth off a high base; New business +15%; Normalised operating earnings +28%;
Embedded Value +15%; Positive experience variances
New business +10%; Over 2.5m covered lives; Operating profit +12%; Total scheme lapse
rate of 2.85%; Net buy-downs 2%; Further integration into the healthcare system
Operating profit +14%; Core risk new business (excl ACIs) +9%; Focus on maximising RoC of
new business; Lapse improvement to below current EV assumption; Strong mortality results
AuM exceeding R14bn; Operating profit +283%; Excellent fund mix, margin and performance;
Launch of new-generation Annuity and LISP offerings
Focus on engagement and quality; Membership exceeding 1.5m; Gym take-up +20%;
HealthyFood™ spend +35%; Significant benefits for Discovery Health and Life
Growth in market share to 8%; Advances portfolio of R2bn; Excellent credit experience;
Launch of high-end Purple Card
6
Overview of performance:
International operations
Strong growth in new business driven by IFA channels; Reduction in operating losses; Product
awards
Regulatory approval obtained for transaction; Team relocated to China; Commenced
operationalisation of the business plan; New product planned for Q3 2011
Strong growth in membership and engagement; Transaction with Humana concluded
Acceleration of UK PMI strategy through acquisition; Progress on loss ratio, lapse rate and
expense roadmaps; Benefits of enhanced scale; SLH delivering better than expected
7
Performance for the 6 months ended 31 December 2010:
New business API
New business
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Annualised new business 3,747 3,246 15%
8
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2005 2006 2007 2008 2009 2010
Rm
New business API
New business API:
Discovery Group
Note: Excludes Destiny in prior years
13%
12%
28%
16%
15%
9
Performance for the 6 months ended 31 December 2010:
New business API
New business
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Annualised new business 3,747 3,246 15%
Discovery Health 1,974 1,787 10%
10
New business API:
Discovery Health
0
500
1,000
1,500
2,000
2005 2006 2007 2008 2009 2010
Rm
New business API (adjusting for in-house scheme growth)
Open scheme In-house schemes acquired during the 6-month period
2% 3%15%
23%
10%
9%
17%
11
Performance for the 6 months ended 31 December 2010:
New business API
New business
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Annualised new business 3,747 3,246 15%
Discovery Health 1,974 1,787 10%
Discovery Life 832 782 6%
12
New business API:
Discovery Life Risk new business (excluding ACIs)
16%
9%
24%
3%9%
Note: Includes Individual servicing increases, but excludes ACIs
-
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010
Rm
Core risk new business API
13
New business (indexed), excluding
Guaranteed Bonds335 262 28%
Single Premium (not indexed) 1,612 1,375 17%
Recurring premium 174 124 40%
Guaranteed Bonds (not indexed) 624 720 (13%)
Performance for the 6 months ended 31 December 2010:
New business API
New business
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Annualised new business 3,747 3,246 15%
Discovery Health 1,974 1,787 10%
Discovery Life 832 782 6%
Discovery Invest 397 334 19%
14
Performance for the 6 months ended 31 December 2010:
New business API
New business
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Annualised new business 3,747 3,246 15%
Discovery Health 1,974 1,787 10%
Discovery Life 832 782 6%
Discovery Invest 397 334 19%
Discovery Vitality 87 78 12%
PruProtect 144 100 44%
PruHealth 313 165 90%
Former PruHealth 223 165 35%
Former Standard Life Health 90 0 n/a
15
Profit
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Discovery Health 619 555 12
Performance for the 6 months ended 31 December 2010:
Profit from operations
Development and other segments (95) (87) (9)
Normalised profit from operations 1,332 1,044 28
Discovery Invest 44 (24) >100
PruHealth 35 (53) 166
PruProtect (40) (39) (3)
Discovery Life 768 675 14
Discovery Vitality 1 17 (94)
Profit from existing operations 1,427 1,131 26
100% in 2010,
versus
50% in 2009
16
Accounting transaction flow for the Standard Life
Healthcare acquisition
75% 25%
Standard Life
Healthcare
50% 50%
100%
Step 3:
Purchase by Discovery of 75%
of the joint venture with cash
and through the contribution of
Standard Life Healthcare to
PruHealth
Step 2:
Disposal by Discovery of its
50% shareholding in the joint
venture to Prudential
Step 1:
50:50 joint venture with
Prudential Plc
Profit on acquisition reflects the revaluation of PruHealth’s long-term value, as well as
valuing the sustained use of Prudential’s brand and life fund
17
Impact of accounting for acquisition of
