Announcements

Downgrade for Resolution Health

In view of the material change in the scheme’s performance since the last rating review, GCR placed Resolution Health Medical Scheme’s (“Resolution”) national scale claims paying ability rating of A-(ZA) (single A minus) on Rating Watch in June 2012, pending finalisation of the full year rating review. Subsequent to the completion of the full annual rating review, GCR downgraded the scheme’s national scale claims paying ability rating to BBB+(ZA) (triple B plus). Further, the rating outlook has been placed on negative.

The rating downgrade took cognisance of the particularly adverse claims experience in F11, which severely undermined Resolution’s operating performance and in turn resulted in a significant erosion of capital reserves. This, together with robust membership growth saw statutory solvency decline to an unsustainably low 9% at FYE11 (FYE10: 18%). On an annualised basis, statutory solvency deteriorated to 6.7% as at May 2012, driven by a further R8m net deficit. Whilst cognisance is taken of the merger with National Independent Medical Aid Society (“NIMAS”, effective 1 August 2012), and the associated benefits expected to be derived, the enlarged scheme’s solvency metrics are anticipated to remain constrained over the medium term (consolidated statutory solvency B12: 12%).

Note is taken of the various corrective measures recently undertaken by management in order to better align the scheme’s product offerings to the changing membership risk profile. Whilst this should facilitate an improvement in the scheme’s financial performance, the full benefits thereof are only expected to be realised over the medium term. Further, in view of the historically high relative cost base, financial flexibility has remained constrained. In this regard, management intend to apply increased focus on cost rationalisation efforts going forward, although the effectiveness of this needs to be demonstrated.

Resolution continues to maintain a conservative investment approach. Further, the additional liquid funds to be incorporated from the expected merger with NIMAS is likely to augment liquidity metrics going forward, although these are expected to remain constrained.

Craig Davids

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