DISCOVERY LIMITED | DMTN ROADSHOW 23 & 24 October 2017 DEON - - PowerPoint PPT Presentation
DISCOVERY LIMITED | DMTN ROADSHOW 23 & 24 October 2017 DEON VILJOEN (GROUP CFO) AND ANDREW RAYNER (GROUP CRO) Team introduction 01 Deon n Vi Viljoen: en: Group Chief Financial Officer 02 Andr drew w Rayne yner: r: Group Chief Risk
23 & 24 October 2017
DEON VILJOEN (GROUP CFO) AND ANDREW RAYNER (GROUP CRO)
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Deon n Vi Viljoen: en: Group Chief Financial Officer
Andr drew w Rayne yner: r: Group Chief Risk Officer
Faree eed d Chothi thia: a: Group Corporate Finance
Jackie ie Symons: ns: Group Head Investor Relations
Michael hael Curti rtis: : Group Head Quants and Actuarial
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Disco scove very y is a g a globa bal l int ntegr egrated ted fin inanci ncial l servic vices es organisati nisation that at uses es our r pionee
ring Shared ed-Value lue Insur surance ce model del ac acros
s business sinesses.
ur growth wth has as larg argely ely been en organic nic.
continues to invest for growth
in SA
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Int ntrod
uctio tion n an and strategi ategic c focus us
Go Governan rnance ce an and risk sk man anag agemen ment
Fina nanc ncia ial l performa rformanc nce
Debt bt overvi rview w an and DMTN N issuan suance ce
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Be the best insurer in n the he world and a force for social good with powerful group assets and brilliant businesses resulting in a profound impact Make people healthier and enhance and protect their lives
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March 1992
Discovery Limited established
February 1993
Discovery Health starts writing new business
September 1999
Discovery lists on the JSE
October 1997
Vitality launched
October 2000
Discovery Life launched
April 2004
Discovery and Prudential plc announce their JV and launch PruHealth
October 2004
Discovery Card launched
September 2007
Discovery and Prudential PLC launch PruProtect
October 2007
Discover Invest launched2009
Discovery acquires a 25% share in Ping An Health
August 2010
Discovery acquires Standard Life Healthcare and merges its insurance book with that of PruHealth
May 2011
Discovery Insure launched
June 2012
Discovery launches Vitality to Ping An Health clients
July 2013
Discovery launches a JV with AIA Group Limited in Singapore
November 2014
Discovery full ownership of PruHealth and PruProtect in the UK and rebrands to Vitality UK
November 2014
Discovery announces an intent to enter a strategic partnership with the Generali Group
June 2016
AIA Vitality is launched in Thailand and Malaysia
April 2015
Discovery and John Hancock enters into a strategic partnership
October 2015
AIA Vitality is launched in the Philippines, Hong Kong and Macau
October 2013
AIA Vitality is launched in Australia
July 2016
Generali Vitality launches Vitality in Germany
July 2016
Discovery enters a strategic partnership with Sumitomo Life Insurance Co. and SoftBank Corporation
September 2016
Vitality launches in Canada as Manulife Vitality
January 2017
Generali Vitality becomes available to corporate clients in France
1992 1995 2000 2005 2010 2015 2020
July 2017
MyOwn launches in Australia
October 2017
Bank licence granted
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DISC SCOVERY PRIM IMAR ARY MARKETS PING G AN AN HEALTH VITALITY ITY GROUP UP
Core purpose
Make people healthier and enhance and protect their lives
Footprint
16 countries c10m clients Adding ~150k every month
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Make people healthier and enhance and protect their lives
Why y & How Growth wth Methodo thodology
Capita ital Philos
phy
Target group profit growth of
CPI I + 10 10%
Vitality lity Shared-Value e Insurance e Model Core purpose se Separation of Solvency Capital, known initiatives and buffer for unplanned events
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Health insurance Life insurance Long-term savings Short-term insurance Intent to enter banking
WHY HOW WHAT
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Competitive advantage Initial selection Selective lapsation Behaviour change Bent lapse and claims experience Healthier society
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ESTABLISHED EMERGING NEW
~5 years ~3 years
Mathemati matical al deri rivat atio ion
CPI + 10% = X(CPI+5%) + Y(CPI + 30%) + Z (CPI + 10%) X + Y + Z = 1; Z < 0
Targeted group profit growth of
Investment
profit Profit growth of
CPI + 5%
Profit growth of
CPI + 30%
Growth in investment of
CPI + 10%
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Th Three e pill llars rs of cap apital ital
Solvency Capital
Dedicated capital and reserves 5 Year Capital Plan Projection Individual business ORSA assessment including new business written
Allocated Capital
Dedicated capital for planned initiatives 5 Year Capital Plan Projection Earning a rate of: risk free + 10%
Solvency 1 in 200
year event
Additional Buffer
New initiatives and safety margins in emerging and new businesses
Return on capital
risk free + 10%
FLR
< 28%
Cash buffer
R1bn - R2bn
Targe argeted ted cap apital tal meas asures es
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BUSINE INESS SSES ES FOUND NDATION TION PROFO FOUND ND IMP MPACT BRILLI LLIANT ANT BUSINE INESS SSES