Standard Life Healthcare on financial results
Profit on buy-up
Reinsurance recapture
R667m gain
R312m charge to income
18
Restructure of PruHealth’s reinsurance funding
Repayment of high-yielding liabilities with low-yielding cash; Present value difference of
£5 - 6m
Standard Life
Healthcare
Free Assets = £29m
Tangible Net Asset
Value = £81m
0.5%
Interest rate
12%
Interest rate
£28m
reinsurance
19
Impact of accounting for acquisition of
Standard Life Healthcare on financial results
Profit on buy-up
Reinsurance recapture
Amortisation of intangibles
Transaction costs
Amortisation of intangible assets R44m
Write-off of acquired software of R95m
Once-off transaction costs of R58m
R667m gain
R312m charge to income
R667m
(R312m)
(R44m)
(R95m)
(R58m)
R158m
20
Performance for the 6 months ended 31 December 2010:
Profit from operations
Profit
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Discovery Health 619 555 12
Discovery Life 768 675 14
Discovery Invest 44 (24) >100
Discovery Vitality 1 17 (94)
PruHealth 35 (53) 166
PruProtect (40) (39) (3)
Profit from existing operations 1,427 1,131 26
Development and other segments (95) (87) (9)
Normalised profit from operations 1,332 1,044 28
Net impact of Standard Life Healthcare acquisition
(before tax and minorities)158 -
Investment income attributable to equity holders 76 54 41
Net realised gains on available-for-sale financial assets 192 86 123
Finance costs and foreign exchange loss (60) (11) (445)
Profit before tax 1,698 1,173 45
21
Impact of accounting for acquisition of
Standard Life Healthcare on financial results
Profit on buy-up
Reinsurance recapture
Amortisation of intangibles
Transaction costs
R667m
(R312m)
(R44m)
(R95m)
(R58m)
R158m
R667m
(R234m)
(R24m)
(R51m)
(R47m)
R311m
100%75%, net
of tax
Headline
earnings
Normalised
headline
earnings
Excluded Included+71% -16% +25%
22
Performance for the 6 months ended 31 December 2010:
Profit from operations
Profit
Rm
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Discovery Health 619 555 12
Discovery Life 768 675 14
Discovery Invest 44 (24) >100
Discovery Vitality 1 17 (94)
PruHealth 35 (53) 166
PruProtect (40) (39) (3)
Profit from existing operations 1,427 1,131 26
Development and other segments (95) (87) (9)
Normalised profit from operations 1,332 1,044 28
Net impact of Standard Life Healthcare acquisition
(before tax and minorities)158 -
Investment income attributable to equity holders 76 54 41
Net realised gains on available-for-sale financial assets 192 86 123
Finance costs and foreign exchange loss (60) (11) (445)
Profit before tax 1,698 1,173 45
Headline earnings 636 755 (16)
Normalised headline earnings 941 755 25
23
Financial overview:
Gross inflows and normalised operating profit
-
200
400
600
800
1,000
1,200
1,400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Rm
Normalised operating profit*
* Excludes investment income and the effects of the Standard Life Healthcare acquisition
36%
15%
21%
47%
28%
17%
8%
134%
23%
-
5,000
10,000
15,000
20,000
25,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Rm
Gross inflows under management (December)
16%
14%
24%
18%
27%
20%
36%
39%
21%
29% compound annual growth in diluted HEPS since 2000
24
Financial overview:
Embedded Value
-
5,000
10,000
15,000
20,000
25,000
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Rm
Group Embedded Value
27%
20%
33%
2%
15%
-
5
10
15
20
25
30
35
40
45
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Ran
d
Diluted Embedded Value per share
25%
29%
20%
3%
15%
Diluted Embedded Value per share of R42.99
25
Observations during the period
Intense focus on innovation to drive quality, differentiation and
profitability across the Group
2
26
Innovation over the past 6 months
SupplementaryCancer Protector
Acute Hospital
HomeHome based
care
Sub-acute unit
Care coordinator
•Discovery Nurse
•Ongoing follow up
27
Discovery Health performed exceptionally well, with new business
growing strongly by 10% off a high base, and the continued
investment in the healthcare system providing members with
enhanced access to affordable, high-quality differentiated care
3
28
Key metrics: Discovery Health
1. Membership as at 17 February 2011: 2,502,145
2. These results still have to be audited and approved by the Board of Trustees
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
New business R1,974 R1,787 10%
Operating profit R619m R555m 12%
Lives under administration 1 2,446,708 2,174,088 13%
Average scheme lapse rate 2.85% 2.86%
DHMS reserves 2 >R6.8bn R6.1bn
29
Key strategies
Achieve profitable and sustainable growth by building, and facilitating
access to, a better healthcare system for our members1
Use Discovery Health’s scale to expand our reach into the healthcare
