Annual results for the year ending 30 June 2015

Adrian Gore | Group Chief Executive

Discovery Group
South Africa

United Kingdom

Vitality Network

Ambition

Core purpose
Make people healthier and enhance
and protect their lives

Operating profit

+17%
to R5 789m

New Business

+51%
to R17 532m

To be the best insurance organisation in the world,

and a powerful force for social good by 2018

Cash flow

+R2.9bn

Investment for growth

R3bn

Key observations for 2014/2015

01
Financial Performance

02

Operating profit

+17%
to R5 789m

New Business

+51%
to R17 532m

Vitality Network of Insurers

Cash flow

+R2.9bn

Investment for growth

R3bn

Global collaboration with Apple

Business Model

03

Business Performance

Outstanding growth in
primary markets;
supported by an
acceleration from
incumbent businesses

Successful transition to
full ownership in the UK;
evidenced by strong
business performance

Continued global rollout

of the model; with
continued momentum
from Ping An Health

Expansion into local

adjacencies; with intent
to enter banking

Business performance
New Business

+51%
+92%

Operating profit

+17%

+10%

Discovery Health operating profit increasing 10% to R2 031 million, with significant investment in new initiatives;
and new business growing 92% to R9 598 million with the appointment by Bankmed Medical Scheme. Lives under
management achieved the milestone of three million, just after the reporting period.

+15%

Discovery Life operating profit growth of 15% to R2 968 million (+18% gross of FinRe), driven by new business
growth of 11% to R2 231 million, representing a market share gain from 26% to 29% on a run rate basis. Discovery
Lifes strong performance is a testament to the efficacy of the shared value model, with members gaining access to
competitive products and exceptional policyholder returns.

+18%

+39%

Discovery Invest operating profit increased by 39% to R460 million, achieving scale, continued market share gain in
the retail savings space, high percentage of funds flowing into Discovery funds, and strong performance of the
market. Assets under Management (AUM) reached the milestone of R50 billion, with new business annual
premium equivalent increasing by 18% to R1 646 million.

+25%

120 000

Closed +392%

Open +12%

+11%

+22%
-15%
+192%

Cars covered

Discovery Insures new business up 25% to R789 million. The power of the shared value model was validated, as
members are rewarded for safer driving, with loss ratios and lapse rates improving by duration, and the loss
profile turning.

+27%

Successful rebrand to VitalityLIfe with considerable investment in the Vitality brand. Normalised operating profit
for the year-to-date up 27% to R542 million and new business up 22% to R1 079 million. Continued adoption of the
Vitality-integrated model, with the Vitality Optimiser product comprising over 50% of new business, demonstrating
positive actuarial dynamics.

+10%

VitalityHealth made a normalised operating profit of R223 million, up 10% from the prior period. VitalityHealth
continued to focus on quality and margin in the highly-competitive and aggressive new business acquisition
environment. This focus on quality resulted in a reduction in overall new business from R953 million to R814
million over the period.
Continued traction through Ping An Health and successful launch of John Hancock Vitality in the US; AIA Vitality in
Hong Kong; and plans towards expanding into Europe through Generali.

Group earnings
12 months
to 30 June 2015

12 months
to 30 June 2014

5 789

4 962

17

(1 743)

(1 463)

(19)

(42)

Normalised headline earnings

4 027

3 457

Fair value adjustment to puttable

non-controlling interest financial
liability*

1 661

(201)

Other

(403)

(192)

Headline earnings

5 285

3 064

Rand millions
Operating profit
Tax on normalised operations
Other

01

Strong operating profit

growth off a high base

02

Normalised headline
earnings growth in line with
prior years

03

Headline earnings growth

distorted by accounting
treatment of Pru acquisition

16

72

* Pru JV put option liability fair value adjustment equates to (R1 428m) of this amount

