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Discovery Holdings Ltd SHARE CODE : DSY ISIN CODE : ZAE000022331
Following the threat of court action by Discovery Health Medical Scheme (`Discovery') against the Council for Medical Schemes (`Council'), Discovery is pleased with the announcement by the Registrar of Medical Schemes
(`Registrar') that the process to release the KPMG report will be initiated this week.
This will give Discovery and the Council the opportunity to reassure
Discovery's members and other stakeholders that Discovery conducts its business in an appropriate manner.
As stated in previous communications and in the interests of openness and transparency, the KMPG report covers the following areas:
Reinsurance: Allegations have been made in the past around Discovery's use of reinsurance. In many instances these allegations have gone as far as to allege reinsurance was used to `strip profits' from the medical schemes and in some instances to allege fraud. It was under this belief that a specific mandate by the Council to KPMG was issued in order to thoroughly investigate the use of reinsurance by Discovery and in this regard Discovery is
extremely comfortable with KPMG's findings and believing that KPMG's report it clearly indicates Discovery's use of reinsurance was appropriate and should continue.
The Registrar has stated that he disagrees with Discovery's interpretation of the KPMG findings on reinsurance. Discovery is therefore insistent that the full report be released as soon as possible to clear the Discovery name. Ancillary issues: The report raised a number of ancillary issues beyond the scope of reinsurance. Unfortunately the Council denied Discovery the opportunity to review the issues raised by KPMG prior to the finalisation of the report. Consequently the final report excluded Discovery's specific responses that would have rendered the report complete. Discovery has addressed all of these issues and while again comfortable would like KPMG to confirm no unresolved issues exist. In this regard the Registrar and the Council have expressly forbidden KPMG from completing this exercise.
Accounting debate around RMB Structured Insurance (`RMBSI'): Discovery entered into a structured insurance agreement with RMBSI to provide the medical scheme with R200 million of capital together with stop loss coverage for a five year period. It is a matter of historic record that the
accounting treatment adopted by Discovery in respect of the RMBSI
transaction in it's audited financial statements to the year ending 31 December 2000 has been rejected by the Council. Discovery has consequently initiated a formal appeal process against this decision, which has been delayed as a result of the Council not having constituted an appeal board. When KPMG finalised their report in March the Discovery audited financials were not yet complete and thus KPMG were not in a position to provide their own final opinion on the accounting debate. This matter is now beyond the report and will be resolved during the appeal.
Discovery believes it is critical to the interests of its 1 million members as well as other stakeholders that Discovery's good name and reputation be maintained. Discovery is therefore in the process of showing that ,
notwithstanding any of the ancillary findings in the KPMG report (which have been fully addressed ), that each and every decision and action taken by Discovery and in particular its decision to make use of reinsurance has been and will continue to be in the best interest of its members. Ends.
Contact: Shaun Matisonn, Principal Officer, Discovery Health Medical Scheme Tel : 011 529 2865 Fax : 011 5295503 Email : shaunm@discoveryhealth.co.za Cell : 082 606 2865
Contact : John Bowen, Partner Financial Services, KPMG Tel : 011 647 7285 Fax : 011 484 0510 Email : john.bowen@kpmg.co.za
Contact: Rosemary Renton, Director, Corporate Communications Consultants Tel : 011 783-8926 Fax : 011 783-7608 Email : rosemaryr@corpcom.co.za Cell : 082 491 0364
