Johannesburg, 1 August 2017 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Medihelp Medical Scheme of AA-(ZA), with the rating outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Medihelp Medical Scheme (“Medihelp”) based on the following key criteria:
Medihelp reflects a large and diverse membership base. Principal membership as at April FY17 equated to 91,367 (FY16: 90,585; FY15: 91,947), accounting for approximately 4% of the open medical scheme industry. Positively, the scheme’s year-to-date membership count reflects an increased level of stability and retention relative to prior years, with management targeting a small and managed annual member growth rate of between 1% and 2% going forward. The positive assessment of membership scale is partially offset by the scheme’s high average beneficiary age and pensioner ratio (FY16: 37 years and 14%) relative to the industry, as well as concentrated exposure to the largest intermediary.
Medihelp’s liquidity is viewed to be sound, and above industry norms, albeit having reduced from previously strong assessments. The scheme’s net cash coverage ratio amounted to 2.5 months at FY16 (FY15: 3.2 months; review period average: 3.8 months). While existing liquidity continues to support the rating (and follows a broader industry trend of liquidity contraction), further metric compression stemming from operational cash outflows may see increased rating sensitivity to continued liquidity attrition going forward.
Solvency is viewed to be strong, with the statutory solvency margin evidencing relative stability over the review period, ranging between 28% and 32% (FY16: 29%; FY15: 30%). Medihelp’s rating factors in the maintenance of solvency metrics within a similarly strong range (as per budgets), reflecting a rating assumption of controlled solvency management in future.
The scheme reflects an overall volatile earnings trend, with exposure to continued performance fluctuations representing a primary rating consideration. The scheme reverted to a net deficit of R13m in FY16 (versus a robust net surplus of R105m in the previous year), contrasting expectations for continued surplus accumulation (BY16: R17m). Note is taken of claims pressure derived from the atypically elevated claims experience reported across the industry in FY16. Furthermore, upward pressure on the scheme’s claims experience has been derived from the continued incremental ageing of the membership base. A normalisation of this effect, as well as the higher contribution rate increase applied by the scheme in FY17 (10.9%, versus 9.3% in FY16), is budgeted to return the scheme to surplus generation in FY17.
A strengthening in the rating over the medium term is dependent upon a sustained improvement in earnings capacity, coupled with the membership base exhibiting an improved average risk profile, while key liquidity and solvency measures should trend above historical levels. Downward pressure on the rating may result from statutory solvency lowering to a level below management’s targeted range, the on-take of higher market risk, or a considerable weakening of key liquidity metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2000)|
|Claims paying ability: A+(ZA)|
|Last rating (July 2016)|
|Claims paying ability: AA-(ZA)|
|Sector Head: Insurance Ratings|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated July 2016
Medihelp rating reports, 2000-2016
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.
Medihelp 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 has been disclosed to Medihelp Medical Scheme with no contestation of the rating.
The information received from Medihelp Medical Scheme and other reliable third parties to accord the credit rating included:
- The audited financial statements to 31 December 2016
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2017
- Year to date management accounts to April 2017
- Other relevant documents
The rating above was 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
|Accounting||A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.|
|Beneficiary||Nominated person or institution in the policy document that is entitled to receive the proceeds stated in the policy.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|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.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|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.|
|Intermediary||A third party in the sale and administration of insurance products.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|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.|
For a detailed glossary of terms please click here
GCR affirms Medihelp Medical Scheme’s rating of AA-(ZA); Outlook Stable.