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 Officer 03 Faree eed d Chothi thia: a: Group Corporate Finance 04 Michael hael Curti rtis: : Group Head Quants and Actuarial 05 Jackie ie Symons: ns: Group Head Investor Relations 2

Overview 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 oneeri ring Shared ed-Value lue Insur surance ce model del ac acros oss s business sinesses. s. Our ur growth wth has as larg argely ely been en organic nic. Funding to date has been sourced from relationship banks and Prudential in the UK  The Group’s debt is managed within a prudent risk framework  The DMTN program is a key element of Discovery’s long -term funding strategy as the Group  continues to invest for growth The DMTN programme is being set-up to diversify funding sources  The inaugural issuance will be used primarily for VitalityLife (UK) and general corporate purposes  in SA Strong cash generation in Discovery Health (SA) supports debt servicing requirements  Moody’s have assigned a Aa3.za national scale credit rating to Discovery Limited  3

01 Int ntrod oduc uctio tion n an and strategi ategic c focus us 02 Go Governan rnance ce an and risk sk man anag agemen ment 03 Fina nanc ncia ial l performa rformanc nce 04 Debt bt overvi rview w an and DMTN N issuan suance ce 4

Int ntrod oduc ucti tion on an and st strat ategi gic c foc ocus us

Our Ambition 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 Our Core Purpose Make people healthier and enhance and protect their lives 6

Evolution of the group June 2016 AIA Vitality is launched in Thailand and Malaysia March 1992 September 2007 August 2010 July 2016 Discovery Limited Discovery and Prudential PLC Discovery acquires Generali Vitality launches Vitality in Germany established October 1997 October 2000 launch PruProtect Standard Life June 2012 November 2014 Healthcare and merges Vitality launched Discovery Life launched Discovery launches Discovery full ownership of its insurance book with Vitality to Ping An PruHealth and PruProtect in that of PruHealth Health clients the UK and rebrands to Vitality UK July 2016 Discovery enters a strategic partnership with October 2007 Sumitomo Life Insurance Co. and SoftBank Corporation Discover Invest launched 1992 1995 2000 2005 2010 2015 2020 February 1993 April 2004 July 2013 November 2014 2009 Discovery launches Discovery Health starts Discovery and Prudential plc Discovery acquires a Discovery announces an a JV with AIA Group writing new business September announce their JV and launch 25% share in Ping An May 2011 intent to enter a strategic April 2015 September 2016 January 2017 PruHealth Limited in partnership with the Health 1999 Discovery Insure Discovery and John Vitality launches in Canada Generali Vitality becomes Singapore Generali Group launched Hancock enters into a as Manulife Vitality available to corporate Discovery lists on the JSE strategic partnership clients in France October 2013 October 2004 July 2017 AIA Vitality is launched in Discovery Card launched MyOwn launches in Australia Australia October 2017 Bank licence granted October 2015 AIA Vitality is launched in the Philippines, Hong Kong and Macau 7

Group operational structure DISC SCOVERY PING G VITALITY ITY PRIM IMAR ARY MARKETS AN AN GROUP UP HEALTH Footprint Core purpose 16 countries Make people healthier and enhance c10m clients and protect their lives Adding ~150k every month Discovery Health is administrator to Discovery Health Medical Scheme & 18 closed medical schemes  8 Discovery Card will integrate into Discovery Bank on launch 

Operating model Why y & How Growth wth Methodo thodology ogy Capita ital Philos osophy phy Core purpose se Make people healthier and enhance and protect their lives Vitality lity Shared-Value e Insurance e Model Target group profit Separation of Solvency Capital, growth of known initiatives and buffer for CPI I + 10 10% unplanned events 9

The Vitality Shared-Value model WHY HOW WHAT Make people Health insurance healthier and Life insurance enhance and Long-term savings protect their lives Short-term insurance Intent to enter banking 10

Consequence of the Vitality Shared-Value Insurance Model  Competitive advantage  Initial selection  Selective lapsation  Behaviour change  Bent lapse and claims experience  Healthier society 11

