Announcements

GCR maintains Transmed’s rating at BB+(ZA)

GCR has maintained Transmed Medical Scheme’s (“Transmed”) claims paying ability rating at BB+(ZA) (double B plus), with an Evolving Outlook. This follows the downgrade from BBB(ZA) (triple B) in 4Q 2011.

Following the comprehensive restructuring of benefits, as well as the revised funding structure provided by Transnet for the 2010 benefit cycle, a marked turnaround in the financial performance of the South African Transport Services (“SATS”) risk pool has been evidenced over the last two years. This notwithstanding, the scheme continues to evidence an erosion in its reserve position. This is attributable to the large and increasing net deficits registered by the Transnet Working Members and Pensioners (“TWMP”) risk pool over the last few years, which has placed further financial strain on the scheme as a whole. Cognisance is, however, taken of the more stringent risk management initiatives implemented in an attempt to reverse the negative trend. Overall, the scheme posted a net deficit of R36m in F11 (F10: R190m net deficit), slightly less than the revised budgeted deficit of R46m for the year.

Transmed’s statutory solvency margin fell to a review period low of 9.5% at December 2011, which remains well below the minimum regulatory requirement of 25%. In response, management has implemented a number of corrective measures for the 2012 benefit cycle, with a view to restoring the statutory solvency margin to the required regulatory minimum by December 2014 (in line with the business plan). This notwithstanding, should the TWMP pool fail to show a sustainable financial improvement (particularly in the event that the SATS risk pool is removed from the scheme), the risk of not meeting this target remains high. As such, the rating will be monitored on a quarterly basis.

Going forward, a demonstrated and consistent reduction in Transmed’s overall claims ratio to a level that would facilitate a sustainable improvement in the net surplus over the medium term, and in turn allow for the rebuilding of reserves and solvency, would support a rating upgrade. Further negative rating actions may occur in the event of a sustained deterioration in the claiming experience of the TWMP risk pool (despite the recent implementation of the more stringent risk management practices), which would further erode the reserve base and consequently solvency and key credit protection metrics of the scheme.

Trevor Barsdorf.

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