Johannesburg, 24 July 2017 — Global Credit Ratings has today upgraded the national scale claims paying ability rating assigned to Profmed to AA(ZA) from AA-(ZA), with the rating outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Profmed based on the following key criteria:
Profmed’s rating has been upgraded based on the maintenance of very strong solvency, which is expected to persist over the medium term. This has been supported by a strong level of earnings control, and consistent membership growth within the targeted risk profile. The statutory solvency margin equated to a very high 57% at FY16 (FY15: 53%; BY16: 50%). Consistent reserve build has catered for the rising membership base, enabling the scheme to maintain its solvency margin above 52% throughout the review period. Solvency is expected to remain very strong over the coming 24 months, representing a continued source of rating upliftment.
Earnings continue to be well controlled, with consistent net surpluses serving to support the scheme’s growth and solvency strategy. Over the past two years, the scheme has experienced an uptick in its claims ratio, averaging 90.3%, compared to the prior three year period average of 87.7%. Nonetheless, strong investment income has absorbed the moderation in net healthcare results, with the scheme continuing to report healthy net margins (two year average: 6.4%). The claims ratio is projected to stabilise around 91%, with investment income expected to uphold sound levels of earnings generation over the medium term.
The rating is positively impacted by the scheme’s established market presence, and consistency in the targeted membership base. Underpinned by persistently high member retention, the underlying risk pool has remained fairly stable, allowing for a degree of claims predictability, aiding in health risk management.
GCR views the member risk pool to be well entrenched within the scheme’s operational framework, facilitating a high level of earnings control. Furthermore, the continued ontake of younger members serves to offer cross subsidisation opportunities against a comparatively elevated age profile of the beneficiary pool (FY16: 40 years).
Liquidity measured at an adequate level, with the scheme’s very strong solvency affording greater flexibility in the investment portfolio, and higher exposure to non-cash assets. Accordingly, cash coverage of average claims amounted to a lower 1.6 months at FY16 (FY15: 1.9 months). This notwithstanding, liquidity is supported by the sizeable and tradable nature of the investment portfolio, with liquidity expected to be maintained at an adequate level over the medium term.
The rating is unlikely to be upgraded over the short term. Over the medium term, upward rating movement may be considered if the scheme were able to achieve a material elevation in its market profile, while maintaining very strong solvency and earnings control. Negative ratings pressure may emanate from sustained net deficits, a material reduction in solvency, or a substantial loss of members.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2014)|
|Claims paying ability: AA-(ZA)|
|Last rating (July 2016)|
|Claims paying ability: AA-(ZA)|
|Sector Head: Insurance Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Medical Schemes, updated July 2016
Profmed rating reports, 2014-2016
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.
Profmed 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 Profmed with no contestation of the rating.
The information received from Profmed and other reliable third parties to accord the credit rating included:
- The audited financial statements to 31 December 2016
- Four years of comparative audited financial statements to 31 December
- Full year budgeted financial statements to 31 December 2017
- Year to date management accounts to April 2017
- 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
|Assets||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Beneficiary||Nominated person or institution in the policy document that is entitled to receive the proceeds stated in the policy.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.|
|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.|
|Investment Income||The income generated by a company’s portfolio of investments.|
|Investment Portfolio||A collection of investments held by an individual investor or financial institution.|
|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.|
|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.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business.|
|Reserve||(1) An amount representing actual or potential liabilities kept by an insurer 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.|
|Retention||The net amount of risk the ceding company keeps for its own account.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|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.|
|Statutory||Required by or having to do with law or statute.|
|Statutory Solvency Margin||Gives an indication as to whether the minimum regulatory solvency margin is being met, based on the net statutory assets to statutory net premiums ratio.|
|Upgrade||The assignment of a higher credit rating to an insurer by a credit rating agency. Opposite of downgrade.|
For a detailed glossary of terms please click here
GCR upgrades Profmed’s rating to AA(ZA); Outlook Stable.