Good morning. Welcome to our results presentation. It is always a pleasure, and frankly, an honor, to present the Discovery results to you. Appreciate the time. These are the results for the full year ended 30 June 2023. I wanna start by just thanking our Discovery people. It's been a very, very complex, tough year. I get to present the incredible work that you all have done. To our 15,000 people around the world, just a great, great thank you. Very grateful and proud of what you've achieved, and I hope I get the issues across clearly. It has been a very complex year. I'm joined with Deon, with our CFO, Deon, with me sitting here in Sandton.
Deon and our key executives are all on the phone, on the call, so we will take questions, I think, Deon, as we go, at the end of the presentation. Let me start by just making the point that I think it was a very robust year for the group. Despite complexity and volatility and the macro aspects at play, the group has performed well. It's been a robust performance throughout all of the companies, and that's added up to normalized operating profit, up 24%, as you can see. Again, I think new business has also been across the board, strong, up 12%. Interest, rising interest rates, most important in South Africa and the U.K., had an effect on our headline earnings.
We normalized that out, but it has a, but in total, headline earnings are up 5%, as you can see. When you normalize that effect out, normalized headline earnings are up 32%, I think, illustrating the robustness and the performance of the group over this period. I do think it's been certainly a tough, complex, volatile year. As complex as it's been, I'd probably say it's less complex than the COVID time. I do think, but there's huge amounts of risk out there, volatility, and huge opportunity at the same time. There are four themes I think we'd like to get across to you. I hope I do it justice in the presentation. But to illustrate to you four themes that have really framed this year under review.
I think the overall feel from my perspective has been a very, very intense period of focus. Focus on cutting things we think aren't going to get us value, a focus on growth, a focus on robustness, and they're playing out in four distinct themes. The first is just growth in quality earnings with a robust balance sheet, and you'll see that coming through. As I made the point about operating profit growing strongly, cash conversion at 64%, bringing it out, bringing down our debt to our leverage ratio further to 20%. Second point, a very clear focus per, in each of our composites about growth, and the focus in the initiatives we believe will drive us going forward.
Bringing down the investment in new, new initiatives as the bank has started to mature, and we've culled certain new initiatives as we intensified focus on areas of growth. The third point, and a critical point, is just evolving the Vitality Shared Value insurance model. I don't have time in the presentation to take you through all of the stuff that we're doing, but it's important you understand there's a considerable investment in this, and it filters through virtually all aspects of the group, and I hope that's evident as I go through the presentation. Finally, from a reporting perspective, the important transition, transitioning to IFRS 17. I'll take you through some of the logic around this and the technical, the technical aspects. There is a teach-in and a session later at 12:00 P.M. for people.
It's a separate login and sign-in, I think. You'll come off this and go back in, and that will be hosted by our CFO, Deon Viljoen, and our Chief Actuary, Andrew Rayner, and others will be in the session to answer questions. There's a lot there in IFRS 17. I'd like to give you a sense of that as I go through the presentation. Let me start by just touching on the macro business. Macro, there's nothing new here. A complex environment, global growth under pressure, rising inflation, really ambiguous and complexity and really a cautious, a cautious approach around central bank, as we've seen that over the last day, as well as the interest rates are staying at a high level. In our environment, considerable volatile exchange rates.
All of this stuff is kind of, kind of coalescing together to create considerable, considerable complexity. Having said that, on the right-hand side of the chart, what you see is the key drivers in our, in our group. New business, lapsation, claims levels have stayed very, very robust. The group has a, a kind of, kind of considerable resilience. I would, I would say no hubris in that. Of course, there are all kinds of risks, but I think we're demonstrating considerable resilience and considerable opportunity to grow. I think as the environment is more complex and more difficult, our relevance becomes, I think, more central. Particularly in markets like health insurance, where I think the focus on healthcare and wellness and on funding healthcare will become a bigger and bigger issue as we go forward.
So a complex environment, with all kinds of, of issues, but, we've been really in the thick of it. The U.K. with complexity around the NHS, the Chinese environment with its, its complexity. So hopefully, as you'll see the results play out, as I go through the presentation, you will see how this has manifested and how the group has, in fact, adjusted to this. Let me go with just the, the over, the overall kind of statement that takes you through all of our businesses. I hope I get across as we go along, and I'm not gonna go through detail here. But I think just some of the highlights, you can see each of the composites, S.A. growing 22%, the U.K. 21%, and Vitality Global, growing 74%.
I think what's notable to me, and I'm not gonna call out anything, but across the board, the growth has been robust. Also, one-offs up and down, and I hope you'll see that as I go forward, but I think a very steady and solid performance across all of our businesses. And again, I think we're very pleased with the robust performance in a consistent way. Same thing with new business. As you can see, up 12% for the group, as you can see. And then the non-insurance income as the bank has come on stream, alternative health products we brought out, you see later, has been very non-scheme products have started to grow.
Importantly, as VG grows, Vitality Global, you see the non-insurance income coming through very strongly, up 44% in a very short space of time. If you look at it graphically, I think it does tell the story for what actually is going on. You can see the operating profit up to ZAR 11.6 billion. It's interesting, the shape of the curve. We've gone back a decade here to give you a sense of how that's played out. It's kind of thematic. In 2017, 2018, with the investment in the bank and new initiatives, we were funding that out of operating profit, and you can see there, kind of curtailed somewhat in 2019.
We hit the COVID period, which took a really significant, significant effect on us as we went through that, and considerable mortality claims came through, and you'll know as well. In 2022, we bounced back with strong growth, as you can see. This period, off a high base in 2022, is much stronger. It has been a very robust and strong period, and I think we're pleased with that operating profit. If you look at the core new business API, a similar, I think a similar kind of pattern. Strong growth, I think we managed to achieve overall over the decade, but in fact, in this period, there's been a bit of a step up in that regard. You look at the non-insurance business lines.
In a very short space of time, they're becoming very, very meaningful and relevant. Of course, hope we can grow that, grow that going forward. On the new initiatives, there's been a very, very intense focus on making sure we grow the ones that have potential and culling and moving forward on the ones we don't. We've taken the view of our Vitality Invest, I think 18 months or two years ago, where we exited that market. There's a tail end of costs coming through. We've also exited the car market. We had a pilot going in that market. We've take our partner changing direction. We are discontinuing that as well. We are focusing down, of course, on things like the bank, and we've made a lot of restructuring inside the group.
So Discovery Bank is due to make operational break even in this year, and we hope before the end of the calendar year. I'll take you through that later. We've restructured Africa Health, reversed it into Discovery Health, really focusing on where we think it needs to be. Umbrella Funds is now part of a very important business. If we build corporate and employee benefits, it joins a large group. Vitality One has achieved scale. The investment, I think, in it will be stable going forward. It's operating very well, and you'll see one of the aspects of Vitality Global, we believe is to grow the top line while keeping the bottom line fixed in real terms, and that creates a very powerful gearing effect.
Vitality Invest, I made the point about that, and Vitality Health International, I'll touch on that later. That is a key expansion area of the group. So if you look at that, you can see that new initiatives really climbed significantly, touching 25% of operating profit in 2020 at the peak of getting the bank out. That's come down steadily. We now, if you exclude the discontinued U.K. businesses, down to about the 10.6% level, very much in line with the 10% guidance that we set, and we expect that to come down. These things are built. We need to really get leverage out of how they can grow going forward. Moving to the embedded value, I think tells an interesting story.
The EV growth has been about 13.8%, as you can see from the slide, up from ZAR 86.3 billion to ZAR 98.2 billion at the end of the year. But I think the progression is interesting. You can see the unwind of the discount rate obviously is evident, but very strong, positive, and non-economic experience variance is just under ZAR 2.6 billion. In fact, strong across the board. What is interesting is that there's kind of a bit of a resilience built into the group. We've had a rapid rise in interest rates in the U.K. and in South Africa over time. That actually diminishes new business margins. You'll see that comes through strongly in the life businesses. One of the challenges we face.
But on the other end, it increases automatic contribution increases and indexation in the U.K., so driving up some of the positive experience variances. So there's kind of a counterbalance. In addition, on the economic side, I made the point about interest rates really creating this kind of present value effect on future cash flows. You can see to the right of that, that 98.7 billion, the knock from the effect of interest rate movements, but then there's a corresponding Forex effect. So the kind of volatility creates a weakening of the rand, and we get a bit of a boost in that regard. So there's kind of a lot of counterbalancing forces. Again, I wouldn't tell you this is some mathematical resilience.
I guess I'm making the point there's a strong growth in the embedded value, but I think the broad nature of the group and the way it operates, there is some resilience built in, and there's some counterbalancing of all of the various factors that take place. Therefore, the return on the unit of 13.2% is made up, I think, of a fairly strong set of positive initiatives that have taken place throughout the group, and you see them manifesting strongly in the embedded value. If I turn to the group capital plan and cash generation, we are pleased with this. I made the point 64% cash conversion. You can see liquidity in the group has climbed significantly throughout all of our businesses.
We've paid off some debt, and given how the group has grown, the financial leverage ratio has come down to 20% or 20.4%. All of the entities in the third panel, as you can see, are strongly capitalized, and we maintain that buffer in the center, of 1.5 billion to 2 billion, slightly higher than previous periods, slightly lower than the previous, than 2022 , but we keep that buffer, firm, in, in that range. So altogether from a capitalized, from a capital plan perspective, we are very comfortable. The group is robust and generating, good, good cash. Just to make this point, I'm not gonna work through the face of the income statement in detail there, and you, you can cover that later with the questions on this issue.
I wanted to kind of reconcile the normalized operating profit, up 24%, as you can see at the top of that chart. You can see the effect in that red, rounded number of the rising interest rates, the effect on Discovery Life, the effect on the present value of cash flows. It brings down the earnings by ZAR 2.8 billion. It has no impact at all on the actual cash flows themselves, just the present value on liquidity or solvency or any of those aspects, and therefore, doesn't really illustrate the operating performance of the group.
