Business Maverick


Discovery predicts Covid-19’s effects will last until 2022 as it sets aside provisions for the pandemic

Discovery predicts Covid-19’s effects will last until 2022 as it sets aside provisions for the pandemic
Many people want to wish Covid-19 away, including certain political leaders, but companies are digging in for the long haul, says the writer. (Photo: Gallo Images / Alet Pretorius)

South Africa’s largest health insurance administrator, Discovery, expects normalised full-year earnings to the end of June 2020 to fall 20 to 30% as it sets aside over R3-billion in provisions for future Covid-19 impacts.

The Covid-19 pandemic is certainly keeping number crunchers busy and will for some time. As a health insurer, Discovery, which also operates in the UK, is exposed in a direct way to the health impacts of the pandemic. 

“The Covid-19 provision has been calculated to estimate the future mortality, morbidity and economic effects of the pandemic by estimating excess mortality and excess lapses expected to arise in 2021 and 2022 on a variety of scenarios by setting a stressed, central (prudent best estimate) and light scenario. The central scenario has been used to set the provision, while the stressed scenario used to test capital and liquidity; the light scenario would result in a material release of provisions in future years,” the company said in a Stock Exchange News Service (SENS) statement on Monday, 15 June. 

“… approximately two-thirds of the R3.3-billion Covid-19 provision is made up of mortality and morbidity impacts, with a third from economic impacts. The provision is the aggregate value of these effects expected in 2021 and 2022.”

Aside from its sheer size, the provision is interesting because Discovery sees the pandemic’s direct effects potentially lasting into 2022. There are plenty of people who want to wish it away, including certain political leaders, but companies are digging in for the long haul. Discovery does not want to be blind-sided by claims. 

This also means that a dividend is off the table this year – one of many examples of companies conserving cash instead of dispersing it to shareholders. 

“Due to the uncertain and potentially volatile economic environment caused by the Covid-19 pandemic, Discovery will not be recommending the payment of ordinary dividends. The reintroduction of dividends will be considered when appropriate,” the company said. 

Still, Discovery sees light at the end of the Covid-19 tunnel. 

“In a post-Covid-19 environment, the issues of health, wellness and resilience are likely to be fundamental and Discovery’s Shared-Value Insurance model will be well-placed to capitalise on this in the markets in which it operates… The Group is confident that it maintains sufficient liquidity and solvency to weather uncertain conditions.” DM/BM


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