Sizwe gets an A+

Marc Chadwick, head of insurance ratings at ratings company, Global Credit Rating (GCR),says Sizwe’s solvency metrics were maintained within a very strong range, representing a key credit strength with continued upward trajectory for the fourth consecutive year, measuring at a very strong 48% at financial year end (FYE) 2015. Solvency metrics are expected to be maintained within a very strong range going forward, with the statutory solvency margin forecast at 46% for FYE 2016.

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The fund’s earnings capacity is expected to moderate towards an intermediate level over the rating horizon, following three years of strong to very strong financial results. Its net surplus equated to R105m in 2015, and is budgeted to lower to R25m in 2016. The reduction in earnings is expected to emanate from a rise in healthcare and non-healthcare costs. Nonetheless, earnings are expected to remain supportive of the scheme’s medium term solvency strategy.

Membership base to stabilise

Sizwe’s membership base is viewed to be moderately large. Principal members increased by 3%, to 52,317 at FYE 2015, while total beneficiaries stood at 125,366 in 2015.

“Going forward, management expects the membership base to stabilise, with a 1% growth rate forecast for 2016. This is expected to be achieved on the back of increased retention initiatives, coupled with further growth of existing employer groups,” adds Chadwick.

Liquidity metrics were maintained at intermediate levels with net cash coverage measured at two months in 2015. Liquidity is supported by a cash portion of managed funds amounting to R428m, inclusive of which, the net cash coverage ratio improves to 4,5 months. Going forward, liquidity metrics are expected to be maintained at comfortable levels, supported by healthy operational cash flow generation.

Contained level of risk

The balance of Sizwe’s investment portfolio currently exhibits a fairly contained level of risk, with the value of listed equities and bonds corresponding to 36% of the total investment portfolio at FYE 2015. This strategy is unlikely to change going forward.

“The rating could benefit over the medium term from the attainment of material increases in membership scale, facilitating an improved diversification level and member age profile. This must be coupled with the maintenance of earnings and credit protection measures at sound levels. Negative rating pressure may follow a sustained weakening in earnings capacity, solvency and liquidity measures, as well as considerable membership losses,” notes Chadwick.