Dividend of 89.0c up 14%

Earnings performance
Operating profit (Rand million)
Rm

+17%
5789

Established

4962

Emerging

12 months
12 months
to 30 June 2015 to 30 June 2014

%
change

5 789

4 962

17%

2 031

1 854

10%

2 968

2 591

15%

42

38

11%

460

331

39%

765

628

22%

-477

-480

-%

a
+12% off
high base

+28% growth

New

8% of earnings
invested

2011 2012 2013 2014 2015

6

Cash flow and an acceleration in investment

Cashflow from operating activities (Rm)
3500

Period of accelerated investment

R2 935m

R560m

Within existing businesses

3000
2500

R140m

New initiatives within existing businesses

R420m

UK branding

2000
1500
1000

R266m

New business development

R2.8bn

Minority stake purchase from Prudential

500

R5bn

0
2011

2012

2013

2014

Rights issue for Vitality Life and the DiscoveryCard

2015

New business
New business API
Rm

+51%

17 532

Established

10 Year CAGR = 14%

11,586

Emerging

12 months
12 months
to 30 June 2015 to 30 June 2014

%
change

17 532

11 586

51%

9 598

5 000

92%

2 231

2 013

11%

223

206

8%

814

953

(15%)

1 079

883

22%

1 646

1 396

18%

1 941

1 135

71%

+67%

+9%

2014/2015

2013/2014

2012/2013

2011/2012

2010/2011

New

+71%
8

Embedded value insights

21.5%

Core EV growth = 18.2%

1.1%

3.4%

11.4%
8.1%

6.1%
9.8%

+R1,452m in EV
425

477

373

177

Lapses and Mortality

surrenders
and
morbidity

Unwinding of
discount rate +
return on NAV

Value of New
business

Extended
Modelling
Term

Positive experience
variances

Other

Assumption and
methodology
changes + Other
adjustments

Impact of Pru +
other non-recurring
expenses and
dividends

Impact of rights
issue

Published growth on
opening EV

Key observations for 2014/2015

01
Financial Performance

02

Operating profit

+17%
to R5 789m

New Business

+51%
to R17 532m

Vitality Network of Insurers

Cash flow

+R2.9bn

Investment for growth

R3bn

Global collaboration with Apple

Business Model

03

Business Performance

Outstanding growth in
primary markets;
supported by an
acceleration from
incumbent businesses

Successful transition to
full ownership in the UK;
evidenced by strong
business performance

Continued global rollout

of the model; with
continued momentum
from Ping An Health

Expansion into local

adjacencies; with intent
to enter banking

10

Insurance models need to recognise the acceleration in

key trends

01

A growing social responsibility for insurers given increasing

complexity and evolving client needs

02

Nature of insurance risk is behavioural and competitiveness

of insurance companies depend on the ability to affect
behaviour change

03

Technology is an enabler in insurance, creating the ability

to more accurately track and segment risk; and reward
behaviour change
11

Discovery Shared Value Business Model

MEMBERS

Better value through improved price and benefits

Improved health

SOCIETY

Healthier society
Improved productivity
Reduced healthcare
burden

INSURER

Lower claims
Higher margins
Positive selection and
lower lapses
12

Gaining traction globally

51 companies that have made a sizable impact on major
global problems as part of their competitive strategy

01

Discovery ranks 17th

amongst corporate giants

02

Recognised for its shared

value model

03

Only insurance company

to make the list

13

A global network of insurers under the Vitality banner

A collaboration between the worlds largest insurers that are using Vitality in their markets

14

AIA Vitality | Recent agency force launch in Hong Kong

15

Chassis provided by The Vitality Group

800 000+ employees

16

The assets of the model

01

Vitality Age

08

Technology

07

Behavioural, clinical and

actuarial data set

Developed through a metaanalysis of over 5000

published studies and 75m life
years of data

Seamless, verified collection and

computation of wellness data,
navigation of wellness pathways and
fulfilment of rewards

Over 17m life years on the

correlations between incentives and
behaviour change, between
behaviour change and risk

