GCR affirms Fedhealth Medical Scheme's rating of AA-(ZA)

11 June 2014 Marc Chadwick, GCR

Global Credit Ratings (GCR) has affirmed the national scale claims paying ability rating assigned to Fedhealth Medical Scheme (Fedhealth) of AA-(ZA); with the outlook accorded as stable.

This is according to Marc Chadwick, Head of the Insurance ratings sector at GCR, who says Fedhealth is a well-established player in the highly competitive South African open medical schemes industry claiming a 3.3% market share as at the third quarter of 2013 and covering a beneficiary pool of 147,538 by the end of 2013.

“The scheme benefits from a long standing relationship with its administrator, Medscheme, which continues to provide administrative and operational support on a day-to-day basis,” explains Chadwick.

He says the revision in the rating outlook from "Positive" to "Stable" was premised on a notable deterioration in the net healthcare result to a R55m deficit in F13 (F12: R91m net surplus), with a further net healthcare deficit forecast for F14.

“Against persistent healthy net surpluses registered in the prior three years, this points to a slight weakening in key fundamental underwriting parameters and highlights GCR's short to medium term expectation of suppressed operating performance for the scheme (stemming in part from a perceived limited potential for the rejuvenation of the underlying risk pool),” explains Chadwick.

“This notwithstanding, key credit fundamentals of the scheme remain sound and are supportive of the current rating.” As such, Chadwick says the generation of consecutive net surpluses over the review period continues to underpin reserve accumulation, translating to well above industry norm solvency metrics.

In view of the above, Chadwick says an upward adjustment of the rating remains subject to a turnaround in the net healthcare result to a surplus position and a recovery in key liquidity metrics to historic norms, whilst maintaining a strong level of solvency. “Conversely, downward rating pressure could arise from the registering of continued net healthcare deficits over the medium term, impacting adversely on reserve accumulation and giving rise to sustained liquidity pressure (with key solvency and liquidity metrics weakening significantly against historic norms),” concludes Chadwick.

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