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Discovery sets up R2bn provision for Covid-19 claims

DISCOVERY says headline earnings a share is expected to jump by between 900 percent and 920 percent to up to 459 cents a share. Photo: Karen Sandison, ANA.

DISCOVERY says headline earnings a share is expected to jump by between 900 percent and 920 percent to up to 459 cents a share. Photo: Karen Sandison, ANA.

Published Aug 30, 2021

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DISCOVERY says headline earnings a share is expected to jump by between 900 percent and 920 percent to up to 459 cents a share.

DISCOVERY, South Africa’s biggest medical aid group, has set up a R2 billion provision for retail claims in anticipation of claims arising from the fourth wave of the Covid-19 pandemic, the group said on Friday as it flagged higher earnings during the year ended June 2021.

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The group said the R2bn provision established by Discovery Life had a R1.1bn net impact on the profits after discretionary margins for the previous year and had proven adequate for the retail business.

Discovery said Covid-19 claims added further strain in the reporting year in the group Life business. The Covid-19 pandemic impact on Discovery Life was R2.4bn compared with the R1.1bn for the year ended June 30, 2020. Normalised earnings from the business will be more than 50 percent lower than a year earlier. It said South Africa’s second wave experience of the Covid-19 pandemic was still somewhat worse than expected due to the emergence of the Beta variant.

“In addition, South Africa suffered a very significant third wave, driven by the Delta variant. By contrast, while the United Kingdom (UK) also experienced a severe second wave, it has largely avoided any negative mortality impact in its third wave due to its extraordinarily effective and an early vaccine campaign. On a risk adjusted basis, we believe that the South African epidemic has turned out to be significantly more severe than the epidemic in the UK,” said Discovery.

Discovery said, in the UK, the extended lockdowns caused by the second and third wave of infections did, however, cause further delays to elective medical procedures.

The group said headline earnings a share was expected to jump by between 900 percent and 920 percent to up to 459 cents a share compared to reported 45 cents a share in the prior year as the economy in the UK and South Africa recovered.

The group expected normalised headline earnings to decline by between 5 percent and 15 percent, impacted by mark-to-market foreign currency losses arising from a recovery of the rand during the reporting year compared to a gain in the previous financial year.

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Basic earnings per share are expected to be between 3135 percent and 3155 percent higher to between 478.8 cents a share and 481.7 cents a share compared to reported 14.8 cents a share for the prior year.

Earnings a share additionally benefited from a material unrealised gain of R537 million from the transaction in which Cambridge Mobile Telematics (CMT) acquired TrueMotion through an issuance of shares.

In June, Discovery Health has signed a deal with US-based CMT to expand its use of technology to monitor clients’ driver behaviour. New Business API increased by 11 percent, while retention levels across the group were excellent and better than expected.

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Discovery said Vitality Life performed better than expected over the financial year both in terms of mortality and lapses, and a relatively immaterial additional provision is deemed necessary to cover the potential effects of a possible fourth wave in the UK.

Discovery’s share price fell 1.94 percent to R126.50 on the JSE on Friday.

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