Johannesburg, 29 July 2016 — 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 large and diverse membership base, representing a key rating strength. In this regard, total members stood at 91,947 in FY15 (FY14: 101,908), accounting for 4% of the open medical scheme industry (FY14: 4.4%). Going forward, member volumes are forecast to remain fairly stable, with management expecting a 1.3% growth rate.
Medihelp’s liquidity metrics were maintained within a strong range. In this regard, gross and net cash coverage ratios stood at 3.4 and 3.2 months respectively in FY15. Liquidity is further supported by unitised investments (totalling R526m in FY15), inclusive of which net cash coverage improves to 5.1 months. Going forward, liquidity metrics are expected to be maintained within a strong range.
Medihelp’s solvency is viewed to be strong. The statutory solvency margin registered at a healthy 30% in FY15 (FY14: 28%), having evidenced relative stability over the review period (ranging between 28% and 32%). Going forward, Medihelp’s solvency metrics are expected to be maintained within a strong range.
Medihelp exhibited a marked turnaround in performance in FY15. In this regard, higher contribution increases deployed in targeted options in FY15 (averaging 13%) facilitated an improved claims ratio of 88.5% (FY14: 93.1%; BY16: 90%). This served to stem material net healthcare losses (FY15: R1.1m). A net deficit of R84m is budgeted for FY16, which remains comparatively lower than the deficits exceeding R140m between FY12 and FY14. Accordingly, earnings capacity is viewed to be intermediate.
Concentration risk is evidenced by the high proportion of members sourced from the scheme’s largest broker. Going forward, management plans on engaging more brokers, as a means of potentially minimising this risk. The scheme’s average age of principal members remained high at 49 years in FY15 (FY14: 48 years), exceeding industry norms.
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 (June 2015)|
|Claims paying ability: AA-(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes, updated April 2015
Medihelp rating reports, 2000-2015
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 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 to December 2015
- Unaudited interim results to 30 May 2016
- Four years of comparative numbers
- Budgeted financial statements for 2016
- 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
GCR affirms Medihelp’s rating of AA-(ZA); Outlook Stable.