Johannesburg, 4 July 2017 — 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’s membership base represents a key rating strength, with the scheme’s large and growing member count facilitating a very competitive market share of 5.9% in FY16. The scheme’s ability to consistently grow its membership base (FY16: 7%) at a rate well above the industry average has aided in maintaining a favourable risk pool. This is viewed to reflect the scheme’s very high level of competitiveness within its range of target market segments, which is expected to sustain very high organic growth going forward. In conjunction with a proposed amalgamation with Metropolitan Medical Scheme (which is likely to add an extra 1,800 principal members to the scheme), total principal members are anticipated to rise further to over 150,000 in FY17.
Strong membership growth has encompassed high uptake of attractive risk profiles, enabling the scheme to contain year-on-year ageing, which is viewed to have contributed to a fairly well contained claims experience, supporting the scheme’s strong credit profile. The average beneficiary age has remained stable at 33 years throughout the review period, which compares favourably to the open scheme industry average. The age profile is expected to remain relatively unchanged over the rating horizon, facilitating continued strong risk pool management and claims predictability.
GCR views Momentum Health’s solvency to be intermediate, having been fairly well managed relative to expectations (taking into consideration the strong and positive membership growth), albeit representing a source of likely rating sensitivity going forward. Statutory solvency moderated to an intermediate 27% at FY16 (FY15: 29%), with high member growth, coupled with an atypical deterioration in earnings, causing the margin to fall slightly below expectations (BY16: 28%). A further reduction to 25% is expected in FY17. This notwithstanding, solvency dilution is viewed to be partially offset by the growth in the scale of the membership base, with the effect being compounded by the stabilising impact of new members on the scheme’s total average age. Momentum’s rating is likely, however, to exhibit sensitivity to solvency dilution going forward, given the scheme’s continued high membership growth targets. Management is targeting a medium term solvency range of 25% to 28%, which GCR has factored into its forward looking assessment, representing a key rating consideration going forward.
The scheme’s earnings is viewed to have been very healthy over the bulk of the review period, adequate at present, although an additional source of potential rating sensitivity going forward. In this regard, the scheme reported a somewhat elevated claims ratio in FY16 (88%, versus an average of 84% over the prior four years). This notwithstanding, GCR views the scheme’s earnings control to be high, with the claims ratio consistently tracking below the industry average. This is viewed to reflect the favourable risk profile of the membership base, and effective claims containment measures utilised by the scheme. Consequently, and taking solvency sensitivity into account, GCR views management’s bottom line control, with respect to achieving net results in line with strategic targets, to be a primary consideration over the rating horizon.
Liquidity is viewed to be adequate, supported by the fairly tradable nature of the investment portfolio. Following the channelling of interest securities into money market instruments, cash and equivalents comprised a higher 40% of the investment portfolio (FY15: 25%), with the net cash coverage ratio improving to 2 months at FY16 (FY15: 1 month). Liquidity is expected to remain adequate, as no material change in the investment strategy is envisaged over the short term.
An upward rating adjustment may emanate from a sustained material increase in membership over the medium term, coupled with a strengthening in key liquidity and solvency metrics. Downward rating pressure primarily pertains to solvency and earnings registering below targets.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (March 2005)|
|Claims paying ability: A+(ZA)|
|Last rating (June 2016)|
|Claims paying ability: AA(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated July 2016
Momentum Health rating reports, 2005-2016
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.
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:
- The audited financial statements to 31 December 2016
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2017
- Year to date management accounts to May 2017
- Other relevant documents
The rating above was 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
|Beneficiary||Nominated person or institution in the policy document that is entitled to receive the proceeds stated in the policy.|
|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.|
|Experience||A term used to describe the relationship, usually expressed as a percent or ratio, of premiums to claims for a plan, coverage, or benefits for a stated time period.|
|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.|
|Interest||Money paid for the use of money.|
|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.|
|Pool||An organisation of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.|
|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|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Securities||Various instruments used in the capital market to raise funds.|
|Short Term||Current; ordinarily less than one year.|
|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.|
For a detailed glossary of terms please click here
GCR affirms Momentum Health’s rating of AA(ZA); Outlook Stable.