Johannesburg, 16 August 2016 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Sizwe Medical Fund of A+(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Sizwe Medical Fund (“Sizwe”) based on the following key criteria:
Sizwe’s solvency metrics were maintained within a very strong range, representing a key credit strength. Sizwe’s solvency metrics continued on an upward trajectory for the fourth consecutive year, measuring at a very strong 48% at FYE15 (FYE14: 46%). Solvency metrics have been supported by very robust reserve accumulation over the past three years, with the members’ surplus amounting to a review period high of R1.1bn at FYE15 (FYE14: R991m). Solvency metrics are expected to be maintained within a very strong range going forward, with the statutory solvency margin forecast at 46% for FYE16.
Sizwe’s earnings capacity is expected to moderate towards an intermediate level over the rating horizon, following three years of strong to very strong financial results. The scheme’s net surplus equated to R105m in FY15, and is budgeted to lower to R25m in FY16 (compared to the very high surpluses in excess of R200m in the prior two years). The reduction in earnings is expected to emanate from a rise in healthcare and non-healthcare costs. Nonetheless, earnings are expected to remain supportive of the scheme’s medium term solvency strategy.
Sizwe’s membership base is viewed to be moderately large. Principal members increased by 3%, to 52,317 at FYE15, while total beneficiaries stood at 125,366 in FY15 (FY14: 50,692 and 120,005 respectively). Going forward, management expects the membership base to stabilise, with a 1% growth rate forecast for FY16. This is expected to be achieved on the back of increased retention initiatives, coupled with further growth of existing employer groups.
Liquidity metrics were maintained at intermediate levels. Net cash coverage measured at 2 months in FY15 (FY14: 2.6 months). Liquidity is supported by a cash portion of managed funds amounting to R428m, inclusive of which, the net cash coverage ratio improves to 4.5 months (FY14: 4.9 months). Going forward, liquidity metrics are expected to be maintained at comfortable levels, supported by healthy operational cash flow generation.
The balance of Sizwe’s investment portfolio currently exhibits a fairly contained level of risk, with the value of listed equities and bonds corresponding to 36% of the total investment portfolio at FYE15 (and 39% of the members’ surplus). This strategy is unlikely to change going forward.
The rating could benefit over the medium term from the attainment of material increases in membership scale, facilitating an improved diversification level and member age profile. This must be coupled with the maintenance of earnings and credit protection measures at sound levels. Negative rating pressure may follow a sustained weakening in earnings capacity, solvency and liquidity measures, as well as considerable membership losses.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (July 2015)|
|Claims paying ability: A+(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating South African Medical Schemes, updated April 2015.
Sizwe Medical Fund rating report 2015.
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Accumulated funds||An amount representing the accumulation of historical and current net surpluses and deficits, held for the benefit of members and their dependants|
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Balance Sheet||Also known as a Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Benefits||Financial reimbursement and other services provided covered by medical schemes under the terms of a medical scheme plan.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Claim||A request for payment of a loss, which may come under the terms of a medical scheme plan.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by a medical scheme to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of a medical scheme plan.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of a medical scheme to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which a medical scheme pays.|
|Market Value||The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions.|
|Members’ surplus||Accumulated funds plus revaluation reserves.|
|Portfolio||The total securities owned by a medical scheme.|
|Provision||A technical reserve of a medical scheme established to provide for the future liability for claims which have occurred but which have not yet been settled.|
|Risk||(1) Uncertainty as to the outcome of an event when two or more possibilities exist. (2) A person or thing covered by a medical scheme.|
|Securities||Evidences of a debt or of ownership, as stocks, bonds, and checks.|
|Solvency||Reserves (accumulated funds or members’ surplus) expressed as a percentage of contributions (gross or net).|
|Statutory||Required by or having to do with law or statute.|
|Term||The period of time for which a policy or bond is issued.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
For a more detailed glossary of terms utilised, please click here
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.
Sizwe Medical Fund 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 Sizwe Medical Fund with no contestation of the rating.
The information received from Sizwe Medical Fund and other reliable third parties to accord the credit rating included:
- Audited annual financial statements to 31 December 2015 4 years of comparative audited numbers
- Unaudited interim results to 30 April 2016
- Budgeted financial statements for 2016
- Other related 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.
GCR affirms Sizwe Medical Fund’s rating of A+(ZA); Outlook Stable.