Announcements Insurance Medical Scheme Rating Alerts

GCR affirms Medshield Medical Scheme’s national scale financial strength rating of AA-(ZA); Outlook Stable

Rating action

Johannesburg, 13 August 2021 – GCR has affirmed Medshield Medical Scheme’s (“Medshield”) national scale financial strength rating of AA-(ZA), with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Medshield Medical Scheme Financial strength National AA-(ZA) Stable Outlook

Rating rationale

Medshield’s rating balances its strong financial profile with a relatively limited membership profile. The financial profile is driven by strong liquidity and capitalisation, which increased on the back of the significant net surplus registered during the review year, in line with industry experience. The membership profile remained moderate, characterised by a high average member age and moderate market share.

Earnings registered a boost in FY20 as a result of reduced claims in the market due to the impact of the Covid 19 pandemic which resulted in reduced non-essential benefit utilisation. Consequently, the scheme’s claims ratio registered at 79% in FY20 from 90% in FY19. The net healthcare result was positive at R396m in FY20 (FY19: -R5m) with the three-year net healthcare margin averaging 1.9%. Investment income reduced by 8.6% in FY20 but the scheme achieved a net surplus of R509m from R119m in FY19. Going forward earnings are expected to moderate from the FY20/ 1H FY21 levels but to remain positive in the medium term with the implementation of enhanced claims and cost management.

Capitalisation strengthened on the back of higher earnings, with the statutory solvency ratio registering at 53% at FY20 (FY19: 40%). Going forward, the scheme’s capitalisation is expected to remain high, with potential moderation in the medium term given an expected increase in benefit utilisation. We nevertheless expect the statutory solvency ratio to remain comfortably above 40% as membership growth remains difficult in the current operating environment.

Liquidity is viewed to be strong, with cash and stressed financial assets coverage of gross claims registering at a higher 7.9 months at FY20 (FY19: 5.6 months) and operational cash coverage equating to 1.1x, underpinned by lower claims experience. Liquidity is expected to remain at strengthened levels as management aim to maintain the current asset allocation and earnings are expected to be positive.

The scheme experienced a 5.3% loss in membership in FY20 as a consequence of the adverse economic impact of the pandemic, although the market share was stable at 3% of the open schemes market. The profile exhibits a relatively high average beneficiary age and high pensioner ratio. This is partially offset by fair membership diversification across individuals, employer groups and regions despite exposure to intermediary concentration. Going forward, material improvement in the overall membership profile is unlikely given the current economic environment, coupled with increasing competitive dynamics in the open market.

Outlook statement

The Stable Outlook reflects expectations that the scheme will maintain strong solvency and liquidity, providing sufficient buffers to absorb an expected increase in claims utilisation and dilution in earnings beyond FY21. Meanwhile, the membership profile will likely be largely unchanged as economic challenges limit growth potential in the market.

Rating triggers

The rating may be upgraded following sustained strength in liquidity and capitalisation. Conversely, a weakening in earnings could result in negative rating action if this leads to weaker than expected liquidity and solvency.

Analytical contacts

Primary analyst Victor Matsilele Analyst: Insurance Ratings
Johannesburg, ZA VictorM@GCRratings.com +27 11 784 1771
Secondary analyst Fleur Ngassa Analyst: Insurance Ratings
Johannesburg, ZA MarlaineN@GCRratings.com +27 11 784 1771
Committee chair Susan Hawthorne Senior Analyst: Insurance Ratings
Johannesburg, ZA SusanH@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, August 2021
GCR South African Medical Schemes Sector Risk Score, April 2021

Ratings history

Medshield Medical Scheme

Rating class Review Rating scale Rating class Outlook/Watch Date
Claims paying ability Initial National A+(ZA) Positive Outlook August 2005
Financial strength Last National AA-(ZA) Stable Outlook July 2020

Risk score summary

Rating components & factors Risk scores
Operating environment 14.75
Country risk score 7.00
Sector risk score 7.75
Business Profile (1.25)
Membership profile (1.25)
Management and governance 0.00
Financial profile 2.25
Earnings (0.25)
Capitalisation 1.25
Liquidity 1.25
Comparative profile 0.00
Peer analysis 0.00
Total score 15.75


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