It hits headline earnings, and you can see that as you go down, there are a number of other adjustments, and you see the effect of the profit before tax, up 2% to just under ZAR 7.4 billion. As you go down the face income statement, you get headline earnings up 5% to ZAR 5.5 billion, as I mentioned at the outset. We normalize them out, primarily, is the addition back of that interest effect of ZAR 2.8 billion. You see ZAR 1.9 billion. That's the post-tax effect of it. It's pre-tax at the top of the chart, so we're adding back the post-tax effect of the ZAR 1.9 billion. You bring it all together, you get normalized headline earnings growing 32%.
At the highest level, ignoring the detail, I would hope that normalized headline earnings or headline earnings will have a good effect to operating profit. There are things like finance charges over time. If we keep our debt levels stable or declining, those finance costs should be flat or fairly flat, and therefore, you should get a gearing effect as the group grows. So hopefully, that is something we can maintain going forward, but of course, that's going to be subject to all kinds of volatility with markets and exchange rates, et cetera. We're trying our best to manage that very carefully. But overall, I think a strong growth at the operating profit level and right down to normalized headline earnings at 32%. Obviously, we are pleased with that.
Maybe to make the point, when you go back to the businesses, a very strong, solid, and consistent growth across the businesses. I wanted to touch on the interest rate effect because they're quite different in South Africa and the U.K.. In the case of South Africa, you can see on the left-hand side of the chart, the yield curve, the horizontal axis is duration by month. So you can see the yield curve over time by duration is upsloping, which is, of course, important. But you can see it has consistently gone up. Pre-COVID, it's gone up to just post-COVID a year ago, and now up even higher. So probably in total up 3% to 4%. It's a significant amount, and that has an obvious effect when you're discounting cash flows back over 20 or 30 years.
It has a dramatic effect. I'm not sure where that will go, but I mean, I guess just the kind of sovereign risk, risk premium, if that's priced in, that curve keeps going up, that creates that effect. You can see in the second panel, the volatility in our earnings, it creates considerable negative value to the present value of those cash flows, and that's come through in the past. We normalize that out because it has no impact on operating performance or the cash flows or the liquidity, et cetera, as we've done. But going forward, and I'll touch on that a bit later, under IFRS 17, we'll have left the OCI treatment, other comprehensive income, which really doesn't let that flow through the P&L.
So going forward under IFRS 17, you won't see that volatility. It will come through over time in an amortized way, and that amount could be positive or negative, but we expect a lot less volatility going forward. The U.K. is a different dynamic. You can see in the third chart, rates there went dramatically up very quickly. So we were backing with negative rates or close to negative rates a few years ago. So record low interest rates, it created all kinds of other issues. Then we had a period of slightly rising rates and then the sudden escalation as inflation rose in the U.K. We employed a very important hedging strategy over that period. If you follow us, you'll recall this issue.
There was an issue of us taking the back book out of the Prudential, out of our JV with Prudential, onto our balance sheets, and that, that creates considerable potential solvency or capital requirements under very low rates of interest. That is, so we created a hedge strategy to make sure that we're, we're absolutely safe, and that you can see on the right-hand side of the chart. At low rates and at high rates, you can see that now the last number of years, that hedging strategy has been remarkably successful. There's been very little effect on earnings, but importantly on, on liquidity and capital, and that's important.
Going forward, given how strong the back book is and the cash build up in the back book and all the structures in place, we actually don't need that hedging strategy in the group going forward, and the U.K. is largely unaffected by moving interest rates to that extent. So there's been a lot of work done around interest rate movements. And as I said at the outset, under IFRS 17 and the OCI, this volatility will be removed quite considerably out of the mix. So coming back to the face of the income statement, we will be recommencing the dividend, and declaring a final dividend on the back of, I think, very robust results. I think the group is in a very, very strong position.
At the same time, there's a focused approach to our new initiatives. The bank is turning quickly, et cetera. So we're recommencing the dividend, and we're setting the dividend, a final dividend declaration, in respect of the half, the second half of FY 2023, of 110 ZAR cents per share. The coverage is about 5x , not very dissimilar to our guidance of 4.5 x that we've given over many years, in line with the growth model. And going forward, we'll probably shape the dividend. That's the intention, based on market practice, where the interim dividend will be lower. We expect that to be 30% to 40% of the expected total annual dividend, and the final dividend making up the balance. So that will be the way going forward.
And nothing different from what we expect to do as we came out of COVID, as we got to a stage where we felt that the group was resilient in terms of all of the growth initiatives, which we are now very, very pleased with. So that's where we are on kind of the core results. I wanted to give some key messages and summary of the IFRS 17 transition effects. As you all know, we are now moving into IFRS 17 from IFRS 4. For the first time in financial 2024, we will be reporting on the IFRS 17 basis, and in these accounts, we show a transitional balance sheet as of June 2022.
This is complicated stuff, and we felt it's important that we give some sense of just the rationale, the effects, and what it means for our balance sheet, and very importantly, what it means for earnings, as we go forward. As I said at the outset, there is a session at 12 o'clock that will delve deeper into these factors. But I want to give you a sense of what this means in terms of margin, equity, earnings, and importantly, volatility, going forward. A few important points, and I hope I'm not too boring, but I hope I get the points across. IFRS 17 is really an accounting standard, as complex as it is, but really focused on the timing of proper recognition.
That's what it impacts on, and therefore it affects the transitional balance sheet. It has no effect on, on cash flows, on underlying risks, on solvency, capital, on dividend paying, anything like that. It is really a function of how profit is recognized, when it is recognized, and how it emerges over time. That's the first point. The second point is, if you look at the group in terms of our composites, South Africa, the U.K., and Vitality Global, IFRS 17 is really focused on long-term insurance businesses, so therefore, there are a bunch of businesses in the group, like Discovery Health, like Vitality Group, et cetera, that are not affected, by IFRS 17. This is primarily has an effect on our long-term life businesses, Discovery Life, Discovery Invest, which is on the Discovery Life balance sheet, and of course, Vitality Life in the U.K.
So it has a specific effect on certain parts of the group, and therefore, when you think about the overall effect, it's kind of a weighted or arithmetic average of the various aspects of the group. Just in terms of some context, and I hope I'm not being patronizing, how you will probably know this very, very well, but just to understand the balance sheet effects, it's important just to understand the shape of a life insurance balance sheet on the left-hand side. It has assets in the light blue. They're really the present value of future cash flows. That has a value. And then against it, what's in equal amount, is the sum of margins and equity. Equity or shareholder equity is the present value of past profits earned, and the margins are the present value of future profits expected.
The sum of the two must be equal to the present value of all of your future cash flows. That, that's a balancing item. When you compare IFRS 4 to IFRS 17, there's complexity, real complexities around accounting and actual complexity. But in reality, conceptually, it's very, very similar. On the IFRS 4 side, you have the best estimate of future cash flows. In IFRS 17, the net expected future cash flows, very similar, very similar conceptually. The margins are different in their construct. You have a compulsory margin, discretionary margin in IFRS 4. In IFRS 17, there's a contractual service margin and the risk adjustment. The philosophy is similar in the sense of, of margin versus shareholder equity. But the important point here, this is the fundamental issue, is that under IFRS 4 and IFRS 17, the total value is the same.
So if you look at the kind of the best estimate on the, on the asset side, the best estimate of future cash flows versus the IFRS 17 net expected future cash flows, the total value is not, is not much different. So that means if you accept that on the, on the right-hand side, the sum of your equity and your margins is always going to be the same between IFRS 4 and IFRS 17. The fundamental issue is simply the allocation between them. What happens in the inter transfer between them, between IFRS 4 and IFRS 17? So that's the first important point to note. The second point is how this affects our particular life businesses. Now, I do think that Discovery in our life businesses is quite unique. Our businesses are relatively young. Discovery Life started in 2000.
It's just over 20 years old. Vitality Life, in fact, is only six years old or seven years old. Bear in mind, we had a JV with Prudential, so all of that business is in the belly of Prudential's balance sheet. So Vitality Life is only six or seven years old. Of course, that doesn't sound that young when you think about 2000, but in life insurance business, most of our competitors are decades old, or in fact, centuries old, if you look here and around the world. So these are, these are long, long-term businesses. The second point is that our business has been a high growth business. It's a long-term business, 50-year contract boundaries, high upfront acquisition costs, 85% upfront commission. In the U.K., over 200% upfront acquisition costs.
You've got to recoup that over, over 50 years. So these are businesses which require long discounting and have a long process of how they actually wind up. And I think unlike other businesses, we're almost monoline. So in Discovery Life, you've got the invest business, but if you, if you remove that, it's an entirely long-term, almost whole of life business. The same in the case of the U.K., where it's a monoline focus on business, which I think is very, very different. So all of it is quite concentrated in, in this class of business. So the effect of that, when you understand that, is two important effects of the move from IFRS 4 to IFRS 17.
The first is that under IFRS 4, all costs were attributable, and essentially, our accounting policy was to ensure at the point of sale there was zero profit. And the profit emerged, we felt, over time, that gave a sense of how the profit recognition should take place. In IFRS 17, the methodology is exactly the same. You project out to the contract boundary. But the fundamental difference is certain of the expenses are non-attributable. You will actually take those through the profit and loss as immediately as they occurred. So you can see from the chart, it actually lists out, I hope you can see that, the expenses under IFRS 17 that are not directly attributable, certain marketing expenses, sponsorships, R&D expenses. And the IFRS 4, those would be attributable and treated as we did in the case of IFRS 4.
In IFRS 17, those are not attributable. Now, that's 5% of the expenses, that amount, but over 20 years, that, of course, the present value of that amounts to a substantial amount in IFRS 17. The second point is, under IFRS 17, onerous contracts have to be separated out separately and not kind of cross-subsidized. So in the overall value, there's a projection forward in the future cash flows of onerous contracts . The value is already in there in IFRS 17 and IFRS 4. But in IFRS 17, you've got to highlight those contracts and actually take the present value of that potential value of the owners' contract against your P&L. So it comes through immediately. Now, just to point out, the onerous contracts don't mean loss-making. It just means under very conservative assumptions, they are not profitable.
