Announcements

GCR upgrades Momentum Health’s rating to AA(ZA); Outlook Stable

Johannesburg, 30 June 2015 — Global Credit Ratings has upgraded the national scale claims paying ability rating assigned to Momentum Health to AA(ZA), with the rating outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Momentum Health based on the following key criteria:

Momentum Health’s entrenched position in the domestic open medical schemes industry continues to be underpinned by strong compound annual membership growth over the review period, which significantly outpaced the corresponding industry trajectory in a very competitive environment. This has seen its competitive position strengthen consistently in recent years, which is viewed positively in the context of the scheme’s overall rating profile. Impetus in this regard is derived from a high degree of benefit stability, cover flexibility (enhanced by the availability of auxiliary features) and the voluntary membership in the Multiply rewards programme. Combined, these features contribute to a high degree of member retention and help attract young, favourable risk profiles.

Earnings capacity is viewed as a rating strength, with the scheme posting consecutive net healthcare surpluses over the review period. This is attributable to a consistent below industry average claims ratio and relatively stable delivery cost base. The anticipated adherence to operational disciplines underlying this trajectory serves to support GCR’s view of cross cycle earnings generation and a high degree of budget attainment going forward.

Supported by sustained healthy net surpluses, the scheme’s member surplus advanced by a compound annual growth rate of 23% over the review period. This accelerated degree of reserve accumulation and the associated upward trajectory in key solvency metrics of late (in execution of management’s solvency strategy) is viewed as a key factor supporting the scheme’s rating. Management remains committed to maintaining a reasonable discretionary buffer over the required statutory solvency minimum of 25%. Further, the commitment to a conservative investment strategy (with invested assets held exclusively in cash or low risk money market instruments) underpins key liquidity metrics at strong levels and supports predictability in investment income. Over the short to medium term, no material variation in the investment stance is envisaged.

An upward rating adjustment remains subject to a sustained material increase in membership over the medium term, coupled with the maintenance of key solvency and liquidity metrics at levels closely aligned to recently displayed norms. Conversely, downward rating pressure may emanate from a sustained large scale loss in membership and the registering of consecutive operating deficits over the medium term, resulting in a material deterioration in key credit protection metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (March 2005)

Claims paying ability: A+(ZA)

Outlook: Stable

Last rating (June 2014)

Claims paying ability: AA-(ZA)

Outlook: Positive

ANALYTICAL CONTACTS

Primary Analyst

Benjamin Schmidt

Senior Analyst: Insurance

(011) 784-1771

schmidt@globalratings.net

Committee Chairperson

Marc Chadwick

Sector Head: Insurance Ratings

(011) 784-1771

chadwick@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Medical Schemes, updated April 2015

Momentum Health rating reports, 2005-2014

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 ratings are for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Momentum Health 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 Momentum Health with no contestation of the rating.

The information received from Momentum Health and other reliable third parties to accord the credit rating(s) included audited annual financial statements for 2014 (plus four years of comparative numbers), detailed full year financial projections for 2015, most recent year to date management accounts to 28 February 2015, as well as other non-public, rating-relevant information.

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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Assets The items on the balance sheet of the medical scheme which show the book value of property owned. Under regulations, not all property or other resources may be admitted in the statement of the insurer. This gives rise to the term ‘non-admitted assets.’
Balance Sheet An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.
Benefits Financial reimbursement and other services provided covered by medical schemes under the terms of an insurance contract. An example would be the benefits listed under a Life or Health Insurance policy or benefits as prescribed by a Workers Compensation law.
Bond A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.
Claim A request for payment of a loss, which may come under the terms of an insurance contract.
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 insurance.
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 insurance 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. For example, common stock market value would be the price of the stock as of a specified date. See also Actual Cash Value.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.
Portfolio All of the medical scheme’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by a medical scheme.
Provision A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.
Reserve (1) An amount representing actual or potential liabilities kept by a medical scheme to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.
Risk (1) Uncertainty as to the outcome of an event when two or more possibilities exist. See also Pure Risk and Speculative Risk. (2) A person or thing insured. Contrast with Hazard and Peril.
Securities Evidences of a debt or of ownership, as stocks, bonds, and checks.
Solvency With regard to medical schemes, 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.
Statutory Required by or having to do with law or statute.
Surplus The excess of assets over liabilities. Statutory surplus is a medical scheme’s capital as determined under statutory accounting rules. Surplus determines a medical scheme’s capacity to write business responsibility for only that portion of any risk, which exceeds the company’s established retentions.
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 detailed glossary of terms utilised, please click here

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