02

Personal pathways

Tailored, non-discriminatory
programmes encompassing
the entire wellness
spectrum

03

Points and statuses

An actuarially and clinically

verified measure to stratify
members based on
engagement

05

06

04

Rewards

Local and global networks

of incentive partners (e.g.
travel, entertainment,
retail, fuel)

Disruptive insurance products

Products that offer better value for

members and deliver risk savings and
higher profitability for insurers

Dynamic pricing engine

and valuation models

Generates rating factors for

insurance, and a reinsurance
capability to deploy these factors
in different markets

17

Case for physical activity

Impact of improvement in
activity levels
Observed mortality experience by changes in
current levels of physical activity

Inactive

Mildly Active

Active

0.50%

+43%

Less More
active active

0.40%

0.10%
0.00%

Inactive
Maintain

Source: Internal Discovery analysis

Active
Increase

All points

0.20%

Online

0.30%

Decrease
Source: Internal Discovery analysis

+26%
+16% +23%

0.60%

Screening

-60%

+79%

More
active

Prevention

-48%

Mortality experience q(x)

0.70%

Indexed improvement after becoming

physically active

HealthyFood

Mortality rate q(x)

Physical activity is a trigger for

other wellness engagement

Before Physical
Activity Trigger

Correlation between activity

and mortality is evident

After Physical Activity Trigger

18

Inactivity recognised as a global epidemic

Sep 5th
2015

Sedentary living has reached epidemic proportions

BRITAINS health department calls it the silent
Others have labelled it the new smoking

killer.

Research presented on August 30th at a cardiology

conference in London suggests that walking fast for 25
minutes a day can buy three to seven years of extra
life.
A bigger study by a team at Cambridge University tracked
300,000 Europeans over 12 years, and found that a brisk
daily 20-minute walk, or the equivalent, cut the annual
death rate for people of normal weight by a quarter,
and for the obese by 16%.
19

Evolution of wearable devices and movement towards smart

tracking and the quantified self
Ring abacus

Pedometers

Enthusiast
devices

Everyday
trackers

Smart
watches

1700s

1990s

2000s

2010 -

Today

Manual counter
Multiple applications
No battery life

Niche usage
Bulky
Single function

Niche market
Expensive
Multi-function

Affordable
Single function
Wide adoption

Widely adopted
Sophisticated
technology
Aspirational

20

UK as a prototype

Meet your weekly

activity threshold

Receive your weekly reward

Redeem your
free coffee

21

Rewarding engagement through personalised goals and

frequent rewards
Impact of Active Rewards on volumes of members meeting weekly activity thresholds
80% increase in
the number of
members
meeting
minimum
exercise
thresholds

Volumes meeting weekly thresholds

Starbucks
launched as an
Active Reward

201507

201506

201505

201504

201503

201502

201501

201412

201411

201410

201409

201408

201407

201406

201405

201404

201403

201402

201401

201312

201311

201310

201309

201308

201307

201306

201305

201304

201303

201302

201301

89% organic
growth in new
members
getting active

22

Congruence of trends provide a global opportunity

23

Collaboration between Apple, Vitality and the global Vitality

Network of insurers

Apple

Network of leading global

insurance companies

Translation
between
behavior
change and
actuarial
surplus

Preeminent device and

technology company globally

Over 1m sold in
the first week

24

Get Active

Achieve your goals

Get Rewarded

Vitality Active Rewards with Apple Watch

More details on 22 September 2015
25

Aims of the collaboration

01

Using global scale and best of breed technology to create local market competitive advantage

02

Product is easy, elegant and will have a powerful impact on millions of people's physical activity

03

Development at the center, leveraging key collaboration assets

04

Structure fits in and becomes a core component of Vitality

05

Can exist as a Vitality-lite for certain market segments.

