Johannesburg, 15 May 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Discovery Health Medical Scheme of AA+(ZA); with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on Discovery Health Medical Scheme based on the following key criteria:
Discovery Health Medical Scheme (“DHMS “) has long operated as the largest medical scheme in the South African open medical scheme arena, accounting for an unrivalled 51% of all principal members and providing cover to 2,469,023 beneficiaries as at 31 December 2012. The scheme is administered by Discovery Health (Pty) Ltd.
Driven by sustained strong net surpluses, the scheme’s members’ surplus has increased by a substantial R3bn over the review period, to close at a robust R8.4bn at FYE12. Against equally strong growth in membership (aided by the scheme’s comprehensive option portfolio and the effective utilisation of auxiliary product offerings), this has seen key solvency metrics trend within a narrow band in recent years, and which are deemed sound. Although note is taken of the fact that the scheme ‘s statutory funding ratio currently plots slightly below the minimum regulatory requirement, full compliance in this regard is anticipated by year-end F15. In addition, underpinned by a sizeable investment portfolio (of R10.6bn at FYE12) and a well balanced investment stance, key liquidity metrics have remained sound throughout the review period.
In view of the industry risk characteristics embodied within the South African medical schemes operating environment, the industry rating ceiling has been capped at AA+(ZA), with DHMS reflecting the highest rating that an open or closed medical scheme in South Africa can be awarded. A significant weakening in the statutory solvency measure and other key credit protection metrics below forecast levels over the medium term and/or the adoption of a more aggressive investment strategy (thereby unduly compromising liquidity) could impact adversely on the rating. Further, the government’s longer term objective of introducing an NHI framework in South Africa, to which the associated effect on the medical schemes industry remains uncertain, could also exert downward rating pressure.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Apr/2000)
Claims paying ability: AA-(ZA)
Last rating (Apr/2012)
Claims paying ability: AA+(ZA)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating South African Medical Schemes
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.
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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.
Discovery Health Medical Scheme participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Discovery Health Medical Scheme with no contestation of the rating.
The information received from Discovery Health Medical Scheme and other reliable third parties to accord the credit rating included the latest audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year-to-date management accounts, reserving methodologies and capital management policies.Inaddition,information specific to the rated entity and/or industry was also received.
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