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Discovery Health Medical Scheme placed on positive outlook

26 April 2008 Discovery Health Medical Scheme

International ratings agency, Global Credit Rating Co. (“GCR”) has reaffirmed the domestic ZAR currency claims paying ability rating of Discovery Health Medical Scheme (“DHMS”) at AA (double A). In addition, the rating was placed on positive outlook. The rating is in line with the open medical schemes industry ceiling, reinforcing DHMS’s position as the most highly rated open medical scheme in South Africa.

DHMS has consistently grown membership since inception and provides cover for over 1.9 million lives, making it the largest open medical scheme in South Africa (by a significant margin). The scheme’s leading market position has afforded it with a competitive advantage in terms of bargaining power and a degree of pricing flexibility. In this regard, DHMS implemented various claims control mechanisms in F07, the effectiveness of which was demonstrated by the significant improvement in the operating result. Together with investment income, this supported a marked increase in the net surplus, to R1.1bn (including fair value gains) from R169m in F06. According to Susan Andrews of GCR, the positive outlook status was underpinned by the substantial strengthening in solvency measures. The scheme posted a noticeably improved statutory funding ratio in F07 and anticipates meeting the Medical Schemes Act’s prescribed level by the end of F08. Further support was provided by the scheme’s sizeable reserve level in absolute terms, with the members’ surplus amounting to R4.3bn at year-end F07. The conservative investment composition has maintained key liquidity measures at adequate levels.

Andrews noted, however, that medical schemes’ ratings are constrained by the heightened level of credit risk implied by the regulatory requirements applicable to them. In particular, the limited autonomy with regard to pricing and product structuring was considered.

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