Fedhealth’s rating placed on postive outlook

Global Credit Ratings (“GCR”) has reaffirmed Fedhealth Medical Scheme’s (“Fedhealth”) national currency claims paying ability rating at AA- (ZAR). In addition, the rating was placed on a positive outlook.

According to GCR, the positive rating outlook is a reflection of the scheme’s long standing record of achieving positive net surpluses, with a cumulative R878m added to reserves over the past 11 years. Moreover, cognisance was taken of the scheme’s efforts to contain both the operating cost structure and claims, with these relative measures maintained below the estimated industry average over the last two years.

“With a further strong net surplus projected for F12, GCR expects Fedhealth to pierce the R1bn members’ surplus mark by year-end F12. It is further noted that the scheme’s conservative investment approach was also positively considered, with key liquidity metrics reported at adequate levels.”

“Fedhealth’s statutory solvency ratio has strengthened consecutively over the past three years to register at a level in excess of the regulatory requirement. GCR, however, added that this has to some extent been driven by a loss in principal members, following the continued migration of persal members.”

“Going forward, the scheme is anticipating membership numbers to recover to pre-F10 levels, aided by the leveraging off of key strategic partnerships. Nonetheless, the scheme’s solvency position is not expected to be compromised unduly.”

In context of the scheme’s recent performance, factors that could trigger a rating upgrade include the registering of further robust net surpluses going forward, with appropriate pricing and sound claims management demonstrated. In addition, GCR expects key liquidity metrics and solvency measures to be maintained at current levels.

Conversely, according to GCR, a severe deterioration in Fedhealth’s financial performance (including a considerable weakening of key liquidity metrics and solvency measures) could impact negatively on the scheme’s rating status. Further, government’s longer-term objective to introduce an NHI framework in South Africa, to which the associated effect on the medical schemes industry remains uncertain, could bear potential downside risk to the rating.