September 4, 2019 / 7:09 AM / a month ago

UPDATE 1-S.African insurer Discovery reports 12% drop in FY profit

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JOHANNESBURG, Sept 4 (Reuters) - South African insurer Discovery on Wednesday reported a 12% drop in full-year profit as it ploughed money into new businesses and was hurt by an ailing economy at home market.

The insurer, whose dynamic business model rewards customers for good behaviour, had already flagged that its earnings would take a hit from higher spending on ventures such as its new bank.

Headline earnings per share - the main profit measure in South Africa - fell to 789 cents ($0.5178) from 899.6 cents a year earlier.

Its normalised profit from operations fell by 3%.

“The period under review was one of considerable complexity and the group’s business and operating model ensured a resilient performance in this context,” Discovery said in a statement.

Discovery’s shares fell 1.12% at the open.

Its life insurance business suffered in the first half of the year from an unusual spike in high-value mortality claims, which also hit its peers.

But Discovery said it also remained under pressure in the second half of the year due to the economic environment.

The first quarter witnessed South Africa’s biggest quarterly contraction in a decade, and consumers have struggled to maintain spending amid high unemployment and rising living costs.

Insurance is often one of the first financial products to be ditched.

Discovery’s South African health insurance unit on the other hand posted a 10% rise in profit, and newer businesses also performed well.

Discovery has spent the last few decades transforming from a small upstart to a global player and is spending heavily to expand into new countries and new business lines.

Its business model works by tracking client behaviour - from what food they buy and their exercise habits to how they drive - and awarding points based on this.

Those points then determine the insurance premium the customer pays, and can be used to earn rewards on discounts on everything from Starbucks coffee to plane tickets.

Vitality Group - a unit which aims to push the group’s model for insurance into new markets via partnerships - saw profits rise 71%.

$1 = 15.2369 rand Reporting by Emma Rumney, editing by Louise Heavens

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