Hopefully, over time, those emerge as profit. But IFRS 17, on the transition, makes you look at the previous 20 years and bring that forward, all of it in the capital value, and take it off your P&L. The effect of both of these is to make IFRS 4 more generous in the early years, and over time, less so in the later years. IFRS 17 becomes bigger as the margin emerges. 'Cause bear in mind, all of these effects are already in the value. There's no difference to the total value. It's just how that value emerges. So what I wanted to show you is this quite an important theoretical construct of really what happens. On the left-hand side of the chart is really just an illustration of how the earnings emerge.
From those two factors, you can see in IFRS, in IFRS 4, the profits in the darker line would start out higher, but be flatter in the long term. In the case of IFRS 17, the profits are lower in the early years because of the non-attributable expenses and onerous contracts that you've capitalized. Lower in the early years, and that value is in margin, as you can see in the shaded area. And then over time, IFRS 17 crosses over and becomes higher than IFRS 4. In total, the present value of those two profit lines are exactly the same because the value of the cohort is exactly the same, and therefore, that's a clear issue. A equals B, you know, mathematically. But it's important to understand that IFRS 4 profits are higher early, less so later.
If you look at the balance sheet effects, and you look at margin and shareholder equity, there are important relations to understand. In the case of IFRS 17, margins are always higher than IFRS 4. Bear in mind, over a cohort of business, ultimately, the margins go to naught as you kind of reach the end of the line, and that's in 50 years' time for a cohort of business. In the case of shareholder equity, IFRS 4 has always higher shareholder equity because the profits came earlier than IFRS 17. And over time, shareholder equity asymptotically gets to the same point under IFRS 4, IFRS 17. So I hope I'm not being too theoretical, but the important point to understand is when you cross over from IFRS 4 to IFRS 17, margins always go up and shareholder equity always goes down.
It's a concomitant effect, as I've explained. The total value is exactly the same. So it's really margins going up and shareholder equity going down. Of course, the important question to answer is: What happens to earnings? Now, what happens to earnings is very much on the left-hand side. It depends where you are on this graph. If you to the left of the crossover point, your earnings will go down as you transition. If you're on the right, the earnings will go up. The crossover point is a powerful point of view, because at the crossover point, your earnings are equal, but the potential for future earnings is the best under IFRS 17. All your margins are then there, and your ability to then grow as those margin releases come through is very, very strong.
The crossover point is an important point to be at. At the same time, I mean, just to make it clear, at the crossover point is the maximum difference between margin and shareholder equity between the two bases, so it's kind of a turning point. That you'll see, I think, in the, in the T2, I would guess. Just trying to make the point, as you go from IFRS 17 to IFRS 4, on our class of business, the way that we've interpreted IFRS 4, you will always get an increase in margin and a concomitant decrease in equity. To go to the detail, going back to the balance sheet on this, on this chart, I hope it's clear to you.
What we will see in our business, and you'll see that on the transitional balance sheet, is a reduction in equity of approximately ZAR 12 billion to ZAR 13 billion, a concomitant increase in margin of the pre-tax amount, which is about ZAR 15 billion, and that's the effect. The total value, of course, stays exactly the same. The middle of this, the middle of the chart shows you what that ZAR 15 billion is made up of, or that ZAR 12 billion to ZAR 13 billion pre-tax. The non-attributable expenses of ZAR 9 billion or ZAR 6.5 billion, the effect of onerous contracts, the value over 20 years of ZAR 3.5 billion or ZAR 4.5 billion pre-tax, and a number of other technical things that our team will take you through later of about ZAR 1 billion.
Importantly, just to contextualize and give kind of relevance, the non-attributable expenses, I said, makes up 5% of the total expense base over the 20 years. But of course, over 20 years, when you wind it forward, and you bring it to present value, it is significant. And the onerous contract is about 9% of the value written, which I think is not irrational and probably not unexpected, that you'd expect, five to 10% of your book to be onerous. We're hoping that that value comes through. And then finally, the other impacts, which you'll see later on. The question, of course, is the effect on earnings. Now, this is important because the crossover point on the right-hand side of the chart is a fundamental issue.
What I think is pleasing for us is Discovery Life, which is, of course, the biggest of the life businesses we have by a long, by a long margin, is very close to the crossover point, and that's a good thing. So it should, it should, over time, generate considerably more profits than IFRS 17 as margins emerge. In the case of Vitality Life, it's a very young business, and therefore, it's much more to the left of the crossover point. And therefore, it will take time for the IFRS 17 profits to reach the level of the IFRS 4 profits.
For the group in total, and this is important, for the group in total, where our earnings will sit under IFRS 17 versus IFRS 4 is the arithmetic average of where Discovery Life is, where Vitality Life is, and of course, where the rest of the group is. Our estimation going forward is that the group is likely to be, in the short term, very close to the IFRS 4 earnings, and there is some volatility. It will depend how Vitality Life plays out. It's early in its transition. It's a long way to the left of the curve, but that is our expectation. So in summary, let me make just a few points again. I think if you do have the time, come to the session on it.
Value stays the same, and the effect is a concomitant increase in margins pre-tax of ZAR 15 billion, a decrease in shareholder equity post-tax of ZAR 12.5 billion. Overall, we are close to approaching the crossover point, and therefore, group earnings, with some volatility in the short term, should not be dissimilar in the IFRS 17 and IFRS 4. A final point, I made the point about a move to the OCI treatment. In addition, with additional margins, because our margins are now dramatically more, volatility going forward should be a lot less. More margin than economic effects are taken out, which is very consistent to our normalizing of earnings, and therefore, going forward, the earnings should be less volatile than in the past.
That is a summary of effect on of IFRS 17. Our team will take you through that later at 12:00. Let me continue on just, maybe social impact. I'm not going to go into detail on this. I've dealt with financial impact of the year under review. I want to make some points about just the social impact. The group, of course, is focused very much on sustainability, and not just in the case of ticking boxes in ESG, but a very strong focus in our purpose and values on having an impact, so we have a very careful scorecard. You will have seen this, I guess, in the previous reporting period. I hope if you go through it, you'll see considerable progress in a lot of areas. Making people healthier, we now recorded over 500,000,000 healthy activities.
I think that's an important call out from us and our partners. We've brought our carbon footprint down quite, quite significantly. There's more to do. We've launched Discovery Green. That's going to help us do more of that and help our partners. We're doing a lot of stuff in terms of nation building and the healthcare system. The pothole process continues. It's always nice to mention this. We've filled 190,000 potholes in the Johannesburg area. Illustrates that, you know, you can make a difference quickly, and I think we will continue to do that. We continue to fund and strengthen the healthcare system if we can. You'll see in diversity inclusion, a lot of work done on our board and our people.
And then in terms of fair and responsible pay, I think we're doing good work, hopefully at narrowing certain gaps in certain key areas. From a rating perspective, we've come a long way up. The group is well-rated across all of the, among the highest rating in our, in our peer, in our peer group, among the, the important rating agencies. So very good progress in this regard. It's not here to tick boxes. I think making, I want to make the point, in terms of our core purpose, make people healthier, we are fundamentally a force for good, and we need to be able to measure that, and make our people, the people at Discovery people understand the, the massive impact they're having, on, on society and the markets that they operate in. Let me talk just about the model.
I made the point that this is obviously fundamental to what we do. I can't do this justice here, and I'm not going to spend too much time on this, but there's a number of important trends. The model has proven to be so powerful. There's a lot of aspects that we need to drive in going forward with the model. The first is making sure that it kind of emerges from just kind of a wellness structure wrapped around life and health insurance and banking and other how people drive to an economic model. And the ability. The second point is the ability to demonstrate its impact. You'll see later in the presentation, there's demonstrable impact on our partners, that is very, very profound.
We've got to monetize it and demonstrate our value in a much more articulate way. We are focusing very hard now on the actual drivers of value. In our case, on the right-hand side of the chart, the rate of mortality, can we bring that down through behavior change? Second, the cost and the rate of sickness and morbidity, of course, the lapse rate and critically, the upsell rate. In many of our partners and our other businesses, we, we upsell to existing clients, understanding if they're engaged, if they're healthy, understanding their particular circumstance, helps us upsell products to them as we go forward. We've really focused down on making the shared value model a set of modules that is hyper-personalized, clear, focused, where value can be demonstrated.
In the case of life insurance, dynamic pricing models, personalized engagement, risk assessment, and then the ability to value it based on habit indices, change, behavior formation, et cetera. There's a lot of work taking place, and we'll be doing a launch next week on a lot of this. But in the case of the life value chain, we are really focusing on the issue of real ability to have dynamic pricing archetypes. We can offer different partners. A focus across all of our markets of the ability to have hyper-personalized dynamic risk assessment and real focus on engagement that is personalized and next best action. Simple for the client, but absolutely fed by proper data ingested into the model, personalized algorithms, as you can see, and then personalized pathways that come out of this.
In the case of health insurance, this is a massive opportunity because to an extent, what we see in the world is you have, on one side, wellness and prevention, on the other side, you have disease management. Disease management has been a massive industry, but it really doesn't get tremendous levels of engagement. Our sense is that by bringing the Vitality, Incentivization, and Personalization, there's a spectrum that Vitality, the shared value model can straddle. All the way from wellness and prevention, all the way to coaching, disease management, medicine adherence, et cetera. The methods are the same. It's about identifying risk, personalizing the pathway, nudging and incentivizing, and getting behavior change, and creating habit differences.
The powerful thing in the health insurance space, we're pioneering this in the case of Discovery Health, and this will roll out in our launch next week, is the considerable amount of data. We have lifestyle data, we have behavioral data, clinical data, pathology data. The ability to bring that together to understand both the absolute hyper-personalized risk assessment of an individual, and secondly, their propensity to make changes and what kind of things would appeal to them. So all of this goes into this strong platform, comes out with a personalized pathway, and using machine learning, actually spits out a pathway for each individual. Out of each individual, out of millions, gets a separate pathway with specific behaviors and specific incentives that are gamified to get that change.