system and become a greater custodian of care for our members2
Engage key stakeholders in the emerging regulatory environment, and
use our expertise and assets to contribute to the successful
implementation of the NHI reforms3
30
Discovery Health’s integrated model
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and
actuarial risk
adjustment tools
• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benefit
management
• Disease
management 1.3m claims per
month
>88% Specialist
visits in DPA
>85% GP network
penetration
Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit construct
KeyCare network
hospitals
Administration and operations management
31
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and actuarial risk
adjustment tools• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benef it
management
• Disease
management 1.3m claims per
month
>85% Specialist
visits in DPA
>80% GP network
penetration
33 Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit Construct
115 KeyCare
network hospitals
Administration and operations management
Discovery Health’s integrated model:
1. Membership
RetentionSustainabilityGrowth
4%
94%
2%
DHMS plan movements: 2011 enrolment
Upgrade No change Downgrade0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Dec-08 Dec-09 Dec-10
Annualised lapse rates (DHMS and in-house schemes)
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
DHMS + in-house scheme membership (000)
32
Discovery Health’s integrated model:
2. Evolution of the Discovery Health model
Medical Savings Account
Patient interfaces with the healthcare
system, but experiences gaps
1994-1997: MSA and Vitality
2005-2010: Development of networks to
close gaps, and tariff structures to enhance
sustainability
Reimbursement
arrangements;
Delta;
KeyCare
Payment
Arrangements
Supplier
negotiation;
Chronic;
Formulary
2011: Co-ordination of care in the systemAcute Hospital
HomeHome based
care
Sub-acute unit
Care coordinator
•Discovery Nurse
•Ongoing follow up
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and actuarial risk
adjustment tools• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benef it
management
• Disease
management 1.3m claims per
month
>85% Specialist
visits in DPA
>80% GP network
penetration
33 Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit Construct
115 KeyCare
network hospitals
Administration and operations management
33
Co-ordination of care
“Inside-out”
Discovery Health’s integrated model:
2. Risk management
Co-ordination of care
“Outside-in”
Healthy Sick
Claims cost
Fre
qu
en
cy o
f cla
imDistribution of claims by cost of claim
12
1 2
Acute Hospital
HomeHome based
care
Sub-acute unit
Care coordinator
•Discovery Nurse
•Ongoing follow up
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and actuarial risk
adjustment tools• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benef it
management
• Disease
management 1.3m claims per
month
>85% Specialist
visits in DPA
>80% GP network
penetration
33 Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit Construct
115 KeyCare
network hospitals
Administration and operations management
Data and proprietary risk management tools
34
Discovery Health’s integrated model:
2. Co-ordination of care “Outside-in”
Acute Hospital
Home Home based care
Sub-acute unit
Care
coordinator•Discovery Nurse
•Ongoing follow up
38% relative reduction in
claims costs
Patient :• 41 years old
• Haemophylliac
• Knee replacement 2010
• 20 day hospitalisation at R600 000 per day
Pilot study results: Heart failure
R 0
R 10,000
R 20,000
R 30,000
R 40,000
R 50,000
R 60,000
R 70,000
R 80,000
Pilot program DHMS
Average cost 2008 Average cost 2009
R16.5m cost
Team comprises nurses,
GP’s, Care Coordinator,
Discovery Health Doctor,
Occupational therapist,
Physiotherapist, Speech
therapist, Psychologist,
Social worker
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and actuarial risk
adjustment tools• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benef it
management
• Disease
management 1.3m claims per
month
>85% Specialist
visits in DPA
>80% GP network
penetration
33 Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit Construct
115 KeyCare
network hospitals
Administration and operations management
Evidence-based outcomesCo-ordinated care modelCase study: complex cases
35
Discovery Health’s integrated model:
2. Risk management, network impact
Medical cost before entering the Discovery Health system
Pricing advantage Premium advantage
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Medical Scheme premium increases, including the estimated impact of benefit reductions
Industry average
Insuredbenefits
Medical
Savings
