Johannesburg, 1 September 2020 – GCR has affirmed Momentum Medical Scheme’s (“Momentum”) national scale financial strength rating of AA(ZA), with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook/Watch|
|Momentum Medical Scheme||Financial strength||National||AA(ZA)||Stable Outlook|
The rating action follows a reduction in the South African country and medical scheme sector risk assessments.
The South African country risk score was lowered to 7.0 from 7.5 previously, in a market alert released on 27th May 2020. Click here to access the link. On 14th July 2020, the South African medical schemes sector risk score was also lowered to 7.75 from 8.00 previously. Click here to access link.
Combined, the above country and sector risk scores comprise the operating environment score, which is a key input into GCR’s ratings.
Momentum’s national scale financial strength rating reflects a strong membership profile and intermediate financial profile underpinned by moderately strong liquidity, coupled with intermediate earnings and capitalisation.
The membership profile has been maintained within a strong range over the review period, supported by a comparatively low beneficiary average age and pensioner ratio, together with a strong market share accounting for about 7% of the open schemes market. Furthermore, membership diversification is viewed to be a positive for the rating with the scheme’s policyholders spread across the country, dominated by individual policyholders accounting for 71% of the book in FY19 (FY18: 69%), while the largest and ten largest policyholders account for 5% and 9% respectively. Membership growth has been constrained over the past two years due to economic challenges, resulting in a stable membership profile. However, the current travel restrictions due to the COVID-19 crisis might negatively impact the scheme’s Ingwe option which is dominated by international students. As such, material improvements in the overall membership profile is unlikely going forward, given the current economic environment impacted negatively by the COVID-19 pandemic, coupled with increasing competitive dynamics in the open market. Accordingly, the scheme’s ability to sustain the membership profile over the near term will represent a key rating sensitivity.
Liquidity is viewed to be moderately strong, with cash and stressed financial assets coverage of gross claims registering at 4.4 months at FY19 (FY18: 4.0 months), while operational cash coverage was maintained at 1.0x, underpinned by conservative asset allocation. Going forward, liquidity metrics are likely to remain within a similar range due to contained claims over the rating horizon.
Earnings capacity is assessed within an intermediate range, with cognisance being taken of the net healthcare profit registered in FY19, which curbed a net healthcare deficit trend over the review period (FY19: R53m; FY18: R92m loss; FY17: R19m loss; FY16: R88m loss; FY15: R12m loss). In this regard, the net healthcare margin registered at 1% in FY19 (FY18: -2%; five-year average: -1%) supported by a slightly lower claims ratio of 84% (FY18: 87%: review period average: 86%), while net surplus amounted to R193m (FY18: R25m) attributed to robust investment income coupled with the favourable claims experience. Earnings are expected to be maintained within a similar level over the rating horizon, stemming from lower claims and constrained growth due to the COVID-19 crisis over the near term, albeit moderation expected to investment income due to market volatility.
Statutory solvency improved in FY19 supported by the net healthcare profit and low membership growth. As such, the statutory solvency registered at 26% (FY18: 24%). Going forward, the scheme’s solvency is expected to be stable due to membership growth pressures and potential moderation of the review year surplus position, considering current economic challenges.
The Stable Outlook reflects expectations that the scheme will maintain an intermediate financial profile, while a potential moderation in the membership profile is expected emanating from ongoing economic challenges resulting in a restrained market position.
The rating may be upgraded following sustained improvements in earnings and statutory solvency, while current competitive position and liquidity strengths are maintained. Conversely, a weakening in solvency and liquidity below expected levels may result in negative rating action.
|Primary analyst||Linda Matavire||Analyst: Insurance Ratings|
|Johannesburg, ZA||LindaM@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@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, May 2020|
|GCR South African Medical Schemes Sector Risk Score, July 2020|
Momentum Medical Scheme
|Rating class||Review||Rating scale||Rating class||Outlook/Watch||Date|
|Claims paying ability||Initial||National||A+(ZA)||Stable||March 2005|
|Financial strength||Last||National||AA(ZA)||Stable||October 2019|
Risk score summary
|Rating components & factors||Risk scores|
|Country risk score||7.00|
|Sector risk score||7.75|
|Management and governance||0.00|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Release||An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.|
|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.|
|Security||One of various instruments used in the capital market to raise funds.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|Spread||The interest rate that is paid in addition to the reference rate for debt securities.|
|Statutory||Required by or having to do with law or statute.|
|Upgrade||The rating has been raised on its specific scale.|
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 is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the rated party. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual 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 the entity and other reliable third parties to accord the credit rating included:
- The audited financial results to 31 December 2019
- Four years of comparative audited numbers
- Unaudited interim results up to 31 May 2020
- Budgeted financial statements for 2020
- Other related documents.