26

Key observations for 2014/2015

01
Financial Performance

02

Operating profit

+17%
to R5 789m

New Business

+51%
to R17 532m

Vitality Network of Insurers

Cash flow

+R2.9bn

Investment for growth

R3bn

Global collaboration with Apple

Business Model

03

Business Performance

Outstanding growth in
primary markets;
supported by an
acceleration from
incumbent businesses

Successful transition to
full ownership in the UK;
evidenced by strong
business performance

Continued global rollout

of the model; with
continued momentum
from Ping An Health

Expansion into local

adjacencies; with intent
to enter banking

27

Primary Market observations

Business level

01

Distribution

02

Business level

Sophisticated adviser channel with

high levels of production; traction
with Direct to Consumer channel

Brilliant performance by
incumbents, emerging businesses
gaining traction with intent to
enter further adjacencies

Distribution

28

Tied adviser distribution

Growth in number of aligned
advisers

Adviser API grows with tenure

Top producing agency force in

the market

1,600

+179%

1,400

1,200
1,000
800
600
400
200
-

1st year 2nd - 3rd 4th - 6th 6 years +

year
year

Market

Discovery

29

Direct to Consumer channel gaining traction

Discovery Connect headcount
187

x2.3
123

78

Share of new business

Agent performance
Health API per agent

21%

x3

125

68%

2011/2012 2012/2013 2013/2014 2014/2015

Insure API per agent

47%

x2

2011/2012 2012/2013 2013/2014 2014/2015

30

Business level competitiveness

DHMS competitive position
Lives under management

Discovery Life competitive landscape

New Business market share (Retail affluent)
35%
30%
25%
20%
15%
10%
5%

DHMS

0%

Competitor schemes
31

Blue

Bronze

Silver
Gold and
Diamond

Blue

Bronze

Silver
Gold and
Diamond

Base

Neutral

Engaged

Advanced

Bronze

Silver
Gold and
Diamond

Blue

Bronze

Silver
Gold and
Diamond

Base

Neutral

Engaged

Advanced

CLAIMS

Blue

LAPSES

Business level | Model provides opportunities in adjacencies

Health
Insurance
Life
Insurance
Short-term
Insurance

32

Acquisition of the DiscoveryCard | Platform for banking

Appealing spend and
risk dynamics in
DiscoveryCard

Intent of entry into banking

Bank

Access to the most

profitable market
segments
Behavioural link is
evident in banking
Ability to more
effectively segment
risk

Regulatory process about to commence

Earmarked R1.3bn for Card acquisition and

R800m for business development
33

Discovery Health performance has been strong

New business API

UP

Operating profit

92% 8% Excluding
BankMed

UP

to R9 598m

10%

to R2 031m

Closed +392%
DHMS +12%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3m+

Lives
administered

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

7/8

Closed schemes won over

last 3 years
35

The Discovery Health Model

36

Discovery Health Medical Scheme continues to deliver

exceptional financial performance in all areas
DHMS performance metrics (December, 2014)

DHMS solvency ratio

25.8%

24.3%

54%

23.4%

2 669 445

2012

2013

2014
37

Impact of business model | Substantial member value

Annualised increase in Administration and
Managed Care fees (2008 to 2014)

Cumulative Hospital Costs (2005 2014)

7.2%

27%
lower

5.6%
4.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
All schemes excl. DHMS

DHMS

Open schemes excl.

DHMS

CPI

38

Sustained growth in open scheme market

DHMS market share
Net growth
(2000 2014)

1,913,063

53.8%

-1,689,187
DHMS

15.4%
2000

2001

2002

2003

2004

2005

Open schemes excl. DHMS

2006

DHMS

2007

2008

2009

2010

Open schemes excl. DHMS

2011

2012

2013

2014
39

Growth in closed scheme business reflects scale, sophistication

and capability of Discovery Health
+210,000 LIVES

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 2014

2015

* IBM and Altron merged with DHMS in 2014; Edcon merged with DHMS in 2012; Umed and AfriSam merged with DHMS in 2010; CSIR merged with Bestmed in 2007.

