REVIEW OF INVESTMENT PERFORMANCE


Discovery Group
Discovery services the health care funding and insurance markets in South Africa, the United Kingdom, United States and China. It is a pre-eminent developer of integrated financial services products and operates under the Discovery Health, Discovery Life, Discovery Insure, Discovery Card, Vitality, PruHealth, PruProtect and Ping An Health brand names.

The year under review to 30 June 2012 was a pleasing one for Discovery, with solid performance across all businesses. The period saw growth in:

The performance of Discovery Health and the Discovery Health Medical Scheme (“DHMS”) saw continued strong growth, with 10% growth in new business, resulting in a 4.5% increase in total DHMS lives under management to 2 417 369 lives.

Discovery Life’s performance is particularly pleasing given that it was achieved in a turbulent financial and economic market with operating profit growing by 14% to R1 819 million; new business growing by 8% from R1 620 million to R1 749 million; and the value of in-force business increasing significantly from R10 592 million to R12 358 million.

Discovery Invest’s strategy during the year was one of continued innovation to provide optimal investment solutions for clients. From a financial results perspective the outcome was excellent, with normalised operating profit growing by 50% to R151 million.

Discovery Insure had its first active trading year and performance was satisfactory. During this time, Discovery Insure transacted R239 million of new business despite a fairly embryonic distribution footprint.

PruHealth and PruProtect (Discovery’s United Kingdom operations) continued to focus on quality, product innovation, distribution development and customer value, translating into an excellent financial performance across the businesses. At a combined level, new business from the UK exceeded R1 billion for the first time; earned premium approached the R5 billion level; normalised operating profit measured R300 million; while the membership base stabilised at around 670 000 lives. PruHealth and PruProtect form the beachhead of Discovery’s international operations, and focus will be applied to the further development of the integrated model in the coming periods. Discovery’s other international operations continue to make progress in building scale and capability.

RMI included R579 million of Discovery’s earnings in its normalised earnings (2011: R165 million for the four month period).

For an in-depth review of Discovery’s performance, RMI’s shareholders are referred to www.discovery.co.za.

MMI Holdings
MMI was formed from the merger of Metropolitan and Momentum, sizeable insurance-based financial services players in South Africa to form South Africa’s third largest insurer. The core businesses of MMI are long-term insurance, asset management, investment, healthcare administration and employee benefits. Product solutions are provided to all market segments. MMI operates in 12 countries outside of South Africa. It provides for the assurance needs of individuals in the lower, middle and upper income markets, principally under the Momentum and Metropolitan brand names.

Core headline earnings for the year ended 30 June 2012 increased strongly by 12% to R3.0 billion. Except for a small reduction in earnings at Momentum Investments, all MMI’s divisions increased their earnings. The integration is progressing well and expense savings of R201 million were achieved during the year. Total targeted expense savings of R500 million remain on track to emerge by June 2014. Total new business grew by 3% to R6.0 billion while new business margins were maintained. Embedded value increased by 6% to R32.5 billion.

RMI included R746 million of MMI’s earnings in its normalised earnings (2011: R228 million for the four month period).

For an in-depth review of MMI’s performance, RMI’s shareholders are referred to www.mmiholdings.co.za.

OUTsurance
OUTsurance is a direct personal lines and small business short-term insurer. Pioneers of the OUTbonus concept, it has grown rapidly by applying a scientific approach to risk selection, product design and claims management. Youi, its direct personal lines initiative in Australia, and its South African direct life insurance business have gained significant traction during the year.

The OUTsurance group produced an excellent financial performance for the year to June 2012. The performance was driven by a very favourable claims environment in South Africa and a significant improvement in the start-up loss incurred by Youi.

Operationally, new business volumes in the South African personal lines business endured significant pressure due to the tough economic climate and increased competition. Business OUTsurance showed good premium growth which can be attributed to an investment in the in-house agency force.

Youi gained significant traction in the year under review and delivered an impressive operational performance with excellent new business volumes and a satisfactory improvement in claims experience.

In May 2012, the OUTsurance group decided to dispose of its 50% interest in Momentum Short-Term Insurance to the MMI Holdings group which owns the other 50%. The rationale behind this decision is for the group to focus its resources on its core direct delivery channel. The completion of the transaction is subject to certain suspensive conditions.

OUTsurance reported normalised earnings of R1 157 million, a 33% improvement on the restated earnings of R871 million reported for 2011.

Out surance’s normalised earnings were specifically adjusted for:

During the 2012 financial year, OUTsurance revised the accounting policy governing the accounting for non-claims bonuses. The change in the measurement basis of the non-claims bonus provision has resulted in a significant reduction in the provision for non-claims bonuses. As a result of the change in the accounting policy, prior year earnings have been restated to reflect the new basis.

Our agreement to sell an effective interest of 6.5% in the ordinary share capital of OUTsurance to the management team of OUTsurance for a purchase consideration of R531 million was implemented with effect from 1 April 2012. RMI facilitated the transaction by providing term funding to the management group for part of the purchase consideration.

RMI included R1 010 million of OUTsurance’s earnings in its normalised earnings (2011: R220 million for the four month period).

For an in-depth review of OUTsurance’s performance, RMI’s shareholders are referred to www.outsurance.co.za.

RMB Structured Insurance
RMBSI holds both short-term and life insurance licenses. It creates bespoke insurance and financial risk solutions for South Africa’s large corporations by using sophisticated risk techniques and innovative financial structures. In addition it part owns a portfolio of underwriting management agencies.

RMBSI continues to focus on a diversified business strategy to bolster its retainer base income on the back of the more traditional insurance business. This continues to bear fruit and the business mix is trending in the right direction.

Shareholder profit after tax for the year to June 2012 amounted to R96 million (2011: R92 million).

RMI included R74 million of RMBSI’s earnings in its normalised earnings (2011: R48 million for the four month period).