Johannesburg, 30 May 2018 — 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’s rating is underpinned by the scheme’s very strong solvency. Following the strategic reduction in FY14 and FY15, the statutory solvency margin has stabilised at the upper end of the target range, registering at 39% at FY17 (FY16: 40%; BY18: 39%). Solvency is expected to continue to be managed within a very strong range, although some degree of execution risk is implied in terms of managing the balance between sufficient reserve accumulation, and maintaining affordability, richness of option benefits and sustainability.
The scheme’s liquidity is viewed to be healthy, with year on year fluctuations attributable to a relatively flexible investment allocation strategy (given the large reserve buffer). Following the rebalancing of the portfolio in FY17, the gross and net cash coverage ratios equated to 4 months and 2 months respectively (FY16: 5 months and 3 months), remaining below historically high levels. The overall liquidity profile is nevertheless viewed to be sound and is expected to continue to be supported by the large and tradeable nature of the investment portfolio.
Earnings capacity has been a function of Bankmed’s strategic objectives to balance financial stability against utilisation of surplus reserves. Accordingly, net healthcare results have fluctuated in tandem with targeted solvency metrics, although started to stabilise in FY17. Overall net results have been supported by investment income, with the five year average net margin equating to 2% (prior four year average: 2%). Going forward, earnings capacity may strengthen slightly, supported by alignment of benefits and pricing and sustainable non-healthcare cost savings.
The scheme’s relatively large and captive membership base and high average membership retention rates are viewed as a rating strength. Furthermore, the scheme continues to reflect a favourable age profile, although the average age of principal members and beneficiaries increased slightly in FY17, to around 42 years and 32 years respectively (prior review period average: 41 years and 31 years).
The high concentration of membership to the banking and financial services industry exposes the scheme to systematic risks inherent in the sector. Furthermore, the scheme’s membership base exhibits concentration risk, given the high membership weighting derived from three employer pools.
While upward rating movement is unlikely over outlook horizon, a material strengthening in key credit protection metrics could support positive rating movement over the longer term. Conversely, downward rating pressure may result from statutory solvency lowering to a level below management’s targeted range on a sustained basis. Furthermore, substantial net deficits, the on-take 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 2017)|
|Claims paying ability: AA+(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Yvonne Mujuru|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes, updated May 2018
Bankmed rating reports, 2000 – 2017
RATING LIMITATIONS AND DISCLAIMERS
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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:
- The final unsigned financial statements to 31 December 2017
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2018
- Other relevant documents
The rating above was 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
|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.|
|Execution Risk||The risk that a company’s business plans will not be successful when they are put into action.|
|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 Income||The income generated by a company’s portfolio of investments.|
|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.|
|Reserve||An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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 premiums ratio.|
For a more detailed glossary of terms, please click here
GCR affirms Bankmed’s rating of AA+(ZA); Outlook Stable