Johannesburg, 30 May 2014 — Global Credit Ratings (“GCR”) has today affirmed the national scale claims paying ability rating assigned to Fedhealth Medical Scheme of AA-(ZA); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) on Fedhealth Medical Scheme based on the following key criteria:
Fedhealth Medical Scheme (“Fedhealth”) is a well-established player in the highly competitive South African open medical schemes industry (3.3% market share as at 3Q 2013), covering a beneficiary pool of 147,538 at year-end 2013. The scheme benefits from a long standing relationship with its administrator, Medscheme, which continues to provide administrative and operational support on a day-to-day basis.
The revision in the rating outlook from “Positive” to “Stable” was premised on a notable deterioration in the net healthcare result to a R55m deficit in F13 (F12: R91m net surplus), with a further net healthcare deficit forecast for F14. Against persistent healthy net surpluses registered in the prior three years , this points to a slight weakening in key fundamental underwriting parameters and highlights GCR’s short to medium term expectation of suppressed operating performance for the scheme (stemming in part from a perceived limited potential for the rejuvenation of the underlying risk pool).
This notwithstanding, key credit fundamentals of the scheme remain sound and are supportive of the current rating. As such, the generation of consecutive net surpluses over the review period continues to underpin reserve accumulation, translating to well above industry norm solvency metrics. Whilst over the medium term a gradual easing in solvency is expected (as the scheme enhances risk benefits), management remains committed to maintaining statutory solvency comfortably above the regulatory minimum. Further, the measured investment approach adopted by the scheme is supportive of an adequate level of liquidity and stable investment income, albeit the weak operating performance in F13 gave rise to increased liquidity pressure. Nonetheless, key liquidity metrics are projected to remain sound over the short to medium term.
In view of the above, an upward adjustment of the rating remains subject to a turnaround in the net healthcare result to a surplus position and a recovery in key liquidity metrics to historic norms, whilst maintaining a strong level of solvency. Conversely, downward rating pressure could arise from the registering of continued net healthcare deficits over the medium term, impacting adversely on reserve accumulation and giving rise to sustained liquidity pressure (with key solvency and liquidity metrics weakening significantly against historic norms).
For a detailed glossary of terms utilised in this announcement please click here.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Oct/2001)
Claims paying ability: BB(ZA)
Last rating (May/2013)
Claims paying ability: AA-(ZA)
Senior Credit Analyst
+27 11 784 1771
Sector Head: Insurance
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes (April 2014).
Fedhealth Medical Scheme rating reports 2001-2013.
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.
Fedhealth Medical Scheme 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 Fedhealth Medical Scheme with no contestation of the rating.
The information received from Fedhealth Medical Scheme and other reliable third parties to accord the credit rating included the audited annual financial statements for 2013 (plus four years of comparative numbers), latest internal and/or external report to management, full year F14 detailed budgeted financial statements, most recent year-to-date management accounts to 28 February 2014. In addition, information specific to the rated entity and/or industry was also received.
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.