Johannesburg, 31 May 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Bankmed of AA+(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Bankmed based on the following key criteria:
Bankmed displays a large and stable membership base, which represents a key rating strength. The scheme’s underlying consistency and high retention in membership is viewed positively by GCR, as it supports member profiling and predictability with respect to the composition of the member risk pool. Furthermore, the membership base reflects a favourable age profile (average: 41 years), with 58% of the scheme’s principal members falling below the 40 year age bracket.
Bankmed is expected to evidence a strong level of solvency over the medium term, as the scheme’s solvency strategy manages statutory solvency down towards the 40% mark. In this regard, Bankmed has adopted a deliberate strategy to release reserves in the short term in order to reduce, and subsequently sustain, statutory solvency at the targeted level. This strategy is being utilised as a means of easing affordability pressures on members over the corresponding period. GCR views Bankmed’s capacity to execute this strategy as being high, in light of the scheme’s strong historical track record of control and stability over the healthcare account. In this regard, Bankmed’s earnings capacity is viewed to be strong and well managed, having also been positively impacted by the scheme’s well contained delivery cost ratio. This has been supported by strong and consistent investment results, which have historically been able to offset net healthcare deficits.
Bankmed is expected to retain a fairly conservative level of investment risk over the medium term. In this regard, the scheme plans to increase equity exposure to approximately 25% of the investment portfolio in FY15 (FY14: 18%), with cash and fixed income instruments expected to represent approximately 55% and 15% respectively (FY14: 61% and 15% respectively). GCR views the scheme’s tolerance for the stated level of market risk to be sufficient over the rating horizon, albeit that GCR places emphasis on the disciplined management of the combined solvency-investment strategy in line with targets.
The high concentration of membership to the banking and financial services industry exposes the scheme to systemic risks inherent in the sector. Furthermore, the scheme’s membership base is concentrated towards three employer pools, exposing Bankmed to a moderately elevated risk to contributions.
Based on the prevailing risk characteristics in the South African medical schemes environment, the industry rating ceiling remains capped at AA+(ZA) . In the absence of a revision thereof, an upward adjustment of the scheme’s rating (currently the highest rating for an open or closed medical scheme accorded by GCR) is considered unlikely over the short to medium term. Downward pressure on the rating may result from statutory solvency lowering to a level below management’s targeted range on a sustained basis. Furthermore, net deficits, the ontake of high market risk, or reductions in liquidity, sustained over the medium term, could also have a negative impact on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (October 2000)|
|Claims paying ability: AA-(ZA)|
|Last rating (May 2014)|
|Claims paying ability: AA+(ZA)|
|Primary Analyst||Secondary Analyst|
|Benjamin Schmidt||Vinay Nagar|
|Senior Analyst: Insurance||Junior Analyst: Insurance|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Insurance|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes, updated April 2015
Bankmed rating reports, 2000-2014
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Accumulated funds||An amount representing the accumulation of historical and current net surpluses and deficits, held for the benefit of members and their dependants|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Benefits||Financial reimbursement and other services provided covered by medical schemes under the terms of a medical scheme plan.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Claim||A request for payment of a loss, which may come under the terms of a medical scheme plan.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by a medical scheme to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of a medical scheme plan.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of a medical scheme to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which a medical scheme pays.|
|Market Value||The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions.|
|Members’ surplus||Accumulated funds plus revaluation reserves.|
|Portfolio||The total securities owned by a medical scheme.|
|Provision||A technical reserve of a medical scheme established to provide for the future liability for claims which have occurred but which have not yet been settled.|
|Risk||(1) Uncertainty as to the outcome of an event when two or more possibilities exist. (2) A person or thing covered by a medical scheme.|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|Solvency||Reserves (accumulated funds or members’ surplus) expressed as a percentage of contributions (gross or net).|
|Statutory||Required by or having to do with law or statute.|
|Term||The period of time for which a policy or bond is issued.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a more detailed glossary of terms utilised, please click here
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Bankmed participated in the rating process, via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to Bankmed with no contestation of the rating.
The information received from Bankmed and other reliable third parties to accord the credit rating(s) included the 2014 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for 2015, unaudited year-to-date management accounts to March 2015, and other related documents.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.