Global Credit Ratings has accorded the above credit rating(s) on Medshield Medical Scheme based on the following key criteria:
Medshield is an established player in the South African healthcare industry, providing cover to around 190,000 beneficiaries as at December 2012. Medshield was established in 1996, following the amalgamation of Universal, Medicaid and Medcare medical aid schemes. The scheme became self-administered effective 1 March 2009.
The scheme was placed under curatorship (effective October 2012), which is positively considered as it is anticipated to strengthen the governance structure of the scheme going forward, with no material impact on the financial condition of the scheme. In line with prior years, Medshield’s solvency is expected to remain adequate over the short to medium term, with statutory funding ratio projected to remain above GCR’s requirement for the current rating. This notwithstanding, the scheme’s capacity for reserve accumulation has been inconsistent. In this regard, the improved healthcare and net results registered for F12 are forecast to be less robust in F13. As such, the average performance of the scheme is viewed to be constrained. The delivery cost ratio remained well contained in F12 and near the review period low posted in F11, following a change to self-administration earlier in the review period. Furthermore, the delivery cost ratio is projected to remain stable in F13. Cognisance is taken of the large membership losses experienced over the past two periods, as well as for the six months to June F13, along with the high average age profile of members. In addition, the potential for further membership losses exists. Concentration risk is evidenced by the high proportion of members sourced from the scheme’s three largest brokers.
The rating could positively benefit from the consistent generation of robust net surpluses driven by the scheme’s focus on underwriting discipline. This would also need to be accompanied by membership growth and the maintenance of credit protection measures at sound levels. Conversely, downward rating pressure could emanate from severe and persistent deterioration in Medshield’s financial performance against expectations, including a weakening of key liquidity metrics and solvency measures, as well as further significant membership losses. Further, government’s longer-term objective to introduce an NHI framework in South Africa, to which the associated effect on the medical schemes industry remains uncertain, could negatively impact the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Oct/2000)|
|Claims paying ability: A(ZA)|
|Outlook: Rating watch|
|Last rating (Jul/2012)|
|Claims paying ability: AA-(ZA)|
|+27 11 784 1771|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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/RATING-SCALES-DEFINITIONS. 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.
Medshield 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/s has been disclosed to Medshield Medical Scheme with no contestation of the rating.
The information received from Medshield Medical Scheme and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, most recent year-to-date management accounts, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.