7/8

Closed schemes won over last 3 years

40

D2C increasing share of Health new business

Share of new business volumes over time
100%

Overall

Attracting favourable demographics

Individual

90%

Average age

Pensioner ratio

younger

pensioners

5 years

80%
70%
60%

46%

50%

50% fewer

40%

21%

30%

10%
0%

CIB applications

Wellness

chronic apps

Vitality take-up

50% lower

20%

7%
4%

50% higher

41

DHMS has consistently performed well, ranking in the top three

health insurers globally
1st

DHMS

2nd
3rd
4th

Comparative ranking of
the top 20 health
insurers globally
Benchmark categories

5th
6th
7th

Statutory solvency requirement

8th

Operating surplus

9th

Market share

10th

Growth in market share

11th

Growth in members

12th

Average claim increases

13th

Average contribution increases

14th
15th

16th
17th
18th

01

02

United Healthcare
Anthem Inc
Aetna

Bradesco Saude

19th
20th

2006

2007

03

04

Achmea
VGZ
Menzis
CZ

2008

05

DKV (Ergo)
Central (Generali)
Allianz
Debeka
AXA

2009

2010

DHMS
Next 4 SA
schemes

2011

06

07

Star Health &

Allied
ICICI Lombard
Appollo Munich

2012

Included the top 20 health insurers globally and the next 4 in South Africa that did not make the top 20 globally from 2006 until 2013

MPL (Medibank)
HCF
NIB

NHE relative to GCI

Average NHE increases
NHE per member
Reputation, awards, reviews
Innovation offerings

2013

42

Increasing investment made in the Discovery Health Model

HomeCare

Increasing Discovery Health earnings invested in

innovation and assets

Personal
Health
Programmes
Voice
Biometrics

Maternity

External
medical items

Health on Call

Preferred
medicines list

Discovery
Health
ChroniCare

Corporate
Wellness

Optometry
20%
benefit
Upfront

Book an
appointment

discount

Health
Wallet
Member
app

Supplementary
Cancer
Protector

Premier
Practice

MedSav
er

Member
app

Southern Rx

2011

Telemetry
Integrated
Care Unit

Trauma
Counseling
KeyFIT Benefit

2011

Healthy
Care

Healthy
Gear

2012

Member
education
videos

2013

LiveWell

2014

Executive
Wellness

2015

2012

2013

2014

2015

Over R300m invested over the

past 5 years
43

Investment in the Discovery Health model

Discovery Health Model

Innovation
Clinical Personal Health Programmes
making doctors central to ongoing
chronic member management
Discovery Health has integrated into
broader healthcare value chain

Southern
Rx

Disruptive digital platforms enhance

service to healthcare providers and
members

Platform to provide a unique digital

healthcare experience for members
44

Discovery Life financial performance

Operating profit growth

UP

15%

Positive cashflow generation (Rm)

+18% gross of FinRe

R 8,288

to R2 968m

R 567
R 5,744

R 2,038

R 2,544
R 1,073

Premiums and
fees

Claims,
Cashflow from
servicing,
existing
management
business
and reserving
outgo

Net Finre

New business Discovery Life

and servicing cash flow
strain

46

Growth in new business

New business API (Rm)

UP

11%

to R2 231m

Market share growth

10%

9%

10%

11%

12%

12%

11%

11%

13%

12%

12%

13%

18%

19%

19%

19%

23%

23%

21%

17%

24%

25%

26%

29%

2012

2013

2014

2015 YTD

Source: NMG Quarterly Reports, 2012 - 2015

47

Discovery Lifes dynamic pricing model

Codified mortality curves

Dynamic pricing premium profiles

Blue

Bent q(x)

