Announcements

GCR affirms Compcare Wellness Medical Scheme’s rating of A(ZA); Withdraws rating.

Johannesburg, 8 July 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Compcare Wellness Medical Scheme of A(ZA), with the outlook accorded as Negative. Global Credit Ratings has simultaneously withdrawn the rating.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Compcare Wellness Medical Scheme (“Compcare”) based on the following key criteria:

Compcare Wellness Medical Scheme’s (“Compcare”) claims experience deteriorated in FY15, with the net loss ratio increasing by 2.7 percentage points to 92.7%. Resultantly, the scheme recorded a net healthcare deficit for the third consecutive year, amounting to R28m in FY15 (FY14: R16m). This trend is expected to continue, with a high net healthcare deficit budgeted for FY16. Medium term earnings potential is dependent upon the scheme’s favourable risk profile feeding through to the healthcare account, coupled with the maintenance of adequate pricing increases.

Similarly, Compcare’s solvency contracted for the third consecutive year. This was caused by consecutive net deficits eroding the members’ surplus. As such, the statutory solvency margin decreased to 31.6% in FY15 (versus a high of 45.5% in FY12). The high contribution growth expectation for FY16 is expected to see the solvency margin contract further, and below management’s internal target solvency margin range of 27% to 30%. Going forward, a strengthened earnings trend to support reserve building will be key to uplifting solvency levels.

Compcare’s liquidity metrics have demonstrated a weakening trend over the past four years with the net cash coverage ratio measuring at a review period low of 3.6 months (versus a high of 7.7 months in FY12). In this regard, rising claims volumes and limited operational cash flow generation are expected to continue putting pressure on liquidity metrics.

Compcare’s membership base remained stable in FY15, contrasting the prior year’s 29% growth (BY15: 28%), with the principal membership base equating to 16,321. This notwithstanding, the scheme’s membership base continues to reflect a favourable average principal member age (FY15: 36 years; FY14: 35 years) compared to open industry averages.

Increased exposure to listed equity is part of management’s long term investment objective to enhance investment returns. In this regard, listed equities amounted to a higher R34m in FY15 (FY14: R32m), which equated to 23% of the reserve base. This measured above management’s target to limit holdings of listed equities to a maximum level of 20% of reserves. Going forward, GCR views further uptake of listed equities as introducing potential asset risk to the reserve base.

The rating withdrawal was at the request of the client. Therefore, GCR will no longer provide ratings or analytical coverage for Compcare.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (October 2000)
Claims paying ability: A-(ZA)
Outlook: Stable
 
Last rating (June 2015)
Claims paying ability: A(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Catherine Zimba
Credit Analyst
(011) 784-1771
catherinez@globalratings.net
Committee Chairperson
Marc Chadwick
Sector Head: Insurance Ratings
(011) 784-1771
chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating South African Medical Schemes, updated April 2015

Compcare 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.

Compcare Wellness Medical Scheme 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 Compcare Wellness Medical Scheme with no contestation of the rating.

The information received from Compcare Wellness Medical Scheme and other reliable third parties to accord the credit rating included:

  • Audited financial results to 31 December 2015
  • Four years of comparative numbers
  • Budgeted financial statements for 2016

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

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, please click here

GCR affirms Compcare Wellness Medical Scheme’s rating of A(ZA); Withdraws rating.

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