Johannesburg, 30 April 2018 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Transmed Medical Fund of BB+(ZA), with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Transmed Medical Fund (“Transmed”) based on the following key criteria:
Transmed’s earnings capacity is viewed to be limited, with the scheme registering an average net margin of -2% over the past five years. Furthermore, the annual subsidy from Transnet acts a primary determinant of the scheme’s financial performance, with fluctuating annual subsidies giving rise to earnings volatility. In this regard, the scheme’s net healthcare margin deteriorated to -7.1% in FY17 (FY16: 6.7%), following a R114m decline in the subsidy. Going forward, the higher subsidy received in FY18 (R217m) is expected to see the net healthcare margin improve to -2.1%.
The scheme’s solvency stabilised at an intermediate level, with the statutory solvency margin equating to 21% at FY17. Management’s existing business plan reflects the attainment of the regulatory minimum statutory solvency margin of 25% by FY20. Nevertheless, inherent volatility in both earnings and membership losses may cause deviations from targets (as demonstrated by the lowering in budgeted solvency to 20% in FY18), which could push out the timeframe for Transmed to reach solvency objectives. As such, the trajectory of solvency metrics relative to annual and long term targets is a key ongoing rating consideration.
Liquidity is viewed to be sound, with the scheme following a very conservative investment strategy. In this regard, cash and equivalents comprised 87% of the investment portfolio, with the net cash coverage ratio registering at a sound 3 months. This notwithstanding, the scheme’s limited cash generative capacity may cause a moderation in liquidity metrics going forward, particularly in instances of operational distress.
Transmed has experienced a material reduction in members over the review period, with the membership base reducing to 28, 811 principal members at FY17 (FY16: 33, 402). Year on year membership losses stem largely from natural attrition on the SATS pool, coupled with member migration to other big participating schemes in the employer base and employee downsizing at Transnet. Accordingly, the scheme’s membership age profile remained elevated, with the average beneficiary age equating to high 51 years at FY17. The stabilisation of the membership base represents a key rating consideration going forward.
Upward rating movement may result from the scheme managing key credit protections metrics upwards in line with the revised business plan, as well as a demonstrated track record of attained net surpluses. Downward rating pressure may arise from sustained shortfalls in annual subsidies that may result in prolonged deterioration in earnings and solvency, and/or a weakening in liquidity.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (April 2004)|
|Claims paying ability: AA-(ZA)|
|Last rating (April 2017)|
|Claims paying ability: BB+(ZA)|
|Primary Analyst||Committee Chairperson|
|Zwivhuya Mukosi||Yvonne Mujuru|
|Credit Analyst||Sector Head: Insurance Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated July 2017
Transmed Medical Fund rating reports, 2004-2017
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.
Transmed 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 Transmed Medical Fund with no contestation of the rating.
The information received from Transmed Medical Fund and other reliable third parties to accord the credit rating included:
- The unaudited 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 client, 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
|Budget||Financial plan that serves as an estimate of future cost, revenues or both.|
|Capacity||The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|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.|
|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.|
|Loss||The happening of the event for which insurance pays.|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
For a detailed glossary of terms, please click here
GCR affirms Transmed Medical Fund’s rating of BB+(ZA); Outlook Stable.