Johannesburg, 19 June 2014—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.
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Medihelp based on the following key criteria:
Medihelp has been operating in the healthcare industry for over 100 years and remains one of the larger players in the open medical schemes industry. The scheme’s membership composition now comprises largely of private sector members, where prior to F05 the persal base accounted for over 60% of the risk pool. Following 108 years of self-administration, Medihelp recently sold off its administrative and managed care business to Strata Healthcare Management (Pty) Ltd, which was accredited by the Council for Medical Schemes in December 2013 and took over the administration function of the scheme at the start of 2014.
As at FYE13, Medihelp continued to exhibit large reserves, with statutory solvency registering at 31% (F12: 32%). While statutory solvency may be managed downwards somewhat going forward (in light of pending potential amalgamations), it is expected to remain adequate and compliant with the regulatory requirement. Furthermore, the scheme’s low-risk investment stance and comfortable liquidity measures are considered a rating strength. The relatively weaker operating performance evidenced over the past two years is noted (and follows a deliberately lower pricing structure than prior years, in accordance with solvency management). This is, however, viewed in context of management’s demonstrated ability to appropriately manage both an older member risk profile and an increasing private sector member component.
The scheme historically displayed a highly competitive relative non-healthcare cost structure and thus management will need to ensure that the cost efficiencies previously realised ensue in the absence of the self-administration model going forward (as an element of execution risk is implied). Note is also taken of other potential benefits that may be derived under the new framework, as the administrator seeks to deliver greater scale efficiencies and develop complementary add-on products and services for members’ interests. Cognisance is taken of the stabilisation of membership levels in F13, and while the scheme’s average age profile continues to track above industry averages, the relative improvement displayed over the past two years is positively viewed.
The rating could positively benefit from the consistent generation of robust net surpluses (aided by a favourable member age profile through demonstrated growth and a sustainable containment of relative claims), whilst key liquidity and solvency measures should trend above historical levels. Conversely, downward rating pressure could emanate from a severe and persistent deterioration in Medihelp’s financial performance against expectations, including a considerable weakening of key liquidity and solvency measures.
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NATIONAL SCALE RATINGS HISTORY
Initial rating (Mar/2000)
Claims paying ability: A+(ZA)
Last rating (Jun/2013)
Claims paying ability: AA-(ZA)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes (April 2014)
Medihelp rating reports 2000-2013
Medical Schemes Bulletin 2003-2013
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.
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/s 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(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), full year budgeted financial statements for 2014, year-to-date management accounts to April 2014. In addition, statistical and non- statistical 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.
GCR affirms Medihelp’s rating of AA-(ZA); Outlook Stable.