Johannesburg, 8 October 2019 – GCR Ratings (“GCR”) has affirmed Momentum Health’s national scale financial strength (formerly claims paying ability) rating of AA(ZA), with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Momentum Health||Financial strength||National||AA(ZA)||Stable Outlook|
GCR announced that it had released new criteria for rating insurance companies in May 2019. Consequently, the rating for Momentum Health was placed ‘Under Criteria Observation’. GCR finalised the review for Momentum Health under the released Criteria for Rating Insurance Companies, May 2019. As a result, the rating for Momentum Health has been reviewed in line with the new methodology and subsequently removed from ‘Under Criteria Observation’.
Momentum Health’s national scale financial strength rating is underpinned by the scheme’s strong membership profile and moderately strong liquidity, which is partially impeded by moderation in earnings and solvency.
Momentum Health’s membership base represents a key rating strength, underpinned by relatively large scale and a favourable age profile. The scheme evidenced strong membership growth momentum over the review period, which consistently outpaced the corresponding industry average. The scheme also leverages off its affiliation with Momentum Metropolitan Holdings Limited and cross selling initiatives. Furthermore, liquidity is viewed to be moderately strong, with stressed financial assets coverage of average monthly claims registering at 4.1 months at FY18, while operational cash coverage equated to 1x.
Momentum Health reflects an intermediate level of earnings, with the net healthcare margin registering at -2% at FY18 (FY17: -0.5%). This notwithstanding, net margins have been supported by investment income, with the five-year average net margin equating to 1.3%. Moreover, the scheme has reported fairly contained and relatively stable claims ratios across the review period (five-year average claims ratio: 86%), despite implementing comparatively contained average annual contribution increases.
Solvency has reduced on the back of historically high membership growth coupled with a moderation in earnings. The scheme’s statutory solvency margin equated to 23.9% at FY18 (FY17: 25.6%), measuring below the regulatory requirement and budget, thus moderating the solvency assessment. As a result, the trajectory of solvency metrics relative to long term targets will represent a key rating consideration going forward.
The Stable Outlook reflects expectations that Momentum Health will sustain a strong membership profile over the outlook horizon, while maintaining moderately strong liquidity and adequate solvency.
Upward rating movement may result from a material improvement in earnings and solvency. Conversely, downward rating pressure may emanate from further weakening in solvency and/or earnings.
|Primary analyst||Vinay Nagar||Senior Analyst|
|Johannesburg, ZA||Vinay@GCRratings.com||+27 11 784 1771|
|Secondary analyst||Siyuan Lu||Associate Analyst|
|Johannesburg, ZA||SiyuanL@GCRratings.com||+27 11 784 1771|
|Committee chair||Susan Hawthorne||Senior Analyst|
|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, June 2019|
|GCR South African Medical Schemes Sector Risk Score, September 2019|
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A+(ZA)||Stable||March 2005|
Risk Score Summary
|Risk scores||Momentum Health|
|Country risk score||7.50|
|Sector risk score||8.00|
|Management and governance||0.00|
|Liquidity||The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory Solvency Margin||Gives an indication as to whether the minimum regulatory solvency margin is being met, based on the net statutory assets to statutory net premiums ratio.|
|Statutory||Required by or having to do with law or statute.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Momentum Health participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Momentum Health and other reliable third parties to accord the credit rating included:
- The audited financial results up to 31 December 2018
- Four years of comparative audited numbers to 31 December
- Unaudited interim results up to 31 July 2019
- Budgeted financial statements to 31 December 2019
- Other related documents.