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Medical Schemes
Friday, June 1, 2007
New income sources

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

The company hopes to attract some of the estimated R20 billion it believes is sitting in medical schemes’ cash reserves - particularly open schemes, which need additional sources of income.
Safs Narker, Group Investments Product Manager at Metam, believes the launch is well timed in view of recent tariff increases in the medical aid industry. Recently some medical aid schemes have announced increases of as high as 15%, while others have reduced benefits albeit with lower rate increases. “This has once again highlighted the need for medical aid schemes to improve the way they manage their income streams and solvency ratios.”
The main reason for contribution rate increases vastly exceeding the rate of inflation stems from the fact their income from members overall has remained fairly static in the face of rapidly rising medical costs. 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 ratios coming under severe pressure. A scheme’s solvency ratio is its 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. This may result in the fund breaching its 25% regulatory requirement.
Narker says one of the main aims of the Metropolitan 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 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. The company has since decided to extend this successful blueprint to other schemes nationwide.
The Metropolitan MedProvider 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 Schemes Act, including stipulations such as a 40% limit to the equity component of the fund.
Its benchmark is CPIX plus 3% over a rolling three year period. This means that, at a minimum, it will beat medical inflation, which is currently running at 8%.
 

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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