1 2 3 5 4 1 2 3 1 2 3 4
Insur urgen ent Meet eting ng comple lex x consumer umer needs eds Signi nific icant ant engagem gemen ent Except eption
l servi vice ce Super erio ior r actua uaria rial l dynami mics Power erful ul brand nd Emplo loyer yer of choice ce for critic tical l skills ls Global al platf tfor
, science nce and data Value ues-based sed cultu ture re 10m Vitali lity ty member ers Risk free e + 10% retur turn n on capita tal CPI + 10% profit
th
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Capital Allocation Committee
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Execut utive ive Direct ector
Non-exec ecut utive ive Directors tors Group
utive ive
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Assess Manage Monitor Report Identify
Risk Appet etite ite and Strateg egy ERM Framework
ies
Boar ards and Sub-Comm mmitt ttee ees
Managem ement ent Overs rsight and Assur uran ance Firs rst Line e of Defen ence Second nd Line of Defenc ence Third Line of Defenc nce
Risk Managemen ent Proces ess Risk Governance ce
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01 02 03
Liqu quidity dity Fund unding ing Leve verage ge
strategy
risk appetite limit of 28%
constraint
maintained – Known funding requirements are built into plan – Sources of funding identified
buffer is R1bn to R2bn – Buffer for volatility and unknown future investments
12-month cashflow forecast maintained to manage liquidity
sets minimum liquidity for
and expenses)
resources for operational liquidity
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04 05 06
Asset et liabil bility ity ma matchi ching Inte terest t rate ates Capita apital l al alloca
tion
business and re-invests into new business (new insurance policies or new initiatives)
the context of the growth methodology, capital management philosophy and risk appetite
growth, cash generation, capital and risk metrics
interest rate risk (discounted cashflow valuation) – Nature of long term insurance business
matched so low residual risk
assets – Risk accepted for yield
finance costs – Hedging instruments used
establishes matching approach and governance
amounts, timing and currency
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Econ
ic Uncer certain tainty
Poli litica tical Uncer certa taint inty
economic uncertainty
slow pace of transformation
Health lthca care System tem
system
healthcare system
Int nterna rnati tiona
l Mar arkets
business
Growth th Strat ategy egy
2018 Ambition drive operations
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to R 7 048m
Normalised operating profit Normalised headline earnings
to R 4 656m
to 98cpsm (+6% FY)
Dividend declaration
to R 16 993m
Core new business Return on Embedded Value
closing EV R 57 294m
Interest cover2 Investment in new initiatives
to R 577m
5 year CAGR: 12.5% 5 year CAGR: 10.6% 5 year CAGR: 13.7% 5 year CAGR: 15.5% 5 year CAGR: 15.2%1
1 Applied to core new business. Total new business 5 year CAGR (including closed schemes and fees earned by VG) is 16.6% 2 Interest Cover = EBIT / Finance Costs 3 Other Borrowings is made up of R3 080m owed to Prudential in respect of historic new business liquidity funding and R171m in respect of recourse financial reinsurance balances
Bank Borrowings
Other Borrowings3
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to R 16 993m
+11% total new business incl. DH take-on of new closed schemes and gross revenue for the Vitality Group of R18 250m
1 Excludes new scheme take-ons2 In GBP terms 3 Includes gross revenue in respect of the Vitality Group
Rm 12 months to 30 Jun 2017 12 months to 30 Jun 2016 % change
6 1091 5 1871
+18%
2 175 1 866
+17%
2 496 2 413 13
+3%
562 542
+4%
622 622
895 895 749 749
+19%
634 6343 512 5123
+24%
3 111 1 732
+80%
Establi lish shed ed Emerging
9,864 11,335 13,064 14,602 16,993 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
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to R 7 048m
Rm 12 months to 30 Jun 2017 12 months to 30 Jun 2016 % change
2 505 2 265
+11%
3 588 3 271
+10%
744 665
+12%
1401 121
+16%
16.42 8.72
+89%
28.12 31.62
(21) (151)
+86%
(116) (189)
+39%
(33) (99)
+66%
(577) (384)
OTHER ER
Establi lish shed ed New Emerg rgin ing
4,030 4,962 5,789 6,407 7,048 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
1 54.99% share of DiscoveryCard. Card will be moved to the Banking Segment in time2 In GBP terms
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Profit
er tax (Rm)
1,220 1,341 1,474 1,672 1,826 2013 2014 2015 2016 2017
to R 1 826m
servicing requirements
generation
Cas ash h Gene neration tion
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Group profit growth of
CPI + 10%
Performance
CPI* +6% CPI* +55% 8%
CPI* +7%
* Weighted average CPI rate of 4.8% based on CPI rates in markets
Target
In constant currency terms
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Tar arget et
Solvency Capital
5 Year Capital Plan Projection
Individual business ORSA assessment including new business written
Allocated Capital
Dedicated capital for planned initiatives 5 Year Capital Plan Projection
Additional Buffer
New initiatives and safety margins in emerging and new businesses
Solvency 1 in 200
year eventBanking Global Vitality Network Commercial insurance etc.