Of course, getting this right to be a pioneering capability that, of course, can roll out across our partners, across Vitality Health, which is also central to building this. We're doing this with Quantium and bringing all of our data together. This is a considerable investment for the group, but we believe it will roll out and strengthen our businesses across the board for Amplify to work in Ping An and to others we hope we can share this with. So there's a lot taking place in the case of our shared value model. There's more data here that if you go through the presentation, you can look at. So enough said on kind of the overall financial impact, the social impact, the growth of the model.
I wanted to make some comments about our various businesses in the three composites. There's a huge amount to tell. I'm gonna touch just the treetops and try and give you a sense of where the emphasis should be. I think the point to be made is, it has been a period of considerable focus. I think we know what we have to do, and we focused hard on getting that done. So while in the case of South Africa, it's about being this composite, having a bank at the center, we've learned clearly it's about scaling the bank to profit, ensuring each of our businesses is market leader in every dimension, and there's work to do across the board. In the case of the U.K., a new generation life and health insurance composite, we focused hard.
The U.K. is, is complex. You've had this massive effect of inflation, high rates of interest, and at the same time, the complexity around the NHS, as it, as it has had its own complexities and difficulties. All of that has created an environment of considerable complexity and opportunity. Finally, how we scale this to our partners, through VG. There's been a clear focus, scale Ping An, monetize our IP properly, as I said before, with our partners and get real scale, and of course, globalize our unique health assets, which we focused on. The point I wanted to make is, I think there's a very clear strategy in everything we do, both at a vision level and at an ability to get growth and scale. Let me deal with the South African composite. Excuse me for one sec.
Let me deal with the South African composite and maybe start with Discovery Bank. Discovery Bank had a tremendous year and a tremendous second half. If you look across kind of the key metrics, the growth and the momentum and velocity has been very, very strong. Total clients growing by just under 50% to over 700,000. In fact, we've touched 750,000, you know, in the last, I think, few weeks, the last few days. Total accounts up 60% to 1.6 million. I think we're now at 1.75 million, you can see the growth in income. Retail deposits continue to grow. The advances have grown 22%. That's an area of considerable opportunity. We remain cautious there, and we remain a bit product shy.
There's a lot we're doing, and I'll take you through that. The operating result turning now strongly. You can see the breakdown between operating result and acquisition costs. Our intention is to get the operating piece in blue to a break-even month by month, by the end of this calendar year. That's a hard task. We believe we can achieve it. A few dimensions of the bank, or a few kind of lenses to look through. The first is just revenue growth, and velocity continues. You can see that we've crossed 100, we've crossed, come to 1,000 members per day, and that growth tends to be very, very strong. At the same time, the NIR by duration tends to climb very, very quickly.
This is a fundamental issue 'cause this illustrates the issue of a new bank. Can you get people to bank with you over time? Can you get them to use your services at scale? That's a critical issue for usability, for stickiness and, of course, for revenue generation. What is fascinating inside Discovery Bank is typically people join, there's a number of ways that we reach out to them. Well, new member calls, and there's a number of stuff through the digital experience that is quite different and powerful, using data, et cetera. But you can see in a short space of time, the usage goes up. So typically, within a 12-month period, the usage levels and revenue growth is up 70% or 80% of what it was 12 months earlier.
That is the opportunity of the bank, the ability to drive that over time. The fact that, as you can see on the, on the second last panel, is a very strong growth in the overall revenue, up 55%, over 18 months. So if we can continue to grow that and get efficiencies, you can see how the economic model works. And then, the overall benchmark, I think, is just to see the NIR per customer is the second highest in the market, and hopefully, we can increase that over time. So the hypothesis about a bank that's built on a digital frame, shared value that engages customers in a full-service way, is fundamentally how the bank is growing value-add to customers and fundamentally economic model that you can see coming through.
In terms of the quality of clients and the opportunity on advances, it is significant. On the left-hand side, you can see the quality of clients that we're achieving. Over 50% of our client base is super prime. When you look at the credit card experience, our actual credit loss ratio is dramatically lower than the rest of the market. It has risen somewhat in the last few months as the environment has toughened, but still a very low level and easing a bit. So in that regard, you can see the quality of the client base, but the opportunity in this market for us is substantial. We've checked very carefully the entire borrowings of our client base on the bank.
You can see it in the third panel. The outstanding balances our clients have with other banks is close to ZAR 300 billion. A lot of that, of course, is home loans, but the other pieces they look like rounding errors, are huge. ZAR 25 billion in the credit card space and ZAR 18 billion in the personal loan space. We only have an advances bringing total of ZAR 5 billion out of one product. So we're in the process, obviously, of enhancing the product range. Home loans, access facilities, and personal loans are coming quite quickly. We've done a lot of work over the last year on the home loan product that will roll out for our staff.
Initially, it'll launch next week, and as part of understanding the pilot in the Q1 of 2024, and then access facilities and personal loans will follow, quite quickly. So we are really filling up the products to make sure we can grasp the opportunity presented by the scale and quality of our client base. And then, to bring this together, just to understand the efficiencies. I mean, the main thing is that we've built a very, very powerful digital capability, and therefore, the fixed costs are largely fixed. And you can see that on the left-hand chart. As we grow, you can see how downsloping the costs are per client. And then, in the middle chart, which is critical, the kind of jaws between revenue per client and expenses per client.
And I think importantly, on the revenue line, the darker blue line, it's staying fairly flat over time, which illustrating that we're keeping the quality of clients and the engagement where it has been. But at the same time, you're getting this dramatic decline in expenses per client. And of course, that opening jaws creates the economic value over time. On the right-hand side is a repetition of a chart we showed you, I think, at interims. In the dark blue is really the expectation of how the bank should break even operationally, and then how we expect to do now. So in fact, we're slightly ahead of that projection as we go along. This is months away. We'll see how it plays out.
I think the point we made in terms of capital plan growth, all of the metrics, the bank is very much in line or better than expected. I didn't want to dwell on this, but I did want to make the point that the bank has a few dimensions of real competitive advantage. I mean, obviously, we believe the digital experience of what we can do in the traditional banking sector is different and better, and hopefully, that is what's playing out. There are a few things that I think make the bank, three dimensions that I think make the bank very, very powerful when it comes to the architecture of how we built the bank. First, at the top of the banks, the kind of the carousel mindset, your entire financial portfolio sits on the face of the bank.
So not only the traditional banking portfolio, but your health, your life, your insurance, your invest, your umbrella fund. All of that stuff is sitting on the face of the bank. So your entire financial portfolio is on there. As the products come out, the new lending products, they too, will appear on the face of the carousel. Then underneath that is your entire shared value, behavioral piece of what you do. So Vitality, your health issue, your drive issue, your money issue, all of that into a single currency. You can access all of the partners. And then thirdly, and this is critical, and this we're starting to roll out now, is different ecosystems. The Travel Platform, Vitality Travel, has been remarkably successful.
You have access to all airlines, airport lounges, all of that stuff at discounts, and the discounts are driven by your levels of engagement on the face of the bank. We are now rolling that to fitness, linking you to the healthcare system, to the home environment, et cetera. And I think that ability to offer ecosystems tied to payment systems like Apple Health, Apple Pay, and our Discovery Pay capability is powerful. So this is where I think the bank has the ability not only to be a full-service bank, the ability to be a super app, where effectively all of this is interconnected. Your financial world is linked to your behavioral world, is linked to your ecosystem. All of it is linked to a payment account that you can just assign all on the face of the bank.
So all of the stuff should play out as we go forward. And as we innovate, we'll add ecosystems, add functionality, add pro- products to the carousel, et cetera. And again, next week in our, in our product launch, more of that, that will come forward. So enough of the bank, I think that we are pleased with the progress of the bank. I want to touch on Discovery Health. Just at the very high level, the performance continues to be exceptionally strong. Operating profits, it's a massive business. It's grown 7%. New business up 19%. That's a very strong level of growth. Bear in mind, there's a lapsation effect inside Discovery Health, just given its scale, so the new business footprint has to more than compensate for that, but in the period, very, very strong. Membership to over 3.8 million.
Then you see on the right-hand side, the non-scheme growth now amounts in revenue to 15% of Discovery Health's revenue. Very, very strong growth in gap cover, Flexicare, Healthy Company stuff that's not inside the medical scheme business. It's strong growth, but I think it illustrates, which I think is important, just the powerful latent potential of these non-scheme medical products, and our team doing a great, great job at growing into that potential market. Looking at the actual performance of the Discovery Health Medical Scheme, it's a separate entity, but its performance has been quite remarkable. We make up now close to 58% of market share of the market.
You can see the other schemes are small, and when you add them together, add up to, you know, less than that, gives you the 42% or thereabout. I think fundamentally, you can see the stability of the scheme. If you look at the customer satisfaction, it's quite remarkable. I mean, obviously, in this environment, where people are under stress and strain, you get people wanting to leave, to buy up and out, or to buy down their options. We don't see that happening inside the medical scheme. So amazingly, if you look at that chart in the middle, the second panel, 97% of the client base has not moved plans, and in fact, more have moved up than have moved down. So there's considerable stability, and that stability, which is interesting, has gone up over time.
So the claim chain moves, although very small, 3% or so, you know, five years ago, has come down significantly over time. Lapses are, as I said to you, there's a large amount of lapsation with a lapse rate of only 45%, but the numbers are big, and you've got to grow the book to make up for it. And then, the solvency of the scheme is quite remarkable, at 30%, 26 Common Law, just ZAR 27 billion of solvency sitting inside the Discovery Health Medical Scheme. The trustees have been very careful about releasing that solvency. It was built up a lot with during the COVID period, above the 25%. As claims were reduced down, we've,
The approach has been to kind of use that to stagger the contribution increases, to make sure we get to the right solvency levels and the right cost curve over time. I think that's been a very, very good process. So a lot is happening, a lot of innovation, a lot of complexity about medical inflation going forward. At the launch next week, of course, we'll tell our stakeholders and members much more about this. I did want to use the opportunity to talk about NHI and just give Discovery's position on NHI. This is, of course, a critical piece of legislation. Its effect is likely only to be felt in a decade or more away, but it is a very important piece of regulation. I wanted to just give you our view of where we stand on it.
