Johannesburg, 1 July 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Momentum Health of AA(ZA), with the rating outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Momentum Health based on the following key criteria:
Momentum Health is viewed to have a very strong competitive position, having consistently grown its market share throughout the review period. In this regard, following continued robust membership growth (FY15: 11%; CAGR: 8%), the scheme accounts for approximately 5.5% of total open scheme principal members. The scheme’s capacity to achieve growth rates in excess of market averages is viewed favourably in the context of the highly competitive operating landscape.
The strength of the membership base is underpinned by its large scale, favourable age profile, and high levels of member retention. The scheme’s total membership base grew to 248,172 in FY15, reflecting a low average age of 32.7 years (supported by high new member intake). Further, member profile consistency and retention is viewed to be aided by cover flexibility and the voluntary membership of the Momentum Multiply wellness and rewards programme.
Solvency has been maintained within a moderately strong range over the past four years, supported by high cumulative net surpluses (totalling R548m over the review period). The statutory solvency margin registered at 29% in FY15. Management is targeting a slightly lower solvency margin in the region of 27.5% over the rating horizon, providing for the absorption of growth in excess of expectations, while also catering for pricing competitiveness.
Momentum Health’s earnings capacity is viewed to be sound, and aligned with reserve management objectives. The review period average healthcare margin (2.8%) has been supported by a well contained claims ratio (positively impacted by strong claims management) that has persistently tracked below the industry average. The scheme’s medium term solvency target is expected to be sustained by the healthy net margin projected in FY16 (2.2%), albeit that the margin remains comparatively subdued relative to the very high review period average of 4.4%.
Momentum Health is viewed to reflect adequate liquidity. The scheme’s sizeable investment portfolio (stable at R1.3bn in FYE15) is viewed to facilitate the absorption of claims pressures, with the total portfolio covering average monthly net claims by 6 months in FY15 (FY14: 6.7 months). The tradable and highly diversified nature of managed funds (FY15: R971m) serves to partially offset market risk exposure, and consequently is viewed to provide material liquidity support. In terms of the latter, the scheme’s asset allocations differ from those typically evidenced by the market, in that relatively limited balances are retained in cash and money market instruments. Accordingly, the scheme’s cash coverage of average claims (FY15: 0.8 months) is notably subdued relative to peers.
An upward rating adjustment may emanate from a sustained material increase in membership over the medium term, coupled with a strengthening in key liquidity metrics while maintaining strong levels of solvency. Downward rating pressure may emanate from a sustained large scale loss of membership and the registering of consecutive operating deficits over the medium term, resulting in a material deterioration in key credit protection metrics.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2005)|
|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 Medical Schemes, updated April 2015
Momentum Health rating reports, 2005-2015
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.
Momentum Health 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 Momentum Health with no contestation of the rating.
The information received from Momentum Health and other reliable third parties to accord the credit rating included:
- Audited financial results to 31 December 2015
- Four years of comparative numbers
- Unaudited interim results to 31 March 2016
- Budgeted financial statements for 2016
- Other related documents
The ratings above were 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
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|Market Risk||Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Rating Horizon||The rating outlook period|
|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.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|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||Required by or having to do with law or statute.|
|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.|
GCR affirms Momentum Health’s rating of AA(ZA); Outlook Stable.