26% %
Solv lvenc ncy
R14b 4bn n
Reserv rves
3.9 .9x x CAR
AR
2.2 .2x x CAR
AR
145 45% SCR 215 15% SCR A- A.M
M Best rating ing
Return on capital risk free + 10% FLR < 28% Cash buffer R1bn-R2bn FLR =
26.7%
Return on capital
risk free + 9.3%
Cash buffer
R1.6bn
Th Three e pill llars rs of cap apital ital Perform rformance ce
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Gr Group up debt project ction ion FLR* * project ction ion
FY2018 FY2019 FY2020 FY2021 FY2022
26.7%
FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
FLR FLR Cap of 28%
* Financial Leverage Ratio (“FLR”) = Debt (Excl. Lease Liability) / [Debt (Excl. Lease Liability) + Equity]
projections maintained
includes debt subject to FLR cap of 28%
within risk appetite and existing debt covenants
is 13.1x and remains above 6x through the projection
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1-2 years 2-3 years 3-5 years
from Prudential balance sheet to Vitality Life Limited (Part VII)
and UK bank debt arrangements
and UK bank debt arrangements
All included in 5-year financial projections
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The two charts above have the same y-axis scale
Vitali lity ty Life new business ess funding required ed Vitali lity ty Life Part t VII II funding
FY2018 FY2019 FY2020 FY2021 FY2022 Funding Required Funding Use
Strengthen VLL Balance Sheet Liability to PAC Refinanced Part VII Funding Required
– Life insurance pays significant up-front commission – Recovered over the life of the policy – Paid back over 8-10 years – Results in a liquidity strain
– Historic new business liquidity funding provided by the Prudential – On transfer this “debt balance” needs to be refinanced
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DMTN Programme to refinance existing debt
1,000 1,500 2,000 2,500 3,000 3,500
FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
R millions
Other Funding DMTN Funding
20 30 40 50 60 70
FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
£ millions
South th Africa ican debt refin inance ce profile ile UK debt refinance ce profi file le
– £100m 5-year amortising loan – £50m 5-year bullet loan
– R5bn of 5-year bullet and amortising
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FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Other Funding DMTN Funding
Group p debt projec ection tion overlayin erlaying DMTN*
* The mix between bank and DMTN funding may vary depending on market conditions at the time
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Broa
den fun undi ding bas ase
– New funding requirements – Refinance of existing debt arrangements
Optimi timise se cost t of fundin unding Ensur sure e fun undin ding g cap apacity acity for r Group
er 5-year ear time me horizo
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Covenant enant Minimum Requirem ement As at 30 0 June 2017 17 As at 30 0 June 2016 16
Group Debt to EBITDA ratio Less than 2.5X 1.74 1.76 Group financial Indebtedness to Embedded Value Less than 30% of Group EV 21% 21% Group Embedded Value Greater than R30 billion ZAR 57.3 billion ZAR 53.1 billion Discovery Life Capital Adequacy Requirement Greater than 1.5 times 3.9 times 3.6 times Value of New Business (VNB) Positive VNB for 3 consecutive 6-month period Jun 2017: R1 281 million Jun 2016: R946 million Dec 2016 : R1 156 million Dec 2015: R1 386 million Jun 2016: R946 million Jun 2015: R1 393 million
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Discovery Limite ted (JSE Liste ted) Issue uer
Discover very y Health Discover very y Vital ality Discover very y Life Discover very y Bank Discover very y Purple e Holdings Ltd (Bank Hold Co) Discover very y Connec ect Distribut ution n Servi vices es Discover very y Pref Holding Company any (Pty) ) Ltd (Card 55% JV) Discover very y Financ nce e Co Europe e Limited ed (UK SPV) Discover very y Insur ure Discover very y Group up Europe e Limited ed Vital ality y Group up Intern ernat ational nal Inc. . United ed States es of Ameri rica AIA Vital ality y Hong ng Kong Ltd. Ping An Health Vital ality y Life e Limited ed Vital ality y Corp rporat ate e Servi vices es Limited ed Vital ality y Health Limited ed Discover very y Vital ality y Austral alia (Austral alia) a)