The first point to make is that we don't believe the status quo is sustainable. So we do believe that universal health care for all South Africans is a crucial issue. It's a noble goal. It must be achieved. And NHI is a remedy, for sure, and we have to try and make it workable. But our position is that NHI is not workable without private sector collaboration, and I'll show you through the numbers where that position is. The pinch point in the Act, the other parts of it, the main pinch point is the so-called Section 33, which really says that once NHI is fully implemented, medical schemes can't cover those aspects that the NHI fund does cover. And in a sense, that effectively takes medical schemes out of the mainstay of healthcare.
Now, while that's a medical scheme issue, that really takes private healthcare out of it, because private healthcare is funded by medical schemes. That's the primary way that you fund private healthcare. Without that funding methodology, private healthcare can't survive. This is a crucial issue. Of course, this is a decade or more away as we move towards how the NHI can work. Our position is, you need private sector collaboration in this from the get-go, so we can make it work. We've seen what the private and public sector can do in the context of the vaccine. It's a very narrow, focused issue, but this is so important. You need private sector collaboration. I also want to make a call out and a case for the private sector. It's a remarkable national asset.
It is unusual in its scale, in its quality, and its sustainability. We should never forget that. There are amazing doctors and hospitals and facilities and corporates involved in it. You can see on the left-hand side of the chart, maybe 840 facilities, 15,000 doctors, GPs, and specialists, maybe 50,000 nurses. It's a massive, massive system, and it's funded by medical schemes. ZAR 260 billion flows through the system every year. But the critical thing is we have an open enrollment, community-rated medical scheme system, so it works on very social egalitarian principles. People have guaranteed access to the system if they can afford it. That's a critical issue, and there's no discrimination. It's a flat community rate. This is incredibly powerful. When you look at the actual data on the side, our team have shared some data with you.
It's remarkably comprehensive. Our survival rates for cancers are amongst the best in the world. Readmission rates for people over 65, a great measure of quality, is lower than many American measures. And you can see the cost when you look at other developed countries. If you compare the private sector, adjusting for purchasing power parity, is nearly 40% cheaper. Now, not to say that we can't be more efficient. There is an waste, there is an issue that have to be addressed, but in the main, this is an incredible system, and it's an orchestra. If you upset the funding structure and you upset the cross subsidies, you don't gain it back. There are doctors of considerable quality. We have to maintain them, sustain them, make sure they're paid appropriately.
We have to get people to want to become doctors and go to, and go into medical school and come out. We need more doctors in public and private. So this is a system that shouldn't be messed with, and it's a system that is ripe for collaboration in the context of the NHI, and it's very important we achieve that. But I guess the point I wanted to make is, it's just like looking at the numbers, and these numbers aren't. I'm not, this is not an attempt to be critical. It's an attempt to illustrate just how complex the financing of NHI is, and how hard it is to achieve. And this is based on numbers as they are now.
Of course, this is something that's going to take decades to achieve, and hopefully, our country can achieve better economic growth over time, become more prosperous. But I think the points made directionally are relevant, that you should understand, and you may know this anyway. But just to make the point, we have a lot of money being spent on public healthcare, about ZAR 200 billion or thereabout, being spent on public health. About ZAR 250 billion spent on public healthcare. The amount that's been spoken about often that's needed for the NHI is about ZAR 200 billion. That's not dissimilar to the total spend on medical schemes, but that's the amount mooted as the additional funding required per annum for an NHI. The question, of course, is where does that come from? How could it be raised?
Now, even if you don't have medical schemes, medical scheme contributions sit in the pocket of individuals. That's personal, voluntary money that's being spent, right? So were you to want to raise ZAR 200 billion, you'd have to do it through the increase in, in rates of taxation. When you look at the numbers, you can see how hard it is to do on the right-hand side of the chart. To raise ZAR 200 billion, which require 30% increase in personal income tax, or a 6.5 percentage points increase in VAT from current 15% to, say, 21% or 22%. That's not doable. Or a 10x increase in payroll taxes. When you look at any of these, you realize just how hard that would be to do.
If you were to do that in one shot, you would create real difficulty and a real destruction to the economy in many different ways. So this is a very difficult thing to achieve. But the second point to make is, even if you do achieve it, how far does that ZAR 200 billion go? Well, if you go through the numbers, it doesn't go very far, and that's the tragedy of our country, and that's what we have to work hard to alleviate. We currently spend, if you look at the left-hand side of the chart, ZAR 425 per person per month on healthcare. That ZAR 200 billion would take that up to ZAR 684 per person per month.
It is an increase, but that ZAR 684 is not enough to offer very, very comprehensive NHI. A lot can be done with that money, and hope we can do a lot more with it. But bear that in mind, we, we don't have sufficient resources, even if you raised the ZAR 200 billion, to offer very comprehensive, a very comprehensive NHI. But the important point on the right-hand side is what it does to the employed market, because the employed people or the tax base that fund the NHI and the public system. Think about what happens there. You would raise taxes by 30%, but because all of them would be forced under Section 33 into an NHI with no ability to buy up and out of it, their healthcare would go effectively
from 2,300 that they're spending per month on average, that's the spend, down to the ZAR 684, down 70%. Now, obviously, there are all kinds of parity issues and, and, directional issues over time that can be addressed. Directionally, I guess the point to make is, with public, where finances are currently, if you were to impose an NHI today and limit medical scheme involvement, you'd really see the employed population pay 30% more tax and get 70% less healthcare resources available to them. That, I think, would have a considerable effect on the employed sector, and that will undermine the tax base, which would undermine NHI for all South Africans.
So this is a complex issue, and I think the point here is not to make the numbers the only issue. Socially, we have to go towards that. But you can see the difficulty and the complexity we collectively face, government faces, in how we do this. This is a complex issue that will need all hands on deck. The last point to be made is that very few countries don't have a private health insurance market. In every country, healthcare is complex to fund, and you need the private sector as a safety valve, where people can fund more, and it can take the pressure off the national system. We've looked for countries that don't have private health insurance markets. They're very few on the right-hand side, as you can see.
They're countries like Iceland and Norway, that are remarkably rich countries with homogeneity. The GDP per head is high and very, very constant. In those markets, they don't even need it. I mean, that's the reality. It'd be wonderful if we could achieve that. We have the opposite. We have a low GDP, a low GDP per head, massive inequality. This is a complex issue, and I kind of wanted to make clear our position. It's a constructive one. We don't believe the state is quite sustainable. We're determined to help. We believe that NHI cannot be workable unless you have private sector collaboration, and we need to change certain aspects very simply to allow that collaboration. It can be done. Let's do it and move forward, that we can make, I mean, things workable going forward. Enough said on that. Let me move to Discovery Life.
I'm spending a lot of time, I hope I get through this. I always tend to overshoot. I am sorry for that. Let me turn to Discovery Life. A very robust performance in Discovery Life. You can see normalized operating profit up 19%. To point out that the individual life business grew 8%. We returned to profitability of the group life driving profit up 19%. Strong growth in new business. Strong growth in automatic contribution increases. Strong solvency position. All of the liquidity buffers post-COVID are now rebuilt strongly. The market is flat and very tough, but we continue to drive market share into it. So in fact, the market share has gone up from 27% in the previous period to now 30%, as you can see. Strong cash generation from Discovery Life and Discovery Invest.
You can see there's a waterfall chart showing you all the various elements, but at the end of the chart, just over ZAR 2.1 billion of cash generated by Discovery Life and Discovery, that's important. Of course, a very important issue. If you look at the embedded value, you can see the build-up. There's been a positive experience, variances of just over ZAR 1 billion, second from the left. You will see that the actual mortality and morbidity experience is interesting. We're getting excellent mortality experience, reflecting what we expect in the model. Bear in mind, the expectation is that mortality comes down as you go up in Vitality status. We're doing better than that, as you can see. So the actual experience is better than expected.
Where we're lagging behind is in morbidity and particularly income protection business, where often that's a function of the economy. When things are very, very tough, you find that income protection claims tend to escalate. You find that Capital Disability claims tend to escalate. So that's the pattern of the experience. But overall, very strong, positive experience, variances from Discovery Life. You can see the policy alterations are negative, reflecting the environment, but on the counter side, the contribution increases, and economic is a kind of a counterbalancing factor, as you see. If you look at the embedded value, not dissimilar to what I showed you earlier, but the economic effect, in the case of Discovery Life, doesn't have, it doesn't have the Forex counterbalances.
So the rise in interest rates hit the EV by, to the extent of 4%, as you can see in that red block on the right-hand side. One of the fundamental issues of difficulty has been the rising rates of interest and the effect on the value, on the VNB margin. The VNB is a present value of those future flows. When interest rates go up, the value in the tail comes down quite significantly. So you can see in the previous period, margins were at around the 6% level. You can see the economic effect of interest rates has hit us dramatically. In addition, our unit expenses per policy written are too high. There's work to be done in terms of bringing those unit expenses down and just making sure we can alleviate this.
You can see that the margin VNB has come down quite significantly from 6.34% down to 2.5%. It's still 5.7% above risk-free, but it's below where we'd like it to be. It's about 19% or 20% return on capital, but more can be done, has to be done to get us over the expected hurdle. Let me turn to Discovery Invest and be relatively quick. Discovery Invest had an exceptionally strong period. Normalized profit going up 30%, as you can see. About 14% on a sustainable basis, with a number of one-offs. Most notably, a better matching process in our guaranteed products that really had a once-off effect.
New business up 4%, that's a fairly low number, but the industry has had a, as in many cases, net negative growth, so we are pleased with that. You can see total assets under administration, about ZAR 140 billion. If you add umbrella funds to that, close to ZAR 153 billion. The shared value model is working, even in this difficult environment. The effect of boosts, we incentivize people to be healthier, to save earlier, to draw down less and later. You can see the effect of those boosts has a 60% lower withdrawal rate. People are sticking with what we're doing stronger, substantially stronger, by the nature of the value they're getting out of the shared value. I'll touch on Discovery Insure.