Account
• Clinical coding
and classification
• Clinical and actuarial risk
adjustment tools• Health
economics
• InFormaTM
• Hospital utilisation
management
• Pharmacy benef it
management
• Disease
management 1.3m claims per
month
>85% Specialist
visits in DPA
>80% GP network
penetration
33 Delta network
hospitals
Favourable tariffs
and risk sharing
Provider assetsRisk managementBenefit Construct
115 KeyCare
network hospitals
Administration and operations management
7.2%
3.1%
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
Risk management initiatives
5-year impact of making members healthier
CPI
CPI
+3%
36
Regulation
• Formal white paper expected soon
• Discovery expects reform proposals to be sensible and incremental, drawing on public
private partnerships
• Discovery: supports the reform’s aims, committed to assisting NHI with its world class
assets
• New four tier dispensing fee system now in place
• Discovery respects rights of pharmacies to charge dispensing fees within the new
framework
• We have negotiated attractive dispensing fees arrangements with all corporates and
over 1500 community pharmacies
• Members using these pharmacies will not have copays, but may choose to go
elsewhere
• Discovery uses proprietary Discovery Health rate and payment arrangments
• Close to 90% of all DHMS member contacts are with contracted GPs and specialists
• Discovery keen to play pro active role in coordinated discussion on new coding
structures
• Not supportive of centralised tariff negotiation with hospitals and corporate providers
• A draft gazette published in January, proposing the Office be established
• Mandate: to accredit and certify public and private health establishments, and health
care providers
• Entrenches right of funders to consider quality matters in the contracting and
reimbursement of providers
• Discovery strongly supports this approach which should improve quality of care across
public and private sectors
NHI
Office of
Standards
Compliance
Dispensing fee
legislation
Tariff
bargaining
process
37
Discovery Life delivered a pleasing performance, with strong growth
in operating profit and core risk new business. Considerable focus
was applied to the quality of the business across the key
dimensions of new business, lapses, mortality and morbidity
experience, and return on capital
4
38
Key metrics: Discovery Life
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Total new business R832m R782m 6%
Core risk new business
(excluding ACI’s)R526m R481m 9%
Operating profit R768m R675m 14%
Value of in-force (SVM basis) R9,599m R8,387m 14%
39
Drivers of Discovery Life profitability:
1. New business
-
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010
Rm
Core risk new business API
Risk new business API Internal replacements (2010 reduction) Business Assurance (2010 reduction)
16%
9%
24%
3%
9%
16%
Note: Includes Individual servicing increases, but excludes ACIs
40
Drivers of Discovery Life profitability:
2. Lapses
Jan-0
9
Feb-0
9
Mar-
09
Apr-
09
May-0
9
Jun-0
9
Jul-09
Aug-0
9
Sep-0
9
Oct-
09
Nov-0
9
Dec-0
9
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-1
0
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Fe
b-1
2
Mar-
12
Apr-
12
May-1
2
Jun-1
2
Life Plan lapses (number of policies)
EV assumption Lapse rate: All policies Lapse rate: Non-Integrator
Lapse rate: Health + Vitality Integrator Lapse rate: Integrator + HealthyFood
2009 2010 2011 2012
41
Drivers of Discovery Life profitability:
2. Lapses
70%
30%
Integrated Non-Integrated
0%
50%
100%
150%
200%
Bronze Silver Gold Diamond
Relative Vitality Status distribution:2008 vs 2010
2008
Vitality engagementComposition of in-force block by Integrator and
Non-Integrator take-up
42
Drivers of Discovery Life profitability:
3. Mortality experience
Underwriting
Mo
rta
lity r
ate
Ultimate
Vitality status
Blue Bronze Silver Gold
2.25% 1.5% 0.5% -0.5%
Select
Mortality experience by durationDynamic pricing model
70%
75%
80%
85%
90%
95%
100%
Years 1-2 Years 3-4 Years 5+
Mortality experience by duration: Actual to expected
Expected
43
Drivers of Discovery Life profitability:
4. Capital utilisation and cost
Capital efficiency initiativesCapital model
-
500
1,000
1,500
2,000
2,500
3,000
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Cumulative projected capital saving due to capital initiatives (Rm)
Return on Capital will increase by 3%-5% over a 3-year period as a result of capital structure
and initiatives
Negative
Rand
Reserve
Reduced capital strain, higher returns, and
accelerated emergence of cash flow
44
Exceptional performance in all respects, with strong new business
growth, business mix, and fund performance driving profitability.
