Johannesburg, 31 July 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Profmed of AA(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Profmed based on the following key criteria:
Profmed’s rating is underpinned by the scheme’s very strong solvency. In this respect, the statutory solvency margin peaked at 57% at FY16 (supported by non-recurring realised gains), before normalising to 53% at FY17, and is budgeted at 51% in FY18. The scheme strategically manages statutory solvency at very strong levels to cater for potential claims shocks, and targets a range of between 48% and 52%. Accordingly, GCR expects solvency to continue to register at very strong levels over the outlook horizon, supported by consistent reserve build in line with membership growth.
Earnings continue to be well controlled, supporting GCR’s view of a well-managed risk pool, with pricing and benefit design catering for the elevated age profile of the membership base. In this regard, after increasing slightly to 90% in FY15 (FY14: 87%; FY13: 88%), the claims ratio has stabilised at between 90% and 91% in subsequent years. Net earnings have been underpinned by realised investment income, which has assisted in cushioning the impact of net healthcare deficits over the past three years. Accordingly, GCR expects the scheme to continue to generate net surpluses, albeit at thinner margins relative to earlier review years.
Liquidity metrics continued to register at an intermediate level over the past three years from the strong levels displayed at the start of the review period. GCR’s assessment of the scheme’s overall liquidity profile nevertheless considers the tradeable nature of financial assets, which are viewed to provide additional liquidity support under a stressed scenario. Furthermore, the scheme’s very strong solvency is considered to allow for greater flexibility in the investment portfolio.
Profmed’s market share is fairly modest, with an estimated 2% share of closed scheme principal members in FY17. However, the rating considers the scheme’s established market presence, and consistency in the targeted membership base. In this respect, the profile of the underlying risk pool is fairly stable, supported by high levels of member retention and successful execution of the growth strategy. Furthermore, GCR views the member risk pool to be well entrenched within the scheme’s operational framework, while continued on-take of younger members serves to offer cross subsidisation opportunities against a comparatively elevated beneficiary age profile (FY17: 41 years).
Upward rating movement may be considered over the medium term if the scheme were able to achieve a material elevation in its market profile, while maintaining very strong solvency and earnings control. Conversely, negative rating action may follow a revision in strategic reserve management that results in sustained net deficits and a material reduction in solvency.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2014)|
|Claims paying ability: AA-(ZA)|
|Last rating (July 2017)|
|Claims paying ability: AA(ZA)|
|Primary Analyst||Committee Chairperson|
|Susan Hawthorne||Yvonne Mujuru|
|Senior Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes, updated May 2018
Profmed rating reports, 2014 – 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.
Profmed 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 Profmed with no contestation of the rating.
The information received from Profmed and other reliable third parties to accord the credit rating included:
- 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
- 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
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Beneficiary||Nominated person or institution in the policy document that is entitled to receive the proceeds stated in the policy.|
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|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 Income||The income generated by a company’s portfolio of investments.|
|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.|
|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.|
For a more detailed glossary of terms, please click here
GCR affirms Profmed’s rating of AA(ZA); Outlook Stable