If you follow us, you'll know that Discovery Insure had a very difficult year last time, flipping into a loss. We really lost a year of rate increases under COVID. During the COVID period, there was considerable profitability coming through, as people didn't drive in that period, obviously. And therefore the inability to raise rates, because people wouldn't pay more for insurance, even though the underlying cost curve would return. At the same time, if you followed our presentations, there was massive inflation on motor cars and motor car spares, et cetera, coming through from all supply chain issues, et cetera. So the two came together in 2022 to drive a considerable loss. We've done a lot of work to recover from that. You can see on the right-hand side of that, just breaking to profitability.
The recovery monthly now is very, very strong. So we're very pleased with that, with that recovery. You can see gross written premium up 10%. The business is big, over ZAR 5 billion of premium. New business is flat. We've done a lot to cull poor business with upgrades. That would have an effect on new business. Vehicle insurance are slightly down, but the quality of the book is better, our price levels are better. I don't want to spend too much time, but I think we are pleased with the work the team has done on this. You can see on the left-hand side, the actual premium increase in the blue is now, has now caught up with the kind of the motor cost curve.
You can see the loss ratio, pre-COVID, COVID, and now where it is now, it's really come down to similar levels to the pre-COVID level. You can see the model is working incredibly well. Loss ratio by status is very down sloping, dramatically down sloping, and that shows by status. So when increasing those rates, we've kind of lost worse quality lives, and that bodes well. If you look at it half year by half year, you can see that the second half has been dramatically stronger than the first half. We have to regain our margins, and I think we will quite quickly. This is a business of considerable potential scale, cash generation, profit generation. We're determined to really get the quality of what we've done out there going forward. All of the dynamics looked exceptionally good pre-COVID.
We kind of lost a year of rate increases. We need to regain that quickly, which I think we've done, and move forward and generate profitability. Enough said on the S.A. composite. I hope I've given you some sense of the issues at play. I want to go to the U.K. and just make a few points. The U.K. is a complex environment. It's complex in terms of inflation, rates of interest have been volatile. At the same time, the NHS has had great difficulties. All of this, of course, coalesced to make life complex, with great risk, but great opportunities for both Vitality Health, that is in the thick of the complexity of the healthcare system, and Vitality Life, that is, of course, affected by inflation and interest rates and all of those impacts.
Overall, the composite has done well. You can see normalized operating profit at 14%. We cover 172 million lives in the U.K. Very strong growth in new business. A lot of that is the indexation, the contribution increase in the life business, and the health business growing very, very strongly. So a very good set of numbers at the top. The other point to make is that the U.K. business now is very much self-standing. It requires no funding from the group going forward and over time; it's very cash generative, we believe. At the same time, it had its own financial rating from Fitch with an A rating, so it's self-standing. It has ability to raise capital, to raise debt, et cetera, given that financial strength, and its brand's self-standing.
If you follow us, you'll recall one of the key strategies for us when we left Prudential was: What do we do with our brand? How do we get it to the scale where it needs to be? The team has done an incredible job over the years of concern about leading a brand like Prudential, and quite quickly they made an impact. You can see from this chart on the right-hand side, that brand awareness now is very much in line with institutions that have been in the U.K. for hundreds of years. The brand and the financial position now is really stable and strong. That obviously creates a fantastic opportunity to grow. Turning to Vitality Health. Vitality Health's performance, I think, is very, very robust.
You can see operating profit coming down 9%, but if you look at the graph, there was a considerable jump in the previous period. If you followed the detail of Vitality Health, you'll recall that in the COVID period, we generated considerable profitability, but the concern about COVID claims coming back made us reserve very carefully for a post-COVID period, and some of that had to be released over time, and then entirely by this year, as you see. In the latest year, what's happened with that is that the growth has been very strong, but at the same time, given the growth of new business, there's been new business strain and claims have returned. So at a very high base, you can see that decline. We hope we can build that going forward.
Last covered, just shy of a million. You can see we hope that's quite a magical mark, if we can achieve that. 960,000 lives. You can see the strong growth in new business graphically. The environment is complex, and we are metamorphosing to make sure that we're in the right place to obviously provide support to the environment. The NHS is a fundamental issue of U.K. society. We're part of that tapestry to provide help and support to make sure that the whole thing works together in the right way. But it is under considerable pressure. There's a lack of capital investment. There, there's beds available, staff shortages, skilled staff are leaving. You can see the waiting periods in the middle of the chart. It's quite remarkable. Nearly 8 million people are on waiting lists.
Quite a large proportion, 18-52 weeks, are waiting for care. The cancer waiting times are very high. Nearly 40% of people are waiting over two months for their first treatment following a referral. So these are complicated things to address. The demand for health insurance is climbing dramatically. Over just the last number of years, it's grown to nearly one million more lives, so it really is responding to that. And you can see on the right-hand side, extreme right-hand side, authorization rates for hospitalization are going up dramatically. So this is a complex process. And on one hand, the demand for healthcare is climbing, and that's a good thing. The demand for private healthcare is climbing. On the other hand, people are coming with expectations of different kinds of care, cancer treatment.
It's different to the old days of just, you know, trying to avoid waiting lists. This is a different set of demands that we have to address and understand. So we are very carefully working out exactly how the product should look, how we should be as we go forward in this very, I think, exciting environment, complex environment. We've done a lot to Vitality Health over the years. It really is a digital-first leading health insurer. You can see on the left-hand side, we continue to get exceptional results out of the Vitality program. Great correlations. We've done amazing work about offering a whole range of things, virtual GPs, talking therapies, a lot of outpatient care. We have exceptionally good end-to-end digital capabilities in the case of Vitality Health.
You can see on the right-hand side that the growth rate, although the market is growing, we are growing 3 x. We are growing at a rate substantially faster than the market. We are now, behind Bupa and PPP, the third-largest health insurer, and we hope we can grow off that base. So a lot of opportunity and a lot of complexity at the same time. Let me turn to Vitality Life. Interesting period for Vitality Life. Rapid rise in interest rates, but at the same time, rapid rise in inflation. And one of the key strategies of Vitality Life has been to index premiums against inflation. In other words, people buy policies, and as inflation comes through, their premiums go up, which keeps them obviously real over time, and that's a good thing for them and for us.
A lot of that driving forward of new business has come through that indexation. So you can see new business up strongly, up 30%. You can see profit up, up 47%. A lot of that is at the value of indexation. That's about ZAR 18 million in that profit line. And then you can see the lives covered up 9% to 760,000, not insignificant, as we go forward. The quality of work done, I think, is exceptionally strong. You can see market share on the left-hand side is climbing strongly in the IFA market to 15%. That's growing strongly off a reasonable base of 9%, and the lapse rate is coming down. I think that's a remarkable indicator of quality.
This is an environment where there's a cost of living crisis, inflation is coming up, and we are indexing premiums to inflation. The work done of keeping clients in the effect of the Vitality structure and engagement all coalesced to bring the lapse rate down very strongly. The combination of that provides a fantastic counterbalance to inflation and interest rates. Now, this is an important issue, and very much like Discovery Life, this counterbalancing effect. The U.K., as you can see from the chart on the left-hand side, had this dramatic rise in interest rates over the last year. Really dramatic. From amongst the lowest, I think the lowest recorded over hundreds of years, to now a very high level of interest rates that creates considerable volatility. The effect on the VNB margin has been pretty substantial.
You can see the 3% was what we aimed to achieve. The economic effect really wiped all of that out. So in fact, the VNB margin is negative against the expected hurdle rate. We're still only 1.8% above risk-free, but it should be risk-free plus 6% to 8%. We are a long way off that because of the knock, the economic effect has on that. Having said that, on the right-hand side, the counterbalance is the indexation. We've managed to index 40% of the business to inflation, and therefore, while interest rates and inflation have gone up, that's hit the VNB margin. The actual value of the positive experiences from ACRs, or the contribution increases, has been a full ZAR 18 million in the period. So for us, going forward, if we can...
The rate increase was so rapid, we couldn't adjust rates in time, neither could the market. Over time, we believe quickly we can rerate, focus on the unit costs, and get that right. At the same time, hopefully, we can manage the indexation and keep that value coming in. The opportunity, of course, is big for us, but there's work to be done to make sure we achieve that. A lot of dynamics in that regard, and I hope when you go through the pack, it will be clear how that plays out. Let me turn to the Vitality Group and try and end off fairly quickly, but a lot going on in the Vitality Group for. But our overall group, there's a lot of great growth potential in the Vitality Group.
It is made up of a Vitality Network that works with partners, predominantly in the life insurance space, and then Vitality Health International, that is working in four dimensions, globalizing our health, our health insurance assets. Excuse me one sec. All of it is aimed at globalizing and monetizing the unique IP of the Vitality Shared Value model. You can see the operating results has grown 74% to ZAR 777 million, 50% in dollar terms. That can grow significantly off that base. It's amalgam of different issues that I'd like to take you through. Firstly, the Vitality Network, which really partners with major companies around the world using the Vitality model.
You can see that the growth in premium that is linked to Vitality is about 16% in rand terms, pretty flat or down sloping in dollar terms. A lot of that is just weakness in markets like Asia Pacific, post-COVID. In addition, the dollar has been very strong against markets like Japan, so our income in yen is lower, et cetera. So you can see how that is affected. Revenue up 20% in rand terms, up 3% in dollar terms. Operating profit up 26% in rand terms. You can see the growth in membership. So it's growing ahead quite strongly, but the potential... is very, very substantial. Our partners are seeing considerable benefits from the model. For the first time, we can share with you specific company experience.
This is Sumitomo Life, which has two models here, Japan, which is the fourth biggest life insurance market in the world, and John Hancock, which is in the U.S., the largest life insurance market in the world. You can see the effect of the Vitality model. You can see the growth in premium. In the case of Sumitomo Life, in just a few years, 1.5 million policies sold, and you can see graphically, their rate of growth. Their levels of engagement are remarkable. 64% of members have earned at least a point. The attachment rate, 70% of sales now include the Vitality program. And then the same relative mortality effects, 43% lower to the highly engaged with Vitality members to non-Vitality. Fantastic effect on hospital costs, et cetera. Getting very, very similar data coming out of Sumitomo.