The launch of the highly-differentiated LISP and annuity offering
should support new business development going forward
5
45
Key metrics: Discovery Invest
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Gross inflows R3,626m R2,614m 39%
Assets under Management* R13.9bn R6.3bn 121%
Operating profit / (loss) R44m (R24m) >100%
Value of in-force (SVM basis) R924m R582m 59%
* R14.5bn as at 11 February 2011
46
Assets under Management
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000 D
ec-0
7
Ju
n-0
8
De
c-0
8
Jun
-09
De
c-0
9
Ju
n-1
0
De
c-1
0
Assets under Management (Rm)
47
Distribution of assets by asset class and fund manager
32%
1%
13%
2%
5%
44%
3% 0%
Distribution of AuM
Discovery Single Manager Funds Discovery Multi Manager Funds
External Funds Discovery Alpha Funds
Discovery Target Retirement Funds Discovery Escalator Funds
Discovery RightChoice Investments Offshore Funds
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Fixed Interest
Money Market
Foreign Asset allocation
Equity Real Estate
Relative asset allocation: Discovery Invest vs. Industry
Industry allocation of funds
Only 13% of fund choices in non-Discovery
funds
48
Product innovation
Years in retirement Death
Inc
om
eA
ss
ets
Unlimited upside potential and downside
protection
1
Remainingassets transfer to beneficiaries2
Personalised income withdrawal3
Guaranteed income for life4
Guaranteed Escalator Annuity Classic Flexible Investment Plan
2
49
Earnings progression
-100
-80
-60
-40
-20
0
20
40
60
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Rm
Operating result for the 6-month period
Margin of 2.8%, driven substantially by Discovery Funds, Protectors and Wrappers
50
Vitality focused significantly on broadening engagement across the
membership base, particularly in complex behaviours related to
physical activity and nutrition. The benefits of engagement
manifested strongly across the group in better selection,
persistency and experience
6
51
Key metrics: Discovery Vitality and DiscoveryCard
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
Operating profit R1m R17m -94%
Point-of-sale market share 7.96% 6.56% 21%
NPL as a % of advances 4.02% 6.34% -37%
HealthyFood activations 228,198 174,045 32%
Gym members 356,533 296,116 20%
kulula.com flights (calendar year) 525,942 407,317 29%
52
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2001Wellness engagement: 10%
All
members
1 or more
activities
2 or more
activities
495,000 adult
members
1%10%
53
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2002
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
Wellness engagement: 37%553,000 adult
members
2%8%37%
54
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2003
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
Wellness engagement: 40%640,000 adult
members
3%40% 11%
55
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2004
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
Wellness engagement: 40%702,000 adult
members
3%40% 12%
56
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2005
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
5
Wellness engagement: 46%766,000 adult
members
3%46% 14%
57
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2006
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
5
Wellness engagement: 51%790,000 adult
members
8%51% 21% 2%
58
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2007
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
5
Wellness engagement: 54%821,000 adult
members
8%54% 23% 2%
59
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2008
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
5
Wellness engagement: 60%828,000 adult
members
10%60% 27% 3%
60
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2009
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
Wellness engagement: 67%909,000 adult
members
18%67% 36% 7%
61
Trend in engagement in Vitality wellness activities:
Excludes Vitality Reward and Benefit utilisation
2010
All
members
1 or more
activities
2 or more
activities
3 or more
activities
4 or more
activities