Bronze

Silver

Gold

Market premium

A
Mortality rates

30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64 65 to 69
None

Blue

Bronze

Silver

Gold

Diamond

C
A

Competitive price points

Large initial discounts to market prices

Selection

Attract healthier lives

Behaviour change

Rewards to motivate behaviour change

Positive selective lapses

Better matching of price to risk

48

A case for the best life insurer

01 | Scale and growth
#1 retail
affluent

+18% gross
of FinRe

02 | Return on capital and cash flow

Return on capital

VNB margins

19.5% > risk free + 10%

9.7%

03 | Selection and quality of book

04 | Shared value and impact on clients

FIA Awards
2013
2013 2014
2014 2015
2015

New businss ROC including FinRe

2007 2008

2009 2010

49

03 Leads to a larger, healthy insurance book over time

Average mortality rate over time: q(x)

Number of lives remaining (15 years)

3 per mille

-30%

35% more lives

2 per mille

Selective lapsation

10

15

Policy duration

Traditional policies
Discovery Life integrated policies
Typical male 40, Class 1, Non-smoker

Traditional policies

Discovery Life
integrated policies
50

03 Profound impact on the cash flow signature and VNB

Value of new business

Cumulative discounted cashflows

+30%

x3.7
+17%

Traditional policies

Discovery Life
integrated policies

10

15

Policy duration
Traditional

Integrated

Typical male 40, Class 1, Non-smoker

51

04 Client engagement
Resilience in client engagement post carry-over
points change

Favourable client lapse experience to large

premium increases (SupeRater)

Indexed engagement levels

Minimal
change for
unengaged

Jun14

Dec14 Expected

Dec14 Actual

Jun14

Dec14 Expected

Dec14 Actual

Underestimated
resilience for
engaged

June 2015 experience in line with expectations

10

12

14

Duration in years
Expected

Actual
52

04 Value to clients
Annualised Integrator Premium Discounts

1,400
1,200

R1.3bn

Millions

Millions

Integrator PayBack In-Force Funds

1,400
1,200

1,000

1,000

800

800

600

600

400

400

200

200

R1.1bn

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

53

Discovery Invest performance has been outstanding

New business APE (Rm)

UP

18%

to R1 646m
1800
1600
1400
1200
1000
800
600
400
200
0

Assets under management (Rbn)

UP

Operating profit (Rm)

21%

UP

to R50.5bn

to R460m

50
42

39%

500
450
400
350
300
250
200
150
100
50
-

2008 2009 2010 2011 2012 2013 2014 2015

55

Scale, retail market segment and favourable fund allocation

Admin expenses as % of AUM
over time

Retail market share

5.0%

LISP endowment market share

3rd party
funds,
21%

40.0%
4.0%

3.0%

Percentage in Discovery Funds

35.0%
30.0%
25.0%

2.0%

1.0%

20.0%
15.0%
10.0%

0.0%

5.0%
0.0%
2012/2013 2013/2014 2014/2015

Discovery
funds and
products,
79%

56

Discovery Insure growth

New business API

UP

25%

Inforce API

54%

UP

to R789m

Cars covered
Time per 20k cars

to R1.67bn

5 months

6 months

6 months
7 months

11 months

Jun-15

Dec-14

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Dec-11

Jun-11

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

2011/2012 2012/2013 2013/2014 2014/2015

Jul-12

13 months

58

Service innovation | ClaimsView

Benefits
Progress updates as status changes
Photo updates every 3 days

Outcomes
Motor claims calls
dropped by 10%
Perception scores
remained at over 8.5
out of 10
96% of claims accepted
by service providers
through the portal
Over 550 photos of
cars uploaded daily
59

Big data capabilities ensure unique data insights and scientific

pricing practices
The theory from 1964.

