Johannesburg, 2 Apr 2014 — Global Credit Ratings has today downgraded the national scale claims paying ability rating assigned to Liberty Medical Scheme to A+(ZA); with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) to Liberty Medical Scheme based on the following key criteria:
Liberty Health Medical Scheme was established in January 2002. On 1 January 2010, the scheme amalgamated with Medicover Medical Scheme and re-branded as Liberty Medical Scheme (“LMS”). LMS remains one of the larger players in the open medical schemes industry. LMS is administered by VMed Administrators (Pty) Ltd, which ultimately forms part of the greater Liberty Group.
The rating takes cognisance of the persistent large net deficits recorded over the review period (barring F11), with this trend expected to ensue in F14. This in turn has placed downward pressure on statutory solvency of late, which dipped marginally below the minimum regulatory requirement of 25% in F13. This measure is expected to comply with the minimum requirement only by F18 (in the absence of any mergers), although management’s corrective efforts to address this have been considered. Note is also taken of the consecutive membership losses evidenced over the past three years (albeit largely from the persal component) and the scheme’s aged membership profile. In this regard, achieving sustainable and meaningful organic growth in new members remains a key challenge. While LMS’s low-risk investment stance was favourably considered, liquidly metrics continue to track somewhat behind industry norms.
An upward movement of the rating could develop from a demonstrated ability to generate consistent robust net surpluses (driven by the scheme’s focus on underwriting discipline and maintaining cost efficiencies). This would also need to be accompanied by enhanced liquidity measures and adequate solvency levels. Conversely, downward rating pressure could emanate from a severe and persistent deterioration in the scheme’s financial performance against expectations, including a considerable weakening of key liquidity metrics and solvency measures, as well as further significant membership losses.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Jun/2004)
Claims paying ability: A(ZA)
Last rating (Jun/2013)
Claims paying ability: AA-(ZA)
Rating Watch: Yes
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR’s Global Master Criteria for Rating Medical Schemes
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Liberty 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 Liberty Medical Scheme with no contestation of the rating.
The information received from Liberty Medical Scheme and other reliable third parties to accord the credit rating included the latest available unaudited draft annual financial statements for 2013, full year detailed budgeted financial statements for 2014, 5-year statutory solvency projections and the 2014 contribution and benefit review report. In addition, statistical information specific to the rated entity and/or industry was also 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.
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