Wellness engagement: 68%
8%20%40%68%
980,000 adult
members
62
Vitality activity and benefit usage
Year-on-year increase: 20% gym membership; 32% HealthyFood activations; 29% increase
in kulula.com flights
HealthyFood activationsGym membership
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
-
50,000
100,000
150,000
200,000
250,000
Feb-0
9
Apr-
09
Jun-0
9
Aug-0
9
Oct-
09
Dec-0
9
Feb-1
0
Apr-
10
Jun-1
0
Aug-1
0
Oct-
10
Dec-1
0
0
100,000
200,000
300,000
400,000
500,000
600,000
2006 2007 2008 2009 2010
Kulula.com flights
63
DiscoveryCard:
Overview of cardholder base and credit profile
Product% of Accounts
(225,000)
22
34
29
15
0%
5%
10%
15%
20%
25%
30%
Point-of-sale market share
Credit qualityMarket shareCardholder profile
R970m average monthly turnover for the 6-months; R2bn advances portfolio
0%
2%
4%
6%
8%
10%
12%
14%
16%
NPLs as a % of advances
Industry average
64
The Discovery Purple Card
50% to 100% saving on
Local and International
travel
Quintessentially – the
exclusive global
concierge service
Access to all Virgin Active
gyms or all Planet Fitness
health clubs
Dedicated health
concierge0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
R50,000 to R100,000
R100,000 to R250,000
R250,000 to R500,000
R500,000+
Distribution of Discovery Platinum
cardholder spend
65
PruHealth’s key value drivers were meticulously managed against
performance roadmaps, with significant improvements realised in the
loss ratio and expenses. The period saw the completion of the
Standard Life Healthcare transaction, and excellent progress has been
made in integrating the businesses. The new product, which integrates
the former SLH and PruHealth offerings, was launched after the end of
the reporting period and has been well received by the market
7
66
Key metrics: PruHealth
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
New business API R313m R165m 90%
Membership 674,506 218,917 208%
Operating profit / (loss) (£) £3.2m (£4.2m) >100%
Operating profit / (loss) (Rands) R35m (R53m) >100%
100% 50%
67
Performance against the financial roadmaps:
Key drivers of value
0%
20%
40%
60%
80%
100%
2008 2009 2010
Total expenses (2008 = 100)6-month rolling, including Vitality
15% reduction in 6-month rolling loss ratio, including
Vitality
ExpensesLoss ratio
68
90%
95%
100%
105%
110%
115%
120%
125%
130%
Loss ratio Lapse rate Covered lives Profit before tax
Actual experience vs. due diligence expectation
Former Standard Life Healthcare book:
Actual experience relative to due diligence assumptions
Worse than expected
Better than expected30%
25%
20%
15%
10%
5%
Expected
-5%
-10%
69
Combined PruHealth and Standard Life Healthcare:
Key metrics
* PruHealth 2011 forecast shows membership as at 15 February 2011; business written on new product from 1 March 2011
QualityScale (lives)*
30%
40%
50%
60%
70%
80%
90%
100%
Loss ratio Expenses
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Lives
PruHealth 2011 forecast Current combined position
PruHealth 2009 PruHealth 2009
PruHealth 2011
forecast
PruHealth 2011
forecast
Combined
positionCombined
position
ratio
70
Combined PruHealth and Standard Life Healthcare:
New product principles
Full coverNo shortfalls for
specialist consultants2
VitalitySignificantly enhanced
Vitality partnerships
and benefits
3
Leading
service
Stockport/
Bournemouth based
voice service4
Transparency
and clarityPruHealth
Cover Check5
Structured
flexibilityModular product range1
Select cover
enhancements
2
Select
hospital list
3
Select
excess
4
Purchase
Core cover
1
71
Leveraging global assets and local scale to create
sustainable benefits
Highly-compelling gym offer available
from 1 March 2011
Un
he
alt
hy
No
t U
nh
ea
lth
y
Active promotion
not recommended
Active promotion
recommended
Leverage Vitality HealthyFood rating
methodology and technology
Benefit SA
equivalent
Included in
new
product
Specialist
fees full
cover
Specialist
network
Full cancer
cover
Oncology
Program
Diagnostic
tests
Vitality
Check
MRI/CT/PET
Scans
Standard
plan benefit
Hospital
network
cover
Delta Plans
Leverage Discovery Health risk