When you look at John Hancock in the U.S., the results are staggering. If you look at the annual Vitality Plus sales growing at 36 per year, 6% per year compound growth rate, the election rate of people choosing the full Vitality is now climbing at a rapid rate. And then if you look at the health outcomes, they're quite remarkable. BMI, better cholesterol, people reporting same or better blood pressure, et cetera. If you go through the data, it's quite remarkable. So it's clear to us and to our partners, the power of the model. For us, the ability is to get deeper, to get more value, to extend the network, and to get scale. There are three distinct strategies that we are focusing on now.
One is, obviously, to get revenue growth through the deepening of relationships through our major partners. But the other point in certain, in certain of our contracts, we have the ability to participate in emerging profitability, how the market is, the model is outperforming expectation. That offers considerable value for us. The second, I think, very important, we are targeting specifically the U.S. market. We've had a fantastic rollout in that market, and we intend to expand in that market together with John Hancock. We're working very carefully on that, of working with certain partners in the U.S., in addition to John Hancock with them, but in addition to them, in other sectors of the U.S. market. It's a very, very large market with specific sectors.
The ability to do that without creating any kind of competitive dissonance offers great opportunity. We're busy with that right now. Finally, the economics of the model offers great potential. Bear in mind, the cost base is largely built. I made that point earlier. Most of it is in ZAR, yet the top line is in dollar and growing, and therefore, the kind of ability to get a geared effect is substantial. The expense base currently is 66% of the top line revenue, so there's a massive gearing effect. If we can achieve one and two, and at the same time, get the economics of the model to work, the effect on the profit of Vitality network should be quite considerable, quite quickly, and that's the expectation.
If I turn to Vitality Health International, its profits have grown significantly to over ZAR 402 million, driven in the main by Ping An Health and our touch on that, but there's a lot of stuff in the pipeline in Vitality Health International. Over time, I hope that becomes evident. It's made up of Ping An Health, Amplify Health of AIA, our US business that we are now focusing on carefully, and then Quantium, which is a fantastic data science business that has started using, as I explained to you previously, in how the shared value model is playing out. In terms of Amplify Health, it's important to understand this is a business literally two years out of the gate. We have shifted people, systems, AI, AIA has done the same. It's a massive initiative.
It's gonna take some time to get scale. We're now in a position where five major products have been developed. They're exceptionally strong. Chronic disease management, Vitality is now inside Amplify provider management, end-to-end claims administration. Fraud, waste, and abuse, it actually is. There was an acquisition of Ada, which is a fantastic data science business in Asia that brought with it incredibly strong fraud, waste, and abuse products and capabilities. Mixing it with the Discovery Health capability has offered a tremendously strong product. You can see from the map now, we are making solid progress in the AIA markets with AIA companies across Asia Pacific. This has to roll out over time, but I want you to get a sense of, of, of the work done. In the case of Ping An, it's been quite, I think, incredibly robust, to say the least.
The performance has been really strong. This is a very, very complex period, as you would know. In China, the period under review included the COVID lockdown, so a very difficult period for a health insurance company. Despite that, you can see the progress has been strong. Operating profit grew by 39% in rands, just over 30% in RMB. You can see a lot of that profitability was a growth in investment returns, but in fact, operating income grew by 12% over that period. The effect of that on us is a 76% increase in after-tax profit to nearly ZAR 600 million, non-insignificant. You can get a sense of the scale of the business, written premium up 11% to over ZAR 50 billion. And then, of course, the challenge is new business in that environment.
With the COVID lockdown, with the decline in Ping An Life agents, new business down 9%. We're doing a lot quickly to try and make sure we can recover that over time. The actual operational dynamics of the business is very strong. You can see the combined ratio coming down nicely to 89%. Persistency, which is the opposite of lapsation, is very strong, climbing strong over the years. The profit margin is dramatically higher than competitors in the market. And then the sense of the scale of the business, it has RMB 50 billion of premium and RMB 8 billion, nearly RMB 8 billion of NAV. So it's strongly, strongly capitalized with a lot of value in it. So the business is performing well and is financially strong. I made the point about new business.
There's a lot that we're doing to, to offset the new business headwinds. You can see the number of Ping An, Ping An Life agents is now 27% lower. That affected new business. In this period, what's known as the Red Door sales period, at the start of the year, was obviously dramatically affected by the COVID lockdown, but there's a number of areas of new products, of new distribution channels, and if you follow monthly, you can see how we're kind of clawing back the new business, the new business production. I think the case for the Chinese market is a strong one. I wanted to make this point, in, in, in the presentation. Obviously, China has its complexities now, and there's a lot of debate about investability and different investment cases.
From our perspective, it's important to understand that we remain optimistic about this business to scale and grow. Health insurance is a massive issue in China. We are not a foreign company, we're a local company with Ping An, with the Ping An group, a shareholder in Ping An. And some of the underlying issues are important to understand. The middle class is growing and is affluent and is of considerable scale. 473 million people now, growing to 450 million over time. We know as people become more prosperous, they demand better healthcare. You can see second from the left, the population is aging at a rapid rate, and people age, they consume more healthcare. And then, when you look at the size of the market, it's significant.
China spends currently $477 billion on healthcare, and you can see below that it's a small sliver, but private health insurance is climbing from 5% now to nearly 10%. Expect to be 10% in the fewest time. That market is growing considerably. Finally, on the right-hand side, if you read through it, you'll see that policy from government is actually encouraging a private health insurance market together with social health insurance market at the city level. Very in line with what I was saying earlier about NHI, and that's an important issue. All direction, it seems to be a very, very strong investment case, and as you've seen from the slides, the actual performance of Ping An Health has been very strong over a very difficult period.
So we're optimistic that that team can deliver. So let me wrap up. I've been a bit long, but to make the point that I think the financial performance has been strong. We're in a good place in terms of how we're transitioning through IFRS 17. The focus on the composite, there's a lot to tell. I want to give you a sense of just the clear things that we are focusing on. There's a clear focus on making sure we grow. At the same time, we are robust throughout the business, and all of this is manifested over this period in four focal areas. A focus on quality earnings, in addition to cash generation, making sure each of our composites are focused carefully on robustness and growth. We focus on the right new initiatives.
We evolve the shared value model, which I think we're doing very strongly. Finally, we go through the IFRS 17 transition smoothly and appropriately. Going forward, you will see reporting on the IFRS 17 basis in the next financial year. That is our results for the period. I hope it's given you a sense of where we're at. There are a bunch of questions. What I would suggest is I'm happy to just facilitate that, but I have Deon Vosloo and our CFO, I have all of our CEOs and experts in chief actuary, Andy Rayner, on the line. So my suggestion is, Deon, you're with me. Let's go to the questions.
Yeah. Take them, from the top. Thanks, Adrian. Good morning, everybody. We've got a question from James Shuck, Citi. Please, could you unpack the EV assumption changes, also focusing on the second half developments? There were circa ZAR 0.1 billion of negative assumption changes as and ZAR 1.3 billion of negative lapse assumption changes from lower exit rates on invest products, et cetera, that were broadly offset by positive premium and fee income assumption changes. Just looking to understand this better. Andy, I don't know if you want to kick off on that one.
Thanks, James, for the question. I'm happy to kick off on that one. Just, James, to just to give a quick answer to your question. Outside of the economic basis changes, as you've pointed out there, the two key changes is around the lapse assumption and around the fee income assumption. On the lapse assumption, there's two components to that. Part of that is the strengthening of the life lapse assumption over the next two years. You may recall, in the past, we've had a lapse stress assumption in there, and although we've had positive experience variances against that, we do remain concerned about the outcome for the consumer, given the level of interest rates and inflation. We've reinstated or extended that lapse stress for life.
That's a part of that lapse change of ZAR 1.2 billion to ZAR 1.3 billion. The other, and the major part of it, is actually a change to the Discovery Retirement Optimizer product. We've looked, o bviously, we're growing with experience over time in that product, and we can see how policy behavior is changing. You know, what we're seeing is more and more policyholders are hanging in to get the benefits that that product offers when you integrate it with a life product. We've had to strengthen the assumptions around policyholder behavior as they approach retirement, and that's the largest part of that lapse assumption. Against that, we've actually made a product change, partly in response to that, as well as other demographic and economic experiences.
We've actually strengthened or increased the product fees. So we've actually dropped asset management fees for some firms, but we've actually changed the discounts and actually reduced the discounts for some people who are getting very high levels of discount. And overall, that gives the circa ZAR 600 million of positive basis change, as you're seeing in there, and that largely offsets the negative lapse assumption. You also asked, well, how does that compare first half, second half? Just to reiterate, in the first half, other than economic basis changes, we generally don't make any experience changes in the EBs, all captured at the year-end. I hope that answers your question, James.
Thank you, Andy. Another question from James, asking, the U.K. life new business margin was negative, partly due to high interest rates. What is the outlook now, and how temporary is this? Neville?
As you, as you saw, I mean, it was predominantly from the interest rates, which spiked at the, at the back of the financial year. The strategy to enhance new business profitability remains writing in the more sort of profitable segments and the, the benefits of income protection and severe illness cover indexation are our key focus. We've recently introduced some really positive product changes, and we're already starting to see growth in that volume. We've also taken some pricing actions in the lower margin sales. But very much, you know, we believe this is temporary, and we can achieve our shareholder targets on new business. But we'll still be impacted in the short term with these high interest rates.
Excellent. Thank you. Thanks, Neville. A question from Michael Christelis from UBS. "What is the strategy with respect to improving the S.A. and U.K. Life new business margins, and can these revert to historical levels?" So very, very similar question. I don't know if there's anything to add on the S.A. side, Riaan?
Sure. Thank you for the question, Michael. I think there are three clear and complementary strategies on the South African side to enhance the new business margin. The first is focused around product innovation, and specifically expanding into profitable adjacencies, bank assurance being the most obvious opportunity. Then secondly, growing new business and growing market share through the expansion of our very productive agency force is a second clear strategy. And then, the third strategy is around focusing on expenses, and driving down unit expense levels to ensure a higher new business margin. So if you get these three strategies right, you should end up with lower expenses as expressed as a unit of new business volume, and that should lead to higher new business margins.