Organic growth engine Profit growth of CPI + 5% ESTABLISHED ~3 years Targeted group profit growth of Investment Profit growth of of 10% of CPI + 30% profit EMERGING CPI + 10% ~5 years Growth in investment of CPI + 10% NEW Mathemati matical al deri rivat atio ion CPI + 10% = X(CPI+5%) + Y(CPI + 30%) + Z (CPI + 10%) X + Y + Z = 1; Z < 0 12

Capital management philosophy Targe argeted ted cap apital tal meas asures es Three Th e pill llars rs of cap apital ital Allocated Solvency Capital Capital Return on capital risk free + 10% Dedicated Dedicated capital and reserves capital for planned 5 Year Capital Plan Projection Additional initiatives FLR Individual business ORSA Solvency Buffer 5 Year 1 in 200 assessment including new < 28% year event Capital Plan business written Projection Earning a rate of: risk free + 10% New initiatives and safety margins in emerging and Cash buffer new businesses R1bn - R2bn 13

Deconstructing our Ambition BRILLI LLIANT ANT BUSINE INESS SSES PROFO FOUND ND IMP MPACT 1 Insur urgen ent 1 CPI + 10% profit ofit growth th Signi nific icant ant 2 Risk free e + 10% retur turn n on capita tal 2 engagem gemen ent 3 10m Vitali lity ty member ers Super erio ior r actua uaria rial l 3 dynami mics Meet eting ng comple lex x 4 consumer umer needs eds 5 Except eption onal l servi vice ce FOUND NDATION TION 1 Global al platf tfor orm, , science nce and data BUSINE INESS SSES ES 2 Power erful ul brand nd 3 Emplo loyer yer of choice ce for critic tical l skills ls 4 Value ues-based sed cultu ture re 14

Govern rnanc ance an and ri risk sk man anag ageme ement nt

Governance structure Capital Allocation Committee UK operations have an independent Board and governance structure  The Discovery Bank governance structure is separately defined in line with SARB guidelines 16 

Leadership team Group oup Execut utive ive Execut utive ive Direct ector ors Non-exec ecut utive ive Directors tors 17

Group risk management framework Risk Appet etite ite and Strateg egy ERM Framework ork and Risk Policies ies Risk Managemen ent Proces ess Assess  Enterprise wide  Modelling and projection capability Identify Manage  Stress testing and scenario analysis  Own Risk and Solvency Assessment Report Monitor Risk Governance ce 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 18

Management of Financial Risks 01 02 03 Leve verage ge Fund unding ing Liqu quidity dity  5-year financial projections  Non-insurance entities - Detailed  Debt is a key part of the funding maintained 12-month cashflow forecast strategy maintained to manage liquidity – Known funding requirements  Manage FLR within Board approved are built into plan  Insurance entities - Risk framework risk appetite limit of 28% – Sources of funding identified sets minimum liquidity for  Debt covenants impose an external operational cashflows (incl. claims  Internal target for Group cash constraint and expenses) buffer is R1bn to R2bn  Aim to optimize the cost of funding  Each business maintains cash – Buffer for volatility and resources for operational liquidity unknown future investments 19

Management of Financial Risks 04 05 06 Capita apital l al alloca ocation tion Inte terest t rate ates Asset et liabil bility ity ma matchi ching  Policyholder assets subject to  Group produces cash on existing interest rate risk (discounted  Asset-liability management policy business and re-invests into new cashflow valuation) establishes matching approach business (new insurance policies or and governance new initiatives) – Nature of long term insurance business  Positions are matched by nature,  Capital allocation decisions made in amounts, timing and currency the context of the growth  Policyholder liabilities closely methodology, capital management matched so low residual risk philosophy and risk appetite  Interest rate sensitive shareholder  Decisions consider return, profit assets – Risk accepted for yield growth, cash generation, capital and  Low appetite for interest rate risk in risk metrics finance costs – Hedging instruments used 20