Announcements

GCR affirms Medihelp’s rating of AA-(ZA); Outlook Stable

Johannesburg, 13 July 2015 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Medihelp of AA-(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

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

Medihelp reflects a very large membership base, representing a key rating strength. In this regard, total beneficiaries amounted to 223,131 in FY14, accounting for 4.5% of the open medical schemes industry. The aggregate risk profile of the membership base is viewed to be intermediate, albeit improving, with the average principal member age remaining stable at 48 years in FY14, and expected to evidence a slight improvement going forward.

Medihelp evidences strong and well managed liquidity ratios, reflecting a rating positive within the scheme’s financial profile. In this regard, net cash coverage has been measured at strong and stable levels over the past three years, supported by the liquidation of a large managed fund in FY14. Similarly, asset quality is viewed to be fairly high, with the scheme reflecting limited exposure to asset risk (with 83% of invested assets retained in cash holdings).

Solvency is viewed to be supportive of the rating, with statutory solvency measuring at adequate levels (FY14: 28%). Solvency management is viewed to be disciplined, with the statutory solvency margin exceeding management’s minimum base (26.5%) throughout the review period. The low level of asset risk assumed by the scheme, coupled with the high level of membership diversification and scale, contributes positively to the risk based solvency assessment.

Earnings capacity is viewed to be substantially suppressed, albeit that the scheme is positioned to potentially improve earnings patterns going forward. In this regard, Medihelp has implemented comparatively low contribution increases over the past three years (average: 9.7%) as a means of addressing membership growth, composition and retention. A higher contribution increase was deployed for FY15 (13%), indicating targeted increases in net healthcare results going forward. As such, medium term earnings potential is dependent upon the maintenance of adequate pricing increases, coupled with the implementation of remedial cost control measures, impacting positively on the healthcare account. Accordingly, the attainment of improved net healthcare results over the rating horizon represents a key consideration.

A strengthening in the rating over the medium term is dependent upon a material and sustained improvement in earnings capacity, coupled with the membership base exhibiting an improved average risk profile, whilst 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, as well as the registering of further net deficits over the medium term, impacting negatively on key credit protection metrics. Furthermore, the ontake of higher market risk, or reductions in liquidity, could also have a negative impact on the rating.

NATIONAL SCALE RATINGS HISTORY
 
Initial rating (March 2000)
Claims paying ability: A+(ZA)
Outlook: Stable

Last rating (June 2014)
Claims paying ability: AA-(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Marc Chadwick   Vinay Nagar
Sector Head: Insurance Ratings   Junior Analyst
(011) 784-1771   (011) 784-1771
chadwick@globalratings.net   vinay@globalratings.net
Committee Chairperson
Sheri Few
Senior Analyst
(011) 784-1771
few@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating South African Medical Schemes, updated April 2015

Medihelp rating reports, 2000-2014

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 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 with no contestation of the rating.

The information received from Medihelp and other reliable third parties to accord the credit rating included:

  • Audited financial results as per 31 December 2014
  • Unaudited interim results as per 30 April 2015
  • Four years of comparative numbers
  • Budgeted financial statements for 2015
  • Other related 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

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 utilised, please click here

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