Discovery Insure is uniquely positioned to develop this for SA

Deviation from average speed vs. the collision rate

(Solomon Curve)
Collision rate (per 100 million vehicle miles)

The Solomon Curve for William Nicol Drive, Sandton

4500

100,000

4000

Exposure (Vehicles)

28%

Claim Frequency (SRTF)

26%

26%

3500
10,000

24%

3000

22%

2500
2000

1,000

22%

22%

22%
20%

19%
18%

1500

18%

1000

100

500
0

22%
21%

-30

-20

-10

+10

+20

+30

16%

15%

1 -17.5 -17.5 to
2 -12.5 -12.5 to
3 -7.5
-22.5 to

4 -2.5
-7.5 to

5 -2.5
-2.5 to

6 7.5
2.5 to

7.5 to7 12.5

8 17.5
9 22.5
12.5 to
17.5 to

14%

Variation from average speed, mph

Source: Solomon (1964)

60

Model efficacy | Powerful application of shared value

Lapse rate by Vitalitydrive status

Loss ratio by Vitalitydrive status

Indexed lapse rate (to Base status)

Indexed loss ratio (to Base status)

100%

100%

Incentives
69%

69%

50%

44%

31%
15%

Base

Neutral

Engaged

Advanced

Base

Neutral

Engaged

Advanced
61

Insure loss ratio continues to improve with duration

Insure loss ratio progression

Loss ratio by durational cohort

8%

8%

13%
Duration 1

Duration 2

Duration 3 +

Sep-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

16.2

15.3

Dec-13

14.0

12.9

Jun-13

11.1

Mar-13

12.7

Dec-12

12.3

2014/15

11.8

2013/14

10.3

2012/13

9.2

7.9

Duration of the book

Jun-15

62

Turning loss profile | Impact of new business strain

Loss (R million)
2010/2011

2011/2012

2012/2013

2013/2014

2014/2015

2015/2016

-50

-100

-150

Losses reduced by 20%-80%

-200

-250

IFRS loss

Loss with deferral of acquisition expenses

63

Transition to full ownership presented three challenges

01

Discovery to obtain own licence for its

Life insurance business

25%

PHHL

Licence and funding

75%

Balance sheet

100%

02

Funding

Securing alternative new business

funding sources at similar or
lower net cost

03

Brand
Rebrand of the businesses to
VitalityHealth and VitalityLife
65

Business growth and operating profit

New business growth (Rm)
1 200

UP

Operating profit (Rm)

22%

600

to R1 079m

500

1 000

UP

27%

to R542m

248,523

400
800

184,371

86,489

134,305

317,855

Lives covered

300

600

200
100

400

200

-100

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

-200
2011

2012

2013

2014

2015
67

Acceleration in new business, supported by market recognition

Record quarterly sales

Recognition in IFA market

Q2 2015

3 consecutive
quarters of

Q1 2015

record
sales

Q4 2014

625 apps in a day

49% of all new business with Vitality
Optimiser
68

Increasing market share

Q4 2010

Q2 2014

AVIVA
Competitor
1
Legal
Competitor
2

16%

&

14%

Royal
Competitor
3

13%

Competitor
AXA Sun 4Life

8%

Competitor
5
Zurich
Group

8%

Competitor
6
Aegon

PruProtect
Competitor
7
Friends
Competitor
8
BUPA
Competitor
9
Liverpool

6%

6%

Q1 2015
25%

Legal
& General
Competitor
1

14%

CompetitorAVIVA
2

11.6%

PruProtect

10%

Friends3Life
Competitor

10%

Scottish
Widows
Competitor
4

Legal
& General
Competitor
1

23%

12.6%

AVIVA
Competitor
2
PruProtect

11%

Friends3Life
Competitor

9%

Scottish
Widows
Competitor
4

9%

Zurich Group
Competitor
5

8%

Zurich Group
Competitor
5

7%

Royal London
Competitor
6

7%

Royal London
Competitor
6

7%

5%

Ageas
Protect7 Ltd
Competitor

5%

Aegon
Competitor
8

4%

Liverpool
Victoria
Competitor
9

6%
3%
2%

Ageas
Protect7Ltd
Competitor
Aegon
Competitor
8
Liverpool
Victoria
Competitor
9

6%
4%
2%

69

Success of Vitality Optimiser product | Launched 2013

Dynamic pricing

Significant upfront discounts

Term assurance (Max 25%)
Term of cover (years)
5
10
15
20
25
30
35
40

Upfront discount
5%
7.5%
15%
17.5%
20%
22.5%
25%
25%

Whole of life (Max 40%)

