Discovery Holdings says its full-year headline earnings will be almost wiped out by provisions it’s making for Covid-19 as well as the impact of long-term interest rates in SA and the UK.
In a further trading statement, the health insurer and financial services group said it was sticking to the R3.3 billion in provisions it previously estimated would be enough to cover the future cost of Covid-19 to its business. The provision was expected to meet the expected claims and economic effects of the virus so they were fully accounted for this year. About two-thirds of the R3.3 billion was made up of mortality and morbidity impacts, with a third from economic impacts through to 2022.
The company said the impact of interest rates was now expected to be R4,8 billion, R1.3 billion bigger than the R3.5 billion previously estimated.
Significant movements in long-term rates in SA and the UK had continued since June, with negative real rates of return in the UK and positive real rates of return in SA both at historic levels. The volatility had a significant impact on policy values and headline earnings, but did not affect cash flows, solvency and capital in SA. Since the implementation of a hedge strategy, it had little impact in the UK and would be normalised out of the group’s financial results for the year, with no bearing on operating performance.
Excluding the Covid-19 provision, the group said normalised profit from operations would be 5% to 15% higher than last year. With the R3.3 billion provision, it would be 18% to 28% lower while normalised headline earnings would decline by 20% to 30%. Including the impact of long-term interest rates, it said headline earnings would be down by between 90% and 100%.Discovery expects its financial performance for the year ended 30 June 2020 to be resilient, despite the effects of the Covid-19 pandemic during the period,” the company said.
M,ain Image: Aurecon
