Unaudited interim results and cash dividend declaration ... · Unaudited interim results and cash...

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


New business API

New business

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change


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


New business API

New business

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change



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%)


New business API

New business

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change




Discovery Invest 397 334 19%

14


New business API

New business

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change




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


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



Profit on buy-up


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



Profit

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change










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



Profit on buy-up


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



Profit

Rm

6 months

to 31 Dec 2010

6 months

to 31 Dec 2009

%

change










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


management

• Pharmacy benef it

management

• Disease


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


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


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


Insuredbenefits

Medical

Savings

Account

• Clinical coding

and classification



economics

• InFormaTM


management


management

• Disease


month

>85% Specialist

visits in DPA

>80% GP network

penetration

33 Delta network

hospitals

Favourable tariffs

and risk sharing


115 KeyCare

network hospitals


33

Co-ordination of care

“Inside-out”


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


Insuredbenefits

Medical

Savings

Account

• Clinical coding

and classification



economics

• InFormaTM


management


management

• Disease


month

>85% Specialist

visits in DPA

>80% GP network

penetration

33 Delta network

hospitals

Favourable tariffs

and risk sharing


115 KeyCare

network hospitals


Data and proprietary risk management tools

34


2. Co-ordination of care “Outside-in”

Acute Hospital

Home Home based care

Sub-acute unit

Care

coordinator•Discovery Nurse


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



economics

• InFormaTM


management


management

• Disease


month

>85% Specialist

visits in DPA

>80% GP network

penetration

33 Delta network

hospitals

Favourable tariffs

and risk sharing


115 KeyCare

network hospitals


Evidence-based outcomesCo-ordinated care modelCase study: complex cases

35


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



economics

• InFormaTM


management


management

• Disease


month

>85% Specialist

visits in DPA

>80% GP network

penetration

33 Delta network

hospitals

Favourable tariffs

and risk sharing


115 KeyCare

network hospitals


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


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


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


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


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



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



2003

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities


members

3%40% 11%

55



2004

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities


members

3%40% 12%

56



2005

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities

5


members

3%46% 14%

57



2006

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities

5


members

8%51% 21% 2%

58



2007

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities

5


members

8%54% 23% 2%

59



2008

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities

5


members

10%60% 27% 3%

60



2009

All

members

1 or more

activities

2 or more

activities

3 or more

activities

4 or more

activities


members

18%67% 36% 7%

61



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

https://www.kulula.com/

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

http://www.google.co.uk/imgres?imgurl=http://www.torontoansweringservice.com/wp-content/uploads/2008/03/toronto-inbound-call-centre.jpg&imgrefurl=http://www.torontoansweringservice.com/inbound-call-center.htm&usg=__mRZi4Q-92F46TWVkL3IfuF6Ff4Q=&h=314&w=429&sz=42&hl=en&start=2&zoom=1&um=1&itbs=1&tbnid=FYfJ1gDgTTeQhM:&tbnh=92&tbnw=126&prev=/images?q=call+centre&um=1&hl=en&safe=active&sa=N&tbs=isch: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

http://portalblog.aol.com/

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

Unaudited interim results and cash dividend declaration ... · Unaudited interim results and cash...

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