Johannesburg, 5 May 2014- Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Resolution Health Medical Scheme of BBB-(ZA); with the outlook accorded as stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Resolution Health Medical Scheme based on the following key criteria:
Resolution Health Medical Scheme (“Resolution”) was registered in April 1998, and whilst it historically provided medical coverage mainly to government members, the private sector membership component has grown robustly over recent years. The scheme is administered by Agility Global Health Solutions (Africa).
The rating takes cognisance of Resolution’s significantly improved financial performance for F13. To this end, following the large net healthcare deficits reported in the preceding two years, the scheme registered a net healthcare surplus of R15m in F13. This stemmed from various corrective measures implemented, most notably the appropriate re-pricing of options to better align to claims experience. This positive trend is deemed sustainable, with the F14 budget projecting the scheme to achieve a further net surplus. Accordingly, the financial turnaround has supported the scheme’s reserve levels and in turn statutory solvency, which was recorded at a higher 8% as at FYE13 (FYE12: 6%). Management’s longer term business plan indicates statutory solvency to continue to improve year-on-year (F14 budget: 12%) with regulatory compliance anticipated to be achieved by FYE18. While Resolution’s conservative investment stance was favourably considered, liquidity metrics remain very low compared to industry norms. Cognisance was taken of the notable loss in principal members evidenced in F13, with further net outflows anticipated for F14. Despite this, Resolution’s age profile remains favourable, with management remaining committed to ensuring retention and growth in key member segments through effective utilisation of its member loyalty and employer stakeholder programmes.
An upward movement of the rating could develop from the consistent generation of net surpluses (driven by the scheme’s focus on underwriting discipline), underpinning enhanced capital reserves and associated key credit protection metrics. Negative rating pressure could emanate from a sharp deterioration in the scheme’s financial performance against expectations, and/or a considerable weakening of key liquidity metrics and solvency measures.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2004)
Claims paying ability: A-(ZA)
Last rating (May/2013)
Claims paying ability: BBB-(ZA)
Rating Watch: Yes
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Criteria for Rating Medical Schemes.
Resolution Health Medical Scheme (“Resolution”) rating reports 2004-2013.
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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.
Resolution Health Medical Scheme 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/s has been disclosed to Resolution Health Medical Scheme with no contestation of the rating.
The information received from Resolution Health Medical Scheme and other reliable third parties to accord the credit rating(s) included the 2013 audited annual financial statements, full year detailed budgeted financial statements for 2014, unaudited management accounts to February 2014, 5 year statutory solvency projections and the 2014 contribution and benefit review report. In addition, other non-public statistical information specific to the rated entity and/or industry was received.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR affirms Resolution Health Medical Scheme’s rating of BBB-(ZA); Outlook Stable.