Discovery gets a clean bill of health

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Marc Chadwick, sector head: insurance ratings at GCR notes that the organisation’s rating strength is impacted positively by its well-established market presence and strong market position. In this regard, DHMS reflects an estimated 54,4% share of principal membership in the open market medical scheme industry.

Low-risk profile member pool

“This is underpinned by the scheme’s strong brand recognition, coupled with members’ voluntary participation in the Vitality wellness programme. Both of these support membership retention and contribute towards improving members’ risk profiles,” says Chadwick.

DHMS’ rating is further boosted by its low-risk profile member pool, with the average principal member age, as well as the average beneficiary age, remaining stable at 44 years and 34 years respectively.

Solid reserve accumulation

Chadwick adds that DHMS’ solvency metrics, supported by solid reserve accumulation, have strengthened steadily, particularly over the last three years, with the statutory solvency margin being recorded at 26% in financial year-end (FYE) 2015.

Below industry average claims ratio

Over the past three years, DHMS has reported strong operating performances, resulting in a cumulative net surplus of R4,1 bn. This has been facilitated by a consistent below industry average claims ratio, coupled with improved cost efficiency. The operating results are expected to remain sound over the medium term.

Conservative investment strategy

Liquidity continues to be supported by a conservative investment strategy, with cash and equivalents accounting for 64% of the investment portfolio at FYE 2015. The improved solvency margin has helped to facilitate investment optimisation of the investment portfolio.

Upward adjustment unlikely

The industry rating remains capped at AA+ due the prevailing characteristics of the South African medical schemes. Due to this, an upward adjustment of DHMS’ rating is unlikely over the short to medium term.

However, downward rating pressure may arise from a severe weakening in key operating and solvency metrics or from a marked loss of membership with the 24-month rating period.