Johannesburg, 29 July 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Bonitas Medical Fund of AA-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Bonitas Medical Fund (“Bonitas”) based on the following key criteria:
Bonitas’ rating is supported by the scheme’s strong business profile, having cemented its status as the second largest entity in the open medical schemes industry. The large and diversified membership base is viewed by GCR as a key rating strength, while growth has assisted the scheme in maintaining a favourable membership age profile.
The scheme’s financial profile is supported by the good net results recorded over the past four years. This has been a function of a fairly contained net healthcare experience, coupled with robust investment income derived from a large investment portfolio. Reserve accumulation throughout the bulk of the past 10 years attests to the scheme’s long term surplus generative capacity. GCR’s forward-looking view of Bonitas’ net result assumes an aggregate net margin of between 1.5% and 2.5%.
Solvency is viewed to be moderately strong. The statutory solvency margin has remained above 30% throughout the review period, and is budgeted at 31% in F14. Note is taken of the likely convergence of the statutory solvency margin with the scheme’s internal minimum level of 30% in the upcoming year. Liquidity ratios are adequate, and the exposure of the members’ surplus to risk assets is viewed to be relatively well managed. Additionally, liquidity is bolstered by sizeable bond holdings with short term maturities.
The low delivery cost ratio remains very well-contained and highly competitive. Membership base growth represents the scheme’s key strategic objective over the medium term. In light of this, Bonitas’ well managed amalgamation of the Pro Sano membership base demonstrates management’s strategic implementation capacity in executing its growth strategy. Note is taken of the fairly large remaining Persal contingent within the risk pool, requiring strong membership retention initiatives to complement this strategy.
An upward adjustment of the rating could result from the consistent generation of robust net surpluses, thereby supporting liquidity and solvency measures above historical levels. The scheme’s net healthcare performance should also measure favourably against its peers. A marked weakening in Bonitas’ financial performance against expectations, coupled with a sustained contraction in solvency and liquidity measures over the medium term, could exert downward rating pressure.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (June/2000)
Claims paying ability: A(ZA)
Last rating (July/2013)
Claims paying ability: AA-(ZA)
Sector Head: Insurance
Sector head: Corporates
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes (April 2014)
Medical Schemes Bulletin 2001-2013
Medical Schemes Statistical Bulletin 2004-2013
Bonitas rating reports, 2000-2013
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.
Bonitas 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/s has been disclosed to Bonitas with no contestation of the rating.
The information received from Bonitas and other reliable third parties to accord the credit rating(s) included the 2013 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 2014, unaudited year-to-date management accounts to April 2014, and other documentation related to the rating exercise.
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.
GCR affirms Bonitas Medical Fund rating of AA-(ZA); Outlook Stable.