Ambitious British adventure
DISCOVERY IS SEEKING to replicate its successful South African business model in the highly competitive British market, adding a suite of life products to its existing health offerings. Analysts say the deal, which will create a new entity – Pru-Protection – in a joint venture with current partners Prudential, offers “plenty of blue sky” opportunity. However, it would mean that investors would have to be patient if they wanted to see a return from the substantial capital investment that would be required to grow the unit to its full potential.
Discovery, via its existing Prudential relationship, already has an impressive foothold in the British market through Pru-Health, which has signed up 100 000 members since 2004. Though it made operating losses of R120m in the six months to June, it’s targeted to break even in 2008.
Now CEO Adrian Gore is targeting the life sector, committing up to R1bn over the next three years in an attempt to capture 10% of Britain’s R11bn in annual new life assurance business by 2012.
It’s not going to be easy. Discovery learned a number of expensive lessons in the United States, where competitors battened down the hatches when Discovery launched Destiny seven years ago. The British market has had some warning of Discovery’s intentions through the rapid growth of its health business and will know of its ambitious growth targets in the life sector.
While Britain’s life industry is considerably more saturated with competition than SA’s, Discovery does have the benefit of a longstanding partner in Prudential. But profit margins in the new life business are likely to be less than half the nearly 10% achieved in SA. Gore concedes that the project could consume up to R3bn over the next five years. Discovery and Prudential will make equal capital contributions to the venture, with further funding being provided in the form of financial reinsurance by Hannover Re.
It plans to utilise its Vitality rewards programme to integrate its life and health offerings through extending its existing joint venture relationship with Prudential. Back office functions for both the life and health businesses will be run from Johannesburg. Despite its joint venture status, Gore says Discovery will have management control and will chair the venture’s executive committee. He says it’s a structure that’s worked well at Pru-Health and will be extended to the broader venture.
The new commitment to the British market comes as Discovery struggles to turn a profit in its US business Destiny Health, which has consumed around R700m since it was founded seven years ago. It cut its first-half operating losses to December 2006 by 59% to R33m. But Gore warned investors that the company needed to “be realistic” concerning the unit’s prospects, which had failed to deliver on the group’s ambitious expectations.
DISCOVERY...... SEEKING PERFORMANCESource: I-Net Bridge
He’s fearless. Adrian Gore