Entry Age

Premium
Discount

30

40%

50

35%

55

30%

60

25%

65

20%

70

15%

Vitality reward partners

Vitality
Status
Premium
change each
year
Combined
insurance
+ Vitality
product

2%

1%

0%

-1%

Ongoing rewards through Cash backs

Bronze
One person
covered
Two people
covered

No
cashback
No
cashback

Silver

Gold

Platinum

50

75

100

100

150

200

70

Vitality Optimiser | Positive impact on financials and experience

High initial discounts result in
increased policy size and higher
number of benefits taken
800

Enhanced VNB & VNB Margin

Improved claims (Indexed to 1)

40%

700

VNB

600
Non-VO

500

VO

VO

10% Improved
claims experience
relative to nonoptimised business

VO 2x higher
VNB & VNB
margin

400
300
200

VNB Margin

100

Life
Insurance

0
Life insurance Vitality Optimiser
Non-VO

VO
71

Vitality Health performance

Operating profit (R million)

UP

10%

to R223m

New business (R million)

Down

Average monthly new

business

15%

to R814m

H1 2014

H2 2014

H1 2015

H2 2015

Jul/Aug
2015

73

Excellent loss and lapse performance

Loss ratio (industry 2014 = 1)

Lapse rate (industry 2014 = 1)

1.00

1.00

0.99
0.95

0.94

0.94
0.85

0.91

Industry
CY2014

2013

2014

2015

Industry
CY2014

2013

2014

2015

74

Continued decrease in the expense base

Transition to single administration platform
(% of book administered on each system)

19.6%

100
90
80

Continued decrease in cost ratio

19.1%

Prudential

17.9%

70
60
50
40
30

15.9%
Standard Life
Healthcare

20
10
0

Exited the
Standard Life TSA

2012/2013

2013/2014

2014/2015

2015/2016
75

Great year for the UK business

Transition to full ownership

New business growth

2,000
1,800

100%

UP

3%

to R1 893m

Strong operating profit growth

900
800

1,600

700

1,400

600

1,200

500

1,000
800
600
400

UP

22%

to R765m

400
300

200

200

100

-100

76

Continued leadership in the Group high-end market

Number 1 market share

Excellent quality

New Business API, R million

Loss ratios, %
100.0%
90.0%

35 000
+123%

30 000

80.0%
70.0%

25 000

60.0%

20 000

-14%

15 000

50.0%
Jan

10 000

-33%

5 000

Feb Mar Apr May Jun

2013

2014

Jul

Aug Sep Oct Nov Dec

2015

+3%

2013/14

2014/15

78

Individual sales of the white labeled products continue to exhibit

aggressive growth
Individual new business, RMB

Cases sold per day

1000

140000 000

897

900
800

120000 000

700

100000 000

616

600
80000 000

500
400

60000 000

300

40000 000

200
20000 000

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

85

100

H2 2014

H1 2015

H2 2015
79

Key observations for 2014/2015

01
Financial Performance

02

Operating profit

+17%
to R5 789m

New Business

+51%
to R17 532m

Vitality Network of Insurers

Cash flow

+R2.9bn

Investment for growth

R3bn

Global collaboration with Apple

Business Model

03

Business Performance

Outstanding growth in
primary markets;
supported by an
acceleration from
incumbent businesses

Successful transition to
full ownership in the UK;
evidenced by strong
business performance

Continued global rollout

of the model; with
continued momentum
from Ping An Health

Expansion into local

adjacencies; with intent
to enter banking

80

Annual results for the year ending 30 June 2015

Adrian Gore | Group Chief Executive