Johannesburg, 26 June 2018 — 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 with principal membership equating to 92,358 at FY17. Positively, the scheme reversed the prior two year trend of sustained member losses, growing the principal member base by 2%, with the member count expected to stabilise at this level in FY18 (4M F18: 92,891 principal members). Nonetheless, market share (based on principal members) remained stable at 4% in FY17.
The positive assessment of membership scale is partially offset by the scheme’s elevated age profile (FY17: beneficiary age and pensioner ratio 37 years and 14% respectively). Cognisance is taken of the stabilising age profile over the past three years, indicating a level of risk pool rejuvenation, although the scheme’s age profile is likely to remain above the industry average going forward given high levels of existing member retention.
Solvency is viewed to be strong, with the statutory solvency margin registering at a healthy 30% at FY17 (FY16: 29%). The scheme’s solvency margin evidenced relative stability over the review period, ranging between 28% and 31%. Medihelp’s rating factors in the expected maintenance of solvency metrics within a similarly strong range (BGT18: 29%), supported by controlled solvency management.
The scheme reported a rebound in earnings in FY17, registering a net surplus of R127m (FY16: net loss of R13m). The improvement was derived from a comparatively higher average annual contribution rate increase (FY17: 10.9%), coupled with a favourable claims experience in FY17. The scheme reflects historical earnings volatility, albeit the scheme’s ability to manage earnings in line with solvency targets is positively viewed. In this respect, yearly contribution rate increases have been commensurate with targeted performance to the extent of achieving adequate reserve accumulation. As such, the claims ratio has fluctuated over the review period, impacted by the pricing adjustments deemed necessary to support solvency targets. Accordingly, the scheme’s exposure to continued performance fluctuations represent a rating consideration going forward.
Medihelp evidenced sound liquidity, with the net cash coverage ratio equating to a healthy 2.8 months in FY17 (FY16: 2.5 months; review period average: 3.3 months). This notwithstanding, GCR notes the potential for fluctuations in metrics given inherent earnings volatility, while the lack of tradable non cash investments limits the scheme’s ability for liquidity relief in a stress scenario.
A strengthening in the rating over the medium term is dependent upon a sustained improvement in earnings capacity, coupled with an improved average risk profile through sustained growth in membership base, 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 2017)|
|Claims paying ability: AA-(ZA)|
|Senior Credit Analyst|
|Junior Credit Analyst|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated May 2018
Medihelp rating reports, 2000-2017
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 2017
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2018
- Year to date management accounts to April 2018
- 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
|Audited Financial Statements||Financial statements that bear the report of independent auditors (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|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.|
|Conditions||Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Credit Rating Agency||An entity that provides credit rating services.|
|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.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Interest||Money paid for the use of money.|
|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.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Net Loss||The amount of loss sustained by an insurer after giving effect to all applicable reinsurance, salvage, and subrogation recoveries.|
|Rating Outlook||A rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|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 please click here
GCR affirms Medihelp Medical Scheme’s rating of AA-(ZA); Outlook Stable.