management, product and network tools
Risk managementHealthyFoodGym benefit
50%
Active promotion not
recommended
Active promotion
recommended
72
PruProtect delivered an excellent operating performance, with
strong growth in both new business and earnings, and industry
recognition for its differentiated product offerings. The capital
structure with Prudential continues to support the Return on Capital
of the business
8
73
Key metrics: PruProtect
6 months
to 31 Dec 2010
6 months
to 31 Dec 2009
%
change
New business API R144m R100m 44%
Policies in force 54,505 22,509 142%
Operating loss (£) (£1.8m) (£3.1m) 42%
Operating loss (Rands) (R20m) (R39m) 49%
50%* 50%
* For illustration only
74
Continued strong growth trajectory
-
10,000
20,000
30,000
40,000
50,000
60,000 D
ec-0
7
Ju
n-0
8
De
c-0
8
Jun
-09
De
c-0
9
Ju
n-1
0
De
c-1
0
Policies in force
75
Emerging scale and new business traction
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
New business market share: independent broker channel
Q22010 Q32010
Market share
based on current
projections
76
Industry recognition
Professional Adviser 2011
Winner :
Individual Protection Provider
77
80%
90%
100%
110%
120%
130%
140%
New business (stretch target)
Lapses Mortality experience
Actual performance relative to budget (2010 calendar year)
Performance against budget:
Review of key metrics
20
30
40
50
60
70
80
90
100
Per policy expenses (Dec 2009 = 100)
Worse than expected
Better than expected
15%10%
5%
Expected
-5%
-10%
15%
20%
78
The period under review was seminal for The Vitality Group, with
the transaction with Humana providing the business access to
capital, distribution, brand credibility and a captive new market in
the US. The transaction is strategically consistent with Discovery’s
ambition to internationalise its IP on a basis that minimises capital
requirements and exposure to losses, while providing significant
upside potential
9
79
Self-insured employer client base:
January 2011
0
40,000
80,000
120,000
160,000
Jun 09 Jun 10 Jan 11
Membership base
Distribution agreement concluded with Wellness & Prevention Inc,
a Johnson & Johnson company, from Q1 2011
80
Vitality engagement; HRA completion (10 largest clients):
January 2011 engagement figures
80%
69% 69%
62%58% 57%
48% 40%35%
21%
53%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Amgen Alcon Gallo Sanmina Savvis SLU Genex HCP JosABank Sccoe
% intial engagement: HRA completion
HRA Completion Average
81
International recognition of the Vitality model:
New York Times, 1 January 2011
UnitedHealth Group, one of the
nation’s largest insurance
companies, now has its own
program, called Personal
Rewards.
The outfit that seems to have
more experience with these kinds
of incentive programs than any on
the planet is a
South African company called
Discovery.
82
Overview of Humana
0
5
10
15
20
25
30
35
Revenue (US$bn)
0
10
20
30
40
50
60
70
80
90
100
Largest US health insurers by revenue (US$ bn)
10%
18%
11%
10%9%
42%
Membership: 30 September 2010
Medicare Advantage
Military
Medicare Prescription Drug
Commercial Segment (fully-insured)
Commercial Segment (ASO)
Commercial Segment specialty * Market consensus
Strong financial performanceLarge and diverse client baseStrong brand recognition
83
Structural
flexibility
Ability to pursue non-
insurance activities
through The Vitality Group
Overview of the Discovery / Humana structure:
Cross shareholdings in two legal entities
HumanaVitality75%75%
25%25%
$15m
equity
$50m
equityIP, human resources,
systems, networks
Impact of the transaction
Capital$50m - $100m capital
injected into the system
EarningsUpside potential without
downside risk and loss
ratio exposure
GrowthImmediate Access for Vitality
to Humana’s 3m member
commercial insurance base
Wellness
networks
Additional scale to leverage
in partner network
development
Wellness partner and reward
networks
84
25% 75%
Discovery corporate profile
100% 100% 100% 75% 75% 20%
Humana
Vitality
Unaudited interim results and cash dividend declaration
for the six months ended 31 December 2010
Adrian Gore, Chief Executive Officer