Announcements

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

Johannesburg, 29 July 2014 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Medshield of AA-(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

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

The placement of Medshield under curatorship is positively considered, as it is anticipated to strengthen the governance structure of the scheme going forward. This view takes cognisance of the absence of any material negative impact on the financial condition of the scheme stemming from the underlying causes for the curatorship. Note is taken of the large membership losses experienced over the past two periods, along with the high average age profile of members. In addition, the potential for further membership losses exists.

The delivery cost ratio remained well contained in F13 and near review period lows of 11% posted in F11. This follows a change to self-administration of the scheme earlier in the review period, coupled with very well contained operating expenditure in F13 (expected to persist into F14). In conjunction with a manageable claims ratio, this has allowed for two consecutive net healthcare surpluses (albeit evidencing some volatility). Solvency has remained robust, with the statutory solvency margin averaging a very high 49% over the past two years. This represents a key credit strength, with solvency expected to remain strong over the near term. Medshield’s investment strategy continues to support sound liquidity metrics. Note is, however, taken of the equity and corporate bond exposure, which amounts to 50% of the members’ surplus as at FYE13, giving rise to a moderate level of market risk exposure.

An upward movement in the rating could materialise 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. Downward movement in the rating would emanate from a considerable weakening of key profitability metrics and solvency measures, as well as further significant membership losses.

For a detailed glossary of terms utilised in this announcement please click here

NATIONAL SCALE RATINGS HISTORY

Initial rating (August 2005)
Claims paying ability: A+(ZA)
Outlook: Stable

Last rating (August 2013)
Claims paying ability: AA-(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Marc Chadwick
Sector Head: Insurance
(011) 784-1771
Chadwick@globalratings.net

Secondary Analyst
Thato Modungoa
Junior Analyst
(011) 784-1771
Modungoa@globalratings.net

Committee Chairperson
Eyal Shevel
Sector Head: Corporate Ratings
(011) 784-1771
Shevel@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Medical Schemes (April 2014)
Medshield rating reports, 2005-2013
Medical Schemes Bulletin, 2003-2013

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.

Medshield 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 with no contestation of the rating.

The information received from Medshield and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements for 2014, unaudited year-to-date management accounts to March 2014, reserving methodologies and members’ surplus policies, and other documentation related to the rating exercise.

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 Medshield’s rating of AA-(ZA); Outlook Stable.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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