Discovery Health Medical Scheme retains AA+(za) rating

11 June 2013 Benjamin Schmidt, Global Credit Ratings

Global Credit Ratings (“GCR”) has maintained the claims paying ability rating of Discovery Health Medical Scheme (“DHMS”) at AA+(ZA) (double A plus). This is the highest rating accorded to a medical scheme in South Africa by GCR, with DHMS being the only

According to Benjamin Schmidt (Insurance analyst at GCR), the rating was based on DHMS’s favourable position as the market leader in the South African open medical schemes arena, accounting for an unrivalled 51% of all principal members covered at year-end 2012.

Furthermore, Schmidt added that the rating is underpinned by the scheme’s comprehensive product offering and effective utilisation of the voluntary Vitality wellness programme, contributing to persistent member growth and high levels of client retention. In addition, the strong degree of capital accumulation exhibited was favourably viewed, with a collective R6.8bn in reserves generated over the past decade. Whilst the scheme’s statutory solvency margin has trended within a narrow band over the review period, note is taken of the fact that the level currently displayed plots below the minimum regulatory requirement. Full compliance in this regard is anticipated by FYE15 (in line with the business plan approved by the CMS),” explains Schmidt.

Schmidt further stated that aided by ongoing claims management initiatives and a continued refinement of its risk management procedures, DHMS has managed to persistently contain its claims ratio below the industry mean, with net healthcare surpluses registered in 3 of the last 5 years under review.

“In addition, the absolute size of the investment portfolio and the conservative investment strategy applied are supportive of sound key liquidity metrics and stable investment earnings. Going forward, no material change to the investment strategy is anticipated,” says Schmidt.

Schmidt concludes by saying that the diversification benefits derived from the scale of the scheme have served to contain client and broker concentration at desirable levels, with similar levels expected to be displayed going forward.

According to Discovery Health Medical Scheme Principal Officer Milton Streak, the AA+(ZA) credit rating has once again validated the position of the scheme in the private healthcare industry. “In an environment where the majority of medical schemes in South Africa are shrinking, the Discovery Health Medical Scheme continues to go from strength to strength. The AA+(ZA) rating is evidence of its sound financial management, continuous best practice governance and effective risk management, which underpin the performance of the scheme and ensure its long-term sustainability,” Streak said.

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