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Discovery Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1999/007789/06)
(Share code: DSY ISIN: ZAE000022331)
("Discovery")
Resolution of outstanding issues between Discovery, the Registrar and the
Council for Medical Schemes
Resolution of outstanding issues
The Registrar and Council for Medical Schemes, Discovery Health and
Discovery Health Medical Scheme ("DHMS") have reached resolution on
outstanding issues.
In terms of this resolution the Registrar has approved the proposal that
will build up reserves in the DHMS by December 2004 to meet the required
statutory reserves.
To achieve this:
- Discovery Health has reduced the current administration fee payable by the
scheme to 12.4% from 14% payable from January 1, 2002.
- Future administration fees payable by DHMS will increase by the Consumer
Price Index until 31 December 2004.
- The effect of this is that fees will reduce further to 11.6% in 2003 and
10.9% in 2004.
- The quota share reinsurance between DHMS and Discovery Life has been
halved from 67% to 33% of risk contributions and a profit share introduced
at no cost to DHMS.
- The reinsurance agreements will be evaluated annually in accordance with
statutory and other guidelines.
- DHMS will withdraw its appeal against the Registrar rejecting its 2000
annual financial statements and against the Registrar refusing to register
its proposed rule amendment regarding capital contributions.
- The Rand Merchant Bank Structured Insurance structure will be unwound and
the accounts for DHMS as at 31 December 2001 will be restated.
- The scheme and administrator will withdraw the Review Application lodged
over the Council's refusal to approve a subordinated loan.
- DHMS will withdraw its complaint to the Public Protector against the
Registrar.
- There will be regular meetings between the parties to discuss any issues
that may arise of mutual interest, and to monitor achievements of the agreed
plan.
Impact on business environment
Discovery believes that this resolution creates a platform for sustainable
growth in a stable environment. Management looks forward to an exciting
future for the benefit of all Discovery stakeholders.
Financial effects of the resolution
As a result of the resolution reached the administration fees and the quota
share reinsurance received by Discovery have been reduced. The growth in
Discovery's earnings for the financial year ending on 30 June 2002 will be
less than the consensus forecast. The net effect of the reduction in
administration fees received and the more stable outlook for Discovery
Health is a reduction in the embedded value of Discovery. Full details of
the financial effects of the resolution will be disclosed in Discovery's
annual profit announcement, which will be published towards the end of
August 2002.
Shareholders should accordingly exercise caution when dealing in their
Discovery shares until the profit announcement is published.
Sandton
24 May 2002
Merchant Bank and Sponsor
Rand Merchant Bank
A division of FirstRand Bank Limited
Corporate Finance
Corporate Law Adviser
Edward Nathan & Friedland
Corporate law advisers & consultants
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