Johannesburg, 31 July 2018 — 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 6.5% at FY17 (FY16: 5.9%). The scheme’s principal members grew by a higher 12% to 154,181 in FY17, supported by a strong distribution network, which leverages off of group branding and cross selling initiatives and further aided by the amalgamation with Metropolitan Medical Scheme which added about 1,800 principal members to the scheme. Going forward, the scheme expects further membership growth, with total principal members projected at 162,376 in FY18.
The scheme’s consistently high membership growth has enabled the scheme to contain year-on-year ageing, with the average beneficiary age remaining stable at 33 years throughout the review period. The age profile of beneficiaries compared favourably to the open scheme industry average of 34.8 years at 3Q F17, and has contributed to a fairly well contained claims experience. The age profile is expected to remain stable over the rating horizon, which is positively viewed from a ratings perspective.
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 equated to 25.7% at FY17 (FY16: 25.6%), measuring above budgeted expectations of 25%. Solvency is budgeted to reduce to 25% in FY18, on the back of continued member growth and projected net healthcare deficit. Going forward, Momentum Health’s rating is likely to exhibit sensitivity to solvency dilution, given the scheme’s continued high membership growth targets.
The scheme’s earnings capacity is viewed to be healthy, with the net result rebounding to a surplus of R72m in FY17 (FY16: net loss of R25m). The improvement was derived from a comparatively higher average annual contribution rate increase (FY17: 12.1%; FY16: 8.8%) coupled with a favourable claims experience in FY17. In this respect, the scheme’s claims ratio registered at a lower 86% in FY17 (FY16: 88%). The claims ratio is forecast to remain stable at 86% in FY18, supported by the favourable risk profile of the membership base. 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 tradable nature of the bulk of the investment portfolio. In this respect, cash and equivalents represented 45% of the investment portfolio (FY16: 40%), with the net cash coverage ratio remaining stable at 2 months at FY17. The remainder of the investment portfolio is split between interest securities and listed equities, representing a combined 55% of the investment portfolio at FY17 (FY16: 60%).
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. Conversely, 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 2017)|
|Claims paying ability: AA(ZA)|
|Primary Analyst||Committee Chairperson|
|Zwivhuya Muvhenzhe||Vinay Nagar|
|Credit Analyst||Senior Credit Analyst|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated May 2018
Momentum Health rating reports, 2005-2017
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 2017
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2018
- Year to date management accounts to April 2018
- Other relevant documents
The rating above was solicited by, or on behalf of, the rated entity, 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.