MetAM launches innovative investment product

MetAM launches innovative investment product, targeting R20bn medical aid scheme coffers.

In a bid to increase its service offering Metropolitan Asset Managers (MetAM) has formally launched Metropolitan MedProvider, an investment product designed to maximise the return of medical aid schemes cash reserves.

MedProvider is targeting some R20bn sitting in medical schemes' cash reserves - particularly open schemes, which need additional sources of income.

Safs Narker, Group Investments Product Manager at MetAM, believes that this launch was well timed in lieu of recent tariff increases in the medical aid industry.

He indicated that recently some medical aid schemes have   announced tariff increases as high as 15%, while others announced lower increases but reduced benefits. This has once again highlighted the need for medical aid schemes to better manage their income streams and solvency ratios.

A large reason for this is that medical inflation has exceeded normal inflation, which means that medical aid schemes have faced increased costs while their income from contributions remained largely static. Open schemes also face the added pressure of more volatile membership numbers when compared to closed schemes.

This has resulted in some medical aid schemes' solvency ratio coming under pressure. A scheme's solvency ratio is the reserves expressed as a percentage of gross contribution income.  Narker says bearing this in mind, if the growth in expense exceeds that of income, the reserves will decrease and by definition the solvency ratio will decrease which may result in the fund breaching its 25% regulatory requirement. 

Narker says one of the main aims of the product is to give funds more flexibility by providing them with improved investment income to alleviate price increases being passed on to consumers.

According to MetAM research, the majority  of medical aid schemes assets  are invested in low-yielding bonds or cash.

After careful consideration, MetAM believes that there's sufficient flexibility in the Medical Schemes Act to be able to grow clients' assets at a reasonable rate, improve profitability and to reduce costs to members.

MetAM subsequently put together a successful offering for a leading medical scheme that was looking for heightened investment returns while still actively managing the equity risk/volatility within the portfolio , and has since decided to extend this offering to other schemes countrywide.

MetAM portfolio manager Nigel Sulaiman, in charge of the Metropolitan MedProvider fund, says the fund is currently invested in 37% equities, 30% bonds, 23% cash and 10% property. It aims to achieve sustainable real returns over time, while maintaining compliance with the Medical Aid Act, including stipulations such as a 40 percent limit to the equity component of the fund.

Its benchmark is CPIX plus three percent over a rolling three year period. This means that, at a minimum, it will beat medical inflation, which is currently running at eight percent. The track record of the fund has shown that it has beaten its benchmark significantly over the last three to five years.