Johannesburg, 30 June 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Chartered Accountants (SA) Medical Aid Fund of AA-(ZA), with the rating outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Chartered Accountants (SA) Medical Aid Fund (“CAMAF”) based on the following key criteria:
The rating receives significant support from the scheme’s strong solvency position. In this regard, the statutory solvency margin registered at a high 37% in FY15, and continues to be managed within the targeted range.
CAMAF’s rating benefits from its captive membership base, giving rise to a consistent member risk profile. This has allowed the scheme a degree of predictability in managing the underlying risk profile with respect to benefit and pricing structures. Furthermore, the membership base reflects a favourable age profile, with the average beneficiary age tracking in line with the closed scheme industry average (FY15: 30 years).
CAMAF’s liquidity is viewed to be adequate. On the back of a strained operating result in FY15, key liquidity metrics were somewhat depressed, with the net cash and gross cash coverage ratios registering at a lower 1.2 months and 2.7 months respectively (FY14: 1.7 months and 3.2 months respectively). Liquidity is supported by near cash and low risk fixed income instruments, inclusive of which net cash coverage rises to 5.9 months in FY15.
CAMAF’s earnings capacity is viewed to be intermediate, and aligned with peers in recent years, although scope for strengthened operating performance is viewed to exist over the rating horizon. Over the past two years, the scheme’s operating performance has been subdued relative to historical results. The claims ratio increased steadily during this time, peaking at 95% in FY15. Coupled with successive reductions in members (leading to deceleration in contribution growth), this resulted in consecutive net healthcare losses, with the impact more pronounced in FY15 (R53m net healthcare loss). This notwithstanding, management have applied a higher average annual contribution increase in FY16 (10.7% vs. 8% in FY15), which, in conjunction with the anticipated growth in the member base, is expected to drive the net healthcare result back into positive territory (R8m).
The concentration of the membership base to large employer groups remains a challenge. This was highlighted over the past two years, where the restructuring process by the scheme’s single largest employer group had an adverse impact on membership levels. Further, future growth prospects remain subject to staffing requirements at contracted corporate entities, and subsequently broader domestic economic factors.
Upward rating movement would be considered if the scheme were able to achieve a substantial elevation in its market profile, increasing market share significantly while enhancing overall diversification. Negative rating action may arise on the back of a sustained adverse net performance, due to significant claims or investment losses, which could cause the level of solvency to decline materially.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (June 2002)|
|Claims paying ability: A+(ZA)|
|Last rating (July 2015)|
|Claims paying ability: AA-(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated April 2015
CAMAF rating reports, 2002-2015
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.
Chartered Accountants (SA) Medical Aid Fund 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 Chartered Accountants (SA) Medical Aid Fund with no contestation of the rating.
The information received from Chartered Accountants (SA) Medical Aid Fund 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 30 April 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
|Beneficiary||Nominated person or institution in the policy document that is entitled to receive the proceeds stated in the policy.|
|Benefits||Financial reimbursement and other services provided to insureds by insurers under the terms of an insurance contract.|
|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.|
|Contract||An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the 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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|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.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Operating Result||The sum of underwriting result and investment income.|
|Rating Horizon||The rating outlook period|
|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 net premiums ratio.|
GCR affirms Chartered Accountants (SA) Medical Aid Fund’s rating of AA-(ZA); Outlook Stable