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 44% 24.99% South h Afr frica ca UK UK Guarant ntors rs
Bank International Guarantors UK SA Ops
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chise e in South Afri rica ca and a growi wing globa bal footprin
te exposu
l investm stments ents because of the capital-light nature of its business
fitabil ility ity and signifi ifica cant t non-insurance fee incom
e from SA Health th Moody’s Insurance ce Financia cial Strength th Rating (IFSR FSR) ) Moody’s long-te term rm issuer er (LT Issu suer er) ) rating Rating outlook look
sovereign
Credit t strengt engths
d capita tali lisat sation ion on both regulator tory y and economic
Strength th offset fsets
ting environme ment t in South Africa
xity ty inherent in shared ed-val value insurance model
tious s expansion sion initiatives
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ISSUER UER
Disco scovery ry Limited
SIZE (NOMIN INAL AL AMOUNT UNT)
R10 10 billi llion
GUA UARANT ANTORS
Disco scovery ry Healt lth and Disco scovery Vitality lity (as per per current nt SA SA Bank Loans) ns)
LISTIN ING
The Intere rest st Rate Market of
ited
TYPES OF NOTES ES
Notes to to be be issued sued under the Program gramme may may comprise rise:
ior notes (the “Senior Notes”);
rdina inated notes whic ich are subordina nated to to the Senio nior Notes (the “Subordinated Notes”); and/o /or
ital sub subord rdina inated no notes wit ith terms rms ca capable of
ualify lifying ing the he proc roceeds of
such Notes as as Regula gulatory ry Capit
gulatory ry Capit ital Notes will ill re require uire FSB FSB appro roval at at the time of
suanc nce.
CROSS DEFAUL ULT
The cross default ult will ll be be trigge ggere red by by a default ult by by Disc scovery ry Lim imit ited and or
rantors rs in in relatio ion to to the greater of
50m or
ITDA DA
MATERIAL IAL SUBSIDIAR IDIARY Y
A material rial subsidiary sidiary is is defined ined as as:
rantor; and
sidiary
ich the Issuer suer owns ns more re than 50 50% (fifty percent cent) of
inary ry shares and
hich ha has EBI BITDA DA (c (calcu cula lated on
an unc uncons nsolida lidated basis), sis), re repre rese sent nting ing 10 10% (t (ten perce rcent nt) or
re of
he EBI BITDA of
Discovery Group up (c (calc lcula ulated on
nsolid idated basis sis), ), acc ccord rding ing to to the he methodology gy used used in in the he la latest st aud udit ited fina inanc ncia ial st statement nts of
he Issuer ssuer, consist sistent ntly ly applie lied, but exclud cluding ing any Subsi sidia iary
OPTIO IONA NAL REDEM EMPTIO ION N EVENT NTS
Invest stors rs will ll have the optio ion to to redeem their ir Notes sho hould uld the follo llowing ing events occu cur:
suer is is no no longe nger list sted on
nanc ncia ial Exc xcha hange nge
no longer nger list sted on
ncia ial Exc xcha hange nge
is no no rating ng assigne signed to to the Notes
EVENT NTS OF DEFAUL AULT
St Stand ndard rd event nts of
ult inc including luding but ut no not li limit ited to to no non-payment nt, bre reach ch of
he negat negativ ive pled ledge ge, liq liquidat uidatio ion or
inding up up, ju judic icia ial pro rocee ceedings ings, cro cross ss default ult, inabili ility to to cont ntinu inue to to operat rate the whole or
stant ntia ial part of
iness
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ISSUER UER Discover very Limited ed GUA UARANT ANTORS Discover very Health and and Discovery very Vital ality (as per current ent SA SA Bank Loans ns) LISTIN ING Inter erest Rate Market et of
ed ISSUER UER RATING NG Aa Aa3.ZA ZA RANKIN ING Senior INDIC ICATIV IVE SIZE E R1.25 25bn bn to to R1.75 75bn bn TENOR
ar;
ation of
ar and and 7-year ear notes es INTER ERES EST RATE PROFIL ILE Float ating ng rate notes es PROPOSED AUCTIO ION N DATE 15 15 Novem vember er 2017 2017
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