Global insurance group Discovery has allocated a further £155m (R3.1bn) towards Covid-related claims and policy lapses, including almost £20m at its UK-based insurers Vitality Health and Vitality Life.
However, despite this further provision in addition to £127m (R2.7bn) put in place last year, profits at the insurer recovered significantly to £167m in the year to 30 June 2021, up from £8.3m.
In the UK, Vitality Health has earmarked £14m and brought forward reinsurance payments to prepare for a claims backlog, while Vitality Life has put together a further £5.4m fund to cover its expected claims.
Overall in the UK, Discovery noted that while the Delta variant had a significant effect on infection rates, mortality rates were low.
“For Vitality Health, a key feature of the UK health market in the financial year has been the continued delay in claims catch-up relating to elective medical procedures with the second and third wave of Covid-19 infections,” the insurer said.
While it was including a £14m provision for short-term delayed claims, it highlighted that most anticipated claims are expected to transpire over a much longer period.
As a result, it has also brought forward £39.7m of reinsurance payments from the next two years which it expects to be very busy.
“It is anticipated that these delayed treatments will result in claims ratios being substantially higher than pre-pandemic levels during the next two financial years,” it said.
“This is expected as a result of a catch up of delayed treatments, combined with increased severity of conditions due to those delays.”
It noted that Vitality Life performed better than expected over the financial year in terms of mortality and lapses and a “relatively immaterial additional provision was deemed necessary to cover the potential effects of a possible fourth wave in the UK.”
It added: “The expected increase in lapses over the short term was set in light of the worsening economic factors and experience in the book over previous stress periods.”
Despite these extra allocations Vitality Health recorded a profit of £40m, up from £2.7m in 2020 while Vitality Life posted a £26.3m profit, recovering from an £85.1m loss last year.
South Africa
In its home market of South Africa (SA), the Discovery group has allocated R2.4bn for individual life and R300m for group life claims as a result of the devastating impact of the Delta variant third wave and in preparation for an expected increase in claims and lapses arising from an anticipated fourth wave.
This is all in addition to an initial R2.7bn (£127m) Covid-19 reserve Discovery put in place at the end of June 2020.
“Discovery projected a severe second wave for SA, but the actual second wave experience was still somewhat worse than expected due to the emergence of the Beta variant,” the insurer said.
“In addition, SA suffered a very significant third wave, driven by the Delta variant.
“The third wave mortality rates have been substantially worse than expected,” it added.