Excellent. Thank you, Riaan. The next question from Warwick Bam from RMB Morgan Stanley: "How did IFRS 17 impact the profitability of the Prudential back book, and what proportion of the Vitality Life profit relates to this back book?" This is quite an interesting one. The back book accounting, even under IFRS 4, are quite complex. We used to treat this almost as a combination of self-captive kind of accounting, and a reinsurance contract under IFRS, IFRS 4. IFRS 17 actually brings quite a lot of clarity to that. Actually simplifies the accounting, quite a lot. It now falls into a category of reinsurance contract out. So what you may expect going forward is more of a single line and some disclosure in the notes.
The impact on that book, book, not, not that material, on, on the overall transition. As we mentioned, we'll deal with all of the technicalities a little bit later in the technical session. Question from Tekeron at White Oak Capital: "Just want to understand the medical scheme system in South Africa and the medical schemes, the position. What happens if there's low solvency?" I wonder, maybe we can treat that one outside, outside the session, if that's acceptable. Baron Nkomo from JP Morgan: "Can you elaborate on the strategy to roll out and grow mortgages and personal loans in the bank? The big S.A. banks are well-entrenched in these products." Maybe, Hylton, if you wanna kick off on that one.
Sure. Thanks for the question, Barron. I think you're quite correct. You know, I think the mortgage market is significant, and it's a central, you know, it's a central product. So we will be communicating over the next month or so to the market. But I think we've been fairly clear that our strategy will be to effectively commence with internal pilots.
I think in line with the lending strategy in the bank to date, particularly in the current market, you know, to focus on our existing client base, where we've got deep data, our shared value model, where we think we can release significant value for our clients, and where we have significant competitive advantage. Apply the kind of ecosystems that Adrian alluded to, and I think demonstrated across the South African composite, where we have obviously long-term insurance as well as existing buildings cover, which are complementary to the home loans.
You know, I think from our perspective, we see it as a kind of central product for our clients, and it really rounds off the full suite of retail products. Not kind of underestimating the complexity. Our ambitions are fairly conservative in this space and moderate, and we expect to start with pilots and in kind of a low-and-grow strategy in this space. I think over time, we do expect it to be part of a central part of the offering.
Okay, great. Thanks, Hylton. I'm hoping that sort of largely covers Michael's question as well, from, on the strategy with re, with the bank.
Maybe one point to add to that, Deon, because I can see it's slightly broader. We do, in addition to home loans, expect to start rolling out access facilities, unsecured facilities, towards the end of this year as well, to our client base. The risk appetite will remain in line with the current in the bank, and therefore focused on the existing client base and segment, and from a kind of risk perspective, a prudent approach. I think in terms of the lending itself, we are, you know, we're well-funded, so we can support the advances strategy from within the bank.
And in percentage terms, maybe we would expect it to outstrip client growth as we go forward, in the short to medium term, at least, given the kind of the base that we're coming from, and the fact that the product suite will be significantly expanded.
Thanks, Hilton. Next question is from Cornet from Sanlam. How does Consumer Duty impact your business in the U.K., Neville?
Yeah, thanks, Cornet, for the question. We are fully compliant. Consumer duty came into effect and was implemented in July. As you're probably aware, the four sort of key outcomes from the FCA, being the products and services need to be appropriate, price and value needs to be demonstrated, a customer understanding through communications needs to be fit for purpose, and being able to support customers when needed. On all four counts of that, we actually have done exceptionally well. We in fact, you know, our model has really been around customer and the customer centricity and value through the shared value model.
Relative to our competitors, we think we've done exceptionally well, and, in fact, welcome consumer duty. It really is something that we've embraced way before regulation. We've ticked all the regulatory boxes as well.
Thank you, Neville. Just going through the refresh here. Jacob Run from White Oak Capital asks: You had mentioned that Discovery Life is a relatively young business. Would you be able to disclose how the 20, 10 plus and 20-year cohort is doing in terms of persistency and retention costs? I think again, you know, we'll touch on this and particularly the cohorting under IFRS 17 and the disclosures in much more detail going forward. Up to this point, we didn't necessarily show those kind of rundowns by cohort. But you will see some of that coming through under the new disclosure requirements of IFRS 17.
Then the question from James as well on the CSM runoff, again, that will be addressed in a technical session. We'll definitely get to that. And then Stuart. Sorry, no, that's fine. I'm just trying to refresh here and see whether we've covered all the questions. Yeah, here we go. Cornet from Sanlam: What is the attraction for the U.K. consumer to buy a Vitality Life policy, specifically versus long-standing and well-known life company brands and products? And what percentage of policies are sold with Vitality rewards attached? Is this optional or compulsory when buying Vitality Life in the U.K.? Neville?
Yeah. I mean, as you do point out, it is a very well-established market. But, our cut-through has very much been around the shared value model, and, which manifests in the, in the optimizer product, which gives quite a significant upfront, entry point from a premium perspective that can be maintained if people actually manage their health. And that has resonated well, within the marketplace, in a very competitive, market. Also, other product features, around our severe illness cover, where it's severity-based, has also resonated well in the market. In terms of, Vitality, Vitality is embedded in every product. Various, forms of the Vitality plan, of the Vitality program, are dependent on, on the products that you do take out.
It is something where, in the optimizer product, it is compulsory to have the Vitality program, because we need people to make the behavioral changes to maintain their rates, and that has resonated exceptionally well. From a Vitality Life perspective, there's, I believe, still significant opportunity, as there are still a lot of IFAs and intermediaries who have not written for us. This does bode well for the future, as well as our direct distribution is increasing as a percentage of our total sales in the Vitality Life segment.
All right, we have a question from Matthew Hodgkinson. This is it says, "Please walk us through the cash flow by segment and dividend cover." Happy to do that, maybe outside the meeting, but the bigger question we apply. If we applied your historic dividend cover guidance, we would have expected to see a dividend closer to ZAR 2. Are you modifying your dividend cover approach? I don't know if you wanna talk to that, Adrian.
I mean, maybe to make the point, we're not modifying the approach. In fact, the 4.5 x cover was mathematically derived, because the growth model assumed a certain percentage of our business was established and actually be at a 2 x cover. The emerging businesses should not provide a dividend yet, and we should fund the new businesses out of the earnings. If you do the mathematical work, you'll get a 4.5 x cover. That's been the guidance, and we've tried to stick to that. I think in the past we have drifted down from 4.5, down to 3.5, et cetera.
When we looked at it now, we kind of trying to understand expectations and trying to get back to where we should have been at, at 4.5, and if that's just starting up, we felt 5 was probably appropriate. I mean, that's the range. We'll see how it plays going forward. We thought that's the right way to start conservative and not out of line with where we should be mathematically. That's how we got to the ZAR 1.10. Deon, over to you.
I think I know, we're just going through the questions here. Francois du Toit from Anchor asking: What would your lapse and mortality variances have been at your long-term assumptions, as opposed to the assumptions that have been strengthened for two years ahead? I'm not sure which part of the business we're actually referring to.
Andy?
Andy, do you want to kick off on that one? It's probably a more sort of cross question.
Yeah. I'm not sure that that's quite a big topic for now. I mean, you're asking us to, I think, Francois, if I'm not mistaken, so we go back and say, what would the original variances have been under the old assumptions? And obviously, each year we make basis changes. I don't think it's gonna be possible to answer this on the call, Deon. That's quite an in-depth thing that we need to look at and engage with Francois one-on-one.
Take that on a separate engagement. And then just from Sundra Govender from SBG: What have been the main contributors of the drop in new initiative spend? Now, a large contributor there is particularly the bank, obviously coming out of or through the J-curve. As it grows to scale, that was probably one of the main contributors in the past, where we were well above our long-term guidance of 10% of operating profit spend on new. That's probably the main contributor, but for all of those new initiatives, very much in a similar path. Adrian, I don't know if you want to add to that.
Maybe just, just Deon, mathematically, take the bank, which is turning now quite strongly. The bank is turning and the operating profit is growing at 20%. Just the mathematics of those turning plus the base growing gives you a quick reduction. I think there's an additive effect of all of those things, and that creates the drop down. I think it'd be interesting, easy to demonstrate that offline. I mean, I think
Yeah.
It's kind of a combination of the turning, the culling and the growth of the underlying base gives you that mathematical effect that happens very quickly.
I'm just trying to see whether we cleared all the questions in the... Because it is a bit slower to refresh. Are those still to be covered? I think that first one we did touch on.
One.
Yeah. In your plan to focus on key initiatives and closing, what does not work where Discovery Invest? So I'm not quite clear on that one.
Oh, I see. Maybe interpret the question in the Discovery Invest space, what we found not working. I don't know if Kenny's online. I would tend to say not much. We have our cousins DFM. That is something that's new that we're quite excited about the work being done. I'm not sure anyone. Hylton is in here.
More broad than Discovery Invest, I think, is this about key initiatives, closing of key initiatives.
No, I think there's a continual process of making sure we don't follow things that are too long ahead and have a too deep a J-curve. I think most work we see is being done. It'll give us time to just continue that focus. As I said, I think you'll see the spend on new initiatives being at the 10 or slightly below going forward. Maybe, Deon, that's a good place to end.
Yeah.
I think we've covered all.
I think that covers all. Clearly, you know, if anything's not fully covered, happy to engage afterwards.
Yeah.
Back to you, Adrian.
Okay, Deon. Thanks, thanks for the questions. We are. As you say, we'll engage on every issue in the various forums. Just to stress, at 12 o'clock, we're starting this deep dive into IFRS 17. I know there's lots of details on our website, in the financial reporting section, so check that out. It should be a very important session. Let me end by saying thank you. We've got a lot of work to do. We know where we have to focus: growth, new business margins, and monetizing IP. I think we're clear what we need to do. That's an important year ahead. Thank you very much again. Thank you to our remarkable people. Very grateful, collectively, of our ex co and board for that. Deon, thank you. Thanks for the time. Hope it was worthwhile.