Johannesburg, 30 May 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Bankmed of AA+(ZA), with the rating 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’s solvency position is viewed to be very strong, with the statutory solvency margin registering at 43% at FYE15 (BY15: 41%). Over the past two years, solvency has been gradually reduced to a level viewed by management to be more optimal, as the scheme continues to utilise excess reserves to alleviate affordability pressures faced by members. Over the medium term, management intends to maintain the solvency margin at a strong level, around 40%.
Bankmed exhibits a large and stable membership base, which is viewed positively, as the consistency in the underlying member risk profile has supported member profiling and predictability at a risk management level. Furthermore, the membership base reflects a favourable age profile (average: 41 years), with 60% of the scheme’s principal members falling below the 40 year age bracket.
Earnings capacity is viewed to be well controlled, in the context of management’s deliberate and measured approach towards reaching solvency targets. Going forward, GCR views the scheme’s strong track record in managing healthcare results, coupled with continued strong solvency projections, as being supportive of the sustainability of this strategy over the rating horizon.
Bankmed’s liquidity is viewed as adequate, with sizeable cash balances (FYE15: R1.1bn; FYE14: R1.5bn) available to absorb potential spikes in claims pressures. In this respect, cognisance is taken of the reduction in liquidity metrics at FYE15, with the gross and net cash coverage ratios registering at 3.6 months (FYE14: 5.4 months) and 2.1 months (FYE14: 3.6 months) respectively. This stemmed from a strategic rebalancing of the investment portfolio, which saw a significant portion of cash instruments reallocated to bonds and listed equity. Nonetheless, asset exposure is viewed to be contained relative to reserves, with the scheme’s strong solvency position affording a degree of flexibility in the investment account.
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 exhibits concentration risk, given the high membership weighting derived from three employer pools.
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, substantial 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 2015)|
|Claims paying ability: AA+(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated April 2015
Bankmed rating reports, 2000-2015
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.
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 face-to-face management meetings, 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 included:
- Audited financial results to 31 December 2015
- Four years of comparative numbers
- Unaudited interim results to 31 March 2016
- Budgeted financial statements for 2016
- 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 rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Pool||An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Statutory Solvency Margin||Gives an indication as to whether the minimum regulatory solvency margin is being met, based on the net statutory assets to statutory net premiums ratio.|
|Systemic Risk||The risk inherent to the entire market or an entire market segment.|
GCR affirms Bankmed’s rating of AA+(ZA); Outlook Stable.